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Trickle Down Economics
After the slew of firings we've been discussing on this board, does anyone here still think trickle down economics would work? There were several people on this board who swore Mitt Romney's way was the only way...so I know you used to think so.
I don't understand how it can not be obvious that the business owners only care about their profit margin and not AT ALL about the people that actually work there.
As I understand it, trickle down only works on the premise that the people at the top will hire more employees and help create better lives for the middle/lower classes if they are given big tax breaks and the ability to make crazy high profits. While the middle and lower classes go without those tax breaks...because someone's gotta fund this country, right?
Why didn't any of the owners take a pay cut in order to keep their employees? Papa John's can't afford $.14 a pizza? Do you truly trust that these people wouldn't just pocket their higher profit?
I only have a limited understanding of economics - it's not my forte. So, feel free to explain this to me like I'm a 5 year old.
Re: Trickle Down Economics
It especially doesn't work in an economy where companies are encouraged to replace people with technology that can do the same job better, cheaper and quicker. Or in a global market where we can get goods and labor more cheaply abroad.
I don't buy trickle down economics.
I think its appeal comes from people's inability to reason with nuances. Of course businesses need to make a profit - or else they won't have incentive to stay in business. And of course businesses need to have funds to invest in employees - or else there will be fewer jobs. These are logical points.
HOWEVER, people translate that into something like, "We cannot burden businesses in any way, shape, or form or else we won't have jobs." And that is the biggest load of BS ever. Companies are part of this country and when we have massive debt, they have to pony up, too.
The aforementioned line of thinking gets taken to the extreme and people start thinking that our country is here to serve businesses. Hogwash! The deck is already stacked in their favor, they already have politicians in their pockets, they don't need additional help. The middle class and poor cannot foot the bill any longer.
Here is an informative paper on the Theory of Trickle Down Economics.
http://www.tsowell.com/images/Hoover Proof.pdf
When the government allows the people to keep more of their money (lower tax rates), they will spend it.
When more stuff is purchased, demand for that stuff increases.
When demand increases, businesses need to hire more people to work for them so they can increase supply.
Guess what those new employees do? They pay income taxes.
Think of it this way:
1. Assume that you tax 100 people at 25%.
2. What if you had 150 people to tax at 20%?
Which income stream would be higher?
Those are tired and incomplete arguments.
When poor people get money, they spend it. When rich people get money, they hoard it.
Also, you comparison of 100 vs 150 people is hypothetical, there's no evidence that that happens. And if that's the case then why did the GOP can so many government jobs? They were paying income taxes AND providing services to the community. Seems like a win-win.
*except people save during/after a recession, not spend.
This is what I was coming here to say.
There is evidence that reducing tax rates does increase revenue to the government:
Under the Harding Administration:
Harding's Treasury Secretary, Andrew Mellon, ordered a study that claimed to demonstrate that as income tax rates were increased, money was driven underground or abroad. Mellon concluded that lower rates would increase tax revenues. Based on this advice, Harding cut taxes, starting in 1922. The top marginal rate was reduced annually in four stages from 73% in 1921 to 25% in 1925. Taxes were cut for lower incomes starting in 1923.[122]
Revenues to the treasury increased substantially. Unemployment also continued to fall. Libertarian historian Thomas Woods contends that the tax cuts ended the Depression of 1920?1921?even though economic growth had begun before the cuts?and were responsible for creating a decade-long expansion
http://en.wikipedia.org/wiki/Warren_Harding#Presidency:_1921.E2.80.931923
Under the Kennedy Administration:
In his 1963 State of the Union address, he proposed substantial tax reform and a reduction in income tax rates from the current range of 20?90% to a range of 14?65%; he proposed a reduction in the corporate tax rates from 52 to 47%. Kennedy added that the top rate should be set at 70 percent if certain deductions were not eliminated for high income earners.[165] Congress did not act until 1964, after his death, when the top rate was lowered to 65%.[166] To the Economic Club of New York, he spoke in 1963 of "... the paradoxical truth that tax rates are too high and revenues too low; and the soundest way to raise revenue in the long term is to lower rates now."
http://en.wikipedia.org/wiki/JFK#Economy
Under the Reagan Administration:
According to a United States Department of the Treasury economic study,[42] the major tax bills enacted under Reagan, in the short term, increased total tax revenue and reduced the tax burden on the economy (~-1% of GDP). The Economic Recovery Tax Act of 1981 resulted in a reduced tax burden on the economy (~-3% of GDP)[44] while other tax bills had neutral or, in the case of the Tax Equity and Fiscal Responsibility Act of 1982, a (~+1% of GDP) increase in revenue as a share of GDP. It should be however noted that the study did not examine the longer-term impact of Reagan tax policy, including sunset clauses and "the long-run, fully-phased-in effect of the tax bills".[42] The fact that tax receipts as a percentage of GDP fell following the Economic Recovery Tax Act of 1981 shows a decrease in tax burden as share of GDP. Total tax revenue from income tax receipts increased during this time. The economic growth and increase in GDP outpaced the increase in tax receipt revenue, resulting in a slightly reduced tax burden as a percentage of GDP for the economy.
http://en.wikipedia.org/wiki/Reaganomics
The Harding economic policy isn't exactly a good example, what with it being one of the causes of the Great Depression and all.
Also, I would be totally for lowering the taxes on the job creators if they actually created jobs instead of putting the money into Caymen Island accounts.
Don't pretend like this doesn't happen. After the bank bailout, the banks used the monies not to save jobs, but to give themselves wicked awesome bonuses for a "job well done".
F'uck them. F'uck them right in the ear.
This, this, this!
The idea that the lucky few will pour all their profit back into the economy is one I just can't comprehend. Cincy, that's the reason I started this post referencing the recent layoffs blamed on the ACA.
It's pretty obvious that a lot of these business owners don't truly care at all about their employees. They care about their profit. They care about themselves. They will sock their money away, and the poor will get poorer. I will happily pay $.14 more a pizza so that people can get healthcare.
True, I simply use the Harding, JFK and Reagan examples to illustrate how lowering the tax rates can increase revenues to the government. I would say it doesn't make sense to follow their examples to the letter...spending needs to be reigned in.
I did not support the bank ballouts and it makes me sick that our tax monies went to their wicked awesome bonuses. Businesses should raise or fall based on their own merit, without government ballouts.
Even if/when the tax rates on rich people increase they will still find tax shelters and loopholes in the current tax code to avoid paying.
IMO, our whole tax code needs to be rewritten.
In the 1950s, the tax rate for the super rich was 90%. They survived just fine.
Maybe we should go back to that so they won't biitch about having to pay a 15% tax rate.
I understand and I don't understand why a Fortune 500 company would announce layoffs as a result of the ACA. But I can understand it will affect the small businesses who have 50-100 employees.
Or maybe we should institute a flat tax of 15%, get rid of deductions and loopholes. That way everybody is paying their "fair share".
I definitely get that it will affect the small businesses and it's shiitty for them, but a lot of small businesses have to deal with government laws and regulations that affect their bottom line, EPA regulations for example.
It's the cost of doing business nowadays. If they want good employees, they have to be willing to pay for them.
I am sure they do, they just happen to subscribe to the Keynesian economic school of thought vs the Supply Side economic school of thought.
A flat tax would be a terrible, terrible thing for America. It would not be fair, in fact it would pretty much finish off the middle class.
This. I used to be in favor of a flat tax until I started researching it more and realized that it would severely hurt the lower and middle classes.
This is what really gets me: http://www.marketwatch.com/story/papa-johns-announces-third-quarter-2012-results-2012-10-31
Papa John's is a growing business, earning higher profits under the Obama adminstration's policies. Yet, when it comes time to implement something for the greater good, to give back to society, to show appreciation for the average citizens that patronize his business and helped him to become wealthy, the owner balks. Makes me want to vomit. Yet it's the business owners that deserve the break? Not the patrons?
When rich people keep more of their money, they tend to save it, or put it in Cayman Island accounts, or use it to buy products or investments from overseas. None of which really helps the country.
And just a few years later, the nation enjoyed the fruits of these tax cuts as they led to unprecedented economic prosperity and trickle-down for all!
So, are you advocating raising taxes on the poor because they would be less able to take advantages of loopholes? I could totally be misunderstanding your point here (again, economics is not my forte), so please point me in the right direction.
Oh goodness no! Not advocating tax increases at all. Just making a statement that Obama's philosophy is different than Clinton's (and I liked Clinton).
I am unsure how much Obama's desire to raise taxes on the wealthy is because he believes it will help the economy or because he feels they need to pay their fair share.
What I would like to see is politicians putting their personal ideology aside and to do what is best to stimulate the economy and get people back to work.
And while the ACA is admirable, I wish Obama had spent more of his attention to this country's economic problems during his first term.
The thing is, how many people *don't* invest because of capital gains taxes? "Well, I have the opportunity to make $200,000, but I might have to pay an extra 5% in taxes on that, so I'd rather make $0 instead." I really don't think it happens.