Lowering Taxes does NOT create jobs?

[Bob N]

Proven fact lowering taxes increases tax revenue.
Why? because when people have more money to spend they will spend it. Once people feel "richer" they will spend more.
Also you can see the JOB creation the Reagan admin created By cutting taxes. The proof is out there

I guess you could add to that it attracts more businesses, which means more jobs, which means more incomes, which equals more spending.

You two may think that, but you must remember, too, that by the time Reagan left office we had a 220 Billion dollar deficit--three times more debt before Reagan took office.

 

[JohnfrmClevelan]

First, your answer does NOT address the example at all, it ignores it all together and draws speculation. There was clearly an option in which they could hire more people AND increase profitability.

Second, you can't make a valid point based on conjecture and "what if" assumptions, while simply ignoring the math. You are correct in that a company MAY make any decision it wishes, but for you to say your "point stands" based on a particular decision based purely on assumptions and conjecture is not valid and certainly refutes your point. As someone just as easily could reverse your sentence logic and make the opposite point.


The facts and math are simple, regardless of "what if" assumptions about decisions.

Company needs to hire 5 more people to meet projected 40% demand growth.

Option one: stay where they are and will not be able to hire the 5 people, because margins would run negative.
Option two: move and save money that can allow the company to hire the 5 people to meet the demand.

One can make up all the "what if" conjectured based assumptions they want, but the reality on the ground is that the company has an OPTION because of cost savings. That option exists solely because of the math, which can't be ignored. Whether the company takes option two or not is immaterial, the option still remains, therefore the point remains.

A company able to cut costs (taxes) has an option that it may not otherwise have, which can be used to hire more people. That option exists, whether they use it or not is immaterial. We just can't ignore the option and pretend it doesn't exist.

Even one company that uses the option of cost cutting (taxes) to monetize hiring expenditures proves the fact valid. We might not like it and we can come up ad infinitum with "what if", but it doesn't change the math nor does it change the point.

Sorry - I was in a rush to get out the door and hadn't read your example closely.

OK - so you folded the cost of extra rent into an employee, making it profitable to expand in one scenario, and a bit of a loss to expand in the other. That's reasonable. No argument that a company can make more money when expenses are lower.

But it doesn't work for tax, which comes after other expenses. A tax on profits is never going to push a profitable situation to a loss situation like your increased rent example did. And that's the whole point of the thread.

 

[MTAtech]

Proven fact lowering taxes increases tax revenue.
Why? because when people have more money to spend they will spend it. Once people feel "richer" they will spend more.
Also you can see the JOB creation the Reagan admin created By cutting taxes. The proof is out there

Except that what was responsible for most of the increase in tax revenue during the Reagan Admin was population growth and inflation, both of which increase revenue regardless of tax policy.

Moreover, to prove that Reagan's tax-cuts increased revenue one must have a control sample. The Clinton years are a good example because his tax policy was essentially the opposite of Reagan's. So what happened during the Clinton years? Tax revenues dwarfed Reagan's gains and the economy gained 22 million new jobs compared to Reagan's 17 million. Conclusion: it is far from proven that tax-cuts increased revenue.

 

[pdog]

I can't help but take into the considerations that we see the boom in Ireland, Bahama's, Hong Kong and other domiciles. Now we are seeing a rise in tax inversion plays marketing of business like NY no taxes for 10 years.

But these examples are easy for us all to explain - the desire for more profits and that is just business. It really has nothing to do with jobs other than that they move from one place to another (don't worry, I will get to available capital).

Here's where I think we are at this point:
1) Only taxes that affect the "raw materials" - excise taxes, employment taxes, import taxes, etc; those that are negatively affecting a company's pre-tax margin - are possibly affecting the company's ability to hire the next whole person (150k buys 3 50k employees where 140k only buys 2). But even then we can only say that in a vacuum since at some point revenues did/should increase.
2) Other taxes affect profit.
3) Corporate taxes should actually be considered an incentive to keep money in company X vs exposing it to that corporate tax. The inability to hire based on corporate taxes assertion does not seem to hold up. Perhaps we've never been that specific but that was one of the issues with the OP to begin with.
4) The only way it seems to talk about an inverse correlation between actual job creation and taxes is indirectly thru the availability of capital. From there we could talk about investment and innovation and the collective jobs that could potentially come from a collective pool of capital that but to me it's a completely different route from the one we are currently on.

I just grow tired of the ever oppressive government on both social, economic, energy, and corporate greed...it's just tiring.

Relative to the size of our economy, the size of our government is about the same as it was 60 years ago. But I suppose that's a separate thread too.

 

[pdog]

Except that what was responsible for most of the increase in tax revenue during the Reagan Admin was population growth and inflation, both of which increase revenue regardless of tax policy.

Moreover, to prove that Reagan's tax-cuts increased revenue one must have a control sample. The Clinton years are a good example because his tax policy was essentially the opposite of Reagan's. So what happened during the Clinton years? Tax revenues dwarfed Reagan's gains and the economy gained 22 million new jobs compared to Reagan's 17 million. Conclusion: it is far from proven that tax-cuts increased revenue.

I'll add if not insert at the top that Reagan's military Keynesianism was the primary source of revenue increases. Few graphs show such an obvious bulge as 80s/90s government spending relative to the economy. I'll be happy to post that graph again for you MTA if you've not seen it in my other posts. But some of these fox-newsers have been dismissing plotted data as "pretty" so I only put the time in for those I know that care .

There was also a great thread some time back asserting that 0% of economist believe that tax cuts create more revenue:

http://www.debatepolitics.com/econo...r-taxes-doesnt-increase-government-reven.html

 

[Tettsuo]

1. A company needs to break-even at the very least, otherwise it will go out of business. I am sure we all agree on that.

I'm with ya here.

2. Hiring someone, spending money on marketing, expanding a business, any type of business investment one must way the productive value which can be measured in revenues and/or profits - is an important fact. Again - I think we can all agree.

Still in agreement.

3. Margins are a very easy and traditional way to determine how much you are making if one divides the net profits by the revenue. Again simple math.

Disagree. The profit margin is a measure of how effective your use of money is, it also gives you a sense of how much risk you can endurance. A thin profit margin means you can only do so much before you end up in the red. That's as simple as I can make it.

Net profit is the traditional way of determining how much you're making as it's the exact number your business generated after all costs are assessed.

I have to run, but I'll finish this up later.

 

[Tettsuo]

Using margins is a risk metrics for making a business decision on costs. We take risks all the time, but the risk needs to be measured and calculated. You don't spend and hire just because demand is up, it is really not that simple, yet I wish it was.

The entire point of hiring an employee is to increase your bottom line. You don't hire unless demand is great enough to cover the expense. It's a gamble, sure. There's no guarantee the employee will generate enough revenue to cover the expense they generate... but what in business IS a guarantee? Everything is a risk for the most part.

If someone tells me that I just made $1 million dollars in profit, the first question is what MARGINS are we running. Because if I made $1 million dollars on $200 million in revenue, I certainly would NOT be happy investor, business owner, or employee.

Frankly profits don't mean squat if you don't know what margin you are running.

You're in business to make a profit. That's the whole point.

In your scenario, that depends entirely on the business you're in. Some businesses operate on razor thin margins.

You talk about measuring risk and investing and taking risk. Sure, but HOW do you measure that risk? You measure it based on costs vs. revenue (or projected revenue). It's called margins. Everything is margins... it is the simple math calculation that we use all the time to determine risk, returns, and differences. Buy a bond you measure risk by using MARGIN (called yield). Buy a rental property and you are measuring rent vs. taxes and up keep to determine your MARGIN. Buy stock on margin, and you are looking at a rate of return on borrowed money. Every business looks at margins to determine risk, profits, investments.

First, I've never said margins are not useful. They are. But, the bottom line is still your net profits.

I don't know how to respond if you completely dismiss productivity and levels of productivity as a function of business. Either you believe that productivity levels are important or your don't. However in all my years of business and economics, I don't know anyone on any-side of the economic or business spectrum that would dismiss productivity levels as "utter nonsense". I just don't know what to say...perhaps you have a better theory and if you can describe something that works better, I am humble enough to concede. However, until then productivity levels are the essence of determining margin efficiency, or in simple terms HOW MUCH PROFIT ARE YOU GOING TO MAKE.

What's utter nonsense isn't productivity, it's your replies. It's like you're reading these terms and writing about them with very minimal understanding.

Profits mean little if you can't determine the margins for generating that profit. It is NOT good business.

Profit is why businesses are in business. Margins are meaningless if you don't make a profit. You use margins to maximize your profitability. Your net profit is what's important. I'm amazed you actually wrote down that response.

 

[prohobo]

Sorry - I was in a rush to get out the door and hadn't read your example closely.

OK - so you folded the cost of extra rent into an employee, making it profitable to expand in one scenario, and a bit of a loss to expand in the other. That's reasonable. No argument that a company can make more money when expenses are lower.

But it doesn't work for tax, which comes after other expenses. A tax on profits is never going to push a profitable situation to a loss situation like your increased rent example did. And that's the whole point of the thread.

(Facepalm)

You are getting stuck in a semantic circle, of course it matters.

That is why we left California, that is why NY is marketing NO TAXES, that is why there are more Fortune 500 companies domiciled in Bahamas then anywhere else, that is why we are seeing a rise in Tax Inversions, that is why Ireland has been seeing a growth in tech business for the last decade.

You can choose to ignore the math and play semantics, but it just doesn't change the facts. Spin it how you like.

 

[Tettsuo]

PART II
I would think it was clear that I understand. I suppose you are going to tell me that difference between top-line revenue vs. top-line sales doesn't mater either.
Seriously are you just yanking my chain with these responses?

No, it's not clear you understand. Net profit encompasses both of those totals. It seems to me you continually shelf net profit in lieu of those lesser totals.

You are getting closer, rather than just talking about demand you have added "production capability". However, I put to you if demand picks up and my current operation is able to MEET that pick-up in demand without impacting quality/quanty, do I hire more people? Of course not. One looks at productivity levels (what you previously stated as "utter nonsense").

I agree. If you not running at full capacity, there's no need to hire. I'm making an assumption that businesses are running at full capacity for the sake of simplicity in this discussion. I'm not ignoring anything.

In any case, you've yet to prove, with any actual year over year numbers, that lower taxes increases employment.

Of course - because that lets anyone know the rate of return based on revenue.
How do you forecasts profits, risk, returns, cost of money, cost of investments.

I wish it was as simple as looking at your profit and ignoring costs and everything else.

Net profits included cost. So yeah, I'm looking at costs.

Adherence to increase profit margin is foolish? You said it, not me.

Yeah, it is if you don't invest or take risks because you doggedly demand that your margins must increase year over year. That's extremely foolish.

You obviously didn't read the posts that I linked earlier to you because it talks about margins, run cost margins, and one-time charges.

Let me give you an example why I believe that paying attention to top-line revenue and top-line sales is so very much important when analysising a business (as well as margins). This is off subject, but I think it is very important.

If one only focuses on PROFITS and ignores margins, top-line revenue, and top-line sales they have NO IDEA how they made more profit.

Again, you separate net profits from top line revenue and sales. Why do you continue to do that?

If you're doing an analysis on profitability, of course you delve into those numbers.

A company that reports a profit, when top line revenue and sales decline has most likely cut costs to boost profits. If the trend is a decline in top-line revenue and sales, but one is only focused on profits - they are missing a big picture problem going forward.

We agree on this point.

A company that reports a loss, but top-line revenue and sales are increases may be just increases costs to meet demand. If the top-line trend continues the company will most likely be a long-term winner. We see this in high IPO multiples.

Again, I agree. FYI, margins are looking like crap. So... it's not wise to focus on those margins when you're taking a calculated risk in those cost increases.

A company that reports a profit, but top-line sales are declining, but top-line revenue is higher, then something could be at play with either currency (if selling overseas) or that the price per unit has increased.

No argument from me on that.

A company that reports a profit, but top-line revenue declines, but sales are increasing, could mean the company is cost cutting to increase market penetration.

The point being is that we MUST always ask HOW and WHY, rather than just accept the fact a company has a profit or a loss.

I never said NOT to pay attention to the hows and whys of your business.

Here's a suggestion... don't assume I'm not interested in something if I don't say I'm interested in it.

Knowing your margins is knowing our risk and return on capital. Knowing how your revenue is derived is also important.

Again, I agree.

I hope this shed some light and not intended to offend. We tend to look at things too black-n-white and we tend to forget to ask WHY and HOW. We need to stop accepting face value and do the math to make better objective decisions.

We also need to dispense with the name calling, it is fair to say one is ignorant, but let's avoid calling each other stupid.

Never call anyone stupid... their arguments can certainly be labeled as stupid thought.

I'd like you to take this away regarding my position.

- Margins are only useful for analysis
- Net profit is the final measure of one's business profitability
- Demand is the true driver for hiring new employees

 

[prohobo]

What's utter nonsense isn't productivity, it's your replies. It's like you're reading these terms and writing about them with very minimal understanding.

I don't mind debates or even arguments, but this is clearly pointless as you obviously think I am a fool and what I say is utter nonsense.

Of course we don't know each other or our experience. I have been in the finance (public/private sector) business for over two decades, have owned/sold/managed businesses, and even lectured on the subjects of risk and pricing. I am comfortable with my knowledge and skills as well as a wealth of experience (both good and bad). However, I am also humble enough to know when I am wrong and certainly will admit and concede when I am.

You clearly don't care or believe anything I say has any merit. I was hoping that my experience and detailed examples would offer some enlightenment and also conversation. However, I am clearly not seen a valuable contributor to this conversation and have thought I have made my point repeatedly and clearly. Obviously not.

So why should I bother to continue if you feel I am an idiot and that I have a minimal understanding? Pointless by your standards it would seem.

Good day, perhaps something I have shared has offered a small morsel of insight.

Amazing the responses, clearly people don't know or care with who they converse with in the anonymity of online forums. I bet things would be far different in person, if not shocking as to who we are actually talking with.

 

[Tettsuo]

(Facepalm)

You are getting stuck in a semantic circle, of course it matters.

That is why we left California, that is why NY is marketing NO TAXES, that is why there are more Fortune 500 companies domiciled in Bahamas then anywhere else, that is why we are seeing a rise in Tax Inversions, that is why Ireland has been seeing a growth in tech business for the last decade.

You can choose to ignore the math and play semantics, but it just doesn't change the facts. Spin it how you like.

Taxes cannot push you into the red. Do you or do you not understand that?

 

[JohnfrmClevelan]

(Facepalm)

You are getting stuck in a semantic circle, of course it matters.

That is why we left California, that is why NY is marketing NO TAXES, that is why there are more Fortune 500 companies domiciled in Bahamas then anywhere else, that is why we are seeing a rise in Tax Inversions, that is why Ireland has been seeing a growth in tech business for the last decade.

You can choose to ignore the math and play semantics, but it just doesn't change the facts. Spin it how you like.

I'm still open to being convinced. Show me a scenario where a tax on profits (not normal operating costs) makes hiring an employee - who's productivity exceeds their costs - less profitable than not hiring that employee at all.

 

[pdog]

Taxes cannot push you into the red. Do you or do you not understand that?

I'm still open to being convinced. Show me a scenario where a tax on profits (not normal operating costs) makes hiring an employee - who's productivity exceeds their costs - less profitable than not hiring that employee at all.

I would like to see either acceptance or a rebuttal of #279 from our host. We really seem to be having a hard time breaking out of this grey term of "taxes" and I tried to get specific there. If we can't get that here, maybe I'll start a new thread specifically targeting corporate taxes, profits, and the specific effects on a particular company, and not "companies" in general.

Prohobo, I really do think we need an answer here. From our end this is a very targeted and specific question that deserves an answer to move the debate forward.

 

[prohobo]

I would like to see either acceptance or a rebuttal of #279 from our host. We really seem to be having a hard time breaking out of this grey term of "taxes" and I tried to get specific there. If we can't get that here, maybe I'll start a new thread specifically targeting corporate taxes, profits, and the specific effects on a particular company, and not "companies" in general.

Prohobo, I really do think we need an answer here. From our end this is a very targeted and specific question that deserves an answer to move the debate forward.

I am happy to discuss this with you privately at a different time, I just am very busy now as my lull this week has picked up and I can't afford the time right now. Additionally it seems that my contributions and considerations are given little weight and considered idiotic and nonsense, so I do not wish to waste their or my time on the mater any further. If to them I am an idiot, why they wish to continue and why I should bother seems illogical and a waste.

Feel free to PM me if you are truly interested, if not - I wish you well.

Regards...

 

[imagep]

You are making valid points about whether or not an employee is valid hire or not and you keep bringing up demand as part of the equation. Those certainly are factors.

However - the point I am making is clear.

Taxes are a factor that impacts the bottom line.
Employees are a cost (whether they are justified or not, needed or not, regardless of demand)

A company that can increase their bottom line (either through cost savings or an increase in top-line revenue) can hire an employee with out impacting the margins.

It is simple.

Thus - any type of cost savings (taxes or otherwise) means the company has room to make changes without the need of additional capital.


Fact remains and the math is simple.

X revenue - Y costs = NET


For those that want to argue that Taxes are not a cost, then the formula would read:

X revenue - Y costs - Z taxes = After Tax Net

Either way the math is pretty straight forward. I don't know why people harp on it.

Fact is if this tread was about moving and saving costs on rent to hire more people it would get NOT attention. Replace the word rent with taxes and all of a sudden it turns into a taboo subject.

It depends on what type of taxes we are talking about.

Some forms of taxes are pre-bottom line, income tax and corporate income tax are post bottom line.

Pre-bottom line taxes are an expense, and are generally passed along to the customer as all competing companies have to pay these types of taxes (directly or indirectly). Pre-bottom line taxes may very well effect business decisions.

Post bottom line taxes can't be passed along to the customer, as not every company has a profit or pays the same income tax rate, thus the company or the owner of the company totally pays the income tax. Post bottom line income taxes DO NOT effect business decisions, generally, the more a company has to pay, the better, because that simply means they are making more money.

Personally, I'd LOVE to have to pay millions of dollars a year in income taxes (as opposed to the tens of thousands I pay now) - that would simply mean that I was doing very well financially.

 

[imagep]

I must admit you are quit frusterating to exchange with as you either do not read, misintrepret, or don't understand what I am saying. I will admit that posting online is not always the best way to exchange ideas or debate. However, let me give it one more go.

1. A company needs to break-even at the very least, otherwise it will go out of business. I am sure we all agree on that.
2. Hiring someone, spending money on marketing, expanding a business, any type of business investment one must way the productive value which can be measured in revenues and/or profits - is an important fact. Again - I think we can all agree.
3. Margins are a very easy and traditional way to determine how much you are making if one divides the net profits by the revenue. Again simple math.

I think we can all agree that IF margins are shrinking then something is wrong, but what? There are many factors, but let's keep this simple.

1. Revenue/sales are decliningig (Demand falling)
2. Costs are rising.

However, there is something else that can occur.

Revenues/sales could be increasing, but costs could be out pacing revenues.

Using margins is a risk metrics for making a business decision on costs. We take risks all the time, but the risk needs to be measured and calculated. You don't spend and hire just because demand is up, it is really not that simple, yet I wish it was.



If someone tells me that I just made $1 million dollars in profit, the first question is what MARGINS are we running. Because if I made $1 million dollars on $200 million in revenue, I certainly would NOT be happy investor, business owner, or employee.

Frankly profits don't mean squat if you don't know what margin you are running.

You talk about measuring risk and investing and taking risk. Sure, but HOW do you measure that risk? You measure it based on costs vs. revenue (or projected revenue). It's called margins. Everything is margins... it is the simple math calculation that we use all the time to determine risk, returns, and differences. Buy a bond you measure risk by using MARGIN (called yield). Buy a rental property and you are measuring rent vs. taxes and up keep to determine your MARGIN. Buy stock on margin, and you are looking at a rate of return on borrowed money. Every business looks at margins to determine risk, profits, investments.


I don't know how to respond if you completely dismiss productivity and levels of productivity as a function of business. Either you believe that productivity levels are important or your don't. However in all my years of business and economics, I don't know anyone on any-side of the economic or business spectrum that would dismiss productivity levels as "utter nonsense". I just don't know what to say...perhaps you have a better theory and if you can describe something that works better, I am humble enough to concede. However, until then productivity levels are the essence of determining margin efficiency, or in simple terms HOW MUCH PROFIT ARE YOU GOING TO MAKE.





Profits mean little if you can't determine the margins for generating that profit. It is NOT good business.

Margins only matter to the degree that you are comparing companies in the same industry. And even then, the net profit is much more important. So maybe one company has higher margins, but they are engaging in some sort of poor business practices to have such high margins, in the future they are likely to have a smaller profit.

And obviously a real estate sales person or precious metals dealer is going to have a much lower margin than someone who provides a service. Like an average real estate sales person may "sell" $10 million dollars worth of real estate, but may only net $100,000 in actual income, while a barber can easily net the same $100k (assuming that they own their own shop) on just $150k of sales.

As an investor, I tend to put much more value into the PE ratio than sales to profit margin - I could care less about the margin, but I do care a great deal about the valuation to profit ratio.

 

[imagep]

If you have an office for 10 people and pay $10k a month in down town SF and then move to Incline and have an office for 15 people and pay $5k a month, you just saved $5k a month and that money can now be used towards another person's salary.

Pretty simple math.

Not if you end up having to spend a zillion dollars in advertising and sales cost to make up from the loss of revenue that was generated from your premium location.

There is a reason that a store may chose to pay a higher rent in a mall than a location in the getto.

 

[pdog]

I am happy to discuss this with you privately at a different time, I just am very busy now as my lull this week has picked up and I can't afford the time right now. Additionally it seems that my contributions and considerations are given little weight and considered idiotic and nonsense, so I do not wish to waste their or my time on the mater any further. If to them I am an idiot, why they wish to continue and why I should bother seems illogical and a waste.

Feel free to PM me if you are truly interested, if not - I wish you well.

Regards...

While I appreciate the personal attention, i wouldn't be doing those that have invested heavily into this particular question any favors by taking it off line. Honestly, you'd likely gain a ton of respect by doing something that almost never happens here - concede the point. I really think that we've closed the book on corporate taxes on a particular company and the direct effect on employment. There's still plenty of room to talk about taxes and effect on "business" in general, but we'd have to talk about the affect on supply or capital.

 

[diralocas]

Lower taxes, lower revenue.

 

[Fenton]

Lower taxes, lower revenue.

No, lower taxes, increased investment, more tax payers, higher revenue.


It's working too, in Texas

 

[TurtleDude]

Lower taxes, lower revenue.

lower taxes-less money for government to waste and more money for those who earned it

win win

 

[Born Free]

No, lower taxes, increased investment, more tax payers, higher revenue.


It's working too, in Texas

And it's not working in California, California = higher taxes , less revenue, bad business climate, so they move to Texas.

 

[CalGun]

Reducing taxes significantly only reduces revenue for 12-24 months. Each significant tax cut at the federal level in my lifetime resulted in both greater deficits AND more revenue in about 2 years time. The expansion of the economy way over took the short term loss, but sadly politicians just blew thru the extra money.

 

[MTAtech]

No, lower taxes, increased investment, more tax payers, higher revenue.


It's working too, in Texas

Hasn't worked in Kansas:

Yes, if You Cut Taxes, You Get Less Tax Revenue

Kansas has a problem. In April and May, the state planned to collect $651 million from personal income tax. But instead, it received only $369 million.

In 2012, Kansas lawmakers passed a large and rather unusual income tax cut. It was expected to reduce state tax revenue by more than 10 percent, and Gov. Sam Brownback said it would create “tens of thousands of jobs.”
...
Of course, lawmakers in Kansas knew when they passed the tax cuts that this would happen; the question is whether they will lose even more revenue than they expected over the long run.
...
As revenue comes in over the next few months, Kansas will learn just how big of a tax cut it’s given out in the name of small business, and what it will have to do to the rest of the state budget to make the tax cut affordable.

 

[TurtleDude]

Hasn't worked in Kansas:

less government revenue is not an evil to many of us