Tax cut proponents argue that the lower capital gain rates encourage businesses to invest more in capital equipment, building and infrastructure. This in turn results in an expansion of business and creates more jobs.
It seems to me that once the company issues the stock, they have all the money they’re going to get. Any capital gains accrue to the secondary owners of the stock when they trade it to other market participants. Of all the money that flows into the market, I’d bet that well over 99% of it is trading, and less than 1% of it actually goes to companies issuing new stock to finance new capacity. So the 99% of the tax benefit flows to individuals trading their stock portfolios, and very little new money actually flows to businesses to finance expansion.
So, do the tax cuts really help expand the economy? Do they actually help job growth?
Well, the argument is that people will spend the money on consumer goods which helps the economy. Of course, lots of the consumer goods are made outside the US.
Money taken in in taxes is also spent somewhere. Often it is spent on on no-bid contracts. That helps large corporations so if you think that helping large corporations is beneficial you maybe should be for taxes.
The whole thing is just too complex for such a simple answer as “tax cuts help the economy.”
You can’t just talk about tax cuts by themselves. The government needs finances to run it’s operations. There are two questions here: 1) How much money is needed? and 2) How do I get that money?
The problem is really that these issues are not independent. What the governement should be paying for canbe highly contingent on how it expects to pay gfor it. How it pays for it is an even more comples issue based on how taxes are structured and how much debt to carry. Iknow some argue you should carry no debt, but there are cases where you can make a very reasonable argument that some debt financing is appropriate. If you wanted to build a superhighway system, for example, debt would almost certainly make sense for the simple reason that the benefits of such a project are in fact achieved over a long period of time and therefore the payment of it should also be spread out over time.
But that’s what we’re being told. I’m just trying to find out if that is really true.
I can see where cutting capital gain taxes could make it more attractive for individuals to invest in the stock market, but it seems to me that most of that money is just passed around among people trading existing shares and that very little actually goes into building new capacity and infrastructure.
Of course tax cuts stimulatye the economy.The argument is whether tax cuts to the wealthy does. When the poor are given tax cuts ,they spend it here. It is impacted by the multiplier effect. A dollar in tax cut generates 9 bucks in spending throughout the economy.At least thats what my economy class taught me many years ago. But tax cuts to the wealthy are spent on a much smaller scale. They are invested,spent in Europe etc. put in money piles.
If demand is constant, investment in new capacity doesn’t do too much. The tax cuts we’ve seen recently are going to the bottom lines of businesses, which increases their profitiability, but which doesn’t do a lot for the average worker. Tax cuts more widely spread do drive up demand, which gives a good reason for businesses to invest, which helps everyone.
If you doubt that investment is not always a good thing, consider the telecom part of the bubble. People invested in capacity under a wildy unrealistic demand model, and when reality caught up the entire sector took a bath.
The right tax cuts do help. The Bush tax cuts were about the least effective that I can imagine. The right ones would have grown the economy much faster, but I guess he figured why give money to Democrats who would be ungrateful and not donate to his future campaigns.
The United States experienced a half-trillion dollar loss because of 9/11 followed by 2 wars and a handful of hurricanes. The price of crude oil has and will continued to climb. Under these conditions there should be a recession. Currently we have the lowest unemployment rate in the last 50 years and the stock market is poised to break an all-time record.
Because of the very function of banking, economies shrink and grow with the movement of money through financial institutions. The more money available for investment the greater the opportunity for the economy to grow. In a free market this elasticity of wealth means there is no limit to individual gain. In other words, it doesn’t matter how much someone else makes because the size of the pie has no upper limit.
When taxes are lowered there is an increase in the availability of money. Some of it is spent on goods and some of it is invested in the production of goods. The end result is economic growth.
What if the investments consist of companies buying each other, consolidating and reducing the work force? This is merely redistributing present capacity and has nothing to do with growth.
Yes I know, in the long run it will be more efficient and all will benefit. Sure we will.
I think part of the problem in debating things like this is that the way you measure economic benefit is very, very important. The measures that people usually seem to throw around (e.g., GDP) don’t actually indicate how segments of the population are affected.
Ultimately, it comes down to ideology: Should we pick metrics designed to indicate how well the average Joe is doing, or do we pick ones that indicate how well the economy as a whole is doing.
You didn’t really say that it’s simple, did you??? :eek:
I wish it were. However, tax cuts coupled with deficit spending may result in a decrease in the availability of money. As the government borrows more, it can drive up interest rates by competing for the same investment dollars everyone else is competing for, thereby decreasing the availability of money.
You’re adding something to the scenario that is not part of the discussion. The concept of lower taxes is valid in that it has historically produced economic growth and therefore higher tax revenues.
My apologies for using a declaritive statement like “it’s really that simple”. Normally I don’t stick my neck out like that. It was a baiting statement so I could sneak in a response.
Don’t have to illustrate that one to me. My company was bought out twice and the 2nd one is shutting down my facility due to location. But since I worked for 25 years in a company that lost money almost from day one I look at it as a cash cow that has finally died. It paid for college and a house (and everything else for that matter). No complaints. OK, job hunting is going to suck. there, happy :p.
Fortunately, unemployment is low and I can always get a job in my field of business.
The accurate, but no too useful answer is that tax cuts will help an economy that can be helped by tax cuts.
You can’t always stimulate an economy by cutting taxes. You have to stimulate an economy that can respond to the stimulus. Not all slowdowns are related to taxes.
Generally speaking, a tax cut does stimulate things, it is simply not always the most efficient way.
No. Companies frequently engage in secondary offerings, or sell treasury stock and can have retained earnings, so this viewpoint of yours is not an accurate one.
What is the real unemployment rate.I am not sure it is available. Once unemployment stops the person is no longer counted. There are lots of people who have quit looking.The inner city rate has to be huge. The middleclass fueled by manufacturing is gone. The jobs created have mostly been lower paying so the rosy view of the economy is distorted.
