Oy, this talking point again. This is wrong on multiple levels, some of which are detailed
here. One high level problem with it is that it has things completely backwards: they'd need
more government subsidies if not for their Wal-Mart job, not fewer.
I have opinions on the other stuff in this back and forth, but my background in accounting and welfare programs compels me to point out that the article you linked to is
very misleading.
Before I start, my ranting is directed at the author (Tim Worstall) of that piece was linked to, not Yoda. But I think it bears reconsidering when linked to in the future.
1) It conveniently ignores some pretty basic accounting principles, and yes Tim, it was evil, evil big government that allowed
MACRS in that infamous anti-business legislation...
the Reagan Tax Cuts.
Sorry for the sarcasm there, because it's honestly important that people know that there are tradeoffs (something you talk about often) to accounting methods, it's almost never all good or all bad (unless you are actually lying about something on your books). There is something of an exception, which I’ll talk about later (that accelerated depreciation is almost strictly better, if you assume
time value of money exists).
2) The author also makes it seem like the tax burden would be HIGHER under accelerated depreciation, but that is, again, misleading. I’ll try to keep this part specific, because I’m actually angry at this piece and that usually leads to rants.
- The ATF report talks about the lost tax revenue to accelerated depreciation.
- Tim starts talking about accelerated depreciation, but pivots to essentially saying the existence of depreciation AT ALL is a burden on business. Equivocating from the initial argument made by the ATF, which compares accelerated depreciation to normal depreciation.
- This position would mean not taxing assets (instead treating them as only a cost, presumably he'd at least allow it to count towards revenue when salvaged, but with this writer, who knows), which is a very out of the mainstream proposal, but he disguises it.
- He then says that therefore, the depreciation rules cause higher taxes in the first year.
- It leaves the impression that accelerated depreciation is bad for businesses.
- Except, of course, it’s great for businesses. But not as good as not taxing them at all for assets, which is the real position one would need to take in order to possibly argue it’s bad. But the author, of course, doesn’t explain that.
- Why? Because accelerated depreciation essentially is a tax deferral. Under straight line depreciation you claim a flat amount of depreciation each year for some period of time. Under double declining, you take the biggest chunk off of the first year, and smaller chunks each year after. Depreciation is a debit against your revenue, so under actual accelerated depreciation it means you are taxed less the first year than any other (for the value of that asset).
- But they still pay the taxes eventually, right, so maybe it’s neither pro or anti business? Sure, if you ignore time value of money. Think of it as a loan, if there was no interest, you’d pay back the loan on the last day possible (even if you’re only accounting for inflation, and not the opportunity cost of having that money now).
- To top it all off, at the end of the article he says this “Accelerated depreciation rules increase early tax bills, not decrease them”, where he strays into lying rather than deception. Here we can pin him down, because whether or not depreciation should exist, accelerated depreciation is specifically designed to decrease early tax bills.
3) Also it's really misleading to say that government leaves companies no choice but to use accelerated depreciation because you
can still use straight line under MACRS, you don't have to use double declining. The author is preying on people seeing the "accelerated" in MACRS and thinking that means there is ONLY accelerated depreciation.
4) The author is again deceptive in his discussion around whether or not the reserve wage would fall (fancy term for the lowest wage a worker would accept). He makes a simple model, here are the programs that affect you if you’re unemployed, if you’re unemployed and you’d still get these benefits, this raises the opportunity cost of working. Let’s say you get 2000 dollars a month in welfare benefits, and a job offers you 2500, you might say no thanks to the job. That concept is
true and indeed important to keep in mind; if this case were anywhere close to that example.
Instead, he intentionally omits SNAP when he lists out the unemployment benefits. Why?
Because there are work requirements on SNAP benefits and that goes against his thesis. It drives me crazy when people think there aren’t any work requirements for SNAP. And by the way, because of the negative stigma and the sometimes intentional obstruction of SNAP, millions of people go without SNAP benefits when they qualify for it. And
yet people complain about SNAP trafficking fraud, which is about 1% (by the way, normal corporate fraud is around 5%). It’s especially frustrating because that fraud rate is less than a tenth of what the rate of non-participation is, which often is the result of state and local government obstruction to SNAP benefits (which I feel pretty strongly is fraud on the part of those governments).
Sorry, tangent, but here’s where it comes back to the reserve wage. You must work (or be unable to work) to receive SNAP benefits for periods beyond 3 months. This means that SNAP benefits are tied to meeting these work requirements, which
detracts NOT adds to the reserve wage because it’s a benefit of being employed. Walmart is very aware of this, and does indeed use it to subsidize their low wages because without that low paying job they are offering, the worker will not be able to get those benefits. Tim
knows this and leaves it out of his list (worse still, he slightly implies it’s INCLUDED!) here:
They would be, as the unemployed, getting Medicaid, school lunches, breakfast, Section 8 vouchers and so on.
That’s an interesting use of so on, because it derives from a list he quoted above in the article:
“The National School Lunch Program, School Breakfast Program, Section 8 Housing Program, Earned Income Tax Credit, Medicaid, Low Income Home Energy Assistance Program, and the Supplemental Nutrition Assistance Program”
So he leaves out the EITC for reasons he discusses later (he begrudgingly admits this is a boon to Walmart) but he names 4 of the 5 programs that would actually help his case. And I believe he hopes people assume the so on includes SNAP (when indeed to complete that list you’d just need to say energy vouchers instead of “so on”).
And there’s a very good reason that he leaves out SNAP, because it is commonly cited as the number one way in which Walmart manipulates welfare programs, and Worstall would rather not have to argue against that.
I think what made me so angry is that the final line of the article is this:
“But, of course, this report will be all over the newspapers tomorrow simply because so few people understand that simple economics outlined above.”
After all the dishonesty over the course of the argument, he has the gall to be condescending, when his article relies on one to not know all the economics at play. If it were lack of understanding on his part, that'd be a different issue, but he knows when and where he's lying, otherwise he wouldn't be able to dance around the issue so carefully.
But here’s something I didn’t know. Tim Worstall is also UKIP establishment member, his deceitful and arrogant tone make a lot more sense now.
I’ll end with this: I strongly believe it’s a bad article to base any position on.
Also that I’m sorry for the how long this ended up being, every paragraph turned up something new (and I didn’t even touch on dividend taxation!).
Edit: I tried to format this to be easier to read, but honestly it's a mess to parse, sorry it's so ugly.