Comments

2003


William Nash's Comments on "Workplace Diversity: The Key to Survival and Growth"

by Hershey Friedman and Taiwo Amoo

To the Editor:

I recently read the article article titled "Workplace Diversity: The Key to Survival and Growth," by Hershey Friedman and Taiwoo Amoo. I found the article to be insightful and very well founded on the issue of creating value. I found the authors captured the essence of a Diverse Culture creating Personal value and Corporate value. The information contained within the article helped to support my persuasive argument to a co-worker regarding the value one could expect from a diverse corporate culture.

Thank you for supporting the external masses with informational articles of this caliber. I would appreciate any other information you might have previously published or are aware of on this topic.


Joseph W. Comments on "Double Taxation of Dividends: A Clarification"

by Confidence W. Amadi

I read Mr. [sic] Amadi's article concerning double taxation of dividends. His arguments did not address the disparity between taxes paid on dividends versus long-term capital gains. I would conclude that his arguments should apply to taxes on long-term gains as well or not at all.

My question is this: Why should a long-term investor in a dividend-paying company be forced to pay higher taxes than an individual who invests in a company which re-invests its revenue ("pays" itself the dividends)? For an investor, a dividend is taxed at the same rates as ordinary income while long-term capital gains are taxed at a maximum of 20% (1-year) and 18% (5-year). Theoretically, the value of a company is ultimately dependant upon what dividends it will pay (future cash flow). A company which pays all its earnings in the form of dividends will probably not grow much and its price will remain relatively constant. A company which re-invest its cash is, in effect, paying "dividends" via stock appreciation. Also, the article concludes that a corporation is an economic entity (unit) and thus, should be treated the same as an individual. I only partially agree with this statement (provided dividends and long-term gains are taxed equally). A corporation, however, cannot drive an automobile on a road. It does not occupy a seat on an airplane. It never goes to a hospital. It does not need its life protected. In other words, it does not need the same level of governmental services as does a living, breathing human being (as shareholders and employees for instance) and therefore should not be taxed as such. Regards,

Joseph W. Sr. , Electrical Engineer

Anne Davenport Comments on "The Flat Tax: How To Fix It" by Ben Branch

Ben Branch:

         First, I must say that your proposal is the only one I've seen that could even come close to being acceptable.  However, I tested 15 client files in my database using AGI and your flat rate and discovered that everyone with AGI between $30,000 and $45,000 had a substantial increase in taxes.  Everyone with AGI over $140,000 had a significant decrease in tax.  I just thought that was interesting, given your "average data".  I also happened on the issue of Social Security exemption due to a state retirement plan.  Anyone employed by a State Agency (and we have 13,000 at our institution) would be crushed under your tax proposal. 
My personal opinion of the flat tax is that the Internal Revenue Code has one section providing rates and thousands of sections determining what is to be taxed;  we need to work on taxable income and its definition rather than the rate applied.

I have some legitimate review comments also.  There are two sentences in the article that are unclear and awkward. The first is between the two 5-point lists on page 5:

"That is one need to derive a taxable income number from a gross income total. "

The second obfuscation occurs in the first paragraph of the section entitled "A Flat Tax Proposal" (page 8 on my screen).  I suspect that what you mean is that people pay FICA the same way they pay insurance.  It's a hedging against the future.  And the benefit they perceive being derived from that payment is quantifiable and "worth" something to them, while the FEDTAX payment has no easily perceived associated benefits.  By using your flat tax, you remove the tax that has perceived benefit (FICA) and replace it with a larger one that doesn't have benefit (FEDTAX).  This is bad even though many of us know that SSA is practically bankrupt and as you say "actuarially unsound".  I just couldn't quite catch this meaning from the paragraph, but didn't understand anything else, either.  This most troublesome sentences are:

"First, it would not reflect most taxpayers' views that FICA payments yield much greater personal benefits than do their FEDTAX payments.
Taxpayers tend to view their Social Security and Medicare benefits as "earned" by their FICA taxes notwithstanding the actuarial unsoundness of the system."

I thought your point was that it DID reflect most people's views that FICA had benefits.  So the two sentences together seem to contradict each other.

It was a fascinating article.  Thank you.


Anne Davenport, CPA
Tax & Compliance Coordinator
Miami University

Oxford, Ohio 45056

DavenpAE@MUOhio.Edu


Ben Branch's Response

Anne Davenport:

Many thanks for taking the time to read and comment on my flat tax article. Also thanks for your complement that my proposal comes as close as any you have seen to being acceptable.

I believe with a little tweaking, my basic approach can overcome most of your objections. For the article I tried to follow the KISS approach and keep it simple... So I suggested a 25% rate and $1,000 tax credit per exemption. Clearly those numbers are not written in stone. If the result is to shift the burden toward the lower middle income group, a somewhat higher credit coupled with a little higher rate could improve matters.

My own analysis suggests that my initial numbers are not as generous in the EIC as the current system. Thus a higher credit would also help out there. A further tweaking would involve changing the way SSI is integrated. I proposed that the employee portion would be used as an offset. One could add a portion of the employer portion and thereby tilt the burden in favor of lower income groups. In short I think my basic approach with some tweaking can overcome any income shifting bias in the initial numbers.

As regards the SSI exempt workers, I too fall in that category as a MASS state employee. My own personal view is that such workers should be brought into the system as most are now subsidized. Indeed those who get their 40 quarters in from other employment and then work under SSI for their last several years of employment get a substantial subsidy. Still if the political pressures dictated an exemption, that could be built into my approach with an offset for employee payments into the state retirement plans.

As for your awkward sentences:

The first sentence you identify is indeed in error. It should read: That is, one needs to derive a taxable income number from a gross income total."

Thanks for catching the error. Perhaps Carole can fix it in the text.

As for the second set of sentences on FICA and FEDTAX I think you largely have the drift of what I am trying to say. I do not mean that FEDTAX would totally replace FICA. The money collected would be allocated between the two. It would do no violence to my proposal to keep the two items separate on one's wage statement.

Again thanks for your comments. I would be happy to continue this dialogue.

Ben Branch

branchb@som.umass.edu

 

Minna Hamilton Comments on "Workplace Diversity: The Key to Survival and Growth" by Hershey H. Friedman and Taiwo Amoo

Your paper on the above subject is a very compelling argument. Well done!

One weak area of the paper however was the area of economic spending. I do understand that there are a lot of areas that had to be covered etc, however I do believe herein lies a major story to be told. Granted you both did mention the projected spending for the Hispanic groups, but this should be broadened to include the other minority groups and sub-groups. May be you should follow up with a couple of paper looking at (1) Workplace diversity and and the bottom line in detail before and after senarios. (2) Workplace diversity and spending power! good luck! If you wish to respond to me you may contact me at melada_2000 @yahoo.com


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