Archive for September 27th, 2010

The downside risk of raising taxes on the rich … by the numbers

September 27, 2010

The President sound bites that extending the Bush Tax Cuts “to the wealth” will “cost” $700 billion.

Let’s take his number at face value, but put it in context …

The $700 billion — based on conventional, but odd gov’t accounting — is a 10 year projection. 

The annual impact is $70 billion … and that’s making the unlikely assumption that folks won’t employ strategies to mitigate the tax hit.

The $70 billion equates to about less than 1/2% of GNP … which is sluggishly running at about $14.5 trillion. 

Generally, economists expect that raising taxes on the rich will hurt the recovery since — according to the Tax Policy Center — about $400 billion of small business income in hit and since the rich account for almost a quarter of all consumer spending.

If GNP drops by 2.5%, the apparent tax revenue increase would disappear … tax revenues would be the same as prior to the tax increase.

So, the pivotal question is: will the decline in consumption by the rich (again, 1/4 of consumer spending) be substantial enough to drive a reduction  in GDP ? 

I’m betting “yes”.

Taking another perspective … what about the impact on unemployment ?

Mark Zandi — one of the Dems’ poster-child economists — says that raising taxes on the rich would cost 770,000 jobs. 

The current unemployment rate of 9.6% equates to about 15 million people unemployed.

In other words, bumping the tax rate on the rich is likely to increase the unemployment rate by about .5% — to over 10% if all other things are held constant.

Is $70 million of best case tax revenue worth bumping the unemployment rate by .5% ? 

Keep in mind that the $70 billion is against a national debt that’s running over $13 trillion …

So, the decision reduces to increasing the unemployment rate by .5% to over 10%  in order to (maybe) cut the national debt by about .5% per year .  The latter is a big ‘maybe’ since politicos would have to avoid the temptation to just spend the windfall on more goofy programs  …  and since ‘the rich’ would have to avoid the natural tendency to  change their behavior to duck taxes or to cut spending  — which would utltimately cut tax revenues.

Doesn’t sound like a good bet to me …

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Sources:

Washington Post, The Problem With Sound-Bite Economics, September 20, 2010
http://www.realclearpolitics.com/articles/2010/09/20/the_economic_blame_game_107220.html

US Debt Clock
http://www.usdebtclock.org/

Posted in Taxes | Leave a Comment »

Even if Obama gets his way, Buffett will still have a lower tax rate than his secretary …

September 27, 2010

Whine, whine whine.

Warren Buffett says raise taxes on folks making more than $200,000 because he pays a lower tax rate than his secretary and he wants to pay more.

Music to Obama’s ears … and an anecdotal rationale for allowing all of Bush’s high-end tax cuts to expire.

Problem: Even if the Bush tax cuts are allowed to expire, Warren will still be paying a lower rate than his secretary.

Consider the generic uber-wealthy case …

Obama’s proposal would allow the top marginal tax rates of 33 percent and 35 percent to revert to 36 percent and 39.6 percent next year. Phase-outs for deductions and exemptions would also be reinstated, pushing the rate higher.

Tax rates on dividends and capital gains would increase to 20 percent from 15 percent.

The top marginal rates also don’t reflect the overall tax the highest earners pay, especially when most of the income comes from capital gains or dividends.

The 400 highest-earning U.S. households reported an average of $345 million of income in 2007, while their average tax rate fell to 16.6 percent, the lowest in almost 20 years.

Almost three-quarters of the highest earners’ income was in capital gains and dividends taxed at a 15 percent rate.

Of the 400 earners, 289 paid a total effective federal tax rate of 20 percent or less in 2007.

http://www.bloomberg.com/news/2010-09-22/new-york-hawaii-top-earners-face-highest-tax-under-obama-plan-study-says.html

Buffett’s income is practically all capital gains.

So, Obama’s plan will nick him an additional 5% … but since his rate will be the 20% capital gains tax rate, it’ll still probably be below his secretary’s rate.

I propose a super-uber tax bracket: for folks with huge  portfolios —  say, in excess of $5 billion — every dollar of earnings over $250,000 — ordinary income, cap gains, and dividends — gets turned over to the government each year with no recourse.

Bingo.  Problem solved.

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Remember when Nokia was the dominant mobile phone manufacturer ?

September 27, 2010

TakeAway: Once upon a time Nokia was the dominant mobile phone manufacturer.  However, it lost sight of one of the critical components of a successful marketing strategy: people.

Rather than objectively applying an understanding of customer needs into its products and marketing programs, Nokia was content to assume that what customers wanted in the past would remain the same.

So while others like Apple and RIMM developed smart phones with innovations that excited customers, Nokia did nothing and has paid dearly for it. 

It’s trying to get back on track, but it might be too late.

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Excerpted from Bloomberg Businessweek, “How Nokia Fell From Grace,” by Matthew Linn, August 15, 2010

What was the most successful European company of the 1990s? Easy: Nokia. The Finnish mobile-phone manufacturer captured the emerging market for mobile phones and built the industry’s most powerful brand. Its handsets virtually defined the industry from the time it launched its first GSM phone … in 1992. From 1996 to 2001 its revenues increased almost fivefold, and by 1998 it was the world’s biggest mobile manufacturer. In 2005 it sold its billionth handset …

Now, what’s the most disappointing company of the 2000s? Easy again: Nokia. The company has been in steep decline—a point underscored by its Sept. 10 announcement that it was hiring its first non-Finn as chief executive officer. …

Since Apple introduced its iPhone in January 2007, Nokia shares have fallen 49 percent. In a ranking of global brands by Millward Brown Optimor this year, Nokia was No. 43, having dropped 30 places in 12 months. …

Recognizing the scale of its challenges, Nokia hired Stephen Elop, the Canadian head of Microsoft’s business unit, to turn the company around. Everyone will wish him well. … if the guy knows so much about phones, he’s kept it a secret. Microsoft has never made any progress in that industry.

The cruel truth is that for all its residual market share, Nokia looks like a has-been. The company misread the way the mobile-phone industry was merging with computing and social networking. And it’s probably too late to turn that around.

There are uncomfortable lessons here. First, success is not a sinecure. Nokia got to the top of its industry quickly. Once there, it became complacent. … Nokia worried about hanging onto market share rather than creating innovative products that excite customers. Second, Nokia was unwilling to challenge itself. The company clung to the idea that handsets were mainly about calling people. It failed to notice that they were just as much about checking your e-mail, finding a good restaurant, and updating your Twitter page. …

Edit by DMG

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Full Article
http://www.businessweek.com/magazine/content/10_39/b4196007421255.htm

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Posted in Mktg - Product & Innovation, Mktg - Product Line Mgnt, Telecom | Leave a Comment »