Taxes - Inconvient Truths (3 Viewers)

[Steve R.]

Both McCain and Obama are on a populist tax cutting binge. No one likes to pay taxes, but they are a cost of living in a civilized society. In fact many taxes facilitate economic progress (business growth). For example infrastructure improvements, such as roads which allow customers to visit businesses. Tax paid education also provides an educated workforce. (Yes are schools are in trouble.)

From the free-market perspective, both candidates seem to be blind about the implications of their tax positions.

Both candidates advocate that cutting taxes on business will facilitate economic growth. If we assume a balanced budget, cutting taxes on business only means that someone else has to pay the taxes, which means that they have LESS money to buy. So there is no economic benefit.

Both candidates advocate that taxes need to be cut to foster "economic growth". Yes, cheap money does foster economic growth. The experiment of low interest rates and easy mortgage credit has imploded into failure. Cutting taxes will foster economic growth, but it won't be sustainable since our national debt continue to explode. Eventually our debt will squelch "economic growth".

Both candidates advocate that taxes need to be cut to allow business to hire more employees. This misses a fundamental concept of the free market system. Business can only expand if there is unmet demand. Let's take Joe the plumber (a hot topic) for example. Only so many plumbing opportunities exist in his city, cutting taxes will not magically break toilets thereby creating plumbing work. True, for some businesses, like beer, there may be bottomless demand but then you may not need to hire anyone since beer making is highly automated.

Politicians love to say how they make "hard decisions", but neither candidate has really addressed how they will balance the budget. (In fact Obama side-stepped the question of cutting expenses by mentioning motherhood programs that should receive additional government funding!) Seems to me that both candidates are simply trying to outdo each other in offering us Herbert Hoover's "A chicken in every pot and a car in every garage". Too bad the American public believes this fairy tale.

 

[georgedwilkinson]

The only politician with an original thought who I ever heard say that a balanced budget was necessary was Ross Perot. That is because he didn't have all the facts. Clinton picked up on his mantra.

Fact is, taxes aren't the only way the US Gubbemint earns income.

Also, I was unaware that Obama wanted to cut taxes on businesses. When did that happen? What is your source?

 

[Alisa]

Also, I was unaware that Obama wanted to cut taxes on businesses. When did that happen? What is your source?

Obama will not raise taxes on anyone making up to 250k, and will lower taxes for everyone making under 200k. Since 98% of small businesses net UNDER 250k, taxes would not be raised on most small businesses, and would be cut for the majority of small businesses.

 

[dkinley]

What about the 40% that don't pay any taxes at all? (They get all paid in taxes back after filing and/or get even more money (the redistributed wealth) through credits?)

-dk

 

[redneckgeek]

Both candidates advocate that cutting taxes on business will facilitate economic growth. If we assume a balanced budget, cutting taxes on business only means that someone else has to pay the taxes, which means that they have LESS money to buy. So there is no economic benefit.

Unless you cut SPENDING. Then less taxation is required. That's a pipe dream though...

Both candidates advocate that taxes need to be cut to foster "economic growth". Yes, cheap money does foster economic growth. The experiment of low interest rates and easy mortgage credit has imploded into failure. Cutting taxes will foster economic growth, but it won't be sustainable since our national debt continue to explode. Eventually our debt will squelch "economic growth".

The states that are failing economically (Michigan, Ohio, ...) have oppresive corporate taxation (among other anti-business activities).
The states doing well - most of them in the south - do not.

Both candidates advocate that taxes need to be cut to allow business to hire more employees. This misses a fundamental concept of the free market system. Business can only expand if there is unmet demand. Let's take Joe the plumber (a hot topic) for example. Only so many plumbing opportunities exist in his city, cutting taxes will not magically break toilets thereby creating plumbing work.

If you cut Joe's tax rate, it lowers his costs. Therefore, he can cut his prices - and he will have to as long as we stay free-market. When his prices go down, he will get more business. Many people put off "necessary" work just because they can't afford it.

I run a handyman business "on-the-side". Evenings and weekends. I'm direct competition for Joe the Plumber, Bob the Electrician, and Bill the Carpenter. I don't have their overhead (taxes or a building). My prices are so much cheaper that I rarely get a day off anymore. I have customers now that wouldn't have looked at me 2 years ago because I'm not a union guy. But now those businesses are just too expensive.

 

[Steve R.]

George, looks like you got me on Obama's business tax policies. I had to scurry to find a suitable source so that I could claim that I did some real research. Fortunately, Google is very helpful. Here is a quote from the Wall Street Journal Online "The Obama Tax Plan"

Sen. Obama also recognizes that small businesses are the engine of job growth in the economy. That is why he is proposing additional tax cuts, including a tax credit for small businesses that provide health care, and the elimination of capital gains taxes for small businesses and start-ups. The vast majority of small businesses would face lower taxes under the Obama plan than under the McCain plan. In addition, Sen. Obama supports reforming corporate taxes in a manner that would help create jobs in America and simplify the tax code by eliminating distortions and special preferences.

On how the government raises money, true the government raises money by many means. I am simply focusing on the tax issue.

 

[Rich]

I run a handyman business "on-the-side". Evenings and weekends. I'm direct competition for Joe the Plumber, Bob the Electrician, and Bill the Carpenter. I don't have their overhead (taxes or a building). My prices are so much cheaper that I rarely get a day off anymore. I have customers now that wouldn't have looked at me 2 years ago because I'm not a union guy. But now those businesses are just too expensive.

and I bet you're paid in cash

 

[Steve R.]

If you cut Joe's tax rate, it lowers his costs. Therefore, he can cut his prices - and he will have to as long as we stay free-market. When his prices go down, he will get more business. Many people put off "necessary" work just because they can't afford it.

Taxes are a cost of doing business, like advertising and buying a vehicle. Taxes also provide economic benefits to business. Think of the your increased costs if you have to hire your own security firm and construct your own roads to the customer's house. Again, someone has to pay the taxes. So if you don't, then your customers would and they would not have the money to hire you! If a business can not make money, in a free market, it should not be in business.

 

[georgedwilkinson]

Taxes also provide economic benefits to business.

Really??? Maybe taxes on your competitors.

I think that you meant that government spending provides economic benefits to business. How the government pays for that spending is what's at question here.

 

[redneckgeek]

and I bet you're paid in cash

I take checks, too!

Why the ? Do you have something against people making money?

 

[redneckgeek]

Taxes are a cost of doing business, like advertising and buying a vehicle. Taxes also provide economic benefits to business. Think of the your increased costs if you have to hire your own security firm and construct your own roads to the customer's house. Again, someone has to pay the taxes. So if you don't, then your customers would and they would not have the money to hire you! If a business can not make money, in a free market, it should not be in business.

You've used roads twice as an example. Roads are paid for, by and large, by gasoline taxes, not corporate taxes. Maybe you should find a better example. Security - in the form of the police - is provided for in the Constitution. I have no problem with taxes going to that. Most of the "services" provided by the government these days are not authorized by the Constitution. Therefore, the taxation shouldn't even be happening.

Ultimately, though, businesses do not pay taxes. Only cosumers pay taxes.

 

[statsman]

In Canada they cut personal taxes. The result, people had more money to spend. With more money to spend, demand for goods and services went up and business expanded to meet the demand.

I guess we do things backwards up here.

 

[Banana]

Taxes are a cost of doing business, like advertising and buying a vehicle. Taxes also provide economic benefits to business. Think of the your increased costs if you have to hire your own security firm and construct your own roads to the customer's house. Again, someone has to pay the taxes. So if you don't, then your customers would and they would not have the money to hire you! If a business can not make money, in a free market, it should not be in business.

I really have to address that because the logic behind this is not sound.

First and foremost, what taxation can't do is create wealth. By definition, they squander wealth. Taxation can only shuffle the money around, and since we'll have to pay someone to shuffle it, we come out with a net deficit on the balance and thus are collectively poorer for it.

Second, taxation obfuscate the real price. It breaks the demand and supply because it is no longer between consumers wanting a certain good or service and provider meeting the demand but rather a bureaucrat who pulls out some nice numbers to allocate budget to so and so. But bureaucrat is not personally interested in whether the budget benefits everyone; more likely he is more interested in showing that he is a competent bureaucrat and will sooner build a superhighway that nobody wanted while neglecting backcountry roads that is far more useful to people. To compound this, there is no direct reward if bureaucrat is actually a good one or a bad one. Road will get built anyway, and people will be stuck with structure that cannot meet their needs. F.A. Hayek has written extensively on the 'knowledge problem' and thus why we cannot hope to count on anybody else or any agency to competently allocate scarce resources as efficient as free market could.

Thirdly, it would be a mistake to think that costs would increase if the roads (and any other various goods and services provided by government) were suddenly to go private- the cost always has been implicit in taxation (minus the obvious waste). There is no such thing as a free lunch. Furthermore, the idea that a plumber would have to build his own road to the house will not happen. This goes against the whole concept of division of labor and specialization. The plumber would rather pay someone to maintain the road so he can make the trip. And if he find a particular road full of potholes or has too many close calls and accident, he may choose to take a longer, less traveled road, and thus punish the company for incompetence. Such thing will not happen when it is managed by government. It's easy to conjure such horrible scenario but nobody asks, 'Will this actually happen?' because the fact is nobody would tolerate this. You and I don't want to waste one minute of our live manning the tollbooth, and for that we would gladly delegate the service to someone to do that job far more effectively.

I think I mentioned somewhere else that if we were to shred every tax code and did away with IRS, leaving only tariffs (as authorized by Constitution) to be levied, we would be freeing up thousands, if not millions, of tax attroneys, tax preparers, accountants, financial advisors to seek more gainful employment (e.g. construction, plumbing, medical research, what have you) and thus make us collectively richer because we're no longer wasting our time, resources and money on following a fiat for which free market would have had no need for.

One way to see the harm of government intervention is to realize its effects on our standard of living. The depredations of the state reduce the incentives to be productive, destroy our capital base, and have a negative effect on economic growth. From 1959 to 2005, adjusting the numbers using the implicit price deflator, real Gross Domestic Product increased an average of 3.37% annually.

Consider the possibility that government interventions reduced real economic growth 1% annually during this time. If there had been an additional 1% per year economic growth since 1959 then real GDP would currently be 55% higher than it is. The 2005 GDP of $12,479 billion would have been $19,342 billion. The median family income is estimated to be $44,389. A proportionate increase in this statistic results in a median income of $68,800.

In this scenario, a worker with a salary of $44,389 who is losing 35% of his salary to taxes has a tax liability of $15,536. After paying the various types of taxes he gets to keep only $28,853 of his salary. With the extra 1% growth per year since 1959, if that worker represented the average, his gross salary would be $68,800 and he would get to keep all of it.

Link

And what the article didn't mention is that while the hypothetical worker would have to pay for services that were mispaid for via tax, he is also free to choose what service he actually needs, rather than being forced to pay for services that he didn't want, couldn't use and at a rotten deal to boot.

A case has been made that if everyone paid for a good or service, our burden would be reduced. But in doing so, we are forgetting the law of unintended consequences, and risk creating perverse incentives on top of breaking the supply and demand. Furthermore, taxation can be argued as a different form of price cap/price support, which either has been conclusively shown to create shortages. Finally, when bureaucrat has to spend the money, and in several cases, he does by having a bidding auction to various contractors. This opens a door to corruption and thus create monopolies. In a free market, monopoly cannot be sustained; the only way to do so is to get government privilege. Hence our position with telecommunication industry and to lesser extent, health care.

The inconvenient truth is that taxation make us poorer. I've said it before- nobody ever spent or taxed the nation into prosperity.

 

[Alisa]

You are completely ignoring the concept of public good. And what about people that have no income? Should we just take them out and shoot them?

 

[MSAccessRookie]

I take checks, too!

Why the ? Do you have something against people making money?

I think he raises the question regarding accounting principles in Cash Businesses where Taxation is concerned. It is a widely held belief that many people in such enterprises underreport their income at tax time.

 

[redneckgeek]

You are completely ignoring the concept of public good. And what about people that have no income? Should we just take them out and shoot them?

What did we do with those people prior to welfare? I don't think we shot them, and crime was much lower then, so it's not like they all robbed banks for a living.

If my family isn't getting fed, and the government takes away my welfare check, then I'm going to go find a job.

 

[redneckgeek]

I think he raises the question regarding accounting principles in Cash Businesses where Taxation is concerned. It is a widely held belief that many people in such enterprises underreport their income at tax time.

Now that is a great idea! Thanks

 

[dkinley]

It is a widely held belief that many people in such enterprises underreport their income at tax time.

lol .. I believe! I believe!

I mean c'mon, if you had a standard job that paid x amount of money you paid taxes on and then someone asked, 'Hey do this for $200 cash.' Heck yeah, who (a) wouldn't do it and/or (b) hasn't done it and (c) dutifully reported that on their taxes? The question is (d) why didn't they report it?

My guess is that because they wanted to keep their money.

-dK

 

[Alisa]

What did we do with those people prior to welfare? I don't think we shot them, and crime was much lower then, so it's not like they all robbed banks for a living.

If my family isn't getting fed, and the government takes away my welfare check, then I'm going to go find a job.

WHo is talking about welfare? The discussion above was about literally EVERYTHING the government currently pays for out of taxes: roads, schools, water treatement plants, fire departments, etc etc etc. Banana is arguing that the government should provide absolutely nothing except police and military. Meaning that if I don't have income, I don't have food, or clean water, or even a road to drive on to find those things.

 

[Pat Hartman]

What about the 40% that don't pay any taxes at all?

My company falls into that 40% and I can assure you that I pay more than my fair share of taxes due to my husband's conservative position on deductions. I am certain that most if not all of the other members of this group are in a similar situation. All the company profit "passes through" to the owner or partners due to the legal structure of the company. Mine is a LLC (limited liability corporation) and I file as a partnership. At the end of the year, all the money that is left over, is distributed to the partners where it is taxed at their personal tax rate which is most likely higher than the corporate tax rate.