The logic of tax cuts on the rich.

Politics & Elections
61

You don’t, as the government, give new tax deductions. You simply raise taxes so that people take advantage of the tax deductions that are already there. My point is, if you raise the marginal rate, then people will be more encouraged to put their money into investments where tax can be abated or deferred. They will be paying more in tax overall, as well as using more of the money either staying in the company, or investing in new growing businesses.

Yes, I do. Partly due to encouraging them to invest more in growing businesses, rather than consume or save.

Like he said, “all other things being equal”. The idea is that when the government borrows, it is actually creating money out of thin air, and that money is then going into the economy. Yes, that will, in most cases, stimulate the economy. When you have a situation where the bulk of the deficit spending goes to wealthy people who will use the money for overseas investments more than those at home, then all things are not equal.

I will add to all of this two more points as to why tax increases on the wealthy are good for a healthy economy.

the first is, like you said, interest rates affect the economy. Lower ones tend to stimulate, and higher tends to slow. Interest rates are tied to the treasury rate, which is tied to our government’s ability to service its debt, which is tied to the deficit and debt. Having more debt will increase interest rates across the board, and slow the economy. Giving tax cuts to the wealthy, where they will use very little of that money to grow our economy, means that the deficits goes up, interest goes up, and the economy slows.

The second is is that there are many cases where tax cuts are stimulative. And that is something that would be useful if we are to find ourselves in a recession. If tax rates are already really low, then there is nothing to cut to stimulate the economy. When he economy is doing well, tax rates on everyone, but especially the rich, should go up so that there is room to maneuver when the economy is slowing.

You entirely miss the point of the OP. The point is to change incentives from encouraging personal consumption and offshore investments to investments in growing businesses here in the US.

Now, yes, the wealthy do have most of the money, and the least marginal need for it, and they are the greatest beneficiaries of our economic and political system, so it does seem fair for them to pay a substantial part of the costs of maintaining a society in which they can be wealthy.

They also control quite a bit of wealth. They are the ones who decide whether you get a raise or your job goes to china or is automated. If they have incentives to give you a raise, rather than the other options, then that means that you have more money to pay more taxes as well.

Your assumptions you have chosen to make about the motives of those looking to increase the taxes on the wealthy are just that, assumptions you have chosen to make.

There is no resentment of the rich here. There is a desire to be like them, and there is a desire to get them to use the wealth that they have made from society for furthering society’s interests and goals, but that is not “sticking it to them”, as you claim.

62

Your question is very unclear. I’ll assume you are speaking specifically of single-payer health-care.

The U.S. already spends enough money on health-care to pay for health-care for everyone. That money is collected in various ways: insurance premiums paid by individuals, insurance premiums paid by employers (most of these payments are in lieu of wage or salary hikes to the employees), Medicare taxes, other taxes, etc. In a proper UHC system, total spending would go down, not up.

Funds derived from premiums would now be derived from taxes. In the simplest case, an employee paying $X in health-care premiums would have his premium reduced to zero, but pay more in taxes — perhaps exactly $X more. There would be winners and losers: some would pay $X-100 in taxes, others $X+100. And yes, taxes on the rich might rise to levels not seen since the Great Depression of the 1990’s under the Marxist Clintons. Return to the catastrophic 1990’s — an era during which the Dow-Jones Industrial Average only Quadrupled — is a huge gamble, but some might want to risk it.

Does this help? Or was I supposed to ignore simple financial facts and “debate” only your obtuse diction about sour grapes?

63

To be clear, I asked about raising the tax burden on the wealthy from 30-ish percent to more like 40%, not increasing the marginal rates by that amount. By definition, raising the tax burden – or the actual amount of taxes paid – means that the wealthy would be paying more in taxes even after all deductions or credits are taken into account.

I think the premise of your answer may have been that it would be stimulative if someone earning $1m and currently paying $300k in taxes, would be soon be subject to $400k in taxes, unless they invested an additional $250k, which would earn them enough deductions to still pay $300k in taxes. (The end result being that you believe the wealthy would increase investment by $250k in order to “save” $100k in taxes.)

However, I was asking if someone earning $1m and had been paying $300k in taxes, and then taxes were raised such that he was now paying $400k even after deductions, whether that would be stimulative.

64

The way I see it, you have someone making 1 mill now, and paying 300k.

You change taxes so that now they owe 400k on their 1 mill.

They may decide to take only 900k for themselves allowing the other 100k to stay in the company or be used to new investment, reducing their tax burden to 350k.

It is increasing the tax burden on the rich that both encourages them to make investments in the economy, and raises taxes for the treasury.

Now, they could instead, decide to only take 750k for themselves, and now only have a 250k tax burden.

Just as, without changing the tax code at all, the person making 1 mill and paying 300k could decide to only take 900k, and save 50k in taxes. That would decrease what they pay in taxes, but increase the growth of the economy.

Raising the marginal rate makes the decision to grow the company a greater tax incentive.

The tax deductions for investing in a growing business are there, and shouldn’t really be changed much, as they do encourage investment. If an entrepreneur could not deduct the normal costs of doing business, and amortize/depreciate capital equipment investments, then getting people to invest in new businesses would be much more difficult.

Now, with that groundwork laid out, to finally (sorry) get around to answering your question at the end of your post, yes. If the wealthy individual makes no investment changes, and all that happens is that they are paying 400k on their 1 mill rather than 300k, that is indirectly stimulative, as lower national debt means lower interest, which means more economic growth. Also, as I mentioned before, that tax cuts are “in general” stimulative, means that we need to be able to have tax cuts when the economy needs to be stimulated. Having the 1 mill earner paying 400k instead of 300k means that, should we enter a recession, we can lower that tax burden back to 300k and stimulate the economy.

Now, as far as the 1 mill earners, I don’t know that I would jack up rates on them as much as those making 10 mil or more, and those making even more than that, I’d be jacking up rates pretty steeply, if I were completely in charge of tax code.

65

Thanks for the explanation of your views. However, I do not agree one bit that it is reasonable for people to cut their own pay when they are faced with tax increases. That makes literally no sense at all to me.

66

It doesn’t make any sense to someone like us, when the majority of your income is already spoken for. It makes more sense for someone whose vast majority of their income is discretionary.

So they buy the 21 foot yacht instead of the 26 foot yacht, or a used private jet rather than a brand new one. It’s not like they are worried about making ends meet.

67

I disagree for the same reason that marginal tax rates do not actually discourage making more money: because more money is always more money, and people will always find ways to spend money for their enjoyment (balanced of course with other interests).

What is not realistic to me at all in this very simplified scenario is why someone who, under the “old” tax plan, was taking home $700k, would then want to to take home $550k (or even $500k) because of a $100k increase in taxes. It’s bonkers. Nobody does that.

68

Let’s pretend for a moment that you are in charge of the tax code. What rates would you impose on those who make $1M a year, on those who make $10M, how many of each are there, and how much money would it raise?

Also this seems like a good question for you to address -

(Typo fixed).

Regards,
Shodan

69

I find thread topic confused.

To cut taxes on the rich (and on corporations*) one must do one of three things:

  • reduce government spending,

  • increase the public debt, or

  • raise taxes on the poor and middle class.
    Those who want to cut taxes on the rich should indicate which of the three alternatives they prefer. Obviously most right-wingers will choose “cut spending, anything but the military” — and thereby show their ignorance. Government spending has already been “cut to the bone;” interest on the debt is rapidly becoming one of the major pieces of government spending.

    • It’s important to remember that the massive tax cuts on the rich were accompanied with massive tax cuts on corporations that benefit the rich. (Through your 401k account, you own 1.1 shares of Amazon; Jeff Bezos has 79 million shares.)

The Trump-Ryan tax cut is being paid for with massive borrowings from China and Japan. If you’re a right-winger and are proud of this policy, please start another thread. AFAIK, almost every right-winger is on record as adamantly opposing mounting deficits. (And some right-wingers will say “We’d love to raise taxes but the liberals would just use that as an excuse to spend more.” Take this hypocritical whine to the Pit, please.)

So … cutting taxes on the rich becomes a synonym for raising taxes on the poor and middle class. Period.

I know many of you won’t be able to think beyond “There’s septimus using bold-face again, whine whine. Does he think we’re too stuipid to read non-bolded text?” Without answering this question directly, let me bold-face the point I just made:

Cutting taxes on the rich requires raising taxes on the poor and middle class.

I don’t offer some simple silver-bullet formula to show how to best divide the tax burden. Simple formula are the forte of right-wingers, not rational thinkers. But for most of my lifetime the rich were asked to pay a bigger share than they do now. Did America come to an end? Did the big capitalist experiment fail? That’s not my recollection.

Some billionaires suffer with 50-foot yachts even though they’d prefer 55-foot yachts. Should we ask American children to go hungry so the billionaire can have the bigger yacht? I Ask; You Decide.

70

They do it all the time. The trick is that while you are making less money, you’re also off-loading as many personal expenses as legally possible. You’re making $100k less, but your new $100k Mercedes-Benz was supplied by the business.

71

Right.

And mortgages are debts.

72

You’re right. But there is some simplification that could be done, at least here in the UK. One of the big problems here in the UK is the multitude of tax rates. I’m not talking about the basic tax rate and the higher tax rate, but things like rates for capital gains, rates for share dividends, rates for inheritance, and so on. It’s an incredibly unwieldy mess and it needs reform. What has been lost is that income, regardless of the source, is still income. Soundbite: income is income is income. So rather than apply different rates for this, that, and the other, have different tax exemptions for this, that, and the other. Then put a cap on it - so that however many exemptions you have, the total cannot pass a certain amount - and apply standard income taxes on the excess.

73

There’s no reason to assume such things aren’t generally practiced at current tax rates. Doesn’t take a tax increase for CEOs to get perks.

74

Yeah, rhetoric like the above.

Nearly everyone got a few dollars off their taxes. On the other hand, what the middle class and poor got was a pittance–and over the next ten years, their “cuts” will diminish, by law. At the end of ten years, everyone but the wealthiest will be paying higher taxes.

The “Trump” economy has been the result of the ongoing trends from the Obama years that have not yet been affected by the actions of the current Congress and President. Meanwhile the deficit has begun rising and competition for cash between the public and the government will cause interests on loans to spiral out of the reach of the middle class.

$2,500? A family must be bringing in over $200,000 a year to qualify for that much tax reduction. Families earning in the $85,000 range saw their taxes reduced by around $850. Meanwhile, the elimination of deductions for local taxes and similar deductions will cause much of their reduction to still not make it into their homes.

Corporations are, indeed, where most Americans derive their income, but corporations were not going broke at the 2017 tax rates. The tax windfall for companies has been used to buy back stock without actually increasing wages, so the top tier gets wealthier and the lower tiers do not.
I do not know where you are getting the idea that wages are trending upward. They are not. Meanwhile bonuses are simply one-time payments to encourage people to not rebel against the tax change in this November’s election.

75

So, you know how to phrase a tautology. Whoopeee.

Your claim was that the recession was “nothing to do with tax rates,” but the government’s ability or inability to respond to the Wall Street melt down had everything to do with the increasing debt burden of the country under the Bush tax cuts.

76

First of all, I didn’t bring up the analogy I only showed why it was flawed. Secondly, posts like yours are why I rarely engage in these kind of thread. Invariably someone will come in and prove that reading for comprehension is a lost art and that making up stuff and then getting offended is becoming America’s pastime.

Doc out.

77

The problem is is that it is a simplified scenario, and the real world is not.

Let me go into only a few of the myriad of ways.

First of all, yes, people will spend their money for their enjoyment, but part of that enjoyment is having the money, the wealth. Having that number next to their fiscal value. If leaving money in a company means that the value of the stock that they hold goes up, then that number with which they keep score goes up as well. It is a balance as to whether that money does more good for them in their pocket or in the company’s coffers. The tax rate involved in extracting that money is one of the factors that goes into that balance.

Keep in mind, that when someone who has millions of dollars in stock, they don’t need to actually sell that stock in order to get more money for their personal use. They can use that stock as collateral. With their qualifications, in this fiscal environment, a loan would be very low interest. So, whether they get the money directly from he ownership of the company by selling it or directing dividends, or they keep the money in the company and use a loan instead to pay for their mansion or yacht, is affected by tax code.

Now, as far as investment, there are usually much better tax incentives to invest in american companies than in foreign. If you can get a better ROI on a foreign investment than an american one, then that is what you will do. Taxes can change that balance to make domestic investments more attractive.

Many of the people that I am talking about are not people that actually “work” for a living. Most of them didn’t build the companies that they are currently influencing, they just bought up enough of a controlling interest to have direction as to where the company’s resources are directed. They see places where capital is laying around because someone else invested to put it there. They have the option of removing that capital for their own needs or reinvestment into foreign entities, or they have the option of leaving the capital in place to continue to grow the company.

When you have that much money, it is not what you can buy with it that matters, it is how much wealth you control. And if you can control more wealth by leaving it in the company, that is what you will do. If you can control more wealth by extracting it from the company, and investing it into foreign markets, then that is what you will do. Tax code can be used to change that balance.

Finally, two things that you did not mention whether you disagree upon, were the points about interest rates and freedom to perform a stimulus at an appropriate time.

The interest rates are something that you even agreed have an effect on the economy, but you also claimed that government debt is not the economy. While it is true that govt debt isn’t the economy exactly, it does have a very large impact on it. If treasury bonds go up a few points, then interest rates on consumer and business borrowing goes up. Can we agree that that slows the economy, and so tax cuts on the rich will slow the economy for that reason?

And as far as stimulative effects. If we find ourselves in another recession, where the most prudent move is to cut taxes to stimulate the economy, having extremely low taxes will impede that action. When the economy is growing at a good pace, increasing taxes on the wealthy will slow it a bit, but that’s not entirely a bad thing, as it is possible for it to grow too fast, and then gives you the freedom to cut taxes when needed. Cutting taxes while the economy is doing well doesn’t help the economy, it just encourages people to extract more wealth for their personal use.

That you would ask that means that you are not following the conversation, and that is more than an unrealistic ask, as such things are more than a bit complicated. Your party recently made a bunch of promises about how their tax cut would effect tax revenue, can you show me how accurate they were?

My argument is much less that it will increase the tax revenue from those individuals (though it would increase a bit), but rather encourage those individuals to make investments that would grow the economy. A growing economy means a growing and broadening tax base.

78

If we’re going with the “follow the money” approach, the target isn’t wealthy individuals in the hopes they’ll build a car wash or something, anyway. Hit the corporations by closing the loopholes.

79

I apologize if I misinterpreted what you wrote. What analogy are you talking abount, and why is it flawed?

80

Federal taxes are the major government revenue source and the topic under debate so let’s consider them. Anyway, the Taxe sur la valeur ajoutée in France is 20% on a wide variety of goods, so high sales taxes should not be an obstacle to humane governance.

The question you raise seems to be: Is the U.S.A.'s tax system “progressive”? But we don’t need to debate this abstractly. We can examine facts:

[ul][li]The U.S. spends more on health care than any other country but achieves much worse results for its poorest citizens than any other developed country. Is that a sign of progressive policies?[/li][li]Among 35 OECD countries ranked by child mortality, the U.S. is #32, ahead of only Chile, Turkey and Mexico. Is that a sign of progressive policies?[/li][li]The 35 OECD countries are shown ranked by the GINI coefficient of income inequality. Before taxes and transfers, the U.S. is almost tied with France. After taxes and transfers, France soars to the #12 slot while the U.S. is ahead of only (same trio as above) Chile, Turkey and Mexico. [/li][*] The Wealth GINI shows Thailand at 0.71, France at 0.73, and the U.S.A. at 0.80. Only one other country with a population above 10 million has a Wealth GINI as high as the U.S.: Zimbabwe. [/ul]Are these signs of progressive policies?