Debate and Discussion

The Myth of Raising Taxes
arteestx at 8:16PM, Oct. 27, 2008
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rufus_edge
The problem with raising taxes on the “wealthy” and “large businesses” is that they will just pass the tax on to us. They'll respond by raising prices and cutting payroll. They will have less opportunity to create new jobs. They will also employ less people to build their mansions, cook their meals, and take care of their houses. They will be less likely to take risks involving new, unproven, innovative products and expanding their businesses. They will buy less cars and extra houses, and everything else that they don't need, which will be bad for the economy. There will be less people wanting to come into the country to do business, and more people wanting to leave.
If we raise taxes, the economy will go to hell. We've all heard that before. In fact, we actually did raise taxes primarily on the wealthy back in 1993. Remember what critics said?

Republicans in 1993
“Clearly, this is a job-killer in the short-run. The impact on job creation is going to be devastating.”
—Rep. Dick Armey, (Republican, Texas)

“The tax increase will…lead to a recession…and will actually increase the deficit.”
—Rep. Newt Gingrich (Republican, Georgia)

“I will make you this bet. I am willing to risk the mortgage on it…the deficit will be up; unemployment will be up; in my judgment, inflation will be up.”
—Sen. Robert Packwood (Republican, Oregon)

“The deficit four years from today will be higher than it is today, not lower.”
—Sen. Phil Gramm (Republican, Texas)
Yes, those were scary times. Remember the recession of the 1990s? Remember how the deficit exploded, unemployment went up, inflation went up? Wow, those were… waitaminute, what actually happened?

Wall Street Journal
Tax on Wealthy Is Boosting U.S. Revenue

President Clinton sold the 1993 income-tax increase as a way to shrink the budget deficit at the expense of the rich.

Republican adversaries predicted it wouldn’t generate much revenue because the rich would work less and take bigger deductions. Now there’s growing, if still tentative, evidence that Mr. Clinton may have been right after all.

The recent flood of revenue pouring into Treasury coffers—enough to push the federal budget to a record $93.94 billion surplus for the month of April—appears to have come mostly from the nation’s biggest earners, indicating that the controversial tax increase may indeed be taking from the rich. “The available data suggest the surge in tax collections has come from the taxpayers with high incomes, who were the only ones affected by the 1993 changes,” says Deputy Treasury Secretary Lawrence Summers.

Corporate taxes, which were increased modestly under the 1993 law, also have brought in more revenue, but at about the level the Treasury had been predicting…

…..

“The basic fact is that people looked at the 1993 budget agreement and said there’d be a recession, the deficit would go way up and that tax collections would go way down,” says Mr. Summers. “What has happened is there has been a boom, the deficit has gone way down and tax collections have gone way up.”

—WALL STREET JOURNAL, May 22, 1997, A2.

So I'm curious; if raising taxes on the wealthy is so bad for the economy, why wasn't there a recession in the 1990s? Yes, we can surely mention that Internet bubble and “irrational exuberance.” But it doesn't take away the fact that taxes went up on the wealthy and the economy did not nosedive. Taxes went up and all the terrible predictions did not come to pass. The sky did not fall, and America survived. So why would it be oh so bad now?



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last edited on July 14, 2011 11:02AM
DAJB at 12:51AM, Oct. 28, 2008
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To some extent, it's a matter of degree. Even after the 1993 tax increases, the US was still a relatively low-taxed economy compared to many other Western nations.

In the UK, the highest tax band in the 1960s was (from memory) 95%. This did indeed lead to those with higher earning potential to leave the UK for countries like the US (a consequence known as the “brain drain” ). Workers who stayed in the UK demanded higher wage increases since a small increase means nothing if a large percentage of it goes in tax. This in turn contributed to labour unrest, high inflation and recession during the 1970s.

It also ignores the fact that businesses usually employ accountants who are far cleverer and can react to changes far more quickly than state employed officials. In practice, therefore, higher taxes often result in a proliferation of tax avoidance schemes for the wealthy. Some of the world's richest individuals and largest corporations effectively pay no tax at all, despite huge profits. To compensate for this, the earnings threshold at which higher rate taxes start to appply tend to be progressively lowered until it's really those on middle incomes who are being hardest hit.

In the 1980s Margaret Thatcher argued that the way to boost the economy and defeat the recession was to cut taxes (especially at the higher rate bands) in order to encourage entrepreneurs. She did it, and it seemed to work. The UK enjoyed a boom period which, arguably, is only just coming to an end now. She employed a totally different philosophy to Clinton but the economy still benefitted.

The fact that is that economies have become far more global and interlinked than they were when most currently accepted economic theories were formulated. It could be argued, therefore, that the 1993 tax measures in the US would have led to a recession, had the wider global economy not experienced an upturn which offset the negative effects of the domestic taxes. It could also be argued that Thatcher's tax cuts would not have stimulated the economy, had it not been for other external factors.

The reality is that economies are far more complex and beyond the control of politicians than they dare admit. Neither cutting taxes nor increasing taxes will cause a recession or stimulate a boom if the economy is already headed the other way. When politicians announce these ideas, they are usually just looking for votes. Taxing the rich is an especially useful ploy because it's easier than cutting costs (i.e. jobs) and it pleases more voters than it hurts.

Since I'm not rich, I'm all in favour of it. But whether it will lead to a recession or spark a recovery is anyone's guess!
last edited on July 14, 2011 12:03PM
ozoneocean at 2:43AM, Oct. 28, 2008
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I think DJAB hit's the nail on the head when he says “The reality is that economies are far more complex and beyond the control of politicians than they dare admit.”

The simplistic arguments go both ways:
1) Tax the rich, there's fewer of them, they have more resources and can afford it
- make the majority benefit/happy, please the people envious/upset over the disparity in earnings.
2) Don't tax the rich, it's a job-killer, unemployment will increase because business can't afford to hire etc.
- Exploit the fears of people with only a partial understanding of economics and a traditional deference to their “betters” lol!

And in the end the system is too vast and complicated for things like Tax cuts or new taxes to have predictable effects like that, it's more coincidental and a case of people “inventing” predictions after the fact.

Generally it's logical that someone with more cash should pay more tax, and that's how the system works in most successful modern economies. Too much tax and you unbalance things. But if the disparity between what the small wealthy percentage owns and the large poor percentage has become too great things invariably fail here as well.
 
last edited on July 14, 2011 2:32PM
lothar at 5:39AM, Oct. 28, 2008
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i think raising taxes on people making over 250,000 a year is a good idea . i don't know why your average american is getting all upset about it . do you or anybody you know actually make that much money ??? and where is the money suposed to come from to send your kids to school and police your neighborhood ?? i think they should jack the taxes on the super rich back up to 1950s levels , whatever those were, but i heard they were much higher than they are now ! and then use all that money to build windmills and solar power collectors in orbit ! then get everybody decent health care and double the minimum wage !!
how about some trickle up economics ? when you have half the population struggling to get by , it doesn't do much to improve the overall economy ~! if people cant pay for health care or rent or food or whatever , then how the hell are they supposed to go buy their consumer goods to prop up the service based economy in America ?? you need a large middle class that can afford to buy things .

and what about the obscene amount of money the US spends on WAR ??? call it “defense” or whatever , but it's Insane how much of you taxes go to pay for the implements of Death ! prolly close to half of all your taxes go to the War machine ! that's money that could go for health care , renewable energy programs , space exploration , feeding starving people all over the world !! but instead it's going to build bombs and stuff like that !
when we're talking about taxes in America i think we need to recognize the 100 megaton elephant in the corner of the room !!!
last edited on July 14, 2011 1:45PM
bravo1102 at 8:57AM, Oct. 28, 2008
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As a function of the USA's GNP the money spent on defense is low. The US military is small for the size of the polulation and land mass. The US military is the smallest it has been since 1940. The units that fought in Desert Storm in 1991 were disbanded during Clinton and never reformed. The current force structure is so starved the troops have to re-deploy and re-deploy and re-deploy overseas. Canada can only have a tiny military because it's next door neighbor is friendly and militarily strong. When that neighbor was belligerent the forces in Canada were comparable in size.

The USA just uses its military way too much. We like to throw our weight around. If the US military budget disappeared tomorrow it would barely be a drop in the bucket as far as the US Gov't budget is concerned. The money goes to entitlements and paying the interest on the previous debt.

Also since our military grabs the headlines the other nations beside us fade into the background. It seems only the guys into military markings and uniforms are aware who else is in Afganistan and Iraq besides the USA.

How about the sign seen on the first German Bundeswehr vehicle into Croatia? “Watch out! We're Back!” (referring to the German occupation of Yugoslavia in WWII) That didn't get any news coverage outside of the military enthusiasts who rushed forward to build models of the vehicle.

As for economies; it's a balance as previously stated. Economists disagree about everything.
last edited on July 14, 2011 11:33AM
Ronson at 5:29PM, Oct. 28, 2008
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According to Wikipedia, the current military budget is over $500 Billion.

In comparison to other countries:
Someone
The 2005 U.S. military budget is almost as much as the rest of the world's defense spending combined and is over eight times larger than the official military budget of China. (Note that this comparison is done in nominal value US dollars and thus is adjusted for purchasing power parity.) The United States and its close allies are responsible for about two-thirds of the world's military spending (of which, in turn, the U.S. is responsible for the majority). In 2007, US military spending was above 1/4 of combined industrial and agricultural production in the USA.

Most of this money goes to contractors and R&D. Not to military personnel. So while we are strapped for troops and equipment, we're spending more than half a trillion a year - and that's not including Iraq OR maintenance of our nuclear warheads.

That is too much and out of proportion to our needs. The problem is that if we were to drastically reduced defense spending, many towns across the country would probably enter into depression-like circumstances. We've dug our own hole here.
______

Sorry, just thought I'd point that out.

Back to taxes, there is no proof that tax cuts for the rich work, but there is ample evidence that growing the middle class creates thriving markets which in turn create jobs.

The two aren't mutually exclusive, but we should cut taxes only when it encourages middle class growth…that is, when it creates good, well-paying jobs.

In an international market, cutting taxes for the wealthy without some sort of way to keep the money in this country is almost a mistake because it will often cause that capital to go overseas - where the corporations can make more stuff for less money.

Taxes and tarriffs could be crafted to prevent excess greed and to discourage imported goods. These have a proven track record to grow the middle class, which in turn helps the businesses that employ them.

(Barack's plan, for example, gives tax credits to companies hiring within our borders and reduces the capital gains taxes for small businesses.)

But right now special interests and political expediency prevent us from logically looking at the problem.
last edited on July 14, 2011 3:10PM
kyupol at 5:31PM, Oct. 28, 2008
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I'll keep this short.

1)More taxes = bigger government.

2)Bigger government = more abuse, more tyranny, less freedom. (see communism and fascism)

3) Winners = the global elite. Losers = the people


MINIMIZING THE SIZE OF THE GOVERNMENT IS THE ANSWER

NOW UPDATING!!!
last edited on July 14, 2011 1:26PM
Ronson at 5:33PM, Oct. 28, 2008
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kyupol
MINIMIZING THE SIZE OF THE GOVERNMENT IS THE ANSWER

What do you think the government should be able to do, and should be able to collect taxes to pay for it?
last edited on July 14, 2011 3:10PM
ozoneocean at 10:43PM, Oct. 28, 2008
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Ronson
That is too much and out of proportion to our needs. The problem is that if we were to drastically reduced defense spending, many towns across the country would probably enter into depression-like circumstances. We've dug our own hole here.
lol! Something similar to that was pretty much what did in the U.S.S.R.

I could say that's ironic, but it's not really. The U.S.A. and U.S.S.R. were competing on pretty much the same footing. And with Russia not competing directly at the level any longer, the U.S.A. hasn't changed similarly and is still set up for the old cold war existence.

—————

Smaller governments fail. The fact is you need a government that is in realistic proportion to the population that it governs (not massive, and not bare bones either). That's a very simplistic thing to say, but far less simplistic than Kyupol's assertion.
 
last edited on July 14, 2011 2:32PM
lothar at 7:32AM, Oct. 29, 2008
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kyupol
MINIMIZING THE SIZE OF THE GOVERNMENT IS THE ANSWER


it's not the size of the government , it's what you get out of it . the government should be looked on as a service to the people , similar to membership in a club . you pay your dues and expect certain services if you should need them . taxes are pretty much essential to a civilized society . taxes are what build the nation and allow it to continue existing as a nation . if you allowed the free market to determine everything : we would likely still be driving on dirt roads and only the children of the rich would go to school .
last edited on July 14, 2011 1:45PM
ozoneocean at 8:13AM, Oct. 29, 2008
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lothar
if you allowed the free market to determine everything : we would likely still be driving on dirt roads and only the children of the rich would go to school .
You'd have aristocracy… Monarchy… Without any regulation, there would be nothing to prevent this eventually coming about. You already have the makings of the class system; political dynasties, corporate dynasties, wealthy elites with hereditary title to that wealth and position in society, a massive underclass of workers who are content in that role.

Monarchies aren't inherently bad, they're just another form of government like any other, but as Lothar hints, those systems don't allow for swift progress (when they become entrenched) and the very few benefit wildly disproportionately over the many.
 
last edited on July 14, 2011 2:32PM
bravo1102 at 10:06AM, Oct. 29, 2008
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It's an exercise in futility to debate military policy with someone who isn't intimate with US military policy going back over the last 100 years and military force structure and technology. I have these discussions with my sister and my brother all the time. lol! Then I have to spend a few hours going over the military history of the USA and how military force structures work and policy and blah, blah, blah. And I get a headache. It's so much easier discussing the weather. :)

You can't just look at the numbers. The USA spends so much on its military so that the rest of world doesn't have to spend their money. Besides most of it goes for R&D which has led to most of the neat stuff we enjoy from thermal imaging, microwave ovens to ipods to cheap jet air travel, the trench coat, sleeve buttons, wrist watches… If the USA wanted to still use the last generation of tank and aircraft we could slash the military budget. There's that tendency to get all new stuff rather than improve the old stuff like the rest of the world does. :( That's a huge reason for the disparity in spending.

The Chinese and Russians don't have to do their own R&D they just wait for us to sell it to them or steal it. (anyone intimate with Russian, Chinese aircraft development will tell you that. The Russians and Chinese do the same stuff as we do and have similar weapons systems but can do it cheaper because they have a lot less overhead. We pioneer the technology, the Russians develop a cheaper version of it and sell it everywhere. Look-down-shoot-down radar, thermal imaging, laser range finders etc. etc.)









last edited on July 14, 2011 11:33AM
ozoneocean at 2:12PM, Oct. 29, 2008
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bravo1102
The Chinese and Russians don't have to do their own R&D they just wait for us to sell it to them or steal it. (anyone intimate with Russian, Chinese aircraft development will tell you that. The Russians and Chinese do the same stuff as we do and have similar weapons systems but can do it cheaper because they have a lot less overhead. We pioneer the technology, the Russians develop a cheaper version of it and sell it everywhere. Look-down-shoot-down radar, thermal imaging, laser range finders etc. etc.)
That's not quite fair, China gets most of her tech straight from Russia.
But a lot of day to day and expensive tech in Russia is all their own with a very different design philosophy to US tech- in no way copies. Look at their helicopters, their tanks, their war-ships, nuclear missiles…
You might point to various sub-systems and historical instances like the Superfortess and B1 bombers, and Hook/crane helicopter as being directly nicked, but Russia is and has always been as innovative and original as the US in arms development.
————–

And the U.S.A. still spends a hell of a lot on the defence industry… That basically involves massive amounts of public money going to directly support most of its biggest private industries through grants, acquisitions, even a huge amount of foreign aid is actually direct support for U.S. defence industries because defence tech is what the aid consists of, or the “aid” is just promises of discounts on defence tech: more subsidies. … A protected industry with many a highly unethical advantage over foreign defence industries,- They can't fairly compete because there are all sorts of barriers in their way from U.S. regulations on the place of birth of their staff (when they work with U.S. firms especially), too their countries Defence industries being undercut by more powerful and subsidised U.S. ones, to a zillion other things, not to mention the U.S. tendency to mainly buy U.S. tech no matter how cheap or good the competition.

So… That really is a bit of an issue with its drain on the public purse. The free market takes a lobotomised role there as these vampires suck directly from the jugular of public funds.
 
last edited on July 14, 2011 2:32PM
arteestx at 9:06PM, Oct. 29, 2008
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DAJB
It could be argued, therefore, that the 1993 tax measures in the US would have led to a recession, had the wider global economy not experienced an upturn which offset the negative effects of the domestic taxes. ….
The reality is that economies are far more complex and beyond the control of politicians than they dare admit. Neither cutting taxes nor increasing taxes will cause a recession or stimulate a boom if the economy is already headed the other way.
I agree completely. I am not arguing the opposite, that tax increases are always a good thing in all economic situations. I am merely asking how those who say that increasing taxes primarily on the wealthy will undoubtedly lead to bad economic results, when we've already tried it not 15 years ago and it worked out ok. Sure, you can argue that taxes would have led to a recession in other circumstances, but the fact is it didn't. And that completely negates the conservative argument.

It's like those folks who believe the rapture will occur on a particular date, that the world is literally coming to an end. Once that date comes and goes, what do you say when the same people go around predicting another end of the world? We've heard conservatives predict economic ruin from taxing the rich, and it didn't happen. Sure, we need to be smart and careful about how we structure taxes in the future, but this notion that cutting taxes and deregulation are the one and only way to economic prosperity has been thoroughly discredited. And the idea that raising taxes on the rich is inherently bad for the economy is bogus and does not match reality.


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last edited on July 14, 2011 11:02AM
cartoonprofessor at 6:16PM, Nov. 1, 2008
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Here's a suggestion….
Instead of increasing taxes on the rich, abolish all taxes completely, then put in place a 1% Debit tax, which effectively means for every transaction 1% automatically goes to the govt coffers.
This would also eliminate a massive financial burden on govt because the banks would be the ones doing the tax collecting.
Estimates have shown this one simple tax would eliminate the need for any other taxes at all! And it's fair. Everybody pays a proportionate amount of tax according to what they spend (and therefor earn).

Imagine it… no more tax returns! : )

Of course the banks have successfully fought this idea now for decades, and no doubt will continue to do so.

last edited on July 14, 2011 11:36AM
Ronson at 8:35PM, Nov. 1, 2008
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cartoonprofessor
Here's a suggestion….
Instead of increasing taxes on the rich, abolish all taxes completely, then put in place a 1% Debit tax, which effectively means for every transaction 1% automatically goes to the govt coffers.
This would also eliminate a massive financial burden on govt because the banks would be the ones doing the tax collecting.
Estimates have shown this one simple tax would eliminate the need for any other taxes at all! And it's fair. Everybody pays a proportionate amount of tax according to what they spend (and therefor earn).

Imagine it… no more tax returns! : )

Of course the banks have successfully fought this idea now for decades, and no doubt will continue to do so.



So long as it was truly equal - including stock transactions and the like -I'd be willing to give ita shot.
last edited on July 14, 2011 3:10PM
ozoneocean at 8:46PM, Nov. 1, 2008
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Flat taxes have issues… They can multiply over all sorts of different levels. Although 1% sounds like a nice low number :)

But I think people would start moving a lot of their transactions out of the banking system, or paying it into the banking systems of foreign companies instead.
 
last edited on July 14, 2011 2:32PM
cartoonprofessor at 9:15PM, Nov. 1, 2008
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Yeah, that's the main argument the banks keep using… that people will stop using the banks and go back to cash.

The argument is flawed however… to go back to a cash economy is simply inconvenient and impractical in today's world.

And to use foreign companies would restrict their spending in this country too much. A lot of very wealthy people live in my area of the Gold Coast and when I have mentioned the debit tax to them they always seem to like the idea. Unless they are accountants as it would practically make accountants obsolete.
last edited on July 14, 2011 11:36AM

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