[Steve_American]

@Steve_American
If that is the purpose then it is really stupid. Take the first:

I'll walk you through this socratically, so answer this question. What happens to the price of steel when you slap a tariff on it?

OK, I'll bite. The price must go up. The steel maker must make a profit.

But, then because the price is higher, the steel maker sells less. How much less depends on the situation. But the 'law of supply and demand' says it must sell less.

I suspect you are going to say that taxing the rich will just make them raise their prices.
However, I assume that all companies are already charging the highest price the market will bare. Do you deny this?
So, if they raise their prices they will sell less and make less profit not more. I.e., if the comp. could make more profit by raising its prices it would already be doing that. Duh.
So, raising their prices to make more money actually means they make less money.
So, my plan is not stupid.

Also, note that the net worth tax of 50% means it is even less attractive for the rich to strive to make a higher profit. It just gets taxed away. In just only 4 years they will still have only 6.25% [.5x.5x.5x.5 = 6.25%] of their net worth over some large amount [i.e. the bottom level of that tax bracket] that they started with [assuming no new income, i.e. just looking at the part of their net worth that they started with].

Also, from early in WWII until about 1962 the highest tax bracket was set at a rate of 90%. Those years were the *best years* America ever had [just looking at the economy and ignoring minority rights]. Right?

[SolarCross]

I suspect you are going to say that taxing the rich will just make them raise their prices.

Yes, that and they will do less (sell less). Tax is just another cost, increasing costs increases prices. Compare the prices of petrol/gas or tobacco in Europe vs the US, they are higher in Europe than in the US because they are taxed harder in Europe than in the US.

Let's say a top brain surgeon can pull in $100k in fees per year in a jurisdiction which exempts medical fees from taxation. He makes $100k he keeps $100k. Then a change in administration results in medical practitioners facing the same punitive taxation as the rest of the population. Now he must pay 50% of what he earns to a bunch of feckless spendthrifts in order not to get locked up in a dungeon. Does that mean he takes a whopping pay cut of $50k or does he raise his prices to offset his new onerous costs? He will raise his prices and the customers will pay it if they want the brains fixed or not if they can't afford it. Likely he will get less work, but he will also have more leisure time, and his after tax hourly rate will stay the same. The result is that his before tax earnings will go to some place in between $100k and $200k, higher than before but likely not twice as much because there will be fewer customers who can afford him at his higher rate.

The other thing to consider is that a rational economic actor will try to avoid punishing and unproductive costs which in the context of tax means: tax evasion, tax avoidance and migrating away. The more tax you pile on the our heroic brain surgeon will just result in his prices rising, making his services less accessible and increasing the risk of him leaving your jurisdiction for one with less greedy taxmen or ending up in prison for tax evasion.

Also, from early in WWII until about 1962 the highest tax bracket was set at a rate of 90%. Those years were the *best years* America ever had [just looking at the economy and ignoring minority rights]. Right?

I will address this too. You have the chain of causation the wrong way around. The increasing prosperity of the post ww2 era is what allowed the greedy taxmen to gorge themselves with wild abandon. The taxes did not cause the prosperity, the prosperity attracted the taxation. At least in the post WW2 era the taxmen had an excuse for punishing taxation as they had a gargantuan war-debt to pay down. Taxes came down as the taxation began to damage re-investment and the war debt was paid off.

[Crantag]

Yes, that and they will do less (sell less). Tax is just another cost, increasing costs increases prices. Compare the prices of petrol/gas or tobacco in Europe vs the US, they are higher in Europe than in the US because they are taxed harder in Europe than in the US.

Let's say a top brain surgeon can pull in $100k in fees per year in a jurisdiction which exempts medical fees from taxation. He makes $100k he keeps $100k. Then a change in administration results in medical practitioners facing the same punitive taxation as the rest of the population. Now he must pay 50% of what he earns to a bunch of feckless spendthrifts in order not to get locked up in a dungeon. Does that mean he takes a whopping pay cut of $50k or does he raise his prices to offset his new onerous costs? He will raise his prices and the customers will pay it if they want the brains fixed or not if they can't afford it. Likely he will get less work, but he will also have more leisure time, and his after tax hourly rate will stay the same. The result is that his before tax earnings will go to some place in between $100k and $200k, higher than before but likely not twice as much because there will be fewer customers who can afford him at his higher rate.

The other thing to consider is that a rational economic actor will try to avoid punishing and unproductive costs which in the context of tax means: tax evasion, tax avoidance and migrating away. The more tax you pile on the our heroic brain surgeon will just result in his prices rising, making his services less accessible and increasing the risk of him leaving your jurisdiction or ending up in prison for tax evasion.

This is a very ignorant post.

I'll give you an operative concept. EBITA. It stands for "Earnings Before Interest, Taxes, and Amortization."

Now, deduct the interest and amortization. These are, after all, tax deductible business expenses.

What you have now is the profit plus the tax.

In short, taxes are deducted from profits on the back end. Such taxes do not have a direct effect operating cost. Calculations with respect to price adjustments related to shifts in tax policy will be made on the basis of complex projections, if any should occur at all.

An excise tax (i.e. on cigarettes or gasoline) is completely irrelevant. This is a sort of tax which is assessed at the point of purchase. It directly effects the price, and thus is expected to decrease consumption (although in the case of cigarettes and gasoline a 1% increase in price will result in a well less than 1% decrease in consumption, because these are inelastic goods. That's one important primary reason why they are preferred targets of excise taxes).

It's okay that you don't know much about economics, so long is you don't project your ignorance of the subject.

[SolarCross]

This is a very ignorant post.

It doesn't matter at what point the taxes are charged the person who pays it knows they must pay it and will adjust their prices accordingly. It is an expense, a cost, and it will be factored into the economic calculus. Sorry tax is not a magic money tree.

[Crantag]

It doesn't matter at what point the taxes are charged the person who pays it knows they must pay it and will adjust their prices accordingly. It is an expense, a cost, and it will be factored into the economic calculus. Sorry tax is not a magic money tree.

Actually it does matter. And the calculation is not straight forward like that. Companies seek to maximize their profits. It is profits which are taxed. Say you run Disneyland. Say the tax rate is increased. What do you do? You are suggesting the answer is increase admission fees? This will either increase profits or it will decrease profits. The tax has nothing to do with it. If it increases profits than you weren't maximizing your profits to begin with. If it decreases profits, than you were maximizing your profits. The only rational basis for increasing the price in this case would be to pay a lower share of your profits, possibly in order to earn about as much with less work. But this is very tenuous.

For the most part though companies don't really know with precision what the eventual consumption level of their product/service will be. They set prices and production targets on the basis of projection and speculation.

The reason companies like tax cuts is that it enriches them in a very straightforward way, by reducing the portion of their profits that they have to pay in taxes. You don't understand the first thing about how it genuinely works. You have merely married your personal identity to the interests of the capitalists. This is purely ideological.

[SolarCross]

@Crantag
We were discussing top-rate income tax, rather than corporation tax. Increasing corporation tax has a similar effect though. It causes price rises, tax avoidance/ evasion and migration away. There is no taking without consequences. Those consequences might be bearable or not, but moderation rather than gluttony will tend to give better results especially in the long term.

[Crantag]

@Crantag
We were discussing top-rate income tax, rather than corporation tax. Increasing corporation tax has a similar effect though. It causes price rises, tax avoidance/ evasion and migration away. There is no taking without consequences. Those consequences might be bearable or not, but moderation rather than gluttony will tend to give better results especially in the long term.

I was responding specifically to your posts which involved discussion of taxing companies, juxtaposed with (unacknowledged) excise tax examples.

I will note that it is true that there are both consequences for any policy action, and also no single optimal design, but rather (hypothetically a theoretical) optimal approach for any given singular situation. Economic policy analysis is therefore, in reality, an art (at least in many important respects).

There is however frequent misalignment with respect to what policy is good for the self-interested company and what is good for the society, which is deeply ingrained.

[SolarCross]

I was responding specifically to your posts which involved discussion of taxing companies, juxtaposed with (unacknowledged) excise tax examples.

I will note that it is true that there are both consequences for any policy action, and also no single optimal design, but rather (hypothetically a theoretical) optimal approach for any given singular situation. Economic policy analysis is therefore, in reality, an art (at least in many important respects).

There is however frequent misalignment with respect to what policy is good for the self-interested company and what is good for the society, which is deeply ingrained.

You having reading comprehension issues then, because after excise I went straight to income tax without even getting to companies or corporation tax at all.

[Crantag]

You having reading comprehension issues then, because after excise I went straight to income tax without even getting to companies or corporation tax at all.

You talked about taxes increasing prices.

And then you talked about a medical practice, i.e. a business.

[SolarCross]

You talked about taxes increasing prices.

And then you talked about a medical practice, i.e. a business.

I talked about a brain surgeon, clearly being assessed under income tax rather than corporation tax. Steve's first bullet point was 90% income tax, which is with what I was engaging. So yes that was a reading comprehension fail on your part there.

So as it turns out the ignorant posts were all yours not mine. I hope you like eggs because they are all over your face.

[One Degree]

I am not an economist but I believe business operates on ‘after tax profit’, not ‘before tax profit’ If after tax profits are lower, they will raise prices to maintain profit margin.

[Crantag]

I talked about a brain surgeon, clearly being assessed under income tax rather than corporation tax. Steve's first bullet point was 90% income tax, which is with what I was engaging. So yes that was a reading comprehension fail on your part there.

So as it turns out the ignorant posts were all yours not mine. I hope you like eggs because they are all over your face.

Stop trying to save face after I turned you inside out. And stop trying to misdirect in the service of your perverted ideological agenda.

[Crantag]

I am not an economist but I believe business operates on ‘after tax profit’, not ‘before tax profit’ If after tax profits are lower, they will raise prices to maintain profit margin.

No, they operate on EBITA.

But they care most about after-tax profit, aka "the bottom line".

[SolarCross]

Stop trying to save face after I turned you inside out. And stop trying to misdirect in the service of your perverted ideological agenda.

lol, pot and kettle.

also double lol, at a communist accusing a normal person of having a "perverted ideological agenda". The hypocrisy is stunning.

[Crantag]

lol, pot and kettle.

also double lol, at a communist accusing a normal person of having a "perverted ideological agenda". The hypocrisy is stunning.

Still trying to deflect and divert.

I gotta admit you surprised me a little initially with the conciliatory tone. I guess it took you a moment to regroup after I smacked you with basic facts.

I am sure you are going to keep replying, now that your little feelings are hurt.

I haven't argued from the standpoint of ideology. Unlike you, I am not an ideologue. Since you want to call names though I find your overt sympathy to fascism sufficient to class you as alongside the absolute lowest of the low.

[SolarCross]

Still trying to deflect and divert.

Yes you are. You can go now.

[Steve_American]

Yes, that and they will do less (sell less). Tax is just another cost, increasing costs increases prices. Compare the prices of petrol/gas or tobacco in Europe vs the US, they are higher in Europe than in the US because they are taxed harder in Europe than in the US.

Let's say a top brain surgeon can pull in $100k in fees per year in a jurisdiction which exempts medical fees from taxation. He makes $100k he keeps $100k. Then a change in administration results in medical practitioners facing the same punitive taxation as the rest of the population. Now he must pay 50% of what he earns to a bunch of feckless spendthrifts in order not to get locked up in a dungeon. Does that mean he takes a whopping pay cut of $50k or does he raise his prices to offset his new onerous costs? He will raise his prices and the customers will pay it if they want the brains fixed or not if they can't afford it. Likely he will get less work, but he will also have more leisure time, and his after tax hourly rate will stay the same. The result is that his before tax earnings will go to some place in between $100k and $200k, higher than before but likely not twice as much because there will be fewer customers who can afford him at his higher rate.

The other thing to consider is that a rational economic actor will try to avoid punishing and unproductive costs which in the context of tax means: tax evasion, tax avoidance and migrating away. The more tax you pile on the our heroic brain surgeon will just result in his prices rising, making his services less accessible and increasing the risk of him leaving your jurisdiction for one with less greedy taxmen or ending up in prison for tax evasion.



I will address this too. You have the chain of causation the wrong way around. The increasing prosperity of the post ww2 era is what allowed the greedy taxmen to gorge themselves with wild abandon. The taxes did not cause the prosperity, the prosperity attracted the taxation. At least in the post WW2 era the taxmen had an excuse for punishing taxation as they had a gargantuan war-debt to pay down. Taxes came down as the taxation began to damage re-investment and the war debt was paid off.

I'm just going to reply now to you claim that the debt from WWII was "paid down" with the money raised with the 90% tax rate. This is not really true. IIRC over 2/3 of the years from 1946 to 1962 there was a deficit. The years when there was a surplus tended to stall the economy.

If you look at the chart you kindly provided you will see that it doesn't track the national debt. Instead it tracks the debt/GDP ratio. The massively most of the drop came from the growth of the GDP and not from paying off the debt with a surplus.

I'm told [and I believe] that a big part of why the US GDP rose so fast was that the rest of the world needed to buy our stuff because their factories were damaged by the war. Also, the US was still a net oil producer. The US had a large surplus in the balance of trade.

So, my point still stands that the 90% rate didn't damage the US economy any that can be seen, unless maybe if you dig deep.

Besides you seem to have missed the whole point of the 90% rate. It is not to raise money. It is to keep people from getting too rich. It does this in one of 2 ways. Either they pay the 90% rate or they modify their behavior to avoid earning that much.

I may not have been clear enough for you but there are to be several brackets from 0% up to 90% with the 90% bracket starting at something like $1M or 50 times the poverty income line [which IIRC is now about $20,000].

BTW --- I really love that chart. Thanks.

One more thing. IIRC re-investment is tax deductible. It is an expense, right? If it is an expanse then it isn't taxed. This was one of the ways that Corps. avoided making too much money for the stockholders. They invested money to reduce profits. If I'm right then you need to learn a lot about economics.

[SolarCross]

I'm told [and I believe] that a big part of why the US GDP rose so fast was that the rest of the world needed to buy our stuff because their factories were damaged by the war. Also, the US was still a net oil producer. The US had a large surplus in the balance of trade.

So, my point still stands that the 90% rate didn't damage the US economy any that can be seen, unless maybe if you dig deep.

Your point was phrased a little ambiguously then because it appeared you were suggesting that the high rate of tax was causing the prosperity. If your point is that the 90% didn't hurt a prosperity that had causes elsewhere then we are somewhat in agreement on that, as I said the prosperity attracted the taxation. Burglars don't make well endowed houses they take more value from well endowed houses (if they can). Those were fairly exceptionally favourable economic situations for the US then, if you need exceptionally favourable conditions to support exceptionally punishing taxes then why would that be appropriate for the US now?

Besides you seem to have missed the whole point of the 90% rate. It is not to raise money. It is to keep people from getting too rich. It does this in one of 2 ways. Either they pay the 90% rate or they modify their behavior to avoid earning that much.

This is really damning frankly. I totally get taxation for revenue, that makes sense, it's kind of nasty the way they go about getting it and they can be fiercely greedy and spendthrift with what they take but taxation for revenue is at least rational. Taxation purely as a method of ideological chastisement is really insane, diabolically insane. It suggests your plan has nothing to do with economic management at all, just some kind of perverse social engineering exercise.

I may not have been clear enough for you but there are to be several brackets from 0% up to 90% with the 90% bracket starting at something like $1M or 50 times the poverty income line [which IIRC is now about $20,000].

sure, I expected something like that would be going on under the hood.

One more thing. IIRC re-investment is tax deductible. It is an expense, right? If it is an expanse then it isn't taxed. This was one of the ways that Corps. avoided making too much money for the stockholders. They invested money to reduce profits. If I'm right then you need to learn a lot about economics.

Right but that is a short term delaying manoeuvrer to avoid taking too much damage from a tax hike. Ultimately the point of any investment is to produce a profit somewhere down the line or else why bother at all? So if a high taxation rate is sustained over time and no alternative ways of turning in the profit in some other form that won't get raked for tax then the raison d'etre of investing disappears and one may as well just consume one's spare cash rather than invest.

[Truth To Power]

I am not an economist but I believe business operates on ‘after tax profit’, not ‘before tax profit’ If after tax profits are lower, they will raise prices to maintain profit margin.

No, that's nonsense. If they could raise prices to make higher profits, why wouldn't they? The whole point of taxing corporate profits is that it doesn't distort business decision making, just reduces the return to shareholders.

[One Degree]

No, that's nonsense. If they could raise prices to make higher profits, why wouldn't they? The whole point of taxing corporate profits is that it doesn't distort business decision making, just reduces the return to shareholders.

I am not sure I am following you. Are you claiming the tax rate does not effect business decisions and does not require them to raise prices?
They just accept a lower after tax profit and do nothing different?
They don’t downsize, reduce capital investment, reduce employee benefits, etc.?
They sound more like saints than business people.