no spin question - taxes

[baseballguy2001]

OK, serious question here, no spin - How does higher taxes on the rich lead to private job creation? How does that money taken out of the private economy in taxes get back into the private economy?

Respectfully --

[shraby]

1. Whoops I read it bass ackwards

To lower their tax bill, they tend to invest their money in their companies which means hire workers and upgrade their equipment both of which lowers what they owe. With lower taxes, they have no incentive to do anything but pile up the cash and sit on it.

[elleng]

2. Doesn't; neither does LOWER taxes on the rich,

Higher taxes on rich helps U.S. govt. treasury, AND helps 99% feel fairness.

[begin_within]

3. Through government spending.

[baseballguy2001]

5. Interesting

Please elaborate. Spending on ?

[EC]

11. Spending on?

Are you serious? Haven't you been watching all the cuts being made? How about putting teachers, firemen, police back to work? Then the government won't be paying out unemployment or food stamps and likely Medicaid programs for health care for one thing. Also, the people that go back to work will again be paying taxes and spending money, creating demand...see the way this is going? Not to mention the contractors put back to work doing road, bridge and infrastructure repairs.


On edit: There is a set amount of money. When the rich are herding it, there has to be some way of getting it back into circulation or the other 99% of us stagnate because there just isn't enough money being circulated for anyone to grow.

So, if they are not spending or expanding their businesses, we can either have the government tax them more to get it circulated into the market or we can take it. Which way do you think they would prefer?

[begin_within]

13. Here...

Most spending goes out to government employees, beneficiaries of government programs, and government contractors. All of those are private entities so the money is going to the private sector. Not 100% of spending, though, because some spending goes to states, counties or cities and to pay interest on the debt.

[ClassWarrior]

4. When the rich pay their fair share, taxes can be lowered on the 99%, who will spend...

...the additional money on necessities, unlike the rich who already have plenty to spend and will therefore save it.

That additional money that the 99% put into circulation will stimulate the economy and drive up demand, and that will generate jobs.

Rather simple, really.

NGU.

[SheilaT]

6. If the government collects more revenue

it can do various things, like fund infrastructure projects, that are direct job creators.

We've had ten years of lower taxes on the rich, and ten years of fewer and fewer jobs.

[baseballguy2001]

10. thanks

thanks for the reply.

Does the government own construction companies to spend the money?

aren't infrastructure projects a constant? Here in my state, highways are ALWAYS under construction!

[SheilaT]

20. No, the government does not own construction

companies. I'm slightly surprised you don't know that.

Pretty much everywhere streets and roads are under construction, but we still have a crumbling highway system, because what's going on is nowhere near enough to keep up with the maintenance needs.

Likewise, many school buildings in this country are in dire need of repair, upgrades, or replacement. Again, that's a job for governments, and provides jobs. Yes, the money for those jobs, and the wages those jobs pay, comes from the government, but those employees turn around and spend pretty much every cent they make in the community.

[Turbineguy]

7. It doesn't.

Not directly anyway. Basically the mantra that lowering taxes on the rich will create jobs has been proven false. But that does not mean the corollary is true. With the rich paying less taxes than before there is less money for many programs. Stopping programs for the poor creates job losses for the middle class. In fact programs for the poor are very helpful for society at large. The programs of the 1960's were more helpful for the middle class than they were for the poor themselves. Many middle class jobs are involved in servicing the poor. One of the reasons people are poor is that they spend all their money. One of the reasons people are rich is that they do not spend all of their money.

Therefore, taking money away from the poor and giving more to the rich, hurts the middle class.

At this point, taxing the rich in order to reduce the deficit and perhaps lower the national debt will not create jobs until there is enough of a surplus to crank up programs for the poor.

[Old Codger]

8. One reason

In order to pull out of this recession/depression we are in we need to get some money moving into the economy, does no good at all for the rich to pay less taxes they just pile it up, they already have enough to buy anything they need and are already doing so. Therefor they have no need to spend more than they already are. If the government brings in more they will spend it on needed infrastructure projects, something that private industry does not do, that will put more people to work,it starts out mainly in construction trades but soon they are spending money, buying cars, new Tv's and other goods, which creates demand, at this point industry, in order to meet the increase in demand must hire more workers, this in turn snowballs the demand as more and more get back to work this increases demand even more and so on....hopefully adinfinitum.

[DJ13]

9. Higher taxes force reinvestment to offset the increased tax rate

Its no coincidence that the greatest period of manufacturing expansion happened after WWII when tax rates of 90% were in place.

Its also no coincidence that the period of lowest taxes (the last 10 years) have led to the greatest contraction of manufacturing in the US.

[baseballguy2001]

12. great replies

Thanks for all the replies.

I think I may be missing something, or I asked the question incorrectly.

How does a rich person spending, or investing his money lower his/her overall (higher) tax bill?

If taxes go up, isn't the theory they can't spend or invest, because they need that money for the higher tax bill?

While I understand the government can spend the increased revenue on highways and bridges, I have never heard a proposal to lower taxes while at the same time raising them for the upper income types. Where did I miss that? A reply here said higher upper income taxes increases middle and lower income spending because of a lower tax bill.

[Mz Pip]

16. But the converse makes sense?

How does decreasing taxes on the rich and on corporations benefit the middle class? It's not like there is much job creation going on.

All of the tax proposals offered by the GOP put a higher tax burden on the middle class and poor.

As far as a rich person lowering his tax bill; I guess it would depend on what he invested in. The problem is the "job creators" have not been creating jobs with their wealth. They have been sitting on their money. Corporate profits are at an all time high while there are still 25 million people out of work. Doesn't seem like there is much job creation for all the years of the decrease in their tax bill.

[FrenchieCat]

18. Here's how it works.....

Being Rich and owning a Business are two separate things. They are not the same, although a rich person could own a business...but so can a poor one (relatively speaking).

There are many Rich people who don't run businesses. They may have trust funds which simply earn enough interest and dividends on bonds, stocks and cash deposited in banks to live on, or they could own a lot of real estate that they rent, or simply work for a large corporation that pays them millions in bonuses... and those folks don't really create jobs--they just work for a large corporation that might (and that's not the same thing).

Small business Folks who don't incorporate (anyone can incorporate, and most do), are considered a single proprietorship and file a schedule C as part of their Personal tax returns. They have to pay income taxes on their adjusted gross income, but they also have to pay 12.4%(currently 10.4% due to Obama's temporary Payroll Tax cut) in Social Security Tax (FICA), up to the Capped amount (currently approx $106,000), and 2.9% medicare tax without limit... on their net business earnings.

If a business owner invests in equipment for the business, his/her net business earnings can go down all the way to zero (depending how much they purchase), because they can take a section 179, and write off the entire purchase, to the tune of reducing their net earnings to zero.

So if a small business owner invests in his/her business, they can lower their taxes drastically.

Most small business owners usually are not going to file a schedule "C" that shows a large net earning....because anyone who has a single proprietorship instead of a corporation and nets over even $100,000 is a bad business person or they need a new accountant....because there's no need to pay Social Security tax on that kind of earning.

Instead, many small business owners, like the large business owners incorporate. The smaller corporations, the ones that gross less than 10 million dollars, can incorporate as a SubChapter S Corporation. In doing this, they can become an employee of their corporation, and thereby become flexible on how much salary they have to pay themselves.

The net earnings of an "S" corporation then comes over to the Personal tax return via a schedule K-1, and there are not Social Security or medicare taxes to pay on such earnings (just Income tax).

The corporate officer may also have a W-2, but instead of it being $100,000 it may be $50,000, and the Taxes including FICA taxes have been paid throughout the year.....an expense that the corporation can write off the employer portion, along with the officer's gross wages to reduce the net income earnings of the corporation which will be coming over to the personal tax return of the officer/owner as income via the K-1. Again...only income tax can be paid on this type of income.

So yes, a small business owner investing in his/her business can save on their tax bill.

Investments are different. Folks invest in order to generate more money via interest or dividend. They have to pay taxes on the earnings the investment generates, just like we all do. Some of this money earning on money invested is called "capital gains" which is already taxed at a lower rate than "earned" income....Why, I don't know. It would seem that earned money should be taxed at a lower rate, as it is harder to earn, while money that one makes when they wake up in the morning should be taxed at a higher rate, IMO. Anyways....the investment funds are usually money that they already paid taxes on, or like in the case of a 401K, the money is taken out pre-tax (off the gross prior to any tax calculation), and the taxes are paid on the invested funds once the taxpayer cashes in.

The reason that the government is accruing deficits currently is because the revenue tax base is not enough to pay for government fund output (spending). That's because George Bush gave the wealthy a great big tax cut in 2001 and 2003 thereby reducing revenues coming in.... and now due to lack of demand, due to lack of individual spending (cause Poor and middle class folks have no money), Revenues have gone down even more, and so deficits have increased that much more.

There is a law that states that Government has to do everything in its power to generate jobs....by encouraging private business to hire. It is a law...so it is par for the course to have a President involved in creating jobs alongside private enterprise. You can read more about this here: http://en.wikipedia.org/wiki/Employment_Act_of_1946 and here http://en.wikipedia.org/wiki/Humphrey%E2%80%93Hawkins_Full_Employment_Act

Also read here on how we got into this poo to begin with....
Bush's Poison pill ---> http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=132x8206100
and this http://community.thenest.com/cs/ks/forums/thread/55667611.aspx
and of course, what I was referring to in this post up above .... http://www.cbpp.org/cms/?fa=view&id=692


In other words, the current deficits are due to lower income revenue partially due to the recession, and the government attempting to get the economy going again, by making sure that those who spend most of the disposable income (the poor and the middle class) have more to spend, so demand can increase (demand is what makes the economy go round).

But do note that Deficits had been growing at an alarming rate even before Bush's economy fell apart in 2008....due to Bush's Brain fart called Medicare Part D (Unfunded growing Mandate), Bush's wars (budgeted off the books), and lastly, Bush's Tax Cuts (that he gave in 2001 and 2003 while we were in the middle of wars).

You may or may not read this, but if you do, good for you.

[ieoeja]

23. You pay taxes on net profit AFTER deducting expenses.

Real life example where I work.

Our computer infrastructure is aging. One argument in favor of waiting was the tax holiday. For simplification I am not going to quote real life numbers, but the argument itself was a true one in our meetings on this subject:

During tax holiday:
- Cost = $10,000,000
- Tax @ 15% = 1,500,000 (money that would be paid to gov't if not invested)
- Lost Profit = 10,000,000 minus 1,500,000 = 8,500,000

After tax holiday:
- Cost = $10,000,000
- Tax @ 20% = 2,000,000
- Lost Profit = 10,000,000 minus 2,000,000 = 8,000,000

Based on tax policy alone, it makes sense to wait until the holiday ends. If you take the two years combined, we gain a net profit of $500,000 using these simplified numbers.

[bhikkhu]

14. Poor people won't spend if they don't have any money

and they don't have any money if all the money is concentrated on the top. Its concentrated on the top because the tax system favors the rich and penalizes the rest.

Rich people don't spend more if they have more, they just invest it differently; I think a study showed that the bulk of the bush tax cuts for the wealthy got invested overseas.

If, instead, the tax cut had been balanced in the other direction, you would have had poor and middle class people spending their extra money here. Money which is spent and circulated creates economic activity and jobs.

[Harmony Blue]

15. The U.S. federal government is the largest employer in the U.S.

http://www.bls.gov/oco/cg/cgs041.htm

"With about 2.0 million civilian employees, the Federal Government, excluding the Postal Service, is the Nation's largest employer.
About 85 percent of Federal employees work outside the Washington, DC metropolitan area.
A substantial number of job openings will arise as many Federal workers are expected to retire over the next decade; competition is high during times of economic uncertainty, however, when workers seek the stability of Federal employment."

Only private employer close is Wal Mart.

Increased taxes means the government can employ more workers and increased eligibility for those near, or below the poverty line for Food Stamps/WIC. As a result, you have more demand, which is paramount to the U.S. economy since it is primarily based on services State side. Manufacturing is no longer a staple of the U.S. economy, thus the U.S. economy is demand driven because of the service sector. I am not pro demand or supply side, but rather believe in a balanced approach.

[Skittles]

17. question

if lower taxes on the rich led to jobs, WHERE ARE THE FUCKING JOBS RIGHT NOW?

[pansypoo53219]

19. instead of profit taking, to get a LOWER TAX

they reiinvest in their companies, use the money, not bank it.

[JoePhilly]

21. The government uses the revenue to hire teachers, police, construction workers, etc ...

Those people actually SPEND the money in their local area.

That increases consumption in their community, increases demand, and local small businesses hire more workers and expand. And thus more public AND private sector jobs.

In addition, if we accept the GOP premise that the deficit causes businesses to NOT hire, then we should also expect the reduction of the deficit, thanks to the increased revenue (from both the tax increase on the rich, and the new revenue from the re-hired teachers) to lead to an INCREASE in hiring.

You can also try this on the corporate tax side. Look up Exxon/Mobile profits for the last 10 years. Those profits INCREASE dramatically. And yet, if you look at the number of employees Exxon/Mobile had over that same period, that number DECLINES.

[uponit7771]

25. +1

[Cigar11]

22. Ok Serious Answer …

How did Tax-Cuts over the last DECADE create Jobs?

How does more money in the pockets of the Rich lead to Jobs for the Middle-Class?

Realistically --

[uponit7771]

24. In macro economics its means less aggregation of money to top and lower tax rate for middle class...

...middle class and poor spend more = more positive economic effect that that earning band since we're a consumer driven country.

When middle class and poor clam up the whole country hurts...any progressive country where the GDP is based off of consumption would WANT to "spread the wealth" into as many hands as possible.

1 billion dollars in one persons hands the person can only consume so much and its spent slower on consumables

1 billion dollars in 1000 person hands gets spent a LOT faster with the effects spread amongst a wider base

Any way to push earnings down ward is good.