Saturday, December 30, 2017

Amazon Reviews

Amazon changed what it shows for book reviews. Below a review asks whether or not the reader found the review helpful or not. The writer of the review could see how many people found the review helpful and how many did not. For example, it would say 6 people out of 10 found this review helpful, implying 4 did not. Now Amazon only shows how many people found it helpful, making how many did not unavailable.

I don't know why the change was made. I expect the folks at Amazon decided too many people checked 'did not' and they believed the lower star ratings made by the reviewers was enough to discourage purchases.

Sunday, December 24, 2017

Tax Cuts and Jobs Act #2

I was a little surprised by AT&T and Comcast announcing they would pay most of their employees a $1,000 bonus after The Tax Cuts And Jobs Act becomes law. My surprise was only because such bonuses are rare. It's easy to expect that the money will be offset by lower future taxes. Indeed, considering only the amount of money, these bonuses will be easily covered by lower 2018 taxes only. Then I realized there is another reason for the bonuses being even more affordable.

AT&T says about 200,000 front line and non-executive employees will get the bonus. Comcast says more than 100,000 front line and non-executive employees will get the bonus. That means $200 million dollars for AT&T and $100 million dollars for Comcast. That's cash. The effect on the companies' financial statements will be driven by GAAP accounting, which isn't only the cash.

AT&T's 2016 provision for income tax was $6,479 million. Comcast's was $5,308 million. (Numbers from Morningstar.) Assuming the same pre-tax earnings in 2018 and a tax rate of 21% instead of 35%, the provisions for income tax will be $3,887 million for AT&T and $3,185 million for Comcast. The reduction for income taxes --  $2,592 million for AT&T and $2,123 million for Comcast -- dwarfs the amount of bonuses for both.

Moreover, the new lower tax rate will induce a big one-year earnings boost. It will reduce the amount of deferred tax liability on their balance sheets. AT&T's was $60,128 million ($60 billion) at the end of 2016. Comcast's was $34,854 million ($35 billion) at the end of 2016. Assume the same amounts at the end of 2017 and modify them for a tax rate of 21% instead of 35%. Those deferred tax liabilities fall to about $36 billion for AT&T and $21 billion for Comcast. Since a liability reduction increases income, it implies $24 billion extra income for AT&T and $14 billion extra income for Comcast. Although non-recurring, they are big numbers compared to AT&T's 2016 net income of $13 billion and Comcast's 2016 net income of $12 billion. AT&T's income nearly triples. Comcast's income more than doubles.

I wondered if anybody else thought of this. MarketWatch did.

Thursday, December 21, 2017

Tax Cuts and Jobs Act #1

The U.S. Senate and House of Representatives have both approved changing the tax code. The Tax Cuts and Jobs Act now awaits President Trump's signature to take effect. The biggest change is the corporate income tax rate is reduced from (mostly) 35% to 21%. Personal income tax rates are modestly reduced for most people.

Chuck Schumer, Nancy Pelosi, and Bernie Sanders have attacked the Act as a give-away to the rich that won't benefit the middle class. Of course, they are demagogues, as usual. For example, AT&T and Comcast have said they will pay $1,000 bonuses to most of their employees after it becomes law. Fifth Third Bancorp said it will also hand out employee bonuses and raise the minimum wage, while Wells Fargo announced it is raising its minimum wage. Link.

The Federalist has quite a different opinion -- 4 Of The Biggest Myths About The Tax Cuts And Jobs Act.

In addition the demagogues ignore the many middle-class people who own stock in those rich corporations and share buybacks typically increase the value of a stock.

Saturday, December 2, 2017

Senate tax bill #2

The US Senate passed its tax bill late yesterday (link). The final vote was 51 to 49, with one Republican and all Democrats voting against it. Another Washington Post article describes the major provisions.

The provisions are much like I described here. Two things I didn't mention there are the alternative minimum tax (AMT) -- the threshold is raised -- and the bill repeals the individual mandate from the Affordable Care Act. It reduces estate taxes. Deficit concerns curtailed prior efforts to eliminate estate taxes (in 2025) and the AMT.

A major change is reducing the corporate tax rate from (mostly) 35% to 20%. The Senate bill has this starting in 2019. The House bill has it starting in 2018. This and other provisions need to be reconciled with the earlier House-passed version before being sent to President Trump. Republican leaders still aim to get a final bill on Trump’s desk before Christmas.