But like you said at the top, consider investment opportunities likewise.
Let’s say we each have some money to spare. Someone comes to us with a proposal that stands a 50/50 chance of doubling however much we put down. Someone else comes to us with a proposal that stands a 60/40 chance of tripling what gets put down. Do you let your money stay in the mattress, or do you back Plan A, or do you back Plan B?
I’d of course put some money in for Plan B – but wait! Suddenly it occurs to me that we’ve got (for the sake of argument) a 90% tax rate on my potential income. Suddenly it makes little sense for me to back Plan A or Plan B; I’d still come out ahead if either investment pays off, but no longer to the point where risking the potential downside makes sense.
And so my money stays put; the business that would’ve hired all those out-of-work people doesn’t get off the ground, sure as no stuff is built and put up for sale. Those hypothetical laborers remain unemployed don’t wind up paying any income tax. Those potential goods remain nonexistent and so generate no sales-tax revenue. Well, unless you put up your money. Do you?
I’m late to the party, and without reading much past this point, I just want to say:
There is no evidence, concrete or otherwise, that this peak isn’t at a 99.99% marginal tax rate. It’s a case of the extremes being true, but the middle being very unknown.
(Steve MB, I know that are not slavishly parroting back laffer curve sentiments, evidenced by your underlining and the follow-up problem spotting, so It’s not an attack on your post so much as I’ve really wanted to say this, somewhere, for a longish time)
But one of the key arguments is that lower taxes should avoid or blunt recessions because of all the investment going on. Instead, the worst series of crises since the Great Depression happened during a time of pretty low tax rates, and you don’t see much of this vaunted investment going on to grow the economy these days.
Indeed, much of the investment in the world of the 2000s came from 1990s money, which was taxed at a higher (supposedly onerous) rate, which should have lowered the incentives to invest!
Which is why I was careful to couch my statement in terms of, “On Average”. There is no doubt that there are creative, hard-working people with low incomes who do wonderful things with the money they do have. Such people rarely remain low-income for long, but at any given point in time there are certainly people like that. Likewise, there are people at the top blowing their wealth on nonsense. But I don’t believe you can make a general statement that money spent by the poor is as effective at growing the industrial economy as is money spent by the rich.
What a ridiculous statement, considering that there are plenty of free market schools doing very well. It’s also ridiculous because well before there was a huge federal education establishment, and even before there was much in the way of public funding of education at all, there were very effective private schools.
Parents want their kids to be educated. They’ll pay a lot of money to educate them. There is no reason for free market education to fail.
That’s a terrible way to frame the problem. No one is suggesting that businesses would have to take on the burden of public education without remuneration. There’s also no reason to believe that public education has to be structured the way it is or cost what it does. But even so, businesses have gone into public education. DeVry institute was the creation of Bell and Howell, and I believe it was started because of the shortage of engineering talent that B&H needed. It still exists because it manages to turn a profit. I don’t know what the quality of a Devry education is today, but when I went to college it was considered to be the cream of the crop when it comes to 2-4 year tech schools.
The largest university in the world right now is the University of Phoenix - a completely private, for-profit university that has 160,000 students working on Bachelor or Master’s degrees.
This is just wrong. First of all, it’s not a commons. There is no shared resource that is dwindling in supply. I think what you want to say is that education has a positive externality, and therefore absent government subsidy you won’t get enough of it. It’s a form of market failure in that formulation.
But it’s not necessarily true. For one thing, it’s not clear at all that a smaller but privately run school system wouldn’t ultimately result in better overall educational levels. You can easily think of a school system that is completely private, or a school system that is entirely locally controlled (i.e. communities set up their own schools, set up their own taxes to pay for them, and the state and federal governments don’t intervene at all). You can imagine a system that works like welfare, where parents pay for their own kid’s educations, either through direct payment or local property taxes, and the poorest families get financial aid to help pay for their kid’s education.
Finally, even if we stipulate that public education is a good thing, that does not justify a Federal Department of Education that spends the kind of money it does. Many other countries that outperform the U.S. do not have an equivalent.
When we debate health care, the left often points out that America spends more on health care than anyone else, but doesn’t get the best outcomes. But in fact, America does sit on top of many health care statistics. Americans get quite a lot for their health care spending.
But in education, this is not the case. The U.S.'s overall ranking in education is generally somewhere between 15th and 20th in the OECD educational rankings, depending on subject (this out out of 31 countries, putting the U.S. in the bottom half to the bottom third in the OECD). The U.S. spends 5.7% of GDP on its public education system. Japan, which scores near the top of the rankings, only spends 3.6%. South Korea, which also ranks near the top, spends 4.2%. Canada, which ranks near the top as well, spends 5.2%. The U.S. in fact spends more on education than many of the countries that outrank it in educational levels. Yet I don’t see this being used much as an indictment of public education in the States.
To be fair, this is one area where the Obama administration is moving in the right direction. It’s taking on the teacher’s unions, supporting charter schools, and in general moving the structure in the right way.
The big loss in having the government control education is the lack of innovation. In the 21st century, we teach kids in a very similar manner than we did in the 1800’s. Yes, they learn computers now, but the structure of education itself is relatively unchanged. A teacher plucked from 1890 and dropped in a modern classroom would pretty much recognize everything that’s happening. Doesn’t that strike you as strange? Businesses have re-invented the way they work many times. Most jobs bear little resemblance to their ancient ancestor’s jobs. But in school, in the information age, we still trundle kids into classrooms and sit them in rows while a teacher at the front writes on a blackboard and the kids scribble notes. Doesn’t seem right.
What other forms of education could we have? Who knows? The direction of the free market is unpredictable. But it would sure be nice to try.
No, other than the fact that they managed to collect ‘excess money’ in the first place. That means they tend to invest more of their earnings, are smarter about where they invest it, or have skills to employ money better. Again, on average.
I was being flippant, for sure. But the basic truth remains. The poor in America make enough money on average to be able to lift themselves up over time. We know this because plenty of them do it. They can find education, they can find jobs that have upwardly mobile paths. Those who remain in constant poverty are often just poor stewards of their money. They load up credit cards, over-spend when they have income, etc.
I will stipulate that you can always find outliers. You can always point to the poor person who is brilliant but smacked down through circumstance. But we’re talking about averages here.
Let’s say I have an extra $100,000 lying around. Plan A gives me a 50/50 chance of making another $100,000. Plan B gives me a 60/40 of making another $200,000. Both are nice.
Now let’s tax them. Plan A now only gives me an opportunity to make $10,000 and Plan B only gives me an opportunity to make $20,000. Oh well, there goes the Ferrari. But am I really going to say that it’s not worth the effort to “only” make $10,000?
I think in both cases, you’re stretching the bounds of “on average”.
In the first case, I’m not talking about poor people or middle class people. I’m talking about the exmaple you originally gave - wealthy people. And inherited money is not a minor outlier among wealthy people. The average wealthy person inherited wealth.
Same with schools. Sure there were “very effective private schools” before there was public funding of education but the majority of children never saw the inside of one. It was public funding that made education the norm for all children instead of a handful. And that’s still the case. There are privately funded schools out there but the average person goes to a school funded by the government.
Pretty much the entire GOP and their think tanks are currently saying that the best way out of the current recession is to cut taxes, deregulate etc. Here’s the Chamber of Commerce, basically a GOP organ, making the claim yesterday in an open letter to Obama.
I read thru the letter you mentioned. I did not see any reference to cutting taxes from current levels. I saw a couple of places where they oppose tax increases, but that is not the same thing at all, as you perhaps don’t realize. Also, could you please produce a cite that the Chamber of Commerce is a GOP organ? Thanks.
They want to extend the Bush tax cuts for the wealthy which by law are due to expire soon, as you perhaps don’t realise. That would be a new tax cut, just like it says in the headline.
And here’s the cite :
The chamber is at the forefront of a quiet revolution in business lobbying. Corporate groups now raise big money to advance broad issues, largely to help the Republican president enact his fiscal agenda. That's a long step away from what trade associations traditionally did: concentrate on narrow concerns while shunning partisan spats.
The big money has become commonplace in day-to-day lobbying, and few people are more responsible for that than the outspoken Donohue. When he became the group's president in 1997, the chamber took in only about $600,000 from its largest corporate members. Last year, collections for that category, called the President's Advisory Group, totaled $90 million.
That's a major reason Bush will rely on him and the chamber this year. "When the White House looks for the go-to people on business issues," said fellow Bush enthusiast Dirk Van Dongen of the National Association of Wholesaler-Distributors (NAW), "the chamber is among the very first groups that it talks to."..............
The chamber eagerly deploys every weapon in the lobbying arsenal and can be counted on by the president to get things done. It has demonstrated its success repeatedly in the past four years on issues as disparate as loosening ergonomics standards and creating health-savings accounts…
In the first half of last year (the latest figures available), the chamber ranked first among all organizations in lobbying expenditures, at $30 million. The chamber also contributed more than $4 million to the November Fund, a group that attacked Democratic presidential candidate John F. Kerry for choosing a former trial lawyer, John Edwards, as his running mate. Today, the chamber is solidly in the black, its $150 million annual budget triple what it was when Donohue took over. It also is staunchly Republican in most of its legislative positions and played a pivotal role in cutting the tax on dividends and approving free-trade pacts, among many other Bush priorities. Whenever the president or his people called, the chamber assembled coalitions of like-minded groups and contacted its 3 million member firms to step up political pressure and donate lobbying-related funds.
This year, it will lead the effort to pass the president's first significant initiative -- a bill to limit class-action lawsuits against big corporations. A senior administration official who spoke on the condition of anonymity because he is not authorized to speak to the press said the chamber's Institute for Legal Reform will be indispensable to Bush's strategy on the issue.............
The chamber’s candidates also prevailed in 21 of the 28 House seats and in seven of the nine Senate races it engaged significantly. It was especially active with commercials in the successful campaign to unseat former Senate Minority Leader Thomas A. Daschle (D-S.D.). These efforts have made the chamber many friends in the Bush administration, and Donohue, whose annual salary is more than $1.6 million, isn’t shy about using them. He told a new $100,000 chamber member, Lurita Doan, chief executive of New Technology Management Inc., that he could arrange a meeting for her with the U.S. customs and border protection commissioner. “I’ll get you in there,” Donohue said. “We’ll get you a meeting.”
Sometimes Donohue even clashes with fellow association heads. Former Michigan governor John Engler, the new president of the National Association of Manufacturers, has stepped onto his turf by raising money to help confirm Bush’s judicial nominees and to restrain trial lawyers at the state level – activities that come close to those of the chamber’s Institute for Legal Reform.
I misunderstood. I thought you guys were saying that the claim was that lower taxes would avoid future recessions. Like low taxes eliminated the business cycle or something.
So if my taxes are 35% this year, and 35% next year, I have had my taxes cut?
And Bush tax cuts can’t be new, because Bush is no longer President, as you perhaps don’t realize. Also, there is no “current recession”, as you perhaps don’t realize. The open letter is about how to create jobs, just like it says in the headline.
Here’s a real world example for how taxes affect revenue:
I currently have a good job. It pays me $94,000/yr. I just got a job offer last week for $125,000. Should I take it? Well, that depends. In my current job, I don’t just have my salary. I also:
Make my own hours.
Spend maybe 1.5 hours a day actually working and the rest screwing around on the SDMB.
Select my own projects.
Have an important, influential task.
Have people that directly report to me.
Work with people I generally like.
Have a short commute.
Have 5 more vacation days vs. the new offer.
Now take that $31,000 raise. That’s enough to compensate me for losing those 8 perks. But the tax rate cuts that $31,000 into just $20,000. Now those sacrifices aren’t looking so hot.
Suppose I value those perks at $22,000. That’s how much of a raise I’d need to take the new job. That means I’m not going to take the job, since it’s only $20k in my pocket. Had the tax rate been a little lower, I’d get $25,000 in my pocket and thus take the new job.
Now the government can only tax my $94,000 instead of my $125,000. They can’t tax my short commute, my vacation days, my socializing with my coworkers, or how important my mission is.
So from the government’s perspective, I’m cutting off my nose to spite the government’s face, right? I mean, why wouldn’t I want to make more money? That’s crazy talk! Wouldn’t I want to work extra hard to make up for the money lost from the higher taxation? Well, actually…there are 8 reasons why I wouldn’t.
But that is a marginal effect. And it is only one of many. How sure are you that you would change jobs for $24k net? How about if you had to drive private roads to get to one job versus another? How about security? Or trust? Say you have worked at your current job for enough years to trust that they will not screw you over bu the new job is with an unknown. How much more would it take you to change if you did not have a court system to fall back on in the case of a dispute? Or what if you had to depend on you employer for police protection? That would be another factor.
To refer back to Sam Stone widget analogy, taxes can reduce deadweight loss if the services provide for commons that facilitate trade. Say the widget he is trying to sell is worth $100 to him and the best local offer is only $109,w which with a 10% tax would be a loss to him, but if his city is connected to others via public roads he could ship it to a buyer willing to pay $140, including $10 for shipping.
The point is that just stating that raise does not offer enough net value to you take the job is not really saying anything about the tax rate, just about your personal cost/benefit analysis.
You’re just trying to get a reaction again like when you claimed you couldn’t understand economic stimulus. You can’t actually be this, uh, unknowledgeable.