Interesting article on taxes

[TPS]

SD,

It is true that the top 20%'s share of income taxes paid has increased even though their marginal rates have been lowered. But it's one of those "other issues" I said the analysis ignores. The share of income received by the top 20% has increased from 41.1% in 1980 to 48.5% in 2006 (actually, almost the entire gain was made by the top 5%). Personal income (nominal) in 2006 was $11.6 trillion. The changing distribution of income meant that the top 20% received $1.2 trillion more income in 2006 than if their share remained at 41.1%. The so-called rich (top 20%) pay most of the federal INCOME taxes because they "earn" 50% of all income.

 

Again, this is only one part of the picture painted in that article. First, SS revenues have been the most stable source for the government at roughly 6.5% of gdp since the Reagan tax increase. Second, when marginal rates have been lowered, federal income tax revenues are initially lowered; however, over time, as the distribution changes, of course income tax revenues increase again.

[GG]

SD,

It is true that the top 20%'s share of income taxes paid has increased even though their marginal rates have been lowered. But it's one of those "other issues" I said the analysis ignores. The share of income received by the top 20% has increased from 41.1% in 1980 to 48.5% in 2006 (actually, almost the entire gain was made by the top 5%). Personal income (nominal) in 2006 was $11.6 trillion. The changing distribution of income meant that the top 20% received $1.2 trillion more income in 2006 than if their share remained at 41.1%. The so-called rich (top 20%) pay most of the federal INCOME taxes because they "earn" 50% of all income.

 

Now who's massaging the data? Using the Robin Hood rationale, the rich' income tax burden would have gone down much greater with the tax cuts. Let's take a look at the real dollars paid by the rich folk:

 

In 2000 folks with Taxable Income paid this in taxes:

 

Making over $200K - $449mil in taxes

$200k and under - $532mil

$100k and under - $348mil

$75k and under - $248mil

 

In 2005 folks with Taxable Income paid this in taxes:

 

Making over $200K - $480mil in taxes

$200k and under - $455mil

$100k and under - $266mil

$75k and under - $180mil

 

So tell us again how the downtrodden masses are suffering.

 

It is frankly amazing how exercised you get at the government's efforts to catch potential terrorists, yet have no qualms about picking the wallets of tax paying citizens.

[TPS]

Now who's massaging the data? Using the Robin Hood rationale, the rich' income tax burden would have gone down much greater with the tax cuts. Let's take a look at the real dollars paid by the rich folk:

 

In 2000 folks with Taxable Income paid this in taxes:

 

Making over $200K - $449mil in taxes

$200k and under - $532mil

$100k and under - $348mil

$75k and under - $248mil

 

In 2005 folks with Taxable Income paid this in taxes:

 

Making over $200K - $480mil in taxes

$200k and under - $455mil

$100k and under - $266mil

$75k and under - $180mil

 

So tell us again how the downtrodden masses are suffering.

 

It is frankly amazing how exercised you get at the government's efforts to catch potential terrorists, yet have no qualms about picking the wallets of tax paying citizens.

Thanks for making my point. Care to share with us how much more income those making over $200k earned in 2005 vs. 2000? And what their average tax rate was?

You also misunderstand my point. I am in agreement with anyone who believes tax rates are too high for all Americans and government spending is out of control. My argument is focused on the dubious supply side econ claim that tax cuts lead to an increases in tax revenues. Tax revenues fall in the year of tax cuts, then as long as gdp increases, next year's revenues will be higher than the previous year's revenues, but more than likely not higher than the year prior to the tax cut. Simply look at personal federal tax revenues prior to Bush's tax cuts, during, and after at www.cbo.gov.

 

We are over-taxed and spending is out of control, which is why I won't vote repub or dem. I'm on your side on this issue. Where I am not is my focus on the question "do cuts in marginal tax rates increase or decrease tax revenues?" I've answered that in the paragraph above.

[GG]

Thanks for making my point. Care to share with us how much more income those making over $200k earned in 2005 vs. 2000? And what their average tax rate was?

 

And thanks for making my point. The politics of envy will always get somebody elected. Who cares how much more money someone else made? Mind your own house. Bill Gates & Warren Buffet's incomes mean squat to me when it comes down to providing for MY family.

 

You also misunderstand my point. I am in agreement with anyone who believes tax rates are too high for all Americans and government spending is out of control. My argument is focused on the dubious supply side econ claim that tax cuts lead to an increases in tax revenues. Tax revenues fall in the year of tax cuts, then as long as gdp increases, next year's revenues will be higher than the previous year's revenues, but more than likely not higher than the year prior to the tax cut. Simply look at personal federal tax revenues prior to Bush's tax cuts, during, and after at www.cbo.gov.

 

We are over-taxed and spending is out of control, which is why I won't vote repub or dem. I'm on your side on this issue. Where I am not is my focus on the question "do cuts in marginal tax rates increase or decrease tax revenues?" I've answered that in the paragraph above.

 

And we've gone around in circles on this. Of course, simple math will show that immediately after a tax cut is enacted total revenues will go down. But supply side is a long term argument, that if you keep tax rates too high, you will bleed your most productive resources, and the economy will not grow as much, especially in an ever growing global economy.

[TPS]

And thanks for making my point. The politics of envy will always get somebody elected. Who cares how much more money someone else made? Mind your own house. Bill Gates & Warren Buffet's incomes mean squat to me when it comes down to providing for MY family.

 

 

 

And we've gone around in circles on this. Of course, simple math will show that immediately after a tax cut is enacted total revenues will go down. But supply side is a long term argument, that if you keep tax rates too high, you will bleed your most productive resources, and the economy will not grow as much, especially in an ever growing global economy.

Once you make the statement that it's a long term argument, one can't prove it or disprove it because no one can "prove" what factors caused the ensuing growth. I've showed in a previous post (long ago) that gdp growth has averaged about 3% per year over time regardless of what has happened with marginal tax rates. Btw, how long is "long term?" You gave credit to Bush2's tax cuts for stimulating growth several years after them; what about now?

[GG]

Once you make the statement that it's a long term argument, one can't prove it or disprove it because no one can "prove" what factors caused the ensuing growth. I've showed in a previous post (long ago) that gdp growth has averaged about 3% per year over time regardless of what has happened with marginal tax rates. Btw, how long is "long term?" You gave credit to Bush2's tax cuts for stimulating growth several years after them; what about now?

 

To renounce the impact of tax cuts now would be the equivalent of ignoring economic cycles. I think that with all doomsday talk, the fact that people are still holding debates on whether we're in a recession is staggering.

[TPS]

To renounce the impact of tax cuts now would be the equivalent of ignoring economic cycles. I think that with all doomsday talk, the fact that people are still holding debates on whether we're in a recession is staggering.

I guess the Fed's interest rate cuts, bail out, and flooding the markets with liquidity have nothing to do with trying to prevent the recession?

[KD in CA]

The rich are already lazy. They don't actually work, they invest and let others do the work.

 

Higher taxes = Less money to invest and less incentive to invest.

Less investment = Fewer new businesses

Fewer new businesses = Fewer new jobs

 

It's pretty horrifying that so many people cannot grasp that basic formula and fail to understand where we'd be if they got their wish and all the rich people went away.

[TPS]

It's pretty horrifying that so many people cannot grasp that basic formula and fail to understand where we'd be if they got their wish and all the rich people went away.

If you are talking about small businesses, especially individually owned, I'd totally agree. On the other hand, large corporations are a different story. Two things: one, the majority of funds invested in markets come from non-taxed sources--pension funds, and other institutional investors; two, if a US corporation borrows $100 million then decides to build a factory in Indonesia, how does that increase American jobs?

[GG]

If you are talking about small businesses, especially individually owned, I'd totally agree. On the other hand, large corporations are a different story. Two things: one, the majority of funds invested in markets come from non-taxed sources--pension funds, and other institutional investors; two, if a US corporation borrows $100 million then decides to build a factory in Indonesia, how does that increase American jobs?

 

It depends on capital flows and what kind of factory. If a US company builds a factory for low skilled workforce in Indonesia and is able to repatriate all profits back, the US benefits.

[TPS]

It depends on capital flows and what kind of factory. If a US company builds a factory for low skilled workforce in Indonesia and is able to repatriate all profits back, the US benefits.

Will the company need to hire another accountant? Or will they increase executive compensation?

[GG]

I guess the Fed's interest rate cuts, bail out, and flooding the markets with liquidity have nothing to do with trying to prevent the recession?

 

I'm not going to argue that. But what I have been saying is that by leaving more capital in private hands the economy is more resilient, and that's also a big reason why the downturns have not been severe.

[TPS]

I'm not going to argue that. But what I have been saying is that by leaving more capital in private hands the economy is more resilient, and that's also a big reason why the downturns have not been severe.

That contradicts the experience of the last hundred years or so.

 

I'm not justifying the current size and scope of government, but since WWII, as the size of government (relative to gdp) has increased, the severity of downturns has decreased. The downturns aren't severe because there is "more capital in private hands," they are less severe because government spending is a stable source of demand regardless of the "current state of risk" in the economy, and it also goes up when an economy slows down. Private capital, on the other hand, tends to "get liquid" when the "current state of risk" increases--that is, businesses are less willing to spend to expand, and finance is also less willing to lend. Much like the current state of affairs.

[Alaska Darin]

I think you're both right - in the short term.

 

The problem will be when the bill for the "size and scope" of government finally comes due. Doesn't look like it's going to be long now...

[GG]

That contradicts the experience of the last hundred years or so.

 

I'm not justifying the current size and scope of government, but since WWII, as the size of government (relative to gdp) has increased, the severity of downturns has decreased. The downturns aren't severe because there is "more capital in private hands," they are less severe because government spending is a stable source of demand regardless of the "current state of risk" in the economy, and it also goes up when an economy slows down. Private capital, on the other hand, tends to "get liquid" when the "current state of risk" increases--that is, businesses are less willing to spend to expand, and finance is also less willing to lend. Much like the current state of affairs.

 

Except that the Fed actions aren't additive to GDP at this moment and their actions have been limited to preventing the collapse of the major financial players. But because capital is so widely and deeply dispersed, quality borrowers still have more options to obtain it than in the past (if you're comparing now to pre-WWII). You would be correct if private money supply was still concentrated at the old money center banks. It's not anymore, and that is a major reason the down swings aren't as bad.

[TPS]

Except that the Fed actions aren't additive to GDP at this moment and their actions have been limited to preventing the collapse of the major financial players. But because capital is so widely and deeply dispersed, quality borrowers still have more options to obtain it than in the past (if you're comparing now to pre-WWII). You would be correct if private money supply was still concentrated at the old money center banks. It's not anymore, and that is a major reason the down swings aren't as bad.

I'm not talking about the ability to obtain financing; I'm talking about the willingness to spend. It's demand that drives the economy. Downswings occur because spending (demand) slows down--either businessess, consumers, or both reduce spending. Government spending never slows down, and in fact speeds up during a downturn. The scope of capital availability means nothing if businesses and consumers "hunker down" and stop spending in a risky environment.

 

In 1929 government spending relative to gdp was 1.2%; it's now almost 20%. Large government has stabilized demand; that's the reason for less severe downturns.

[Chef Jim]

Once you make the statement that it's a long term argument, one can't prove it or disprove it because no one can "prove" what factors caused the ensuing growth. I've showed in a previous post (long ago) that gdp growth has averaged about 3% per year over time regardless of what has happened with marginal tax rates. Btw, how long is "long term?" You gave credit to Bush2's tax cuts for stimulating growth several years after them; what about now?

 

How and why does inflation hurt the economy?

[stuckincincy]

That contradicts the experience of the last hundred years or so.

 

I'm not justifying the current size and scope of government, but since WWII, as the size of government (relative to gdp) has increased, the severity of downturns has decreased. The downturns aren't severe because there is "more capital in private hands," they are less severe because government spending is a stable source of demand regardless of the "current state of risk" in the economy, and it also goes up when an economy slows down. Private capital, on the other hand, tends to "get liquid" when the "current state of risk" increases--that is, businesses are less willing to spend to expand, and finance is also less willing to lend. Much like the current state of affairs.

 

Not to mention the huge increase in the numbers employed by the private sector, largely immune from discharge - whether you are a star performer or a slug. That attenuates things.

 

In days past, there was a "civil service" discount - wages were less, in exchange for that lifetime sinecure. That has changed - government pay is good pay indeed. I'm not aware of any mass exodus from the public sector in pursuit of better pay. Quite the contrary - same as always, once one get that special-protection status handed to workers guaranteed by the tax rolls and protective legislation - few leave. They may crab, but walk?...seldom. They tough it out for 30 years or so, and in most local, county, or state jurisdictions, have their retirement payments based not on their average wage through the years, but on a few peak years, generally their last few.

 

So this large number of wage earners attenuate things. Regardless of good or bad economic times, the government worker is rarely discharged. They may get shuffled, re-assigned - but normally are not reduced in pay or benefits.

[Alaska Darin]

I'm not talking about the ability to obtain financing; I'm talking about the willingness to spend. It's demand that drives the economy. Downswings occur because spending (demand) slows down--either businessess, consumers, or both reduce spending. Government spending never slows down, and in fact speeds up during a downturn. The scope of capital availability means nothing if businesses and consumers "hunker down" and stop spending in a risky environment.

 

In 1929 government spending relative to gdp was 1.2%; it's now almost 20%. Large government has stabilized demand; that's the reason for less severe downturns.

It's nice to know something as complex as the economy can be explained in such simple terms.

[TPS]

How and why does inflation hurt the economy?

This'll take a bit more time than I have right now, but here's a quick response.

Some inflation isn't bad; in fact prices rise as a signal of scarcity (either from increased demand or reduced supply), and we all (businesses and consumers) react to those price changes. Rampant inflation is not good because it distorts the price-rationing mechanism, and can therefore destroy a market economy.

 

Who does inflation hurt then? Anyone without the ability to bargain for higher wages/income, and people/institutions who hold financial assets that pay a fixed return. I'd say that bondholders, banks, and other financial institutions are a pretty powerful force. One might look at inflation as a "conflict of interests." Pun intended. If you are a consumer with a 30-year mortgage or a business with a 10-year fixed-interest debt obligation, you won't mind a little (more) inflation, especially if you have the ability to increase your income to the price index, or a firm that can increase its price as its costs rise.