Unsurprisingly, highly regulated sectors like banking where entering is extremely hard display cartel like behaviors. There is no incentive coming from the competition so why would anyone lower the net interest margin. In this context, I think a windfall tax somehow makes sense. Then again, I'm pretty sure it's going to be misused by the government. I would much rather see regulation forcing banks to raise interest rate on deposits but well at least this goes somewhat in the right direction.
I trust governments more than banks and the people who run banks. More regulation is welcome, and occasionally, one off policy hacks are needed vs slowly tightening the regulatory regime (which gives banks time to adapt and avoid or evade; not good!). Move fast and regulate systemic systems.
I am not sure myself. The past two decades have shown that banking is a sector which needs to be tightly regulated and bankers can never be trusted to not do utterly stupid things if there is even the slighest hint of profits. Honestly, I would be fine with the banking sector being nationalised at this point at least for the retail part. We are already bailing out banks when they fail so let's be coherent.
It's entirely technologically possible for central banks to take over retail banking at this point and Brazil has demonstrated nicely that taking over payment processing would be a net improvement for everyone. Honestly, I don't understand why we haven't done it already but I suppose entranched interests are partly to blame.
If you think about running your own bank, guess what, the entire business model is inherently fragile. The payment services banks offer do not pay for themselves. People expect bank accounts with zero fees. This means that the payment infrastructure has to be cross subsidized from something unrelated to the payment infrastructure and that in turn means that the availability of the payment infrastructure is dependent on the actual cash cow of the bank.
Lending to borrowers and diverting interest means your payment infrastructure is now tied to the creditworthiness of debtors. Even worse, what if the margins are so thin the bank does investment banking instead? Now your payment infrastructure is tied to the erratic stock market!
The obvious solution is to stop the cross subsidy and start demanding that people pay for payment services separately. This doesn't guarantee proper and competent management. It merely makes it possible in the first place. Of course the problem is that various consumer protection agencies lobby for legislation that appears on its face to protect consumers but only by making the entire system less stable.
I think the more coherent thing to do would be to treat banks like other industries and not bail them out. Customers would then place their money in safer banks, discouraging banks from engaging in risky behaviour.
Sure, I'm convinced that no one is going to riot when they get their their lifetime savings casually wiped out. I bet on them fully understanding that they just made a terrible decision when they chose the wrong bank, it's entirely their fault and that it is what's best for the economy as a whole.
I have to wonder how competitive these banks are. Without being able to invest in anything other than government bonds, they lose out on a lot of money that bigger banks get.
The fractional reserve system and its associated fiat currencies will always drive "banking" as a service in the same direction: loans that become increasingly predatory.
The root problem isn't the banks, per se, rather the problem is the underlying system that modern banks are incentivized by.
Remove usury (loans at a profit) and base the national currency on something (anything is better than nothing, but the Socialists in Germany used production, and before the 1970s the US used gold) and I think you'd see that banks as a business would radically change.
They wouldn't because you literally changed nothing. The USD is on a failed gold standard. We are still living the aftermath of a failed gold standard. Also, in theory a gold standard does absolutely nothing. All the theoretical benefits you think that come from a gold standard can be implemented today. The only difference is that a gold standard collapses when you go out of its modus operandi.
The obvious problem is the concept that money from this period should be valid in any future period with no decay or costs associated with holding the money. This leads to a compression of the economy along the time dimension. It manipulates time preferences because money can be transported into the future at no cost which artificially subsidises low time preferences. The market no longer properly integrates the time preferences of all participants and this then leads to people who met their needs to assert their low time preference over people with unmet needs who by mere necessity, and not because of psychological or personal failure as many claim, have a higher time preference. A recession can be viewed as shifting production into the future even as people have unmet needs in the present.
The only known solution is to get rid of cash or to introduce some sort of time bound money like demurrage currencies. A demurrage currency cannot be carried into the future at no cost. This binds the currency to a specific time period which in turn means that people with excess money can no longer impose their patience onto people who are impatient by circumstance.
The gold standard was removed in the 1970s. There has been no value behind the dollar since then. During the same time, the US Gov't actually seized citizen's gold.
> The obvious problem is the concept that money from this period should be valid in any future period with no decay or costs associated with holding the money.
This statement is confusing to me. Are you saying that there is not time-cost to the holder of cash if that cash is backed by gold? That is, if I have 100USD (gold backed) there is no downside to holding that cash as opposed to spending it?
> The only known solution is to get rid of cash or to introduce some sort of time bound money like demurrage currencies.
You may like the idea of CBDCs, then. With a centrally controlled digital currency it would be possible to put expiration dates on cash in order to force people to spend their money. Hyper-inflation has the same affect, though. If you look at the Argentine economy and how people spend money with 40-200% inflation year-over-year, you'll see that no one holds onto their cash. They all spend their cash in a very short period of time. People convert the currency that cannot store value into things that can; things like goods, US dollars, crypto currencies, etc.
> Fractional reserve banking is the idea that banks take their reserves and lend them into some fraction based on the quantity of reserves they hold. This idea has been largely debunked since the financial crisis. In reality, banks do not lend their reserves, except to one another inside of the reserve system (which is a closed system, ie, reserves don’t even leave the system). They don’t even lend based on the quantity of reserves they hold.
That is fairly shortsighted. Regulation also prevents customers from being defrauded. Beyond that, antitrust action is regulation but it increases competition.
>Unsurprisingly, highly regulated sectors like banking where entering is extremely hard display cartel like behaviors. There is no incentive coming from the competition so why would anyone lower the net interest margin. In this context, I think a windfall tax somehow makes sense. Then
I'm not sure what the banking market is like in Italy, but in the US it's trivially easy to find banks that pay close to or above fed daily funds rates[1]. Sure, your average main st or wall st bank might still be paying 0.1% interest, but there isn't exactly lack of competition either.
This is an old European disease. Corporate profits are often seen as an adverse result; of consumers being taken advantage of unfairly. Taxing excess profits beyond what are already high tax rates is popular amongst voters (e.g. see poll results in the UK, 2022). However, this lowers the appeal for new entrants to enter these markets to compete for these excess profits through better and more efficient products and services. If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".
Irrespective of the the benefits and/or feasibility of competition to bring prices down, the larger problem with this ad-hoc windfall profit tax is that it is ad-hoc. This is changing the rules after the game has started.
The article reports the effort as a "surprise tax".
Companies made ad-hoc profits on pretending it's the inflation and raising the prices while having rising profits. I have zero problems with ad-hoc tax on that.
Frankly I think taxing some part of revenue instead of just income on big companies would be beneficial, no more "investing" in making market harder to newcomers (or outright buying them out) and getting tax cut on that.
This is changing the rules after the game has started.
The point is that a windfall is also - by definition - a favourable change in the rules after the game has started.
The moral question here should be a simple one. Did the investors in the banks know (or at least reasonably expect) that they would make these profits when they decided to make their investment? If they didn't and they invested anyway then there's a reasonable argument for a windfall tax as long as it only claws back gains they had no reasonable expectation of making and did nothing useful to earn.
its not a “game”. Its the people of Italy legislating whats best for the people of Italy. This is what government is. You are pre-supposing a capitalist framework where private enterprise should compete with the people. You could alternatively think of private enterprises being allowed to exist at the pleasure of the people. And that is the way it should be. People are real, companies are fiction.
Just because it was accomplished via a "legislative process" doesn't automatically make it a good idea. Surprise laws are a bad idea in any economic system IMHO. It isn't even a "capitalist" issue.
Utilities (water, electric, telephony/cable/data services) or where having two of something makes no sense given physical limitations (Transportation sector, etc.)
You're right but the person is talking in the context of competition and how competition doesn't reduce profit margins "for industries with big capital requirements."
Banking! If there are meaningful competitors then that implies there is meaningful competition. But many financial services firms have been making huge windfall profits by creating a wide interest rate spread even though they would still be (very) profitable with much lower spreads and their customers have a clear incentive to go with a competitor offering a better interest rate. So clearly there is not effective competition in this market.
And are they offering them at competitive rates or are they all mysteriously making enormous profits despite the "competition"? Because in much of Europe it's definitely the latter that is happening. There are lots of banks but evidently they are not really competitors.
But will their choice of health insurance provider be accepted at the hospital an ambulance took them to? Who knows but for that person, its time to play bankruptcy roulette.
These are mobile providers. For home internet with a physical connection you usually don't have a choice and it is not outlandish to consider them a "natural monopoly" like you would electricity and water.
And in cases where there are competitors, they'll often have similar prices for similar offerings, with equally poor service or reliability.
After all, if you're Time Warner, you could compete with Verizon by improving your infrastructure or lowering your prices, but that would spur them on to do the same thing, and then it's a race to the bottom where "everybody loses" (by which I mean consumers win a bit more and corporations win a bit less).
If you instead take the gentleman's agreement to not make any substantial changes, then you both get to gouge customers for poor service as much as you want, keeping profits high without having to do any work to maintain it. Sure, you might lose some customers to your competitor, but they also lose customers to you and everyone is happy (except the customers).
Most Americans have access to one "high-speed" (50Mbps+) provider, and then maybe one low-speed (<15MBps) provider, and maybe one dish option. It's not competition if the product isn't comparable.
Your assumption, that if without these extra taxes, more banks would be created and the industry would become less concentrated, seems untrue. The banking industry seems to be becoming hugely concentrated in every Western country, regardless of windfall taxes.
The opposition to these extra taxes runs surprisingly parallel to trickle-down economics.
If we pass these windfall taxes and then use that money to help individuals who are struggling, those individuals then benefit; however, if we let all that money to go to the millionaire/billionaire shareholders, then there's a chance that, instead of adding it to the excess wealth they're already hoarding, they might decide to spend it on business or projects that they could already have afforded but didn't. Those businesses or projects could then theoretically create work opportunities which would then employ some more people, and maybe some of those people would be the people who are struggling, and maybe the pay would be a bit better than the market rate they're already getting paid for their labor for some reason and so they'd get paid a bit more, and maybe that would help them to struggle less. Didn't you ever think of that?!
>I dunno why only wage tax is progressively taxed.
Companies are just groups of people. Why should a group of 100 people get taxed more than a group of 100,000 people? Progressive rates on wages make sense because it's applied to each person individually.
Yeah there's a bunch of other stuff like limited liability and governance rules, but they're not really to the topic at hand which is why bigger companies should get taxed more.
>This is in order to encourage the formation of new groups, which almost always start out small.
If that's your goal, having slightly lower taxes is a terrible way of doing so. It's far better to address the barriers to business formation directly (eg. availability of capital, market power of incumbents, regulatory requirements). We want people to found new companies to produce a better product (eg. Tesla), not to chase some tax incentive.
Weird argument but okay, then increase tax past say 100k/employed person in company of revenue.
Or tax on revenue once company becomes big enough. Taxing on income made sense to make investing into expansion a good thing, but those companies clearly don't need to be bigger, it seems to just make stuff worse and worse.
>then increase tax past say 100k/employed person in company of revenue.
That would cover most professional services firms (eg. lawyers/accountants). I don't really see why they should be considered worse than a mcdonalds.
>Taxing on income made sense to make investing into expansion a good thing, but those companies clearly don't need to be bigger, it seems to just make stuff worse and worse.
TSMC brings in 73.67 billion/year in revenue. Equifax only brings in 5.12 billion/year. Which one is making stuff "worse and worse"? Surely there's a better metric than dollar amounts, which totally ignore the financial nature of the underlying industry?
In an industry where "too big to fail" is a real thing, taxing bigger companies more seems perfectly reasonable. Not just a little bit - significantly more, even painfully more. Create some actual incentive for banks to not get that big.
Banks have been trying to reduce their balance sheets and their risk-weighted assets, because of all the extra charges and reserves they need to keep. They cannot just get rid of a large of their customers like that and collapsing shareprice.
In some businesses there is also a benefit in scale (like in trading), and there you see the US banks leading because they've had it.
If you want the US banks to fully take over IB and corporate banking, definitely do tax the EU banks painfully more.
Or tax every financial counterpart painfully more, so then eventually the customers pay much more for their loans because the financial system has become so expensive.
This is misleading. Banks have capital sufficiency requirements following the implementation of the Basel 3 capital sufficiency framework. This has created an international growing market for bulk capital availability and reinsurance services.
In short, due to international capital sufficiency regulations, there's now a market for excess regulatory capital. The attempt to prune low performing assets is due to a market as an alternative to low return on capital investments.
It's not because of charges and overhead.
Banks aren't worried about bad assets more than usual, they just have another arena to make money in now.
Excessive regulation doesn’t help if your law doesn’t have teeth. Plenty on laws on the books in the US, but I don’t see enough people prosecuted for 2008.
And then the incentives are all wrong if you bail your buddies out anyway. Play with fire and the fed will bail you out is terrible.
I think that's correct. I have a theory about bullshit jobs in highly regulated or profitable industries. Places like Google have a ton of employees that don't contribute anything but make work projects. Why don't they just cut the workforce in half? Because their profit margin would be too high. It's already 25% with all the bloat. Imagine if their profit margin shot up to 50%? They would likely be dragged in front of Congress to explain themselves. It's even more true for banks (who i would argue have even more bullshit jobs where people literally do nothing)
You could think this is good as it supports people but I think it's kind of sad thousands of people get up and go to work every day with no impact on anything,just waste away at a desk. This doesn't even mention the economic waste
Bullshit jobs are encouraged for management to grow their org into a promotion. These companies are growing so nobody really questions the bloat as making the wrong move might impact future growth (or cause your action to be blamed for growth miss).
Bullshit jobs are created for many reasons, I think you and GP are both right.
GP's point may not be obvious on the surface, but another way to look at it is, if for example the economy cools down and GOOG is pressured to maintain its profits, you can bet that management will decide to lay off even more people. In this sense it is just behaving as if it earns as much money as "expected" (by shareholders or the public, doesn't matter).
I think the other HNer is closer to the truth: in a bureaucratic organization, the more people you manage, the more important you are.
So, basically, result of a status competition that comes from misalignment between the interests of the company and the interests of individual managers.
I’ve wondered this too. I don’t think it’s conscious so much as it’s unclear exactly what jobs are bullshit. So when profits are high, there’s more leeway to allow jobs that you’re not quite sure.
But when times are tough you start making riskier jobs because you just don’t have the funds to support bullshit jobs.
I'm in my 40s now, and would be pretty content to get up and remote to work every day with no impact on anything. Let me save that energy up for my family instead.
I don't know. I kind of like competition in banking. I like free checking, ATM fee reimbursement, better customer service, better websites and apps, better alerting etc.
Interac is a great example of the opposite. The government of Canada had to strong arm the financial sector to create a non profit third party to allow zero cost transfers and a robust debit payment system. The banks have been lobbying to dramatically increase interchange and transaction fees on Interac payments for years to allow for an expansion in lucrative 'premium' credit card processing fees.
Competition did nothing to stop industry alignment against consumer interests.
Maybe they won't but new competitors will see the outsized profits and try to get my business by offering these things. I have all these things at my bank (TD) so the system seems to work.
Not often enough. You've seen the reverse due to high regulatory costs.
If you're a healthcare provider in the US you often have to get a "certificate of need" to offer a service where a board full of competitors in the neighborhood determine if the neighborhood really "needs" this service:
> CON programs primarily aim to control health care costs by restricting duplicative services and determining whether new capital expenditures meet a community need.
I certainly do. I like have lots of choices and banking is important to me. I also like innovative new banking products. I wish there was free enterprise in banking, it seems like we have an oligopoly, in the US at least.
Unfortunately the old American disease of not ensuring competition and instead passing regulation ensuring monopolies stay in power means the "problem" is not actual solved, and is in fact made worse.
> The US is home to over 4,700 FDIC-insured banks. It’s not far off from the EU, which has 5,171, but stop and consider that the EU consists of 27 countries. The UK currently has 365 banks, and Canada has 83
I shared the whole quote, but the goal was to just highlight that the number of banks is fairly similar.
I agree that the number of people is a better characteristic in this context, however the number of countries is important. EU has many different cultures, languages, regulations, so they have to have more banks. But looking at data, despite these considerations, EU still has worse competition. So still not sure what exactly parent meant.
How silly. Per million people the US has 14.1 banks, which is only slightly more than the EU's 11.5. I don't really know what's up with the UK and Canada, but there's probably some economic variable I'm not considering.
Can you imagine if the number of banks per country was constant?
The number of banks is not a good indicator of how much competition exists in a market. The elasticity of prices in that market is a better measure, but also has flaws. In general you need to look at how much margin a given industry is pulling in to determine how much leverage it has.
On the bank metric:
There are plenty of quasi non functional FDIC insured banks that are used as vehicles for reverse takeovers to allow a market entrant to avoid the hassle of obtaining their licenses.
Additionally given the substantially increased variability within different European markets we'd expect significantly different competitive dimensions between regional and international tier banks.
These numbers have strong historical reasons. The US had unit banking leading to a gigantic explosion in banks and this number has been going down as bank merge since the end of unit banking in the 30s.
Canada on the other hand had branch banking, meaning a few insitution each covering the whole country. So Canada had very far fewer banks historically.
During the Great Depression many 1000$ of banks failed in the US and none in Canada.
Forgive me but this kind of comparison is hilarious, given Europe is smaller in area, has more population and way more different countries than the USA.
> Corporate profits are often seen as an adverse result; of consumers being taken advantage of unfairly.
What is it then?
I think it's a clear sign that competition doesn't work and savings were not passed to consumers. The thesis that competition will work eventually reeks of trickle down economics.
Such tax is just punishment for the lack of competition. It sends a message that if you are not going to compete for the customer then you can't keep the profits gained from your reluctance to compete.
> However, this lowers the appeal for new entrants to enter these markets to compete for these excess profits through better and more efficient products and services.
And how many de novo banks have there actually been in any country recently? In the US, the land of plenty (banks), there's been one in the last twenty years.
Bloomberg's Odd Lots podcast just had an episode on this (including the topic of de novo):
Banking is low margin, and it takes decades to get any kind of return: few, if any folks, have the patience for that kind of ROI when there are alternatives.
Retail banking is low margin high volume, but a bank's CMG or IB divisions are NOT low margin operations. Trading desk margins vary depending on the strength of the group and the clientele. If you're a primary desk for a trillion dollar AUM entity, you make a very pretty penny off your Bloomberg terminal subscription.
I'd go further than that. Corporate profits become stores of value. The money stops moving, which reduces the transaction rate and lowers inflation.
That is, after all, how interest rates work. We 'tax' the mortgage payers and give it to deposit holders to hold as a store of value. That reduces the transaction rate.
So if we tax corporate profits and redistribute it around, then interest rates have to go higher to force the money released from the corporate profit store, to the deposit holder store.
If prices are too high, the solution is to encourage the capitalisation of more competition, not encourage keeping money in the bank.
> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem"
One must just glance at the US to see what happens, the high profits get used to lobby politicians to make competition impossible, thus the problem doesn't get solved and becomes the status quo.
Permanent high taxes are better than unpredictable windfall taxes.
It's very difficult to budget for the future when you don't know how much tax you're paying by a binary order of magnitude. When industry specific, it can create perverse incentives for outsourcing.
But like, you can use those profits before they get taxed to pay your workers more and invest in more and better equipment and tooling. So you can lower your tax bracket by providing a better service anyways.
which could easily be visited by a landing ship full of guardia di finanza. If the corrupt british regime would not offer protection for services rendered...
> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".
I sometimes wonder if perhaps other parts of the world have a different vision of how to run their economy. Surely "free enterprise" isn't a universal rule and certainly not the way it is conducted in North America. Maybe they're just doing things differently?
This is a bit strange as presumably interest rates were raised in the first place to prevent inflation. Turning around and scolding the banks for doing what the government wanted in the first place seems counter productive.
Wouldn't redistributing these profits back to mortgage holders just undermine the raising of interest rates in the first place?
Banks aren't directly profiting from higher interest rates. They are profiting from arbitraging the change. They are increasing loan rates before their capital costs increase. They could easily do the same on a downward slope.
There is debate about whether high interest rates work to solve inflation at all. But if you believe they do, it makes sense to want the banks to also pass those rates on to savings accounts instead of only milking the mortgage market. Because that would theoretically cause consumers to save more instead of spending the money.
But these high bank profits could indicate that the high rates have not been passed on to saving accounts.
One issue in Europe is that there is no easy way for consumers to access the high interest rates with their available cash. While the US government has an online portal for consumers to buy state debt directly.
I'm not sure why people think higher interest rates reduce inflation by removing money from the economy.
Main reason high interest rates reduce inflation is that they disincentivise taking new loans and each new loan take is new money printed. So higher interest rates is just putting breaks on money printing.
That's the theory. The practice is somewhat different.
Money is a stock. It's the flow of transactions that matter for inflation, and that just increases - as we see from increased credit card lending, and increased trade credit in business (which is the commercial equivalent).
Higher rates just means higher prices, which then leads into higher wage demands.
There is no control until the money becomes 'dead' - saved by people who already have money.
Which funnily enough the banks were doing before they got taxed...
You are absolutely correct but you are forgetting one thing. The entire system ratchets itself back to a zero money supply automatically as debts are repaid. This means the money supply shrinks overall if the interest rate is sufficiently high and the rate of repayment exceeds the rate of new loans being taken on. This is a very slow acting way of doing things and it can lead to debt deflation. If there was a way to avoid debt deflation, then total debt wouldn't have to rise permanently.
If there are no windfall profits during boom times, are you equally onboard with subsidies during lean times?
If the banks are doing something predatory then that behavior should be stopped. Not being able to define it and then seizing an arbitrary portion of the profits isn’t going to stop it in the future. Hell, since profit is after expense, they can increase CEO salaries to reduce it and be taxed less!
Plus if the “crime” here is fleecing depositors with interest rate spreads, they should make them pay that arbitrary percentage to each depositor based on their pro rata share over the coarse of the year.
Otherwise you’re taking some pensioners’ low savings account interest and giving it to away to someone else entirely.
> are you equally onboard with subsidies during lean times?
The problem is that these companies do receive subsidies during lean times, in both energy and banking fields, whether you want it or not. They are too important to be let to fail, and the governments will either subsidize them, bail them out or just plain nationalize them. In the case of Greece banking crisis, they nationalized the losses of foreign banks...
So a windfall tax makes sense in these industries, maybe in others too.
At this point, the EU has the worst of both a free market based economy and a planned one. Profits goes to corporate owners when they exist and losses are taken up by the general public through subsidies. It's very comfy for our corporate overlords and the old generation who could afford to become shareholders in these companies when public policies actually helped them but it's a raw deal for the rest of us. Sadly, old people are the one who still vote and put our governments in place so I don't expect things to ever get better. I guess it's doomed to happen when the median age of your country hits 45.
In the UK (but Italy as well), banks are routinely bailed out. Government takes over, absorbs liabilities, sells back to the market an unburdened company ready to make new profits (and new debts).
Utilities are similarly bailed out, because what are you going to do, leave people without water and electricity?
If we have risk floors, we should also have profit ceilings.
In the US utilities are subject to profit ceilings, and I'd be surprised if that wasn't the case in Europe. That's one of the reasons to classify something as a utility. By "energy companies", I'm assuming the top comment means fossil fuel companies.
Ideally we'd just nationalize them: state- or municipality-owned power companies in the US routinely provide cheaper and better service than their private counterparts[1].
I've seen that not working in Europe: they got defunded to oblivion. Now the situation is in one EU country, 25% of water that goes through the pipeline, gets leaked. Because the household utility prices were frozen (kept absurdly low) for almost 10 years, no investments could be made.
I'm really puzzled at this time, because I can clearly see huge issues in either wholly privately-owned and public utility companies. It's about time we figured this out, we sent men to the moon for god's sake!
Windfall taxes and bailouts aren't the policies that create a healthy banking sector. Instead they should worry about crafting better regulations and having competition for where people's savings go.
A healthy sector would have banks with balance sheets large and diverse enough to smooth over small economic disruptions like a bad bank investments or increased customer withdraws, and banks would offer customer savings rates much closer to overnight lending rates.
> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".
Max profits for BigCo (Bank, the rest, same) and lower the wages for the people seem to be the M.O. these days.
I'd love to see higher Corp tax that is spread to people. Force higher tax and give tax break to force them spread their profit to their employers would be one example that is beneficial for everyone.
Meh, this is just going to lead banks to find ways to move profits into 2024. If they're serious, they should permanently raise the tax rate on high-earning banks.
I dislike banks as much as anyone else. But does it bother anyone else to see rules changed around? Wouldn't it be a better approach to tell people/corporations how they're gonna be taxed?
It does not bother me. But I think there should be a min/max for how much wealth a person has. No one suffers from taxing windfall profits. Windfall , by definition, being unexpectedly high profits.
> No one suffers from taxing windfall profits. Windfall , by definition, being unexpectedly high profits.
1. This is objectively false. Shareholders of the bank suffer, because they get less profits. This may not be a crowd that solicits a lot of sympathy, but they still exist.
2. How do you feel about VCs and startups? Their entire business model is investing in 100 companies, knowing that 99 will fail but 1 will make astronomical returns. How would this work if there were windfall taxes?
I think you don't understand what the word suffer means. Those entities don't lose anything. It's not possible to lose something you don't have. In an alternate universe where the windfall tax did not occur those entities have more money. But in this universe they don't lose anything. They don't suffer.
To call it a loss means that money was taken from them. If someone promises to leave me $1 million when they die and then they decide to change their mind I do not suffer. Nothing was taken from me. I did miss out on having $1 million but have suffered no loss. I never had the $1 million to begin with.
> Those entities don't lose anything. It's not possible to lose something you don't have. In an alternate universe where the windfall tax did not occur those entities have more money. But in this universe they don't lose anything. They don't suffer.
That's a strange way of putting it. Suppose you were at the casino and won a few thousand dollars. When you decide to cash out they informed you there was a "winnings surcharge" (that they didn't previously tell you about) and took 50% of your winnings. Would you say that you didn't "lose anything"?
I made an edit to my comment above. It may explain more my position.
We live in a society and there aren winners/losers in a financial sense. But we all have to live together. That 10 people have as much wealth as 150 million people is obscene and immoral. Taxing such wealth to use for the betterment of us all is right, just, and sound policy. Obviously we disagree on this. I hope your view does not win out in the long run. It has won out in the U.S. in the present and the effects have been bad. Such is my view.
I mean the VC model seems kind of broken these days. Second growth/market penetration/new product related profits are different from windfall profits so it's not quite the same though I see what you are trying to do is frame it in an SV start-up viewpoint.
The "your parents" are only harmed if the public benefit from taxes don't offset the benefit that is received directly in the funding of the 401k or other relevant investment accounts.
In America anyway, the wealthiest 1% own 53% of the stock market. I highly doubt that the "your parents" would benefit more from funding of their investment accounts than they would benefit from the tax revenue generated. Of course my assumption is highly dependent on public policy.
With that logic we should never prosecute corporations doing nefarious things, because that might hurt their profits which will hurt those who's retirement funds depend on said $EVIL_CORP.
"Go ahead BP and VW, keep polluting the world, we're not gonna touch you because we don't want your shares to go down and in turn the retirement funds of those tied to you."
Am I the one seeing the slippery slope here, or am I being crazy?
> With that logic we should never prosecute corporations doing nefarious things, because that might hurt their profits which will hurt those who's retirement funds depend on said $EVIL_CORP.
Nobody claims this. My initial comment was only pointing out that the claim that nobody will be harmed by the windfall tax was false.
While you seem to be trying to say that bank shareholders are astronomical or just wealthy people and aren't worthy of sympathy. You seem to fail to realize that most 401k holders are bank shareholders as a function of their holdings. They are arguable more hurt than the people who get large gains.
I'm not defending anyones point here but pointing out that you haven't quite grasped how the economy works or alternatively you like snarky little value add comments.
>Windfall , by definition, being unexpectedly high profits.
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Just because it's called a windfall tax does not mean it only effects windfalls. This is really just a "surprise extra tax". Plenty of people said that rising interest rates would mean more risk but also more profit for banks. Now they have taken the risk they're being told the profit is not theirs...
If you have surprise ad-hoc taxes (i.e. laws) they you no longer have the rule of law. In this case it is almost an ex-post facto law as the tax applies to earnings that occurred before the tax existed.
Surprise laws should bother you on general principles.
Tax unpredictability, high taxes, or capping profitability is a great way to scare off businesses from operating in your jurisdiction.
Profits by definition mean leftover money after all expenses. Paying tax on profit does not incur a loss by anyone. It does mean that someone receives less than if there was no tax but it isn't a loss. You can't suffer if nothing was taken away.
I mean, they kind of are. You might call it an ex post facto telling, but there you have it. I'd prefer everyone jumped on board and did it everywhere so there was no FAFO necessary.
They're not changing the rules of the game on Jane Public's family here. They're sur-taxing banks' already exorbitant profits. Oh no, the bankers bonuses will be 20% instead of 30%!
Profits are net of expenses. This is, if anything, an incentive to pay higher bonuses to bankers. So it's more like the bankers will make 500% bonuses instead of 200% and local pension funds will take the penalty.
In the U.S. bonuses are taxable income and the marginal rate of taxation for the bonuses comes at the high end of an employee’s tax bracket. In the U.S. corporate tax rates are lower than the income tax rate for high individual earners. Therefore, from a tax collection perspective, it’s good that the excess profit go toward bonuses.
Pensions don’t take a penalty. A penalty implies something being taken away from them or a charge to them. Nothing is being taken away from the pension.
Do we levy windfall taxes on farmers after a bumper crop harvest?
No, because we assume the profits will be reinvested.
How does a bank efficiently re-invest? Does taking profits mean efficient reinvestment? I dont think so. It just means inflation.
Windfall taxes just grow the big government. More cost to be directly passed on to consumers at the end of the day.
If we don't like capitalism, why not just say we want to ban usury and be done with it?
For me, this line of thinking usually ends with: If you can't beat them, join them. As Adam Smith Founding Fathers, and people at the top everywhere would have hoped. Time to get off Hacker News and make my profits soar.
Banks gambling in the form of credit made available to other businesses would be ideal. That's what makes everything keep ticking along. What we should be concerned about is profit taking and thereby exchanging working assets and capital for idle cash on hand.
They'd sooner invent few new classes of dervatives you can't loose on (on paper) and gamle with them than do what you suggest or anything in any way beneficial for that matter.
Canada leaders are all cowards. All of them. They all sell promises of lowering costs for the people but every single policy that they created have always driven everything up.
Grocery monopoly and corp profits.
Housing "affordability" means "lowering requirements, giving tax break for first time buyer" ...
It's not the kind of "Affordability for the people" that one expect.
