The Pseudo-Psychology of Psupply Pside Economics
by Bruce Webb
In my view you can boil Supply Side down to a simple aphorism: “If you tax something, people will use less of it”. And all things being equal and depending on how you define ‘something’ this seems economically and psychologically plausible, higher prices drive down demand. Unfortunately in the real world all things are not equal and many different incentives bear on demand, meaning we need to take a deeper look.
In Supply Side theory income tax is a tax on work and so serves to have workers do less of it with the easy corollary of less tax, more work, Tax Cut = Increased Productivity. Well I’ll let Spencer and Cactus do the heavy lifting and correlation, I suggest instead that Supply Side is simply caught up in a simple conceptual confusion.
In reality America doesn’t tax work either in its scientific or more normal sense, we don’t tax people at X pennies/Joule, instead we tax consumption or income or property, none of which have any necessary connection to actual amounts of work or for that matter skill, a Trust Fund Baby gains income and consumes things based on income and capital accumulation done by other people. So if the income tax doesn’t tax work, what does it tax? And what are the logical consequences of that? For an impressionistic answer follow me below the fold.
Now the ‘well duh’ answer it clear, an income tax taxes income, and so reduces people’s use of it in favor of the state. But this model while reasonable enough to explain early medieval taxation where tax, tithes and rent were all largely composed of slices taken off the top of income/productivity. later medieval and then modern taxation started building in controls that set taxation levels based on how total income was used and so taxation began to break down into two more distinct categories. One category was a tax on property, which could include real or personal property, together or separate. This is a tax on past consumption. The second category is a tax on current consumption.
And this is what puts the pseudo in supply side psychology. Its governing assumption, which is buried so deep as to be invisible to those trapped by it, that the goal of work is accumulation rather than consumption. In this world-view the governing rule is ROI. But I suggest that historically this hasn’t been the rule at all, humans didn’t come down from the trees with ledger books under our arms, instead humans target levels of consumption and just as importantly the leisure with which to do it.
As I note time and again, I am not an economist and as such not bound by any particular theory, nor by any supposed ‘truth’ of a given ‘Law’, instead my training was in history which for this purpose can be defined as the study of what actually happened. And if you examine world history you see that past civilizations mostly valued the concepts of display and largesse, both mythically and practically the role of the King was to bring peace and abundance, which is to say the possibility for consumption and the leisure to enjoy it. And nobody liked a stingy and miserly King, King Midas was not a sympathetic character. Nor for that matter was simple accumulation valued, the peddler/tinker/money lender being largely restricted to people on the margins or even outside of society (Gypsies/Roma, Jews, Irish Travellers, in ancient times Greeks and Phoenicians).
The ascent of the merchant from its former position outside and/or below the social structure to be ultimately assmililated within that structure and largely between the farmer/artisan and the warrior/aristocrat happened at different paces in different places, for example in Rome you had a distinction between the Senatorial class, the Knights (Equites-originally a military class turned economic one) , and the People from early on while in England it was long understood that gentlemen did not engage in ‘Trade’. But the ultimate result of having the merchant class being elevated to the pinnacle of society and its chosen norms being established as natural ‘Laws of Economics’ to some degree flies in the face of the history of society, the notion that everyone is born with an abacus or calculator in his head busily calculating ROI in the face of all variations is I think rather foreign to human nature as we see that expressed over the last few millennia and longer.
So if we take this cursory historical model and apply it to income taxes what do we see? Interestingly we see a model flipped on its head, rather than being a burden on capitalism, an income tax ends up incentivizing it.
If we regard total income as being a measure of potential consumption, then an income tax is first and foremost a tax on that potential consumption, per our simple aphorism people will do less of it. But this takes us two different directions. If the primary goal of humans is to target a consumption level and not accumulation as such, then the result of taxing consumption would be an intensification of work to get productivity up to the point that it compensated for the additional taking. If we start from consumption the result of more taxation is more work rather than less, or the opposite of what Supply Side psychology suggests. (And for those who are interested in such things there were some classic works by the Russian Chayanov in the early 20th century . http://www.answers.com/topic/alexander-chayanov In his Theory of Peasant Economy he showed with detailed statistical data how Russian peasants worked outside a capitalist accumulation model and instead on a consumption model where the intensity of the labor input varied over the family life-cycle and so could not be explained with either branch of Liberal Economics, neither the Manchester or the Marxist versions of economic development really fitting the realities of pre-modern rural history.)
But beyond the concept that taxes on income means taxes on consumption means an incentive to boost income to maintain consumption, there are some further wrinkles to explain why higher rates on income promote more economic input. Under our modern tax system, certain types of consumption are privileged over others. For example progressive tax rates and standard deductions are an explicit recognition that everyone has a right to some level of basic subsistence, which equally explains why we generally don’t tax groceries. On the other hand with sufficient progressivity in rates buying that classic Bugatti is going to cost you, in fact in 1958 it would have cost you 10X its sale price if measured in pre-tax income. On the other hand the tax rates were set up in such a way that you could shelter much of that income from taxes if you spent (invested) it in forms that could plausibly be shown to boost productivity overall. Now some of this simply ended up with tax avoidance of various types as consumption simply got shifted to the company ledger (the infamous ‘Unlimited Expense Account’ ) but it did provide incentives for companies to reinvest gains rather than distribute them in the form of salaries which would then be exposed to high effective taxes when converted to consumption. In this model decreases in top rates meant increased pressure for management to expand compensation to take advantage of the reduced tax bite. On the flip side it meant that for any given employee maintaining the same level of consumption meant less work rather than more, or perhaps simply more consumption for the same amount of work.
A model that starts from the standpoint of consumption rather than accumulation as such is a much better fit for the actual social and economic history of the last half-century. As consumption taxes in the form of high marginal rates came down, the tendency of consumption and particularly conspicuous consumption went up. With the result that certain wealthy people couldn’t tell you off the top of their heads how many houses they owned, and Ken Lay thought it reasonable to have multiple mansions in the same ski resort. Both in the 80s and in the 00’s there was a huge boost in the size and extravagence of upper income spending where Supply Side insisted that the reaction should have been in the direction of greater investment. and increasing productivity.
This shouldn’t be a surprise to anyone, look around the world and ask yourself what has historically been the response of ultra-wealthy people who among other things are not exposed to tax: Buckingham Palace, Versailles, the Forbidden City, the Taj Majal, Nero’s Domus Aurea. The ultimate fallacy of Supply Side is first to imagine that everyone has the temperment of a 19th century British Factory owner or Dutch Burgher intent beyond all on boosting the asset line in the ledger (though neither held back from consumption as such) and second to confuse a tax on income for a tax on work.
In Psupply-pside psychology the most rational man in the world, the epitome of Humanity is Ebeneezer Scrooge, Esq, a man so desperate to keep every stray farthing in his Okun Bucket that he would cut himself away from the world of consumption and leisure. If England had had an income tax in Scrooge’s time you might well see him cut back on his business rather than paying an extra pound to the Crown in tax. But then most of us are not sociopaths.
Taxes raise the marginal cost of exposed consumption and so decrease it leaving more income for reinvestment. Psychologically a lot more plausible than the idea that returning to Clinton or Reagan area rates means all the billionaires to go Galt on us. They seem to like their consumption where it is and can be expected to work to maintain it.
I’m not buying what you’re selling. You don’t think raising tax on my income changes my desire to work? That’s flat out wrong.
I’m a small business owner. I frankly wake up every day discouraged about working as hard as I do looking at what my tax bill is, and even more so if I sell it. I talk to my accountant. He tells me the same tale about other business owners. I just talked to my family, and we finally agreed to move from NJ. I told this story to my accountant, and told me how much business he is losing to people moving to other states …
… of I didn’t have the option of moving, I’d be working even less. Throw in the towel and get a government job with a nice pension. Why? Because its not worth the hassle – you work like a dog when you own your business. Because the hurdle rate is too high – what made sense as a return doesn’t anymore – both quantitatively and qualitatively.
As far as the “They seem to like their consumption where it is and can be expected to work to maintain it.”. What hooey. I guess I’m one of the “They”. This might be true of some trust fund baby. The definition – and I am speaking loosely – who don’t work all that much to begin with, so yes, taxing their income isn’t going to dissuade them from the little work that they do.
But that’s not me, or any of the other small business owners I know. Your so called “Dutch burghers”. We may be doing well, but every single one I talk to – we have cut our consumption way back. Do we like it? Some things, sure. Does it drive why I work hard? No. I like to work. I do like to accumulate – it brings security and peace of mind. And spending is not the number one reason. Or two or even three.
But you are right, not everyone has our mindset (sigh, would be nice to have more company). But that doesnt make supply side wrong. The point is, cutting taxes unleashes those of us who do (we create the jobs after all, more so than the trust fund babies). It may benefit some who do not behave differently … but it unleashes the spirits of people like me who get fired up. Raise the mountain barrier to reward high enough, and nobody but a few brave souls will try … we’ll all become rent collectors in the existing businesses that have scale. (anyone else getting the sense that its the big businesses that are going to do best under the coming high tax/high regulation environment? Hmmm? ) … more to come …
(Part 2)
Further, the point that I want to work harder to raise my income in a high tax environment … as a business owner, I’m already incented to increase my income. That’s why i started my business to begin with. Its in me. Higher taxes incents me to do it more? That’s silly. No way. I am fired up to go take business from others in this down market, but I look at the mountain of taxes coming away, and it pisses me off and makes me think I should work less, and spend more time with family. After all, the reward isn’t worth it.
This is the way I feel, today. This isn’t me speculating about the way you feel, this is me telling you to take a hike for misreading how I feel.
Now, there are cases … Maybe if I am way overleveraged and desparate (which I am not), then I get driven to a desparate act. I’ve seen that behavior before in a business owner, and I call it gambling. And while one individual may get lucky, the house wins in the end. Which means higher taxes in the end still drives down productivity in this segment of folks as well …
And I see the same mindset in the other entrepreneurs and small business owners around me. Maybe its just the circles I travel in … but at least my anecdotal evidence is real. Your provide no evidence at all for your point of view, except telling me how I think and I feel. Boy, I get that feeling of outrage when people tell me how I should be behavin’
If you had claimed that a tax on income wasn’t a tax on work, but on income, which is only a proxy that can be arbitraged through income tax evasion, and thus encourages tax evasion … now that I find more credible. Higher taxes sends every business owner and person of means to their accountant to see what else they can do to shelter income … however, for those of us who are law abiding, there isn’t a whole lot you can get done anymore (but I’m taking all reasonable tips). And I think this is true even for the morally challenged … unless you run a cash business, maybe. From where I sit, the risk/reward looks just stupid on that behavior in addition to being illegal.
So maybe supply-side doesn’t conveniently fit your view of the world as you would like it to be. But what matters is the empirical behavior of people, not your thought experiments that try to mold the world to your view (versus learning how the world works).
I would have more profits and would invest more in my business’s R&D if my taxes were lower to make my products better, to make what I produce even more productive, to make my business even more productive. It is the competitive spirit … and I would do it even if demand were flat. That attitiude spurs growth.
So, excuse me if I think that your psychological psychobabble doesn’t seem as plausible out here in the real world as you’d like to think.
Somehow, though, I doubt you’ll listen to those of us who really have to wake up each day and allocate capital for a living … sounds like your mind is already made up, damn the evidence, full speed ahead.
“… but I look at the mountain of taxes coming away, and it pisses me off and makes me think I should work less, and spend more time with family. After all, the reward isn’t worth it.”
Congratulations. You might have just advanced from the “get every dollar I can” philosopy to that of “enhance my quality of life”. It pleases me to think that there are folks out there with small businesses (who aren’t, generally, considered to be “teh Rich”) who come to the point where the money just isn’t going to be worth the time to pursue it.
You leave plenty of room for other small business owners to then take over the niche of “Master Moneymaker” (because they don’t mind paying that extra amount in taxes). Or, if there are no takers for the title, it means there are lots of small business owners in your field who can then make enough to enhance their quality of life, even if they don’t make it into the category of “teh Rich”.
Ahhh… later I see that you are just complaining that you don’t make money FAST enough, what with all of the taxes, etc.
Nevermind.
Too bad for New Jersey that empirically Supply Side economics fails. Love how an extra $10 a day in taxes makes him want to give it all up, this work he loves so much.
Whenever someone announces “I’m a small business owner”, I tend to suspect this is code for “paid Republican party operative”.
Bruce,
The Pseudo-Psychology of Psupply Pside Economics
You have several typos in your title. You ought to fix them if you expect to be treated seriously.
instead my training was in history which for this purpose can be defined as the study of what actually happened.
Are you trying to be funny. I don’t see any knowledge of history in what you wrote. Most of the last century was a competition between socialism and capitalism, and capitalism won. Who ended up with more stuff, us or the former Soviet Union? The fastest growing large economies today are China and India. And they are doing it through liberalization of regulation and rewarding individuals for their initiative.
NJAl, I think you have seen through Bruce’s (and many other’s) liberal view points on how the economic impacts of taxes are misrepresented or more likely misunderstood. When you believe that the Govt does nearly all things better for the populace than the private sector, then these kinds of thought experiments get traction. It too closely fits their world view. AFAIK Bruce has little if any private sector (not Govt related/support) experience.
As an aside, this administration has the least percentage of experienced business persons on staff and/or in senior positions than any recent modern administration. Can you tell?
New Jersey,
Perhaps it might help if you better utilized your deductions: “I would have more profits and would invest more in my business’s R&D if my taxes were lower to make my products better, to make what I produce even more productive, to make my business even more productive.” And it is better to be productive with what you produce, than to make what you “produce even more productive” ~ray
Cantab, You my friend have several gaps where your sense of humor should be.
Do you really think the the double ps was the result of some typo or that my education was such that I don’t know how to spell ‘side”? 😛
Not that I care whether you take me seriously or not.
Guest,
Do you think Bruce is a paid Democrat operative? Or do you think he writes for truth, justice, and for the people’s republic of America’s way.
As to New Jersey.
The Supply Side argument does not rely on any argument about comparative taxation, I don’t think anyone denies that states and cities can poach businesses by offering tax incentives. Instead Supply Side asserts that a change in a broad-based uniform national tax will OF ITSELF cause people to work less.
In my experience your typical small business owner describes his intent as “to make a decent living”, “to provide for my family”, to put my kids through college”. So it makes sense for you perhaps to move to a state where you can better do that, but what doesn’t make sense is for anyone with family responsibilities to simply react to a small change in marginal rates by cutting back his hours and so with the extra taxes doubly cut his family income. I can see it happening to individuals, but Supply Siders want to elevate this to a Natural Law obvious to the most casual observor.
My argument remains that historically people target a certain level of consumption and having achieved it normally don’t freely give it up, certainly not in the automatic arithmetic mechanical way Supply Side theory assumes.
Cantab,
In China the death penalty is imposed for any corruption above $17,000. The Chinese government also subsidizes to aid in the clearance of oversupplies. They manage commodities. They restrict foriegn inflows of short-term capital. They require citizens to exchange dollars for yuan and of course they control all matters regarding their currency. Their version of Capitalism is free only as comparred to what existed before.
CoRev I have never said that the “Govt does nearly all things better for the populace”. That is pure projection on your part by a stupid sterotypical wingnut belief into what the liberal project actually has been.
As to your second assertion no one has every shown empiracally that business experience translates automatically to governing experience, if anything crony capitalism shows the relation goes the other way. And I don’t know that you actually have data to support that anyway nor is the idea that Bush did a bang up job with all that experienced business talent particularly persuasive to start with.
“Somehow, though, I doubt you’ll listen to those of us who really have to wake up each day and allocate capital for a living … sounds like your mind is already made up, damn the evidence,”
Project much? You don’t seem that open minded to me.
Bruce,
You are completely ignoring the investment side of the equation, which is where all the Supply Side action is.
Let’s take a simple example of $150M investment, say in a new plant, (30% tax rate on income, 20% capital gains) with projected cash flows as follows:
Yr 1 = $10M taxed at 30% = $7M
Yr 2 = $20M = $14M after tax
Yr 3 $30M/$21M
Yr 4 = $21M
Yr 5 (sell business) $210M (10X aft tax earnings) taxed at 20% = $168M
So, invest $150M, get $231M back over 5 years. Good investment.
Lets change the tax rate to 40% tax on income and 40% cap gains. Here’s what the after tax cash flows look like now:
Yr. 1 = $10M taxed at 40% = $6M
Yr. 2 = $20M after tax = $12M
Yr. 3 = $30M/$18M
Yr. 4 = $18M
Yr. 5 (sell business) = $180M (10x net) taxed at 40% = $108M
So $150M over 5 years nets $162M. No thanks. I’d rather invest my money in Tbills and play golf.
Hope this helps with your understanding.
Yes if NJ invested more in his business then he would likely lower his taxes in the short run as those expenses should be deductible. A rational response to a tax increase is to examine your operation for ways to increase efficiencies in ways that minimize total tax exposure while increasing long term value. What doesn’t make sense is the bald claim that taxes reduce the pure incentive to work even if the result of that means a drop in consumption.
Of course supply siders don’t seem to have spent much time thinking through the implications of the raising taxes scenario, it is just a mostly unexamined corollary of their belief that cutting taxes increases work incentive, which of course has some surface plausibility.
Bruce, projection it may be, but there is ample anecdotal evidence that is what motivates many libs. If you do nto beleive that the Govt better allocates welth, then you probably, like me, believe that taxes should be lower?
As to the percentages of experienced business perosns in adminstrations, that was an article I saw this week. IIRC “O” has ~18%. As to performance of adminstrations, in particlular “O” Vs Bush, we will be able to tell soon. But, we can tell already that “O”‘s GWOT approach has cost more US residents lives in the first year than Bush did in his 7 years after 9/11. The 9/10 mentality costs lives! Didn’t Bush already show us that? Why is “O” relearning that lesson? The economics lessons will soon follow.
Bruce, projection it may be, but there is ample anecdotal evidence that is what motivates many libs. If you do not believe that the Govt better allocates wealth, then you probably, like me, believe that taxes should be lower?
As to the percentages of experienced business persons in adminstrations, that was an article I saw this week. IIRC “O” has ~18%. As to performance of administrations, in particlular “O” Vs Bush, we will be able to tell soon. But, we can tell already that “O”‘s GWOT approach has cost more US residents lives in the first year than Bush did in his 7 years after 9/11. The 9/10 mentality costs lives! Didn’t Bush already show us that? Why is “O” relearning that lesson?
“O’s” economics results will soon clear. I know that they are already much worse than we saw under GWB. The post mortems will be intersting.
Well I don’t want to cast aspersions on our new reader. but I find it odd that a “small business owner” regards his job as one of “allocating capital”. And the “create jobs” is a near giveway, it falls along the lines of the classic “no poor man every gave me a job”.
Jobs are not gifts, they are or should be the product of an open contract negotiation. If you believe classical liberal economic theory. The reality is that certain employers have pricing power and don’t hesitate to use it as necessary to drive down all kinds of costs, including wages and overall employment. Yet when it comes to the court of public opinion suddenly it is all about the jobs.
” I don’t see any knowledge of history in what you wrote. Most of the last century”
Cantab they had history before the last century. And the last century does not reduce to the Cold War. Classical liberal economics had its genesis partially in reaction to mercantilism the seventeenth and much of the eighteenth century by the nascent forces of industrialization which in turn were deeply affected by democratic and revolutionary movements unleashed with the French Revolution.
Very little of which had anything to do with then Czarist Russia. You are managing to look at history with a combination of tunnel vision assisted by blinders.
“And they are doing it through liberalization of regulation and rewarding individuals for their initiative.”
Yeah by liberalizing the regulation of poisonous food additives and when being found out having those factory manager individuals with initiative rewarded with a bullet in the back of their heads which they had to buy themselves. Yep it is a fucking capitalist paradise in China.
You all just do not understand cantab. What he was saying is that everything that is going right in china is evidence of capitalism hard at work and that everything going bad is evidence of a lingering socialist state. Just as he continually argues that everything right with merica ends before the state starts and everything bad begins before liberty and the market have their morning coffee together. Its called FREEDUMB and it does not require refutable propositions, accurate description or adequate concepts.
Oh, as Columbo would say, there is one more thing. Taxes collected at the 30/20% rate of Example 1 = $69M. Taxes collected at 40/40% Example 2 = $0, as plant would not be built. This does not including income taxes collected on the workers that would be employed in Example 1.
Guest
Your comment stems from a lack of understanding
Challenge your assumptions and try to see things without prejudgement.
If you are successful you may not agree with said “small business owner” but at least you will be able to understand what they are talking about.
You are being flippant.
Do you live in Jersey by any chance? The place is in horrible fiscal shape, govt spending is out of control, corruption is everywhere, taxes are sky high and voters are pissed.
Oh yeah, and busineses and people are leaving the state.
So who, might I ask, is going to pay out all of those govt pensions for the thousands of retired mayors and city councilmen when the state goes bankrupt?
Not that I care whether you take me seriously or not.
This is new ground for you so you should do it straight the first time through. Just an opinion. A lot of the time I don’t agree with you on social security but I take the topic seriously. So what I was suggesting in my post was that if you don’t seriously consider the arguments of supply side economics, a school of economic thought backed by several nobel prize winning economists, then why should anyone take your opinions on the subject seriously?
Travis,
Please stop “playing” the fool with words like merica and FREEDUMB.
Bruce,
I think Jersey’s point is that being a small business owner is a lot of work and can be very stressful.
The margins are often small, the risks great, and the income not as high as people think.
Adding additional taxes may push some people to seek out greener (easier) pastures.
Bruce,
It’s all relative. Before this liberalization they had the cultural revolution and the country diminished itself. Now they are letting people keep more of their money and the economy is growing. You may not like it but its the way it is.
If I have a hundred and fifty million I am going straight to the beach house and telling my investment banker to call me every month with an update. The bank can then make 10 X the loans on my 150 million to poor suckers that do not have any capital. What you do not understand is that in a monetized economy save for putting the 150 million under my hammock I can’t really withdraw my money from the economy nor people from using it.
Take the example of a small business with own capital of 150 000 and a return of 213 000 over 5 years. Not at all a good income: 63, 000 for five year. Even without taxes at all it is still a non-starter.
Two sources that cite the success in China and India as being the result of liberalization and moving away form a centrally controlled industrial policy.
You’re objection is really just a statement that China is not is not liberalized to the extent we are. Every journey begins with a first step and you get somewhere good unless you take the road on the left.
China’s economy during the past 30 years has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy. Reforms started in the late 1970s with the phasing out of collectivized agriculture, and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, the foundation of a diversified banking system, the development of stock markets, the rapid growth of the non-state sector, and the opening to foreign trade and investment.
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
On India,
In the 1990s, following economic reform from the socialist-inspired economy of post-independence India, the country began to experience rapid economic growth, as markets opened for international competition and investment. In the 21st century, India is an emerging economic power with vast human and natural resources, and a huge knowledge base. Economists predict that by 2020,[8] India will be among the leading economies of the world.
http://en.wikipedia.org/wiki/Economy_of_India
Travis,
It’s $231M not $213, or a gain of $81M or 54% over 5 years. Not great, but a lot better than 1% Tbills. And it doesn’t have to be all equity, but can also be borrowed. If you are able to borrow even half, your return is really quite nice.
If I have a hundred and fifty million I am going straight to the beach house.
I might too. Luckily for us, there are people that want to grow their fortunes bigger, and employ a lot of people in the process. We should be encouraging them, not discouraging them. That, in a nutshell, is what Supply Side is all about.
CoRev stated in passing: “…If you do not believe that the Govt better allocates wealth, then you probably, like me, believe that taxes should be lower?”
Taxes should be lower? Up should be higher, down should be moderate, and quarks should be more charming?
Taxes should, in fact, be proportional to government costs. That’s a moving target. An argument that it should be higher or lower must include your back-of-the-envelope list of where it’s being wasted, or where it could be better allocated, or how necessary tasks might be accomplished more economically.
The government emphatically does not better allocate wealth, I will agree with you there. (Or not primarily.) It better allocates effort. It is the only agent which (we hope) can undertake efforts which don’t pay — that is, efforts which could not or should not be juggled by private interests whether as a hobby or for profit. A lot of the things government does ought to lose money, just as a lot of things private citizens do ought to lose money — chief among them, child-rearing.
Noni
Bruce:
Joe the Plumber was a supposed small business owner also. He was worried about small businesses paying more taxes under Obama’s tax plan of taxing people >$250,000. What he failed to acknowledge is that most small businesses have AGI <$250,000 and state taxes are deductible. Al didn't allude to his size.
So all that does is to change you is doing the work and who is getting the rent. As far as the economy goes if there are people who want to grow their business (and there were during the high tax 50s and 60s think Sam Walton and Ray Kroc) then they take the risk and you can sit back. Actually the examples above suggest that for some there is more than money as a reward, they want to show the world what they can do, and so do. Perhaps the sign of burnout is when taxes start retarding this, or an incomplete dream.
9/10 mentality such as “you covered your ass” in response to a briefing on “Bin Laden Determined to Strike Within the United States”, the 9/10 mentality that led the Right to dismiss a near successful cruise missile strike as “walk the dog”?
Cut the crap, the only people with a 9/10 mentality were the PNAC Vulcans.
I would love to be a paid political operative, feel free to forward my name.
Probably wouldn’t change my practice of linking to official data sources and I expect I would reveal my job just as I use my real name, but hey for a salary in the high five figures who knows.
Cantab I have been posting on the relation between 18th century economic theory and pricing power in wage setting for a long time. If you would like to address the specific references go ahead. This isn’t my first trip around this historical block.
Well let assume he does decide to take it easy. Two possiblities exist either there is a demand and someone else will fill it or there is no demand and no one need fill it. In the first place the other person will make the money owner chooses not to, in the second there was no money to be made in the first place. Society comes out the same in each case.
Jersey Al
i think Bruce misspoke when he said not everyone was a sociopath. he meant psychopath. i don’t think you sound like someone who would cheat and steal and step on little children. but you do sound like someone who does not think clearly. if you are working too hard, work less. someone else will pick up the slack. the economy will not suffer.
General I get his point. It just has nothing to do with my argument.
My argument may be flawed, and it is certainly not as tightly written as I would like, but it has zip to do with variable taxation by States on small business, instead it is an attempt to critically explore the psychological model that underlies Supply Side and to some extent Classical Liberalism more widely.
CoRev
don’t know about the rest of us liberals, but i certainly don’t think the government does everything better than private enterprise. quite the opposite. but clumsy inefficient government is what has to take up the jobs that no one else wants… because there is no money in it… but still have to be done.
Sarris
if i can move across the river to a low tax state, of course i’ll do it. that does not even touch Bruce’s argument about Federal taxes. countries moving overseas for lower taxes might bear… but it still misses the point. it is one reason i favor a return to import tarrifs… we are not in a smoot hawley environment and its time we realized that.
Cantab
i can attest that Bruce is not a paid Democrat operative. I know. I keep the books.
Run,
Obama broke his no new taxes pledge when he agreed to the democrat healthcare that forces middle class people to buy their own healthplans and pay twice what they ought to. For a healthy person of around 30 this comes out to something like $2,000 a year.
Most small buisiness don’t like Obama and his taxes. They are also afraid that he will pile new costs on them with mandates and regulation.
Cantab,
First you argue that:” The fastest growing large economies today are China and India. And they are doing it through liberalization of regulation and rewarding individuals for their initiative.”
But your premise in general, is that Bruce’s positions, are too far to the Left. So I tried to politely explain that China is further to the Left than the positions of Bruce’s. I doubt that you understand how sophomoric this is to advocate the opposite of what your intentions are, but that is what it amounts to.
Then, you resort to presumption and distortion by telling me what I object to:
“You’re objection is really just a statement that China is not is not liberalized to the extent we are. Every journey begins with a first step and you get somewhere good unless you take the road on the left.”
I’m not sure what these sentences are intended to say exactly, but I do know they have nothing to do with me. Try being honest and stop pretending to know more than you do. Most of us are not that easy to deceive.
Sarris
precisely. high taxes help to weed out the least efficient. Jersey Al thinks the job of government is to make his life easier. Actually there are other needs.
Noni,
In a world with government running the show all the guys in private enterprise would move to government and take almost all of the top jobs. I doubt they would all of a sudden become different people. You wage war against human nature. You can’t win that one.
Sammy,
This is a ridiculous exercise you just engaged in. Where do you come up with the two different sales prices after 5yrs?? The sales price could just as easily be exactly the same in scenario two. Both examples had the exact same sales projections why change the sales price? Completely arbitrary and useless as an example. All you’ve shown is that if you sell your business for less five years later you’ll make less money……………………..DUHHHHHHHHHHHHH!!!!
I should get paid.
Neither Gore nor Clinton had business backgrounds and they were big on crony capitalism. Clinton honed his skills in the Arkansas backwaters and Gore took his religious training to shake down temples. Are both these guys worth over $100 million right now? They ought to put on a crony capitalism clinic. And why not. Crony capitalism means doing business with your friends. Remember the FOB’s? Many of them were Bill’s cronies.
Here’s a comment that appear on Naked Capitalism. It is bang on and so good I could not refrain from putting it here although it is OT:
http://www.nakedcapitalism.com/2010/01/guest-post-nice-work-creating-new-terrorists-you-morons.html
Maybe some Americans at least are waking up.
Run,
Obama broke his no new taxes pledge when he agreed to the democrat healthcare bills that force middle class people to buy their own healthplans and pay twice what they ought to. For a healthy person of around 30 this comes out to something like $2,000 a year.
Most small buisiness don’t like Obama and his taxes. They are also afraid that he will pile new costs on them with mandates and regulation.
Greg,
Good job reading carefully and allowing me to expound further.
The reason the selling price is lower in the second case is that the after tax earnings are lower (due to a higher tax rate). That’s usually how businesses are sold or valued (think P/E ratio). I used the exact same multiple (a price of 10 times after tax earnings).
You buy a business based on what it returns to YOU. With the government taking a bigger chunk, it is worth LESS.
The main problem with supply side thinking is that it ignores certain realities of our financial system. I’ve seen more than one commenter refer to peoples accumulation of wealth as savings (so far so good) but then further state that THOSE savings lead to investment………….which is ALMOST absolutely false. I say almost because there is Private Equity money that gets used in this manner but the vast majority of money placed in stock mutual funds/ bond mutual funds/401k/Treasuries is categorically NOT investment. If investment is defined as “adding new financial assets to the private sector that generate economic activity”. The previously described financial products are simply reshufffling of current private sector assets and operate on casino dynamics.
Investment only occurs when new financial assets come into the private sector FROM the currency issuer. Investment leads to savings, not the other way around. So supply sides claims that increasing someones “saveable” income will lead to investment and jobs is patently false. The private sector cannot do that and keep their financial assets at current levels. Public sector spending ‘funds’ the saving desire of the private sector. Thats the only way it works. Fight it at our peril.
Most supply siders dont know how a fiat money system works and therefore misspeak about it all the time. Art Laffer does know, but he is too much of a political hack and intellectually dishonest. Thats why he sits on Fox News and bitches about the national debt when he knows damn well the national debt is not a debt that is “owed” at all, it is a debt that is “owned”.
All sides errantly talk about taxation as if it needs to be used to fund government spending. It doesnt.
We need to stop this nonsense so we can have a sane tax policy and fully productive society.
Most small business???? You have an aggregate? Most small businesses covers a lot of diversity. Can you make the claim with data?
Chief among them is also basic research in new directions. Lots of examples come to mind.
Greg,
the vast majority of money placed in stock mutual funds/ bond mutual funds/401k/Treasuries is categorically NOT investment. If investment is defined as “adding new financial assets to the private sector that generate economic activity
Now you are being a dumb ass. When you buy a stock, you buy it from someone else, and that person now has your cash to invest in something else: maybe hard money private equity, maybe an IPO, maybe another stock (and now that person has investable cash).
Moreover, the markets (both debt and equity) sets valuations that allow your “new money” investments to be priced correctly.
rl love,
China and India’s success have been through liberalization. That’s the point. They’re as open as we are but to the degree that they have opened up that’s they key to their advancement. Now the liberals want us to close up and become more like old China and old India. I say that nuts.
What is this hunt and peck amateur night. I put my 150 million in the bank and retire to the beach house. Said bank loans it out at 10 X. I grow my fortune and capital-short husslers take the risk and hire employees in the process. Your error is to start with capitalists who already have their capital in hand. Shorter, your example sucked lemons.
Cantab,
Now you distort further by trying to stretch a conversation about raising the marginal income tax to one of us becoming “more like old China and old India”.
Allow me to take back “sophomoric” and replace it with “juvenile”.
Travis,
I put my 150 million in the bank and retire to the beach house.
Yes you can, and earn your 1% CD rate. To get anything more, you have to give it to people willing to work and make riskier investments. High tax rates discourage this (see example).
Your example sucks lemons.
I can’t explain it any better. Perhaps it is your analysis that is lacking.
Noni, if only: “Taxes should, in fact, be proportional to government costs.” Not actually costs but spending, a totally different position.
You don’t like my back of the envelope list. It is one that is oft discussed. Even some of ILSM’s commentary is correct.
New Jersey AI — I suggest you get a new accountant.
You claim that income taxes keep you from investing in your business is complete bunk.
If your revenues exceed your costs– the stand definition of profits –you have two choices of
what you can do with the surplus revenues.
One, you can claim it as income or profits and pay taxes on it.
Two, you can reinvest that money in your business to make it grow and count it as a business investment. In this case not only do you not pay taxes on it, you can often get a tax credit that
will reduce the taxes you would other wise pay. But in any case the amount you claim as profits
or income and pay taxes on is reduced.
But the way the tax code is structured your claim that paying taxes on your income prevents you from reinvesting in your business to make it grow is completely false.
The complete ignorance your argument shows makes me suspect you are not actually a small business owner but really some undergraduate troll who does not know what you are talking about.
Bingo Bruce
Jobs are NOT gifts and I get tired of hearing employer types talking as if they are. Acting as if they are doing YOU a favor by hiring you to do something which makes THEM a profit is obscene.
The flip side to the famous “Has a poor man ever given you a job?” question is; “Has a poor man ever fired you?” We cannot and should not guarantee a job in the private sector for any one, HOWEVER we also cannot and should not act as if a certain rate of profit is an entrepeneurs right as well. When the environment is such that few private entities feel like they cannot make enough profit and therefore will not hire………. fine,but they should stfu about an entity (currency issuer) that can, should and will offer a salary to those same unemployed people.
To the Cantabs and CoRevs of the world
Dont hire anyone its your right. Its not your right to hold the rest of the economy hostage because you dont want your governments “deficit” rising. Trying to force the govt to bribe you with tax cuts so you’ll graciously take the unemployed masses of the streets should be considered criminal behavior. You are engaging in extortion. This is especially true when you have no fricking clue what the “deficit” actually is measuring. Learn about govt monetary operations under the CURRENT and ACTUAL fiat monetary regime we have been living under for almost forty years and then you can have an informed opinion about what decisions can and should be made.
Here is a starting point for your education
http://www.newdeal20.org/?p=6571
I’m still calling BS on your model Sammy.
You are assuming that there is a cut and dried formula for the pricing of something, not so. You make a somewhat valuable point but to assume that every potential buyer for a business uses the same formula that they get out of some book is ………ridiculous to the extreme. Buyer #2 may realize what a fool the business owner was and see some very valuable ways of improving the business. Again your example makes A point but for you to smugly assert that youve somehow enlightened us all……………….. well, lets just say that everyone knows what you posted.
The decision to be made is will someone look at the current environment, whatever the tax rate happens to be and say “Sure Ill do this because it will NET me xxx$/yr., the answer is a resounding yes.
You act as if all business owners are motivated by exactly the same thing and that they will all evaluate that situation the same………………BUNK! Its a big world out there and no one will leave money on the table no matter how little it is. You may say “No I’d rather play golf and earn off my T Bills” but there are thousands who’ll take your money in a New York minute. I know many are trying to or think they have cornered a market and can bring some govt to their knees by threatening walking away………… but the reality is capitalism has worked too well creating a competitive spirit and your walk away is someone elses opportunity.
You become a victim of your own success and ideology……………aint it great!
No sadly Sammy it is you who’se ass is losing IQ points by the minute.
When you buy a stock FROM someone else there is NO NEW MONEY added to the stock of private sector investments. There is no “sideline” money that was previously not there and is added. When I use my money market money to buy a stock from you, you take your stock money out and put it somewhere and eventually someone takes that EXACT amount of money I spent and puts it in a money market as well. The NET is no new money. Its simply a fact. Its reshuffling the deck chairs.
Only an IPO is a new asset, but it may not add to overall private sector wealth if all the money to purchase it came from private money market accounts. Once the IPO is done, NO NEW MONEY is even added to that stock…….EVER. When someone later sells their IPO stock whatever money the buyer “puts in” the seller takes out.
Think about your house. You spend 100,000 to build it. That is the only money ever put “into” the house. You sell for 200,000 10 yrs later and the buyer puts in exactly what you take out. Its reshuffling, increased valuation but no new money. New money ONLY comes form OUTSIDE the private sector…..its an OPERATIONAL reality of our monetary system. Ignore it if you like, complain about it if you must but you cant DENY the reality of it.
Spenser,
So in your world taxes have nothing to do with free cash flow. What about when Obama suggests tax credits for “green” something investment. Will that be false bunk too?
I’m beginning to wonder where some of you people writing columns come from. Just out of curiosity don’t you ever ask the person at the corner pizza store how their business is going; or start up a conversation with you plumber or carpenter, both the boss and the laborers. The scuttlebutt down in small business and blue collar America is that Obama and the democrat’s stimulus package is not helping them. It was mostly something to maintain the status quo in government employment and shows no consideration for business owners and blue collar laborers in the private sector. Moreover, they see the path going forward with government placing mandates on them that eat into their business. This is what happens when you vote the fox into the hen house. Fortunately, latter you get to vote the fox out and send him back into the wilderness.
The difference Cantab is that in spencers example he is showing how taxes actually affect businesses and the claim made by NewJersey Al is false. Just because NJAl doesnt like being taxed and in fact changed his behavior A) doesnt mean that Als response was rational or necessary B) doesnt mean that AL ought not do it. AL can do what he wants but he cant change the facts that spencer pointed out. He is perfectly within his right to behave irrationally in defense of whatever he thinks he’s defending but that doesnt mean that our govt tax policy has to change in response to it.
Now in regards to Obamas offering of tax credits. Knowing that people do in fact behave irrationally and seek maximum salary (thinking that only reducing the amount the govt “steals” or cutting wages is the only way to achieve this) he will offer a “bribe” to people willing to start a new venture. Again, it shouldn tbe necessary but in the phucked up world we inhabit it gets the job done…………… sometimes.
Greg,
The definition of intrinsic value is the net present value of the sum of future cash flows to the investor. That’s not my definition of intrinsic value, that is *the* definition.
The reason different individuals assign different valuations is that they may have a different view of what future cash flows will be, or may use a different rate at which to discount the future cash flows to the present. Further, individuals may fail to incorporate opportunity costs in their evaluation, or have financially irrational reasons for electing to purchase a business, e.g., some people derive non-monetary pleasure from “altruisitic” (some commenters may call these “socially-valuable”) occupations that wouldn’t be captured in a discounted cash flow model.
But none of that refutes that a higher tax rates unquestionably lower the value of a business, ceteris paribus.
No it is your failure to distinguish between types of capitalists that makes you example poor. When we discern between capitalists with a working capital of 150 million who can live off the interest at almost any rate and a petty proprietor capitalist who must earn an income to support a family. The ROI becomes weird (judged as such).
If I have a 100,000 of capital in invested in my owner operated enterprise (eg Travis’ Back-hoe services) I need to generate at least a 40% return: i.e., I am still working. The numbers you threw up when scaled down to this level mean that almost any level of taxation will be injurious to both my standard of living and the viability of my business. As an aside that is why, at least in Canada, the back-hoe company probably pays close to zero tax.
At some point quantity forces a qualitative shift. 150 million earning 1% ROI throws off 1.5 million.A 40% ROI would be obscene at this level.
All things being equal what my example suggests is that a higher capital gains tax regime along side a more progressive taxation system would better align work and investment incentives. It is also suggestive of why a robust public pension and health care scheme is likely to be supportive of small business. Maybe that is why Canada has more upward mobility than the US (that is a higher percent of those who start in lower income households and move up income groups). We can afford to take more risks.
No it is your failure to distinguish between types of capitalists that makes you example poor. When we discern between capitalists with a working capital of 150 million who can live off the interest at almost any rate and a petty proprietor capitalist who must earn an income to support a family. The ROI becomes weird (judged as such).
If I have a 100,000 of capital in invested in my owner operated enterprise (eg Travis’ Back-hoe services) I need to generate at least a 40% return: i.e., I am still working. The numbers you threw up when scaled down to this level mean that almost any level of taxation will be injurious to both my standard of living and the viability of my business. As an aside that is why, at least in Canada, the back-hoe company probably pays close to zero tax.
At some point quantity forces a qualitative shift. 150 million earning 1% ROI throws off 1.5 million.A 40% ROI would be obscene at this level.
All things being equal what my example suggests is that a higher capital gains tax regime along side a more progressive taxation system would better align work and investment incentives. It is also suggestive of why a robust public pension and health care scheme is likely to be supportive of small business. Maybe that is why Canada has more upward mobility than the US (that is a higher percent of those who start in lower income households and move up income groups). We can afford to take more risks.
No it is your failure to distinguish between types of capitalists that makes you example poor. When we discern between capitalists with a working capital of 150 million who can live off the interest at almost any rate and a petty proprietor capitalist who must earn an income to support a family. The ROI becomes weird (judged as such).
If I have a 100,000 of capital in invested in my owner operated enterprise (eg Travis’ Back-hoe services) I need to generate at least a 40% return: i.e., I am still working. The numbers you threw up when scaled down to this level mean that almost any level of taxation will be injurious to both my standard of living and the viability of my business. As an aside that is why, at least in Canada, the back-hoe company probably pays close to zero tax.
At some point quantity forces a qualitative shift. 150 million earning 1% ROI throws off 1.5 million.A 40% ROI would be obscene at this level.
All things being equal what my example suggests is that a higher capital gains tax regime along side a more progressive taxation system would better align work and investment incentives. It is also suggestive of why a robust public pension and health care scheme is likely to be supportive of small business. Maybe that is why Canada has more upward mobility than the US (that is a higher percent of those who start in lower income households and move up income groups). We can afford to take more risks.
Guest = travis above.
Holy hell,
Now I understand why you libs want to raise taxes! You believe it never has any effect on ANYTHING. It’s just found money.
Aggregates are not the same as anecdotes.
I myself and other fellow small business owners I know acknowledge the worth of some government programs and services. We also know they have to be paid for. If we are successful in this system then we can help pay for the foundations of the system that formed part of our success.
There are parts of the private enterprise system that are incredibly wasteful, and there are ample examples. It doesn’t mean I want to trash the whole thing. There are parts of government spending that I consider wasteful as well….it doesn’t mean I would trash the whole thing.
Your anecdote is merely personal preference and a personal belief for your own self and whatever business you run for your personal benefit…not much of an argument beyond that in this arena.
You don’t get paid?? HOw is that self-serving? 🙂
Greg,
The fact that liberals offer tax credits for doing things like building low income housing, green investment, or offering tax deduction for contributions to organizations that save the whales should tell you taxes do matter.
Well that may be a textbook definition of intrinsic value but obviously it relies on palm reading and tea leaves to predict the future so it is a completely WORTHLESS definition.
I take contention with your assumption that the value of a business is lowered by tax rates. It is the fact that you need US$ to extinguish your tax liabilities that gives our currency value…..PERIOD. Nothing else. What you can buy with it is great but you need it to extinguish tax liabilities or you go to jail. So whatever means you have of acquiring our currency will actually be more valuable the more taxes you have to pay. Now, dont misinterpret this as me advocating any particular tax rate or increase, I think our tax policies need some rethinking, but the modern American conservatives singular focus on taxation, its unheeding drive to get every American to decry our govts necessary tool for keeping our currency in use (You would not use it if you did not need it to pay taxes) as STEALING has become pathological and detached from reality. Their goal is not to heal the economy it is to BREAK our govt. If they would stop tying govt revenues to what the govt reasonably wants to and should spend to provide certain goods and services to all citizens, then I would stand by their side and fight with them, but their interests are not to provide but to deny. All in the name of preserving some warped notion of freedom/marketplace/value of the dollar.
Cantab
READ MY LIPS. Taxes do matter. Just NOT in the way portrayed by most of the anti tax crowd. No one said they dont matter.
Taxes are necessary for one thing….to control inflation. They are not to raise revenue that the govt can spend. When in the last 30 yrs have you seen those numbers matchup? Near the end of Clintons term they did and frankly, knowing what I know now, that was a TERRIBLE policy. EVERY American should have been protesting that loudly. It set us up for the recession that happened later which Bush completely mismanaged.
I actually agree now with conservatives who want tax cuts. That is a correct prescription, but I disagree that by doing this we must decrease govt spending. Tying the two is unnecessary, wrong and damaging the PRIVATE SECTOR. That which you think you are preserving you are CHOKING OFF. Spending needs to be smart, ALWAYS, and that is true for both the public and private sectors but just because we have spent stupidly and caused a financial crisis does not mean we stop spending, we must spend and spend WISELY. The seminal point that Keynes understood and declared better than anyone was the following causality; Investment (new high powered money) leads to savings, not vice versa. So when people go to a saving mode to pay off high debts there MUST be new investment (which has to come from the currency issuer in the form of a “deficit”) in order to fund this savings desire. It cannot come from any where else.
The paradox of thrift is a real phenomena and it stems from the idea that what seems like a good idea for one person will be harmful if all do it. Its like standing at a football game if everyone does it there is no net visibility improvement. When everyone is saving and spending less, EVERYONES incomes fall.
Sammy
If THAT is the conclusion you reach after reading all this than I dont know what to say…….except you must have the IQ of a stick.
Greg,
No not the only conclusion. The other conclusion is that your understanding of finance and economics is so slight, and your notions are so bizarre, that you are not worth having a discussion with.
Greg,
No not the only conclusion. The other conclusion is that your understanding of finance and economics is so slight, and your notions are so bizarre, that you are not worth having a discussion with.
So Sammy
Enlighten me. Where does my “slight” understanding need improvement? I want to know.
I think it is you who has never explored anything or questioned the origins of any idea you’ve heard on Fox News. Much of modern finance is counterintuitive but just because you’ve NEVER heard it before doesnt make it wrong.
Answer me a question too. Where does money come from?
No we need to raise taxes to at least maintain the infrastructure we started with, roads bridges water systems etc need to be brought up to standard to match the demand before more I-35w type bridge collapeses happen. Part of the problem is that the federal government does not seperate capital and expense items in its budget. Then most of the transport bill, building levees, water systems and the like would be capital expenses. The issue is that it takes longer and longer to do anyting in the infrastructure area as the courts are used to make the do nothing option always win. The legistatures need to have the guts to make the hard relative calls among the various factions, for example solar power versus desert scenery.
Lyle
We do need infrastructure maintenance but it doesn’t have to be associated with tax increases. In fact in the current environment we absolutely should not raise taxes.
Try to separate spending from taxation. I know it goes against much of what you think you knew but they are not related by necessity only by our choice.
Check this out
http://www.winterspeak.com/2009/01/why-tax.html
and this
http://neweconomicperspectives.blogspot.com/2009/08/money-as-public-monopoly.html
Enjoy
damn that ceteris paribus, cerberus, whatever
those higher tax rates may build the road that brings customers to your door. i realize this does not defeat your “logic” in a ceteris paribus universe, it just renders it irrelevant in the real one.
The government would build a second one to take them away.
In particular we should put the mileage tax on cars, but a simple one, when you renew your license plate you pay a tax based upon miles traveled filling out a form with your mileage. If the car requires inspection the mileage is checked then to ensure you are truthful. You can also do user fees which are essentially taxes for water and the like. The way I view it there is little difference between a gasoline tax and a universal toll road system. Both are really user fees. BTW would also push towards smaller cars.
Lyle,
I think this is a lousy idea. People who never drive benefit directly and indirectly from the commerce that our road system provides to us.
Greg,
Now I get it. You are one of those fractional reserve guys. Interesting subject, but it doesn’t have anything to do with the example I gave. The example works no matter what the fiat money situation is.
Enlighten me. Where does my “slight” understanding need improvement?
Being able to understand a simple cash flow example with two different tax rates, or a P/E ratio when it is explained to you.
When assets are bought with leverage the interest expands the economy. The other primary way to expand the economy is to add something to it that did not exist before. The building of a house, if a mortgage is involved, does expand the economy in both of these ways, and, if a construction loan is used, the process includes 2 expansionary loans via fractional reserve banking. The printing of currency is also expansionary.
I think people on both sides of the argument will agree with at least one thing, taxes are a necessity. But I think the most important thing that comes to my mind is accountability. Taxes will “never” be a charitable contribution, it is there to remind us why we have a government to have a safe civil society.
One problem I have with Bruce’s article, and indeed most progressives are taxes are inherently good. It simply is not the case because of the human nature, people always wants more and more! So we can see that in government nowadays, Iraq, Afghanistan anyone? Or great insolvent high taxes state such as California, New York, New Jersey. If high taxation is good, why are these state have financial problems? (Progressive countries such as Britain, France, Norway, Sweden all have their own problems)
So I think a reasonable debate will be how to balance between the pros and cons of taxation, what is a fair amount a person whom is supposedly created “equal” to pay. Do you think anyone with a reasonable mind wanted government to take away more than half of your working life? What percentage of taxes are acutally used responsibily to maintain public order, provide justice/security of the country, and what percentage are wasted on who don’t take any responsibility for their life?
You think high taxation is good, just look at Norway, Sweden, yes, everyone is about equal wealth at 70% taxation but the truely wealthy, “old” money, monarchy “owns you and the country.” Yes, I do understand this sounds like a right wing idea, but where do you draw the line? I also oppose free for all right wing paradise! There needs to be humanity in a civil society.
Our country is founded on individual freedom, we rebeled against Britain because of over regulation, taxation, so should we follow that footstep once again? Just like earlier Christian missionaries, in their desire to do good, they actually detroyed cultures, societies, because they were disconnected from reality… Just look at manifest destiny… Is that really a good thing???
UHHH Sammy
You clearly dont get it if you think I’m “One of those fractional reserve guys”, you obviously have no clue what fractional reserve means.
Your example “works” because you set it up to “work”. It explains nothing in reality. You cannot predict what anyone will pay for a future business opportunity so again, all you showed was that if you sell a business for less money you make less.
Tax rates are a part of the business environment and will be considered but to ASSUME that all business people will react the same way to a given change in tax rates is false and DEMONSTRABLY so. All you have revealed is how you would react if the circumstances you presented were presented to YOU. You are not the model for any particular “rational” actor, you do not speak for as large a segment of the population as you think you do. Thats all I’m saying.
Your (and most every American conservatives) obsession with tax rates has gotten to the point of being pathological. Your interest is not in growing the economy and providing an environment for Americans to prosper it is completely driven by an ideological hatred of government. That is what is motivating you and your brethren and thats fine. You are entitled to hate whatever you wish and use politics to express it, but you DO not get to make up new “rules” of economics that “fit” with your ideology.
There is no ECONOMIC difference between government spending and private spending. The dollars all do the same thing no matter what source they come from.
Tax rate increases do NOT make everyone behave the same way and WILL not kill business incentives just because you say so and the evidence is strong that we have had prosperous businesses and a thriving economy with tax rates from 33%-70%.
Once again though, I want to go on record as saying I support lowering taxes at this time, not because I believe in supply side mumbo jumbo but because in an environment of increased PRIVATE SECTOR debt, people need MORE income to service that debt. At the same time though we categorically do not need to CUT government spending commensurately with the tax cuts. The two do NOT need to go hand in hand for any ECONOMIC reason. The only such arguments for tying tax rate and govt spending are IDEOLOGICAL.
NJAl, sammy, CoRev and Cantab are all ideological “conservatives”. The quotes are because they fit into the model of the current version of the American political conservative, not necessarily some historically consistent definition of the term. Everything must fall into the “Government is evil.” core belief (Some will go so far as to concede it being a necessary evil.). Few will simply consider it a necessity. Few have any interest in understanding the realities of classical economics versus behavioral economics, including how government and taxes affects the system. Fewer still will ever concede how much a stable, effective government and society is a necessity for a vibrant free market economy. Arguing with them on any subject even tangentially related to these subjects is pointless, they don’t think about it except to the extent necessary to defend predetermined conclusions.
Pax
I’m not sure that ANYONE thinks taxes are INHERENTLY good. Necessary yes but not inherently good.
There are those who view government as INHERENTLY bad and part of that feeling comes from the idea that government NEEDS taxation. The relationship between a currency issuer (govt) and its private sector does not need to be adversarial, it just happens to be the case in this country amongst a particularly rabid group of people. If we are willing to accept the notion that our govt needs to spend to do certain necessary things (not just limited to military) and that this spending does not need to be FINANCED with taxation, we can make huge strides in bridging the chasm between the right and left in America. Taxation should simply be seen as a tool for controlling inflation, but that requires an admission that fiscal not monetary policy is the proper way to manage inflation.
If you think its our “government” that wants the wars in Iraq and Afghanistan I would beg to differ, unless you define our govt as the (private) corporate state which reaps the financial rewards from this “investment” in war. Your painting of the govt in this view is quite over-simplistic and ignores a reality about our national priorities and the public/private partnership in our war machine. War is big business and very profitable for far too many.
Our freedoms are much more endangered by the “private” interests controlling our govt, not our system of taxation.
Jim S,
You’re full of crap and I don’t think you know very much about economics. All you do is speak in headlines:
So hear are you headlines:
Are ideological conservatives
Everything must fall into the “Government is evil” core belief
They don’t understand classical economics
They don’t understand that the government needs taxes
Everything but your first point is wrong. And since the last three of your points were all wrong it’s clear you did not understand your first point – so you don’t get credit for that one either.
Jim S,
You’re full of crap and I don’t think you know very much about economics. All you do is speak in headlines:
So hear are your headlines:
Are ideological conservatives
Everything must fall into the “Government is evil” core belief
They don’t understand classical economics
They don’t understand that the government needs taxes
Everything but your first point is wrong. And since the last three of your points were all wrong it’s clear you did not understand your first point – so you don’t get credit for that one either.
Please try another post when you think you can do better than putting on a strawman clinic.
What you are describing rl is not investment. You are describing the sale and resale of already issued assets. Yes the value of assets go up as more and more buy bids are put in but that is not economic expansion. Your 401K increasing in value is not economic expansion. Your house rising in value is not economic expansion.
Now when you build a house you are adding a new asset but you have removed another asset (bank deposit, money market deposit) to pay the down payment and have created a new liability (your debt) that offsets the banks asset (your loan). There is an expansion in private sector wealth equal to the amount of the loan (assuming it gets paid back and the home was properly valued)
Greg:
Taxation was the focus of Bruce’s article. What I am trying to say, there are things government inherently are created to do, that is, justice, security. There are different systems of government and definition of “justice” can very greatly. This country is based on capitalism, individualism, obviously people living within this system will compare it to other system of government such as socialism, communism etc.
I think over free market economy is good for America, because in a capitalism society, bad businesses are allowed to fail. But how much capitalism is good in a government is always in flux, that why you have the right and the left. Too much government, then individual creativity and competitiveness gets affected, versus too little then you have anarchy (just look at the current recession).
For years, the most basic taxation method used throughout the world is land ownership. Because no matter the culture, the mother earth provides for our daily needs. Since industrial revolution, focus have since been shift to production. I.E. Income tax is a type of production “tax.” So what is a fair tax? Shall we tax according to “production” “division of labor” “land” “intellectual property?”
I think a lot of people, especially small business owners like to see themselves as the “production class.” So if you think that way, taxing people productivity over a certain point will have very negative consequences. I.E. All the James Bonds stars prior to the lowering tax reforms in Britain in the 1980s didn’t pay British Taxes, they all officially don’t live in the country… LOL
A society “hell” bent on taxation on one segment of population cannot be a healthy, civilized society. This creates incentive to avoid taxation, creation of special interests groups instead of focusing on the core mission of government. Just look at the health care bill, did that focus on the core mission to make insurance affordable and accessible???
Ideally, any governmental programs “must have” tangible benifit to the society as a whole. You cannot expect benifiting just one special interest group at expense to the others.
Pax
I’m really not in disagreement with what you are saying here. I completely support having a sane tax policy, that is simply thought of as THE means to control inflation and not as a way of raising “revenue” to spend. This would require both sides of the political spectrum to rethink how our financial system operates, but MOST especially those on the right.
The fights over taxation result primarily from misguided notions of what it is for. We have to overcome those first then we can move forward.
Jim S,
Everything must fall into the “Government is evil.” core belief
Not my core belief. My topic was “how does raising taxes influence investment decisions?” and I provided a simple example of how raising taxes might discourage investment. Whether you want to raise taxes anyway sacrificing investment (to what degree?) is a political question that there is no right answer. But at least recognize the tradeoffs; do not think that “raising taxes doesn’t matter.”
Jim
While I know which side you are on, I’m gonna have to disagree with one of your points;
They do understand (well at least they parrot) classical (otherwise known as neo-liberal, monetarist or Chicago School) economics’ talking points. Unfortunately classical economics is ridiculously equipped to explain the real world. It starts with the assumption of a “rational” economic actor and thusly cannot possibly be accurate. When your entire thesis is based on this idea it cant possibly explain the world we live in.
2)
Cantab
I’ve seen nothing written by any of the people mentioned in Jims post that can credibly refute the notion that you ALL do not hold to the “government is evil” core belief.
You obviously misread his post because he never said you dont understand the govt needs taxes he said you dont understand how govt and taxation affect our system. He’s correct there. First off you think taxation is for raising govt revenue to spend (Its NOT) Secondly you think raising taxes will always kill the economy in spite of decades of American economic history disputing that. You are like a carpenter with only one tool for “fixing” any economic problem…..tax cuts, tax cuts, tax cuts. Thirdly you dont believe that government “intervention” in the economy can EVER be a positive. This is ALL ideology not economics.
Jim S,
Everything must fall into the “Government is evil.” core belief
Not my core belief. My topic was “how does raising taxes influence investment decisions?” and I provided a simple example of how raising taxes might discourage investment. Whether you want to raise taxes anyway sacrificing investment (to what degree?) is a political question that there is no right answer. But at least recognize the tradeoffs; do not think that “raising taxes doesn’t matter.” which is implied by Bruce’s post.
Sammy
To boil Bruces post down to “raising taxes doesnt matter” requires an unbelievable degree of disingenuousness.
The discussion completely centered around whether an income tax was a tax on work, which is a core belief of supply side economics. The criticism of this oversimplistic, bumper sticker idea was well argued. He clearly never said NOR IMPLIED that income taxes dont matter, once again he was simply saying they dont matter in the way the American right insists they do. Thats all.
Greg,
The economy expands when something of value is added to it. Cut down a tree and sell the lumber and something that had no monetary value, then has value.
When a loan is made the principle is zero-sum. The debt is expansionary on a balance sheet but as the debt is repaid it contracts down to zero, but the interest remains as growth.
Greg,
I’ve seen nothing written by any of the people mentioned in Jims post that can credibly refute the notion that you ALL do not hold to the “government is evil” core belief.
I don’t think government is evil. That’s for the softball, idiot.
Sammy,
Not my core belief.
These people are a trip. It reminds me of the bit in monty python where they put a carrot nose on someone and then call them a witch. They can’t argue the points so they reach for their carrot.
But they would pay thru the paying for the goods that are transported to them. Yes if they use public transport they would not pay, but to tax that would just be round tripping the money. Trucks would likely pay more per mile than cars because they do cause more wear and tear on roads.
Greg,
I’ve seen nothing written by any of the people mentioned in Jims post that can credibly refute the notion that you ALL do not hold to the “government is evil” core belief.
I don’t think government is evil. Thank’s for the softball, idiot.
Supply side economics is a logical follow on the the economic calculating machine model of humans that economics has had for the last 40 years. It alleges that economics is the main driver of behavior in issues about how hard people work. Many experts would say that money is only a negative motivator in its absence, not a positive motivator. Issues that drive how hard people work include the challenge of the tasks at hand, satisfaction with completed tasks, and sometimes just showing them up. Beyond a certian level in addition it is a means of keeping score between people, so that the gross amount matters more than the net amount. In addition money is often not the driver in career choice or no one would go into the humanities at grad school.
I agree with you. bit this also misses a key argument of the supply side – lower income taxes allows people with high incomes to save more. Why is this important? It keeps more money in the hands of the most productive citizens who have proven themselves as good managers of money and investment decisions.
And yes I do run around in my head doing ROI decisions constantly, that is how I think.
The other primary problem is the origional auther is thinking in terms of consumption instead of utility, utility balances leisure versus consumption.
Rich people built taj mahal’s because that was the amount of consumption it took to have them limit their leisure time to make that fortune.
rl
i’m not sure you and I are talking about the same thing, so I dont think we would disagree if we were.
My discussion with Sammy was simply about the difference between buying already issued stocks, bonds or realestate and calling that economic growth. Its not. Money changes hands values go up or down but NO NEW MONEY is added to the system. In true economic terms this is not investment, its more like casino dynamics. I was referring to the erroneous idea of “sideline” money you here espoused on financial shows. There is no such thing.
Your example of a tree is not quite true though, because the tree has monetary value, which is why you cut it down. Yes the introduction of the tree in a new form (lumber) permits new things to be done but all the “value” was already there. It took some creativity and labor to create something else and “release” the potential. Just like energy in a gallon of oil waiting to be released.
Greg,
You do not understand how fractional reserve banking works. The economy expands and contracts with the creation and repayment of debt. The interest remains as residual growth.
These statements are wrong:
“Your 401K increasing in value is not economic expansion. Your house rising in value is not economic expansion.” The increase in value, above inflation, is expansionary in regards to profit. And the profit is GDP growth. And any applicable interest payments are also expanding the economy.
You are correct in thinking that a significant amount of economic activity is nothing more than just money trading hands. But, the lumber is not valued until it is exchanged for a medium of exchange.
“Who is John Galt?”
An engineer, terrorist and rapist. At least if it’s Ayn Rand’s “John Galt” you’re asking about. How is this relevant to anything here?
Greg,
Re-read my entire sentence on that issue, which was “Few have any interest in understanding the realities of classical economics versus behavioral economics, including how government and taxes affects the system.”. I think it’s fairly accurate.
If it isn’t your core belief then you need to look at the overall sense of your philosophy as represented by the consistent anti-government rants that are the overarching sentiment of the majority of your posts on this subject. The same, of course applies to Cantab. Deny it all you want, but no other conclusion can reasonably be drawn after reading posts by you, Cantab, CoRev and your fellow hyperconservatives here.