TurboTax Tim strikes back against the Dutch and Irish!

[Master of Ossus]

You're assuming things here. If the businesses have latitude in determining what is and isn't commensurate due to "standard industry practices" or whatever, they can set them pretty much as they like if regulation is lax. And we all know that the regulation of corporate America has been for the past ten years rather ridiculously lax.

Are you actually claiming that the IRS has been lax in its taxation efforts on large corporations?

[Master of Ossus]

The employees actually do all of the work of the company. Precisely how would a distribution of profit as extra salary among the entire work force be something other than commensurate compensation for their work?

Virtually all workers' compensation is determined in part by an examination of what people with similar skills and responsibilities are receiving in other companies and industries. Moreover, you're still completely discounting the capital investment that people make to purchase equity shares in these companies which allowed them to become large and earn profits in the first place.

[Darth Wong]

The employees actually do all of the work of the company. Precisely how would a distribution of profit as extra salary among the entire work force be something other than commensurate compensation for their work?

Virtually all workers' compensation is determined in part by an examination of what people with similar skills and responsibilities are receiving in other companies and industries.

Do you know anything about the labour market? There are 2:1 or larger salary ratios between similar jobs in different companies, for various reasons. Even within a company, there are large differences in salary for the same work, often based on seniority. Moreover, if more profit distribution among employees became commonplace, then employee compensation would rise across the board, thus altering this average that you're referring to.

Moreover, you're still completely discounting the capital investment that people make to purchase equity shares in these companies which allowed them to become large and earn profits in the first place.

No I'm not; it's simply irrelevant to the point under discussion, which is your asinine claim that companies do not have any conceivable methods available to them to dispose of their profits.

[D.Turtle]

While your formulation is extremely crude, it still applies to the scenario that I provided for you: if the company isn't growing anymore, but is nonetheless suffering losses, why can't they pay out a dividend at that point?

Because they are losing money? And paying out dividends means that they are essentially losing even more money? Money they then don't have in order to try and get into black numbers again?

Can you actually provide evidence that they made these investments because they were paid huge bonuses depending only on short-term profits? Even the shareholders who sued (e.g.,) CitiBank attributed it not to a personal profit motive but a misjudgment of the non-diversifiable risk involved in certain securities.

I don't see that at all in the various American investment banking firms: they're almost always paid largely in stock options (which are, of course, completely worthless now), given a reasonably substantial sum in stock (again, completely worthless), and given some bonuses tied to their own individual performance. Indeed, the contract structure you describe sounds like an American investment bank circa 1980 when there was a big uproar about how broker-dealers and investment advisors were paid.

Here is the Spiegel article I mentioned before. Let me quote some of it:

In recent days, it was revealed that Merrill Lynch handed out bonuses of $1 million (€770,000) to each of 696 managers at the end of last year, even though the investment bank incurred a loss of $15 billion (€11.5 billion) in the fourth quarter alone and had to be bailed out by the government.

...

For investment bankers, the rule of thumb was simple: the bigger the profit from these speculative transactions, the bigger the bonus. In only two decades, the total amount of bonuses paid out by Wall Street banks increased by a whopping 1,695 percent, from $1.9 billion (€1.46 billion) in 1985 to $34.1 billion (€26.2 billion) in the peak year, 2006. Some top executives were collecting bonuses worth 10 to 20 times their base salaries.

The bonus system acted as an "accelerant," says Nikolaus von Bomhard, head of the Münchner Rück insurance group, but others started the fires.

...

All that counted was the transaction, because it served as the basis for the banker's longed-for bonus at the end of the year. Reservations about the system were pointless: No one got a bonus for preventing a crisis.

On the other hand, those who took high risks could have it made in just a few years. What was there to lose? If their bets paid off, they received the bonus. If not, it was the shareholders' problem. It was this mechanism of greed that was partially responsible for the financial crisis.

...

In the world of investment banking, everything revolved around the bonus. The base salary, which could easily amount to $150,000 (€115,000) even for newcomers, was treated as little more than compensation for expenses. The true pay for an 80-hour week, for giving up one's personal life and living a life of nerve-wracking stress was the bonus, which could be five or 10 times as much as the base salary. The bonus paid for the luxury, for the Ferraris, the villas and an assortment of excesses.

...

The bonus mania being pursued by the banks and their employee was so obscene that in December 2006, the climax of the boom, the CEO of Goldman Sachs, Lloyd Blankfein, became concerned about his company's image and urged his employees to practice moderation. "As stewards of the firm's reputation, I ask each of you to remember that our actions -- inside and outside of the office -- reflect on Goldman Sachs," he told employees in a voice mail message. "Even a perception of arrogance hurts all of us."

At the same time, Blankfein was collecting an unbelievable personal bonus of $53 million (€41 million), in addition to his annual salary of $220,000 (€169,000).

Goldman Sachs reported record earnings in 2007. The company expressed its appreciation by paying its employees a total of $18 billion (€13.8 billion) -- an average of $623,000 (€479,000) for each employee. Blankfein earned close to $70 million (€54 million).

In 2007, Lehman Brothers also celebrated the joys of making money and rewarded its employees by paying them $9.5 billion (€7.3 billion), $800 million (€615 million) more than in the previous year.

Not to be undone, Morgan Stanley, despite setbacks resulting from the beginnings of the banking crisis, paid $16.5 billion (€12.7 billion) in bonuses, an 18 percent increase over the previous year. CEO John Mack, who took home $40 million (€31 million) in 2006, had to make do with a modest $800,000 (€615,000) in 2007.

That year, Merrill Lynch CEO Stan O'Neal was sent home -- with a $161 million (€124 million) severance payment. His successor, John Thain, was paid $83 million (€64 million) in his first year on the job.

...

The financial crisis hit Wall Street with full force in 2008, when Lehman Brothers and other big names disappeared. Unmoved, the bankers who had brought on the disaster paid themselves $18.4 billion (€14.2 billion) -- the sixth-largest bonus amount ever paid. In December 2008, the Associated Press reported that $1.6 billion (€1.23 billion) of the money that US taxpayers coughed up to bail out their banks ended up in the pockets of top executives.

Merrill Lynch, sold with an injection of about $230 billion (€177 billion) in government funds, still paid bonuses to its top performers. It quickly decided to pay bonuses worth $3.6 billion (€2.8 billion) early, in December, just before the shareholders approved the sale of Merrill Lynch to Bank of America.

Do you seriously want me to believe that nobody was influenced by the massive bonuses they were being payed? And that the way those bonuses were calculated did not influence anybody? Lloyd Blankfein received a bonus that was 240 times his salary! And not only do you not see anything wrong with that, you think something like that doesn't influence people?

I think you're simply incapable of going through anything like a reasoned investigation of the subject because you have no actual interest in understanding things on anything beyond a superficial level.

I try to understand what lead to the situation we are in now (ie. a global financial crisis). I try to understand what is being done to fight it. I try to understand what is being done to prevent another crisis like this in the future. And when I look at stuff like those bonuses, and the way those bonuses were calculated, it is quite obvious to me what was one of the major factors that lead to this crisis, and what should be done to remove that factor in the future. I am well aware that the bonuses are not the sole reason for the crisis, but to say that they were unimportant is ridiculous. Now, you can say that that is only superficial, but you haven't convinced me that it is wrong.

[aerius]

But all investors then have the option of selling when the price rises. Moreover, what happens to the company is usually irrelevant for shareholders, too: many corporations have essentially dividended themselves out of existence because they recognized that their long-term prospects were poor and they wished to return their assets to the shareholders as that would be better for them (the company realizes that shareholders would receive higher returns in other investments and essentially ceased operations).

Because handing out $2 a share on dividends totally makes up for a $20 cratering in the share prices. As a shareholder it's my duty to take my money and run when the company's balance sheet indicates that it's no longer profitable or viable going forward. As a shareholder, I don't give a fuck if a company wants to pay out large dividends if their earnings are negative, their cash on hand is cratering, and they have no means of turning it around, because it means their share price will go to zero and completely wipe my principal investment. Paying dividends in such a situation does not do the shareholders any favours, and any investor with a functional brain would short the fuck out of the company and buy a boatload of put options, in essense a mercy killing for the company. Like WaMu.

[Coyote]

Let's see, companies hire their labor from the pool of citizens educated by public schools, and perhaps even raised on various public programs.

Companies want to sell goods to consumers; consumers who have jobs because they were raised in the same public education system that taught them marketable skills.

Companies, however, do not want to pay taxes on the profits they make from these people, taxes that would go to support the very society they rely on to... make profit.

Being forced to pay taxes, they consider it "unfair", and if they don't have offshore tax havens, they cry foul and threaten to take their businesses elsewhere, perhaps the lucrative Namibia market? Since we're not getting taxes from them anyway, I say go for it. That and a call to 'whine-one-one' will get you a ride on the WAAHmbulance. Close the damn overseas tax shelters and pay to help support the society you subsist on.

[Master of Ossus]

Because they are losing money? And paying out dividends means that they are essentially losing even more money? Money they then don't have in order to try and get into black numbers again?

But what if they have no prospects to get into the black, again? What if they can't plausibly make an argument that they're going to be a better investment than their investors can get elsewhere? Stop evading this point: it happens all the time, and companies actually make this discovery and respond to it precisely in the way that I've been advocating.

Do you seriously want me to believe that nobody was influenced by the massive bonuses they were being payed? And that the way those bonuses were calculated did not influence anybody? Lloyd Blankfein received a bonus that was 240 times his salary! And not only do you not see anything wrong with that, you think something like that doesn't influence people?

Are you even capable of having an intellectually honest discussion with someone?

I try to understand what lead to the situation we are in now (ie. a global financial crisis). I try to understand what is being done to fight it. I try to understand what is being done to prevent another crisis like this in the future. And when I look at stuff like those bonuses, and the way those bonuses were calculated, it is quite obvious to me what was one of the major factors that lead to this crisis, and what should be done to remove that factor in the future. I am well aware that the bonuses are not the sole reason for the crisis, but to say that they were unimportant is ridiculous. Now, you can say that that is only superficial, but you haven't convinced me that it is wrong.

You have not provided a mechanism by which tying a company's bonuses to its profits materially changed their decision making: if the company did well, then the employees did well. Indeed, this is precisely the system the Darth Wong has been arguing for throughout the thread (e.g., when the company's performing well, pay out a substantial fraction of the profits to employees as bonuses).

[Master of Ossus]

Do you know anything about the labour market? There are 2:1 or larger salary ratios between similar jobs in different companies, for various reasons. Even within a company, there are large differences in salary for the same work, often based on seniority. Moreover, if more profit distribution among employees became commonplace, then employee compensation would rise across the board, thus altering this average that you're referring to.

Interesting. You're arguing for precisely the same system that D. Turtle suggests created the financial crisis in the first place.

But saying that someone can be paid for seniority is no answer to saying that a huge bonus on top of their original salary can be considered "commensurate" to their work if it's based on the performance of the company--something an individual employee may have little or nothing to do with.

No I'm not; it's simply irrelevant to the point under discussion, which is your asinine claim that companies do not have any conceivable methods available to them to dispose of their profits.

I don't think it's a good idea and I question its legality. I suppose it's possible for a company to say "We don't want to make a profit at all," if they want to be a very, very short-lived company.

[aerius]

If a company wants to dispose of their profits there's literally a million ways to do it. They can dump it into R&D even if it's all BS "proprietary blackbox" projects or use it to buy up another money losing company and get tax write-offs for the next decade. Which is what Wells-Fargo did when they bought up Wachovia, they now have nearly $20 billion in losses to offset future profits, and they get a tax write-off & subsidy on top of it, I believe it ends up with the FedGov paying them around $3 billion to buy Wachovia so that the FDIC doesn't have to liquidate it.

[Darth Wong]

Do you know anything about the labour market? There are 2:1 or larger salary ratios between similar jobs in different companies, for various reasons. Even within a company, there are large differences in salary for the same work, often based on seniority. Moreover, if more profit distribution among employees became commonplace, then employee compensation would rise across the board, thus altering this average that you're referring to.

Interesting. You're arguing for precisely the same system that D. Turtle suggests created the financial crisis in the first place.

No I'm not. Your reading comprehension seems to get worse with each post.

But saying that someone can be paid for seniority is no answer to saying that a huge bonus on top of their original salary can be considered "commensurate" to their work if it's based on the performance of the company--something an individual employee may have little or nothing to do with.

Oh for fuck's sake, the onus is on you to prove it would actually be illegal to reduce your profits by paying a bonus to your employees. You brought up this claim that it's a violation of the tax code; you must establish the criteria for "commensurate" pay, not me. All I've done is establish that your criteria of forcing all employee salaries to match those of competitors is bullshit.

No I'm not; it's simply irrelevant to the point under discussion, which is your asinine claim that companies do not have any conceivable methods available to them to dispose of their profits.

I don't think it's a good idea and I question its legality.

No, you're pretending that I must prove it's legal, when you have done nothing to establish that it's illegal in the first place.

I suppose it's possible for a company to say "We don't want to make a profit at all," if they want to be a very, very short-lived company.

I never said they had to dispose of 100% of their profit, Mr. Straw Master. I only said that in a corporate tax regime which discourages heavy profit-taking, one way they could deal with these taxes is to reduce their profits in other ways, such as paying out bonuses or reinvesting in the company. I also claimed that this would be more beneficial for the economy as a whole. If you have a problem with that idea, why don't you address it, instead of leading us all on some kind of wild goose chase?

[Master of Ossus]

No I'm not. Your reading comprehension seems to get worse with each post.

Why? You want to give out bonuses that are tied to company performance (e.g., a substantial fraction of company profits are given out with each quarter or year). He argues that a system that gives out bonuses for company profits caused the financial crisis.

Oh for fuck's sake, the onus is on you to prove it would actually be illegal to reduce your profits by paying a bonus to your employees. You brought up this claim that it's a violation of the tax code; you must establish the criteria for "commensurate" pay, not me. All I've done is establish that your criteria of forcing all employee salaries to match those of competitors is bullshit.

Simply showing that this is illegal is trivial: it violates the duties of directors to the shareholders to run a for-profit company as an elemosynary organization for the benefit of employees or the public at large (Dodge v. Ford). Moreover, merely pointing to other criteria that are also taken into account when determining wages and salaries does not show that the sort of bonuses you've been describing can be considered commensurate with the labor of an employee, which is answerable to their skills and productivity.

I never said they had to dispose of 100% of their profit, Mr. Straw Master. I only said that in a corporate tax regime which discourages heavy profit-taking, one way they could deal with these taxes is to reduce their profits in other ways, such as paying out bonuses or reinvesting in the company. I also claimed that this would be more beneficial for the economy as a whole. If you have a problem with that idea, why don't you address it, instead of leading us all on some kind of wild goose chase?

What's the incentive to invest in a corporation, if there is no return on doing so? Why wouldn't capital leave the country, or be invested in smaller private ventuers and kept from large corporations?

[D.Turtle]

But what if they have no prospects to get into the black, again? What if they can't plausibly make an argument that they're going to be a better investment than their investors can get elsewhere? Stop evading this point: it happens all the time, and companies actually make this discovery and respond to it precisely in the way that I've been advocating.

In my view they should still do their best in trying to get into black numbers. If they can't, they might as well close the company and pay out their investors, because at that point they are just losing the money of its investors - meaning that they can pay out less the longer they wait.

Are you even capable of having an intellectually honest discussion with someone?

Now you are evading the point. Do you think people are not influenced by the way their salary + bonuses are calculated? Do you think that people were unaffected by the way 95% of their total earnings (salary + bonuses) were calculated?

You have not provided a mechanism by which tying a company's bonuses to its profits materially changed their decision making: if the company did well, then the employees did well. Indeed, this is precisely the system the Darth Wong has been arguing for throughout the thread (e.g., when the company's performing well, pay out a substantial fraction of the profits to employees as bonuses).

You are missing the point. The bonuses were NOT tied to the company profits, but to the individual profits every trader made. Quoting from the Spiegel article again:

At Deutsche Bank, most of the letters have already been distributed, as part of a ritual that takes place every year. The department manager summons each individual trader into his small glass box next to the trading room and hands over an envelope. Anyone who does not receive a bonus basically knows that he should start looking for a new job.

Instead of the €400 million ($520 million) distributed at Dresdner Kleinwort, Deutsche Bank handed out €3.5 billion ($2.7 billion) to its investment bankers. From secretaries to derivatives specialists, employees received an average of €234,085 ($180,065) each. This amount also includes base salaries, which often make up only 10 to 20 percent of total compensation at the upper levels of management.

Is €234,085 a lot of money or a little? It depends on one's point of view. In the previous year, the average at Deutsche Bank was €413,204 ($317,849). Investment bankers are not unaffected by a drop of more than 40 percent.

On the other hand, Deutsche Bank's investment bankers were responsible for a pretax loss of €7.4 billion ($9.6 billion). CEO Josef Ackermann owes it to his more stabile business units, like the consumer-banking division, that the overall loss was limited to €3.9 billion ($5.1 billion).

The only thing that mattered was the individual's short-term profit. You can make the largest short-term profits through high-risk investments. If they pay off, then you rake in massive bonuses, earning more in one year than otherwise in a decade (or more). If they do not, you look for a new job. If you have 100 people making risky bets, and 70 of them lose while 30 of them win, then the company loses money, but still pays out massive bonuses. In other words, the bonus system is actively hurting the company, because it is providing incentive to make those risky bets. Look at the Deutsche Bank above. The investment bankers lost €7.4 Billion, but still got payed €3.5 Billion in bonuses. That is the mechanism. The bonuses were not tied to the company profits, but to the individual. Precisely the opposite of what Darth Wong is proposing.

[aerius]

What's the incentive to invest in a corporation, if there is no return on doing so? Why wouldn't capital leave the country, or be invested in smaller private ventuers and kept from large corporations?

Why do investors keep buying US T-bill & T-notes when they have the lowest yield of all the major currencies except the Yen, and despite the fact that Treasury has cranked up the printing presses and is devaluing the fuck out of the USD?

It's called security.

[Darth Wong]

No I'm not. Your reading comprehension seems to get worse with each post.

Why? You want to give out bonuses that are tied to company performance (e.g., a substantial fraction of company profits are given out with each quarter or year). He argues that a system that gives out bonuses for company profits caused the financial crisis.

OK this is ridiculous; you're being a full-blown troll now, with this insistent strawman bullshit. I never said that I want corporations to give out bigger bonuses; I simply said this was one way they could reduce their profits, since people like you seem to think there is no way to do it. I also said they could reinvest that money for capital expenditures, expansion, modernization, etc. Any of these methods are better for the economy than simply paying it all out to shareholders while being as miserly as possible in every other way, which is what they've been doing.

Simply showing that this is illegal is trivial: it violates the duties of directors to the shareholders to run a for-profit company as an elemosynary organization for the benefit of employees or the public at large (Dodge v. Ford). Moreover, merely pointing to other criteria that are also taken into account when determining wages and salaries does not show that the sort of bonuses you've been describing can be considered commensurate with the labor of an employee, which is answerable to their skills and productivity.

The fact that a company has an obligation to attempt to run at a profit does not mean they are legally prohibited from doing anything which might reduce their profit. By your idiotic logic, all employee pay raises are illegal.

I never said they had to dispose of 100% of their profit, Mr. Straw Master. I only said that in a corporate tax regime which discourages heavy profit-taking, one way they could deal with these taxes is to reduce their profits in other ways, such as paying out bonuses or reinvesting in the company. I also claimed that this would be more beneficial for the economy as a whole. If you have a problem with that idea, why don't you address it, instead of leading us all on some kind of wild goose chase?

What's the incentive to invest in a corporation, if there is no return on doing so? Why wouldn't capital leave the country, or be invested in smaller private ventuers and kept from large corporations?

Again with the black/white fallacy, eh? I'm trying to make up my mind about whether you're deliberately resorting to this "all profit or zero profit" false dilemma out of deliberate deception or rampant stupidity.

PS. High-tech companies often do exactly what I'm talking about: they pay high salaries to their employees and heavily invest in R&D, so their profits end up being reduced as a result. Many of them pay little or no dividend to shareholders. Amazingly, they have not been hauled into court for this, despite your bizarre interpretation of the law.

[Master of Ossus]

In my view they should still do their best in trying to get into black numbers. If they can't, they might as well close the company and pay out their investors, because at that point they are just losing the money of its investors - meaning that they can pay out less the longer they wait.

Your simplistic view of business gets tiresome. They should close the company and pay out investors with what? With their liquidation price? What if the company is still valuable and needs time to seek a buyer? What if only a part of the company is losing money? What if the company is making an accounting profit but not an economic one?

Now you are evading the point. Do you think people are not influenced by the way their salary + bonuses are calculated? Do you think that people were unaffected by the way 95% of their total earnings (salary + bonuses) were calculated?

I do. Point to where I claimed otherwise.

You are missing the point. The bonuses were NOT tied to the company profits, but to the individual profits every trader made. Quoting from the Spiegel article again:

At Deutsche Bank, most of the letters have already been distributed, as part of a ritual that takes place every year. The department manager summons each individual trader into his small glass box next to the trading room and hands over an envelope. Anyone who does not receive a bonus basically knows that he should start looking for a new job.

They were tied to the profitability of the individual trader, presumably. This was true with American investment banks 30 years ago, too.

Is €234,085 a lot of money or a little? It depends on one's point of view. In the previous year, the average at Deutsche Bank was €413,204 ($317,849). Investment bankers are not unaffected by a drop of more than 40 percent.

Obviously--nor should they be.

The only thing that mattered was the individual's short-term profit. You can make the largest short-term profits through high-risk investments. If they pay off, then you rake in massive bonuses, earning more in one year than otherwise in a decade (or more). If they do not, you look for a new job. If you have 100 people making risky bets, and 70 of them lose while 30 of them win, then the company loses money, but still pays out massive bonuses. In other words, the bonus system is actively hurting the company, because it is providing incentive to make those risky bets. Look at the Deutsche Bank above. The investment bankers lost €7.4 Billion, but still got payed €3.5 Billion in bonuses. That is the mechanism. The bonuses were not tied to the company profits, but to the individual.

Even if they were tied to company profits we would observe the same effect, except that the traders would make risky bets with even greater impunity since they internalize none of the risks of their actions.

Precisely the opposite of what Darth Wong is proposing.

Except that the mechanism you have presupposed still applies to such a system: the effects of an individual trader on the profits of the company are not substantial if there are hundreds or thousands of traders, and so if their bonuses were based on company performance you would have a situation in which employees making risky bets en masse can be successful but making conservative ones are irrelevant.

[Master of Ossus]

OK this is ridiculous; you're being a full-blown troll now, with this insistent strawman bullshit. I never said that I want corporations to give out bigger bonuses; I simply said this was one way they could reduce their profits, since people like you seem to think there is no way to do it. I also said they could reinvest that money for capital expenditures, expansion, modernization, etc.

None of those things achieve your central goal of reducing profits for tax purposes since all of them have to be amortized over the life of the asset. You could expense it, I suppose, but what would be the point of that?

Any of these methods are better for the economy than simply paying it all out to shareholders while being as miserly as possible in every other way, which is what they've been doing.

You make it seem as if paying it to shareholders is a net waste, when in fact those shareholders are going to spend some portion of it and some of it will be taxed and go into government coffers.

The fact that a company has an obligation to attempt to run at a profit does not mean they are legally prohibited from doing anything which might reduce their profit. By your idiotic logic, all employee pay raises are illegal.

Never claimed that. I claimed that deliberately paying a bonus for the purpose of reducing profitability is illegal: that is precisely what you proposed.

Again with the black/white fallacy, eh? I'm trying to make up my mind about whether you're deliberately resorting to this "all profit or zero profit" false dilemma out of deliberate deception or rampant stupidity.

Precisely why would reducing profits slightly be any different from not making a profit at all, for the purposes of this discussion? It's illegal to provide bonuses for this purpose whether you do it a lot or a little, and both reduce the incentive to invest in corporate securities proportionally.

PS. High-tech companies often do exactly what I'm talking about: they pay high salaries to their employees and heavily invest in R&D, so their profits end up being reduced as a result. Many of them pay little or no dividend to shareholders. Amazingly, they have not been hauled into court for this, despite your bizarre interpretation of the law.

My "bizarre interpretation of the law" recognizes the protections afforded by the business judgment rule, you imbecile, and the fact that it does not extend to the sorts of things you are proposing. You are either being dishonest or you are completely unfamiliar with this area of business.

[J]

In my view they should still do their best in trying to get into black numbers. If they can't, they might as well close the company and pay out their investors, because at that point they are just losing the money of its investors - meaning that they can pay out less the longer they wait.

Your simplistic view of business gets tiresome. They should close the company and pay out investors with what? With their liquidation price?

Yes. This is basic bankruptcy 101. Creditors get paid whatever's available after liquidation, equity, which is what shareholders are receive any residual (if any) after the creditors are paid in full. Equity always takes first losses.

What if the company is still valuable and needs time to seek a buyer?

Chapter 11 bankruptcy.

What if only a part of the company is losing money?

Sell it, shut it down, or liquidate it. Get rid of it and get if off the balance sheets.

What if the company is making an accounting profit but not an economic one?

When was the last time a sizable corporation went belly up under the above conditions, and accounting fraud wasn't involved?

[Darth Wong]

None of those things achieve your central goal of reducing profits for tax purposes since all of them have to be amortized over the life of the asset. You could expense it, I suppose, but what would be the point of that?

There you go again, assuming that if it doesn't achieve a sufficiently large and instant reduction of profit, then it is useless for the purpose. You really don't ever tire of these black/white fallacies, do you?

You make it seem as if paying it to shareholders is a net waste, when in fact those shareholders are going to spend some portion of it and some of it will be taxed and go into government coffers.

Of course shareholders are going to spend some portion of it. But employees will probably spend more of it. Investors, after all, are interested in growth of their funds, not extracting any gains and spending them at the store.

Never claimed that. I claimed that deliberately paying a bonus for the purpose of reducing profitability is illegal: that is precisely what you proposed.

And your only proof was your personal interpretation of the statement (posted by someone else, since you could never be bothered to back up your own claim with a shred of evidence) which was: "You can generally deduct a bonus paid to an employee if you intended the bonus as additional pay for services, not as a gift, and the services were performed. However, the total bonuses, salaries, and other pay must be reasonable for the services performed. If the bonus is paid in property, see Property, later."

You have done precisely jack shit to explain why any bonuses paid to employees would necessarily be illegal under this law. As long as the pay is "reasonable" for the services the employee performed, it's legal to deduct. Once more, where's your fucking evidence? We're not talking about banker bonuses where they get bonuses ten times their salary, you fucking liar. We're talking about employee bonuses, which are spread among relatively huge numbers of employees and which are going to be much smaller.

Precisely why would reducing profits slightly be any different from not making a profit at all, for the purposes of this discussion? It's illegal to provide bonuses for this purpose whether you do it a lot or a little, and both reduce the incentive to invest in corporate securities proportionally.

Because you say so? According to the text produced earlier, it's only illegal if it's intended as a "gift". It doesn't matter if it's being paid out because the company thinks it can afford to reduce its profit. If you have some evidence to the contrary, provide it.

My "bizarre interpretation of the law" recognizes the protections afforded by the business judgment rule, you imbecile, and the fact that it does not extend to the sorts of things you are proposing. You are either being dishonest or you are completely unfamiliar with this area of business.

Oh that's rich, asshole. You didn't provide a shred of evidence for your earlier claim, and when DH posted the text of the relevant IRS rule, you parsed it and then based your entire argument upon your assumption that the word "reasonable" in that rule does not include anything that you personally say it doesn't, also without a shred of evidence.

PS. You quoted Dodge vs Ford as your proof. Did you bother reading it? The ruling specifically states that Ford was being taken to task because it had huge profits and a huge cash surplus yet refused to declare a special dividend. This does not in any way justify your position that a company is not legally allowed to reduce its profit by paying employees more money.

[D.Turtle]

Your simplistic view of business gets tiresome. They should close the company and pay out investors with what? With their liquidation price? What if the company is still valuable and needs time to seek a buyer? What if only a part of the company is losing money? What if the company is making an accounting profit but not an economic one?

J answered this part above.

Now you are evading the point. Do you think people are not influenced by the way their salary + bonuses are calculated? Do you think that people were unaffected by the way 95% of their total earnings (salary + bonuses) were calculated?

I do. Point to where I claimed otherwise.

Can you actually provide evidence that they made these investments because they were paid huge bonuses depending only on short-term profits? Even the shareholders who sued (e.g.,) CitiBank attributed it not to a personal profit motive but a misjudgment of the non-diversifiable risk involved in certain securities.

They were tied to the profitability of the individual trader, presumably. This was true with American investment banks 30 years ago, too.

Thats what I fucking said you little dipshit. And yes, American banks still did that, or why do you think they payed out massive bonuses even when they were losing money? From the Spiegel Article:

In recent days, it was revealed that Merrill Lynch handed out bonuses of $1 million (€770,000) to each of 696 managers at the end of last year, even though the investment bank incurred a loss of $15 billion (€11.5 billion) in the fourth quarter alone and had to be bailed out by the government.

Even if they were tied to company profits we would observe the same effect, except that the traders would make risky bets with even greater impunity since they internalize none of the risks of their actions.

Bullshit. Here's a very simple bonus system that would remove the incentive for high-risk idiocy: If you lose money, you do not get a bonus. Everyone else gets a bonus dependent on the total company profits. Tada, you do not individually make high-risk bets, because there is a large chance you will not get anything. And if you ARE successful, you do not profit to such a large degree as to have earned enough money in that year to last for the rest of your life.

Except that the mechanism you have presupposed still applies to such a system: the effects of an individual trader on the profits of the company are not substantial if there are hundreds or thousands of traders, and so if their bonuses were based on company performance you would have a situation in which employees making risky bets en masse can be successful but making conservative ones are irrelevant.

The effects of an individual trader might not be substantial, but it is still there. And if a large number of traders make risky bets that will add up to a large effect. Near zero =/= zero.

From the Spiegel article:

On the other hand, Deutsche Bank's investment bankers were responsible for a pretax loss of €7.4 billion ($9.6 billion). CEO Josef Ackermann owes it to his more stabile business units, like the consumer-banking division, that the overall loss was limited to €3.9 billion ($5.1 billion).

Those risky bets lost €7 Billion, while those "conservative" business practices made a €3.5 Billion profit. Disproving your point.

If the bonuses were paid out based on company profits, there would have been no bonuses that year. Instead, those investment bankers who brought the entire company down into the red were still payed out bonuses totaling €3.5 billion. This means, that even though they brought the company into the red, there was and is still a personal motive to keep on making those risky bets despite these hurting the company. In other words, the way those bonuses are calculated and payed out are harming the company. Which means, that those bonuses are partially responsible for the financial crisis we are in right now.

Anyway, I'm off fishing in Sweden for 10 days, so I won't be able to continue this discussion for that time.