Sunday, November 21, 2010

The BET!

I was talking to Egg Farmer in Cokato the other day about the topics of the day: taxes, federal budgets, and egg prices. As a businessman Egg Farmer in Cokato had lots of insight into taxes, particularly how a lack of harmonization between federal and state taxes create different incentives (e.g., the feds allow a business to accelerate the depreciation of an asset--say new packing equipment--encouraging the business to purchase expensive items and then deduct the cost from it's taxes. Minnesota does not allow a business to do that).

Anyway, EFIC is much more pessimistic than me. I said that the USA will hit a significant budgetary crisis because of every rising deficits, while he says it will happen within in 10 years. Thus, a bet is born. For a six pack of beer we decided to bet on the timing of a significant budgetary crisis. The definition of the crisis will be a point of time in which the US Congress will need to balance the budget (for the fiscal year) because of significant financial pressures. If this crisis happens before Dec 31, 2019, Egg Farmer in Cokato wins. If after, Redhead in Rapid wins. The bet is a bit wooly, but we think we can agree when we see the crisis unfold before our eyes.

1 comment:

  1. Egg Farmer needs to clarify... It is section 179 depreciate, not accelerated depreciation that is a problem. Section 179 allows businesses to completely write off a new piece of equipment. The state of minnesota does not allow the deduction or only a portion of the total amount the federal section 179 allows. If a business person cannot take it both on the federal and state, what is the point... In our case we don't take the full amount of section 179 tax deduction, because it doesn't help on the state tax return. Of course, my good friend across the state line can take the section 179 both on the state and federal tax. All these different tax deductions and/or incentives that are given to businesses I understand (we take advantage of as many as we can). The problem is that the playing field becomes uneven. I am not arguing that the government should some how make it "even" or "fair" for all, because innovation and technology will always disrupt the playing field. What I think the role of government can or should play is to use its limited resources in shaping a better playing field (better infrastructure, simplifying the tax code and security), which would benefit all.