Jim Wuwert 2012 May 24 0815 EDT
I just want to say that I think these are some great questions below. This is a good discussion. Good questions and great responses.
I checked out the New Economy website and it seems like groups like that and the “Occupy” group all seem to have no clear purpose. They do not seem to have any steady source of revenue to keep them sustainable. It is a model based on donations from people.
They ask for donations on their website. So, person X has to earn money somewhere else and then donate money to the cause. In our global economy (like it or love it) money is the driver to sustainability (unless you are able to barter for everything).
What I hear the “New Economy” and “Occupy” folks saying is that they want to have their own sustainable business to manage and gain profits. I agree that it is difficult (due to absurd regulations) for a common “Joe or Jane” to do this easily. You need lots
of money to jump through all the hoops. Thus, the big businesses thrive and the little guy closes his shop. Enter “Occupy,” “Tea Party,” and "New Economy. " So, why not lift regulations and make it easier for each person to form their own corporation? If that
person wants to work with another person, then they form a joint venture or even possibly a larger corporation with each holding stock in that company. They work together to make a product or provide a service. It is shared ownership like the “New Economy”
and “Occupy” people state that they want. I feel it is what democrats and republicans want, but nobody wants to say it. All of them demonize each other to hold on to their artifical power.
I know one may ask, well who is going to regulate each individual corporation? Answer: The common Joe. If you make a product that harms people, then people will stop doing business with you. Isn’t that what we (Occupy, Tea Party, etc) want when someone
harms the consumer? Do we really want businesses that are going to cut corners, so that it harms the workers (i.e. coal mines -per article on New Economy website)? Let the people (not government) regulate it and these guys will not be in business very long.
[Martin Lewitt 2012 May 24 0331 MDT]
[bob hintz 2012 may 22]
BH: I need a little help on equity vs debt financing and double taxation vs single taxation. Am I double taxed when I pay income tax on money I receive and then pay sales tax on that same money when I spend it?
RM: Could you please answer the first part of Bob’s first question, please. What is the difference between equity and debt financing? This seems to be important to your analysis of the economy so it would be nice if we could find out what it is.
I believe the first statement was just a setup for the explicit question, but happy to accommodate. Debt financing is the borrowing of money and does not increase the net value of the company, because assets added to the company via borrowing are offset
on the balance sheet by the obligation to repay the funds borrowed with interest usually under fixed inflexible terms. In equity financing, those supplying funds receive an ownership interest in the enterprise. The asset value of the company is increased
without any debt on the balance sheet. Those who become owners generally do so in the hope that the value of the enterprise will increase and/or profits will be distributed. Profits don’t have to be distributed, and generally can’t unless debt obligations
are met first. Under fundamental analysis the value of an ownership interest is the net expected value of its future dividend stream. An enterprise financed by the input of assets and retention of earnings by owners is generally on a sounder financial
basis than one with heavy debt obligations.
Distribution of profits to owners is a more flexible way of financing than debt, which generally has fixed inflexible terms for repayment. Dividend payments are discretionary, and can be suspended during recessions and other periods of difficulty. A
tax system where the payment of interest on debt is pre-tax, I.e., deductible but the dividend stream to owners is not deductible, and also taxed as income to the owner, I.e., a double tax, makes debt financing cheaper relative to equity financing and biases
the structure of an economy towards inflexible debt financing, increasing risky leverage in the economy, and increasing layoffs of employees and deepening recessions because debt obligations must be met or bankruptcy results. From a macro-economic point of
view, an economy is less likely to have recessions and better able to weather recessions if it is not deeply in debt, so equity financing is to be preferred to debt financing.
Ronald Reagan favored elimination of the double tax on dividends, but dropped the issue in the face of class warfare rhetoric. GW Bush also tried to eliminate this structural bias in the tax system, and through persistence managed to partially reduce
it. Obama and the democrats, of course, are demagoguing the issue, to the detriment of the very working class constituents who are most impacted by recessions.
– Martin L
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