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by moorhosj
2799 days ago
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Let's ignore the fact that If people rush into these other assets like you claim, it would impact their price and return profile. The key question is which chunks of the monetary system "go away." Are those chunks a net benefit for society in the first place or simply a tax deferment/avoidance vehicle for the rich? Take the recent corporate tax cut, which made companies flush with cash. Companies could invest that in 4 main buckets: pay down debt, invest in growth (r&d or acquisitions), pay out bonuses to workers or buy back stock/declare dividends. Let's say the company has 1,000 employees and gets $1 million in new cash flow from the tax cut. They have little debt and no direct acquisition targets so they are now deciding between giving all employees a $1,000 bonus or buying back $1 million worth of stock. Since bonuses are taxes at regular income rate and dividends/capital gains are taxed at 15%, the tax efficient way to put that money to use is through buybacks or dividends. The people making the decision are likely executives with high salaries (income tax rates) and large stock portfolios. They will only pay 15% tax on those dividends compared to the bonus option where they would likely pay at the highest income bracket. Who gets the short end of this dynamic? Workers who helped create that revenue, but can't afford to buy enough stock to get $1,000 of benefits. The tax code has disincentived the company from rewarding its employees in favor of rewarding its investors. Again, people who are already wealthy tend to be the investors rather than those who typically labor for their income. |
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Then rational investors will avoid risker share investments in new companies it will reinforce the position of incumbents who will be forced to pay out more in dividends and become bond proxies.