Monday, November 28, 2011
I understand why CEOs of public corporations take advantage of every opportunity to condemn taxes. The lower the tax rate, the greater the after tax profit. The greater the after tax profit, the greater the share price. The greater the share price, the closer they come to or exceed “their number”. You know, the number. The share price times the number of shares they effectively own when everything is awarded and vested. It is the number they need to be able to live the life they want to become accustomed to. After all, the ONLY reason you take the job as CEO of a company you were not a founder of is for the money. Period end of story. Lower taxes puts more money in your pocket. If you want an example of how corporate tax rates are important to CEO wealth, just look at how often public companies manage their effective tax rates to move their earnings per share numbers.
I can tell you with complete confidence that when a company’s stock is moving, for whatever reason, the CEO (and most employees with a lot of effective stock ownership) is marking to market his/her holdings and calculating his net worth AT LEAST once a week if not more. Stock is up 10pct, big smile. Stock is down 10pct. , don’t let your dog near him/her.
So we know why every CEO claims that lower tax rates are critical. But does it really impact how their companies are run ?
Bottom line is that while CEOs of public companies and financial engineers have good reasons to ask for lower taxes, I don’t see lower taxes creating jobs. I am not suggesting that increasing taxes is a good thing for companies. That is a topic for another day.
- Competition has a far greater impact on operating a business than the tax rate
- Companies hire because they need people to compete and keep customers happy, not because of lower tax rates
- Companies invest their cash because its strategic
- The exception that proves the rule
(Hat Tip: David Herzig.)