Tax Cuts Extended to All Americans

[M Paquette]

Quote:

Originally Posted by samclem At the age of 5 I realized I was sponging off society--using water from the municipal supplies, same for electricity, sewer, the roads used by my parents to bring food to our home, etc. So, I built a raft and established domicile in international waters (no longer dependent on a central government for protection), built a solar still from refuse I found, and survived on plankton strained through my tee shirt. I busted my butt, but I was happy. I don't owe anybody anything. Cue the Four Yorkshiremen . . .

Oh, you had a RAFT, and REFUSE, and a Tee shirt! Sheer luxury!

[clifp]

Quote:

Originally Posted by samclem At the age of 5 I realized I was sponging off society--using water from the municipal supplies, same for electricity, sewer, the roads used by my parents to bring food to our home, etc. So, I built a raft and established domicile in international waters (no longer dependent on a central government for protection), built a solar still from refuse I found, and survived on plankton strained through my tee shirt. I busted my butt, but I was happy. I don't owe anybody anything. .

Not only that but you paddled to shore everyday, to work for the air force for free and you even supplied your own plane and mechanic.

[FreqFlyer]

Wealth redistribution comes in many forms. It's not just the cash payments to the unemployed or the poor (welfare, medicaid) which seem to get all the attention.

Child tax credits/deductions for example. Children don't "pay" into the system for the government services they enjoy. Shouldn't parents pay extra rather than less?

In countries without big-government social safety nets the kids work in the fields or in factories. These kids help feed their families. Kids in America run up massive student loans while majoring in art history or (gasp) french literature.

Just a modest proposal..

[Independent]

Quote:

Originally Posted by GregLee I'm convinced of the importance of small businesses to our economy, but since not all small business owners are rich and not all rich people are small business owners, I don't think it is clear that increasing taxes for the rich will harm the economy.

Yes.

[Independent]

Quote:

Originally Posted by ERD50 It's all a matter of degrees, and you seem to want to turn it into all-or-nothing. So you agree that (in general) the business managers and/or owners have a rarer skill set (and/or work harder or whatever) and are generally better compensated for that. No one should be saying that increasing the marginal rate on them is going to stop them dead in their tracks. But it is just a simple economic fact of life that if you reduce the effective compensation for a position, you are going to reduce the demand for that position. Just as raising the price of a product reduces demand for the product. How can anyone argue that? On average, people just aren't going to work as hard and top people won't compete for those positions as much if you offer them less. Again (and again) - we don't know where we are on the Laffer curve, so we can't say whether increasing marginal rates would drag the economy more than it takes in or not. But I can't see how anyone can reasonably argue that it would not be somewhat of a drag on the economy. And that includes encouraging companies to move off-shore. I think we need to proceed with caution rather than just automatically assume that taxing the 'rich' is the answer. The more I think about something I said earlier, the more I'm beginning to believe in it - if we want people to really understand this whole Federal deficit and spending issue, maybe we need to raise Federal Income Taxes on everyone. If that 50% of filers that on average provide only 1 or 2% of the FIT revenue (or get a credit) suddenly saw they had to pay a flat 10% because of all the government spending and interest, there might be a whole lot more people pushing for real solutions when they go to the ballot box. As long as some 'rich guy' is paying the bill, why should the majority of voters give a hoot about Federal spending?

I'm quite confident that we're on the left side of the Laffer curve for almost all taxes in the US. I've never seen a "serious" economist who disagrees with that. The US Treasury did a study of the 2001 tax bill back when Bush was president. Their number was about 93%. That is, if the "static" analysis shows that you lose/gain $1.00 in revenue, then the "dynamic" analysis shows that you should offset that by $0.07 in taxes on the increased/decreased economic activity, so your net loss/gain is $0.93. They had different impacts for different parts of the bill, so some were further to the right, but I don't recall anything paying for itself.

But the real decision isn't "taxes or no taxes" it's "how do we shift taxes around?" The claim is that the lost economic activity when you raise taxes on high income people is greater than the lost activity when you raise taxes on middle class people. That's the thing that I've never seen validated.

Quote:

Or we could up the ante' - how about a head tax for everyone? Now there is a 'flat tax' for you - everyone share equally, amount-wise rather than %-wise!

Exactly. Do you really want a head tax? If not, why not? Even a flat-rate tax on income will collect more dollars from someone who works more hours than a similar worker who just doesn't work overtime. Is that "fair"? We're really talking about how tilted taxes should be, not whether or not there should be a tilt.

[Independent]

Quote:

Originally Posted by EllisWyatt Point of fact, I agree. Rich people should not have special tax rules. Unfortunately, the Federal Tax code does not agree, and so "rich" people are taxed at a special (ie., higher) tax rate than the "average Joe". So, if you don't want the rich to be taxed at a special rate, do you advocate a flat tax for everyone?

Okay, I should have been more careful with the wording. People disagree on how much our taxes should be tilted and will provide various pros and cons for their positions. I think lines like "A poor person never gave me a job" are misleading and therefore don't count as valid arguments. I was trying to say that $100,000 in the hands of 100 middle income people will generate just as many jobs or just as much productivity growth as the $100,000 dollars in the hands of one high income person.

[ERD50]

Quote:

Originally Posted by GregLee I'm convinced of the importance of small businesses to our economy, but since not all small business owners are rich and not all rich people are small business owners, I don't think it is clear that increasing taxes for the rich will harm the economy.

Quote:

Originally Posted by Independent Yes.

So are you saying that you just don't accept the laws of supply and demand? Increasing the costs of something will diminish the demand for it, plain and simple. How much is debatable, but not 'if'. If the price of a Big Mac is raised one penny, there will be an effect. Otherwise, they'd just keep doing it.

Of course, whatever good the government does with the money can have an offsetting effect. So if the government used the money more wisely than private citizens (), it could be a good thing. But then I guess we'd all be clamoring to have our taxes raised and be relieved of all these purchase decisions we need to make. Govt Vodka, Govt Cheese, Govt TV, Govt Cars (whooops!).


RE: (paraphrasing), 'more of something good is always better':

Quote:

Originally Posted by GregLee This analogy does not serve your point well. It's so wrong, it's a job to figure out what you're getting at.

I'm curious if you 'get it' now that it has been more fully explained.

-ERD50

[haha]

Wow, very impressive spawn of my simple news report on the tax bill. Way to go guys!

Ha

[GregLee]

Quote:

Originally Posted by ERD50 I'm curious if you 'get it' now that it has been more fully explained.

I said it was a job to figure out, not that I couldn't do it. It was such a miserable analogy that it made your point more obscure, rather than clarifying it, as I suppose you meant the analogy to do. I believe I did understand your intention in making the analogy (though I don't agree with you at all). I hope I'm approaching clarity, here. I haven't wanted to go into substantive issues about the value of screening colonoscopies, because that would be a distraction from the arguments in this thread.

[ERD50]

Quote:

Originally Posted by Independent I think lines like "A poor person never gave me a job" are misleading and therefore don't count as valid arguments. I was trying to say that $100,000 in the hands of 100 middle income people will generate just as many jobs or just as much productivity growth as the $100,000 dollars in the hands of one high income person.

I'm not sure you made that point at all (though this thread is getting long, I may have missed it).

You did make the point that those 100 middle income people may well create as much demand for jobs as 1 rich person. I can accept that as a hypothetical (might even be more). But remember, those homeowners aren't going to separately deal with every laborer and co-ordinate the work. That takes a businessperson/manager, and they likely make a better buck to take on that work. If they get less compensation, expect fewer of them (or they marginally work less hours, and take on less jobs as it is marginally worth less to do so). With fewer of those managers available, you are going to have to compete harder for their business (and the ones that stay in the business are the ones who couldn't find higher paying work - probably not the best/brightest). Prices go up for these services, and some people decide to do without - whoops, fewer jobs for those workers now!

The paycheck is literally coming from the businessperson, not the homeowner (it is indirectly). Hence the saying. Again, it takes two to tango.

Quote:

Originally Posted by Independent I'm quite confident that we're on the left side of the Laffer curve for almost all taxes in the US.

I would not be surprised at that.

Quote:

But the real decision isn't "taxes or no taxes" it's "how do we shift taxes around?" The claim is that the lost economic activity when you raise taxes on high income people is greater than the lost activity when you raise taxes on middle class people. That's the thing that I've never seen validated.

Well, I don't think I ever claimed that, and it might or might not be true. I'm simply responding to the claims that taxing the rich will not affect them at all. I don't think that is right either. There may very well be a multiplier effect. We need someway to understand the sum total of the relative effects.

But I'll re-repeat myself - I am thinking that raising taxes on everyone to the point that we would balance the budget and make a dent in the debt would get enough voters attention to actually start changing policy approaches. Announce a 10 year phase in to give people time to think about what it means. Of course, politicians won't do this, they hope to kick the can down the street. One of these days I'm afraid they are going to find an angry mob at the end of that street, picking up the can and looking to do some damage.

Quote:

Exactly. Do you really want a head tax? If not, why not? Even a flat-rate tax on income will collect more dollars from someone who works more hours than a similar worker who just doesn't work overtime. Is that "fair"? We're really talking about how tilted taxes should be, not whether or not there should be a tilt.

No, I don't think a head tax is workable. But I like to throw it out there as sort of a mental "reset button" when we talk about flat versus progressive. A head tax could be considered 'fair' by some, so it's worthy of discussion, right?

I'm in favor of progressive taxes. And tax simplification so that actually has some meaning. I just don't like the knee-jerk reaction that taxing the rich even more, while half the filers pay such low single-digit average FIT is a slam-dunk 'solution'.

-ERD50

[lets-retire]

Quote:

Originally Posted by haha Wow, very impressive spawn of my simple news report on the tax bill. Way to go guys! Ha

And the discussion is still mostly civil.

[ERD50]

Quote:

Originally Posted by haha Wow, very impressive spawn of my simple news report on the tax bill. Way to go guys! Ha

I had to go back and read the first post. Totally forgot how this started. Good work!

C'mon in and join the conversation, the water's getting warm.

Now I need that hour of my life back!

-ERD50

[clifp]

Quote:

Originally Posted by Independent Okay, I should have been more careful with the wording. People disagree on how much our taxes should be tilted and will provide various pros and cons for their positions. I think lines like "A poor person never gave me a job" are misleading and therefore don't count as valid arguments. I was trying to say that $100,000 in the hands of 100 middle income people will generate just as many jobs or just as much productivity growth as the $100,000 dollars in the hands of one high income person.

The Atlantic's economist Megan McArdle discussing the CBO findings on the subject here

Quote:

According to CNN, the two-year cost of the tax cuts for high earners will be about $75 billion, while the estimated cost of the cuts for incomes below $250,000 is about $310 billion, or four times larger. In other words, in the "high estimate" world, a $300 billion stimulus composed only of tax cuts on income above $250,000 would reduce unemployment by 40 basis points, while one of a similar size composed entirely of tax cuts on income below that level would lower it by about 50 basis points. That isn't nothing, but it isn't a particularly large difference in effectiveness, either.

Looking at the numbers the low estimate looks like requires 600K in tax cuts on middle class folks and $750K for upper income people for each new job and the high estimate requires something like 150-200K in tax cuts per new job.

In a later post she discusses the theory (which seems intuitively correct to me.) that we should extend only unemployment benefits and tax cuts for the wealthy but not for the middle class Unemployment, because people out of job for a year generally desperately need the money and will immediately spend it. The high income people will spend the money on something stimulative a yacht or a Vail/Hawaii vacation or invest in a business. The middle income people who are understandable scared don't have enough money to create a job, so they will save the money or pay down debt so no need to give them a debt increasing tax cut. Needless to say this approach has zero political support.

I think a lot of humility is called for. We are in uncharted waters and the effectiveness of any policy is pretty much a SWAG (scientific wild ass guess)

[ERD50]

Quote:

Originally Posted by GregLee I believe I did understand your intention in making the analogy (though I don't agree with you at all).

If you don't agree with it, you must not be understanding it!

Ok, so if the colonoscopy anal-ogy ( ) was too obscure, I'll bring it back more to the point. All I'm saying is that some well intentioned social services can seem like a very good thing in isolation, but when you look at the big picture and the long term effect, maybe they are actually doing harm over-all?

Was providing 'free education' for K-12 really a good thing in the long run, or did it wipe out competition from the private sector and end up lowering education standards in the US? Some thought 'Cash for Clunkers' provided some feel good something, but it did it accomplish anything at all? Is giving rebates for a 96% eff furnace but not a 95% furnace (or whatever the numbers are) really a good use of MY money, (though someone can say 'it is greener')? And on and on. We need to take a harder look at what the govt is doing and the effects it has. They aren't always as positive as they might appear on the surface.

-ERD50

[GregLee]

Quote:

Originally Posted by ERD50 All I'm saying is that some well intentioned social services can seem like a very good thing in isolation, but when you look at the big picture and the long term effect, maybe they are actually doing harm over-all?

Yes, that's what I understand you to be saying. Here is what I'm saying: there's miles of difference between what may be and what is. I am willing to concede that income redistribution which is intended to have good effects may actually, as it turns out, have bad effects. I am willing to concede that when income redistribution has had a good outcome, that as good, or an even better outcome may have been obtained without redistribution. But showing that a thing is conceptually possible does not show that it's true. The case that you present us is just a bunch of maybes.

[Independent]

Quote:

Originally Posted by Westernskies Here are a few facts about those insignificant small business owners; many of whom would be negatively impacted by higher taxes, from the US Department of Commerce to chew on... (#4 is especially interesting with unemployment hovering around 10%)

This was addressed to me so I should reply, but I think M Paquette already covered the important issue - only a handful of the "small businesses" included in these numbers would be likely to hire someone because a a drop in individual income tax rates. Even fewer will hire because of a drop in dividend and capital gains rates.

My daughter is a small business owner who doesn't net enough to be impacted by this tax. She's in your numbers. The farmer I talked to last night is in your numbers, but he's not making $250,000 taxable, and if he were he wouldn't be hiring anyone. Similarly, my brother-in-law is in a two person real estate investment company. They will have enough income to be impacted by this tax decision, but they aren't going to hire/not hire because of this tax.

Maybe you have some better stats that reflect the types of people you're thinking about, but the numbers you provided include far too many businesses that clearly shouldn't be counted.

But, of course that still leaves the issue that prompted my first post. Even to the extent that small business owners may be impacted and change their behavior, it's hard for me to see that the same dollars wouldn't produce the same economic impact in some other hands.

[Independent]

Quote:

Originally Posted by ERD50 I'm not sure you made that point at all (though this thread is getting long, I may have missed it). You did make the point that those 100 middle income people may well create as much demand for jobs as 1 rich person. I can accept that as a hypothetical (might even be more). But remember, those homeowners aren't going to separately deal with every laborer and co-ordinate the work. That takes a businessperson/manager, and they likely make a better buck to take on that work. If they get less compensation, expect fewer of them (or they marginally work less hours, and take on less jobs as it is marginally worth less to do so).

I can see that if taxes go up on managers but nobody else, we would have to pay managers more pre-tax to keep the same number.

Quote:

With fewer of those managers available, you are going to have to compete harder for their business (and the ones that stay in the business are the ones who couldn't find higher paying work - probably not the best/brightest). Prices go up for these services, and some people decide to do without - whoops, fewer jobs for those workers now!

But I don't get this. Businesses will not stop hiring managers. Similarly, if we tax plumbers more we may have to pay them more to get them to come to work. I don't see how raising taxes on managers does more damage than raising taxes on plumbers.

Quote:

The paycheck is literally coming from the businessperson, not the homeowner (it is indirectly). Hence the saying. Again, it takes two to tango.

I'm arguing against the "who wrote the check" fallacy. When the gov't taxes gasoline, the check for taxes literally comes from the refiner, but nobody believes that the refiner isn't able to pass it along to someone else. The real economic impact is different from who writes the check. The fact that a rich person may sign my paycheck doesn't mean that the rich person is somehow the only critical player in this multi-person economic arrangement.

Quote:

[ Indy-The claim is that the lost economic activity when you raise taxes on high income people is greater than the lost activity when you raise taxes on middle class people. That's the thing that I've never seen validated.] Well, I don't think I ever claimed that, and it might or might not be true. I'm simply responding to the claims that taxing the rich will not affect them at all. I don't think that is right either. There may very well be a multiplier effect. We need someway to understand the sum total of the relative effects.

Apparently we've been talking past one another. I'm not claiming that taxing the high income has no impact, I'm saying the impact isn't greater. That was the point of the $20 million house example. I'd make the same claim about both "management" and "capital" which you brought up in the next post. Taxes impact their use and availability. But the damage done by taxing high income people, which sometimes converts into taxing management or capital, is no greater than the damage done by taxing middle income people, which also converts into taxing labor, management, and capital but in different ratios.

Quote:

But I'll re-repeat myself - I am thinking that raising taxes on everyone to the point that we would balance the budget and make a dent in the debt would get enough voters attention to actually start changing policy approaches. Announce a 10 year phase in to give people time to think about what it means. Of course, politicians won't do this, they hope to kick the can down the street. One of these days I'm afraid they are going to find an angry mob at the end of that street, picking up the can and looking to do some damage.

I can agree almost completely. I'd change "every" to "any". I think that almost any tax scheme that puts all the cost of government on individuals, (clearly, so people can see what gov't is costing them) would be a major improvement. I think high income people have far more impact on the political process than their numbers suggest because money is so important in modern US politics. So if we really balanced the budget by taxing just the high income, I think we'd have a (well dressed) mass of people getting in congress' faces. That would probably reduce spending just as effectively as the same dollars in taxes spread out over everyone. But I can't say I've got a strong preference. Like almost everyone else who posts here, I'd go with the Simpson/Bowles proposal, not because I think it's perfect but because almost anything that balances the budget is better than where we are today.

Quote:

No, I don't think a head tax is workable. But I like to throw it out there as sort of a mental "reset button" when we talk about flat versus progressive. A head tax could be considered 'fair' by some, so it's worthy of discussion, right? I'm in favor of progressive taxes. And tax simplification so that actually has some meaning. I just don't like the knee-jerk reaction that taxing the rich even more, while half the filers pay such low single-digit average FIT is a slam-dunk 'solution'. -ERD50

[ERD50]

Quote:

Originally Posted by GregLee Yes, that's what I understand you to be saying. Here is what I'm saying: there's miles of difference between what may be and what is. I am willing to concede that income redistribution which is intended to have good effects may actually, as it turns out, have bad effects. I am willing to concede that when income redistribution has had a good outcome, that as good, or an even better outcome may have been obtained without redistribution. But showing that a thing is conceptually possible does not show that it's true. The case that you present us is just a bunch of maybes.

Good, I think we are communicating now. And yes, what I am presenting is a bunch of maybes, no question about it. We agree.

They are maybes, which means we need to think long and hard about these programs. Are they doing good overall, or not? But some on this forum just seem to want more and more, based on some anecdotal good stories (while ignoring anecdotal bad stories), and don't want to consider the 'maybes', or the overall benefit. That is what I have a problem with.

That doesn't seem so controversial does it? Or anything for people with different viewpoints to get upset about? Let's just understand what we are doing, and do the best we can we can with what we have. It's basic common sense, who can disagree?

-ERD50

[myself]

Quote:

Originally Posted by Texas Proud I fully understand (at least I understand what I believe I understand )... But Westerskies was making an argument that he did not get any extra benefits of society that would have helped him achieve his level of success... one of those was a statement that he paid 100% of his tuition. I just pointed out that even if he did so, going to a state university and paying 100% means taxpayers in that state paid for him to go also....

Just as ANY other person who attended that same state college at the same time would have done.

You see, what Westernskies was stating was not just that he paid 100% of this tuition. It was that he paid 100% of the tuition that was charged, just like the other students that experienced the same financial situation as he did. Or he is driving on the same roads as the rest of the people that drive in the same areas.

I think that is the part that you're not fully understanding. if you have 2 people paying the same tuition, then Student A didn't receive and additional benefits that Student B received.

Out-of-state students seem to always pay more than in-state students as far as I've seen. I think it is ridiculous, since they receive nothing extra due to they're living out-of-state (unless you count living in a low property tax state, but commuting to a high property tax state college).

[myself]

Quote:

Originally Posted by FreqFlyer Wealth redistribution comes in many forms. It's not just the cash payments to the unemployed or the poor (welfare, medicaid) which seem to get all the attention. Child tax credits/deductions for example. Children don't "pay" into the system for the government services they enjoy. Shouldn't parents pay extra rather than less? In countries without big-government social safety nets the kids work in the fields or in factories. These kids help feed their families. Kids in America run up massive student loans while majoring in art history or (gasp) french literature. Just a modest proposal..

Personally, I think that the fundamental reason for the child tax credits is that they will more than make up for the money that the parents would pay if the credit wasn't available. After all, don't they want more people to fund the gov't coffers.