Don't Miss Out On Great Gains! - Best Investment Newsletter


Don't miss out! Subscribe Now

Search For More

Thursday, May 07, 2015

I Was Wrong. High Taxes Only Bad for Manufacturing Jobs

I was wrong.... I used to think high tax rates for corporations were bad for all jobs. My argument was corporations would move from high tax places like the San Francisco Bay Area or New York City to cities, states and even countries with lower corporate taxes. This was only partially right and we have the housing and job boom in the San Francisco Bay Area as proof.

I blame Massive Pension Obligations for Runaway Growth and Gridlock.

If you live in the Bay Area or visited recently, you will see how the local governments are handling their massive pension debts. They sell our quality of life to developers who build MASSIVE housing projects for expensive housing for the new, high tech workers they allow into the area.

Some fight the conversion of low cost housing and business rentals to expensive homes for both altruistic (the poor who care for your kids need a place to live nearby) and selfish (less gridlock) reasons.  Cities allow massive, expensive housing to create gridlock as they need the tax dollars.  Do any locals benefit from 1B/1B apartments that cost over $5,000 a month to rent in what used to be a Sears parking lot?



This UGLY building blocks our once beautiful view of the mountains while contributing to the massive gridlock on San Antonio Road at the Palo Alto, Mountain View and Los Altos border.  I have no need for another place to buy a $50 lunch or a $5 coffee either.

While saying we need "affordable housing" they are in the process of closing down the trailer park in Palo Alto so the citizens, mostly low skilled "immigrants" who take care of the yards, homes and kids of the wealthy in the area. They live in tiny mobile homes here so they can send their kids to the great Palo Alto schools. Some in Palo Alto want them to stay and are trying to compensate the land owners via tax dollars to let the trailers stay. 
This is land where they can easily build $2M condos in a huge high rise and raise a bundle of taxes since the location is but a short bike ride from Stanford and about equal distant from Google and Tesla, maybe 2 miles away.

Low rent housing and family business are getting pushed out and the cost to live here is soaring.

All the property taxes on the new development will pay the promised pensions. They know it is either do this or cut programs to generate the funds to fund the pension shortfalls.

It is gridlock all over the Bay Area....

I was wrong that massive taxes hurt jobs. 

I need to modify that to high taxes are bad for "working class jobs" such as manufacturing. 

When I started as a summer intern at HP in 1978, we had hundreds of workers doing assembly from chips to finished products.  These were great jobs that didn't require a college degree but had good pay and benefits.  Now none of these jobs are done here as Apple and HP build their products in China.

Cypress Semiconductor CEO TJ Rogers said on TV that he'd have to pay about 9% sales tax just to buy equipment to build a new fab here in Taxifornia... then there is the 2% a year property tax on the land and equipment.  

The super smart who built the internet or are building the new things today will just charge more for our services so we can live wherever we want. The people who came up with software to run Uber or Lyft get rich while the workers all around the World find out how little they are worth if people have the opportunity to look for price competition.

The VCs and CEOs can afford housing that doubles.  Two lots in the area recently sold for about $2M each and they were both torn down to build beautiful new homes that can probably sell for $3.5M to $4M.
The realtors told me many paid cash and there are many with cash after $10M "liquidity events" such as Tesla, Facebook and Twitter IPOs... not to mention soaring Apple stock and massive Google stock options to insiders.

Rather than raise the minimum wage, which will drive more restaurants to follow the lead of Armadillo Willy's that eliminated wait staff long ago to save on total cost of the bill and save labor costs, we need to cut the corporate tax to zero or at least make it very low.  

Perhaps have a zero corporate tax rate for companies who manufacture as much in the US as they sell here while those who manufacture more overseas pay 25% to bring money earned overseas back to the US.    Companies will use the money to hire workers here and we can tax the workers to recover the taxes we were not going to get anyway as they continue to build overseas.  Fix the laws so individuals can't avoid our high, personal tax rates by becoming a corporation... 

What do you think?

Kirk Lindstrom's Investment Letter Performance

Followers (New)