[madballster]

This is an old European disease. Corporate profits are often seen as an adverse result; of consumers being taken advantage of unfairly. Taxing excess profits beyond what are already high tax rates is popular amongst voters (e.g. see poll results in the UK, 2022). However, this lowers the appeal for new entrants to enter these markets to compete for these excess profits through better and more efficient products and services. If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".

[toyg]

> see if competition takes care of the "problem".

We have seen: for industries with big capital requirements or heavy regulatory frameworks (enacted for everyone's safety), it just doesn't.

[gwright]

Irrespective of the the benefits and/or feasibility of competition to bring prices down, the larger problem with this ad-hoc windfall profit tax is that it is ad-hoc. This is changing the rules after the game has started.

The article reports the effort as a "surprise tax".

[ilyt]

Companies made ad-hoc profits on pretending it's the inflation and raising the prices while having rising profits. I have zero problems with ad-hoc tax on that.

Frankly I think taxing some part of revenue instead of just income on big companies would be beneficial, no more "investing" in making market harder to newcomers (or outright buying them out) and getting tax cut on that.

[Silhouette]

This is changing the rules after the game has started.

The point is that a windfall is also - by definition - a favourable change in the rules after the game has started.

The moral question here should be a simple one. Did the investors in the banks know (or at least reasonably expect) that they would make these profits when they decided to make their investment? If they didn't and they invested anyway then there's a reasonable argument for a windfall tax as long as it only claws back gains they had no reasonable expectation of making and did nothing useful to earn.

[xmonkee]

its not a “game”. Its the people of Italy legislating whats best for the people of Italy. This is what government is. You are pre-supposing a capitalist framework where private enterprise should compete with the people. You could alternatively think of private enterprises being allowed to exist at the pleasure of the people. And that is the way it should be. People are real, companies are fiction.

[gwright]

Just because it was accomplished via a "legislative process" doesn't automatically make it a good idea. Surprise laws are a bad idea in any economic system IMHO. It isn't even a "capitalist" issue.

[gwright]

And of course it isn't a "game". That is a figure of speech to make a point about fairness.

[jntvjnvutnuvt]

Which industries with big capital requirements don't have competitors?

[zdw]

Anything with a natural monopoly.

Utilities (water, electric, telephony/cable/data services) or where having two of something makes no sense given physical limitations (Transportation sector, etc.)

[jntvjnvutnuvt]

You're right but the person is talking in the context of competition and how competition doesn't reduce profit margins "for industries with big capital requirements."

[Silhouette]

Banking! If there are meaningful competitors then that implies there is meaningful competition. But many financial services firms have been making huge windfall profits by creating a wide interest rate spread even though they would still be (very) profitable with much lower spreads and their customers have a clear incentive to go with a competitor offering a better interest rate. So clearly there is not effective competition in this market.

[jntvjnvutnuvt]

Well, there are thousands of banks in the US alone that offer mortgages and loans.

[Silhouette]

And are they offering them at competitive rates or are they all mysteriously making enormous profits despite the "competition"? Because in much of Europe it's definitely the latter that is happening. There are lots of banks but evidently they are not really competitors.

[cmmeur01]

And that number has been steadily trending down with mergers and acquisitions.

[Hamcha]

In the US: ISP & Healthcare

[jntvjnvutnuvt]

Most Americans have access to AT&T, Verizon and T Mobile. They also have a choice of insurance plans and healthcare providers.

[MSFT_Edging]

But will their choice of health insurance provider be accepted at the hospital an ambulance took them to? Who knows but for that person, its time to play bankruptcy roulette.

[pkaye]

Didn't the no surprises act change that for emergency issues? The insurer has to cover it as in plan.

[jntvjnvutnuvt]

Many healthcare plans cover emergency out of network hospitals.

[dj_gitmo]

> AT&T, Verizon and T Mobile.

These are mobile providers. For home internet with a physical connection you usually don't have a choice and it is not outlandish to consider them a "natural monopoly" like you would electricity and water.

[danudey]

And in cases where there are competitors, they'll often have similar prices for similar offerings, with equally poor service or reliability.

After all, if you're Time Warner, you could compete with Verizon by improving your infrastructure or lowering your prices, but that would spur them on to do the same thing, and then it's a race to the bottom where "everybody loses" (by which I mean consumers win a bit more and corporations win a bit less).

If you instead take the gentleman's agreement to not make any substantial changes, then you both get to gouge customers for poor service as much as you want, keeping profits high without having to do any work to maintain it. Sure, you might lose some customers to your competitor, but they also lose customers to you and everyone is happy (except the customers).

[xboxnolifes]

Most Americans have access to one "high-speed" (50Mbps+) provider, and then maybe one low-speed (<15MBps) provider, and maybe one dish option. It's not competition if the product isn't comparable.

[codedokode]

Social networks, search engines.

[JimtheCoder]

Those have low capital requirements, but their moat is the network effect....

I can buy a script to build a Facebook clone from an Indian Dev for like $50.

[concinds]

Your assumption, that if without these extra taxes, more banks would be created and the industry would become less concentrated, seems untrue. The banking industry seems to be becoming hugely concentrated in every Western country, regardless of windfall taxes.

[danudey]

The opposition to these extra taxes runs surprisingly parallel to trickle-down economics.

If we pass these windfall taxes and then use that money to help individuals who are struggling, those individuals then benefit; however, if we let all that money to go to the millionaire/billionaire shareholders, then there's a chance that, instead of adding it to the excess wealth they're already hoarding, they might decide to spend it on business or projects that they could already have afforded but didn't. Those businesses or projects could then theoretically create work opportunities which would then employ some more people, and maybe some of those people would be the people who are struggling, and maybe the pay would be a bit better than the market rate they're already getting paid for their labor for some reason and so they'd get paid a bit more, and maybe that would help them to struggle less. Didn't you ever think of that?!

[rightbyte]

Maybe the tax could be progressive to help smaller players? I dunno why only wage tax is progressively taxed.

[gruez]

>I dunno why only wage tax is progressively taxed.

Companies are just groups of people. Why should a group of 100 people get taxed more than a group of 100,000 people? Progressive rates on wages make sense because it's applied to each person individually.

[staticman2]

"Companies are just groups of people."

The legal definition is certainly not "groups of people." Describing them in this folksy way is outright misleading.

[gruez]

Yeah there's a bunch of other stuff like limited liability and governance rules, but they're not really to the topic at hand which is why bigger companies should get taxed more.

[scotty79]

Because their capacity to exploit the market doesn't grow linearly with the number of eployees.

[kevinventullo]

Why should a group of 100 people get taxed more than a group of 100,000 people?

It would be the other way around. This is in order to encourage the formation of new groups, which almost always start out small.

[gruez]

>This is in order to encourage the formation of new groups, which almost always start out small.

If that's your goal, having slightly lower taxes is a terrible way of doing so. It's far better to address the barriers to business formation directly (eg. availability of capital, market power of incumbents, regulatory requirements). We want people to found new companies to produce a better product (eg. Tesla), not to chase some tax incentive.

[ilyt]

Weird argument but okay, then increase tax past say 100k/employed person in company of revenue.

Or tax on revenue once company becomes big enough. Taxing on income made sense to make investing into expansion a good thing, but those companies clearly don't need to be bigger, it seems to just make stuff worse and worse.

[gruez]

>then increase tax past say 100k/employed person in company of revenue.

That would cover most professional services firms (eg. lawyers/accountants). I don't really see why they should be considered worse than a mcdonalds.

>Taxing on income made sense to make investing into expansion a good thing, but those companies clearly don't need to be bigger, it seems to just make stuff worse and worse.

TSMC brings in 73.67 billion/year in revenue. Equifax only brings in 5.12 billion/year. Which one is making stuff "worse and worse"? Surely there's a better metric than dollar amounts, which totally ignore the financial nature of the underlying industry?

[AnimalMuppet]

In an industry where "too big to fail" is a real thing, taxing bigger companies more seems perfectly reasonable. Not just a little bit - significantly more, even painfully more. Create some actual incentive for banks to not get that big.

[MikeDelta]

Banks have been trying to reduce their balance sheets and their risk-weighted assets, because of all the extra charges and reserves they need to keep. They cannot just get rid of a large of their customers like that and collapsing shareprice.

In some businesses there is also a benefit in scale (like in trading), and there you see the US banks leading because they've had it.

If you want the US banks to fully take over IB and corporate banking, definitely do tax the EU banks painfully more.

Or tax every financial counterpart painfully more, so then eventually the customers pay much more for their loans because the financial system has become so expensive.

[ABCLAW]

This is misleading. Banks have capital sufficiency requirements following the implementation of the Basel 3 capital sufficiency framework. This has created an international growing market for bulk capital availability and reinsurance services.

In short, due to international capital sufficiency regulations, there's now a market for excess regulatory capital. The attempt to prune low performing assets is due to a market as an alternative to low return on capital investments.

It's not because of charges and overhead.

Banks aren't worried about bad assets more than usual, they just have another arena to make money in now.

[thewildginger]

Putting banks out of business? Woah weird conclusion but I like it. This whole windfall tax sounds even better than I thought!

The world of money existed before banks, it will exist after.

[a-user-you-like]

Thanks to excessive regulation

[luuurker]

... which is there for a reason.

[a-user-you-like]

Excessive regulation doesn’t help if your law doesn’t have teeth. Plenty on laws on the books in the US, but I don’t see enough people prosecuted for 2008.

And then the incentives are all wrong if you bail your buddies out anyway. Play with fire and the fed will bail you out is terrible.

[FreshStart]

"Europe could look like the US" sounds to much like a threat nowadays..

[bko]

I think that's correct. I have a theory about bullshit jobs in highly regulated or profitable industries. Places like Google have a ton of employees that don't contribute anything but make work projects. Why don't they just cut the workforce in half? Because their profit margin would be too high. It's already 25% with all the bloat. Imagine if their profit margin shot up to 50%? They would likely be dragged in front of Congress to explain themselves. It's even more true for banks (who i would argue have even more bullshit jobs where people literally do nothing)

You could think this is good as it supports people but I think it's kind of sad thousands of people get up and go to work every day with no impact on anything,just waste away at a desk. This doesn't even mention the economic waste

[bushbaba]

Bullshit jobs are encouraged for management to grow their org into a promotion. These companies are growing so nobody really questions the bloat as making the wrong move might impact future growth (or cause your action to be blamed for growth miss).

[hnfong]

Bullshit jobs are created for many reasons, I think you and GP are both right.

GP's point may not be obvious on the surface, but another way to look at it is, if for example the economy cools down and GOOG is pressured to maintain its profits, you can bet that management will decide to lay off even more people. In this sense it is just behaving as if it earns as much money as "expected" (by shareholders or the public, doesn't matter).

[inglor_cz]

I think the other HNer is closer to the truth: in a bureaucratic organization, the more people you manage, the more important you are.

So, basically, result of a status competition that comes from misalignment between the interests of the company and the interests of individual managers.

[prepend]

I’ve wondered this too. I don’t think it’s conscious so much as it’s unclear exactly what jobs are bullshit. So when profits are high, there’s more leeway to allow jobs that you’re not quite sure.

But when times are tough you start making riskier jobs because you just don’t have the funds to support bullshit jobs.

[danudey]

I'm in my 40s now, and would be pretty content to get up and remote to work every day with no impact on anything. Let me save that energy up for my family instead.

[webdood90]

I didn't think it was possible but banking shills apparently exist

> If one wants free enterprise and reap its benefits

who wants this from banking???

> one has to allow high profits for companies and see if competition takes care of the "problem"

ah, yes - we've seen this work so many times before!

[bko]

I don't know. I kind of like competition in banking. I like free checking, ATM fee reimbursement, better customer service, better websites and apps, better alerting etc.

You get that through competition for my deposits.

[ABCLAW]

Interac is a great example of the opposite. The government of Canada had to strong arm the financial sector to create a non profit third party to allow zero cost transfers and a robust debit payment system. The banks have been lobbying to dramatically increase interchange and transaction fees on Interac payments for years to allow for an expansion in lucrative 'premium' credit card processing fees.

Competition did nothing to stop industry alignment against consumer interests.

[webdood90]

all of those trivial improvements for the low price of half a trillion dollars in bailouts

[gowld]

That causes lower profits, so won't be affected by windfall tax.

[bko]

Maybe they won't but new competitors will see the outsized profits and try to get my business by offering these things. I have all these things at my bank (TD) so the system seems to work.

This is pretty uncontroversial basic economics...

[ilyt]

How often you see "new competitors" in banking come up now ?

[bko]

Not often enough. You've seen the reverse due to high regulatory costs.

If you're a healthcare provider in the US you often have to get a "certificate of need" to offer a service where a board full of competitors in the neighborhood determine if the neighborhood really "needs" this service:

> CON programs primarily aim to control health care costs by restricting duplicative services and determining whether new capital expenditures meet a community need.

https://www.ncsl.org/health/certificate-of-need-state-laws

[bilekas]

It's seems people have forgotten what the banks did in 2007 and before.

It's wild to imagine complaining about them being taxed but few complained about bails out from tax payers.

[wsgeorge]

> but few complained about bails out from tax payers.

I'm sure there were a lot of complaints...

[prepend]

> who wants this from banking???

I certainly do. I like have lots of choices and banking is important to me. I also like innovative new banking products. I wish there was free enterprise in banking, it seems like we have an oligopoly, in the US at least.

[webdood90]

do you also enjoy bailouts?

[jntvjnvutnuvt]

We have seen that work many times actually if you know anything about economics and capitalism.

[tensor]

Unfortunately the old American disease of not ensuring competition and instead passing regulation ensuring monopolies stay in power means the "problem" is not actual solved, and is in fact made worse.

[zmnd]

> The US is home to over 4,700 FDIC-insured banks. It’s not far off from the EU, which has 5,171, but stop and consider that the EU consists of 27 countries. The UK currently has 365 banks, and Canada has 83

[SeanLuke]

The number of countries in the EU seems to be not the best argument, though their distribution might be.

The USA has one bank for every 70617 people.

The EU has one bank for every 86637 people.

Italy is rather much more concentrated, having seen a huge decrease in unique banks over the last decade. It has one bank for every 134624 people.

[zmnd]

I shared the whole quote, but the goal was to just highlight that the number of banks is fairly similar.

I agree that the number of people is a better characteristic in this context, however the number of countries is important. EU has many different cultures, languages, regulations, so they have to have more banks. But looking at data, despite these considerations, EU still has worse competition. So still not sure what exactly parent meant.

[fluoridation]

How silly. Per million people the US has 14.1 banks, which is only slightly more than the EU's 11.5. I don't really know what's up with the UK and Canada, but there's probably some economic variable I'm not considering.

Can you imagine if the number of banks per country was constant?

[zmnd]

But it's still more (or at least fairly similar to me). Far from "old American disease of not ensuring competition".

[ABCLAW]

The number of banks is not a good indicator of how much competition exists in a market. The elasticity of prices in that market is a better measure, but also has flaws. In general you need to look at how much margin a given industry is pulling in to determine how much leverage it has.

On the bank metric: There are plenty of quasi non functional FDIC insured banks that are used as vehicles for reverse takeovers to allow a market entrant to avoid the hassle of obtaining their licenses.

Additionally given the substantially increased variability within different European markets we'd expect significantly different competitive dimensions between regional and international tier banks.

[panick21_]

These numbers have strong historical reasons. The US had unit banking leading to a gigantic explosion in banks and this number has been going down as bank merge since the end of unit banking in the 30s.

Canada on the other hand had branch banking, meaning a few insitution each covering the whole country. So Canada had very far fewer banks historically.

During the Great Depression many 1000$ of banks failed in the US and none in Canada.

[esalman]

Forgive me but this kind of comparison is hilarious, given Europe is smaller in area, has more population and way more different countries than the USA.

[scotty79]

> Corporate profits are often seen as an adverse result; of consumers being taken advantage of unfairly.

What is it then?

I think it's a clear sign that competition doesn't work and savings were not passed to consumers. The thesis that competition will work eventually reeks of trickle down economics.

Such tax is just punishment for the lack of competition. It sends a message that if you are not going to compete for the customer then you can't keep the profits gained from your reluctance to compete.

[ilyt]

Well, exactly right.

The competition only works if competitors are willing to give consumer a better deal, and if moving between competitors is easy enough.

But if they decide "well, media say there is inflation so we have excuses to rise prices far higher than actual rise of costs", well...

[IG_Semmelweiss]

If banks would be forced to choose between:

1- Windfall tax 2- Elimination of banking license regulations

What do you think would be their choice?

They would choose (3) "pay money to lobby for none of the above" and instead lobby congressmen/deputies, to eliminate this question

[TomK32]

Wikipedia doesn't list many, but the USA had one in 1980. Surprisingly the US oil companies have survived this https://en.wikipedia.org/wiki/Crude_Oil_Windfall_Profit_Tax_...

[throw0101a]

> However, this lowers the appeal for new entrants to enter these markets to compete for these excess profits through better and more efficient products and services.

And how many de novo banks have there actually been in any country recently? In the US, the land of plenty (banks), there's been one in the last twenty years.

Bloomberg's Odd Lots podcast just had an episode on this (including the topic of de novo):

* https://www.youtube.com/watch?v=8lPFHWgxq5c

Banking is low margin, and it takes decades to get any kind of return: few, if any folks, have the patience for that kind of ROI when there are alternatives.

[ABCLAW]

Retail banking is low margin high volume, but a bank's CMG or IB divisions are NOT low margin operations. Trading desk margins vary depending on the strength of the group and the clientele. If you're a primary desk for a trillion dollar AUM entity, you make a very pretty penny off your Bloomberg terminal subscription.

[neilwilson]

I'd go further than that. Corporate profits become stores of value. The money stops moving, which reduces the transaction rate and lowers inflation.

That is, after all, how interest rates work. We 'tax' the mortgage payers and give it to deposit holders to hold as a store of value. That reduces the transaction rate.

So if we tax corporate profits and redistribute it around, then interest rates have to go higher to force the money released from the corporate profit store, to the deposit holder store.

If prices are too high, the solution is to encourage the capitalisation of more competition, not encourage keeping money in the bank.

[Biologist123]

The final sentence of this comment requires at least two underlying assumptions to hold true:

1. Investors invest for speculative returns, not predictability or risk minimisation.

2. Free enterprise is possible within existing political-economic frameworks.

[Hamcha]

> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem"

One must just glance at the US to see what happens, the high profits get used to lobby politicians to make competition impossible, thus the problem doesn't get solved and becomes the status quo.

[spacebanana7]

> This is an old European disease.

Permanent high taxes are better than unpredictable windfall taxes.

It's very difficult to budget for the future when you don't know how much tax you're paying by a binary order of magnitude. When industry specific, it can create perverse incentives for outsourcing.

[dinkblam]

fully agreed. if you look at e.g. California, those European diseases might start to infect the USA too...

[mschuster91]

> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".

Banks will do just the same that all megacorps do: buy up their competitors with all the excess profit to make even more profit.

[solumunus]

Spoiler: it doesn’t.

Also, I’m in Europe and my bank gives me better deals on savings than any American bank offers.

[niux]

What bank are you using?

[polishdude20]

But like, you can use those profits before they get taxed to pay your workers more and invest in more and better equipment and tooling. So you can lower your tax bracket by providing a better service anyways.

[ilyt]

Well unless the companies decide to just not compete on price and keep it high, see the fuel prices in EU.

[ilrwbwrkhv]

And that is why so many british businesses incorporate in the virgin islands or cayman.

[fock]

which could easily be visited by a landing ship full of guardia di finanza. If the corrupt british regime would not offer protection for services rendered...

[bastardoperator]

TIL not being a capitalist is a disease.

[barbazoo]

> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".

I sometimes wonder if perhaps other parts of the world have a different vision of how to run their economy. Surely "free enterprise" isn't a universal rule and certainly not the way it is conducted in North America. Maybe they're just doing things differently?