No. of Recommendations: 3

My mother-in-law was just visiting, checking out houses for a possible move to be closer to their daughter. She never ceases to amaze us with her inability (he daughter inherited her father's brains) to evaluate contradictory ideas—her ideal house cannot be found in our community, so she has to compromise, but se gets hung up on one favorite desire to the exclusion of what are probably higher priorities in the big picture.

Unfortunately, she is a typical American, focused on one idea at a time, without understanding how ideas fit, or don't fit, together. Politicians, of course, prey on this by playing up a single theme, that may not be one that affects most of us the most, without most voters evaluating it against the big picture.

There is a good case for tax changes to encourage companies to give dividends, namely that the current bias towards capital gains over dividends provides an excuse for companies to retain profits which they cannot put to good use, so they end up spending the money in ways that do nothing to enhance the company's value for shareholders. There is also the argument that the current situation in which companies can write off interest from loans but not dividends, leads them to seek debt instead of capital funding, when they do need new working capital. Of course, these problems can be solved with a revenue neutral approach, instead of as a big, top-heavy, tax cut that now seems only to be justified by trying to pop the stock market (you don't even hear much about the idea that tax cuts for the rich lead to investment, which is a valid argument, for which my disagreement is with whether the rich would actually invest the money in meaningful ways and whether our economy needs investment anywhere near as much as it needs demand, for which throwing money at the rich makes no sense).

But the basic idea of prompting companies to give back money to investors instead of keeping it flies in the face of supply-side ideals, in which there is no such thing as too much working capital. So, the whole thing really does boil down to getting people to buy stocks, so stock prices go up, without either increased demand/profits or money for working capital with the prospects for profits in the long run. I have to wonder whether Shrub and his supporters actually know the difference between buying stocks (causing stock prices to go up) and investing (providing working capital and getting a return on investment when companies turn that working capital in profits they share with investors)—most folks don't.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.