Taxation Concept for Competitive Development II

The following presentation updates the Taxation Concept for Global Competitiveness with an idea for how the industry categorization approach could work. Included is a reflection of the current industry tax contribution based upon the Industry Summary of the Top 60 U.S. Companies document previously used in the Corporate Financials blog.

A clarification of the proposal using the “Flat Tax” terminology was not an idea altering the United States' philosophical application of the progressive tax system on earnings. In my opinion, a federal income tax based on sales revenue increases the investment technical calculation breakeven hurdle limiting economic expansion and business creation. Political opposition could easily make the case that the government is placing collection priority ahead of the American people and their earnings.

Global Competitiveness [Taxation Concept] and Industry Relationships

Taxation Concept for Competitive Development

Much of the political debate regarding business policy occurs with differences attributable to the varying “languages” of interest groups and government's comparable functional role. The assumption is that all are working for the future interests of the United States of America. Considering this in addition to the analysis of the current competitive standing of the country illustrated in The Global Competitiveness Report, here are some ideas regarding the taxation and policy debate.

My blog post The United States and Global Competitiveness summarized the common categories for the very top tier countries of competitiveness and personal thoughts on the socio-economic development relationships. The derived conceptual taxation strategy includes these important competitive factors similarly identified in the World Economic Forum’s competitiveness report methodology structure. This proposal creation identifies categories for industry assignment and tax rate development considering: A) Utilization and depletion of resources factoring environmental costs of disaster cleanups and necessary government public safety regulatory concerns; B) derived Infrastructure impact benefits [“hard” costs of interstate maintenance, airport and air safety, national utilities system maintenance and upgrades; “soft” costs of institutional (education and legal) demands on human resources development and general government administration]; C) the American community social and economic development flexible funding for investment into future competitiveness; and D) Security and National Defense interests. The Rate would apply to all industry companies within  the category. 

Currently, the conceived industry category groups are:

Basic Factors                                                  Efficiencies

I.  Natural Resources (Utilization and Depletion)      III. Service Oriented

II. Infrastructure                                                V. Other Pass-through (Income / Consumption) 

Innovation

IV. Knowledge (Education) Based – [Science & Technology Advancement]

This approach incorporates many ideas from the taxation debate and social interest groups to tax industry with equivalent relative matching to the “tax” on global development. The factored “flat rate” for each category includes environmental and social impacts; patriotism for U.S. interests; contribution to U.S. future development while protecting the interest of generational contributions; and redefines the debate terminology with a perspective of all vested interests during times of budget and spending reductions.

Global Competitiveness (Taxation Concept)

Review of Corporate Tax Post

Just reviewed a few of the analysis spreadsheets regarding corporate taxation. Southern politics includes blogger data distortion too, I guess. The United Technology tax assuming it is reflected as an operating cost against revenue is 3% as opposed to the stated 30%. I am making the adjustments and working through other analysis to find any other potential / necessary adjustment!

I will keep you updated on what I find!

Corporate Financial Snapshot

Updated 7/10/2010: Corrected Industry Summary cell referencing due to company sort issue. (There has to be an easier way to coordinate these documents and blog!!!)

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During my introductory level business and economic courses, I can recall the professor referring to economic activity as “stocks” (holdings or inventory) and flows of money. I put together a group of spreadsheet slides to give some perspective of the cash flowing through the U.S. economy. The US corporate snapshot looks at about 60 of the largest corporations by revenue, taxes paid over the past three years and the cash levels reported on their respective balance sheets. Another group of analysis slides looks at the potential contributions of citizens to the church assuming a given participation rate of tithing. The third estimates the impact on the average American household using the previous 2008 mean income information for comparisons.

The reason for the comparative look was to check the political position statements relative to those in the best position to grow economic activity from post-recession levels. The Corporate Tax expensed percentage reflects the relative percentage of taxes paid to other operating expenses. If the tax expensed in the income statement was accounted as a line item of operating expenses relative to revenue. Given this adjustment, United Technologies is the company that really stands out as paying taxes at a higher level relative to other operating expenses (30% of revenues). (10/19/2010 Update: See related blog post of this date.)

These top companies were holding $3.6 Trillion in cash and cash equivalents at the beginning of FY2010 which is about 25% of US GDP. Below is a snapshot listing of the included companies and industry summary. Just for comparison based upon participation levels and because of the corporate confirmation role played in the US South, the American churches receive anywhere from $300 Billion to almost $1 Trillion in contributions from the American people.

Updated Document 10/19/2010 : (See post on politics and data manipulations from system intrusions)

The Great American Business Incubator

As America and the rest of the world work through the current recessionary period, reflection back on the methods of development which created our strongest economic base is necessary. Contrary to some positions communicated on TV talk shows, the government has historically always been involved with the vast expansion of economic developments beneficial to our society. If the government is not considered one of the initial “investors” in the technological development with infrastructure, funding the university system, and providing grants for research, then it is the creator of the evolving American marketplace. Alexander Graham Bell and Thomas Edison are credited for the telephone and electricity, respectively. However, it was the national installation of the wire line and electric grid that provided for the product application with benefits of immense growth to society. Aside from the current struggles in Detroit, the highway and interstate infrastructure really contributed to the success of the automobile industry. The same argument can be made for the railways and aircraft industry with airports.

The necessary market developments that induce mass adoption of a new technology or invention do not always compute in the financial analysis from business (ROI, ROA, Payback, and Cash Flow). It is the forward looking recognition and contribution of the government that make the difference. This is why it matters where and how the government spends its money. Wise investments for one industry’s infrastructure could possibly spawn two or three other industries. When industry will not spend money and invest during times of declining employment levels, it appears to me that two options are available: 1) Government makes the investment [possibly creating and developing the business with unemployed business people for later sale to other investors] or 2) Change industry rules and standards for the current businesses to invest in change to adopt.

Many good ideas have been published on where best to spend stimulus to create jobs. I do not intend to duplicate so any repeat is coincidental with similar thinking. The following is just a personal list of items of where I think the country should focus for development and I will attempt to place in the order I believe to have the most immediate impact:

1. Construction, repair, and inspection of the nation’s bridges and roadways.

2. Small Business Lending institutions for grants to business creation by entrepreneurs not served by the current banking system (An addendum to the SBA activities and agenda).

3. Sponsorship of the razing of abandoned buildings throughout the country not suitable for future usage. Although not the same emotional value as constructing a new building, it will reduce despair by passersby and remove the negative image. Maybe Hollywood would be interested in the destruction of some buildings and could offset costs [referring to abandoned industrial buildings no longer in use].

4. Sponsorship for the installation of electric charging stations for current and upcoming hybrid automobiles. Hotels and motels appear to be obvious locations but maybe there are other ideas to consider.

5. Introduce regulations and standards for safe, efficient, and universal maintenance of medical records with patient portability.

6. Adopt the standards conducive to the development of a “green” infrastructure:
a) Increase vehicle fleet mileage standards;
b) Improve fuel efficiency and gasoline octane standards;
c) Pollution limits, adopt "cleaner" coal standards, improve electricity generation efficiencies (similar to average fleet mileage standards – reduce average generation costs including cost of pollution).

7. Continue investment in university and college research toward targeted fields such as “green” energy, non-biodegradable plastics alternative, targeted biomedical projects, and new uses for the future abandoned telephone wire lines.

I am sure there will be other opinions because not many want to change the current way business is conducted until the model does not earn as expected. However, when the model stops earning as expected it is usually a sign of the end and is often too late to avoid dissolution or restructuring. I also realize that financial measures such as return are not totally applicable to management of government affairs, but another way to look at the arguments against government involvement is to question whether or not industry has returned in taxes the equivalent to expected return on investment/equity for its benefit from infrastructure development and maintenance.