"I believe expensing capital and lowering corporate tax rates would quickly stimulate additional economic activity. "

Here's an argument I agree with on the FT:

"US corporate tax policy is in need of reform

By Frederick Smith

Published: December 21 2008 19:07 | Last updated: December 21 2008 19:07

It is unfortunate that the US, which has led the capitalist world for so long, is woefully uncompetitive in corporate tax policy. We have the second highest corporate tax rate among Organisation for Economic Co-operation and Development countries and many other tax policies that make it difficult for US companies to compete. Studies such as one done by Dartmouth’s Matthew J. Slaughter in 2004 have estimated that 70 per cent of corporate taxes are ultimately borne by the American workforce( EXPECTED ).

Our tax system is particularly onerous for asset-intensive, industrial businesses such as manufacturers and transport companies. For example, Caterpillar, Boeing, FedEx, commercial airlines and carmakers produce goods and services and provide jobs for millions. But to maintain or increase jobs and compete globally, these companies must be able earn an acceptable return on capital expenditure.

How can we make US companies more competitive and increase their ability to offer good jobs? Two things: accelerate the expensing of capital investment; and reduce the corporate income tax rate.

Let us permit US companies to write off all their capital expenditures when they make them, as opposed to the current system of long-term depreciation. Why? Experts such as Ernie Christian and Gary Robbins have said that, over time, every dollar of tax cuts for expensing adds about nine dollars of gross domestic product growth. Even without counting the benefits to the economy of new jobs, it is a relatively cheap option for the US Treasury, since the only cost to the government is the time value of money.

How does this affect American jobs? Let me use an example from FedEx. If we buy a 777 aircraft from Boeing, under the current tax code, we generally write that asset off over seven years for tax purposes. But buying a $150m aircraft is a big risk because you do not know what the market is going to be like when that aircraft is delivered some four years after the order. The best way to mitigate the risk is to allow the company to get that money back quicker. It reduces risk and encourages investment more quickly in equipment, facilities and jobs.( I LIKE IT )

While faster capital expensing is smart tax policy in any case, it is particularly so in times of economic downturn such as the present. ( WE NEED TO DO EVERYTHING WE CAN TO HELP INVESTMENT BATTLE THE AVERSION AND FEAR OF RISK. THIS IS THE MAIN PROBLEM. )

The US also needs to lower its corporate income tax rate. At 39 per cent, it is the second highest in the OECD, behind Japan. The rates of some of our trading partners are much lower – Germany 30 per cent, China 25 per cent, the UK 28 per cent and the Netherlands 26 per cent.

The benefits of multinational trade to the US are well known: more jobs, national wealth, consumer choice, all of which contribute to a better standard of living. Yet tax policy damages our economy. First, we are a less attractive place for foreign companies to do business. Second, we make it harder for US companies to compete with foreign companies outside the US.

Some have questioned why it is important that US companies expand their global businesses. FedEx is a great example because our business is dependent on having a global network. A customer who needs to move inventory from India to Germany will not use FedEx for any of its business if our network does not include those countries. (It does!) More robust growth in our business portends, of course, greater growth in jobs, both in the US and around the world.

But if we must pay 39 cents of every dollar of what we make in corporate income taxes while foreign competitors pay lower (often much lower) amounts, there is no question but that our competitors will have more earnings to invest in new capital projects and jobs.

The US is seriously out of touch with the rest of the world in corporate income tax policy. We must reduce our federal rate by at least 10 percentage points and the states should follow suit. Until we do that, we will continue to fall behind simply because we are standing still.( AS YOU KNOW, I AGREE )

While the political debate has centred on Wall Street and Main Street or government infrastructure initiatives, I believe expensing capital and lowering corporate tax rates would quickly stimulate additional economic activity.( I AGREE )

The beneficial impact on our economy and longer-term federal tax receipts would far outweigh the relatively small near-term increase in the deficit( TRUE ), particularly when compared with other actions such as consumer rebates and/or increased government spending( I AGREE ).

The writer is chairman, president and chief executive of FedEx

Are Sticky Wages Stickier Than Sticky Buns?

Felix Salmon posts about the idea that employers don't like to reduce wages in a recession or economic downturn:

"David Leonhardt on deflation, Wednesday:

The drop in prices, which isn't over yet, will make life easier on millions of people. It's possible, in fact, that the current recession will do less harm to the typical family's income than it does to many other parts of the economy.
The reason is something called the sticky-wage theory. Economists have long been puzzled by the fact that most businesses simply will not cut their workers' pay, even in a downturn. Businesses routinely lay off 10 percent of their workers to cut costs. They almost never cut pay by 10 percent across the board.

Fedex press release, Thursday:

FedEx is now implementing a number of additional cost reduction initiatives to mitigate the effects of deteriorating business conditions, including:
Base salary decreases, effective January 1, 2009:
* 20% reduction for FedEx Corp. CEO Frederick W. Smith
* 7.5%-10.0% reduction for other senior FedEx executives
* 5.0% reduction for remaining U.S. salaried exempt personnel

Fedex is largely non-union, which means that most workers are taking a pay cut. I'm not sure this is necessarily a bad thing, if it avoids layoffs and reductions in service quality, instead spreading the pain around more thinly. But it does point to the possibility that this recession will indeed be different, and that it might mark the beginning of the end of sticky wages.( COULD BE. PROACTIVE FEAR OVERRIDING EVERYTHING ELSE )

There's been a huge shift in power in recent years from labor to capital: corporate profits have been rising much faster than wages for some time now ( DON'T TELL THAT TO PEOPLE WHO BELIEVE THAT ORGANIZED LABOR IS TOO POWERFUL ). It makes sense that capital would make use of its newfound power to reduce labor costs in a deflationary environment of rising unemployment. During the boom, companies laid off workers because those workers demanded, and cost, too much money. Now that workers have lost their negotiating leverage, we might start seeing more across-the-board pay cuts." ( COULD BE )

I would say that, in the case of FedEx, my understanding is that they are fighting for their life. In a possible bankruptcy situation, cutting wages is much easier. It might well be that in this current situation many businesses will end up near bankruptcy and that wage cuts could be higher than usual. It might also be that the fear and aversion to risk has effected workers to the point that lower wages in exchange for a job seems a good deal.

However, let me raise a few points:
1) Productivity is still rising
2) Worker's morale is not something you want to help depress in an already downbeat situation
3) As I pointed out in " I Don't Work In AIG Crap", workers who have made money for the company are not going to be happy taking a pay cut for other people's losses. It is possible that such treatment will lead them to look for another job, leading to the possible loss of the best employees of the business.

It might well turn out that wages aren't as sticky as they used to be, and it might also turn out to be a very bad thing for businesses and the economy, as well as the workers.