Phil21

In my view.. "it depends" like pretty much everything else in this world.

While you are correct - businesses hire with pre-tax dollars, you don't actually delve into the tax code to see how this "really" works.

For example, our business is extremely capital intensive - we have to buy servers weekly, or we will slowly go out of business. In this manner, much of our "capital" expenditures really *should* be classified as an operating expense. Unfortunately, the tax code does not agree

Thus, we are taxed on "phantom" income - income that is simply not there, since we had to spend it on new equipment to upgrade customers on older stuff/etc.

So.. in our case where we are putting almost every dollar in profit right back into growing the company - a lower tax rate on capital expenses would directly equate to more jobs. Not many, of course - but having an extra few hundred thousand a year or whatnot either means we can hire more staff, or more likely buy more equipment to get more customers, which then requires more staff to support.

So.. I agree with both sides. Cutting business taxes may not directly equate to job growth in many businesses, but it can in others. It also very much depends on what *kind* of tax cuts you are proposing as well.

-Phil

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Snake Doctor

I'll repeat myself again....you pay capital gains tax when you sell an investment, not when you make the investment...so a low rate today encourages me to sell my assets, it doesn't encourage me to invest in new ones....because nobody knows what the rate will be when I decide to sell what I buy today.

I agree in your situation, that when you buy equipment for your business it should be an expense, just like paying a salary or buying advertising.
I never cared for the whole depreciation game, I always thought it was silly.

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Barefootsies

True dat

a. Define 'wealthy'. A small business owner making 120,000.00 a year is not 'wealthy'. Well off.. maybe. But take geography into the equation as well. New York, L.A., Seattle, San Diego. Not remotely close. Middle American, $120k is a nice living.

b. Capital gains influences where I invest. Short or long term, and the money. Do I invest in my business, or do I invest in the stock market while I could maybe make some coin while stocks are down. Same as people cashing out their 401K's at this time have to consider the capital gains, and do they spend that money paying down debt, or buying new shit.

I know a handful of people in my personal life pondering this very decision right no on their 401k, and other shit. Having to pay capital gains, and penalties.

As a small business owner, where I take my profits, and where I invest it will be effected by the other mitigating factors. Stockings, bond, real estate, etc. Especially if I am going to tie up a chunk of money for any period of time.

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"Would you rather live like a king for a year or like a prince forever?"

Barefootsies

Agreed.

I buy new computers every 12-18 months. My accountant refuses to just write them off for a full year taxes, so I have 8 computers in various levels of depreciation.

lol...

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"Would you rather live like a king for a year or like a prince forever?"

Snake Doctor

There is no such thing as capital gains taxes on a 401(k)
401(k) is tax deferred money. No taxes are paid on capital gains or dividends. The money is taxed as ordinary income as it is withdrawn.

I don't see how capital gains tax rates will influence where you invest unless you're talking very short term investments (in which case it's more like gambling than "investing") because cap gains tax might be 15% today, but it could be 25% next year when you sell. You don't get a 15% future capital gains rate because you invested today. That's not how it works.

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JP-pornshooter

so if it is encouraging investors to sell, it will also encourage other investors to buy those assets, this is if i am not mistaken investment101 or alphaomega type stuff.
same if all of a sudden there was no tax on stock gains, it would entice investors to invest in stocks so that they would capitalize on those opportunities..

TyroneGoldberg

congrats

GatorB

wal-mart will NOT hire another check out person. they'll just pocket the money and expect people to wait longer in line. Also most poorer people getting tax cut would just pay off debt not spend it. Give a tax cut to a rich guy and he'll either buy foreign shit or spend it overseas. Either way it ain't helping America.

IllTestYourGirls

So Snake, since you think the government would be better with your money how much EXTRA are you going to give them? 20, 30, 40% more? I mean your man Obama knows how to spend your money better than you do! Why not give 60% more to the government to show that you really believe what you say.

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tony286

I was reading what's considered wealthy by banks is someone with $750k in liquid. A 20 grand tax break isnt going to change anything they do,its another 20 grand in the account.

tony286

oh stop just stop

Snake Doctor

You are obviously very confused. You can't do something that encourages people to both buy and sell, as they are diametrically opposed. If it's a good time to do one, then by definition, it's a bad time to do the other.

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IllTestYourGirls

Democrats new motto "What is mine is mine, what is your is mine". You all want others to pay the higher taxes you dont want to do it yourselves. Just be honest, you dont want higher taxes you want other people to do all the work.

I dont want anyone to pay higher taxes. I want people to keep what they make. I have faith in people not the government. America would be a lot better if we all had more faith in ourselves and not look to the government to do all the lifting.

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tony286

read the link I posted a few posts up. The largest tax increase during peacetime was during St Reagan.you want to fight wars , kill terrorists it costs money. if they let it all fail you are in a world of shit but your taxes arent increased.

GatorB

Your logic would make a better point if most Americans didn't carry a shitload of debt, weren't in bankruptcy and having their houses foreclosed and and have the worst saving rates in the world. So to be honest no I do not trust most Americans to know what to do with their own money.

IllTestYourGirls

Why do you keep thinking I love Regan and McCain?
Why do you think I want the war on terror like Obama does?

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woj

Tax cut = more $$ floating around...

That money is then spent or invested somewhere.. seems pretty obvious?


Then your investment argument, you invest with intention of selling it one day, you don't just do it for fun... When tax rate is low obviously investments become more appealing...

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IllTestYourGirls

Most Americans arent.

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pocketkangaroo

The wealthy voted in favor of Obama, so I wouldn't exactly say that they want everyone else paying their taxes.

I don't think anyone wants to pay more in taxes. But we've decided as a society that we want our government to do things for us (roads, schools, etc). The money has to come from somewhere. We can tax the poor and middle class heavier and make things equal, but we know that would cause heavy financial burden for them. They are my customers, so I prefer that they have money to buy what I'm selling.

IllTestYourGirls

Where is the money for the spending bill coming from?

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OG LennyT

Your thread read I admit I didn't read your initial post because I know your posts usually consist of blah blah blah.. look at how smart I am... blah blah.. big words thrown in for extra arrogance.. blah blah

So yeah, I just responded to the title. Guilty as charged

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pocketkangaroo

The majority of tax revenues come from the rich. The plan is for that money to be used for projects that will create jobs. Putting people back to work will add more consumers to the economy who can buy products and services from the rich. This in turn will also increase investments that are held by the rich.

The idea that the stimulus is only for the poor is misconceived. The rich are hurt a lot during recessions.

Ethersync

That would be viewed globally as a "beggar thy neighbor" type of policy move which would guarantee an ever "Greater" depression...

It would also violate international trade agreements.

It is impossible unless you want to go back to the bronze age.

Snake Doctor

I have that testyourgirls idiot on ignore, PLEASE stop quoting him.

Gee, sorry for having a vocabulary.

Yeah I'm not trying to have a discussion or an honest debate or anything, I just sit here with my unabridged dictionary and paste in words with lots of syllables to try and make myself look good.

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Snake Doctor

That's just it woj, it does seem to make sense, which is why it makes for great 30 second ads and bumper stickers, until you scratch below the surface.

Then you ask questions like "how is government spending the money less stimulative than consumers spending the money"?
I'm not saying government should take all of our money and spend it, I'm just pointing out that calling government spending "waste" and calling tax cuts "stimulative" is ridiculous. At least if government spends the money with the intention of stimulating the economy, they can target the funds towards that and be more effective than a consumer who may just pay down credit card debt or buy goods at Wal-mart that were made in China.

As for investments, you pay the tax when you sell the investment, not when you buy it, so a low rate today doesn't make buying a stock or bond or business more attractive, it makes selling one of those things more attractive.

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IllTestYourGirls

Because government doesnt have any money. They need to take it from someone or even worse they need to PRINT IT. Making the money they do spend worth less. That is why government spending is bad.

Shit you have me on ignore, never mind.

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Ethersync

Well, the US government is around $70 trillion in the red

gideongallery

yes the money is still in the economy but
it is not directed to the places it needs to go.
it effectiveness
you need the money to be targetted to certain areas to be most effective.

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Snake Doctor

And by giving $500 or $1000 or whatever to each individual taxpayer to do with as they please, it then gets directed most effectively?

But when the govt spends it on roads, bridges, tunnels, a new electricity grid, high speed rail, etc then it's not going to the most effective places?

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gideongallery

one word
pork.
A government bill will allocate money not on what is best for the country but what is best for the districts represented by the congress. It results in stupid projects which have no investment value other than the jobs in a region. Once the money is gone those jobs disappear as well. When the money i is directed to investment, those that make money, and can be sell sustaining are rewarded, those that can't are not.

governments have to worry about appeasing the unions in a way that business do not, because quite simply unions can cost an official an election. The workers have to much power so yes government spending ends up being wasteful. Market driven investment is not so influenced so it becomes far more productive even with the act of buying stuff from china.

Protectionist thinking results in retalitory tarrifs so if the government were to "direct" the income to home grown business that would result in foreign countries doing the same. which would cost even more jobs in america.

Paying down a credit card debt, give the banks more money, which loosens lending restrictions, to businesses, this is exactly what is currently need now.


you can't sell an investment unless someone else buys it, the transaction is balanced. So if person A sells the stock to pay down his debt person b must buy the stock.

The end result is the company keeps the money, in the investement coffers, while the banks get more lendable capital (the desired result). IF they spend it instead, that some business gets the money, and with lower taxes can give bigger dividends which again put money into the economy to pay down debt and free up lendable capital (the desired result).

The two examples you gave while rolling your eyes are examples of the types of business that would be help specifically by the loosening of the banks lendable capital.
And all the jobs that are created by those business is where the job growth is comming from.

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dyna mo

RE: tax cuts for small business owners-

According to economist Robert Frank from Cornell, the answer is a resounding no. Tax cuts to small business owners do not stimulate employment. Here’s the argument. Suppose that a potential hire will produce 10 units of output per hour for a firm and the output will sell for $2. The worker can be hired for $15 per hour. Should the firm hire the worker?

Yes, hiring this worker will generate a $5 profit per hour for the employer. Let the tax rate on the owner’s income be 20%. Then the take home pay for the owner is $4 per hour.

Now increase the tax rate to 50%. Is it profitable to hire the worker? Yes, the worker still generates $5 in profit for the firm, but now the owner’s take home pay is $2.50.

Now let the tax rate be 80%. Is it profitable to hire the worker? Yes, the worker still generates $5 in profit for the firm, but take home pay for the owner is only $1 now (assuming this is still above zero economic profit for the owner).

Notice how the condition determining whether the worker is hired, a comparison of the wage paid to the value of the output the worker produces (W compared to P*MP from your principles courses), does not depend upon the tax rate paid by the owner.

Snake Doctor

You're assuming all government spending is "pork", when earmarks are less than 1/10th of 1% of the overall federal budget.
Also, individual consumers will not allocate money based on what is best for the country, but what is best for them....that may, and often does, include putting the money in a piggy bank, paying off a credit card, or buying products that were manufactured in another country.

The union thing is hogwash. Unions vote democrat, period. The idea that government spending is less stimulative because union workers may do the job is ridiculous.

The private sector isn't going to build roads, bridges, tunnels, a new electricity grid, lay broadband lines in rural areas, etc....these are investments in the public interest that don't pay an immediate dividend to the investor.
Just like the interstate highways in the 1950's. There was no immediate return, no private entity could have made a profit by undertaking such a project, but the long term effects on our economy have been profound. (And there is also the short-term benefit of jobs for the people who build the roads, clear the land, etc)

This really made no sense. You're assuming the only reason someone would sell an investment is to pay off debt. You also assume that the bank will turn around and lend new money once an old debt is paid off.

Yet the banks have been given a shit pot full of new lend-able capital by the government, and that hasn't led to more lending. Also, my guess (and it's a reasonable one) is that the money someone would use to buy a stock, or a business, or whatever other type of investment, is currently sitting in a bank and not under a mattress, which means that it is already capital on a bank's balance sheet that can be lent if the bank so chooses.
Nobody has to sell a stock to pay off a debt so the bank can loan again. You really went off the reservation on that one gideon.

Banks not lending is a result of the trillions of dollars in toxic assets on their balance sheets. Cutting the capital gains tax so that someone will sell some stock isn't going to make that problem go away. (Especially considering that stocks have lost almost half their value in recent months, so almost anyone selling right now would be taking a loss and taxes wouldn't be a factor anyways)


The top economists in the country have told President Obama that for every $1 of government spending we'll get $1.50 in stimulus, for every $1 in tax cuts, we'll get 75 cents of stimulus. (Because the tax cut money may not be spent at all, or it could get invested overseas, etc)
The reason for the tax breaks to individuals is more a function of giving people a break during tough times than it is about stimulating the economy. (From Obama's point of view anyways)
Yet there are still all of these people screaming for across the board tax cuts, capital gain and dividend tax cuts, and whining about all of the "wasteful spending" in the stimulus plan.
We've tried the "republican way" for the past 8 years and now we're in the mess we're in, dontcha think it's time to try something different?

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GatorB

Most American don't carry debt? You do ralize that even before this economic crisis that amercians on average had a NEGATIVE savings rate. You can only do that by having debt.

GatorB

That would be subject to capital gains taxes not income taxes. So if you lowered income taxes that doesn't mean shit to anyone selling an investment.

IllTestYourGirls

I was talking about "falling off the cliff" debt like you described.

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JP-pornshooter

go back to school boy.. learn your economics 101.

WhiplashDug

There is soo much more to this, there just isn't enough time to get into it... but

The entire premise of the arguments in this thread assume that anyone who has an investment that qualifies as capital gains will sell it because the capital gains rates are low and then just hord that money away in their mattress. I am not sure where this thought process comes from, but personally I've never come across anyone with substantial money who sells off investments to move into cash.

People with money, move assets from one investment to the other -as they know sitting in cash does not grow their net worth. So lower capital gains rates stimulate capital investment as investors move money from one investment to the other. Some of that money then seeks higher risk, higher return investments (ie. venture capital) and thus stimulates economic expansion through new business development.

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tony286

it doesnt create jobs period.

Snake Doctor

At least this was a well thought out and reasonable explanation. Unlike the post above this one in which I was called a "boy" and told to go to school, by someone who doesn't know how to use capital letters.

The thing with what you're saying is that if capital gains taxes are low, then that encourages people to sell off profitable investments and make new ones. At the end of the day though, that's just shifting money from one place to the other so I don't see how that creates any sort of economic "expansion" that would create jobs.

You say that people with money know that sitting in cash doesn't grow their net worth, so then won't their money always be invested in the place they think will give them the highest return, regardless of what tax rates are?

It would seem to me, that lowering the tax rate only affects their behavior in one way. It makes them more likely to sell their investments while rates are low so they will save $$ in taxes, even if they just sell and then reinvest back into the exact same asset.
At the end of the day all this does is cost the treasury money in the long run, it doesn't positively affect investor behavior in a way that is conducive to economic growth.

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TyroneGoldberg

people writing essays. for what. trying to figure out what they are doing. we're fucked plain and simple.

clueless. and sad

$5 submissions

Or buy more computers or equipment or any other asset that will put more money in their pockets.

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ADL Colin

1. A lot of small business owners have S Corp's. They pass through all their earnings to their personal accounts at the end of the year. In effect there is little difference between their personal and their business fortunes. A cut in the capital gains tax leads to more money in the pockets of small business owners and in some cases under some conditions will lead to an expansion of business due to increased profits; the profits of the individual being little different than the profits of the business.

2. A capital gains cut leads to increased investing which bolsters the stock market. An increasing stock market leads to more IPOs and more investment in general - which of course can lead to hiring. IPOs = more business activity = hiring.

3. Increased savings in one period lead to increased spending in the next. You can see this in nearly any recession where savings increase during the recession and then decrease during the recovery. So in effect the reduction of capital gains can also lead to increased savings and help the eventual recovery. This is so because of the economics identity: Investment = Savings - government deficit - current account deficit which can be derived from the more obvious Investment = Private Savings + Government Savings + Foreign Savings

There is a lot of discussion right now even between professional economists as to what the spending multipliers are for various actions such as tax cuts, rebates, infrastructure spending and so on. The truth is there is no general agreement as where one gets the best multiplier and under what conditions. It would seem wise to adapt a variety of stimulus actions.

A few of my bookmarks. Here is a great article by Hussman on the accounting identity above: http://www.hussmanfunds.com/wmc/wmc041206.htm
Also his weekly commentaries are a good read.

Here's one of many blogs covering spending multipliers this week;
http://gregmankiw.blogspot.com/2008/...ltipliers.html

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ADL Colin

Here's a paper on the effectiveness of capital gains tax cuts
http://dreier.house.gov/pdf/IPI%20-%20CapGainsKey.pdf

Maybe someone could find a competing paper with the opposite conclusion so everyone can compare.

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ADL Colin

My personal opinion is that any tax cut or additional government spending of sufficient size will increase jobs but that the efficiency is unknown beforehand . Different fiscal and monetary stimuli under different conditions will have different economic results.

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nation-x

Thsi thread is full of opinions that aren't based in fact....

Study says most corporations pay no U.S. income taxes
Do the rich contribute the most to tax revenue? No.
http://www.ntu.org/main/page.php?PageID=6

TyroneGoldberg

LOL

do you people even realize california is broke.

i'm sure cnn or fox hasn't said anything.

nation-x

For those who are unable to understand that chart... 66.79% of tax revenue in 2005 (which reflects the current tax rate) was paid by people earning between $28,654 and $126,525.

Paul Markham

Not always the case. Walmart let the line get longer and buy more cheap crap from China is closer.

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nation-x

Both have reported on it... I just saw a report on CNN yesterday where they said that California was so broke it couldn't pay tax refunds and were $15B in debt.

Paul Markham

This was close to what I was going to say.

For 20 years I have watched countless Governments tell the voters they will cut taxes, deliver the same or more services and all this would be paid for by extra money coming into the system. Now we know how well it worked and they were either clueless or lying.

Because the growth in the economy that was going to pay for everything was an inflated growth on over valued commodities. Plus loans and debt. California in debt shows you how well these guys can manage an economy. But look at these people, which one of them is losing their homes? The bosses of the companies that got us into this shit have had their wages capped at $500,000. Tough life for them!!!!!

Even today they are all screaming no to protectionism. Too fucking scared China might ask for their money back. The only think that will get this mess cleared up is if we sell as much as we buy.

Creating jobs is good if those jobs lead to more jobs in the Country. Creating jobs that move the money out of the Country is exporting wealth. The guys who tell you it's the way forward are not the ones losing their jobs.

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