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Thread: Study: Tax Cuts for the Rich Don't Spur Growth

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    Study: Tax Cuts for the Rich Don't Spur Growth

    Study: Tax Cuts for the Rich Don't Spur Growth - Yahoo! Finance

    Cutting taxes for the wealthy does not generate faster economic growth, according to a new report. But those cuts may widen the income gap between the rich and the rest, according to a new report.

    A study from the Congressional Research Service -- the non-partisan research office for Congress -- shows that "there is little evidence over the past 65 years that tax cuts for the highest earners are associated with savings, investment or productivity growth."

    In fact, the study found that higher tax rates for the wealthy are statistically associated with higher levels of growth.
    Not sure this is actually news, but I suppose if you missed the last 20 studies on this, or have absolutely no grasp of history, it might well be new and exciting.

    The finding is likely to fuel to the already bitter political fight over taxing the rich, with President Obama and the Democrats calling for higher taxes on the wealthy to reduce the deficit and fund spending. Mitt Romney and the GOP advocate lower marginal tax rates for top earners, saying they fuel investment and job creation.
    Which we have knows for like 30 years is not true. It is not even logical. In fact, if you go back and correlate job growth with marginal tax rates, you will find that we have the biggest job growth when the highest marginal tax rate is over 70%. That is because (shocker) higher tax rates encourage re-investment of profits rather than taking them to spend on whiskey and whores.

    The CRS study looked at tax rates and economic growth since 1945. The top tax rate in 1945 was above 90 percent, and fell to 70 percent in the 1960s and to a low of 28 percent in 1986.

    The top current rate is 35 percent. The tax rate for capital gains was 25 percent in the 1940s and 1950s, then went up to 35 percent in the 1970s, before coming down to 15 percent today - the lowest rate in more than 65 years.
    But is has been lower...like immediately before and during the great depression.

    There is one part of the economy, however, that is changed by tax cuts for the rich: inequality. The study says that the biggest change in the distribution of U.S. income has been with the top 0.1 percent of earners - not the one percent.
    Again....great depression. You end up trying to run a mass market economy where the consumers have no money to spend. It does not work.

    This bring up another interesting article that kind of highlights why the federal reserves actions are not going to pull us out of this mess:

    Does Quantitative Easing Mainly Help the Rich? - U.S. Business News - CNBC

    Does Quantitative Easing Mainly Help the Rich?

    Last month, the Bank of England issued a report that must have made Fed chairman Ben Bernanke squirm.

    It said that the Bank of England’s policies of quantitative easing – similar to the Fed’s – had benefited mainly the wealthy.
    Many said the BOE's easing added to social anger and unrest. Dhaval Joshi, of BCA Research wrote that “QE cash ends up overwhelmingly in profits, thereby exacerbating already extreme income inequality and the consequent social tensions that arise from it."

    The BOE countered that the benefits of easing may have trickled down, and that “without the Bank's asset purchases, most people in the U.K. would have been worse off."
    Before it was called "trickle down" economics in the 1980's, it was known as "horse and sparrow economics". Feed the horses enough oats, and they will leave some on the road for the sparrows. It was horseschit then, it is horseschit now.

    Economist Anthony Randazzo of the Reason Foundation wrote that QE “is fundamentally a regressive redistribution program that has been boosting wealth for those already engaged in the financial sector or those who already own homes, but passing little along to the rest of the economy. It is a primary driver of income inequality.”
    Gee....really?? Who would have thunk it?
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    So we have one candidate pushing for one way that won't help the economy and further income inequality and another pushing a different way that won't help the economy and further income inequality.

    Again, not news, but does provide further evidence for why some of us feel the two candidates are the same.

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    Quote Originally Posted by Steeeeve View Post
    So we have one candidate pushing for one way that won't help the economy and further income inequality and another pushing a different way that won't help the economy and further income inequality.

    Again, not news, but does provide further evidence for why some of us feel the two candidates are the same.
    To me, though, this is what makes it virtually impossible to support Romney, and a large part of it is because of his business experience. I have kind of a tendency to see a lot of liberals as kind of pie in the sky idealists, walking around with their heads in the clouds going "if we just gave everybody a puppy all the sad in the world would go away..." I know that is not really a fair characterization, but that image still lurks in the back of my mind when I think about the democrats.

    Romney, on the other hand, is not just a business man, but he was Bain Capital, and Bain has always been known in the investment world for its stellar research. He knows how the business world works. He knows that tax cuts for the wealthy are not going to spur growth. He knows the very idea is just plain stupid. He knows that the country cannot afford them, and may not be able to even survive them

    And yet that is the policy he is putting forth.

    So I have to ask myself....is the guy just plain evil? I don't have another word for somebody who would throw 99.5% off the country off a cliff for the short term benefit of the last .5%

    I think that Obama really believes that the policies he is pushing for would be good for the country, and some of them would be (infrastructure, tax increases for the wealthy, etc...). His policies are a mixed bag of good and bad. I cannot say the same for Romney. His big tax policy is tax cuts that he HAS TO know would be terrible for the country.

    How are we supposed to reconcile that?
    If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen. —Samuel Adams

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    You are the one saying WWII times plus a decade was when the destruction of the rest of the world made America prosperous, so it is your own claims that establish the error in comparing 1940's and 50's growth rates to modern ones. All other things are not equal. See what happens when you think?

    Did you read the report? I didn't, I can't find it. Let's just trust CNBC though.
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    Quote Originally Posted by daewoo View Post
    To me, though, this is what makes it virtually impossible to support Romney, and a large part of it is because of his business experience. I have kind of a tendency to see a lot of liberals as kind of pie in the sky idealists, walking around with their heads in the clouds going "if we just gave everybody a puppy all the sad in the world would go away..." I know that is not really a fair characterization, but that image still lurks in the back of my mind when I think about the democrats.

    Romney, on the other hand, is not just a business man, but he was Bain Capital, and Bain has always been known in the investment world for its stellar research. He knows how the business world works. He knows that tax cuts for the wealthy are not going to spur growth. He knows the very idea is just plain stupid. He knows that the country cannot afford them, and may not be able to even survive them

    And yet that is the policy he is putting forth.

    So I have to ask myself....is the guy just plain evil? I don't have another word for somebody who would throw 99.5% off the country off a cliff for the short term benefit of the last .5%

    I think that Obama really believes that the policies he is pushing for would be good for the country, and some of them would be (infrastructure, tax increases for the wealthy, etc...). His policies are a mixed bag of good and bad. I cannot say the same for Romney. His big tax policy is tax cuts that he HAS TO know would be terrible for the country.

    How are we supposed to reconcile that?
    One could say that someone who is predictably evil is better than someone who has no idea what they are doing. It's an interesting debate. Do you kinda pick the person who will accomplish bad policies and prepare for that accordingly? This brings some sense of calm. On the other hand you end up with a bag of sh*t at the end of the day. Or do you pick the guy who is blindfolded firing a gun? He may not hit you but you aren't exactly sure.

    Let's face it, Obama has no clue whether any of his ideas would work, why the would work, or if they should work. He simply read it in a book or heard it from a trusted professor one day. So you say Obama is for infrastructure and tax increases. These are good ideas. But if Obama doesn't understand why they are good ideas he has no way to know how to implement them. What good does raising taxes do if your only purpose is to expand money for Pell grants (as an example)? The correct understanding is that you raise taxes because we are totally out of money and they are the only ones that have it. You then cut spending.

    Likewise with infrastructure. What good is supporting that if you have no idea why we need it? This is a man that honestly thought we had "shovel ready" projects. It takes a year to decide if we should build a stoplight or not; much less a multi-billion dollar road. Furthermore, we need mega support of infrastructure just to repair what we already have. And let's not fool ourselves and think this is going to save the economy. For all the democrat hatred of "trickle down" they seem to support the same concept. Sorry but government paying someone to dig a hole and fill it right back in doesn't spur growth. This is what infrastructure repair is. Needed, yes. Growth, no. NEW infrastructure can LEAD to growth but that takes decades. We should have already been doing that. In short, infrastructure will not help the economy in the immediate term; Obama thinks it will. If he doesn't understand that, we are in serious trouble.

    In fact, I don't think Obama understands that we aren't getting out of this mess in a few months.

    So I don't know. Someone who doesn't understand scares me as much as someone who does understand yet goes the wrong way. I suspect either way we will just struggle along for the next four years and have this debate all over again.

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    Quote Originally Posted by Freedom View Post
    You are the one saying WWII times plus a decade was when the destruction of the rest of the world made America prosperous, so it is your own claims that establish the error in comparing 1940's and 50's growth rates to modern ones. All other things are not equal. See what happens when you think?

    Did you read the report? I didn't, I can't find it. Let's just trust CNBC though.
    Yes. I read it. Google is your friend. Make sure you find the right one, though, because they have done about a half dozen others in the last decade that came to the same conclusion.

    If the trend had changed past the 50s you might have a point. It did not, though. Even though the biotech bubble, ag bubble, dot com bubble, and housing bubble. Lower taxes on the wealthy have never been found to increase growth.

    While you are googling to find the report (hint, both the wall street journal and new york times have it in their reference libraries), you might look at some of the others on the same subject. Some go back to 1890. We dont have good enough economic data for prior years. SURPRISE...same results.

    You are not thinking...you are making excuses for holding on to a belief that is not just flat out wrong, but the exact opposite of reality. While you are actually reading studies instead of just parroting what your dad told you, you will find that higher taxes on the wealthy actually correlate to faster job growth. When you are older and maybe actually understand how the whole "taxes" and "business" thing works you will realize that is a completely logical outcome, and the suggestion that decreasing the top tax rate on the wealthy can spur the economy is just plain silly.
    If ye love wealth greater than liberty, the tranquility of servitude greater than the animating contest for freedom, go home from us in peace. We seek not your counsel, nor your arms. Crouch down and lick the hand that feeds you; May your chains set lightly upon you, and may posterity forget that ye were our countrymen. —Samuel Adams

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    Quote Originally Posted by daewoo View Post
    Yes. I read it. Google is your friend. Make sure you find the right one, though, because they have done about a half dozen others in the last decade that came to the same conclusion.
    Then post the link

    Quote Originally Posted by daewoo View Post
    If the trend had changed past the 50s you might have a point. It did not, though. Even though the biotech bubble, ag bubble, dot com bubble, and housing bubble. Lower taxes on the wealthy have never been found to increase growth.

    While you are googling to find the report (hint, both the wall street journal and new york times have it in their reference libraries), you might look at some of the others on the same subject. Some go back to 1890. We dont have good enough economic data for prior years. SURPRISE...same results.
    Not when you're making other excuses for the growth rate no.

    Quote Originally Posted by daewoo View Post
    You are not thinking...you are making excuses for holding on to a belief that is not just flat out wrong, but the exact opposite of reality. While you are actually reading studies instead of just parroting what your dad told you, you will find that higher taxes on the wealthy actually correlate to faster job growth. When you are older and maybe actually understand how the whole "taxes" and "business" thing works you will realize that is a completely logical outcome, and the suggestion that decreasing the top tax rate on the wealthy can spur the economy is just plain silly.
    bla bla bla
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    Thomas Sowell says it best. In part;

    In theory, confiscating the wealth of the more successful people ought to make the rest of the society more prosperous. But when the Soviet Union confiscated the wealth of successful farmers, food became scarce. As many people died of starvation under Stalin in the 1930s as died in Hitler's Holocaust in the 1940s.

    How can that be? It is not complicated. You can only confiscate the wealth that exists at a given moment. You cannot confiscate future wealth -- and that future wealth is less likely to be produced when people see that it is going to be confiscated. Farmers in the Soviet Union cut back on how much time and effort they invested in growing their crops, when they realized that the government was going to take a big part of the harvest. They slaughtered and ate young farm animals that they would normally keep tending and feeding while raising them to maturity.

    People in industry are not inert objects either. Moreover, unlike farmers, industrialists are not tied to the land in a particular country.
    The Fallacy of Redistribution - Thomas Sowell - Page 1

    The problem with "studies" is that they don't (can't) predict how those who produce wealth will react to increases in size and scope of government. The reason for this is that those who do studies, or impose government mandates, aren't nearly as smart as those who produce wealth.

    The results of studies aren't nearly as accurate as what history teaches.
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    Quote Originally Posted by marc9000 View Post
    Thomas Sowell says it best. In part;



    The Fallacy of Redistribution - Thomas Sowell - Page 1

    The problem with "studies" is that they don't (can't) predict how those who produce wealth will react to increases in size and scope of government. The reason for this is that those who do studies, or impose government mandates, aren't nearly as smart as those who produce wealth.

    The results of studies aren't nearly as accurate as what history teaches.
    The problem with studies is that you don't like the results of them; or so it seems. You say "not nearly as accurate as what history teachers" yet the studies are based upon historic data and events. There is no matter way to understand what will happen than to look at what happened when you did it last time. This is what each and every one of those studies did.

    Further, no one is talking about "redistribution" in this thread; instead, we are talking about how tax cuts for the rich DO NOT spur growth. At this point, it is an absolute fact. Not only that, RAISING taxes on the rich has no correlation with reduction in growth. The most obvious recent example was in the mid 90s.

    Now, this isn't to say we should raise taxes to give to poor people. This is simply an argument about the consequences of taxing rich people as it relates to growth.
    Last edited by Steeeeve; 10-05-2012 at 02:40 PM.

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    Quote Originally Posted by Steeeeve View Post
    The problem is studies is that you don't like the results of them; or so it seems. You say "not nearly as accurate as what history teachers" yet the studies are based upon historic data and events. There is no matter way to understand what will happen than to look at what happened when you did it last time. This is what each and every one of those studies did.

    Further, no one is talking about "redistribution" in this thread; instead, we are talking about how tax cuts for the rich DO NOT spur growth. At this point, it is an absolute fact. Not only that, RAISING taxes on the rich has no correlation with reduction in growth. The most obvious recent example was in the mid 90s.

    Now, this isn't to say we should raise taxes to give to poor people. This is simply an argument about the consequences of taxing rich people as it relates to growth.
    The public is bombarded by "absolute facts" as reported by three or four paragraph summary. Very often when one looks at the original data and methodology the impact is far less impressive.

    Did the study focus on effective tax rate or just federal taxes? Did it follow national GDP alone or did it include the expansion of American companies over seas?

    Furthermore GDP includes government spending. An increase in taxes means more revenue for the government, which means it spends more, which means a 'growth'.

    The purely economic objection to increasing taxes is not that the money is totally wasted, but that the governments spends it on things that don't increase production (non-investment spending) where as rich people try to make more money.

    What should be looked at is net capital as a possible function of tax rates. GDP growth will be lower in the end but that could be decades depending on the investments that were not made.
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    Quote Originally Posted by Freedom View Post
    The public is bombarded by "absolute facts" as reported by three or four paragraph summary. Very often when one looks at the original data and methodology the impact is far less impressive.

    Did the study focus on effective tax rate or just federal taxes? Did it follow national GDP alone or did it include the expansion of American companies over seas?

    Furthermore GDP includes government spending. An increase in taxes means more revenue for the government, which means it spends more, which means a 'growth'.

    The purely economic objection to increasing taxes is not that the money is totally wasted, but that the governments spends it on things that don't increase production (non-investment spending) where as rich people try to make more money.

    What should be looked at is net capital as a possible function of tax rates. GDP growth will be lower in the end but that could be decades depending on the investments that were not made.
    Read for yourself: http://graphics8.nytimes.com/news/bu...andeconomy.pdf

    This isn't even really news. There have been several studies on the subject. At some point maybe you at least consider that they are right.

    The purely economic objection to increasing taxes is not that the money is totally wasted, but that the governments spends it on things that don't increase production (non-investment spending) where as rich people try to make more money
    No one is arguing, on this thread, that we should raise taxes to spend money on things that "don't increase production". The argument is that cutting taxes doesn't help growth.

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    Quote Originally Posted by Steeeeve View Post
    Read for yourself: http://graphics8.nytimes.com/news/bu...andeconomy.pdf

    This isn't even really news. There have been several studies on the subject. At some point maybe you at least consider that they are right.
    Do you see anything in there that even indicates an attempt to find a time displacement? Instead it appears that without correction for any other factors of growth it merely plotted instantanous growth and tax rates against each other.

    Quote Originally Posted by Steeeeve View Post
    No one is arguing, on this thread, that we should raise taxes to spend money on things that "don't increase production". The argument is that cutting taxes doesn't help growth.
    The study is based on the top tax rates. Proper theory indicates that tax decreases would need to be porportional in order to increase trade; otherwise top earners would just stockpile the wealth in various ways until there was something worth investing in.
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    Quote Originally Posted by Freedom View Post
    Do you see anything in there that even indicates an attempt to find a time displacement? Instead it appears that without correction for any other factors of growth it merely plotted instantanous growth and tax rates against each other.
    *YAWN*, time displacement would still show up in a correlation of the data. The fact that no such pattern exists signifies no relationship between tax cuts and growth.

    The study is based on the top tax rates. Proper theory indicates that tax decreases would need to be porportional in order to increase trade; otherwise top earners would just stockpile the wealth in various ways until there was something worth investing in.
    As usual, I'm not interested in your crackpot economic theories.

    This isn't a ground breaking study. We've known this for awhile, just people like you seem to ignore it.

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    Quote Originally Posted by Steeeeve View Post
    *YAWN*, time displacement would still show up in a correlation of the data.
    Yes, but it would not necessarily appear causal even if it is in real life; i.e. it would not necessarily be a nice line.

    Take for example lighting a fire underneath a pot. You only light it for 20 seconds. You keep changing the level of the burner, sometimes turning it off. You record the temperature of the water inside the pot (but not the pot) at every level of the burner.

    You will not see the causal relationship between the burner and the increase in temperature, not by merely plotting temperature and burner level at one instant in time on a graph.

    In fact if you do that it will look like there is no relationship because the burner needs time to heat the water. Even charting the burner level for a period of time vs the average temperature for that time will not show the relationship because the pot may delay the heat flow until the burner has changed levels again.

    Now you had 25 other heat sources, cooling elements, air flows to the system and things will start to look chaotic on top of unrelated.

    Until you identify the other factors and correct for them you cannot rule out coincidental association. Until you search for time offsets (say temperature of the water is a function of the integral of burner level * burn time) you cannot say there is no relationship.

    The mechanisms behind taxes hurting growth are more complicated by far, some rely on future predictions of the tax rates, some on the tax rates of the past over varying time periods. Very few proposed mechanisms actually work based on the current tax rate alone.
    Last edited by Freedom; 10-09-2012 at 10:26 AM. Reason: typo
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    Quote Originally Posted by Freedom View Post
    Yes, but it would not necessarily appear casual even if it is in real life; i.e. it would not necessarily be a nice line.

    Take for example lighting a fire underneath a pot. You only light it for 20 seconds. You keep changing the level of the burner, sometimes turning it off. You record the temperature of the water inside the pot (but not the pot) at every level of the burner.

    You will not see the casual relationship between the burner and the increase in temperature, not by merely plotting temperature and burner level at one instant in time on a graph.

    In fact if you do that it will look like there is no relationship because the burner needs time to heat the water. Even charting the burner level for a period of time vs the average temperature for that time will not show the relationship because the pot may delay the heat flow until the burner has changed levels again.
    Actually, you would see a relationship between lighting a fire and a temperature increase in the pot....just not a consistent temperature. So we can say lighting a fire underneath a pot will cause temperature to rise but by how much we are not sure.

    The mechanisms behind taxes hurting growth are more complicated by far, some rely on future predictions of the tax rates, some on the tax rates of the past over varying time periods. Very few proposed mechanisms actually work based on the current tax rate alone.
    Yet you have absolutely no proof of this. Curious. Further, there are tons of studies on this all coming to the same conclusion. Perhaps you think those didn't take away all the other "complicated" factors. Assuming that's true, then the point is moot because those other "factors" will always exist and will cancel out any effect on the economy.

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