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First, what's your alternative to raising taxes? Keep tax revenues low so the government can keep hammering the populace with inflation from deficit spending? Paying for the Iraq war with a bake sale?

Second, I don't understand how people think supply side economics is better than demand side economics.

Supply side economics 101:
1. Cut taxes on the rich.
2. They invest in businesses.
3. Businesses use the added money at their disposal to expand and improve products, which benefits consumers, adds jobs, and benefits the economy.
4. Total tax revenue, in theory, goes up.

Demand side economics 101:
1. Cut taxes on the poor and middle class.
2. They buy more things from businesses.
3. Businesses use the added money at their disposal to expand and improve products, which benefits consumers, adds jobs, and benefits the economy.
4. Total tax revenue, in theory, goes up.

The only difference between the two is that the "supply side" tax cuts make it easier for wealthy people to stay wealthy and harder for everyone else to get wealthy. i.e. It weakens the middle class even further.
There is a significant difference.

In terms of how a business acquires funds to expand and improve products, they have two choices. Either from retained earnings at the end of the year (leftover cash after expenses and dividends paid to shareholders), or from additional investment.

Demand side economics tries to boost company revenues, which boosts retained earnings.

Supply side boosts additional investment.

When you give money to middle and lower class people, they are more likely to spend it. If a company has a 10% profit margin, then that means 10% of every dollar the government gives back to a poor person will go towards retained earnings and consequent investment in business.

When you give money to rich people, they are most likely to save it and invest it. Therefore, 100% of a dollar given to a rich person will go towards investment in business.

(NOTE: When I say rich people, I don't mean trust-fund leeches... I mean people earning more than $120,000 per year)

Therefore, which strategy is most likely to boost the economy?

I'm several years into my Ph.D in finance, and from what I've seen both in academic and private sector economics, demand-side government giveaways to stimulate economic growth are considered jokes. Giving money to the middle and lower class to boost the economy is like treating a broken leg with first-aid cream and a band-aid. If you just want to make people feel better about things (which is important), then fine, but nobody pretends that it actually does anything.

As for government tax revenues, I'd prefer we continue to cut spending to balance the budget. My personal preference is to eliminate income taxes, and establish a variable national sales tax that adjust every year to cover government spending.
 
People will retrench like they did during the Carter years and simply not sell stocks unless they absolutely have to. Capital gains tax revenues will PLUMMET to almost nothing because there will be far fewer transactions. The government will take in FAR LESS revenue from capital gains than it would have if it had left the rates low, and people will ask Obama why his tax hike plan failed. Of course he will have no honest answer, because liberals never admit their leadership failures. Instead he'll probably blame the "greedy rich".

Mark my words and plan accordingly.
Obama doesn't seem like the type to continue with a policy which is clearly not working. Even in recent interviews he's said that decisions about taxes etc. would be based on the facts when he was in office, NOT on ideology. Even Mark Haines (of CNBC) was showing respect for his sense of balance and contemplation. In fact, I'm willing to bet the he would just let the rate revert to 20% and keep it there.
 
Both "rich" and "poor" people get the same opportunities, but poorer people do get more tax breaks. Capital gains tax for lower income people is currently at 5%, as opposed to 15% for higher income filers.

The current capital gains tax rate has only been temporarily lowered to help stimulate the economy and is set to expire in 2010 anyway.
You've conveniently left out the fact that middle class and working class people will have far less invested in the market, far too little to live off of. Also, much of their assets are in retirement accounts which they can't touch anyway, without steep penalties. So what if the middle class can pay 5% tax on their $10,000 stock sale? That's a nice benefit but it pales in comparison to the tax break Bush has given the wealthy (20 - 15%).
 
There is a significant difference.

In terms of how a business acquires funds to expand and improve products, they have two choices. Either from retained earnings at the end of the year (leftover cash after expenses and dividends paid to shareholders), or from additional investment.

Demand side economics tries to boost company revenues, which boosts retained earnings.

Supply side boosts additional investment.

When you give money to middle and lower class people, they are more likely to spend it. If a company has a 10% profit margin, then that means 10% of every dollar the government gives back to a poor person will go towards retained earnings and consequent investment in business.

When you give money to rich people, they are most likely to save it and invest it. Therefore, 100% of a dollar given to a rich person will go towards investment in business.
You're kidding, right?

The tax break to the non-wealthy is X dollars, and they spend almost all of it. Total business revenue grows very close to X dollars. The business profit grows 10% of X, but the other 90% of X was spent on more employees, more materials, more research, and more services that are required to run the business. That 90%, in other words, goes to other businesses. And in turn, they might each make a 10% profit on it (9% of the original X) and spend 90% of it (81% of the original X) on more employees, more materials, more research, and more services that are required to run the business. That 81%, in other words, goes to other businesses. And in turn, they might each make a 10% profit on it (8.1% of the original X), and spend 90% of it (72.9% of the original X) on more employees, more materials, more research, and more services. That 72.9%, in other words, goes to other businesses. Etc... etc... The money keeps cycling through the economy, so that $5 returned to someone might be spent in six different places.

Think of a hamburger stand. The customers get more disposable income, so they buy more hamburgers. The owner hires another worker, and buys more beef. The burger flipper goes out and buys a stereo. The beef supplier hires another worker, and buys more cows. The slaughterhouse worker goes out and buys a new furnace for his house. The cattle rancher hires another worker, and buys more feed. The cowboy goes out and buys some books. The feed manufacturer hires another worker, and buys more fuel. The new farm hand goes out and buys clothing for his daughter.

Trickle up works at least as well as trickle down. This is not complicated economics.

Conversely, the person that's wealthy spends their 100% tax rebate to investments. The company makes more products, but their target demographic doesn't have any additional disposable income, so improved offerings boost sales less than the value of the new investment.
 
Capital formation doesn't happen from the "Money Fairy" dropping by and leaving $.....(Excluding inheritance...but even that was taxed originally!)

It came about spending less than one was making and creating wealth/savings to invest....Unlike in TV, this is usually a very long process over decades....The argument is that the income was already taxed once and that to promote savings, it should receive a lower rate than the income tax rate....

Currently, a family of four can make roughly 40k and not pay any Federal income tax after accounting for deductions/credits....so the "poor" aren't paying any Fed income tax...They are paying payroll taxes such as Medicare and SocSec, but these programs' benefits for the 40k wage earner are greater than that which was paid in if you survive to collect them!

I would prefer a consumption-based tax....but that is a different argument for different time.

Obama's current tax plans look pretty ugly for a small business owner....

Top marginal rate back to 39.6%...Uncap SocSec (another 12.4% income tax for small business owners as they pay both sides of SocSec)....add them together and you get a 52% top marginal income tax rate...

He also wants to eliminate the tax deduction for businesses on offering healthcare....In place of it, he would offer tax credits for the working poor to buy it themselves...He would allow a tax deduction for taxpayers to buy their own policy, but his plan has a phase-out based on income....The impact is that the business owner will have to pay for his own policy without the benefit of his current tax deduction...(A huge cost on the "wealthy" small business owner)

Just no digging is economic policy at all....Nothing like increasing the taxes on small business owners (as they create roughly 70% of the new jobs...)...Small business owners use retained earnings to fund growth....More for Uncle Sam, less to provide for growth.
 
There are two errors in your assertion:
1. Poor people have less money to invest. That's why they're called poor. So a 5% long term capital gains tax is useless to someone earning $40,000 a year trying to support a family.
2. Wealthy people have capital gains as their only tax. They don't work at all, they live off of investment income (stocks, bonds, money market accounts, currency holding, whatever). So I earn $70,000 a year in salary and pay a total 20% in Federal taxes, and someone earning $70,000 a year in investments pays maybe 10% or 15% in Federal taxes.

The capital gains tax for the wealthiest Americans should exceed the income tax for the middle class. Anything else gives them an unfair tax advantage over us.
First of all, I doubt that there are very many wealthy people that just sit around and live off their interest and don't work. Most continue to work to make more and more money for their family and companies - ever heard of Donald Trump, Bill gates, Steve Jobs, etc.? So, they pay traditional income tax in addition to their capital gains.

Secondly, if you reinvest your capital gains (into another property or stock), in most cases, you pay no taxes. Which is what most people do.

Third, and probably most important, investing in stocks and other capital is investing directly in the economy - person to person and company to company. Would you rather rich people reinvest in the economy directly by suporting other companys and stimulating the economy more? Or would you rather they give their money to the government so they can squander it on wasteful social programs other useless bloated government ideas?

There's usually a legitimate reason certain items are targeted for tax breaks. Politician don't just arbitrarily pick "rich" people and decide they need to pay less taxes. That would be absurd. There are usually economists involved that recommend options for stimulating the economy and congress votes on those recommendations. To suggest that Republics hate the poor and are only looking out for their rich buddies is pure nonsense.

How about this alternative - instead of voting for the democrats so that they raise the taxes against so called "rich" people, why not vote for the Republicans and have them lower taxes for everybody? You'd basically be acomplishing the same result, and then you'd have more money in your pocket, instead of the "rich" having less? Reward yourself instead of punishing others.

Does that make more sense?
 
First, what's your alternative to raising taxes? Keep tax revenues low so the government can keep hammering the populace with inflation from deficit spending? Paying for the Iraq war with a bake sale?

Second, I don't understand how people think supply side economics is better than demand side economics.

Supply side economics 101:
1. Cut taxes on the rich.
2. They invest in businesses.
3. Businesses use the added money at their disposal to expand and improve products, which benefits consumers, adds jobs, and benefits the economy.
4. Total tax revenue, in theory, goes up.

Demand side economics 101:
1. Cut taxes on the poor and middle class.
2. They buy more things from businesses.
3. Businesses use the added money at their disposal to expand and improve products, which benefits consumers, adds jobs, and benefits the economy.
4. Total tax revenue, in theory, goes up.

The only difference between the two is that the "supply side" tax cuts make it easier for wealthy people to stay wealthy and harder for everyone else to get wealthy. i.e. It weakens the middle class even further.
But you just said that poor people have less money? You really think they have enough to support a high paced economy? I don't think so.
 
As for government tax revenues, I'd prefer we continue to cut spending to balance the budget. My personal preference is to eliminate income taxes, and establish a variable national sales tax that adjust every year to cover government spending.
Exactly, I want to cut government spending to settle the budget. Don't raise taxes. Our government is too bloated and wasteful as it is. Even Hillary could see that. She wasn't going to propose any more government spending without having a responsible source of income. To arbitrarily raise taxes without having a need is irresponsible and near-sided.
 
First of all, I doubt that there are very many wealthy people that just sit around and live off their interest and don't work. Most continue to work to make more and more money for their family and companies - ever heard of Donald Trump, Bill gates, Steve Jobs, etc.? So, they pay traditional income tax in addition to their capital gains

Secondly, if you reinvest your capital gains (into another property or stock), in most cases, you pay no taxes. Which is what most people do.

Third, and probably most important, investing in stocks and other capital is investing directly in the economy - person to person and company to company. Would you rather rich people reinvest in the economy directly by suporting other companys and stimulating the economy more? Or would you rather they give their money to the government so they can squander it on wasteful social programs other useless bloated government ideas?
So again, you are happy that people earning more money than you earn a lower, and in some cases dramatically lower, level of taxes than you pay?

Sorry, I don't like it. They benefit from public funded and regulated roads, just like I do. They work with and for people who were educated at publicly funded schools, just like I do. They earn money by selling products and services to people educated at publicly funded schools, just like I do. They use drugs and foods regulated by the publicly funded FDA, just like I do. They benefit from police protection, and fire departments, and legal rights, just like I do. I think it is completely reasonable for them to pay more taxes than people who have less capital.


There's usually a legitimate reason certain items are targeted for tax breaks. Politician don't just arbitrarily pick "rich" people and decide they need to pay less taxes. That would be absurd. There are usually economists involved that recommend options for stimulating the economy and congress votes on those recommendations. To suggest that Republics hate the poor and are only looking out for their rich buddies is pure nonsense.
Sorry, I consider a tax structure that lets the wealthy accumulate additional wealth faster than poor people get any wealth a product of hatred.

How about this alternative - instead of voting for the democrats so that they raise the taxes against so called "rich" people, why not vote for the Republicans and have them lower taxes for everybody? You'd basically be acomplishing the same result, and then you'd have more money in your pocket, instead of the "rich" having less? Reward yourself instead of punishing others.

Does that make more sense?
The REPUBLICANS blasted the budget deficit through the roof in a time of WAR. Any true conservative that doesn't hate the party with an unholy passion clearly hasn't been paying attention. Democrats have no choice but to raise taxes. Somebody has to fix the problems the Republicans created.

The idea of cutting taxes in bad economic times to stimulate the economy is based on the ideas of John Maynard Keynes. It's called Keynesian economics.

The funny thing is, Keynesian economic theory says you raise taxes in times of boom to pay back the debt you accrued in times of recession. Where did you see that in Bush and Cheney's speeches 3 years ago?

I want more money back in my pocket when the Iraq war is paid off, our veterans are treated well, and the country isn't hemorrhaging jobs like crazy.
 
You're kidding, right?

The tax break to the non-wealthy is X dollars, and they spend almost all of it. Total business revenue grows very close to X dollars. The business profit grows 10% of X, but the other 90% of X was spent on more employees, more materials, more research, and more services that are required to run the business. That 90%, in other words, goes to other businesses. And in turn, they might each make a 10% profit on it (9% of the original X) and spend 90% of it (81% of the original X) on more employees, more materials, more research, and more services that are required to run the business. That 81%, in other words, goes to other businesses. And in turn, they might each make a 10% profit on it (8.1% of the original X), and spend 90% of it (72.9% of the original X) on more employees, more materials, more research, and more services. That 72.9%, in other words, goes to other businesses. Etc... etc... The money keeps cycling through the economy, so that $5 returned to someone might be spent in six different places.

Think of a hamburger stand. The customers get more disposable income, so they buy more hamburgers. The owner hires another worker, and buys more beef. The burger flipper goes out and buys a stereo. The beef supplier hires another worker, and buys more cows. The slaughterhouse worker goes out and buys a new furnace for his house. The cattle rancher hires another worker, and buys more feed. The cowboy goes out and buys some books. The feed manufacturer hires another worker, and buys more fuel. The new farm hand goes out and buys clothing for his daughter.

Trickle up works at least as well as trickle down. This is not complicated economics.

Conversely, the person that's wealthy spends their 100% tax rebate to investments. The company makes more products, but their target demographic doesn't have any additional disposable income, so improved offerings boost sales less than the value of the new investment.
Right, but we're talking about an economic stimulus here. The economy has slowed to a halt, and we need to kick-start it.

Trickle-up economics does work how you described it, but the effect is so slow and so spread out over the economy that it doesn't serve to give the economy any meaningful push, unless there is a larger effort on the supply side.

Think about parasitic losses from an engine. A very inefficient drivetrain may produce 300hp, and that energy is going somewhere, but it's spread throughout the powertrain, and not getting to the pavement.

Whereas, a supply-side stimulus immediately provides a giant pool of capital for businesses to start building new plants, hiring new workers, and such. Supply-side economics also refers to loosening government pressure on businesses, to create a favorable business environment. This infusion of capital plus the favorable work environment gives business an impetus to expand.

You DO need some stimulation to the demand side, but if you raise taxes on the wealthy, business income, and create a stifiling business environment, all that money the unwashed masses are spending isn't going to do anything.

In an overall economic policy, you need to encourage both the supply and demand side. US supply-side economics was borne out of the 1970's, when the gov't was giving poor people plenty of money, but created a horrifying business environment, and taxed investors to the point where no one was investing. Reagan needed to take drastic supply-side measures to break us out of the economic funk we were in.
 
Right, but we're talking about an economic stimulus here. The economy has slowed to a halt, and we need to kick-start it.

Trickle-up economics does work how you described it, but the effect is so slow and so spread out over the economy that it doesn't serve to give the economy any meaningful push, unless there is a larger effort on the supply side.

Think about parasitic losses from an engine. A very inefficient drivetrain may produce 300hp, and that energy is going somewhere, but it's spread throughout the powertrain, and not getting to the pavement.

Whereas, a supply-side stimulus immediately provides a giant pool of capital for businesses to start building new plants, hiring new workers, and such. Supply-side economics also refers to loosening government pressure on businesses, to create a favorable business environment. This infusion of capital plus the favorable work environment gives business an impetus to expand.

You DO need some stimulation to the demand side, but if you raise taxes on the wealthy, business income, and create a stifiling business environment, all that money the unwashed masses are spending isn't going to do anything.

In an overall economic policy, you need to encourage both the supply and demand side. US supply-side economics was borne out of the 1970's, when the gov't was giving poor people plenty of money, but created a horrifying business environment, and taxed investors to the point where no one was investing. Reagan needed to take drastic supply-side measures to break us out of the economic funk we were in.
The one problem with your theory is don't have huge tax cuts and then fight a two front war you can't pay for because it will cause havoc in the economy iin the long run.
 
The one problem with your theory is don't have huge tax cuts and then fight a two front war you can't pay for because it will cause havoc in the economy iin the long run.
I'm a banker, not a soldier.

Spending should be reduced to management levels, through appropriate means.
 
Right, but we're talking about an economic stimulus here. The economy has slowed to a halt, and we need to kick-start it.
I apologize for the confusion. I was talking about long term tax policy. Short term economic stimulus, then sure, give businesses a shot in the arm.

Trickle-up economics does work how you described it, but the effect is so slow and so spread out over the economy that it doesn't serve to give the economy any meaningful push, unless there is a larger effort on the supply side.

Think about parasitic losses from an engine. A very inefficient drivetrain may produce 300hp, and that energy is going somewhere, but it's spread throughout the powertrain, and not getting to the pavement.

Whereas, a supply-side stimulus immediately provides a giant pool of capital for businesses to start building new plants, hiring new workers, and such. Supply-side economics also refers to loosening government pressure on businesses, to create a favorable business environment. This infusion of capital plus the favorable work environment gives business an impetus to expand.

You DO need some stimulation to the demand side, but if you raise taxes on the wealthy, business income, and create a stifiling business environment, all that money the unwashed masses are spending isn't going to do anything.
I'm not saying the wealthy people should be taxed some ridiculous amount. I am just personally not happy that capital gains tax on long term investment is substantially lower than income tax. Raise the capital gains tax and lower the income tax, and total tax revenue should be equal (especially considering the "trickle up" effect we discussed) without the current setup that favors the wealthy.

In an overall economic policy, you need to encourage both the supply and demand side. US supply-side economics was borne out of the 1970's, when the gov't was giving poor people plenty of money, but created a horrifying business environment, and taxed investors to the point where no one was investing. Reagan needed to take drastic supply-side measures to break us out of the economic funk we were in.
True, but from what I understand even after Reagan's tax cuts the capital gains taxes were higher than they are now.

And 1990s capital gains taxes were likewise notably higher than they are today, and tax revenues were excellent.
 
I would take all my money out of your bank in 2.5 seconds. You are clueless.........
Wow... did I really just type "management levels"?

You can tell I've been composing reports all day ;)

Well, the only bank you'd have access to remotely connected to me would be your local Chase branch, so flee to whichever local S&L you'd feel more comfortable with.
 
One problem with this discussion is that Americans tend to over-estimate their own wealth position. There's a lot of people who imagine themselves to be "rich" when they are statistically only upper middle-income.
 
SweC32 said:
Currently, a family of four can make roughly 40k and not pay any Federal income tax after accounting for deductions/credits....so the "poor" aren't paying any Fed income tax...They are paying payroll taxes such as Medicare and SocSec, but these programs' benefits for the 40k wage earner are greater than that which was paid in if you survive to collect them!
There are places in this country where supporting a family of four on a household income of $40,000 and saving a significant fraction of your income is not too difficult.

But for most of the country, it's a nightmare. I'm not offended if people in those brackets pay 0 income tax. In a city, a family like that doesn't need cars but their housing costs will be ridiculous. Outside a city, their housing costs might be low but everything else costs more than they need vehicles.

And of course, Social Security and Medicare are a separate discussion.

SweC32 said:
I would prefer a consumption-based tax....but that is a different argument for different time.
The problem with a consumption tax is that it's regressive. It shifts most of the tax burden off of the rich onto the middle class, even if you include a generous rebate to make food and necessities tax free.

Say the tax rate is 20% (it would probably be much higher) with a $6,000 annual rebate to every household to negate the taxes on essentials.

One family has a $40,000 household income. They need to spend all of their money to make ends meet, so after the rebate they pay $2,000 in taxes per year. 5% effective tax rate.

One family has a $60,000 household income. They need to spend all of their money to make ends meet, so after the rebate they pay $6,000 in taxes per year. 10% effective tax rate.

One family has $150,000 household income. They spend $90,000 per year and save the rest. After the rebate they pay $12,000 in taxes. 8% effective tax rate.

One family has $500,000 household income. They live like kings and spend all of the money. After the rebate they pay $94,000 in taxes per year. 18.8% effective tax rate.

One family has $500,000 household income. They live on $60,000 per year and save $440,000 per year. After the rebate they pay $6,000 in taxes per year. 1.2% effective tax rate.

Some CEO has $45,000,000 household income. He lives on $300,000 per year (for example) and saves the rest. After the rebate he pays $54,000 in taxes per year. 0.12% effective tax rate.

The system rewards families that spend less than they earn, and that's great.
But it lets wealthy families that save half their income or more pay the least tax, as a percentage of income, out of anyone making more than roughly $40,000 per year. That is not fair.

It's also a problem for wealthy travelers. Say I own stock in the US and live in Japan. As long as I spend my money in Japan, I pay no US taxes at all.

One problem with this discussion is that Americans tend to over-estimate their own wealth position. There's a lot of people who imagine themselves to be "rich" when they are statistically only upper middle-income.
Hopefully I've been clear. I'm advocating a reduction in income tax across the board, and an increase in capital gains taxes for people in the higher brackets - that is, people earning $100,000 or more in investment income per year.
 
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