Taxes, Spending, the Fiscal Cliff, and Austerity

[Wiseacre]

Ah, I see, its a matter of 'fairness' despite the fact that the rates will yield approx. 83Bn dollars (in year one and almost certainly go down there after) means little, until the gop agrees to tax people because it presents the appearance of 'pitching in', the dems will not compromise?

So, the carrot isn't effective tax policy to collect more revenue, but, what will be almost a useless exercise in axe grinding.

I have to say I find that ridiculous.



you are representing a false premise, in any case- I do NOT sppt. rate hikes, I support tax reform, with or without entitlement reform, one has little do with another.

It really doesn't matter a damn what you think. The point is if you want to reform entitlements and get agreement that is the price you need to pay. And if you right and it is a small amount your more obstinate than I believed and you define the problem with the Republican Party. They put the interests of the one percent over the country.

This is just not true at all. Although I am not and have never been a republican, I am a fiscal conservative that does not support a tax hike on the top 2% AT THIS TIME. I don't give a flyin' fuck about the rich guys, but I don't see a way to grow the economy without letting these guys get richer. Why? Cuz these are the guys that put up the money for startups and business expansions. And is you sock it to the rich, they will not put their money to the most productive uses for our economy. There are too many other places or too many non taxable ways to invest where they can get a better ROI after taxes.

 

[Wiseacre]

" In terms of businesses the lower hurdle rate arises in terms of the seller not the buyer. Most sellers have an after tax number in their head they want to receive for their business. With a lower capital gains tax rate the sellers can reach that number more easily making them more likely to sell and the employees more likely to be off-shored. "


This makes no sense, if the taxes are low enough for the seller to make the desired after tax profit, why would the buyer move the company offshore? All other things being equal, the buyer isn't going to incur the considerable moving expenses without a damn good reason.

Because by moving the business off shore the company substantially improves their cash via labor arbitrage. So "all other things aren't equal". Generally the seller may not want to take this step so they sell to the buyer who then comes in and off shores the labor.

This makes absolutely no sense at all. Arbitrage? Are you talking labor disputes with a union? Who's gonna buy a company in the middle of a labor dispute? Who's gonna sell out if there's more profit to be made elsewhere? I do not understand your position at all.

 

[Wiseacre]

" In short, I think some true academic research could likely show reducing the capital gains rate today would have a significantly negative impact on the deficit and in fact might actually have a negative impact on jobs. "


I highly doubt that; I think that true academic research would show the exact opposite. Because a lower CG rate incentivizes capital investment and enriches not only the rich but also encourages the less rich to put more money to work. AND it also encourages offshore money and investments to come here instead of somewhere else.

No what would incur off-shore money to come here would be lower corporate income taxes. The investor will pay the capital gains rate where he lives not where he invests. Capital extraction laws aside the investor maximizes his return by living where capital gains taxes are lowest and investing where corporate income taxes are lowest.

Your thinking ignores dramatic changes in WW finance.

I think you are mistaken, most countries do not tax income earned outside of their borders. In any case, US corporate taxes are THE highest in the world, and so will the cap gains tax rate be if all of Obama's taxes go into effect. There is no way on God's green earth that a higher CG tax rate will in any way encourage anybody to invest here, and conversely a lower CG rate can NEVER have a negative economic effect.

 

[Wiseacre]

" In short, I think some true academic research could likely show reducing the capital gains rate today would have a significantly negative impact on the deficit and in fact might actually have a negative impact on jobs. "


I highly doubt that; I think that true academic research would show the exact opposite. Because a lower CG rate incentivizes capital investment and enriches not only the rich but also encourages the less rich to put more money to work. AND it also encourages offshore money and investments to come here instead of somewhere else.

It isn't even a matter of doubt. A lower CG makes investing a more attractive risk and the resulting increased economic activity has a positive ripple effect through the whole.

It is amazing to me how people take things on assumption even if the underlying factors have changed dramatically. Again the past examples you point to we're all in a time when most portfolios were 100% invested in US stocks and bonds. Since for the wealthy that has shrunk to 1/3 it stands to reason 2/3 of the effectiveness no longer exists. It is quite possible that this 2/3 reduction makes reducing the capital gains taxes highly negative to the deficit.

First of all, how about you show me a link that talks about investor portfolios and the ratio of taxable cap gains to other asset classes. Buit whatever the ratio is, I cannot fathom how anyone can claim that a lower CG tax rate could possibly be negative to the deficit, because a lower rate would result in a shift to investments in more US stocks and bonds. It wouldn't just be the increase in taxable income for the investor but also the increase in economic growth and more jobs for the economy.

 

[Wiseacre]

The country (whoever that is) is not blamng the GOP. The liberal media and their lap dogs are blaming the GOP.
The Dems have shown themselves to be totally untrustworthy. They have not passed a budget in years. They have not proposed any credible spending cuts. Ten years down the road maybe is not credible. All they want is higher tax rates on the rich, even though it would not solve the budget crisis one iota. It is purely political. That is all the Democratic Party is today: a political machine for getting and retaining power. The GOP is serious about reining in the deficit. It awaits honest Democrats to help.

Look at the polls, the majority of the population believes the Republicans are to blame. As an independent voter just from the tone of this board I would draw the same conclusion.

Everyone here is ready to move to a solution which would impact the deficit but you and people ideologically aligned with you. Despite what you claim it screams I don't care what the deficit is I just want to lower taxes on the wealthy. This message is the same message being sent by the Republican Party.

I don't think many people are calling for a tax cut for the wealthy or anybody else. We just don't want to raise taxes at a time when the economy is weak. We have a spending problem, not a revenue problem; I haven't seen anything from the democrats on their proposed cuts; show me the CBO report where their proposal was scored.

And BTW, the majority of the population believes the republicans are to blame cuz that's what they constantly hear from Obama and the MSM. There's no effort from him or the democrats to come together; there's no willingness from them to compromise. What we've got here is political warfare, with nothing less than the future of the GOP at stake.

 

[The Rabbi]

Please show me that it has changed. Please give a logical explanation why it would.

I am not going to get the links for you but you can find them yourselves. Look at the structure of the Harvard Endowment Fund which is the bellwether portfolio for sophisticated investors. In 1980, 100% of the fund was invested in US stocks and bonds. Today, that same portfolio has about 1/3 of its portfolio invested in US stocks and bonds.

Might be true but irrelevant.

 

[Sactowndog]

" In short, I think some true academic research could likely show reducing the capital gains rate today would have a significantly negative impact on the deficit and in fact might actually have a negative impact on jobs. "


I highly doubt that; I think that true academic research would show the exact opposite. Because a lower CG rate incentivizes capital investment and enriches not only the rich but also encourages the less rich to put more money to work. AND it also encourages offshore money and investments to come here instead of somewhere else.

No what would incur off-shore money to come here would be lower corporate income taxes. The investor will pay the capital gains rate where he lives not where he invests. Capital extraction laws aside the investor maximizes his return by living where capital gains taxes are lowest and investing where corporate income taxes are lowest.

Your thinking ignores dramatic changes in WW finance.

I think you are mistaken, most countries do not tax income earned outside of their borders. In any case, US corporate taxes are THE highest in the world, and so will the cap gains tax rate be if all of Obama's taxes go into effect. There is no way on God's green earth that a higher CG tax rate will in any way encourage anybody to invest here, and conversely a lower CG rate can NEVER have a negative economic effect.

Who said anything about a higher CG tax encouraging a person to invest here??? Did you read the post??

Most people pay capital gains where they live. A company into which they invest pays income taxes in the country in which they are doing business. To keep it simple if I live in a country with no capital gains tax and invest in a company who does business in a country with no corporate income tax; I will have effectively paid no taxes on my investment.

So to minimize my taxes I want to live where capital gains taxes are low and invest where corporate income taxes are low.

 

[Sactowndog]

It isn't even a matter of doubt. A lower CG makes investing a more attractive risk and the resulting increased economic activity has a positive ripple effect through the whole.

It is amazing to me how people take things on assumption even if the underlying factors have changed dramatically. Again the past examples you point to we're all in a time when most portfolios were 100% invested in US stocks and bonds. Since for the wealthy that has shrunk to 1/3 it stands to reason 2/3 of the effectiveness no longer exists. It is quite possible that this 2/3 reduction makes reducing the capital gains taxes highly negative to the deficit.

First of all, how about you show me a link that talks about investor portfolios and the ratio of taxable cap gains to other asset classes. Buit whatever the ratio is, I cannot fathom how anyone can claim that a lower CG tax rate could possibly be negative to the deficit, because a lower rate would result in a shift to investments in more US stocks and bonds. It wouldn't just be the increase in taxable income for the investor but also the increase in economic growth and more jobs for the economy.

No it would not the capital gains tax is irrelevant to where you invest. It will drive where I live but not where I invest. Corporate income tax rates have a larger impact where I invest.

You clearly have not internalized or thought through the impacts of a global economy. All your statements assume people invest where they live and that assumption is just no longer true.

 

[Sactowndog]

I am not going to get the links for you but you can find them yourselves. Look at the structure of the Harvard Endowment Fund which is the bellwether portfolio for sophisticated investors. In 1980, 100% of the fund was invested in US stocks and bonds. Today, that same portfolio has about 1/3 of its portfolio invested in US stocks and bonds.

Might be true but irrelevant.

Not irrelevant when it is the model for how people should invest. Let me ask you how much of your money is invested overseas?

 

[Sactowndog]

" In terms of businesses the lower hurdle rate arises in terms of the seller not the buyer. Most sellers have an after tax number in their head they want to receive for their business. With a lower capital gains tax rate the sellers can reach that number more easily making them more likely to sell and the employees more likely to be off-shored. "


This makes no sense, if the taxes are low enough for the seller to make the desired after tax profit, why would the buyer move the company offshore? All other things being equal, the buyer isn't going to incur the considerable moving expenses without a damn good reason.

Because by moving the business off shore the company substantially improves their cash via labor arbitrage. So "all other things aren't equal". Generally the seller may not want to take this step so they sell to the buyer who then comes in and off shores the labor.

This makes absolutely no sense at all. Arbitrage? Are you talking labor disputes with a union? Who's gonna buy a company in the middle of a labor dispute? Who's gonna sell out if there's more profit to be made elsewhere? I do not understand your position at all.

Yes labor arbitrage and given your background in the military I would guess you have never had to lay-off your best loyal workers because their job is moving overseas. I have and would rather never do that again.

Most people are not Kevin O Leary and they can't emotionally lay-off long time employees just to lower costs and increase cash flow. But a percentage of them are willing to sell their business to someone else who can and knows how to do it for a price. That price like all things is a market and lowering the capital gains tax shifts the supply curve down and makes more deals likely to be done.

 

[The Rabbi]

Might be true but irrelevant.

Not irrelevant when it is the model for how people should invest. Let me ask you how much of your money is invested overseas?

Doesn't matter. If I have a capital gain on it, I will pay capital gains taxes. If the taxes are high, I will leave the profit locked in rather than pay the tax and reduce my return. That's the whole point.

 

[Foxfyre]

Not irrelevant when it is the model for how people should invest. Let me ask you how much of your money is invested overseas?

Doesn't matter. If I have a capital gain on it, I will pay capital gains taxes. If the taxes are high, I will leave the profit locked in rather than pay the tax and reduce my return. That's the whole point.

Exactly. It doesn't matter where the investments are. If you go through a U.S. broker, you will pay the tax on any applicable gains. I don't have enough in investments to go to the expense of setting up overseas accounts. But make the capital gains tax unattractive enough, and those who do have such wherewithal will simply not keep their money working at home but will find ways to shelter it.

There is a point that investment, whether in stocks and bonds or real estate or whatever, becomes too risky or unattractive. The USA has one of the highest capital gains taxes in the world as it is now and is second, by a hair, only to Japan in Corporate taxes, plus has a brutal regulatory policy that becomes more oppressive and complicated all the time.

That is not the way to keep jobs at home and/or encourage economic growth.

 

[Foxfyre]

I can't imagine what they are teaching re economics in public schools and in the universities these days. It seems that far too many Americans seem to believe that government really can fix our problems and make everything right if it just has a bit more money and is give more power to do so.

Certainly in my lifetime, the education system was emphasizing that all true wealth is generated in the private sector and through the initiative of all those who work together by virtue of each person trying to get ahead. And when the people are prospering through their own efforts, the whole country prospers. And the government treasury is then filled.

Isn't that being taught anywhere any more?

 

[The Rabbi]

I can't imagine what they are teaching re economics in public schools and in the universities these days. It seems that far too many Americans seem to believe that government really can fix our problems and make everything right if it just has a bit more money and is give more power to do so.

Certainly in my lifetime, the education system was emphasizing that all true wealth is generated in the private sector and through the initiative of all those who work together by virtue of each person trying to get ahead. And when the people are prospering through their own efforts, the whole country prospers. And the government treasury is then filled.

Isn't that being taught anywhere any more?

It clearly is not. Thus people fall for the same crap over and over. Gov't spending stimulates the economy and makes it grow through the Multiplier Effect. Higher tax rates result in more revenue to the gov't with no loss of economic activity. Special targeted tax breaks are effective incentives. Setting minimum and maximum prices results in lower costs or higher wages. On and on.
About 4 lectures in basic econ would be enough to dispel these myths. Of course the education establishemnt would never allow that because knowledge equals freedom. And the Left hates freedom.

 

[Foxfyre]

I can't imagine what they are teaching re economics in public schools and in the universities these days. It seems that far too many Americans seem to believe that government really can fix our problems and make everything right if it just has a bit more money and is give more power to do so.

Certainly in my lifetime, the education system was emphasizing that all true wealth is generated in the private sector and through the initiative of all those who work together by virtue of each person trying to get ahead. And when the people are prospering through their own efforts, the whole country prospers. And the government treasury is then filled.

Isn't that being taught anywhere any more?

It clearly is not. Thus people fall for the same crap over and over. Gov't spending stimulates the economy and makes it grow through the Multiplier Effect. Higher tax rates result in more revenue to the gov't with no loss of economic activity. Special targeted tax breaks are effective incentives. Setting minimum and maximum prices results in lower costs or higher wages. On and on.
About 4 lectures in basic econ would be enough to dispel these myths. Of course the education establishemnt would never allow that because knowledge equals freedom. And the Left hates freedom.

And that is the scary part. That our young are now intentionally being indoctrinated with a lie to enhance government power. At least a few of the smarter and less gullible ones are able to see that government cannot spend a dime without first taking that dime out of the economy either now or later. And that the sheer weight of cost of maintaining an ever growing and massive bureaucracy and the entitlements it gives to ensure that it is kept in place is slowly but surely bleeding the private sector dry.

If this trend is not reversed, we will become another socialist totalitarian nation without anybody ever having to fire a shot. The danger is that they already have more than 50% of the people dependent on at least some government subsidy. Even when people know the danger, it is really hard for them to risk losing some gpvernment benefit they are getting.

 

[oldfart]

I can't imagine what they are teaching re economics in public schools and in the universities these days. It seems that far too many Americans seem to believe that government really can fix our problems and make everything right if it just has a bit more money and is give more power to do so.

Certainly in my lifetime, the education system was emphasizing that all true wealth is generated in the private sector and through the initiative of all those who work together by virtue of each person trying to get ahead. And when the people are prospering through their own efforts, the whole country prospers. And the government treasury is then filled.

Isn't that being taught anywhere any more?

Well, I taught economics in a couple of colleges many years ago when I still had hair, so I'll venture an answer. The level of economic education at the high school and introductory college levels has always been horrendously bad, consisting of one part civics and nine parts cant which never passed the smell test. Long-term unemployment is impossible in a capitalist society. Really? This sort of drivel doesn't stand up to anyone who can read a newspaper. What good is economic theory that can't explain unemployment?

Now "all true wealth is generated in the private sector" is another piece of bullpucky which cannot pass the smell test. Really? I suppose the University of Michigan never educated anyone. You drive an automobile over an illusionary Interstate highway. The Hoover dam does not exist. Private enterprise pays for constructing aircraft carriers. Come on, my eight year old grandson can see the error in that (the six year old still believes in the tooth fairy, however).

Just because the United States is virtually the only nation on the face of the earth that does not publish a capital budget does not mean that one does not exist. The next time you get all lathered up about the national debt consider this: The per capita share of the public debt is estimated to be less than a third of the per capita share of the public capital stock. I'll gladly take my share of both.

Of course I expect that all of the free enterprise types will want to take any public goods and sell them to Chinese investors so we can pay off the national debt and everyone can pay tolls every time they drive a car. The Navy can also rent its airplanes; miss a payment and no more interventions!

If the federal government kept books according to the same rules used for SEC registrations, it would have a helluva retained earnings account. But that doesn't fit the bash government narrative, so I guess it will never be taught in schools. Instead we'll get more of the "monopolies act just like perfectly competitive firms" manure the Chamber of Commerce puts out.

 

[Wiseacre]

Question: Could a rich American setup a business overseas in Hong Kong (no cap gains tax there) and put money into that foreign company. That business invests in businesses around the world, but since it's not here does the rich American pay taxes on those earnings? I'm having a hard time believing rich guys can't find ways to park their money in foreign places and avoid paying taxes on earnings from that.

 

[Foxfyre]

Question: Could a rich American setup a business overseas in Hong Kong (no cap gains tax there) and put money into that foreign company. That business invests in businesses around the world, but since it's not here does the rich American pay taxes on those earnings? I'm having a hard time believing rich guys can't find ways to park their money in foreign places and avoid paying taxes on earnings from that.

I haven't looked at that part of the tax code for awhile, but I believe any U.S. citizen earning what would normally be taxable foreign income from any source is subject to U.S. taxes on that income. But there is a substantial foreign tax credit involved that softens the blow. For small business owners operating overseas, I believe they can exclude up to $70k of the earning for tax purposes. And of course many can show exclusions, expenses, and credits sufficient to wipe out their tax liability. Where they make out like bandits is being free from the expense of the more onerous U.S. regulations, much lower minimum wage, much less in payroll taxes etc.

G.M. continues to lose money here in the U.S. and makes most of its profit overseas which greatly reduces its U.S. tax liability or wipes it out entirely. Mammoth General Electric--yes the same one whose CEO is Obama's jobs czar--hasn't paid U.S. taxes in two years. They write off U.S. operations as a loss, make all their profits overseas where they get the tax breaks, and their green energy credits courtesy of the U.S. government eliminates their tax liability entirely. And yes, they continue to ship far more jobs overseas while they are reducing work forces here in the states.

The last time I read up on it, we had something like $3 trillion in U.S. private industry assets parked overseas that could be brought home if they wouldn't be hit immediately with massive taxes. And we have many more trillion in assets sidelined here at home because the business owners simply won't put it back into production in the uncertain economic climate of the last four years. And the President's current desire to raise taxes on those earning $250k or more isn't helping with that at all.

 

[saveliberty]

GM is losing money in Europe and not Asia or the US.

 

[Foxfyre]

I can't imagine what they are teaching re economics in public schools and in the universities these days. It seems that far too many Americans seem to believe that government really can fix our problems and make everything right if it just has a bit more money and is give more power to do so.

Certainly in my lifetime, the education system was emphasizing that all true wealth is generated in the private sector and through the initiative of all those who work together by virtue of each person trying to get ahead. And when the people are prospering through their own efforts, the whole country prospers. And the government treasury is then filled.

Isn't that being taught anywhere any more?

Well, I taught economics in a couple of colleges many years ago when I still had hair, so I'll venture an answer. The level of economic education at the high school and introductory college levels has always been horrendously bad, consisting of one part civics and nine parts cant which never passed the smell test. Long-term unemployment is impossible in a capitalist society. Really? This sort of drivel doesn't stand up to anyone who can read a newspaper. What good is economic theory that can't explain unemployment?

Now "all true wealth is generated in the private sector" is another piece of bullpucky which cannot pass the smell test. Really? I suppose the University of Michigan never educated anyone. You drive an automobile over an illusionary Interstate highway. The Hoover dam does not exist. Private enterprise pays for constructing aircraft carriers. Come on, my eight year old grandson can see the error in that (the six year old still believes in the tooth fairy, however).

Just because the United States is virtually the only nation on the face of the earth that does not publish a capital budget does not mean that one does not exist. The next time you get all lathered up about the national debt consider this: The per capita share of the public debt is estimated to be less than a third of the per capita share of the public capital stock. I'll gladly take my share of both.

Of course I expect that all of the free enterprise types will want to take any public goods and sell them to Chinese investors so we can pay off the national debt and everyone can pay tolls every time they drive a car. The Navy can also rent its airplanes; miss a payment and no more interventions!

If the federal government kept books according to the same rules used for SEC registrations, it would have a helluva retained earnings account. But that doesn't fit the bash government narrative, so I guess it will never be taught in schools. Instead we'll get more of the "monopolies act just like perfectly competitive firms" manure the Chamber of Commerce puts out.

Again, the fact that you demonstrate that you don't know the difference between national defense, social contract, and 'creation of wealth by government', as well as the history of these, makes me hope that your students slept through those classes.