Taxes

All Hat and No Cattle – Section 25C Tax Credits

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I love that expression. There are lots of explanations of the saying, but I take it to mean (and I assume most do) that it is meant to describe a big talker – one who says a lot but doesn’t really have/do much to back it up.

As the dust has begun to settle from the Inflation Reduction Act (I always laugh at that title), that saying keeps going through my head.

There are a lot of things in the IRA that are HVAC related and one of them was the extension and expansion of 25C Tax Credits. Before I go any further, a short primer on tax credits.

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Paying for Biden’s Dreams

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President Biden says, in connection with his ‘infrastructure’ plan, that “We’re going to pay for everything we spend.”

Actually, it’s you that would pay for this proposed spending.  Exactly how much you would pay, and what forms your cash outflows would take, are dependent on your individual situation, but make no mistake: you would pay.

You would likely pay through higher direct taxes–yes, it is claimed that there would be no tax increases for those earning less than $400K/year (family income), but there are spending increases built into or implied in the ‘infrastructure’ bill that imply much higher spending…and taxing..over time.  You would pay, in higher prices, lower wages, and reduced investment returns for those corporate tax hikes, which Biden seems to view as a source of free money. You would likely pay in terms of reduced job opportunities…possibly even outright job loss…as a consequence of a damaged US business climate.

Above and beyond the specific details, the ‘infrastructure’ plan and its supporting tax represent an attempt to redirect a greatly-increased part of the national income generated by Americans into the hands of government and of those whose relationship with that government is key to their finances.  Such increases in government scope are of direct financial value to a lot of people, including high-income as well as lower-income people…see my post here for discussion of this point.  Increasing the scope of government also represents a tremendous ego and status benefit for many people, most definitely including Biden himself…who actually met with history professors to get ideas on how he could build up his ‘legacy’ and who, I think, is more interested in a legacy of doing Big Things than in what the benefits of those Big Things might be.

Nancy Pelosi, in reference to the ‘infrastructure’ bill, stated that: “The dollar amount, as the president has said, is zero.”  This is nonsense. The fact that money for a program will come from somewhere doesn’t mean that the cost of that program is zero.  If a division of a company embarks on an expensive project and gets the money from their parent corporation, that doesn’t mean that the cost of that program is zero.  Same if the division get the money by raising prices and/or selling more to their existing customers–the program still costs what it costs.

The Biden/Pelosi view seems to be that the United States exists to support the Federal government and that category of people who are most closely linked to that government.  Increasingly, government and the ‘extended government’ are acting like medieval robber barons, plundering the surrounding countryside to keep themselves and their retainers wealthy and powerful.

See also this post at Ricochet: Economic Illiteracy on Parade and my post The Logic of Insatiable Centralization.

Labor Day Thoughts

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My discussion question for today: In a world with global and highly-efficient transportation and communications…and billions of people who are accustomed to low wages…is it possible for a country such as the United States to maintain its accustomed high standards of living for the large majority of its people?…and, if so, what are the key policy elements required to do this?

Henry Ford did not establish the five-dollar day out of the sheer goodness of his heart.  He did it because worker turnover had become unacceptably high: people didn’t like assembly-line work, and they had alternatives.  Suppose Ford had then had the option of building the Model T in a low-wage country, say Mexico.  Maybe he wouldn’t have needed to bother with the American $5/day wage and the productivity improvements needed to support it. (Although Ford being Ford, he still might have implemented the manufacturing innovations and process improvements even without strong economic necessity to do so.)

America’s premium wage structure has, I think, been historically enabled by several factors:

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The Logic of Insatiable Centralization

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People and businesses have been leaving New York City, and the state of California, at a considerable rate. Some of these people/businesses are *resources* from the standpoint of government and its leaders: they are tax money on the hoof.   Cuomo, de Blasio, and Newsome would surely like to have a way of keeping them there.  Would these leaders, if they were allowed, favor a legal prohibition on exits, or at least a prohibitive tax penalty for such exit? This is the logic of the Berlin Wall, or of the Reich Flight Tax, the Reichsfluchtsteuer.   Such things may seem impossible in America, but the Dems have pushed for a lot of things that would have previously been considered impossible in America.

Comes now Janet Yellen of the Biden administration, with a proposal for a global minimum tax on businesses, thereby nailing the feet of companies to the floor and keeping them from going elsewhere to avoid excessive exactions.  Just as Blue-city mayors would rather not have to worry about offering a tax system that is fair and economically-rational, the same is true of the Blue Biden administration.

As a writer at Ricochet has pointed out:

(Yellen’s proposal) is a terrible idea, for a very simple reason: “harmonizing” between governments eliminates competition between them. And it locks in the kind of bloated incompetence that is a feature of even the best governments out there.

We want companies to be able to shop for their preferred home, just as we want Americans to be able to move to low-tax states. Similarly, if a poor country is trying to attract tenants (companies), why should they not be able to offer advantageous tax rates or less bureaucratic overburden?

It would not just be a matter of keeping companies from moving–the proposal would also tend to reduce or eliminate pressure to keep taxes low and minimize government waste.

Basically, this global minimum tax would represent the collusion of the political and bureaucratic classes against everybody else.

And against diversity–any diversity of political and economic philosophies.

“Progressives” don’t like fine-tuning incentives; they like issuing prohibitions and giving orders.

SARS-CoV2/COVID-19 Update, Easter 2020 edition

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There are lots of hopeful reports — despite the USA COVID-19 infections being over 1/2 million and the total deaths of over 20,000 people — that the pandemic will soon be “Over.”

This is fantasy thinking at best.  SARS-CoV2/COVID-19 won’t be over, until it is over, for YEARS.

“Over” being defined as world wide mass vaccinations to the tune of 70% of humanity or human herd immunity.  Assuming such a thing is possible, which it may not be, given this recent report from the UK Daily Mail on post SARS-CoV2/COVID-19 infection immunity —

Blow to Britain’s hopes for coronavirus antibody testing as study finds a THIRD of recovered patients have barely-detectable evidence they have had the virus already

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– Nearly third of patients have very low levels of antibodies, Chinese study found
– Antibodies not detected at all in 10 people, raising fears they could be reinfected
– Explains why UK Government repeatedly delayed rolling them out to the public

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https://www.dailymail.co.uk/news/article-8203725/Antibodies-prove-difficult-detect-Chinese-coronavirus-survivors.html

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Related studies:
Wu F et al. Neutralizing antibody responses to SARS-CoV-2 in a COVID-19 recovered patient cohort and their implications. medRxiv 2020.03.30.20047365; doi: https://doi.org/10.1101/2020.03.30.20047365

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and

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Zhao J et al. Antibody responses to SARS-CoV-2 in patients of novel coronavirus disease 2019, Clinical Infectious Diseases, , ciaa344, https://doi.org/10.1093/cid/ciaa344
total by July 1st 51,197

Or this South Korean story on coronavirus “reactivation” —

South Korea reports recovered coronavirus patients testing positive again
APRIL 10, 2020
Josh Smith, Sangmi Cha

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https://www.reuters.com/article/us-health-coronavirus-southkorea-idUSKCN21S15X?utm_campaign=trueAnthem%3A+Trending+Content&utm_medium=trueAnthem&utm_source=facebook

The issue with most COVID-19 tests, like the ones mentioned in South Korea, is they detect SARS-CoV2 RNA. They do not detect whether the viral particles are active or not. The issue here is whether these people are shedding active viral particles that can re-infect people.  We don’t know if that is the case here from the story text.  Given how infectious it is.  This coronavirus will tell us in due course.

There are some viral diseases like Herpes that hide inside your body and reactivate to make you infectious. We do not know enough about the SARs-CoV2 virus to say whether that is the case here.

If the SARS-CoV2 virus is like Herpes in that once contracted, it never goes away and flares infectious several times a year.

And there is no herd immunity for some people no matter how often they are infected.

Then we will need multiple, cheap,  out-patient style “cure-treatments” as well as multiple vaccines, based on co-morbidities, and possibly to account for racial differences like sickle cell blood mutations, as SARS-CoV2 may well be more a blood disease than a respiratory infection in terms of it’s killing mechanism.

See:

COVID-19: Attacks the 1-Beta Chain of Hemoglobin and Captures the Porphyrin to Inhibit Human Heme Metabolism

https://chemrxiv.org/articles/COVID-19_Disease_ORF8_and_Surface_Glycoprotein_Inhibit_Heme_Metabolism_by_Binding_to_Porphyrin/11938173

There is not enough reliable data, d*mn it!

Until we get to “Over,” our old economic world of Just-In-Time, Sole Source anywhere, but especially in China, is dead without replacement.

The world is in the same position as Germany was from August 1944 – April 1945 or  Japan from August 1944 until August 1945 versus the Allied strategic bombing campaign.  We have entered the world of  “End Run Production“ as world wide supply chains grind to a halt from various fiddly bits of intermediate parts running out without replacement.  The on-and-off hotspots world wide of COVID-19 at different times and places in the world economy is no different than WW2 strategic bombing in terms of causing random damage to the economic life support.

See also  “End Run Production” here from this one volume WW2 history book The Great Crusade:

https://books.google.com/books?id=5L-bwPZK7PQC&pg=PA420&lpg=PA420&dq=%22End+Run+Production%22&source=bl&ots=kc30FQflCj&sig=ACfU3U2kmF-kTPo0Tgr2A9_ESPKpEQAEOg&hl=en&sa=X&ved=2ahUKEwjfpurOnOPoAhUKA6wKHemwBMcQ6AEwAHoECC4QKQ#v=onepage&q=%22End%20Run%20Production%22&f=false

Be it automobiles, self propelled construction equipment, jets, power plants or the latest electronic gadget, anything that has thousands of parts sourced world wide with lots of Chinese cheap/disposable sub-component content anywhere in the supply chain simply won’t be produced for the next 18 months to three years.

This “random damage to the economic life support” effect is amplified by the unwillingness of Western private industry to invest in building the capitol equipment to produced those intermediate parts.  Because of the threat of China coming back with predatory pricing — using bought politicians to cover for them — means those parts won’t be built without massive cost plus contract government buy out of the investment risk like happened in the USA in the 1942 WW2 mobilization.

The story of  one American n95 mask manufacturer’s experience with the Obama Administration in 2009 with the Swine flu is a case in point.  The n95 mask is a 50 cent item where China pays 2 cents a mask for labor versus 10 cents a mask for American labor.  When the American manufacturer geared up to replace Chinese mask production.  China came back on-line and the Obama Administration refused to keep buying the American mask producer’s 8 cents more expensive mask when the Chinese masks were available.

Unlike almost 80 years ago, current Western and particularly American politicians are too corrupt to go too massive cost plus contract government buy out this private investment risk.  Mainly because these political elites  can’t be bothered to figure out their 10% cut.  Instead we are getting more “fiscal stimulus” AKA boondoggles that the elites will saddle the rest of us with high interest payments on huge public debts.

It will take local small to mid-sized business to get the American economy going during the COVID-19 pandemic via making products and services that don’t use the intermediate products China threatens with when the pandemic ends.

My read on what comes next economically is local/distributed production with limited capitol investment that is multi-product capable.  The name for that is additive manufacturing, AKA 3D Printing. Here are a couple of examples:

  1. The idea of 3D Printed Sand Casting Molds For Automobile Production

voxeljet enters alliance to industrialize core tooling production using 3D printing

2. And the replacement of physical inventory with 3D printers, print media and electronic drawings:
Such “Make or buy” decisions have always been the key decision of any business.  The issue here is that middle men wholesalers and in-house warehousing holding cheap Chinese-sourced  intermediate parts are both set to go the way of the Doe-Doe Bird in a 3D/AM manufacturing dominated world.
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Distributed production in multiple localities with 3D/AM vendors for limited runs of existing intermediate products to keep production lines going.  Or the re-engineering intermediate products so one 3D/AM print replaces multiple intermediate products for the same reason, will be the stuff of future Masters of Business Administration (MBA) papers describing this imminent change over.

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But, like developing SARS-CoV2/COVID-19 vaccines, this new locally distributed manufacturing economy will take time.  The possible opening of the American economy in May 2020 will not bring the old economy of December 2019 back.

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That economy is dead.  It cannot, will not, come back.

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We will have to dance with both the sickness from SARS-CoV2/COVID-19 and the widening “End Run Production“ product shortages that the death of the globalist  just-in-time, sole source in China economic model causes for years.

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And this is a hard reality, not a fantasy, we must all face.