The Econ 101 every Supplier Sider ignores, and why the Tickle Down isn't coming

[scott]

We are all very well aware of the debate going on over the space that tax and economic policy overlap, and the argument over whether Tickle Down/Supply Side economics is the boost in the arm that our economy needs.

Trickle Down/Supply Side economics is the idea that if top earners are taxed less, they will invest more in business infrastructure and equity markets (indirectly creating jobs and demand for goods and services) or employ more people (directly creating jobs and demand for goods and services). The theory goes that these objectives (job creation & investment) require significant resources and by taxing the wealthy less, they are left with more resources by which to do these things.

Supply Siders, in the context of the United States Economy, are conveniently ignoring one of the most important basic fundamental economic ideas. This idea is taught early on in economics because of it's relative importance and because almost all other economic ideas use it as a foundation. That idea being: opportunity cost.

Opportunity Cost is the principal that the true cost of something is not the nominal price you paid for that thing, but the value of all the resources expended to obtain that thing including the value of the next best alternative that was forgone.

In the context of Trickle Down/Supply Side economics, the proponents of such a scheme suggest that if they had a lower income tax rate, then they would invest in business infrastructure and jobs. However, a lower income tax actually increases the opportunity cost of investing in business infrastructure and jobs.

To elaborate, suppose Spacely Sprockets (an LLC wholly owned by Cosmo Spacely and that enjoys pass through taxation due to their LLC status) made incremental gross profit above his expenses of $10 million last year. (Translation: Spacely Sprockets made an additional $10 million in net income above and beyond the normal net income).

Mr. Spacely has a few choices here. He (the firm) can:
1. Pass the money on as net income, of which a portion of it will then become due as income taxes
2. Use the funds for new capital investment for Spacely Sprockets, in order to expand the capabilities of the firm in the future
3. Use the funds to hire new employees, in order to expand the capabilities of the firm in the future.

When looking at the choices Mr. Spacely faces, we see the source of the "Tickle Down" theory: "the less taxes Mr. Spacely has to pay in (1), the more money has has for (2) and (3)." However, this ignores the reality that (2) and (3) would occur before (1). Capital expenditures and payroll expenses are tax deductible and aren't effected by the tax liability when any residual funds are passed on as net income.

In fact, the lower the tax rate, the more expensive, in Opportunity Cost terms, it becomes to do (2) or (3). Let's look at examples of what the opportunity cost of (2) or (3) are at different tax rates.

Scenario A: 0% Tax Rate.
If Mr. Spacely faces a 0% income tax rate, then every $1 he spends on (2) or (3) is a full $1 he does NOT get to keep personally. At a 0% tax rate, the opportunity cost of capital investment and job creation is 100% of the amount the tax payer would have been able to keep.

Scenario B: 25% Tax Rate.
If Mr. Spacely faces a 25% income tax rate, then every $1 he spends on (2) or (3) reduces the amount he gets to keep personally by $0.75. The opportunity cost of capital investment and job creation is lower than in a scenario with 0% taxes.

Scenario C: 50% Tax Rate.
If Mr. Spacely faces a 50% income tax rate, then every $1 he spends on (2) or (3) reduces the amount he gets to keep personally by $0.50. The opportunity cost of capital investment and job creation is lower than in a scenario with 0% or 25% taxes.

Scenario D: 100% Tax Rate.
If Mr. Spacely faces a 100% income tax rate, then every $1 he spends on (2) or (3) reduces the amount he gets to keep personally by $0. There is no opportunity cost for capital investment or job creation, because Mr. Spacely doesn't get to keep that money either way.

For reasons that should be obvious, Scenario D isn't preferable because then there is no incentive to make additional income, since the proprietor wouldn't benefit from that extra work (though he could pay himself a higher salary, but we won't get into the weeds there and we'll just assume that isn't an option).

The part of the tax code that makes capital investment and job creation attractive is that these are pre-tax expenses. Lowering the income-tax rate doesn't provide economic incentive to hire more or invest in more capital, in fact it just raises the opportunity cost of doing so. The tax code was set up this way (with capital investment and payroll being tax deductible) specifically for the reason of incentivizing this kind of behavior.

Trickle Down does work in a scenario where investment and employment expenses are NOT tax deductible, but I've yet to see anyone make the argument that they shouldn't be.

To best incentivize capital investment and job creation, the income tax rate should be set at the rate which the opportunity cost is roughly equal to the rate of return earned on new investment/job creation.

Trickle Down and Supply Siders made a major gaffe in the formulation of their theory (which has empirically failed to "trickle down" each times it's been used, resulting only in increased income inequality)l and it deserves to be called out.

For real capital investment, and real job creation, you need a tax code which increases the opportunity cost of these things so that investing business structure and creating jobs is the best use of funds.

[Drachen]

We are all very well aware of the debate going on over the space that tax and economic policy overlap, and the argument over whether Tickle Down/Supply Side economics is the boost in the arm that our economy needs.

Trickle Down/Supply Side economics is the idea that if top earners are taxed less, they will invest more in business infrastructure and equity markets (indirectly creating jobs and demand for goods and services) or employ more people (directly creating jobs and demand for goods and services). The theory goes that these objectives (job creation & investment) require significant resources and by taxing the wealthy less, they are left with more resources by which to do these things.

Supply Siders, in the context of the United States Economy, are conveniently ignoring one of the most important basic fundamental economic ideas. This idea is taught early on in economics because of it's relative importance and because almost all other economic ideas use it as a foundation. That idea being: opportunity cost.

Opportunity Cost is the principal that the true cost of something is not the nominal price you paid for that thing, but the value of all the resources expended to obtain that thing including the value of the next best alternative that was forgone.

In the context of Trickle Down/Supply Side economics, the proponents of such a scheme suggest that if they had a lower income tax rate, then they would invest in business infrastructure and jobs. However, a lower income tax actually increases the opportunity cost of investing in business infrastructure and jobs.

To elaborate, suppose Spacely Sprockets (an LLC wholly owned by Cosmo Spacely and that enjoys pass through taxation due to their LLC status) made incremental gross profit above his expenses of $10 million last year. (Translation: Spacely Sprockets made an additional $10 million in net income above and beyond the normal net income).

Mr. Spacely has a few choices here. He (the firm) can:
1. Pass the money on as net income, of which a portion of it will then become due as income taxes
2. Use the funds for new capital investment for Spacely Sprockets, in order to expand the capabilities of the firm in the future
3. Use the funds to hire new employees, in order to expand the capabilities of the firm in the future.

When looking at the choices Mr. Spacely faces, we see the source of the "Tickle Down" theory: "the less taxes Mr. Spacely has to pay in (1), the more money has has for (2) and (3)." However, this ignores the reality that (2) and (3) would occur before (1). Capital expenditures and payroll expenses are tax deductible and aren't effected by the tax liability when any residual funds are passed on as net income.

In fact, the lower the tax rate, the more expensive, in Opportunity Cost terms, it becomes to do (2) or (3). Let's look at examples of what the opportunity cost of (2) or (3) are at different tax rates.

Scenario A: 0% Tax Rate.
If Mr. Spacely faces a 0% income tax rate, then every $1 he spends on (2) or (3) is a full $1 he does NOT get to keep personally. At a 0% tax rate, the opportunity cost of capital investment and job creation is 100% of the amount the tax payer would have been able to keep.

Scenario B: 25% Tax Rate.
If Mr. Spacely faces a 25% income tax rate, then every $1 he spends on (2) or (3) reduces the amount he gets to keep personally by $0.75. The opportunity cost of capital investment and job creation is lower than in a scenario with 0% taxes.

Scenario C: 50% Tax Rate.
If Mr. Spacely faces a 50% income tax rate, then every $1 he spends on (2) or (3) reduces the amount he gets to keep personally by $0.50. The opportunity cost of capital investment and job creation is lower than in a scenario with 0% or 25% taxes.

Scenario D: 100% Tax Rate.
If Mr. Spacely faces a 100% income tax rate, then every $1 he spends on (2) or (3) reduces the amount he gets to keep personally by $0. There is no opportunity cost for capital investment or job creation, because Mr. Spacely doesn't get to keep that money either way.

For reasons that should be obvious, Scenario D isn't preferable because then there is no incentive to make additional income, since the proprietor wouldn't benefit from that extra work (though he could pay himself a higher salary, but we won't get into the weeds there and we'll just assume that isn't an option).

The part of the tax code that makes capital investment and job creation attractive is that these are pre-tax expenses. Lowering the income-tax rate doesn't provide economic incentive to hire more or invest in more capital, in fact it just raises the opportunity cost of doing so. The tax code was set up this way (with capital investment and payroll being tax deductible) specifically for the reason of incentivizing this kind of behavior.

Trickle Down does work in a scenario where investment and employment expenses are NOT tax deductible, but I've yet to see anyone make the argument that they shouldn't be.

To best incentivize capital investment and job creation, the income tax rate should be set at the rate which the opportunity cost is roughly equal to the rate of return earned on new investment/job creation.

Trickle Down and Supply Siders made a major gaffe in the formulation of their theory (which has empirically failed to "trickle down" each times it's been used, resulting only in increased income inequality)l and it deserves to be called out.

For real capital investment, and real job creation, you need a tax code which increases the opportunity cost of these things so that investing business structure and creating jobs is the best use of funds.

Ladies and Gentlemen the Carl Sagan of economics!

You do realize that I will steal this as necessary, right? Don't worry, I will credit "some guy on a message board that I frequent"

[Yonivore]

To best incentivize capital investment and job creation, the income tax rate should be set at the rate which the opportunity cost is roughly equal to the rate of return earned on new investment/job creation.
Would you agree that market uncertainty has a dampening affect on capital investment?

Actually, true supply-siders argue a lower tax rate combined with a regulatory climate that removes uncertainty and encourages business growth is the way to prosperity.

Nice how you slipped that genetically-mutated Laffer Curve into the post and turned into a linear regression equation.

[Drachen]

Actually, true supply-siders argue a lower tax rate combined with a regulatory climate that removes uncertainty and encourages business growth is the way to prosperity.
.

What he is saying is that the unbolded has nothing to do with it (outside of the fact that at a certain point higher taxes are counter productive, the genetically mutated laffer curve you mentioned), you could make a case for the bolded, however.

[scott]

Would you agree that market uncertainty has a dampening affect on capital investment?

Yes.


Actually, true supply-siders argue a lower tax rate combined with a regulatory climate that removes uncertainty and encourages business growth is the way to prosperity.

Then a "true" supply sider is only half wrong?


Nice how you slipped that genetically-mutated Laffer Curve into the post and turned into a linear regression equation.

There is no Laffer Curve, mutated or otherwise, presented. The Laffer Curve reflects the relationship between tax rates and total tax revenue, which was never discussed in the post nor is it relavent to what is actually being discussed.

[vy65]

What if the money saved by lower taxes is invested in new businesses as opposed to being capex for the owner's already-existing enterprise? Would that make a difference?

[scott]

What if the money saved by lower taxes is invested in new businesses as opposed to being capex for the owner's already-existing enterprise? Would that make a difference?

Those are also tax-deductible. There may be a time lag to consider, but it would net out.

[boutons_deux]

"true supply-siders"

:lol

Yoni will defend any right-wing bullshit, no matter how repeatedly it's been PROVEN to be pure bullshit.

[boutons_deux]

US corps are/have been sitting on record cash, $Ts, due to the ECONOMIC (not regulatory :lol ) uncertainty of consumer demand. Consumers and businesses are deleveraging (aka, climbing out of debt) rather than spending.

The upcoming Repug-created "cliff" is pure scare-mongering for the Repugs to extort greater austerity which will prolong/deepen America's Lost Decade.

[CosmicCowboy]

That was a reasonable analysis on the surface and the logic tracks impeccably but it neglects the investment risk factor. At a high personal tax rate the return on investment (the incentive to invest) is lower. Throw in the risk factor of making the investment and NOT getting a return (highly likely in our current business climate) and the incentive to invest is even lower.

As an example, raising the capital gains rate lowers the return (and thus the incentive to invest) on investment of after tax funds.

Lets look at the stock market as an example. Lets say the capital gains rate is completely done away with (as some democrats in congress have proposed). The investor will essentially pay 50% of his profit on a stock purchase/sale as tax. There is risk involved in buying stock. He may not make money or may even lose money. When an investor knows that a stock price has to rise 4% just to make a measly 2% profit, what is his incentive to risk money in the stock market?

[mercos]

Voodoo economics indeed.

[Yonivore]

So, your post is just some silly academic exercise of the type in which the Obama administration has been engaged to dig us out of our economic hole?

How many of Obama's economic team actually has business experience?

A couple of things you forgot to mention in your scenario:

What percent of total income does Spacely Sprocket's $10 million EBIDTA represent? That will certainly affect which of the 4 (not 3 choices) he has.

Mr. Spacely could also, "4. Shelter the funds against taxation until it was advantageous to reintroduce them to the economy."

Say if, Mr. Spacely owned an offshore drilling rig or a coal mine or pipeline construction company, it might be in his best interest to park whatever surplus funds he has until there is a regulatory climate that does not threaten to put him out of business.

I understand you own a small business. Do you offer health insurance to your employees? If not, will you be exempt in 2013 or will you have to start providing coverage? If so, will your premiums increase?

If none of the above, you're fortunate. Many small business owners will be required to either reduce staff or accept a smaller EBIDTA margin because of the Patient Protection and Affordable Health Care Act. Many of them cannot afford it and will need to make drastic changes to their business model to accommodate the change.

Many have already said they will be laying off staff on January 1, 2013 because of it.

And Obamacare is just one example of how the uncertainty of regulation is affecting what companies currently do with their surpluses.

It's a huge factor you completely ignored. So did Larry Summers.

And, I'm assuming you both took Econ 101. I didn't -- nor did many small business owners who are having to live through the reality of Obama's application of academic theory.

[clambake]

you looking for bush economic team experience?

[Clipper Nation]

The upcoming Repug-created "cliff" is pure scare-mongering for the Repugs to extort greater austerity which will prolong/deepen America's Lost Decade.

Gotta love how partisan hacks like you have somehow managed to turn prudent fiscal responsibility, less taxes for everyone, and Constitutional government into mysterious, evil "austerity" that will flood the streets with unemployed people and make Grandma foreclose on her house....

The REAL cause of our current economic woes are the same as it's been for decades.... the Federal Reserve created false prosperity by juicing interest rates, people fell hard for the fantasy and loaded up on malinvestments, and it all came crashing down eventually.... there isn't a stimulus package, tax hike, or bailout program in the world that can make up for the Fed's risky, inflationary policies, tbh....

[Yonivore]

Well, if it's the one thing our government could use right now, it's austerity.

We're running trillion dollar deficits ever year and have accumulated a debt North of 15 trillion dollars. I'd say some belt tightening is in order.

[boutons_deux]

Well, if it's the one thing our government could use right now, it's austerity.

:lol

We have an Repug austerity economy now, and it sucks, will suck for 10Ms of people

Currently Low taxes, low tax revenue, no govt counter-cyclical spending, at all levels, is exactly what the Repugs want and will do worse if they can. Govt austerity in down economy is proving to be a disaster here and in Europe, and anywhere it has been tried.

[Clipper Nation]

So what's your suggestion? Speeding up the money printing and making the government spend more and more outside their means with each passing day has proven to be a disaster - just look at Zimbabwe and the Weimar Republic, tbh....

The solution is to end the Fed, restore sound money backed by precious metals, allow competing currencies, end the IRS, abolish the income tax, and stop wasting money on endless meddling abroad, useless pork, and draconian programs like the War on Drugs and wiretapping....

[Wild Cobra]

The reason why, everything tried isn't working, is because of free trade. It's cheaper to outsource labor than build things here.

Get a handle on that, and we will see a growing economy again.

[ChumpDumper]

Eh we're fucked because Bush already spent all the money that could have been spent now to stimulate the economy. Have to rely on tricks like QE that simply don't work the same way.

[boutons_deux]

"we're fucked because Bush already spent all the money that could have been spent now to stimulate the economy"

the stimulus of about $700B was Barry's and it wasn't all spent.

It should have been $2T to $3T given the size of the economy ($13T) and the depth of the Banksters Great Depression.

[CosmicCowboy]

Eh we're fucked because Bush already spent all the money that could have been spent now to stimulate the economy. Have to rely on tricks like QE that simply don't work the same way.

:lmao

almost 4 years later and it's still all bush's fault.

pathetic.

[scott]

That was a reasonable analysis on the surface and the logic tracks impeccably but it neglects the investment risk factor. At a high personal tax rate the return on investment (the incentive to invest) is lower. Throw in the risk factor of making the investment and NOT getting a return (highly likely in our current business climate) and the incentive to invest is even lower.

As an example, raising the capital gains rate lowers the return (and thus the incentive to invest) on investment of after tax funds.

Lets look at the stock market as an example. Lets say the capital gains rate is completely done away with (as some democrats in congress have proposed). The investor will essentially pay 50% of his profit on a stock purchase/sale as tax. There is risk involved in buying stock. He may not make money or may even lose money. When an investor knows that a stock price has to rise 4% just to make a measly 2% profit, what is his incentive to risk money in the stock market?

Two parts to my response:

Part One:

"Investments" in the sense it used by most people (the purchasing of stocks and bonds) for the most part don't create any jobs or employ people, because they aren't direct investment. When you buy 100 shares of Google, for example, Google has no more funds available to them to invest in equipment or hire more people.

With that said, insofar as direct investment is concerned, then your investment is already taking advantage of the tax benefits that are inherent in capital investment and employment. And those tax benefits are not insignificant. When you invest, say $1 million, you can write off those start-up expenses to offset your first $1 million in net income via depreciation. The value of your company hasn't depreciated, however, so you still have an economic asset (worth it's market value) and you've earned $1 million of net income tax free.

Part Two:

No argument that a higher tax rate does lower your projected rate of return and does impact your propensity to invest. However, tax risk is significantly less than all the other risks inherent in a business and the degrees to which we are talking, are fairly minor. But they are still real and you make a good point.

[Yonivore]

So what's your suggestion? Speeding up the money printing and making the government spend more and more outside their means with each passing day has proven to be a disaster - just look at Zimbabwe and the Weimar Republic, tbh....

The solution is to end the Fed, restore sound money backed by precious metals, allow competing currencies, end the IRS, abolish the income tax, and stop wasting money on endless meddling abroad, useless pork, and draconian programs like the War on Drugs and wiretapping....
Add the Environmental Protection Agency, Homeland Security, and Department of Education to that list and you've got a deal.

[Wild Cobra]

:lmao

almost 4 years later and it's still all bush's fault.

pathetic.
Don't you know?

In another 4 years, it will still be Bush's fault.

[Yonivore]

Don't you know?

In another 4 years, it will still be Bush's fault.
George W. Bush ended the world. Okay, it's out there.

[Wild Cobra]

George W. Bush ended the world. Okay, it's out there.
Yes, but even though he signed the SOFA, the dates he signed put it into Obama's administration time, and the liberals will give credit to Obama.

[scott]

So, your post is just some silly academic exercise of the type in which the Obama administration has been engaged to dig us out of our economic hole?

That you feel this is just some "silly academic exercise" is telling of the things you propose, which often times equate to "let's just throw some shit at the wall and hope it sticks".

Do you feel that basing policy on fundamental knowledge is "silly"?

And I'm not sure how any of this relates to Obama. They've not presented this information to my knowledge, nor have I cared to see what their opinion on the matter is. You may find this shocking, Yonivore, that some of us come up with our own individual thoughts rather than just ripping them from our favorite blogs or talking points.


How many of Obama's economic team actually has business experience?

This relates to this thread, how?

More relavent to this thread, what is your business experience?


A couple of things you forgot to mention in your scenario:

What percent of total income does Spacely Sprocket's $10 million EBIDTA represent? That will certainly affect which of the 4 (not 3 choices) he has.

Mr. Spacely could also, "4. Shelter the funds against taxation until it was advantageous to reintroduce them to the economy."

Say if, Mr. Spacely owned an offshore drilling rig or a coal mine or pipeline construction company, it might be in his best interest to park whatever surplus funds he has until there is a regulatory climate that does not threaten to put him out of business.

Actually there are countless other scenarios I didn't include. You see, in science, we build models by isolating specific variables to get a sense of their specific impact on the control group.

By starting with a huge model with countless variables, tweaking one of them, and then proclaiming a justified conclusion; you end up with same haphazard nonsense that you typically like to throw around.

In this case, you are suggesting that business owners are avoiding making capital investments and creating new jobs, which are perfect tax shelters (which is to say, those activities are completely non-taxable), by parking their funds in offshore accounts that aren't taxable, so that they can wait until income taxes are lower, which they will then invest in capital and create new jobs despite the fact that they are now LESS incentivized to do so...

You fail that one, but you have made a good case for closing these kinds of ta loopholes.


I understand you own a small business. Do you offer health insurance to your employees? If not, will you be exempt in 2013 or will you have to start providing coverage? If so, will your premiums increase?

If none of the above, you're fortunate. Many small business owners will be required to either reduce staff or accept a smaller EBIDTA margin because of the Patient Protection and Affordable Health Care Act. Many of them cannot afford it and will need to make drastic changes to their business model to accommodate the change.

Many have already said they will be laying off staff on January 1, 2013 because of it.

And Obamacare is just one example of how the uncertainty of regulation is affecting what companies currently do with their surpluses.

It's a huge factor you completely ignored. So did Larry Summers.

How is any of this relavent to the discussion on lower personal income taxes as they relate to capital investment and job creation?


And, I'm assuming you both took Econ 101. I didn't

It shows.


-- nor did many small business owners

Maybe they should have.


who are having to live through the reality of Obama's application of academic theory.

More irrelevant non-sense. I realize Play #1 out of the Idiot's Playbook to Political Debate is to fill the discussion with non-sequitous tangents to derail it from the actual topic, but a lot of us can see through it. Maybe you should go to Play #2, putting me on ignore, to save yourself future embarrassment.

[boutons_deux]

The Banksters GREAT Depression started under Repug admin, following conservative principles of (financial) deregulation, and ineffective/non enforcement (eg, Repugs blocked 19 states from stopping predatory mortage lenders, etc, etc).

Then Barry and Dems have been faced with automatic full court obstructionism from 20 Jan 2009.

[FuzzyLumpkins]

Would you agree that market uncertainty has a dampening affect on capital investment?

Actually, true supply-siders argue a lower tax rate combined with a regulatory climate that removes uncertainty and encourages business growth is the way to prosperity.

Nice how you slipped that genetically-mutated Laffer Curve into the post and turned into a linear regression equation.

The major instability in the market have been from terrorist bombings, banking deregulation, and our shitty representatives bringing us to the brink of default.

The tax rate being all the fucko low has if anything correlated with said instability. When you correlate times with relatively high taxation such as 1940-1970 and again 1992-1998 we experienced the greatest economic prosperity this country has ever seen.

[scott]

Off to stimulate the Las Vegas economy. See ya' next week folks.

[Yonivore]

They've not presented this information to my knowledge, nor have I cared to see what their opinion on the matter is. You may find this shocking, Yonivore, that some of us come up with our own individual thoughts rather than just ripping them from our favorite blogs or talking points.
So, you decided to just start an economics thread in a political forum?

Cool.

[ElNono]

Lets look at the stock market as an example. Lets say the capital gains rate is completely done away with (as some democrats in congress have proposed). The investor will essentially pay 50% of his profit on a stock purchase/sale as tax. There is risk involved in buying stock. He may not make money or may even lose money. When an investor knows that a stock price has to rise 4% just to make a measly 2% profit, what is his incentive to risk money in the stock market?

The problem is that the stock market has largely shifted from "investors" to "traders". IIRC, almost a 1/3 of all trades are conducted strictly by machines right now, looking to load/unload stocks as fast as possible to make quick margins. This is probably a topic that deserves it's own thread, but overall, perhaps it's not such a bad idea to entice people to invest their money outside of the market to look for better margins.

[Yonivore]

Actually there are countless other scenarios I didn't include. You see, in science, we build models by isolating specific variables to get a sense of their specific impact on the control group.
I call bullshit on this deflection.


In the context of Trickle Down/Supply Side economics, the proponents of such a scheme suggest that if they had a lower income tax rate, then they would invest in business infrastructure and jobs. However, a lower income tax actually increases the opportunity cost of investing in business infrastructure and jobs.
You gave the Mr. Spacely and Spacely Sprockets scenario as a refutation of supply-side economic theory. I think leaving out something major, such as market uncertainty, as just being another of the "countless other scenarios" to which you could have referred is disingenuous.

Uncertainty caused by federal economic policy is a huge factor you didn't even broach.

But, you're right, I'm not an economist and this isn't an economic forum.

[Th'Pusher]

But, you're right, I'm not an economist and this isn't an economic forum.


We are all very well aware of the debate going on over the space that tax and economic policy overlap, and the argument over whether Tickle Down/Supply Side economics is the boost in the arm that our economy needs.

[CosmicCowboy]

Off to stimulate the Las Vegas economy. See ya' next week folks.

Have a great one Scott!

[ElNono]

Thanks scott, have a good trip.

[Clipper Nation]

Add the Environmental Protection Agency, Homeland Security, and Department of Education to that list and you've got a deal.
Those would fall under "useless pork" in my book, tbh...

[spursncowboys]

pack it up all the great minds like hyak, friedman and schumpeter. scott figured it out.

[spursncowboys]

.

[DUNCANownsKOBE]

Lets look at the stock market as an example. Lets say the capital gains rate is completely done away with (as some democrats in congress have proposed). The investor will essentially pay 50% of his profit on a stock purchase/sale as tax. There is risk involved in buying stock. He may not make money or may even lose money. When an investor knows that a stock price has to rise 4% just to make a measly 2% profit, what is his incentive to risk money in the stock market?
Right, because trading stocks leads to so much job creation.

[DUNCANownsKOBE]

The reason why, everything tried isn't working, is because of free trade. It's cheaper to outsource labor than build things here.

Get a handle on that, and we will see a growing economy again.
"Getting a handle" on the outsourcing of jobs would be going directly against trickle down logic.

The fact "job creators" can and do cheaply outsource labor without government regulation is proof "trickle down" doesn't work.

[spursncowboys]

"Getting a handle" on the outsourcing of jobs would be going directly against trickle down logic.

The fact "job creators" can and do cheaply outsource labor without government regulation is proof "trickle down" doesn't work.

What trickle down doctrine did you get that nugget from?

[spursncowboys]

I guess all trickle down robots care nothing about quality of product and only price.
:lol DOK economist

[DUNCANownsKOBE]

I guess all trickle down robots care nothing about quality of product and only price.

Was it UTSA or the military that taught you to write like a chimpanzee?

Either way, I have no fuckin idea what this post means.

[Trainwreck2100]

lol thinking rich people would just be some cool scros and trickle down some money to us bros

fify
lets not overuse scro

[Nbadan]

Once Upon a Trickle Down: The Rise and Fall of Supply Side Economics

pSOgxZ8lRUw#!

[ElNono]

pack it up all the great minds like hyak, friedman and schumpeter. scott figured it out.

All of them packed it up a while ago...

But overall, scott isn't claiming any new discovery, he's merely illustrating under basic economic fundamentals why "trickle down" isn't creating jobs, or "trickling down", and how different tax rates have an impact on such decisions.

More importantly, why severely reduced or severely extreme tax rates on these "job producers" actually discourages job creation.

[Wild Cobra]

Off to stimulate the Las Vegas economy. See ya' next week folks.
I'm glad you aren't taking Obama's advice of avoiding that area.

Good for you.

Hope you stimulate it well, and are well stimulated in return.

[Wild Cobra]

The problem is that the stock market has largely shifted from "investors" to "traders". IIRC, almost a 1/3 of all trades are conducted strictly by machines right now, looking to load/unload stocks as fast as possible to make quick margins. This is probably a topic that deserves it's own thread, but overall, perhaps it's not such a bad idea to entice people to invest their money outside of the market to look for better margins.
Now I agree with your view on this one except the solution is not to penalize the investor. That's one reason why there are different capital gains rates. Now I would agree with taxing day traders at like 50%, but not holdings over say... maybe six months.

[Wild Cobra]

Would Mr. Spacely be a democrat or a republican?

[Wild Cobra]

"Getting a handle" on the outsourcing of jobs would be going directly against trickle down logic.

The fact "job creators" can and do cheaply outsource labor without government regulation is proof "trickle down" doesn't work.
Bullshit.

That's not what "trickle down" is about. When "trickle down" was conceived, it was to create American jobs. Not Chinese jobs.

[Wild Cobra]

Was it UTSA or the military that taught you to write like a chimpanzee?

Either way, I have no fuckin idea what this post means.
That figures.

I understood it just fine.

[Wild Cobra]

All of them packed it up a while ago...

But overall, scott isn't claiming any new discovery, he's merely illustrating under basic economic fundamentals why "trickle down" isn't creating jobs, or "trickling down", and how different tax rates have an impact on such decisions.

More importantly, why severely reduced or severely extreme tax rates on these "job producers" actually discourages job creation.

Still, our biggest hurdle is cheap imported goods. We need to tariff the hell out of them if necessary to return manufacturing here.

[admiralsnackbar]

Still, our biggest hurdle is cheap imported goods. We need to tariff the hell out of them if necessary to return manufacturing here.

Trying to bring back manufacturing is 90's fool's gold -- that ship has sunk and tariffs would only penalize Americans whose businesses depend on cheap imports (95% of all business people/owners who aren't obscenely wealthy -- so the majority of us, basically). The future of the US economy will be determined by innovation: software, hosting/data-management science;and medicine. IMO the building of the infrastructure that powered our economywill be the only "economically salubrious" healing sort of manufacturing would have to do with a recovery of Amurkan economic primacy.

[Wild Cobra]

Trying to bring back manufacturing is 90's fool's gold -- that ship has sunk and tariffs would only penalize Americans whose businesses depend on cheap imports (95% of all business people/owners who aren't obscenely wealthy -- so the majority of us, basically). The future of the US economy will be determined by innovation: software, hosting/data-management science;and medicine. IMO the building of the infrastructure that powered our economywill be the only "economically salubrious" healing sort of manufacturing would have to do with a recovery of Amurkan economic primacy.
Then we will continue down this endless spiral to poverty.

We need to accept the fact that we fucked up as a nation, and take some short term hardships to return to prosperity.

What happens when we keep losing jobs, and there are less and less tax payers to support those who need government handouts?

I say we are doomed as a nation unless we change out thinking.

[scott]

So, you decided to just start an economics thread in a political forum?

Cool.

Maybe a thread on Olympic Gymnastics would have been more appropriate.

[TeyshaBlue]

Maybe a thread on Olympic Gymnastics would have been more appropriate.

You can never have too many beer threads. Or coffee threads.

[LnGrrrR]

The reason why, everything tried isn't working, is because of free trade. It's cheaper to outsource labor than build things here.

Get a handle on that, and we will see a growing economy again.

A good point, although I'm not sure if the backbone of the American economy should be based on manufacturing, or if it could be anymore.

(That said, I'm not sure what the backbone of America is currently. :) )

[baseline bum]

(That said, I'm not sure what the backbone of America is currently. :) )

personal debt?

[Wild Cobra]

A good point, although I'm not sure if the backbone of the American economy should be based on manufacturing, or if it could be anymore.

(That said, I'm not sure what the backbone of America is currently. :) )
It doesn't need to be "based' on manufacturing, but if we keep decreasing the manufacturing jobs we have, we will have less employed.

Where are those replacement jobs for all the manufacturing jobs lost over the years?

[DUNCANownsKOBE]

Bullshit.

That's not what "trickle down" is about. When "trickle down" was conceived, it was to create American jobs. Not Chinese jobs.
it ended up creating Chinese jobs, regardless of what Ronald Reagan told you it would do.

[Wild Cobra]

it ended up creating Chinese jobs, regardless of what Ronald Reagan told you it would do.
That's because of free trade agreements. Not because of the theories of the time.

Blame Clinton for our global overseas trade agreements.

[coyotes_geek]

personal debt?

:lol because it's funny

:depressed because it's true....

[DUNCANownsKOBE]

I agree with Wild Cobra 100% about manufacturing. This country was at its best when its backbone was manufacturing and production, not finance and services. As good as Clinton was in other areas, his policies basically made the manufacturing ship sail as someone else said.

Still, it's hilarious that someone who claims trickle-down, supply side economics works says we need tarriffs on imported goods.

"Deregulations and tax cuts over here would work if you simply had more regulations and tax hikes over there!"

[DUNCANownsKOBE]

Blame Clinton for our global overseas trade agreements.
I do. He's largely responsible for all the jobs that have left this country, granted GHWB was just as much in favor of NAFTA during the 1992 elections as he was, and jobs were already leaving this country at a noticeable rate before Clinton came in and made it worse.

[Wild Cobra]

I do. He's largely responsible for all the jobs that have left this country, granted GHWB was just as much in favor of NAFTA during the 1992 elections as he was, and jobs were already leaving this country at a noticeable rate before Clinton came in and made it worse.
Yes, but NAFTA at least was only trying to help our immediate neighbor, which in turn reduces illegal immigration issues. helping Mexico improve their economy only has benefits for us in the end. We cannot solve the world's problems.

At your residence, are you more likely to help your next door neighbor, or the entire community?

[DUNCANownsKOBE]

NAFTA was just an example. My overall point is that Republicans wanted free trade just as much as Clinton did.

[LnGrrrR]

NAFTA was just an example. My overall point is that Republicans wanted free trade just as much as Clinton did.

That's because Republicans, as well as Democrats, are usually businessmen (or wealthy, at the least). And free trade is good for upping the bottom line of those on top.

[Wild Cobra]

NAFTA was just an example. My overall point is that Republicans wanted free trade just as much as Clinton did.
Maybe, but that doesn't mean it's right, or that I agree.

Do you have the votes tallies available for how many republicans and democrats voted for the trade agreements, or is it your spin, or someone else's that you are repeating?

[Drachen]

Maybe, but that doesn't mean it's right, or that I agree.

Do you have the votes tallies available for how many republicans and democrats voted for the trade agreements, or is it your spin, or someone else's that you are repeating?

You spin me right round baby right round:


The agreement's supporters included 132 Republicans and 102 Democrats. NAFTA passed the Senate 61-38. Senate supporters were 34 Republicans and 27 Democrats

http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement

[Spurminator]

Three pages and no one has made a smart-ass comment about the typo in the title?

[DUNCANownsKOBE]

You spin me right round baby right round:



http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement
:lmao

[CosmicCowboy]

Free trade was inevitable, as was manufacturing moving to lesser developed, lower salary, lower regulation countries. It is a global economy. No use bitching about it now. The US has moved into a mature service economy. People need to adjust their expectations.

[Wild Cobra]

You spin me right round baby right round:



http://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement
That's NAFTA.

What about the trade agreements that followed. Did they have as much republican support as NAFTA?

[TeyshaBlue]

Three pages and no one has made a smart-ass comment about the typo in the title?

Nothing wrong with Tickle Down. Don't be a hater.

[mercos]

We can't save all of the manufacturing jobs that we lost, but we have to bring some back or we will continue on our downward spiral. Manufacturing jobs are needed because they are generally low skill jobs, and there is a good section of the population that is never going to develop high skills to handle high tech jobs. It is also not a good idea to allow another country to completely control the manufacture of items that are essential to our own country. We are already at China's mercy when it comes to precious metals.

[Drachen]

That's NAFTA.

What about the trade agreements that followed. Did they have as much republican support as NAFTA?

Well I got you started, but there is a website to help you can answer that question.
http://bit.ly/uxMA6H

[FuzzyLumpkins]

Free trade was inevitable, as was manufacturing moving to lesser developed, lower salary, lower regulation countries. It is a global economy. No use bitching about it now. The US has moved into a mature service economy. People need to adjust their expectations.

I always love it when you spout 1990's rhetoric, CC.

[Wild Cobra]

Free trade was inevitable, as was manufacturing moving to lesser developed, lower salary, lower regulation countries. It is a global economy. No use bitching about it now. The US has moved into a mature service economy. People need to adjust their expectations.
But if we keep having more unemployed than we have available paying service jobs, then maybe we will have to reintroduce indentured servitude.

[Wild Cobra]

Our biggest sore spot with trade is the U.S.–China Relations Act of 2000. Although signed by president Clinton, the major supporters in the House were republicans, and about equal in the senate.

This, was in my view, was the permanent downturn of our economy.

[Wild Cobra]

Well I got you started, but there is a website to help you can answer that question.
http://bit.ly/uxMA6H
Not funny.

I used wiki and Thomas.

[CosmicCowboy]

Our biggest sore spot with trade is the U.S.–China Relations Act of 2000. Although signed by president Clinton, the major supporters in the House were republicans, and about equal in the senate.

This, was in my view, was the permanent downturn of our economy.

Who knows? It could have also prevented WWIII.

[Drachen]

Not funny.

I used wiki and Thomas.

well I thought it was funny and you know what they say "if you cant laugh at yourself...."


So, Please show us the tallies for all trade agreements which have ever been passed (since you didn't narrow it down).

[Drachen]

Who knows? It could have also prevented WWIII.

For now . . . . .

dun dun DUUUUUUNNN!

[CosmicCowboy]

For now . . . . .

dun dun DUUUUUUNNN!

Seriously...you can't go back 20 years and say "If we hadn't done x then everything would be hunkydory"...it just doesn't work that way...there are cause/effects from every decision...if we had tried to cockblock China from the world economy who know what would have happened? There was still India, Malaysia, Vietnam, Thailand, Korea, etc.

[Clipper Nation]

Our biggest sore spot with trade is the U.S.–China Relations Act of 2000. Although signed by president Clinton, the major supporters in the House were republicans, and about equal in the senate.

This, was in my view, was the permanent downturn of our economy.

Not even close to our biggest sore spot with trade, which is NAFTA.... it's not actual free trade, it's corporatist-managed trade that threatens our sovereignty and our ability to create and keep domestic jobs, all for the sake of enriching special interests....

[The Reckoning]

not enough derivatives and charts tbh

[The Reckoning]

Not even close to our biggest sore spot with trade, which is NAFTA.... it's not actual free trade, it's corporatist-managed trade that threatens our sovereignty and our ability to create and keep domestic jobs, all for the sake of enriching special interests....


actually it hurts mexico more than anyone else...flooding their market with our cheap goods and running out competition. i think the US has been better off with it :lol.

just not ollll meh-he-co

[Wild Cobra]

well I thought it was funny and you know what they say "if you cant laugh at yourself...."


So, Please show us the tallies for all trade agreements which have ever been passed (since you didn't narrow it down).
I can laugh at myself quite well. I simply hate that slow typing Google thing. I've never been diagnosed, but I think I have ADD. That site posses me off because it's too damn slow.

[FuzzyLumpkins]

I can laugh at myself quite well. I simply hate that slow typing Google thing. I've never been diagnosed, but I think I have ADD. That site posses me off because it's too damn slow.

I dont think its ADD. or at least not only add

[LnGrrrR]

I dont think its ADD. or at least not only add

:lol Cruel but funny.

[Juggity]

Add the Environmental Protection Agency, Homeland Security, and Department of Education to that list and you've got a deal.

This explains so much

[scott]

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2112482


Tax Cuts for Whom? Heterogeneous Macroeconomic Effects of Income & Payroll Tax Changes


Owen M. Zidar
University of California, Berkeley - Department of Economics

July 24, 2012


Abstract:
This paper investigates how tax changes for different income groups affect macroeconomic activity. Using historical tax return data from NBER’s TAXSIM, I construct a measure of who received (or who paid for) postwar tax changes for each income and payroll tax change that Romer & Romer (2010) classify as exogenous. At the national level, I aggregate tax changes for all taxpayers in the the bottom 90% and the top 10% of AGI and relate these aggregates to output, employment, and consumption growth. At the state level, I construct Bartik instruments for state tax shocks using national tax changes and each state’s share of high income taxpayers. If tax cuts for high income earners generate substantial economic activity, then states with a large share of high income taxpayers should grow faster following a tax cut for high income earners. I find that the negative relationship between tax changes and real GDP growth over a two year period is almost entirely driven by tax changes for the bottom 90%. The empirical relationship between tax cuts for the top 10% percent and job creation is negligible in magnitude, statistically insignificant, and much weaker than that of equivalently sized tax cuts for the bottom 90%.

Number of Pages in PDF File: 26

Keywords: Tax Cuts, Heterogenous Agents, Fiscal Policy, Paradox of Thrift, Business Cycles

JEL Classification: E32, E62, H20, N12

[CosmicCowboy]

Isn't it a little simplistic to attribute growth/shrinkage in a states economy to a single variable?

Is his conclusion really justified by the data?

[scott]

Isn't it a little simplistic to attribute growth/shrinkage in a states economy to a single variable?

Yes, but I don't think that what is being implied by anyone.


Is his conclusion really justified by the data?

Not just the data, but the fundamental theory behind it. Based on what reason does anyone believe that tax cuts for the wealthy will create jobs? Real investment in physical capital or jobs is already taxed advantaged and reductions in personal income tax for the top don't correlate (in theory or reality). On the other hand, higher income individuals spend a lower % of their income on consumer goods (conversely stated: they save a higher % of their income) and consumer spending has the greatest direct impact on job creation.

[boutons_deux]

"consumer spending has the greatest direct impact on job creation."

yep, is why QE1,2 got no traction, because Fed lending to the financial sector didn't "trickle" to the consumer level. The financial sector took those cheap $100Bs and increased their own incomes in the Wall St Casino, trading, speculating, etc. The Fed is outta bullets.

[CosmicCowboy]

Yes, but I don't think that what is being implied by anyone.



Not just the data, but the fundamental theory behind it. Based on what reason does anyone believe that tax cuts for the wealthy will create jobs? Real investment in physical capital or jobs is already taxed advantaged and reductions in personal income tax for the top don't correlate (in theory or reality). On the other hand, higher income individuals spend a lower % of their income on consumer goods (conversely stated: they save a higher % of their income) and consumer spending has the greatest direct impact on job creation.

But the same survey in a different economy could have had an entirely different conclusion.

This data was for 2010, right?


If you look at all the wealth that was lost in 2010 in real estate, the stock market, etc. A cut in tax rates may have had a negligible positive impact compared to the negative impact of wealth lost in these other areas.

[scott]

But the same survey in a different economy could have had an entirely different conclusion.

This data was for 2010, right?

If you look at all the wealth that was lost in 2010 in real estate, the stock market, etc. A cut in tax rates may have had a negligible positive impact compared to the negative impact of wealth lost in these other areas.

The data was going back all the way post-WW2. The 2010 reference is only to a previous study.

Edit: if a study attempted to draw a conclusion by only looking at 2010 it would never get published, and the author would probably get fired by his university. :)

Edit 2: Mr. Zidar is a current PhD candidate at Berkeley, so he wouldn't get fired... he would have never gotten in (if he made that mistake). Here is his CV, for those who may want to question his credentials: https://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxvbXppZGFyfGd4OjZlMTkyMzNi NTU0NDM3Yjk

[FuzzyLumpkins]

I would recommend framing the discussion in how to test the effects of a variable on a system and how systems are analyzed in general rather than continue allowing him to pigeonhole the discussion into this particular version of 'things are just too complicated for us to understand' dismissal.

[scott]

I would recommend framing the discussion in how to test the effects of a variable on a system and how systems are analyzed in general rather than continue allowing him to pigeonhole the discussion into this particular version of 'things are just too complicated for us to understand' dismissal.

Will you have me teach an entire semester on econometrics on this forum while I'm at it?

Sheesh!

:)

[TeyshaBlue]

Will you have me teach an entire semester on econometrics on this forum while I'm at it?

Sheesh!

:)

Sorry..I was napping. Could you start over?

[CosmicCowboy]

I would recommend framing the discussion in how to test the effects of a variable on a system and how systems are analyzed in general rather than continue allowing him to pigeonhole the discussion into this particular version of 'things are just too complicated for us to understand' dismissal.

Please let the adults have a conversation, shithead. I wasn't attacking Scott, I was asking questions. Unlike you, I respect his opinion.

[FuzzyLumpkins]

Please let the adults have a conversation, shithead. I wasn't attacking Scott, I was asking questions. Unlike you, I respect his opinion.

Acting petulant like this makes you appear weak and age smack coming from a boomer does not have the vehemence that you are hoping for.

Further the asking of questions and framing of an argument are not mutually exclusive.

Specifically, you said:


Isn't it a little simplistic to attribute growth/shrinkage in a states economy to a single variable?

Is his conclusion really justified by the data?

It's pretty obvious what conclusion you are drawing. Thus my saying how you are trying to frame it as a "things are just too complicated for us to understand dismissal."

That is called me participating int he discussion. Feel free to ignore me but I was very specifically talking about the subject matter. Your method was cliche and I pointed it out. that is not an attack on you, it's a criticism of your approach. Learn the difference.

[FuzzyLumpkins]

Will you have me teach an entire semester on econometrics on this forum while I'm at it?

Sheesh!

:)

Nah man. I am just saying that you should not entertain that train of thought as relevant by arguing it on it's merits. The underlying premise behind his line of questioning is flawed.

He probably doesn't want to be taught anyway.

[scott]

This post exists for a reason. But I won't explain why. It has nothing to do with you though (no matter who you are).

Edit: Okay, it exists only to create the 5th page, because while Spurstalk thinks there was a 5th page... there wasn't. And it annoys the shit out of me when it does that.

[Spurminator]

:tu :tu :tu

[Drachen]

Will you have me teach an entire semester on econometrics on this forum while I'm at it?

Sheesh!

:)

You should teach on the graduate level... I tell you the econ professors they have there now ... suck.

(to be fair I only took a class with one of them, she was bad, but I heard that her husband was the same)

That is, unless your style is to face away from the class and write on the board for the entire 3 hours. If that is the case, they have that covered already.

[TeyshaBlue]

This post exists for a reason. But I won't explain why. It has nothing to do with you though (no matter who you are).

Edit: Okay, it exists only to create the 5th page, because while Spurstalk thinks there was a 5th page... there wasn't. And it annoys the shit out of me when it does that.

Obviously the VST5PC at work here.

[Wild Cobra]

There is one good reason trickle down is no longer a working idea.

Global trade.

Most the money exchanged now crosses borders.

[scott]

There is one good reason trickle down is no longer a working idea.

Global trade.

Most the money exchanged now crosses borders.

What was the reason for it not being a good idea before?

[LnGrrrR]

There is one good reason trickle down is no longer a working idea.

Global trade.

Most the money exchanged now crosses borders.

Tell that to the conservatives...

[Wild Cobra]

What was the reason for it not being a good idea before?
We didn't have so much global trade in the 80's. Things change.

[Wild Cobra]

Tell that to the conservatives...
Are they speaking of "trickle down" or are they speaking of tax law changes?

[z0sa]

You can get a tickle down anytime if you head across the border.

[LnGrrrR]

Are they speaking of "trickle down" or are they speaking of tax law changes?

Conservatives think that lowering taxes = better business. But that's not necessarily true, and they usually don't do the paperwork to prove their point.

[Wild Cobra]

Conservatives think that lowering taxes = better business. But that's not necessarily true, and they usually don't do the paperwork to prove their point.
A square is a rectangle, a rectangle is not a square.

Trickle down is lower taxes. Lowering taxes is not trickle down.

[scott]

We didn't have so much global trade in the 80's. Things change.

You didn't answer my question.

[Wild Cobra]

What was the reason for it not being a good idea before????

Before... When is before? I assumed the 80's, and it worked. Just not as well as advertised.

I was well aware of the 80's. I have already been paying taxes for a decade when this came about. How about you, or are you relying on what other people say?

[scott]

???

Before... When is before? I assumed the 80's, and it worked. Just not as well as advertised.

I was well aware of the 80's. I have already been paying taxes for a decade when this came about. How about you, or are you relying on what other people say?

How did it work? What objective metric can you point to of it working?

[scott]

But just so I'm clear... your argument is that it worked in the 1980s, because imports weren't as high?

[scott]

DiA: More generally, which party do you find more credible when discussing America's fiscal challenges?

Respondent: The Republicans don't have any credibility whatsoever. They squandered whatever they had when they enacted a massive UNFUNDED expansion of Medicare in 2003. Yet they had the nerve to complain about Obama's health plan, WHICH WAS FULLY PAID FOR according to the Congressional Budget Office. The word “chutzpah” is insufficient to describe how utterly indefensible the Republican position is, intellectually.

Furthermore, Republicans have a completely indefensible position on taxes. In their view, deficits cannot arise from tax cuts. No matter how much taxes are cut, no matter how low revenues go as a share of GDP, tax cuts are never a cause of deficits; they result ONLY AND EXCLUSIVELY from spending—and never from spending put in place by Republicans, such as Medicare Part D, TARP, two unfunded wars, bridges to nowhere, etc—but ONLY from Democratic efforts to stimulate growth, help the unemployed, provide health insurance for those without it, etc.

The monumental hypocrisy of the Republican Party is something amazing to behold. And their dimwitted accomplices in the tea-party movement are not much better. They know that Republicans, far more than Democrats, are responsible for our fiscal mess, but they won't say so. And they adamantly refuse to put on the table any meaningful programme that would actually reduce spending. Judging by polls, most of them seem to think that all we have to do is cut foreign aid, which represents well less than 1% of the budget.

Consequently, I have far more hope that Democrats will do what has do be done. The Democratic Party is now the “adult” party in American politics, willing to do what has to be done for the good of the country. The same cannot be said of Republicans, who seem unwilling to do anything that would interfere with their ambition to retake power so that they can reward their lobbyist friends with more give-aways from the public purse.

Unfortunately, I don't think Democrats have the guts or the stamina to put forward a meaningful deficit-reduction programme because they know—as I do—that it will require higher revenues. But facing big losses in the elections this fall I can't blame them. That leaves us facing political gridlock between the sensible but cowardly party and the greedy, sociopathic party. Not a pleasant choice for those of us in the sensible, lets-do-what-we-have-to-do-for-the-good-of-the-country independent centre.

What lefty pinko said this nonsense?

[scott]

BTW, while I agree that the Democrats are probably the lesser of two evils on economic policy in 2012, I still contend them to be largely incompetent.

[clambake]

don't try to confuse me with a bunch of facts and gorilla dust

[scott]

PS: that was Bruce Bartlett, Reagan Supply-side architect. [Who actually agrees with Wild Cobra, btw. He'd tell you supply-side was appropriate in the 70s and 80s, but not today]

[Homeland Security]

Two pieces to the argument: 1) how big a piece of the pie for the government to take
2) the right way to take it

There is an upper and lower bound on the size of the public sector. When I say public sector, I mean federal + state + local + whatever other authority-having jurisdictions exist. The lower bound is ~25%; this maximizes economic growth. Below that, the state is so austere that it hurts economic growth. The upper bound is 45%; this maximizes revenue (again, federal + state + local + whatever, not just federal). Above that, the combination of inefficiency and disincentive means that revenue decreases.

This is the actual Laffer curve. You may hear some conservatives say that reducing taxes increases revenue all the way down to a zero marginal rate. This is bullshit.

Now, as to the means of collection, I'm more in favor of consumption taxes than income or investment taxes. With the question at hand, I think the response (CC, was it?) that the income tax rate makes a higher hurdle on rate of return for capital investment nails it. An uncertain regulatory regime is worse than a certain tax rate though. Regulations can do a 180 overnight.

Now, when revolution comes, unfortunately that is going to create a lot of uncertainty for businesses (what country will I be in? will I be in power, or imprisoned, or killed?). However, in the long run (100+ years) it will be worth it.

[LnGrrrR]

A box is a rectangle, a rectangle is not a box.

Trickle down is lower taxes. Lowering taxes is not trickle down.

True, but lowering taxes on the rich tends to be viewed as "trickle down".

Edit: As Fuzzy pointed out, you probably meant to say "square" instead of box up there. That's what I assumed you meant when I first read it anyways.

[FuzzyLumpkins]

A box is a rectangle, a rectangle is not a box.

Trickle down is lower taxes. Lowering taxes is not trickle down.

A box is a 3 dimensional construct and is not a rectangle any more than you are an eyeball.

The semantics of the word 'is' aside you should just stop.

[Edward]

^:lmao

[angrydude]

there's no magic bullet to fix this economy. raising/lowering taxes, giving money to banks for existing, going into debt to rebuild infrastructure are all nice sounding ideas that just distort the economy. the best thing politicians and central bankers can do is just get out of the way and let this thing bottom out so it can start growing again.

[Wild Cobra]

But just so I'm clear... your argument is that it worked in the 1980s, because imports weren't as high?
Maybe this will help:

http://www.realitybase.org/storage/macroeconomics/trade%20balance%20as%20pct%20GDP%20cht%20only%2009 0203_5659_image001.gif

See how much worse we are with the trade imbalance today than before. Other Reagan policies actually started to reverse the trade deficit. Then Clinton authorized all those free trade deals.

[Wild Cobra]

True, but lowering taxes on the rich tends to be viewed as "trickle down".
All in the eye of the beholder.

Edit: As Fuzzy pointed out, you probably meant to say "square" instead of box up there. That's what I assumed you meant when I first read it anyways.

Wow...

You mean he finally got something right?

I went back and edited it.

[Wild Cobra]

there's no magic bullet to fix this economy. raising/lowering taxes, giving money to banks for existing, going into debt to rebuild infrastructure are all nice sounding ideas that just distort the economy. the best thing politicians and central bankers can do is just get out of the way and let this thing bottom out so it can start growing again.
Yes. We need to let it play out, and the more it gets manipulated the longer it will last.

The only thing I see to fix things is to stop taxing productivity, and start taxing consumption instead.

[RandomGuy]

What percent of total income does Spacely Sprocket's $10 million EBIDTA represent? That will certainly affect which of the 4 (not 3 choices) he has.

Reading comprehension fail.

Go back and re-read it.

Net income was not given as $10M, by my reading.

That is the incremental net income under consideration.

[RandomGuy]

a regulatory climate that removes uncertainty

A heavily regulated climate, in which no new regulations were introduced would meet this requirement.

This would also strongly imply a large problem is inherent in the unpredictability induced by radical re-writing or repealing of laws, e.g. tea party proposals.

Business needs predictability, not "no regulations".

The radical re-structuring of government at all levels advocated by Mssrs Ryan, Paul et al, would introduce a great deal of uncertainty.

[boutons_deux]

A heavily regulated climate, in which no new regulations were introduced would meet this requirement.

This would also strongly imply a large problem is inherent in the unpredictability induced by radical re-writing or repealing of laws, e.g. tea party proposals.

Business needs predictability, not "no regulations".

The radical re-structuring of government at all levels advocated by Mssrs Ryan, Paul et al, would introduce a great deal of uncertainty.

and with uncertain, if any, benefit. killing regulatory agencies like Paul wants would be a disaster, just like deregulating financial sector was and will be a disaster, repeatedly.

[coyotes_geek]

Not just the data, but the fundamental theory behind it. Based on what reason does anyone believe that tax cuts for the wealthy will create jobs? Real investment in physical capital or jobs is already taxed advantaged and reductions in personal income tax for the top don't correlate (in theory or reality). On the other hand, higher income individuals spend a lower % of their income on consumer goods (conversely stated: they save a higher % of their income) and consumer spending has the greatest direct impact on job creation.

I get what you're saying here with regards to personal income tax rates, but does the same concept apply when dealing with corporate income tax rates? Here's my premise which I will attempt to sail Lusitania style past the U-boat of your superior knowledge on this subject.

Preimse: It would be beneficial to our economy to cut corporate income tax rates by half, if not more.

Justifications:
1) The 35% rate present too big an incentive for multinationals to stash their cash outside the U.S. Lower rate = less incentive to avoid.
2) Domestics and smaller corps who can't afford the armies of tax attorneys and accountants needed to avoid U.S. corp taxes are placed at a competitive disadvantage.
3) Lower the rate enough and you become the country foreign corps want to stash their money in as opposed to being the one U.S. corps want to get their money out of.
4) Lower tax rate would increase corporate profits, which would be a good thing. Pay that extra money to the corp's executives? That money ends up getting taxed at the much higher personal income tax rate of that executive. Pay it out to shareholders via dividends? Those dividends get taxed. Reinvest in the business? That's more jobs. Even if they just want to sit on the cash they're either going to put it into a bank which improves that bank's liquidity, or use it to buy bonds or other investments which spurs economic activity as well.

Economically, I don't see any downside to the idea. Sort of like the captain of the Lusitania never saw the U-boat or the torpedo. :p:

Your thoughts?

[boutons_deux]

"The 35% rate present too big"

effectively NONE of the big corps pay that, and even some get paid by the taxpayers.

Corps sitting on $2T+ cash, how much more do they need to sit on from more tax cuts and loopholes?

[coyotes_geek]

Right. None of the big boys are paying it to begin with, thus there's not much to lose by cutting it, and potentially a lot to gain.

[scott]

I get what you're saying here with regards to personal income tax rates, but does the same concept apply when dealing with corporate income tax rates? Here's my premise which I will attempt to sail Lusitania style past the U-boat of your superior knowledge on this subject.

Preimse: It would be beneficial to our economy to cut corporate income tax rates by half, if not more.

A complicated argument that I could personally argue for or against. Depends on what the objectives of tax policy are, but given all the circumstances (the need to create jobs while simultaneous funding our historically under-funded level of Government expenditures), I personally would argue against it.

To your specific justifications:


Justifications:
1) The 35% rate present too big an incentive for multinationals to stash their cash outside the U.S. Lower rate = less incentive to avoid.

A common argument and not facially unsound. But if your objective was to prevent tax avoidance in the way you mentioned, couldn't we just close the loopholes that allow it?

To improve your argument for you, it would be better to say that taxing domestic production disadvantages it versus overseas production. In which I think there is a case to be made.


2) Domestics and smaller corps who can't afford the armies of tax attorneys and accountants needed to avoid U.S. corp taxes are placed at a competitive disadvantage.

This one I'm not buying. Essentially the argument is: "we created this system, then we added all these loopholes that puts some at a disadvantage, so we should just abandon the system."

Why not just abandon the loop holes that advantage some over others?


3) Lower the rate enough and you become the country foreign corps want to stash their money in as opposed to being the one U.S. corps want to get their money out of.

Interestingly, America is already where foreign corporations want to "stash their money". America has a negative "net foreign investment" position, meaning the value of foreign investments in the United States exceeds the value of domestic investments abroad. The imperial evidence would suggest that our tax code hasn't been a hindrance to this.


4) Lower tax rate would increase corporate profits, which would be a good thing. Pay that extra money to the corp's executives? That money ends up getting taxed at the much higher personal income tax rate of that executive. Pay it out to shareholders via dividends? Those dividends get taxed. Reinvest in the business? That's more jobs. Even if they just want to sit on the cash they're either going to put it into a bank which improves that bank's liquidity, or use it to buy bonds or other investments which spurs economic activity as well.

An important point to be made is that US Corporations are already provided a legal and macro-economically beneficial means of tax avoidance: wages paid and capital investment are completely tax deductible, and lowering income tax rates (corporate or personal) actually increases the opportunity cost of paying hire wages or making capital investment.

There is definitely a point where taxes are "too high" and there is definitely a point where they are "too low". I present the argument that they are too low. With that said, I can simultaneously be of the opinion that we need to get control of our spending, both in terms of the nominal amount but also the efficiency and effectiveness of such spending.


Economically, I don't see any downside to the idea. Sort of like the captain of the Lusitania never saw the U-boat or the torpedo. :p:

Your thoughts?

My last point is one that is much more qualitative, personal, and I don't have any well-thought out economic justification for: If corporations want to be people, they should be taxed like people.

[scott]

And just for reference, here is Year End 2011 figures on our Net Internatinoal Investment Position. http://www.bea.gov/newsreleases/international/intinv/2012/pdf/intinv11.pdf

The gap continues to widen as more investment flows into the US than out.

[RandomGuy]

And just for reference, here is Year End 2011 figures on our Net Internatinoal Investment Position. http://www.bea.gov/newsreleases/international/intinv/2012/pdf/intinv11.pdf

The gap continues to widen as more investment flows into the US than out.


Financial derivatives held as assets increased $1,052.4 billion to $4,704.7 billion, mainly due to increases in U.S. claims from single-currency interest rate swaps.

Interesting.


Financial derivatives held as liabilities increased $1,036.5 billion to $4,578.4 billion, mainly due to increases in U.S. liabilities from single-currency interest rate swaps.

I wish I understood what these two items meant, exactly.

http://en.wikipedia.org/wiki/Interest_rate_swap

Very textbookish, but not overly helpful. I wish I had time to crunch through it, as these changes seem somewhate important, given the size of the increase.


All in all, the graph at the end shows a huge flight to the safety of US assets.

The cost for the US to borrow money or raise capital has got to be cheeeap.

[RandomGuy]

This one I'm not buying. Essentially the argument is: "we created this system, then we added all these loopholes that puts some at a disadvantage, so we should just abandon the system."

Why not just abandon the loop holes that advantage some over others?



This is the biggest screaming need we have in terms of needed reforms of any sort, IMO.

As someone whose job occasionally requires understanding complicated tax strategies, I can say they are fuckedly complex.

Simplify, simply simplify. Put some accountants out of work, but for the greater good, of not wasting so much productivity nationally.

I shudder to think of the amount of effort we spend collectively calculating taxes due to all the credits, exemptions and everything else snuck into the tax code by effective lobbyists over the decades.

[coyotes_geek]

A complicated argument that I could personally argue for or against. Depends on what the objectives of tax policy are, but given all the circumstances (the need to create jobs while simultaneous funding our historically under-funded level of Government expenditures), I personally would argue against it.

To your specific justifications:



A common argument and not facially unsound. But if your objective was to prevent tax avoidance in the way you mentioned, couldn't we just close the loopholes that allow it?

To improve your argument for you, it would be better to say that taxing domestic production disadvantages it versus overseas production. In which I think there is a case to be made.



This one I'm not buying. Essentially the argument is: "we created this system, then we added all these loopholes that puts some at a disadvantage, so we should just abandon the system."

Why not just abandon the loop holes that advantage some over others?

Seems to me like just cutting the rate and not worrying about the loopholes would be the easier fix than getting bogged down in sifting through all the loopholes. But, I get your point.


Interestingly, America is already where foreign corporations want to "stash their money". America has a negative "net foreign investment" position, meaning the value of foreign investments in the United States exceeds the value of domestic investments abroad. The imperial evidence would suggest that our tax code hasn't been a hindrance to this.

That does surprise me.


An important point to be made is that US Corporations are already provided a legal and macro-economically beneficial means of tax avoidance: wages paid and capital investment are completely tax deductible, and lowering income tax rates (corporate or personal) actually increases the opportunity cost of paying hire wages or making capital investment.

Pretty much the same scenario as you outlined for the small business owner getting taxed at personal rates, correct?


There is definitely a point where taxes are "too high" and there is definitely a point where they are "too low". I present the argument that they are too low. With that said, I can simultaneously be of the opinion that we need to get control of our spending, both in terms of the nominal amount but also the efficiency and effectiveness of such spending.

I agree that whatever we do needs to be revenue positive. It just seems (seemed) to me that cutting taxes on the corporate side would stimulate growth and allow you to make it up on the personal side.


My last point is one that is much more qualitative, personal, and I don't have any well-thought out economic justification for: If corporations want to be people, they should be taxed like people.

Interesting point.


And just for reference, here is Year End 2011 figures on our Net Internatinoal Investment Position. http://www.bea.gov/newsreleases/international/intinv/2012/pdf/intinv11.pdf

The gap continues to widen as more investment flows into the US than out.

Thanks. :tu

[RandomGuy]

Still, our biggest hurdle is cheap imported goods. We need to tariff the hell out of them if necessary to return manufacturing here.

Wow... you want serious restrictions on free market goods?

Who do you think will want to buy things from expensive US manufacterers after we do that?

You would spur domestic manufacturing, at the expense of hyperinflation for everybody, and the inability of US manufacturers to sell anything overseas.

Hawly Smoot tariff redux. :bang

[boutons_deux]

Exports $1.497 trillion (2011 est.)[11]

Export goods agricultural products (soybeans, fruit, corn) 9.2%, industrial supplies (organic chemicals) 26.8%, capital goods (transistors, aircraft, motor vehicle parts, computers, telecommunications equipment) 49.0%, consumer goods (automobiles, medicines) 15.0%

Main export partners Canada 19%, Mexico 13.3%, China 7%, Japan 4.5% (2011)


Imports $2.236 trillion (2011 est.)[11]

Import goods agricultural products 4.9%, industrial supplies 32.9% (crude oil 8.2%), capital goods 30.4% (computers, telecommunications equipment, motor vehicle parts, office machines, electric power machinery), consumer goods 31.8% (automobiles, clothing, medicines, furniture, toys)

Main import partners China 18.4%, Canada 14.2%, Mexico 11.7%, Japan 5.8%, Germany 4.4% (2011)

http://en.wikipedia.org/wiki/Economy_of_the_United_States

US doesn't have any trouble exporting. A weak dollar would help greatly.

inflation is tamed by Fed raising interest rates, strenthening the dollar, weakening exports, making imports cheaper.

[FuzzyLumpkins]

This is the biggest screaming need we have in terms of needed reforms of any sort, IMO.

As someone whose job occasionally requires understanding complicated tax strategies, I can say they are fuckedly complex.

Simplify, simply simplify. Put some accountants out of work, but for the greater good, of not wasting so much productivity nationally.

I shudder to think of the amount of effort we spend collectively calculating taxes due to all the credits, exemptions and everything else snuck into the tax code by effective lobbyists over the decades.

Aren't loopholes typically created to solve legitimate problems within the code that end up getting exploited?

Like exempting playgrounds and then a business installing a playground and claiming it exempts them. I am sure that loopholes are often passed only for exploitation at times but many do address legitimate concerns.

What we need is a rewrite of how corporate charters work which stipulates that the limit of liability and legal status is in exchange for the surrendering of equal protection. Then you can treat Exxon different than a family that owns some mineral rights or the like.

[boutons_deux]

"fuckedly complex."

complexity and opacity are how the 1% and UCA game the system in their favor, be it tax code, or financial dealings, etc, etc.

[boutons_deux]

There is one good reason trickle down is no longer a working idea..

http://i.chzbgr.com/completestore/2009/11/7/129021008687645509.jpg


Trickle down is a 1% LIE

and

"Tax cuts pay for themselves" is a 1% LIE

[boutons_deux]

Apple Gets Better At Tax Avoidance, Drives Rate On Foreign Profits Down To 1.9 Percent (http://thinkprogress.org/economy/2012/11/05/1138551/apple-tax-dodging-bette/)


Apple Inc. paid an income tax rate of only 1.9 percent on its earnings outside the U.S. in its latest fiscal year, a regulatory filing by the company shows.


The world’s most valuable company paid $713 million in tax on foreign earnings of $36.8 billion in the fiscal year ended Sept. 29, according to the financial statement filed on Oct. 31. [...]

Apple may pay some income taxes on its profit to the country in which it sells its products, but it minimizes them by using various accounting moves to shift profits to countries with low tax rates. For example the strategy known as “Double Irish With a Dutch Sandwich,” routes profits through Irish and Dutch subsidiaries and then to the Caribbean.

http://thinkprogress.org/economy/2012/11/05/1138551/apple-tax-dodging-bette/

[ErnestLynch]

trickle down does not work for government money either.

[boutons_deux]

trickle down does not work for government money either.

You Lie

Why did the MIC scream like hell in the past couple months about the "millions" of MIC jobs to be lost with the "fiscal cliff"?

[scott]

You Lie

Why did the MIC scream like hell in the past couple months about the "millions" of MIC jobs to be lost with the "fiscal cliff"?

http://en.wikipedia.org/wiki/Crowding_out_(economics)

[boutons_deux]

http://en.wikipedia.org/wiki/Crowding_out_(economics)

WTF?

"That means increase in government spending crowds out investment spending"

With corps sitting on $2T in cash, they simply aren't investing.

if Fed cuts MIC spending by 10%, then you are saying private investment will make up the 10% loss in Fed spending? :lol

That's like Bishop Gecko saying private investors should have been allowed to take over GM/Chrysler instead of Barry, but THERE WERE NO PRIVATE INVESTORS.

[scott]

WTF?

"That means increase in government spending crowds out investment spending"

With corps sitting on $2T in cash, they simply aren't investing.

if Fed cuts MIC spending by 10%, then you are saying private investment will make up the 10% loss in Fed spending? :lol

That's like Bishop Gecko saying private investors should have been allowed to take over GM/Chrysler instead of Barry, but THERE WERE NO PRIVATE INVESTORS.




That's actually not what is being said, but you're an idiot who likes to cherry pick for your own purposes that just provided a par for the course response.

[boutons_deux]

That's actually not what is being said, but you're an idiot who likes to cherry pick for your own purposes that just provided a par for the course response.

you give a link to the effect of govt investment crowding out private investment. So I say that's not what the case is the MIC whining about being hit with the fiscal cliff reduction.

[scott]

you give a link to the effect of govt investment crowding out private investment. So I say that's not what the case is the MIC whining about being hit with the fiscal cliff reduction.

"The MIC" doesn't know shit about macroeconomics, either.

[boutons_deux]

"The MIC" doesn't know shit about macroeconomics, either.

They don't have to. They certainly know that losing $10Bs to the "fiscal cliff" cuts means they will kill Ms of jobs (to preserve executive pay heavily weighted towards profits and stock price)

[RandomGuy]

What lefty pinko said this nonsense?

http://www.economist.com/blogs/democracyinamerica/2010/07/bruce_bartlett_deficit_economy_and_vat

http://economistsview.typepad.com/economistsview/2010/07/the-monumental-hypocrisy-of-the-republican-party.html


Interesting.


IT'S difficult to classify Bruce Bartlett politically. He has worked on the staffs of Congressmen Ron Paul and Jack Kemp and Senator Roger Jepsen. He was senior policy analyst in the Reagan White House; and deputy assistant secretary for economic policy at the Treasury Department during the first Bush administration. But he has also written a book titled, "Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy". So you could say that Mr Bartlett's loyalties are economic, not partisan. Currently Mr Bartlett is a columnist for the Fiscal Times, an online newspaper covering the economy, and he blogs at Capital Gains and Games. He has also written several books, the latest of which is "The New American Economy: The Failure of Reaganomics and a New Way Forward". We recently asked him some questions about the economy, the deficit, and the chance that America will one day have a VAT.

Neat. Yet again, thanks.

[RandomGuy]

Will you have me teach an entire semester on econometrics on this forum while I'm at it?

Sheesh!

:)

Will that be on the test?

[TeyshaBlue]

Will that be on the test?

Test? I'm so screwed.:depressed

[boutons_deux]

Test? I'm so screwed.:depressed

TB :lol You FINALLY got something right.

[TeyshaBlue]

No looking on my paper, bot!:lol

[Winehole23]

still isn't coming:


Increasing the income share to the bottom 20 percent of citizens by a mere one percent results in a 0.38 percentage point jump in GDP growth. By contrast, increasing the income share of the top 20 percent of citizens yields a decline in GDP growth by 0.08 percentage points.https://psmag.com/the-imf-confirms-that-trickle-down-economics-is-indeed-a-joke-207d7ca469b#.jgre4htgc

https://www.imf.org/external/pubs/ft/sdn/2015/sdn1513.pdf

[Winehole23]

Theology of the Right Wing: tax cuts for the political donor class above all else.

[boutons_deux]

Trickle down is a 40 year lie, proven to be so for decades.

Americans are fucking stupid to keep falling for it.

[Winehole23]

coming up quickly.