All Forums > General Discussion > Non-Sports > Who should give in?
12/6/2012 11:31 AM
Right now tax revenue is at something like 15% of GDP. Historical evidence clearly shows that another 4 or 5% can be collected.
12/6/2012 11:31 AM
Not that we should be trying to collect more. Let the economy finish recovering before you raise taxes or cut spending.
12/6/2012 12:58 PM
Posted by silentpadna on 12/6/2012 10:22:00 AM (view original):

Many flawed assumptions going on...
 

I agree with Obama that the rich could and should pay more taxes however just raising the rate will not accomplish much if we don't close the loopholes first for getting out of paying the taxes.

First, there is no guarantee that raising rates will increase revenues in the first place.  In fact, as I've pointed out, and is shown in the numbers (go the IRS and run the numbers yourself - it's easy to find and analyze), lower rates across the board tend to correspond with increasing revenues.  It is also shown that the "rich" pay a bigger portion of the share of the larger revenues when the rates are lower.  In the current economic/tax climate, which would you rather have?  More revenue and a bigger share paid by the rich?  Or less revenue with a smaller share paid by the rich?  Historical evidence suggests you can't have both.

It is not simple arithmetic that makes this happen.  Why?  Policy is followed by reaction.  In the same way higher taxes on cigarettes is a partial attempt to affect behavior, higher taxes on marginal income will do the same:  affect behavior.  Every percentage point a tax is raised on the next marginal dollar affects the incentive for one to earn (or spend time or risk money for) the next marginal dollar.  Why?  Because to earn the next marginal dollar requires more work, and if you're a business owner, it affects return on the risk of your own money.   In the extreme case, early in the last century, the highest marginal rate was 91%.  There is a huge discourgagement to risk the same thing for 60 cents return on a dollar earned versus 9 cents on a dollar earned.  Each person risking capital has their own threshold but the marginal rates absolutely affect whether the money is earned in the first place.
 

the wealthy who are the only ones who would see a tax increase under Obama's plan.

Not exactly true.  Since many of those who would get hit the hardest in rate increases are small businesses whose profits are taxed as income, it comes right off of their bottom line.  Since most who own businesses do so because they want to outperfrom the market (a competing destination for risked capital), there is generally a required rate of return on their risk.  If taxes go up on them, the only choice they have if they want to make a reasonable reward for their risk is to either 1 - Raise prices on their goods and services (essentially meaning the rate hikes don't hit them - it hits their customers.  Unless their customers are all rich, then the tax rate is paid primarily by those are NOT weatlhy) or 2 - Cut costs, which generally means to scale back growth or reduce workforce or benefits to the people they hire.  That of course hurts the very people those that want to raise tax rates are supposedly trying to help.


I'll keep saying this because the historical evidence bears this out: 

1.  Raising tax rates on the weatlhy does not guarantee raising revenue.  In fact, historically the converse is true.
2.  Raising tax rates on the wealthy does not shift the tax burden to the rich.  In fact, historically the converse is true.
3.  Raising tax rates on the wealthy does make some people feel better.  Those people will likely pay a larger portion of the burden than they think because it really is not intuitive and not simple arithmetic.

It is NOT a  zero-sum game.  If you want more revenue, don't raise tax RATES.  Increase the tax BASE.  Allow more freedom.  Freedom, not demand (especially artificial demand) is the engine.
 

I agree with a lot of what you are saying silentpadna.
Businesses that fall into the increased tax level that Obama wants will more than likely pass the extra cost of higher taxes onto their customers, if they can afford to do so. It might mean that their competition will be able to price the same product for less than they do which would result in lost revenue for them, however wouldn't that at the same time force businesses to become more efficient? Maybe there isn't anymore room to improve efficiency thus resulting in them going out of business? The economy doesn't need more of that either right now.

My point is if the Dems want to try that approach and it fails, like I think it will, then the Repubs should give it to them with both barrels and say, here ya go, it's what you want, and we are going to make sure all of the American voters know this is the Dems way. Hold them responsible, if it doesn't work, the next time we have an election the Repubs will gain seats like never before.
12/6/2012 1:05 PM
I would think that most if not all businesses would have gone through the "improve efficiency" exercise over the past four years.  I know my company has.  There's not much more efficiency to squeeze out of most businesses.
12/6/2012 1:46 PM
It might mean that their competition will be able to price the same product for less than they do which would result in lost revenue for them, however wouldn't that at the same time force businesses to become more efficient?

In short, yes. This is exactly what I'm talking about when I say business should stand on its own. Become more efficient if you can't cut it with higher taxes - don't simply pass the baton on to your customers, who at some point won't tolerate it and will no longer be customers.
Maybe there isn't anymore room to improve efficiency thus resulting in them going out of business? The economy doesn't need more of that either right now.

If you are operating your business at maximum efficiency and you are barely scraping by and when something comes along (like a tax increase) it puts your business under, then that is what should happen. If your business can't be more efficient than to barely get by in the first place, then perhaps other ventures are better for you.

I hate to sound cold on that (and I realize it probably sounds that way), but too many times business owners complain that they have to raise prices or put burdens onto customers without realizing they are cutting off their nose to spite their face. Instead of raising prices, find ways to be more efficient if you want to earn more (or sustain profits despite higher costs). If you've maxed out your efficiency, don't pat yourself on the back if that means you can't handle a setback like a tax increase - either be innovative and find a way or get out of the business and let others who can move forward.
12/6/2012 2:00 PM
Posted by tecwrg on 12/6/2012 1:05:00 PM (view original):
I would think that most if not all businesses would have gone through the "improve efficiency" exercise over the past four years.  I know my company has.  There's not much more efficiency to squeeze out of most businesses.
"improve efficiency" is just another way of saying "cut costs".    And, yes, most businesses have done exactly that over the last 6 years or so. 
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12/6/2012 2:16 PM
Fair share is a moving target.   Tell me how much mine is and I'll decide whether to stay in business or collect my entitlements until 2016.  Thanks in advance.
12/6/2012 2:37 PM
Posted by MikeT23 on 12/6/2012 2:16:00 PM (view original):
Fair share is a moving target.   Tell me how much mine is and I'll decide whether to stay in business or collect my entitlements until 2016.  Thanks in advance.
I think the proposal was increase rates on income in the top bracket from 35% to 39%...or something similar.
12/6/2012 2:38 PM
I think the "top bracket" is the moving target not the increase percentage. 
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12/6/2012 2:43 PM
I think they're holding hostages because the 4% increase on the "top bracket" does nothing to lower the deficit.    Everyone, both sides, says it will barely make a dent so spending cuts are needed.   Increasing taxes on the "top bracket" is simply vote pandering.    If you're going to pass legislation, pass meaningful legislation.   I hope they do nothing.
12/6/2012 2:43 PM
Top bracket stays $398,350 regardless.

Adjusted gross income above $398k would be taxed at an additional 4.6% if the cuts are allowed to expire.
12/6/2012 2:47 PM
Good.  Do nothing.  Let everyone pay a "fair share".   Fine by me. 

Nonetheless, I've heard 200k and 250k bantered about.   Is it now 400k?
12/6/2012 2:52 PM
Lower brackets would go up by different amounts. If the cut is just extended for middle and lower class taxpayers, taxes on income between 223K and 247k would go up by 2%. Taxes on income between 247K and 398k would go up by 3%.

If you earn $400k AGI (probably closer to $450k gross), your overall effective tax rate will go up by less than 3%.


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