Let's be forthright about the tax cuts

Great Debates
261

Is that as a real or nominal spending freeze? And is that also assuming that the yield rates stay about the same? Increase on the cost of financing the debt doesn’t just go onto the end that is tacked on, it goes to all the debt that is being retired and renewed as well.

It is not unreasonable to expect to see bond yields spike in the near future. This will increase the cost of financing the debt even further. If we have a spike like in 1980, where they nearly reached 16%, we’d be in more than a bit of trouble.

This also doe not factor in the possibility that the republicans push through another round of tax cuts. A spending freeze isn’t going to get us anywhere at all if we are having revenue reductions.

And, that is is in the rather optimistic scenario of maintaining a 3.79% growth.

And that is maintaining spending at $4.094T, with no adjustment for inflation. I can get the same number. But, if we assume even a small amount of inflation, say 2% (considered a healthy economy.), it will instead take 8 years to catch up, at 4.70t expenditure and 4.74 revenue to be expected by the end of that year. Which puts us in 2044 for the elimination of the debt. At that point, we have a surplus of $2.76T, and I really don’t see that not being used to fund another round of tax cuts. I’d be very surprised to not see tax cuts come about much, much sooner, probably even sooner than we reach that deficit neutral point. Keep in mind that not only is that exactly what happened in the Bush years to eliminate the surplus handed to him by Clinton, we have also done that during the Trump years when we were already at a deficit.

Any agreement about a spending freeze would need to include an absolute moratorium on tax cuts until the debt is paid off.

But yeah, keep the spending at $4.094, and somehow maintain 3.79% growth, no tax cuts, no changes in non-discretionary spending, and your numbers look good.

Fun fact, if we reverse the numbers, at all, and inflation exceeds growth, then we are chasing a train that is pulling away from us.

(I didn’t use a napkin, I used a spreadsheet. It only took me a couple seconds to put together, but I’d be happy to run any other scenarios you may have in mind.)

I do not assume that those numbers will stay the same, no.

One of the probmesl with this is that much of those gains have been going to the wealthy, with only a small amount of the growth translating into higher wages, which tranlates to higher tax revenue. Most of that gain goes to the wealthy, who are very able to protect their income from taxes.

A 3.79% increaase in GDP does not necessarily mean a 3.79% increase in revenue.

Right, that is why I mentioned immigration in the next sentence. Our birth rate does not replace our population. We need immigration in order to have a growing population.

That is as is the trend that has been going on for the last decade. I do see that trend changing due to the policies of the same party that wants tax cuts and spending reductions/freezes.

Right now, unemployment is below the historical lows of 4%. That, to me, means that we have a labor shortage. 4% is really about the floor in a healthy economy, as people are transitioning between jobs.

Not just the economy going haywire, but changes to immigration policy. We have already seen many steps in that direction, and there is much statement on the right that we should limit immigration even more.

As far as the economy going haywire, sure. I see a minor recession as a part of the normal business cycle, not a big deal. However, i do not really trust the current administration to feel the same way, and I trust them to overreact and make things worse.

Personal experience in running a small business and competing directly against the big entrenched interests, conversations with other business owners. We are up against economies of scale and have less influence with even local politicians. For instance, I doubt Petsmart has to wait nearly as long as I do to get their building permits approved, which is why I am currently paying quite a bit of rent on property that I am not yet able to use. Small business is more versatile and more able to meet the demands of a changing clientele, which is our advantage, but that is the only advantage, everything else is stacked in favor of the biggest.

262

Thanks for breaking out the spreadsheets! :slight_smile:

Why are we using the $440B deficit figure? From the CBO:

Do I have it wrong somehow?

If we were to change the spreadsheet settings, what if the proposal were a real dollar spending freeze rather than a nominal dollar freeze? Spending pegged to inflation.

Septimus: Didn’t mean to disappear from the thread, but then again you give good replies and I have time to think about them since bonds move so slowly.

People warn against sports metaphors in investing. I dunno, maybe there are parallels there, I am not fiercely against it but me, I try not to mix up technical terminology like that. And I really am an amateur.

I’m not suggesting bonds are a super-boon to the super rich. But- if the 10-year outlook is poor for stocks, one’s money is better off in bonds, at the face-value yield rate. But that rate sucks. It’d be great (for the wealthy) if that rate were higher as the boom ran out of steam…

I have heard it claimed that people who dropped out of the workforce are re-entering it, sort of a ‘magic bag’ of workers.

263

You don’t. I used the 2018 budget request, which of course is pure fantasy. Now that the 2018 actuals (PDF) are out we have (in $ millions):

Receipts: 3,328,745
Outlays: 4,107,741
Deficit: 778,996

BEA won’t release last quarter’s GDP until next Friday, so I’m not changing that.

Not surprisingly, our friends in DC have made things a bit worse. Now, given all the other ludicrous assumptions, we’re revenue-neutral in 2023/24 and debt-free in 2039

That’s an additional element of uncertainty, because we don’t know what inflation will be. Let’s pretend nominal outlays will increase 0.6% each quarter, compounding quarterly.
Now we’re revenue-neutral in 2033 and debt-free in 2054 :smack:

That, again, assumes business as usual. There are good reasons and bad reasons for why business may not be as usual. First and foremost, past performance is never indicative of future performance, although GDP and revenue/GDP are a steadier bet than the stock market. Second, it’s all policy-dependent.

Good reason:

Well, good-ish. There’s still some give in U-6. And there’s even more give in workforce participation. I haven’t seen any evidence yet that Trump’s (IMO ill-advised) immigration proposals would halt population growth, although slowing it will hurt. And we still have productivity on our side.

Bad reason:

Despite the tax avoidance schemes of those with high income, a dollar to them still gets taxed much more, on average, than a dollar to someone with low income. So the above actually argues the opposite of what it’s trying to argue.

Worse reason, skipping right past “not even wrong” and straight into stop helpingterritory:

A single anecdote at a single time point. About a matter that is extremely dependent on location and on individual (in)competence. And which runs counter to the trend already presented. It may very well be harder to start a small business today, but let’s use big-kid data instead of feels and anecdotes. I’ll even help out:

https://www.bls.gov/bdm/entrepreneurship/entrepreneurship.htm

264

And it all depends on no more tax cuts, and that we can actually freeze spending, something that is hard to do as the interest on the debt rises. Kepp in mind, it doens’t only rise based o how much we borrow, but it also rises based on the interest rate that is needed to attract investors to buy govt debt.

Every time trump has had an immigration proposal, it has been to cut immigration more. In order to pay the debt faster and easier, increasing the number of people paying taxes by increasing the population seems to make sense to me.

That would work, except the wealthy pay a lower effective tax rate than you or I. You have seen the pass through corporation scheme that the wealthy (but not actual small business owners) get to take advantage of that has a max tax rate of 21%?

Also, as they are taking the profits to themselves, they are not paying their employees as much, meaning that their employees are paying less in taxes as well.

While you vehemently disagree with my point, enough so to call into question my competence and maturity and declare that my statement is a disservice to my “side”,
I have not said that there are not small business opening and growing. I own one of them myself, so I’m not sure what you are so aggressively disagreeing with me here.

I am saying that everything is stacked against a small business. You have to do everything better, faster, and cheaper than the entrenched corporation in order to compete, and that’s hard to do when they have economies of scale working for them. It is even harder when they have lobbyists getting the govt to work for them.

The ACA is one of the reasons that there are growing small businesses, as before that, leaving your job to start your own meant that you had very little ability to get any sort of health insurance, and, your business being tied to your finances, mean that if you got sick and ran up massive bills, then they could bankrupt your business, as well as your personal life.

Another reason that small businesses are doing well, right now, is because credit is cheap, (and used to be cheaper) but that is changing very quickly.

The economy as a whole is also doing very well. (Thanks Obama!)

In order to make the assumption that small business will continue to grow, you have to assume that credit will continue to be cheap, that small businesses will have access to healthcare for themselves and their employees, and that the economy will continue to do well.

I do not take those assumptions for granted, those who do are the ones who fail.

265

Prove it.

266

And the “data that have eluded the rest of us” on which you have based this conclusion, which I asked you to share, comprise “personal experience”, conversations with other business owners", the time your business experienced one time in getting a building permit approved, and a “doubt” that Petsmart has to wait as long. You didn’t look up anything before posting the claim that “everything is stacked”. And when given the opportunity to do so, you still haven’t. Twice.

Like I said, it may be true. But the evidence you have provided thus far is worthless.

267

:confused: The klepto-wing is happy to commingle SocSec with the general budget when they prattle about spending cuts or privatisation. But you’re taking the position that payroll taxes are off-limits when measuring tax burden? Good for the goose and gander both, no? :confused:

268

That you’re able to read so much into a citation (or math) request is fascinating.

269

To be clear, individual income taxes are only ~half of federal revenue. Given that the discussion is about government revenue as a whole, it would be rather silly to only look at individual income taxes.

Some of the problems with our dear friend’s claim are that it’s about “the wealthy”, which is undefined. And of course we don’t tax wealth. So we might actually be able to draw a box around some upper wealth percentile that largely comprises low-income and thus low-tax retirees. I look forward to reading the analysis.

But if we want to just look at income and all federal taxes, those klepto-wing shills at wapo have some pretty pictures of TPCdata here: https://www.washingtonpost.com/news/wonk/wp/2017/11/02/the-state-of-the-american-tax-system-in-8-charts/?utm_term=.4059f547a382
Here we see that the top quintile takes in about half of the income and pays about 70% of the total federal taxes at an average rate of ~27%. I’m more than a little :dubious: about how they’re including corporate taxes (and also haven’t scrutinized TPC’s methods.) But if anyone has better numbers, let’s see them.

Doubtless there are high-income individuals and *individual households *who pay very low tax rates. But they are not the norm. (Yet – I’m sure Congress is working on it.)

270

Okay, you are right, I cannot prove that you are in a tax bracket that has a greater than 21% marginal rate, so I was making an assumption when I said “you or”.

Of course, you’d really need to be in a 6% marginal rate in order to be equivalent, as you are also paying 15% on payroll taxes that are not paid on marginal incomes over $128,400.

Okay, I concede the point. Opening a small business is no more work or risk then working for a corporation.

Agreed, but that was not all I was looking at. You are the one making the claim that tax revenue would grow by 3.79% continuously until at least 2055. I am pointing out reasons that that may not necessarily be the case.

I think that you are the one who is making the unsupportable claim here, not me.

I don’t feel like arguing the point anymore, so you are correct, there are no people that make millions, tens of millions, hundreds of millions, or even billions of dollars a year that pay lower effective and marginal tax rates than someone who makes say $70,000 a year.

One is behind a paywall, and the other is using numbers from 2013. Not only has the economy changed entirely, we have had at least one major round of tax cuts since then.

But, from your cite:

When the 1% are making more money than the bottom 40%, they can probably afford to pay more in taxes.

With the new tax rules in place, allowing high income people to incorporate and pay a 21% top marginal rate on any incomes they receive, you have not given any reason to believe that they would not be the norm.

But, even if that changes, then we will maintain a 3.79% increase in tax revenue every year as your assertions here require, correct?

Look, I am just responding to Shodan’s simplistic assertion that all we have to do to eliminate the deficit and ultimately the debt is to freeze spending. I do think that it is a bit more complicated than that. I do not think that 3.79% growth will continue for the next 37 years, and I have given reasons why I do not think that to be the case. You have countered my, to be fair, assumption that 3.79% growth would not be continuous over the next several decades by saying that small business growth will continue at the same rate it has over the last few years, even in the face of the loss of the ACA and higher interest rates.
You have argued that yes, freezing spending (while you agree is bad policy) would eliminate the deficit and debt, and though you used numbers that everyone knew were absurdly unrealistic as far as revenue and expenditure for even just this year alone, I didn’t call you out for your competency or ask you to stop helping. I instead put your numbers into a spreadsheet and gave specific numbers and dates, based on the unrealistic numbers you wanted to start with.

A recession, even a slight one of just a fraction of a percent over only two quarters, is enough to completely throw all of you numbers off. I do not find it a realistic scenario to go an entire generation without even a single down business cycle.

Finally, while you did spam some links, they don’t really say what I think you want them to say. You first link says that businesses starts are still (as of 2015, the latest data from that link) less than they were 10 years ago, the fifth chart shows just how vulnerable small business are to recessions, and the last chart shows that many of these small business are not growing businesses that create jobs, but people incorporating themselves in order to do the “gig economy”, do contract work, or to take advantage of tax structures.

Your second link just says that small business starts are recovering to pre-recession levels, but its data ends in 2016, so doesn’t take into account any of the new realities that we are facing.

Your third link confirms my point when it says “Startups and young firms are also particularly sensitive to business cycles and economic conditions. For example, there was a major reduction in the number of business startups in the early phases of the Great Recession.”, and then later in Figure 3, further confirms what I said with, “or example, as shown in Figure 3, Business Applications with Planned Wages exhibits a sharp decline as the recession arrives, continues to drift lower, and shows little sign of recovery.” Then for Figure 4, it once again confirms what I have been saying with “Overall, business applications that have relatively high likelihood of turning into job creators have not fully recovered after the Great Recession, and their quarterly volume is still far below its pre-recession levels. Combining Figures 2 through 4, there is recovery in the quantity but not so much in the quality of business applications, where quality is measured specifically by the probability that an application becomes a job creator in the near future.”

I am not sure what your point with those last two links were. Yeah, it only takes a few hours to start a business. Go online to your state, file your DBA, go to your CPA and have her file for both Federal and State EIN, then spend an hour on hold getting local withholding accounts set up, and you have a business. If you are just creating it for the purposes of taxes, or if you are doing contract work like construction or IT, then that’s all you have to do. If you have an actual establishment where you will have employees working, it takes just a little bit more, which is why, as confirmed by your third cite, there are fewer small businesses who are turning into job creators. Seriously, 5.6 days to create a business? Do you really think that there are any business that actually take that exact amount of time, or do you think that that is an average between the many, many businesses that take only hours to open, and the much smaller number of job creating businesses that take a couple of months?

271

Joe takes a job and gets $500/week take-home pay. The employer writes a second check for $76, and mails it to the Feds. (When Joe gets his 10% raise, that $76 check goes up 10% also.) Of the $76, $38 is counted as “tax paid by Joe” and $38 isn’t (and isn’t included as Joe’s tax on the WaPo graphic). This is a totally arbitrary distinction. The statute could have counted $10 out of the $76, or $20, or all of it, or none of it — the net results would be the same in any case: A $500 check to Joe; a $76 check to the Feds.

The $76 comes entirely from the spending employer is happy to afford to employ Joe, but Joe never sees it. D pundits (and Warren Buffett) might want to call the whole thing “Joe’s tax”; R pundits might want to ignore the whole thing; perhaps as centrist you want to split it 50-50. :slight_smile: Whatever.

Note that in addition to the $76 check employer wrote to the Feds, he may have paid money for health insurance — much more money than would be paid in one of the developed democracies. True, that healthcare spending can’t be folded into a direct question about taxation. But that just shows, again, that structuring such questions narrowly risks missing the bigger picture.

272

I don’t know why you’d write that. Click through to the TPC data:

All $76 is “tax paid by Joe”.

273

The graphic shows the 4th 20% paying total tax of 8%. If that 8% includes the 15+% payroll tax levied on (usually) ALL their income, then there’s a real arithmetic mystery here. No?

I assume “paying them indirectly through their employer” refers to the $38 paid through the employer, but not to the extra $38 the employer pays.

Maybe I’m wrong. But then I think we have a real mystery to explain. If 15+% is paid on all wages and salaries (for those below median) why is the total only 8%?

(I think I got the numbers slightly wrong. The nominal total tax for SocSec+Medicare is (was?) 15.3% = 7.65%+7.65%. This works out to a 16.6% total tax on take-home pay, or 14.2% if measured on total.)

274

Refundable tax credits can give you a negative a negative income tax. That counteracts some of the payroll tax.

275

Nope. That’s just what I just put in the model, preceded by “it depends” and followed by “[y]ou can, of course, plug in different number[sic]”, “[n]ow all of the above may change if the economy goes haywire. When it goes haywire, rather. I fully expect it to,” and in a later post with “[t]here are good reasons and bad reasons for why business may not be as usual.” Thus, your description of my activity in this thread is inaccurate.

This is, again, an inaccurate description of any of my posts in this thread. Completely false, really. This is what I wrote – you even quoted me: “Doubtless there are high-income individuals and individual households who pay very low tax rates.”

The WSJ article is just a funny example of their editorial board accusing TPC of being liberal shills. As for the year, the data show that your claim that “the wealthy pay a lower effective tax rate than you or I” was not true in 2014 (the article wasn’t updated but TPC is if you click through). If you don’t like my numbers, let’s see yours. Show us that “the wealthy pay a lower effective tax rate than you or I.” Not a wealthy. Not some wealthy. “The wealthy,” like you wrote.

276

What, precisely, do you think I want them to say? When I write things like “it may very well be harder to start a small business today” and “I’ll even help out”, followed by links, that’s me offering you a starting point to make a good argument grounded in facts, rather than one grounded in irrelevant personal anecdote and imagination.

277

All I replied was that I did not agree with your numbers, and gave reasons why I did not agree with those numbers. You then disagreed with my disagreement about those numbers. If you are not tied to those numbers, then I don’t see why you are defending them.

I have only given reasons why the economy may go haywire, or that business may not be as usual.

Shodan said that just freezing spending would reduce and ultimately eliminate the deficit and the debt. That is what I am contesting. It is not that simple, and one of the reasons it is not simple is that those numbers will be changing constantly.

Yes, later in your post, you said that, but I was replying to that particular paragraph, where you were indicating that “the wealthy”, as you put it, do not pay less in taxes, but it is only low income and therefore low tax retirees that would be paying these lower rates.

Just payroll taxes alone are enough to put most non-wealthy people into higher total tax. If you are making just $40,000 a year adjusted, then you are paying 22% on the margin in federal income, plus another 15.3% on payroll taxes, for a total of 37.3%. If you are making over $500,000, then you are paying 37% on the margin in federal income, and 0% on payroll taxes.

I have just shown you that yes, a person making $40,000 a year (adjusted) pays a higher rate than someone making over $500,000 a year. Not retirees, not some individuals or individual households, but anytime you make that comparison, between someone making an adjusted income of $40,000k a year is always going to be paying a higher marginal rate than someone making $500,000 a year.

This is before the person making over $500,000 a year uses their much more considerable resources to find vehicles for tax avoidance, driving down their effective rate even further.

I didn’t make this analysis for you earlier, as it was so obvious to me I didn’t think it needed to be spelled out, but now that I have done so, you are welcome.

Depends on what you mean by wealthy. There is a homeless guy downtown that would look at me, and consider me to be wealthy.

There are different definitions of “the wealthy” that I would accept, however. I would say anyone in the top tax bracket is definitely wealthy. The top 1% are certainly wealthy, and I’d even extend that to the top 5%. The top quintile is very well off, but we can debate if they are “wealthy”, but they can probably afford to pay more in taxes.

But, assuming that you can agree that someone who makes over $500k a year is wealthy, and someone who makes $40k a year is not, then yes, the wealthy pay a lower effective tax rate than I. I did apologize about including you in that statement, as I do not know what tax bracket you are in.

And that is not taking into account the new tax bill (as the article that you are citing as being useful in talking about the tax code came out before the tax code changed), which does allow wealthy individuals to incorporate themselves, and then pay the corporate tax rate on the money they pay themselves, rather than the individual income tax rate, which means that they will be paying 21%, rather than the 37% that they wold be paying, and less than the 22% income tax (nevermind payroll tax), that your average middle class worker will be making.

278

I thought that they were there to bolster your argument, not detract from it. I apologize that I misunderstood. You were claiming that it “runs counter to the trend already presented.”, so I thought you were trying to say positive things about the current and future state of small business growth.

“it may very well be harder to start a small business today” does not mean the same thing as “It is harder to start a small businesses today”, and in fact, gives me the impression that you are doubtful as to that point, and “I’ll even help out” sounded like the condescension of someone who says things like “stop helping”. I do feel that as a small business owner, who’s peers are small business owners, and who gets a reasonable amount of information from associating and networking with them in local chamber alliances actually does give me a better idea as to what is actually going on as to the health of small businesses, which you then confirmed everything that I said with your links.

279

And I even did it for free. Please don’t tell my clients.

Because while this science may be more dismal than I prefer, it’s better to make no argument at all than to make a bad one. Some find it useful to meditate on Mark Twain’s advice (that he probably didn’t actually say) on opening one’s mouth.

Bolding mine. While doubtless we’ve all met some poor ignorant souls out there who don’t know there difference between “higher rate” and “higher marginal rate”, nobody on these boards is going to fall for your switcheroo there. But it was a good effort.

We’ve seen from the TPC data that, on average, the more you make, the higher your rate. And now that the mystery septimus helpfullypointed out has been addressed, their data remain unassailed.