Friday, April 29, 2016

Linkedin Q1 - 2016 results

Linkedin is a company worth fairly $5B today, that could one day hope to be worth $7B-10B, if it performs perfectly.  Its market value is near $16B.

Continuation of my chronicling the eventual collapse of LNKD's stock value.  Previous entry


  • record low growth rate of 26%, excluding $55M in learning revenue that was not part of last year's operations.  $807M revenue.  Learning revenue was also 26% higher than 1 year ago's standalone revenue of $43.5M
  • record low mobile visitor growth.  Down to 25%.
  • record low US and Other Americas growth.  Even with learning revenue which has been explained as predominantly US focused, US talent revenue growth at lowest point since acquisition.  International talent solutions also show record weakness.
  • 2nd largest all time operating loss of $66M.  The record was Q2-2015 which included significant restructuring charges related to  Its largest ever tax rebate keeps its net income loss to only its 3rd highest point.
  • 5th consecutive quarterly loss. At least, 9th consecutive quarter with income below $3M
  • Most expense growth matches approximately revenue growth.  30% or so.  The exception is depreciation and amortization which had over 95% growth.  Stock compensation up 40%.
  • Operating loss for the quarter increased $50M over last year.   Mostly due to the last 2 items outpacing revenue growth.  Equipment purchases were even higher than depreciation (assuring further increases)
  • record high depreciation ($95M  - 50% growth), amortization ($47M - 400% growth) and stock based compensation.($146M)
  • Free cashflow less stock compensation continues the negative quarterly string.  -$71M.
  • Comparing to Q4-2015 is appropriate because revenue was almost the same, but operating costs were $40M higher.  $10M more marketing spend to get the same sales.
  • Comparing to the entire fiscal year of 2013 is interesting because Q1 revenue is a little over half that of the entirety of 2013.  Depreciation and amortization in Q1 ($142M) was higher than all of 2013 ($135M) (still about 75% of 2013 without amortization).  Every other expense category is still a higher percentage of revenue than it was then.
  •  $890M revenue guidancce for Q2 is $865M excluding partial results for last year's operations.  Record low 21.3% core growth.  The same poor guidance tone as given last quarter.  Roughly the same revenue performance as this quarter, with $5M more SBC, and $2M less depreciation.  For $29M more revenue, $23M in additional other non-amortization operating expenses:  $3M extra "profitability".
  • Full year revenue guidance is increased by $9M compared to last quarter's announcement.  But full year ebitda (bs earnings) guidance is lowered $2M. (explained in call intentionally as increased "investment areas, and building product" platforms in all 3 categories.)
  • Forecasts compared to last quarer include: an increase of $15M in full year depreciation.  A decrease of $7M in amortization..  So, last quarter's dismal $400M+ forecast operating loss is increased by $10M.  Somewhat surprisingly, LNKD expects $50M less in stock compensation compared to last quarter's forecast, and so an offsetting expense increase is expected.

Still very bad
The high net income loss without a special reason given for the tax gift, and so high operating loss doesn't make up for the slight uptick in its marketing and subscriptions business.  It did some TV advertising that would explain an uptick in those segments with profit deterioration.  The core deterioration of hiring solutions, its main line of business, accelerated rapidly.  Hiring solutions not only showed a record low growth rate, it is 5% lower than last quarter's record low growth rate. (27%).  It can't talk about how great all of its products and platforms are being engaged, and show this deterioration.

Comparison to Q4-2015
Sales were almost identical:  861M vs 862M.  Noteworthy mix differences include $10M Sales cost increases.  $8M increase in SG&A with $4M stock based compensation increase.  $11M total stock based compensation increase.  On the revenue side, talent solutions dropped its QoverQ growth from 10% last year to 5%.  Tracking its main business line to drop to 20% growth for the year.

Plans for future cost containment
While committing to losing more money through investment this year, and through "late 2017", there's a $50M reduction (from plan... still increase) in this year's stock compensation plan, and an expectation for the year of "only" a 15% increase over last.  This is cost containment compared to 24% revenue growth.  I congratulate them for the comment in the cal: "SBC is a real expense/"

Its overall expenses are likely to still keep going up at least through 2017.  There is a vague (relative to my ability to follow) reference that at the end of their through-2017 investment program, 40% operating expense savings will occur in cost of revenue, which would be a 548 basis profit margin improvement.  The problem is that it has a -767 basis point loss margin, (906 basis point operating loss + other expense margin) and so even that plan together with 100 basis points of stock based compensation savings, it is not enough to reach profitability.  Furthermore, continued massive depreciation expense increases are assured through 2019 putting pressure on profits until then.

Its also hard to understand that their equipment/datacenter investment program results in switching on a cost of revenue savings of 40% starting in 2017, rather than the less generous understanding that they have been benefitting all along from the equipment/datacenters they have spent a lot on, and the 40% savings is just the total cummulative benefit going forward.  ie. not 40% savings from current levels, but 40% from what it would have been had they done nothing, and so may be 20% or so from current levels, and offset by higher depreciation expenses.

Shareholder Performance Margin
SPM is a performance metric that gives credit to a company for its R&D spending excluding it from expenses.  LNKD's poor results this quarter can't really be blamed on R&D (expense did rise a bit more than revenue), and so its SPM even worse than if its loss was due to intense R&D spending.

LNKD's SPM this quarter is Net income (-$45M) - Other expenses (12M) + after tax(35%) cost of R&D ($154.7M) = $97.7M or 11.3%.  This is deterioration over Q3-2015 (12%), but an improvement over Q1-2015 of 10%.

One interpretation of SPM is the imaginary profit ($97M) that would have resulted if 0 were spent on R&D, but the more useful interpretation is that the SPM determines the break even revenue benefit required for each $ spent in R&D.  At 10% SPM, each $ of R&D must create $10 in revenue.  11.1% SMP: $9 revenue.  12.5% SPM: $8 revenue.   Companies such as FB, GOOG, and MSFT all have SPMs above 30% which means they only need $3 in extra revenue to break even for every $ spent on R&D.  LNKD is a sales intensive company with no profitability potential, and so a much higher bar for its R&D efforts.

LNKD's SPM isn't even as good as calculated if we consider their mysteriously large income tax benefit.  In fact, the company has warned that it will take a $100M tax charge next quarter.  The default explanation is that previous tax deductions were overstated.  So, its tax policies aren't necessarily sustainable.

An alternate way of calculating SPM is to do it all pretax, and then take the normalized (35%) tax rate off the total to get a shareholder relevant result "exclusive of tax games":  Operating income (-66M), other expenses (-12), R&D (238) total:  $160M.  $104M after tax.  12%.  This looks better than the initial calcualtion but compared to Q4-2015, (0.65*185/862 =) 13.9%, and Q1-2015: (0.65*134/638 =) 13.65%, it is a significant deterioration to both.

Companies such as Twitter can have hope that their platform catches on more, but also have imaginable monetization of products such as periscope.  LNKD, however has no major growth drivers or potential.  Similar to YHOO, EBAY, YELP.  It can iterate new versions that drive engagement in the short term, but it has to keep loosing money to get these pops, and even if it makes the service better, its unclear how it drives revenue and profitability . Its low SPM means its innovation efforts have to have big payoffs, but none of them appear to have that potential.  Though Twitter is still losing money, it has shown a pretty consistent trajectory of losing $80M less year over year.  So it is getting useful growth.  LNKD is going in the wrong profitability direction, with no growth headroom.

Last quarter, I calculated an optimistic $7B 2027 valuation based on annual sales increases of $600M, and after tax profit increases of $35M per year starting in 2018.  $7B valuation is based on $350M annual profit ($500M pretax) with 6% sales growth.  Without sales growth, double the profitability is needed to have the same valuation.  I was assuming cost general containment similar to what was announced.

Information provided this quarter suggests that there is at best a delay to profitability start.  Its possible that the steps they announced eventually are part of a higher profitability plan, but it will be 2019 to more likely 2021 before depreciation expenses come down enough for break even without other measures. (this conclusion is based on tea leave parsing of comments and not completely reliable).  8 years of $50M profitability increases ($75M pretax) is an $8B valuation.

The case against such a success story is the sales expense growth it has pursued to achieve its current struggles.  It must find 1267 basis points of profitability from here to get to a $7B valuation on $10B sales.  1767 points to get to $14B.  Sales expenses will be a headwind in this as it expends more chasing higher hanging less ripe fruit.  The most generous possible reading of their 40% cost of revenue improvement would still have high continuous equipment replacement capex, and the announced "plans" only create 648 profitability points of improvement.

There's no information given this quarter to materially change previous valuation.  LNKD is stepping up its futile overspending efforts.  Though it claims investment in some future cost savings, it is also overspending in sales and administrative categories.  In my opinion, the company is trapped into chasing growth in order not to be perceived like Yahoo (stagnant money loser), but Yahoo's problems are also based on seeking not to be perceived like Yahoo.  They have to promise something and then spend to achieve it.

Wednesday, April 27, 2016

Class C shares at Google and Facebook

Even though FB and GOOG are extremely valuable companies that are well run, their stock is worthless to outsiders due to centralized ownership of the companies.  The issuance of Class C stock is the most tangible diversion of social (corporate) resources for private (concentrated insider owners) benefit, and corruption of regulatory structure that permits such publicly listed stock scams to exist.

Classes A B and C stock
At companies such as FB and GOOG, class A, B, and C differ in each having 1, 10, and 0 votes per share respectively.  Class B shareholders are the real owners of the company.  At FB and GOOG, the founders have over 50% the voting rights, but even when class B shares are distributed more widely (still among insiders) there is an alignment of interests that include paying as much as possible to class B shareholders (stock compensation, and whatever other favour trading that is possible to get loyal voting).  Class A shares are the ones that trade on the stock market.

If there are 100M class B shares, then you/they may issue up to 1B class A shares while still maintaing 50% control by the class B holders.  They can issue all of those class A shares to themselves, and then sell them, and create free money for themselves with no loss of control.

As awesome (for them) as that is, 1B of class A shares is still a finite number of free money printing opportunity.  Class C shares with 0 votes, is the infinite free money printing opportunity.

The only right that a minority stockholder has is IF the majority approves a takeover or dividend declaration, then you have the right to an equal share of the proceeds.  But for dual/triple class share structures, why would the insiders ever accept an offer that pays the muppets as much as them, incstead of keeping control over their golden goose?  And issuing more class C shares is always a more attractive option to them then reducing the piggy bank they control by paying out dividends.

Wanna buy 49% of my house?
I get to decide who lives here (me), and when and for how much to sell it.  When I sell it, you will get 49% of the proceeds.  Its a bad deal for you, but you are welcome to contact me if you want.  With class A and B shares, I get to sell 89% of my house with the same control power.  And with class C shares I get infinite dilution opportunities.

The Google Class C offering
was interrupted by a lawsuit which was settled (details next paragraph).  As I understand it, only class A shareholders were given a class C share as dividend which implies there was no direct profit by class B insiders from the class C split (I am not 100% clear that this is the case.  I am going by the media whitewash of the scam).  Another measure that is a relatively strong shareholder protection is a provision that forces conversion of class B shares (to A) when new class C shares are issued.  These provisions are reasonable limits to to full greed infinite money printing, but still entrench the intangible control benefits of Class C flexibility.

The lawsuit settlement  likely involved undisclosed benefits to the plaintiffs, as the concessions made only prevent the C shares from becomming worthless quickly.  For 1 year after issued, there was a "price cushion" guarantee on their value relative to A shares.  For 3 years, there is a mandatory internal review of new Class C issuances that mostly needs to meet Delawares, more corrupt than Panama, standards for non-egregious dilution.  Class C shares achieve complete intrinsic worthlessness.  The plaintiffs can deny receiving undisclosed benefits on the basis that they ahve a long enough window to liquidate Class C shares.

The Google Class C offering is a modest scheme to extract a couple of $billion or so for its founders without loss of control.  Google C shares currently trade at a 2% discount to A shares.

The Facebook Class C offering
is much more nakedly greedy (page 57).  Giving 2 class C shares for every class A AND B share means that it allows Zuckerberg an opportunity to liquidate about $8.5B without diluting any of his 54% control stake in FB.  (assuming $320B~ current market cap, and that class C shares trade close to A value, and that Zuckerberg has 5.4% of shares).  The proposal explicitly intends to use C shares as printing dilution permitting acquisitions.

Mr. Zuckerberg has ample further opportunities by chanelling his shares through "shell corporations", mainly through borrowing money against their collateral value.

The philanthropic justification
I believe Mr. Zuckerberg has a sincere interest in helping the world, and also believe that the world, in aggregate, would be a better place if we permit him to pull of this stock scam.  The arrangement lets him spend say $150B+ on improving the world instead of a mere $20B to $50B.  Internet basic (free internet limited to wikipedia and facebook in developing world) is a better option that improves the lives of people with no other choice than no facebook/wikipedia, but there are obovious commercial side benefits to such philanthropy.

The pharmaceutical industry is the most blatant justifier of extortion on the philanthropic grounds that the extortion will fund research into life saving (extortion) processes.  It is not a legitimate justification for extortion.  First, their pile of money will be invested based on the profit/extortion potential of research results.  Second, profitably, socially sanctioned, extortion models are fairly easy to finance with other people's money.  The extortion only buys the freedom from having to share the proceeds from future extortion by forming partnerships for those ventures.

So, even if I consider Mr. Zuckerberg a sincere philanthropist, its not a justification for stealing from shareholders.  There is also a distinct possibility of not achieving commendable or worthwhile philanthropy despite portrayed intentions.

The case for class C shares
Just as we trade for green coloured paper on faith that tomorrow it will be worth the same as today, class A and C shares have pyramid scheme value even if they have little or no intrinsic value.  There is a muppet who will still buy the share tomorrow.  The same argument should have made what Bernie Maddoff did just as regulatory approved as these stock scams (which are in fact illegal in most countries).  Those who got in early enough with Maddoff made money, and the total money made = total lost.  So what if the promises traded are intrinsically worthless?

30 to 60 years from now, the shares will convert (succession clauses) into a real share with dividend potential.  In my opinion though, its too long to wait and tech, even more so than other, companies do not have sufficiently good longevity track records.

Bad precedent for society
Google's class C offering was the first bad precedent.  FB's severe escallation should not be excused on philanthropic grounds, because that is a precedent that will allow other companies to duplicate it on any grounds.  The SEC and public stock exchanges should not be allowing dual share structures at all, but congress and regulatory intervention should be used to stop this Facebook plan.

Tuesday, April 12, 2016

US Presidential election and primaries: Sanders endorsement

The president of the US has significant power in regards to foreign policy, but his power domestically is limited to cheerleading for legislation, and blocking "bad" legislation.  The media is far more powerful than the US president on domestic issues because they can ridicule and ignore championing of causes, and pressure for "evil" causes.  The media and political establishment are controlled by agents who need you to accept evil that advantages their masters.

Independence from the political establishment is an important quality in a candidate.  But that only premits blocking evil from the political establishment's masters.  The other important quality in a presidential candidate is their thirst for power and warmongering.  Philosophical glimpses and attitudes and moral compass are the dominant qualification for president.

Obama 2008: Hope and Change
He ran a very progressive campaign, and voters assumed that universal healthcare was the goal/campaign promise.  Sanders' campaign is more progressive than Obama's.  HRC's less so.

Obama's campaign was also highly critical of Bush's warmongering and police powers.  Policies that HRC supported.

Obama Presidency
While the ACA is a progressive improvement over the state of healthcare prior to 2008, it was strongly influenced by compromise with the medical and insurance political establishment.

Obama's administration progressively normalized relations with Iran and Cuba.

The miltary and oil establishment
US middle east policy is primarily concerned with destabilizing the region, both to justify military budget and keep oil prices high (preventing oil production and investment through chaos).  This is aligned with Saudi Arabia's interests for the region, and their friendly US military purchases.

In this light, normalization of relations with Iran can contradict 40+ years of demonization, and non-humanist motives for doing so must be that Sunni control over middle east chaos is out of hand, and Iranian cooperation is seen as essential.  Anti-Syrian ramp up is primarily influenced by pipeline project proposals.

HRC has entirely internalized establishment's world policy views.  The difference between Republican and Democrat establishment view on world domination is overt aggressiveness vs passive-aggressiveness-coalitionism.  Obama's campaign had more independence than HRC, and it still turned into a relatively belligerent establishment administration.  It of course could have been much worse, and it would be somewhat worse with HRC.

Power breeds thirst for power
That police wish to have more power is a natural thirst.  Service to National power and security interests naturally leads to confusing every personal ambition with national ambition.  Indoctrination can drive corruption, but service to the establishment can't have an idiotic zombie defense.

HRC's psychiatric deficiency to be president
"Women have always been the greatest victims of war" is a statement only an extremely self centered psychotic can make.  It internalizes the importance of how other people's real suffering could affect one self and then replaces that moment of empathy as the central harm at issue.

In my global power ambitions, I would feel really bad if you had to die to serve them, but I also want my global power ambitions.   Crying at your funeral is a sacrifice I'd be willing to endure.  If I must instead submit to your presidency, then I am concerned about you defending my sacrifice with how sad it makes you that I must die.

HRC would be a better president than any republican
HRC has mirrored support for most of Sanders' domestic policies after Iowa and New Hampshire primaries.  Concern about her sincerity is valid above and beyond every politician's tendency to say what we want to hear.  She has never expressed anything thoughtful publicly.

Yet every republican presidential candidate would not block every stupid republican congressional idea proposed in the last 8 years, and she would block some of them.  She would still stop the most anti-social destruction of America all republicans aim to inflict.

Democratic establishment view on financial regulation
The Democratic party establishment's view on financial regulation has catered to financial lobbyists choice of their own punishment.  HFT (high frequency trading) is not an establishment practice, and a distraction issue.  Hedge funds while not providing any constructive value to the world are not destructive either.  They have little to do with the financial establishment, and so are the offered scape goats to sacrifice.  Financial transactions taxes are stupid ideas designed to sound tough while failing to pass legislative action due to they being stupid and giving republicans the opportunity to show they are stupid ideas.

HRC supported (prior to New Hampshire primary) extending the "vest time" for long term capital gains deductions.  This is clear coziness with the financial establishment, as these current tax incentives are already stock market supporting scams that trap investors into locking up their money with wealth management services through "tax carrots" and permit insider knowledge predictability of funds flows in their trading practices.

After New Hampshire, HRC proposed the essential progressive normalization of investment and employment income.  I have not heard Sanders agree.  This usefully raises significant revenue, equalizes investment return opportunities for non banks, closes fundamental loopholes in the tax code, returns excess corporate cash to the economy so that new good ideas or consumption can be funded, and is the first step to eliminating tax penalties for employment (corporate and personal tax rates must also be equalized).

Other effective financial industry regulation are maintaining or raising the reserve requirements to ensure low financial crisis risks (no need to explicitly break up banks, but a "too big to fail" premium on reserve requirements may incentivize those affected to restructure).  Instead of a transaction tax, an income surtax on financial profits (that applies to every company and investor) is an excellent revenue generator model, mitigates income inequality, and has absolutely no propensity to cause capital to be put under a mattress instead of invested.

It is irrelevant whether Sanders's financial regulation stump speech lacks workable policy details, or doesn't yet include the only effective proposed reform (made by HRC).  I trust that Sanders, after he is president, will listen to both the financial industry and progressives to find reform proposals that increase revenues and protect the financial system.  HRC is more likely to shift towards financial industry pocket proposals after the primary.  The financial coziness with the establishment is a disqualifying factor (except when considering HRC against republicans).

Oil and environmental establishment policy
Coziness with the oil industry is another disqualifying factor for HRC.  Obama is very much closer to Democratic establishment views on oil and climate change, than on progress:  Say progressive things, and do nothing, other than propose research grants to donors.  A carbon tax and dividend scheme is the only progressive solution to climate change.  Allows a higher tax, that necessarily better shapes behaviour, but returns the tax proceeds to citizens so that they can invest their own money in energy savings.  It permanently obviates the personal advantages of conservation, non-pollution, and mutual preservation instead of pointless hypocritical peer pressure while personally profiting from destruction.

Sanders is most likely to prevent inaction on climate change, and the most likely to be persuaded to adopt carbon tax and dividend policy, or end up with that compromise (compare to carbon tax and empire proposals).

Trump's establishment independence: Hitler or centrist?
 Trump's "Make Trump great again" campaign expresses childish views on "America as a sport team" that must run up the score on all others.  Its unclear whether it is more important to Trump that the US continues to dominate and control NATO and the UN, or that the US's minions pay more for the privilege of being dominated.  Someone would explain to him that belligerence is counter productive, we could think.

The US and its allies have the same monetary policy as Zimbabwe, and the explanation for their financial sustainability so far is cohesiveness and support from the private banking sector.  Too polarizing and belligerent a US president would risk lowering cohesiveness or reducing subservience.

Trump's establishment independence will either cause US economic and military influence to declline through alienation, or will make tough sounding international deals that make Trump look good and strong while giving away money and power in the fine print.  Its a very unpredictable outcome.  There is strong risk that bribery and kickbacks would be the purpose of his power ambitions.  It is fundamentally disqualifying to threaten opponents and their families with worse than waterboarding.

National socialist populism platform ensures domestic oppression if Trump gains the presidency.  International relations implications are too unpredictable, but its unfair to give him credit for belligerence being a mere opening negotiations statement.

Sanders for President
I am told that the explanation for HRC's polling strength with African Americans is their support for continuation of Obama policies and religious loyalty and values.

Religious loyalty in politics has made the state of race relations everything it is today.  It is a right wing manipulation tool.  The Pope has invited Sanders, not HRC, to speak at the Vatican.

President Sanders would try improve on Obama's progressiveness, and better address wealth inequality that I understand affects African Americans disproportionately.

While I disagree with the politics of jealousy that drive wealth inequality as a political issue, it is essential for economic growth that the successful are taxed more, and  that those tax proceeds are used for redistribution.  (The result though is not less wealth inequality, it is more spending, production and less poverty).  Sander's openness to UBI creates the opportunity for compromise with those opposed to using taxation to fund leftist empire.

Republican Job Destruction
 Politicians pandering to job creation is a goto stump point.  Tax cuts have the opposite effects though:  It lowers corporate spending incentives, and less redistribution lowers consumer spending which further lowers corporate spending/investment.  The biggest problem with republicans is the complete disconnect with productivity advances that continuously reduce the future need for menial labour.  Sure, driving down wages to match China, then Vietnam, then Gabon by increasing the pressures that make submission/slavery a rational voluntary choice, essentially forcing labour through limiting alternatives to coercion, can increase labour participation slightly.  But aggregate wealth is increased by productivity advances and redistribution.

Tarrifs aren't job creators either as the domestic manufacturing starts that do occur are heavily automated, and a 40% cost increase on imported goods might make Apple US made iphone and computers $200 to $500 more expensive, or $50 to $100 more if just assembly of US models is done here.  But assembly work would most likely be done through Chinese imported robots.

(Useless) Job creation and job protection is the wrong policy.  Tax those fortunate enough to have work income to redistribute to (UBI) those who do not so that they both support production through consumption and can find meaningful opportunities of their own.

Thursday, April 7, 2016

The Panama papers, republicans, tax inversions, and international tax policy

Tax policy can be normalized internationally (without homogenizing tax rates) preventing all complainable effects of tax inversions (corporate HQ relocations), and off shore ownership structures (tax haven wealth management).  It can be done so with a very simple tax code as well.  But first,

Everyone that claims lower corporate tax rates would create employment and investment is intentionally lying, and attempting to increase wealth innequality and destroy the economic health of your society.

With certainty, higher tax rates increases employment and investment, because the tax code everywhere provides business income tax deductions for such spending. and so lowers the risk of  investment/spending

The reason that intentionally destroying civilization and your society through corporate tax cuts can seem very attractive is that tax cuts increase the value of previous investments.  Your investments and spending from 1 to 30 years ago can pay off more with lower taxes.  If your goal is to harvest profits and disinvest in society you can gain a greater share of the scraps by destroying society, than by (re)investing in it, if you view investment elsewhere as fundamentally more attractive.   Globalization creates alternative investment location opportunities, and destructive harvesting opportunities (made more attractive by artificially propped up valuations) at home can amplify foreign opportunities.

Destructive harvesting is an evil human nature opportunity that is not limited to US Republicans and other conservative liars.   The prospects of a Detroit or Chicago bankruptcy can be met by ignoring it, harvesting incumbent city employee and pension income for existing beneficiaries, and making bankruptcy future promissories's problem.  The Goodfellas model is to control a restaurant, steal everything you can, and when there's nothing left to steal, light a match.

US Republican talking points
Obama yesterday announced treasury policy that blocks the high profile tax inversion merger involving Pfizer, and did so with a theme, embracing the outrage surrounding panama papers related tax avoidance strategies.

The Republican talking points (consistent since 1980) response, is what prompted this essay.  All Republican presidential candidates and the controlled media pundits owned by their puppet masters use this news to continue their passionate and emphatic (revolting feigned sincerity) advocacy for lower corporate taxes with the absolute lie justificiation that it would be economically stimulative rather than the intentional scavenging and stealing form society, until civilization is weak enough to drown in a bathtub (light the match).

Lying filth trying to destroy your society (with corporate tax cuts) are more dangerous than thieves and terrorists, because the latter risk liberty and life for their actions.  America can survive an ISIS friendly caliphate.  It cannot survive Republican influence.
Republicans have every right to vote for tax policies that destroy society to their advantage.  I/we must insist that they present an honest case for why we should accept that they deserve those gains and we deserve those costs. 

Corporate tax rate cutter advocates must be denounced as intentional liars rather than idiots for this falsehood.  There is no one in the world who can honestly (or at least with informed rationality) self assess a higher propensity to risk their own capital if their tax rate is lowered.  So, there is blame all around for tolerating the social destroyers.

Ayn Rand's glamourized industrialist
The core simplification of Ayn Rand's philosophy is that industrialists are better more valuable and important people than the rest of us minion hopefuls.  The claim is based entirely on using capital as investment that permits jobs and goods for the worthless minions.  Industrial investment is that investment purposed to production growth (includes research).  The term is used to distinguish between unqualified investment that can include shuffling title to paper, and investing in sure things (cost cutting processes).

The deindustrialist or non-industrialist is someone, who through past events, happens to own assets and is primarily interested in diverting/harvesting the asset income streams for personal enjoyment.  This must be Ayn Rand's lower-than-worthless-minion anti-hero.  The behaviour is the opposite of everything she glamourizes and extols.

Lower taxes reward and motivated deindustrialism.  Higher taxes motivate industrialism.

A powerful mind control technique is that the hero deserves benefits/rewards and gifts from the audience.  Another easy mind control trick is to substitute the industrialist hero for all rich republicans, implying that they necessarily all meet all industrialist ideals based on shared wealth trait.  Few people look for systemic policies that would intrinsically promote/motivate industrialism without gifting additional rewards to heros.  Successful industrialists do not need additional gifts to be happy.  If our Randian adoration is insufficient, the heaving piles of cash can console them.

Legitimate complaints about tax policy
Tax policy is ineffective and unfair where it fails to mitigate investment risks and doesn't treat losses as mirrored tax benefits to the tax cost of gains.

Taxes, when used to support war, cronyism, and needless bureaucratic authoritarian permission hierarchies.  The legitimate complaint about taxes is how the taxes are used.  Basic Income (UBI) is the means to perfectly address this complaint.  (Higher) taxes are redistributed as an equal social dividend, and any social programs are paid for equally through an equal sacrifice of dividends.

The simple (natural) tax policy (suitable for international harmonization)
Originally described here, and refined here,I will describe again succinctly

  1.  Basic income (flat refundable tax credit) with a flat tax on personal income with no preferential treatment for investment income.  This creates more progressive tax system that our current graduated rates.
  2. Corporate taxes based on cash flow (instead of revenue less expenses) including tax deductibility for dividends paid.  Capital inflows (stock and bond sales) are taxed the same as revenue.
  3. Corporate income tax rate equal to personal flat tax rate.
  4. Sales cash Inflows are taxed in the country of the buyer.  Expenses are taxed deducted in the country where the expenses are bought.
  5. Investment inflows and outflows (dividends/interest paid) are taxed consistently in the company's country (or consistently in investor country).  Inflow and outflow must be taxed and deductible in same jurisdition
  6. Countries may have their own tax rates, and all of the special incentives and deductions they wish for expenses.
  7. An optional special supplementary rule, (discouraged later), is a provision for pure exporters to match expense (credits) to some sales (lowering foreign tax obligations from sales instead of creating a domestic tax refund.) .
Simple progressiveness
With a $15k UBI and 33.3% flat tax rate, an income of $45k pays 0 net taxes (15k UBI and $15k income tax).  At $90k income, the net taxes are $15k, and 16.66% net tax rate.  These rates are lower than current major national rates.

Eliminated of arbitrage possibilities
An equality of employement, investment and corporate tax rates eliminates all main income manipulation strategies.  Equality of taxability of revenue and investment inflows further eliminates tax arbitrage.

Special rule: 10% surtax on investment gains
I advocate for a 10% surtax (above and beyond corporate and personal income tax) on investment income gains that is not refunded on investment losses.  This does not violate the unequal risk to reward opportunities of investment due to other features of the tax policy.  For example:

If you were to invest $1M in a company today (with natural tax policy), that is in a country with 50% tax rate, you would receive $500k tax rebate from that government today.  (The company pays/owes $500k in taxes on the investment proceeds).  Net investment cost is $500k.  If 10 years later, you sell that investment for $2M, you pay 10% on the gains ($100k) in taxes in that company's country + the 50% normal tax on the remaining $1.9M ($950k) for total net proceeds of $950k.  (A $450k proft or 90% return). If the investment was worthless 10 years later, there would be no tax payable, and the refund for losses was already paid at the time of investment.

Because of the timing difference between tax rebates for investment purchases and taxes owing for investment sales, there's a fair compensating benefit for the slightly asymetric tax consequences of gains vs losses (the 10% extra tax on gains that doesn't get rebated for losses).

The jurisdiction of this tax (company vs. investor) must be consistent.  Administratively simplest is to tax dividends and interest payments in company's jurisdiction (10% withheld and tax paid directly by company), while taxing gains on title transfers in investor jurisdiction.  For the most complex example, A US IPO selling $1M in shares to  Canadians would have a US tax on the $1M, and the Canadians would get refunded US tax for their investment, then repay the refund (0 net tax) as they move title to Canada, and receive a Canadian tax refund.  When they resell their shares, Canadian tax would be owed on the gains and proceeds.  The location of the investment account rather than the nationality of the investor can also simplify tax jurisdictions.

A hypothetical Ford example
Imagine the flat tax rates for these 3 countries are:  Canada 50%, USA 30%, and Mexico 10%.  If the manufacturing expenses in all countries were the same, then Ford would prefer to do all manufacturing in Canada, because that country offers the highest tax rebates for expenses.

If Costs to manufacture were $500M in Canada, $400M in USA, and $300M in Mexico, then Canada is still the least expensive after tax as it costs $250M vs $280M in USA and $270M in Mexico.

If Car sales were $100M in Canada, $1B in USA, and $50M in Mexico, then Canada could choose to apply rule 7 in order to prevent paying Ford $200M in tax credits ($250M from expense credits less $50M from revenue taxes).  If Canada did apply rule 7, then Ford might choose to manufacture everything in the US.  From Ford's perspective, it could only offset $100M of Canadian expenses with $100M of Canadian sales, and would apply the remaining $400M in expenses to US sales.

with rule 7, Ford and national net revenues for manufacturing in each country:
Canadian Manufacturing:  Canada 0, USA $180M, Mexico $5M, Ford $465M
US Manufacturing:  Canada $50M, USA $180M, Mexico $5M, Ford $515M
Mex Manufacturing:  Canada $0M, USA $255M, Mexico $0, Ford $595M

Both Ford and the US maximize net revenue by producing in Mexico, and Canada loses out by applying rule 7 to avoid paying $200M in tax credits to Ford, that it would make up anyway by the 50% taxes collected on the parties Ford is paying $500M, and the multiplier taxes from their respending that is normally concentrated in the local economy.

without rule 7, Ford and national net revenues for manufacturing in each country: (with itemized personal direct income taxes collected from manufacturing decision)
Canadian Manufacturing:  Canada $-200, USA $300M, Mexico $5M, Ford $595M, Personal C $250
US Manufacturing:  Canada $50M, USA $180M, Mexico $5M, Ford $515M, Personal U $120M
Mex Manufacturing:  Canada $50M, USA $300M, Mexico $-25M, Ford $525M  Personal M $30M

It is advantageous for Canada (high tax rate country) to "sponsor" exporters with high tax rates even when it means significant subsidies to those companies.  The net tax revenue to Canada (and other 2 countries) is the same whether Ford manufactures anywhere, but the calculation excludes the indirect multiplier tax revenue that results from local spending.  So, there is no need for rule 7.  Even if Canadian workers all bought imports instead of local products, the exporters are taxed in Canada, and so all of the Canadian (non travel) worker spending is taxed in Canada.  Whether a company only exports or simply wastes all of its capital, it does not matter to the society's revenues, because all of its expenses and waste will go towards offsetting (personal and corporate) tax revenue items.

From Ford's perspective, there is a significant advantage to manufacturing in the highest tax country.  But other country's tax policies do not affect any other country's direct tax revenue.  It can still make sense for Ford to have local operations in each country for example to manage transportation costs, spur local demand and have local retail/dealership operations.

Factors determining optimal national tax policy
Under natural tax policy, higher tax rates causes inflationary pressure on wages, and attracts production which also pressures up wages.  These issues have meaningless consequence to the host country, but it affects the operational costs of a company that may will to produce there.

For example, if Canada had a 50% tax rate, but universal healthcare and $15k UBI, and the US had a 30% tax rate, no UBI, and employer funded healthcare, and a good entry level job has $35k after tax pay:
  • in UBI Canda:  $70k salary ($35k cost) gives $50k after tax income with health coverage.  $40k salary gives $35k after tax pay.  Perhaps UBI makes people less desperate for work, and so a salary between $40k and $70k is needed to qualify as a good/attractive job.
  • in non-UBI USA:  A $50k salary gives $35k after tax pay, and an additonal $10k health insurance benefit must be paid for.  Total of $60k expense. $42k in after tax expense.
Even If Canadians only want to work for $70k, its less cost for Ford to hire them, and they make more after tax than their US counterparts.  If too many companies are producing in Canada, then workers will be scarce and they may need to produce elsewhere.

Countries that want to attract imports, unemployment/wage desperation, tourism and create an isolated economy could prefer low tax rates.  Generally, countries that are tightly controlled by groups that can channel national wealth to themselves.

Sales vs income taxes
This systems resembles slightly a pure sales tax system, in that GST/VAT systems generally have input credits.  Some people advocate moving away from income tax to a purely sales tax model.  Those suggestions are poorly considered.  Differences between sales and income taxes:
  1. Employee salaries are not subject to sales tax, and so are not deductible by employer.  Unreasonable incentive for automation or outsourcing.
  2. Primary housing rent, non-sugary food are generally exempt.  Both Landlords and food industry shouldn't pay taxes?
  3. Promotes a thriving non-taxed secondary market that attracts other non-taxed sales.  And promotes shopping tourism outside the jurisdiction.
  4. Taxes savings rather than income.  The transition from income to sales taxes is a gift to earners, and punishment to those with savings who previously paid income taxes to accumulate those savings.
The only case for sales taxes is that it captures some revenue from those who earn untaxed income.

International retail transactions
Natural tax policy can work simply with international trade.  A simple list of each country's tax rates is all that is needed.  While a sales tax system is not generally recommended, price+tax itemization works effectively for international trade.

In the previous hypothetical Ford example, if production were 100k cars, then the unit cost would be $5k/car in Canada (2.5k after tax), $4k/car in US (2.8k after tax), and $3k/car in Mexico ($2.7k after tax).  A car produced in Canada can be sold for $2777 in Mexico ($2500 / (1 -10%) tax) to break even with costs.  Or $5000 in Canada.  A car built in Mexicdo can be sold for $5400 in Canada to break even, or for $3000 in Mexico.

To avoid calling it a sales tax, a revenue tax rate can be applied to each customer country.  The formula is 1/(1 - taxrate).  In our example, Canada 100%, USA 42.86%, Mexico 11.11%.  A retailer in Canada who wishes to resell a product that he paid $5000 for, with $500 after tax profit margin, offers it for sale for $3000.  The appropriate revenue tax percentage for the customer's location is added to the sales price, and is owed (by seller) to the customer's jurisdiction.  $6000 sales price in Canada, $4285 in US, $3333 in Mexico.

There is no effect on multiple hop resales.  A buyer in Mexico that wishes to resell the item at break even also lists it for $3000 + revenue tax

An investment example
Imagine Tesla Motors doesn't exist and you will create it.  You must decide where to incorporate its HQ, and where to do initial design work, and eventual production.  The same 3 countries as the Ford example are considered with respective 50%, 30%, and 10% flat tax rates.

If you need $1B in capital, whether its your own or other people's money, in Canada, the investors would pay in only $500M, in US $700M and in Mexico $900M (investor consortium can be multinational, only the HQ location matters).  For HQ location, Canada's higher tax rate offers significant advantage in lowering the needed investor recruitment effort.

In deciding where to produce, the same advantages the Ford example had advantage Canada.  Lower after tax-credit expenses.  Deciding where to focus sales does create advantages in targeting lower taxed countries.  Though, this is always secondary to whether a country has buyers able and willing to purchase your product.   Somalia may have 0% tax rates, but that doesn't make it by that fact alone, an attractive dealership location.

If/When dividends are paid, the taxes are owed in the jurisdiction of the company's HQ.  $100M in dividends (10% payback) costs the company (dividends are as tax deductible as other cash outflows) $50M with Canada HQ, $70M if in US, and $90M if in Mexico.  Investors (after 10% surtax + local HQ taxes) receive $45M if the HQ is in Canada, $63M with US, and $81M.  In all cases, the after tax ROI dividend rate is 9%, and equal to 90% (due to 10% surtax) of the paid 10% dividend ROI.

A few years pass, and you agree to sell the company for $3B.  Good call, electric cars are a fad.  There is a 10% surtax on the $2B profit ($200M).  The remaining $2.8B proceeds are fully taxed according to HQ location.  $1.4B after tax in Canada, $1.96B in US, $2.52B in Mexico.  In all cases this is a 180% after tax ROI, equal to 90% of pretax 200% ROI.

If the buyers wish to move the HQ from Canada to the US, they repay the tax refunds they received in Canada ($1.5B on $3B purchase) to Canada, and then receive the US refund rate ($900B) from the US government.  HQ relocated, and US tax rates apply on further dividends and capital gains from the investment.

The tax haven problem becomes perfectly solved
There is more of a reason to invest in higher taxed jurisdictions.  And if you prefer not to pay high priced foreign lawyers to forward your mail, its more convenient to locate your company where you and your sales are.

Even if Panama or Bermuda doesn't sign up to the international tax harmonization treaty, and have 0% tax rates, there would be no reason to set up shell companies there other than hiding your bribery and embezzlement funds.

The reason this works is that taxation is moved from Corporations to investor hands, and eliminates all possible international tax arbitrage by expecting tax collections to come from sales, and does not track distortions instead of cash flow.

If there is a payment from a Panama company to a Russian entity, for whatever reason, it is taxable to the recipient and so incentive to ensure it is tax deductible to the payer.

Tax harmonization with complete sovereign freedom over each tax code
A flat tax does not need to be regressive.  A universal refundable tax credit (UBI) automatically creates net tax rates that progressively increase with income even though a single marginal tax rate applies.  The higher the refundable tax credit, the more progressive the tax system.

There is no obligation for a country to eliminate any non-refundable tax credits, but every country knows precisely how much each non-refundable tax credit costs its revenue, and knows exactly what an equivalent refundable tax credit amount that would replace each.  Non refundable tax credits are inherently regressive because there is usually an income or spending requirement to qualify for them.

Countries can keep their social program budgets and other budget components, or replace as many as they can with a sufficiently large refundable tax credit that obviates away the need for the social programs they replace.  UBI directly eliminates poverty, and so the savings from social program cuts can contribute funding for it, even though the main funding comes from a reasonably high flat tax.  Every philosophy ranging from contempt of the poor or rich to rewarding disinvestors vs investors, can be accomplished by adjusting the flat tax rate and universal refundable tax credit.

On the corporate tax side, the payment of tax refunds for accumulated losses can get delayed or paid in installments.  Similarly for investment credits.  Rule 7, though it was discouraged, is a permissible option.  The case for these payment impediments has to do with fears of tax (revenue) evasion  

One way to set these is to start with the appropriate tax rate your society feels the top earners should pay.  If France, thinks that should be 75%, then that is an entirely workable (probably) option.   That rate becomes the flat tax rate on everyone's income.  With that rate set, any country is able to calculate the refundable tax credit it can afford with its operational budget.  In the hypothetical French 75% flat rate scenario, it could support a UBI level well over $30k.

A better way to set these rates is to first start with the UBI level that comfortably eliminates the most costly social programs, and then set the flat tax rate accordingly.  These rates can be refined continuously as part of the annual budget process.  This is the approach I've used in setting up Canadian tax plans for UBI.  Though instead of attempting to mirror the existing tax code, a flat tax is preferrable because it doesn't change much for individuals, but completely prevents arbitrage with corporate cash flow.

Perfectly solves nationalist trade tensions and job thirst
Natural tax policy taxes where the revenues occur.  Sellers pay the tax in the buyer's country for the full value of the revenue.  Producers get expense tax credits in the production country's jurisdiction.  There is no complainable reason to object to imports.

In terms of job promotion, currently in Ontario, hiring someone at $40k salary (lowest marginal personal tax rate), costs $43k pretax with employer payroll contributions.  Ontario small business income taxes are 15%, and so after tax cost is $36550.  Hiring a machine or subcontractor instead costs the company only $34k instead.  For that $36550 after tax cost to the company (less than 9% tax rebate), the employee only receives (excluding health premiums and tax credits) (20.5% income taxes and 7.5% payroll taxes) $28800, whereas a subcontrator or machine seller would receive the full $34k cost as net benefit.

Where job creation is the loudest political talking point, the most obvious point to challenge is why the tax code punishes business for hiring employees (creating jobs).  Equalizing corporate and personal tax rates is the most obvious job promotion strategy, and raising tax rates is the most obvious investment (includes employee hiring) promotion strategy.

If politicians want their citizens and economy to produce more they should raise taxes.  The effect on purchasing can be minor.  Raising taxes can superficially encourage companies to raise prices in order to meet the existing profitability rates.  But they can superficially just as well keep prices the same to increase market share.  Higher income taxes can never turn a pretax profit into an after tax loss.  But with NTP, companies can now easily avoid all taxes by paying dividends.  So, a company that makes something that costs $40, and sells it for $50, then regardless of the tax rates, the company can pay no taxes by paying the $10 profit to shareholders, and so has no reason whatsoever to raise prices to meet "after-tax profit goals".

Political fights over tax evasion and tax rates are mendacious
If the right wants industrialism and job creation, they need to support raising taxes.  If the left wants job creation and poverty elimination, they need to support the destruction of needless bureaucracies that oversee conditional poverty assistance and unnecessary labour regulations, and replace them with a refundable tax credit sufficient to eliminate poverty and equalize the bargaining power between providers and purchasors of labour by letting both sides freely say no.

There is a simple and obvious solution to whatever evils you can imagine from tax havens, and tax whinning.  No excuse not to adopt them.  Explicit support of systemic corruption explains how our tax systems are the way they are.

Tax plan is not that harsh on Republican Champions

  1. All corporations have a simple path to paying 0 net tax.  Dividends.  Dividends can create refunds in future years for taxes paid in past years.
  2. Rather than complain about Corporate tax avoidance behaviour, it chanels it into simplistic productive motivation, that also places hiring on an even investment competitiveness.
  3. The investor class though they pay much higher rates, are paid with untaxed corporate funds (much higher than post taxed), and more importantly, motivates corporations to repay shareholders on their investment rather than to avoid doing so.
  4. Fairly low tax rates can achieve social funding.  If all existing tax credits are eliminated, net social revenue can be modelled as tax rate * (Personal income-per-adult less universal refundable tax credit amount) + (10% * investment profits (including banks)).  The redistributive nature of a refundable tax credit will further directly increase consumer spending.
  5. A simpler existing tax treaty compatible treatment of corporate profit and investor income is to instead of taxing everything in company's jurisdiction, tax it all in investor's jurisdiction.  The consistency is more important than the jurisdiction.
The General Tax model for an economy
Even today, in almost every country very little tax revenue is raised from corporate taxes.  The profit accountability system permits enough deductions to reduce taxes paid.  With the innevitability of bankruptcy, and the possibility of selling tax credits in bankruptcy, every corporation has an expected 0 cummulative tax rate anyway.

Under Natural Tax Policy (NTP), the following transactions have 0 net tax benefit/cost to the government, and a perfectly reasonable transaction structure is to have the receiving party to an exchange pay the tax due to the paying party:

  1. Business to business trade and investment.
  2. Investor to business investment
  3. Importer business to foreign company payments 
Transactions that are taxed, and can have government remittances at the time of transaction:

  1. Consumer purchases.
  2. Returns of and on investments (At 10% of profits).  But the return itself is tax neutral.
Although individuals can adjust their tax payable each year to be their consumer spending (by making deductible investment decisions)  Those investments create a corporate tax obligation, and so Personal income forms the actual tax base.

The deductibility of dividends encourages corporations to declare more profits, and increases personal income by encouraging them to pay more dividends.  The long term modeling contribution is to model future personal income as personal income + corporate profits, and then to add 10% of corporate profits as social revenue in addition to the flat tax on personal income.  In an environment, where a perpetual corporate profit increase is expected, then this underestimates tax collections, as it does not count the 10% on capital gains.

In the US, Personal income is 15.7T, with 2.1T in investment income.  $6.8T in Corporate income.  Lets use 22.5T as new personal income, with 6.8T as "10% top off".  A 7% flat tax would provide $2.25T in non transfer/social service (but including healthcare) programs (slightly more than current levels).  An additional 20% flat tax would fund $4.5T needed to provide 300M adults with $15k UBI.  Regardless of UBI level though, the average net tax rate would be 7%.  A 27%-30% flat corporate and personal tax is all that is needed to meet US bugetary needs including $15k/year UBI.