More influential individuals are speaking out in favor of using tax cuts to stimulate the economy. However, the most cost-effective way of creating jobs, as the THOR Plan lays out, is the reduction of the corporate tax rate. The President’s stimulus plan does not encourage marginal growth in the economy like a decrease in the corporate tax would. Right now, the country needs this kind of flow of capital that would immediately have a positive impact. Corporate tax cuts should also have corrresponding corporate governance guidelines like those in the THOR Plan in order to bring back confidence in the stock market.

While governmental funding for projects provides the capital necessary to move them forward, creating jobs and improving infrastructure – both positive things – it falls short of the benefits in the short and long term of a reduction in the corporate tax rate.

Stephen Entin, the president and executive director of the Institute for Research on the Economics of Taxation, summarizes the benefits of a corporate tax cut in the following excerpt from January 27, 2009′s Wall Street Journal.

We need a permanent improvement in the production climate. What would help? A lower corporate tax rate, as well as a permanent extension of the 2008 expensing provisions and the 2003 dividend and capital gains and top marginal income tax rates. On the regulatory side, lifting the burdensome auto fuel economy standards and alternative fuel requirements would help, as would an elimination of restrictions on oil drilling.

Taxes and regulations raise the bar for investment to be profitable after-tax, and they fall especially hard on capital-intensive industries such as manufacturing and resource extraction. We have the second-highest corporate tax rate in the developed world (after Japan). A lower rate would make us a more attractive location for business. Similarly, the excess of the U.S. corporate tax rate over the foreign rate is imposed on repatriated earnings — keeping foreign-source earnings abroad exactly when domestic credit is hard to get. To spur investment in 2004, Congress declared a partial tax holiday on repatriated earnings. Now would seem an opportune time to do so again.

The following are excerpts from an article in the Friday January 23, 2009 Wall Street Journal by Mark Maremont. These points tie directly into our second point in the Plan. If executive pay is curtailed within a specific set of parameters, the people at the top of the company cannot navigate loopholes in the system to benefit themselves when no other employees receive such treatment.

Some major companies are boosting the value of retirement plans for top executives by using a generous formula when converting a pension into a single lump-sum payment.

The practice, which remained largely unknown until a recent change in federal disclosure requirements, can increase the value of a CEO’s pension by 10% to 40%, sometimes amounting to millions of extra dollars. The additional sums aren’t always fully reflected in annual pension-benefit tables included in proxy statements, or in company financial statements, due to the complexities of accounting and disclosure rules.

Some companies have been basing their calculations on an obsolete federal interest-rate formula that many experts say tends to produce an inflated payout. “It’s a sneaky way to give executives larger pay,” says Ron Gebhardtsbauer, a former U.S. Senate pension expert, now head of the actuarial-science program at Pennsylvania State University’s Smeal College of Business.

Business groups have successfully lobbied Congress to be able to use a less-generous formula when it comes to paying out pensions for regular workers. Pensions for most workers are federally regulated, and corporations argued that their coffers were being depleted by large lump-sum distributions.

Generous payout calculations for executives’ pensions have been around for many years. But they were almost impossible for the public to discern until 2007, when new Securities and Exchange Commission disclosure rules took effect. The rules required companies to place an overall value on their executives’ pension benefits, and to reveal key assumptions underlying the calculations, among other things.

Details of how companies calculate lump-sum payments typically are buried in footnotes in proxy statements, often written in technical language.

Here’s where the hidden pension boost can come in. In theory, the interest rate should be linked to a market rate, in order to accurately value the lump sum at the time of retirement. But if the company picks an interest rate much lower than market rates, that results in a higher lump-sum payout to an executive. Because executive pensions are unregulated, companies are free to choose any interest rate.

We have a new President as of yesterday and the reactions are mixed depending on which side of the aisle you are on.  Democrats are ecstatic about not only winning the House and Senate, but having a new, younger Democrat President.  Republicans feel a sense of fear and trepidation about what changes will occur to the society we know today.  No matter what side you are on, President Obama is the President for all of America.  We don’t know much about him and must give him a chance.   Campaigning is over, now the hard work begins.

One of the biggest challenges for President Obama is changing the mindset of “doom and gloom” to optimism about the future.  He hopefully will get help from the media in printing and reporting on more positive things in the economy, not the negative.  This will help, but we need more than words.  Maynard Keynes (FDR’s top economist) warned that if government spending is going to work on the economy, people have to believe it will.  If not, that spending could have a negative effect on the economy.  This is what has happened with the TARP funds.  People have lost confidence that Washington knows what it is doing.  It will be Obama’s job to rebuild that confidence.

Some people have asked us why we developed the THOR Plan (www.thorplan.com) at this time.  We did it for two reasons.  First, the economy and the stock market are in obvious distress and need a new direction.  Second, we feel very strongly that the Plan will work.  Our concern with current proposals is the lack of long-term, sustainable pro-growth policies.  Throwing money at the problem and growing government are not necessarily the long-term answer.  This is similar to what FDR did during the Great Depression – such action only prolonged the problems.  If you are interested, there is a great book available that will give you a better sense of why we say this – The Forgotten Man by Amity Shales.  At this point, getting our economy back in shape is more important than party politics.

As always, we appreciate your trust and confidence in us.  If you have any questions or comments on this update or our Plan, please don’t hesitate to contact us.

Sincerely,

Jim, Mark and Greg

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This is an excerpt from the following article regarding corporations and their “tax havens”:

Citigroup had 427 units in 23 countries, including 91 subsidiaries in Luxembourg and 90 in the Cayman Islands. Morgan Stanley had 273 units, News Corp. had 152 and Bank of America had 115. Procter & Gamble Co. had 83 subsidiaries and Pfizer Inc. had 80 in the jurisdictions.

Several major corporations have announced plans to leave Bermuda, a leading offshore business center, amid the global financial crisis and fears of tighter tax rules. Tyco Electronics Ltd., which makes electronic components, and Foster Wheeler Ltd., an engineering and construction company, are reincorporating in Switzerland – which has a tax treaty with the U.S. – for tax and other reasons. Covidien Ltd., a health care products company, is heading to Ireland.

When major corporations incorporate in foreign countries with more attractive tax rates, especially when the vast majority of their business is in the United States, wouldn’t a normal person ask themselves why these companies go through this effort? Transitively, would not that questioning also lead to a strategic initiative that would stop these corporations from doing so? Apparently not.

The THOR Plan fully details the positive benefits of cutting the corporate tax rate. There are many of them. What are the positive benefits of leaving the already inflated rates or, even worse, increasing it? It only encourages businesses to move more jobs and subsidiaries overseas.

http://apnews.myway.com/article/20090116/D95OHIB80.html

This link is to a Bloomberg article detailing the extent of 2008 losses in State Pension Funds and the impact on workers and hiring in the respective jurisdictions. The Plan was written before the actual amount of losses was made public; this is another real world example of how the THOR Plan would have a positive impact in America.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aV0VZMxdImVQ&refer=home

Here’s a link to listen to the first hour of the Mike McConnell. The interview starts about ten minutes into the broadcast and lasts for most of the first hours.

Today I was on the Mike McConnell show to discuss the THOR Plan. The interview went very well, especially because some of the typical questions about the Plan’s success were brought to the table. I would like to address them here.

Mike brought up the theoretical opposition by some that suggest the Plan is corporate welfare. I would suggest that it is the exact opposite of corporate welfare because it is actually improving the fundamentals of the companies that choose to adhere to the executive pay changes. That is exactly why we believe a response to acceptance of the plan would be an increase in the stock prices of the respective companies. Welfare implies a benefit with no structural changes; our Plan is most certainly not giving anything away. In general, the public would have a big interest in these results as there would be more jobs, more benefits, increased responsibility and decreased Pension funding burdens.  The Plan would also free up spending elsewhere in the economy that would stay in the country. As American dollars stay in America, our relative wealth increases and our economic fundamentals improve.

A second question asked about how we came to the conclusion of a 15% tax rate. Based on our analysis, 15% is considered to be an optimal tax rate because of its competitiveness relative to other national tax rates. Another consideration that American corporations face that some other countries do not is the impact of local taxes. When those are considered, the effective corporate rate would be around 20%, still a rate more attractive than most developed countries where the average rate is just above 26%. While other developed nations have decreased their corporate taxes, the United States has not. This is putting us at an even larger competitive disadvantage as the paradigm of global economics is shifting. We cannot afford to sit idle and hope that things will get better. We must make proactive changes to our system to compete with others. Just like Team USA Basketball made the necessary changes to the Olympic Team after realizing the World had caught up to them, so too must American companies.  

One final headwind Mike addressed was the problem of selling people, especially politicians, on the Plan. We realize it will be difficult to spread the word to the public, but because of the plan’s simplicity and far reaching benefits, we are confident the plan will increasingly make its way into more hands. What sets our Plan apart from others that have recently been conceived is that corporations are doing the heavy lifting, not the government. Governmental stimulus generally has a short-term benefit, but they do not repair the fundamentals of the system. This Plan will improve those fundamentals, and the resulting investment, both in companies and in jobs, helps public employees’ Pension Plans, tax revenues, re-investment and confidence in the system.

In economics, cycles dominate. Because of human nature, psychology causes cycles to overshoot and undershoot. The THOR Plan will break our current cycle as investor fear and cynicism dissipate, bringing much needed cash off the table and back into the system. From there, the cycle feeds on itself. Creating jobs and providing stimulus is necessary right now, but it doesn’t impact every industry and reach out to all citizens. By targeting the corporations that drive our economy, THOR’s Plan would spark a stimulus that would grow stronger over time, not disappear. Since 2000, Americans have experienced several bubbles that have grown and burst. The THOR Plan would not create a bubble but rather replace the issues that have been causing them. Governmental stimulus has just delayed them to another point in the future.

I wanted everyone to know that I will be on The Mike McConnell Show on WLW 700 at 9:00 a.m. this Wednesday, January 14 to discuss the “THOR Plan.” Click here at 9:00 a.m. on Wednesday to listen to the broadcast.

THOR’s U.S. Economic Revitalization and Corporate Responsibility Plan. Click here to read more.

We at THOR have been unhappy with the economic plans being put forth today. We have developed the “THOR Plan” that we believe solves both short-term and long-term economic problems. The Plan also would be a huge positive for the stock market and it would recover much faster than currently expected.

Below please find an executive summary and entire Plan for your review. These are extraordinary times and deserve extraordinary efforts to solve the current economic problems. We are disseminating the Plan not only to our clients, but to Congress and the media as well. Please take time to read it.

We would like you to pass along the Plan to others as well. If you have contacts in Washington or with the media, please pass this along to them and share that information with us. If you like it, please e-mail your Congress person at:

House of Representatives: https://writerep.house.gov/writerep/welcome.shtml

Senate: http://www.senate.gov/general/contact_information/senators_cfm.cfm

Please feel free to contact us if you have any questions or comments. We wish you and your family the very best in ’09!

• THOR’S U.S. economic revitalization and corporate responsibility plan
• Executive summary of the plan

Sincerely,

Jim, Mark and Greg.