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Current tax incentives push companies to spend money (allocate it to productive areas) as much as possible or git hit with corporate income taxes. So generally

Current tax incentives push companies to spend money (allocate it to productive areas) as much as possible or git hit with corporate income taxes. So generally hoarding money is not only not encouraged, there is a tax penalty for doing so. That’s also why you see so often companies with “no profit”. If a company is operating efficiently, they wouldn’t be turning a profit (they’d have already reinvested profit).

wahern 7y ago
> Current tax incentives push companies to spend money (allocate it to productive areas) as much as possible or git hit with corporate income taxes. Basic profit-seeking capitalism incentivizes companies to either invest in productive areas or to return capital to shareholders so shareholders can invest in more productive areas. Taxes only effect those incentives at the margins, and the past several decades of increasingly corporate-friendly tax reforms don't excuse or justify the decisions that have been made by CFOs. > If a company is operating efficiently, they wouldn’t be turning a profit But what's the timeline for gauging efficiency? Any company needing a public bailout even though they had sufficient profit to cover the issue is manifestly not operating very efficiently. The ones taking on debt to fund buybacks are beyond any sort of reasonable justification from a public policy perspective. We can quibble over the scope of unpredictable downturns, but AFAIU the airlines returned much more capital than would be reasonable in expectations of a 10-year event. 1980s deregulation, 9/11, 2008 recession, and now 2020 pandemic... at some point you can't say that this stuff is "unpredictable" with a straight face. Something always happens, and even if you don't know precisely what or when, it's regular enough that you can substantially insure yourself. There's obvious moral hazard at play here, even though some public support may have been justifiable in this particular case. Even worse, AFAIU once upon a time airline union retirement funds were major purchasers of airline bonds. There was a sort of quid pro at play that more closely aligned unions and airlines during downturns, as unions were more incentivized than usual to return the airline to profitability through cost-cutting measures. The downside was, at least hypothetically, greater moral hazard--more pressure for government bailouts because more low- and middle-class employees were effected. But these days airlines have increasingly spurned unions and these sorts of arrangements, so any bailout directly lines the pockets of wealthy investors. There should be much less urgency to bailout the industry, especially without an equity exchange.
- smabie 7y ago
  Moral hazard isn't the only issue with union retirement funds buying stock: you want to mitigate the risk of being laid off or forced to retire and having your fund lose value at the same time. An airline employee with a retirement fund that consists of the same airline's stock is a very bad idea from a risk standpoint: you ideally want your fund and your job to be uncorrelated in order to reduce the volatility of your income stream.
- chrischen 7y ago
  > But what's the timeline for gauging efficiency? Any company needing a public bailout even though they had sufficient profit to cover the issue is manifestly not operating very efficiently. By your definition any company that didn't see the coronavirus pandemic coming would be not operating efficiently, but the reality is even if your company was operating efficiently your company may be killed by it. That's like saying a healthy person shouldn't need to be put on a ventilator because if they took care of their body well they wouldn't need it, but the reality is this virus is not something anyone could have prepared for.
  - danaris 7y ago
    It is not at all out of line to say "the airlines should not have spent $45B (or whatever the amount was) on stock buybacks, they should have saved a reasonable amount in anticipation of the next crisis" even if this particular crisis is much worse than anyone would have been able to anticipate a year ago. Even if they had only kept, say, $20B of that money—reducing their buybacks by less than half—that would surely be $20B they would not now be asking us taxpayers to spot them, and it's possible they would even be able to make a different kind of plan using that $20B to stretch them over at least some significant part of the gap.
deleted 7y ago
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wahern 7y ago

> Current tax incentives push companies to spend money (allocate it to productive areas) as much as possible or git hit with corporate income taxes. Basic profit-seeking capitalism incentivizes companies to either invest in productive areas or to return capital to shareholders so shareholders can invest in more productive areas. Taxes only effect those incentives at the margins, and the past several decades of increasingly corporate-friendly tax reforms don't excuse or justify the decisions that have been made by CFOs. > If a company is operating efficiently, they wouldn’t be turning a profit But what's the timeline for gauging efficiency? Any company needing a public bailout even though they had sufficient profit to cover the issue is manifestly not operating very efficiently. The ones taking on debt to fund buybacks are beyond any sort of reasonable justification from a public policy perspective. We can quibble over the scope of unpredictable downturns, but AFAIU the airlines returned much more capital than would be reasonable in expectations of a 10-year event. 1980s deregulation, 9/11, 2008 recession, and now 2020 pandemic... at some point you can't say that this stuff is "unpredictable" with a straight face. Something always happens, and even if you don't know precisely what or when, it's regular enough that you can substantially insure yourself. There's obvious moral hazard at play here, even though some public support may have been justifiable in this particular case. Even worse, AFAIU once upon a time airline union retirement funds were major purchasers of airline bonds. There was a sort of quid pro at play that more closely aligned unions and airlines during downturns, as unions were more incentivized than usual to return the airline to profitability through cost-cutting measures. The downside was, at least hypothetically, greater moral hazard--more pressure for government bailouts because more low- and middle-class employees were effected. But these days airlines have increasingly spurned unions and these sorts of arrangements, so any bailout directly lines the pockets of wealthy investors. There should be much less urgency to bailout the industry, especially without an equity exchange.

smabie 7y ago
Moral hazard isn't the only issue with union retirement funds buying stock: you want to mitigate the risk of being laid off or forced to retire and having your fund lose value at the same time. An airline employee with a retirement fund that consists of the same airline's stock is a very bad idea from a risk standpoint: you ideally want your fund and your job to be uncorrelated in order to reduce the volatility of your income stream.
chrischen 7y ago
> But what's the timeline for gauging efficiency? Any company needing a public bailout even though they had sufficient profit to cover the issue is manifestly not operating very efficiently. By your definition any company that didn't see the coronavirus pandemic coming would be not operating efficiently, but the reality is even if your company was operating efficiently your company may be killed by it. That's like saying a healthy person shouldn't need to be put on a ventilator because if they took care of their body well they wouldn't need it, but the reality is this virus is not something anyone could have prepared for.
- danaris 7y ago
  It is not at all out of line to say "the airlines should not have spent $45B (or whatever the amount was) on stock buybacks, they should have saved a reasonable amount in anticipation of the next crisis" even if this particular crisis is much worse than anyone would have been able to anticipate a year ago. Even if they had only kept, say, $20B of that money—reducing their buybacks by less than half—that would surely be $20B they would not now be asking us taxpayers to spot them, and it's possible they would even be able to make a different kind of plan using that $20B to stretch them over at least some significant part of the gap.

deleted 7y ago

[deleted]