Tax Cuts for the Rich Don't Work

[rdubwiley]

Run time: 03:10 https://www.youtube.com/watch?v=QyM0QThxAlU   Posted on YouTube: August 10, 2011 By YouTube Member: rdubwiley Views on YouTube: 21   Posted on DU: August 11, 2011 By DU Member: rdubwiley Views on DU: 1164

 
My explanation of the problem with tax cuts, and the fact that they don't create enough revenue to pay for themselves.

[JDPriestly]

1. Interesting, but I could not clearly understand some of the speech.

Did the speaker say that the person whose taxes were reduced would earn $100 per year, that the tax rate would be lowered from 20% to 15% and to make up for the loss in tax revenue, the person whose taxes were lowered would have to improve the GDP to 5 times its prior size?

That concept I understand, but I could not clearly hear the numbers and math showing you would have to improve the GDP by 5 times. There was a number that sounded like $100,075, but I couldn't hear it clearly.

Could someone explain -- clarify how he is doing the math on this?

The concept makes sense and is precisely what bothers me when people say that lowering taxes on the rich will help the economy, but I would like to be able to follow his math better.

[rdubwiley]

2. explanation of my video

All right, let's say before that there's one person in an economy that earns $100 a year, to make the calculations easier
Now, let's also assume GDP is $100,000 per year.
Also, the tax rate on the person above is 30%, so current revenue gained from income taxes is $30.
Let's say someone comes along and states that we should change this person's tax rate to 15% because it will cause unprecedented growth, and they will pay for themselves.
Well, there is a well established trend in tax recipts, that around 20% of GDP goes to the government in taxes.
Therefore, how much would this person need to improve the economy to make the tax cut pay for themselves.

Well, that's a simple algebra problem.
(.20)X=15
X=75.
or in other words, GDP will need to improve to 100,075 to make the tax cut pay for itself, but this is somewhat ridiculous as the person would need to make his 15 dollars into 75 dollars of economic activity. To put this in perspective, even the most effective economic boosters only grant about $1.60 for every dollar spent. The problem with tax cuts for the rich is that they're not economically effective enough to be used.

I hope that clears it up.

[JDPriestly]

3. Ah! The original $100,000 per year for GDP did not register with m

That is why I wondered where the $100,075 came from. Thanks.

The extent to which the individual taxpayer would have to increase his own economic activity was easy to figure. I just did not hear how it fit into the GDP. Got it.

I want to be able to explain this to others.

[BackToThe60s]

4. They work for the rich

And so does Congress. :(