True - compared to $1.56 trillion, $435 billion is pretty small potatoes.
Regards,
Shodan
How does that work exactly? I’m not well versed in business, so I’m really asking. My take on a business tax cut is that it benefits those that make money (profitable). In other words, if a business has a dearth of customers, then they are not likely to be making money. No profits means no taxes right? Or am I looking at businesses wrong? Are you saying that a business operating in the red still has to pay taxes? Would a business tax cut benefit a business that is not making profits?
Could someone explain this to me?
As I understand it, $435B is a serious misunderestimation; I’ve been looking and have found estimates of $1T (just over $880B as of 2008). So…cite?
But, even if your figure was accurate, ~1/3 of something is “pretty small potatoes”?
(I notice several flaws in OP’s left-wing rebuttals to right-wing gibberish. Will be interested to see if Doper right-wingers see them also. So far, not; just more right-wing gibberish as rejoinder.)
Soc Security is a complicated topic (though largely irrelevant since its “insolvency” is dwarfed by Medicare’s insolvency). Still, it does provide a topic for testing right-wingers’ cognition.
Flunks the cognition test! 
Would you like to explain, Mr. Moto, how you would prefer the Soc Sec Trust Fund to maintain its large surplus? Banknotes under the mattress? Bonds of a “safer” institution, like Halliburton? Gold bullion? (I suppose that if gold bullion is your choice, a special Teabagger-operated safe will be needed, as those pesky Democrats have control of Fort Knox!)
I apologize if my parody of your concern is too ludicrous. Frankly, the idea that Soc Sec is a fraud because the Trust Fund keeps its surplus in the form of U.S. bonds is itself too ludicrous for anything but parody.
Hope this helps.
Thank you septimus, my point entierly.
I don’t know where you are getting your numbers, but please do share. Regarding the costs of the wars, the CBO itself projected in 2007 that the cost would be around 2.4 Trillion dollars and I don’t think that this includes the projected 700 Billion in Veteran medical and disability costs.
Not all businesses are equal. Nobody’s bleeding for Microsoft or Exxon, for example, but take a mom-and-pop shop, been in business for 20 years, business is down this year. They finish up at the end of the year with a small gross profit, well under what they made in previous years.
Now it’s tax time. Sure, they pay federal taxes, but also state, and in some cases local taxes. They pay property taxes. They pay license fees, entertainment fees, etc. Whatever they made that year, small as it is, is consumed by taxes. They break even and have nothing in reserve for the day-to-day operations, being on tight margins to begin with.
Do you not think that cutting the federal tax rate in their case would be a boon to them, and in no small number of cases allow them to continue on until business picks up?
Historically, small business have around a 50% chance of still being in business 5 years after opening. Every little bit of help we can give them makes a difference. They provide lots of jobs, and while you might say that they are low-paying jobs (not always, though) they are still paying wages to people that might otherwise be collecting unemployment, which is a net drain on the economy rather than having a neutral economic effect or, even better, becoming tax-paying citizens.
Now, I have no problem with not giving a larger, more established businesses a tax cut. But small businesses need all the encouragement they can get, and should not be ignored in the discussion.
On a personal note, my boss (of my part-time job) has not had a bad year, but if he had two bad years in a row he would be out of business. He takes good care of his employees, often at his own expense, and he provides for his family. Is this someone we want to see fail after 23 years in business? There are businesses like his that are right on the edge right now, and a tax cut would surely be appreciated.
Where do you think the money for treasury bonds is going to come from when it’s time to cash them in and start writing out social security checks?
But the problem I have trouble wrapping my head around is that the amount of relief they receive is proportional to the profit they make. That is, the guy who made 100,000 saves ten times as much as the guy who made 10,000. The guy who broke even, saves zero. Lowering the tax on the business doesn’t really do much. I think. I just can’t see how lowering the tax rate turns an unprofitable business into a profitable one. Is there a simple example that can illustrate the point?
I guess I still don’t get it. If he is on the edge, how does a tax cut help? Saving 10 percent on zero is still zero.
We only tax INCOME and for most small businesses, that business income is taxed directly to the individual to avoid double taxation. So in other words until your small business owner sees $250,000 in PROFIT, they are not affected by the tax increase.
Then they pay the 39.6 rate on the money ABOVE 250K. I’ve got a lot of small businesses in teh family and at 250K/profit/year, you’re not thinking about closing shop.
"Oh, but what about the money that needs to be reinveste4d into the business?
Most of it is deductible. Unless theya re building a new factory or something, its going to be deductible. Buying new computers? Deductible. Buying a new lathe or jigsaw? Deductible.
Buying a new auto part plant, well you have to deduct that over several years but it is all eventually deductible.
the 250K is not gross income it is NET income.
I’m not a right-winger, but I think the argument is correct, and based on simple economics. I’ll try to explain.
If I as an individual write you an IOU for $10, then, you’ve got an asset worth $10. At some point in the future, you can cash it in and get $10 from me. One way to think of that IOU is that you have a $10 claim on my current assets + my future earning potential. Now, obviously, if I had no job or money or assets, you’d be a fool to take that IOU from me, because I might not have any future earning potential to pay you back out of. So the IOU is really worth a bit less than $10 (or a lot less) based on my potential to default.
Now, if I write a $10 IOU to myself and put it in my pocket, how much is that IOU worth?
Nothing. And that’s true no matter what my current assets or future earning potential is, because I already have a claim on all my assets and future earning potential. If writing myself IOUs was actually worth anything, I could just write myself a $bazillion one and settle down.
Now, let’s talk about the government. The governments assets are things like land, the gold in Fort Knox, etc. Its future earning potential is based on the ability to collect things like taxes and fees. If I have an IOU from the government (a bond), then you are correct that it’s worth a great deal. But if the government holds a bond from the government, then it’s not worth anything. All that means is that the government will later have to sell assets (real assets like land and buildings and things) or collect taxes to pay it off. But the government already has that power. They could do it without a piece of paper saying “I owe Social Security $lots”. And they’ll have to, unless we fix Social Security.
Quoth Sam Stone:
So your two examples of taxes that Obama plans to raise are a tax raise that was Bush’s plan, and a thing that isn’t a tax. Well, no wonder people are worried about Obama raising taxes!
Another false thing SDMB regulars know:
“The rich hate President Obama and are trying to undermine him.”
In reality, Obama is very popular among the wealthiest Americans, and far less so among the middle class.
I’m not sure. It’s possible that there is no better place to put the money than what we did (which, remember, was spending it on current expenses at the time it came in). But that’s a whole other argument.
I’m not saying that the government should have done better things with its money than spend it (although that may be true). I’m saying that the government did spend all that money, and we shouldn’t be pretending it’s saved up somewhere and that we’ll magically have it for future expenditures. Because we won’t.
The government is not an individual. A more valid example would be a financial institution like Citibank selling a bond on the open market and its investment arm in Seattle buying it up for its portfolio. Businesses buy their own bonds and stocks all the time, it does not make them worthless.
The government also did not “write itself an IOU”, it sold its bonds in the financial markets and the Old-Age and Survivors Insurance (OASI) Trust Fund bought those bonds. If the government decides to default on a large part of the bonds it has issued (2.2 Trillion dollars worth) just because of who bought them it would throw into doubt all of the bonds it has issued and would surely result in a downgrade. The US government, regardless of which party is running the show, would resist this at all costs, especially because the entire world economy would pressure them to do so. If the Government was so broke that it could not pay back these bonds, the World Economic powers would bail out the US government in much the same manner that Greece was bailed out by the EU. There is just no way that they could do otherwise as the world economy is pegged to the dollar, priced in dollars, and run with dollars. Not bailing us out would utterly destroy the world economy in a much more serious way than anything ever seen.
Now there is a danger that this could change in the future as the US accrues more and more debt and the world decides to move to a more stable currency. The only other option currently available would be the Euro, and let’s face it, with the instability with the PIIGS and the current unrest over austerity measures, is not a very attractive alternative. This is validated by the current demand for US Bonds; current yields on T-Notes are at near record lows yet they are still in very high demand. I do agree with Sam and others that if the US Government continues its low tax policies while spending like a drunken monkey like it has for the last decade (more like 30 years - since Reagan really), we could be in trouble. We are a long way from this however; the amount of debt the US would have to take on or the drop in its GDP as a percentage of the world economy would have to change drastically for the world economy to abandon the dollar and let the the US economy self destruct (which is what would happen if the US defaulted on the debt held by the Old-Age and Survivors Insurance (OASI) Trust Fund). I just don’t buy it and I have not seen an analysis by anyone, on this board or off, that this is a serious possibility. Just saying that the US “wrote an IOU to itself and it is worthless” is pure political rhetoric and bullshit besides.
Another one:
“SDMB regulars think that the rich hate President Obama and are trying to undermine him”.
But you’re not thinking like a Keynesian. Keynes’s theory works on general equilibrium principles and economic aggregates. The minute you start trying to analyze markets in specific you are rejecting the entire concept. Keynes’ theories don’t care about any of that messy detail stuff.
The stimulus is about jobs created or saved. In the real world, the BLS can’t measure jobs ‘saved’, and neither can the CBO - or anyone else. Convenient for politicians, because it can’t be falsified. But I’m talking about actual job creation as measured by the Bureau of Labor Standards.
Just saying that corporations and governments get to ignore basic economics doesn’t make it so. It’s a wash. I don’t doubt that corporations and governments occasionally find it useful to make some internal transfers, but they almost certainly do it because it satisfies some external impetus or regulatory framework. There’s no net benefit. The problem is that you’re thinking of “Social Security” and “The Rest of the Government” as separate entities. But that’s a foolish and arbitrary way to think about it.
Those are fancy words, but they mean the same thing. One part of the government has a piece of paper that says it’s owed money by another part of the government. The only way the government has of raising that money is to tax people, so the way we’ll pay for stuff in the future is the same as if that piece of paper didn’t exist at all.
I don’t know why you keep bringing up the idea that the US would default on its bonds. I never said that, I don’t think that will happen, and as far as I know, it’s not serious consideration for this argument. I said that the bonds aren’t worth anything. They are not assets to the government. They are just an accounting conceit. Your argument about why the government would not default on bonds is reasonable, and I agree with it. It’s simply irrelevant to Social Security.
How about another thought experiment:
If Social Security had no government bonds, how would payments be funded? I claim that they’d be funded by taxing the populace at a high enough rate to cover the payments. Do you disagree?
Now, give Social Security back its bonds. How do tax rates change? I claim that they would not change at all, because the government needs exactly the same amount of money, though in this case it’s to pay the bonds, which then is distributed to SS recipients. The bonds are immaterial to how Social Security is funded.
We’re not claiming that there’s going to be a default. The point is that the money isn’t sitting there waiting to be collected.
Right now it’s 2010. Let’s say the total payout for social security is $800,000,000 a year. The government is collecting $1,000,000,000 a year in social security taxes. It pays out $800,000,000 of that and has a $200,000,000 surplus. It “invests” the surplus in treasury bonds.
So the treasury just sold $200,000,000 worth of treasury bonds which will be worth $300,000,000 in twenty years. The United States spends the $200,000,000 it just received on a new aircraft carrier or something.
Now let’s move ahead to 2030. Because more people have retired the total social security payout is now $1,300,000,000 per year. The social security department still collects $1,000,000,000 a year in social secuirty taxes. So it’s short $300,000,000. Not a problem because it has a bunch of treasury bonds that just matured and they’re worth $300,000,000. The social security people cash in their bonds and pay out this year’s social security allotments.
But here’s the catch. Go back one step. The social security department (a branch of the United States government) just cashed in $300,000,000 worth of treasury bonds. That means the treasury department (another branch of the United States government) just had to pay out $300,000,000. Where do they get that $300,000,000 from?
They don’t have $300,000,000 set aside for this purpose. They don’t even have the $200,000,000 they collected back in 2010 (that was used to buy an aircraft carrier which has since been decommissioned). So the United States government has to collect $300,000,000 in taxes to pay off these bonds.
OK, then. But it seems implicit in your thought experiment that if the OASI Trust did not buy the bonds, then the government would not have sold them.
Hmmm. I think this reasoning is flawed; I am pretty sure the government was selling the bonds and would have done so whether the OASI Trust bought them or not. Right? Or are you saying the the Government issued the bonds just because it saw an easy pile of cash and decided to increase the debt by Trillions of dollars just because it was there? If this is what you think, I am impressed; I thought I was cynical but I guess I am just an amateur.
My best guess is that if the Trust did not invest in government bonds, then right now we would have the same debt (amount of bonds/bills/whatever issued - gotta pay for that Medicare and those bombers) and the social security administration would be sitting on a bunch of credit default swaps and collateralized debt obligations and we would be in much worse shape. Whatever.
Anyway, at the very least to be consistent in your reasoning you have to knock off a quarter of the national debt, right? You can’t have it both ways: either the government it horribly in debt to the tune of 10 trillion dollars or so and Social Security is sitting on a big pile of cash in the form of bonds, or the public debt is only 7 trillion dollars and the bonds held by Social Security Trust Fund are worthless… Which is it?