So, I saw the VP debate last night… I unfortunately missed the presidential debate last week due to forgetfulness. I’ve got a few random comments on things that I found interesting, which you’re free to comment on or ignore.
- The candidates spoke mostly about what their running-mates would do, and not a whole lot about themselves. I didn’t feel like I got enough information about these candidates to decide between them specifically, although I suppose that that’s not how I’d be making a decision.
- The media tries to make things controversial.
- The moderator tried a question to the effect of “Do you think that your opponent is personally responsible for the increased cost of health care?”, as well as other questions trying to get them to butt heads with and insult each other specifically. Luckily, the candidates didn’t really go for it and mostly stuck to the issues.
- The media has polls and encourages questions like “Who do you think won the debate?”, as opposed to what I think would be the point, “Do you think that the candidates did a good job describing their views and where they differ?”.
- Cheney made a good point that I don’t think most Americans understand. He stated why tax cuts for the rich were a good idea. People tend to want “tax cuts for the middle class”, which affect them and make their paychecks bigger immediately. However, I think the better long-term plan is what he proposed, giving tax breaks to richer people. If the owner of the company where I work (who would qualify under “rich” for most definitions, I think (although of course, I don’t know for certain as I am not his accountant)) gets a tax break, then he has more money to grow his company. This means that he can hire more people and give me more raises. It really seems like a better long-term plan to me. And even with the cut, the rich people would still continue to carry the largest portion of the tax burden.
For the sake of argument…
Reducing taxes for the middle class means that business owners can pay their employees less. It cheapens the cost of workers. If needed, the money can be pocketed and spent on other expenses, but cheapening the cost of hiring workers makes hiring workers a more pleasing option.
Giving the rich business owner a *general* tax break does give the business more money to grow, but not necessarily more than cutting the cost of employing workers. A worker-specific tax break provides a specific (though perhaps lopsided) improvement for employment.
None of this takes into account that tax-cuts for the rich don’t affect businesses, as I understand it. They affect the personal budgets of the wealthy.
I think the only real argument you can make is that the personal budgets of the wealthy would allow them to invest more, resulting in more money for the companies they invest in.
However, wouldn’t the middle-class worker be more likely to save (read: invest) if given that money? Wouldn’t a tax cut for either result in more investment?
So, under this simplified view of mine, isn’t this all just about the moral point of not taxing one person more than the other, rather than a case for an improved economy?
Adam’s got a point. If you want to target a tax cut at businesses, reduce payroll taxes and corporate taxes. Income taxes don’t affect nearly as many businesses as they do people.
Personally, I argue that a tax cut should never be done unless the budget is truly balanced (not the fictional balance that the government lied to us about) first. At the rate things are going, our generation is going to be bankrupted by the strain Social Security and Medicare are going to put on us when we’re in our 40s and 50s. And this Republican spends more money than any of his democratic predecessors I can think of (except Truman and Roosevelt II). Why isn’t he making people pay for it?
Reducing taxes for the middle class means that business owners can pay their employees less.
Perhaps, but I don’t know if people would see “Oh, since taxes are less, an employer can offer me less and I’ll be just as happy.” It’s possible, it just seems less likely.
None of this takes into account that tax-cuts for the rich don’t affect businesses, as I understand it. They affect the personal budgets of the wealthy.
That’s certainly true for large businesses, but for small businesses that are run as sole proprietorships or limited partnerships (such as the one we are employed by), the income from the company goes on the owners’ personal income taxes.
isn’t this all just about the moral point of not taxing one person more than the other
Maybe. I really liked Forbes when he was running for the Republican nomination in 2000. He proposed a flat tax or some percentage of income, and that was it. That would have the effect of a huge tax break for the rich, which I think would be good.
Giving people incentives to not become rich (by taxing them at a higher percentage) seems very non-capitalistic. I have less incentive to try to succeed, since if I do the government will just take it all anyway. (Or at least, one could have that opinion.)
If a person’s Cost of Living could be calculated as a percentage of their income, the flat tax would be fantastic. Unfortunately, it doesn’t work like that. People have fixed costs per family member, the number of children you have affects your cost of living, the area you live in affects it.
And taxing people beyond what they can afford to pay isn’t a good idea under any circumstances. It’s just plain common sense from my vantage point.
Perhaps, but I don’t know if people would see “Oh, since taxes are less, an employer can offer me less and I’ll be just as happy.” It’s possible, it just seems less likely.
The workforce sees that their employers have more money to spend on them, so their demand for income increases, yes. Employers, having more money, will want more workers. They’ll meet somewhere in the middle — closer, I would suggest, to the benefit of employers given the high present unemployment rate.
That’s certainly true for large businesses, but for small businesses that are run as sole proprietorships or limited partnerships (such as the one we are employed by), the income from the company goes on the owners’ personal income taxes.
Pwned.
Giving people incentives to not become rich (by taxing them at a higher percentage) seems very non-capitalistic. I have less incentive to try to succeed, since if I do the government will just take it all anyway. (Or at least, one could have that opinion.)
That’s a reasonable point of view. Try a system dynamics perspective. In most things in the world, increasing *foo* gives a diminishing rate of returns. One could have the opinion that the same should be true of income.
As is frequently the case, I’m quite ambivalent.
Are you suggesting a flat tax on disposable income? Hmmm…
To my knowledge, few small business owners qualify as wealthy. Upper middle class maybe.
Undo Pwned.
Business expenses are deducted for tax purposes. By reducing the personal tax rate, you’re actually encouraging small business owners to keep more of the profits rather than reinvesting them into the company. Am I wrong?
(Not that there’s anything wrong with pocketing profits.)
Most business owners will prefer to pour money back into their company rather than to hold on to it. Skimming money from the company is not conducive to long-term company health. Ask Micah or Arthur about it for more details.
It would be nice in theory, but the laws and analysis that would be needed to calculate an individuals disposable income would make our current tax code look like Charlotte’s Web.
The graduated tax is probably the best way to achieve the problem of disposable income not being a % of actual income, but I’d prefer to see “brackets” done away with in favor of a logistical function.
Yes… but my argument was meant to counter the assertion that tax breaks for rich Americans help small businesses. Since business expenses are tax deductible, that’s not accurate. You can at least agree with me on that, no?
Hmmm, I guess you could argue that a small business owner might have a magnified desire to grow his business in the knowledge that he can proportionally increase his portion without losing an increasing percentage to taxes. It’s tenuous though…
It’s not tenuous, its the point of growing businesses. That’s how CEOs get wealthy, by spending money on growing their business as much as possible. Every dollar the owner takes out of the company pocket and puts in his own is another that isn’t being spent on increasing productivity. If the business weren’t beating inflation in terms of dollars spent vs dollars returned, the company wouldn’t be in business in the first place (at least, not for long). So it only makes sense that business owners’ businesses would see direct benefit from their owners getting a tax break.
I think the answer to these sorts of conflicts is to stop taxing businesses with income taxes. A stronger separation between the taxes people pay on their income and the taxes the businesses pay on their earnings need to exist for this whole discussion to make any sense to anyone.
For example, if Checkerboard paid a corporate tax on its earnings, then Micah, as an employee of himself, paid an income tax on what he pockets, not only does that encourage Micah not to take as much out of CB, but it also prevents the “valuable businesses vs. wealthy people” confusion. And it would keep the people making the argument Pete makes more honest.
What’s tenuous is that decreasing the tax rate on personal income for the wealthy in any way improves businesses.
Sk = skim rate (pocketed percentage of earnings)
AE = annual earnings, which can roughly be modeled as an exponential over time which is parameterized(?) by the skim rate.
TR = tax rate as a function of personal income, which is a function of Sk*AE
At time E(T), Micah will have made money from his business:
E(T) = Integral (Sk * (1-TR(AE*Sk)) * AE(Sk,t)) t = 0..T
(Makes sense, right? AE*Sk is your income, multiplied by (1-TR) gives your income after taxes. Summed over time.)
If we assume a flat tax rate, then TR becomes a constant, which we can move out of the integral.
E(T) = (1-TR) * Integral(foo)
If Micah wants optimal earnings from his company, then his skim rate will not change regardless of the tax rate.
I’m not trying to argue that a lower tax rate doesn’t make owning a small business more appealing. But the affect on employment and the benefit to existing business is, indeed, tenuous, aside from making them slightly more bulletproof.