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Do tax breaks for the wealthy work?

Babe_Ruth

Sultan of Swat
Staff member
V.I.P.
Do tax breaks for the wealthy and the corporations really spur economic growth?
 

CaptainObvious

Embrace the Suck
V.I.P.
There are a myriad of factors that affect economic growth and it's incorrect to give a definitive yes or no. Generally speaking, yes, they spur economic growth. That does not mean just because you cut their taxes the economy will grow however.
 

Merc

Problematic Shitlord
V.I.P.
With a country that doesn't give a damn about outsourcing, no they don't seem to stimulate any growth. But that's just my opinion. I feel like I need to say that all the time now. Sad really.
 

Ilus_Unistus

Registered Member
From economic stand point, it should help any economy to give the wealthy tax breaks. This does not mean it always helps. CO is correct to say there is no "yes or no" answer, it greatly depends on more factors than just tax breaks for the wealthy, but to me seems a step in the right direction.
 

CaptainObvious

Embrace the Suck
V.I.P.
From economic stand point, it should help any economy to give the wealthy tax breaks. This does not mean it always helps. CO is correct to say there is no "yes or no" answer, it greatly depends on more factors than just tax breaks for the wealthy, but to me seems a step in the right direction.
I agree that it is. Since the Coolidge administration each time the marginal tax rate, that is the highest tax rate, was cut there was a boost in the economy. That isn't to say it's the only factor, but as you stated, it was a step in the right direction.
 

japedol

Registered Member
By definition tax cuts always lead to short term growth. Short term growth by itself doesn't equate to long term economic health though. The trade off between government revenues and growth is an important one.

In nations with very high income taxes, in the prohibitive area of the Laffer Curve, lowering them will have a greater stimulative effect. High taxes can dissuade people from working, and can shrink the savings that are used to finance business.

However, if taxes are already sufficiently low, lowering them will have only a minimal effect, since there is already a strong incentive to work, and savings are already strong.

For example, if I was the king of France and I wanted to boost growth, I would cut income taxes. If I was the king of America, I would increase government spending.

Conversely, if I was the king of France and I wanted to decrease the deficit while not harming growth to much, I'd lower spending. If I was the king of America, I'd increase taxes.

Corporate taxes are just bad. Taxing the stage of production can really hurt, well productivity. Profits from exports and domestic sales are reduced, debts as compared to profits grow, opportunities for expansion shrink. In America, the corporate tax does not apply to taking on debt. In other words, if you profit by selling stocks, you have to pay a tax, but since we culturally view debt as a nasty thing, financing through debt is tax free. Business's then, have an incentive to finance themselves through debt and not stocks, which is risky, and which favours large business's which are better able to issue bonds.
 

Bananas

Endangered Species
Do tax breaks for the wealthy and the corporations really spur economic growth?

Yes they do, by reducing the financial contribution of large corporations the burden to maintain the social budget is passed to the small and medium business owners who are the economic backbone of most countries..

The worst part about it is not only do the large companies get tax breaks, they also take every measure to tax dodge. At the same time they control the markets, price fix and basically throw their weight around making the sectors uncompetitive for the small/medium sized business.
 

maat

Registered Member
In principle, leaving money in the hands of the earner to invest or spend, will have better results in the economy than when conficated by an inept government.
 

Strayjack

Registered Member
It is factual to say that when you cut taxes, government revenue increases. The problem comes in when the government become greedy, over spend, get into debt, and now look for a fall guy. Taxation is infringing on liberty in my opinion.

Taxing the wealthy infringe on their ability to expand and create. You tax the heck of the wealthy, where do the money go? Why would the wealthy continue to support the notion of getting taxed more for their ability to create wealth only to be redistributed?

Out sourced jobs are not problems strictly created by the wealthy but the government who demanded more from businesses through heavy regulations. Outsourcing is just part of being innovative when it comes to beating government bureaucracy and regulations. The push towards beating the government could possibly one reason why we see a lot of scrupulous dealings by corporations, big or small. "Necessity is the mother of all innovation."

Taxing the wealthy MORE is not the correct approach to the current problem. We need to fight the government to simplify the tax codes, etc.. We have so many people not contributing to the wealth of the nation but simply leech on the wealth others create. There are moral and ethical dilemmas that our government seem to shove for us to solve, but when the solution is presented, they simply ignore.

There is no perfect philosophy to system of government. I believe that the U.S. constitution is exceptional to other system, that in it's experimental stage, continue to be the best and capable of being the best nation on earth. Other system have been tried and failed. Why continue to perfect something that is proven not to work, but instead focus on something that actually work and just make it better?
 

japedol

Registered Member
It is factual to say that when you cut taxes, government revenue increases. The problem comes in when the government become greedy, over spend, get into debt, and now look for a fall guy. Taxation is infringing on liberty in my opinion.

Taxing the wealthy infringe on their ability to expand and create. You tax the heck of the wealthy, where do the money go? Why would the wealthy continue to support the notion of getting taxed more for their ability to create wealth only to be redistributed?

Out sourced jobs are not problems strictly created by the wealthy but the government who demanded more from businesses through heavy regulations. Outsourcing is just part of being innovative when it comes to beating government bureaucracy and regulations. The push towards beating the government could possibly one reason why we see a lot of scrupulous dealings by corporations, big or small. "Necessity is the mother of all innovation."

Taxing the wealthy MORE is not the correct approach to the current problem. We need to fight the government to simplify the tax codes, etc.. We have so many people not contributing to the wealth of the nation but simply leech on the wealth others create. There are moral and ethical dilemmas that our government seem to shove for us to solve, but when the solution is presented, they simply ignore.

There is no perfect philosophy to system of government. I believe that the U.S. constitution is exceptional to other system, that in it's experimental stage, continue to be the best and capable of being the best nation on earth. Other system have been tried and failed. Why continue to perfect something that is proven not to work, but instead focus on something that actually work and just make it better?
1. I wouldn't agree that it's "factual" that lowering taxes increases government revenue. Not even supply side economists agree with this. Tax revenue decreases when taxes enter the prohibitive area of the Laffer Curve but - this being a curve we're talking about - tax receipts will shrink if taxes are dropped to to low a level. So whether a tax raise or drop garners more revenue is really circumstantial.

It's worth noting that the U.S. certainly does not have a prohibitive tax code. Laffer's idea was that lower taxes would increase the benefit of working harder, and would increase the pool of national private savings, which fuel long term investment in capital. The U.S. can't, imo, have a prohibitive tax rate because the supply of labour in America is about zero. Most studies indicate that America's low tax rate, and America's scant social security net, encourage almost no one to be a parasite on the system. Secondly, there is a huge amount of liquidity and minimal amounts of risk taking in America's financial sector right now, so increased after tax savings would only go to finance safe bond purchases, index shares, and things would have a minimally positive pressure on US growth.

The US has not had a prohibitive tax code for a long time. Tax reciepts after the income tax raises of Bush and then Clinton out-shone the results of "Reaganomics", even though he cut taxes. Investment in fixed income - which Laffer correctly thinks drives long term growth - was not impressive during the eighties.

The observation that the eighties saw a dramatic increase in tax revenue was in fact the observation of the Accelerator Effect - when economies in recession recover, they accelerate forward, so that a growth chart would look distinctively curved. America was in recession for the first years of the eighties. A dramatic increase of tax receipts would be expected, although the actual hard amount of revenue was not impressive.

A cut from America's seventy percent top income tax rate was certainly warranted, and maybe that was even a prohibitive rate, meaning Reagan's cuts would have increased revenue. But, if so, not much. Cutting taxes would definitely not raise a penny in revenue today.

2. "Taxing the wealthy infringe on their ability to expand and create. You tax the heck of the wealthy, where do the money go? Why would the wealthy continue to support the notion of getting taxed more for their ability to create wealth only to be redistributed?"

I doubt that the very rich would want to stop being rich because the tax rate made them slightly less rich. Laffer's idea that lower rates would spur work, would apply mostly to the cost-benefit of working ones way up through a company, or to aspiring entrepreneurs and small business owners (the vast majority of whom would not see a tax increase if Obama increased the top rate). Corporate executives won't stop being corporate executives because they are less enormously wealthy. So, I don't think a tax raise right now would much prevent the very rich from working hard.

Unless, of course, we're speaking of the corporate tax, another target of supply side economists, and not the income tax. Well, in that case, I agree. The corporate tax should be wholly abolished. Taxing production directly is a bad move in my opinion.

Laslty, the rich may support a redistribution of some of their wealth because that is what jives with their political beliefs. Remember, a LOT of rich people lean left. Warren Buffet and George Soros, two distinguished capitalists, are left leaning.

George Soros even made it a habit of of helping to topple communist governments, in the hopes of implanting democratic capitalist governments. He's a hedge fund manager. He loves capitalism. He's uber rich. And he's also a leftist.

3. About outsourcing. Firstly, the US is a net insourcer of jobs. But yes, regulations raise the cost of doing business and can dissuade business's from setting up shop in the US. And some regulations are monumentally dumb; be it because they distort incentives to produce inefficiency's, or because they restrict business needlessly, serving only to make them less efficient. However, regulations also give us cleaner rivers, bluer sky's, less labourious childhoods...Also, prudent regulation mitigates the volatility inherent in the financial system, which would attract foreign capital. Regulation enforces contracts and property rights, and protects investors from fraud and financial uncertainty; this is one of the reasons the world continues to use America as its safety deposit box, and not Somalia.

4. "The push towards beating the government could possibly one reason why we see a lot of scrupulous dealings by corporations, big or small. "Necessity is the mother of all innovation.""

I think the unscrupulous dealings of business is actually explainable. By unscrupulous, I guess you mean, over-leveraging, gambling in derivatives. That sort of thing.

I think this was caused by a global inbalance of savings. Emerging markets sign FTA's with the West, promising to lower tariff barriers. However, they don't dismantle capital controls as well. This is a huge problem.

No country can lose money to another in trade. A nation can have a "trade deficit", meaning they consume more from foreigners then foreigners do from them, but a trade deficit is always offset by a capital surplus, a surplus of investment.

Emerging markets make it very hard for rich world people to invest in their nations, but make it easy for them to buy their goods. This results in large trade deficits. Also, the emerging world has a high savings rate and, since the West doesn't have much capital controls, they tended to use America as their high interest savings account...foreign business started investing and lending in America en masse.

An increase in the supply of loanable funds decreases the price of loanable funds, which is interest. This encourages unscrupulous borrowing by households, corporations and governments alike. (Hyper-indebted American's who complain about corporate borrowing and gambling need to look themselves in the mirror).

What made all this worse was the housing bubble, which was driven by the securitization of mortgage debt...which just made it super profitable and "risk-free" to lend to, like, cocaine addicted hobo's. Surprisingly this was not sustainable, and the global financial system, which had gobbled up mortgage securities, collapsed.

Now, you can't say deregulation caused this, because regulations concerning derivatives hadn't existed(because derivatives are very new things). Also, the government played a huge part in this. Government charted, mandated and funded "private" corporations bought and securitized around seventy percent of the bundled mortgages. They acted as a huge part in this toxic chain, AND cost you guys lots of tax dollars when they went under.

However, the governments zealousness to score political points with the underprivileged aside, you could definitely blame this on a lack of regulation. Securitization allows banks to easily sell their liabilities. Think about that. They have no incentive to make GOOD mortgages, just MANY mortgages, and then sell them for a profit. And much more then just mortgage debt can be securitized. While I doubt the market will ever fully trust asset backed securities again, the government should definitely, imo, erase this ticking time bomb from existence (though, I can't think of a way how. Banning the instruments over night would, like, start a depression in the emerging world, which has recieved a lot of investment just because securitization reduces the risk of investing there).

Things like a higher reserve requirement for banks would have limited the bubble. Controls on the sorts of mortgages banks could issue would have forced them to issue more sustainable ones.

So, yeah, regulations can be dumb. But they can be good to I think.


5. "Why continue to perfect something that is proven not to work"

Keynesian, regulated Capitalism is proven TO work, I think. Short term price variations are much smaller. Growth during the post war period was much more impressive then in the laissez-faire era. Intermittent recessions interrupted by a deep depression every two decades is no longer normal...in fact, that just doesn't happen anymore. And we are so efficient, that we could maintain our efficiency WHILE helping out the poor, the elderly, and making our lives more comfortable in general.

Nations like Canada, Australia, Hong-Kong, Switzerland and South Korea are my favourite types of economy's. Most of the ones I listed are freer then the United States. They are also prudently regulated, and their fiscal policy's are prudent. They also all have nice things like universal healthcare, paid for by the immense wealth that capitalism is solely capable of generating.

6. Lastly, I'd like to say that I do really like supply side economics. Supply does reduce costs to business, and increases choice. Lower taxes, if taxes are to high, can be a great way to go. But there are other things then just tax cuts that increase supply, cut costs, and increase choice for business. Quality roads, rail, and ports, and well educated and skilled workers; tuition subsidization, adult education programs, as well as increased immigration quota's, would all increase supply, and would all be smart moves.

It's interesting, that even though America has a huge unemployment rate, company's right now are often complaining about one thing: they can't find the sort of skilled workers they want! Taxes to the government can help remedy this, and can amplify what the private sector is capable of. Like, in some cases, low taxes.
 
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