Putting money in to not very productive tax shelters is a large cost to the economy. Hiring people to minimize taxes is a cost, having people move to a different country is a cost. Not everyone can pick up and move to a different country. It does not make a difference which country you write a song in, but if you are a lawyer or surgeon you need to be near your clients.
Entertainment is a good illustration to show the effects of taxes. Breaking Bad was supposed to be set in California very close to Hollywood. But the production was able to get lower taxes in Arizona, so now all the actors leave Hollywood, fly to Arizona, work, then fly back to Hollywood. Yet according to liberals nobody changes their behavior because of tax rates.
I have given four examples taken from history, the tax changes around WW1, the window tax, the British millionaires tax, and Breaking Bad. No one else has produced one lick of evidence that taxes do not hurt the economy.
If someone has evidence that there is no such thing as deadweight loss, no such thing as the substitution effect, and that rich people don’t care enough about money to alter their behavior to avoid taxes, they should produce it. The entire economics profession is waiting.
No one knows how to make a pencil and no one person can make a car. The people on the assembly line do not make cars they make one part of a car. There needs to be a whole team of people to make one car. The most valuable part of the team are the people who coordinate the whole process. Prices are information. Wages are prices for labor. Therefore wage contain information about what services are valuable and the supply of people who can provide the service.
We should change the tax code to create more jobs, eliminating the corporate tax would be a great start. We also need to change regulations and laws to make jobs easier to create. But we should make sure that these are good jobs that add value to the economy. After all we could create lots of jobs by mandating everyone travel by rickshaw but it would not be good for the economy. The only way to know if the jobs are good for the economy is to let the market work.
The idea that the middle class consume more of their income and thus switching income to the middle class from the rich will goose aggregate demand is a myth. Here is Paul Krugman on this myth
Here is the whole blog post with a chart that shows personal savings rate are unconnected to inequality and the latest recession.
Do you support eliminating all taxes entirely? Why or why not?
Probably because going to extremes really is meaningless. It’s like asking someone who supports more taxes ‘do you support taxing everyone at 100%?? Why or why not?’…it’s a silly question. The real debate is over where to set the bar…where the butter zone is between economic growth and necessary taxes to maintain our society and infrastructure.
But that’s the logic that Arthur Laffer used for his theory. He drew a curve on a napkin and said that a tax rate of zero percent produced no revenue and a tax rate of a hundred percent produced no revenue. From these two extreme points, he made up the rest of his data. I won’t dispute the premise but it doesn’t support his conclusion that a tax rate of thirty percent produces more revenue than a tax rate of forty percent.
Well that’s my whole point. puddlegum seems to be arguing against all taxes of any sort. They are an unadulterated bad thing.
But somewhere, unless you are an anarchist, there is a tax rate that is too low, even for Republicans and libertarians. I want to know where that rate is.
Why do we have taxes at all? I think everyone knows about the downsides taxes bring. What good comes of them? What tax rate is necessary to support the good they bring, while minimizing the negatives? And how should that tax burden be shared among the different classes?
These are the questions we should be asking ourselves, not meaningless, diversionary questions like “are taxes a good thing?” or “should government redistribute wealth?”. We’ve already decided that at some level the benefits of government outweigh the costs, now let’s figure out what that level is.
I’ll concede your points (and I feel I did so in my other post). But while an individual assembly worker might not build a particular car by himself, he is directly producing some portion of a car. He can point to some part of the finished vehicle and say “I did that.”
Keep in mind the claim I was addressing was that the “rich” are the most productive people in the economy - a claim that the CEO of General Motors produces more cars than the people who build cars.
I’m not disputing the value of capital. But I’m saying we shouldn’t put the cart before the horse. Capital is valuable because it supports production. The production itself is what’s important.
It isn’t news that the savings rate was down before the recession, since the increasing indebtedness of the middle class due to wage stagnation was one of the causes. Remember that consumption was driven in no small part by home equity loans based on the illusory increase in home values.
He seems to be implying that there is a lot of volatility in who qualifies as rich. I’ve never noticed him saying this in any other place. I’m pretty sure I’ve read him as saying that rebate checks are relatively ineffective at driving consumption since they tend to go into savings or paying down debt. They payroll tax cut went into a different bucket and thus drove consumption better.
A while back I linked to a study of California sales tax payments versus income which made it clear that higher income levels paid a relatively smaller percentage of their income in sales taxes than lower income levels, which I think is direct evidence of this. It says nothing about savings rates, but consumption is what counts here. A higher percentage of income going to a mortgage, say, would show up as a lower savings rate but still doesn’t drive consumption.
High taxes can hurt growth. So can excessive debt. And your boy Krugmen is very much against slashing government spending to balance the budget:
Yes, and the reward for their “value” is they get paid more. They should still pay their fair share of taxes.
By your logic, let’s set the tax rate to zero. The economy should take off.
It’s too bad we can’t go back and look at periods of relatively high marginal tax rates, and see if the economy contracts the way you predict, then compare it to a period of lower marginal tax rates to see if the economy expands. Someday we will have the technology to do that, but until then, I guess we will never know who is right.
Yes, capital is important. But many people have made some sort of logical leap that because capital is important, people who have large amounts of capital shouldn’t be taxed. Or at the very least they don’t see a problem with 99% of the capital residing in 1% of the population. That sort of circular reasoning is a lot like feudalism. Agriculture was important too. The baron was the most important man in the kingdom (or barony I suppose) because he owned all the land.
This would also be another example of the “Economic Infinity Engine.” If this is true, then you would be able to make yourself arbitrarily wealthy, the only limit being how much wealth we felt bothered to dispense to ourselves. (Oddly enough, whenever I point this put, I get ignored or people respond by saying, “Don’t be absurd!” but with no explanation or defense.) While I’m sure there’s some economists who think raising the Minimum Wage a good idea, even they almost always phrase it as saying, “Well, it’s not going to do much harm,” not as “It’s a sure-fire way to make ourselves fantastically wealthy.”
Of course, it doesn’t work that way because money isn’t wealth; but the monetarists never did believe that gold, or dollars, or giant stone rings made them no wealthier than before. And on that note, you’d actually end up increasing economic disparity if it worked, as you’d end up flattening the Middle class, lower class, and poor, while creating vastly more wealth for the a new and much higher upper tier.
Without ANY of those things, none of it is possible at all.
I certainly don’t dispute that capital is essential. But this notion that capital is somehow MORE essential than, for example, the actual people who are needed to actually make and buy the stuff is a cockeyed distortion springing from our society’s cult of adoration for wealthy elites.
Certainly…if you don’t have any workers, any managers or any buyers or users then there is no point and it’s all moot. But the workers are, by and large, interchangeable…and as long as we have a society, there will be people who will want to work. With the systems today, just about anyone COULD do just about every job necessary to build a car or make a Twinkie. The key point is that building that theoretical car that started this side discussion doesn’t require any specific worker to do. It doesn’t require any specific manager either. Not even any specific CEO. Obviously, with the right people, you can optimize your performance, but none of them, outside of perhaps the founder (who GOT that initial capital together to make it all happen) is really vital or absolutely necessary, while without the capital none of it will happen. Without the capital, everything IS impossible, since nothing could be built at all. In that regard, it’s not a cockeyed distortion, and it’s not a notion…it’s simple fact.
I’m not adoring the wealthy here, merely saying that it’s from wealth that everything in our society springs.
I’m definitely not in the ‘no rich guy can be taxed camp’. I’m not even opposed to higher taxes than exist today on The Rich™. I’m not sure if we are in the butter zone or if taxes could be bumped a bit up for everyone, or for just some arbitrary definition of the rich for that matter.
BTW, 99% of the capital doesn’t reside with 1% of the population afaik, nor are we anything like a feudal society with it’s mix of landed wealthy to poor peasants with a few yeomen types or burghers in the middle somewhere. We are an incredibly wealthy society, with even our poorest being on par with those yeomen or wealthy burghers in the past…and our rich certainly pay quite a bit to our collective mutual benefit. Do they pay enough? Well, that’s a matter of debate, and I am not sure but am not knee jerk opposed to increases in taxes for justifiable reasons…but by the same token, the other side of the coin that you are talking about is the knee jerk reaction of folks who automatically want to solve ALL our problems by soaking the rich for as much as they can, without regard to how that effects things like capital and investment. There has to be a butter zone between the two extremes that gives us the optimal setting between the needs of society for infrastructure and services and a vibrant economy where capital is flowing to build all those productive facilities and businesses for those workers to get their jobs at.
“Are taxes a good thing” and “should the government redistribute wealth” are very different questions. And we have certainly not decided that having the government redistribute wealth, in and of itself, is a benefit that is worth the cost.
That having been said, I don’t know that I disagree all that much with your conclusion. It’s just that no one has said that we shouldn’t have any taxes. What puddleglum is arguing (as far as I can tell, and he can correct me if I am mistaken) is that the idea that tax rates have no effect on investment is simply not the case.
You asked
The flip side of that is there is a tax rate that is too high, even for Democrats and liberals.
Taxes affect return on investment. People tend to invest in things, by and large, that offer the greatest return on investment. Therefore higher taxes cause changes in what people choose to do with their money. It is, in my view, naive to assume that raising taxes will have no effect except to raise government revenues.
We can, as a society, get away with a certain amount of this. But we will not be able to decide what is an appropriate level of taxation unless and until we recognize that raising taxes will have bad effects as well as (hopefully) good ones.
And the elephant in the room is that raising taxes on the rich as Obama allegedly wants to do, will not eliminate the deficit, reduce the national debt, or allow the federal government to spend as much as they want.
Regards,
Shodan
Wealth redistribution doesn’t have to be about welfare. The government took money, mostly from rich people, and gave the vote to everyone, rich and poor alike. Redistribution. The government took taxes from rich people and built roads that rich and poor both use. They took wealth from some, and redistributed it. If nothing else, they redistribute wealth among the individuals who work in government. By my definition, if you support having a government at all, you support at least a little bit of wealth redistribution.
I agree with this for the most part. However, I believe that we’ve gotten to the point of diminishing returns on tax cuts for the wealthy. Raising taxes on the wealthy slightly and restructuring entitlements such that nobody is dependent on a job for healthcare, education, or food and shelter will probably increase demand for goods and services, while enabling the middle class to weather periods of economic turmoil.
In other words, I’m willing to dampen the growth of the economy a little in return for stability. But my guess is that growth won’t be dampened at all because stability itself is a driver of economic growth. Businesses and economists have said for years the most important thing they want out of government policy is predictability. Well I think that applies equally well to consumers. “Demand side economics.”
Again, I have to disagree. Wealth doesn’t produce the things society needs. Producing the things society needs is a path to wealth.
If somebody had just gone to Thomas Edison when he was sixteen years old and given him a million dollars, would he have invented more things? Or would he have decided he now had everything he needed in his life and invented nothing? It’s usually the desire to become wealthy not wealth itself that drives people.
And if this is true, then lowering taxes on the wealthy productive people is a bad idea. We should be raising their taxes to reduce their wealth and thereby keep them productive.
Workers, engineers, managers, and CEOs are somewhat interchangeable. There are skills involved. Lots of people could do those jobs, some better than others, and some people can’t do them at all. But money and investors are just as interchangeable. I’m with Kimstu that capital isn’t somehow more important than labor, skill, or inventiveness.