Tax The Rich!

[350HP930]

Velocity of money? I think the effect you are attempting to describe would be better labeled as the point of diminishing returns.

The velocity of money would only describe the rate at which money flows through some transactional manifold.

The relationship between that flow and the taxation of it and the 'sweet spot' you refer to is a classic 'point of dimishing return' problem.

Sorry to be such a wonk about terminology but we are awash in managers, technicians and engineers here so I just wanted to keep things straight.

The economics for engineers course that I took in college really drilled in the idea of looking for that sweet spot for any type of transactional system, whether it be manufacturing widgets or purchasing widgets.

Unfortunately my observations of how my government and big business operates indicate that too many people are more interested in looking out for just themselves in the short term instead of finding the appropriate sweet spots our entire economy needs to operate best over the long term.

[island911]

Originally posted by beepbeep
Correct. It's a "bathtub curve". Tax the people too much and amount of transactions will decrease. There is a certain point where increasing tax rate will give negative effect.

That being said, US tax rates are pretty low compared to other countries (and thay still doesn't expirience rampant black-market trade) so I really doubt that point of diminishing returns would be reached in US even if you substantially raised your tax rates.

Of course, this is open to debate. "Point of diminishing returns" is tied to populations expectations and preferences.
. . .

Yes, we here in the US do expect to have fewer encumbrances than than our overly burdened european examples. We also tend to react more quickly, on an individule level, to navigate toward prosperity. Combine that with our creative-solution culture, and you've got a population quick to circumvent overly-ambitious tax law.

[island911]

Originally posted by 350HP930
. . .
The velocity of money would only describe the rate at which money flows through some transactional manifold.
. . .
Sorry to be such a wonk about terminology but we are awash in managers, technicians and engineers here so I just wanted to keep things straight.
. . .

Note: I did supply a link to definition.

In short: if people take their paycheck, cash it, and stuff it under their matress, the number of transactions, which those dollars see, drops to zero. (V=0)

I was setting the concept of "velocity of money" to talk further about diminishing returns . . . not to define "velocity of money" as diminishing returns.

SHould we move on to the "acceleration of money"?

[island911]

RE: HP-"interested in looking out for just themselves in the short term instead of finding the appropriate sweet spots "

I don't believe there is *a* sweet-spot, actually.

I do think that there are margins to be taken advatage of (by the gov't) by continually changing the game. A cyclical (sinusoidal) moving target sweet spot takes advatage of an "inertia" w/in the people trying to keep up with it. (read: contiually changing tax law keeps more mushrooms growing. . .so to speak)

btw, HP, great emoticon . . .

[350HP930]

Why thank you. I think Wayne needs to update our emoticons. Quite a few good ones are missing but he is probably doing his best to keep his bandwidth costs down.

[CamB]

I have to formally thank Island for answering as I would (have, in the past), but in his own delightful words.

http://forums.pelicanparts.com/off-topic-discussions/148340-one-more-road-enjoy-post1164839.html?highlight=tax+dinner+restaurant#post1164839

My question for those who believe tax rate cuts generate more tax revenue:

- how much extra tax revenue (at a lower tax rate) is generated by $1 in tax cuts?

[island911]

Originally posted by CamB
. . .
My question for those who believe tax rate cuts generate more tax revenue:

- how much extra tax revenue (at a lower tax rate) is generated by $1 in tax cuts?

You wouldn't be trying to set-up a linear argument within a nonlinear circumstance. . .would ya?

[CamB]

Nah, I don't expect a (believable) black and white response. It isn't so much a set-up, as looking for people to explore the logic.

There is quite a lot to surmount if for no other reason than:

- $1 extra might be 80% saved (read "invested"), 20% spent, by those people who get the tax cut

Consumption will likely have some consumption tax effect (good for state tax) and general economic effect - more consumption = more jobs.

Investment might be in assets which have little or no prospect of federal tax benefit (eg a pimpier house - possibly with deductions to somehow further REDUCE tax).

And of course, they could be in companies, ideas, and growth.

How much is this? 70c to the $1? Who knows. Then, what percentage of that gets invested in new ideas rather than an increase of value of existing companies (more demand for existing companies' shares). 2/3? 1/3?

So, eventually some of the amount gets spent on new business/expansion, etc (Lets just call it 35c on the $1). What sort of tax benefit does it have? Benefit on income from that investment, so first you need to know what the return is (10% per year? 15% per year)? When does this return start (after 2 years?)? What is the tax on it (avg corporate tax?). Maybe 20% (of 15% =3% per annum of $35). Now given it gets reinvested there is a compounding effect, but 3% on the dollar (in my example) would take forever to build back up to.

There will be the consumption benefit from the extra spending by the company, and more jobs equals more tax payers = more tax. The 35c might generate 35c worth of sales and 15c worth of labour.

I could go on forever, but I'm a banker not an economist so I think I'm getting stuck on the details...

But in a round-about way, what I'm saying is that I don't believe that having $1 to invest will lead to a short or medium term (<5 years) tax benefit. To the extent that one can observe a growth in the total tax take ,

But it might work if it is all spent on consumption, or even all on growth and business expansion. But rich people are likely to save rather than consume.

[CamB]

I found some time to look a little further. From the liberal (but at least go to the "About Us" and see the comments on the quality of their analysis) Centre on Budget and Policy Priorities:

http://www.cbpp.org/3-19-04tax.htm

Happy to read evidence that proves otherwise (evidence should preferably be inflation adjusted).

[fintstone]

Their analysis is flawed. They cherry-pick their samples. The 70's and the 80's should have been compared as opposed to the 80's and 90's. The internet/fast computer bubble make the 90's an anomaly

[lendaddy]

Flint, I was going to post something similar regarding the cherry picking but am look ing for some more solid info. Little busy at work but I'll get it soon.

P.S. I am going to a dinner tonight and will be meeting Tom Delay. Should be fun.

[Superman]

Well, GW (all Republicans, actually) maintains that the deficit will go away eventually even though the budget is WAY out of balance, and that the most appropriate policy at this time is to lower taxes, particularly as incentives for investors (rich people and corporations) to infuse the economy with job-creating....yadda yadda yadda. And GW is half-right. History does repeat itself (although I'm not sure how he could know this). The deficit will get fixed the next time the man in the White House likes government, believes in government and knows how to make it work (the dems). In the meantime, we have anarchists trying to tear government, and the economy, down. Just recently, wall street was disappointed at earnings because their expectations were WAY higher than reality. Wall street should be doing better. The rebound we're seeing, which is surprizingly slow, is a natural thing when you consider we're rebounding from physical, social and economic devastation (9/11). It would be going better if our so-called "leader" understood government and economics.

So, it looks like pwd found something written by perhaps a conservative economist. I know there are a few of those, but they tend to be hard to find, in my experience. Of course, our own esteemed Steve W seems to understand economics too, but my experience is that economists who buy into "trickle-down economics" are rare indeed. Exceedingly rare.

[lendaddy]

Superman, I don't know how to say this, so I just will

You seem to constantly post things, matter-of-factly, that are so far removed from reality I cannot belive you accept them as fact let alone figure out where you get your info.

"So, it looks like pwd found something written by perhaps a conservative economist. I know there are a few of those, but they tend to be hard to find, in my experience."

Huh??? I will see what I can find later, but I would be willing to bet a 3LDZ turbo that economists tend to lean conservative.

"Just recently, wall street was disappointed at earnings because their expectations were WAY higher than reality. Wall street should be doing better. The rebound we're seeing, which is surprizingly slow"

Pardon??????

I mean wow man. Wall street is dangerouly close to being back where it was already, and this time without an obvious bubble.


Then there was your statement a while back where you equated conservative views as a product of their lack of education. I showed you a study proving the opposite, you were going to counter, but alas never did.

I think it's just the way you state your opinions as fact that abrades my skin

[speeder]

I recently heard the NY Times reporter (forgot his first name) Kluge being interviewed on the radio. They asked him whether Bush was the first President in U.S. history to lower taxes during a war, he replied that yes, he was, and furthermore as far as research is available he is the first leader in the history of the world to do so!

[fintstone]

How refreshing to have a true leader who can think outside of the box!

[speeder]

Originally posted by fintstone
How refreshing to have a true leader who can think outside of the box!

That is w/o question the most brilliant use of spin that I have ever seen in my life!

You need to send your resume into Bush/Cheney '04 immediately, dude, there is beucoup dinero waiting for your ass!

[Superman]

I don't mean to offend you, Lendaddy. On the subject of whether conservatives are better educated than liberals, that may be the case. That seems to be a popular conclusion, and there is reason to believe it is true. On the other hand, there is reason to believe the opposite. I never did find definitive research on this, but am admitting that conservatives, on the whole, may be better educated than conservatives. It so happens that Washington State has historically been considered a more liberal state, and it also so happens that we have more than our share of bachelor and especially master's degree holders here, according to what I have been led to believe.

On the subject of economists, I have worked with quite a few and rarely met a conservative one. Think about it. Where do economists work? Private businesses do not need them. Generally, economists work for the government. Not as internal anarchists, usually.

I was very conservative. Came from a conservative family. Grandad was the town banker. Dad ran the insurance company, was police chief and school board chairman, etc. I was led to believe that the conservative economic view is just complex enough to be true. Freedom for business creates jobs and away we go on the Prosperity Train. And that the liberal view was just too simple. Tax and spend, pu every lazy person on a free ride and hope working people can tolerate the weight of all that.

But for all of you geniuses who think you've figured out what you assume all economists know, listen to this: Society, including economics, is partly a you-get-what-you-pay-for proposition. Business did not build our roads. But business needs them, and insists that they have proper maintenance, capacity, etc. Movement of materials. We've got a real problem in the Seattle area. Business is not happy with the transportation situation. Business also did not build the water supply, or sanitary sewer system. Now, it's all well and fine to pretend that the way to build society is to "free" businesses, but businesses can only do as well as the infrastructure will allow.

Same with welfare, frankly. At some levels it is FAR CHEAPER to house and feed a lazy, unemployed drug addict than to not. On his own, he steals to support himself. What you buy with $1000, he steals and sells for $50. Since his lifestyle is expensive, he has to steal a lot of our stuff to make ends meet. For every $1000 he steals, in addition to replacement costs to us, filing a police report, going to the store for a replacement, etc. Then adding a new security door to your house. Then paying the police to process the report. Occasionally our addict gets arrested...more police time. Welfare is a bargain.

So, I changed. The conservative reconomic view was intellectually enticing, but in an oversimplified way. The liberal view, after being told of its "tax and spend" oversimplification, in the final analysis seems to be far more complex and circumspect, and descriptive of actual econometrics, than the proud popular view.

So yeah. I stick by what I have seen with my own eyes, the economists I have known and worked with.

I think it was Friday that the market had a little disappointment and I had heard it was because of expectations that were unrealistic. Expectations created a couple of months ago. It looks like everyone keeps expecting the Market to do better, even though you seem to be satisfied.

And finally, I just have to point this out: I was just trying to point out in another thread what a twisted logic path has to be followed to conclude that going to Vietnam as a combat soldier is not as good as getting your dad to get you into the Guard, but you guys apparently can twist the facts well enough to reach that conclusion. In a similar maneuver just above, someone points out that no leader in the entire history of the world has had the bad judgement to lower taxes during war, and the response is: "How refreshing to have a true leader who can think outside of the box!"

Unbelievable.

[CamB]

Originally posted by fintstone
Their analysis is flawed. They cherry-pick their samples. The 70's and the 80's should have been compared as opposed to the 80's and 90's. The internet/fast computer bubble make the 90's an anomaly

Lendaddy thought it was cherry picking too...

First, ignore the 90s. In the eighties, growth in tax was < growth in GDP. This is a bad start.

Second, just ignore the table and the bottom two paragraphs completely - the qualitative discussion suggests economists are pretty unsure about it as a concept (even quoting Republican economists).

Seriously, just think it through.

Spending is approx 20% of GDP in 2004 (from the budget - see data in this CBPP article: http://www.cbpp.org/4-14-04tax-sum.htm ).

Assuming tax remains at Bush's new level of 16% of GDP, GDP has to change (in real terms) by enough to make spending only 16% of GDP. For the maths challenged, this is a 25% increase in GDP in real terms (if tax revenues increase linearly with GDP, which I believe they have historically over time). It would need to be about half that to get back to an "acceptable" 2% deficit.

Given that any time GDP growth goes over 3% people get all excited, how is an extra 12.5% (let alone 25%) going to happen? Further, how long is it going to take? Forever, would be my guess.

This is a much better articulated, researched and knowledgeable description of the sorts of things that occur to me:

http://pages.stern.nyu.edu/~nroubini/SUPPLY.HTM

[cegerer]

" ...businesses can only do as well as the infrastructure will allow. "

Huh? You have it precisely backwards. Without "business" doing well, there is no money to build the infrastructure!!!!! Or are you describing a "trickle down" theory where you build the infrastruture with money you don't yet have in hopes that it will spur more business .....

BTW: what is the liberal definition of 'business'? Is the term interchangeable with 'big business'? Is my small engineering company part of the 'business' conspiracy? If so, I've missed out on all the meetings where they conspire to screw the little guy!

[BlueSkyJaunte]

I never did find definitive research on this, but am admitting that conservatives, on the whole, may be better educated than conservatives.

Superman make Bizarro brain hurt!!!