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Old 07-16-2011, 09:38 AM   #161
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What was the average life span back then?
Less.

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And the average/median life span today?
More.

Yes, people are living longer and this accounts for a portion of increased health care costs. It doesn't explain why health care costs are so much higher here than in other countries with similiar changes in average/median life spans.
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Old 07-16-2011, 09:53 AM   #162
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What was the average life span back then?

And the average/median life span today?
I was just expressing a big question over what you wrote 'Founding fathers didn't see people living into their 70s or 80s ...', because it didn't make sense to me, when indeed, several of the FF lived into their 90's, and quite a few more into their 70's and 80's. They didn't see that?

I can't take the next step to drawing any conclusion from what you said, since what you said doesn't appear to make sense.

Regardless of increased life-spans, cb7010 was pointing out the FF did not provide any sort of federal policy to provide for elder care. You can re-read that post for the detail/nuance.

-ERD50
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Old 07-16-2011, 09:58 AM   #163
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No but I brought up lifespan because someone mentioned that SS and Medicare isn't explicitly spelled out in the Constitution.

Those high health care costs, govt. is already paying out a big chunk of it. Besides Medicare, there is Medicaid and all the VA benefits.
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Old 07-16-2011, 11:02 AM   #164
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Doesn't mean I am not compassionate for pointing this out; but, Social Security, Medicare, and Welfare we not functions the constitution saw the federal government undertaking. And, although defense was, I am pretty sure they didn't envision the type of foreign adventurism we are engaged in now.
SCOTUS has judicial review. SCOTUS has decided that Social Security can be a function of the US government. In fact, Article I states that Congress may pass laws for "general welfare". Likewise for Medicare and welfare.

Social Security is definitely what the Constitution supports.
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Old 07-16-2011, 01:41 PM   #165
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Old 07-16-2011, 06:45 PM   #166
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. . . Followed by more paragraphs on the need for more taxes on the "super rich . . .who are lining their pockets" etc.
exaggeration seems to be your favorite method of disagreeing. i guess you have to revert to something when you dont have a substanative argument.

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If you want to make the case, on its own merits, for greater wealth redistribution from higher-income people to lower income people, that is fine. Or if you want to make the case that we should take money from the prosperity-producing private sector and put it into the public sector. Just make the case for these transfers honestly and don't think anyone is going to believe it is "good for the economy" without some real support.
i made the case that higher tax rates would create job/economic growth in the the area of small business and when you couple that with the low growth (if there is any at all) being produced by the large corps i am thinking there is a good probability that there would be overall higher growth than we are experiencing now. your only real argument against it was a generic 1 talking about capital flows but that didnt take into consideration nor explain the poor capital flows we are experiencing now so it doesnt really apply.
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Old 07-16-2011, 08:30 PM   #167
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Can you edit my example numbers to show this? I'm not following you.
ok. remember that capital gains tax rates dont change.

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Seems to me that this is a wash. OK, so he can invest (creating an expense) to offset gains and the higher taxes. Fine. But what's the point? To create gains that are taxed at that same higher rate as what was avoided?

Let's put numbers to it - Say a person has a $1M taxable gain. Let's look at it with 50% effective tax rates (case 1) versus 25% effective tax rates (case 2):

year 1:

case 1: because of the 50% tax rate the owner reinvests the $1M into his/her business.

@ 50% rates, the $1M is tax is $500K and Take Home is $500K
case 2: because of the 25% tax rate the owner takes the gain and pays the taxes @ 25% rates, the $1M is tax is $250K and Take Home is $750K

So in case 1, since s/he invested instead of took the profit, they get a nice 50% return on their investment the next year, so they have 1.5M taxable gain -

year 2:

case 1: @ 50% rates, the $1.5M is tax is $750K and Take Home is $750K
case 2: because there was no investment, the profit remains the same as the 1st year: @ 25% rates, the $1M is tax is $250K and Take Home is $750K

however since in case 1 the net profit grew, the value of the business grew. using a cap rate of 10% to estimate that value increase, the gross gain in the value of the business is $5M. if s/he decided to sell now s/he gets an additional $4.25M net after taxes from his/her investment. so what was the take home in those 2 cases assuming the business is sold?

case 1: 0 + $750k + the value of the business at year 1 + $4.25M

case 2: $750k +$750K + the value of the business at year 1


a difference (in favor of the higher tax rates) of $3.5M
-ERD50

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Can you point it out? Your long paragraphs w/o capitalization make it tough to scan. Offhand though, it sounds pretty 'fabricated'.
-ERD50
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well they may decide to do what i said (or just invest the amount of profit over say $250K/yr) in the short term to focus on growing the value of the business in that same short term thus attempting to converting the income from the net profit to a capital gain (provided said business does actually grow).eventually this business owner may grow his/her business large enough (hire enough employees) that s/he can cut back on his/her own work hours and actually receive a higher per hour wage for his/her business without moving his income into a higher tax bracket. a desire to reduce working hours without reducing total pay is a valid reason to grow the business while keeping the net profit about constant (say, maybe, $250k/yr).
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Old 07-17-2011, 10:46 PM   #168
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I don't care about the size of government, so I didn't vote in the poll.

I just think the voters ought to pay enough taxes to pay for all the gov't they want.

If I saw a group of Congressional candidates who seemed likely to vote to raise taxes enough to pay for our current spending, I'd happily vote for the one in my district.

If I saw a group of Congressional candidates who seemed likely to vote to reduce spending far enough that our current taxes would cover it, I'd happily vote for the one in my district.

I don't see either. Both major parties talk about "fiscal responsibility", neither is serious about balancing the budget.
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Old 07-18-2011, 04:39 PM   #169
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I was just expressing a big question over what you wrote 'Founding fathers didn't see people living into their 70s or 80s ...', because it didn't make sense to me, when indeed, several of the FF lived into their 90's, and quite a few more into their 70's and 80's. They didn't see that?
This misunderstanding about lifepsnas gets debated every few months, but few seem to understand so I guess it is hopeless.

The huge jump in life span is due to better perinatal mortality and to a lesser extent better obstetrics. And higher standards of sanitation.

The post middle age improvement has been small, but of course welcome.

Ha
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Old 07-18-2011, 04:56 PM   #170
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This misunderstanding about lifepsnas gets debated every few months, but few seem to understand so I guess it is hopeless.
What misunderstanding, on the part of whom?
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Old 07-18-2011, 05:19 PM   #171
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What misunderstanding, on the part of whom?
If I may,

Ha pointed out that the increased average lifespan today is mostly a function of decreased child mortality. So to a very large degree, people who survive childhood aren't living longer lives.

The argument therefore isn't so true, that people are living longer based on an average age of death. It does not follow from lifespan data that SS must be insolvent because of extended peoples lives in more recent times.

There are other reasons why SS will become insolvent.
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Old 07-18-2011, 05:45 PM   #172
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If I may,

Ha pointed out that the increased average lifespan today is mostly a function of decreased child mortality. So to a very large degree, people who survive childhood aren't living longer lives.

The argument therefore isn't so true, that people are living longer based on an average age of death. It does not follow from lifespan data that SS must be insolvent because of extended peoples lives in more recent times.

There are other reasons why SS will become insolvent.
From a previous post by a well-respected and modest participant here:

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Originally Posted by samclem View Post
According to the neat WolframAlpha knowledge engine Martha recently steered us to:
-- In 1935, the average person reaching 65 in the US could expect to live to be 77.76 years old, thus drawing on SS for 12.76 years.
-- In 2005. the average person reaching 65 in the US could expect to live to be 83.82 years old, thus drawing on SS for 18.82 years.

So, the average senior is drawing checks for about 1/3 longer now than when the program started. Add in all the other benefits that SS didn't have in the beginning (for kids, disability, etc) plus the demographic changes, and it's easy to see why the Ponzi scheme (beloved as it is) is in trouble.
And, the above comparison understates the case, since in 1935 more people worked a number of years and never even reached 65, so they contributed to SS and never saw a penny of it.
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Old 07-18-2011, 06:03 PM   #173
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That last linked information is in disagreement with other sources:

As I understand it, we are living 2-3 years longer now. That's all. The oft-quoted increased lifespans are almost entirely due to decreased infant mortality and are mis-quoted.

here's one for example:

Howard S. Friedman, Ph.D.: We're Not Really Living Much Longer

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The reality is that the average 1946-born baby boomer retiring this year can expect to live about 18 years. Compare that to his or her grandparents who retired at age 65 in the 1960's and could expect to live 15 years, and you see the proper comparison. The correct evaluation involves life expectancy at age 65, not at birth! The truth, surprising to many, is that the average increase in life expectancy for a 65-year-old is only about three or so years. The increase is even smaller for retirements at ages beyond 65. And the social security retirement age is already being raised by two years (to 67).
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Old 07-18-2011, 06:14 PM   #174
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That last linked information is in disagreement with other sources:

As I understand it, we are living 2-3 years longer now. That's all.

here's one for example:

Howard S. Friedman, Ph.D.: We're Not Really Living Much Longer
My data is not in conflict at all with what you posted. Your source is comparing individuals who turned 65 in "the mid-60's" with those turning 65 in 2011. My computation was for those turning 65 in 1935 vs 2005. I think the 1935 comparison is more appropriate, since that's the data those who designed SS were using. There were many advances in medicine and public health which affected young and old alike between 1935 and 1965: Antibiotics, etc. These welcome advances produced more oldsters, which hurt SS's funding model. Of course, the demographic effects were likely more important, but to say retirees aren't living much longer than when SS was designed isn't right. 30+% more years is a lot.
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Old 07-18-2011, 06:36 PM   #175
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What was the life expectancy in the 18th century when the Founding Fathers didn't see a need to enumerate SS?

SS wouldn't be in trouble if funds weren't diverted to finance tax cuts and wars. And it can be easily fixed as it was in the '80s. Lift the cap and the "problem" goes away.
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Old 07-18-2011, 08:13 PM   #176
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What was the life expectancy in the 18th century when the Founding Fathers didn't see a need to enumerate SS?
Well, folks did tend to die younger. Records for the US are a bit spotty. While life expectancy at birth was 38 in England from 1750-99, what this really reflected was high child mortality. Infant mortality was 17% and only 69% of newborns made it to 15. But those that did make it to 15 could expect to live another 37 years. If you made it through childhood you would likely make it into your 50s, and many lived much longer as 15% of the English men making wills in the 17th century died at age 70 or above.

Data compiled in 1790 by a prominent physician, Dr. Benjamin Rush, indicates that of 100 people born in the city of Philadelphia, more than one-third died before the age of six and only one quarter of the population survived beyond 26. Life expectancy in 1790 for the US population was 34.5 years for males and 36.5 years for females. Dr. Rush was the surgeon for the Pennsylvania Navy, and Surgeon General of Military Hospitals for the Middle Departments during the Revolutionary War. He provided the only surviving records of the Philadelphia yellow fever epidemic of 1773. (More patients died when treated by bloodletting and mercury than when left alone. )
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Old 07-18-2011, 08:17 PM   #177
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RE- my original example, and jdw_fire's claim that higher tax rates can motivate re-investment:

Quote:
Let's put numbers to it - Say a person has a $1M taxable gain. Let's look at it with 50% effective tax rates versus 25% effective tax rates:

@ 50% rates, the $1M is tax is $500K and Take Home is $500K
@ 25% rates, the $1M is tax is $250K and Take Home is $750K

So consider if they invest instead of take the profit, and assume they get a nice 50% return on their investment the next year (or over a number of years), so they have 1.5M taxable gain -

@ 50% rates, the $1.5M is tax is $750K and Take Home is $750K
@ 25% rates, the $1.5M is tax is $375K and Take Home is $1125K

In all cases the take home is greater at lower tax rates. And the delta due to investing is 1.5x greater ($375K vs $250K) at the lower tax rate, which would seem to motivate investment.
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(to jdw_fire): Can you edit my example numbers to show this (that higher tax rates can motivate re-investment)? I'm not following you.
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ok. remember that capital gains tax rates dont change. ... (ERD50-skipping to summary) ...
however since in case 1 the net profit grew, the value of the business grew. using a cap rate of 10% to estimate that value increase, the gross gain in the value of the business is $5M. if s/he decided to sell now s/he gets an additional $4.25M net after taxes from his/her investment. so what was the take home in those 2 cases assuming the business is sold?

case 1 (50% tax rates): 0 + $750k + the value of the business at year 1 + $4.25M

case 2 (24% tax rates): $750k +$750K + the value of the business at year 1

a difference (in favor of the higher tax rates) of $3.5M ...
So I got some time to look at the example you provided, and I guess the answer is "No, higher tax rates cannot be shown to motivate investment w/o resorting to circular logic"?

You used a technique I seem to be seeing more and more of, include the premise in the example to 'prove' the point. In your example, the only reason the owner taxed at a 50% re-invested in the business and not the owner taxed at 25% is because you decided to set it up that way. Let's try an actual comparison, rather than a pre-determined outcome:

For your scenario, you assumed the businesss was sold in year 2. And the value of the business was increased based on the added profit from the re-investment. You used a 10% capital ROI rate, and taxed that added cap gain profit at a fixed 15%. OK. But you never showed what happened if done at the 25% tax rate.

So take the 50% tax rate case - the added $500K profit from investment is only 'worth' $250K after taxes. So if sold, add the increased value of the business ($2.5M, $2.125M after 15% CG tax) to the second year take home ($750K) = $2.875M).

Compare the same actions at 25% tax rates - the added $500K profit from investment is now 'worth' $375K after taxes. So if sold, add the increased value of the business ($3.75M, $3.1875M after 15% CG tax) to the second year take home ($1125K) = $4.3125M).

So $4.3125M with 25% rates, versus $2.875 with 50% tax rates. Some motivation for higher tax rates, hmmmm? Even if you value the business on pre-tax profit (doesn't seem reasonable), the after-tax cap gains are then the same, and the lower tax rate provides more income $ in the pocket of the owner.

Care to try again?

-ERD50
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Old 07-19-2011, 12:25 AM   #178
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RE- my original example, and jdw_fire's claim that higher tax rates can motivate re-investment:



So I got some time to look at the example you provided, and I guess the answer is "No, higher tax rates cannot be shown to motivate investment w/o resorting to circular logic"?

You used a technique I seem to be seeing more and more of, include the premise in the example to 'prove' the point. In your example, the only reason the owner taxed at a 50% re-invested in the business and not the owner taxed at 25% is because you decided to set it up that way. Let's try an actual comparison, rather than a pre-determined outcome:

For your scenario, you assumed the businesss was sold in year 2. And the value of the business was increased based on the added profit from the re-investment. You used a 10% capital ROI rate, and taxed that added cap gain profit at a fixed 15%. OK. But you never showed what happened if done at the 25% tax rate.

So take the 50% tax rate case - the added $500K profit from investment is only 'worth' $250K after taxes. So if sold, add the increased value of the business ($2.5M, $2.125M after 15% CG tax) to the second year take home ($750K) = $2.875M).

Compare the same actions at 25% tax rates - the added $500K profit from investment is now 'worth' $375K after taxes. So if sold, add the increased value of the business ($3.75M, $3.1875M after 15% CG tax) to the second year take home ($1125K) = $4.3125M).

So $4.3125M with 25% rates, versus $2.875 with 50% tax rates. Some motivation for higher tax rates, hmmmm? Even if you value the business on pre-tax profit (doesn't seem reasonable), the after-tax cap gains are then the same, and the lower tax rate provides more income $ in the pocket of the owner.

Care to try again?

-ERD50
maybe we arent understanding each other.

if you are asking me why a person would be more likely to reinvest profits in his/her business if there are higher tax rates it is because any given reinvestment s/he makes in his/her own business will cost him/her fewer after tax dollars when the tax rates are higher. as an example, consider a $1M investment in this person's business. at a tax rate of 25% that investment costs the owner $750K in after tax profits (IOW, the owner has to give up $3 in after tax profit for the investment to only get the government to put $1 into the investment), however, at a tax rate of 50% the investment costs the owner only $500K in after tax profits (IOW the owner only has to give up $1 in after tax profit for the investment to get the government to put $1 into the investment). the business owner gets far more reinvestment bang for his/her after tax buck when there are higher tax rates and i am suggesting that there are some (i am not saying all) business owners who will be motivated to make the reinvestment if tax rates are 50% who wouldnt make the reinvestment if the tax rates are only 25%. (i can remember times in the 1980s and even in the 1990s when investments were made because the tax advantages made them profitable whereas if the tax rates were lower, or someone was in a lower tax bracket, the same investment wasnt profitable. i personally bought real estate that wouldnt have made financial sense for me personally to buy if i hadnt gotten the tax deductions or my personal tax rate had been lower, so dont tell me what i just suggested wouldnt happen.)

now i thought, in the post where you asked me to adjust your numbers, you were making some point that if that owner did make the reinvestment because of the higher tax brackets, in the long run it would turn out badly for him/her and i attempted to show that wouldnt be the case. however since in this line of reasoning the business owner is making the reinvestment because of the higher tax brackets it was appropriate to not have the business owner make the reinvestment in the case where the tax brackets werent higher.
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Old 07-19-2011, 11:32 AM   #179
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maybe we arent understanding each other.

if you are asking me why a person would be more likely to reinvest profits in his/her business if there are higher tax rates it is because any given reinvestment s/he makes in his/her own business will cost him/her fewer after tax dollars when the tax rates are higher. as an example, consider a $1M investment in this person's business. at a tax rate of 25% that investment costs the owner $750K in after tax profits (IOW, the owner has to give up $3 in after tax profit for the investment to only get the government to put $1 into the investment), however, at a tax rate of 50% the investment costs the owner only $500K in after tax profits (IOW the owner only has to give up $1 in after tax profit for the investment to get the government to put $1 into the investment). the business owner gets far more reinvestment bang for his/her after tax buck when there are higher tax rates and i am suggesting that there are some (i am not saying all) business owners who will be motivated to make the reinvestment if tax rates are 50% who wouldnt make the reinvestment if the tax rates are only 25%. (i can remember times in the 1980s and even in the 1990s when investments were made because the tax advantages made them profitable whereas if the tax rates were lower, or someone was in a lower tax bracket, the same investment wasnt profitable. i personally bought real estate that wouldnt have made financial sense for me personally to buy if i hadnt gotten the tax deductions or my personal tax rate had been lower, so dont tell me what i just suggested wouldnt happen.)

now i thought, in the post where you asked me to adjust your numbers, you were making some point that if that owner did make the reinvestment because of the higher tax brackets, in the long run it would turn out badly for him/her and i attempted to show that wouldnt be the case. however since in this line of reasoning the business owner is making the reinvestment because of the higher tax brackets it was appropriate to not have the business owner make the reinvestment in the case where the tax brackets werent higher.

Seems this flawed logic is being debated at other places...

Online Debate: Higher corporate tax rates encourage business investment. | Debate.org


I think that I will go with one of my professors advice when I asked about the gold standard.... he asked me if my friend really believed that it mattered and I said 'yes'.... he said 'there is nothing you can say to change his mind'....

So, there is nothing I can do to change your mind that your logic is flawed... there is a lot of evidence to show WHY it is flawed out there.... I don't wish to waste my time looking for it.....


Your real estate example is not valid... you were getting deductions from the gvmt that made it more profitable to invest which caused capital to be invested in a place that was not the best investement without that tax incentive.... IOW, if the only reason you invested was for tax reason it is a bad use of capital....
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Old 07-19-2011, 11:49 AM   #180
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maybe we arent understanding each other.
Well, I re-read your earlier posts, and this post, and I do believe I'm understanding you perfectly. You support higher tax rates, period.

The relavent question is not "Can I present a scenario where someone re-invests with 50% tax rates?", the relavent question is "Do 50% tax rates provide more/less incentive to re-invest than 25% tax rates?".

I don't have time now to provide examples point by point, but I notice you provide 'explanations' of how a business owner might behave - but you totally ignored my numbers that show re-investing with 25% tax rates puts more in the pocket of the owner, and the ratio of money in pocket w/wo re-investment is the same. It is not greater with higher tax rates. Seems to me the bottom line is the motivator for a business.

Quote:
the business owner gets far more reinvestment bang for his/her after tax buck when there are higher tax rates
Show me this mathematically, without resorting to the subjective owner perception of the value of his after-tax $. That is subjective - is re-investing $750K a 'bigger' sacrifice @ 25% rate, or is $500K a 'bigger' sacrifice @ 50% rate? In either case, they give up 100% of their income to re-investment. If we look at it just a little differently, clearly it would be less of a 'sacrifice' for the $750K take home person to re-invest $500K than the $500K take home person. With $750K income, he (or she/it - I'm not going to type it each time) would still have $250K take home to enjoy. So who is more likely to re-invest $500K?


Quote:
i personally bought real estate that wouldnt have made financial sense for me personally to buy if i hadnt gotten the tax deductions or my personal tax rate had been lower, so dont tell me what i just suggested wouldnt happen.
I won't suggest that it couldn't happen, I'm saying that as far as general trends, it doesn't make economic sense that higher tax rates motivate re-investment and it won't happen generally. CFOs will make the same calculations that I did.

Quote:
...however since in this line of reasoning the business owner is making the reinvestment because of the higher tax brackets it was appropriate to not have the business owner make the reinvestment in the case where the tax brackets werent higher.
And that is circular logic. IOW, to 'prove' that red cars are faster than blue cars, I painted this very fast car red, and a very slow car blue. And so it goes. All you 'proved' is that re-investing in a very profitably business will increase the value of the business and increase future profits. You did not demonstrate that higher tax rates motivate this more than lower tax rates.

Of course, we can investigate behavioral changes till the cows come home. If higher tax rates mean an owner isn't going to get as much absolute $ reward for his investment, then he will likely look for alternatives. Don't re-invest at all, re-invest somewhere with a lower tax rate (that option is available to some businesses), etc.


BTW, what is with your aversion to capitalizing the first word of a sentence? Clearly, both of your shift keys are not broken, as uppercase characters appear in your posts. It really does make reading your posts more difficult, and to be honest, they are hard for me to follow to begin with. There is a reason for the convention.

-ERD50
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