How to Keep More of Your Income While Creating Unemployment for Your Fellow Americans

[Boojatta]

Does the low tax on so-called "capital gains" create an incentive to transform employed Americans into unemployed Americans?

Suppose that shareholders are considering two candidates for CEO. The old CEO wants to continue to employ many Americans. The person who wants to replace the old CEO promises to increase dividends for shareholders by employing fewer Americans. This isn't a class issue. Mid-level managers will lose their jobs. Non-managers who do unskilled work and who have little education will lose their jobs. Highly educated non-managers who do skilled or professional work will lose their jobs. Non-managers who have a lot of education, but who are doing jobs that don't use their education will lose their jobs.

The work will be done in some other country, a country that doesn't provide much protection for employees or the environment, either in legislation or in reality. However, it's a country with lower wages, and the lower wages translate into lower costs, higher profits, and higher dividends.

The shareholders vote the old CEO out and the new person in. The new CEO receives stock options. The new CEO buys stock, and receives dividends associated with the stock. Then the new CEO fulfills the promises that were made. Americans lose their jobs, profits increase, and dividends increase. The shareholders receive higher dividends. The general investing public sees the higher dividends and is attracted to the stock. The stock price increases, benefiting the new CEO and the shareholders who voted for the new CEO. It seems that everybody wins.

What about the American employees who lost their jobs? Dividends are called "capital gains", but did higher dividends indicate that the company built up its human capital of American employees?

When capital gains are achieved by slashing jobs for Americans, why should those capital gains be taxed at a rate lower than what the CEO pays on his or her salary income? Wouldn't it be better to have an incentive to create jobs for Americans? Wouldn't it be better to at least have no incentive to put Americans out of work?

[BeFree]

1. Hey, be careful.

Wellstone used to think like that.... and what happened to him?

Anyway, our DoD, mainly the US Navy, makes it possible for jobs to be moved overseas. Our taxes make it possible for us to lose our jobs.

[ProgressiveProfessor]

2. Actually dividends are not capital gains. Go back and try again

[Boojatta]

5. Your diagnosis is correct, but ...

didn't I provide enough information for you to play a role in formulating the idea without errors?

For example, the Original Post includes this:

The general investing public sees the higher dividends and is attracted to the stock. The stock price increases,

[ProgressiveProfessor]

8. The investing public rarely judges by dividends alone

except in the case of the so called widows and orphans equities, if any still exist these days.

[Boojatta]

9. In the scenario that I described, aren't there profits?

What if in a real life situation parallel to the scenario, but more complicated than the scenario, not all of the profits are paid out in dividends? Can you think of other ways the money might be used, ways that might impress the general investing public?

[Crazy Dave]

3. A lot of the stimulus and bailout money went overseas

The main priority was for the companies to become profitable again, not to create more jobs. GM used most of their bailout money to build and expand factories overseas.

Of course they created and saved a few jobs here in the US for PR purposes.

[dkf]

4. Shareholders vote the CEO out? When is the last time that happened?

[Boojatta]

6. That was to make the story line clear, with a character representing each option.

If the old CEO is the one who cuts American jobs, increases profits, increases dividends, observes an increase in the stock price, and benefits from the perverse incentives of the tax treatment of capital gains, then the main point remains the same. There's a perverse incentive in the tax system to put Americans out of work.

[dkf]

7. Once I saw it predicated on voting the CEO out the scenario seemed unrealistic.

This decision probably wouldn't come down to a CEO discussion. The closest you would come to shareholder approval or disapproval comes at the announcement of the move and the subsequent move in the price of the stock. It is probably a provable point, just look at historical numbers. You would need to try to remove normal market movements though and the announcement of such a plan may not be due to simply trying to make more money but a company forced to make a decision like this or it will fail. If GM had kept it's size and capacity it probably would have failed yet again. It simply had too much capacity.

[Boojatta]

10. Does moving manufacturing facilities overseas reduce the capacity?

If they're producing more of a particular product than people are willing to buy, then why not simply produce less? Why set up factories overseas?

[dkf]

12. It's overcapacity at that price point. Bringing down the price creates demand.

[Statistical]

11. So many inaccuracies...

Shareholders vote a CEO out? please let me know in which major company shareholders even have the option of voting for CEO? CEO are usually selected by the board.

Dividends are not capital gains.

Lately shareholders have been punishing stocks which only have bottom line gains.

[Boojatta]

13. Besides the inaccuracies, is any part of the Original Post interesting enough to warrant comment?

Also, do you prefer Original Posts that aren't interesting?