The logic of tax cuts on the rich.

Can someone tell me the logic in thinking that reducing taxes on the rich, who make up a significant portion of the country’s money will stimulate the economy?

Simple logic should tell you that RAISING taxes on the rich would stimulate the economy.

Despite 80 years of hard data showing the exact opposite, there are policy makers who think that if rich people are given tax cuts, they will, out of the goodness of their hearts, go out and give all their employees raises.

Which is weird as employees are not paid from the personal funds of the rich.

Trickle down economics works in two parts: 1) give money to the rich; 2) they will use it to create jobs.

Now, naysayers will tell you this doesn’t work. But they are wrong. The first part ALWAYS works. The second part never works, but that was never the goal anyway. The goal is the first part.

And even odder in that employers don’t pay based on what they can afford to pay, but on what they need to pay to get the labor that they need to produce the goods or services that are in demand from their customers.

And even if it did work, it’s bullshit - In the first step, the rich business owners are given the money. In the second part, the workers have to work for it. Creating a profit for the business owner while doing so.

My expectation would be that the would spend more in things like angel investments. Raising salaries makes no sense. Averaging a small increase in the CEOs salary out over a few hundred or thousand workers is going to be negligible. Giving everyone a $50 wage increase per 365 days isn’t worth the effort of enacting. But if you pool your salary increase with a dozen other CEOs and invest in a startup of 5-20 workers, and it’s a shot at creating new technologies that will improve the world and creating 5-20 jobs per dozen CEOs in the nation that otherwise wouldn’t have existed.

Whether that’s how it pans out or not, I don’t know. You would need a study on it, and Google Scholar is saying that no one has studied the topic. But I do know that every CEO and former CEO in the land is being bombarded daily with requests for investments into small startups. It would be hard for them to not spend any extra on these ventures.

And on the politician’s side of things, there’s no real benefit to taxing the wealthy. 80% of taxable income is held by the middle classes. That’s your bread and butter. The wealthy are more useful for helping with your campaigns and shmoozing.

The ‘logic’ of supply side tax cuts is the fact that republicans view the rich as societies winners and everyone else as societies losers, and they don’t like the winners having to pay taxes to subsidize the losers.

Also rich people spend a lot of money to elect republicans, and they offer them good jobs after they leave public service. So there is bribery and a revolving door.

All that crap about ‘creating middle class jobs’ is just a smokescreen to sell it to the rubes. That is all it ever has been. The GOP don’t give a damn about that, it is just a way to trick them into voting against their own economic interests.

I suppose the logic is that if you tax rich people less, they will have more money to invest - and the theory being that they invest in things that will make them richer, which supposedly would be things that are good for the overall economy (since if a company is profitable, that must mean they are providing value to society, since people are willing to pay them lots for whatever good or service they provide). And why reduce taxes to the rich, rather than the poor? Possibly because some things that add a lot of value require a lot of capital investment, which would need to be funded by the rich (or a very organized group of less-rich people).

The idea would be that rich people are capable of making the big investments into starting companies, building or leasing buildings, buying equipment, etc., or at least loaning the money to people who want to do this, while distributing money to poorer people would not enable this.

Now, there are several premises that could be questioned:
-Do rich people actually invest their money, when their taxes are cut?
-Do they invest in profitable companies?
-If more capital is available to be spent, does that actually enable some higher value activities to occur that otherwise wouldn’t occur?
-Who is actually realizing the value from a profitable company? Are they actually good for society as a whole?

I can’t say how sound these premises are, but I think the logic is at least valid.

The logic is valid, but the starting premises are garbage. GIGO. The answer to all four of your premises is a resounding NO. That has been demonstrated time and time again by 80 years worth of data. If you want to grow the economy and ensure a robust labor market, you tax the fuck out of the rich and corporations. Serious tax rates - Eisenhower tax rates.

Sage Rat - Wonderful ideas. Marijuana must be legal in your state. It would be nice if rich folk had souls, but they don’t, so expecting a large increase in angel investments is a non-starter. Unless, of course, the alternative was to lose all that money in taxes. Without the stick, they will never even think to help others through investment. It isn’t in human nature.

One doesn’t become rich by putting their money in a glass jar and burying it in the backyard. Nor do they become so by blowing it all in Vegas.

I grant that I don’t have numbers available, but I don’t know what else they would spend it on other than turning X money into X+Y money. Anything else would be not acting like a rich person.

It will depend on the risk-averseness of the person in question. Some will, others will invest in small startups that are more likely to fail than to take off or middle-sized business looking to expand.

Depends on what the government would do with the money instead.

There’s a decent argument to make that while the extra small percentage of revenue that the government would make by taxing the rich, they might actually pay some small percentile to decreasing the nation’s debt load. Given that an expanding deficit means an expanding interest rate, eventually taxes will have to grow even more, dragging on the economy more than its worth by investing in business.

But on the counter, there are good arguments to make that the government would simply add it into their general spending bucket and use it for things like buying more munitions for soldiers to blow up in practice. And there’s also the argument that a growing economy, brought forth by the sorts of technological advances brought forth by angel investors are the only thing we can hope for to try and keep from drowning under government debt.

Yes. At minimum, corporations are the only profitable anything in the economy. You can’t put everyone in the country on government welfare and expect that to pay for itself. The welfare, health care, infrastructure building, etc. that we have is all supported by taking a cut off of the profits of corporations.

And, more than that, corporations work principally (from a philosophical standpoint) to improve the production capabilities of humankind so that we can spend more time developing more things that improve our production capabilities. And that’s very important since production capabilities mean things like the ability to produce medications that rid the world of smallpox, develop paints that aren’t full of lead, etc. As we free our selves up from making the products of the past, we are able to make the products of the future, and those products improve our quality of life.

Let’s say that human nature is to be a good and decent person. In this case, people will invest in projects that help humanity, because it helps humanity.

Or, let’s say that human nature is to be a greedy and selfish person. In this case, let’s apply a social order where you are rewarded for investing in projects that help humanity, because you’ll be rewarded for it personally, should that venture succeed.

The nice thing with Capitalism is that whether humanity is all A or all B, or some mix, you still end up with this graph:

https://www.quora.com/Humans-have-historically-lived-for-an-average-of-around-30-years-What-would-humans-look-like-if-they-had-a-greater-life-expectancy

Guess where Adam Smith was on the chart at the top.

Sage Rat, we can speculate on why lower tax rates on the rich should or might promote the economy all we want. The actual evidence indicates that lowering taxes on the rich does nothing to provide jobs or improve wages. We tried it under Reagan, and Bush I lost an election because the taxes had to be adjusted upwards to compensate for the Reagan era cuts to avoid an even worse recession than we got. We tried it under Bush II, and we got the worst recession since the Great Depression.

Investing, if the investment stays in the U.S., sounds like an nice idea. However, if one wants to improve the economy, one needs to cut taxes for the many people who actually spend the money on large quantities of commodities, not those few who might buy an extra car or airplane or send investment money overseas (or, in a parody that cuts too close to reality), simply hoard their wealth.

Should tax rates on the rich be 90%? No.
(Although the U.S. did pretty well in the 1950s with a rate that appeared similar.)
However, every time we have dropped rates on the wealthy, the country has suffered. We are already getting projections of immense deficits with attendant interest rates streaking into the stratosphere with the current nonsense. If housing and automobiles and related purchases become unaffordable, the economy is going to stall as it always has in these conditions and we will either have to tax those poor rich people, again, or watch the nation fall into an unrecoverable spin.

It is nice to speculate on what should happen when we drop tax rates on the wealthy. However, we already have physical and fiscal evidence about what really happens in those conditions.

And Reagan himself had to raise taxes, what…? Eleven times? after he cut taxes. Reagan was intelligent enough and (like him or hate him) loved the country enough to see that he’d made an error and to work to correct it.

Only because the rich have been able to influence the law into defining the sort of income they have as non-taxable.

Did Sage Rat think that would sneak by unnoticed?

By God, sir, these are job creators! Of course they could use the money to line their pool with platinum bricks, but they choose to invest in America! The puny return on investment is more than platinum pool bricks, sure, but that means nothing to these patriots!

Tax cuts on the rich are NOT about economics. They’re about morality.

In America there are freeloaders who wouldn’t even be able to afford their cheap wine and pirated videos if it weren’t for the liberal boondoggle called ‘minimum wage.’ Rich Job Creators, OTOH, are superior beings who earn every penny they make and should be appreciated and admired. The final straw was when the socialists wanted to steal from the rich at gunpoint to pay for Joe Sixpack’s hernia operation.

The rich in America are oppressed. A man in America who earns $40,000,000 through his own sweat has about $10,000,000 stolen from him at gunpoint by the Feds. A freeloader making $40,000 doesn’t even pay $10,000 unless you do accounting tricks like counting his SocSec taxes. Which is a bigger number? $10,000,000 or $10,000? Liberals don’t even know the answer to this. The burden on America’s successful people is so severe, it’s a surprise they don’t all flee the country and go somewhere they’re more appreciated. I think it’s only their great patriotism that is holding them back.

Did the Roman Empire steal from the rich the way America does, to coddle their inferior plebes? No. The Russian Empire is re-emerging under Putin’s Make Russia Great Again policies. Do they punish their patriotic billionaires? No.

Finally, America has come to its senses and taxes millionaires and billionaires at a lower percentage rate than it taxes its freeloaders. But that’s not enough. When David Koch writes a check to the IRS for $100 million, do you think it comforts him to know that Frankie Freeloader’s check for $4000 is more than Koch’s in percentage terms?

America needs a truly flat tax. If Frankie Freeloader pays just $4000, that’s all David Koch should have to pay.

Oh no, I do agree that the government should mostly stay debt free, and if that means raising taxes then they should raise taxes. But that has very little to do with the real tax rate of the wealthy since, as said, it’s a very small percentile of the revenue pie. And it may be better for the economy and welfare of the people to keep from pulling money from that particular spigot.

Republican presidents have done more to trash the economy than by lowering taxes on the wealthy, they’ve lowered taxes in general, ran up massive debts, engaged in destabilizing military jaunts, and failed to steward the economy using much logic. In Bush II’s case, he also happened to get horribly unlucky, being struck with Madoff, the dot com collapse, GM imploding, Katrina, and the housing market collapse. (Though he basically did bupkis for any of those and really just threw more problems on the heap.)

Overall it’s a far more complex discussion than just “tax the wealthy” or “not tax the wealthy”.

Like, on average, if you give a 40 year old who earns minimum wage a bonus $1000, well he’s going to blow it all within a couple days. He’s not going to spend it on retirement or invest it back into the economy, he’ll just take it to a casino and give it to someone like Donald Trump. Giving that man a wage boost looks good on a chart of income for the lowest wage class, but that’s an assumption that that chart going up is a good thing. What good did we actually accomplish? That money could have gone to Walmart, who would use it to reduce the cost of making toasters and so the distance that the minimum wage goes is a lot further than it was a few weeks ago.

Where did Walmart put that money? Maybe they upgraded a production factory in Brazil, automating the process more and laying off half of their manufacturing crew. But, now that’s a larger market for automation in Brazil, so the companies that build automation tools are hiring. The lost Brazilian workers go there to work.

By “being a dick” and not changed the income of Americans at all, we’ve improved the living standards of Americans. We did it by sending the money to another country and displaced its workers. The world became a better place and there’s no good metric that you can point at to demonstrate the fact. All you can do is point to the living conditions of 1800 and today and shrug.

There are several good reasons to tax the wealthy. High income disparity causes increased violence and social unrest; High income disparity leads to corporate interference in government, corrupting it away from the benefit of the people; You may need that extra 5% on government revenue in order to not overload the debt burden of our children.

Let’s consider also a case where I tax massively, in order to build a giant wall across the Mexican border. The construction and the subsequent patrolling of the wall both keep a large number of people employed. Good? It’s likely that the wall serves no actual purpose beyond an artificial means of creating employment.

The government could, instead, use that same money to invest in upgrading the power infrastructure of the nation. They harden it against foreign attack so that the market can run without disruption or fear, and they increase the efficiency so that everyone in the country has an electric bill of half the cost. Again, we’ve created a bunch of jobs to build the system upgrade, but after that the total number of people employed will probably go back down to what it was before since the power system pre-existed (where the wall didn’t). But we’ll have significantly have improved the flywheel of the whole economy since the power grid affects every home, every business, and all of our manufacturing and shipping.

If the options for where 10% of Jeff Bezos’ salary is to go are:

  1. A border wall.
  2. Investments into speculative startups that will mostly fail.
  3. A strong and meaningful upgrade to the power grid.

Probably #3 is the best course for the money. It’s not going to have a long term effect on employment numbers, but it’s a slam dunk for the whole economy and the sort of thing that has to be done by a government and can’t really be replicated by private investments.

But if the options for those tax dollars is only #1 or #2, than the government should mind it’s own business and leave the money to Bezos. Clearly he’s going to spend it on things that are not useful to the world than they are.

Money if fungible but undertakings are not. Saying that the money should go to government or the wealthy or to raising wages or decreasing income inequality or keeping production local or keeping it foreign all ignores the reality that life is a compromise and the details matter. There are good times to do everything and bad times to do everything. There’s no one magical solution that covers for every potentiality and requires no consideration of the merits.

There is a time and place for everything and that includes letting the wealthy keep their money and also taking the money from them. It depends on the reality of the moment and what all other options abound.

There is no one metric that you can say is the only one that matters above all others, and that includes the ones that are almost impossible to keep track of. Technological advancement sometimes needs to take a back seat to getting people employed, whether it’s ok building bridges to nowhere or not.

(I’ll assume ‘percentile’ was a typo for ‘percentage.’) “Very small percentage” is an odd characterization when you consider that, based on IRS figures, the top 1% of households ($450k+) earn 22% of the total pie.

The suggestion that we shouldn’t emphasize taxing the rich because a few hundred billion is just chump change compared with what we need to finance our cruise missiles and VA benefits is infuriating. By the same logic why not stop taxing blue-eyed people like me? Our share of America’s income is even less than the 22% of the rich.
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