Not an accountant but I did take one accounting class twenty years ago. I was under the impression that corporations current pay taxes on profit, not on gross revenue?
I don’t know anyone who argues that higher taxes always lead to economic growth(!) but the correlations are not as one-sided as right-wingers like to believe.
Sweden has among the highest marginal tax rates in the world, yet enjoyed 7.3% growth in its latest report. Scandinavian countries in general enjoy low unemployment despite high taxes, and score highest on “contentment” surveys.
But the best apples-to-apples comparison, when focusing on U.S.A., is U.S.A. data. One can find much data and commentary refuting that Shodan’s myth might apply to U.S.A. for example or another example.
(These are just the first webpages to appear in a simple Google search.)
That quote is from the second link in septimus’ post. That is very key and to restate it using pseudo-calculus: The economy is a complex system and both parties seem to want to make policy based on a single partial derivative.
But your quality of life might suffer. So maybe you wouldn’t.
Another thing that you (& many others in this thread) don’t realize or are ignoring is that many times making big bucks involves risk. You own a retail business and are thinking of opening another branch. If that second branch is successful, you make more money. If that second branch fails, you risk losing quite a bit. Question is how to weigh the pros and cons, and make the risk/reward assessment. If the government is going to take a huge chunk of your additional success, then maybe it’s not worth taking the risk, and you don’t open the second branch and don’t hire the new workers etc. Makes sense to me.
It’s going to be hard to get real stats. Few people would openly admit to this. So in the absence of stats, we have only our opinions, as you acknowledge in your case. My own opinion, based on my observations of life and human nature, is that people are lazy, and would rather not work.
And this has a compounding effect. If almost no one was on social assistance, then the hardworking taxpayers will tend to look down on those who are, but to the extent that this becomes more widespread, the stigma lessens and with it the determent factor.
[This is actually relevant to modeling that I do these days in assessing the impact of the HC Reform law on employer benefit programs. One feature of the new law is the expansion of eligibility for Medicaid in 2014. And a key question is whether this expanded eligibility will increase Medicaid enrollment even among those who are already eligible now, since more widespread enrollment willl ease the stigma.]
I should also note that it’s a huge - though unfortuntely common - mistake to focus on federal tax rates when calculating how progressive the US tax rates are, or in assessing US tax levels themselves, for that matter. People pay a lot of money in state and local taxes as well, and these are progressive too. [This may also be relevant whn comparing US tax levels with European levels.]
Also adding to the progressive nature is the eligibility for social assistance, which declines at higher incomes. I saw an article recently (possibly in the WSJ) which noted that for some people, the progressive levels of subsidies in the HCR law, combined with the tax code, made the effective marginal tax rate something like 90%, beginning at lower middle class income levels.
How could going from $10 million to $10.7 million (or from 0 to $250K depending on which part you are responding to) cause quality of life to suffer? Or are you thinking of another extreme marginal rate with low income people like Shodan’s red herring?
Quality of life suffers from doing more work.
You’re already working hard enough to make $10M (in your example). Now you’re thinking about pushing yourself even harder. Most of the extra money is going to the government. Don’t kill yourself over it.
[It’s possible that the mindset of people who ignore this comes because this group largely overlaps with the people who think rich people do nothing for their money and are just born into privilege.]
If your assertion is that people won’t and will only work the 40 hours, how is that a problem ? Instead of having one guy working 60 hours and earning the $2.400 you think is due them (for some reason), you’ll have two guys working 30h each, each earning $1.200. The job gets done, more people get paid, and each individual also has more free time to either work another job, shoot the shit on message boards or do something actually fun.
And if you’re a really greedy motherfucker, you can certainly choose to work those extra 20 hours for that extra $200, because that’s MOAR ! Moar than the next guy ! The next guy’s a *loser *!
What’s the downside, exactly ?
[QUOTE=Fotheringay-Phipps]
Another thing that you (& many others in this thread) don’t realize or are ignoring is that many times making big bucks involves risk. You own a retail business and are thinking of opening another branch. If that second branch is successful, you make more money. If that second branch fails, you risk losing quite a bit. Question is how to weigh the pros and cons, and make the risk/reward assessment. If the government is going to take a huge chunk of your additional success, then maybe it’s not worth taking the risk, and you don’t open the second branch and don’t hire the new workers etc. Makes sense to me.
[/QUOTE]
… and somebody else takes the market share & biz opportunity you had scoped out in your initial decision to open a new branch, hires those new workers and raises his quality of life more than you would have by opening said second franchise. Again, what’s the downside, where society is concerned ?
Sucks for the first guy, I suppose - but then he’s already got a retail business that runs a hefty enough profit to consider expanding. I’m thinking he’s not living on ramen under a bridge.
Your premise seems to be that economic activity is a zero sum game, and that to the extent that it’s discouraged for some the slack will be taken up by “somebody else”.
I don’t think any economists share that view, nor do I (especially in this case, as the people most likely to “take the market share” are the people already in the business, not “somebody else”), but I’m not inclined to argue this point.
This shows a fundamental misunderstanding of ‘work’ and ‘benefit’. If society doesn’t benefit from the stock trader’s work, then why do we pay him for it? You’re forgetting that a dollar is a representation of economic contribution to society. It’s a direct measure of how much other value the goods or services provided. If you ever question how much someone contributes to society economically, then all you need to do is look at how much money others are giving him in exchange for his time, material, and effort.
Second, there’s no way in hell teachers and trash collectors make less than movie stars. There are over 6 million teachers in America and they average, what, $45,000 a year? That’s $270 billion dollars…a lot more money than gets paid to Hollywood celebs.
Oh, did you mean a single teacher vs a single celeb like Donny Osmond? In that case, the reason is obvious…a single teacher contributes very, very little to society that others couldn’t, while not many can do what the stars do. Simple as that.
Harsh? Maybe. But the dollars don’t lie.
For one thing, you’re working on the unsupported assumption that the rich benefit more from the infrastructure. Donny Osmond benefits from the police force just as much as the nurse or teacher. His kid and my kid have the same access to the legislature. We drive on the same highways, play in the same parks, and drink the same sanitized water (well, not literally).
And yet, Donny doesn’t get the food stamps or the Medicare that others get. On top of paying tax on more dollars than others, he also pays more per dollar than others.
So how can you say Donny benefits more from the infrastructure than the ghetto child?
Bullshit. First of all, there’s not necessarily anyone else to step into the void. That’s why we have differing economic growth rates from quarter to quarter and year to year. That’s why employment numbers fluctuate. That’s why new home construction, for instance, increases and decreases. You’re not thinking in the aggregate and you’re not thinking of the people that are on the margin. There are always people on the margin.
Do you understand that I might risk a million on something to try to make a million, but I might not risk that same million for only $700k? Do you understand that if I think this way, then others might conclude similarly? Do you then understand that the Quick-E-Mart won’t get built on that corner, so now some teenager doesn’t have a cashier job and the milk vendor doesn’t have that client? So do you now understand why it’s not necessarily true that someone else will step into the void?
This is why we never get anywhere in GD. One guy says “But economic principles” and the other guy rebuts it with “But 2011 U.S. politics!” Why would you rebut “the higher marginal tax rates, the less economic growth” with “But they’re currently suggesting this in the U.S. Congress.”?
Because you have to work for it. If you’re making $10 million already, there’s not much free time left in your day. If you want the $10.7 million, you have to put in the effort to open that fifth store in the new city or manage that other asset portfolio or work out the merger with that other firm. That’s why quality of life diminishes. It’s amazing to me that liberals don’t take this into account. It’s like they don’t think that millionaires would maybe, just maybe, want to take the weekend to sail on the yacht instead of teleconferencing with Japan at 3 a.m. for an extra $500k a year.
Why are you assuming someone else takes the market share? You’re suggesting that the first guy make an error of judgment to pass up the opportunity. You’re suggesting that there actually was money to be made in that particular venture.
What would actually happen would be that the smart guys all come to the same conclusion- that the reward isn’t worth the risk- and the guys that do take the venture are actually fools that are soon separated from their money.
You’re acting like if there’s an opportunity before taxes, then there’s an opportunity after taxes. It just ain’t so.
I agree with you in general, as above, but I think WRT this particular point you’re misunderstanding what they’re saying.
I think they’re saying if the deal is not worthwhile because taxes are too high for the rich guy, then someone in a lower tax bracket will take it up. (I don’t agree with this either, as above.)
I’m not suggesting the first guy is making an error in passing the opportunity - it’s his call whether he wants to work more for a relatively smaller hourly rate, or be content with his current lot. Both choices are certainly valid.
I’m acting like there’s an opportunity, period. It might not make strategic sense or involve different levels of risk from person to person, company to company, but that doesn’t negate the fact that there’s a market there, a demand waiting to be supplied. Which means that (in a perfect world, at least), an up-and-comer (or group thereof) could very well build a new venture on this opportunity, because they don’t already meet the marginal tax situations under which seizing this opportunity doesn’t make strategic sense.
What I’m saying is that, to go back to your previous example, just because Quik-E-Mart will not move in on that corner, doesn’t mean Joe’s House of Big Gulps & Dodgy Falafel won’t either. IOW, this is the stalking ground of the Invisible Hand.
ETA: thanks Fotheringay, you got it right 
At working trying to earn that extra $10 so I’m not going to quote the various comments but the reality is the marginal value of the extra $700K and the marginal value of the free time lost and the marginal value of all of the other variables are an individual value judgement. Some people will want the free time (I’ve made job choices that cost me money for that very reason), some people will want the extra money.
It is neither liberal or conservative to realize that bad policy can result from expecting a diverse population to act in accordance with one person’s values.
Donny Osmond benefits more because he doesn’t lose the revenue from illegal copies of his work that could exist if he didn’t live in the US. If you want to quibble over the numbers, you are missing my point (see my post from 10:11 today).
Truly, things have reached a sorry state when a paragon of virtue and paladin of candor such as Shodan must deal with such treachery! Bad, Czarcasm, bad! Now, go lay down by your water dish!
Well, of course. But some people seem to think they don’t, so I point it out.
Am I wrong in thinking that redistribution can bring more persons into the stockholding class, & give entrepreneurs more options for raising funds?
In any case, I’m more interested in seeing competitors develop for a given business than in seeing someone already successful gain more dominance in more markets or regions.
I’m not sure how many threads it would take to unpack all the laissez-faire fallacies in Chessic Sense’s post #30.
So I’ll just try to hit on one thing:
It must be nice to live in a world where what is necessarily is what should be, where unilateral changes to agreements never allow someone to gain more than he’s worth, where there is no imperfect information nor inequity of power. What a relief to say that when Hillary Clinton got that sweetheart Whitewater deal, she was worth every penny! Imagine a world where no externality is fobbed off on third parties, and all sweetheart deals are fully earned!
How blind I have been, complaining about adjustable rate mortgages & bank overdraft fees! Whatever price someone in power over me demands is only fair and just! There can never be a wrong economic decision, because the money actually collected is its own justification!
Why, if a regressive government were to move to a capitation tax, with a deduction for having a net worth over $10 000 000, I will happily accept that this is simply my government demanding exactly what it’s worth, just as any private rentier, monopolist, or price-setting cabal. Right?
Beside the point in the post made just above this one, consider this. Finance guys make a lot of money since they are near a lot of money. A $10 billion deal is harder to put together than a $100 million deal - but 100 times harder? And the finance guys get in general 100 x more. Stockbrokers and similar types are toll collectors. Notice how much downward room there was in commissions thanks to discount brokers.
Then we have CEOs. the pay of many of whom is clearly not directly tied to any value, but more to the compensation board of their company and their negotiating skills.
Don’t know much about the business, do you? Forget about teachers, compare them to non-stars in significant roles, not extras. Some stars open movies, and you can argue that they are worth every penny. Some stars no longer do, but still make the money, at least for the while. Plus, as in the case of CEOs, there is a significant factor of agent quality.
Even for normal people there is significant stickiness in compensation. When I was doing salary administration, we always computed relative value of employees, and tried to move people to make what they should be making. However this is almost impossible to do, especially when the raise pool is 1 - 2%. You clearly don’t decide that a valued but somewhat overpaid person should take a pay cut to put them in the right place.
Then there is the Winner’s Curse, mentioned by Thaler, which states that those who buy something in an auction usually pay too much. When you hire someone, especially in an up market, you usually pay more than that person would make within your company, and you wind up with all sorts of imbalances.
I don’t know how anyone with experience in the real world can think that pay and value always match.
The fact that nobody can do what Alec Baldwin does doesn’t make him more valuable than a middle school civics teacher. It makes him more expensive, but even you don’t believe (I hope) that Alec Baldwin benefits society more than a good teacher.