You are not out $1M in both cases. In example #1 you now have 1M worth of widgets. In example #2 you are out $1M and have nothing to show for it. This is not concern for you…you chose to part with your money and I wisely used it to make a purchase.
Also, I made no mention of the government creating wealth by facilitation. I said that the government can facilitate the creation of wealth by making a purchase ( I realize those sound identical) just as any individual does when he/she makes a purchase. As I stated, the maker of the widgets has created wealth and others are willing to trade something of value for it. If you make a direct purchase of the widgets you are not CREATING wealth…you are trading some of your property for something else. So, regardless of who does the purchasing the purchaser has not created anything.
And, again, I am not against taxes, am not a libertarian, and am not making any moral arguments. My only point is that government must take or borrow from someone in order to purchase anything…it is not creating wealth, it is redistributing the wealth.
Please. Did you miss the part where people paid the tax through their personal income taxes? Many corporations in the US are family or one-person owned (or some other small shop). For instance, I own part of a S-corp and a part of a LLC. The S-corp made 0 dollars (actually it made negative money as we still owe money, but I digress). The LLC I own broke even, or perhaps a de minimis profit, but that went straight to the LLC fee for 2009. We owners employ 20 people (not including oursevles) and have over $500k in sales, yet we paid no federal tax on income. The company I work for paid over $500k in taxes for one quarter for one small division that is overworked and underfunded. Likewise, we can apply net operating losses to our overall tax liability.
The quoted study, and other like it (e.g. the Reuters report) make absolutely no distinction or offer any worthwhile analysis as to how these claims were made or verified. If the head line was “Fortune 100 paid no taxes,” then maybe that might of a bit more probative value. For now, I’ll just call that report “sensationalism.”
I saw that as well. It seems they were trying to gloss over that point in the article. I just wonder, if corporations pay no tax, why do they bother to try to get the rates lowered? And why does the market respond to corporate tax rates?
People love to imagine they pay enormous amounts of taxes. It makes them seem rich, it gives them a lovely feeling of righteous victimhood, it underwrites how much they whine about the government, and of course, it makes their constant demands for tax cuts seem marginally less like simple dumb greed.
You are suggesting that 68 percent of U.S. corporations are small private firms exempt from taxes or even eligible for a rebate because they operate at a loss and only 32 percent of U.S. corporations are publicly traded and making profits? You know there are schemes to make it appear that a company operated at a loss, and the bush tax cuts have taken income tax pretty close to a flat tax.
I was off doing other things, and thought of another “perhaps” that I should have included…and that I think is what you’re trying to express. Namely, that the government is not what I’ll call a wealth originator. By this view, in both cases (1) and (2), I am the wealth originator of $1M. In cases (2) and (3), I have given that $1M to another entity, neither of whom are originators.
There are two responses that come to mind. First, there’s an insoluble regress of origination (a “first mover” argument that I’m going to ignore as pedantic quibbling). More important is the second; your original statement was:
The first response by Richard Parker was: “You are forgetting that wealth isn’t zero-sum.” In other words, wealth creation is the product of an exchange in which a value (or utility) differential exists. It is exactly because of utility differentials and exchange that economic activity is a non-zero-sum situation and wealth can be created.
If I steal a $100 bill from you and burn it, I’ve destroyed $100 in wealth. If we trade $100 bills, wealth has been neither created nor destroyed. If I build wudgets, sell them for $100, then buy $100 in widgets, it’s likely that wealth was created.
It seems to me that you make a mistake in only considering the first 1/2 of the transaction (my giving of $1M). That is, if no exchange took place at all, then sure – no wealth creation; Chronos has widgets that he wishes were assets, but are actually worthless (until an entity values them enough to make an exchange). Once an exchange is made, then we have a situation where wealth has been created (assuming the price accurately reflects value, generally taken to be market price).
With all that said, I think I now understand your claim. And I disagree with it, as I think you’re making errors on two fronts. First, a semantic error that ignores the fundamental meaning of “government stimulus” as simply an increaser of economic activity (rather than a wealth originator); second, a categorical error that ignores 1/2 of the entities necessary for wealth creation (regardless of whether said entity is an originator or not).
I suspect you feel similarly about my position. And that’s fine…YMMV.
You are correct. Corporations do not pay taxes, people do. Businesses pass on the tax burden to customers, shareholders and reduced wages for employees.
Digital Stimulus:
Let me start by saying I need to learn how to quote parts of a post to avoid reposting the entire response (believe me…I’m not doing it just to annoy).
I think we have gotten so far off the original point. Correct me if I am wrong but I think you are saying that government stimulus is only an increaser of economic activity. I agree with this. But, the government is spending money it does not have. And this has no net effect on the economy because an equal number of dollars will not be spent by the private sector. I’ll have to find the quote but one economist compared the stimulus to trying to increase the water level of a pool by taking water from the deep end and pouring it into the shallow end. Since government does not create wealth it cannot inject wealth into the economy…only move the pieces around as it sees fit. Some will benefit and others will suffer. Of course we will only read about all the construction workers that were hired as a result of this stimulus.
Also, I am not ignoring the 1st half of the economic equation. As you pointed out earlier individuals are much more efficient at spending money than government. We can do a better job than the government simply by having our hands on more of our money. A simple stimulus check will go into savings and paying down debt but a cut in taxes (or making the current tax cuts permanent) will result in increased spending by the public.
mazinger_z, in the interest of honesty, 68 percent of corporations didn’t pay taxes in at least one of the years between 1998 and 2005 not every year, so I agree the headline is misleading.
No problem. I’m sure there’s a how-to somewhere (maybe in the ATMB forum?), but I simply use the “Quote” button, then in the edit box, surround whatever you like with [ quote] and [ /quote] (removing the single space between the first bracket and the following character). Don’t forget to use the preview button.
Great.
Not only is the “no net effect” an assumption on your part, but it is absolutely incorrect in the case where no money would otherwise be spent.
No. First of all, there is no way to increase the water level in that scenario, period, so there is no possibility of analogical wealth creation. That makes the analogy a matter of begging the question; makes for a foolproof, though fallacious, argument. Secondly, it would be closer if one were to compare taking water from one end of the pool and putting it in the other (government spending) vs. taking water from one end of the pool and dumping it into an entirely different container. Say, a mattress, to purposely mix metaphors.
And the things that I’ve snipped comprise a different argument from the one you began. Each addresses relative benefits of spending patterns, not that “government cannot create wealth”.
The fact that government does not create wealth is at the heart of the argument (IMHO). The government is borrowing money and putting it in specific areas of the economy. This bill will have to be paid by us or future generations. So, while there may be an effect on a number of sectors immediately, other sectors will suffer from our overall loss of buying power (since government spending must be offset by less private sector spending over time) either immediately or in the future. And money will be spent…whether it is paying off debt or buying cars does not matter over the long term. The result is stimuation of some at the expense of others. As I’ve said, those that are negatively affected are invisible while the stimulated sectors make the headlines. I think this effect is short term and artificial. It could very well end up lengthening and deepening this recession (the Great Depression argument).
A larger problem is the amount of garbage in the stimulus package. Out of close to 1 trillion dollars the CBO estimates only 26 billion spent this year. This bill is nothing more than pork being passed off as stimulus. Like Rahm Emmanuel said: “a crisis is a terrible thing to waste”. Why fight for all these spending bills in the future when you can package the whole thing and call it stimulus. The economy will inevitably recover (and if it doesn’t recover we won’t really need to argue about the cause anymore) and everyone will assume the “stimulus” was responsible.
The fact that government does not create wealth is at the heart of the argument (IMHO). The government is borrowing money and putting it in specific areas of the economy. This bill will have to be paid by us or future generations. So, while there may be an effect on a number of sectors immediately, other sectors will suffer from our overall loss of buying power (since government spending must be offset by less private sector spending over time) either immediately or in the future. And money will be spent…whether it is paying off debt or buying cars does not matter over the long term. The result is stimuation of some at the expense of others. As I’ve said, those that are negatively affected are invisible while the stimulated sectors make the headlines. I think this effect is short term and artificial. It could very well end up lengthening and deepening this recession (the Great Depression argument).
A larger problem is the amount of garbage in the stimulus package. Out of close to 1 trillion dollars the CBO estimates only 26 billion spent this year. This bill is nothing more than pork being passed off as stimulus. Like Rahm Emmanuel said: “a crisis is a terrible thing to waste”. Why fight for all these spending bills in the future when you can package the whole thing and call it stimulus. The economy will inevitably recover (and if it doesn’t recover we won’t really need to argue about the cause anymore) and everyone will assume the “stimulus” was responsible.
If government spending has that effect, why doesn’t private spending in one sector have to be offset by less spending in another sector? What is so magical about the government?
In fact, most economists agree that spending (both by the government and by the private sector) can have multiplicative effect. $100 spent on goods and services means that the suppliers of those goods and services go on to spend part of the $100 on other goods and services, and so on. Part of what has gone wrong in the economy at present is that a lot of people are spending less (either because they have less, or because they are worried about the future), and this has a similar (but negative) multiplicative effect on the economy.
Why does the Department of Homeland Security headquarters cost $448 million to build, but $248 million to furnish? Are they including plumbing and electricity in ‘furnishing’ or are these Italian leather swivel chairs with cherry and marble desk tops?
Private spending in one sector is offset by less spending in other sectors on an individual level (and maybe as a whole). But WE are the ones doing the spending and can get what we want with our money. The effect is not artificial and will not require correction when the government spending stops. With a government stimulus plan the government decides that we are not spending enough of our own money, confiscates it by taxation or inflation, and decides to spend our money for us. So, if we have less money as individuals now, do we need the government spending what we DO have or what we would have had in the future?
I really think it’s time to let the government subsidies for Amtrak go. Yes, the company upkeeps our rail system which is worth having for strategic purposes, but we could save a lot of money just doing it ourselves and just put a bullet to the head of a failing business.
While it loses money, I have yet to see any analysis of the value of increased trade and reduced air pollution, road wear, and congestion. I wouldn’t be surprised if it’s still a net lost, but it would be nice to see some numbers.
And these guys lecture us about spending! The same guys who sent planeloads of hundred dollar bills… I mean big damn planes, cargo planes that could comfortably transport a live brontosaurus!..billions and billions and billions…And the punch line: don’t know where it went. Somewhere in Iraq. North, south, west or east of Baghdad. Approximately.
These same guys want to give us stern bromides about extravagance.
Its like a guy come staggering out of a Bankok ho-house after a six day binge of tequila, bongwater and crack cocaine, washes his mouth out with kerosene and starts in giving you the Temperance Lecture.
“Hypocrisy” isn’t the word. We don’t have a word for when its that huge.