Dear Fellow Owners,
Today’s case is a door bin. The student is not in the room. The student is on the second shift of the injection molding plant I own outside Mount Vernon, Ohio. Her name is Phoebe. She is 38. The case is the bonus depreciation Julio Gonzalez is celebrating this morning in the Fox News opinion section. The principle the case will illustrate is older than the deduction. Sit forward.
Julio is right about the tax code. The One Big Beautiful Bill made 100% bonus depreciation permanent. Section 179 was expanded. R&D is now expensed. The IRS issued $296 billion in refunds this spring, up 17%, $43 billion more than last year, with the average refund up $333 and 8 million additional refunds processed. He calls the surge “confidence made visible.” He has not priced the visibility. I will price it for him.
The door bin you opened this morning came off a 480-ton injection molding press on Phoebe’s second shift. The press runs molds at 480°F. The cell ambient in July is 118°F. The local exhaust ventilation the OSHA NEP recommends for the volatiles off-gassed at 480°F is $11,400 to refurbish. The cooling station I’d specified for the cell was $4,180. Six industrial fans, two hydration timers, a mandatory 90-minute rotation cadence. I declined both. Total refused: $15,580. The cell runs 2.4 million parts a year.
Per part: $0.00649.
Read that twice. The refrigerator your mother bought in 1998 had bins that came off a press in a cooler cell, in a cooler decade. The refrigerator you opened this morning has bins that came off Phoebe. The deduction is the reason. The deduction is also the excuse.
The $15,580 I kept is a coupon. The coupon doesn’t register against the cell’s attributed margin of $6.4 million a year. I could toss it into the parking lot resurfacing and not notice. I keep it because keeping it is the test.
I am not cruel. Cruelty would have required me to think about what the $15,580 cost. I did the arithmetic. The arithmetic did not include Phoebe.
Phoebe passed out on the second shift on a Thursday in July. The press didn’t stop. The cell didn’t stop. The medic I contract at $11 an hour, no benefits, signed the form I provide. She wrote “heat-related incident” on the line. The thermometer I keep at the cell, which I calibrate myself, read 114°F. The thermometer OSHA would have required would have read 122°F. The 8°F is the difference between a cleared form and a recordable. I keep the thermometer I keep.
Phoebe was back on the press in 4 days. The doctor on my panel, not hers, released her in 4 days. The urgent care across town would’ve written 6 weeks. The 4 days cost me the modified-duty line. The 6 weeks would’ve cost me a cell. The cell is on my books at $6.4 million in attributed margin. Phoebe is on my books at $0.00649 a part.
The cell is always cheaper than the woman.
The cell is always cheaper than the woman.
Now take a different industry, because the principle travels. Ginny is a body in the dining room of the steakhouse franchise I own in 14 states. She is 36. She carries four tables on your Saturday-night date. She is paid $2.13 an hour plus tips. The tips come to $31,000 a year on her W-2. The federal income tax on those tips, before the One Big Beautiful Bill, was $3,820. The new provision zeroes it. The week the bill was signed, I posted her hourly from $5.15 to $4.68. The notice on the back-of-house board read “compliance review.” The review took 11 days. I posted the change across all 1,247 locations. The reduction: 47¢ an hour. Annualized against her scheduled hours, that is $978 retained. The 47¢ is the part of the arithmetic I’m willing to print. The employer FICA I no longer remit on the tip income I do not pay is the part I’m not. The 3% menu price increase is the part your congressman will not notice.
Read the Saturday tab with me. The ribeye special your congressman ordered at the dining room I own on Capitol Hill came to $58 before the upcharge. The 22% he wrote — the tip the new provision shields from federal income tax — was $12.76. Ginny declared $12.76. The federal income tax on $12.76, under last year’s schedule, was $1.59. The new schedule says $0.
The 47¢ I cut from her hourly, across her 207 hours that month, came to $97.29.
Same number. Different direction. Yours goes to her. Mine stays on my books.
The menu went up 3% in the same week. She paid the increase when she bought her son’s birthday meal on Sunday.
The doctrine Mr. Gonzalez’s column does not print: in 1857, a Virginia sociologist named George Fitzhugh observed that the wage employer was the truly emancipated master — freed of the lifetime maintenance obligation the slaveholder bore, because the wage worker could be dismissed the moment the body failed. Fitzhugh called the arrangement a cruelty. I call it the business plan. My one innovation on Fitzhugh’s plan — the innovation Mr. Gonzalez’s bill makes honest — is that the State now funds the maintenance obligation the employer is freed of. Phoebe’s medic is subsidized. Ginny’s rent is subsidized. Ginny’s mother’s blood-pressure medication is subsidized. The bus Ginny rides home at 11:47 PM, because the second-shift closes and the last connecting run leaves at 11:47 and not 11:52, is subsidized. The $15,580 I keep and the 47¢ I keep are what remain after the subsidy. They are the entire margin of my operations on those stations.
The apostle anticipated it 2,000 years before the steakhouse: Servants, be subject to your masters with all respect, not only to the good and gentle but also to the harsh. The apostle did not authorize Ginny to file a grievance. He did not authorize the dining-room committee. He authorized her to serve. The verse has been on my wall since 1987. I hung it beside the Mudsill Speech and the framed 1943 labor-requisition form. The three documents agree on the arithmetic.
Widen the frame. The bonus depreciation is a contract between the state and my press. The press is mine. The deduction is the state’s. Phoebe is not on the contract. She is on the press. The optimism Julio is selling is the state agreeing to underwrite the press. The pessimism is the heat I declined to mitigate. The $296 billion is the visible half. The $15,580 is the quiet half. The 2.4 million door bins are the sum of the two halves. The pessimists are looking at the wrong half.
The principle is older than the case. The case is only an example of it.
“Hear this word, ye kine of Bashan, that are in the mountain of Samaria, which oppress the poor, which crush the needy, which say unto their masters, Bring, that we may drink.” — Amos 4:1
The verse is older than the bonus depreciation. The arithmetic is older than the press. The mountain is the same mountain. The press is a newer instrument. The cell is the cell.
I have not priced where the demand goes. The customer is in the dining room tonight because he has a job that pays him more than the wage I pay Ginny. If I have my way, the job that pays the customer will not pay him more than the wage I pay Ginny. I have not priced that scenario to its endpoint. The endpoint is not in my purview. The 47¢ is.
I’m the Dean of Instruction at Warden University’s College of Business and Economics. The class of 2024 sits in the firms that priced your last raise. One of them priced the refrigerator you opened this morning. The best of them will underbid me at the next press. I’m proud of them. I’ve been grading men into the deduction for 30 years. The 2024 class is the coldest I’ve taught. Dismiss me and you’ve dismissed one dean. The faculty remains. The bonus depreciation will outlast me. The bonus depreciation will outlast you.
Julio asked for confidence. The confidence is mine to deliver. The pessimism is his to misname. The door bin is yours.
Ginny is on the schedule for Saturday. Phoebe’s shift starts at 5. The verse is on my wall. The deduction is permanent.
Yours in service,
Sterling A. Varice Chairman, Sterling Hospitality Group
Sterling A. Varice holds the Hayek-Friedman Chair and serves as Dean of Instruction at Warden University’s College of Business and Economics in Richmond, Virginia. He is the author of three textbooks: Divine Mandates for Labor Utilization, Social Obligations for Profit Maximization, and Calibrated Deprivation: A Manager’s Guide to Employee Motivation.