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View Full Version : Tax Cuts don't lead to ecomic growth



Lallante
September 17 2012, 12:37:43 PM
http://www.nytimes.com/2012/09/16/opinion/sunday/do-tax-cuts-lead-to-economic-growth.html?_r=1&hp

http://www.theatlantic.com/business/archive/2012/09/tax-cuts-dont-lead-to-economic-growth-a-new-65-year-study-finds/262438/


Tax cuts disproportionately benefit the rich, but have no measurable positive impact on the economy.

Zeekar
September 17 2012, 12:40:26 PM
Welcome to what everybody has been saying for a while now.

Liare
September 17 2012, 12:55:45 PM
...and this is news ?

or indeed worth discussing ?

it's been known for the better part of 50 years if not more, not that the people we elect seem to be able to comprehend that.

Smuggo
September 17 2012, 12:56:33 PM
Is Lall being paid by the thread these days?

spasm
September 17 2012, 01:23:54 PM
If you don't like the topic then go somewhere else and talk about how much you don't want to talk about it.

Diicc Tater
September 17 2012, 02:48:12 PM
I've briefly looked that the articles.
That it doesn't seem to use cut taxes as a tool is not that big of a surprise. I never payed much attention as to why tho.
Simpleminded and socialist as I am one would assume that the money that I get to hold on to is circulated anyway. By me, making me feel better and helps the country.

Then again, if I get a 1% tax cut it's in the end enough to perhaps go to a nice restaurant for wine and 3 courses with the wife once a month. If I was part of the 1% it could mean I could buy a car, cash, just stashing that 2% for 3-6 months.
I'm OK with the difference but I guess it's easier to pay the 2% extra tax at my end of the bracket.

Anyway, I do not agree that "people might work harder if they get to keep more of their dollars", mostly it'll probably be "I work the same and earn a bit more" and if you're at the lower end of the brackets it's not that much of a difference anyway so no fucks are given.

Then this from the NYTimes: "Somebody who cares about hitting a specific income target, like $1 million, might work less hard after receiving a tax cut."
wat? I'd think that someone who has that mindset won't get to that income target anytime soon. They might however "spend" more money outside the national economy.

More from NYT: Beyond taxes, Mr. Romney has declined to detail what spending cuts he would make, although he has promised to make big ones. And some of the programs that would be at risk medical research, education, technology, roads, mass transportation probably have a better historical claim on lifting economic growth than tax cuts do.

Ok, so they assume they'll cut into the backbone of the country... Sure, it's perhaps possible that those areas are going to take a cut. I don't like this part of the article.
Not jumping on to that bandwagon, but those areas are what makes it easier for more people to get from home to work as well as employing a bunch of folks. Good roads and mass transportation make it worth getting a job with a lower wage. Education IS the future workforce. Medical research and technology will hopefully aim to make things better, easier and healthier.

It's nice to see someone trying to correlate tax cuts and economic growth. I like the idea but I need more data and less text to decide if correlation is causation. I'm gonna read this : http://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf

Also, I live in Sweden and I love taxes.

Zumwalt
September 17 2012, 03:17:38 PM
Having taken a number of economics classes in college, here is my take on the issue.

Tax cuts on a whole leave more money in the pockets of the American people. Whether this money is in the pockets of the upper class or the poor, it doesn't really matter on an aggregate level as long as the people are spending the money that they otherwise would have had to pay Uncle Sam. In the end it will increase the overall size of the economy/GDP/etc. Tax cuts seem like a good idea here.

I also remember when the Bush tax cuts first went in place. Literally just about every household was getting a tax rebate check, at least in the hundreds of dollars. This had a big stimulative effect on the economy, because most people went out and spent their tax rebate checks. Tax cuts don't seem bad here either.

The article brings up good points. First, it says that tax cuts are in theory supposed to motivate people to work harder to keep more of their own money. Second, it says that a tax cut is much more effective when the marginal rate is 75% than when it is 35%. I know here, after federal and state income taxes, people who made a middle class to upper-middle class end up paying close to 50% of their income in taxes. As I am sure you are all aware, it is demoralizing to have to pay half of your income in taxes, but 50% is still better than the 70+% that many pay in Europe, which is maybe why Americans are the most productive workers in the world... but that is a different debate.

All in all, I feel like tax cuts shouldn't be demonized. I feel that they are good economic tools, and they can help America prosper if they are implemented correctly. You can argue that the Bush tax cuts were irresponsible, which I would probably agree with.

One final thought/question to leave you guys with though. If tax cuts don't make that big of a difference, then why is everyone afraid of the looming "fiscal cliff" ? If tax cuts don't cause economic stimulus, then wouldn't the opposite also be true, that increases in taxes won't cause economic contraction? Keep in mind that many if not most people are afraid that the economy will contract as taxes get raised

CastleBravo
September 17 2012, 03:26:55 PM
I don't think tax cuts create a significant impact on economic growth simply because the government would be injecting that money back into the economy anyway. I do however think that the individual will on average do a better job spending that money improving his/her life than the government would. Things get a bit more interesting when you talk about taxation of corporations however...

Smuggo
September 17 2012, 03:29:46 PM
The problem is though, in difficult economic times people tend to hoard any additional cash they would receive from a tax cut as a safety net. If the cash gets hoarded then it's not having the intended effect.

Zeekar
September 17 2012, 03:45:04 PM
Dont mix taxes on the top 1% and taxes on middle class. Its a complete different ballpark. While the middle class and its consumer habits actually drive the economy with its demand, which good examples are cars, computers, mobile phones, houses etc..., and tax cuts in that income range will actually benefit the economy with increased consumption it wont have such an effect in high tier income class. They have more then enough disposable income so tax cuts wont stimulate any more consumption and even if it did they are so few in numbers that it probably wouldn't make a difference.

Pattern
September 17 2012, 04:52:45 PM
Dont mix taxes on the top 1% and taxes on middle class. Its a complete different ballpark. While the middle class and its consumer habits actually drive the economy with its demand, which good examples are cars, computers, mobile phones, houses etc..., and tax cuts in that income range will actually benefit the economy with increased consumption it wont have such an effect in high tier income class. They have more then enough disposable income so tax cuts wont stimulate any more consumption and even if it did they are so few in numbers that it probably wouldn't make a difference.

So much this.

Zumwalt
September 17 2012, 05:25:39 PM
Dont mix taxes on the top 1% and taxes on middle class. Its a complete different ballpark. While the middle class and its consumer habits actually drive the economy with its demand, which good examples are cars, computers, mobile phones, houses etc..., and tax cuts in that income range will actually benefit the economy with increased consumption it wont have such an effect in high tier income class. They have more then enough disposable income so tax cuts wont stimulate any more consumption and even if it did they are so few in numbers that it probably wouldn't make a difference.

So much this.

The top 1% is too broad of a class for what you are talking about. You are referring to the mega-rich, whose spending habits would not change based on if they made 20 million a year instead of 15 million. However, these people are few and far between. Tax cuts will help the middle class as well as the upper-middle class, in addition to these mega-rich that you were alluding to.

Politicians like to say that a household making a quarter million dollars a year is upper class (unless you are Romney in which case people will accuse you of being out of touch with reality). I would say that making a million dollars a year is upper class, but a household income of $300,000 or less is merely upper middle class. Despite being only upper middle class, they are practically at the top tax bracket and would benefit immensely from a tax cut, and their consumption is not independent of the marginal tax rate.


Then this from the NYTimes: "Somebody who cares about hitting a specific income target, like $1 million, might work less hard after receiving a tax cut."
wat? I'd think that someone who has that mindset won't get to that income target anytime soon. They might however "spend" more money outside the national economy.

A lot of people have that mindset when it comes to saving for retirement. They think, if I can save up xxx dollars, then I can finally retire and live out my golden years. This is a particularly powerful notion now, because lots of baby boomers are retiring/getting ready to retire.

Zeekar
September 17 2012, 06:54:20 PM
No I'm referring to the top 1% not just the mega rich. A household that makes over 250k is upper class since it actually is in 1% range. Their consumption wouldn't change much. They already have so much disposable income they can afford everything they want 3 times over and a tax break for them would only end up in more saved money for them not more consumption. Unless you think people spend everything they have.

If you actually think their income and consumer habits and the benefits from tax breaks can be compared to a household income of 45k which is the median income you're delusional.

My numbers come from:

http://en.wikipedia.org/wiki/Household_income_in_the_United_States

$250,000 and above 1,699 1.50% 98.50%

Zumwalt
September 17 2012, 07:04:07 PM
No I'm referring to the top 1% not just the mega rich. A household that makes over 250k is upper class since it actually is in 1% range. Their consumption wouldn't change much. They already have so much disposable income they can afford everything they want 3 times over and a tax break for them would only end up in more saved money for them not more consumption. Unless you think people spend everything they have.

If you actually think their income and consumer habits and the benefits from tax breaks can be compared to a household income of 45k which is the median income you're delusional.

My numbers come from:

http://en.wikipedia.org/wiki/Household_income_in_the_United_States

$250,000 and above1,6991.50%98.50%

While I am flattered that you think my household is upper class, I can tell you for a fact that people who make around a quarter million a year have a marginal propensity to consume that is closer to that of the median income than that of the mega rich. Because, what can that income buy you after taxes? The answer is not that much.

Lol @ upper middle class can afford everything they want 3x over. No, YOU are the one clearly delusional.


Sent from my iPhone using Tapatalk

Zeekar
September 17 2012, 07:16:20 PM
So you're saying that you cant afford much after taxes with a 250k income? Seriously ? Ok you cant buy a helicopter 3 times per year. You poor thing. You must be suffering.

Sponk
September 17 2012, 11:09:25 PM
Lol @ upper middle class can afford everything they want 3x over. No, YOU are the one clearly delusional.
Unless a law is specifically crafted to do so, any tax cuts you get will also apply to everyone richer than you.

Even if, as you claim, people on 250k spend most of their income like those on 75k (which I dispute because even private schools and trips to the Bahamas and 400k mortgages don't cost that much), the same can't be said for those on more income.

Dorvil Barranis
September 18 2012, 12:37:53 AM
One final thought/question to leave you guys with though. If tax cuts don't make that big of a difference, then why is everyone afraid of the looming "fiscal cliff" ? If tax cuts don't cause economic stimulus, then wouldn't the opposite also be true, that increases in taxes won't cause economic contraction? Keep in mind that many if not most people are afraid that the economy will contract as taxes get raised

I believe the concern with the fiscal cliff, which republican lawmakers forced upon the country in response to what had previously been a routine matter (raising the debt ceiling), is that unless lawmakers agree to sidestep it (and lawmakers can't agree on shit), the government will be forced in to a prescribed series of spending cuts in order to trim the budget. Retracting government spending dramatically during a recovery could put us back in to recession.

So, if a 1% tax break means "economic stimulus" because people have more money to spend, a 1% tax increase would theoretically have the same effect if the government spent it (employ construction workers for infrastructure projects). This is of course if you believe that the government actually does productive things with tax revenue, and not just spend it all on hookers and blow.

Ort Lofthus
September 18 2012, 02:51:54 AM
I don't think tax cuts create a significant impact on economic growth simply because the government would be injecting that money back into the economy anyway. I do however think that the individual will on average do a better job spending that money improving his/her life than the government would. Things get a bit more interesting when you talk about taxation of corporations however...

This. I wouldn't mind taxes so much if the government spent more money on transportation/infrastructure and schools instead of random stupid shit or increased pay/pensions for government bureaucrats.



As for 250k a year being upper class, it is HIGHLY dependent on where you live. In SE/Midwest US, its going to be a shit ton since the cost of living is so little. In California, it disappears in a hurry. By no means are you just scraping by, but you also are not to the point where you can just throw money around.

erichkknaar
September 18 2012, 03:43:00 AM
Lol @ upper middle class can afford everything they want 3x over. No, YOU are the one clearly delusional.
Unless a law is specifically crafted to do so, any tax cuts you get will also apply to everyone richer than you.

Even if, as you claim, people on 250k spend most of their income like those on 75k (which I dispute because even private schools and trips to the Bahamas and 400k mortgages don't cost that much), the same can't be said for those on more income.

To be fair to Zumwalt, look at his location. A 400k mortgage in OC would get you maybe a studio apartment, if that, in a shitty part of town.

Sponk
September 18 2012, 04:05:23 AM
To be fair to Zumwalt, look at his location. A 400k mortgage in OC would get you maybe a studio apartment, if that, in a shitty part of town.

It does where I live, too, and I still think a 250k household income is pretty damn high.

Diicc Tater
September 18 2012, 06:31:41 AM
Then this from the NYTimes: "Somebody who cares about hitting a specific income target, like $1 million, might work less hard after receiving a tax cut."
wat? I'd think that someone who has that mindset won't get to that income target anytime soon. They might however "spend" more money outside the national economy.

A lot of people have that mindset when it comes to saving for retirement. They think, if I can save up xxx dollars, then I can finally retire and live out my golden years. This is a particularly powerful notion now, because lots of baby boomers are retiring/getting ready to retire.

I was unclear. I did not see 'income target' as savings/accumulation. I assumed it meant income as in this is your 'yearly income' making no assumptions about age. If you go for retirement it won't hamper the economy as you in the above case would have some money to spend and you also create vacancy for someone else to fill. The statement they made in NYT imply that one would continue to work after hitting the target but less hard... which I don't really see.

Lallante
September 18 2012, 08:00:01 AM
Lol @ upper middle class can afford everything they want 3x over. No, YOU are the one clearly delusional.
Even if, as you claim, people on 250k spend most of their income like those on 75k (which I dispute because even private schools and trips to the Bahamas and 400k mortgages don't cost that much), the same can't be said for those on more income.

uhm, yes they do. $80k on school fees and associated costs alone is realistic if you have 2 kids in good schools, and 250k = 150k after tax as people around that level pay the highest actual rate of tax (richer people tend to tax manage much more aggressively)

Zeekar
September 18 2012, 09:52:07 AM
Thats 2 kids in Ivy league schools. And they still have more after taxes than people with 75k income before taxes. Sorry but it just doesn't float.

Pattern
September 18 2012, 10:09:43 AM
I think Zeekar made the simple honest mistake of saying "want" instead of "need". I'd love to be able to own a 2million dollar OC property, send my kids to college debt free, live comfortably, save enough for early-ish retirement whilst bitching about how we're getting hammered by high taxes, telling people on an internet forum that there deluded for incorrectly stating they could buy everything they wanted 3 times over. :lol:

Zeekar
September 18 2012, 10:45:42 AM
Yes I did.

Lallante
September 18 2012, 11:05:03 AM
I think Zeekar made the simple honest mistake of saying "want" instead of "need". I'd love to be able to own a 2million dollar OC property, send my kids to college debt free, live comfortably, save enough for early-ish retirement whilst bitching about how we're getting hammered by high taxes, telling people on an internet forum that there deluded for incorrectly stating they could buy everything they wanted 3 times over. :lol:

The point is if you have more money from tax cuts, youd put it towards these goals. He is saying you wouldnt, you would hoard it.

Pattern
September 18 2012, 11:27:33 AM
I think Zeekar made the simple honest mistake of saying "want" instead of "need". I'd love to be able to own a 2million dollar OC property, send my kids to college debt free, live comfortably, save enough for early-ish retirement whilst bitching about how we're getting hammered by high taxes, telling people on an internet forum that there deluded for incorrectly stating they could buy everything they wanted 3 times over. :lol:

The point is if you have more money from tax cuts, youd put it towards these goals. He is saying you wouldnt, you would hoard it.

That's arguable, they're already saving a higher percentage of their income at that point than poorer households (college funds, retirement) - I'd happy conceed that those on the second to top tax brackets are, on average paying the highest rate on taxes, but I disagree that they would consume more, in a way that would be more productive to the local economy than if the same level of funds went to more people less financially fortunate than them.

Zeekar
September 18 2012, 11:30:25 AM
Well simplest way to figure this out would be to find data that compares savings + assets vs household income. And there you have US census coming to help:

http://www.census.gov/people/wealth/

Please check the numbers for the top bracket. How their net worth jumps compared to the lower brackets. It god damn triples. And the biggest increase is in savings and creating a safety net. So yes they would hoard it.

definatelynotKKassandra
September 18 2012, 11:39:21 AM
He is probably right in saying that there is a massive difference between those who are 'rich' but still have to pay bills and taxes and shit like a normal person (i.e. those on 200k) and your Romneys. 'pays the top rate of income tax' covers a massive spread from 'senior middle manager' to 'shipping magnate/bill gates/warren buffet'.

Nartek
September 18 2012, 11:57:01 AM
Tax Cuts in any form of society have the ability to help, or to do more harm. There's a specific duality to the impact of them with a considerable amount of dependent factors:

Tax cuts in order to spur economic growth only work as long as people have faith in the economy. When that faith drops, individuals and business will trend towards diversifying investments and hoarding to protect themselves from future impacts.

And, while some might argue that even these movements of money can gender economic growth; it only kicks the "faith can" down the road--the financial institution themselves have to have enough faith in the system to turn around, and utilize the money instead of protecting it.

The Bush Tax Cuts may have done some good for individual households but on a grander scale, you already had businesses and institutions that were in protection mode, so they didn't have the positive impact they were looking for.

In that regard, a more keynesian approach to the economy may well have proved to be a better solution; by fostering business growth within the country, to reinstate that faith that your job is secure, thus allowing you to spend your disposable income instead of attempting to hoard it.

Lallante
September 18 2012, 01:28:39 PM
Well simplest way to figure this out would be to find data that compares savings + assets vs household income. And there you have US census coming to help:

http://www.census.gov/people/wealth/

Please check the numbers for the top bracket. How their net worth jumps compared to the lower brackets. It god damn triples. And the biggest increase is in savings and creating a safety net. So yes they would hoard it.


Well simplest way to figure this out would be to find data that compares savings + assets vs household income. And there you have US census coming to help:

http://www.census.gov/people/wealth/

Please check the numbers for the top bracket. How their net worth jumps compared to the lower brackets. It god damn triples. And the biggest increase is in savings and creating a safety net. So yes they would hoard it.

Um no
Income vs Wealth
$25,000 to $49,999 35,908

$250,000 to $499,999 344,201

Its almost identical, as a ratio of income:wealth. I.e. give them each $1000 extra and they'd save and spend the same proportions.

Zeekar
September 18 2012, 01:33:19 PM
MONTHLY HOUSEHOLD INCOME
Net Worth Net Worth (Excluding Equity in Own Home)

Lowest quintile 5.193 1.413
Second quintile 33.333 7.190
Third quintile 72.191 20.042
Fourth quintile 143.358 58.388
Highest quintile 333.168 192.252


So is it still the same? They both have approximately same in their home but when you compare savings you see the top having 3 as much.

Lallante
September 18 2012, 01:36:16 PM
MONTHLY HOUSEHOLD INCOME
Net Worth Net Worth (Excluding Equity in Own Home)

Lowest quintile 5.193 1.413
Second quintile 33.333 7.190
Third quintile 72.191 20.042
Fourth quintile 143.358 58.388
Highest quintile 333.168 192.252


So is it still the same? They both have approximately same in their home but when you compare savings you see the top having 3 as much.

You are looking at absolute values of wealth vs relative values of income. You need to look at both in absolute values (as I did, the numbers just below) if you want to see what proportion of their income they "hoard" rather than spending.

From the figures you yourself linked
Income vs Wealth
$25,000 to $49,999 35,908

$250,000 to $499,999 344,201

What this shows is that someone who earns 25 - 50k "hoards" 36k, while someone who earns 250 - 500k "hoards" 344k - this is an almost identical proportion, neither hoards more.

From this you can reasonably comfortably conclude that someone with 250k income who gets a 1k tax rebate will hoard about the same proportion of it as someone who earns 25k who gets the same rebate. This means it doesnt matter who gets the tax rebate in terms of its effect on the economy.


edit: but to emphasise my earlier argument, for truly high income then much more is hoarded. In terms of stimulus effect on the economy - tax breaks on the mega rich are bad. Tax breaks on the poor through to medium wealthy are broadly the same.

Zeekar
September 18 2012, 01:55:00 PM
HOUSEHOLD NET Net Worth Net Worth (Excluding Equity in Own Home)

$1 to $4,999 1.710 1.585
$5,000 to $9,999 6.928 6.928
$10,000 to $24,999 16.000 12.500
$25,000 to $49,999 35.908 15.290
$50,000 to $99,999 72.000 20.948
$100,000 to $249,999 160.755 56.979
$250,000 to $499,999 344.201 179.533
$500,000 and over 856.450 586.507


Compare the 100k to the 250k+ class. They pay pretty much the same % of taxes. Their net worth is also almost the same when you compare the difference in income. But the home value only goes up cca 30% when their savings go up 3. Why? Because they have more disposable income and pretty much none of that income goes into consumption but its stashed into saving accounts . So no tax cuts here would only add wealth.

Lallante
September 18 2012, 02:30:04 PM
HOUSEHOLD NET Net Worth Net Worth (Excluding Equity in Own Home)

$1 to $4,999 1.710 1.585
$5,000 to $9,999 6.928 6.928
$10,000 to $24,999 16.000 12.500
$25,000 to $49,999 35.908 15.290
$50,000 to $99,999 72.000 20.948
$100,000 to $249,999 160.755 56.979
$250,000 to $499,999 344.201 179.533
$500,000 and over 856.450 586.507


Compare the 100k to the 250k+ class. They pay pretty much the same % of taxes. Their net worth is also almost the same when you compare the difference in income. But the home value only goes up cca 30% when their savings go up 3. Why? Because they have more disposable income and pretty much none of that income goes into consumption but its stashed into saving accounts . So no tax cuts here would only add wealth.
I dont think you understand the figures.

An average person in the 100k bracket earns 175k and has wealth of 161 / 57k. This is a ratio of approx 1.09:1 / 3.07:1
An average person in the 250k bracket earns 375k and has wealth of 344 / 180. This is a ratio of approx 1.09:1 / 2.09:1

The only difference, proportionately, is that the 250k bracket people have more of their wealth in non-property assets. THis has exactly zero implications to their spending habits (they both invest exactly the same proportion of their income in wealth).

Aramendel
September 18 2012, 04:22:53 PM
That's arguable, they're already saving a higher percentage of their income at that point than poorer households (college funds, retirement) - I'd happy conceed that those on the second to top tax brackets are, on average paying the highest rate on taxes, but I disagree that they would consume more, in a way that would be more productive to the local economy than if the same level of funds went to more people less financially fortunate than them.

Also, to add to this, the richer a person is the more likely it is that they use their money for foreign things. Sending their kids to a boarding school in England or Switzerland or doing a regular holiday at the Bahamas does fuck-all for the local economy. Likewise they are also more likely to invest into things outside the country (i.e. China) since the profit ratios are far greater there.

Zeekar
September 18 2012, 04:31:12 PM
HOUSEHOLD NET Net Worth Net Worth (Excluding Equity in Own Home)

$1 to $4,999 1.710 1.585
$5,000 to $9,999 6.928 6.928
$10,000 to $24,999 16.000 12.500
$25,000 to $49,999 35.908 15.290
$50,000 to $99,999 72.000 20.948
$100,000 to $249,999 160.755 56.979
$250,000 to $499,999 344.201 179.533
$500,000 and over 856.450 586.507


Compare the 100k to the 250k+ class. They pay pretty much the same % of taxes. Their net worth is also almost the same when you compare the difference in income. But the home value only goes up cca 30% when their savings go up 3. Why? Because they have more disposable income and pretty much none of that income goes into consumption but its stashed into saving accounts . So no tax cuts here would only add wealth.
I dont think you understand the figures.

An average person in the 100k bracket earns 175k and has wealth of 161 / 57k. This is a ratio of approx 1.09:1 / 3.07:1
An average person in the 250k bracket earns 375k and has wealth of 344 / 180. This is a ratio of approx 1.09:1 / 2.09:1

The only difference, proportionately, is that the 250k bracket people have more of their wealth in non-property assets. THis has exactly zero implications to their spending habits (they both invest exactly the same proportion of their income in wealth).

Actually both me and you are retarded. This is the wrong metric to go about it. We need to look at the increase/decrease of their wealth from last year and a couple of years before to actually make a solid comparison not just a snapshot of how much wealth they have currently. If the wealth of top 1% is growing faster then the others then tax deductions would only lead to a faster increase in wealth and not higher consumption. Sadly US census only has 2010 and 2009 figures so kinda hard to make a proper assessment.

Lallante
September 18 2012, 07:07:36 PM
HOUSEHOLD NET Net Worth Net Worth (Excluding Equity in Own Home)

$1 to $4,999 1.710 1.585
$5,000 to $9,999 6.928 6.928
$10,000 to $24,999 16.000 12.500
$25,000 to $49,999 35.908 15.290
$50,000 to $99,999 72.000 20.948
$100,000 to $249,999 160.755 56.979
$250,000 to $499,999 344.201 179.533
$500,000 and over 856.450 586.507


Compare the 100k to the 250k+ class. They pay pretty much the same % of taxes. Their net worth is also almost the same when you compare the difference in income. But the home value only goes up cca 30% when their savings go up 3. Why? Because they have more disposable income and pretty much none of that income goes into consumption but its stashed into saving accounts . So no tax cuts here would only add wealth.
I dont think you understand the figures.

An average person in the 100k bracket earns 175k and has wealth of 161 / 57k. This is a ratio of approx 1.09:1 / 3.07:1
An average person in the 250k bracket earns 375k and has wealth of 344 / 180. This is a ratio of approx 1.09:1 / 2.09:1

The only difference, proportionately, is that the 250k bracket people have more of their wealth in non-property assets. THis has exactly zero implications to their spending habits (they both invest exactly the same proportion of their income in wealth).

Actually both me and you are retarded. This is the wrong metric to go about it. We need to look at the increase/decrease of their wealth from last year and a couple of years before to actually make a solid comparison not just a snapshot of how much wealth they have currently. If the wealth of top 1% is growing faster then the others then tax deductions would only lead to a faster increase in wealth and not higher consumption. Sadly US census only has 2010 and 2009 figures so kinda hard to make a proper assessment.

I think you can infer that from the figures in the way I did.

Zeekar
September 18 2012, 07:49:37 PM
No you can not. Figuring out a trend from 1 point in a graph is completely useless and wrong.

Lallante
September 18 2012, 08:09:09 PM
No you can not. Figuring out a trend from 1 point in a graph is completely useless and wrong.

You dont need the trend over time for this discussion. I refer to your earlier post:

A household that makes over 250k is upper class since it actually is in 1% range. Their consumption wouldn't change much. They already have so much disposable income they can afford everything they want 3 times over and a tax break for them would only end up in more saved money for them not more consumption. Unless you think people spend everything they have
I've just demonstrated that a houshold in the 250k bracket saves exactly the same proportion of their income as a household in the 25k bracket, thus disproving your point and demonstrating that a tax cut on a 250k earner provides the same economic stimulus as same tax cut on a 25k earner.

Zeekar
September 18 2012, 08:20:49 PM
You did nothing of the sort, and neither did I but feel free to claim otherwise.

Lallante
September 19 2012, 11:15:10 AM
You did nothing of the sort, and neither did I but feel free to claim otherwise.

lrn2statistics. Looking at a single point (as opposed to many years) means you can't make assumptions about what people did over time, but it DOES tell you the state people are in now, which is enough to disprove your claim.

Zeekar
September 19 2012, 12:17:34 PM
You did nothing of the sort, and neither did I but feel free to claim otherwise.

lrn2statistics. Looking at a single point (as opposed to many years) means you can't make assumptions about what people did over time, but it DOES tell you the state people are in now, which is enough to disprove your claim.

So its completely irrelevant to what we are discussing.

Nartek
September 19 2012, 01:15:59 PM
You did nothing of the sort, and neither did I but feel free to claim otherwise.

lrn2statistics. Looking at a single point (as opposed to many years) means you can't make assumptions about what people did over time, but it DOES tell you the state people are in now, which is enough to disprove your claim.

Getting back to the original argument:

Tax Cuts disproportionately help the wealthy unless those tax cuts are targeted.

Tax Rebates on the other hand, benefit the lower income levels, and it was thought that it would stimulte the economy. There are several different reasons for this:

1. Taxes affect the investment capability of the wealthy; but do not necessarily impact the "accustomed" lifestyle. It doesn't outright halt investment, which generates excess wealth, but it can "slim down" or even stagnate (no new money going in) higher income earners investing that money.

1a: Tax cuts for the wealthy aren't there to foment direct economic development; they're supposed to foster further investments into industry via portfolio building.

2: Taxes on the lower income level folks impact their month-to-month spending money, or, an easier way to say it is that taxes have a direct impact on the living conditions. While the amount may be smaller, the margins are also tighter, so a loss of 20 currency here or there can change things like what stores you shop at, what car payment you take on, etc...

2a: Tax cuts on lower income level folks have a more direct impact on the economy. An increase in income usually goes directly towards living expenses. (The money migrates into the economy more directly).

Caveats: There are a myriad of psychological/social reasons why tax cuts don't work the way they're intended to: First and foremost is, as I stated earlier, faith in the economy, and future. Those with the ability to save/invest, will do so, and will do so as safely as possible to ensure that their initial investment is not lost. For the lower income levels, this means not flowing the money out to the local economy, but putting it in a bank account. For the wealthy, this means shifting your investment scheme around to avoid risk; sometimes even moving that money in an investment that is almost unrelated to the economy, or, in the case of specific commodities (oil, for instance)... can lead to even more economic harm in the form of rising costs of living.

A Tax rebate, or windfall disproportionately has an economic benefit if you are in the lower income earning brackets; a large injection of cash enables purchasing of goods and services that may not seem economically feasible simply through lower taxes over the year. (In other words, if you want to provide a tax cut to the middle/working/etc... class, the best way to do it is by using the treasury as sort of a savings account for the taxpayer.)

Numbers and graphs are all wonderful, but you cannot discount the psychology behind what makes a person run for the beach, or run for shelter. If they lose faith in the system, you can count on hoarding. Similar phenomena is easily viewed in the UK when it is announced that there's going to be over 4 inches of snow: People start preparing for some sort of month long mini ice age, and shift their expenditures around to accomodate this new thought process. If a citizen thinks things are going to get worse; then they're going to do what they can to prepare for it. That means not placing the money in circulation. And the banks they save with do similar stuff. They will contract (shrink) their loan approval process to mitigate risk in the event of an economic downturn.

Lallante
September 19 2012, 01:21:54 PM
Nartek, I feel that I've disproven 2a EXCEPT in relation to the superwealthy (i.e. an equal tax cut on middle/high income people have the same impact as on low income) but I've gone over it so many times now I cant be bothered to do it again.

Tax rebates are also of no benefit to the lowest decile (or even quintile!) of the working population (and rarely any benefit to any of the non-working population). They only benefit those with a taxable income.

Synapse
September 19 2012, 07:19:16 PM
Nartek, I feel that I've disproven 2a EXCEPT in relation to the superwealthy (i.e. an equal tax cut on middle/high income people have the same impact as on low income) but I've gone over it so many times now I cant be bothered to do it again.

Tax rebates are also of no benefit to the lowest decile (or even quintile!) of the working population (and rarely any benefit to any of the non-working population). They only benefit those with a taxable income.

Lall maybe I need to go back and read more closely but I honestly see no way you can convince me that households which make below 50-70k a year (2 earners) are not going to spend essentially all of it. It's well known that most hosueholds in these groups have essentially no savings.

By contrast in the 200k-300k group the majority have a savings.

Just by taking the households who have savings, and making an assumption (which I think is an entirely reasonable) that households with savings will tend to put some of the money they get into that savings, it seems very clear to me that upper middle class households will stash more in the bank (or in stocks) than they will spend. I disagree that stock market spending really boosts the economy, as it goes to businesses, who again all have savings, and some of that is spent overseas as well.

If you give a tax break to the lowest earners who have no room for savings it seems irrefutable that they will spend it and they will spend it locally.

Pattern
September 19 2012, 07:22:03 PM
Compare renters with those with mortgages between those tax groups and Lalls argument becomes completely meaningless.



sent from a fone

Lallante
September 19 2012, 07:28:33 PM
Nartek, I feel that I've disproven 2a EXCEPT in relation to the superwealthy (i.e. an equal tax cut on middle/high income people have the same impact as on low income) but I've gone over it so many times now I cant be bothered to do it again.

Tax rebates are also of no benefit to the lowest decile (or even quintile!) of the working population (and rarely any benefit to any of the non-working population). They only benefit those with a taxable income.

Lall maybe I need to go back and read more closely but I honestly see no way you can convince me that households which make below 50-70k a year (2 earners) are not going to spend essentially all of it. It's well known that most hosueholds in these groups have essentially no savings.

By contrast in the 200k-300k group the majority have a savings.

Just by taking the households who have savings, and making an assumption (which I think is an entirely reasonable) that households with savings will tend to put some of the money they get into that savings, it seems very clear to me that upper middle class households will stash more in the bank (or in stocks) than they will spend. I disagree that stock market spending really boosts the economy, as it goes to businesses, who again all have savings, and some of that is spent overseas as well.

If you give a tax break to the lowest earners who have no room for savings it seems irrefutable that they will spend it and they will spend it locally.

We have the exact figures of what a 25k household has in savings/assets.
We have the exact figures of what a 250k household has in savings/assets.
The second figure is 10x the first.
I.e. both invest the same proportion of their income in the assets.

I think you are instead arguing that notwithstanding that both households invest the same proportion of their income in the assets, the TYPE of assets the richer group invests in (lets assume you are right and its more shares) matters.

When you buy shares you are buying them from someone else on the secondary market. Its only very very occasionally that shares are newly issued by the company.

That someone else now has more money, and they will likely spend it.

Your argument about businesses "saving more" is so dumb it hurts - who gets money the poor people spend on (for example) food? BUSINESSES. It makes zero difference, the economy benefits either way.

The only times a tax break doesnt benefit the economy in this way is:
- if its spent overseas;
- if its saved.

I'd say if anything, middle income people are the most likely to save (richer people invest in financial products or shares), especially when interest rates are so low that saving really has very little benefit.

Furthermore LOW income people, who you claim a tax break would generate the most economic benefit from, are actually very likely to put the extra cash towards paying off debt, which is like saving only even more useless to the economy.

As for spending overseas, I have no figures for this. I'm sure its an issue especially for the super rich. For the merely wealthy domestic workers (250k band), not so sure. Buying a holiday is a concern across the board.


Edit: Politically, I'm against tax breaks for anyone but the very poor, on social grounds, but hearing people make dumb economic claims is too good to let lie.

Zeekar
September 19 2012, 07:35:04 PM
Growth is important of those savings/assets not their current figure. Get that in your head. And having considerably more in savings is an indication of hoarding.

Lallante
September 19 2012, 07:40:28 PM
Growth is important of those savings/assets not their current figure. Get that in your head. And having considerably more in savings is an indication of hoarding.

The numbers are measures of wealth, not savings specifically.

Why is growth more important? The only important figures are the current ones, what people were doing 5 years ago or what they will be doing in 5 years time doesnt help you figure out what they will do now if you hand them a $5,000 tax rebate.

Synapse
September 19 2012, 08:39:39 PM
Lall using ad-hominem even in the srs bsns forum, why am I surprised? Why are you even posting here if you can't do it without calling someone "so dumb it hurts"?
Go back to general disc if you can't do this with some civility, ty. In the future I'll avoid discussing with you if it's not worth my time.

I think your assumption that businesses treat all their income streams equally isn't right at all. A business selling products is going to pass on much of that product sale to suppliers, employees and upkeep. A business selling equity is going to hold that planning on making a big purchase later on. Many companies (Microsoft is a great example) hold huge amounts of money just in case they need to buy a competitor or spot a market opportunity. Most of it is NOT immediately re-spent the way income from sales and services are, and what part of it is spent is held for several years or more. I really think you're oversimplifying your model of business spending and calling this concept "so dumb it hurts" is doing both of us a big disservice.

As you pointed out, assets and savings are two very different things. The "equity in automobiles" is a great example of this. Hardly a savings at all, just spending money in slow motion.

Furthermore, I'm not even sure the census data is being read correctly. The exact same table that puts "36,550" as the net worth of households in the $25,000 to $49,999 group also puts their net worth excluding home equity at 17,920, and their home equity at 25,827. Just those two together add up to more than the "total net worth" we're supposedly quoting here, so I'm not at all convinced you're reading the data right.

spasm
September 19 2012, 08:58:45 PM
Keep it civil. Attack the argument, not the person.

Lallante
September 19 2012, 09:33:44 PM
Lall using ad-hominem even in the srs bsns forum, why am I surprised? Why are you even posting here if you can't do it without calling someone "so dumb it hurts"?
Go back to general disc if you can't do this with some civility, ty. In the future I'll avoid discussing with you if it's not worth my time.

I think your assumption that businesses treat all their income streams equally isn't right at all. A business selling products is going to pass on much of that product sale to suppliers, employees and upkeep. A business selling equity is going to hold that planning on making a big purchase later on. Many companies (Microsoft is a great example) hold huge amounts of money just in case they need to buy a competitor or spot a market opportunity. Most of it is NOT immediately re-spent the way income from sales and services are, and what part of it is spent is held for several years or more. I really think you're oversimplifying your model of business spending and calling this concept "so dumb it hurts" is doing both of us a big disservice.

As you pointed out, assets and savings are two very different things. The "equity in automobiles" is a great example of this. Hardly a savings at all, just spending money in slow motion.

Furthermore, I'm not even sure the census data is being read correctly. The exact same table that puts "36,550" as the net worth of households in the $25,000 to $49,999 group also puts their net worth excluding home equity at 17,920, and their home equity at 25,827. Just those two together add up to more than the "total net worth" we're supposedly quoting here, so I'm not at all convinced you're reading the data right.
PRO TIP: If you are going to accuse someone of using an ad hom:
1. LEARN WHAT AN AD HOM ACTUALLY IS FIRST. Hint: Calling an argument "so dumb it hurts" is not an ad hom. The clue is in the word "hom". Look it up.
2. DON'T LET YOUR ACCUSATION ITSELF DESCEND INTO A SERIES OF AD HOMS.

Nice try though

When businesses issue new equity they do so usually to fund a major acquisition or expansion. In either case this is a lot of money pumped back into the economy. The idea that this is somehow "wasted" money (in the same way that savings undisputably are) or even that the Business will just put the proceeds in some account and leave it there demonstrates a complete lack of understanding of business. As a public company you almost certainly -could not- issue new shares just for the purpose of inflating your warchest (which comes exclusively from profits). The existing shareholders would go apeshit and refuse to approve the new share issue.

I'll say this again - when a company issues new shares, that money is almost inevitably for a specific purpose. It wont sit idle. Whatever the purpose is, thats the economic multiplier effect right there, and as good or better than spending by consumers on consumer products.

Similarly (and more significantly) when an entity (be it a person, fund, company or whatever) sells shares on the secondary market, this is very rarely for the purpose of inflating some savings account - it'll be used to buy more shares, or exit the market and be spent on other stuff. Either way its more multiplier effect.

The whole idea that poor consumer spending is somehow better for the economy than business or luxury spending is a nonsense that is in no way backed up by economic or business principles, let alone evidenced in reality.

Synapse
September 19 2012, 09:34:53 PM
In all fairness I think gramatically he called the arguement "so dumb it hurts" but I'm not convinced he really meant the arguement.

KathDougans
September 19 2012, 10:20:26 PM
Saw a few things relating to this a while back, figures are from 2010 or so, so not the latest.
This graph apparently shows the return for each $ spent doing various things.
http://i.imgur.com/7l1kA.jpg
source for these numbers was this:
http://www.economy.com/mark-zandi/documents/Senate-Finance-Committee-Unemployment%20Insurance-041410.pdf

No idea how credible these things are.

Victoria Steckersaurus
September 19 2012, 10:52:13 PM
We have the exact figures of what a 25k household has in savings/assets.
We have the exact figures of what a 250k household has in savings/assets.
The second figure is 10x the first.
I.e. both invest the same proportion of their income in the assets.



I'd like to point out the underlying assumption that got you from the third line to the fourth, and why it is probably false.

Both cases (25k and 250k) have the same proportion of savings/assets relative to income, at the time of the census. You are assuming that they got there by investing the same proportion of their income in assets and savings. The data does not say this.

The data we would need in order to make that claim would be the rate of (savings and investment in assets) relative to income. If it turned out that the proportion of savings/investment versus income was the same for both groups, that would back up your argument.

Now, your assumption that equal proportions of savings/assets means equal rates of savings/investment makes sense and is intuitive, but it is also very likely false. Here's why:

Between 2007 and 2010 (I think those were the dates) the middle class lost 40% of it's wealth. That's 40% of the value of savings and assets, gone. Much of that was due to the housing crash, financial crisis, etc. The census was taken in 2010 (right? I could be wrong there) and would therefore represent the decreased value of those assets for middle class families. The lower classes likely didn't lose as much because they didn't have as much to lose. As such, relative to their income, the middle class should have a good bit more, but it was wiped out by the financial/real estate crashes.

It is therefor quite possible that the middle and upper middle classes actually invested more in savings and assets, and then lost a bunch of it, ending up with equal proportions at the time of the census.

To put it in more abstract terms, you are looking at a single point on a graph of position vs time and making an assumption about velocity vs time. Specifically, you are assuming that velocity is constant.

Lallante
September 19 2012, 11:19:47 PM
We have the exact figures of what a 25k household has in savings/assets.
We have the exact figures of what a 250k household has in savings/assets.
The second figure is 10x the first.
I.e. both invest the same proportion of their income in the assets.



I'd like to point out the underlying assumption that got you from the third line to the fourth, and why it is probably false.

Both cases (25k and 250k) have the same proportion of savings/assets relative to income, at the time of the census. You are assuming that they got there by investing the same proportion of their income in assets and savings. The data does not say this.

The data we would need in order to make that claim would be the rate of (savings and investment in assets) relative to income. If it turned out that the proportion of savings/investment versus income was the same for both groups, that would back up your argument.

Now, your assumption that equal proportions of savings/assets means equal rates of savings/investment makes sense and is intuitive, but it is also very likely false. Here's why:

Between 2007 and 2010 (I think those were the dates) the middle class lost 40% of it's wealth. That's 40% of the value of savings and assets, gone. Much of that was due to the housing crash, financial crisis, etc. The census was taken in 2010 (right? I could be wrong there) and would therefore represent the decreased value of those assets for middle class families. The lower classes likely didn't lose as much because they didn't have as much to lose. As such, relative to their income, the middle class should have a good bit more, but it was wiped out by the financial/real estate crashes.

It is therefor quite possible that the middle and upper middle classes actually invested more in savings and assets, and then lost a bunch of it, ending up with equal proportions at the time of the census.

To put it in more abstract terms, you are looking at a single point on a graph of position vs time and making an assumption about velocity vs time. Specifically, you are assuming that velocity is constant.
I agree with everything you've said, but its a perfectly reasonable inference from the data even if its not airtight as it relies on the assumption that a given income bracket's "velocity" (and by velocity I actually mean "how much they contribute each year to wealth" not "how much their wealth changes in value each year" which is a very different figure) is not radically changing in the short term.

Your concern about the effect of asset valuation changes (eg house price crash) is therefore largely eliminated.

Lallante
September 19 2012, 11:22:35 PM
Saw a few things relating to this a while back, figures are from 2010 or so, so not the latest.
This graph apparently shows the return for each $ spent doing various things.
http://i.imgur.com/7l1kA.jpg
source for these numbers was this:
http://www.economy.com/mark-zandi/documents/Senate-Finance-Committee-Unemployment%20Insurance-041410.pdf

No idea how credible these things are.

Very interesting.

Hel OWeen
September 20 2012, 01:37:42 AM
Tax cuts on a whole leave more money in the pockets of the American people. Whether this money is in the pockets of the upper class or the poor, it doesn't really matter on an aggregate level as long as the people are spending the money that they otherwise would have had to pay Uncle Sam. In the end it will increase the overall size of the economy/GDP/etc. Tax cuts seem like a good idea here.


The problem with this is that you and I would most likely just consume, not invest the additional money. Which only has a limited and more importantly a very short term effect on economy. Once you went out with your best one for a good dinner, that money is gone.

The administration on the other hand might invest in infrastructure, education and the like. Although not impossible, it's not very likely that private households would start building roads with their tax reimbursement.

Victoria Steckersaurus
September 20 2012, 03:54:54 AM
I agree with everything you've said, but its a perfectly reasonable inference from the data even if its not airtight as it relies on the assumption that a given income bracket's "velocity" (and by velocity I actually mean "how much they contribute each year to wealth" not "how much their wealth changes in value each year" which is a very different figure) is not radically changing in the short term.

Your concern about the effect of asset valuation changes (eg house price crash) is therefore largely eliminated.[/QUOTE]

I didn't say that the contribution changed. Your earlier statement was that each bracket had the same rate of investment relative to income, and therefor that tax cuts for the poor would have no more impact than tax cuts for the not-so-poor.

Your support for this was the fact that each had the same level of investment relative to their income, therefor each had the same rate of saving/investing vs spending.

I'm pointing out that the data does not support the view that each has the same rate of investment, and therefor does not support your argument that tax cuts for the lower class are no more effective than for the middle class.

untilted
September 20 2012, 09:34:51 AM
Similarly (and more significantly) when an entity (be it a person, fund, company or whatever) sells shares on the secondary market, this is very rarely for the purpose of inflating some savings account - it'll be used to buy more shares, or exit the market and be spent on other stuff. Either way its more multiplier effect.

this whole line of reasoning goes out the window once you introduce financial derivatives.

in your example the amount of shares/"financial products" only changes with productive enterprises issuing more shares, the only options for shareholder is to a.) either hold shares for the dividend, b.) sell them to cash out or c.) buy them to get into the market (for dividends or a later cashout at higher prices). the total amount of shares is somewhat closely related to productive purposes - the dividends are the surplus extracted from production.

with financial derivatives you suddenly open a completly new field of investments that is detached from any productive enterprise. now it's possible to bet for/against stocks. unlike with shares of productive enterprises this isn't limited by the capital needed for productive purposes, it's just limited by others taking up the bets with/against you. as the usual constraints of productive enterprises (productivity, costs of production, etc.) don't apply to these ventures the "ROI" *can* be higher.

at the same time it has to be balanced (otherwise it would be fraudulent). as there's fundamentally no productive base for derivatives, there's no possibility to extract surplus directly from it. the ROI is in this sense no surplus that is created by increased production - it's actually a shifting around and manipulation of numbers. for someone to receive a gain from a prediction, someone else has to lose on that prediction. in itself it's a zero-sum game.

Lallante
September 20 2012, 01:32:05 PM
wrong. The profits from derivatives are "extracted". The fact that people make gains which are then invested elsewhere is the multiplyer effect.

Dorvil Barranis
September 20 2012, 07:51:06 PM
The problem with this is that you and I would most likely just consume, not invest the additional money. Which only has a limited and more importantly a very short term effect on economy. Once you went out with your best one for a good dinner, that money is gone.

The administration on the other hand might invest in infrastructure, education and the like. Although not impossible, it's not very likely that private households would start building roads with their tax reimbursement.

The money isn't gone after eating out, it has transferred to the restaurant and its employees, which can then spend it on other things as well. Circulation in the economy doesn't necessarily seem "short term" to me.

Lallante
September 20 2012, 07:52:29 PM
the important thing is velocity

KathDougans
September 20 2012, 09:24:05 PM
I do not know how things are in the US, but in the UK, there are substantial numbers of people who just do not have a culture of saving money, and have generally poor money management skills. They may be more common in lower earning groups, but that's not everywhere you'd see them.
I remember a few years back, an article that mentioned the post-communist wealthy in the former USSR, who had no concept of savings, and went through money at an incredible rate, in some cases only stopping buying things once they were absolutely flat broke. Fleets of cars that only had delivery mileage on them and so on.

In the UK though, this sort of thing might be shaped by how the benefits system works. If you have savings, then benefits are reduced, so for lower paid people who still receive some benefits, the savings accounts become a liability, so people don't hang onto the money they do earn. The system conditions people to spend, not save. Can also argue it conditions people into lying and fraud, but that's another matter.

As such, people like that would almost certainly spend anything they got from any change in the tax system.

Aramendel
September 21 2012, 08:02:53 AM
In all fairness I think gramatically he called the arguement "so dumb it hurts" but I'm not convinced he really meant the arguement.

Doesn't matter. If he calls the person that then he is insulting him/her, but he is not using ad-hom.

"You are stupid, therefore your argument is wrong." is ad-hom.
"You are stupid, your argument is wrong BECAUSE other stuff not related to person" isn't.

Strictly speaking even "You are stupid, your argument is wrong." isn't an ad-hom. There you insult the person and claim what they say is wrong (without saying why), but not connect both. If there is one it goes the other way, the person is stupid because of the fallacious argument he/she used.

Rudolf Miller
September 21 2012, 11:13:33 AM
I have a thread for this kind of thing (http://failheap-challenge.com/showthread.php?7587-Argue-with-style-Avoid-these-logical-fallacies)

Seriously, I love that poster.

On topic, I'd like to thank OP for bringing this up because I've been dropping knowledge against CATO posts on FB.

dpidcoe
September 21 2012, 11:01:30 PM
The problem with this is that you and I would most likely just consume, not invest the additional money. Which only has a limited and more importantly a very short term effect on economy. Once you went out with your best one for a good dinner, that money is gone.

The administration on the other hand might invest in infrastructure, education and the like. Although not impossible, it's not very likely that private households would start building roads with their tax reimbursement.
Which is pretty much why statements about "tax cuts" in general are completely useless and only serve as political fodder for people to sling around and get their respective bases riled up. Not only do different tax brackets spend different, but different rates don't even effect them in the same way.

The tax codes at this point (assuming we're still talking about the US) are so complex that statistics are almost meaningless. To throw a personal example out there, the school system that my mom worked for as an OT decided that all the OTs that weren't salaried would be changed over to private consultants for various reasons. As a result, the state now sees that as a 1 person company, and my mom is now taxed something like 50-60% on what the school is paying her (as opposed to the 30% or whatever the income bracket was previously for the same income). But on the other side of that, she can also deduct a bunch of stuff that wasn't previously deductible (computer, car, etc.). It still comes out to a higher tax bracket than before, but at least it's not 60% or whatever.

All that to say, I think it's rather pointless to argue about tax rates and their effect on the economy when what you pay depends on how clever you (or your accountant) are at moving money around. If the rate for a given bracket is increased 20%, but at the same time a bunch of deductions/exceptions/loopholes are introduced, people in the bracket might end up paying less as a result (or just move out of that bracket entirely). I'd actually be really curious to see what would happen if tax law was changed for a few years to just apply something like x%*([income]-[base standard of living]) to everyone, with a bit of tweaking each year as needed while people figure out how to game the new system.

Zumwalt
September 22 2012, 07:26:06 AM
All that to say, I think it's rather pointless to argue about tax rates and their effect on the economy when what you pay depends on how clever you (or your accountant) are at moving money around.

If you are able to lower your tax rate burden moving your money around, it is illegal.

Charitable contributions lower your tax liability, but it still is money leaving your pocket and going to another entity... leaving you just as poor. This is coming from a soon-to-be CPA

Synapse
October 5 2012, 11:17:57 PM
All that to say, I think it's rather pointless to argue about tax rates and their effect on the economy when what you pay depends on how clever you (or your accountant) are at moving money around.

If you are able to lower your tax rate burden moving your money around, it is illegal.

Charitable contributions lower your tax liability, but it still is money leaving your pocket and going to another entity... leaving you just as poor. This is coming from a soon-to-be CPA

Roth IRA conversions seem to be a great way to pay less taxes by moving money around in inventive ways, and quite legal.
http://www.forbes.com/sites/davidmarotta/2012/02/20/roth-ira-conversion-2012-are-you-a-good-candidate/