Ricochet is the best place on the internet to discuss the issues of the day, either through commenting on posts or writing your own for our active and dynamic community in a fully moderated environment. In addition, the Ricochet Audio Network offers over 50 original podcasts with new episodes released every day.
Stop Making Things!
That seems to me the message…or at least one message…of the tax/energy/economics plan introduced by Biden and supported by Joe Manchin. From the WSJ:
Evidence is emerging that the new Schumer-Manchin 15% minimum tax on corporate-book income is especially harmful to U.S. manufacturing firms. An analysis by Congress’s Joint Committee on Taxation (JCT), which is hardly a nest of supply-siders, found that 49.7% of the tax would hit U.S. manufacturers.
The book-income minimum tax would hit the accelerated depreciation in the tax code that lets businesses write off investment in, say, new factories. Wholesale trade (9.3%), retail trade (4.9%) and information (11.5%) companies would get off relatively easy by comparison.
Depreciation provisions are especially relevant to ‘thing’ businesses, those that invest in plants and equipment, because they determine the period between the time that the money is spent and the time that it can be deducted from income on their taxes.
But…but…how is that possible? Hasn’t Biden been talking about the need to provide more good manufacturing jobs (especially good union manufacturing jobs)? Hasn’t he just pushed through a bill to subsidize the chip industry, so we can make more of our semiconductor requirement domestically?
The answer to this apparent conflict is simple: Biden will indeed incentivize you to make things, but only those things he explicitly wants you to make. And this will be determined not just at the level of an industry, but at a much more detailed level. He’s made it pretty clear just how detailed:
He told business and labor leaders on a conference call that the bill’s $52 billion in grants for Intel and other chip makers would not be “a blank check to companies.” The President said he will “personally have to sign off on the biggest grants.”
So, maybe the title of this post should have been: Stop Making Things, Except Those Things We Order You to Make!
See my related post, Nancy Pelosi and I Have Something in Common.
Published in General
It is very difficult to figure out what these bills actually do. Thanks for discussion of the tax part.
Wasn’t central government control of privately owned means of production a core principle of the Nazi Party?
The logic for adding a 15% tax that will be passed onto consumers in the short term during a time when we are fighting inflation is insightful. On top of a 9% inflation we give ourselves a 15% cost increase to reduce demand. Here is the argument Larry Summers made to Manchin:
https://nypost.com/2022/07/22/larry-summers-congress-should-raise-taxes-to-fight-inflation-right-now/
The supply side economists would have attempted to make things less expensive by cutting taxes, having more competition and improve efficiencies. Here is Larry Kudlow:
https://www.foxbusiness.com/media/larry-kudlow-schumer-reconciliation-bill-stop-surge-business-investment
Does anyone believe that the various environmental activists groups will allow ANY heavy construction ANYWHERE in the US? Semiconductor fabs use a lot of water. Lots of water. And power. Lots of power. And they are big. I’m certain the money authorized will for sure be disbursed – but it will be much like the CA bullet train bill(s.) There will be a bunchamany studies, run by highly trained and highly paid super duper well known professionals, even more supplemental studies after lawsuits, planning, planning and more planning. And no permits will be issued. Nothing will be built.
No – “they” don’t want anything new built, especially by strangers like you.
The economic policies of the Biden administration, and of today’s Democrats generally, are closer to economic Fascism than to classical Marxism or to classical free-market principles. They are not interested in actually running the engines of production; they would rather leaves them nominally private, but subservient.
If you think about it, this approach is greatly preferable from the standpoint of a politician: there is always somebody else to blame.
New fabs will built in AZ, TX and maybe OH. For cutting edge stuff the only companies that can execute are TSMC, Samsung, and Intel. I guess that means most of the $50B will go towards foreign companies. There is another $25B in tax credits that apparently will be neutralized by the new minimum tax. oops! I assume that Dems are using all new spending and tax changes to force ESG crap on America.
It appears to me the generalized goal of the Democrats is Neo-Feudalism. I very comfortable life for those at the top with stabilizers to make it semi-hereditary. I much greater and more constrained life for us new serfs at the bottom. We the ones who are going to:
They still get to go on private jets and eat at the French Laundry, which I am sure will not be serving bugs, and attend the Met Gala. All while being served by masked peons that have been had there humanity stripped away bit by bit.
“It’s not fascism when Democrats do it.”
There was actually quite a lot of admiration for the Mussolini regime in its early days, both in the US and in Britain.
“I’d give anything to make the trains run on time.”
“It’s a deal, except you’re giving everything.”
Yes, and some famous liberal newspaper people urged FDR to do more of it here.
Didn’t H. G. Wells praise the Italian fascists? Or am I thinking of George Bernard Shaw?
On reflection, I think that both Wells and Shaw praised Mussolini, Hitler, Lenin, and Stalin.
“Three cheers for the inventors of poison gas…If I had my way, I would build a lethal chamber as big as the Crystal Palace, with a military band playing softly. Then I’d go into the back streets and bring them all in, all the sick, the halt, and the maimed.”
–D. H. Lawrence
More about the impact of the minimum tax on corporate book income at Thursday’s WSJ.
It’s estimated that $45B in taxes would be raised by the way in which the bill partly negates accelerated depreciation…most of this would come out of the hides of manufacturers and other ‘thing’ businesses.
It isn’t necessarily surprising, for some reason progressives seem more comfortable with the service industry and knowledge industries than they are with manufacturing. Maybe because they associate manufacturing with environmental impact. All and all I get the impression that the progressives really don’t want “those dirty things” done in their country; however, they seem perfectly happy to have them be done somewhere else. It makes little sense to me but that certainly seems to be how their policies work out.
Years ago, I read about people in the towboat industry in Seattle who have had to wait between four and five years to get permits for minor facilities improvements. This was not just about bureaucratic delay and inefficiency…
“It’s all cultural,” says Eugene Wasserman, executive director of the Neighborhood Business Council. If it were biotech, it would get the green light.
“Biotech is cool. Propellers and pilings are uncool,” is how the government’s attitude is summed up by columnist Bruce Ramsey of the Seattle Times.
Several years ago, I observed a local example of the cool/uncool phenomenon above. A county government had an “incubator” program for new, technology-oriented small businesses..free or low-cost office and lab space, that sort of thing. Someone who was starting a metalworking business to make a new product applied…he was turned down, because the county government wanted “cool” computer-related businesses. (There were no environmental issues: this was clean light manufacturing.) Government officials, who most likely knew very little about any technology whatsoever, chose the currently-fashionable technology, which was web sites, not lathes and milling machines. (Wonder how many of the companies that they did sponsor are still around?)
No country has ever taxed itself into prosperity. [link]
Great Post David.
“Evidence is emerging that the new Schumer-Manchin 15% minimum tax on corporate-book income is especially harmful to U.S. manufacturing firms. An analysis by Congress’s Joint Committee on Taxation (JCT), which is hardly a nest of supply-siders, found that 49.7% of the tax would hit U.S. manufacturers.
The book-income minimum tax would hit the accelerated depreciation in the tax code that lets businesses write off investment in, say, new factories. Wholesale trade (9.3%), retail trade (4.9%) and information (11.5%) companies would get off relatively easy by comparison.”
Exactly what the “Great Reset” Doctor ordered.
An alternate view ( to the Dems) from Brandon Smith via Alt-Market US via Zerohedge in his post”Supply Chain Problems Will Persist Because The System is being Sabotaged”:
“In a recent interview with Bloomberg, the executive vice president of UPS asserted that “regionalization” of the supply chain is critical to economic stability as geopolitcal conflicts expand. The word “regionalization” is basically a code word to describe decentralization, a concept which the UPS representative obviously did not want to dive into directly. Almost every trade expert and industry insider is admitting that supply chain problems are going to persist into the foreseeable future, and some are starting to also admit (in a roundabout way) that localized production and trade models are the key to survival.”
Got that? To survive we need to bring production back home and make products locally. But the Dems do not want us to survive so they are making local production much more difficult. Plain and Simple.
“This is something that I and many other alternative economists have been talking about for a decade or more. The globalist dynamic of interdependency is a disaster waiting to happen, and now it’s happening. Without decentralized mining of raw materials, local manufacturing, locally sourced goods, local food production and locally integrated trade networks there can be no true stability. All it takes for the system to implode is one or two crisis events and the economy’s ability to meet public demand stagnates. The system doesn’t completely stop, but it does slowly shrivel and degrade.
The war in Ukraine has been the go-to scapegoat the past few months for supply chain disruptions, but these issues started long before that. “
“A regional conflict with China on top of the Ukraine war could be the perfect smokescreen for a financial and supply chain collapse that was going to happen anyway. But when the mainstream media talks about the triggers and culprits, they’ll never mention central banks and political corruption, they will only talk about Russia and China.
As I have noted in the past, the “Great Reset” agenda of the WEF, IMF, the BIS and other globalist organizations requires an extensive destabilization of the existing order. In other words, they need a controlled demolition of certain pillars of the economy.”
Of all socialist systems, whether international socialism or national socialism.
It’s actually amazing that the entire leadership, corporate, government, academic could be so historically ignorant, could have so little understanding of the US, why it became the richest country, and how it transformed the world. Some of them actually believe this vast place can be run by experts from above, some are merely influenced by the Chinese who want us to do it so they can destroy our ability to bother them, I think they even know that they can’t sustain a top down real diversified economy either, but they know who will be in charge. Our folks do not know who will be in charge (other than the Chinese) because it’s probably not knowable, but it will not be a group who worries about 300 million other Americans.
Update: It appears that Krysten Sinema’s price for supporting the bill includes a restoration of the accelerated-depreciation provision.
Not obvious exactly how this would work: If accelerated depreciation is applied, then the financial statement doesn’t really show Book Income anymore, ie, GAAP income. Presumably there would be something like “adjusted book income”, so companies would have to do their normal GAAP accounting, the modified version of it for the minimum tax, and the regular tax accounting.
This is spot on. It’s coming. While Trudeau gets a new haircut, he’s making it close to impossible to sustain current crop production in Canada (for domestic consumption and export, which is enormous). All for climate and ESG bull.
You’ll be forced to eat what’s on the shelves at the grocery store, and it won’t be steak and chicken. It’ll be “steak” and “chicken”.
Something the DC Dolts don’t seem to take into consideration – the depreciation model affects business’s ability to make capital investments. If you take it away, you’ll get less investment because there’s no benefit to the business.
Just another way to raise taxes.
This is spot-on. Amazingly, one of the industries with the biggest use of dangerous chemicals is the semiconductor industry. Not much different than the solar argument – hey, cool “new” technology! Hey, let’s ignore the side effects!
The coolness factor definitely plays in, but there is significant NIMBYism too. Look at Europe perfectly happy to use Russian natural gas unwilling to exploit their own energy resources. It isn’t about “Climate Change” if it were they would not be shutting down their zero carbon emitting nuclear plants. It is about feeling virtuous, while not being too inconvenienced. It is actually something between a pantomime and a grift.
At its core is a profound misunderstanding of how the world works. Which should be surprising I suppose from people that think gelding a little boy turns him into a little girl.
This is a problem with wide-ranging effects. Older young people have no understanding of where food comes from, more recent young people have no idea how insurance works, how industry works, how government works.