I had a question and I am looking for logic, not emotional responses to what is going on. I can only get anger from my less intellectual circles of people, so I figured I’d ask here.
Let’s say you have 2 piles of money, one is completely untaxed and the other is taxed at 35%. The pile of money that has 0% taxes is the one you pay salaries from and the other is the one you use to pad your bank account in the form of wealth you will accrue and not spend. If we wanted you to create more jobs, should we increase or decrease the taxes on the other pile of money?
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Feel free to reply to any comment by clicking the "Reply" button.Thank you all so much for calm rational discussion. I was concerned that it would be hard to find with this issue, even on this site.
Also, for clarity, I am speaking specifically about the corporate tax rate. I am also discussing one simple mechanic as a means of discussing the principle, not advocating a solution, so it does sound incredibly simplistic.
DJVJ311
Level 7
Dec 2, 2017
0
I think you might have oversimplified it. I do not have two piles of money. I have income. Out of that income I pay salaries, utilities, supplies, rent and other expenses. What is left is called profit which gets taxed at 35%. With the 65% I have left I can buy personal things which create jobs for those creating those things. And I can expand my business which creates more jobs. And I can leave some laying in the bank which gets loaned out to buy things that create more jobs. Money has value only when it moves and it is always moving. And when it moves it creates jobs.
80% of jobs are created by the middle class. The problem is not with the rich. The problem is with publicly held corporations. The stock holders want profit, there is no other reason for investing in stocks. So the corporations are motivated by profits only. Ethics do not inter into it. And there is your problem.
That and the 35% which goes to the government to make deals with the corporations and buy your vote.
TommyMeador
Level 7
Dec 2, 2017
0
Amazon aims to have 0 profit, generally runs at a loss and the investors seem to do quite well. The reason is that the "reinvestment in the company" comes before the taxation. Those are deductible business expenses. Salaries, new factories, all of it is before taxes. Therefor reducing the corporate tax rate makes it more beneficial to take money out of the companies and slow growth.
Are you disagreeing that
- Amazon has reported mostly losses
or - Amazon investors are making money?
Under Bill Clinton taxes on the wealthy and corporations was raised and we experienced the biggest growth in modern history. Trickle down economics does not work. Lowering taxes on the rich only further pads their bank accounts and does not go to the workers. giving money to the middle and lower economic classes stimulates the economy more than a tax break for the rich and infamous.
SageDave
Level 7
Dec 2, 2017
1
80% of jobs are created by the middle class.
DJVJ311, you approach this without allowing for another system of distributing wealth -- and no, I'm not talking about communism or socialism. The economy we labor with here is called capitalism, and it is indeed a good system, but it is also one that has been severely abused and misused. However, the question as asked doesn't have a simple answer, and here is why:
First, it is paramount for corporations (publicly held) to make sure their investors see profit on their investment. At the same time, the corporate heads want increasing basic profits each and every year. They also draw incredibly large salaries for their work. I have never seen an instant in the mainstream corporate world where when they were given any monetary breaks that it trickled down to their lower level employees, or if it did it was a pittance. Not all of them are this way and there are isolated cases where upper management has been generous with their base.
One simple example would be the Walton family who own Walmart. This group of people is arguably the wealthiest family in the United States, yet their employees haven't seen much improvement in their conditions at all since the company's founder, Sam Walton, relinquished control to the rest of the family. To square tax incentives with improvement for the middle and lower class one major element needs to be removed from the large corporate structure, and that is greed. The desire to have more when more is not needed or constructive -- to horde for the sake of having and the power it engenders.
Statement: Trickle down economy does not work, and it cannot be made to work using the thinking that is prevalent in corporate life.
Another statement: Economy is a fantasy. It is not real, nor has it ever been. It is merely a construct that allows us to carry on trade without too much burden and time. So, any 'economic' system that is in current use can easily be replaced with something else as long as cooperation is had, and there is the rub.
Here's another approach to economic liberty:
evidentialist
Level 8
Dec 2, 2017
1
I am particularly curious about this idea that reduction of corporate tax rates on profit somehow incentivizes spending on salaries and expenses including growth and expansion, which is already tax free. I am not arguing that trickle down works, but that if you wanted to try trickle down, you would increase corporate tax rates, not decrease them. The value to investors is based on both profit and growth with some large successful companies aiming to minimize profits. Investors in Amazon have not been left unsatisfied, even though the company tries to run at 0 profit, so I disagree with your linking of profit to success for investors.
(https://www.forbes.com/sites/jonmarkman/2017/05/23/the-amazon-era-no-profits-no-problem/#794ecd7f437a)
sidenote: I cannot watch that long video now, and will try to get to it later
I'd say decrease the tax on the persons wealth. If they have an abundance of wealth then they are more likely to
- re-invest it in their own company (improve facilities, worker bonuses, etc.)
- spend it on products, thus creating job opportunities
- make investments in other businesses
Tax is abused in modern society. The more you earn, the more you are taxed. This removes the incentive for people to become higher earners. They will end up paying more tax which will go to social welfare and end up in the hands of people who make bad life choices and are bad with their finances. Australia, the UK, the USA. These countries are suffering immensely because their governments have made horrible choices. Their leaders attempted to bribe people into voting for them using social welfare. It's gotten so bad in Australia that some people have given up on trying to get a job and just live on minimum wage payments from center link (WA welfare office).
Paying taxes to western governments in their current form is a bad investment. The only way to create more jobs is to tax people less and encourage children to go into higher earning professions like doctors, engineers, lawyers, etc. Placing too much power in the hands of a single organisation is destined to fail. The only organisations that is worse with money than the government are the police and military. Too much power, too much authority in one place leads to laziness and inefficiency.
In accordance with the values of equality, everyone in the country should be taxed the same percentage for their income. Excluding people without income. People who do not have jobs should be employed by the government to do things like picking up rubbish, maintaining public parks, etc. There is always some work somewhere that someone could be doing.
Excessive tax also encourages higher earners to migrate to other countries. It is wrong to assume that a nation can continue to raise the taxes of the upper classes because one day they and their money will leave. The social welfare system will collapse and the governments will go bankrupt because they can't pay all the unemployed people who claim it's their right to get money for nothing.
Lancer
Level 7
Dec 2, 2017
0
Lancer - Again you are on the wrong side of this argument. Trickle down economics has not and will not work because the wealthy keep their money in investments and pad their bank accounts. giving a major tax break to the working and lower classes actually put money back into the economy.
I am specifically talking about corporate taxes. That money is not and has not been taxed when used towards business expenses, salaries or reinvestment. That money already has a 0% tax rate. Since businesses use tons of their wealth towards buying influence with the government, it is valid to consider that money as part of the government system anyway. Your point #1 falls into the 0% taxation bracket already as those are expenses, not profit.
Once that money leaves corporations in the form of "profits" and dividends, then we need to consider into whose hands it is placed. When it is placed into the hands of the poorest, it is spent on products increasing the velocity of the money as in your point #2. When it ends up in the personal accounts of the wealthiest, it rarely is spent on products, and perhaps on investment in new companies as you mention in #3, but if that money remained inside the original corporation, that corporation itself can diversify and expand.
Are you suggesting taxes be paid on salaries by employers and employees?
JLFowler
Level 6
Dec 2, 2017
0
I am saying that under tax law, employee salaries are tax deductible expenses as always. Therefore reducing the tax on "profits" does not create jobs but instead incentivizes reducing jobs.
I'm unsure the problem, as stated, takes into account the complexities of economics or the motivations of corporations. It's not merely piles of money, but shareholders and cost cutting and maximized profits, etc., and people who dedicatedly study market forces for decades have difficulty isolating patterns and their effects on the overall economic system. It seems like you're hoping to simplify a very complex issue down to an easy solution, but I don't think that's possible.
resserts
Level 8
Dec 2, 2017
0
I agree, @silvereyes. Income disparity will eventually cause the economy to be so top-heavy that there will be too little consumer buying to sustain it. A strong middle class is the foundation of a strong economy, but the middle class is shrinking and employment is being chipped away by automation. Regardless of where the companies are located, the jobs are disappearing. At some point, that will mean a major economic collapse and require an economic revolution. But regarding the OP's question, my concern was that it was oversimplifying a complex issue and making a case, potentially, that taxing corporations at a lower rate would have a magical trickle-down effect for job creation, which maybe sounds good intuitively but doesn't prove out in the practical data. Corporate taxes over the last couple of decades has been extremely low, the corporate profits have been record-breaking, and yet employment and wages are in the dumpster. And, counterintuitively, historically when the top effective tax rate has been extremely high, the economy has flourished. When top tax rates are low, corporations seem to hoard the profits and it pays off for the executives and shareholders but never seems to find it's way to the workers.
I am not saying that this is the only factor. I am stating that this idea makes the word "counterintuitively" towards the end of your statement disappear.
After reading some of your responses on other comments, @DJVJ311, I have a better idea of what you mean. I think you're saying that by taxing their income at a higher rate they will have more incentive to put that money into the business and hire more staff to increase revenue in the long run. Is that correct? I think you may be right, and that may well be a contributing factor in why such high taxation in the past has bolstered the economy.
Yes. I am not talking about income or people (wealthy or otherwise). I am talking about these “corporate entities” that can either have expenses or profits, nothing else. Since expenses are always tax deductible, I don’t understand how reducing the corporate tax will stimulate reinvestment.
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