Taxing the Job Creators

Or, I suppose I could title it “Crafting Tax Policy Around Creating Economic Growth”, but that seems a little presumptuous, give it’s just a small mish-mash of half-formed musings.

Michael Arrington Spreads The Wealth

Michael Arrington believes in “trickle up” theory. “Wealth rises,” he says. “In the form of smoke, from the $100 bills I use to light my cigars!”

It occurs to me that the job creators are those that start and run small to mid-size businesses, mostly. If that’s the issue, why isn’t there more discussion of tax cuts or advantageous changes in tax policy for small businesses? Small businesses in the process of expanding or hiring are always strapped for cash, and tax bills (both federal and local) obligate hard decisions as regards to capital expenditures and labor expansion. Almost always, money that goes to pay the tax man, if kept, would go towards expanding the business or employing more people.

Wealthy individuals with high incomes are less likely to act as job creators, so it seems less likely, to me, that increased taxation on the wealthy would be a significant drag on the economy. They may invest their cash, but it’s unclear how much that investment does in terms of funding new hiring or innovation in new businesses, versus providing already solvent companies with a solid market capitalization, from which they produce pleasing dividends.

They may hire cooks and maids and gardeners, but it seems such hires are likely very low impact on the economy, and perhaps not the first things to go when a wealthy fellow pays an additional 3%-5% in taxes. Finally, it has been demonstrated that taxes on luxury items radically curtail the purchase of luxury goods, so it could be speculated that additional taxes on the wealthy would negatively impact those companies that produce luxury items. This is a negative, as those employed producing luxury items are better employed in such production than unemployed, but it seems to me that the overall impact on the economy is probably insignificant.

Thus, if the interest is in growing the economy through tax policy, a compromise position that raises taxes on the individual income of those making $250k+ per year, while offering significant tax advantages to small businesses making under $1 million per year, or offering a permanent per-employee tax break that allows small companies that employee a large number of people to pay virtually no federal taxes, would be a better way to stimulate economic growth.

Myself, I don’t care for the rhetoric of class envy. Complaining that the rich “didn’t build it themselves”, or that the wealthy aren’t “doing their fair share” has no resonance with me. I have no moral objection to the rich getting richer, and getting to keep more of their money. The top 2% pay half of all taxes, and that’s a lot. Those folks, as super-rich as they are, are doing their part. Even if Warren Buffet pays less as a percentage rate than his secretary.

However, it seems that we will need to raise revenue in addition to cutting spending (which seems, at best, a pipe dream, and I suspect we will eventually follow the Greek model), and there are probably worse places to raise revenue than increasing taxes on the wealthy, either in terms of income taxes or increases in capital gains taxes over a certain amount (and excluding the sale of primary residences), or even a minor wealth tax for folks who have assets in their name over some arbitrary sum. It seems to me raising taxes on the middle class, or on small businesses, would be more likely to put a drag on the economy.

The reverse of that last sentiment also seems to be true to me: that tax cuts on small businesses, and the middle class, would be more likely to spur economic growth. Although many factors, of course, contribute to economic growth, and tax policy doesn’t make or break the economy, one way or the other, in a vacuum. Until top marginal rates start approach 90%, but then, of course, you suffer another problem as regards revenue: compliance.

It just seems to me that most of the arguments seem to be about abstract things. That is: “The rich can afford it!” – “The rich already pay 80% of all taxes!” – “People with seven homes don’t need another tax break!” – “It’s their money! They earned it!”- “Rich people are greedy and only want more money!” – “You’re just jealous! And a taker! And lazy! What ever happened to self-reliance?” Etc. There doesn’t seem to be much objective discussion of what is meant by taxing the “job creators”, who creates the most jobs (small businesses, or sole proprietorships?), which tax cuts on which groups increases money flowing into the economy, or even who benefits and how much when the economy prospers.

Reaganomics has always been (IMO) unfairly vilified by many on the left (don’t get me started on the constant mischaracterization of the Laffer Curve), when the fact is the fundamental precept of “trickle down” economics makes good sense: cutting taxes at every level puts more money into the economy, and that rising tide lifts all boats. It just lifts the richer boats higher, but if the alternative is that we all sink, I don’t think that’s such a bad deal.

At some level, the tide will have risen as much as it can: that is, if the wealthy pay an effective 18% rate on their income and their taxes are cut to an effective 10%, it has ceased to trickle down in a meaningful way (this is not an assertion, just a theoretical example, real numbers would likely be different, but I think the principle would prove true). There seems to be ample evidence for this, in that the richer are richer than ever, and their wealth has been increasing on a steady curve, with no demonstrable benefit to the overall economy. While I’m not sympathetic to complaints that 1% of Americans control 34.5% of America’s wealth, such wealth concentration indicates a solid increase, over the past few decades, of the fortunes of the very wealthy in this country. I.e., the wealthier are much richer, they have much more money with which to create jobs, and they just aren’t doing it. Not because they are bad people or are evil or greedy, it’s just that tax cuts for the rich don’t produce jobs or economic growth in any meaningful sense. At least, not past a certain level. And we are well past that level.

To repeat myself, it seems to me there is an obvious reason those tax cuts don’t produce jobs or significant economic growth. Those very wealthy individuals don’t have any additional businesses they wish to create, people they need to higher, or local investments they are wanting to make or expand with that additional money. At least, not to the degree that impacts the economy.

Yet, it seems to me there are areas where an increase in money would find it’s way into new paychecks and new capital investments: small businesses and, to a lesser extent, the middle class. These are the folks without a surplus of money, but with people they would hire, if they could, and equipment or appliances that need to be replaced, or businesses they would start, if only they had the money. Yet an excellent opportunity for one side or the other to argue for making the middle class tax cuts permanent, or introducing a new generous small business tax cut, has passed again and again, as the two sides take their largely inflexible position on the Bush tax cuts. It’s all about either increasing taxes on the rich to raise revenue, or preserving existing tax cuts so that the rich can stimulate the economy with the extra money (although there seems to be little evidence of this, and certainly no compelling reason to think that it’s the best stimulation tax policy can make possible).

Put in the bluntest terms, I think Republicans would do well to cave on the Bush tax cuts for those making over $250k+, and build a coalition around making middle class tax cuts permanent, and coming up with some fresh tax cuts for small businesses with more than 3 non-contract employees and less than $1 million (or $3 million, perhaps) in total revenues.

Just letting the Bush tax cuts lapse may increase revenues to the federal treasury, but it’s not going to grow the economy.

41 Responses

  1. Great post, kevin. It should spark some interesting discussion, but I’m going to have to return to it this evening when I can focus on it. At first blush, I agree with much of what you say but think the discussion really is about how one defines a “small business.”

    I don’t think the SBA definition fits what you contemplate, i.e., SBA definition of “small business” is much larger. Somewhere I think I read that a bit over 3/4 of small businesses have only one employee (the owner), so I’m not convinced this is where the job creation engine lies.

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  2. “It occurs to me that the job creators are those that start and run small to mid-size businesses, mostly. If that’s the issue, why isn’t there more discussion of tax cuts or advantageous changes in tax policy for small businesses? ”

    You are mistaken. Most job growth is driven by medium to large corporations expanding, not small businesses.

    http://www.washingtonpost.com/wp-dyn/content/article/2009/07/07/AR2009070702650.html

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  3. “It just seems to me that most of the arguments seem to be about abstract things.”

    It’s over the nature of what constitutes justice, which has been argued about since Socrates and Plato.

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  4. @okiegirl: “. Somewhere I think I read that a bit over 3/4 of small businesses have only one employee (the owner), so I’m not convinced this is where the job creation engine lies.”

    Perhaps not, but it lies somewhere. However, that’s why I suggest advantageous tax breaks to small businesses with 3 or more non-contract employees.

    In 2008 there were 1,044,065 firms in the US with 5 to 9 employees. There were 633,141 firms with 10 to 19 employees, 526,307 firms with 20 to 99 employees, and so on. There’s a lot of potential job creation there.

    More here, but I think it’s safe to say that a great deal of job creation goes on in small businesses. Indeed, the two biggest employer categories are firms making between $1 million and $2.5 million in revenues per year (10,317,058 employees) and all firms making over $100 million in revenue per year (and 56,127,703) employees. If you combine the paid employees of businesses that ranged from less than $100k to $15 million in revenues, that’s 40 million paid employees right there. But that’s more, there tends to be a strong need to hire, and preserve investment in an employee, in small businesses.

    There is job creation there. Not all of it (much job creation is accomplished via innovation, and market shifts, and those are not things we can do much to affect in a positive way via legislation)

    Also, as regards to most small businesses being one 1 employee: every business that ever hired a second employee started out with only 1 guy. A successful 1-person business can use another person. And they contract out for services, as they have the cash to do it, which employees people. They start out doing their own invoices, then hire a company to do it. They start out answering their own phones, then hire an answering service. They start out designing their own website, then hire a company to do it.

    There’s job creation out there, folks. I can smell it.

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  5. @jnc4p: “You are mistaken. Most job growth is driven by medium to large corporations expanding, not small businesses.”

    Too early in the comments to completely disprove my thesis! Bad, jnc4p. Bad!

    To examine Pearlstein’s points: “Suffice it to say that, in terms of new job creation, the data show that most of it happens in a small number of very fast-growing companies that are no longer what most of us would consider small. ”

    Not sure if I read that correctly, but if he’s saying that in terms of new job creation, most of it happens in a small number of very fast-growing companies that are no longer small, but were in the very recent past, I would not disagree with that. Still, just because a small business grows enough that it is no longer small does not, to me, suggest that the seed for that job creation was not within the original small business, before it became mid-size.

    Also, more to his point, I’m not arguing that all job creation stems from small businesses (some of whom will, necessarily, no longer be small businesses at the end of their job creation cycle). Only that there is job creation there, and that it seems like a reasonable place to look when looking for areas to create jobs. If 43 million of the 121 million people gainfully employed in 2007 worked at a company with less than 100 employees, it tends to suggest to me that small business, while not the alpha and omega, is not insignificant, either. However, given that 38 million people work at companies with 500 to 5000 employees, crafting policy designed to spur employment in such companies might also be wise.

    Certainly, it would make for a useful debate than what we get most of the time.

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  6. The problem with a deal is that Republicans will approach the fiscal cliff from the standpoint of “what happens to economic growth?” obama only cares about “fairness.”

    Two completely different priorities means both sides will talk past each other.

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  7. I actually agree 100% with Kevin, especially taking into account the CRS report on taxing the wealthy and how lowering their taxes does not create jobs. The Bush Tax Cuts need to go, and BRENT NYITRAY, if the Republicans were truly concerned with “what happens to economic growth”, there never would have been Bush Tax Cuts to begin with. Reducing taxes for the small to middle businesses in various ways, including removing tax breaks for those companies sending jobs overseas or insourcing from overseas and giving those breaks to the companies retaining American workers is a no-brainer.

    I am a lifetime IT person who has over 31 years of experience and am currently employed in a “temporary, part-time, as-needed basis” and am lucky to get to work 2 days a week. In the past 10 years, my job has been outsourced 4 times, with myself being unemployed or underemployed for a total of 4 years out of the last 10, not counting my “2 days a week job” that I have had for over a year now. I still have 9 years left before I can even consider retiring (full retirement). And yet, those companies that outsourced my job have all seen record breaking earnings year after year (even now) and I’ve seen the C*O’s receive bonuses in excess of $20m each year, while our benefits were taken away (all paid vac, paid holidays, even paid bereavement leave, with paycuts after already accepting the position at a 40% reduction) and then our jobs sent elsewhere. Outsourcing is a HUGE issue for me personally.

    Let’s just hope our current administration and Congress are able to actually compromise and come up with a plan that truly helps America grow, internally, and not growth for just a select few.

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  8. @Geanie: “if the Republicans were truly concerned with “what happens to economic growth”, there never would have been Bush Tax Cuts to begin with.”

    I disagree with that, I think many if not most consider the Bush Tax Cuts to be a good strategy to get money back into the hands of the “job creators” and get the economy moving. I’m not unconvinced that things aren’t better now than they would have been, without the middle class portion of that tax cut. But I think many of them are concerned with the justice side of the argument, that “punitive” taxes on the wealthy punishes success, and is morally unfair, and antithetical to the self-made, by-their-bootstraps American tradition.

    I just suspect, as I think you do, there may be a better strategy to pursue in getting money into the hands of the folks who create jobs in a more timely fashion.

    “Outsourcing is a HUGE issue for me personally.”

    Outsourcing is a big issue for those personally affected, and a big issue in regards to the US economy. On the one hand, it gives: cheaper products, more competitive companies, great efficiencies (sometimes). On the other, it takes away: local employment, local manufacturing, local taxes.

    It’s unlikely outsourcing is a permanent problem, at least at this level. Competition for talented people can drive wages up in other markets, and their improving economies will end up slowly (perhaps very slowly) eroding the price advantage that outsourcing provides.

    Also, some outsourcing is local. It’s outside of the company, but the business goes to small US companies. Which is not necessarily a bad thing.

    The only way I see to fight outsourcing, especially in high-tech jobs, is to bring all the talent to America—that is, having an open immigration policy as regards tech workers. That doesn’t necessarily help natural US citizens, but gets them in a market where their wages will have to be higher, US taxes paid, and much of their money invested in the local economy. We could also put punitive taxes on outsourcing, but it will end up being the consumer bearing the cost, so that might not go over well in the long run.

    “Let’s just hope our current administration and Congress are able to actually compromise and come up with a plan that truly helps America grow, internally, and not growth for just a select few.”

    That would be nice, but I’m not holding my breath.

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  9. @Geanie:

    I think “outsourcing” tends to be looked at too broadly. Outsourcing call centers to save money is one sort, and of course a lot of that goes on.

    However, in order to access these developing markets, you often have to build it there to sell it there. A motorcycle built in the US and shipped to India isn’t going to be able to compete with one made there, especially if tariffs are involved.

    That sort of “outsourcing” doesn’t hurt anyone in the US, and it is a good thing, not a bad thing.

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  10. @Mike

    For “middle out” economics to make the sale, the economy has to markedly improve. If obama gets his way with the fiscal cliff and the economy weakens anyway (or goes into a recession), people will get turned off.

    Especially if he raises rates, the economy goes into a recession and receipts fall.

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  11. The whole ‘job creator’ meme is a complete whitewash. Nobody creates jobs out of altruism or as way to spend pre-tax profits. All employment growth is demand driven. All businesses, small or large, must have projected revenues that justify adding positions to achieve that revenue. It’s all about return on investment, not marginal tax rate.

    As for tax rates, there is the matter of effectiveness and fairness, two very different concepts. You tax the rich for the same reason Willie Sutton robbed banks, it’s where the money is. Robbing Paul in the form of regressive (and I use that word simply to open that can of worms) payroll taxes just to pay Paul with vouchers (such as Food Stamps and Section 8 housing) because Paul’s after-tax income now no longer supports his (or her in the case of Paula) family is just madness. It’s all about marginal utility. The rich need their marginal dollar less than the poor, so more of it should be taxed.

    And finally, THERE IS NO LAFFER CURVE. In a progressive tax structure it is only the marginal income that gets taxed at increasingly higher rates. Revenues approach a limit asymptotically. You do reach the point of diminishing returns, but you don’t fall down a slope. And yes, at some point a high income person will forgo additional income on the premise that the extra effort isn’t worth the net proceeds. All that does is open up economic opportunity for someone else either farther down the rate structure or someone willing to accept a lower ROI from the higher tax rate. Remember, growth is demand driven and someone will find the demand worth pursuing.

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  12. “It occurs to me that the job creators are those that start and run small to mid-size businesses, mostly.”

    No, job creators are everyone who participates in the exchange of goods and services. When I pay someone to take care of my kids, I am a job creator. It is not the act of starting a business that creates a job, but the act of demanding more from the business than it can supply with existing resources.

    The idea of using the tax code to incent some mythical class of benefactors to create jobs is based on a fundamental misunderstanding of how the real economy works.

    “if the interest is in growing the economy through tax policy, a compromise position that raises taxes on the individual income of those making $250k+ per year, while offering significant tax advantages to small businesses making under $1 million per year, or offering a permanent per-employee tax break that allows small companies that employee a large number of people to pay virtually no federal taxes, would be a better way to stimulate economic growth.”

    Perhaps, but the premise that tax policy is an effective tool for growing the economy is a poor one with which to start.

    “The reverse of that last sentiment also seems to be true to me: that tax cuts on small businesses, and the middle class, would be more likely to spur economic growth. Although many factors, of course, contribute to economic growth, and tax policy doesn’t make or break the economy, one way or the other, in a vacuum. ”

    We’re in agreement here. However, as has been noted elsewhere, an increasing share of the population is paying zero income tax, and we’ve all been enjoying a payroll tax cut. Whatever stimulative effect can be gained from tax cuts has likely already been gained. It is time to begin phasing those cuts out – for everyone – perhaps triggered by hitting economic growth targets.

    ” it seems to me there are areas where an increase in money would find it’s way into new paychecks and new capital investments: small businesses and, to a lesser extent, the middle class. These are the folks without a surplus of money, but with people they would hire, if they could, and equipment or appliances that need to be replaced, or businesses they would start, if only they had the money.”

    The problem is one of cash flow. Most households have dwindling disposable incomes. For a long time cheap consumer debt masked the flattening of wage growth. The economy continued growing, but income did not, for most households; or did not grow at the same rate as the economy. However, consumption did keep pace, largely through consumer level deficit spending. A long term fix to the economy will have to reestablish wage growth for all of us such that it keeps pace with the economy, overall. When there is lopsided cash flow – i.e. more going in one direction than another – problems are inevitable, as the system is out of balance. We see this with the trade deficit, with the federal deficit, at the consumer level and elsewhere. In all those examples, a little imbalance is fine, here are there, or temporarily.

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  13. I think Brian makes a good point. The time to look at stimulating supply is when supply is short. 1946 is the classic example.

    However, in one sense, supply can create demand: when an innovation like the pc or the smart phone or earlier the radio or the TV creates a new market.

    Tax policy cannot do much about any of this except at the edges, unless you are talking about confiscatory policy strangling a sector.

    Or so I think.

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  14. “In a progressive tax structure it is only the marginal income that gets taxed at increasingly higher rates”

    Which is inherently unfair. I’m no more responsible for the common good than any other.

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  15. yellojkt: “All employment growth is demand driven.”

    And at any given point, there are businesses of varying sizes where there is a demand for new employee or capital investments that have to be weighed against income. Nobody, least of all me, is suggesting that companies create jobs out of altruism, or just to have something to do with pre-tax profits. The more money they can make without spending more money, they’ll happily take that approach.

    “You tax the rich for the same reason Willie Sutton robbed banks, it’s where the money is.”

    There’s actually a great deal of tax money to be had with the middle-class. They do not have the wealth of the top 10%, to be sure, but there are many, many more of them. The question is, is that money better spent by the middle class (or saved, though less likely) in their local economies, or perhaps on the Internet with mostly US retailers, or is that money better spent by the government. And does increasing their taxes ultimately create a drag on the economy and creates a drag on tax receipts?

    “The rich need their marginal dollar less than the poor, so more of it should be taxed.”

    Not sure “should” is the word, really. “Should” by itself is a matter of an opinion. I think perhaps that if the public at large wishes to live in a society with a set of government services like those we enjoy (or at least a majority, as represented by who they elect to office), then revenue must be raised to pay for it, and the system used (though unfair) is the system one must accept to play in this particular playground. And, yes, taxing the poor is unproductive, but taxing the middle class is a little more of a gray area.

    “And finally, THERE IS NO LAFFER CURVE.”

    Yes, there is. Unless one wants to argue that at a 0% tax rate you will still have tax revenue coming in. It is the statement of a principle, as is E=mc². Just because you’re not currently engaged in nuclear fission, the principle still stands.

    “In a progressive tax structure it is only the marginal income that gets taxed at increasingly higher rates.”

    And at a 0% tax rate on those top marginal rates, you would get no income in those top marginal rates. At a 100% tax rate on those top marginal rates, you would get virtually no income from those top marginal rates, because nobody would ever show income in those 100% brackets: it would all either be sheltered, realized in some way that was taxed at a lower rate, or there would simply be no compliance. Put another way:

    THERE IS INDEED A LAFFER CURVE.

    Indeed, if there wasn’t a Laffer curve, there’d be no need for marginal tax rates: all income could be taxed at the same high rate, and the revenue would pour in.

    “but you don’t fall down a slope.”

    You do as regards to income taxes in the very highest brackets. Add a 100% bracket for folks all income over $1 million dollars, and suddenly, somehow, nobody will be making over $999,999.99 . . . at least, not on their income tax returns.

    “And yes, at some point a high income person will forgo additional income on the premise that the extra effort isn’t worth the net proceeds.”

    History tends to indicate that people, rather than forgo the income, take it in ways that don’t get so heavily taxed, or they don’t comply, or they take it under the table, or they take it in untaxed perquisites. Thus, lowering net receipts on the income that is so taxed. Which is the principle illustrated by the Laffer Curve.

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  16. @bsimon1970: “However, as has been noted elsewhere, an increasing share of the population is paying zero income tax, and we’ve all been enjoying a payroll tax cut. Whatever stimulative effect can be gained from tax cuts has likely already been gained.”

    I find this entirely plausible, and it would be the companion to my argument that tax reductions on the rich—while they could potentially have a stimulative effect when moving from a 79% top bracket to a, say, 50% top bracket—are probably maxed out. Which, as you argue, leaves us nothing to do with tax policy one way or the other that would have a potentially stimulative effect on the economy. Except perhaps tax breaks for start ups, venture capitalists, or R&D—that is, policy that encourages (or subsidizes) innovation?

    Otherwise, is there any policy, tax or otherwise, that could encourage real economic growth?

    @novahockey: “Which is inherently unfair. I’m no more responsible for the common good than any other.”

    Yes, it is, but democratic republicanism is inherently unfair (as is any form of majority rule). When a group of elective representatives get to decide the rules we all play under, even when 49% of us disagree with them and want different rules, it’s unfair. Tyranny of the majority is unfair, but perhaps the best system we’ve managed to come up with so far.

    I don’t think there is a fair solution. A flat tax that taxes everybody equally places a much greater burden on the poor and middle class than it does the rich, which is unfair. A progressive tax that takes more of your money because you work harder, are smarter, or more successful, or even just luckier than I am: that’s not fair, either. Pursuing fairness in taxation is like hunting unicorns. It would be lovely if it were real, but it’s not. Chasing the ideal of “fair and just” taxation seems unproductive to me. That is, if a flat tax makes for the most robust economy, lets do that. If a highly progressive tax makes for the most robust economy, then lets do that instead. Whichever system provides the incentives to employee, to create, to innovate, or at least the fewest disincentives: let’s do that.

    The question is: what is that? Whatever it is, I’m pretty sure it’s not fair.

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  17. Which is inherently unfair. I’m no more responsible for the common good than any other.

    We just need to split the federal budget 300 million ways and throw into jail anybody who can’t pony up their share. Or perhaps just restrict it to landed freemen like the Founding Fathers envisioned.

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  18. History tends to indicate that people, rather than forgo the income, take it in ways that don’t get so heavily taxed,

    Money is fungible. Hence the reason to not treat capital gains as a different and preferential form of income.

    Chasing the ideal of “fair and just” taxation seems unproductive to me. That is, if a flat tax makes for the most robust economy, lets do that. If a highly progressive tax makes for the most robust economy, then lets do that instead. Whichever system provides the incentives to employee, to create, to innovate, or at least the fewest disincentives: let’s do that.

    And exactly what I said:
    As for tax rates, there is the matter of effectiveness and fairness, two very different concepts.

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  19. “When a group of elective representatives get to decide the rules we all play under, even when 49% of us disagree with them and want different rules, it’s unfair. ”

    But fairness isn’t the end goal

    The system is supposed to protect individual liberties first and foremost. The entire income tax system violates my civil liberties, which is why we even have government. not to be fair, not to educate the neighbor’s kid, or to care for the old lady down the street.

    http://www.cato.org/pubs/tbb/tbb-0204-2.html

    (my favorite is number 9 — the 4th amendment argument — and i do understand that courts have rejected these arguments)

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    • The entire income tax system violates my civil liberties, which is why we even have government.

      So we are back to the ‘Taxes are theft.” canard. There is no discussion possible working from that premise.

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  20. @yellojkt: “We just need to split the federal budget 300 million ways and throw into jail anybody who can’t pony up their share.”

    That would be unfair.

    “Or perhaps just restrict it to landed freemen like the Founding Fathers envisioned.”

    I think it should be self-evident why that would also be unfair.

    Of course, the franchise is unfair as it is. 18 is an arbitrary limit: why can 17 year olds not vote? Is their future not at stake? And why not convicted felons? Federal and local elections clearly impact them more than most.

    If we were just to tax landed freemen, that would also be unfair.

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  21. not all taxes.

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  22. That would be unfair.

    So we are concluding that ability to pay is a factor to be considered? The entire tax system is just a way of determining how much blood to squeeze from each turnip.

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  23. @novahockey: “But fairness isn’t the end goal”

    We agree on that! I’m not sure the income tax system puts an undue burden, or represents an undue restriction, on our civil liberties. At worst, it’s a minor bit of theft (or a major bit, if you make enough).

    “not to be fair,”

    I agree that we did not establish our government for that, which is a good thing. It is not an attainable goal, to be perfectly fair, or ensure that all citizens lead lives of perfectly fair treatment. As for the rest:

    “not to educate the neighbor’s kid, or to care for the old lady down the street.”

    I don’t know that we established our government to not do those things, either. It seems to me we established a government that could do those things, if the electorate so chose. I would argue that not only is educating our neighbor’s kid a good idea, education should be compulsory (a condition for citizenship), and that it needs a lot more rote memorization and knuckle-cracking. A highly skilled citizenry is a net good (not the least of which is the good it does the skilled individual). Admittedly, this curtails the citizens right to either be uneducated and ignorant, or to raise their kids as uneducated and unskilled, but I find myself unmoved by the violation of civil liberties entailed by such requirements. Arguably, it could be a mandate rather than tax dollars, but I suspect it’s still a violation of an idealized sense of perfect civil liberties.

    Tangent: As for what we actually get (at least, my observations raising my children), is good education diluted with pointless projects that are mostly executed by the parents and teach the child next to nothing. This is a waste of valuable learning time and tax dollars, in my opinion, but again: by and large, we get the government we deserve.

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  24. yellojkt: “So we are back to the ‘Taxes are theft.” canard. There is no discussion possible working from that premise.”

    Sure there is: challenge the premise. They take ’em. Whether I want them to or not. One can argue it’s just a condition of working in America (or any country) that we agree to when we look to make money, but paying money to the mob running a protection racket can be a condition to running a business in a certain neighborhood. Is that theft? Why is it theft when the mob does it but it isn’t with the US government does it?

    I earn money, the government takes it whether I want them to or not. If I want them to, it’s a gift, I guess. If I don’t, it’s theft. Or indentured servitude at the least: I get services (protection!) from the money they liberate from my wallet, but my choice as to what exactly I get for my money is severely limited. It’s like my boss forcing me to buy copies of his horrible book as a condition of my ongoing employment. 😉

    In a sense, taxes are theft, at least for some people. Participation in the system is not voluntary, so they are “theft” in the same sense paying protection money to the mob is “theft”. However, given the need for military protection, police and fire departments, and the preferability to having our highway system not be entirely made up of toll roads (theft!), it’s “theft with benefits”.

    Of course, if we want to talk about theft, let’s talk about land ownership. 😉

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    • To go all Kenyan crypto-Marxist, property is theft.

      To extend your metaphor, writing tax law is just negotiating the terms of the protection racket between the shopowner and the mob goons. In which case we are back to a neo-libertarian concept that any agreement between willing (or coerced since coercion is just a way of gaining consent by making one party want to avoid even more undesirable alternatives) participants is legitimate. No system could possible work under unanimous consent and there will always be disgruntled parties crying “Unfair!” or “Violation of natural rights!” so we elect people to do these negotiations for us. It’s a perfectly valid division of labor. We perform tasks we are best suited to do and our ‘leaders’ (who are really selected by us) determine what portion of our effort we are ‘forced’ to give away and under what rules.

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  25. All businesses, small or large, must have projected revenues that justify adding positions to achieve that revenue. It’s all about return on investment, not marginal tax rate.

    Yes, and “return on investment” is an after-tax number. If a project has some probability of working and some probability of not working, you calculate the expected value and if the internal rate of return is higher than your cost of capital you do it.

    If you increase taxes, you are lowering the after-tax returns, which turns marginally economic projects into non-economic projects. Pretty much by definition.

    The “lets just boost demand and businesses will expand” has not worked well (if at all) in Japan. Regulations and taxes, which lower after-tax returns on investment matter.

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  26. “determine what portion of our effort we are ‘forced’ to give away and under what rules.”

    perfectly legit. and their are ways to do that that respect civil liberties.

    OT: we were talking about what happens to Ryan. There’s talk about changing the committee structure and creating a new committee that would have jursidiction over all health care matters. Basically, strip it from W&M and E&C and put in the new committee. Ryan’s name being floated to chair. i think the new committee is unlikely to happen.

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  27. also, the circular firing squad among health care providers is spilling into the open re: deficit reduction. the AHA just threw everyone else, including beneficiaries, in front of the bus. their plan would raise retirement age, limit medigap coverage, increase part B premiums, etc.

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  28. Brent Nyitray: “Regulations and taxes … matter”

    Indeed they do. Particularly, barriers to starting a business, and remaining in business, matter. Sometimes I wonder which matters the most. I think difficulty in starting a business, particularly in certain sectors, matters significantly. The economic performance of countries with very low barriers to entry into the marketplace tend to have more robust economies than countries with very high barriers to entry.

    Or, that’s how I remember it. Mostly, my memories come from interviews with John Stossel and Herando Desoto’s The Mystery of Capital. In which he argues that strong and reliable banking, and the ability to accumulate capital and own property are also prerequisites to a strong economy (that is, if you can’t mortgage your house to start a business, you’re that much less likely to start a business).

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  29. @novahockey: ” limit medigap coverage”

    Why limit medigap coverage? Or, what medigap coverage is being limited? Will I know longer be able to purchase low cost killer robot insurance?

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  30. prohibit the plans from covering the first $500 of Medicare cost sharing. limit coverage to 50% of the next $5000 in cost-sharing.

    Medigap is a big cost driver as it insulates people from the cost of care by reducing their out-of-pocket exposure. there’s pretty broad agreement that is an area to reduce cost. Except AARP, which is basically a marketing firm for these plans .

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  31. In which he argues that strong and reliable banking, and the ability to accumulate capital and own property are also prerequisites to a strong economy (that is, if you can’t mortgage your house to start a business, you’re that much less likely to start a business).

    Rule of Law and Property Rights are the cornerstones of capitalist society. Without them there is not enough trust in the system to make long-term investments. This is independent of the use of real property as collateral. It’s just a less invasive source than what it succeeded, kneecaps and/or pounds of flesh.

    The use of a personal residence as a source of business capital is fraught with its own problems, particularly in down markets or burst bubbles. Remember, the banker is never your friend.

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  32. perfectly legit. and their are ways to do that that respect civil liberties.

    Still trying to figure out what civil liberty a progressive income tax violates that a property tax, excise tax, inheritance tax, transaction tax, sales tax, head tax, carbon tax or calorie tax doesn’t. Sounds like a rather fine distinction to me.

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  33. consumption-based taxes, like a sales tax — respects my privacy rights more than a bunch of those other ones. tax consumption at the point of sale. much better than the income and inheritance from a civil liberties perspective. while they still have some intrusiveness to them, it’s greatly reduced

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  34. also, the circular firing squad among health care providers is spilling into the open re: deficit reduction. the AHA just threw everyone else, including beneficiaries, in front of the bus. their plan would raise retirement age, limit medigap coverage, increase part B premiums, etc.

    Shocker. You probably have a better grasp of this than I do, nova, there seems to be a fundamental unwillingness for the various interested parties to acknowledge that someone is going to end up with less money after health care reform. The AHA is saying it should be beneficiaries, insurers and doctors. I presume doctors will say it should be beneficiaries, insurers and hospitals. or they’ll shift the money to hospitals and become employees or otherwise more closely aligned with hospitals. At least beneficiaries get to vote otherwise they would have no say.

    Have you followed what Michigan is doing with Blue Cross Blue Shield?

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  35. I expect a lot of consolidation — hospitals buying physician practices. AHA is messing themselves over cuts to evaluation and management codes. and everyone is eyeing the beneficiaires.

    I haven’t heard what BCBS is doing in Michigan.

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  36. yellojkt, on November 14, 2012 at 9:43 pm said:

    “And finally, THERE IS NO LAFFER CURVE. In a progressive tax structure it is only the marginal income that gets taxed at increasingly higher rates. Revenues approach a limit asymptotically. You do reach the point of diminishing returns, but you don’t fall down a slope. And yes, at some point a high income person will forgo additional income on the premise that the extra effort isn’t worth the net proceeds. “

    Yes there is. People don’t stop working, they shift and mask the income to avoid taxes. Otherwise you would have seen a much greater percentage of GDP captured in the 1950’s when marginal rates were higher.

    “It’s all about marginal utility. The rich need their marginal dollar less than the poor, so more of it should be taxed.”

    No it’s not. It’s also about justice.

    “So we are back to the ‘Taxes are theft.” canard. There is no discussion possible working from that premise.”

    Correct. We do not have a shared value system. Our notions of justice are fundamentally incompatible.

    “yellojkt, on November 15, 2012 at 8:41 am said:

    Which is inherently unfair. I’m no more responsible for the common good than any other.

    We just need to split the federal budget 300 million ways and throw into jail anybody who can’t pony up their share. Or perhaps just restrict it to landed freemen like the Founding Fathers envisioned.”

    Or give citizens voting power in proportion with the tax rates they pay, i.e. the ability to vote their shares. If they are in the lowest tax rate of say a five tier system they get one vote. In the top bracket, they get five votes.

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  37. “Brent Nyitray, on November 15, 2012 at 9:24 am said: Edit Comment

    All businesses, small or large, must have projected revenues that justify adding positions to achieve that revenue. It’s all about return on investment, not marginal tax rate.

    Yes, and “return on investment” is an after-tax number. If a project has some probability of working and some probability of not working, you calculate the expected value and if the internal rate of return is higher than your cost of capital you do it.”

    Bingo. This logic also applies to say the viability of leveraged buyouts due to the tax treatment of debt based inquisitions vs equity based acquisitions.

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  38. This logic also applies to say the viability of leveraged buyouts due to the tax treatment of debt based inquisitions vs equity based acquisitions.

    Leverage is a double-edged sword. It increases your upside while increasing your chance of failure.

    Like

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