If consumption is 2/3rds of US GDP, why do Repubs want to overtax it?

[EVDebs]

They want consumption taxes, regressive flat taxes, when Chapter 7 of Perfectly Legal by David Cay Johnston shows us that we ALREADY have flat taxation in the US (all taxes, fed state local, considered).

This consumption tax, along with wage taxation, will simply lower consumption which is the only current bright spot of the economy ! Consumption is what is driving this economy, not Supply Side psychobabble about how the tax breaks to the wealthiest few will generate jobs and prosperity. You can wait for the cows to come home on that false Repub promise...

[mhr]

1. Great Question - Related Concept - Marginal Propensity To Consume

If you give a dollar in tax breaks to a poor or middle class person, that person will spend it because they are already spending all they have on necessities.

If you give a dollar in tax breaks to a wealthy person, they have no motivation to spend it because, by definition, they are already wealthy and can spend any amount they want.

This is why trickle-down economics does not work.

The poor have a high marginal propensity to consume and the wealthy have a low marginal propensity to consume.

All the above is economics 101.

[EVDebs]

5. Thanks, that's why Bush did the perverse tax cuts to the rich !

His top 1 and one-half percent of taxpayers (those making over $3million annually) got most of the benefit from the tax cuts while the other 98.5% of us got chump change.

This voodoo trickledown supplyside bulls*@# has got to stop. No wonder he can't keep a Council of Economic Advisors for only a few months ! They have to be certifiably insane to sign-on to this ideological scam.

[applegrove]

2. They want to get rid of the income tax. That way they can have

the middle class pay for everything. The rich just keep stashing the money away.

They want a sales tax so that their 'illegals' pay taxes.

They don't want anyone to know what their wealth is.

If there is no more income tax - how would anyone know how rich they were. Then they can scoot banking laws everywhere.

[dcfirefighter]

3. Getting rid of the income tax

benefits people who work (the poor and middle class) more than people who don't.

Getting rid of the income tax will probably mean that the states have to pick up the tab for education and welfare, (they already pay 80-90%), meaning higher property taxes, which hurt the rich more than the poor and middle class.

The answer to an equitable distribution of wealth isn't a progressive tax on income, but a tax on wealth.

There are economic benefits to those who work if labor-produced wealth is untaxed as well.

Kind of leaves natural wealth: Land, Water, Minerals, Air (Pollution), etc. as the things to tax.

Sure would end the car-based surburbia culture of America though.

[thoughtanarchist]

11. Let's have states pick up the tab for Defense...

Instead of 500 Billion yearly on huge federal defence contracts, let each state pick up the tab for their own defense. The federal budget would be able to pay for all current social programs and still run a surplus to keep SS intact.

[Warpy]

4. They're ignorant, greedy, selfish and stupid.

Next?

[EVDebs]

6. But Warpy, how do we reason with people like this ?

Even Republicans like Paul Craig Roberts are writing about Bushonomics insanity and how change is needed FAST !

[Warpy]

7. We can't reason with supply side true believers

because they are simply not rational people. They're cultists.

We have to wait until their insanity blows up in their piggy faces and the majority of people in this country are ready to brush them aside to restore a little sanity to the process.

It took a depression the last time this happened. It may just take another one now, and perhaps this time DEMAND SIDE ECONOMICS and the other New Deal protections will be written into the constitution as amendments.

[Ouabache]

8. Excellent Question deserves more discussion

here. All the responses so far are good. We need more.

[dcfirefighter]

9. Trickle up Economics

I agree with them.

IF we look at economics :
Land (Natural Resources) plus
Labor (and Education & Entrepreneurship) plus
Captial (Machines & Buildings) equal
Wealth (or Capital)

Money allows trades to occur at different times for different things. Commerce supplies us with the forms of wealth that we prefer and can afford.

Taxes pay for government services, including possibly a Basic Income Grant, or a Demogrant like FairTax.

Taxing Commerce slows commerce, decreasing demand for wealth, and therefore labor, land, and capital.

Taxing Wealth decreases demand for land, capital and labor.

Taxing Capital decreases the supply of wealth, and decreases the demand for capital, land and labor.

Taxing Labor decreases the supply of wealth, and decreases the demand for labor, land and capital.

Taxing Land does NOT change the supply of land, and does NOT decrease teh demand for labor and capital, though it does decrease the demand for land.

Taxing land increases the holding cost of land, encouraging the economic use of it (versus speculative holding and underbuilding). Taxing land encourages intensive urban development (with low energy costs) and discourages extensive suburban development. Taxing land reduces housing prices and stems inflation.

[thoughtanarchist]

10. That makes no sense...

"Taxing Capital decreases the supply of wealth, and decreases the demand for capital, land and labor."

The demand for materials and labor are not governed by tax, but by market demand fueled by consumer spending.

If taxes are based on how much cash you hoard as opposed to how much you spend, THAT is a far better method to encourage growth. Once consumer demand increases, investment in labor will naturally occur to meet that demand.

So much wealth in the modern global economy is intangible. Credits, equities, options, futures, etc. My property taxes would go up, but investments like shares in a REIT would go untaxed. Holding companies would operate virtually tax-free.

Taxing land alone puts the biggest tax burden on homeowners and the least burden on corporations.

Trickle Down, Supply Side, Voodoo economics, whatever you want to call it, did not work 20 years ago and it's not working today.

I have yet to see an argument for supply-side economics with numbers that withstand scrutiny.

[dcfirefighter]

12. Let me try again

the demand for materials and labor are certainly influenced by a tax: If the tax raises the price, the total demand will drop by some amount. Do you think a 50% tax on lumber would reduce the use of lumber? How about a 50% tax on labor?

Or, do what I recommend, and take all the taxes, direct and indirect, off of labor. Take them off of wages & salaries. Take them off of the product of wages and salaries. Leave them on the products of nature and the community.

Hoarding cash is pointless, we can create more. Or not use cash at all. Hoarding cash carries a pretty steep opportunity cost, most people and companies only hoard a little cash, and keep the rest of their net worth in something else.

The only wealth that is intangible is knowledge, the rest of the stuff you mention isn't wealth, they're financial instruments. Money isn't wealth. "money is the nothing you get for something so that you can trade it for something else".

REITs would be taxed for their land, as would GE, Monsato, ConAgra, TimeWarner, etc. Your property tax would probably go up, but less than your income tax went down. The distribution of Land Wealth is shaped like an L, 99% of people have a small fraction of the wealth, 1% of the people (and corporations) have a large fraction of the wealth.

It aint trickle down economics, it's trickle up. We tax corporations and people for the use of the things that noone created. And we share that revenue in the form of government services and a universal dividend.

[thoughtanarchist]

13. I get your point except for the unfounded assumptions:

here's a few of them.

1) labor is nothing like lumber. Employers approach labor in a drastically different manner than they do with raw materials. I've seen no viable evidence to back the claim that eliminating the payroll tax would increase the demand for labor. Also no evidence that eliminating the payroll tax would make American labor cheaper or preferable in relation to outsourced labor.

2) I've seen no indication that an income tax reduction would actually overshadow a real estate tax hike under such a plan.

3) And if that (#2) were true, wouldn't the elimination on payrolls and profits overshadow corporate real estate liabilities? If everyone pays less, how does the govt retain revenues?

4) The biggest corporations are multinationals. How does 1 acre of US land housing corporate HQ and all of the production facilities in Indonesia and china come close to holding the wealthiest to their fair share?


It may hold in theory cash is not wealth, but let's get real. Our economy is on a fiat dollar standard. If you have a million in cash and nothing else but the shirt on your back, you still have wealth. Once you get out of the textbook and into walmart, 1 million dollars cash can buy a hell of a lot of cheap imported Chinese crap.

Now I don't think you'd be getting so much resistance to your theory if you could explain definitively how this economic plan will allow social mobility for poor working folks trying to get ahead?

I can readily see how the plan would be great for trust fund babies who draw pay from investments, but not for the working poor.

[dcfirefighter]

14. Well

1) To be precise, cheaper labor doesn't change demand directly, but it chagnes the price, and more gets used. Example: new jobs being created where labor is cheap, e.g. overseas. Removing the tax on labor changes the price of labor in teh U.S., ergo more labor gets used in the US. When more labor gets used, employers must spend more to attract the next laborer, as there are fewer to choose from. When more more people are employed, they have money to meet their wants, increasind demand for products, which increased demand for labor.

2) For me: I make ~$50,000, pay $15,000 in income taxes. I live in a house with an assessed land value of $45,000. Annual value of that is about $4,500. Commercial land is worth a lot more, as is land in central business districts, or over oil, coal, copper, etc. I wouldnt' switch overnight, but slowly over time. Shifting the property tax from building to land has improved economies around the world. Shifting the tax from productivity to land would continue to do so. Taking taxes off of sales & income increases land values. It would also change land use patterns: intensive development in urban areas rather than extensive suburban development into rural areas. Insamuch as land property still sells for a price, there is an incredible amount of land rent available. Most place it between $4-$6T. This is a classic case of giving the masses enough crumbs (homeownership) to keep them from storming the castle.

3) Most economists agree that corporations don't pay payroll taxes, employees do. 60% of corporations pay no income tax. Pollution taxes are a form of Land tax. If we required AOL/Time Warner to periodically bid on their broadcast rights, we'd get more revenue from them, as well as splitting up the broadcast oligopoly.

4) The biggest corporations are multinational. So what? If they occupy our land we charge them teh value of it. If tehy pollute our land, we charge them the value of it. If they import products from overseas that pollute our land, we charge them for it. Do we have the right to tax French companies? Only with tarriffs, and what they do here. Same with the multinationals.

Oddly, taxing land increases the availabilty of land. The tax has to come out of the seller's price, rather than raising the price. Land sales aren't based on the cost of production, but rather what the seller can get for it. Expansion and new business would occur here, with established infrastructure and an educated workforce.

Our dollars aren't exactly fiat - they are backed with something - DEBT. Fiat would be better. We lose $200B a year paying for Debt, and we lose another $200B by giving banks the ability to create money, rather than keeping it at the Treasury. We can buy cheap chinese crap all we want - it gives us cheap crap, and apparently that's what we want. If they're selling it at a loss, it's our gain. If they're making a profit on it, we should enjoy their cheap products and shift our industry to another product and enjoy the fruits of comparitave advantage. Or, we can choose to pay more for products and enact tarriffs to protect the American Cheap Crap Industry.

Social mobility for the poor? Easier access to land? Fewer taxes on income and savings? Easier to find a job, and at better wages? Lower consumer prices? Ample government funding for social programs? A basic income grant for living necessities (including healthcare?).

Wealth is not zero-sum, Land is.

[thoughtanarchist]

15. the theory needs work

I can tell you're an adamant proponent, but your explanations read like the Plan of the Underwear Gnomes:

1) Steal underwear

2) ?

3) Profit

and the Flat Tax:

1) Initiate a flat tax

2) ?

3) Prosperity for all


example:

I say:
"I've seen no viable evidence to back the claim that eliminating the payroll tax would increase the demand for labor."

you say:
"cheaper labor doesn't change demand directly, but it chagnes the price, and more gets used"

which is basically repeating the assertion that cheaper labor increases the demand.

You also contradict yourself and say that:
"Most economists agree that corporations don't pay payroll taxes, employees do."

Which brings us back to the first point that cheaper labor does not necessarily increase demand. But since you say corporations don't pay payroll taxes, labor isn't even cheaper.


Underwear Gnomes.


:crazy:

[dcfirefighter]

16. I love that cartoon

I'm not as eloquent as I think I am. Nor am I an ardent proponent for the flat tax, or even the FairTax - I'm just the only one on that side of the argument here.

I don't think I can clarify the 'cheap labor gets used more than expensive labor argument'. I think it stands on it's own, with ample examples. Cheap things are a bargain, Expensive things only get purchased when they are necessary. Why else are jobs going overseas, if not to take advantage of cheap labor? If we can maintain (or improve) the standard of living here while making labor less expensive, would that not mean that fewer jobs left, or maybe even new jobs came?

Most economists agree that corporations don't pay payroll taxes, employees do.

"Which brings us back to the first point that cheaper labor does not necessarily increase demand. But since you say corporations don't pay payroll taxes, labor isn't even cheaper."

Employees do pay the payroll tax. It causes labor to be expensive, and used less than it would otherwise be used. Becaused it's used less, there is unemployment, and a competition for jobs. Because there is a competition for jobs, wages suffer.

A quote:
"The key to change is lowering the price of labor relative to that of the only other basic inputs in the economy -- natural resources such as materials, energy and land. Cutting the payroll tax alone would produce roughly 20 million new jobs. That would (1) profoundly enrich the lives and health of those who get the jobs; (2) power a sharp increase in the production of goods and services; (3) cut today's enormous public and private costs of supporting so many dependents; and (4) sharply reduce the costs of many social dysfunctions – ranging from crime/violence/drugs to unmotivated students -- caused by today’s massive true unemployment.:
from http://www.getamericaworking.org/program/payroll_taxes_prblm.htm

[thoughtanarchist]

17. that's the ?

- cheap labor used more than expensive labor
- corps don't currently pay payroll taxes
- employees do
-?
- makes labor expensive for corp.

we have been through a slew of tax cuts in the last 5 yrs
but no real net gain for jobs?
Profits are up though.

:shrug:

I'm not necessarily against cutting the payroll tax, HR 25 goes way beyond that.

[dcfirefighter]

18. Well, I don't really think that HR25 has a shot in hell

of passing.

But I do like having on the table for discussion. I'm generally against taxes on productivity - I don't beleive in progressive income taxes. I merely accept them as a proxy for taxes on other things.

I support HR25 because it fits nicely with my other plan:

I'm still working on it, but I'm quite sure that the Federal Government gives away more than $500B a year in special priveleges. Priveleges that, if auctioned, would raise more than $500B, while not raising prices. FCC rights, FAA rights, BLM rights, etc. I actually think that there's more than $1T of these rights.

But, if we switched medicare to a Swiss style universal healthcare system, and we paid for that and SocSec out of these resource auctions, a nrst would only have to be 15%. If we cut military spending down to the combined amount of the next three countries, it'd only be 7-10%.

As for your ?:

If there is a tax on clothes, who pays the tax? Does it make clothes sales go up or down? Who does it hurt?

It hurts both those who wish to buy clothes, and those who wish to make and sell clothes. It does this by raising the price of clothes.

A payroll tax is a direct tax on wages. It raises the cost of wages without raising the benefit of wages. It makes it more expensive to employ people, and it keeps people out of work. The US payroll taxes are split between the employer and the employee. However, they hurt employees more than it hurts employers. Employers can get around payroll taxes by outsourcing. Oddly enough, if you work as a self-employed contractor, you pay both shares of the payroll tax.

[thoughtanarchist]

19. You're right. It doesn't.

But it's also not part of any other plan. It's a plan in and of itself; which is why it has no chance of passing.

You don't have to sell me on reforming payroll tax. It's a regressive, flat tax and I wouldn't mind seeing it go if reformed in a progressive, revenue neutral manner.

HR 25 is a repeal of progressive taxes / replacement with a single regressive tax that exempts all business -- aka corporate welfare.


as for ?

Again you assume that labor is a simple product that can be price-fixed to manipulate demand.

You can sell snow blowers in Florida at a huge discount but if there's no market, you will not sell product. Same for labor. You can make labor cheaper, but that does not create demand for labor unless there is a market for the product of the labor.

Market demand comes from money getting spent. Money gets spent when more money gets into the hands of the segment of the population that spends the majority (or all) of their total income. Less money gets spent when in the hands of that segment that only spends a small portion of their income. Allow me to spell this out in the simplest of terms:

Joe earns 25,000 yearly. He spends that full 25,000 on expenses and goods to maintain what he deems an acceptable standard of living.

Bob earns 500,000 yearly. It only costs Bob roughly 127,000 yearly to maintain the lifestyle he has come to enjoy.

If Joe gets more $$, He'll spend it to improve his standard of living; creating a demand for the products and services that comprise his standard of living.

If Bob gets more $$, it does not create any demand because he already has more than he needs to maintain his lifestyle. Bob's $$ goes in the bank or investments, creating unsustainable pressure in the stock market but no demand for actual goods.

ANY flat sales tax would, at best, provide Bob with more $$ and not Joe.
That means:
No increase in demand for goods which means:
No increase in demand for labor which means:
Wages stay flat (or decline) and:
Employment not spurred while:
Our standard of living goes down the toilet

At least repealing the payroll tax by itself would theoretically provide Joe with some more $$ --unless the job market corrects itself and new employees entering the workforce cannot get the same level of wages that Joe was able to get--, but tack a sales tax on top of that and Joe nets nothing or more likely suffers a loss.

That's what sucks about HR 25.