The bogus crusade against "tax cuts for the rich"

[dumbuser]

The whole article is simply beautiful.
Scrolling down in the linked webpage will also reveal other beauties like: The Damaging Legacy Of Clintonomics!
All in all, a great read even to a non-American like me.

full story at: http://www.iconoclast.ca/MainPage.asp?page=/newPage20.asp
THE BOGUS CRUSADE AGAINST 'TAX CUTS FOR THE RICH'
-- The Populist Prescription For Economic Stagnation
by R. Bastiat, Iconoclast Economics Editor

Every Democratic contender for the 2004 presidential nomination has vowed to roll back -- in full or in part -- the tax rate reductions that were enacted as part of the Bush administration's effort to revive the US economy from the stupor that has afflicted it since the last full year of the Clinton administration. The candidates have stepped up their populist attacks on Bush's tax policy in recent weeks, even as evidence continues to mount that economic activity is finally beginning to awaken from its three-year slumber as the tax cuts gradually work their way into consumer and business behavior.

The populist campaign focuses on what the Democratic presidential hopefuls -- and most of the media -- invariably refer to as Bush's "tax cuts for the rich." In my view, this rhetoric is misdirected, misguided, misinformed, misleading, and mistaken. If the candidates' proposals to raise taxes back to punitive levels were to become a reality, the damage to the economy would be severe and long-lasting. And despite the demagogic oratory, it's the poor -- not the rich -- who would suffer the most if upper incomes are subjected to a higher marginal tax rate (the rate applied to the next dollar earned.) Viewed from either the demand side (business and consumer spending) or the supply side (productive effort), the proposed tax hikes threaten to derail the fragile recovery and send the economy sliding into long-term stagnation.

The latest salvo was fired by Sen. Joseph Lieberman (D-CT), who has proposed a so-called "tax reform" that would actually include a further middle-class tax cut on top of Bush's across-the-board rate reductions in all income tax brackets. But along with it, not only would Lieberman reinstate the elevated Clinton-era tax rates levied on the incomes of upper-bracket taxpayers (39.6% + a phase-out of deductions), but he would impose a new 5% surtax on higher earnings. He would also repeal much of the tax relief on investment income that has spurred the revival of the stock market and business investment.

Despite Lieberman's reputation as the most "moderate" candidate for the Democratic presidential nomination, his plan is the most radically redistributionist among the candidates' tax proposals. In contrast, Gov. Howard Dean (D-VT) and Rep. Richard Gephardt (D-MO) are equal-opportunity tax raisers -- they would roll back the entirety of the President's tax cuts across the board at every income level -- while the other contenders would restore Clinton's confiscatory top-bracket tax rates but leave in place some of Bush's rate reductions in the lower- and middle-income brackets. Unlike Lieberman's plan, however, their current proposals would not further reduce middle class taxes or add a surtax on top of the rate increase for higher earners.

All of the soak-the-rich populist rhetoric accompanying these plans stirs the juices of the Democratic Party's anti-capitalist base -- the hot-blooded left-wing activists who vote in primaries and participate in caucuses. So it's not going to go away until one candidate locks up the nomination and -- inevitably -- moves toward the center in a bid to win over undecided voters in the general election. Nevertheless, the issue will stay alive because of the party's ideological antipathy to free-market outcomes and private property, its view of the tax system as a vehicle for drastic income redistribution, and its hard-core commitment to high levels of federal spending and high taxes to pay for it.

Apart from the dubious ethics of the whole idea of coercive government action to redistribute income (in this regard, I refer you to The Law, the classic 1850 pamphlet by my namesake Frédéric Bastiat), the populist recipe for the tax system is a witches' brew of deadly ingredients that would poison the US economy for years to come should it ever be shoved down the throats of American taxpayers. Inveighing against "tax cuts for the rich" may energize the true believers, but it is a phony crusade in every respect, based largely on confusion, fallacy, ideology, economic ignorance, and profound misconceptions. In particular, the populist campaign for higher marginal tax rates:

* fatally confuses the concepts of income and wealth, thereby aiming its fury at the wrong target and promoting policies destructive of both;

* looks only at the direction of change in tax rates, disregarding the more important effects of the actual level of tax rates on economic effort and productivity;

* focuses on how the economic pie is sliced, thus leading to advocacy of perverse incentives that would shrink the size of the pie and provide smaller slices for all who partake of it;

* fosters dependence for public revenues on the most volatile component of the tax base, tempting federal, state, and local legislative bodies to overspend in prosperity at levels that are unsustainable in adversity; and

* systematically disregards the economic impact and feedback effects of tax policy.

[up2date]

It's the democrats fault for not getting the correct message out there, and now the republicans are trying to frame this as a crusade. I hve posted the following numbers in a couple of other threads, but they belong here, too.

Median Top 1% (approximate)
Family's effective Family's effective
Year federal tax rate Federal tax rate
1955 9.06% 85.5%
1960 12.35% 85.5%
1965 11.55% 66.9%
1970 16.06% 68.6%
1975 20.03%
1977 35.5%
1980 23.68% 31.7%
1985 24.44% 24.9%
*data taken from Wealth & Democracy by Kevin Phillips. Mr. Phillips culled this data from: The Statistical history of the United States, U.S. Department of Treasury Office of Tax Analysis, Right Ways and Wrong Ways to Reform Social Security, and the Congressional Budget Office


Check out some other changes in the tax code since the 1950s:
Corporate taxes Payroll Taxes
year as a % of total as a % of total
1950 26.5% 6.9%
1960 23.2 11.7
1970 17.0 18.2
1980 12.5 24.5
1990 9.1 35.5
2000 10.2 31.1
So corporations are paying less and their employees more. And look at this related chart as to who are the primary beneficiaries of this tax shift:
Ownership of Corporate and Business Assetts (1992)

Bussiness
assets Stocks Bonds Trusts
Top 1% 61.6% 49.6% 62.4% 52.9%
Next 9% 29.5 36.7 28.9 5.1
Rest 8.9 13.6 8.7 12.0
The inflation adjusted average income of the middle 20% has changed very little from 1950 to 1997. There was a slight rise during the tech boom in the late `90's. The top 1%'s average adjusted income has gone from $175k to more than $600k/year over that same period. The top 5% went from about $125k to about $225k/year in 1997.

* both charts from Kevin Phillip's Wealth & Democracy. His sources: Federal Receipts and Outlays, Economic Report of the President 2001, Operations of the HI Trust Fund 1970-2010

[dumbuser]

There's another view on the issue. Another way to present the numbers. As always. Here: http://www.allegromedia.com/sugi/taxes/

But I'll admit to being close to completely ignorant on US tax rates. Wouldn't you per chance have similar graphs on all the tax rates (starting from the lowest level ending with the highest). Just being curious as a wannabe economist ;) Info on the personal income tax rates would be fine, but info on the other rates is also extremely welcome...

[azov]

Gee whiz, dumbuser pushing neo-liberal nostrums, and admitting he doesn't know what he's talking about. No surprises here!

[dumbuser]

Gee whiz, dumbuser pushing neo-liberal nostrums, and admitting he doesn't know what he's talking about. No surprises here!
As for not knowing what I'm talking about. Well unless you too have learned economy in the university, I assume I know a wee-bit more than you, but that's unimportant here.

But what I don't know are the tax rates of US (aside from knowing they have a progressive income tax).

Have you ever thought of giving up trolling and taking a more constructive approach?

[up2date]

Originally posted by dumbuser
Have you ever thought of giving up trolling and taking a more constructive approach? Let's leave that off the forum pages. If either of you have an issue with the other, take it up elsewhere, please.

[marv]

Let's see if I can figure this out -

I retired from the Federal Government December 31, 1992 at the age of 54. Early retirement cost me a pretty good monthly chunk. I also started collecting my Social Security at age 62. That also cost me a pretty good chunk. My current retirement income in under $23,000 annually. That would make me poor except that I own my home free and clear and have no large debt burden. Why am I happy?

With a wife, I don't earn enough to pay income taxes except for a small amount to the state which will go away because my 65th birthday is this month. A tax cut for me? Hah!

But I don't mind the "...tax cut for the wealthy..." After all, what can a wealthy man do with the extra money? He can invest it. He can put it in a savings account or CD. He can spend it. Any choice puts money back into the economy.

Of course he could also stuff it into his mattress; but then that's not how he got wealthy, is it.

[Diogenes]

"...tax cut for the wealthy..."

That is a fraudulent statement. The tax cuts have nothing to do with wealth, they are cuts in INCOME tax and income is not the same as wealth.

High income tax rates will not hurt those who already have money, because they just put their cash in tax-free munis. High income tax rates will, however, discourage others from joining the club.

None of the Democrat candidates are being honest about this.

[up2date]

Originally posted by Diogenes
High income tax rates will not hurt those who already have money, because they just put their cash in tax-free munis. High income tax rates will, however, discourage others from joining the club.

None of the Democrat candidates are being honest about this. It won't "hurt" those already with money, true, but it will curtail their accumulation of it somewhat. And their excessive accumulation does little to help the economy. Plus, periods of higher taxes usually result in a larger, wealthier middle class.

[marv]

p2date,It won't "hurt" those already with money, true, but it will curtail their accumulation of it somewhat. And their excessive accumulation does little to help the economy.I need a little help understanding this. Could you explain what you meant, please. Is accumulation the money that gets stuffed into the mattress? :confused:~

[up2date]

Originally posted by marv
p2date,I need a little help understanding this. Could you explain what you meant, please. Is accumulation the money that gets stuffed into the mattress? :confused:~ In effect, yes. It's the person who goes from a net worth of $1 billion to $2 billion vs. the 25,000 people who gain an extra $40,000. The second group will put a much higher percentage of money back into the economy, create more jobs, etc.

[Diogenes]

And their excessive accumulation does little to help the economy. And their excessive accumulation does little to help the economy.
I suspect that any further discussion will hinge on just precisely what constitutes "excessive" accumulation. Unless you think that investment is necessarily bad, your statement is difficult for me to understand.

A free market society rewards contribution, which is why Bill Gates makes more money than a crack addict sleeping under a park bench. Those who contribute the most have the highest incomes, and it is those people who are punished by high income tax rates (and under the Bush tax cuts, the income tax is more steeply progressive than it was before).

Contribution determines income, and personal lifestyle choices determine expenses. What is left over becomes accumulation of wealth, and other personal choices determine what happens to that accumulation. The last point seems to be what bothers liberals the most - they really resent not having a say in what happens to the accumulated wealth. Much of it is donated to philanthropic causes (Americans are the most generous people on earth), most of the rest is invested in schemes to make additional contributions to society which may or may not be successful (railroads, autos, airplanes and computers have been successful, electric cars have not), and some of it is spent on conspicuous consumption which in turn provides jobs for those who meet the needs - you may remember a few years ago when an ill-advised tax on luxury items destroyed the yacht-building business up and down the East Coast.

In which of these categories do you feel the government is more qualified than the individual who earned it, to determine how the money should be spent?
It's the person who goes from a net worth of $1 billion to $2 billion vs. the 25,000 people who gain an extra $40,000. The second group will put a much higher percentage of money back into the economy, create more jobs, etc.The first group can afford to gamble large sums on the possible commercial success of resource development or new technology, the second group buys a new car and goes out for dinner more often. Why do you think progress is a bad thing?

[up2date]

Originally posted by Diogenes
I suspect that any further discussion will hinge on just precisely what constitutes "excessive" accumulation. Excessive is a difficult word to describe in this context, and I'm not sure I can do it. Originally posted by Diogenes
Unless you think that investment is necessarily bad, your statement is difficult for me to understand. Never in my words did I say that. Do you think only the "$2 billion dollar man" is capable of investment?Originally posted by Diogenes
A free market society rewards contribution, which is why Bill Gates makes more money than a crack addict sleeping under a park bench. Those who contribute the most have the highest incomes, and it is those people who are punished by high income tax rates (and under the Bush tax cuts, the income tax is more steeply progressive than it was before). I'm not looking to punish the wealthy, but it is those people who have been increasingly rewarded over the last 50 years or so. Take a look at the numbers up thread again. Over the last 50 years the average American family's income has remained unchanged while the top 1% has more than trippled. The top 5% has nearly doubled. Originally posted by Diogenes
Contribution determines income, and personal lifestyle choices determine expenses. What is left over becomes accumulation of wealth, and other personal choices determine what happens to that accumulation. The last point seems to be what bothers liberals the most - they really resent not having a say in what happens to the accumulated wealth. Much of it is donated to philanthropic causes (Americans are the most generous people on earth), most of the rest is invested in schemes to make additional contributions to society which may or may not be successful (railroads, autos, airplanes and computers have been successful, electric cars have not), and some of it is spent on conspicuous consumption which in turn provides jobs for those who meet the needs - you may remember a few years ago when an ill-advised tax on luxury items destroyed the yacht-building business up and down the East Coast. I'm not preaching that we radically redistribute wealth. But that "excess" wealth at the top does not "trickle down" as much as you might think in the form of jobs and growth.Originally posted by Diogenes
In which of these categories do you feel the government is more qualified than the individual who earned it, to determine how the money should be spent?
The first group can afford to gamble large sums on the possible commercial success of resource development or new technology, the second group buys a new car and goes out for dinner more often. Why do you think progress is a bad thing? Yes, I call for a halt to all progress now. :rolleyes:

When I buy a car, GM makes a gross amount they can then invest in more jobs, more research, more plants, more parts, more philanthropy, etc.

Why do you think only the wealthy are capable of stimulating these things?

Why do think money will travel down more effectively than it will travel up?

[marv]

up2date,...the person who goes from a net worth of $1 billion to $2 billion vs. the 25,000 people who gain an extra $40,000. The second group will put a much higher percentage of money back into the economy, create more jobs, etc.Can you prove that?

Are you suggesting that the missing part of the second billion does in fact get stuffed into the mattress? Where would the missing percentage of that second billion dollars go? If it goes into savings or investments and not directly into goods and services, it still goes back into the economy.

I would think, for example, that the construction of a single million dollar home would employ more construction workers than, say, the construction of a single $50,000 tract home.

[NetxMan]

I just have a quick question. When a rich guy and poor guy both go to the gas pump, pump their gas, and pay the cashier. Doesn't the cashier charge both the same amount of tax?

[up2date]

Originally posted by marv
up2date,Can you prove that? I'll see if I can find some data to prove my case. In the meantime, I can prove that the median income levels have stayed the same while higher end incomes have grown as the progressive tax gets less steep. Look at the numbers above.Originally posted by marv
Are you suggesting that the missing part of the second billion does in fact get stuffed into the mattress? Where would the missing percentage of that second billion dollars go? If it goes into savings or investments and not directly into goods and services, it still goes back into the economy. Some of that money goes back into the economy, no doubt. Again, I'll look for more numbers on this. But look at that business assets chart above, and that should be some indication of where much of that money goes. Originally posted by marv
I would think, for example, that the construction of a single million dollar home would employ more construction workers than, say, the construction of a single $50,000 tract home. No doubt. But you can build 20 $50,000 homes for that same price, and I'd wager that would employ more workers.

[gopman]

Progressive taxes really hurt a significant portion of the economy in luxury goods and services. These industries supply a large amount of jobs. The wealthy are also able to invest more money. (In the economic sense- purchasing capital) Middle class people can invest, but they tend to invest more often in bonds, and they can't usually start their own businesses. Even if they have a little extra cash they would not have the financial security to invest. The freer the market, the more incentive there is to innovate and move up in the world. Progressive taxes hurt the incentive at both ends. The wealthy have no reason to earn more and the poor who receive beenefits have no reason to work their way out of poverty.

The 1 million dollar home would employ more manhours, more different types of workers like wood carvers and marble guys, and it would generate more property taxes.

[Diogenes]

Posted by Up2date
Do you think only the "$2 billion dollar man" is capable of investment?
Not at all. But it is obvious to me that the man with $2 billion has more to invest individually than the collective 25,000 with an extra $40,000 each.
I'm not preaching that we radically redistribute wealth. But that "excess" wealth at the top does not "trickle down" as much as you might think in the form of jobs and growth.
Where do you think the money for investment comes from? Do you think the government just prints up more when someone wants to borrow in order to buy a house?
Why do you think only the wealthy are capable of stimulating these things?
It is less a matter of capability than it is of will. Investment depends on people who are looking to put their money to work, rather than spend it.

[Diogenes]

Posted by NetxMan
I just have a quick question. When a rich guy and poor guy both go to the gas pump, pump their gas, and pay the cashier. Doesn't the cashier charge both the same amount of tax?
Yup. That's one of those regressive sales-type taxes where the consumer pays for service, sort of like the payroll taxes that are such a burden on low-income folks.

[Diogenes]

Posted by Gopman
The wealthy have no reason to earn more and the poor who receive beenefits have no reason to work their way out of poverty.
It's even worse than that if you include subsidy withdrawal as an indirect income tax. Low income folks get Medicaid, and subsidies for child care and the like. As they begin to work their way out of poverty, the subsidies are withdrawn. So if you consider the effective income tax to be the difference between what you earn and what you get to spend, there is a barrier between $28k and $32k per year where your tax rate is effectively 104%. It's a left-wing technique to create and maintain a permanent underclass that will always vote for their benefactors. (If you rob Peter to pay Paul, you will always get Paul's vote.)

[up2date]

Originally posted by Diogenes
Not at all. But it is obvious to me that the man with $2 billion has more to invest individually than the collective 25,000 with an extra $40,000 each. The $1 billion person is going to have a significant investment portfolio even without his/her "extra" $1 billion. The 25,000 people are going to put more money directly into the economy. You seem to place a higher value on money invested in business assets than you do consumer spending. The biggest beneficiaries of these investments are the investors. Thanks to lower corporate taxes and tax cuts on investment income, money is being drawn up the ladder. Although this is simplistic, what is better for a new fictional cell phone manufacturer: having increased investments or having more people actually buying the phones? Originally posted by Diogenes
Where do you think the money for investment comes from? Do you think the government just prints up more when someone wants to borrow in order to buy a house? Do you think this money will dry up because of higher taxes?Originally posted by Diogenes
It is less a matter of capability than it is of will. Investment depends on people who are looking to put their money to work, rather than spend it. Like everything, balance is the key. What good are investments in companies that are not viable? You assume that higher taxes will end investments, and that isn't the case.

[up2date]

Originally posted by Diogenes
It's even worse than that if you include subsidy withdrawal as an indirect income tax. Low income folks get Medicaid, and subsidies for child care and the like. As they begin to work their way out of poverty, the subsidies are withdrawn. So if you consider the effective income tax to be the difference between what you earn and what you get to spend, there is a barrier between $28k and $32k per year where your tax rate is effectively 104%. It's a left-wing technique to create and maintain a permanent underclass that will always vote for their benefactors. (If you rob Peter to pay Paul, you will always get Paul's vote.) First of all, gopman's argument confused two issues: tax rates and government assistance. Let's deal with them one at a time.

I am not talking of penalizing the economic elite. I am merely criticizing a tax policy that has helped grow the average annual income of the top few more than three times while the average family's has stayed exactly the same.

The argument that a progressive tax encourages people at the bottom to stay there doesn't have much weight, IMO. People like to point this out, and it does exist, but the example you gave effects a very small amount of people. Most people would view the $32,000 as a stepping stone towards a higher income and not a permanent step to avoid. It effects too small a group to use as justification that the progressive tax won't work.

[gopman]

"tax rates and government assistance."

When tax revenue is redistributed, tax rates are effectively government assistance. The reason why people who are poor don't work for the 32,000 when they can get government assistance is this: they have to do much more work. Not all people want to work, and this tax policy enables that. This makes for more people who don't benefit society, and prevents some from benefiting them as much as possible.

"25,000 people are going to put more money directly into the economy."

The economy won't be there without the wealthy to purchase the capital.

"the average family's has stayed exactly the same."

How long has the average income stayed the same? Last month personal income grew .2%, and there was no inflation.

"tax policy that has helped grow the average annual income"

If the rich get richer on investments, and they do, that's a corporate tax issue.

[marv]

The point that I'm trying to make is that every dollar not put into a mattress goes into circulation.

Every dollar spent for a retail or wholesale good or service, every dollar put into stocks, bonds, CD's, IRA, trust, even the pocket of a prostitute, will go somewhere else in the economy.

We were taught in a high school American History class about the so-called "multiplier effect" of the circulation of wealth. (Yes, we even touched on economics in high school in the 1950s.) On average, a dollar in circulation procuces about twenty dollars in goods and services as it passes from hand to hand. This holds true no matter how wastefully it might be spent. That's one of the strengths of free markets.

BTW, would somebody please define what is meant by "excess wealth". Does it have something to do with envy? The Soviet Union tried to do away with what some would probably have considered "excess wealth".

[up2date]

Originally posted by gopman
"tax rates and government assistance."

When tax revenue is redistributed, tax rates are effectively government assistance. The reason why people who are poor don't work for the 32,000 when they can get government assistance is this: they have to do much more work. Not all people want to work, and this tax policy enables that. This makes for more people who don't benefit society, and prevents some from benefiting them as much as possible. Again, that effects such a small group and is a relatively small factor to base an entire tax strategy on.Originally posted by gopman
"25,000 people are going to put more money directly into the economy."

The economy won't be there without the wealthy to purchase the capital. Nor would it be without consumer spending.Originally posted by gopman
"the average family's has stayed exactly the same."

How long has the average income stayed the same? Last month personal income grew .2%, and there was no inflation. I am writing of the average income for the median American family. Over the long term there have been small rises and dips, but it is almost exactly the same today as it was in 1950 adjusted for inflation.Originally posted by gopman
If the rich get richer on investments, and they do, that's a corporate tax issue. Yes, that's a corporate tax issue as well as an investment income tax issue.

[gopman]

There is a certain school of Economics, the "Georgian" school, that believes property taxes are the best because they don't penalize earning, and they create a very small surplus loss because, to be technical, the price elasticity of supply of land is very low. This has obvious problems, as it would create congestion and it is progressive (unless you think that is positive), but it doesn't take away any incentive to work. I am not a staunch supporter of this school, but I think that it would be very effective if raised property taxes were combined with a lower, more proportional income tax. It is more fair too (in my opinion), because you are not taxed for working hard and succeeding.

[gopman]

"such a small group"

That's not a small group, and it is a very important group to base policy on.

Capital gains are taxed as corporate income, because the stockholder is an owner of the firm. The capital gains tax was removed because it unfairly double taxes such income.

[gopman]

This table is interesting.

--------------------------------------------------------------------------------
Corporate taxes Payroll Taxes
year as a % of total as a % of total
1950 26.5% 6.9%
1960 23.2 11.7
1970 17.0 18.2
1980 12.5 24.5
1990 9.1 35.5
2000 10.2 31.1

Our population has grown significantly, and incomes have risen. Economic activity has increased. The percentage of the total tax revenue doesn't say anything about the tax rate. It just means that there are more people paying other types of taxes. And don't forget that Social security is progressive after it is payed out, so the lower income brackets are getting most of that. They would be able to invest that in capital if they weren't forced to "stuff it under the mattress" by the government, but that's another debate.

[marv]

Mention of corporate and payroll taxes brings to mind a certain bit of propaganda put out by liberals.

Before I retired, my payroll statement showed that I paid:
1. Federal income tax,
2. State income tax,
3. City income tax,
4. Social Security,
5. Medicare.

The media tells me that numbers 4 and 5 now exceed 1, 2, and 3 for the "working poor". They call 4 and 5 "taxes". They are not! They are a form of insurance. Perhaps they should be called pyramid schemes. Nevertheless, 4 and 5 are payments in anticipation of some future benefit. Recipients of Social Security are called "annuitants" and you are a "beneficiary" when Medicare pays part or all of your medical expense.

Are they called "payroll taxes" when you pay into them just so lower income people can feel more burdened. Just because they are mandatory doesn't make them taxes. One is an investment and the other is pre-paid medical.

[up2date]

Originally posted by gopman
This table is interesting.

--------------------------------------------------------------------------------
Corporate taxes Payroll Taxes
year as a % of total as a % of total
1950 26.5% 6.9%
1960 23.2 11.7
1970 17.0 18.2
1980 12.5 24.5
1990 9.1 35.5
2000 10.2 31.1

Our population has grown significantly, and incomes have risen. Economic activity has increased. The percentage of the total tax revenue doesn't say anything about the tax rate. It just means that there are more people paying other types of taxes. A good point, but don't forget that income has not gone up (adjusted for inflation) for a significant portion of the population.

[gopman]

That's because the value for their labor isn't increasing. The value of the capital of the wealthy that increase. But that's not personal income, that's corporate income, and it is taxed thusly. The power to raise one's own salary is often abused by executives, but that can't be corrected by tax policy.

[up2date]

Originally posted by gopman
That's because the value for their labor isn't increasing. The value of the capital of the wealthy that increase. But that's not personal income, that's corporate income, and it is taxed thusly. The power to raise one's own salary is often abused by executives, but that can't be corrected by tax policy. Actually, it can be addressed to some degree through tax policy. As I said all along, the tax policy as it stands encourages money to work its way up the ladder (and stay there) rather than down.

Although there are several issues you and I will never agree on, gopman, I suspect this is the one with the widest gap.

[gopman]

"Although there are several issues you and I will never agree on, gopman, I suspect this is the one with the widest gap."

Most likely. When the cash gets to the top it comes back down in the form of capital and job creation in certain industries. Very little is stockpiled. There's really no incentive to do that. It doesn't compare at all to the incentive lost through progressive taxes.

[Diogenes]

Posted by Up2date
Thanks to lower corporate taxes and tax cuts on investment income, money is being drawn up the ladder. Although this is simplistic, what is better for a new fictional cell phone manufacturer: having increased investments or having more people actually buying the phones?
You seem to be assuming a zero-sum game. In your view, where is wealth created?

The cell phone example is moot if there is no investment capital to design, build and market it.
Do you think this money will dry up because of higher taxes?
It always has. If the return on investment is going to be taxed into oblivion, why not spend the money on wine, women and song?
Like everything, balance is the key. What good are investments in companies that are not viable? You assume that higher taxes will end investments, and that isn't the case.
An investment in a company that fails is, of course, a loss. The trick is to guess correctly in advance which companies will fly and which will crash. Do you remember the battle between Betamax and VHS technology? Some business failures are inevitable even when they produce a superior product. It is the overall expected return that counts, and high corporate taxes can - and do - make the difference in whether a project is pursued.

Note that the Reagan Revolution in eighties doubled the federal revenue in just eight years by promoting growth.
First of all, gopman's argument confused two issues: tax rates and government assistance. Let's deal with them one at a time.
First of all, that's my argument. And the two issues are related because the withdrawal of a subsidy is effectively a tax.
I am merely criticizing a tax policy that has helped grow the average annual income of the top few more than three times while the average family's has stayed exactly the same.
Since a free market rewards contribution, it seems only fair to me that those who contribute the most should receive the greater rewards. Income equality is the sign of a failed society. Income inequality in a free market is the sign of a successful society.
The argument that a progressive tax encourages people at the bottom to stay there doesn't have much weight, IMO.
That's not the argument. The argument is that an uneven taxation system (including the withdrawal of subsidies) creates a barrier that is difficult and discouraging (but not impossible) to surmount, given enough self-motivation.

[gopman]

Also, investments allow new markets to open, and allow for entry by new firms into existing markets. Entry distributes market power and lowers prices so that more people can afford it. Innovation and new products would be in short supply with a high tax burden on capital gains.

[up2date]

Originally posted by Diogenes
You seem to be assuming a zero-sum game. In your view, where is wealth created?

The cell phone example is moot if there is no investment capital to design, build and market it. And you seem to be assuming there will be no money to invest. It of course doesn't have to be one way or the other. I could easily make the equally irrelevant remark that the cell phone company is moot with few consumers. Originally posted by Diogenes
It always has. If the return on investment is going to be taxed into oblivion, why not spend the money on wine, women and song? Good idea! Let's spend the money on wine, women and song. Those vineyards out in California are sure going to be happy. Hmmm, with all that extra wine they're selling, they're probably going to have to upgrade some of their equipment. The manufacturer in the Midwest is going to be happy, but they're going to have to invest in some equipment as well. And you know what, all this extra wine being sold is going to spur some new investments in wine related businesses. So spend on wine. That's not a problem. Can't you see progressive tax encourages increased spending while driving the need for investment? Originally posted by Diogenes
Note that the Reagan Revolution in eighties doubled the federal revenue in just eight years by promoting growth. It also proved "trickle down" economics did not work as advertised.Originally posted by Diogenes
Since a free market rewards contribution, it seems only fair to me that those who contribute the most should receive the greater rewards. Income equality is the sign of a failed society. Income inequality in a free market is the sign of a successful society. I've never argued we should have "income equality." In our current system, we are growing income inequality to unhealthy levels, and that is my argument.Originally posted by Diogenes
That's not the argument. The argument is that an uneven taxation system (including the withdrawal of subsidies) creates a barrier that is difficult and discouraging (but not impossible) to surmount, given enough self-motivation. I have to disagree with you on this. The "lower classes" have never been "wealthier" than in periods of higher taxes. Take a look at the charts above, which show that to be the case for the median family.

[gopman]

Also higher taxes incur higher losses to bureaucracy and rent seeking. That money could create more, better jobs.

"That's not a problem. can't you see progressive tax encourages increased spending while driving the need for investment?"

The progressive tax takes away the money to buy the wine and other luxury goods, and it destroys large parts of the economy.

[up2date]

Originally posted by gopman
The progressive tax takes away the money to buy the wine and other luxury goods, and it destroys large parts of the economy. Not really. If an average person earns an extra $10,000 a year, watch how much money they spend in the "wine category."

[gopman]

In the wine category? I assume this includes yachts and the like, and the answer is alot.

[up2date]

Originally posted by gopman
In the wine category? I assume this includes yachts and the like, and the answer is alot. Some luxery items at the very, very top of the scale will likely be hurt, but overall the positive effects will be up and down the ladder.

[Diogenes]

Posted by Up2date
I could easily make the equally irrelevant remark that the cell phone company is moot with few consumers.
Agreed. Sort of like electric cars, hydrogen fuel cells, LP powered vehicles, solar energy and wind energy. Folks who invest in enterprises with no market will lose their money, and it does happen from time to time. Why do you think it would be better for the government to hire leaf rakers instead of allowing entrepreneurs to gamble on their dreams?
Good idea! Let's spend the money on wine, women and song.
And by all means keep the UN in New York. Otherwise we would devastate the $1000 a night call girl industry and the poor girls would have to have public assistance.
Can't you see progressive tax encourages increased spending while driving the need for investment?
And can't you see that your ideas condemn us to stagnation? When I was a little kid I wanted to be a mammoth hunter like my father and uncles; if your ideas had prevailed, we would be the most efficient flint-chippers in the world. Governments are far too conservative ever to invent anything new, because it would displace workers - witness the communist countries, which never brought anything to the consumer market (I don't count AK-47s because I don't regard them as consumer goods).
It also proved "trickle down" economics did not work as advertised.
As a matter of fact, it worked very well. People saw an opportunity to make money investing in things like VCRs, computers, fiber optic and computers.
In our current system, we are growing income inequality to unhealthy levels, and that is my argument.
I look forward to hearing you make your case for that. Perhaps you will start by defining "unhealthy levels" of income inequality.
The "lower classes" have never been "wealthier" than in periods of higher taxes.
Now you are getting closer to what should be the measure of social health, the condition of its poorest members. But your charts completely ignore the "income" attributable to social welfare, and that is comparing apples and oranges.
Some luxery items at the very, very top of the scale will likely be hurt, but overall the positive effects will be up and down the ladder.
Agreed. I've already posted how the luxury tax on yachts destroyed the industry and put a lot of people out of work. Bush's biggest mistake so far has been to impose tariffs on imported steel - that move alone has cost 200,000 jobs in the steel-consuming industries, which is more jobs than there are in the entire steel-producing industry.

[jnewbyjr]

BEWARE OF ANYONE TOUTING THEIR EDUCATIONAL BACKGROUND AS A POSITIVE THING! Their's a big difference between the real world and the educational world of make-believe.

Keep it simple, anyone that has studied economics understands that tax increases only do two things: 1) Stifle economic growth thus slowing down the economy and 2) Increases the spending levels of those wanting to see to it that everyone has their share of the distribution. Another name for these people are liberals or better termed socialists.

For someone to say tax-hikes help is showing their severe mental handicap of history. Do all the profits trickle down, absolutely not, who would want it to. Could more trickle down, in many cases "Yes", but do we have a right to it. "No". All are not equal, some believe in hard work and others want the handouts. So while we may have been created equal, we make choices and the choices we make determine where we end up.

[zapper]

Trickle down economics is the underlying philosophy behind those voodoo economics tax cuts. If its true that puting more money in the pockets of the rich will cause them to invest in business and create jobs; why hasn't it worked in the wake of Bush's tax cuts? And why didn't Clinton's tax increases shut down economic growth? The reason it didn't happen in either case is that supply side economics is pure nonsense. Investors don't invest in new business, expanding businesses, new equipment, research and development or anything else if there is no demand. Demand drives the economy not supply. A person would have to be a fool to invest in greater production capacity if no one is out there with money to spend on the goods. There must be demand first. If you think supply will create a need, then invest in a buggy whip factory and see how much money you make.

Also, there a plenty of investments that send no money into increasing production facilities or new business. You can invest in commodities, foreign exchange or government bonds. In fact even the stock market is mostly an aftermarket, with people buying stock owned by other people. Unless there is a new stock offer the money DOES NOT GO TO THE COMPANY, it goes to the other investor, so therefore does not go into business expansion.

If economic history of the United States proves one thing it is that money in the pockets of the little man stimulates the economy. Puting money in the pockets of the people on the bottom creates demand which stimulates investment. Wealth doesn't trickle down, it flows up from the bottom.

[azov]

So we can conclude:

The crusade is not bogus. It exists.

The tax cuts for the rich are not bogus. They exist.

[zapper]

You're correct azov, tax cuts for the rich are not bogus; they are just bad economic policy.

In the first place tax cuts that increase deficits aren't tax cuts at all. They are really just tax deferrments. All they really do is postpone the day when todays expenditures must be paid for. Sooner or later the bill has to be paid, and when you have deficits they have to be paid with interest. Thinking we got a tax cut when deficits are increased to cover the cuts, is like thinking you got a pay raise when you get a cash advance on a credit card. Eventually you have to pay off the credit/deficit.

Also, deficits place a drain on finance capital. It's hard to imagine why anyone would think deficit driven tax cuts would stimulate the economy. Government spending takes money out of the private economy one way or the other. Either as taxes, or as money spent buying government bonds. With government bonds the money has to be repaid with interest. Deficit spending will eventually drive up interest rates. This is supported by the fact that structural interest rates were much higher under Reagan and Bush I. Clinton had the lowest interest rates in a generation only after the budget was balanced.

No one doubts the eventual inflationary pressure that deficits will cause. With inflation the dollar will weaken against foreign currencies. In the past U.S. Bonds have been a traditional safe haven, but a weakening dollar would change that. If the dollar weakens too much the government would be forced to raise its bond yields, which would force other interest rates to follow suit. This will cause more inflation and a fiscal crisis.

It seems pretty plain that tax cuts at this current time are extremely poor economic policy. In the short term they may appear to be helping, but in the long term, as long as they contribute to more deficits, they can only do harm. Republicans used to understand that deficits were bad, but for some reason they seem to have forgotten.

[jnewbyjr]

While there are many legal and illegal loop-holes for all tax-brackets, the fact of the matter is that the rich already pay their share of taxes and then some.

While the democrates would have you believe that tax cuts are killing us, let's wake up and smell the coffee. In reality, it isn't the tax cuts or increases that do any damage, it the spending by both the Denocrats and Republicans that are killing us.

If we'd stop subsidizing the world and insisting on other leeches from the UN countries to fulfill their share of the burden, we'd be much better off. We send aid in all forms all over the world, we subsidize medicine all over the world, we help fight any worthwhile war, we prop up unstable governments only to name a few.

Taxes is a smokescreed to cover the real issue. Frivilious spending on everything.

[Platypus]

Originally posted by jnewbyjr
While there are many legal and illegal loop-holes for all tax-brackets, the fact of the matter is that the rich already pay their share of taxes and then some.

If that's a fact, you should be able to cite sources that support it. Right? :D

A lot of the problem with this debate centers on shifting definitions of "rich". If you mean "everyone who's in the top tax bracket" you're right; those people do pay taxes at a much higher rate than others. The numbers are right there on the IRS website. I don't have a link handy, but I've had no trouble finding the relevant Excel spreadsheets on two or three past occasions. On the other hand, the truly rich - the genuine multimillionaires and billionaires - pay much less. They shift their money into sham corporations and foundations which can write off business expenses and operating losses in ways that individuals cannot. They move their money offshore. They move themselves offshore so they don't even show up on US tax rolls any more even though they live and work and derive their income from US sources. Their cases tie up tax court for years, and end up with them settling with the government for a tiny fraction of what everybody knows they owe. According to The Cheating of America the IRS estimates that the revenue lost from such subterfuge by a very few ends up costing every regular taxpayer $1500 per year and those hardest hit are the ones in the lower part of the top tax bracket.

It's the upper middle class who bears the largest tax burden, not the truly rich. Thanks to bracket creep and related phenomena, I'm in that heavily-taxed category myself, but I don't have enough money to pay accountants to hide my money. It galls me that the people who make more than me, who never cook their own meals or clean their own McMansions or even drive themselves to work, actually pay less in taxes than I do. Often, they pay less than their caterers and maids and chauffeurs. That seems like a legitimate cause for outrage.

Please try to be specific about which rich you're talking about. The real-life circumstances of someone making $100K are nothing like those of someone making $100M and members of the former group resent being used an excuse for cheating by the latter.

[jnewbyjr]

I agree with much of what you said. However I think the issue is blown way out porportion. I'm in the same boat as you, I for one would be all for closing those loopholes without any problem - however in conjunction with closing those loopholes, I'd like to see some fiscal responsibility. Like don't spend more than you bring in.

On another note, don't be fooled by the Democrats tax increases, they rarely hit the bracket your talking about, they hid the middle class like a hurricane.