Friday April 9 2021
What Could Go Wrong?
Corporations don’t pay taxes, they either pass them forward in higher prices or backward in lower wages.
Janet Yellen as Professor circa 1992
Today Janet heralds the Trump tax cuts as the ‘international race to the bottom.’ That would be lower taxes and less dollars for politicians to spend on vote buying schemes. And so Janet is calling for an international higher corporate tax rate, 28% for the USA. In fact, corporations willingly pay lower taxes and produce more resulting in higher tax income. In legal circles this is known as price fixing and conviction carries a jail term. A few years back Ireland created a stampeded to re-locate corporate headquarters there to enjoy their low 12.5% corporate tax rate.
Yet seemingly optimism abounds. Markets have reached new highs (still arcing from reduced taxes and regulations), and Jamie Dimon at Chase sees nothing but good news ahead. The markets did hit new highs (Russell 2000 excepted) but momentum seems to have slowed this past week. Before we declare Happy Days are Here Again, a few things need to improve first.
Team Biden seems determined to raise corporate taxes from 21% to 28%, a 33% increase. Plans to tax law abiding gun owners will do nothing to stem the rise in violent crime in major Democrat run cities. New York now has the highest taxes in America.
Immigrants pour across what used to be the US Southern Border. The brother of the President of Honduras was convicted of smuggling 185 tons of cocaine to the US. US drug users have destroyed entire countries to the south.
Financial blow-ups including Wirecard, Luckin, and Archegos have occurred. Swiss bankers used to be admired for secrecy and conservative lending. Now Credit Suisse has lost billions on a swap trade.
Emerging economies are struggling. In the last year interest rates for Brazil’s (always the country of the future) Treasury debt soared from 6.5% to 9.5%. Tourism lags world-wide due to the pandemic.
The new highs in the markets reflect a ‘crowded trade’ in high tech stocks. New highs are receding and new lows are expanding.
Commercial real estate rent rates are plummeting. Companies have discovered work from home and are not likely to return to downtown. Ditto for shopping malls.
I have only driven about 2,000 miles in the last six months. Electric or otherwise, I don’t see that less miles driven stimulates car sales here or anywhere else.
Education remains in flux. Teacher unions keep public schools closed. At home schooling is expanding at far less cost than its public equivalent, the former without the layers of bureaucracy of the latter. Union refusal to return to work is the biggest boom to home schooling ever. And the $1.5 trillion in Higher Ed debt remains with us.
Restaurants, live performances, and cruise lines remain iffy situations. Will help come before they all go out of business?
I’m not predicting trouble, just noticing we already have plenty on tap.
