9 Things The Rich Don't Want You To Know About Taxes

[Conan71]

I guess I just don't know how to square it.  We've been giving trickle-down the ole' college try since Bush II's tax cuts, and they've been an utter failure for everyone but the top 1%.  Wages have stayed flat (even without the recession) and no real jobs have been created, even though we've pumped the richest Americans and all of our multinationals full of cash.  That last decade has provided no proof whatsoever that this dynamic actually functions.  In fact, we're seeing with our own eyes that the opposite is true. 

So why, Conan and Red, on god's green earth do you think that doing the same thing we've always done is going to guarantee a different outcome? I get that you don't trust government, but there's even less reason to trust the current dynamic as it stands. 

That's funny, trickle-down worked great throughout the Clinton years.  There was also an unsustainable orgy of borrowing going on which would eventually rear it's ugly head.

Let's take a look at where Bush II foobared up.  He committed to a tax cut right on the brink of a war which became far more involved and costlier than any of his neo-con cronies predicted.  I'm quite certain he was convinced Iraq would be a six month milk-run and Afghanistan would be over as soon as the Taliban were rooted from power and most of the Al Qaeda network was disrupted.

Bad calculation.

Top that with several unprecedented natural disasters as well as having the foul luck to be inaugurated about the time the economic bubble popped as a result of over-aggressive development of the telecom business, the dot-bomb debacle of IPO's for companies which were worthless before the IPO and they were still worthless after the IPO, except they were paying a lot of young people with MBA's insane salaries and they financed up big lifestyles like they were a newly-minted millionaire.  Suddenly, unemployment starts to spike, tax receipts are getting lower because of all these lost jobs and corporate income, foreclosures on government-backed mortgages are up

Oh, let's not forget the major cataclysm to the tourism and travel industries in the wake of 9/11.

Second love up: Bush creates a huge new and not well thought out bureaucracy in the form the Dept. of Homeland Security and it's subsidiary, TSA.  How do we pay for that with reduced tax receipts from fewer people working and fewer companies paying corporate taxes, in addition to the nominal tax cut?

Third love up: Bush creates an unfunded mandate by buying pills for senior citizens.

It was a perfect storm which really didn't show much relevance between tax rates and unemployment, though it's entirely possible to argue that the recession of '00/'01 could possibly have gotten worse if not for individuals being allowed to keep more of their income and spend it throughout the economy which may have helped keep many businesses open.  

Let's keep this really simple: people cannot spend money they don't have.  If all their credit facilities dry up, or they are reluctant to borrow, they must pay cash.  If they have less net cash to spend, it's not getting back into the economy.  That is unless you want to argue that filtering that tax money through the government is a more efficient way to stimulate the economy.

I think there's enough room to point to failures in both types of economic thinking.  If anything, I think the Clinton years proved the Reagan years were no fluke.  If Bush II had been so fortunate to have had the kinds of technological breakthroughs like major advances in bio-tech, nano-tech, the internet, and telecom, he could have presided over great growth as well. Instead, he got stuck with the hangover of an over-heated party of the late '90's.

His fourth love up was not reigning in the financial markets which kept inventing ways to churn bad debt and conceal it.  In not fully appreciating what was going on, we merely delayed the pain we began to feel with the collapse (or near collapse depending on whose viewpoint you like) of the financial markets in 2008.

I've said it a million times if I've said it once: economic theory does not take into account human behavior.

Here's the part which is troubling to me: We apparently have still not learned that borrowing with no real plan to pay it back is destined for a major calamity.  It's not just comparing corporate or personal finance, it's been proven over and over throughout history.  Countries have failed for this very reason.  The dollar as we know it may not exist as the world's reserve currency in a matter of years for the simple notion that foreign investors will wise up that our currency is becoming worthless due to our borrowing and spending habits.  For crying out loud, we had to raise our debt ceiling so we could continue to pay on previous debt or we would have wound up in default in a month.

How long do you think we can continue to do that.

And Nathan, you really prove nothing without better metrics. There's simply no getting around the basic fact that business owners and investors with more cash in their pocket have the ability to create more jobs.  Aside from that, if they say they won't create more jobs with a 40% top marginal rate, they won't.  It's back to human behavior at that point.  If the majority of small business people think that represents a hostile investment environment- real or imagined- they won't invest in new workers or new equipment.  It's that simple.  No amount of Keynesian economic theory or Friedman theory will make one bit of difference.  If the people who have the money say they won't spend it over a certain tax threshold, they are under no obligation to do so.

[Red Arrow]

None of those things have anything to do with the trickle-down mechanism.  Do you know what trickle-down is?

Trickle down is a result of trickle up.  Trickle up is when the working poor, living from paycheck to paycheck, provide their employers with enough value gained to reinvest in the company (add jobs) or invest somewhere else.  It is unlikely that the working poor will accumulate enough money to directly create jobs.  I'm sure there are some examples but I think they fall into the statistical noise. 

[nathanm]

And Nathan, you really prove nothing without better metrics. There's simply no getting around the basic fact that business owners and investors with more cash in their pocket have the ability to create more jobs.  Aside from that, if they say they won't create more jobs with a 40% top marginal rate, they won't.  It's back to human behavior at that point.  If the majority of small business people think that represents a hostile investment environment- real or imagined- they won't invest in new workers or new equipment.  It's that simple.  No amount of Keynesian economic theory or Friedman theory will make one bit of difference.  If the people who have the money say they won't spend it over a certain tax threshold, they are under no obligation to do so.

I've learned through experience to not ever trust what people say they are going to do. Only trust that which has already happened. I'm not talking theory, I'm talking historical fact. Ignore it at our collective peril.

I agree with you on your assessment of how we got here, aside from a few minor quibbles. Jobs were being lost before Bush took office and before 9/11. We had a plan to pay back the borrowed money, until the neocons decided we didn't need to. Tax rates went up early in the Clinton administration, yet job creation boomed to near record highs. Trickle-down economics is all about tax rates. There is simply no evidence it works. The capital gains tax cut in 1997 didn't make a dent in the numbers either.

Reagan had the highest single month since BLS began keeping records when interest rates were cut after the shock treatment to kill inflation. Overall his numbers were fair-to-middling. Better than either of the Bushes, but worse than Nixon.

[Red Arrow]

No. I am against the SCOTUS rule allowing the buying of our (conflict of interest) public deciders by corporations.  

Corporations and Unions should be barred as organizations from campaign contributions.  Individuals can give what they want.  Keep the max limit to even the playing field between the rich and not so rich.

But those who make an inordinate income (those in the top%4) need to proportionately pay more for the privilege we give them to be able to earn more.

I have no problem with someone making 100 times what I do paying 100 times as much tax.  Making them pay, for example, 300 times as much tax is not reasonable IMO.   I want/need a certain amount of $ after taxes.  If my taxes go up, I need a raise to have that same after tax money.

[Conan71]

Corporations and Unions should be barred as organizations from campaign contributions.  Individuals can give what they want.  Keep the max limit to even the playing field between the rich and not so rich.

I have no problem with someone making 100 times what I do paying 100 times as much tax.  Making them pay, for example, 300 times as much tax is not reasonable IMO.   I want/need a certain amount of $ after taxes.  If my taxes go up, I need a raise to have that same after tax money.

I also have a problems with unions enjoying tax-exempt status, yet being able to openly electioneer.  I think they should be faced with the same threat leveled on churches: you lose your tax exempt status if you start campaigning.  Why do we treat one tax-exempt entity different than another when it comes to campaigning?

[Cats Cats Cats]

Yawn... if its all thanks to the rich.  Lets have the 48% not paying taxes not spend any money.  Lets see what happens.

[Cats Cats Cats]

We haven't been doing this trickle down thing for the last two years. I guess things around here are wonderful? Right?

He is saying that the companies aren't hiring anybody.  They are peeing all over each other instead of on the people below them.  Which is why they have prospered why everybody else has gone down.  So, if the trickle down isn't working (as guido stated) the only option is to do something different.

[Conan71]

I've learned through experience to not ever trust what people say they are going to do. Only trust that which has already happened. I'm not talking theory, I'm talking historical fact. Ignore it at our collective peril.

Could be a vacant threat.  That's why I said leave the Bush tax cuts in place and see what happens. If more jobs aren't created, call BS on the theory, raise taxes, and pay down the damn debt.

I suspect two or three percent uptick or downtick in taxes won't make a big enough difference in employment levels.  That said, higher tax rates indicates hostility toward small business people.  Keep in mind the rhetoric coming at small business people: it's not just a 2 to 3% increase in income tax, it's the added cost of Obamacare, crap-n-trade, and all sorts of other controversial revenue grabs rumored and actually proposed.  It makes it look like an anti-business environment when you add it all together.  Mix in small business lobbying groups whipping fear into their membership to stay relevant and to raise dues to "protect" the small businessman and the wealthy. 

I'm simply stating from my personal experience as a previous small business owner and having worked for the last 6 1/2 years for another small business owner, as well as dealing with many other small business owners on a daily basis.  I don't pretend that's given me a superior knowledge of how business attitudes are affected by economic policy and taxes, but it's helped me keep a pulse on what drives certain behaviors.

[nathanm]

I suspect two or three percent uptick or downtick in taxes won't make a big enough difference in employment levels.  That said, higher tax rates indicates hostility toward small business people.  Keep in mind the rhetoric coming at small business people: it's not just a 2 to 3% increase in income tax, it's the added cost of Obamacare, crap-n-trade, and all sorts of other controversial revenue grabs rumored and actually proposed.  It makes it look like an anti-business environment when you add it all together.  Mix in small business lobbying groups whipping fear into their membership to stay relevant and to raise dues to "protect" the small businessman and the wealthy. 

I suspect the same, right up to the point where we begin exceeding the tax rates of other industrialized nations by a significant amount. (We should be comparing ourselves to them, not to tax havens)

Regarding the other stuff, it has zero impact on truly small businesses. Only once you get up over 25 employees, for example, does "Obamacare" have any impact whatsoever on you. Aside from subsidies, of course. I suspect that taking away the fear of losing one's health insurance would actually increase entrepreneurship. Whether that's done through somehow driving down the cost of health care or by just plain having the government pay for it out of taxes, I think it would have the same effect.

In short, I agree that there is a line out there that we need to be mindful of, because small business is one of the significant drivers of employment in the US, I just don't think we're anywhere near it at present.

[Red Arrow]

In short, I agree that there is a line out there that we need to be mindful of, because small business is one of the significant drivers of employment in the US, I just don't think we're anywhere near it at present.

The situation is a lot like looking at taxes in Oklahoma and comparing to our neighbors.  Individual items are not necessarily the highest but we have them all.  Income tax alone may not be stopping small business but the total of all the expenses may have come close to crossing "the line".  As some posters here on TNF have noted, income tax alone is not the biggest tax the "working poor" have to deal with. 

[nathanm]

I also have a problems with unions enjoying tax-exempt status, yet being able to openly electioneer.  I think they should be faced with the same threat leveled on churches: you lose your tax exempt status if you start campaigning.  Why do we treat one tax-exempt entity different than another when it comes to campaigning?

We mostly do. Aside from churches, there are plenty of other tax exempt organizations that are able to electioneer. Like the Heritage Foundation and the Cato Institute. And the Rotary Club. And Kiwanis, and all the other various social clubs.

On the one hand, I don't like that organizations in general electioneer. On the other, I think it sets a dangerous precedent to say "if you don't pay taxes you don't get a say." Slippery slope and all that. It's not something I'm fundamentally opposed to, however, so long as the individual real persons who make up the organization are free to electioneer.

[nathanm]

The situation is a lot like looking at taxes in Oklahoma and comparing to our neighbors.  Individual items are not necessarily the highest but we have them all.  Income tax alone may not be stopping small business but the total of all the expenses may have come close to crossing "the line".

Even accounting for it as Total Taxes/GDP, we're still very low in world rankings. Total government receipts as a percentage of GDP is and has been around 30% since the 70s.

[Conan71]

We mostly do. Aside from churches, there are plenty of other tax exempt organizations that are able to electioneer. Like the Heritage Foundation and the Cato Institute. And the Rotary Club. And Kiwanis, and all the other various social clubs.

On the one hand, I don't like that organizations in general electioneer. On the other, I think it sets a dangerous precedent to say "if you don't pay taxes you don't get a say." Slippery slope and all that. It's not something I'm fundamentally opposed to, however, so long as the individual real persons who make up the organization are free to electioneer.

Then why are churches, synagogues, mosques, and other religious entities specifically singled out?  Seems like a selective impingement on First Amendment rights to me.

[Red Arrow]

Even accounting for it as Total Taxes/GDP, we're still very low in world rankings.

Remember to account for cultural differences.

[Conan71]

Remember to account for cultural differences.

But that would require looking at taxes and job creation with an objective eye