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Let's talk taxes

Kushinator

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There have been multiple threads on this concept. Some have argued for no taxes, some have argued for heavily taxing high earners, and some have even argued for taxes based on government spending they believe necessary.

The state of the national debt is startling; we are approaching WWII levels of government debt as a % of GDP. The deficit, given the recent recession, has eclipsed 10% of GDP. State and local municipalities have been teetering in the red.

The recent midterm win by the GOP has rendered the possibility of another stimulus to highly unlikely. Even though i firmly believe a greater fiscal stimulus, one that was composed entirely of infrastructure spending, would be the most effective way in dealing with high unemployment, it's indefinitely off the table.

So let's talk tax cuts. Not the tax cuts popularized by Bush 42 (which yielded little if any positive economic results), but tax cuts that have the greatest potential to effect jobs in a positive fashion.

When a small business owner wants to give someone a job, they do so under the premise that a new employee will increase production in some facet of their operations. A small business would only be inclined to "increase production" if they are experiencing production shortages given their current workforce and physical capital alignment. Small business owners do not hire additional employees based on the taxation of their personal income. To believe anything in this regard is similar to believing in Santa Claus, The Tooth Fairy, etc....

The recent recession was caused by a demand shock that persists to this day. This demand shock did not magically appear when Obama was elected, enacted stimulus, or enacted his health care reform. Insufficient demand has a direct relationship on labor markets. Therefore, it would seem obvious that in order to decrease unemployment, we have to increase demand.

Does continuing a lower tax policy increase demand? I don't see how you can assume such a notion. Would lowering income taxes spur demand? Maybe, but only for those who are currently at zero to negative savings rates.

What will spur demand is a sudden 0% tax holiday on corporate income taxes (from January 2011 -January 2012 minimum). Such a fiscal policy severely diminish the need for corporations to "Dutch Sandwich" their overseas profits into Caribbean banking institutions, and bring that money home. These profits would then be used to increase capital, pay dividends to shareholders, or invest in US assets. Such a tax holiday would cost the federal government between $65 and $75 billion in tax revenue.

Comments?
 

Kushinator

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I cannot claim it to be my idea, as it has been tossed around by both aspects of the political spectrum. From what i can gather, it has been a politically unpopular idea (cutting taxes on corporations when the Bush tax cuts are about to expire), and therefore it is swept under the rug by the new majority in congress.

Something tells me that our trading partners would view this in similar fashion to monetary policy (being labeled currency manipulation), something they would consider fiscal manipulation.

To note: A permanent extension to the Bush tax cuts would be a negative for credit ratings.
 

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There have been multiple threads on this concept. Some have argued for no taxes, some have argued for heavily taxing high earners, and some have even argued for taxes based on government spending they believe necessary.

The state of the national debt is startling; we are approaching WWII levels of government debt as a % of GDP. The deficit, given the recent recession, has eclipsed 10% of GDP. State and local municipalities have been teetering in the red.

The recent midterm win by the GOP has rendered the possibility of another stimulus to highly unlikely. Even though i firmly believe a greater fiscal stimulus, one that was composed entirely of infrastructure spending, would be the most effective way in dealing with high unemployment, it's indefinitely off the table.

So let's talk tax cuts. Not the tax cuts popularized by Bush 42 (which yielded little if any positive economic results), but tax cuts that have the greatest potential to effect jobs in a positive fashion.

When a small business owner wants to give someone a job, they do so under the premise that a new employee will increase production in some facet of their operations. A small business would only be inclined to "increase production" if they are experiencing production shortages given their current workforce and physical capital alignment. Small business owners do not hire additional employees based on the taxation of their personal income. To believe anything in this regard is similar to believing in Santa Claus, The Tooth Fairy, etc....

The recent recession was caused by a demand shock that persists to this day. This demand shock did not magically appear when Obama was elected, enacted stimulus, or enacted his health care reform. Insufficient demand has a direct relationship on labor markets. Therefore, it would seem obvious that in order to decrease unemployment, we have to increase demand.

Does continuing a lower tax policy increase demand? I don't see how you can assume such a notion. Would lowering income taxes spur demand? Maybe, but only for those who are currently at zero to negative savings rates.

What will spur demand is a sudden 0% tax holiday on corporate income taxes (from January 2011 -January 2012 minimum). Such a fiscal policy severely diminish the need for corporations to "Dutch Sandwich" their overseas profits into Caribbean banking institutions, and bring that money home. These profits would then be used to increase capital, pay dividends to shareholders, or invest in US assets. Such a tax holiday would cost the federal government between $65 and $75 billion in tax revenue.

Comments?
I agree with all of that up to the point where you suggest a tax holiday for corporations. I am actually totally against the corporate income tax, but I don't know that a year or two of waving that tax will "spur demand". I take it that you are assuming that any savings in taxes by companies will result in that savings being reinvested into the companies (expansion) or being payed to shareholders or invested in other US assets. Maybe, maybe not, the current trend is simply for US companies to hold on to whatever cash they have. You mentioned that small businesses don't expand just because they have money, that they expand because they have more demand than they have production capability - it works the same way with big business. No big corporation is going to expand just because the find out that they have saved $X in taxes, they are only going to expand if their sales increase, and tax cuts for corporations are in no significant way going to increase the sales of corporations - why would it?

Yea, lots end corporate taxes, and end the capital gains discount tax rate, and just simply our tax code and charge the same tax rate on all income regardless of source. It's the fair thing to do, its the simple thing to do, and it will reduce cheating and loopholes. But none of that has anything to do with improving our economy.
 
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Kushinator

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I agree with all of that up to the point where you suggest a tax holiday for corporations. I am actually totally against the corporate income tax, but I don't know that a year or two of waving that tax will "spur demand". I take it that you are assuming that any savings in taxes by companies will result in that savings being reinvested into the companies (expansion) or being payed to shareholders or invested in other US assets. Maybe, maybe not, the current trend is simply for US companies to hold on to whatever cash they have. You mentioned that small businesses don't expand just because they have money, that they expand because they have more demand than they have production capability - it works the same way with big business. No big corporation is going to expand just because the find out that they have saved $X in taxes, they are only going to expand if their sales increase, and tax cuts for corporations are in no significant way going to increase the sales of corporations - why would it?

Yea, lots end corporate taxes, and end the capital gains discount tax rate, and just simply our tax code and charge the same tax rate on all income regardless of source. It's the fair thing to do, its the simple thing to do, and it will reduce cheating and loopholes. But none of that has anything to do with improving our economy.
I am arguing that overseas profits remain overseas due to the current 35% rate. A way to bring them home would be to eliminate the need for "dutch sandwich" or "double irish" tax schemes used by many US based multinational corporations.

The problem is, nobody wants to be seen helping big corporations out. It is a politically unfriendly move on both the left and right. So instead, they will argue about payroll tax cuts/hikes, while missing the forest for the trees.

Some background information.
 
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Taboon

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Personally, I think that reducing corporate tax rates is long overdue. I know a lot of people that do not like this idea because corporations are evil and all but the fact is they control where a lot of jobs are created throughout the world. We need to make it more worth their while to keep jobs domestically instead of outsourcing them. Lowering the corporate tax rate is a much needed proposal. Also, when you consider that income from corporate taxes adds up to less than 20% of total tax revenues in a good year and less than 10% of total tax revenues in a bad year, it may be a good thing to cut costs to a point that makes this initiative possible.
 

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Personally, I think that reducing corporate tax rates is long overdue. I know a lot of people that do not like this idea because corporations are evil and all but the fact is they control where a lot of jobs are created throughout the world. We need to make it more worth their while to keep jobs domestically instead of outsourcing them. Lowering the corporate tax rate is a much needed proposal. Also, when you consider that income from corporate taxes adds up to less than 20% of total tax revenues in a good year and less than 10% of total tax revenues in a bad year, it may be a good thing to cut costs to a point that makes this initiative possible.
in fact, tax incentives should be provided for those companies who grow jobs HERE, period.
 

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I am arguing that overseas profits remain overseas due to the current 35% rate. A way to bring them home would be to eliminate the need for "dutch sandwich" or "double irish" tax schemes used by many US based multinational corporations.

The problem is, nobody wants to be seen helping big corporations out. It is a politically unfriendly move on both the left and right. So instead, they will argue about payroll tax cuts/hikes, while missing the forest for the trees.

Some background information.
Sure, but wouldn't a perminate end to corporate income tax replaced by taxing capital gains (for individuals) being tax at the same exact rate that all other income be a better solution that a year or two year long tax holiday? A big part of the reason that we have a discount rate for capital gains income is due to the fact that we have a corporate income tax. Just seems like the simplest solution is usually the best, and taxing all sources of personal income at the same rate is a lot more simple that taxing profits first at the corporate level and then having to have a discount tax rate on the profits that the owners make.

Just a side note about the corporate income tax, one of the positive things about it is that it does redistribute money from corporations so that they don't grow so infinately big that ultimately a few corporations would own everything. Pretty much the same reason that we have a progressive income tax. But the corporate income tax is not the only mechanism that is available to achieve that goal. A requirement of profitable companies to periodically distribute dividends (most don't do that anymore) would have the same effect. Requiring dividends to be distributed would also incentivise the middle class to become investors.
 

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in fact, tax incentives should be provided for those companies who grow jobs HERE, period.
I don't think that our government should be giving tax incentives to anyone. Thats the same as subsidizing particular activities. Worthwile endevors make money, and money making endevors will always find plenty of investors to make them happen. If a particular activity needs to be taxpayer subsidized to make it feasable, then we probably dont need that activity. All I ask for is that we eleminate tax schemes that tend to lead to double taxation, and tax all sources of income at the same rate.
 

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I don't think that our government should be giving tax incentives to anyone. Thats the same as subsidizing particular activities. Worthwile endevors make money, and money making endevors will always find plenty of investors to make them happen. If a particular activity needs to be taxpayer subsidized to make it feasable, then we probably dont need that activity. All I ask for is that we eleminate tax schemes that tend to lead to double taxation, and tax all sources of income at the same rate.
I tend to agree with you here. We need to start getting rid of some tax incentives, not add more. A lower overall tax should be looked at.
 

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I agree with all of that up to the point where you suggest a tax holiday for corporations. I am actually totally against the corporate income tax, but I don't know that a year or two of waving that tax will "spur demand". I take it that you are assuming that any savings in taxes by companies will result in that savings being reinvested into the companies (expansion) or being payed to shareholders or invested in other US assets. Maybe, maybe not, the current trend is simply for US companies to hold on to whatever cash they have. You mentioned that small businesses don't expand just because they have money, that they expand because they have more demand than they have production capability - it works the same way with big business. No big corporation is going to expand just because the find out that they have saved $X in taxes, they are only going to expand if their sales increase, and tax cuts for corporations are in no significant way going to increase the sales of corporations - why would it?

Yea, lots end corporate taxes, and end the capital gains discount tax rate, and just simply our tax code and charge the same tax rate on all income regardless of source. It's the fair thing to do, its the simple thing to do, and it will reduce cheating and loopholes. But none of that has anything to do with improving our economy.
A lot of big corporate companies have different "branches", like Americas, Middle East, Asia, etc...

So for one, these big companies just don't rely upon domestic demand.

Also, the amount of work to be done in the economy is not an amount set in stone, unchanging.

If we lower the tax rates faced by companies earning a profit in the US, these companies will be more willing to invest in its American workforce. For example, the company I work for does a large amount of work in south america. All of our people still work in the US. All of the profits are still realized in the US.

If you get the big multinationals to invest more in the US, you will see American incomes increase, and it will set the multiplyer process off.

Its not just that they will just save money, but that investing and doing more work in America will become more attractive than doing it in its other branches such as Europe or Asia.
 

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i prefer the simplification of the tax system as envisioned by the chairs of the deficit commission
eliminate the deductions and tax all income at lower rates

the OP's proposal presumes that the corporations will spend their tax savings as American investment. i don't see that as the probable outcome
corporate America is sitting on $Trillions at present. what is being invested - much of it the bailout funds - is being invested in israel, brazil, india, china, etc. there is nothing which compels spending those tax savings in the USA
we are a consumer driven economy with a substantially reduced consumer capacity
offering low wage federal employment ... so that the underemployed workers will seek to obtain higher wage jobs as the economy strengthens ... is the approach i would see as revitalizing the demand side of the equation
we should quickly move to implement Bowles' suggestions
 

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we are a consumer driven economy with a substantially reduced consumer capacity
offering low wage federal employment ... so that the underemployed workers will seek to obtain higher wage jobs as the economy strengthens ... is the approach i would see as revitalizing the demand side of the equation
we should quickly move to implement Bowles' suggestions
I don't know anything bout "Bowles' suggestions" and I am not sure that I am following what you are suggestiong about "offering low wage federal employment". Are you suggesting that the gov should create jobs for the unemployed rather than to pay unemployment? That actually makes sense to me, it wouldn't cost much more than giving away unemployment checks and there is certainly no end to work that needs to be done, even if it is just cleaning up parks or fixing our deteriorating transportation infrastructure.
 

justabubba

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I don't know anything bout "Bowles' suggestions" and I am not sure that I am following what you are suggestiong about "offering low wage federal employment". Are you suggesting that the gov should create jobs for the unemployed rather than to pay unemployment? That actually makes sense to me, it wouldn't cost much more than giving away unemployment checks and there is certainly no end to work that needs to be done, even if it is just cleaning up parks or fixing our deteriorating transportation infrastructure.
apologies. Erskine Bowles (my former boss) is the co-chair of the deficit commission

FDR implemented a federal works program intended to put money into the economy. we see the results of that process even today, such as when we drive the blue ridge parkway. Obama should resurrect similar programs today. look around. there is plenty of work which needs to be done
 

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apologies. Erskine Bowles (my former boss) is the co-chair of the deficit commission

FDR implemented a federal works program intended to put money into the economy. we see the results of that process even today, such as when we drive the blue ridge parkway. Obama should resurrect similar programs today. look around. there is plenty of work which needs to be done
OK, I'd agree with that. I was hoping that that type of thing would come out of the Spendulous bill. Never did, so I guess I was fooled.
 

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I would like a reduction of tax breaks, but a lower percentage of overall tax rates for businesses.

Also, what if we reduce corporate income taxes, but create a progressive system of licensing for businesses to operate?
 

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I would like a reduction of tax breaks, but a lower percentage of overall tax rates for businesses.

Also, what if we reduce corporate income taxes, but create a progressive system of licensing for businesses to operate?
how would imposing additional barriers to business formation/expansion help improve our economic condition?
 

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how would imposing additional barriers to business formation/expansion help improve our economic condition?
Because we'd be reducing corporate income taxes, which corporations try to scam out of just as much as people try to scam out of personal income taxes.
 

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Because we'd be reducing corporate income taxes, which corporations try to scam out of just as much as people try to scam out of personal income taxes.
ok, i was not certain whether your move to make licensing costs more progressive was intended to enact or remove barriers to business formation
as with those who seek to lower taxes, i must ask what specific reductions in licensing requirements would be taken to achieve your objective
my limited experience indicates there are not substantial barriers which deserve to be ended
 

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ok, i was not certain whether your move to make licensing costs more progressive was intended to enact or remove barriers to business formation
as with those who seek to lower taxes, i must ask what specific reductions in licensing requirements would be taken to achieve your objective
my limited experience indicates there are not substantial barriers which deserve to be ended
I'm going to be honest with you, I don't have any specifics, as I'm not nearly knowledgeable enough in this particular area to provide any.

Which was why I asked it as a question to others. :tongue4:

But basically my thought is that instead of paying corporate income taxes, businesses purchase annual licenses in order to operate, and the larger the business is the more that business has to pay for their license.

I would prefer if "large" in this case refers to the amount of income the business receives, in which case this will likely be nothing more than an annual income tax but without any specifics for deductions. However, if it'd be simpler, that licensing fee could refer to the amount of employees and possibly even contractors hired by the business.

Like I said, I would rather a group of people more knowledgeable than I discuss and debate that option and if the positive effect of it would be better than any corporate income tax.
 

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The recent recession was caused by a demand shock that persists to this day. This demand shock did not magically appear when Obama was elected, enacted stimulus, or enacted his health care reform. Insufficient demand has a direct relationship on labor markets. Therefore, it would seem obvious that in order to decrease unemployment, we have to increase demand.
It's not obvious. Seems to me that the problem was that production got out of hand.



The solution then wouldn't be to raise demand, because the problem wasn't with demand. The problem was malinvestment.
 

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Let's see, supply was going up and prices were as well? Why again were we surprised that the bubble burst and prices fell?
 

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Let's see, supply was going up and prices were as well? Why again were we surprised that the bubble burst and prices fell?
Who was surprised? I think that we were not surprised at all, just unprepaired.
 

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Apparently there was some surprise because demand just fell for some reason and we have to prop it up.

Why are we ignoring the real problem: that production obviously got out of hand.
 

Kushinator

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If you believe that producer actions are independent of consumer sentiment, then yes, the problem is excess supply. However, if you believe producer actions are a product of consumer sentiment, the problem is insufficient demand.

So do tell: how did supply increase in lieu with prices unless demand was at an appropriate level for producers to get their asking prices (necessary or prices to increase)?

Secondly, why the sudden fall in all commodities following the collapse of Lehman; was there suddenly too much oil and corn, or was there a sudden negative wealth effect which manifested across the entire world?
 
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