The case for lower taxes

[mnealtx 0]

Ok - we've tentatively stipulated that higher taxes have a punitive effect on consumer spending and business growth, all else being equal and dependent upon the financial circumstances of the business or consumer.

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Logic chain for *lower* (NOT nonexistant) taxes:

1. Lower taxes result in business growth.

2. Business growth results in more taxes being paid by businesses than in a situation where business growth is stagnant or negative.

3. Business growth results in more jobs.

4. More people working results in more income taxes and (possibly) less people needing government assistance (or as much government assistance).

4a. Lower tax rates have the effect of removing the lowest-paid individuals from the tax rolls (refund of taxes paid or more recieved in gov't assistance than paid in taxes).

4a(1): Refund of income tax for more people increases the amount of consumer spending, investment or savings.

4a(2): Social security and Medicare/Medicaid tax totals would increase, due to the increased number of people working.

**N.B. - 4a would almost certainly be offset by the reduced need for government assistance. For purposes of this discussion, and absence of hard numbers providing proof in either direction, let's assume it's a wash. **.

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Discuss.

PLEASE don't sidetrack into gov't spending - that will be the subject of another post, tonight.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[n23x 0]

1.) Dinosaurs eat plants.

2.) Hide near plant.

3.) Bonk dinosaur on head with stick.

4.) Eat dinosaur.

It's THAT EASY! What complications could occur?! Don't complain about the fidelity of my model!

.jim

"Don't touch my fucking Easter eggs, I'll be back monday." ~JTFC

[lawrocket 3]

Mike:

There is a certain point at which the tax rate maximizes revenue. Tax too little and the government misses out on revenue. Tax too much and productivity falls. It's best thought of as a zero tax rate will result in zero revenue. A 100 percent tax rate will result in almost zero revenue.

The issue is whether the tax rates are higher or lower than the maximum.

You are arguing supply side. Put more money in the hands of the prospective employers.

My wife is hotter than your wife.

[joedirt 0]

It can also keep heavy hitters from leaving the party since it's getting a whole lot easier to find other places to do business.

[sfc 1]

Quote

Ok - we've tentatively stipulated that higher taxes have a punitive effect on consumer spending and business growth, all else being equal and dependent upon the financial circumstances of the business or consumer.

---

---

Logic chain for *lower* (NOT nonexistant) taxes:

1. Lower taxes result in business growth.

2. Business growth results in more taxes being paid by businesses than in a situation where business growth is stagnant or negative.

3. Business growth results in more jobs.

4. More people working results in more income taxes and (possibly) less people needing government assistance (or as much government assistance).

4a. Lower tax rates have the effect of removing the lowest-paid individuals from the tax rolls (refund of taxes paid or more recieved in gov't assistance than paid in taxes).

4a(1): Refund of income tax for more people increases the amount of consumer spending, investment or savings.

4a(2): Social security and Medicare/Medicaid tax totals would increase, due to the increased number of people working.

**N.B. - 4a would almost certainly be offset by the reduced need for government assistance. For purposes of this discussion, and absence of hard numbers providing proof in either direction, let's assume it's a wash. **.

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Discuss.

PLEASE don't sidetrack into gov't spending - that will be the subject of another post, tonight.

Unemployment is at 5% and rising, so it did not do down after bush cut taxes, more people need government assistance (rising number of uninsured) with health care than ever before, this is despite the bush tax cuts. Home sales are falling (requiring assistance) despite the bush tax cuts.

Some of the points you make are valid, but not all, you should test ALL your hypothesis against what happened after the bush tax.

Also considering tax cuts in a vacuum is kindof pointless, it would be like discussing swooping without considering there is a planet, you have to way up all the factors and that includes government spending. You did not answer my point from the other thread about who will pay the soldiers if the government does not have any tax revenue.

[DrewEckhardt 0]

The tax cuts were pretty inconsequential compared to other things in the US economy.

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Unemployment is at 5% and rising, so it did not do down after bush cut taxes,

Over the Bush 43 presidency we've come to rely increasingly on foreign countries with educated workers with salaries 1/10th to 1/5th what we earn. Ten years ago mostly large corporations were setting up engineering shops in India. Now even startups have off-shore teams in China, Eastern Europe, and India.

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Home sales are falling (requiring assistance) despite the bush tax cuts.

While long term home prices have just kept pace with inflation, mortgage industry changes artificially increased home prices through the bush presidency so they got out of line with wages (absolute affordability) and rent.

I sold a property I bought in 2006 for 60% more than I paid in 2000 while I got paid less in 2006 than I did in 2001.

While I rent an apartment for $1200 a month, buying the same sized condo would cost me an additional $2000 a month once after the tax deduction and loss of interest the down payment is earning as CDs. With declining property values that would be silly.

Fewer people can afford homes and in a lot of places it doesn't make sense to buy.

[nathaniel 0]

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1. Steal underpants.

2. Lower taxes

3. ???

4. Profit

Fixed that for you

My advice is to do what your parents did; get a job, sir. The bums will always lose. Do you hear me, Lebowski?

[kallend 2,118]

Ask the experts:

"Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that."
Alan D. Viard, a former Bush White House economist currently at the conservative American Enterprise Institute, 10/23/06

“It is very rare and very few economists believe that you can cut taxes and you will get the same amount of revenues.”
– Former Federal Reserve Chairman
Alan Greenspan
Testimony before House Budget Committee
September 8, 2004

“I don’t think that, as a general rule, that tax cuts pay for themselves.”
–Federal Reserve Chairman Ben Bernanke
Testimony before Joint Economic Committee
April 27, 2006

“As a general matter, most tax cuts do not pay for themselves.”
; OMB Director Nominee Rob Portman
Written Response to Questions Submitted
Prior to Senate Budget Committee
Nomination Hearing
May 10, 2006

“[There is] no credible evidence that tax
revenues ... rise in the face of lower tax rates.”
“[An economist claiming tax cuts pay for
themselves is like a] snake oil salesman who
is trying to sell a miracle cure.”
– Former Chairman of President Bush's Council of
Economic Advisers N. Gregory Mankiw
Introductory college economics textbook,
“Principles of Economics,” 1998


"Voodoo economics", George H.W. Bush

...

The only sure way to survive a canopy collision is not to have one.

[idrankwhat 0]

1. Lower taxes result in business growth.

true, in most cases

2. Business growth results in more taxes being paid by businesses than in a situation where business growth is stagnant or negative.

Not necessarily. Taxable profits can be buried through numerous means. For the last few years that John Snow ran CSX, before he ran the Treasury, he boasted that CSX paid zero % in taxes (and I believe <0 for at least one year).

3. Business growth results in more jobs.

True. But where? China? Vietnam? India? Service jobs have to stay onshore. The rest are pretty much fair game in a globalized world.

[billvon 3,090]

>1. Lower taxes result in business growth.

Not true as a rule. Lower taxes generally result (indirectly) in cuts at defense contractors, for example.

>2. Business growth results in more taxes being paid by businesses than in
>a situation where business growth is stagnant or negative.

Again, not true as a rule. Increase in _profits_ results in increased tax revenue.

>3. Business growth results in more jobs.

True, although nowadays that does not necessarily mean more US jobs.

>4. More people working results in more income taxes and (possibly)
>less people needing government assistance (or as much government
>assistance).

Generally true.

>4a. Lower tax rates have the effect of removing the lowest-paid
>individuals from the tax rolls (refund of taxes paid or more recieved in
>gov't assistance than paid in taxes).

Not true for any given tax cut. A change to a more progressive tax structure has that effect, but just saying "lower tax rate" says nothing about which income bracket is affected. A middle or upper class tax cut, for example, does not affect the lowest-paid individuals.

>4a(1): Refund of income tax for more people increases the amount of
>consumer spending, investment or savings.

Generally true.

>4a(2): Social security and Medicare/Medicaid tax totals would increase,
>due to the increased number of people working.

Not true. See (1).

As others have pointed out, there is an optimal tax point in terms of the economy. Cut taxes below that point, or raise them above that point, and business suffers.

[StreetScooby 5]

The question is, what is the optimum point? I believe evidence points to taxes lower than what Obama would have use paying.

We are all engines of karma

[kallend 2,118]

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The question is, what is the optimum point? I believe evidence points to taxes lower than what Obama would have use paying.

What evidence would that be?

...

The only sure way to survive a canopy collision is not to have one.

[StreetScooby 5]

When taxes have been cut, GDP goes up. GDP goes up, total tax revenues go up.

We are all engines of karma

[Remster 30]

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When taxes have been cut, GDP goes up. GDP goes up, total tax revenues go up.

Thats not evidence. That's the theory. The taxes on the DELTA GDP must account for the DELTA in tax rates.

Remster

[billvon 3,090]

> The question is, what is the optimum point?

Per Saez:

t/(1-t) = (1-g)(Zm/(z-1)) / Eu (Zm / (z-n)))

Where Eu is the uncompensated utility function, n is a leisure adjuster (i.e. whether something purchased is essential or optional), Z is earnings, g is the ratio of social marginal utility to the marginal value of public funding for government, and t is the tax rate.

In a practical sense the rate depends on a great many factors - individual, governmental and economic. Over a sampling of normal cases for high income earners, 'ideal' rates range from 40 to 60 percent.


http://elsa.berkeley.edu/~saez/derive.pdf

[StreetScooby 5]

What is Zm?
Where was the sampling taken?

We are all engines of karma

[StreetScooby 5]

Never mind, re: Zm question. I just went and downloaded the paper:
"Using Elasticies To Derive Optimal Income Tax Rates".
I plan to read it over the weekend whilst consuming multiple adult beverages

We are all engines of karma

[StreetScooby 5]

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The taxes on the DELTA GDP must account for the DELTA in tax rates.

Of course

We are all engines of karma

[mnealtx 0]

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Mike:

There is a certain point at which the tax rate maximizes revenue. Tax too little and the government misses out on revenue. Tax too much and productivity falls. It's best thought of as a zero tax rate will result in zero revenue. A 100 percent tax rate will result in almost zero revenue.

The issue is whether the tax rates are higher or lower than the maximum.

You are arguing supply side. Put more money in the hands of the prospective employers.

That's a good point, and I agree with you - there *is* a certain minimum amount of taxes that MUST be paid - what I'm trying to lead to is a comparison between the two tax models and trying to figure out some way to quantitively compare the two, minus all the political bullshit that gets drug into the discussion.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[mnealtx 0]

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>1. Lower taxes result in business growth.

Not true as a rule. Lower taxes generally result (indirectly) in cuts at defense contractors, for example.

As in the other thread - ANYONE can find specific examples that break the model. I still feel it is valid as a GENERAL observation, however.

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>2. Business growth results in more taxes being paid by businesses than in
>a situation where business growth is stagnant or negative.

Again, not true as a rule. Increase in _profits_ results in increased tax revenue.

>3. Business growth results in more jobs.

True, although nowadays that does not necessarily mean more US jobs.

I don't disagree in principle, but I also don't think the corner supermarket is going to be outsourcing jobs to china.

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>4. More people working results in more income taxes and (possibly)
>less people needing government assistance (or as much government
>assistance).

Generally true.

>4a. Lower tax rates have the effect of removing the lowest-paid
>individuals from the tax rolls (refund of taxes paid or more recieved in
>gov't assistance than paid in taxes).

Not true for any given tax cut. A change to a more progressive tax structure has that effect, but just saying "lower tax rate" says nothing about which income bracket is affected. A middle or upper class tax cut, for example, does not affect the lowest-paid individuals.

Agreed - but you'd never get congress to pass a tax cut that DIDN'T include a reduction for the lower rates - they'd ALL get voted out if that happened.

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>4a(1): Refund of income tax for more people increases the amount of
>consumer spending, investment or savings.

Generally true.

>4a(2): Social security and Medicare/Medicaid tax totals would increase,
>due to the increased number of people working.

Not true. See (1).

Still valid for the general public. Specific companies may/may not see as much of an effect, that is true.

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As others have pointed out, there is an optimal tax point in terms of the economy. Cut taxes below that point, or raise them above that point, and business suffers.

Absolutely - as I've said before and we've agreed upon before, there are some taxes that MUST be levied. I'm trying to get a discussion going about WHICH method of taxation is more efficient in that regard.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[billvon 3,090]

>I don't disagree in principle, but I also don't think the corner supermarket
>is going to be outsourcing jobs to china.

Agreed. It will depend on the ownership of the store. A locally owned store will not be outsourcing, Albertson's will be outsourcing to a small degree, the Super Walmart will be outsourcing more.

>Agreed - but you'd never get congress to pass a tax cut that
>DIDN'T include a reduction for the lower rates - they'd ALL get voted out if
>that happened.

Congress has indeed passed capital-gains and estate tax cuts, neither of which affects the lowest earners. However, if you mean that they concurrently passed income tax legislation that affects the lower rates, I agree.

>I'm trying to get a discussion going about WHICH method of taxation is
>more efficient in that regard.

What are the options you are choosing between? Are you trying to determine whether a progressive, proportional or regressive income tax structure works best - or are you considering alternatives to income tax?

[mnealtx 0]

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>I don't disagree in principle, but I also don't think the corner supermarket
>is going to be outsourcing jobs to china.

Agreed. It will depend on the ownership of the store. A locally owned store will not be outsourcing, Albertson's will be outsourcing to a small degree, the Super Walmart will be outsourcing more.

I *tentatively* agree with that, but I submit that if walmart or albertson's expands (open new stores) the overwhelming majority of the jobs will be in the local community.

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>Agreed - but you'd never get congress to pass a tax cut that
>DIDN'T include a reduction for the lower rates - they'd ALL get voted out if
>that happened.

Congress has indeed passed capital-gains and estate tax cuts, neither of which affects the lowest earners. However, if you mean that they concurrently passed income tax legislation that affects the lower rates, I agree.

Economy of scale - people that can afford to invest more see more of a benefit from the capital gains and estate tax adjustments. I was speaking solely to income tax, however.

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>I'm trying to get a discussion going about WHICH method of taxation is
>more efficient in that regard.

What are the options you are choosing between? Are you trying to determine whether a progressive, proportional or regressive income tax structure works best - or are you considering alternatives to income tax?

I'm looking at all of them with an eye toward figuring out which is the most efficient way for the government to collect the needed revenue with the least effect on the taxpayer as a whole. While I like the *idea* of the "Fair Tax" movement and believe it would work, I don't think you could sell the public on it to get it passed.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706

[rehmwa 2]

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minus all the political bullshit that gets drug into the discussion.

hee, hee, hee, hee, hee, hee, hee

that's a cute thing to hope for

...
Driving is a one dimensional activity - a monkey can do it - being proud of your driving abilities is like being proud of being able to put on pants

[jcd11235 0]

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what I'm trying to lead to is a comparison between the two tax models and trying to figure out some way to quantitively compare the two, minus all the political bullshit that gets drug into the discussion.

The problem is that you want to disregard government spending of tax revenue. That spending contributes to the economy just like other consumer spending.

Math tutoring available. Only $6! per hour! First lesson: Factorials!

[mnealtx 0]

Quote

Quote

what I'm trying to lead to is a comparison between the two tax models and trying to figure out some way to quantitively compare the two, minus all the political bullshit that gets drug into the discussion.

The problem is that you want to disregard government spending of tax revenue. That spending contributes to the economy just like other consumer spending.

And any persons that are recieving their paycheck from a government source will pay income tax on it like everyone else.

Mike
I love you, Shannon and Jim.
POPS 9708 , SCR 14706