The paper stands alone, and has nothing to do with whatever her personal opinion on taxes might be. For one thing, a lot of economists who would agree with this paper in general would argue that it doesn’t apply in a fiscal crisis, because the paper specifically took fiscal crises out of the mix.
Second, there can be lots of reasons people might support higher taxes outside of the revenue needs of the government. For example, some people believe in using taxes to shape social or economic behavior along redistributionist, ‘social justice’, or sustainability lines. Those are all completely different arguments.
Oh, one other thing: The paper notes that raising taxes to pay down the debt does not have the the same negative GDP effects. So Romer might advocate raising taxes either to shrink the budget deficit, or because she believes in more spending and thinks that raising taxes to do it is better than letting the debt increase. These are all ideological positions and have nothing to do with the basic fact that tax increases tend to lower GDP, at least during ‘normal’ economic times.
I’m not sure I agree with your math on that. Taxes only apply to profits or gains. You could tax the gains on an investment at 1% or 99% and the break-even point would not change, because taxes don’t even factor into the equation until the investment has done better than break even.
An investment is a calculation of risk vs. reward. Lowering the reward that an investor keeps may lower the risk he’s willing to accept. But taxing the gains won’t turn a profitable investment into a loser, unless that tax is more than 100%.
Warren Harding and Calvin Coolidge lowered taxes in the 20s and we had a massive boom. JFK lowered taxes which resulted in more tax revenue. Ronald Reagan did it. George W did it. The OK guy I referenced in the first post did it.
Well, yes, my next step was going to be quoting Romer herself on how conservatives are erroneously misrepresenting the paper.
While that would be fun, I think the more important thing is to point out how you are trying to distract from this argument in doing so. This argument is not about the effect of tax increases on GDP.
This argument is about the effect of tax cuts on federal revenues, and in particular whether there is any actual evidence that cutting taxes does increase revenue in reality.
So rather than press on regarding the abuse of Romer and Romer, let’s keep focused instead.
Coolidge and Harding were cutting taxes from a top marginal rate of 77% (and a time when the Bureau of Internal Revenue had virtually no way to enforce the tax code).
Thanks. I’m still not sure the premise is true, though.
The mistake you’re making is assuming that any positive profit is an acceptable investment. The profit has to be positive, it has to be greater than the rate of inflation, AND it has to be higher than other available alternatives for an investment to make sense
It’s not enough to have a positive return - it has to be a return high enough to justify the risk. That’s why risky investments must return more.
If a zero-risk investment returns 2% on your capital, then investing in anything else must return greater than 2%.
This effect is going to be greatest on very high risk investments, such as new startups. Consider a $1000 investment which will fail 90% of the time, but 10% of the time will return $9500. The before-tax expectation on this is $500. If the return is expected in a year, you’re earning 50%/yr on your investment, which may be a reasonable sum for something with a high risk of losing the entire amount.
Now let’s add a tax into the mix. If your profit is taxed at 20%, then if your investment pays off you show a profit of $8500 before tax, you give the government $1700, and your after-tax profit is now $6800. However, your expectation on your original investment is now -$2200.
Of course, you can ameliorate this by making lots of investments and using the capital losses on the failed ones to reduce the capital gain on the successful one - IF you make enough of those investments, and if the investment timelines are within the carryover period. That’s not always the case - especially for small investors like a relative willing to investment in your start-up business who doesn’t have a lot of other risky investments.
And of course, even if the expectation remains positive, the tax might drive the return below what would be acceptable given the risk, in which case the investment still won’t be made. That’s why these kinds of effects happen ‘on the margin’. It pushes the edge cases from the point where they are barely justifiable to where they are barely unjustifiable.
There was a recession in the 80’s and a boom after the decade. That’s why revenues went down in the 80’s and up in the 90’s and 2000’s. :rolleyes:
Taxes need to be increased, they are too low on investments. Rich people don’t need any more money and they already make exponentially more than the poor and middle class. The income gap has been widening with alarming speed since the 80’s and hasn’t stopped yet. It needs to be constricted to bring corporate profits down and the wages of the poor and middle class up
Both are correct, but have nothing to do with what I objected to in Sam’s earlier post. I already mentioned the risk vs. reward. I just thought it was misleading to say that higher taxes make it harder for an investment to break even. If it lost value, it’s lost, and the tax rate doesn’t even matter. If it made money, you’ll give up some of the gain, but never so much as to push you back into the red.
I think you lost $1000 somewhere in there. If the investment pays off, it’s $9500 before tax. Tax is $1900, after-tax profit if $7600, expectation is -$1400.
All of which assumes a level of certainty that I don’t think anyone ever really has.
This shows a fundamental misunderstanding of how wealth is created. There is not a fixed amount of wealth that is then divvied up amongst people. Wealth is created by entrepreneurs who start businesses and create things that we want. To say that rich people don’t need any more money is absurd. The fact is that rich people create this wealth and are therefore entitled to it. the really amazing thing about this is that they enrich many others by their greed for more. The richer they get, the richer we all get.
Cornopean, what you say is true. To a point. As Runner Pay helpfully pointed out the opposite of your assertion is very much the reality. Why is that?
Because businesses have been restricted from doing anything that doesn’t address the interests of the shareholders (and that interest is “money”). It’s in the shareholder interest for employees to make 12 cents an hour and not $22/hour.
Look at a place like CostCo. The shareholders, every single year, ask them to drop the wages of their employees to boost profits (and hence shareholder payouts). I suspect that as long as CostCo is giving a decent return, they won’t take action. But a few bad quarters and I expect the sitting CEO/Board to be voted off the island and replaced by someone who would love nothing more than to bend to the wants of the shareholders.
Greed, cornopean, is what’s destroying the middle class and driving a huge gap between “Rich” and “Serf”. There is a lot we could do to temper this and make capitalism work, again, but unfortunately the “Rich” has a lot of interest in keeping things the way they are so they get richer.
[QUOTE=cornopean]
No con or libertarian has ever argued that tax cuts always brings in more tax revenue.
[/QUOTE]
[QUOTE=tomndebb]
From the OP:
[/QUOTE]
[QUOTE=me]
What you cited is not an instance of a republican making the claim you claim.
[/QUOTE]
[QUOTE=tomndebb]
Yes it is.
[/QUOTE]
No, it’s not. And here’s why. The Shannon quote you supplied as proof is talking about 1) the very limited experience within Oklahoma, as seen from 2) their past experience, and 3) makes zero claim about tax cuts generally and always resulting in increased revenues.