Thanks for the post. I also observed this when I lived there.
Not sure what point you’re arguing here, but I would argue that is another point in favor of the Laffer curve. In your example above, people are forgoing certain things (some leverage over their employers for certain things, and government benefits) and taking on some risk in exchange for a greater portion of their earnings, now.
They have changed their behavior based on tax rates and confiscation, which is the whole argument behind the Laffer curve.
I’m giving an example of a society where it’s pretty much viewed as normal to evade taxes. If earning 1 more cent in white puts you into a higher tax bracket, you may be “better off” by getting that extra cent as black - and many people do.
Of course, then they complain when their unemployment or retirement aren’t so big, but since I’ve always worked white you can imagine my answer to that.
Tax evasion isn’t “0 or 100%.” This partial tax evasion allows people to get better bring-home than if they work white, but it isn’t as glaringly evident as not declaring income at all. It’s a way to work in a X% tax system while paying a smaller % that they deem more acceptable. The way brickbacon talks, it sounds as if (s)he is thinking in black and white terms, either you get paid in white or you don’t get paid at all. There’s other options, including grey and trades.
But I would argue that grey and trades are also done because of tradeoffs that people make with regards to risk and reward. They are changing their behavior to avoid taxes. If taxes were lower, and more reasonable, they would not.
Denmark and Norway get that whole social cohesion and high education levels as a result of their high spending on infrastructure.
The EU isn’t a big country, it’s a union of nearly twenty, some at different stages of economic development to others, all with different languages, etc.
For much the same reason that we try to calm down manics & cheer up depressives–& give mood levelers to the bipolar.
The objective is to remove the abuses & temptations of gross inequality-- the kind of orders-of-magnitude wealth disparity that ends up harming competition.
Do I? I don’t mean to give that impression. But I do think hostile takeovers, buyouts, & stock speculation are appropriation, not productive investment. Or do you suppose that when you buy stock the company owned gets a cut?
More to the point, I believe that government spending can be planned investment as you describe, in the welfare of the country as a whole. Are you someone who thinks that’s just zero-sum reshuffling?
Do you actually suppose that they were built by the previous era’s captains of finance? The tech companies became rich because they supplied goods & services. They didn’t supply goods & services because they were rich; why would the already filthy rich need to provide any innovation?
I don’t think you understand the role that hostile takeovers and buyouts play. To state that they do not contribute to productivity means you don’t understand the parts of a modern economy.
Hostile takeovers may be predatory, but they serve the same purpose as predators do in the wild - they cull the herd of the sick and the weak. Companies, just like animals, often grow old and die. They lose their vision, they use up their resources, they get weighed down by years of bureaucratic sclerosis and bad investments. How do these companies end? They can either end by muddling along until they go into Chapter 7 and get broken up for their assets - while damaging the companies and creditors that were connected to them. What you’d rather have happen is for economic scavengers to peruse the carcass and decide if there is anything valuable left, and if there is to take over and make the hard cuts and changes that old management can’t make - because it were responsible for them.
As for buyouts, these are most definitely productive in the aggregate. Companies often have ‘holes’ in an otherwise solid business plan. They have a great set of products, but are missing key ingredients. So they buy companies which possess them, on terms mutually agreed to by both sides. Therefore, both companies believe that they are gaining something by merging. And if that particular melding of two companies into one results in added quality or efficiencies of production, then everyone wins, including the economy as a whole.
As for stock speculation, it is a pretty important part of the price mechanism. It’s also a great predictive tool. It helps maintain liquidity in stocks during recessions, helping to keep the economy moving. Think about how unstable oil prices would be without a futures market. When futures prices go up, it affects consumption and investment in production now. It gives us a lead time. When they go down, they signal that companies should prepare to deal with the upcoming price change. This greatly improves the efficiency with which we deal with resources, for example.
I just think it’s mind-bogglingly naive to believe that 1/6 of the economy can be effectively managed by the collection of stooges and morons that currently inhabit the halls of the Congress. You believe in the concept of government planning, so you want to believe that the current planners are sophisticated thinkers creating smart, innovative policy.
Let me ask you: Would you have an example of just such a policy passed by the U.S. government in oh, twenty years? One that’s not a patchwork of compromises and payoffs to special interests? Or perhaps we could set the bar lower - a major piece of legislation this August body has even read?
You believe in the government as an ideal. I look at it for what it is right now. You have a government that is running your country into the ground. Both parties. They are so in bed with special interests that some laws are written by lobbyists and passed unread.
Have you ever been involved in project management? Have you ever had to plan a project that is going to take multiple years? It’s very difficult. It takes a lot of time.
This government wants to overhaul health care, and is pressuring Congress to pass a bill before they’ve read it, with barely a month of deliberation - none of which is spent actually addressing the merits of the bill, but in stumping for or against it.
Just how likely do you think it will be that whatever is cooked up is going to be some model of efficiency? Would you bet Grandma’s life on it?
Can you name a billionaire who hasn’t continued spending his money on causes or promoting innovation?
You might want to re-think your position on the motivations of the rich if you ever get to visit Carnegie Hall.
You might want to rethink your position on the innovation provided by the rich after learning about the activities of Jeff Bezos, Paul Allen, Richard Branson, Warren Buffet, Dennie Sanford, or Bill Gates.
Donations to charity or the arts or sciences average in the tens of billions of dollars per year from just the top 20 or so richest people.
The rich are also important to innovation because they are the early adopters. They stimulate the best medical research, because they’ll pay for the results. They buy the best cars and the highest technology, and it trickles down to everyone else.
In a socialist system, who are the early adopters? Who are the people for whom $30,000 computers and carbon fiber yachts can be built? How is technology proven out at the bleeding edge? Sure, you can have government science programs, but you won’t have anything like the incredible creative energy that competition brings.
There is so much gobbledy-gook and nonsense in the above paragraph, one scarcely knows where to begin.
How does an order-of-magnitude wealth disparity harm competition? Take a look at the Top 30 companies in the United States, by market capitalization. Or just look at the Dow Jones 30. A large % of those companies didn’t even exist when you were born. These are multi-billion dollar companies, employing tens of thousands of people.
The titans of yesteryear were named GM, Bethlehem Steel, and Sears Roebuck & Co. They had ‘orders of magnitude’ more wealth than their competition. What’s happened to them?
The titans of today are named Wal-Mart, Cisco and MicroSoft. All of those companies were created from scratch in our lifetime, by aggressive entrepreneurs.
The only thing that harms competition is government protection.
Hostile takeovers and buyouts are most certainly productive investment. Why would the shareholders of those companies sell to the ‘hostile taker-overer’ or buyout firm, if they didn’t think they were getting more value? Nobody was forced to sell. They sold because that created a better opportunity to get more value for their dollar.
The reason hostile takeovers usually occur is because management is squandering shareholder’s resources, and the shareholders have had enough. Sort of like what happens in Congress from time to time…we hope.
If I were you, I would switch to another topic quickly. It’s obvious you don’t have the slightest idea what you’re talking about.
I had this gargantuan reply to Sam Stone, but it got eaten. Suffice it to say that historically, it’s not “private competition” that pushed science forward, & the Cold War governments with their central planning & massive tax bases did pretty well in that regard. But I guess Canadians just reverse-engineer our stuff & think it was invented in somebody’s garage rather than by military-industrial complexes.
My take on the Laffer Curve is that it really can’t be used to show that total tax revenue WILL decrease if marginal rates are increased. Rather, it is only a tool to show that total tax revenue MAY decrease if marginal rates are increased.
So, I think it’s just a “don’t count your chickens” lesson for those who too hastily do the mental math of applying their desired new marginal rate to the total tax base that existed in a previous year with a different marginal rate.
Ah, so the housing bubble made perfect sense? If you own stock in a company, and someone doing an LBO is going to give you more than it is worth on the market today, are you going to care if the deal makes sense?
Sometimes true, but sometimes the purchaser is selling a bill of goods. Consider the newspaper takeover that is killing the Tribune company. No matter how they were doing, an LBO that saddled the company with a mass of debt is driving them to destruction far faster than they would have gone without it.
You are trivializing how difficult it is to make a deal work. Even mergers, where both parties agree, are tough because of culture clashes. I believe I’ve read some literature on how buyouts usually cost more than their value, because there is a certain amount of ego involved, and projections for growth driving the initial deal, which are probably optimistic, get stretched when the purchaser has to increase the price. Like with the recent private equity buyout of Chrysler (not hostile) it is easy for a purchaser to convince himself he can come in and fix all the mistakes of the idiots running the company - only to find out it is not that easy.
Nor do you. Tell me, if corporations are so run by their stockholders that CEO compensation is reasonable, how do these same stockholders avoid kicking out the CEOs and boards who screw up the company so badly that it needs to be taken over. I’m not disputing that the CEOs screw it up - that is evident. But the same conditions leaving CEOs who are doing a bad job in also cause them to get paid far more than they are worth in many cases.
Or in mathematical terms, we don’t know what the first derivative of the curve is at our current position. Pretty feeble grounds to justify massive tax cuts, eh?
Thanks for the quote. I couldn’t get access to the link in the article, because it requires a subscription.
I won’t challenge the 45% figure at the moment, but I will note that the effective rate that drives a taxpayer behavior is a combination of
Federal income taxes
State income taxes
FICA and Medicare
Other taxes (property, auto, sales)
That’s what the taxpayer sees.
So just because the top marginal rate on Federal income is 35% or 39%, doesn’t necessarily mean that you can jack it to 45% without consequences. If the person in question lives in California, for example, he could be seeing an effective rate of 55+% or higher.
Britain is a special case- British nationals (and those of most Commonwealth states) automatically had right of abode in most other Commonwealth states- the Bahamas, for instance.
This made it awfully easy for a Briton to become a tax exile.
Perhaps, but if your plan relies on people shutting up and taking the taxes up and arse while you make it hard for people to emigrate… it’s not a very good plan.
I would disagree. I, for one, am happy to pay reasonable taxes to support a common defense, a judiciary, and the few things around the edges that involve externalities about which I’ve discussed before.
I would also be happy to have the income tax be mildly progressive, so that the wealthier pay more.
But that involves far, far less government than we have today. It requires a top tax rate of 20% or so. Which I think most people don’t view as excessively confiscatory.
It’s when taxes start to get ridiculously confiscatory that the government needs the population to ‘shut up and take it’. And if the taxpayers don’t want to, and change their behavior accordingly, we get back into the Laffer curve argument.