Tag Archives: tax

Tax Cut ≠ Jobs

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On the news, we see business top-dogs complaining tax is hurting the job market and the company’s operation. In economics class, we learn that free market is the way to go and tax would create dead weight loss for the society. But is it really the case? A blog post by billionaire entrepreneur and my favorite sport team Dallas Mavericks’ owner Mark Cuban explained the relationship and pretty much nailed the issue.

When a CEO publicly criticized a tax, it is not because he is concerned with the company’s well-being, it is for his PERSONAL gain. Lower tax means more money in his pocket. Companies do not stop hiring people because of high tax rates, or vice versa. Taxes do not stop companies from investing either. Mark Cuban phrases:

I wonder if Amazon hesitated in developing and releasing the Fire because they were concerned about corporate tax rates ? I wonder if Dish looked at corporate tax rates before they determined the strategic value of buying spectrum. Think Apple looked at tax rates before it decided to open their stores ? Did McDonalds bring back McRibs because the tax rate was low enough ? Companies make strategic decisions every day.  They invest because they want to grow the company. They invest because they are competitive and they want to win. They invest because they want to make more money. They don’t invest because they just had their tax rates lowered.

Theories are always theories. No matter how much you learn, it does not matter if it does not apply realistically. Too many economic ideas over simplify the real situation. They might sound great, but communism is a great idea in theory, too. Maybe policy makers can realize this and make decisions according to real numbers and stats if they want to fix the economy, instead of relying on advisers who care only about their personal gains.

(On a side note, Mark Cuban is probably the only “1 percenter” who is in favour of more taxation on the rich. “Be happy that you have the chance to write a big cheque to the government” and “Tax the hell out of Wall Street” are some quotes from his blog. For more, visit blogmaverick.com)

Accountant’s Magic – NBA Style Pt. 1

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Recently in class and in the tutorial section, we have talked about financial accounting and how a company’s financial report can be misleading. I immediately related the topic to my “beloved” NBA and the teams’ infamous profitability to avoid tax.

“Under generally accepted accounting principles, I can turn a $4 million profit into a $2 million loss and I could get every national accounting firm to agree with me.”    – former Blue Jays VP Paul Beeston

First trick is the RDA, Roster Depreciation Allowance(see article). Introduced in 1959, the allowance argues that players are a depreciable asset once they are paid. Indeed, a 35-year-old player’s value might be decreasing over time, but there are young players who might develop multi-million values in a short span of time. This is their own personal earning power change, not the teams’. The trick is to list both player salary and RDA (loss on players’ contracts) as operating expenses. Well, if the team spent 50-million on players, the maximum loss would be 50 million, which is the worst case scenario that all of them got permanently injured and cannot play. However, under the RDA, the team can post another 50-million-dollar loss in this case, and the total loss suddenly become 100 millions, and that is significant.

So , when you see a sports’ team losing millions of dollar for more than 5 years, you might have to wonder why they can keep operating normally. Of course, it’s the “love for basketball”, the owner might say.