Middle Out Economics: The Trickle Down Killer

Great Debates
61

[QUOTE=Evil Captor]
Stop signing all these dumbass “free trade agreements” where all we do is export jobs to Third World countries that do thinks like peg their currency to the value of ours to artificially maintain an imbalance of trade. Give tax breaks to companies that build new facilities inside the U.S., give tax penalties to companies that export jobs.
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Free trade agreements help much more than they hurt our economy. Do you have any specifics for ‘free trade agreements’ that you are talking about, or just any free trade agreement shouldn’t be signed? What is your proposed alternative? Trade tariffs? Something else?

Companies are given tax breaks in many cases to build facilities in the US, though generally it’s more at the state or local level. As an anecdotal example, Intel here in my area was given a 10 year moratorium on state and local taxes to build a plant here, and this has benefited both the local economy and Intel both. Other companies have been given similar things, with the result that we have Dell and several other large companies who have moved in and set up shop in my state, with more coming soon.

As for penalizing companies for moving operations overseas, I suppose if your desire is to make those companies less competitive then that’s a good plan, but I’m not seeing the benefit to the US or even to our workers. Is it better to force a company to stay in the US when their wages are obviously less competitive, perhaps force them out of business or to cut back operations (or pay the large capital costs for higher levels of automation), or allow them to move and remain competitive…and paying taxes since they are still US companies? To me, the latter is better, obviously.

But productivity has stemmed not from labor but from improvements in automation, expert systems and new processes. So, why SHOULD wages by coupled to productivity if it’s not the labor that is causing productivity increases?

The rest of your argument here seems to be saying that people should make more (than the market warrants for their skills) simply because that would let them spend more. It’s almost like an economic perpetual motion machine…you just keep paying workers more, then that let’s them spend more, and perpetually increases the economy! It’s a win/win, and yes, Virginia, there IS a free lunch!

Oh, don’t bother with the faux nice stuff man…I know you pretty well, so no need to put it on that thickly. I don’t really care if you think that this basic prediction is wrong…that’s your lookout. Can you explain to me, in simple terms for my limited mental capability, how you can increase wages substantially in the US and not have the products and services of the companies raising those wages increase their price? Just a nice, simple explanation of how this magic works.

No, it’s rocket magic. So, you want companies to not invest in new technology (the very thing that is increasing our productivity) but instead to just hire more people and this will magically give us economic growth? And you figure that this plan makes some sort of sense…enough you could just handwave it away with a ‘It’s not rocket science, dude’ rejoinder? :stuck_out_tongue:

So, the answer would be ‘yes’…it’s coming completely arbitrarily and out of some liberals ass. Well, there you go. Don’t worry that comparing CEO pay in the US and that in other countries is not an apples to apples comparison, as there are a lot of factors that make up pay, including cultural, market conditions in other countries, availability of qualified personnel that could fill those positions, other means of compensation besides pay, and myriad others, and instead just yank a number out of your ass and then make that an arbitrary standard that will somehow magically, um, fix something. Or something.

No, I see that. Can you, again, explain how your proposal would work in the real world. Ok, so you force companies to not use temporary labor, and instead make them only use permanent workers with full benefits. What will companies do? Immediately shift everyone they are using as temporary labor to full time with full benefits? Or, if you force them to not be able to use temporary labor, will they instead find some other loophole, or basically get rid of their temporary workers and shift operations out of the country or somewhere else, put in more automation with perhaps a few full time people? I’m going to go with the latter options, realistically. Again, you WANT to help, obviously, but I think the unanticipated side effects of most of your fixes here would actually be to hurt the very workers you seemingly want to help. Those temporary workers who will be let go over this are not going to be singing your praises for putting them out of work. Or, if you force this and force the companies to not be able to automate OR move offshore or outsource, the current full time workers AND the temp guys aren’t going to be singing your praises when these companies go out of business because they can’t compete anymore.

62

Just because it’s true for windows doesn’t mean it’s true for income. If each window allowed $100 to flow into my house, and was taxed at $50, I’d live in a greenhouse.

63

Words fail me. First, please give evidence that there was a decrease in productivity and work by the rich in the relatively high tax 1990s, and that there was an increase after the Bush tax cuts. Income is not the same as work which improves the economy, just to be sure you don’t give the increased inequality we saw as some sort of good thing.

Here is an example of the absurdity of your theory. Say we have a person making $1 million, and whose last $100,00 is taxed at a 25% incremental rate. So, he brings home $75,000 of that last $100,000. Now, the big bad liberals increase that incremental tax rate, starting at $900,000, to 30%. He now would bring home $70,000 of it. You are basically saying that a rational person would cut his income to $900,000 to avoid the tax increase, giving up $70K to avoid an incremental payment of $5K.
There is also the problem that in many professions you cannot fine tune your income in this way.

You mention how progressive our system is. There are two ways of being progressive. The first is to increase taxes on the highest earners. The second is to cut income of the non-highest earners to the level where they are in lower or zero brackets. Which of these do you think is responsible for our progressive system these days?

64

It is not your words that have failed but your ideas. The top marginal tax rates for most of the 90s was 39.5 and was cut to 35 in 2001. It would be hard to extract meaningful data from such a small tax cut because the deadweight loss of a tax hike is generally thought to be around 40%. Thus the deadweight loss of a 4.5% tax hike would be less than 2 percent of income and too small to be measurable.
The effect of taxes can be clearly seen in larger tax changes. For instance in England there was a millionaires tax bracket instituted in 2010. The previous year their were 16,000 people who had enough taxable income to qualify for the tax bracket and the year after it was instituted that fell to 6,000.
In the US in the the top tax rates increased to pay for WW1 such that by 1921 it was at 73%.. The number of people eligible for the top bracket fell by around 70%.. After the taxes were lowered back down the number millionaires in the US by reported income went up 1,000% in the next four years.
I don’t have time to list all of the other examples, but it has happened over and over again.
What your example misses is that there are always marginal cases. Maybe the guy wants to buy a car that costs 75 grand and if he can’t buy it he will not work. Most people don’t have the abiliity to modify their incomes in response to tax rates but there are some that do and most of those are in the upper income brackets. If you don’t think at the margin you will miss this.
The reason that our tax system is so progressive is mostly that those on the bottom pay so little. The effect of that is the only place to cut taxes is at the top, so trying to use the tax code to benefit the middle class is almost impossible since most of the middle class and lower class taxes are payroll taxes.

65

I’m not sure what this means - where does the extra $50 come from?

You do know the difference between a tax and a subsidy, don’t you?

Regards,
Shodan

66

To reiterate what Voyager said:

Maximizing the income of the upper class is not the goal here. “Number of millionaires” isn’t a helpful metric.

67

What extra $50?

Yes, I do.

I’m just trying to say that puddleglum’s comparison of windows and income is pointless. If each window in my house somehow brought in $100 per year (let’s say I open the window and the cash just blows in), I’d build a house with as many windows as I could. If the government suddenly decided to levy a $50 per year tax on each window, I wouldn’t brick up the windows to avoid the tax.

68

If the effect of such a small tax cut is so negligible, then why are conservatives so opposed to a comparably trivial tax increase? Surely the effect of a 4.5% tax increase would not have any more economic impact than a 4.5% tax cut?

69

But that is exactly the tax increase that the right was ranting so much about - a restoration of the '90s levels. There is no doubt that very high upper bracket tax rates drive behavior. I’m old enough to remember the concept of the tax shelter. But that has not been the proposal, has it? Anyhow, I trust you supported Obama’s tax increase proposal all along, on the grounds it will be trivial.

Remember we are taking someone who makes $1 million here. Yes, we run into your Michael Jackson who makes a fortune but spends too fortunes, but on the whole people at this level’s spending is unconstrained by income. Your person who can’t afford the $75K car isn’t going to have money to invest anyway, will he? And I’m not sure that the person who refuses to work without an expensive car is exactly CEO material. Try making up a better example.

I’m not super concerned about lazy bums who will withdraw from the workforce somewhat because their incremental income, still gigantic, is still smaller than what they think they deserve. It is like Romney calling his quite large lecture fees trivial. True for him, not so for the normal person. Perhaps we should cut the inheritance tax because of we don’t Muffy will just refuse to go to Fashion Week and buy that new $30,000 shmatte. Then where will we be?

Tax increases for the rich won’t reduce demand much at all, and if we funneled it into tax decreases for the middle class we’d probably see an increase in demand. We’re seeing the reverse of that now as the payroll tax cut has expired. I personally would rather see infrastructure improvements and increased local and state hiring funded by the Feds which would reduce the unemployment rate and have all sorts of additional benefits. We’re starting to see the deficit decrease as unemployment drops, tax revenues increase, and payments to the unemployed decrease. That is more effective and more sustainable than middle class tax decreases.

70

In words of one syllable, the $100 is the increase in income which puddleglum claims the rich person will forgo as the result of a small tax increase.

BTW, I wonder if there is evidence that the confiscatory tax rates of the '50s or later in England made anyone not work. What it did do was cause them to flee to Switzerland or France, or to put money into not very productive tax shelters. That’s not good, but George kept on writing songs even after Taxman.

71

I assume you’re using intuitive in the sense that you have no evidence to support your beliefs.

You’ve taken one fact and misapplied it. If you tax windows, people will often choose to have fewer windows. But if you tax income, people will not choose to earn less income.

This isn’t basic economics. It’s mythology.

The rich are obviously not the most productive people in the economy. Dan Akerson didn’t produce a single car last year. They were all produced by assembly workers on the line. Now by his management, Akerson may have helped those line workers to produce more cars of better cars or cheaper cars - all valuable contributions - but still the fact remains, Akerson did not personally produce a single car.

You claim to believe that if you tax something there will be less of it. So why don’t you apply this principle. If you want to have more jobs, go directly to the problem. Design a tax system that rewards people for getting jobs. Instead, you’re arguing for a tax system that rewards people for getting rich. That may encourage people to get rich but there’s no obvious connection with jobs. Some people might get rich by creating jobs, some people might get rich by eliminating jobs, and some people might get rich by means that have no effect on jobs - so trying to create jobs by lowering income taxes on the rich is a remarkably unreliable plan.

72

[QUOTE=Little Nemo]
The rich are obviously not the most productive people in the economy. Dan Akerson didn’t produce a single car last year. They were all produced by assembly workers on the line. Now by his management, Akerson may have helped those line workers to produce more cars of better cars or cheaper cars - all valuable contributions - but still the fact remains, Akerson did not personally produce a single car.
[/QUOTE]

No single worker produced a car either, Nemo. Cars produced in the US (and everywhere else in the world) have , for generations now, been produced on assembly lines. And, recently, it’s robots, computers and automated systems and processes doing most of the heavy lifting, so to speak, in manufacturing anything. Few workers are needed in a modern auto manufacturing plant these days, and none of them do more than a fraction on building any given car, truck or Twinkie today

Where did the robots come from? Where did the machines on the assembly lines come from? Where did the tools, the expert systems, the processes come from? Where did the CAD and other design tools come from? Where did the CAPITAL come from that enabled all of that? Because it was the capital, more than anything else, that enabled it to all happen…enabled those workers and all those machines to build your theoretical car. From that perspective, productivity stems from that massive and continued capital investment, without which those workers would have jobs and those cars wouldn’t be built.

73

Good point. Now, did this money come from the CEO of Ford or GM? Not hardly. It came from bonds, it came from stock, and much of that is held widely by 401Ks or pension funds or individual stock portfolios. Give people enough money to live on and invest both, and there will be lots of capital.
Sure sometimes rich people invest their money in productive enterprises. Sometimes they invest with Bernie Madoff. The rich are different from you and me. They have more money. They are not necessarily smarter or more deserving.

74

Not “more than anything else”.

Capital is definitely important, but it’s the plutolatrous assumption that capital is somehow the ONLY important factor that makes for the entrenched stupidity we’ve been seeing in conservative tax policy. Fundamentally, it implies that only wealthy people really matter, because if any of the non-wealthy people had what it takes to really matter they would just bust their butts and become wealthy themselves.

This is statistically untenable. The vast majority of people in any major economy are always going to be non-wealthy. Running a society for the benefit of an elite plutocracy while shrugging off the struggles of the non-elite is not going to work in the long term.

Until fairly recently, the plutolatry of our economic policies hasn’t been too drastic in its negative effects because we’ve had some vestigial pieces of the more economically egalitarian policies of the fifties and sixties slowing it down: employer health insurance, the remnants of unions, higher education subsidies, housing acts, and so forth. We’ve also seen other developments contributing to the delay of the collapse of the middle class, such as the new norm of two-income couples, increases in hours worked, and appreciation in home values.

But now we’re running out of those palliatives. It’s going to take actual policy shifts rather than just coasting on the knock-on effects of past policies to get middle-class prosperity going again.

75

How does raising the minimum wage help the middle class? I can see the argument that it would help the poor, but if you’re making minimum wage, you’re probably not middle class.

76

It gives the poor more money to spend, and that stimulates the economy, which is good for the middle class.

77

Only if employers absorb the cost of the wage increase and don’t pass it along to their customers, most of whom are going to be middle class.

But let’s look at what an increase in the MW does. Something like 3% of workers make MW. If they all get a $1.00 raise, and we assume that there are 150M workers in the US, that’s about $10B/year “injected” into the economy, ignoring taxes.

That is, literally, peanuts in an economy that is ~ $16,000B/year. Less than 0.01%.

Now, some non-MW workers will get raises, too, but it’s still peanuts wrt to the economy.

78

Because to understand economics you have to think at the margin. Raising taxes slightly hurts the economy slightly, if the goal is the best economy possible then every policy which hurts the economy should be opposed. Even if the harm is relatively slight. Punching someone in the stomach hurts much less than stabbing them in the gut but that does not mean we should legalize stomach punching.

79

I didn’t really say where the capital came from, was just pointing out that it’s more crucial than any individual worker in response to what Nemo was saying. I made no judgement call about rich people being better, smarter or more deserving either.

80

[QUOTE=Kimstu]
Not “more than anything else”.
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I disagree. I see it as a continuum. You need the workers to do the work. They are important, to be sure. You need the designers and innovators as well. And the engineers and structural and materials scientists. You need the marketers and sales folks…and you need the logistics and planning folks, the managers and, of course, the customers. All important, some vital. But without the capital none of it is possible at all…it’s the one thing you absolutely need to even start or give it a try.

But, see, I didn’t say it was the ‘ONLY’ factor…I said ‘more than anything’. I freely acknowledge that there are other important factors, but none of them are AS important, since the rest are completely moot without that capital in the first place.

Never said otherwise, so I assume you are talking to someone else at this point. I’ll bow out for now and let you talk to them, if you have any questions about what (little) I’ve written I’m at your disposal. :slight_smile: