Political & Elections

soccerguy315 · Guru

RE: Here's what I don't understand: what do millionaires DO with their money that stimulates the economy?

catahoula · Guru

If it goes into savings does that stimulate the economy?

I think banks tend to lend if they have it but the problem here is that everyone who would borrow tends to believe things are going to get worse, not to mention they worry about the same tax increases you mentioned, along with the concerns of a regulatory/labor environment that is most likely to become even more unfavorable to business.

You reap what you sow.

-- Edited by catahoula on Monday 11th of July 2011 05:29:32 PM

Tom1944 · Senior Member

If we tax 100,000 individuals an extra $20,000 why would that be worse for the economy than making 1,000,000 pay an extra $2000 out of their pocket for Medicare?

I am not saying we should do one or the other but why would one have more of an impact on the economy?

longprime · Guru

I don't beleve they do all that much.

RichDad, PoorDad, says that in invest in things that make more money.

MillionairesMind, says that you do the simple things extremely well.

I, not a millioniare, not even close, gamble in the belief that someone else believes that other someone can find third someone, who can make money from a forth someone who thinks that a purchase is a value making purchase.. evileye {i chose a mutual fund, who hires a subadvisor, who invests in a company or index, whose leadership thinks they can make money form selling you a nonessentila product). evileye

-- Edited by longprime on Monday 11th of July 2011 02:36:54 PM

winchester · Guru

is there any tangible proof that the Bush tax cuts stimulated the economy? If not, why shouldn't we go back to Clinton-era tax rates since our economy seems to have done much better under that system?

I think this question is on the right track but is not quite broad enough, for two reasons. First, tax rates are only a part of the larger economic picture. Second, comparing only Bush or Clinton era policies is too small of a data sample.

But the short answer is tax cuts are an essential ingredient of a mix of economic policies that have historically led to prosperous times. The question is, what are those policies?

In the 1950s and 1960s Robert Mundell studied that question, and what he found was that:

major periods of U.S. growth and prosperity such as the Gilded Age and Roaring Twenties coincided with the "policy mix" of sound money and tax cuts. Moreover, Mundell understood this was historically true, noting the rise of great nations, even empires, corresponded with these policies. http://www.realclearmarkets.com/articles/2009/11/10/a_review_of_brian_domitrovics_econoclasts_97501.html

Here’s a slightly more detailed description of the “policy mix” Mundell found to coincide with periods of growth and prosperity:
Monetary tightening produces a rise in the rate of interest. A rise in the rate of interest attracts foreign capital. Tax cuts bring about domestic expansion and a reduction in unemployment. Domestic expansion does not, however, produce inflation. For inflation, by definition, is absent if capital is flowing into the country. Capital inflows are a sign that the currency is not depreciating, as under inflation, but appreciating. With the Mundell policy mix, you get an inflation-free boom."
http://spectator.org/archives/2009/12/15/do-do-that-voodoo-that-they-di/

Now, with that broader perspective of economic history as background, the question is, has that “policy mix” been applied more recently, and what happened when it was?
The answer is yes, by Reagan and Clinton.

Starting in 1983, annual GDP growth averaged 4.3 percent for seven years; in 1984 it was 7.2 percent, ensuring Reagan's landslide reelection. The misery index, combining inflation and unemployment, dropped from a high of 21 in 1980 to 13 in 1983 and dropped below 10 by the late ‘80s. The Dow rose an average of more than 17 percent per annum for eight years starting in late 1982, putting the 1980s on par with the historic bull markets of the 1920s and 1960s. Perhaps most impressively, inflation dropped from double digits in the late 1970s to 3.2 percent in 1983, and stayed below four percent for the rest of the decade.

Once the complete policy mix was enacted, Domitrovic notes, "to virtually everyone's astonishment and pleasure, stagflation up and vanished from the scene." In the following 20-plus years, the gold price stabilized and the U.S. returned to its average post-war levels of GDP growth, GDP per capita, inflation, unemployment, and interest rates; the stagflation era's slow growth turned out to be an aberration rather than a new long-term trend. The era took its place among the great American booms.

"Econoclasts" ends with a summary of 1983-present, as the supply-side revolution extended throughout the ‘90s and 2000s. Looking back, it is clear President Clinton - once he was constrained by a Republican Congress - bowed to supply-side economics: he signed a 25 percent capital gains tax cut, expanded free trade, and, under Treasury Secretary Robert Rubin, maintained a strong dollar policy.
http://www.realclearmarkets.com/articles/2009/11/10/a_review_of_brian_domitrovics_econoclasts_97501.html

The whole story is described in detail in the book Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity

The book's author, Brian Domitrovic, maintains a blog where he continues to expand upon the story, relate it to current issues, and respond to critics.

Interestingly, the economic situation we find ourselves in today is not unlike that at the start of the Reagan boom, and so it seems the time is ripe for another dose of the historically proven “policy mix” that has taken us to prosperity virtually every time it has been applied, as Domitrovic argues in his article in Forbes just seven days ago.

In an earlier post longprime mentioned “tax receipts as proportion of gdp,” Domitrovic addresses that in his article too.

It’s always been a strange contention that the success or failure of Reaganomics – of supply-side economics – hinged on the federal receipts record of the 1980s. As if there had been any problem in that regard prior to Reagan. In the five years before Reagan’s first full budget of fiscal 1982, federal receipts fairly exploded.

From 1976 to 1981, the federal tax take went up steadily from 17.1% to 19.6% of GDP – an outsized rate of growth of 3% per year that had it lasted, would have had the government sucking in a quarter of the nation’s output by the end of Reagan’s term. Why on earth would Reagan have campaigned for a tax cut that would be a magic formula for increasing revenue? Such a formula was already firmly in place in the form of a brutally progressive, unindexed tax code in the context of double-digit inflation.
Reagan wanted to cut taxes, of course, and if receipts were to grow, they were to do so in an absolute sense, rather than as a percentage of GDP. It was an article of faith of supply-side economics that revenue growth can be nice, but it must not exceed GDP growth – especially good GDP growth. Indeed, federal receipts were to decline as a percentage of GDP.

Which leaves a question. What was the point of Reaganomics? Starving the beast? None of the above. The point was to get the private sector booming. And could we ever use this as an objective today.

The prophet of the renaissance of the 1980s was the Reagan budget team’s economic forecaster, John Rutledge. Rutledge noticed that in the dozen years prior to 1981, money had been fleeing from the real economy, what with its taxes, regulations, and currency devaluations, and into tangible safe havens – especially commodities: oil, gold, and land.
Rutledge calculated that over the 1970s, some $11 trillion had migrated out of real economic enterprises into these hedges – a whopping number. And yet if the burdens on the economy were to lessen, a prodigious amount of money stood to flow back into the real sector, with epic growth, employment, and profits in tow.

This is of course what happened in the 1980s, as taxes got cut, regulation stymied, and money stabilized. GDP growth was north of 4% per year for a seven-year run, job creation was measured in the eight digits, and the stock market was off on a 15-fold advance. All because huge money had been parked elsewhere waiting for the real sector to become attractive again.

Sound familiar?

http://blogs.forbes.com/briandomitrovic/2011/07/04/supply-side-thermodynamics-are-rocking-our-world/

SamuraiLandshark · Guru

Romani,

Cost of living can make a difference in perception about how much is a lot of money. When I lived in the midwest, our utllities sometimes exceeded our rent. Here, it's the opposite.

A couple of years ago, you would have considered us loaded. Yet, we were getting by and not all that financially ahead. We had some money in savings and little credit card debt, but we weren't taking extravagent vacations or shopping at expensive stores. Lots of budgeting and carefully spending our incomes. With two kids in college, there wasn't a lot left over at the end of each month.

If I told you that just my kids rent and utlitilies payments and my mortgage payment added up to your family yearly income, would it blow your mind? These aren't for fabulous places, either. Add in property taxes, and we have exceeded your family's income, and then some.

Our family income is down by about a third from where we were before the 2008 fiscal crisis. We have dealt okay with it, but still have largely the same expenses, minus some of the unnecessary ones that we eliminated to save on our budget.

I know few people who are think of themselves as rich when they have kids to support and bills that never end. That may be $35,000 or $60K or 90K or $200K. I don't know a lot of folks in the $300K bracket, but I suppose that like Busdriver was discussing, everyone feels the pain to a different degree, even if they seem wealthy.

One thing that we won't get back from the long term underemployment in our family - many more bills and debt, and lost contributions to our retirement funds. The plus is that it could have been worse - more medical bills or we could have lost our home.

busdriver11 · Guru

"Does your normal fly route go N-S or E-W. ?"

I have no normal route. I fly any possible direction. It changes every week, every month. But I do occasionally fly over your house, and when I do, I request to fly low, really fast and loud, purely so I can annoy you. Just kidding. If I tried that one time I'd be fired. Not like the good old days.

"Anyway... is there any tangible proof that the Bush tax cuts stimulated the economy? If not, why shouldn't we go back to Clinton-era tax rates since our economy seems to have done much better under that system?"

That would only work if one believes that the entire system is dependent upon taxes. That our dire situation now only has to do with tax rates, and not long, expensive wars, massive spending and many more people taking from the system than paying into it. Should we go back to the old tax rates (which I have no problem with), the lower and middle class would suffer greatly and be surprised at how much they had to pay in federal income taxes when they paid none to little before. I'll all for lowering tax rates for everyone, but dropping all the special deals, the corrupt and confusing politically loaded garbage of tax code that we have now. The fact that people are taxed at a very high rate for working, but a very low rate for many other sources of income makes no sense to me. Workers can't hide/shelter their incomes like businesses and investors can.

longprime · Guru

Do you believe the numbers, is a alternate question.

Googled : US tax receipts. I chose a two ( heritage and deptofumbers) within the top 10 hits and did so without really reviewing the contents. But you can draw your own conclusions.

tax receipts as proportion of gdp

http://www.heritage.org/budgetchartbook/current-tax-receipts

http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-of-gdp/

.. from link above. http://www.deptofnumbers.com/blog/2011/01/ten-years/

.. from link above. http://www.calculatedriskblog.com/2010/12/few-for-graphs-for-2010.html

-- Edited by longprime on Sunday 10th of July 2011 08:46:29 PM

romanigypsyeyes · Guru

Hmm... thanks for all your responses. Since my family and I live on ~$30k a year (well, that's their income, I guess with mine it's almost $35k), $100k seems like a ridiculous amount of money to me- let alone $500k. I believe $350k was the top 1% for income so I chose $500k as a kind of arbitrary cut off point.

Anyway... is there any tangible proof that the Bush tax cuts stimulated the economy? If not, why shouldn't we go back to Clinton-era tax rates since our economy seems to have done much better under that system?

(I am really trying to get answers. I truly am not trying to make a political argument or point lol. The economy and taxes are just something I have always struggled to understand on a world-wide/country-wide level).

longprime · Guru

[quote=winchester] Therefore…

The implication of the above question– that we haven’t already raised taxes on people with high incomes, or that they don’t already pay far more as a percentage of income than anyone else – is, to put it mildly, dishonest.

I mean really, think about it. The top 1% of the people in this country, in terms of income, makes about 16% of all the money earned but they pay fully a third of all the taxes. But the question quoted at the top of this post suggests they should pay even more. How much should they pay? 40%? 45%? 50%? How much is enough?

Or think of it this way: The top 50% in terms of income pay virtually ALL of the taxes (97%). In other words, the top half of the country is already carrying the bottom half. Should the top 40% carry the bottom 60%? Should the top 30% carry the bottom 70%?

How much is enough? end quote<

-----------------------------------------------------------------------------------------------------------

The 2008 or even the 2005 wealth possessers, Now and Today, have even a greater proportion of the wealth and paying even more of the taxes. This has happened even without raising the taxation rates. How can this be so? Your own statistics infer the answer

-- Edited by longprime on Sunday 10th of July 2011 07:49:51 PM

-- Edited by longprime on Sunday 10th of July 2011 07:51:00 PM

longprime · Guru

And I thought it was You, Busdriver11, is the one that flies over my head. evileye

Does your normal fly route go N-S or E-W. ?

busdriver11 · Guru

Sure, go ahead longprime. And almost every post you write gets me confused. But give it your best shot.

longprime · Guru

anyone ready for one of my famous insights that get SLS confused?

BigG · Guru

The real issue is JOBS not taxes.

If the blue collar tax base had not deteriorated, we would not have had a mortgage crisis.

Chinese workers do not pay US taxes.Why should capital that took generations tpo form and accumulate in this society be given to them?

It is not as if outsourcing has actually produced any big profits for the outsourcing companies' shareholders. The S&P has been flat for a decade. Oh yeah. The so called profits also haven't found their way out of China and into US dividend payments.

China is a giant Ponzi scheme and they don't even pay off the early investors!

It is almost as if degrading and and destroying one's home economy is actually bad for business...

CelticClan07 · Senior Member

Many wealthy people are philanthropic and make the lives of many others better. Increasing taxes is NOT the answer, spending the money already coming in wisely and judiciously is.

Could the "elites" and voters of the US be any more short sighted and/or just plain stupid?

You could also add selfish to the list BigG. Listening to a radio show recently and the expert economist du jour stated flatly that the baby-boomers who have been in leadership positions for the past 25 years have ruined the economy due to their lack of long-range financial vision and zeal for instant gratification. IMO, no truer statement has been uttered regarding this crisis we find ourselves in.

winchester · Guru

Some truth about the Bush tax cuts:

3. But didn’t the Bush tax cuts favor the rich?
The New York Times reported recently that the average family in America with an income of $10 million or more received a half-million-dollar tax cut, while the middle class got crumbs (less than $100 shaved off their tax bill). If we examine the taxes paid in a static world—that is, if we assume that there was no change in behavior and economic performance as a result of the tax code—then these numbers are meaningful. Most of the tax cuts went to the super wealthy.

But Americans did respond to the tax cuts. There was more investment, more hiring by businesses, and a stronger stock market. When we compare the taxes paid under the old system with those paid after the Bush tax cuts, the rich are now actually paying a higher proportion of income taxes. The latest IRS data show an increase of more than $100 billion in tax payments from the wealthy by 2005 alone. The number of tax filers who claimed taxable income of more than $1 million increased from approximately 180,000 in 2003 to over 300,000 in 2005. The total taxes paid by these millionaire households rose by about 80 percent in two years, from $132 billion to $236 billion

4. But haven’t the tax cuts put more of the burden on the backs of the middle class and the poor?

No. I examined the Treasury Department analysis of how much the rich would have paid without the Bush tax cuts and how much they actually did pay. The rich are now paying more than they would have paid, not less, after the Bush investment tax cuts. For example, the Treasury’s estimate was that the top 1 percent of earners would pay 31 percent of taxes if the Bush cuts did not go into effect; with the cuts, they actually paid 37 per¬cent. Similarly, the share of the top 10 percent of earners was estimated at 63 percent without the cuts; they actually paid 68 percent.

7. Are lower tax rates responsi¬ble for the big budget deficits of recent decades?

There is no correlation between tax rates and deficits in recent U.S. history. The spike in the federal deficit in the 1980s was caused by massive spending increases.
The Congressional Budget Office reports that, since the 2003 tax cuts, federal revenues have grown by $745 billion—the largest real increase in history over such a short time period. Individual and corporate income tax receipts have jumped by 30 percent in the two years since the tax cuts.

http://www.american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes

The reason money is invested in China, or jobs are sent there, or anywhere outside of America, is that it makes financial sense to do so. Period.

Any ideas whay that's so? Anyone? Hello?

Hint: Taxes. Unions. Regulations.

If you want to keep the investment here, or the jobs, then make it financially attractive.

Any ideas on how we might to that? Anyone? Hello?

Anyone who argues for more taxes and then complains about jobs going outside the country is talking out of both sides of their mouth. They want to have their cake and eat it too.

winchester · Guru

why can't we raise it on people with incomes that are ~$500k+.

The answer is we already did, by a hell of a lot, a long time ago.

In 2004 the top 1% of income earners made roughly 19% of all the income made in this country but they paid roughly 38% of all the tax money collected by the government. (1) In other words the top 1% pays about double their fair share.

Also in 2004, the top 5% of income earners made 33% of all the income, yet they paid 57% of all the taxes. The numbers are roughly the same for 2002. (2)

In other words, 5% of the people in this country, in terms of income, already pay over half of all the money collected by the government in taxes.

And by the way, between 1999 and 2008 the highest income that put somebody into the top 1% was $410,096 (2007) and the lowest was $285,414 (2002). (3)

Also….

America’s lowest-earning one-fifth of households receives roughly $8.21 in government spending for each dollar of taxes paid. Households with middle-incomes receive $1.30 per tax dollar, and America’s highest-earning households receive $0.41 per tax dollar;(4)

Government spending targeted at the lowest-earning 60 percent of U.S. households is larger than what they paid in taxes in 2004. Overall between $1.03 trillion and $1.53 trillion was redistributed downward from the two highest income quintiles to the three lowest income quintiles through government taxes and spending;(4)

Therefore…

The implication of the above question– that we haven’t already raised taxes on people with high incomes, or that they don’t already pay far more as a percentage of income than anyone else – is, to put it mildly, dishonest.

I mean really, think about it. The top 1% of the people in this country, in terms of income, makes about 16% of all the money earned but they pay fully a third of all the taxes. But the question quoted at the top of this post suggests they should pay even more. How much should they pay? 40%? 45%? 50%? How much is enough?

Or think of it this way: The top 50% in terms of income pay virtually ALL of the taxes (97%). In other words, the top half of the country is already carrying the bottom half. Should the top 40% carry the bottom 60%? Should the top 30% carry the bottom 70%?

How much is enough?

For the Democrats, the answer is ALWAYS more. More, more, more.

Which can only beg more questions:

At what point are those who ask that question considered “greedy?”

At what point have we passed any semblance of what any reasonable, fair minded, person would consider fair?

Asking the question “Why can’t we raise taxes on people making $500,000 or more?” concedes the argument to the Democrats from the start. It is the exact wrong question to ask.

In light of the current situation, what we SHOULD be asking is “How is it fair, or even moral, of you to expect ANYBODY to pay MORE than they already are?” And “How is the question ‘Why can’t we raise taxes on those making more than 500K’ not a specious, reprehensible, greedy, dishonest misrepresentation of the truth?”

(1) http://www.american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes
(2) http://usgovinfo.about.com/od/incometaxandtheirs/a/whopaysmost.htm
(3) http://ntu.org/tax-basics/who-pays-income-taxes.html
(4) http://www.taxfoundation.org/files/sr151.pdf

BigG · Guru

I think that the actual reasoning behind giving tax breaks to the rich is that they will invest the money in businesses that create jobs.

The Reagan tax cuts, short lived though they were, were invested in the US and did indeed help the employment situation, improving the lives of US citizens.

The Bush tax cuts were invested in China and made the lives of Chinese citizens better. Frequently, money invested in China causes closing of factories and losses of jobs in the US.

This has nothing to do with the absolute profitibility of the closed factories. They were making money and in a European country would have remained open as EXPANSION capacity was built in China.

Since US businesses close facilities rather than expand production, their activity REDUCES net world economic activity. The Chinese workers, making less, are inferior consumers (in an economic sense).

US business has become a drag and drain on the world economy.

http://sendables.jibjab.com/originals/big_box_mart

Oh Yeah! I almost forgot!

Congratulations! Your children and grandchildren are in debt to finance the growth of a foreign culture with an antagonistic socioeconomic system! The jobs they would have had are now there! They have got debt with no prospect of paying it off in a reasonable time. Sounds like a college education doesn't it?

Could the "elites" and voters of the US be any more short sighted and/or just plain stupid?

-- Edited by BigG on Sunday 10th of July 2011 01:59:50 PM

busdriver11 · Guru

One thing....500K/yr is not the same as 5 million. You make 500K, you're probably paying at least 150K in taxes. For people who live in high cost of living areas like NYC, that really whittles it down, add on state taxes too. You don't get any financial breaks for kids in college, try paying 54K/yr for a couple of kids. You're probably putting money away in a 401K, but if you take this scenario, after funding retirement, college, taxes and high cost of living....isn't as much left as you might think. For that person, there may not be a whole lot left when you give a huge chunk of it to the government already. I personally never felt richer than when I was a second lieutenant, making 18K no kids, no mortgage, no bills, almost no taxes.

So yeah, maybe those people do purchase more items and go on more trips than others, thus spurring on the economy. And probably as Samurai said, they employ household help (would I love that)! But those making the mega bucks are in a completely different category than those making 500K.

My pet peeve is calling people who make that income rich. That is ridiculous. Just because somebody makes it one year, doesn't mean they made it the years prior, or ever will again. They could have "made" it simply by triggering real estate sales gains. How about raising taxes on the true rich? The seniors with large sums in the bank, still collecting social security and medicare benefits, paying mininal taxes because they aren't getting employment income.

SamuraiLandshark · Guru

Purchasing items - cars, boats and other homes. Going on trips. Hiring people to support your lifestyle.

Every person that works in a luxury car factory, mechanic, auto detailer, gas station, etc will benefit from more vehicles on the road that need service.

Travelling - staying in hotels, going on cruises, flying on planes, taking trains - every non-essential trip spurs economic growth and people maintaining jobs in the tourism industry. It seems that the more free time a person has, the more time they have to spend their money in frivolous and not so frivolous ways.

If I made another $15,000 a year that I could use in any way I wish (and it wasn't designated towards bills and college expenses), I would hire a housekeeper to come and do the heavy stuff once or twice a week and a gardener. I would get the local electrician to come out and fix the fan in my bathroom, and hire the flooring people to come and redo my hardwood floors.

All these things stimulate the economy, because it's shifting money from one person to possibly several. Small businesses can keep their people on staff if I can afford to continue to patronize their business.

People with money tend to figure out ways to spend it. Not everyone is sitting on a pile of money in a bank account (even if they should). I remember running into a woman last year or so, who was living quite a happy life. Or so I thought. The latest car (with brand new plates on it), husband was in construction and owned 7 or 8 houses that he was renovating, and she confessed to me that the cars were leased and they were likely going to have to declare bankruptcy. People tend to spend more than they make.

I am not an economist, so it's probably not the kind of answer you are looking for, romani. But the basic point is, if you have money, you will spend it. Spending it spurs businesses to grow and hire people. When people are employed, they tend to spend their money.

romanigypsyeyes · Guru

I'm really just curious. I know the Republicans are not (for the most part it seems) for raising taxes on anyone, but why can't we raise it on people with incomes that are ~$500k+. Realistically, what does spending at that income do for the economy? How much money can one family really spend? If it goes into savings does that stimulate the economy?

I understand not taxing small business owners and that kind of thing. And this is truly not meant to be a political argument of whether or not raising taxes is right or not. I am just wondering how that stimulates the economy... I have heard this rhetoric far too often and I truly don't understand the reasoning behind it. Does someone want to shed some light on this for me? Thanks :)

-- Edited by romanigypsyeyes on Saturday 9th of July 2011 10:25:43 PM