50% of home loans are made by non-banks

And a large number of commercial properties are financed by “hard-money” lenders.

Regulations and requirements for these lenders are lower than for banks. Borrowers are much weaker and loan standards, less stringent …. sometimes far weaker and far less stringent.

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Here Comes The Wages Apocalypse

How long can a society withstand its wages being stagnant? Income growth, higher living standards, incentive and motivation, ability to afford a nice home- these are cornerstones of America and capitalism.

Gas prices are higher. Interest rates are higher. This hurts consumers … and this hurts businesses. Businesses’ raw material costs have risen. Business borrowing costs have risen. Businesses may put tax cuts towards offsetting these cost increases- for now.  Tax cuts should be used towards wages- or companies will not have consumers- now or later.

Many companies are using tax cuts just to survive, as raw materials costs, interest rates, and competition have risen. Raising wages now, is not an option. Unemployment is low, most likely due ot large companies growing, while their smaller competitors are slowing. So the number of bodies needed are up- but incomes remain stagnant.

The wage problem going on for so long in this country may be coming home to roost. Jobless claims are up, wages are stagnant, consumer spending has been declining … and investors are not recognizing or addressing how stagnant wages combined with bloated housing prices are an destructive economic combination.

Stagnant wages are the canary in the coalmine. The slightest rise in costs or lowering of employment needs could tip the consumer over.

Wage growth slowed in April.

Large Corporations Have The Jobs- And The Wages- By NEIL SISKIND

As companies get larger and larger and take more and more market share, they can offer more and more jobs. As Home Depot grows, hardware stores close. As TJMaxx grows, local discounters close. As Amazon grows, retailers across the country close. And the larger the company, the greater the power to dictate wages- especially as their growth is to the detriment of competitors that close, leaving no competition for labor.

Moreover, the largest companies will have the highest ability and most incentive to implement costly technologies to keep long-term labor needs down- depressing wages even more.

Technology has allowed enormous scale by businesses, where relationships, loyalty, service, and locality, are irrelevant to product sales. All that matters is price. So, the advertiser with the best price wins, where the shopper can reach any one retailer as easy as any other, and any retailer can reach customers anywhere. The retailer that gets the most scale can always offer the lowest price. And the number of those retailers are getting smaller and smaller, as scale needs to be larger and larger, leaving only the largest companies in each category- hurting consumers and wage earners.

This is why we have job growth- but no wage growth (and it is also why our storefronts in our communities sit empty or filled with nail salons, rather than with thriving businesses- all to the detriment of our senses of community and our pride in our communities).

I encourage Americans to shop at local stores and at smaller online retailers … or else all of our children and grandchildren will be working for Facebook and Google and Amazon- which will control not only all of their private data- but also all of their livelihoods- and all of our nation’s politics, too.

Capex: The Elephant In The Room- By NEIL SISKIND

As a way to stimulate jobs and the economy, in December of 2017, Congress passed The Tax Cuts and Jobs Act (herein, the “Act”). But, since we are “allegedly” already at or near full employment[1], the Act is, mostly, needed to be a “wage growth”, rather than a “jobs” stimulus.

Despite pockets of good news in some retail spaces and cloud computing, the economy appears to be slowing, with the present economic cycle coming to an end. Even with the benefits of the Act, the last GDP print was down (quarter over quarter), consumer spending has moderated, wages are largely stagnant, we have reached nearly full employment, stock market indices are level to down for the year to date, and the yield curve, while steepening of late, has been flattening.

As the economy is nearing or at the end of a long economic cycle, and, is, otherwise, set to slow, the Act will, potentially, prolong the present economic cycle. While tax cuts may provide a short-term, or one-time “shot” to an economy, it is the new capex depreciation rules that could give the economy a more protracted and sustainable economic boost.

The accelerated, or bonus depreciation provision of the Act, is intended to encourage businesses to invest in buildings, equipment, and machinery (i.e. capex investments) as a way to stimulate the supply side of the economy through business spending that may, or could, lead to jobs- particularly in the manufacturing and raw materials production and supply sectors, and economy-wide wage growth. To understand this intention by Congress, and the potential results of companies spending en masse, first requires a short discussion of “supply side” and “demand side” tax philosophies and strategies.

Tax cuts can be used to stimulate demand by consumers or by businesses (or by both).

“Demand side” tax cuts are intended to encourage or empower consumers across the entire income scale, to spend. Such tax cuts are intended to put money into consumers’ pockets that they will spend, and, in turn, help businesses grow through sales, and, thus, encourage businesses, as a consequence, to invest in their businesses by hiring more people, and buying more equipment and machinery, and make other growth-oriented investments in their businesses, so that they can feed the growing demand. This, in turn, may lead to more jobs, and then even more and more demand.

Tax cuts designed to encourage business spending are known as “supply side” tax cuts- also referred to as “trickle down” economics (a term used by some- generally, Republicans- to describe why stimulating the supply side of the economy to spend to stimulate business demand, has the most effective multiplier effect for the economy, while used by others- generally Democrats- as a pejorative to indict tax cuts that are, allegedly, designed to only benefit the rich.

While supply side tax cuts are intended to spur business demand and spending, they are also intended (at least, this time) to encourage companies to share the benefits, the higher earnings, with employees, in the form of wage increases, thus, putting more money in employees’/consumers’ pockets and spurring consumer demand. But, to be sure, it is expected and hoped that businesses will not “only” give raises and salaries and “all” of their respective tax cut benefits to the demand side, but, rather also invest in internal “growth” initiatives to give the multiplicative benefit that supply side tax cuts should provide. Otherwise, lawmakers would give the tax cut directly to the demand side.

It is hardly a fear that businesses will share all of the wealth with employees.

Supply side tax cuts, or “trickle-down economics”, can work in one or both of the following ways to stimulate economic growth:

(i) Businesses receive a reduction of the corporate tax rate and invest earnings in their businesses in ways that lead to job growth in their own businesses and in supporting businesses, such as the vendors and support services they use. Moreover, it is hoped that increased earnings will lead to capital expenditures.

(ii) Reductions in the corporate tax rate can lead to higher salaries and profits for company principals and executives paid out of the higher bottom line as well as for shareholders of such companies, in the case of public companies, with the expectation that they will all spend their increased income in ways that stimulate the economy, such as by buying homes, cars, and boats, or taking vacations, going to ballgames, and eating at restaurants. These things create jobs in other industries to support the growing spending on these luxuries and necessities.

To evaluate the potential protracted economic benefit we could receive from the Act, there’s a two-part query:

Whether capex will happen en masse; and, if so, would it be a net positive or a net negative for the economy?

Will we get capex en masse?

We are in the late stage of a typical economic cycle. We’ve had low interest rates for multiple years, during which time businesses have had numerous opportunities to invest in capital equipment using low-cost capital. Businesses may be concerned about rising commodities costs, rising interest rates, and a stretched consumer, which may dis-incentivize investments in new capital equipment. Without a consumer at the end of the capex rainbow, even with a tax benefit, an investment could be a true loss[2]. Businesses need a positive ROI, regardless of the accelerated depreciation. Available capital must flow to its best and most productive and most profitable use, or else it’s just money spent to offset other income in an overall loss.

If we do get capex en masse, what would it mean for the larger economy?

If businesses en masse engage in capex, it could mean more jobs, and, since unemployment is so low, higher wages which result in demand side stimuli and a circle of business spending, more jobs, higher wages, and more demand growth.

Capex en masse could also mean wage inflation, higher interest rates, and higher commodities prices in commodities used to build machinery and equipment and even buildings. Rising raw materials prices can push businesses’ normal input costs higher. So, while businesses, en masse, make capex investments, and take tax write-downs, they are also increasing the input costs for raw materials used in their respective normal courses of business. Companies could have trouble passing-through these costs to consumers in this Amazon era unless wages rise.

Perhaps, Congress should have made it a condition that purchases be made from U.S. manufacturers only, so as to ensure that the U.S. economy gets the benefits of capex (job and wage growth), sans, or along with, any increased commodities prices that businesses and consumers may suffer; otherwise overseas companies may get the orders, while U.S. consumers get higher commodities and consumer product prices.

There is a concern is that companies will use their capex-spend to buy technologies that make their respective businesses more efficient, causing a lesser need for employees, thus shrinking the employment base and bringing down wages. On the other hand, even if such technology is acquired, it would still create jobs for the companies who develop, manufacture and sell such technologies, though, jobs created by the latter example may be less sustainable than the former. Whether the former or later types of jobs created by the capex bonus depreciation rules are better, I will leave to statisticians and economists to debate.

 

Will capex lead to higher wages and stimulate demand, increasing GDP and business profits, thus creating more business investment and even more jobs and even higher wages, providing rocket fuel for the economy?
Will capex lead to more jobs by raising the labor force participation rate?
Will capex lead to higher energy costs for consumers?
Will capex cause higher input costs for businesses?
Will higher commodities prices from capex cause interest rates to go higher?
Will capex cause higher commodities prices and higher wages, causing higher interest rates?
Will the effect of capex that leads to rising commodities and rising interest rates be offset by higher wages and a stronger consumer?
Will capex occur en masse, or to any significant degree at all?

There are the known unknowns; and, for investors and business owners- a dilemma. Should businesses avoid investing in capex if the consumer is weakening, while interest rates and gas prices are rising- or will capex and wage increases be the best panacea for weakening consumer spending?

It’s also a dilemma for the Fed. Will capex spending en masse cause commodities and/or wages to rise, justifying the Fed raising its target rate to normalize interest rates and continue quantitative tightening to normalize its balance sheet, and manage a real estate bubble and a growing national debt, while also fighting inflation; or, will the Fed have to try to continue to make its case for higher interest rates without underlying evidence of significant growth in wages, while commodities prices, especially oil, rise, due to economy-wide capex stimulus?

It’s hard to know how capex en masse will affect the economy, if it happens. If it doesn’t, it’s hard to see from where further job growth, and any wage growth, and any economic growth will come.

 

_____________________________

  1. When President Trump took office, the unemployment rate was 4.7%. As of April, 2018, the unemployment rate is 3.9%.The unemployment rate at the time that the Act was passed by Congress was 4.1%.
  2. There are, of course, a variety of other factors that businesses consider when deciding to make investments, including decisions on new capital expenditures, that go beyond the perceived and expected strength of domestic consumers, including: strength and expected strength of foreign markets and foreign consumers; strength of a companies’ own industry; other taxes and tariffs related to the business, beside income taxes; and internal business issues, such as capital position and best use of available capital.

 

Neil S. Siskind, Esq., President
The Siskind Law Firm
Tel: 646.530.0006

Neil Siskind is the Founder & Chairman of The Fatherhood Assignment
Neil-Siskind-photo
Learn more at:  http://www.neil-siskind-the-fatherhood-assignment.org/

Neil Siskind is the Conservator of the Neil S. Siskind Nature Preserve
Neil-Siskind-Picture

The Neil S. Siskind Nature Preserve is over 7 acres of environmentally-pristine waterfront land in a magnificent setting along New York’s majestic Hudson River. The Preserve includes a variety of species of animal and plant life, and is a precious example of the thoughtful maintenance of New York’s priceless open spaces. The land’s uses are limited to outdoor recreation such as hiking and climbing, and the study of ecology, nature and land use. The Neil S. Siskind Nature Preserve allows for the intelligent contemplation of our valuable natural resources and the most effective ways to maximize them and keep them protected.

Neil Siskind, Founder, “National Fatherhood Day” – March 29th

Neil-Siskind-pics
To encourage recognition of the needs of boys and girls who are living without fathers or father-figures in their lives.

Read about the non-profits and charities whose missions Neil Siskind supports and promotes: www.neilsiskindsupports.com
Caring is Free®

You can read what clients and associates say about Neil Siskind at: http://siskindlawfirm.com/neil-siskind-bio/.

Neil Siskind’s Volunteer Work:

– Memorial Sloan Kettering Cancer Center, Volunteer

– Memorial Sloan Kettering Cancer Center, My Fundraiser- Help Neil Siskindhelp children with cancer to be more comfortable: http://mskcc.convio.net/site/TR?px=3182108&fr_id=2632&pg=personal

– Make-A Wish Foundation- Help Neil Siskind make sick children’s wishes come true by creating your own fundraiser: Neil-Siskind/Help-Make-A-Child-Smile.htm

– DonorsChoose.org- Donate to one of my needy public classrooms: http://www.donorschoose.org/NeilSiskindGiving

– Champion Children– We seek to inspire people through stories of children who have overcome challenges: http://siskindlawfirm.com/neil-siskind-champion-children/


Neil Siskind’s Pro Bono
 Work:

– Saving Senior Citizens- Protecting New York’s senior citizens from fraud and financial abuse www.savingseniorcitizens.com

– Senior FreeStart Business– Pro Bono: We seek to help put senior citizens in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/

– Veteran FreeStart Business– Pro Bono: We seek to help put Iraq and Afghanistan war veterans in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/

– In development: The Neil S. Siskind School of Hope: A free school to teach inner-city youths the skills of entrepreneurship and importance of economic self-sufficiency.

Neil Siskind’s Government Work:

– Suffolk County District Attorney’s Office, Boston, MA, 1994, Intern
– Office of Senator Christopher J. Dodd, Newington, CT, 1992, Intern
– Hartford County Department of Probation, Hartford, CT, 1991, Intern

Neil Siskind’s Community Assistance:

Financed & operated a legal clinic providing low-cost legal services to struggling Long Islanders during the recession to help clients resolve debt, organize finances, and launch new businesses.

Neil Siskind’s Professional Curriculum Vitae: http://neilsiskind.com/

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Housing Prices Are The Result Of Many Things- by NEIL SISKIND

Inflated housing prices, and the low supplies that are causing them, are the result of:

Low interest rates for a long time leading to home buying;

Low interest rates for a long time leading to condo “investments”;

Retail and shopping center declines due to e-commerce have led to everyone investing in housing, instead of commercial property;

Oversupply that led to an plethora of inexpensive homes to buy in 2010-2013;

Large companies putting small businesses out of business so that large companies are getting larger and the rich getting richer, and labor can’t get income growth, all making housing too expensive so that the average homeowner can’t afford to upgrade to a larger home- so nobody moves, which backup in supply trickles from the top down;

People who had trouble finding jobs or making more money began flipping real estate;

All of this has resulted in a public-at-large that can’t afford to move because incomes are not growing and they can’t replace the homes and/or inexpensive mortgages they have. So they stay put, resulting in low inventory for buyers. These low supplies have caused prices to rise out of balance with incomes and demand.

The trend of high prices and low inventories will be reversed in the coming months by rising interest rates and competition from lower rental apartment prices due to oversupply, plus continued wage stagnation.

 

Neil S. Siskind, Esq., President
The Siskind Law Firm
Tel: 646.530.0006

Neil Siskind is the Founder & Chairman of The Fatherhood Assignment
Neil-Siskind-photo
Learn more at:  http://www.neil-siskind-the-fatherhood-assignment.org/

Neil Siskind is the Conservator of the Neil S. Siskind Nature Preserve
Neil-Siskind-Picture

The Neil S. Siskind Nature Preserve is over 7 acres of environmentally-pristine waterfront land in a magnificent setting along New York’s majestic Hudson River. The Preserve includes a variety of species of animal and plant life, and is a precious example of the thoughtful maintenance of New York’s priceless open spaces. The land’s uses are limited to outdoor recreation such as hiking and climbing, and the study of ecology, nature and land use. The Neil S. Siskind Nature Preserve allows for the intelligent contemplation of our valuable natural resources and the most effective ways to maximize them and keep them protected.

Neil Siskind, Founder, “National Fatherhood Day” – March 29th

Neil-Siskind-pics
To encourage recognition of the needs of boys and girls who are living without fathers or father-figures in their lives.

Read about the non-profits and charities whose missions Neil Siskind supports and promotes: www.neilsiskindsupports.com
Caring is Free®

You can read what clients and associates say about Neil Siskind at: http://siskindlawfirm.com/neil-siskind-bio/.

Neil Siskind’s Volunteer Work:

– Memorial Sloan Kettering Cancer Center, Volunteer

– Memorial Sloan Kettering Cancer Center, My Fundraiser- Help Neil Siskindhelp children with cancer to be more comfortable: http://mskcc.convio.net/site/TR?px=3182108&fr_id=2632&pg=personal

– Make-A Wish Foundation- Help Neil Siskind make sick children’s wishes come true by creating your own fundraiser: Neil-Siskind/Help-Make-A-Child-Smile.htm

– DonorsChoose.org- Donate to one of my needy public classrooms: http://www.donorschoose.org/NeilSiskindGiving

– Champion Children– We seek to inspire people through stories of children who have overcome challenges: http://siskindlawfirm.com/neil-siskind-champion-children/


Neil Siskind’s Pro Bono
 Work:

– Saving Senior Citizens- Protecting New York’s senior citizens from fraud and financial abuse www.savingseniorcitizens.com

– Senior FreeStart Business– Pro Bono: We seek to help put senior citizens in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/

– Veteran FreeStart Business– Pro Bono: We seek to help put Iraq and Afghanistan war veterans in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/

– In development: The Neil S. Siskind School of Hope: A free school to teach inner-city youths the skills of entrepreneurship and importance of economic self-sufficiency.

Neil Siskind’s Government Work:

– Suffolk County District Attorney’s Office, Boston, MA, 1994, Intern
– Office of Senator Christopher J. Dodd, Newington, CT, 1992, Intern
– Hartford County Department of Probation, Hartford, CT, 1991, Intern

Neil Siskind’s Community Assistance:

Financed & operated a legal clinic providing low-cost legal services to struggling Long Islanders during the recession to help clients resolve debt, organize finances, and launch new businesses.

Neil Siskind’s Professional Curriculum Vitae: http://neilsiskind.com/

Sponsored Advertisements

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The Complete Guide To The Ways To Manufacture & Sell Your Products

 

 

 

Zuckerberg and Facebook

If Mark Zuckerberg’s mission is, as he says, a social mission “to help people be closer and have a voice”, why does he constantly steal ideas from smaller companies, like Snap, and, as accused by his college “friends”, steal ideas for the entire Facebook company, itself? That’s a good member of society and a good social cause? This is giving people a voice? … or is it “taking” their voice for his own use? Is it giving people a voice if you are taking their voice (their ideas and their privacy) once they shared their voice? Let’s not forget misusing and misappropriating our private data for profit. Great guy.

Why does he speak so nervously and anxiously and rapidly- like a salesman. Or a robot. It’s makes me very uncomfortable with what he is saying.

He talks in front of Congress about new startups in dorm rooms not being overly regulated so that they have a fair chance … as he overtly and without any shame (probably with glee) steals every idea Snap has. Is that being fair and social?

It amazes me how people continue to post pictures of their children on Facebook, knowing what Facebook has done with our data. It says a lot about people and why Facebook does what it does- because it can.

 

Retail: Online, And Just In Time

Retail stores are disappearing, more and more each day. The business model- save for some very limited exceptions, is broken. People are driving their cars around less and less due to higher gas prices and more Ubers. People prefer to shop over the Internet, more and more. As for food and drugs, people want to shop in one location and have simplicity. But for the most part, they want “just-in-time” and “when-I want-it” delivery. Or else, they want prices as good as on the Internet, such as in large, big box environments. So, “scale” is where the world is going. People will migrate or be attracted to the best price provider online and/or in their cities. A few large companies will sell most of the consumer products, online and off, causing more retail consolidation (this will also cause consolidation in manufacturing and wholesale channels, as there are less and less independent retail outlets).

Car ownership is being replaced, on the fringes, with the convenience of Ubers, so that consumers go form point A to point B more directly.

As the result, storefronts to sell products are going away. Storefronts will have other uses such as for special in-person services that people prefer vs. online and telephone services (ex: motor vehicle services). Storefronts may also be warehouses, of sorts. People will order online and pickup the product curbside. Storefronts may also be only used as showrooms to exhibit high-end products that can be bought online. Storefronts will be used for services- like lawyers and medical services. Storefronts will be used for temporary or pop-up businesses, and for special exhibit and events.

Even places for fun, like play spaces for kids, movie theaters, and bowling alleys, are seeing “traffic trouble” as people are more digital and mobile in their entertainment pursuits.

Will people still go “somewhere”. Sure- but not to buy things. Just to browse, and drink, and laugh.

 

 

Neil S. Siskind, Esq., President
The Siskind Law Firm
Tel: 646.530.0006

Neil Siskind is the Founder & Chairman of The Fatherhood Assignment
Neil-Siskind-photo
Learn more at:  http://www.neil-siskind-the-fatherhood-assignment.org/

Neil Siskind is the Conservator of the Neil S. Siskind Nature Preserve
Neil-Siskind-Picture

The Neil S. Siskind Nature Preserve is over 7 acres of environmentally-pristine waterfront land in a magnificent setting along New York’s majestic Hudson River. The Preserve includes a variety of species of animal and plant life, and is a precious example of the thoughtful maintenance of New York’s priceless open spaces. The land’s uses are limited to outdoor recreation such as hiking and climbing, and the study of ecology, nature and land use. The Neil S. Siskind Nature Preserve allows for the intelligent contemplation of our valuable natural resources and the most effective ways to maximize them and keep them protected.

Neil Siskind, Founder, “National Fatherhood Day” – March 29th

Neil-Siskind-pics
To encourage recognition of the needs of boys and girls who are living without fathers or father-figures in their lives.

Read about the non-profits and charities whose missions Neil Siskind supports and promotes: www.neilsiskindsupports.com
Caring is Free®

You can read what clients and associates say about Neil Siskind at: http://siskindlawfirm.com/neil-siskind-bio/.

Neil Siskind’s Volunteer Work:

– Memorial Sloan Kettering Cancer Center, Volunteer

– Memorial Sloan Kettering Cancer Center, My Fundraiser- Help Neil Siskindhelp children with cancer to be more comfortable: http://mskcc.convio.net/site/TR?px=3182108&fr_id=2632&pg=personal

– Make-A Wish Foundation- Help Neil Siskind make sick children’s wishes come true by creating your own fundraiser: Neil-Siskind/Help-Make-A-Child-Smile.htm

– DonorsChoose.org- Donate to one of my needy public classrooms: http://www.donorschoose.org/NeilSiskindGiving

– Champion Children– We seek to inspire people through stories of children who have overcome challenges: http://siskindlawfirm.com/neil-siskind-champion-children/


Neil Siskind’s Pro Bono
 Work:

– Saving Senior Citizens- Protecting New York’s senior citizens from fraud and financial abuse www.savingseniorcitizens.com

– Senior FreeStart Business– Pro Bono: We seek to help put senior citizens in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/

– Veteran FreeStart Business– Pro Bono: We seek to help put Iraq and Afghanistan war veterans in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/

– In development: The Neil S. Siskind School of Hope: A free school to teach inner-city youths the skills of entrepreneurship and importance of economic self-sufficiency.

Neil Siskind’s Government Work:

– Suffolk County District Attorney’s Office, Boston, MA, 1994, Intern
– Office of Senator Christopher J. Dodd, Newington, CT, 1992, Intern
– Hartford County Department of Probation, Hartford, CT, 1991, Intern

Neil Siskind’s Community Assistance:

Financed & operated a legal clinic providing low-cost legal services to struggling Long Islanders during the recession to help clients resolve debt, organize finances, and launch new businesses.

Neil Siskind’s Professional Curriculum Vitae: http://neilsiskind.com/

Sponsored Advertisements

Inventors, IP Owners, Manufacturers
Learn How To Bring Products To Market And To Expand Your Distribution Channels
The Complete Guide To The Ways To Manufacture & Sell Your Products

Will The Economy Grow- or Slow? The Capex Factor- by NEIL SISKIND

As a way to stimulate jobs and the economy, in December of 2017, Congress passed The Tax Cuts and Jobs Act (herein, the “Act”). But, since we are “allegedly” already at or near full employment[1], the Act is, mostly, needed to be a “wage growth”, rather than a “jobs” stimulus.

Despite pockets of good news in some retail spaces and cloud computing, the economy appears to be slowing, with the present economic cycle coming to an end. Even with the benefits of the Act, the last GDP print was down (quarter over quarter), consumer spending has moderated, wages are largely stagnant, we have reached nearly full employment, stock market indices are level to down for the year to date, and the yield curve, while steepening of late, has been flattening.

As the economy is nearing or at the end of a long economic cycle, and, is, otherwise, set to slow, the Act will, potentially, prolong the present economic cycle. While tax cuts may provide a short-term, or one-time “shot” to an economy, it is the new capex depreciation rules that could give the economy a more protracted and sustainable economic boost.

The accelerated, or bonus depreciation provision of the Act, is intended to encourage businesses to invest in buildings, equipment, and machinery (i.e. capex investments) as a way to stimulate the supply side of the economy through business spending that may, or could, lead to jobs- particularly in the manufacturing and raw materials production and supply sectors, and economy-wide wage growth. To understand this intention by Congress, and the potential results of companies spending en masse, first requires a short discussion of “supply side” and “demand side” tax philosophies and strategies.

Tax cuts can be used to stimulate demand by consumers or by businesses (or by both).

“Demand side” tax cuts are intended to encourage or empower consumers across the entire income scale, to spend. Such tax cuts are intended to put money into consumers’ pockets that they will spend, and, in turn, help businesses grow through sales, and, thus, encourage businesses, as a consequence, to invest in their businesses by hiring more people, and buying more equipment and machinery, and make other growth-oriented investments in their businesses, so that they can feed the growing demand. This, in turn, may lead to more jobs, and then even more and more demand.

Tax cuts designed to encourage business spending are known as “supply side” tax cuts- also referred to as “trickle down” economics (a term used by some- generally, Republicans- to describe why stimulating the supply side of the economy to spend to stimulate business demand, has the most effective multiplier effect for the economy, while used by others- generally Democrats- as a pejorative to indict tax cuts that are, allegedly, designed to only benefit the rich.

While supply side tax cuts are intended to spur business demand and spending, they are also intended (at least, this time) to encourage companies to share the benefits, the higher earnings, with employees, in the form of wage increases, thus, putting more money in employees’/consumers’ pockets and spurring consumer demand. But, to be sure, it is expected and hoped that businesses will not “only” give raises and salaries and “all” of their respective tax cut benefits to the demand side, but, rather also invest in internal “growth” initiatives to give the multiplicative benefit that supply side tax cuts should provide. Otherwise, lawmakers would give the tax cut directly to the demand side.

It is hardly a fear that businesses will share all of the wealth with employees.

Supply side tax cuts, or “trickle-down economics”, can work in one or both of the following ways to stimulate economic growth:

(i) Businesses receive a reduction of the corporate tax rate and invest earnings in their businesses in ways that lead to job growth in their own businesses and in supporting businesses, such as the vendors and support services they use. Moreover, it is hoped that increased earnings will lead to capital expenditures.

(ii) Reductions in the corporate tax rate can lead to higher salaries and profits for company principals and executives paid out of the higher bottom line as well as for shareholders of such companies, in the case of public companies, with the expectation that they will all spend their increased income in ways that stimulate the economy, such as by buying homes, cars, and boats, or taking vacations, going to ballgames, and eating at restaurants. These things create jobs in other industries to support the growing spending on these luxuries and necessities.

To evaluate the potential protracted economic benefit we could receive from the Act, there’s a two-part query:

Whether capex will happen en masse; and, if so, would it be a net positive or a net negative for the economy?

Will we get capex en masse?

We are in the late stage of a typical economic cycle. We’ve had low interest rates for multiple years, during which time businesses have had numerous opportunities to invest in capital equipment using low-cost capital. Businesses may be concerned about rising commodities costs, rising interest rates, and a stretched consumer, which may dis-incentivize investments in new capital equipment. Without a consumer at the end of the capex rainbow, even with a tax benefit, an investment could be a true loss[2]. Businesses need a positive ROI, regardless of the accelerated depreciation. Available capital must flow to its best and most productive and most profitable use, or else it’s just money spent to offset other income in an overall loss.

If we do get capex en masse, what would it mean for the larger economy?

If businesses en masse engage in capex, it could mean more jobs, and, since unemployment is so low, higher wages which result in demand side stimuli and a circle of business spending, more jobs, higher wages, and more demand growth.

Capex en masse could also mean wage inflation, higher interest rates, and higher commodities prices in commodities used to build machinery and equipment and even buildings. Rising raw materials prices can push businesses’ normal input costs higher. So, while businesses, en masse, make capex investments, and take tax write-downs, they are also increasing the input costs for raw materials used in their respective normal courses of business. Companies could have trouble passing-through these costs to consumers in this Amazon era unless wages rise.

Perhaps, Congress should have made it a condition that purchases be made from U.S. manufacturers only, so as to ensure that the U.S. economy gets the benefits of capex (job and wage growth), sans, or along with, any increased commodities prices that businesses and consumers may suffer; otherwise overseas companies may get the orders, while U.S. consumers get higher commodities and consumer product prices.

There is a concern is that companies will use their capex-spend to buy technologies that make their respective businesses more efficient, causing a lesser need for employees, thus shrinking the employment base and bringing down wages. On the other hand, even if such technology is acquired, it would still create jobs for the companies who develop, manufacture and sell such technologies, though, jobs created by the latter example may be less sustainable than the former. Whether the former or later types of jobs created by the capex bonus depreciation rules are better, I will leave to statisticians and economists to debate.

 

Will capex lead to higher wages and stimulate demand, increasing GDP and business profits, thus creating more business investment and even more jobs and even higher wages, providing rocket fuel for the economy?
Will capex lead to more jobs by raising the labor force participation rate?
Will capex lead to higher energy costs for consumers?
Will capex cause higher input costs for businesses?
Will higher commodities prices from capex cause interest rates to go higher?
Will capex cause higher commodities prices and higher wages, causing higher interest rates?
Will the effect of capex that leads to rising commodities and rising interest rates be offset by higher wages and a stronger consumer?
Will capex occur en masse, or to any significant degree at all?

There are the known unknowns; and, for investors and business owners- a dilemma. Should businesses avoid investing in capex if the consumer is weakening, while interest rates and gas prices are rising- or will capex and wage increases be the best panacea for weakening consumer spending?

It’s also a dilemma for the Fed. Will capex spending en masse cause commodities and/or wages to rise, justifying the Fed raising its target rate to normalize interest rates and continue quantitative tightening to normalize its balance sheet, and manage a real estate bubble and a growing national debt, while also fighting inflation; or, will the Fed have to try to continue to make its case for higher interest rates without underlying evidence of significant growth in wages, while commodities prices, especially oil, rise, due to economy-wide capex stimulus?

It’s hard to know how capex en masse will affect the economy, if it happens. If it doesn’t, it’s hard to see from where further job growth, and any wage growth, and any economic growth will come.

 

_____________________________

  1. When President Trump took office, the unemployment rate was 4.7%. As of April, 2018, the unemployment rate is 3.9%.The unemployment rate at the time that the Act was passed by Congress was 4.1%.
  2. There are, of course, a variety of other factors that businesses consider when deciding to make investments, including decisions on new capital expenditures, that go beyond the perceived and expected strength of domestic consumers, including: strength and expected strength of foreign markets and foreign consumers; strength of a companies’ own industry; other taxes and tariffs related to the business, beside income taxes; and internal business issues, such as capital position and best use of available capital.

 

 

 

Neil S. Siskind, Esq., President
The Siskind Law Firm
Tel: 646.530.0006

Neil Siskind is the Founder & Chairman of The Fatherhood Assignment
Neil-Siskind-photo
Learn more at:  http://www.neil-siskind-the-fatherhood-assignment.org/

Neil Siskind is the Conservator of the Neil S. Siskind Nature Preserve
Neil-Siskind-Picture

The Neil S. Siskind Nature Preserve is over 7 acres of environmentally-pristine waterfront land in a magnificent setting along New York’s majestic Hudson River. The Preserve includes a variety of species of animal and plant life, and is a precious example of the thoughtful maintenance of New York’s priceless open spaces. The land’s uses are limited to outdoor recreation such as hiking and climbing, and the study of ecology, nature and land use. The Neil S. Siskind Nature Preserve allows for the intelligent contemplation of our valuable natural resources and the most effective ways to maximize them and keep them protected.

Neil Siskind, Founder, “National Fatherhood Day” – March 29th

Neil-Siskind-pics
To encourage recognition of the needs of boys and girls who are living without fathers or father-figures in their lives.

Read about the non-profits and charities whose missions Neil Siskind supports and promotes: www.neilsiskindsupports.com
Caring is Free®

You can read what clients and associates say about Neil Siskind at: http://siskindlawfirm.com/neil-siskind-bio/.

Neil Siskind’s Volunteer Work:

– Memorial Sloan Kettering Cancer Center, Volunteer

– Memorial Sloan Kettering Cancer Center, My Fundraiser- Help Neil Siskindhelp children with cancer to be more comfortable: http://mskcc.convio.net/site/TR?px=3182108&fr_id=2632&pg=personal

– Make-A Wish Foundation- Help Neil Siskind make sick children’s wishes come true by creating your own fundraiser: Neil-Siskind/Help-Make-A-Child-Smile.htm

– DonorsChoose.org- Donate to one of my needy public classrooms: http://www.donorschoose.org/NeilSiskindGiving

– Champion Children– We seek to inspire people through stories of children who have overcome challenges: http://siskindlawfirm.com/neil-siskind-champion-children/


Neil Siskind’s Pro Bono
 Work:

– Saving Senior Citizens- Protecting New York’s senior citizens from fraud and financial abuse www.savingseniorcitizens.com

– Senior FreeStart Business– Pro Bono: We seek to help put senior citizens in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/

– Veteran FreeStart Business– Pro Bono: We seek to help put Iraq and Afghanistan war veterans in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/

– In development: The Neil S. Siskind School of Hope: A free school to teach inner-city youths the skills of entrepreneurship and importance of economic self-sufficiency.

Neil Siskind’s Government Work:

– Suffolk County District Attorney’s Office, Boston, MA, 1994, Intern
– Office of Senator Christopher J. Dodd, Newington, CT, 1992, Intern
– Hartford County Department of Probation, Hartford, CT, 1991, Intern

Neil Siskind’s Community Assistance:

Financed & operated a legal clinic providing low-cost legal services to struggling Long Islanders during the recession to help clients resolve debt, organize finances, and launch new businesses.

Neil Siskind’s Professional Curriculum Vitae: http://neilsiskind.com/

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Scale or Die- by NEIL SISKIND

Businesses in all industries are in a scramble to merge and acquire and grow their customer bases.

Why?

Because as wages are stagnant and as debt costs are rising- consumers are becoming increasingly price sensitive. Businesses, to survive, will need to have customer volume so that they can get input price discounts and keep prices low. Moreover, margins can be lower if volume brings in the revenues. Volume … scale is necessary.

As for media companies, direct to consumer content is the wave of the future. In order to sell and stream content directly to viewers over the Internet, by-passing cable systems, a huge volume of viewers is needed for a distributor to be profitable. Without being on a cable network or a wider media platform, like Netflix, content creators, like Disney, must find and maintain their own audiences. Scale is needed.

 

 

Neil S. Siskind, Esq., President
The Siskind Law Firm
Tel: 646.530.0006

Neil Siskind is the Founder & Chairman of The Fatherhood Assignment
Neil-Siskind-photo
Learn more at:  http://www.neil-siskind-the-fatherhood-assignment.org/

Neil Siskind is the Conservator of the Neil S. Siskind Nature Preserve
Neil-Siskind-Picture

The Neil S. Siskind Nature Preserve is over 7 acres of environmentally-pristine waterfront land in a magnificent setting along New York’s majestic Hudson River. The Preserve includes a variety of species of animal and plant life, and is a precious example of the thoughtful maintenance of New York’s priceless open spaces. The land’s uses are limited to outdoor recreation such as hiking and climbing, and the study of ecology, nature and land use. The Neil S. Siskind Nature Preserve allows for the intelligent contemplation of our valuable natural resources and the most effective ways to maximize them and keep them protected.

Neil Siskind, Founder, “National Fatherhood Day” – March 29th

Neil-Siskind-pics
To encourage recognition of the needs of boys and girls who are living without fathers or father-figures in their lives.

Read about the non-profits and charities whose missions Neil Siskind supports and promotes: www.neilsiskindsupports.com
Caring is Free®

You can read what clients and associates say about Neil Siskind at: http://siskindlawfirm.com/neil-siskind-bio/.

Neil Siskind’s Volunteer Work:

– Memorial Sloan Kettering Cancer Center, Volunteer

– Memorial Sloan Kettering Cancer Center, My Fundraiser- Help Neil Siskindhelp children with cancer to be more comfortable: http://mskcc.convio.net/site/TR?px=3182108&fr_id=2632&pg=personal

– Make-A Wish Foundation- Help Neil Siskind make sick children’s wishes come true by creating your own fundraiser: Neil-Siskind/Help-Make-A-Child-Smile.htm

– DonorsChoose.org- Donate to one of my needy public classrooms: http://www.donorschoose.org/NeilSiskindGiving

– Champion Children– We seek to inspire people through stories of children who have overcome challenges: http://siskindlawfirm.com/neil-siskind-champion-children/


Neil Siskind’s Pro Bono
 Work:

– Saving Senior Citizens- Protecting New York’s senior citizens from fraud and financial abuse www.savingseniorcitizens.com

– Senior FreeStart Business– Pro Bono: We seek to help put senior citizens in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/

– Veteran FreeStart Business– Pro Bono: We seek to help put Iraq and Afghanistan war veterans in the right direction so that they can face the challenges of the modern economy: http://siskindlawfirm.com/free-start-business/

– In development: The Neil S. Siskind School of Hope: A free school to teach inner-city youths the skills of entrepreneurship and importance of economic self-sufficiency.

Neil Siskind’s Government Work:

– Suffolk County District Attorney’s Office, Boston, MA, 1994, Intern
– Office of Senator Christopher J. Dodd, Newington, CT, 1992, Intern
– Hartford County Department of Probation, Hartford, CT, 1991, Intern

Neil Siskind’s Community Assistance:

Financed & operated a legal clinic providing low-cost legal services to struggling Long Islanders during the recession to help clients resolve debt, organize finances, and launch new businesses.

Neil Siskind’s Professional Curriculum Vitae: http://neilsiskind.com/

Sponsored Advertisements

Inventors, IP Owners, Manufacturers
Learn How To Bring Products To Market And To Expand Your Distribution Channels
The Complete Guide To The Ways To Manufacture & Sell Your Products