Which economy? Our domestic economy, or the global economy? If they are investing in the stock market, it is certainly the global economy, and there is no reason to assume that those investments will create jobs here in America.
Rich people don’t buy goods and services here in the US? They don’t buy houses and cars? Food? Luxury goods? They never invest in their own companies? In other companies in the US? They don’t pay personal income taxes?
The money just pours in from the big businesses (who of course never invest any of that money back into their businesses or do any sort of business development, product development, research or any of that jazz) and the money then mysteriously goes into a black hole of no return out side the country, bring zero benefit back to the good ole USA?
Take a look sometime at the percentages paid by the various categories for personal income tax…then think about the whole ‘the rich don’t pay taxes’ meme.
-XT
No doubt they do all of these, to some extent. But they invest far more of their money in the stock market, either directly or indirectly through mutual funds. The truly wealthy (the top 2%) have more money that they could ever spend on houses, cars and luxury goods. If it were not invested, they would drown in it. And those investments are overwhelmingly in multi-national corporations, not little US entrepreneurs; that is high risk investing, best left to the venture capitalist.
Of course they are heavily invested…that’s the point. Even if they are fully invested in offshore companies or multi-national corporations it’s not like that money goes into a black hole never to be seen in the US again. Simply investing in the stock market is an investment in business you know?
-XT
But it does not create significant jobs in the US. So if we agree on that, we can move on.
What are you talking about? It’s the MAIN way jobs are created in the U.S. Capital flows into business, business spends capital to expand and improve. Are you suggesting that most rich people don’t have American stocks in their portfolios?
And even if they buy foreign stocks with American money, where do you think that American money goes? Does it vaporize? No. The person who sold the stock now has American money. What can he do with it? He can buy American goods, or American services, or invest it in American companies himself, or he can trade the money away on the international currency markets to someone else who values it more and WILL buy American goods/services with it.
The last time everyone was up in arms about this, it was the Japanese who were ‘taking over’ and ‘buying up America’. How well did that work for them? They had a huge trade surplus with the U.S., which led to them holding a lot of American dollars. So they went on a buying spree, buying up American real-estate and companies. At premium prices. Then they had their own real-estate meltdown, the economy tumbled, and they wound up selling a lot of that right back to Americans at fire-sale prices. Americans laughed all the way to the bank.
Baloney. Business does not create jobs just because it has more capital. Business creates jobs when there is more demand. Why would a business expand if it already has excess capacity? Certainly not just because it got a tax cut, or new investments. This is the Bie Lie perpetuated by the right.
Rich people buy goods and service, until you get to certain level where they no longer do at that great a rate . A very wealthy person will not spend as great a portion of a windfall as a poor person. They have so much that it does not matter all that much. Poor will waste it paying heating bills and keeping the lights on.
Maybe somebody already said this, but it should be pointed out that corporate tax amounts to double taxation, which isn’t fair.
Let’s take a simple example. Let’s just say there is a flat tax of 50% for all income. I choose 50% because it’s such an easy number to work with. The example works with any numbers or with a graduated tax system. OK, let’s say you set up a business and you earn a profit of $100,000 one year (again, a simple number to work with). Let’s say you make this a corporation and pay yourself no salary but you get all the dividends. So the company makes $100,000 and pays $50,000 in taxes. So you get $50,000 in dividends and pay $25,000 in taxes and keep $25,000.
But if you paid yourself $100,000 in salary you’d get $100,000 and pay $50,000 in tax and keep $50,000. The company would make no money, hence no dividends. If I’m missing something let me know.
Getting back to the OP, first of all I’d ask everyone to stop worrying. We haven’t been in a recession since 1991 even with the Internet stock crash and 9/11 happening back to back. And we’re not in a recession now, at least not yet.
Next, I’d recommend cutting investment taxes: capital gains and taxes on dividends, and cutting government spending by about 10% a year, since those seem to be the proven methods.
Corporate tax rates aren’t 50%, and neither are individual tax rates. Try your example with real world rates (like 34% corporate and 25-28% individual), and it falls apart. You chose 50% because it conveniently made some point that is not entirely clear.
Now come back to reality. If your corporation earns $100,000 and you take no salary, your corporation pays $34,000 in taxes, and you get a $66,000 dividend, paying $16,500 in tax, netting $49,500. And if your corporation pays you a $100,000 in salary, it pays no tax, and you pay $28,000 on a $100,000 dividend, netting $68,000.
So what? That still doesn’t prove double taxation, it proves there are different rates for corporations and individuals. Corporations are persons under the law. If they have an income, they have to pay taxes. Now, if you want to give up the legal protections that corporate person-hood conveys, maybe you would have an argument. But you can’t have it both ways, arguing double taxation, but retaining corporate person-hood.
I have no idea where you get this idea. IOW no…I disagree. Capital creates new jobs by allowing companies to expand. It allows them to update and automate. Without capital companies can’t do either.
Business create jobs and expand when they have capital to do so. Otherwise they don’t. I’m unsure how you think businesses work.
Sometimes…and if they have the capital to do so. Sometimes businesses decide to go after new business by creating new products or new markets…or exploiting existing markets by attempting to capture someone else’s share of the pie.
To penetrate new markets…to capture more market share…to expand their current capabilities. There are any number of reasons. And they all depend on capital. As an example think about Microsoft. Microsoft used to develop mostly office automation software. Why should they expand? Apple already controlled a large percentage of the OS market…and what they didn’t IBM’s DOS controlled. Why bother building a GUI OS to compete with Apple? Why compete against Novell on the server OS side of things when Novell had a virtual monopoly? Why expand their business when they had ‘excess capacity’?
Well…because they could make butt loads of money by capturing those markets, thats why. And what did it take for them to do it? Were people lined up to buy MS Windows vaporware before it was out? I think not. They did it by capital investment in creating a new product line and then smashing Apple AND Novell at their own games.
See?
-XT
Thank you, your example proves my point with real world examples. If somehow the net came out to be the same then I’d be wrong. But as your example shows - and I appreciate your taking the time to do the calculations - there is discrimination against corporate income.
BTW, I re-read my post a couple of times and I’m sure I didn’t say anything about legal protections or corporate personhood. That must have been someone else. I was just talking about tax rates. I honestly have no opinion about those other issues that’s worth expressing. And since you’re willing to concede that by giving up the legal protections that I may have an argument, then maybe we really aren’t disagreeing at all.
So what? We also discriminate between taxpayers with high incomes and low incomes. You say that as if it is a bad thing. I still see no support for double taxation.
They are lending a lot of it to the treasury by buying T-bonds.
A LOT of that wealth is going offshore.
I look at tax statistics more than most (IAATL) and the wealthy pay the overwhelming share of income taxes (much of this contrast evaporates when you include payroll taxes). The point is that the capital gains and qualified dividend rate has reduced the effective tax rate for the ultra-wealthy below the effective tax rate of the average household.
Warren Buffett has said that his effective tax rate is lower than his secretary’s and he has an open offer to pay $1,000,000 to any fortune 500 CEo who can show that their effective tax rate is higher than their secretary’s, the money remains uncollected.
Would it surprise you to learnt hat the ultra welathy buy a LOT of treasuries?
Buying stock on the stock market provides no additional capital to the company (except to the extent it improves that company’s ability to raise money in the capital market). You have to buy IPOs and secondary offerings and stuff like that to get money into the hands of the comapny’s otherwise it is just shifting ownership between investors.
cite please
Why is the taxation of dividend income unfair? Are you saying that corporations should get a deduction for paying dividends?
Would it make it more palatable if I told you that your example largely doesn’t apply to 99% of Americans who earn their dividend income in tax favored accounts like 401Ks and IRAs?