ANTITRUST

Antitrust legislation has tried to maintain a competitive environment in many businesses since the turn of the last century. This has worked in cycles but not consistently. We see business go out and buy companies for which they have no managerial expertise and then reduce them to a former shell of themselves.

The reason that this usually occurs is that business managers can tell investors that due to double taxation even if they only add modest value it is better than paying out returns in the form of dividends. If they acquire another company and it pays as well as there current business the acquisition will more than return the investment. What it ignores is that most acquisitions actually destroy value since it pushes the managers into businesses that they do not understand.

The solution is to eliminate double taxation of dividends. If all dividends were only taxable to investors and paid pre-tax by corporations, there would be no excuse to invest in businesses unless they could demonstrate there ability to increase value. This would lead to better decision making, less churn among businesses and more mergers and acquisitions that actually create value.

The economic pressures of the marketplace would keep business from buying companies in industries for which they had little expertise and allow them to destroy lives, towns and business services all in the name of “growing bigger”. Too often the financial raiders have had to step in to restore sanity to a business because the barrier to returning capital to the investors is so high. With the elimination of double taxation the “financial raiders” would have very little business because there would be no argument with the board of directors to returning income in the form of dividends.