Corporate dividends are taxed, while interest paid is not. This encourages debt financing. It's a subsidy program for lenders. It fuels leveraged buyouts; "private equity" usually means converting equity to debt. It also fuels stock buybacks as opposed to dividends. This causes a huge distortion in business financing, and it accrues to the benefit of banks. It would be straightforward to fix this as part of tax reform, but the banks would scream. We're not going to fix this in the US until we have a Goldman Sachs free administration.
The other big subsidy program for lenders is borrowing money from the Fed at low rates which can then be lent at much higher commercial rates. That's the welfare state for banks.
It doesn't have to be that way. Japan and China inject money into the economy by building, and sometimes overbuilding, publicly funded infrastructure. The banking system plays a lesser role in economic stimulation. This has its advantages; usually the infrastructure is good for something.
> Japan and China inject money into the economy by building, and sometimes overbuilding, publicly funded infrastructure
I wouldn't point to these as a panacea for economic policy. China has ghost cities which they won't populate: the people for whom they were built can't afford to live there.
Japan is overworked, sleeping in the office and drinks with the boss are mandatory. Is that the society towards which we ought to advance?
Not excusing the short term interests of America's big banks, however, you need to be ready for other disadvantages if you change the way the game is played in America.
What does Japan's seniority focused work culture have to do with his point? It's not a work environment I liked but it has nothing to do with the government spending money to improve infrastructure.
China has ghost cities, yes, but it also has some incredibly impressive new high speed rail networks [0]. This scale of infrastructure building looks like it would be impossible to do in the US, given the difficulty of building just a single line between SF and LA [1].
An immediate relative of mine worked at the Hillside Workshops in Dunedin, at the time the Chinese were given a contract to build the passenger carriages. I remember very clearly the stories he told me, when the carriages arrived:
every single one of them had to be rebuilt. Welds that should have run the length of plates were often just enough to get it to hold together, and not the full length. Pipe were substituted for solid metal bars. Low quality steel was used, stuff that would disintegrate when struck with a hammer by one of the engineers. The "cheap" contracts that the National Government sought ended up costing much more than what it would have cost them to build locally.
I wouldn't be very keen to ride on the high speed Chinese rail networks.
Li Keqiang admits China has a quality problem, and it's becoming a state priority to address that.
It's getting better. Jet brand machine tools used to have huge quality problems around 2002, and now they mostly work out of the box. It was clear at one time that Jet was shipping their rejects, but that seems to have stopped. They're still below Hardinge, but up there with Delta now.
Japan's rail is also highly capitalist. The JR system was denationalized in the 80s and no longer receives any subsidies; there also is strong regional competition from privately owned rail lines.
> China has ghost cities which they won't populate: the people for whom they were built can't afford to live there
The cities aren't empty because of economics. This is not a big secret. They were built as part of a social plan, along with a nice boost to the economy since they are their own raw material supplier (steel in the US almost exclusively comes from China). The Chinese "ghost cities" are a complete nonsequitor in regards financial planning.
And for the individuals who receive the interest, they have to pay regular income tax rates on that income. With dividends they get a different, lower rate.
Yes, because the corporation is already paying 35% tax on the profits that the dividend was paid out of, while interest payments are deducted from taxable (corporate) income.
Yes, through an unrelated tax dodge that wouldn't make the combined dividend + profit tax any more sensible. They're still paying 35% on any profit that hasn't been expensed away somehow, and the dubious ways to expense corporate income are a separate issue from whether this "low" dividend tax is a loophole.
For a pension fund, its beneficiaries will eventually pay regular income tax rates on the fund's earnings, regardless of whether it was dividend/capgain/interest.
Life insurance and disability payouts are typically tax-free because they're paid into with after-tax dollars, but the insureco will invest the funds as it sees fit.
or instead of trying to have bureaucrats and lawmakers tinker with the delicate balance of the market would just ... leave it alone. its really had for the market properly allocate resources when lawmakers keep raming through all there little pet projects from special interest.
The other big subsidy program for lenders is borrowing money from the Fed at low rates which can then be lent at much higher commercial rates. That's the welfare state for banks.
It doesn't have to be that way. Japan and China inject money into the economy by building, and sometimes overbuilding, publicly funded infrastructure. The banking system plays a lesser role in economic stimulation. This has its advantages; usually the infrastructure is good for something.