Responsible Tax Reform Requires Reasonable Forecasting

Responsible Tax Reform Requires Reasonable Forecasting

Finally, Congress has decided to target US law which both sides agree needs changing. Far from agreeing on a broad set of those changes, there is ample room for compromise and hope. This will be the first and likely only 1 of 2 areas where if an agreement can’t be reached, there will be no agreement across party lines for the rest of this administration. I’m talking about tax reform and here is the highest of high-level frameworks for changing the US tax code. Keep in mind, the public debt of the US on September 26, 2017, was $14,632,474,734,832.72 ($14.6 Trillion) and a total debt of over $20 trillion.

The tax reform plan outlined today includes these proposals:

Consolidating and reducing individual income tax rates to 12, 25, and 35 percent (suggestions there may be one bracket higher than 35%)
Eliminating the Alternative Minimum Tax (AMT) for both corporations and individuals
Nearly doubling the standard deduction to $12,000 for individual and $24,000 for families
Establishing a $500 non-child dependent credit and larger child credit
Repealing the personal and dependent exemptions, and deductions for the blind and elderly in light of the larger standard deduction and credits.
Repealing most itemized deductions, leaving those for mortgage interest and charitable giving
Repealing the estate tax
Reducing the corporate tax rate to 20 percent
Establishing a maximum “pass-through” rate of 25 percent with unspecified protections against gaming
Enacting full expensing for at least five years
Moving to a territorial system for overseas earnings and imposing a one-time tax on past earnings held by U.S. businesses
Indexing tax brackets to a more accurate measure of inflation, likely the Chained CPI
Limiting the amount of business interest that can be deducted by C-corporations
Repealing the deduction for domestic manufacturing (Section 199)

While no detailed cost can be determined without a lot more detail, the Committee for a Responsible Federal Budget estimates the increase to the federal debt will increase by $2.2 trillion over the next ten years and it will likely be higher as some of the cuts are set for only 5 years (as a gimmick to lower the projected impact), but would likely be extended.

There are a number of good things included in this plan and both parties have suggested they are important for American businesses and employees. Some of these include cutting the corporate tax rate and corporate tax expenditures. Providing a mechanism for repatriation of offshore profits and moving to a territorial system for overseas earnings. Simplifying the tax code is also a good thing.

Cutting the tax rate on pass-through organizations will benefit small mom and pop companies, but most of this benefit will be to the wealthy Americans and not likely to boost capital investment. Real estate and other professional firms are likely the biggest winners. Similarly, the removal of the AMT will likely help those with large investment income, but the total impact can’t be known until the income levels and rates associated with them are known. There is no mention of carried interest, so it appears the campaign promised to change how carried interest is taxed was left on the tax reform cutting room floor.

NFL Players Protest – Separate the Message from the Medium

I try to get it, and just when I think I’m about to understand why so many people are so angry about NFL players taking a knee during the National Anthem, I realize they must see it differently than I do. Now let me be clear. I believe taking a knee during the National Anthem is certainly a way of drawing attention and may be a potent way to use your NFL status for a cause. At the same time, it is an act filled with ambiguity and one that opponents to your cause may use to distract and deflect vs. discuss and debate. Let’s separate these two items and discuss them separately. The first of these is the act of taking a knee during the National Anthem. The U.S. Code states:

§171. Conduct during playing
During rendition of the national anthem when the flag is displayed, all present except those in uniform should stand at attention facing the flag with the right hand over the heart. Men not in uniform should remove their headdress with their right hand and hold it at the left shoulder, the hand being over the heart. Persons in uniform should render the military salute at the first note of the anthem and retain this position until the last note. When the flag is not displayed, those present should face toward the music and act in the same manner they would if the flag were displayed there.

Clearly, players taking a knee are not following section 171 of the U.S. Code, Conduct During Playing (of the National Anthem). The code does not impose penalties for violations, nor does it describe or name the nature of the violation.

Therefore, it is left to the individuals who do not follow the U.S. Code to describe their reasoning. In the case of the NFL players, they have been very forthcoming with the reasons for their actions. They have all highlighted that they are not disrespecting the Flag, the National Anthem, or the US military. They are raising the issue of racial injustice in America and highlighting what they perceive is a small minority of law enforcement personnel using unnecessary force when dealing with young African Americans. And that not enough is being done to fix the problem.

So, even if you don’t agree with how they are raising the issue. Even if you feel in the depth or your heart that not standing for the flag is disrespecting the country, understand that others don’t feel this way. The next time you’re at an event where the Anthem is played, pay attention to those who don’t stop and stand at attention when the music starts. Maybe they don’t know better, maybe they don’t care. At the end of the day, each of us gets to decide why we stop or don’t, why we stand or don’t, and whether we take the time to understand the message or focus on how that message is delivered.

The second issue is the cause being raised vs. the way it’s being raised. The players have continued to be very clear about what they are protesting and why. They have also been very clear about what they are not protesting. So, let’s take them at their word and forget the how they protested and focus on the what and why.

Do they have a legitimate grief? Each of us should look at the facts and decide for ourselves if the law enforcement and judicial systems are biased. This can be racial, socio-economical, religious, or other biases. When I look at the statistics, it seems clear to me that those with means have a much better chance at a favorable outcome than those without means. As my wife and I like to put it, you may be innocent until proven guilty in the courtroom, but going through the judicial system prior to that you are guilty, guilty, guilty.

So, yes there is a real issue here that needs to be addressed. Too many African Americans are in jail. Too many deal with the police on a regular basis. And too many die violent deaths from all causes. We can do better, and we must do better.

Of course, we are discussing this because it came up during a speech at a political rally last week. A political rally in a state which doesn’t even have an NFL team. So why was it raised?

Two weeks ago, 6 NFL players took a knee during the National Anthem. Count ‘em, 1, 2, 3, 4, 5, 6. That’s it. Then on a Friday night in Alabama, someone decided the actions of these 6 men was one of the most important events going on in the world and decided to not only state he disagreed with their form of protest, but suggested their employer should fire them. He has a penchant for firing people. Were these statements made because the actions of these 6 were more important than 3.4 million Americans in Puerto Rico needed food, water, fuel, and medicine in the aftermath of a powerful hurricane? I can’t imagine. Was it more important than North Korea, in the midst of testing increasingly powerful rockets, claiming the US had declared war on them? I can’t imagine. Was it more important than fixing the US healthcare system, the tax code, the country’s infrastructure, or a growing opioid addiction problem? I can’t imagine. Or was it because the NFL would not allow a particular person to own an NFL team? This, I can imagine. Or was it because a healthcare bill did not have enough votes to pass and was pulled by the GOP before a vote could be taken? This too sounds reasonable. (He also made unsubstantiated claims that science-based actions by the NFL to make the game safer for the players were ruining the game and lowering ratings. Another wrong side of history statement we’ll save for later.)

What may be most surprising is the guy who took the oath of office to defend the constitution of the United State of America is challenging employers to penalize their employees for taking a stand, speaking their minds. Furthermore, he has continued to make statements that seem designed to harm the league’s financial prospects, encouraging fans to avoid going to games or watching them on TV. Things that would harm not only the owners, but all the employees associated with the stadiums, parking, and broadcasting companies.

Now, this is not a 1st Amendment, freedom of speech issue. Not directly, because so far, he has not suggested the government restrict anyone from speaking their mind. But it feels like it’s getting close. When the highest executive branch officer is not only suggesting companies muzzle their employees, but threatens to harm their business unless they acquiesce, going as far as sending out messages with “BoycottNFL” in them.

Two weeks ago, there were 6, last week more than 200 players took a knee, while hundreds more, even entire teams, locked arms in support for their teammates’ rights to raise issues they feel important even if they don’t completely agree with the method their teammates choose to use.

At the end of the day, we all get to choose if we want to work together on those items which bring us together and discuss those where we differ seeking common ground or let those who would prefer to divide us. I hope we choose wisely and don’t follow those who are unwilling to lead.

The code goes well beyond how to carry the flag and how to behave while the National Anthem is being played and makes it clear that wearing the flag is not cool. Be sure to review these before your next 4th of July picnic, so you don’t violate section 176. Here are parts of it:

Respect for the Flag - US Code Section 176

§176. Respect for flag
No disrespect should be shown to the flag of the United States of America; the flag should not be dipped to any person or thing. Regimental colors, State flags, and organization or institutional flags are to be dipped as a mark of honor.
(a) The flag should never be displayed with the union down, except as a signal of dire distress in instances of extreme danger to life or property.
(b) The flag should never touch anything beneath it, such as the ground, the floor, water, or merchandise.
(c) The flag should never be carried flat or horizontally, but always aloft and free.
(d) The flag should never be used as wearing apparel, bedding, or drapery. It should never be festooned, drawn back, nor up, in folds, but always allowed to fall free. Bunting of blue, white, and red, always arranged with the blue above, the white in the middle, and the red below, should be used for covering a speaker’s desk, draping the front of the platform, and for decoration in general.
(e) The flag should never be fastened, displayed, used, or stored in such a manner as to permit it to be easily torn, soiled, or damaged in any way.
(f) The flag should never be used as a covering for a ceiling.
(g) The flag should never have placed upon it, nor on any part of it, nor attached to it any mark, insignia, letter, word, figure, design, picture, or drawing of any nature.
(h) The flag should never be used as a receptacle for receiving, holding, carrying, or delivering anything.
(i) The flag should never be used for advertising purposes in any manner whatsoever. It should not be embroidered on such articles as cushions or handkerchiefs and the like, printed or otherwise impressed on paper napkins or boxes or anything that is designed for temporary use and discard. Advertising signs should not be fastened to a staff or halyard from which the flag is flown.
(j) No part of the flag should ever be used as a costume or athletic uniform. However, a flag patch may be affixed to the uniform of military personnel, firemen, policemen, and members of patriotic organizations. The flag represents a living country and is itself considered a living thing. Therefore, the lapel flag pin being a replica, should be worn on the left lapel near the heart.
(k) The flag, when it is in such condition that it is no longer a fitting emblem for display, should be destroyed in a dignified way, preferably by burning.

Those wearing flag shorts or serving BBQ on flag plates with flag napkins are not only violating the Code, they are violating the Respect for the Flag provision of the code, which by definition is disrespecting the flag. Should they be allowed to return to work the next day?

Crossing the Chasm by Geoffrey Moore

Crossing the Chasm by Geoffrey Moore

Crossing the Chasm

Crossing the Chasm

Marketing and Selling Disruptive Products to Mainstream Customers

by Geoffrey Moore

Now in it’s 3rd edition, Geoffrey Moore’s classic business book, Crossing the Chasm is one of the most quoted books in the history of technology product management. Moore was one of the first to identify the difference between the behaviors of people inventing technology, Innovators, those willing to experiment with early versions of new technology, Early Adopters, those in the majority who are less willing to be on the “bleeding edge” of technology adoption, the Early Majority and Late Majority groups, and those who join the parade as it’s about to end, Laggards. His description of the buying behaviors and the product needs necessary to meet the needs of each group has guided thousands of companies as they build products and solutions for new markets.

Moore’s third edition includes updated examples of successes and failures, ideas for success in the digital world, and other new ideas. This edition includes two appendices, one that provides insight into another of Moore’s books, Inside the Tornado. The second appendix adds information on research that expands the technology adoption models to include high-tech consumer markets.

Everyone working in or with companies providing technology products to market should have an understanding of Moore’s Technology Adoption Life Cycle and would be well served by reading this latest edition.

How has the Technology Adoption Life Cycle helped you bring your products to market? Let us know in the comments below.

It’s Time to Help Workers, Not Subsidize Unproductive Jobs

Politicians love to talk about creating jobs and bringing jobs back to areas with high unemployment. They love to point fingers at previous politicians and claim the policies of the past caused jobs to leave and once corrected these jobs will return quickly.

Most recently the discussions have focused on coal mining and manufacturing where history does not line up with the promises.

Coal mining jobs from 1985 to 2016 fell from over 178,000 to 50,000 primarily due to improved mining productivity, not increased regulations.

Manufacturing productivity changes have delivered a similar change across many more jobs than mining.

Manufacturing output increases since 2010 far exceeded job creation.

Government officials must stop ignoring basic economics and glossing over the simple fact that many more jobs are eliminated due to productivity increases through automation, process improvement and higher skilled workers than ever move from town to town or country to country. And even when jobs do go to low wage countries only to find those wages move toward parity with onshore production, the changes are in lower labor costs regardless of where the production resides.

It’s time to start talking about how best to support workers and stop funding corporations to create jobs in industries that no longer need workers in the numbers they once did. This cycle of job replacing automation is only going to happen faster and faster, leaving fewer and fewer high paying jobs for low-skilled labor while high-skilled, high paying jobs go unfilled.

Governments and corporations are working together to balance this equation, but not enough effort is going into retraining available labor in areas where the skills no longer match the available work.  Just in time skill development through targeted apprenticeship programs is one of several tools available to help workers prepare for the jobs that companies are looking to fill.

 

America’s Airlines Need a Dose of Competition

America’s Airlines Need a Dose of Competition

The real trouble is that American aviation is not competitive. Consolidation has meant there are fewer big carriers, each with higher market share. That has allowed them to care little for the flyers they should be nurturing. At many airports, a single carrier has a near monopoly. (As our recent leader on the subject noted, at 40 of America’s 100 biggest hubs, one airline accounts for more than half of capacity.) What is more, competitors from abroad are barred from disrupting the cosy status quo because of strict foreign ownership rules. That would be a far better thing for Congress to focus on. Imagine how long United and American would last in their current, disdainful guise if Emirates, Singapore Airlines or even Ryanair were allowed to compete against them for a share of the world’s biggest domestic aviation market.

 

WHEN politicians feel they must summon industry bosses and implore them to treat customers better, it is a sure sign that the market is not working as it should. On May 2nd, a Congressional committee pleaded with airline bosses to improve service or, by implication, face legislation to force […]