It’s been proven time and again in over two hundred years of recorded American history, but some people still don’t get it – the government is not the most efficient spender of money.
On CNBC’s March 4 “Squawk Box,” in the midst of reporting jobless claims and productivity data, the network’s senior economics reporter Steve Liesman offered the suggestion that since some banks were increasing their stock dividend, more lending might be on the way. That could be a sign the economy is coming around, but “Squawk Box” co-host warned it could also mean banks want to pay out dividends before the taxes went up on them:
LIESMAN: Isn’t right before the banks start to lend, they’re going to increase their dividends first. That’s the way they’re most likely –
KERNEN: They better increase their dividends because when the dividend tax goes back up – when does that go back up?
WILBUR ROSS (Chairman and CEO of WL Ross & Co LLC): Next year.
KERNEN: Next year, after taxes, they won’t have the same after-tax return. If you like the wealth effect of stocks rising, it would be nice not to have to just match your after-tax returns –
Lower taxes would have an impact on the size of government deficits as “Squawk Box” co-host Carl Quintanilla pointed out and this prompted a debate on where the appropriate tax rate should be, with Liesman advocating the pro-tax, pay-down-the-deficit approach.
QUINTANILLA: But if you like the paying down deficit –
LIESMAN: No, we want to pay down the deficit and not collect any revenues. We think we can do it. We’d rather complain about both sides of it.
KERNEN: Why don’t we pay 100 percent tax and pay it down immediately?
LIESMAN: Zero tax, Joe. If low tax is great, no tax is greater.
KERNEN: We got to figure out a way that somewhere between zero and a hundred is a good idea.
LIESMAN: We can agree on that.
KERNEN: Good, maybe 90 percent is not great. Maybe 60 [percent] in
LIESMAN: Maybe 35 [percent] is good. Maybe 25 [percent] is better. There’s a point in time.
Fortunately, Liesman was surrounded by more rational people that understood the implications of higher taxes. CNBC CME Group floor reporter and Tea Party movement inspiration Rick Santelli proposed those who want higher taxes to voluntarily pay higher taxes.
“It’s not illegal for people to donate their own check,” Santelli said. “Come on – they can do it if they want. Come on, everybody put their money where their mouth is.”
But Liesman argued that in this economic condition, with unemployment at 9.7 percent and stocks way off their 2007 highs that the business community is making way too much money, thus taxing is appropriate.
“All I know is I look at the numbers out there and business is making money hand-over-fist right now,” Liesman said. “As much complaining as you get from the business community about the environment right now – they’re making more money as a percentage of GDP than we’ve seen in a very long time.”
Kernen pointed out that, whatever the tax rate, giving money to government is an unproductive allocation of capital.
KERNEN: At least you know it’s going to be well spent by the government --
LIESMAN: I’m not talking about what the government’s making, I’m talking about what business is making, Joe.
KERNEN: Yeah, but when it goes into at least 100 cents on every dollar will go into productive use.
LIESMAN: I don’t know what you’re talking about.
KERNEN: I know you don’t.
LIESMAN: I mean … the government’s tax rate right now on corporations is 35 percent and most pay much less than that.
“As we consider the President’s proposal to raise taxes on corporate income, the trend of lower corporate tax rates in other countries should serve as a warning to the