raise income tax bracket rates to create economic/job growth

[Midpack]

jdw_fire: Don't agree with you, so considering the thread from just a few days ago http://www.early-retirement.org/forums/f52/the-rich-should-pay-their-fair-share-57195.html, exactly how much would you propose increasing personal tax rates on high income earners? Please be specific, how much more punitively "progressive" should tax rates be in your view?

And if you're talking those above $250K/yr, it doesn't even come close to resolving the issue alone.

I saw the chart below, which is supposed to be from IRS numbers in 2008. I also keep hearing on the news that the "rich" should have to pay their fair share as a way to get us out of the debt/deficit crisis. From the data alone, it would seem to me that this is already happening and how much more progressive can we get with the tax code and still have some semblence of an "ownership" culture in this country?

The top 5% of all taxpayers (income split on this group was at $159,619 in 2008) paid 58.72% of all federal individual income taxes in 2008.

Let's continue to break this down:

Top 10% (Income Split Point $113,799) Paid 69.94% of Federal Individual Income Taxes
Top 25% (Income Split Point $67,280) Paid 86.34% of Federal Individual Income Taxes
Top 50% (Income Split Point $33,048) Paid 97.30% of Federal Individual Income Taxes
Bottom 50% (Anyone Making Less Than $33,048) Paid 2.7% of Federal Individual Income Taxes

 

[FinanceDude]

Some of us are self-employed, and think we are taxed enough right now. All that will happen is the govt raises taxes is I will spend less. Multiply that by millions of others, and the problem gets worse.

Still trying to wrap my head around raising taxes now that we ar either in or teetering on the brink of a double dip recession. A lot of problems could be fixed if we got about 5 million people back to work!!!

 

[ERD50]

So how can higher income tax rates motivate one to invest (compared to lower income tax rates, not compared to lower cap gains rates), when the result is less money in the pocket? That's not usually a motivator. Can you present numbers where it would do so?

Originally Posted by jdw_fire
i did address your numbers but since you dont think i did let me give you another example, 1 from the residential real estate business. ... when adding a bedroom to a house the owner can expect the value of the house to go up by about 80% of the cost of the remodel. ... for the real estate business person who plans to flip this house, ... but now s/he is in the 50% tax bracket, it makes sense to invest in this remodel because the owner only has to pay 50% of the cost of the remodel (the government pays the rest in refunded tax money)

When I gave my numbers, I said ' I don't think the average business in the US can turn investment into cap gains year after year. ', however, real estate did come to mind. But how much of the US economy is built on people who will be flipping real estate in the near term? Not enough to make a material impact on the current economy, I would think. Regardless, I believe your example is ignoring an important part of the equation when you say the owner only has to pay 50% of the cost of the remodel . The RE owner needs cash flow to live on. In Case H he has 1/3rd less money for living expenses. So lets look at it from a cash flow to cover living expenses view:

------, ------, ----PreTax , ----ReInvest, ----Taxable, ----Tax, ----TakeHome
Case H --50.00% --$1,000,000 --$500,000 --$500,000 --$250,000 --$250,000
Case L --25.00% --$1,000,000 -- $666,667 --$333,333 ---$83,333 --$250,000


So to maintain $250,000 in after tax income, in Case H, the business owner can only afford to re-invest $500K, while in Case L he can re-invest $667K. If $250K in take home is too 'rich' for you, we could scale these down, but the effect is the same.


I also don't know enough about Commercial Real Estate tax laws to know that capital improvements are deducted as an 'expense'. googling.... Tax Deductions For Rental Property Owners

A repair keeps your rental property in good condition and is a deductible expense in the year that you pay for it. Repairs include painting, fixing a broken toilet and replacing a faulty light switch. Improvements on the other hand, add value to your property and are not deductible when you pay for them. You must recover the cost of improvements by depreciating the expense over your property's life expectancy. Improvements can include a new roof, patio or garage.

So I don't think your example, as narrow as it is, holds even in the narrow case.

sorry if this cross posted with other replies, it took me a while to get this written and formatted (I need a 'tables' lesson)

-ERD50

 

[Texas Proud]

Sometimes when a situation is presented I like to use an extreme example...


You are a business owner.... what will you do IF:

They raise the tax rate to 100%

Lower the tax rate to 0%




I think the first one you stop investing... (heck, you move to another country)

The second one you now can invest where it makes the most sense...


Another problem is that the examples given are only US... there are other countries that have lowered taxes and had economic growth.... but even then you can not have a pure cause and effect...

 

[jdw_fire]

I will go to a very micro level...

I know that my boss will not invest in his company with higher taxes... he is already planning for the tax increase when the Bush/Obama tax cuts expire in 2013... and he is trying to maximize profits NOW....

thank you very much, you have just supplied an example that supports what i have been saying. your boss is maximizing profits (and therefore, by definition, not plowing that profit back into his company i.e. he is not investing in his company) during a time of low tax rates and, by your statement, he is doing it because of tax rates (both current and anticipated tax rates). this, obviously, specifically supports my arguement that business owners will adjust the profit they make based on current and expected tax rates. there are 2 ways for them to adjust profit, 1) invest back into their business, thus changing the profit into an expense or 2) cut back on the amount of business they do (i.e. cut revenues). it makes more sense to me that they will do 1).

Another flaw that I see is that it assumes that the person will sell the business to get that (what you claim) increased value from investing... most people don't sell their business....

actually i didnt make the assumption that most people would sell their businesses, what i did was show that the additional investment in their businesses (that was a response to higher top tax rates) would make them richer because the value of their business rose. to show that they were better off financially in that case i made a hypothetical sale of the business. i dont think the majority of small business owners will sell their profitable businesses.

I am curious.... do you REALLY believe what you are saying If so, then you are like my friend who thinks the gold standard would actually matter and no amount of words would change your mind....

lets not start with personal attacks. if you dont want to continue in this discussion just stop posting but please dont say something that will get the moderators to lock this thread.

 

[chinaco]

Some of us are self-employed, and think we are taxed enough right now. All that will happen is the govt raises taxes is I will spend less. Multiply that by millions of others, and the problem gets worse.

Still trying to wrap my head around raising taxes now that we ar either in or teetering on the brink of a double dip recession. A lot of problems could be fixed if we got about 5 million people back to work!!!

No one wants to pay more taxes.

Yes 5M back to work would help.... but that will not be enough either.

The prescription is going to be: You will pay more taxes (so will I). You will get a haircut on your SS and Medicare (So will I). It is the Middle Class Pays Solution.


One thing that could be done to cut spending and probably save alot of money without reducing the real outcome is... real reform to our healthcare system. If you will notice 2 (now 3) of the big hitters are Medicaid, Medicare, [Health Care Reform Act] Plus every govt employee and retirees health care expenditure from their retirement systems. That is a lot of money.

We spend quite a bit more than any other country in the world and have higher mortality rates... If we could cut 25% (just an example) of that (every year)... that would be a huge savings. But that would mean big changes. The cost could be dramatically reduced, provide care to people who need it and are frozen out of it and still give people with the means... the ability to have a little more flexibility. But there is a powerful lobby against it.

The problem is that some people do not want to change (out of fear... by the fear mongers... and in many cases not willing to compromise and accept adjustments). Ultimately, it would take a national healthcare system.

BTW -- it would be good for business also.... they would not have that burden show up directly on their financial statements.

But... most people seem to want someone else to bear the brunt of more taxes or cuts to things that do not affect them (be it special tax incentive or a reduction of spending by govt).

 

[ERD50]

No one wants to pay more taxes.

Yes 5M back to work would help.... but that will not be enough either.

The prescription is going to be: You will pay more taxes (so will I). You will get a haircut on your SS and Medicare (So will I). It is the Middle Class Pays Solution.

There are a number of threads on the deficit and SS, etc.

I think jdw_fire is trying to focus this one on his specific proposal - that increasing taxes would motivate additional economic growth through increased capital investment.

-ERD50

 

[jdw_fire]

jdw_fire: Don't agree with you, so considering the thread from just a few days ago http://www.early-retirement.org/forums/f52/the-rich-should-pay-their-fair-share-57195.html, exactly how much would you propose increasing personal tax rates on high income earners? Please be specific, how much more punitively "progressive" should tax rates be in your view?

And if you're talking those above $250K/yr, it doesn't even come close to resolving the issue alone.

i made the following suggestion in another thread (http://www.early-retirement.org/forums/f52/lets-tax-the-rich-54825-9.html#post1041008) so for consistancy sake i will just copy it here but that isnt to say i have put alot of thought (not to mention zero analysis) into that answer.

ok, how bout this:
1) repeal the Bush tax cuts for incomes over $200k for singles and $250k for married
2) a new bracket at $600k income with a rate of 47%
3) a new bracket at $1M income with a rate of 55%

and while we are at it lets remove the cap on FICA and put another knee in the the computation of benefits formula: only 5% of the average monthly wages above the $9k/mo level get added in the benefits formula

 

[chinaco]

There are a number of threads on the deficit and SS, etc.

I think jdw_fire is trying to focus this one on his specific proposal - that increasing taxes would motivate additional economic growth through increased capital investment.

-ERD50

Oops your right.


BTW - He is correct... it can work in the short-term. But (IMO) not for the long term. It can get things started.

If... money that would otherwise be saved (hoarded.. out of fear), is put into circulation actually spent on capital projects... it can work. But... it would would only prime the pump for (hopefully) additional business growth.


Example: Roads and Bridges. Puts people to work. A lot of capital investment and jobs created... creates a spending cycle in the private sector (contractors).

Right now businesses are hoarding money! They are waiting till they see business opportunities that they are highly confident will yield a positive outcome. IOW - Fear Rules.

Hopefully the gov capital expenditure would allay some of those fears by creating business opportunities for certain private business... they would spend and hire.. the businesses they consume goods and services from would spend and hire and the upswing would sustain for a business cycle.

Not perfect... but it does work.

But... the govt seems to borrow the money instead of raising taxes... or should I say raise the taxes immediately.

 

[jdw_fire]

Still trying to wrap my head around raising taxes now that we ar either in or teetering on the brink of a double dip recession. A lot of problems could be fixed if we got about 5 million people back to work!!!

i agree that getting 5 million people back to work would fix alot of problems. just as an aside, when i 1st suggested the thought that raising taxes would produce job/economic growth, our economy appeared stronger and there was little talk of heading into a double dip recession.

i think now ("we ar either in or teetering on the brink of a double dip recession") is also a bad time to be considering government spending cuts. i have stated earlier that the government could stimulate alot of jobs if it would fix our aging infrastructure and then, at least, our country would have something substantial to show for that government spending/stimulus plus there would be real jobs created.

another problem with trying to balance the budget in this economy on spending cuts alone is that when the government cuts spending it is taking money out of the pockets of the poor and middle class. these people would probably spend all the money they get from the government. however when you give (or continue) tax cuts for the higher income people they dont spend anywhere near all of it, instead some of that money will go into the stock/bond markets (i have talked earlier why i dont think putting money in the stock/bond markets will produce economic/job growth). soo, between the 2, government spending produces more of an immediate economic stimulus than lower tax rates.

 

[Midpack]

i made the following suggestion in another thread (http://www.early-retirement.org/forums/f52/lets-tax-the-rich-54825-9.html#post1041008) so for consistancy sake i will just copy it here but that isnt to say i have put alot of thought (not to mention zero analysis) into that answer.

ok, how bout this:
1) repeal the Bush tax cuts for incomes over $200k for singles and $250k for married
2) a new bracket at $600k income with a rate of 47%
3) a new bracket at $1M income with a rate of 55%

and while we are at it lets remove the cap on FICA and put another knee in the the computation of benefits formula: only 5% of the average monthly wages above the $9k/mo level get added in the benefits formula

By be specific, I meant what would the revenue increase be (compared to the deficits we face)? If you're going to make a proposal, shouldn't you also do the math to see what impact it would have? Or do you think the rich should just be taxed more because "it seems fair."

I did the math in an earlier thread too http://www.early-retirement.org/forums/f52/lets-tax-the-rich-54825.html and taxing the rich alone won't get us anywhere near closing the deficit. I wholeheartedly agree Soc Sec, Medicare, Defense and Revenue/Tax Increases have to be on the table, I think we should all have to make sacrifices (rich included).

If the (as you can easily verify) "Top 10% (Income Split Point $113,799) Paid 69.94% of Federal Individual Income Taxes" - just how much more do you think they should pay on behalf of the other 90% without asking any more of the other 90%. Do you want the top 10% to pay 100% of the taxes (I am sure you don't)?

 

[sheehs1]

Some of us are self-employed, and think we are taxed enough right now. All that will happen is the govt raises taxes is I will spend less. Multiply that by millions of others, and the problem gets worse.

Still trying to wrap my head around raising taxes now that we ar either in or teetering on the brink of a double dip recession. A lot of problems could be fixed if we got about 5 million people back to work!!!

+1
As a small business owner there is more I could say but this overall issue is far too complicated to reasonably get across other than to say what FinanceDude said.

But I will say that All sub S owners are responsible for the tax on profits. The tax bill is due regardless of what happens to the rest of the profit. So in the case of sub s owners...45% of the profit HAS to be distributed to the owners so the owner can turn around and give it to the government. Understand? They have made no money here.
Why 45% of the profit? Because in a lot of cases with multiple owners with income from their own independent careers any K1 income screws around with their tax bracket forcing them to pay overall at a higher level.

It also is not true that small business owners are not buying equipment. The 179 expense allows us to depreciate,up to a certain level, those expenses in 1 year rather than the say 29 years. So perhaps it is more that the depreciation of equipment, etc above the 179 expense takes, literally, forever....that is the disincentive ...especially for the smaller businesses and start ups. But it is also why the government has upped the level of the 179 expense in the last several years. It is an incentive...to buy equipment ...NOW..and reduce the taxable profit line.


Our current payroll and employee benefit package....is 1.9 times our profit line. (and rising...I might add). All due to CPI adjustments, minimum wage increases, merit pay, 401K matches, profit sharing for our employees, SSN, FICA and healthcare costs. And it won't be long before the rubber may meet the road. The ONLY way for a small business owner to delay this ..is for sales to increase. Tough, tough thing to do in this economy. Our own sales have decreased 20% since the financial crisis and we consider ourselves lucky. Some have shut their doors.

For those that want to take away deductions and incentives from small businesses...those that help us actually "reduce" the profit line by putting money back into our companies and employees.....well....all I can say at first blush.....is just stand back and watch...the businesses close and more employees on the street and higher unemployment.

Guess I said more than I thought I was going to...

 

[jdw_fire]

When I gave my numbers, I said ' I don't think the average business in the US can turn investment into cap gains year after year. ', however, real estate did come to mind. But how much of the US economy is built on people who will be flipping real estate in the near term? Not enough to make a material impact on the current economy, I would think. Regardless, I believe your example is ignoring an important part of the equation when you say the owner only has to pay 50% of the cost of the remodel . The RE owner needs cash flow to live on. In Case H he has 1/3rd less money for living expenses. So lets look at it from a cash flow to cover living expenses view:

------, ------, ----PreTax , ----ReInvest, ----Taxable, ----Tax, ----TakeHome
Case H --50.00% --$1,000,000 --$500,000 --$500,000 --$250,000 --$250,000
Case L --25.00% --$1,000,000 -- $666,667 --$333,333 ---$83,333 --$250,000


So to maintain $250,000 in after tax income, in Case H, the business owner can only afford to re-invest $500K, while in Case L he can re-invest $667K. If $250K in take home is too 'rich' for you, we could scale these down, but the effect is the same.

if you look closely at my suggestions to raise the tax rates it is to raise the tax rates of the higher tax brackets. when you factor this in the business owner will be paying the same amount of tax on the 1st $200k/$250k of income so therefore the higher tax rates would apply only to profits/incomes above this level. only then will these higher tax rates start to provide the incentive i suggested.

I also don't know enough about Commercial Real Estate tax laws to know that capital improvements are deducted as an 'expense'. googling.... Tax Deductions For Rental Property Owners



So I don't think your example, as narrow as it is, holds even in the narrow case.

sorry if this cross posted with other replies, it took me a while to get this written and formatted (I need a 'tables' lesson)

-ERD50

what isnt expensed would be capital and therefore could be depreciated (creating an expense) and taxed as CG. granted it depends on the way the business is run.

however, i gave that example to try and point out to you (and others) that some investments in businesses can be either good or not good (and therefore done or not done) depending largely (maybe solely) on the tax rates. and this statement doesnt just apply to a real estate business.

 

[Texas Proud]

thank you very much, you have just supplied an example that supports what i have been saying. your boss is maximizing profits (and therefore, by definition, not plowing that profit back into his company i.e. he is not investing in his company) during a time of low tax rates and, by your statement, he is doing it because of tax rates (both current and anticipated tax rates). this, obviously, specifically supports my arguement that business owners will adjust the profit they make based on current and expected tax rates. there are 2 ways for them to adjust profit, 1) invest back into their business, thus changing the profit into an expense or 2) cut back on the amount of business they do (i.e. cut revenues). it makes more sense to me that they will do 1).



actually i didnt make the assumption that most people would sell their businesses, what i did was show that the additional investment in their businesses (that was a response to higher top tax rates) would make them richer because the value of their business rose. to show that they were better off financially in that case i made a hypothetical sale of the business. i dont think the majority of small business owners will sell their profitable businesses.



lets not start with personal attacks. if you dont want to continue in this discussion just stop posting but please dont say something that will get the moderators to lock this thread.

You misunderstand my point about my boss.... he is investing NOW to get profits NOW since he will be able to keep them... he will be cutting back when taxes become higher... this is not supporting your argument... (actually, we will probably be cutting back before that because business is just not there, see below)....

I did not say people do not make decisions because of tax policy... almost everbody does... I am just saying your logic is backwards from what I have learned and seen in my life... I have never met a person who has said 'wow, taxes are going up so I need to invest more in my business'....

Making a business more valuable is not the only thing that a business owner wants... especially a small business person.... they want take home pay... higher taxes hit their take home pay... so they have to figure out a way to make more money... you seem to think that there are customers that are not being served and all a business person needs to do is spend more money and WHAM, they get more profit... in our company, it is starting to look like 2012 will be like 2008... customers are drying up... they are not spending... we will have to give huge discounts to get a few... I just don't see where higher taxes will get someone to invest when there are no customers (or less demand than it has been... look at retail sales etc. etc.... it just does not compute)....


My last question is not a personal attack... I am just trying to see if this is an interesting discussion for you or you take this as a truth... IOW, no matter what anybody says you will believe that raising taxes will stimulate investment.... as I said, I had a friend who really really believed in the gold standard and a professor told me that no matter what proof was given, he would not change his mind and trying to do so was a waste of time....

 

[Texas Proud]

i agree that getting 5 million people back to work would fix alot of problems. just as an aside, when i 1st suggested the thought that raising taxes would produce job/economic growth, our economy appeared stronger and there was little talk of heading into a double dip recession.

i think now ("we ar either in or teetering on the brink of a double dip recession") is also a bad time to be considering government spending cuts. i have stated earlier that the government could stimulate alot of jobs if it would fix our aging infrastructure and then, at least, our country would have something substantial to show for that government spending/stimulus plus there would be real jobs created.

another problem with trying to balance the budget in this economy on spending cuts alone is that when the government cuts spending it is taking money out of the pockets of the poor and middle class. these people would probably spend all the money they get from the government. however when you give (or continue) tax cuts for the higher income people they dont spend anywhere near all of it, instead some of that money will go into the stock/bond markets (i have talked earlier why i dont think putting money in the stock/bond markets will produce economic/job growth). soo, between the 2, government spending produces more of an immediate economic stimulus than lower tax rates.

Just respoding to your last point about cuts... the cuts that were just passed are back ended... there are very very few cuts next year... so, unless you think this recession will be going on for a good number of years the cuts are not during the recession...

 

[jdw_fire]

Sometimes when a situation is presented I like to use an extreme example...


You are a business owner.... what will you do IF:

They raise the tax rate to 100%

Lower the tax rate to 0%




I think the first one you stop investing... (heck, you move to another country)

The second one you now can invest where it makes the most sense...


Another problem is that the examples given are only US... there are other countries that have lowered taxes and had economic growth.... but even then you can not have a pure cause and effect...

nice example but it doesnt say anything about what happens inbetween those 2 end points. if you are suggesting that business owner behavior will be a "linear" function between those 2 end points i would suggest that is not correct. i think the [top tax rates] vs [investment in your personal business] curve will look more like the [tax rates] vs [tax revenue] curve (however investment wont go to zero at the zero tax rate), then it would look linear.

 

[jdw_fire]

By be specific, I meant what would the revenue increase be (compared to the deficits we face)? If you're going to make a proposal, shouldn't you also do the math to see what impact it would have? Or do you think the rich should just be taxed more because "it seems fair."

I did the math in an earlier thread too http://www.early-retirement.org/forums/f52/lets-tax-the-rich-54825.html and taxing the rich alone won't get us anywhere near closing the deficit. I wholeheartedly agree Soc Sec, Medicare, Defense and Revenue/Tax Increases have to be on the table, I think we should all have to make sacrifices (rich included).

If the (as you can easily verify) "Top 10% (Income Split Point $113,799) Paid 69.94% of Federal Individual Income Taxes" - just how much more do you think they should pay on behalf of the other 90% without asking any more of the other 90%. Do you want the top 10% to pay 100% of the taxes (I am sure you don't)?

midpack, i have made my position on how to balance the budget clear on other threads (briefly: spending cuts and tax increases mainly focused on the high income earners)

There are a number of threads on the deficit and SS, etc.

I think jdw_fire is trying to focus this one on his specific proposal - that increasing taxes would motivate additional economic growth through increased capital investment.

-ERD50

i thank erd50 for trying to keep this thread on course

 

[jdw_fire]

even though your post starts out like you are disputing my position ...

+1
As a small business owner there is more I could say but this overall issue is far too complicated to reasonably get across other than to say what FinanceDude said.

But I will say that All sub S owners are responsible for the tax on profits. The tax bill is due regardless of what happens to the rest of the profit. So in the case of sub s owners...45% of the profit HAS to be distributed to the owners so the owner can turn around and give it to the government. Understand? They have made no money here.
Why 45% of the profit? Because in a lot of cases with multiple owners with income from their own independent careers any K1 income screws around with their tax bracket forcing them to pay overall at a higher level.

you then come around to provide supporting arguments to my position, see below.

however before i move on to that let me say that if the small business invests more of its profits into equipment or hires more employees it will reduce the total profit and therefore reduce the size of that distribution. what i am saying is that if the top tax rates were higher then it is likely that these small business owners would look for more ways to invest that profit back in the company just to reduce the actual tax bite.

It also is not true that small business owners are not buying equipment. The 179 expense allows us to depreciate,up to a certain level, those expenses in 1 year rather than the say 29 years. So perhaps it is more that the depreciation of equipment, etc above the 179 expense takes, literally, forever....that is the disincentive ...especially for the smaller businesses and start ups. But it is also why the government has upped the level of the 179 expense in the last several years. It is an incentive...to buy equipment ...NOW..and reduce the taxable profit line.


Our current payroll and employee benefit package....is 1.9 times our profit line. (and rising...I might add). All due to CPI adjustments, minimum wage increases, merit pay, 401K matches, profit sharing for our employees, SSN, FICA and healthcare costs. And it won't be long before the rubber may meet the road. The ONLY way for a small business owner to delay this ..is for sales to increase. Tough, tough thing to do in this economy. Our own sales have decreased 20% since the financial crisis and we consider ourselves lucky. Some have shut their doors.

For those that want to take away deductions and incentives from small businesses...those that help us actually "reduce" the profit line by putting money back into our companies and employees.....well....all I can say at first blush.....is just stand back and watch...the businesses close and more employees on the street and higher unemployment.

Guess I said more than I thought I was going to...

basicly you just said that investment in small business by the owners and employing people by small business is (at least partly) dependant on the tax code. it isnt big leap to see that the tax rates also play a role and a higher top tax rate will get small business owners to look for more ways to shelter that income, an easy way to do that is to just buy equipment or hire employees. of course doing such will probably need to make economic sense for the small business. however digging deeper, looking at an investment that makes sense when the top tax bracket rates are higher may not make sense at lower tax rates. i am suggesting that there are plenty of these kind of investments and therefore higher top tax rates will induce these investments.

 

[MichaelB]

I don't see the relationship between taxes and growth. As long as taxes stay within a certain range – which includes those in place during the ‘90s , I am not sure there is a direct relation between taxes and economic growth.
Growth is related to aggregate demand. Increasing demand, either internal or external, is the only way to grow. Taxes have no impact on external demand and little direct influence on internal demand. Taxes shift demand between different constituencies but neither increase nor decrease aggregate domestic demand. Business invest not because of tax rates but because there is unsatisfied demand that they can satisfy and make a profit.

So, can anyone point to some hard, non-partisan evidence that taxes cause growth to increase or decline?

 

[Midpack]

midpack, i have made my position on how to balance the budget clear on other threads

I did a search on your username and skimmed thru several threads, but I don't find it. In which thread do you answer how much more progressive tax rates should be, the top 10% are already paying almost 70% of all US Income taxes - how much more should the "rich" pay in your view?

 

[clifp]

even though your post starts out like you are disputing my position ...



you then come around to provide supporting arguments to my position, see below.

however before i move on to that let me say that if the small business invests more of its profits into equipment or hires more employees it will reduce the total profit and therefore reduce the size of that distribution. what i am saying is that if the top tax rates were higher then it is likely that these small business owners would look for more ways to invest that profit back in the company just to reduce the actual tax bite.



basicly you just said that investment in small business by the owners and employing people by small business is (at least partly) dependant on the tax code. it isnt big leap to see that the tax rates also play a role and a higher top tax rate will get small business owners to look for more ways to shelter that income, an easy way to do that is to just buy equipment or hire employees. of course doing such will probably need to make economic sense for the small business. however digging deeper, looking at an investment that makes sense when the top tax bracket rates are higher may not make sense at lower tax rates. i am suggesting that there are plenty of these kind of investments and therefore higher top tax rates will induce these investments.

I will say that you have a unique way of looking at that world. As Sheehs pointed out and something that you got wrong in your initial points, business don't have the ability to magically eliminate or even defer taxes on profits by reinvesting. Best case they can reduce the current tax bill by investing capital equipment and R&D which they can depreciate over several years.

However, what you are missing in your suggestion in that higher tax rate will encourage small business to reinvest is that business don't invest based on how much taxes they save, but on the likely after tax return. A higher tax rate by definition decrease the expected return.

Secondly it isn't just capital that small business owners invest, but time and stress. Say you have a $5 million dollar/year business. You have opportunity to invest $1 million in some new employees and equipment in a new related product line. You estimate over 4 year period there is 1/3 chance of utter failure, 1/3 chance of getting your money back and 1/3 chance of making $3 million. This provides an expected ROI of 14% and is probably worth doing. If the tax rate is 25% the ROI drops to 10%, still interesting, at 50% tax rate the ROI is 7% and many entrepreneurs will decide that it just is not worth the risk and the stress. It is better just to spend more time with the wife and kids, so the investment never gets made.

 

[jdw_fire]

You misunderstand my point about my boss.... he is investing NOW to get profits NOW since he will be able to keep them... he will be cutting back when taxes become higher...

the above seems inconsistant with below. what really appears to be happening in your boss' business is he will be cutting back due to fewer customers and not due to rising taxes. given this and the fact that appearantly you currently still have customers, your boss is investing now to get profits now because he see this drying up of customers and not due to potential tax changes.

in our company, it is starting to look like 2012 will be like 2008... customers are drying up... they are not spending... we will have to give huge discounts to get a few... I just don't see where higher taxes will get someone to invest when there are no customers (or less demand than it has been... look at retail sales etc. etc.... it just does not compute)....

however i will suggest to you that the lower the after tax cost of an investment/employee the more likely a small business owner will make that investment or hire an employee or not fire an employee (all other things being equal)

I did not say people do not make decisions because of tax policy... almost everbody does... I am just saying your logic is backwards from what I have learned and seen in my life... I have never met a person who has said 'wow, taxes are going up so I need to invest more in my business'....

i find it hard to believe you have not seen people looking for ways to reduce their income taxes back when the top rates were higher. see also http://www.early-retirement.org/for...te-economic-job-growth-57170.html#post1096480

Making a business more valuable is not the only thing that a business owner wants... especially a small business person.... they want take home pay... higher taxes hit their take home pay...

it doesnt look like you have considered

if you look closely at my suggestions to raise the tax rates it is to raise the tax rates of the higher tax brackets. when you factor this in the business owner will be paying the same amount of tax on the 1st $200k/$250k of income so therefore the higher tax rates would apply only to profits/incomes above this level. only then will these higher tax rates start to provide the incentive i suggested.

My last question is not a personal attack... I am just trying to see if this is an interesting discussion for you or you take this as a truth... IOW, no matter what anybody says you will believe that raising taxes will stimulate investment.... as I said, I had a friend who really really believed in the gold standard and a professor told me that no matter what proof was given, he would not change his mind and trying to do so was a waste of time....

i am not locked into my idea and would change my mind if a sufficient argument was made. i havent read 1 yet though. and yes, i do think it makes for an interesting discussion.

an aside: wow, answering all these posts is alot of work! and it doesnt help when i am just about done with an answer (like the 1 above) and i get bounced off the internet and i lose all that work.

 

[jdw_fire]

I did a search on your username and skimmed thru several threads, but I don't find it. In which thread do you answer how much more progressive tax rates should be, the top 10% are already paying almost 70% of all US Income taxes - how much more should the "rich" pay in your view?

if you think i have a detailed plan for taxation and government spending for the US, i am sorry to disappoint you but i dont. if it was my job to figure out something (i.e. i was president or even a member of congress) then i have ideas (some of which i have shared here) i would investigate and flesh out, but until then, they are ideas.

BTW, just how much of the total national income does the top 10% of earners make? and now if you postulate that all income earned by a given person/household over the median income in the US is discressionary, how much of the discressionary income in the US is earned by the top 10%? this last computation should show you how much more able the top 10% are to pay higher taxes (and frankly, how much less of a burden paying taxes is on them).

 

[sheehs1]

even though your post starts out like you are disputing my position ...



you then come around to provide supporting arguments to my position, see below.

however before i move on to that let me say that if the small business invests more of its profits into equipment or hires more employees it will reduce the total profit and therefore reduce the size of that distribution. what i am saying is that if the top tax rates were higher then it is likely that these small business owners would look for more ways to invest that profit back in the company just to reduce the actual tax bite.



basicly you just said that investment in small business by the owners and employing people by small business is (at least partly) dependant on the tax code. it isnt big leap to see that the tax rates also play a role and a higher top tax rate will get small business owners to look for more ways to shelter that income, an easy way to do that is to just buy equipment or hire employees. of course doing such will probably need to make economic sense for the small business. however digging deeper, looking at an investment that makes sense when the top tax bracket rates are higher may not make sense at lower tax rates. i am suggesting that there are plenty of these kind of investments and therefore higher top tax rates will induce these investments.

I can't agree with you JDW. I was not saying what you have interpreted me to say. Higher tax rates will not induce business owners to invest more into their companies whether it is equipment or employees...because they do not know what the future holds for their business. There is a fine line. Let me ask you....why would a small business owner invest more into their business in this economic climate if their sales are not growing(or even with flat sales) and IF there is a risk the company may not make sustainable profit or may go bankrupt or they have to shut their doors? They would have made a poor investment. Think about that one for a bit.

Would you throw money at something you are not fairly certain about? It's about confidence. So no...it's not all about tax policy. Most small business operate on a year by year basis. They either make it or they don't.
If our own business had a terrible year or a disaster (which has never happened in our 55 year history but easily could) we would probably close our doors. What you are not factoring in...is the huge financial risks small businesses take year after year after year. But perhaps I'm off thread topic at this point since your thread was about taxes.

In order for a small business owner to feel confident doing what you suggest, they have to have confidence in the tax policy, the government and the economic environment. None of that exist today in this business climate.

 

[Texas Proud]

however i will suggest to you that the lower the after tax cost of an investment/employee the more likely a small business owner will make that investment or hire an employee or not fire an employee (all other things being equal)




i find it hard to believe you have not seen people looking for ways to reduce their income taxes back when the top rates were higher. see also http://www.early-retirement.org/for...te-economic-job-growth-57170.html#post1096480



it doesnt look like you have considered




i am not locked into my idea and would change my mind if a sufficient argument was made. i havent read 1 yet though. and yes, i do think it makes for an interesting discussion.

an aside: wow, answering all these posts is alot of work! and it doesnt help when i am just about done with an answer (like the 1 above) and i get bounced off the internet and i lose all that work.

I just don't get your first point.... charging higher taxes does not make an employee cheaper to hire or not fire... you have to have income to offset that expense.... if there is not income it does not matter what tax rate you have....

Since I was a tax accountant back when taxes were high (and I bet you were not)... I can tell you that they did a LOT of stupid things to try and reduce their taxes.... cattle feeding comes to mind quickly... investing in real estate at highly inflated prices was another... oil wells were popular in Texas...

But I also saw the opposite.... there were many times I did estimated taxes on business decision and the taxes were too high for the business to do what it wanted... many investments were not made because of high taxes... one very rich guy had many opportunities to sell some banks that he owned... and it would have helped out the communities they were in if they were sold.... the cap gain tax back then was high and he decided it was not worth selling since his after tax return was so poor... so I am not talking from ignorance here... I did the work 30 plus years ago for many taxpayers.... and I still have not heard any businessman say he would invest if there were higher tax brackets...

Now, the 179 writeoff is a different animal... you are going to invest in some equipment either this year or next (or even next).... but if you invest this year you get a 100% deduction on your investment (note, not 100% of the cost, but 100% deduction)... you make it because you need that equipment... but do you invest in equipment that you do not need to reduce your taxes I have not heard of anybody doing that...


And you have not addressed the theme that a lot of people have pointed out that without demand there is nothing to invest in... demand needs to go up and higher taxes will not increase demand... heck, there is plenty of evidence that lower taxes will... have you seen what happens when they have a sales tax holiday Lots of people go to the stores to save a whopping 7 to 10%.... even when the store was giving a 30% reduction a few weeks earlier and not getting those same people...


Another example of someone that will not change their belief is the people who think that the earth is only 6,000 years old... (if you do, great... not trying to get a flame here... just saying)... the evidence is strong they are wrong, but they think the bible says it is so it is.....



And I have been there when you lose a long post... sorry to hear...