Why cut taxes?

[Bo Diddley]

Makes perfect sense.

"Hey, let's try to suck as a rock band so that we aren't so rich and famous."

Most Rush fans I know are total nerds.

Says the guy who runs an internet message board...

Of course I happen to be both typing on said message board and listening to Rush at the same time, so I probably prove your point.

[Jeff Lebowski]

I get what you are saying, but the thing with tax cuts is that you are keeping more of YOUR MONEY. The Democrats are TAKING from one group to effectively BUY VOTES. This is wealth REDISTRIBUTION from one constituency to another.

Also, we think in terms of how much a political campaign costs (Hillary spent $1.2B in 2016), but the real campaign spending is the trillions spent on entitlement programs to secure the votes of a built-in constituency.

Oh boy. We got a live one.

[Crockett]

My jaded opinion is that this is all about bases.

The Democrats tend to promise increases in services and benefits to get their followers rilled up.

The Republicans tend to promise tax cuts and a better economy.

Basically - both are promising to improve the financial situation of their primary supporters.

I get what you are saying, but the thing with tax cuts is that you are keeping more of YOUR MONEY. The Democrats are TAKING from one group to effectively BUY VOTES. This is wealth REDISTRIBUTION from one constituency to another.

Also, we think in terms of how much a political campaign costs (Hillary spent $1.2B in 2016), but the real campaign spending is the trillions spent on entitlement programs to secure the votes of a built-in constituency.

[Crockett]

This will be long and rambling. You've been warned.

The chart below from the St. Louis Federal Reserve shows that taxes as a proportion of GDP have ranged between 14-19 percent since WWII. It seems that tax rates have temporary impacts, but it's hard to tell because other factors affecting receipts muddy the water, and there aren't enough observations with changing tax rates to form a statistically valid correlation. The one thing that certainly affects tax receipts is economic growth and recession. Another important contributor is stock market appreciation and devaluation. In short, the more robust the economy, and the higher the stock market, the greater the tax receipts, no matter what the tax rates.

With the exception of periods of irrational exuberance, the stock market will reflect realistic expectations of GDP growth. In theory, a stock's value reflects the present value of its future dividends, and dividends consistently grow at the same rate as GDP. Thus we can surmise that government income will depend almost entirely on the size and growth rate of GDP. Framed in this manner, the tax issue becomes a question of what provides incentive for maximum economic growth.

The tax-cut school of thought supposes that money turns over more times in the private sector than the public sector, and thus money not paid in taxes will be spent on things that create more jobs than money if it were collected and spent by the government. There is really no way to prove or disprove this, but logically it makes some sense that people spending money in an effort to make more will spend it more effectively than politicians spending money in an effort to be re-elected.

Obviously, this reasoning has its limits, and only really makes sense when marginal tax rates are relatively high. For the 99.9% of Americans, I doubt tax rates are high enough for a tax cut to have a stimulating effect. In fact, the very wealthy that a tax hike usually targets pay a very low tax rate because most of their income is invested in tax-free assets like municipal bonds that fund schools, hospitals, etc. While changing tax rates seems to have little effect on collections, there are some exceptions, and here are some tax cuts (and hikes) that I think will make a difference.

1) Capital gains tax cut - Many conservatives point to capital gains tax cuts in the past, and the subsequent increase in capital gains tax revenue as a case for cutting capital gains. I don't advocate that theory, because it's clearly possible that the short term bump comes from sales of assets that would have taken place anyway, but were moved up to take advantage of a favorable tax change. I do favor a low capital gains rate, though, because it lowers a barrier that keeps people from liquidating one investment in favor of investing in another, and thus encourages a more efficient allocation of capital. An ancillary benefit is the movement of some capital away from municipal bonds and into taxable capital gain assets like stocks.

2) Eliminate estate tax – Estate tax income is a relative small portion of total tax receipts, imposes the greatest burden on families of small business owners, and is a waste of millions of dollars and immeasurable intellectual capital that could be spent stimulating the economy. The very rich rarely pay estate taxes because they have a team of lawyers and accountants setting up trusts and business structures that let them skate around it. The first or second generation business owners, on the other hand, get walloped with legal and accounting fees they can rarely afford because all of their cash is tied up in a growing business. There are few things that kill small, profitable businesses (especially farms) like the estate tax.

3) Make dividends tax deductible on the corporate level – This will reduce corporate taxes but encourage them to pay more in dividends, which will be taxed at the personal level, and likely re-invested in the market. This will have the effect of stimulating the market and also provide more income to retirees living on dividend-paying stocks.

4) Require everyone over the poverty level to pay 3% of their gross – As it stands, about 40% of the country pays no income taxes at all. This lends to the ‘make the other guy pay for it’ thinking that permeates our society and vilifies the rich. Everyone needs skin in the game, and paying something will make people pause before advocating new spending.

5) Address Social Security and Medicare with a 3-way approach – First, raise the retirement age 10 weeks a year until it reaches 70. Second, cut the cap on FICA to 50% rather than zero over a certain income level. Finally, raise the FICA tax to 9%. Social Security and Medicare are important programs and this is the only way I see them surviving.

Great post. Agree wholeheartedly with almost everything.

Yes, on dividend reform. They are already double-taxed and your proposal removes one of those events.

ABSOLUTELY need everyone above the poverty level to "have some skin in the game" here. Right now the top 20% pay 95% of income taxes. That is not a healthy situation, and as you mentioned, this exacerbates an entitlement mentality and undermines a feeling of holding the govt accountable for its spending.

We don't have a revenue problem (tax revenues are at all time highs), we have a spending problem. Entitlements, especially Social Security and Medicare, are out of control and unsustainable. More and more taxes will never be enough with current trends (living longer, smaller birthrates, etc.). Retirement age needs to gradually rise, but no more tax increases, including FICA. It's never enough and the appetite to take more and more seems insatiable.

You've got my vote, cowboy.

[cowboy]

OK, a snoozer of a thread, but the proposed tax cuts are bothering me...

Anyway, given the skyrocketing debt/GDP ratio, tell me why cutting taxes is a good idea.

Hey, wake up!

This will be long and rambling. You've been warned.

The chart below from the St. Louis Federal Reserve shows that taxes as a proportion of GDP have ranged between 14-19 percent since WWII. It seems that tax rates have temporary impacts, but it's hard to tell because other factors affecting receipts muddy the water, and there aren't enough observations with changing tax rates to form a statistically valid correlation. The one thing that certainly affects tax receipts is economic growth and recession. Another important contributor is stock market appreciation and devaluation. In short, the more robust the economy, and the higher the stock market, the greater the tax receipts, no matter what the tax rates.

With the exception of periods of irrational exuberance, the stock market will reflect realistic expectations of GDP growth. In theory, a stock's value reflects the present value of its future dividends, and dividends consistently grow at the same rate as GDP. Thus we can surmise that government income will depend almost entirely on the size and growth rate of GDP. Framed in this manner, the tax issue becomes a question of what provides incentive for maximum economic growth.

The tax-cut school of thought supposes that money turns over more times in the private sector than the public sector, and thus money not paid in taxes will be spent on things that create more jobs than money if it were collected and spent by the government. There is really no way to prove or disprove this, but logically it makes some sense that people spending money in an effort to make more will spend it more effectively than politicians spending money in an effort to be re-elected.

Obviously, this reasoning has its limits, and only really makes sense when marginal tax rates are relatively high. For the 99.9% of Americans, I doubt tax rates are high enough for a tax cut to have a stimulating effect. In fact, the very wealthy that a tax hike usually targets pay a very low tax rate because most of their income is invested in tax-free assets like municipal bonds that fund schools, hospitals, etc. While changing tax rates seems to have little effect on collections, there are some exceptions, and here are some tax cuts (and hikes) that I think will make a difference.

1) Capital gains tax cut - Many conservatives point to capital gains tax cuts in the past, and the subsequent increase in capital gains tax revenue as a case for cutting capital gains. I don't advocate that theory, because it's clearly possible that the short term bump comes from sales of assets that would have taken place anyway, but were moved up to take advantage of a favorable tax change. I do favor a low capital gains rate, though, because it lowers a barrier that keeps people from liquidating one investment in favor of investing in another, and thus encourages a more efficient allocation of capital. An ancillary benefit is the movement of some capital away from municipal bonds and into taxable capital gain assets like stocks.

2) Eliminate estate tax – Estate tax income is a relative small portion of total tax receipts, imposes the greatest burden on families of small business owners, and is a waste of millions of dollars and immeasurable intellectual capital that could be spent stimulating the economy. The very rich rarely pay estate taxes because they have a team of lawyers and accountants setting up trusts and business structures that let them skate around it. The first or second generation business owners, on the other hand, get walloped with legal and accounting fees they can rarely afford because all of their cash is tied up in a growing business. There are few things that kill small, profitable businesses (especially farms) like the estate tax.

3) Make dividends tax deductible on the corporate level – This will reduce corporate taxes but encourage them to pay more in dividends, which will be taxed at the personal level, and likely re-invested in the market. This will have the effect of stimulating the market and also provide more income to retirees living on dividend-paying stocks.

4) Require everyone over the poverty level to pay 3% of their gross – As it stands, about 40% of the country pays no income taxes at all. This lends to the ‘make the other guy pay for it’ thinking that permeates our society and vilifies the rich. Everyone needs skin in the game, and paying something will make people pause before advocating new spending.

5) Address Social Security and Medicare with a 3-way approach – First, raise the retirement age 10 weeks a year until it reaches 70. Second, cut the cap on FICA to 50% rather than zero over a certain income level. Finally, raise the FICA tax to 9%. Social Security and Medicare are important programs and this is the only way I see them surviving.

[Jeff Lebowski]

Maybe they just didn't want all the attention that accompanies greatness as a rock and roll band?

Makes perfect sense.

"Hey, let's try to suck as a rock band so that we aren't so rich and famous."

Most Rush fans I know are total nerds.

[Northwestcoug]

Maybe they just didn't want all the attention that accompanies greatness as a rock and roll band?

Good point. They could be quintessentially Canadian.

[Pelado]

How solid were those top rates? As I vaguely recall from my early years, there were so many deductions, credits, and offsets that the difference between the effective tax rates at that time weren't all that different from today. I don't think anyone but the terminally stupid was paying taxes at those high-end rates, but let me know if I'm mistaken.

Great question. I've often heard tales of the tax shelters available prior to the Tax Reform Act of 1986, but my first hand firsthand first-hand experience is pretty limited since I was only 9 or 10 years old when Reagan signed it.

[Eddie]

My jaded opinion is that this is all about bases.

The Democrats tend to promise increases in services and benefits to get their followers rilled up.

The Republicans tend to promise tax cuts and a better economy.

Basically - both are promising to improve the financial situation of their primary supporters.

[PaloAltoCougar]

...The top marginal rate when Kennedy took office in 1961 was 91%, down from a WWII high of 94%. Not sure when Kennedy signed the tax relief bill (since he was assassinated in 1963) but the top marginal rate decreased for the 1964 tax year to 77%.

The top marginal tax rate today is 39.6%....

How solid were those top rates? As I vaguely recall from my early years, there were so many deductions, credits, and offsets that the difference between the effective tax rates at that time weren't all that different from today. I don't think anyone but the terminally stupid was paying taxes at those high-end rates, but let me know if I'm mistaken.

[Goatnapper'96]

I was about to go ballistic on you for the Rush dig, but then I remembered I only have a couple of Rush songs on my playlist. Great musicians, all, just not great songs.

Maybe they just didn't want all the attention that accompanies greatness as a rock and roll band?

[Northwestcoug]

I too listened to a lot of Rush (the talk show host, not the overrated band) in my younger days. I remember the "Kennedy lowered taxes" mantra well. Not only did he say that the economy improved, but that tax revenues increased as well.

I was about to go ballistic on you for the Rush dig, but then I remembered I only have a couple of Rush songs on my playlist. Great musicians, all, just not great songs.

[Pelado]

Back when I was working with a painting crew right after graduating, the favorite radio program was Limbaugh. I cannot tell you how many times we heard about when JFK cut taxes and the economy took off. I don't know any details, much less if that's even true. But it became accepted wisdom. Every conservative worker on the crew believed it, and it was a favorite gotcha line when arguing with the more liberal worker.

I too listened to a lot of Rush (the talk show host, not the overrated band) in my younger days. I remember the "Kennedy lowered taxes" mantra well. Not only did he say that the economy improved, but that tax revenues increased as well.

diminishing returns. The tax rate was much higher before Kennedy and Reagan than it is today.

This. The top marginal rate when Kennedy took office in 1961 was 91%, down from a WWII high of 94%. Not sure when Kennedy signed the tax relief bill (since he was assassinated in 1963) but the top marginal rate decreased for the 1964 tax year to 77%.

The top marginal tax rate today is 39.6%.

https://taxfoundation.org/us-federal...sted-brackets/

[old_gregg]

The news during the past week was that Mueller had shifted his focus to the Podesta Group; in particular, the relationship between the Manafort and the Podesta Group. The indictments focus basically on tax evasion and violations of the Foreign Agent Registrations Act that occurred long before he was the manager of Trump's campaign. A huge part of the indictment deals with wire transfers that were not properly disclosed, either under the FARA or for tax purposes. The indictments fall in line with the news regarding the Podesta Group.

http://thehill.com/opinion/white-hou...ith-conspiracy

What's more likely -- that Trump hired Manafort because of his experience in getting Reagan over the finish line re delegates the last time there was a close primary race in the GOP, or because of Manafort's Russian connections?

I think it would much more correct to say the GOP is trying to engage in tax reform because Trump's approval is in the shitter because he acts like an idiot and has an insulting demeanor and personality and he threatens to take the GOP Congress down with him next year unless they have a domestic policy win.

the kevin spacey defense. let's see who is works better for--spacey or paulie

[Uncle Ted]

Obviously the tax rate can affect the growth rate, but the more the tax rate is reduced, the less impact it will have on growth. And if those tax rates don't align with spending the debt/deficit can have a greater impact on growth than the tax cut. Cutting spending and services can also have a negative effect on growth.

I too would like to see real tax reform. I'm less concerned about a tax cut and am concerned about the debt.

Good thing we have the self-proclaimed "King of Debt" running the country now...

"I understand debt better than probably anybody. I know how to deal with debt very well. I love debt -- but you know, debt is tricky and it's dangerous, and you have to be careful and you have to know what you're doing," Trump said.

http://www.cnn.com/2016/05/09/politi...egy/index.html