Good morning

The headlines:

  1. Obama’s tax plan: cut the corporate tax rate to 28% (from 35%), a lower incentive tax for manufacturers (25%), and elimination of many loopholes including the deferral of taxes on foreign income. The theory behind the corporate tax cut is that the corporate tax rate is correlated with economic growth – the lower tax rate means better growth. Even if at first it seems counter-intuitive (surely – you would want to increase taxes to cover the deficit?) – it makes a lot of sense. The higher a corporate tax rate, the greater the incentive for companies to avoid it. Lowering the rate lowers the cost of compliance – you decrease the amount collected from corporations individually, but expand the tax base by being able to collect from more companies that would otherwise have spent time and effort avoiding tax. And from the new companies that develop spurred on by the economic growth generated by more cash in the economy for investment. Link: Winners and Losers in Obama’s Tax Plan
  2. Typically, the announcement of a tax plan is generating some debate. This article gives some of the background to the tax plan being suggested – both politically and economically. But I really appreciated this one on Bloomberg, which talks about the primary motivator behind the tax plan (economic growth). The article says that we shouldn’t view economic growth as holistically positive – it’s important to distinguish between sustainable growth and junk growth. Junk growth would occur when, say, people suddenly buy an extra unneeded car. It’s not sustainable. But new factory machinery – that’s more like it. The other point under discussion is the appropriate policies in respect to the different modes of taxation: payroll tax, corporate tax, and personal income tax. While congress has recently approved a payroll tax, the empirical evidence seems to suggest that this is unlikely to result in sustainable growth. Apparently, cuts in corporate and personal income taxes tend to flow into sustainable investments. Interesting. 
  3. In the same line, New Jersey Governor Chris Christie (so good they named him twice?) told Warren Buffett to “write a check and shut up” over Buffett’s call to tax the rich. This is the same gentleman that last week vetoed the New Jersey legislation to legalise gay marriage, stating that it required a referendum. More scandalously, he told the gays that the blacks would have been happier if their civil rights had been decided that way as well. Someone needs to shoot him. Who has he managed to avoid offending? Ultra-rich racist white conservatives with no sense of civic responsibility, I’m guessing… Link: Christie on Buffett.
  4. That Apple iPad China scandal we were talking about yesterday? Turns out the Shenzhen opposition is controlled by the Bank of China. Proview/Shenzhen (so confused by the names – I thought Shenzhen was a city?) has filed for bankruptcy, and now operates under the purview of its creditors, which are mainly the Bank of China. The claim, from what I understand, is that Proview’s Taiwan subsidiary sold the worldwide rights to the iPad trademark to Apple, but the Shenzhen-based company didn’t know that the Taiwan folk had done it. In a grand stroke of irony – this all began when Apple sued Proview for unauthorised use of the iPad trademark in China. That was rejected by the Chinese courts in November – and now the flip has happened, with Proview seeking damages from Apple. Don’t mess with the Chinese, bru. Link: iPad battle reveals Bank of China as Apple opponent.
  5. With the Greek bailout package announcement, analysts are forecasting a rally in junk bonks. Nicely done to the speculators. And that uncle that’s been telling me to buy Greek bonds since this all began. Link: Junk bonds seen rallying as Eurozone crisis wanes.
  6. Pravin Gordhan announced South Africa’s budget yesterday. The highlights include a lower than expected budget deficit (at 4.6%); lowering of the growth forecast to 2.7%; an inflation expectation of 6.2%; government debt being forecast to hit 36% of GDP by the end of the 2012/2013 fiscal year; a projection of investment spending at R884 billion over the next three years. On a personal level, there are a number of tax implications. The withholding tax on dividends will come into effect on 1 April 2012 at 15% (although pension funds will be exempt). The inclusion rate for individuals on capital gains has increased to 33.3% from 25% – which, ironically, works out to a 33.3% increase in Capital Gains Taxation. Companies and trusts have had their inclusion rate increased to 66.6% from 50% – which works out to the same increase as that for individuals. Link: Gordhan’s 2012 Budget.
  7. And finally, the Africa business news in brief. Link: ABN Briefs
That’s all for now. 
Happy Thursday.