Yep, I agree, the argument as a whole is bullshit. I just wanted the argument to be about what is actually being said, and we appeared to have gotten there. 
And I did want to point out to Fuzzy that the part he bolded was more of a tautology than a specious statement.
The usual argument used in the UK is that the rich will simply leave. They seem more mobile in Europe. Bad because they will take their money to Monaco/ Luxernberg/ Jersey…etc. Where they will spend their cash supporting the thriving luxury car manufacturers of the chosen principality… which they don’t have.
Is this true? I am self-employed, so a Sole Proprietorship for tax purposes. The people I know who are Sole Props don’t have any employees and do not plan to ever have employees. I know a few people in my line of business who have no employees but who have incorporated their business.
So how many small businesses with employees are sole proprietorships?
Well said, twice.
Let’s move this over to Great Debates.
Colibri
General Questions Moderator
It’s not that they’re sole proprietorships. They’re taxed as pass-through entities for purposes of federal income taxes. Partnerships, limited liability companies and corporations making an S election all pass profits or losses through to their owner’s personal tax return. Corporations not making an S election and some entities that choose to be taxed as corporations file federal returns for themselves.
This is true and is another weakness of the argument. The small businesses they are talking about generally file a Schedule C form to declare revenue and expenses for their business, and the profit from Schedule C goes on the 1040 as income. The argument goes that the owner is living off the profit minus tax, and anything (higher tax rate) that reduces the result of profit - tax will cause the owner to need to withdraw more money from the business rather than leave it in.
It is NOT true because not all expenses are deductible right away.
The best example is someone who makes major improvements to a store (or office, factory, etc.). Commercial real estate is a depreciable asset with a life of 39 years. So if you spend $100,000 on improvements, you deduct only 2,560 a year from your profits and you’re still paying tax on 97,440.
Also true. A very small amount of what would normally have to be depreciated can be written off in the year of the expense (the last time I filed schedule C it was $17,500), but real businesses with employees are spending much more than that for capital improvements, so they have to defer the deduction according to the depreciation schedule for the asset type.
The fundamental problem is that it doesn’t matter how many tax breaks you give to businesses: If there’s insufficient demand, you’re just making the problem worse.
Giving rich people tax breaks in a low-demand economy shifts the tax burden to the lower/middle classes and further enriches the rich – a trend we’ve seen for years now.
A lot of business owners will tell you that they need lower taxes because of the risk. People like to scapegoat regulations as the cause of this, when really the “risk” is simply lack of demand! Nobody wants to invest heavily in their business if it’s going to tank because nobody is consuming. So they want to offset this risk with lower taxes, not realizing that they’re just further perpetuating their fundamental problem in the first place.
However, leveling the playing field a bit by allowing the middle class to keep more of its money gets labeled as “wealth distribution” and/or “socialism”… without acknowledging that the rich got richer primarily because of “wealth distribution” in their direction to begin with.
Regardless of theory the present recession and slow recovery occurred in a long period of lower taxes on the rich. If they are job-creators, why haven’t/don’t they?
That the rich create jobs is true in a sort of ass-backwards sort of way. What’s actually true, though, is that ordinary people create goods and services, which the rich get to enjoy.
I mean, what it means to be rich is that you get to enjoy the product of other people’s labor. That doesn’t mean people wouldn’t be better off if they could keep the stuff for themselves.
I’m pretty sure the answers would be: they have, they would create more if their taxes were lower, and fewer if they were higher. Again, not my views.
Because to create a business you need capital. That capital has to come from somewhere. It’s not magically created by fiat. Most of the people and institutions who could loan or give the capital to create a new business are wealthy. Q.E.D. to create a new business that will create new jobs you need wealth, and that mostly comes from people or institutions that have wealth already.
Well, it’s a standard Republican talking point and part of their own mantra…cutting taxes always creates jobs. Of course, the reality is that this isn’t always the case. In the current economy and for a variety of reasons there is a lot of wealth laying around being either under-utilized or unused, and cutting taxes more isn’t going to free that wealth up to be put into productive use either. The Republicans are basically one trick ponies on this issue…tax cuts always equal productivity and expansion of the economy, and this simply isn’t true…no more than the standard Democratic mantra of raising taxes on The Rich™ and increasing social spending always equals an expansion in the economy or productivity.
Well, the theory would be if you give a rich person a tax cut, they will use that cut to invest in something…they won’t simply bury the money under their back deck or stuff it in a mattress. If you give a comparable tax cut to someone in the middle or lower classes then they will most likely spend that money on bills, on their debt…or on consumer goods (most likely on bills though). Most middle class or lower class people aren’t going to take that tax break and invest it in a new business or stocks/mutual funds, or even purchase T-Bills or bonds. Even if they spend the money on consumer goods, that will simply be a short term blip that’s unlikely to to jump start an economic trend, unless you are planning to continue giving them this break and continue to increase it.
The reality right now is that rich people aren’t investing consummate to the tax breaks they are getting…so, the capital is sitting idle or in very safe investments. They aren’t wanting to take any risks. There are a lot of reasons for that, but that’s the effect. And middle class and poor people who also got tax cuts also aren’t investing it, nor are they increasing demand enough to spur business to make the investment in increasing production, at least not non-automated and people intensive production.
What do you base that on? We’ve had the Bush Tax Cuts™ in place for years now. Has investment from the middle or lower classes increased? What data do you have to substantiate this? As for spending, what data is there that demand is up and being unfulfilled by the current ability to meet that demand?
Well, actually the net impact of all of the tax cuts right now, both for the rich, middle and lower classes (basically, for everyone who pays federal taxes) has done very little to spur the economy, regardless…which is why the economy sucks. I think the main reasons for this, from my non-economist perspective, has mostly to do with risk and uncertainty. The wealthy don’t want to risk their capital, and instead they are in a more bunker mentality, waiting to see if things start to shift…and they are uncertain about future costs, and that’s another drag on them wanting to spend their capital on anything that’s not a sure bet. The poor and middle classes mostly spend their tax break money on paying bills, which doesn’t do much to spur the economy, since demand isn’t up beyond the abilities of the current manufacturers to meet.
I don’t think that more tax cuts would help at all, regardless of who they were for.
Here is what I found from the SBA
My wife is a writer, and counts as a small business (she files a Schedule C.) If she ever made $250K in a year (hope, hope) she’d certainly not hire any one, no matter how low here taxes are. During the campaign it came out that a large number of small businesses making over $250K are people like doctors, lawyers, and those in the financial sector who also would not hire more people if their tax rate goes down.
To expand a bit on Voyager’s post, there’s actually more incentive to hire people if you have a higher tax rate in many cases.
Mainly because the costs of hiring people are tax-deductible.
It is true that most small businesses are not affected but this point invalidates your argument. As was pointed out in the article linked to downthread, most job creation is not done in small businesses but in small businesses that are becoming medium sized businesses. Thus only the most successful small business grow that much and these are the ones that are taxed. Thus these tax increases are targeting the job creators and leaving the majority of small business which don’t create many jobs alone.
The idea you can have government spending create a lot of jobs is a fiction. Here is asummary of some of the research into the multiplier of government spending versus Tax cuts It concludes that there are no multiplier effects for spending and the multiplier effects for tax cuts are three times as large.
Huh? The government creates millions of jobs. What do you call teachers, police officers, firefighters, soldiers, etc?
Giving tax cuts to the wealthy when demand is low just shifts tax burden and prolongs the problem. Instead, if you give consumers a tax break so they can spend more (on the things businesses produce and service), and you invest in things like infrastructure/education/etc, you get a hell of a lot more growth that way.
The point is whether the segment of small businesses whose profits get taxed as personal income will create a significant number more of jobs if their marginal tax rate is not increased.
Let’s say that there are 200,000 small businesses in this category with an average of 20 employees each. (I think these are wildly inflated numbers, but that’s helpful to my argument.) That would mean that 4,000,000 are employed by such firms. Not an insignificant number, but that’s not the one we’re looking for. We’re looking for job creation. Let’s say that they will increase hiring by 10% next year. A 10% increase is far higher than other businesses, but these are you say the growing firms. So that’s 400,000 new jobs. Since Romney claimed he would create 12,000,000 jobs a year, that’s only 3% of the job creation he needs. But that’s still not the right number. The right number is how many additional jobs would be created by maintaining the current tax rate as opposed to the number created by the slight increase in marginal taxes proposed. Let’s be wildly optimistic again and call this a 10% gain. That’s a 40,000 job difference.
So the entire effect of this supposedly major change in tax policy would be 40,000 jobs across the entire economy in a year. And that’s by using the largest possible numbers. The reality would be much smaller.
When you balance this gain against the gain to the economy of the tax increase I can’t see how you can argue that the jobs win out. The proposal is a sound bite, not real fiscal policy.
I never said a word about government spending creating jobs. I said that increased taxes would lower the deficit, which is the overwhelming demand of those who had fought any tax increases.
But the notion that the government doesn’t create jobs is totally preposterous. MDKSquared listed some of the tens of millions of jobs that government creates at all levels. But that isn’t even the right response to refuting this other sound bite. Ask the multiple members of Congress who are fighting with all their might to retain military weapons programs that the military itself doesn’t want. Why? Because these programs create jobs. So do the military bases themselves that Congress never wants cut, even if necessary. Cutting government jobs does not magically create non-government jobs from the decrease in spending. It creates higher unemployment and lower consumer spending.
I specifically said that the multiplier effect is irrelevant to this discussion so I’m not clear why you would bring it up. But as long as you did, you should know that other economists have found different multiplier effects than in the studies that are cited. Greg Mankiw is well known, mostly for being a conservative economist at Harvard, giving the lie to the notion that universities are nothing but hotbeds of commie pinko thinking.
You do forgo the profit by putting the money back into the business. But, assuming you are a decent businessperson, the additional job will more than pay for itself in productivity, increased sales, and increased profits. Given that the increase only begins at $250K (which gives plenty of room for more hiring) and is just a 4% increase, I’m having a hard time seeing how this would reduce hiring. If not hiring limits sales you are crazy not to. If hiring does not improve sales, you are crazy to hire.
Could some job creator fan give a reasonable scenario about this? If you thought that tax increases on the rich would kill consumption, I could see it, but it is pretty clear they do not.
The plausible reason to oppose these tax increases is when you have no plans to hire anyone, so the increase comes right out of your pocket.Understandable, but it has nothing to do with the health of the economy.