Top Down or Bottom up?
Obama has declared his intention to pursue a 'bottom up' approach to
the economy. It is his theory that by giving gov't checks to people you
will spur consumption and invigorate the economy. Of course that money
you are giving away was extracted from the economy (or borrowed from a
future economy), so there is no net gain. This is the same approach
tried repeatedly with the various 'stimulus packages', which spend huge
sums of borrowed money for a temporary increase in demand. In
actuality, much of the money goes to pay of existing debt and does not
increase demand at all. The Republican approach is to cut taxes,
specifically capital gains and corporate income taxes. The ideal way to
spur the economy would be to set those tax rates to zero, permanently.
Of course Democrats will scream and oppose this plan, so I propose an
experiment. Let's set those taxes to zero in Texas, and set them to
Obama's preferred level of 41% in New York. What do you suppose will
happen? Let me tell you. The real estate market in Texas will explode.
Tens of millions of high net worth investors will suddenly become
Longhorn or Aggie fans. Every business in America will try to relocate
to Texas. The extra 35% of their profit that they keep will help them
to lower prices and expand production, driving their higher taxed
competition out of business. Meanwhile, New York will be a very quiet,
lonely place. So tell me, why are we surprised that companies are
moving overseas under our current rules? And why can't Obama understand
this?
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Quoting the top statutory tax rate? A lovely fallacy, you completely sabotaged your argument with that. The US uses a graduated tax structure.
November 6, 2008 8:08 PM | Reply | Permalink
Your reply makes no sense (not surprising). The point is the same regardless of the max rate being 35% or 41%. If you think companies would not flock to the tax free state you are insane.
November 6, 2008 10:36 PM | Reply | Permalink
You never actually read anything I link, do you? When the graduation is considered, we are actually one of the LOWEST taxed countries in the world. We can afford to up it some.
The article I linked actually says:
So your piss poor idea of keeping the rates low and leaving the loopholes in place will hurt the rest of us really bad.
Nobody but YOU is suggesting different rates for different states. Moving to a different country is a whole different ball of wax. You're comparing apples to oranges.
November 6, 2008 10:57 PM | Reply | Permalink
I don't want to keep loopholes, I want to eliminate the tax entirely. The analogy of Texas and New York was to illustrate why jobs leave one area for another. Your example points to an effective corp tax rate of around 30% (1.2 T from 3.4T) that is not a low rate. You completely ignore the point of how a zero rate would spur economic growth, and the newly employed would pay income taxes, and the gov't revenues would rise.
November 6, 2008 11:09 PM | Reply | Permalink
You *think* it will spur growth. There is no guarantee. If it doesn't you've left the people who can least afford it holding the bag for a bunch of rich people. Thanks but no thanks! We need a break down here in the middle class. Sorry you don't think we do.
Also, as AlaskaSense has said, other countries manage fine with much higher rates. As will we.
November 6, 2008 11:17 PM | Reply | Permalink
Of course there is a guarantee, what is the other option? Companies just decide to do nothing with their profits? Somebody is going to spend that money, it is going to be distributed to someone, and THEN you collect taxes. Companies don't just hoard cash in a back room like a miser. They pay it out in dividends to people, or they expand the business. If they keep to much cash, they become a takeover target, and someone else does something with the money. Look how many businesses close up each year. If you eliminate that tax burden, they become more viable. They stay in business, and the employees keep working.
November 6, 2008 11:29 PM | Reply | Permalink
You did understand my original point, right? That if companies did not face a significant tax burden, they would be more profitable, would expand, and that means more jobs. Companies don't really pay a tax anyway. It is passed on to their customers, or their employees, or their shareholders. It makes prices higher, dividends lower, jobs fewer, and salaries lower.
November 6, 2008 11:01 PM | Reply | Permalink
Understood it perfectly. I just don't believe it for a single second. There is no such thing as trickle down economics. Period.
November 6, 2008 11:14 PM | Reply | Permalink
Wrong. That is how it works, period. Money exists for one reason, to acquire things. Reducing the amount you take from someone means they have more money. They will seek some type of goods or services with that money. That means jobs to meet that demand. Even if they put it in the bank, it makes money available for others to borrow to buy a house, etc.
November 6, 2008 11:33 PM | Reply | Permalink
The New York times said it 3 years ago. Conservatives then said "just wait, the growth is coming!". And look where we are now. Brilliant!
November 6, 2008 11:41 PM | Reply | Permalink
By the way, what I think you fail to take into account again and again is greed. Your "growth" money just ends up in the pockets of the CEO and executives. It just doesn't translate into real growth in the real world.
You guys have had 28 years to show us this working. It simply has not.
November 6, 2008 11:58 PM | Reply | Permalink
Oh, and if you don't believe me, please explain this. (side note: that's a COOL graph!)
November 7, 2008 12:08 AM | Reply | Permalink
Explain to me when we have set the corp and cap gain taxes to zero as I proposed? When in the last 28 years was that? Your argument is like saying 'antibiotics don't work, because I took one one time and it didn't cure the infection', or 'candy won't make you fat because I ate a candy bar once and didn't get fat'. Cutting rates by a trivial amount for a few years won't help. Eliminating them will. Note I am not talking personal income taxes, just corp and cap gains. As far as greedy CEO's, they still have to pay taxes on the money earned and spent.
November 7, 2008 7:31 AM | Reply | Permalink
I *knew* that was coming, I should have said something.
Look at this the opposite way: I poured a little Windex in my VCR to clean it and it doesn't work! Must need more Windex [pour].
No, we didn't cut the capital gains taxes to zero, but GWB *did* cut them. Regan attempted similar. In both cases, it was a disaster. Just look at the unemployment rates during these 2 presidencies.
November 7, 2008 2:38 PM | Reply | Permalink
It is insane to claim that a capital gains tax cut increased unemployment. You might as well blame it for bad weather. As for your windex analogy, your view is 'gee, raising taxes didn't improve the economy, let's raise them more'. It should be obvious that raising taxes will in fact hurt the economy. Raise them to 100% and the economy will be dead, since no one will work for free. I don't understand you resistance to eliminating corporate taxes. I think my argument in support of that is pretty convincing, and you haven't rebutted anything.
November 7, 2008 3:52 PM | Reply | Permalink
Just an FYI approx 60% of all US corporation pay zero taxes now.
And I think it has been shown time after time supply side only doesn't work. And in truth the tax increase Obama is proposing bring taxes back to Clinton era rates. Which are still far lower than the 60 to 70% we were paying not that many years ago.
November 6, 2008 8:31 PM | Reply | Permalink
Gross sales mean nothing. They pay no tax for one year or so because they manage to show a net loss for the year. The current tax system encourages companies to manage their income to reduce taxes. It should also be noted that many companies are very small, so that distorts the picture as well.
Now, regarding that mythical budget surplus, it NEVER EXISTED. Look at the data from the treasury dept, the national debt has increased EVERY YEAR. It never decreased, not even during Clinton. The data that shows that is from a graph of deficit vs GDP, which due to a spike in GDP from the .com bubble showed a big spike. But the deficit never went into a surplus. Look it up.
November 6, 2008 10:47 PM | Reply | Permalink
First, Bulldog, thanks for continuing to post here - without your and other conservative voices, this site would drown in groupthink. And hopefully, by listening to dissent, we might avoid going down the arrogant route pursued by the Bush administration in so many areas.
I don't think Obama's intent with the middle class tax cut is to spur demand. The cut is so people have a bit more breathing room in their budgets. I've worked with so many bank customers in the moderate income brackets over the years, and the extra $100-200 per month makes a big difference. And if they pay down debt, then that eases pressure on banks reserves for loan losses, helps lower credit card rates, lessens bankruptcy rates, and makes it easier if one spouse loses a job. It's not a bad thing if people can save it, either.
The fiscal stimulus is truly debatable. I would argue we could do much better spending more federal funds on domestic projects like infrastructure, energy, and health care, rather than military spending (things that blow up) that less directly translate to long term benefits.
The last thing is your New York tax argument. If you factor in the state and local taxes, New York City is one of the most expensive if not the most in the whole country. Yet there is no mass migration out of there. Simply put, there is ample demand to live in the big apple. Similar argument for Los Angeles. Visit Sweden sometime. Or France. With their tax rates, you might predict there's no business there at all. Yet there is, and based on what I saw while I was there, they enjoy a better overall quality of life than we do here.
November 6, 2008 11:09 PM | Reply | Permalink
The rate of growth in France and Sweden is very low. How many Swedish products do you buy? You can not argue that setting the tax rate to 0 would increase corporate profitability. That means expansion, that means jobs. Companies are a concept. They do not really pay tax, it is distributed to their customers, shareholders, or employees. It raises prices, limits growth, reduces dividends, reduces jobs. Why go that way? Look, Liberals understand that taxing something it a way to reduce it, like smoking. Lowering the cig tax would increase demand, right? So we tax it to reduce it. That what taxes do. If you subsidize something, you get more of it. If you tax it you get less. Why tax growth?
November 6, 2008 11:18 PM | Reply | Permalink
Why tax growth? Well, it really depends on what is growing!
You make a great point about "sin" taxes, such as cigarettes, and subsidies, such as the agricultural subsidies we have, and I hope that "liberals" reading this post pay attention, as subsidies cause side effects that aren't always good. Corn is a case in point. Originally, those subsidies were pitched to help farms and farmers. But we ended up with a glut of corn. Without those subsidies, soda would be sweetened by sugar rather than corn syrup; it has become ubiquitous in typical food products and may be a leading cause of obesity and type II diabetes in this country. So you can say that the growth in the corn industry in this sense is not good.
This is why stimulus must also be very carefully crafted. One of the democrats signature issues is health care, and it is a very real issue. But it also pays to remember that there are 70 million or so in the baby boom generation that are driving the increased need for health care, and about half of that in the generation behind them. So if we ramp up health care with subsidies and stimulus without sunset provisions, we face mass layoffs and wasted capacity once demand for health care drops - and it will.
I think the core reason "liberals" and others favor increased taxes on the wealthy is to redistribute the wealth. How many homes does a person need to have, after all? Yet if you are an exceptionally capable person in an area, what do you do with your money once you get past survival issues and get over acquisition of material goods?
As others point out, when taxes on the wealthy are increased, they often respond by laying off workers, reducing growth, moving overseas, etc, which doesn't help, overall. So what intrigues me about tax policy is a consumption tax (like the so called "fair" tax) proposed by many economists. And the only politician who even went there this year was... Huckabee?
November 7, 2008 12:03 AM | Reply | Permalink
Also note I am talking about corporate taxes and cap gains (the taxes that most affect growth). It is a different argument than personal income taxes, except in the case where small businesses are concerned, because most pay at the individual rate not the corp rate. So a high max personal rate affects them, and they are a major driver of economic growth, responsible for a huge number of jobs. What bothers me about the liberal idea is that it is based on jealousy. They don't think it is fair for someone else to have more, even if they also get more. Obama revealed this when he supported raising taxes even if it resulted in less revenue. He said it was about being fair. A 'fair' society in which everyone is poor is ok with them, and better than one where the rich get richer and the poor get richer too.
November 7, 2008 8:10 AM | Reply | Permalink
Of course that money you are giving away was extracted from the economy (or borrowed from a future economy), so there is no net gain.
Look, we've had this debate before, in which you provided no cogent response. You fear that Obama may do what has been standard Republican economic M.O. since Reagan - cutting taxes while increasing spending. Voodoo economics, remember?
Deficits shot up under Reagan, then went down under Clinton, then shot up wildly under Bush Jr. Republicans have been giving money away to their corporate welfare base, borrowing from Asia and the Middle East to do so. The rest of us (and our children) are stuck with a monstrously huge deferred tax bill as a result. Using your own phraseology, Republicans have borrowed from a future economy.
It's time for conservatives to accept the truth. Which is that Republican economic philosophy since Reagan is bad. It's a false god, and the Republican base is comprised of fools and zealots to still believe in it. So, which are you, fool or zealot?
November 7, 2008 1:27 AM | Reply | Permalink
Republicans sold out long ago appease the media and democrats. They cut taxes some, but never cut spending. I remember the screams about the safety net under Reagan. That is a disaster waiting to happen, as is the typical democrat plan of raising taxes and raising spending. Neither works.Cutting wasteful spending is good, reducing taxes to a minimum required level is good. My point is not to say 'cut taxes', but to improve the policy by not taxing economic growth. Eliminate corporate and cap gains taxes and the economy will boom. It will not decrease revenue because new employees will be paying taxes, and other people will have more money and they will pay taxes.
November 7, 2008 7:25 AM | Reply | Permalink
Again, you are intentionally avoiding the point. The truth is that Democrats are MORE fiscally responsible than are Republicans. That's plain fact.
How so? First, spending has increased far more under Republican presidents than under Democratic one. That's indisputable. Second, because Democrats levy the taxes to pay for their spending, while Republicans spend using foreign borrowed money, which also has interest payments attached, Democrats are FAR more fiscally responsible. The truth is clear as day and you know it.
As far as Republican presidents folding under pressure to satisfy Democrats, what alternate reality did that happen in? Reagan, a big liberal appeaser, he. G.W.Bush fell all over himself making liberals happy, right?
Time to face facts, Dog. You have fallen hook, line and sinker for the Republican lie. So again, I ask. Are you a zealot or merely a fool?
November 7, 2008 1:50 PM | Reply | Permalink
No, democrats achieve an illusion of fiscal restraint by allowing necessary defense spending to atrophy under their watch. Then when there is a problem somewhere, it requires massive investment to rebuild the forces. Clinton cut our armed forces by 50%. Then Bush is assailed for not sending in enough troops to do the job, but the fact the troops don't exist is ignored. Mil spending at the end of Clinton was 50% of what it was when Reagan left office 12 years earlier. So republicans borrow money (because democrats block any spending cuts) and democrats just loot the defense budget.
November 7, 2008 3:43 PM | Reply | Permalink
I intend this to be my last response, as your last comment reveals you to be both a fool and a zealot.
Your attempt to single out one aspect of the budget to make your argument is, of course, a red herring. The military budget is a part of the overall budget, so, the reality holds. Democrats are and have always been more responsible than Republicans. Your inability to acknowledge this fact proves your zealotry.
As far the size of the military, Bush went forward on completely discretionary and unnecessary war. That was Bush's decision alone and was not forced on him by any action of Iraq's. You are hopelessly foolish, confused, and zealous. Your life will continue to be a disillusioning and miserable experience for those reasons.
November 7, 2008 4:54 PM | Reply | Permalink
Just in case your still missing it. The Republican economic lie is - that tax cuts can be financed with borrowed money. It's utter nonsense and fully the Voodoo economics H.W. Bush labeled it as.
Understand something. NO ONE WANTS TO PAY TAXES. I know that I don't. But I do want the Gov't to do certain things for the good of us all and recognize that those things must be paid for via taxation. Republicans want it both ways, they want spending for corporate interests while deferring the requisite taxes to future Americans. That's wholly irresponsible!
November 7, 2008 2:04 PM | Reply | Permalink