Friday, July 23, 2010

Cash Reserves: Evil?

The Grand Game, in Raleigh!

During the Roosevelt Administration, government officials repeatedly tried to find ways to tax what they called "retained earnings." Those rat bastard businessmen were trying to INVEST! And that meant that profits were not being fully taxed. Something must be done. In fact, I would attribute much of the second dip, in 1936-7, to business uncertainty about tax treatment. The Roosevelt officials even went so far as to threaten businesses with prosecution for taking LEGAL tax breaks.

The Obama administration is now considering doing the same thing, in a variety of ways, increasing taxes on investment and productivity. The result will be lower investment and productivity, which may snuff out the recovery.

But that's not what today's Grand Game is about. Today I want to thank KPC friend BR for pointing out this article, in the Raleigh paper. A large company has the gall to hold large cash reserves, instead of paying out profits (so that the profits can be taxed), or reducing prices (which they would do...I'm not sure why having cash reserves means you should cut prices. It just doesn't follow).

Anyway, as frequent readers know, the Grand Game is where we ask you to check out the article, and point out the absurdity you find most amusing! I'll go first:

IT'S AN INSURANCE COMPANY! THE STATE IS MAD AT AN INSURANCE COMPANY FOR HOLDING CASH RESERVES? No, this is not the Onion.

18 comments:

Anonymous said...

Read the article more closely... it's Consumers Union that is making the claims about too-high cash reserves and not the government/state.

Also, the argument that's being (poorly) made by Consumers Union is that it's not necessarily right for BCBS to just keep increasing premiums to build a large cash pile. It's a reasonable thing to think about and discuss, so I think you go waaay overboard on your criticism. On the other hand, I sincerely doubt that BCBS execs are sitting there raising rates just to create a cash pile. I'm guessing most/all of the rate increase was perfectly reasonable (though painful at the quoted 12%).

Basically, both you and Consumers Union have gone overboard in your respective arguments. Cooler heads would make for a much more reasonable and worthwhile discussion.

Mungowitz said...

Well, thanks for the close read. Though, saying "M went over in his comments" is a lot like saying "The sun rises in the east." Not exactly front page news.

MaxSpeak said...

"Paying out profits" is a non-sequitur. If the organizations in the article had been for-profit firms (they are actually non-profits), the reserves received would be taxable profits, paid out or not. If paid out to individuals they would be taxable as dividends. As such, since these are non-profits, that would not be double-taxation.

Just to annoy Angus, if the money is sitting in a bank it isn't doing anybody any good insofar as banks are not lending. If the Gov taxes some of it for spending, lets say to build a monorail from your house to the candy-store, that would be good for employment.

eightnine2718281828mu56 said...

---
Also, the argument that's being (poorly) made by Consumers Union is that it's not necessarily right for BCBS to just keep increasing premiums to build a large cash pile.
---

"Nice life you got there; what's it worth to ya?"


And taxes on accumulated wealth are nothing new to the middle class.

Ever heard of property taxes?

Anonymous said...

I love the 1st paragraph: "...health insurer has accumulated an 'enormous' reserve of cash and lawmakers should consider using some of that money..."

In other words: "Steve has some money, and Jane should spend it."

I suppose since BCBS and "lawmakers" are sleeping together, this makes sense to some people???

eightnine2718281828mu56 said...

---
In other words: "Steve has some money, and Jane should spend it."
---

How about "Employee Bob is worth $130k/yr, but his employer and their competitor ABC Co. have an unwritten 'no poaching' agreement so that Bob will never make more than $90k."

That scenario doesn't get much play in libertarian circles.

terrapin said...

Yeah, one reason being that it's kind of hard to determine if or why Bob is "worth" 130k per annum. Like the man said about the baseball card: it's only worth what someone is willing to pay for it. Weak sauce.

eightnine2718281828mu56 said...

---
it's only worth what someone is willing to pay for it
---

Then every union worker is paid exactly what they're worth.

Anonymous said...

Yeah, there's a pandemic of people earning in the $90-130K range who have skills that are only valuable to two employers. It should be on the top of every libertarian and economist's list of concerns.[/sarcasm]

eightnine2718281828mu56 said...

---
Yeah, there's a pandemic of people earning in the $90-130K range who have skills that are only valuable to two employers.
---

There isn't a pandemic of city officials making $1m/yr in retirement, but plenty of people seemed quite upset by it.

http://www.reuters.com/article/idUSTRE66K6BX20100721

eightnine2718281828mu56 said...

So your guiding principle is :

"If it ain't a pandemic, don't fix it."

Good to know.

Child rape isn't a pandemic; apparently libertarians have no guidance to offer on that.

Anonymous said...

89,
You might see the world more clearly if you try changing only one variable at a time - scientific method style. Let me structure it for you...

Aggregate Concern = f(A,B,C)

Where A = Frequency of ocurrence, B = Magnitude of perceived pay imbalance, and C = gov't job vs private sector job.

In order to solve for the impact of A, you must hold B and C constant.

eightnine2718281828mu56 said...

So the aggregate concern for compensation structures of hedge fund managers would be much higher than the aggregate concern for the compensation structure of the City Manager of Bell, CA.

eightnine2718281828mu56 said...

And by your calculation, the drafting of people into military service during WWII and Vietnam must be the intolerable act of a repressive regime.

It was a government job, the pay sucked, and millions put their lives at risk.

Anonymous said...

I don't know, 89. I suppose it depends on the value of C, doesn't it?

eightnine2718281828mu56 said...

It's hard for me to get het up about the supposed injustice of marginal tax rates when I think of all the people lying in military graves who made our pampered lifestyles possible.

terrapin said...

89 - You probably get this a lot, but way to stay on point.

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