And it is a lot more complicated than that, as you well know. They may invest that money into capital growth projects, but they may also do any number of other things that do not directly benefit the economy. And not all that investment may be local, or even national. That money may find its way into international capital markets, so we could see the quite likely scenario of large amounts of deficit being funneled to the wealthy as tax breaks, only to see that money being invested into, for example, China.
Or that money may sit in offshore accounts, be placed into luxury items that have low impact on the economy (a third yacht has far less impact than groceries or clothing). Basically any value that can be derived at the national level is far lower for high income rebates than an equivalent amount placed into the lowest percentiles. Even the simple concept of the money multiplier (basically how often a dollar injected into the economy gets respent, $1 can produce far more than $1 of economic activity after all), clearly shows this. Large capital projects, long term investments, or simply putting money into foreign bank accounts have very low money multipliers.
Every economic study clearly shows that, dollar for dollar, we are way better off increasing the financial resources of the bottom brackets, especially at the expense of the top brackets. Literally confiscating large sums of wealth, Robin Hood style, and giving it to the poor would do a damn sight more good than tax breaks for the wealthy.
And trickle down theory is so discredited as to be worthy of nothing more than derision and laughter to any who suggest it. Those capital investments do nothing to improve the economic lot of the working class.
I think this analysis only holds true in the case of a recession or depression, where there are large amounts of productive resources sitting idle because there isn’t the demand to use them. So you need things that increase immediate demand, and not more productive capacity.
I don’t think you can extend the money-multiplier to the economy in general though. If things are running at capacity, someone somewhere actually needs to invest in order to grow the economy.
I’d be interested in reading a study that comes to this conclusion. I’m under the impression that large-scale confiscation of wealth can be very damaging.
One of the biggest failures of the Democrats in the last decade has been an utterly impotent response to how absolutely catastrophic the Bush Tax Cuts were, especially when paired with excessive military spending for the Iraq / Afghanistan wars.
To think that the GOP may once again get away with similar cuts is abhorrent. Luckily the current GOP (and especially the White House) seem incapable of achieving whatever they ultimately want.
Straight up taking half of everything that billionaires own, and writing a check for the value to every American could certainly lead to unintended consequences that do damage. But I would wager an unreasonable amount that it would do far more good, and far less damage, than the constant cutting of the taxes for the wealthy at the expense of the lower and middle classes. i.e. exactly the kind of upward redistribution Republicans propose.
I mean a proposal to cut taxes on the wealthy by half, zeroing capital gains, and reducing the rate on investment income, funded by gutting of SNAP and housing programs, the kind of things Ryan would propose? Those could do tons of damage, and have huge social costs.
So put a gun to my head and say I had to pick one? I’d take the former, and bet we wind up better than picking the later, even if it had damaging outcomes. Because that second, Republican style, proposal is fucked up.
I mean we took more than half for a long time and the country prospered like no nation ever has.
If America was “great” in the 50’s and 60’s then tax-wise we should be taking 90% of top’s money or at least like 70%.
And I’d argue the nation overall was better off when we did. High taxes meant they tended to reinvest that money in expansion since just writing a check to the CEO meant that almost all of it went to the government. So the CEO took a more modest salary and tried to make the company stronger. I read an article about it a while back but fuck me if I can find the thing. Was an interesting view on how companies handled things in the 50’s and 60’s compared to now.
The short-term money now worry about other things later, including the health of the company, the workers and quality of products seems to be business 101 in the schools and corps.
Companies are assets to be exploited. If you personally get millions and the company goes under… what do you care? You got millions. Mission accomplished, move on to the next place and do it again.
I get where you are coming from. The Ryan proposal sounds pretty awful and damaging. On the other hand, the Bush tax cuts were pretty damaging as well, and the country survived them (and they could be reverted). Taking away half the wealth seems like much more of a leap into the unknown, that can’t be reverted. Surely the average person could use the marginal dollar better than the average billionaire, but providing that by “half your wealth is gone” seems like it would quickly end up in a Venezuela situation.
I guess it comes down to how much of a gutting would be the alternative. Cut social programs enough and you could end up with a USSR or Venezuela situation anyway.
There is a difference between top marginal tax rate on earned income and “give us half over everything you own”.
I’m a a fan of high marginal tax rates at the top end (maybe not that high?), but I do believe that some actions would just break the economy. There has to be some incentive to invest.
Interesting quotes here indicating that maybe Republicans are lowering their sights on tax reform and future healthcare laws a little.
The next major legislative goal after repealing the Affordable Care Act is tax reform and coming up in April is must-pass government funding for the rest of 2017. Both are big items in the Republican must-pass and wish-to-pass agenda.
If a funding bill isn’t passed, the government would shut down. And tax reform is so complex that the last time Congress passed major changes to the tax code was more than 30 years ago.
Such hard questions have only been made more complicated since the party was unable to pass its signature legislation — the repeal of Obamacare — because moderate and conservatives were too far apart and Trump and leadership were unable to bring enough votes to the table.
The original plan was to pass health care repeal and tax reform under a process called reconciliation. The reason is because under reconciliation, only a simple majority is needed in the Senate, and with a simple majority, only Republicans are needed for passage. But after the House failed to pass health care under reconciliation requirements, some members are suggesting to let go of the plan to pass tax reform under reconciliation.
Rep. Tom Cole, R-Okla., said reconciliation for tax reform should be “re-examined.”
“If you’re doing that, you’re saying you can do that with all Republican votes and dealing the Democrats out from the beginning. That’s fine as long as you’re sure you can get those votes, but nothing I’ve seen so far assures me of that,” Cole said.
Understand that was an absurd, and not at all reasonable position that I no way espouse. But I was trying to come up with something equally extreme to the Republican position on taxes, and that’s about it.
Which is fine, as nobody has seriously ever proposed we do something like that, and if they did I’d fight them on it too. However restoring marginal tax rates to their levels in the 70’s? Taxing investment income like regular income? Those are policies I would support, a least in theory. My point was, simply, that in general increasing the percentage of income distributed to the lower brackets (either through wages, social programs, or straight up writing them a check) does far more to grow the economy than money being pushed to the top bracket. The Ryan tax plan pushes more money to the higher incomes through reducing their tax rate, at the expense of cutting programs (read: money) for the poor. This would be far less beneficial than the inverse.
Yeah, agree. But the Ryan position is so extreme that trying to parody it by crafting an equally extreme left wing position is… hard. Because, well, it’s way out there so inverting it almost pushes you to the realm of parody/ insane proposals.
How was investment income treated in the 70’s? I guess I’m not clear on what happens when both top-end salary and investment income is taxed at 70%. If someone built a large successful company, would they only get 30% of their share’s value if they sold? I guess that’s one way to get founders to stick with a company long-term. Or would they end up spreading the gains among their extended family?
I think that’s true when there is a demand shortfall. Not sure otherwise. I mean, the argument that it’s a win during a recession is based on the argument that people with less money are going to spend the money faster, rather than invest. But investment is actually a necessity to grow the economy in the long run. I’d like to see an economy where income was much more broadly distributed AND savings/investment rate was higher (like it was in the past). Maybe the first would lead to the second?
[quote]
Many of the cuts proposed in the Office of Management and Budget’s document are aligned with reductions Trump has recommended in his budget for fiscal 2018, which begins Oct. 1. They include slashing funding for education, health research, foreign aid and housing.[/quote]
Well certainly if you want any chance that the bottom 50% save anything then we need to drastically increase their cut of the economy.
Honestly I’m not sure how investment was handled then. And there is certainly room to discuss and analyze the ‘optimal’ level, perhaps it falls higher or lower than then. It almost certainly is higher than current, though. Taxing investment income and regular income the same is an important feature though, as we see ever more elaborate schemes at the top end for tax avoidance. CEO pay structured in arcane ways in order to defer, pay as investment, any number of ways to funnel cash to them in elaborate ways. Whole industries have been built on this type of shady behavior.
Curbing those abuses is symbolically important at least. But the reality is that many of the changes to the tax code over the last 3 decades+ have been structured to enable high income earners to shelter said income.
But people in the bottom 50% in the 50’s used to make less (in inflation adjusted terms) and save more. The Chinese make a lot less still and save a ridiculous portion of their income. Maybe it’s the income trajectory that allows for saving? Or maybe a cultural thing.
Yeah. No doubt the distinction between regular income and investment income has been terribly abused. It seems a whole lot more fare to me that they would be taxed the same. I do worry though since so many economists say that investment income should be treated differently. Like economists say you should tax the things you don’t want people to do, and you definitely want them to invest.
[quote=“MikeJ, post:57, topic:129073, full:true”] Like economists say you should tax the things you don’t want people to do, and you definitely want them to invest.
[/quote]
You are confusing luxury and other taxes on the price on things with income taxes. By the same logic you would be saying the current tax regime doesn’t want people to work because it taxes labor income.
There are many economist saying that investment income should be taxed the same. And quite a few that support a marginal tax on wealth (of les than 1%).
And, btw, income of the bottom 50% hasn’t seen that much of a change in the last 50 years:
Absolutely all of these things are true, but I was merely pointing out that cutting taxes on rich folks can in fact have beneficial effects.
You are overstating this, in that while this notion that cutting taxes on the wealthy magically improves the economic well-being of the lower classes, I think that perhaps you are lumping all notions of supply side economics into this term of “trickle down” for the purposes of discrediting them. But the reality is, there are absolutely real economic forces at play. As you say, it’s not really so simple.
Saying “Cutting taxes on the wealthy will not automatically create economic growth that benefits everyone” is true though.
Eh, this is not in fact true. You can argue that they aren’t the most efficient use of those tax revenues, but simply saying they do NOTHING is obviously false on its face.
This isn’t really true, as there are numerous studies which do in fact provide support for supply side economic theory. Now, perhaps those aren’t studies that you read, but they certainly do exist, and from reputable sources like the Treasury department.
The problems tend to arise when people go beyond consideration of complex economic forces, and instead try to distill them into dogmatic pseudo-religious views.
Supply side stimulus absolutely can have beneficial impacts on an economy in certain cases. Hell, in many ways you could view something like the government bailing out GM as being a case of supply side economic theory. Ultimately, giving that money to the auto industry was almost certainly better than taking that $80 billion dollars and giving it to people directly.
While you are saying this humorously, it’s worth noting that in cases where such a thing was actually done, such as Venezuela, it totally fucked their economy and ruined everyone’s lives.
Doesn’t an income tax discourage work? I thought that was a pretty basic idea. I mean, in the 50’s when the marginal tax rate was astronomic, it was basically a salary cap. Any additional compensation had to be in non-taxable forms (the cushy corner office, the company car, etc). If you taxed all income at those rates then all compensation would need to be in those alternative forms.
There are some economists (e.g. Scott Sumner - not to be confused with Cyclops) who advocate removing income tax and making everything a consumption tax. I don’t remember if his plans were for a progressive consumption tax or a flat consumption tax with a basic level of consumption that was untaxed.
