Progressive Taxation Makes Economic Sense

[Johnfromokc]

It really is this simple. Completely logical economic policy. Discussion?

 

[porterjack]

rather than reinvesting they will more likely find foreign investment opportunites in jurisdictions who dont tax them as much (if at all)

 

[Alien Allen]

Any idea what were most of the tax breaks in the past when the rate was that high?

Could it be that there is no incentive to invest all that money right now is due to a tax code that is always a moving target?

Would there not be some stability if investors could reasonably assume tax rates stay at a certain level and deductions not tinkered with?

Not all wealthy people are business owners. Seems like it would be a mess to follow the money. Or an added thing to watch which would be abused.

I would throw out the income tax and go with a consumption tax. The wealthy will more than pay their share to have their houses and yachts and other toys. With an exemption for cars below a certain value and food and housing.

 

[Johnfromokc]

rather than reinvesting they will more likely find foreign investment opportunites in jurisdictions who dont tax them as much (if at all)

That's exactly what they are doing now with the low rates. They should be taxed even more for moving off shore.

 

[Johnfromokc]

Any idea what were most of the tax breaks in the past when the rate was that high?

One was business expense. Plow that excess cash back into business improvement and wages and get a tax break. This results in a vibrant middle class.

Could it be that there is no incentive to invest all that money right now is due to a tax code that is always a moving target?

How could that be with the lowest tax rates in most of our life times?

Would there not be some stability if investors could reasonably assume tax rates stay at a certain level and deductions not tinkered with?

That's just another right wing talking point. Again - tax rates are the lowest in more than 50 years and the hoarding is greater than ever.

Not all wealthy people are business owners. Seems like it would be a mess to follow the money. Or an added thing to watch which would be abused.

Raise capital gains tax rates to match the marginal rates. It is the middle class that is currently getting abused.

I would throw out the income tax and go with a consumption tax. The wealthy will more than pay their share to have their houses and yachts and other toys. With an exemption for cars below a certain value and food and housing.

Then the wealthy would hoard even more money than they do now.

How many yachts, cars and mansions do you think the wealth will suddenly buy that they aren't buying now?

 

[Alien Allen]

A consumption tax is the ultimate progressive tax.

Wealth will always buy more things and more expensive things.

As to the low rates right now you still don't understand that many invest long term. I have had my money in a guaranteed account for a long time now. I don't trust the market. You think I am the only one that thinks that way? Any hoarding that is being done IMO is because of instability. Give me a good reason not to invest if the climate was ripe. With our govt it is like having the weather man in charge.

 

[Johnfromokc]

A consumption tax is the ultimate progressive tax.

No it is not. Once you have 3 mansions and a couple of yachts, wtf else are you going to buy? How much more food does the wealthy homo sapien consume versus the working class homo sapien? The excess billions will be hoarded even worse than they are now.

Wealth will always buy more things and more expensive things.

Only up to a point. Then the hoarding begins.

As to the low rates right now you still don't understand that many invest long term. I have had my money in a guaranteed account for a long time now. I don't trust the market. You think I am the only one that thinks that way? Any hoarding that is being done IMO is because of instability. Give me a good reason not to invest if the climate was ripe. With our govt it is like having the weather man in charge.

Toal misconception. The Waltons have been hoarding for decades as have many billionaires. Instability? Sorry, but you are simply repeating the right wing propaganda. Raise the marginal rates and the hoarding stops because just like the graphic in the OP shows, the wealthy will invest in business rather than pay the taxes. Right now, they just sit on it rather than hire.

Hoarding is human nature. Like it or not, if government does not force those dollars into circulation, they will only stagnate.

All economies depend on circulation of currency in order to prosper. The problem now is the lack of circulation. Lowering taxes on the wealthy gives them zero incentive to circulate their cash through the economy.

We have had this proven to us over the last 40 years. Take a look around and tell us how supply side economics is working.

 

[Alien Allen]

I think you have proven you are a socialist when you insist on people spending. Because that means it needs to be spread around in your view. Talk about failed policies. Europe is closer to your ideal and the EURO is ready to collapse.

Our problem can not be fixed by raising taxes. Go ahead and raise the rate all you want on the wealthy but if you do then make sure it pays down the debt before spending it. We have to do that in our households and so should the govt. But you know if they get more they will not use it to pay down the debt let alone to reduce the deficit.

Hell they can not even agree to a simple plan to freeze spending for a few years let alone to actually cut any spending. Solutions require more than just raising rates on the wealthy.

 

[Accountable]

It really is this simple. Completely logical economic policy. Discussion?

You mean that if I buy stock then I don't have to claim that money as income? Business investments are tax deductible??

 

[Johnfromokc]

I think you have proven you are a socialist when you insist on people spending. Because that means it needs to be spread around in your view. Talk about failed policies. Europe is closer to your ideal and the EURO is ready to collapse.

LOL...I was wondering how long it would take for the "S" word to come out.

Sorry, but Germany and Australia are doing it right and doing just fine.

One thing is certain - the supply side way we have been doing it the last 30 years has proven to be an abject failure.

Our problem can not be fixed by raising taxes. Go ahead and raise the rate all you want on the wealthy but if you do then make sure it pays down the debt before spending it. We have to do that in our households and so should the govt. But you know if they get more they will not use it to pay down the debt let alone to reduce the deficit.

Gawd - how many times have I heard the talk-bots like Lardbaugh repeat that line? We've been lowering taxes on the wealthy for over 40 years and look at us now.

Tell me Allen - When was the last time the national debt was zero? What is the difference betwen budget deficit and national debt?

Hell they can not even agree to a simple plan to freeze spending for a few years let alone to actually cut any spending. Solutions require more than just raising rates on the wealthy.

We need to fix our infrastructure - much of it built right after WW2. Guess who needs to pay for it? Guess who will benefit from the resulting employment? Small business owners like you would be a prime beneficiary of a properly designed and implemented progressive taxation system.

 

[Johnfromokc]

You mean that if I buy stock then I don't have to claim that money as income? Business investments are tax deductible??

Nope. That is part of the problem. Capital gains tax is only 15% and is used by the wealthy to avoid marginal rates. Capital gains must be taxed as ordinary income. Nice try.

 

[Tim]

You mean that if I buy stock then I don't have to claim that money as income? Business investments are tax deductible??

The money you use to buy stocks does NOT go into the company as investment unless it's their initial public offering.

 

[Johnfromokc]

The money you use to buy stocks does NOT go into the company as investment unless it's their initial public offering.

It's interesting how many people don't understand that.

 

[Accountable]

Nope. That is part of the problem. Capital gains tax is only 15% and is used by the wealthy to avoid marginal rates. Capital gains must be taxed as ordinary income. Nice try.

No try, just a question. Your graph doesn't make sense unless investing is to avoid paying a higher tax. It's not avoiding a higher tax unless it's tax deductible. Raising capital gains would, if anything, discourage investing not encourage it. I agree that capital gains should be counted as ordinary income, for simplicity if nothing else.

Regardless, your graphic fails. Higher taxes don't encourage higher investment. Please explain where I'm wrong.

Like Tim points out, investing in Wall street only creates jobs on Wall street, no in the businesses the shares represent. Like you say, the money's there. I don't believe that they're just sitting on it like an egg like you seem to believe. They want to invest. Right now they don't know what's going to happen next, so investing in anything is too risky. I suggest that whatever the republocrats want to do, they should do it in a permanent fashion rather than temporary fixes. No matter what they do, if it's long-term, investors can plan around it and decide where to put their money.

 

[Tim]

No try, just a question. Your graph doesn't make sense unless investing is to avoid paying a higher tax. It's not avoiding a higher tax unless it's tax deductible. Raising capital gains would, if anything, discourage investing not encourage it. I agree that capital gains should be counted as ordinary income, for simplicity if nothing else.

Regardless, your graphic fails. Higher taxes don't encourage higher investment. Please explain where I'm wrong.

Like Tim points out, investing in Wall street only creates jobs on Wall street, no in the businesses the shares represent. Like you say, the money's there. I don't believe that they're just sitting on it like an egg like you seem to believe. They want to invest. Right now they don't know what's going to happen next, so investing in anything is too risky. I suggest that whatever the republocrats want to do, they should do it in a permanent fashion rather than temporary fixes. No matter what they do, if it's long-term, investors can plan around it and decide where to put their money.

You look at this the wrong way...

If taxes are low, a company will be more likely to remove as much of the profits as they can while the tax is low reinvesting very little back into the company.
If taxes go up, the company may take some of that money and reinvest it back into the company. This in turn will lower their tax burden.

If company A has $1 million in profits at the end of the year, they must pay taxes on that $1 million. As long as the tax rate is low, they will be more likely to extract these funds from the company and take the tax hit.
If that same company wanted to avoid a high tax rate on that million dollars, they can take half of it and hire more people, invest in new equipment, upgrade the facility, etc... all of these things reduce the tax burden.
So instead of removing $1 million in taxable profits, they may only remove $500k in taxable profits and reinvest the other $500k back into the company

 

[Accountable]

You look at this the wrong way...

If taxes are low, a company will be more likely to remove as much of the profits as they can while the tax is low reinvesting very little back into the company.
If taxes go up, the company may take some of that money and reinvest it back into the company. This in turn will lower their tax burden.

If company A has $1 million in profits at the end of the year, they must pay taxes on that $1 million. As long as the tax rate is low, they will be more likely to extract these funds from the company and take the tax hit.
If that same company wanted to avoid a high tax rate on that million dollars, they can take half of it and hire more people, invest in new equipment, upgrade the facility, etc... all of these things reduce the tax burden.
So instead of removing $1 million in taxable profits, they may only remove $500k in taxable profits and reinvest the other $500k back into the company

You're talking business tax, not personal income tax. I'm sure that John will say that's what he was talking about all along, but it wasn't clear from the start. So I was looking at personal income tax based on John's standard rants against millionaires & billionaires, not against corporate profits (though he's ranted against that occasionally). Your explanation doesn't touch on personal income at all. The situation the graph promotes won't prompt high-income-earners to invest their income.

 

[Accountable]

In fact, on another look, it seems to be implying that the extra tax money is used by the gov't to invest in business. That's not a function of gov't. Oh crap. With Obama in office I guess it is.

 

[Tim]

Take another look at the graph...

 

[palzz]

dave johnson is a name u should know on this topic. A giant in the field

See his seminal article here:
http://www.ourfuture.org/blog-entry/2010041625/13-ways-90-percent-top-tax-rate-fixes-economy

 

[Accountable]

Re: dave johnson is a name u should know on this topic. A giant in the field

A giant?!? He's a blogger. Regardless of his ideas, I'd hardly call a blogger a giant in any field ... except that of blogging.