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Please know that in periods of "high personal tax rates" business owners declared their income through their companies thereby lowering their tax rates. You wou

by curt 14y ago

Please know that in periods of "high personal tax rates" business owners declared their income through their companies thereby lowering their tax rates. You would have a company car, company vacation, company dinners, you can even make it company policy to pay for the employees children college education, etc... This is the same reason any comparison of income equality over time is meaningless. Since income was declared through different avenues. To understand the tax implications of economic growth you have to look at the tax payments as a percentage of GDP as well as compliance costs. In the US tax payments have held steady at about 18% of GDP since WWII until recently. People hunt for loopholes no matter what. But when rates are low you don't have to look for loopholes, so you can deploy your capital more efficiently. Thus generating economic growth. This is why tax cuts often stimulate large economic booms. Capital that was sitting in say tax-protected muni bonds will move into the market and be deployed for business expansion and thereby hiring. There's so much evidence to the contrary of this article, even Obama's own counsel of economic advisories share the view that tax cuts stimulate economic growth. Christina Romer, his former advisor wrote a paper on the subject. What they do is look at country around the world to collect more data points for a better regression analysis. Also note that when you say "tax cuts", not all tax cuts are made equal. For a tax cut to be effective it needs to change long-term behavior. So credits and such have a near zero or negative effect while rate cuts have a positive effect. The most beneficial being capital gain rate cuts (ie every time they have been cut, revenues from the tax have increased), corporate, and then final income tax rate cuts. -Really going to down vote me without refuting any of what I said.

btilly 14y ago
That is a strong set of claims, and as long as you hold it, you are utterly to any set of facts that might dispute it. According to IRS figures, the top 400 tax payers today pay income taxes below 16%. According to the best available figures, the top theoretical tax rate during the 1950s was over 90%, but the average tax rate paid by the top approximately 400 people was 51.2%. Obviously they used a lot of tax loopholes. Obviously they still wound up paying, in real taxes, a lot more than the very rich to today. Of course if you refuse to believe that the real figures were reported to the IRS, you can believe any figures that you want. But it is pretty hard to reasonably come to the conclusion that the rich today are paying similar tax rates to the rich 55 years ago. As for taxes and economic growth, it is a trivial piece of economics to conclude that collecting more in taxes immediately takes money away from the economy. However it is only slightly less trivial to conclude that the amount of damage it does is proportional to how likely that money was to get spent. Given that the poor are likely to spent more than the rich, that means that we should prefer to tax the rich more. Therefore if you're going to levy taxes (and there is no reasonable way to avoid the need to), it is more efficient for all of us to tax the rich more heavily. Instead of taxing them less, which is what they keep telling us we need to do. (I, along with many of the people on this site, pay a greater fraction of my income in taxes than Mitt Romney does. But is this really good public policy?)
- curt 14y ago
  >the top 400 tax payers today pay income taxes below 16%. According to the best available figures, the top theoretical tax rate during the 1950s was over 90%, but the average tax rate paid by the top approximately 400 people was 51.2%. Big problem... You're comparing two completely different things. The 16% number is based on the fact that most of the wealth earn their income through capital gains which is taxed at a lower rate. So you're comparing income taxes to capital gains taxes. Two completely different items, apple to oranges. > But it is pretty hard to reasonably come to the conclusion that the rich today are paying similar tax rates to the rich 55 years ago. You're second point is also wrong. The rich actually pay a higher percentage of the tax burden when rates are cut. Look at the 20's. Taxes were slashed and the percentage of the income taxes paid by the rich doubled. Same today happened with the Bush cuts. The top 10% pay 71% of income taxes, and top 1% around 40%. Here's a chart to show you: http://www.heritage.org/federalbudget/top10-percent-income-earners http://www.heritage.org/federalbudget/top10-percent-income-e... How much more exactly should the rich pay? As for capital gains. You don't want to raise it, unless you're out to punish the rich, since when it's lowered it generates more revenue. When it's increase, it generates less.
  - hnhg 14y ago
    I'm not sure your refutation of the second point holds. The OP is talking about percentage of an individual's income, not the percentage of overall income. The fairness of either can be disputed but you're making an apples to oranges comparison, as you call it. The first point is interesting. As someone who doesn't know that much about it, would it be useful to look at income tax + capital gains tax incomes to look at burden for the rich vs everyone else. That would be closer way to judge percentages of income taxed. If that's not a good way to look at it,why?
    - curt 14y ago
      Sorry have quite a bit of overlap between the two points. Rates themselves are very abstract quantities since loopholes and deductions have a huge effect and change greatly with time. A good way to look at it is the percent of total tax payments. To answer your question if you take a look at the link in the post you replied to, the income tax + capital gain tax burden for the rich would be even higher. Likely with the top 1% around 45%-50% and top 10% around 80%+ of all income and capital gains taxes. As you can see the rich already pay a huge amount. Even if you were to raise the rates on the rich their numbers are so small that it would only cover a week or so of spending at the current levels.
saraid216 14y ago
> You would have a company car, company vacation, company dinners, you can even make it company policy to pay for the employees children college education, etc... Isn't this "economic growth"?
- curt 14y ago
  I was referring to how you can't compare specific tax rates over large differences in time since behavior changes. Instead you need to look at tax burden through GDP and compliance costs. But to answer the question, all that's doing is displacing economic "growth". Moving it from one hand to the other. Business instead of personal.
nirvana 14y ago
Also, worth noting that the "tax cuts" they are opposing in this election cycle are the ending of the cuts put in during Bush. Those cuts reduced the tax rate for the poorest people in the country by %50, from %15 to %10, and for the richest by %3, from %39 to %36. When you take %50 more of a poor person's income in taxes, you take money they need to live, and this will hurt the economy, both because they can't spend it, and also because some of them will be forced to make less beneficial choices, merely to survive. Meanwhile, the effective reality is that inflation is a tax. Since inflation devalues the dollars in circulation, the deficit spending that the "anti-tax cut" crowd tends to want to do is really just another form of tax. Taxes themselves are better, because they don't rely on obscuring the fact that your being taxed (By changing the underlying value of money) and thus they tend to cause fewer bad decisions on the part of economic actors. Many people make bad investments (eg: houses) thinking they are getting a positive return, when in real dollars they are not. (Houses don't appreciate, the dollar devalues.)
- fauigerzigerk 14y ago
  Inflation is not a tax for everyone. It's actually a tax cut for debtors. The U.S as a whole is a country of debtors. The balance of payments is negative as well so it's getting worse. The worst thing that could happen is deflation. Inflation is a net positive in this situation. The effect of inflation on working income depends on whether or not wage inflation is above or below CPI.
  - seanmcdirmid 14y ago
    Inflation in moderation has its uses. It acts to cut debt and encourages people to spend money and stimulate the economy today, which is preferable sometimes over encouraging saving. Compared to inflation, deflation is quite evil: your debt load goes up, what you want will be cheaper tomorrow, your best option is to save. Look at Japan's lost decade to see what that would bring us.
    - fauigerzigerk 14y ago
      I totally agree with you on inflation. I would just add that Japan's experience has some unique aspects that will hopefully make it easier for the U.S to avoid that kind of development (I'm more pessimistic about Europe in that regard). Particularly, Japan has a shrinking population and the asset price bubble in the late 80s was a lot bigger than the real estate bubble in the U.S up to 2006.
Gustomaximus 14y ago
IMO your key comment is "not all tax cuts are made equal". What we need to consider is, from a fiscal stimulous POV, the objective of raising or lowing taxes is to get money moving around the economy at all levels. This can happen with either tax cuts or tax increases. For example tax cuts on home building is a classic way of freeing and encouraging investment in a sector that tends to flow across the wider economy. Whereas giving some kind of tax cut to a person or entity that will just hoard that gain will not help the economy. Also increasing taxes is fine, but then the pending needs to be more useful to the economy than leaving the money in the hands of private citizens. For example if you are taking that amount from where it will be hoarded or invested away from the wider economy it can be a good thing for the economy. So if Obama increases tax on the wealthy people (of which a proportion will hoard) and puts it into infrastructure type projects it should benefit the economy. Whereas if the money gets spent on supporting Afghanistan, that same tax cut would hurt the economy as the proportion of funds that would have been invested in the local economy are removed to another location. For my limited understanding this data may just be a sign that wealth is being hoarded from the wider economy currently, not that high or low tax rates are better. Unfortunately when it comes to economics there are so many variables in play it is very limiting to take a this side or that side stance.
fauigerzigerk 14y ago
Tax cuts for those who save money (i.e the rich) will stimulate growth only if others want to borrow that money in order to do something productive. That is, if growth is held back by lack of investment capital. If growth is held back by lack of demand, cutting taxes of savers and financing it by cutting public services for consumers will be a drag on the economy. Right now, capacity utilization is low and therefore we don't need investment in new capacity. What we need is demand and we won't get it as long as disposable incomes keep going down as they have been for over a decade.

by curt 14y ago

btilly 14y ago

That is a strong set of claims, and as long as you hold it, you are utterly to any set of facts that might dispute it. According to IRS figures, the top 400 tax payers today pay income taxes below 16%. According to the best available figures, the top theoretical tax rate during the 1950s was over 90%, but the average tax rate paid by the top approximately 400 people was 51.2%. Obviously they used a lot of tax loopholes. Obviously they still wound up paying, in real taxes, a lot more than the very rich to today. Of course if you refuse to believe that the real figures were reported to the IRS, you can believe any figures that you want. But it is pretty hard to reasonably come to the conclusion that the rich today are paying similar tax rates to the rich 55 years ago. As for taxes and economic growth, it is a trivial piece of economics to conclude that collecting more in taxes immediately takes money away from the economy. However it is only slightly less trivial to conclude that the amount of damage it does is proportional to how likely that money was to get spent. Given that the poor are likely to spent more than the rich, that means that we should prefer to tax the rich more. Therefore if you're going to levy taxes (and there is no reasonable way to avoid the need to), it is more efficient for all of us to tax the rich more heavily. Instead of taxing them less, which is what they keep telling us we need to do. (I, along with many of the people on this site, pay a greater fraction of my income in taxes than Mitt Romney does. But is this really good public policy?)

curt 14y ago
>the top 400 tax payers today pay income taxes below 16%. According to the best available figures, the top theoretical tax rate during the 1950s was over 90%, but the average tax rate paid by the top approximately 400 people was 51.2%. Big problem... You're comparing two completely different things. The 16% number is based on the fact that most of the wealth earn their income through capital gains which is taxed at a lower rate. So you're comparing income taxes to capital gains taxes. Two completely different items, apple to oranges. > But it is pretty hard to reasonably come to the conclusion that the rich today are paying similar tax rates to the rich 55 years ago. You're second point is also wrong. The rich actually pay a higher percentage of the tax burden when rates are cut. Look at the 20's. Taxes were slashed and the percentage of the income taxes paid by the rich doubled. Same today happened with the Bush cuts. The top 10% pay 71% of income taxes, and top 1% around 40%. Here's a chart to show you: http://www.heritage.org/federalbudget/top10-percent-income-earners http://www.heritage.org/federalbudget/top10-percent-income-e... How much more exactly should the rich pay? As for capital gains. You don't want to raise it, unless you're out to punish the rich, since when it's lowered it generates more revenue. When it's increase, it generates less.
- hnhg 14y ago
  I'm not sure your refutation of the second point holds. The OP is talking about percentage of an individual's income, not the percentage of overall income. The fairness of either can be disputed but you're making an apples to oranges comparison, as you call it. The first point is interesting. As someone who doesn't know that much about it, would it be useful to look at income tax + capital gains tax incomes to look at burden for the rich vs everyone else. That would be closer way to judge percentages of income taxed. If that's not a good way to look at it,why?
  - curt 14y ago
    Sorry have quite a bit of overlap between the two points. Rates themselves are very abstract quantities since loopholes and deductions have a huge effect and change greatly with time. A good way to look at it is the percent of total tax payments. To answer your question if you take a look at the link in the post you replied to, the income tax + capital gain tax burden for the rich would be even higher. Likely with the top 1% around 45%-50% and top 10% around 80%+ of all income and capital gains taxes. As you can see the rich already pay a huge amount. Even if you were to raise the rates on the rich their numbers are so small that it would only cover a week or so of spending at the current levels.

saraid216 14y ago

> You would have a company car, company vacation, company dinners, you can even make it company policy to pay for the employees children college education, etc... Isn't this "economic growth"?

curt 14y ago
I was referring to how you can't compare specific tax rates over large differences in time since behavior changes. Instead you need to look at tax burden through GDP and compliance costs. But to answer the question, all that's doing is displacing economic "growth". Moving it from one hand to the other. Business instead of personal.

nirvana 14y ago

Also, worth noting that the "tax cuts" they are opposing in this election cycle are the ending of the cuts put in during Bush. Those cuts reduced the tax rate for the poorest people in the country by %50, from %15 to %10, and for the richest by %3, from %39 to %36. When you take %50 more of a poor person's income in taxes, you take money they need to live, and this will hurt the economy, both because they can't spend it, and also because some of them will be forced to make less beneficial choices, merely to survive. Meanwhile, the effective reality is that inflation is a tax. Since inflation devalues the dollars in circulation, the deficit spending that the "anti-tax cut" crowd tends to want to do is really just another form of tax. Taxes themselves are better, because they don't rely on obscuring the fact that your being taxed (By changing the underlying value of money) and thus they tend to cause fewer bad decisions on the part of economic actors. Many people make bad investments (eg: houses) thinking they are getting a positive return, when in real dollars they are not. (Houses don't appreciate, the dollar devalues.)

fauigerzigerk 14y ago
Inflation is not a tax for everyone. It's actually a tax cut for debtors. The U.S as a whole is a country of debtors. The balance of payments is negative as well so it's getting worse. The worst thing that could happen is deflation. Inflation is a net positive in this situation. The effect of inflation on working income depends on whether or not wage inflation is above or below CPI.
- seanmcdirmid 14y ago
  Inflation in moderation has its uses. It acts to cut debt and encourages people to spend money and stimulate the economy today, which is preferable sometimes over encouraging saving. Compared to inflation, deflation is quite evil: your debt load goes up, what you want will be cheaper tomorrow, your best option is to save. Look at Japan's lost decade to see what that would bring us.
  - fauigerzigerk 14y ago
    I totally agree with you on inflation. I would just add that Japan's experience has some unique aspects that will hopefully make it easier for the U.S to avoid that kind of development (I'm more pessimistic about Europe in that regard). Particularly, Japan has a shrinking population and the asset price bubble in the late 80s was a lot bigger than the real estate bubble in the U.S up to 2006.

Gustomaximus 14y ago

IMO your key comment is "not all tax cuts are made equal". What we need to consider is, from a fiscal stimulous POV, the objective of raising or lowing taxes is to get money moving around the economy at all levels. This can happen with either tax cuts or tax increases. For example tax cuts on home building is a classic way of freeing and encouraging investment in a sector that tends to flow across the wider economy. Whereas giving some kind of tax cut to a person or entity that will just hoard that gain will not help the economy. Also increasing taxes is fine, but then the pending needs to be more useful to the economy than leaving the money in the hands of private citizens. For example if you are taking that amount from where it will be hoarded or invested away from the wider economy it can be a good thing for the economy. So if Obama increases tax on the wealthy people (of which a proportion will hoard) and puts it into infrastructure type projects it should benefit the economy. Whereas if the money gets spent on supporting Afghanistan, that same tax cut would hurt the economy as the proportion of funds that would have been invested in the local economy are removed to another location. For my limited understanding this data may just be a sign that wealth is being hoarded from the wider economy currently, not that high or low tax rates are better. Unfortunately when it comes to economics there are so many variables in play it is very limiting to take a this side or that side stance.

fauigerzigerk 14y ago

Tax cuts for those who save money (i.e the rich) will stimulate growth only if others want to borrow that money in order to do something productive. That is, if growth is held back by lack of investment capital. If growth is held back by lack of demand, cutting taxes of savers and financing it by cutting public services for consumers will be a drag on the economy. Right now, capacity utilization is low and therefore we don't need investment in new capacity. What we need is demand and we won't get it as long as disposable incomes keep going down as they have been for over a decade.