[southernmissouri2007]

I'm saying that if the rich don't have to pay the taxes, then the taxes will have no effect on the rich's incentive to invest.

-Meta

The Historical Lessons of Lower Tax RatesBy Daniel Mitchell, Ph.D.
August 13, 2003

According to then-Treasury Secretary Andrew Mellon:

The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business and invest it in tax-exempt securities or to find other lawful methods of avoiding the realization of taxable income. The result is that the sources of taxation are drying up; wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people.

http://www.heritage.org/research/report ... -tax-rates

Higher taxes kills the incentive to pay taxes lower taxes give the Rich an incentive to pay taxes the idea that higher taxes will create jobs because the rich would rather invest in their company to
to avoid higher personal income taxes is nonsense since the rich have already ways to avoid higher taxes without investing they can use tax loopholes and or tax shelters.

[southernmissouri2007]

Would you agree that tax cuts don't necessarily create Jobs since the Wealthy can just spend the money they get from tax cuts on consumption for themselves or their family or friends or they can save the money in the banks ?


By the end of the 80s, it had become clear that the rich were not investing their liberated tax dollars on "good" forms of investment, like jobs and productive tools and technology. Instead, the money went towards consumption, the good life, and economically meaningless investments like antiques and sport cars. The lack of investment in the national interest became so obvious that Democrats in congress actually proposed guidelines to encourage it. During the 1992 campaign, Bill Clinton proposed a massive infusion of public investment into the nation's aging infrastructure to compensate for the failure of the private sector to do so.

http://www.huppi.com/kangaroo/L-capgainsspur.htm

Thom Hartmann: But it seemed, just common sense. I remember back in the ‘80s, I owned a business, International Wholesale Travel in Atlanta, Georgia. That business has, since we sold it done over 200 billion dollars inbusiness. And there was a year when we were doing really, really well and I could either write a big check to myself or not. And I decided not to, because I didn’t want to pay the increased taxes. I put it back into the business. How can cutting taxes on rich people, on high income people, do anything other than encourage them to take the money out of their companies, out of their businesses, and buy fancy paintings or yachts or put it in Swiss bank accounts? How conceivably could that help the economy?

http://www.thomhartmann.com/blog/2010/1 ... jobsreally

The major problem with this economic theory is that it doesn't work as effectively as its proponents suggest. A few economists may still cling to the trickle down economics theory, but many more agree that, in fact, trickle down economics hurts the lower classes, and it hurts the government. By reducing the tax burden for the wealthiest individual, the government cheats itself out of a very profitable wedge of tax revenue, meaning that this revenue cannot be invested directly in the citizens of the nation. Without that revenue, the government may go into debt to pay for basic services, thereby creating a serious problem for future generations.

The issue with trickle down economics is that it relies on actions by individuals which will benefit a whole, and most individuals are not that altruistic. In fact, many wealthy individuals and corporations are understandably interested in protecting their wealth, and when their taxes are cut, they may choose not to reinvest that money, meaning that no funds “trickle down” to people in lower socioeconomic classes. The tax burden on the middle class may also increase as the government struggles to keep tax revenues high enough to fund itself.

Trickle down economics tends to be promoted by conservative politicians who would like to see less government. However, moderates and conservatives have suggested that theories like trickle down economics are ultimately a disservice to the government and the citizens. By collecting reasonable tax revenues, a government can provide the benefits which are supposedly offered by trickle down economics, as demonstrated under politicians like President Roosevelt, who invested heavily in American infrastructure with government funds in the 1930s to foster recovery from the Great Depression.

http://www.wisegeek.com/what-is-trickle ... nomics.htm

[southernmissouri2007]

Meta777 tell me what you think thanks for replying.

[southernmissouri2007]

If they invest in their company they will make more money and then pay even more in taxes. There would be less incentive to risk your money as the reward would be less.

[southernmissouri2007]

I am LESS likely to take a chance and (re) invest in a business if my payoff will be less due to higher tax burden. Higher taxes means that he will not pay himself money that he must pay taxes on but the boat he wants, the car he wants, the big screen will all be purchased by the company and guess what you still will not have a job because their is not incentive to Create more wealth because it will just mean higher taxes and i am not going to pay that. Proved it during Reagan and it is still true today. Wake up the only way to get employers to hire people is to cut taxes for both employee and the employer but you will never get that. The premise that "higher taxes make businesses re-invest most of their profits into the corporation" is false.

As long as tax rates are less than 100%, it will benefit the company to not re-invest beyond what they need to expand the business based on customer requirements.

You can't start a business without capital. You theory doesn't show how many business could have been created in a more favorable economic climate for investment.

Wealthy people don't work 40 hour work weeks. If you are working 80 hours a week why are you going to work harder to pay more taxes? You wouldn't.

We live in a global economy. It is easier to take your business overseas to a friendlier tax climate if you are wealthy than invest in the US.

[Atlas Guate]

What you are describing is the benefit of low Capital Gains taxation.

Let me explain: Income Taxes are collected not based on what you keep, but rather what you earn (minus deductions) therefore, if a business owner assigns himself a high salary, he pays high Income Taxes before he can re-invest. To avoid this people like Warren Buffett assign themselves little to no salary (thus paying low Income Taxes) but rather get their income from the money earned from investing and re-investing on their companies, thus promoting the growth in the economy you claim and at the same time they get to keep more of their money. Economy is not a zero sum game.

Therefore your proposition only works if Capital Gains Taxes are kept low. Otherwise people would have no reason to risk their money. In other words, it is not higher taxation that creates the incentive to invest, but rather low Capital Gains taxes.

But the main thing here is that “liberals” (progressive left-wing) don't want higher taxes to promote growth of the economy, they want them to “punish” the rich, re-distribute wealth and grow government (as in "the rich should pay their fair share”). Keynesian theory espoused by the left is based on big government confiscating wealth and deciding how it should be spent. If what you promote is individual freedom to invest then you should align yourself with (true) liberal (aka conservative) thought as represented by von Mises and Kant.

[Modernjan]

But the main thing here is that “liberals” (progressive left-wing) don't want higher taxes to promote growth of the economy, they want them to “punish” the rich, re-distribute wealth and grow government (as in "the rich should pay their fair share”).

For years I've dreaded the day that people contributing their fair share would be seen as something bad, today that day has come. Thank you for lowering my expectations of humanity...

If you had the guts to walk up to a group of construction workers or soldiers and tell them it's a good thing they have to pay more taxes over the income from their incredibly backbreaking or dangerous work than Steve Forbes has to pay over the income he gets from the money on his Swiss bank account accumulating interest while he plays golf, then you are the bravest man I know...

[Atlas Guate]

"Atlas Guate"But the main thing here is that “liberals” (progressive left-wing) don't want higher taxes to promote growth of the economy, they want them to “punish” the rich, re-distribute wealth and grow government (as in "the rich should pay their fair share”).

For years I've dreaded the day that people contributing their fair share would be seen as something bad, today that day has come. Thank you for lowering my expectations of humanity...

If you had the guts to walk up to a group of construction workers or soldiers and tell them it's a good thing they have to pay more taxes over the income from their incredibly backbreaking or dangerous work than Steve Forbes has to pay over the income he gets from the money on his Swiss bank account accumulating interest while he plays golf, then you are the bravest man I know...

Let me begin by stating that I have never suggested that anyone not pay their fair share, but here comes a very important concept that needs to be defined: Just what does “their Fair Share” mean? Most people would think that it's “fair” for those with higher income to pay higher taxes, while this is not etymologically correct, I would agree that it is “socially correct”. But, how much? 30, 40, 50 or 100%? I would argue that any tax rate higher than 30% is confiscatory and adverse.

Your arguments prove that this thread's premise is hypocritical, the left is not interested in improving the economy, they want to tax the rich as punishment. The “rich” already pay more than their fair share, in fact, the top 10% earners contribute roughly 70% of income taxes while the bottom 50% pay under 3%. So you see Forbes and other millionairs do pay more taxes than construction workers.
http://www.ntu.org/tax-basics/who-pays- ... taxes.html

So back to this thread's topic, it is mathematically flawed in that, the money spent in hiring more workers is not offset by the taxes saved. Here is an example, with simple and nice round numbers for it to be easily understood.

Let's say a company in order to pay less taxes, decides to hire one more employee, this employee would earn $50,000 per year. If the tax rate were say 50%, then the “taxes saved” (under the thread's premise) on this employee would only be $25,000, so in the end the company ends up spending 50K to “save” 25K and that's without taking into account other benefits that the employee could be entitled to.

Add to this the huge new cost of the Patient Protection and Affordable Care Act. Companies have to either pay for their workers healthcare or pay a fine, either way the company is forced to pay even more money for an employee they may not even need in the first place.

No the best defense against high taxes has been to move earnings overseas to countries with low taxation. Sadly many companies do, and these moneys will remain overseas for as long as bringing them back would require paying confiscatory tax rates.

How then do Higher Taxes promote employment? They don't.

[Modernjan]

The “rich” already pay more than their fair share, in fact, the top 10% earners contribute roughly 70% of income taxes while the bottom 50% pay under 3%. So you see Forbes and other millionairs do pay more taxes than construction workers.

Yeah, I'm sure Warren Buffett doesn't know what he's talking about when he says he pays less taxes than his secretary. The top 10% collect 50% of all the income and pay 70% of income taxes, but when you take into account the highly regressive payroll taxes (and not even include the also regressive sales and sin taxes) they pay only 50% of federal taxes. Nothing progressive about that. The thing is though that the super rich pay even less than a flat tax because they derive income mainly from capital gains, which are taxed at much lower rates than ordinary income and result in Warren Buffett or Steve Forbes really paying less taxes over every dollar they make than their secretaries do. The easier the money (if you have a few million in the bank than making a living wage really only involves collecting interest from your savings account), the less it's taxed.

So back to this thread's topic, it is mathematically flawed in that, the money spent in hiring more workers is not offset by the taxes saved. Here is an example, with simple and nice round numbers for it to be easily understood.

Let's say a company in order to pay less taxes, decides to hire one more employee, this employee would earn $50,000 per year. If the tax rate were say 50%, then the “taxes saved” (under the thread's premise) on this employee would only be $25,000, so in the end the company ends up spending 50K to “save” 25K and that's without taking into account other benefits that the employee could be entitled to.

You're right, except that that employee will end up providing you more than $50k per year if there is enough demand for whatever it is your business does (otherwise there would be no businesses with employees). If that demand doesn't exist then it's a mathematical impossibility to save money by hiring people. It's the middle class (that is currently broke) that fuels demand, not rich employers, anyway, so I also disagree with the premise of this thread.

Add to this the huge new cost of the Patient Protection and Affordable Care Act. Companies have to either pay for their workers healthcare or pay a fine, either way the company is forced to pay even more money for an employee they may not even need in the first place.

Who do you think pays the bill when an uninsured person is treated in the emergency room? That's right: the tax payer. America's high medical costs will screw the tax payer one way or another anyway. If employers don't carry the burden then the employees will (and demand a raise from their employers to cover it).

How then do Higher Taxes promote employment? They don't.

We agree on this, though for very different reasons.

[Atlas Guate]

Yeah, I'm sure Warren Buffett doesn't know what he's talking about when he says he pays less taxes than his secretary..

Buffett is trying to confuse the issue, he pays a lower rate because he pays Capital Gains (as you well know), as opposed to his secretary who pays Income Taxes, they are very different forms of income, as one requires that capital be put at risk and to work (Capital Gains) while the other (income) is simply taxing a salary. If Buffet wants to pay more taxes, he can simply assign himself a salary equal to his secretary.
http://en.wikipedia.org/wiki/Capital_ga ... ted_States

The top 10% collect 50% of all the income and pay 70% of income taxes, but when you take into account the highly regressive payroll taxes (and not even include the also regressive sales and sin taxes) they pay only 50% of federal taxes. Nothing progressive about that...

If by your argument they collect 50% and pay 50% then that's exactly their “fair share”! But this implies that the rich do not pay payroll, sales and "sin" taxes. But they do.

You're right(replying to my comment on helthcare), except that that employee will end up providing you more than $50k per year if there is enough demand for whatever it is your business does (otherwise there would be no businesses with employees). If that demand doesn't exist then it's a mathematical impossibility to save money by hiring people. It's the middle class (that is currently broke) that fuels demand, not rich employers, anyway, so I also disagree with the premise of this thread.

If company needs the extra help due to increased demand, they will hire the worker regardless of tax rates, but you cannot argue that an extra worker will automatically provide more revenue simply by being there, the company may already be staffed at 100% efficiency. As you yourself say: if there is enough demand

Who do you think pays the bill when an uninsured person is treated in the emergency room? That's right: the tax payer. America's high medical costs will screw the tax payer one way or another anyway. If employers don't carry the burden then the employees will (and demand a raise from their employers to cover it).

This is not a thread on the new healthcare law, I'm not making a case in favor or against it (here), but the fact is that employers will be hit with higher costs per employee, that's just a fact. This point is made to highlight the different costs associated with hiring an employee. Once again, companies hire those that they actaully need, it is simply wrong to imply that hiring people will offset the costs of high taxation (the theme of this thread).

[Beal]

I really don't want to read through this entire thread. Sorry, I'm lazy. But did anyone bother to point out that Clinton didn't raise corporate income taxes? I mean, I know that might seem like a minor point and all, but the notion that the Clinton tax increase stimulated the economy by raising the corporate tax rate would make a lot more sense if the Clinton tax increase had actually raised corporate taxes.

There was apparently a small, 1 percentage point increase for some companies over the corporate rates of 1988-1992. Beyond that though, the 1990s represented the lowest corporate tax rates in the US in the post war period. (Yes, that includes the Reagan years.)

http://www.taxpolicycenter.org/taxfacts ... racket.pdf

What was your point again?

[Modernjan]

Buffett is trying to confuse the issue, he pays a lower rate because he pays Capital Gains (as you well know), as opposed to his secretary who pays Income Taxes, they are very different forms of income, as one requires that capital be put at risk and to work (Capital Gains) while the other (income) is simply taxing a salary. If Buffet wants to pay more taxes, he can simply assign himself a salary equal to his secretary.

Yes, collecting interest is very hard work, being a secretary just means sitting on your ass all day and waiting for the money to pour in, it's not at all exactly the other way around. Very funny!

If by your argument they collect 50% and pay 50% then that's exactly their “fair share”! But this implies that the rich do not pay payroll, sales and "sin" taxes. But they do.

No, they pay 70% of income taxes (which means ordinary income tax and capital gains tax, yes, this is confusing but strangely this is not where you went wrong), when you add payroll taxes (highly regressive) to this, their share becomes 50%, which means an effective flat tax. But I had not added sales taxes and sin taxes. I don't know their precise effect on the picture but I do know they must cause the share of the richest 10% to drop under 50%, simply because these taxes are also highly regressive (Warren Buffett doesn't spend 90% of his income all the time, like low income people and the middle class do).

If company needs the extra help due to increased demand, they will hire the worker regardless of tax rates, but you cannot argue that an extra worker will automatically provide more revenue simply by being there, the company may already be staffed at 100% efficiency. As you yourself say: if there is enough demand

This is the exact same thing I said, we actually agree here.

Once again, companies hire those that they actaully need, it is simply wrong to imply that hiring people will offset the costs of high taxation (the theme of this thread).

Once again we are in agreement: I don't believe in the premise of this thread either.

[Beal]

No, they pay 70% of income taxes (which means ordinary income tax and capital gains tax, yes, this is confusing but strangely this is not where you went wrong), when you add payroll taxes (highly regressive) to this, their share becomes 50%, which means an effective flat tax. But I had not added sales taxes and sin taxes. I don't know their precise effect on the picture but I do know they must cause the share of the richest 10% to drop under 50%, simply because these taxes are also highly regressive (Warren Buffett doesn't spend 90% of his income all the time, like low income people and the middle class do).

The CBO estimates all of this for you, including payroll and excise taxes. By their estimates (2006 numbers in the file I found), the top 10% pay 55% of all taxes and earn 41% of pretax income.

http://www.cbo.gov/ftpdocs/100xx/doc100 ... s_2006.pdf

[Modernjan]

The CBO estimates all of this for you, including payroll and excise taxes. By their estimates (2006 numbers in the file I found), the top 10% pay 55% of all taxes and earn 41% of pretax income.

http://www.cbo.gov/ftpdocs/100xx/doc100 ... s_2006.pdf

This article: http://elsa.berkeley.edu/~saez/saez-USt ... s-2007.pdf is about 2007 (and thus already 4 years old) and claims the top 1% took home 23.5% in 2007 compared to the CBO's estimate of 18.8% in 2006 (the top is indeed getting richer but not that fast) and there are other sources claiming higher income for the top 1%, top 5% and 10% than that CBO report. One thing that struck me about that CBO report is that it only accounts for $10.5 trillion of America's $13.2 trillion GDP in 2006. Maybe they don't count some forms of income that other sources do.

[Beal]

This article: http://elsa.berkeley.edu/~saez/saez-USt ... s-2007.pdf is about 2007 (and thus already 4 years old) and claims the top 1% took home 23.5% in 2007 compared to the CBO's estimate of 18.8% in 2006 (the top is indeed getting richer but not that fast) and there are other sources claiming higher income for the top 1%, top 5% and 10% than that CBO report. One thing that struck me about that CBO report is that it only accounts for $10.5 trillion of America's $13.2 trillion GDP in 2006. Maybe they don't count some forms of income that other sources do.

Actually it's the other way around. Your source ignores a significant class of income which is sure to skew the results. From your source:

We define income as the sum of all income components reported on tax returns (wages and salaries, pensions received, profits from businesses, capital income such as dividends, interest, or rents, and realized capital gains) before individual income taxes. We exclude government transfers such as Social Security retirement benefits or unemployment compensation benefits from our income definition. Therefore, our income measure is defined as market income before individual income taxes.

I'm pretty sure that has something to do with the difference. Why would you exclude entitlements from the calculation? Not only do they represent income to those people, they are also taxed. So you are including the taxes that a certain group pays in the numerator but subtracting the basis for those taxes from the denominator. And which do you think draws the greatest proportion of its income from entitlements, the highest or the lowest quintile?

Here is what the CBO includes:

Comprehensive household income equals pretax cash income plus income from other sources. Pretax cash income is the sum of wages, salaries, self-employment income, rents, taxable and nontaxable interest, dividends, realized capital gains, cash transfer payments, and retirement benefits plus taxes paid by businesses (corporate income taxes and the employer's share of Social Security, Medicare, and federal unemployment insurance payroll taxes) and employee contributions to 401(k) retirement plans. Other sources of income include all in-kind benefits (Medicare, Medicaid, employer-paid health insurance premiums, food stamps, school lunches and breakfasts, housing assistance, and energy assistance).

[Modernjan]

@Beal

I did not know that. I think both studies are making mistakes because retirement and unemployment benfits should be counted but medicare and medicaid shouldn't be (that money goes to insurance companies and doctors, you never see it) and I wonder whether the CBO counts corporate subsidies. I haven't decided yet on whether corporate taxes (for large corporations) should count as taxes on the shareholders and am still curious where that $270 billion piece of missing GDP went, maybe foreign investors, but then again, wouldn't that also mean Americans investing abroad don't get that income counted by the CBO while we do often hear of rich people and large corporations hiding lots of income abroad so they don't have to pay taxes over them?

[Beal]

@Beal

I did not know that. I think both studies are making mistakes because retirement and unemployment benfits should be counted but medicare and medicaid shouldn't be (that money goes to insurance companies and doctors, you never see it)

I am not sure why you wouldn't include any kind of entitlement, including Medicare and Medicaid. The tax payer bought you something. Does it really matter whether the government just paid the bill itself or paid you cash or some kind of voucher so that you could pay it instead?

and I wonder whether the CBO counts corporate subsidies.

Well if you're going to go down that road, what about regulatory costs? And keep in mind that usually, one company's subsidy is another company's extra cost or lost revenue. For example, what effect does the ethanol subsidy have on various other industries? It raises the cost of corn, which raises the cost of inputs to food processors, ranchers, etc.. It also reduces demand for petroleum, which reduces energy industry profits. (I know that energy companies are not politically correct, but this isn't about whether cutting in to their currently high profits is a good thing or bad thing, just about whether or not there is some true, assessable cost to that industry.) I might also point out that any subsidy which affects taxes (a large number of them) is already de facto included in this analysis.

I haven't decided yet on whether corporate taxes (for large corporations) should count as taxes on the shareholders

I would say that if you are going to credit a capital asset to a person's income stream, you have to include the taxes that capital asset pays in the owners' taxes. If I buy a widget making machine and put it to work making widgets, and the government decides to tax my machine, do you actually believe that the machine itself is paying those taxes? Or am I?

Who else pays those taxes, if not the owners?

[Modernjan]

I would say that if you are going to credit a capital asset to a person's income stream, you have to include the taxes that capital asset pays in the owners' taxes. If I buy a widget making machine and put it to work making widgets, and the government decides to tax my machine, do you actually believe that the machine itself is paying those taxes? Or am I?

Who else pays those taxes, if not the owners?

It may be easy in the case of a grocery store but what about large corporation owned exclusively by a collective of shareholders? The corporation first pays its corporate tax, then gives money to the shareholders and then those shareholders pay capital gains tax over their share.

Example: a corporation makes $100 profit, pays $30 corporate tax, and divides the remaining $70 over 7 shareholders, so they get $10 each and each pay $2 capital gains tax. The question is, what does the CBO do with this? Does it say the shareholders had an income of $100 for which they paid $50 in taxes, does it say the shareholders had an income of $70 and paid $50 in taxes, or does it say the shareholders had an income of $70 and paid $20 in taxes, and just leave that $30 out of the books? This, together with the fact that the CBO left out $2.7 trillion of income and $200 billion of taxes leaves me with questions.

[cofcmike1]

Raising corporate income tax reduces the money in my pocket that I would otherwise spend in the economy (most people spend their disposable income), and even if left in my company, does not go towards increasing my expenses (labor, payroll, etc). Smart business owners will take income as capital gains anyways avoiding the higher income tax. When my company is growing and we are profiting, I reinvest in the company to support growth not because the government tries to influence it.

The main issue is government ignorantly trying to decide how to "help" the economy and businesses. The reason we have become the most powerful and advanced country is because of our free market and the ability to let smart business owners thrive by making their own decisions, not being directed by government.

[Wolfman]

The main issue is government ignorantly trying to decide how to "help" the economy and businesses. The reason we have become the most powerful and advanced country is because of our free market and the ability to let smart business owners thrive by making their own decisions, not being directed by government.

Actually the US leading up the mid-1900s was extremely protectionist, ie, the government intervened to protect US business interest. We also spent a lot of money on infrastructure and what not. Our single largest period of growth (both by duration and in terms of GDP growth) was from the mid-1940s to the early 1970s, which was our period of highest economic intervention in the economy. And if you compare the US economy to other first world economies, you'll notice we're basically the least regulated, and have the least stable economy, and countries like Germany (heavily interventionist economy) have higher growth then the US does now.

That the US has a large economy is really a product of our size, population, natural resources, developed industry immediately after WWII, inertia, and a good helping of dumb luck