Social Question

ETpro's avatar

Trickle down -- how long till it works?

Asked by ETpro (34469points) September 28th, 2010

Nearly thirty years ago now, Ronald Reagan slashed taxes 60% for the richest Americans. The 2010 Census showed that income and wealth disparity in America today is huge. The income gap between the richest and poorest Americans grew last year to its widest amount on record. The top 20% of Americans earn almost 50% of all income. Those living in poverty, a rapidly growing group, earn.3.4% of all income.

The theory of Voodoo Economics was that tax cuts for the rich always stimulate the economy, and thus pay for themselves while making everybody richer. But is there any evidence that is always true? Certainly, if taxes are far too high, a cut will stimulate growth and increase actual revenue even though the rate was reduced. But can that formula work forever? Can you cut taxes into negative numbers, where the IRS pays each taxpayer for filing, and thereby produce huge revenues? The fact is that from 1945 to 1980, we paid down the staggering national debt of WWII. We had it down to a manageable $1 trillion in 1980. Reagan’s tax cuts for the already rich tripled the National Debt to $3 trillion. Reagan was the only President in all of US history to triple the debt in 8 years.

How long should we keep running the Voodoo Economics experiment waiting for the rising tide to lift all ships? How long can the bottom dwellers hold their breath while they watch those in the yachts float ever higher over their heads? Does any of this really even matter, or is the ideology of perennial tax cuts more important than the facts of what those cuts actually produce?

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84 Answers

AstroChuck's avatar

I remember Reagan trickling all over me.

CMaz's avatar

“that tax cuts for the rich always stimulate the economy”

When the rich were paying 80% taxes they still owned massive estates and that taxing paid for the highways and built the infrastructure. It also provided money to create programs to help the poor. Programs like the Hoover Dam during the depression time, helped build towns. Funded by the wealthy taxes. Also, the country was not in debt.

Now the rich get SUPER rich. and the poor carry the burden.

wundayatta's avatar

It doesn’t work.

It’s just an excuse for the rich to take more for themselves. What is so weird to me is that the Republicans can get the poor and middle class to vote for them when their record is one of making both classes poorer than before. Obama is trying to reduce the deficit. If a Republican succeeds him, the deficit will balloon again as a result of more tax cuts for the rich.

What works is putting more money in the hands of people at the bottom. This is a consumption driven economy. There’s plenty of capital out there. But the lenders are all waiting until the economy turns around before they will be confident enough to lend. People need to be confident enough to spend. That won’t happen until they have money.

Our economy has to be built up, not trickled down. Trickle down just erodes the economy. Let’s hope we don’t see another rain-maker in the Oval Office.

marinelife's avatar

It never worked. It was just a way to help out the richest at the expense of the poorest.

Pay no attention to the man behind the curtain.

Seek's avatar

If you want a stimulus, give money to the people who have no choice but to spend it – the poor. The rich already have everything they need, so there’s no incentive to buy, and every reason for them to hoard and invest.

jerv's avatar

I think y’all might be interested in reading the article, Why the Economy Grows Like Crazy Amid High Taxes

In the late 1800s, “Trickle-down economics” was called “The Horse and Sparrow theory”:

“If you feed the horse enough oats, some will pass through to the road for the sparrows.”

My take on it is that they are saying the poor can eat shit :P

hiphiphopflipflapflop's avatar

And if it never did/does, does it matter at this point? We don’t have a functioning democracy anymore, we have popularity contests between empty suits beholden to K Street and Wall Street. Vote ‘em all out, it doesn’t matter, the folks with the money will simply buy out whoever replaces them.

ETpro's avatar

@AstroChuck I remember that yellow rain.

@ChazMaz Now that tax cuts for the rich have run the debt up to $13 trillion, we may have to go back to a really progressive tax to pay the debt back down while still growing the economy. I lived through the days when tax rates were 80% and higher on very high income levels. There were plenty of millionaires and new ones joining the club throughout those years. Part of the reason is the middle class was strong and was spending. Entrepreneurs with a good ideas could find customers for their creations..

@wundayatta They have their voters sold on the ideology so firmly that they will utterly refuse to acknowledge facts such as those provided in the links in the details.

@marinelife Exactly. A Wizard of Oz con job.

@Seek_Kolinahr You are so right. US business is sitting on $1.5 trillion right now. Banks through the Fed have access to plenty of money to lend. But until middle class consumers can start spending, nobody else is going to budge. Give more money to the wealthiest 2% right now, And they will just invest it offshore where returns are higher.

@jerv I love the horse analogy. I’ve got to remember that one.

@hiphiphopflipflapflop I believe both parties have devoted themselves far too much to the corporatocracy. But looking at the two parties, what they have been doing, and what they plan to do; the choice couldn’t be more stark. I think it still does matter. I’m not quitting. I’m not sitting this one out.

jerv's avatar

“Entrepreneurs with a good ideas could find customers for their creations.”

Almost by definition, a person with no money cannot be a customer. Fewer people have money these days, so therefore it is harder for entrepreneurs to sell stuff as the pool of potential customers shrinks. Not impossible mind you, but definitely more difficult.

crazyivan's avatar

Where the heck are all the republicans? Won’t they come defend this nonsensical policy that continues to be the hallmark of their political party. Everyone on this thread seems to agree that giving money to people who will spend it stimulates the economy more than giving it to people who won’t… seems pretty obvious to me.

I think the pertinent point was the one made by @wundayatta about the people who stand to lose the most in these policies consistently voting for the people that espouse them. The whole idea that investing in the nation is a bad idea is pretty suspect if you ask me. Yet go listen to poor people tell you how terrible the stimulus or the auto bailout (which will ultimately turn a profit if it hasn’t already) or healthcare reform is. Listen to exploited workers in non-union states tell you how terrible unions are. Let soldier putting their lives at risk for republican ideology tell you how terrible the people who want to bring them home to safety are.

It’s all because the republicans pay lip service to religion. I mean, they don’t actually do anything Christian when they get in office (and when I say something Christian I mean helping the poor or turning the other cheek or doing unto others, not suppressing the rights of gays or raising hell about euthanasia or blocking stem cell research). But somehow the republicans have the ear of the party that is aligned with military might (very unJesus), oppressing minorities (very unJesus) and screwing the underclass (as unJesus as you can possibly be).

Holy crap… somewhere back there I was on topic. Sorry if I got on a rant there.

ETpro's avatar

@crazyivan I think I will invite my conservative friend, Jaxk to pop over here along with any backup he cares to bring and defend widening the already extreme income disparity in America. I am sure he can tell us why it must be done or else.

jerv's avatar

@crazyivan The rich spend a smaller percentage of their income than the poor. I would rather give ten poor people a thousand dollars each knowing that they will spend it than give ten grand to some millionaire who will just ssd it to their pile of money to sit there.

Jaxk's avatar

Thanks @ETpro for directing me to this question. I’m still a bit new to this site so have some trouble finding the appropriate places to look. Nonetheless, let me see if I can clarify some of the issues. At least from my perspective.

Once again we always seem to gravitate to the extreme arguments. Obviously we need some government and consequently some taxes. Just as you point out dropping taxes to zero won’t work, likewise raising them to 100% won’t work. The trick is finding the optimum.

I always love the argument that the economy was doing great when taxes topped out at 80% or even higher. The economy is complex but the principles are fairly simple. If you go back to those glory days, the situation was quite different. Top tax brackets were high but there were so many exceptions that most of the money could be sheltered. Remember they used to call them loopholes. Most of that has changed. A good portion was changed by the Reagan overhaul. Also during those days, there was no state income tax, property tax was insignificant, Social security was 2% of the first $3,000, and nobody would have even believed there could be city income tax. We’ve come a long ways baby. Studies show that the total tax burden for the average schmuck (50–60K) is is hovering around 50%. That means to buy a $20,000 car you need to earn $40,000. As you move up in the tax brackets the burden goes much higher. And you wonder why real incomes have not grown.

Let’s be honest on how we paid the national debt down from WWII. During the post war years we were the only industrialized country in the world with capacity. And the rest of the world had been destroyed. We rebuilt it. During the fifties we produced a full half of the world’s Gross Product. In that environment we couldn’t lose. We had natural resources, manufacturing, farm commodities, and yes children, oil. And the world needed it all. The economy grew like a weed.

Before this recession started gas was under $2/gal. It rose to $4.50. That robbed everyone of all their expendable income. Hell, even a lot of non expendable income. It is what triggered the recession. Hell, even now the cost of gas is hovering around $3. Much of this was our own fault. We’ve restricted oil exploration for decades. I understand, we want to get off oil but there is a price to be paid for that. According to the DoE, we use 378 million gallons of gas per day. That means the extra $1 per gallon is costing the economy $137 billion per year just for gas. And that comes out of everyone’s pocket. Not to mention that most of it goes overseas to fund other economies. And you wonder why real income has not grown.

One last point before I sum up. Regulation, my favorite. While democrats are trying to convince us that we need more regulation, the costs are killing us. There was a study done in California to quantify the cost of regulation, both state and federal. In Ca businesses spend $450 Billion per year on regulatory compliance. That’s one third of their total budget and more than the total discretionary spending. Multiply that over the 50 states and the numbers are staggering. All of these costs are passed onto the customers in the way of higher prices. Blame the business if you want but they are merely the collection agency. the government is either the recipient or the cause of these costs. It is a major inducement for businesses than can, to move out of the state or country. And you wonder why real incomes have not risen.

It is not business that is robbing you blind it is the government. I’ve been around for quite a few decades now and can remember the fifties. One thing has held true my entire life. When my company did well, when it was making a reasonable profit, I did well. Raises were better, promotions more available, and opportunities abound. When the company was hurting, so was I. This war on business is not productive. Business is not responsible for your lot in life, you are. Get the government back to a reasonable size, get them out of our wallets and we will prosper. And for god’s sake, stop the spending.

jerv's avatar

@Jaxk Largely but not entirely correct. The tax burden on the rich is lower than on the middle class. Last year, 47% of Americans earned about 15% of the income and paid no income tax while 10% earned 50% of the income and paid around 40% of the taxes. That left the people who earned about 35% of the money paying more than the two groups that earned the other 65%! And sales tax eats a larger percentage of my income than of my parents who earn five times as much as I do.

jerv's avatar

To add on, I wholeheartedly agree that the trick is to find the optimum, but it seems to me that the Bush tax cut totally disregarded the Laffer Curve for the sake of ideology.

As for the oil thing, you do realize that that gravy train is coming to the end of the tracks at some point, so whoever has the next big thing will be in control. Why not use some of our alleged superiority to get ready for the future rather than slowly cut our own throats?

BTW, how is it acceptable for government to legislate marriage and bedroom activities but immoral for them to do the same for business? I thought small government didn’t interfere anywhere.

crazyivan's avatar

Great answer, @Jaxk, but I notice it skirts the question about “tricle-down” economics nicely. I would say that much of it is a smoke screen that emplys a zero-sum fallacy. Sure, gas prices rising helped to spark the recession, but your answer reads as though this is the primary cause. And to sum that paragraph up with the tag line “And you wonder why real incomes have not risen” as though they were rising just fine up until the gas prices shot up (they weren’t).

The notion that government spending is standing in the way of real economic growth is certainly valid though. I’d say that the elephant in the living room on that one are the two and a half deficit-funded wars we’re in and since they (a) dwarf the cost of any social program taken over the same time frame and (b) have far less liklihood of returning capital to the investor, I think we should focus there.

But the idieology you espouse has been essentially disproven in practice. The neocons had the government under lock and key for the better part of a decade and what did they do with it? They cut taxes, cut taxes, cut taxes and because of that, radically increased deficit spending.

As I’ve grown my business I’ve often had to invest capital in it and much of it was defecit spending. The fact that I’m still in business (and in the black) is proof that this worked. I have never tried to grow my business by decreasing revenues. My guess is that it wouldn’t work.

ETpro's avatar

@Jaxk Thanks so much for sropping in and livening up the debate. I don’t have time to fully respond right now, but will later today. For now, let me just say that your points about the unique opportunity the USA enjoyed right after WWII are very well taken. We can’t turn the clock back to that halcyon day of perfect economic opportunity.

You will never hear me argue for a tax increase to 80%. As an entrepreneur and small-business owner, I would have to have a death wish to call for that. I do think that if we compare economic performance, debt reduction, GDP growth, expansion of wealth, job creation and economic disparity in the Clinton Years, with a top rate of 39.6%, and the Bush years with a top rate of 35% and real rate for the top 1% of more like 21%; we did far better under the 39.6% rate. That seems closer to the sweet spot between 0% and 100% than the lower rates of today, where we are driving the debt into the stratosphere.

My business is suffering now because too few people in the middle class have the money to spend to drive my sales. If I need to pay 39.6% to get twice the business I’m currently seeing, I will gladly do so and cry all the way to the bank.

The Bush Administration had the worst record on job production and growth since the end of the depression. The Clinton Administration had the best. That makes it hard to argue that Bush’s tax rate was too high. If you look at the micro lever, Bush cut the top tax rate twice, and after each cut, unemployment went up. The only time during his administration when the unemployment level fell back to what Clinton had averaged was a couple of months in 2006. That was at the very peak of the housing bubble, and the jobs were almost exclusively in housing construction and real estate.

crazyivan's avatar

In Bush’s defense (man did I never think those words would come out of me) Clinton had the dotcom boom driving economic growth so there was bound to be a huge downswing in Bush’s administration.

A solid argument could be made that his policies exacerbated the problem, but I think too many people reach for the low hanging fruit of the economic growth under Clinton. Don’t get me wrong, I agree with @ETpro‘s post completely, but I think that the job growth under Clinton is not much of an indicator of Clinton’s good policies as much as his good timing.

ETpro's avatar

@crazyivan That’s true, but by the same token, Bush rode the Real Estate bubble. Not only did that let consumers use the equity in their homes as a bottomless ATM to fuel consumer spending, it created a $62 trillion annual derivatives market. Had it not been for that funny money, the entire 8 years of Bush’s presidency would have been a huge recession. When the real estate bubble finally burst in 2007, we began to see where the economy really was.

crazyivan's avatar

@ETpro good point. I think the deregulation is the real culprit here.

Jaxk's avatar

@jerv

It sounds like you’re making a good case for lowering the sales tax. I would agree. It is a regressive tax and many states are raising it rather than lowering. When you look at the income tax, remember that you are taxing wages not wealth. Raise the income tax to 95% and you won’t touch people like George Soros. If you penalize top earners and subsidize low performance, you get more low performers. That’s the way it works. As for oil, we have enough oil in the Green River basin to sustain our current rate of usage for more than 250 years. Rather than crippling ourselves to get off oil it would make more sense to develop an alternative and then move off oil. Right now we’re killing our economy for ideological reasons. The oil and gas prices were the trigger that started the recession. I didn’t indicate it was the whole problem but it was the catalyst.\

As for Gay marriage, that’s a discussion for another thread. It’s not a major issue for me but my arguments have nothing to do with religion.

@crazyivan

As I said the gas prices triggered the recession. The wars are a great Democratic talking point but according to the CBO they cost us $700 Billion over the 6 years. That was not the problem. I will never argue that Bush did spend too much money. He did. The biggest problem was the Prescription Drug program. Another entitlement that we couldn’t afford. I’ll never understand how Democrats can argue that the Spending under Bush was out of control (which they did for 8 years) and then argue that the fix is to spend 3 times what Bush spent. Get spending back to 2008 levels and we have a great start on solving this problem.

If you look at the Bush tax cuts, they worked. The Dot com bust drove down the economy and 9/11 drove it even further. Remember the Airline bailouts, remember the stock market at 7200? the tax cuts pulled us out of that recession. In 2003 once the tax cuts were in place, the economy began to grow. By 2005 government revenues surpassed what they were in Clinton’s best year and the rich were paying a higher percentage of that revenue. Same thing happened under Reagan.

And I’m surprised that you’ve never tried lowering prices to spur more sales. That is a common business practice and it works. Raising prices, generally reduces sales. Taxes work just like the prices in business. If you lower them sales volume increase. Raising them and sales volume decreases. The trick is the same competitive prices will give you the best volume at the best profit margin.

@ETpro

I’ll never understand the argument that the Clinton tax rates were the best for the country and if we would only go back to them we’d be fine. If you believed that you would argue that. Instead you want to argue that the Clinton rates won’t be good for the country but the top 3% are the ones that will be good for the country. Everyone else, the tax cuts are good. I’m sorry that argument becomes too convoluted for me to describe properly. If you want the Clinton tax rates argue for them. If you think they would hurt us, argue against them. If you want an entirely different tax scheme (some go up some go down, some stay the same) then why dwell on the Clinton tax. I have no idea where you get your numbers but the unemployment rate under Bush was better than Clinton. From 2000 to 2008 we averaged about 5%. It would be a good argument if it were true, it’s not.

http://www.infoplease.com/ipa/A0104719.html

I’ll give @crazyivan credit for remembering the DotCom Boom and bust. That was a revolutionary change to the way we do business much like the invention of the Cotton Gin in the early 1800s, or the automobile in the early 1900s. I have no problem with Clinton, I actually kind of like him. But the truth is he had nothing to do with the DotCom boom. I can’t believe you would bring up the housing market.

Freddie and Fannie are primarily responsible for the housing bust. They backed every mortgage they could get thier hands on and didn’t care about the collateral. Congress was warned many times that it was out of control and needed to be reigned in. Barney Franks and co., steadfastly said there was no problem and threatened filibuster to stop any legislation that would slow them down. When placing blame place it where it belongs.

The bottom line is that tax cuts work. They worked for Kennedy, Reagan, and Bush. If you want to see the effects of tax cuts you need to look at times when the economy was slipping, when things were going badly. The tax cuts turned them around. Hell look at the recession of 1920. It was a sharp deflationary recession. Harding cut taxes, dramatically reduced government and ushered in the roaring 20s. Then look at the crash of 29. Hoover (the Jackass) raised taxes in the face of the depression and drove us deeper. FDR in true Democratic fashion, continued the high taxes and held us in depression until 1937 when it looked like we might emerge. True to form FDR raised taxes in ‘37 and drove us back into depression. None of this is a mystery. Why do we want to make the same mistakes over and over.

Sorry I got so windy but there’s a lot more I’d like to say, just running out of time.

crazyivan's avatar

@Jaxk I never said lowering prices, I said lowering revenue. Lowering taxes is not comprable to a lowering of consumer prices because it’s not as though people will start deciding to pay taxes once they are lowered to a reasonable level.

Jaxk's avatar

@crazyivan

Maybe I made a connection you didn’t intend. I assumed you reference was to lowering revenue by lowering taxes. If that was not you’re intent then I misread. If it was your intent then it works the same way. Lower taxes create more investment and more spending which creates more economic growth and jobs which raises revenue. That’s why saying you need to find revenue to pay for the tax cuts is so ridiculous. The economic growth pays for the tax cuts. Just like the higher volume pays for the price reduction.

jerv's avatar

@Jaxk My point about religion and gay marriage was simply a matter of where the government can/can’t interfere and the hypocrisy of many Conservatives on that issue.

Now, last I checked, most of Warren Buffet’s income was capital gains; his salary is pretty meager. Capital gains are taxed at a pretty low rate, hence he pays about half as much income tax (percentage-wise) as his middle-class secretary.

Our tax code is all fucked up. Small business owners get raped while big companies like Bank of America pay no taxes at all. And while higher salaries are taxed at 36%, that doesn’t mean that the rich lose 36% of their annual income to Uncle Sam like those in the low six-figure brackets do. The poor get raped by being poor, the middle gets raped by the IRS, and the rich complain when asked to do their fair share.

Oh, and as a guess, I would say that the sweet spot for the top brackets is around 40%; pre-Reagan was far too high, and post-Bush is a tad too low.

Jaxk's avatar

@jerv

I give you credit for putting a number on the tax rate you feel is optimum. Most won’t do that. Let’s just look at income tax as I think that’s what you are addressing. The current top rate will go to 39.5%. State income tax (California) will add 10.5%. The health care surtax will add 5.4%. Let’s see, that adds up to 55.4% tax. Did we miss the optimum. And that’s just the income tax bracket. By restricting deductions they penalize the rich more. Things like limiting charitable donations actually have detrimental affect on the less fortunate.

I wasn’t going to address the marriage issue but just to point out where you miss the point. The government gives a tax advantage to married couples (at least that’s the intention. They don’t do that because they want to reward love or finding your soul-mate, it is because they want a stable family life. More stable children create a more prosperous society. Therefore, they compensate for a family that has one spouse working and another raising the kids. Marriage is a quick and easy way for the government to identify those likely have or start a family. Once you remove the family aspect of the joint tax return, there is no reason to have it. This whole issue of the family appears in many other aspects as well such as inheritance. So go ahead and sanction gay marriage and remove the joint tax return. The government should not be in the business of rewarding two people living together whether married or not. Without the family issue, it’s not appropriate.

crazyivan's avatar

You didn’t misinterpret it, I just don’t buy into the premise that lower taxes lead to an increase in economic investment. That’s the whole “Trickle Down” theory in a nutshell and it seems that when it’s been applied it hasn’t actually had that effect at all.

The most proven method of stimulating the economy is government spending and that is investment that actually does increase revenue.

Jaxk's avatar

@crazyivan

Actually I gave you 4 examples of where the economy and jobs were dying. Tax cuts spurred the economy and created jobs. The spending example you want is under FDR. He spent like crazy and ushered in a decade of depression. Obama is following in his footsteps and that’s what scares me the most. Government spending is the least effective stimulus we could do. Government does not produce anything and growing government is detrimental to economic growth. There is no example of government spending that sparked the economy.

crazyivan's avatar

Then why are all the pertinent economic indicators inching upwards right now instead of downward? And why did Bush’s tax cuts preceed a huge recession?

Jaxk's avatar

@crazyivan

The Bush tax cuts had absolutely nothing to do with the recession in 2008. The tax cuts were implemented in 2001 and 2003, and pulled us out of the dotcom and 9/11 recessions. If you don’t understand what caused the 2008 recession, how can you possibly fix it. The current recession was the result of the housing bust. Not a tax issue.

The economic indicators are flat. The typical recession lasts for 18 months if it is addressed properly. We are going over two years now because it hasn’t been addressed properly. The spending is actually extending the recession and the tax hikes are compounding that. If congress had adjourned two years ago and done nothing we would be coming out of recession by now. Job growth is less than population growth. the economy grew one quarter and has been slipping back for the past three. This whole idea that if it didn’t work the first time, let’s try it again is insanity.

We pass financial regulation that costs the banks money and we wonder why our credit card rates are the highest in history. We tell the banks their cash to equity ratio must be much higher and wonder why they are hoarding cash. We tell the banks to loan more money but threaten to impose transaction taxes that will hike their costs. We tell business to spend and hire but raise their health care costs. We want business to invest but want to raise their taxes. we want business to invest but threaten to raise their costs with things like Cap N Trade and Cardcheck. The government has done nothing but restrict business growth since they took over. Now they think they can tax and spend to get us out of this mess. They need to get out of the way and let us get out of this mess with growth.

crazyivan's avatar

Alirght, so up until now this was a great conversation and I was learning a lot, but that last post was pure conjecture. I could make all the same arguments in the other direction. Alright, so the housing bubble caused the recession. I’ll give you that. But what caused the housing bubble?

It’s fair to lay much of the fault at the feet of Clinton’s initiatives to get poor people into homes. That push certainly laid the ground work for the problem, but the powder keg wasn’t ignited until the sweeping deregulation that allowed the banks to forego any level of human decendy in making the loans or in shuffling off the debt that they incurred.

I’m a firm believer that no problem is the fault of the Republicans or the Democrats alone, but to stand here and tell me what would have happened if this hadn’t been done or that hadn’t been done suggests that you are getting your information from a crystal ball rather than an education in economics.

And I think the like “This whole idea that if it didn’t work the first time, let’s try it again is insanity” would be far more applicable to my argument against Trickle Down economics than your argument against the New Deal.

Economists have debated the effectiveness of the new deal for 70 years and still seem pretty split on whether or not it worked, so we’re probably not going to solve that debate in this thread, but these numbers certainly support the notion that it helped:

-GDP in 1933: $635 b
-GDP in 1940: $1 t

-Unemployment Rate in 1933 – 24%
-Unemployment Rate in 1940 – 15%

Now, a solid argument can be made that FDR prolonged the Great Depression, but it is all pure speculation since we can’t examine the world without the New Deal for comparison. If you look at government spending and GDP graphed out over the last 100 years or so it’s hard to find any corrolation between the two at all.

But where is the evidence that cutting taxes spurs the economy?

Jaxk's avatar

@crazyivan

OK, it is difficult to speculate on what would have happened on the road you didn’t take. But we know what happened on the road we did take, and it wasn’t good. Japan took the FDR route during the 90s. They call it the lost decade. They spent and spent to try and pull themselves out of the recession. It didn’t work. And just as an exercise, try plugging in the numbers for 1937 and 38 into your FDR spiel. FDR raised taxes in ‘37 and the unemployment rate went from 14.5 to 19%. No matter how you slice it, a decade of depression is not a success story.

Comparing the low point of the Depression and then saying ten years later it was better then the low, is hardly a good measure. It’s the same as saying the ‘dead cat bounce’ we got from the low point in 2009 is a good indicator. It’s not.

Jobs are a good indicator of how well the country is doing. Here’s a rather interesting graph that shows the unemployment rate over time. Adjust the time scale for 1970 til 2010. Then plug in a few tax moves. Reagan reduced taxes in ‘82 unemployment started coming down in ‘83. HW Bush raised taxes in ‘90 Unemployment began rising in 91. GW bush lowered taxes in 2003, unemployment began falling almost immediately. The Clinton years contain the Dotcom boom and I think that drove the economy and unemployment more than anything. Fault me for that if you will, it was an anomaly.

http://www.tradingeconomics.com/Economics/Unemployment-Rate.aspx?Symbol=USD

Another look at this from a government revenue perspective. Bush cut taxes in 2001 and 2003. The 2001 cuts were effective for 2002. Government revenue immediately took off again.

http://www.usgovernmentrevenue.com/downchart_gr.php?year=2000_2010&view=1&expand=&units=b&fy=fy11&chart=F0-total&bar=1&stack=1&size=m&title=&state=US&color=c&local=s

Looking at GDP is very difficult since there are so many things that affect it including population growth, value of the dollar, import/exports, and so on. What we need right now are jobs. More jobs will relieve the unemployment problem and improve government revenues. So, how do you get them? Business growth. Bigger government doesn’t do that. If you want private sector jobs, you must make the business environment friendlier, investment more appealing, and long term planning at least possible. Who wants to make a 10–20 year investment when they don’t know what’s coming next year?

crazyivan's avatar

@Jaxk alright, man! That’s what I’m talking about.

If I can’t use the lowest point then you can’t use the 37–38 drop off. There’s no consensus as to the cause and while it’s true that FDR raised taxes in 37 that was not the only tax hike of his presidency but it was the only one that saw significant backslide. I could just as easily make the argument that the double dip was caused by the budget tightening measures of the opposition, but neither argument is true. However, since there’s not enough evidence to call it either way I’ll call it a valid point to negate mine, so point for you.

I would like to point out, though, that you are missing some tax increases and decreases. The year after 82 tax cut Reagan signed in his “tax reform” that included the largest tax hike in some… what, 50 years? If your model holds then there should have been a steady rise in unemployment from 84 to 86, but there wasn’t. During that period he also raised the gasoline tax considerably, which goes back to the earlier point that suggested gas prices were one of the major factors leading to the record unemployment.

Reagan also raised corporate taxes later in his tenure to pay for the cut in personal income taxes which goes to the heart of the “job creation” issue. Clearly if topside stimulus is the key to growth we should have been shrinking in 86 and 87 as well. And didn’t the deficit triple under Reagan?

I would argue that unemployment is no more valid a metric to measure the economy by than GDP because they are both influenced by the same unlimited cacophony of factors. So can you honestly say that government spending doesn’t create jobs?

(By the way, this might be the most fun I’ve ever had on Fluther and I’m really rooting for you to win…)

Jaxk's avatar

@crazyivan

Actually, FDR’s first rate hike was the ‘37 hike. Hoover raised taxes in ‘32 (I think) which helped to deepen the depression. I think you’re splitting hairs on the Reagan tax cuts/hikes. The cuts were substantial. The hikes were more in the way of changes to deductions. The combination still resulted in major cuts. I feel like you’re expecting to see intra year changes that follow the day to day activities of congress. That may be a bit much to ask.

Reagan raised the price of gasoline? Give me a break, he raised the price by 5 cents a gallon. Even with the lower prices then ($1.24 in ‘83) that is about a 4% increase. The dollar increase I mentioned was a 33% increase. And the $4.50 price was a 225% increase. Hardly comparable.

Reagan actually lowered the corporate tax rate from 46% to 34%. But as with personal taxes, he also closed many of the loopholes. Both corporate and personal tax changes had the overall affect of leveling the field for individuals and corporations. Everyone paid a lower rate but those that were using the loopholes to pay virtually nothing were making up the difference for the lower rate.

I have avoided GDP because the numbers don’t show anything. They are too big and the fluctuations too small. I don’t see any correlation with either recessions, spending, tax cuts, or prosperity. If you can pull something out to make your point that’s fine, I just don’t see it. Unemployment however, seems to have a valid relation to recessions and growth. It is a measure we can all feel as opposed to a meaningless number. That’s why I like it. If unemployment is high, we all know it. GDP could be high or low and we may not feel it.

Finally, Government spending has been high and consistent over the past decades. I see no relation to spending and recessions or recoveries. So yes, in lieu of any evidence, I feel spending does not stimulate growth.

And if it’s any help, I’m rooting for me to win as well.

ETpro's avatar

@Jaxk As you guessed, I am not a fan of sales tax. It is regressive. I am also well aware of the difference between taxes on income and wealth. Previously, you accused me of arguing for extremes, and put a top tax rate of 80% in mu mouth when I had argued for no such thing. I stated that I thought a rate less than half of 80% would be better tax policy. When I disclaimed any desire to raise top rates to 80%, your response was to bump it up to 95%. Seems to me that it is you and not me that is taking this debate to absurd extremes.

You can push your ideology about taxing the poor and giving a break to the rich all you want. I am looking not at the lofty glory of someone’s ideology, but at what actually happened when we tried it each way. True conservatism is doing what is tried and true. A middle-of-her-road tax rate like that of the Clinton years is the tried and true solution. Using that policy, we were paying down the national dent, creating the most jobs in postwar history, and doing well for both the middle class and the wealthy. Under Reagan, Bush ! & Bush II only the very wealthy prospered. The national debt went up like a skyrocket and job growth was poor. Under Bush II,, job growth was horrible. And for the first decade sine WWII, middle class’ real income fell. I could care less about ideology. If trickle down worked, I would be all for it. I only care about results. That’s something ideologues can’t say without making liars of themselves.

Oil and gas prices triggered the recession of 2007? There’s a new one. And a laughable one to boot. The curve of gas prices has its spikes but it averages out to a flat slope upward from 2002 – 2008. The real estate bubble bursting started the recession. It would have been a mild blow except that deregulated Wall Street had created $62 trillion dollars a year in derivatives heavily leveraged on top of mortgage debt. When the real estate market crashed, so did the massive house of cards stacked atop it.

Regarding the Clinton tax rates, I think that we should go back to them when the recession is over. The fact is that extending the middle class cuts would give ALL taxpayers a break on their first $250,000 in income, and will hlep us climb out of the recession. I’d not extend the tax cuts on the top 2% because that move will add $700 billion to the deficit over the next 10 years and does virtually nothing to stimulate the economy. On the other hand, tax cuts for middle income and poor people get spent right away, not hoarded in derivationves markets of traded on the FOREX.

Blaming Fredie and Fanny for the crash is another strategy of the Party of No Personal Responsibility. The two organiations combined held $2 trillion in mortgages. Even if all of that had defaulted (and it didn’t), it would have been well within the means of the Fed and private banks to absorb it. Also, only 15% of the mortgages in default are sub-prime.

Three decades of Republican deregulation culminating in the Gramm-Leach-Bliley act of 1999 set the stage for the creation of the annual $62 trillion funny-money derivatives market.When a house of cards falls with horrible consequences, do you blame the puff of breeze that blew it down, or the idiots that stacked it up? If it makes your Republican soul feel better, while Gramm, Leach and Bliley were all Republicans and the Financial Modernization Act was the signature legislation of Gingrich Republicans, Bill Clinton could have vetoed it and didn’t. He signed it into law. So there is blame to go around.

Regarding unemployment rates under Bush and Clinton, This site shows this chart. I wish it projected on out to the end of the Bush Administration instead of chopping off in 2005. If it did , it would look much worse than it does. But the fact is after both Bush tax cuts, unemployment went up and not down. Bush ended up with the worst record on job creation of any President since WWII.

jerv's avatar

@Jaxk I have no problem with deductions for charity. I do take issue with deductions for making your money through dividends and stock options rather than a paycheck and feel that those should be taxed the same as normal income.

Also bear in mind that for right now, we are talking only about the federal budget. If you have issues with state taxes then take it up on the state level. Personally, my wife and I haven’t paid state income tax since 1992; NH and WA don’t have state income taxes, and NH has no sales tax either.

At our income level, we pay about 10% of our income to income tax, about 14% for insurance (it would be ~56% if we bought our own as opposed to getting it through our employer). Another 27% goes for modest housing that is fairly cheap for the region. and most of the remaining 49% of our income is spent and therefore taxed at 9.5%, raising our effective tax rate considerably. Compare that to someone like Warren Buffet who pays closer to 19% of his income to the IRS (dividends and capital gains are taxed lower than “normal” income) and doesn’t spend a large percentage of his annual earnings on taxable items, so the percentage of his income going to taxes isn’t appreciably higher than mine considering the disparity.

Now look in the middle at people like my folks who rake in around $150K/yr and you see tax rates skyrocket. They earn most of their income the usual way, so more of it is actually taxed. However, they are not rich enough to avoid spending a considerable percentage of their earnings, so their effective tax rate is about as high as mine and Warren’s combined. I was under the impression that our tax system was progressive, not a bell curve.

Jaxk's avatar

@ETpro

Wow, good points. Most are even valid but with a twist. Your unemployment chart shows exactly what I said. Unemployment peaked in 2003 (the year of the cuts) then went down to about 4.6%. I posted the number earlier but you may not have seen them so here they are again. And they go through 2008. (sorry I don’t know how you guys post a link without posting the link)

http://www.infoplease.com/ipa/A0104719.html

I’m not sure I need to address everything you said since you seem to want to twist most of it out of proportion. When I used the 95% number it was an example that no matter how high the income tax was raised, it wouldn’t touch the people like Soros that don’t get a paycheck and consequently pay very little income tax. I’m totally lost on how you interrupted that to mean anything else. As for the tax rate you indicate (less than half of 80%), I showed earlier where the Obama proposal (if he actually had a proposal) would put the top rate at about 55%. Hell, we’re already above 40%.

I think you understate the mortgages held or guaranteed by Freddie and Fannie. “Fannie Mae and Freddie Mac are so big — they own or guarantee roughly half of the nation’s $12 trillion mortgage market”. A bit more than $2 Trillion.

http://www.nytimes.com/2008/07/11/business/11ripple.html?ex=1373515200&en=8ad220403fcfdf6e&ei=5124&partner=permalink&exprod=permalink

I actually agree with you on gutting Gramm-Leach-Bliley, it was a major mistake that should be undone. As far as all the decades of deregulation, that’s a talking point. It sounds good but has no basis in fact.

I find it interesting that you can’t see the connection between the gas prices and the recession. People that were spending $20–25 to fill their tank were suddenly paying up to $80 for the same fill-up. And you don’t think that affected their ability to pay rent. I can’t see how that would not be an obvious connection.

“You can push your ideology about taxing the poor and giving a break to the rich all you want”

Where did that come from. I’ve been trying make my points clear and using real data to back it up. I can see you love Clinton but let’s not ignore the Dotcom boom. And if your argument is that the tax rates under Clinton were some huge benefit for the economy then argue for them. You guys argued for six years that the Bush tax cuts only helped the wealthy and now you arguing that they have to stay in place because they help the middle class. Oh, that’s right all but your selected individuals should get them. You want to argue that rich people ($200K is rich?) don’t spend money. I guess they shove it under their mattress. Is that how they got rich? And be honest, holding the tax rates where they are doesn’t add $700 Billion to the deficit. The enormous spending Obama is doing is what’s creating the debt. You want to lower the debt, STOP SPENDING.

Jaxk's avatar

@jerv

Surprisingly I think we are in agreement on most of what you say. I’m torn on the capital gains taxes for a number of reasons. The dividends, I have a philosophical problem. The company pays income tax on their profits and then the dividends they pay are taxed again. That’s double taxation no matter how you slice it.

Capital gains taxes are intended to incentivise you to invest. It provides a better return for investing than simply saving and helps the economy. Of course it also helps those like Buffet that use it as income. Everything has an upside and a downside. There is also the issue of Retirement. You slave day and night all your life to run a small business. Finally you decide to sell it and retire. If the sale is considered normal income, the government takes half. Makes it difficult to amass enough to retire.

I don’t really have an issue with trying to address the Buffets of the world but I do have a problem lumping those in with the argument for income taxes at $200K and above. It’s apples and oranges. It seems we like to say tax the rich folks making $200K and above and then use the example of the billionaires like Buffet. I just scratch my head since the income tax rate doesn’t even apply to him.

ETpro's avatar

@Jaxk I can’t find a chart online that shows it month by month, but the fact is that unemployment continued up for at least 3 months after each tax cut and when it did come down, the cause was not stimulus from tax cuts but the explosion of building caused by the real estate bubble. Even uf that were not so, though, the salient point of Bush’s tax cuts is that his 8 years produced the lowest new job creation of any since the great depression.

jerv's avatar

@Jaxk I fail to see how double-taxation on dividends is really any different than many other taxes unless you want to argue semantics. For instance, my employer pays taxes on employing me above and beyond what is withheld from my gross income. And my income is taxed both coming and going, and whoever gets that money from me (except for the IRS) will be taxed on that same money as well. The only way to avoid taxes every which way you turn is to be rich enough to afford to make your own loopholes. Maybe I am missing something here, but it seems to me almost like the whole reason money exists is to generate revenue for the government at every turn, screwing everybody (rich or poor). It’s just that the rich get screwed a bit less at the expense of the middle class.

As for incentivising investment, where is the incentive to invest for the vast majority of us who don’t earn enough to invest enough to live off of the dividends? As it stands, very few people earn enough to retire without some major help from outside. If I wanted to retire at age 65 at my current income level of a meager $20K/yr, I would need to invest about 55% of my gross income for the next few decades. (Due to compound interest, I would’ve been better off starting when I was 16, but I didn’t really have any income to invest at that age.) Considering the vast and rising number of people who either live paycheck to paycheck or are at/below the poverty line anyways, it seems to me like that sort of thinking is only possible from the mind of someone who supports Oligarchy and Plutocracy.

Another part of it is sustainability. Sure, the way things have been done for the last decade may make for good ledgers and quick profits right now, but it also incurs a lot of expenses; either we have to subsidize those who lost their jobs and can’t find replacements, or we have to pay the costs in human lives. The latter option is only sustainable so long as people are not yet pissed of enough to revolt unless you want to create a strongarm feudal dictatorship. In any event, the current situation isn’t really sustainable, and future generations are going to pay a steep price for our success, or at least the success of a small minority in the present.

BTW, $200K/yr these days isn’t much when you consider the severe L-curve of income distribution, and I personally don’t consider that relatively paltry sum to be “rich”. Sure, it’s more than >90% of Americans earn, but it still pales in comparison to the top 1% who are paupers compared to the top 0.1%. When dealing with extremes such as that, pure mathematics starts to fray around the edges and you have to pull stuff out of your ass to make a semi-workable system. But when you wing it like that, you are bound to wind up with an unfair end result that snowballs into a complete clusterfuck not unlike our current trajectory.

I think that many of the proposals to tax the rich place the cutoff point a bit low, and that screws many small business owners. It also seems to muddy the waters a bit that some people seem to think that businesses and individuals are taxed the same. For instance, I had a co-worker who was against raising taxes on those earning >$250K/yr because our company (a legal entity whose name ended in “Inc.”) generated >$250K/yr in revenue and he honestly believed that every penny the company earned was considered personal income for the owner; he refused to believe that she personally would only be taxed on the portion of that revenue that she took as a salary. It’s ignorance like that that makes it hard to get anything done. Not only do we have different ideologies, but many people don’t even bother getting even the basic facts straight.

Jaxk's avatar

@ETpro

The housing bubble was building for a long time., I’m not sure how your going to show cause with a chart but here’s one for you.

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?series_id=LNS14000000&data_tool=XGtable

Jaxk's avatar

@jerv
Whereas I agree with you that there is double taxation, it’s not the same as you present. For instance, I have an S-Corp. If I earn $100K and want to dividends, those would go to me as personal earning. There are good reasons to do it that way since the profits are very uneven month to month and a salary is difficult. Those dividends would be taxed as business profits and then again as income. Basically it is the same income paid to the same person taxed twice. Dividends are pain to stock owners. When you tax the corporate income it a tax on the profit for a stock holder. When you then tax the dividend it is the same profit to the same stockholder taxed twice. Anyway, it’s not a major issue just one that sticks in my craw.

As for the rest of you post, I’m not sure where it’s heading. You seem to want to change the country to something else, but I’m not sure what. If we take the extra money away from the rich to distribute to the poor, there’s not enough. The result is not that we all become well off but rather that we all become poor. I would think the examples are easy enough to find, look at any communist country.

I think the flaw in your argument is that the top earners are not a stable group. When I was younger, there was no Bill Gates. Well OK, there was but he wasn’t rich. I saw an interview with Bernie Marcus, the founder of Home Depot. The guy started with nothing in 1978. Now he’s one of the guys your complaining about. That is the American Dream and we’re losing it. We’re losing it due to excess regulation and excess taxation. According to Bernie, his story would not be possible today. Regulation such as Sarbanes-Oxley would kill any hope of him going public with his company and going public is where you get the funds to expand. The cost of Sarbanes-Oxley averages a million dollars for every company in the country. That’s a lot of money for a small company trying to go public and it’s only one of the thousands of asinine regulations they have to comply with. I can not overstate the detrimental effects of our asinine regulations. Sorry I’m getting off track.

The point is those at the top change. New entrepreneurs crop up and others die off. Of those earning a million dollars or more, 30% change each year. In other words new guys enter the millionaires club and old ones drop out. It’s that incentive to make it big that drives people to work the 80 hour weeks it takes to make a business successful. To bring that new idea to market. Frankly I want my son to have a shot at that dream, even if he doesn’t make it.

As for your issue about the profits, it’s hard to tell who is misunderstanding who. Earnings, retained earnings, gross profits, net profits, it’s easy to get those confused. The one thing I know for sure is that if the company is making a profit and it is wholly owned, that person is paying tax on more than just their paycheck. And if it is an S-Corp, the profit is considered personal income.

crazyivan's avatar

@Jaxk Wow… I’ve missed some good stuff. Way to shoot down my point about the gas tax increase. I’m willing to admit that it was irrelevant and I figured you’d point that out.

One thing that drives me nuts about these debates is that the excuse for Reagan’s rampant tax increases is always that he was “just cutting loop holes”. Who cares what you call it? The taxes went up. Regardless of the semantic choice, the actual tax burden was increased which still pokes some pretty big holes in the unemployment going up under high taxes and down under low taxes model.

And I know that I’m the one that brought the dotcom boom up as a dampener in the praise of Clinton’s economic policy, but it’s hardly a shield against all of his successes. Poor fiscal policy could have still killed the cycle of investment (and if that’s not the case then both of our arguments are nullified).

As for the “prosperity” early in Bush the Lesser’s reign, it was clearly a case of mortgaging tomorrow for the sake of today. While it can’t be blamed on Bush, interests rates were kept far too low for far too long and it had the predictable result: a period of fast economic growth followed by a period of precipitous decline. I don’t think it’s fair to call any of that a result of Bush’s tax cuts either way. But, of course, to argue in favor of his tax rebates is to argue in favor of direct economic stimulus anyway.

Jaxk's avatar

@crazyivan

Reagan’s tax overhaul was a little more complex than you give credit for. The overall result of the cuts and hikes was a decrease in overall taxation. Picking apart one change while ignoring others won’t get you the results you’re looking for. If I lower taxes by 10% and then raise taxes by 10%, the result is a lower tax. Run the numbers and you’ll see how it works.

As I’ve said before, I like Clinton. Even though I didn’t vote for him, I give him credit for not screwing up a good thing. He did however, allow the economy to overheat (which was avoidable) creating the crash of 2000. It’s easy to forget how severe it was (hell that was 10 years ago, a virtual lifetime). The Nasdaq dropped from 5000 to 2000. It still hasn’t recovered. Basically you could say “interests rates were kept far too low for far too long” and that’s why we had such a crash. The truth is, it wasn’t Bush or Clinton that kept the rates low, it was the Fed. And they are not always in agreement with the president.

As for the tax rebates, I was in favor when he did it. But they didn’t work. It was the rate reduction that served the purpose in my opinion. Doing the rebates a second time was foolhearty. If they don’t work once, they probably won’t work a second time. I can understand trying a solution and having it not work. I won’t fault someone for that. Repetition of a failure is inexcusable.

jerv's avatar

@Jaxk I don’t know quite where I was going either. Never post before your first cup of morning coffee ;)

“I can not overstate the detrimental effects of our asinine regulations.”
I think that that is a result of trying to tweak and repair a system that used to work but, due to a few changes in the way things work and as a result of too many band-aid solutions, no longer does. Of course, replacing the system is unthinkable, so we’ll just keep adding more regulations until the thing breaks…oh, wait, it did!

So, taxing the profits my company makes and then taxing the profit-sharing check I get is also bullshit double-taxation as well? Or is it considered okay since profit-sharing has nothing to do with stocks and bonds and it’s only the high rollers that are tax exempt?

And Bernie Marcus (and for that matter, Bill Gates) are not the type of people I am complaining about since they are actually putting their wealth to work. Microsoft is a huge employer, creating jobs hither and yon, and Home Depot is also doing pretty well on expansion (and thus job creation). Sure, those guys have made a pretty penny in the process, but I think that being directly responsible for that sort of job creation is worth cutting them a little slack. And as for Warren Buffet, he’s been at it long enough for his portfolio to snowball despite his efforts to spread the wealth.

The people I complain about are those that make money solely to invest it to make more money and don’t do anything other than roll it over. Banks and insurance companies spring to mind immediately; look at the salaries of their CEOs compared to how much good they do. Those entities generate no real wealth beyond their own profits, and often break more than a few laws in doing so. And quite honestly, I find them more responsible for our current clusterfuck than any government entity.

BTW, that company worked for was a C-corp.

Jaxk's avatar

@jerv

You’re right about the bandaid solutions. Just once I’d like to see the government fix a problem rather than creating a new agency to oversee what the last agency missed. We compound our problems rather than fixing them. The SEC isn’t doing their job so let’s create a hundred new agencies to oversee Wall Street. I know, we’ll can it financial reform. Those idiots in the public won’t know what we’re doing.

The Dept. of Education was created in 1979 (took affect in 1980). Since that time our educational system has gone straight down the toilet. I know how to fix it, we’ll give the dept. of Ed more money and power. Sure we spend more money on education than any country in the world and we get worse results, but if we just do more of the same, it will all get better. It really is getting to the point that we need a new look. Instead of just creating new in the image of the old (while retaining the old I might add), we need to get rid of what doesn’t work and fix what can be fixed. Adding more government to a dysfunctional government doesn’t fix anything.

Your vitriol against the banks is a little misplaced. They do fill a real need. And if you look back at the bailouts, it wasn’t the banks that asked for them it was the government that forced the issue. Most of the banks that got bailout money didn’t want it. The government forced them to take it. In the governments defense, they were trying keep from having a run on the banks that were in trouble. If all the banks took bailout money, the public wouldn’t know who was in trouble and who wasn’t. The banks that didn’t need the money paid a helluva price for complying with the government, still are.

Just out of curiosity, if it’s not the Gates, Marcus, or Buffets of the world your trying to penalize, who is it. The banks and insurance companies? It would seem the tax code is taking an awfully broad brush to get back at a few despicable people. And just as a side note, someday you may want to buy a house or a car and the banks will seem a little more necessary. Or maybe not. Maybe you’re right, let’s get those guys.

crazyivan's avatar

@Jaxk I agree with you on the vitriol against the banks. You can’t blame an entity for doing what it exists to do and it would be hard to make an argument for a bank-free economy. But I do think that regulation of the banking industry is implicit with the power we entrust with them. Just as the real discussion on taxes is whether or not we should tax but how much we should tax, the real question in banking is not whether we should regulate but to what degree.

Bank officials are not elected by the public, but rather by stock holders and thus their allegiance is not to the public nor should it be. Clearly regulation must exist to keep the powers of an unelected group in check. So how many agencies are enough? Would you argue that the existing regulation was sufficient? If so how do you reconcile that with the housing collapse?

I think it is perfectly clear that the SEC wasn’t doing their job so what is the solution if not to create new regulating bodies? Now granted, I will readily agree that the “wall street reform” that we got was bullsh*t with a capital asterisk, but I imagine my issues with it are antipodal to yours. I don’t think there was any real teeth in the reform and that too little was done to reign in the shenanigans of Wall Street.

In summary, I don’t begrudge the banks a profit and I expect them to do whatever they can within the law to make it as big a profit as possible. That’s what they’re supposed to do. If they were acting ethically they would be in dereliction of duty. We have to impose morality on them and there’s really no way to do it but to reform and replace ineffective institutions.

Jaxk's avatar

@crazyivan

I think we are quite a ways apart on the issue of the banks. Banks are no different than any other company but historically are very conservative people. They want to make sure the equity is there and that the borrower has some skin in the game. Something happened to change all that. The government got involved. Starting back in the Carter administration their was a push for “Affordable Housing” or low income housing. The government created penalties for banks that didn’t lend to low income families or in low income areas. Mergers would not be approved, expansion plans delayed or cancelled, things like that. In order to meet these requirements, banks had to loosen the lending rules. Smaller down payments which turned into no down payment. Variable interest rates that turned into sub prime rates. To help this process Freddie and Fannie would buy or insure these loans. That left little risk for the banks and they eventually learned that these loans could be quite profitable. Low income families with poor credit or low down payments would be charged higher interest rates (standard operating procedure) and the loans were guaranteed if anything went wrong.

The more this worked the more creative they got and the more Freddie and Fannie would loosen the rules. Until finally it all came crashing down. The banks did what the government told them, in fact incentivized them to do. Now the banks are pulling back to their old ways (more conservative). Your solution seems to be more government involvement. The very thing that created this mess. If the government stays out of their business, the free market works. I don’t have a problem with some regulation but when the government begins dictating who should get loans and where, the system breaks down. When the government begins insuring or buying risky loans, the system breaks down. You want usury laws, OK. You want laws against monopolies to insure competition, OK. But bankers know how to lend and with a little competition they will serve the public interest without the government mandates. IMHO

As for the SEC, my solution would be to fix the problem. Not create a new one. In my last life I ran operations for some very large corporations. When I had a department that was not functioning well, I did not create a new department. I changed the process, or fired the problem.

There is one thing I learned early in my career. Most people don’t learn it until they’ve done it. You can’t reorganize to fix a broken process. You end up with a new organization and the same broken process. First, fix the process, then reorganize to optimize that new process. Obama and the government in general has never learned that lesson. And why would they. They just keep layering on new organizations and creating new problems but never fixing the process.

jerv's avatar

@Jaxk Regarding the banks, it really has more to do with the way they went about things. For instance, the questionable methods of handling transactions in such a way to maximize overdraft fees and thus profit from the poor while not taking a penny from the rich. And then there are the predatory lending practices other dick moves that have become more common (or, in some cases, just started) fairly recently. I am looking well before the bailouts. Actually, pretty much at the Bush-43 years. (Just a coincidence, but that’s when the shit really hit the fan.)

As for insurance, any industry that allows people to suffer and die and pays their office help slave wages while paying their CEOs 7— and 8-figures is financially skull-fucked and a bit morally bankrupt as well. While this source is a bit biased, it was the quickest example I could find without getting distracted mid-post.

All I really have to say about the Department of Education is a picture is worth a thousand words

Jaxk's avatar

@jerv

The salaries seem shocking. They’re supposed to, that’s the whole reason for the article. Personally, I’m not easily shocked. For some reason, we have no problem with high salaries as long as they are Businessmen or CEOs. For instance Peyton Manning makes over $17 Million and another 13 in endorsements (and he’s not even at the top of the list). Nobody cares, he’s a great quarterback.

A good CEO can make or break a company. If you recall the Chrysler’s problems in the ‘80s, how much do you think Lee Iacocca was worth to them. He took them from bankruptcy to thriving. He was worth his weight in gold. Companies compete for CEOs the same way sports teams compete for star players. I expect the CEO of a multibillion dollar company to make good money, seemingly exorbitant. And I wonder why we think a good CEO of a Billion dollar company is somehow worth less than a good football player or a movie star. Personally, I think they are worth more. Of course I’m prejudiced since I’ve been in business all my life. And just for the record, CEO salaries were escalating before Bush. They really got a boost in the 90s during the dotcom boom where everybody was competing for a good CEO.

As for the bank fees, that’s a result of the beloved financial reform. Annual credit card fees were virtually gone, they’re coming back. CC interest rates should be the lowest in history, instead they’re the highest. These are all the result of (the beloved) financial reform. You can’t add cost to business and not expect it to show up somewhere. As for the Bush years, I don’t know what issues you had, but I didn’t have a problem with loans or fees. They were some of the lowest in my life.

As for the predatory lending fees, sorry but I have to go back to the government again. Everything is laid out in black and white. Virtually every possibility is noted. You have to sign or initial every page to show you’ve seen it. All that stuff is mandated by the government. There are so many disclosures that it takes hours to close on a house. The stack of paper is ridiculous and all mandated by the government. Most of it you don’t want to know. You have to disclose things like whether anybody ever died in the house, if you had a pet, how many and where are the closest contaminated ares (oil spills in the past 20 years). There is so much that you can’t read it all and what’s really important gets lost in the detail. All compliments of our government.

When you have thousands of people whose sole job it is to think up rules and regulations, this is what you get. Reagan said it best, “Government won’t solve the problem, government is the problem”.

crazyivan's avatar

@Jaxk But since the wealth in this nation is created by the lending of banks it seems a bit much to say the government should have no say on how the money is lent. Are you saying that the massive slate of deregulation is not at all to blame for the severity of the housing bubble’s burst? I find that hard to believe.

In fact, the very fact that regulations were removed en masse in the years leading up to the collapse seems powerful evidence against your point. Should the lending processes not have gotten better if the government regulations were to blame? Your modus operandi seems to be everything bad is the fault of the government and everything good is the fault of private industry. Virtually all of your points are simple “before/because” fallacies of Limbaughian proportions.

And if Reagan was right in that final quote than why aren’t things a bastion of love and economic paradise in Somalia right now?

jerv's avatar

@Jaxk That brings us back to band-aids and sustainability. Arguing whether or not W or Reagan caused this mess or were just in office at the wrong time is not an argument I want to get into since finger-pointing doesn’t solve anything.
While I am not a fan of how much actors and athletes earn, at least they generate revenue almost single-handedly since people are paying to see them. If I chose to buy a Chrysler in the 80s, it would’ve been because of the engineers and the craftsmanship of the people working the lines. Sure, Lee deserves something for actually making that possible, but how about the insurance execs who boost corporate profits by letting people die or bank execs who put purple out on the streets for a quick buck? Between Chase and Prudential, I’ve heard enough this week to make me question things, not to mention all of the CEOs who got bonuses for driving their companies into bankruptcy.
If you can succeed fair and square then you are entitled to prosper. When you start breaking laws or screwing people over then I take issue with things. And these days, there is to much greed for a strong, sustainable economy. We’ve already seen some bubbles burst and a lot of people hurt while the Aristocracy rides their golden parachute.

Jaxk's avatar

@crazyivan

It’s always difficult if we use extremes. Somalia no government, I give you Cuba total government. To what point? I believe in the free market and capitalism. It sounds like you have less faith in them. And yes, I don’t think the government should be involved with how the money is lent. We have laws governing asset and cash ratios, fair lending, and monopolies. I have no problem with that. But when the government gets involved with where and to whom the money is lent, it causes problems

I hear this deregulation argument a lot. I’ve yet to see anyone back it up. There was no deregulation en mass. Glass-Steagall was gutted in 1999. That had a direct affect on the recession. Sarbanes-Oxley was enacted in 2002 which had a huge financial impact and didn’t accomplish anything. There were several attempts to regulate Freddie and Fannie but they failed under threat of filibuster. Other than that I don’t see anything approaching your argument of deregulation. Look at the library of congress and tell me we don’t have any regulation.

Jaxk's avatar

@jerv

I’m not sure where you got the idea I was pointing at Reagan for anything. As for Bush that seems to be the well you’ve been using.

I think you drastically underestimate the affect of a good CEO (or a bad one for that matter). I use Chrysler and Iacocca because they are such a well known and dramatic story. When Iacocca took over he had the same engineers, the same designers, the same plants that they had when they were going bankrupt. The turnaround was his success story. It didn’t just happen on his watch. A good CEO will implant his philosophy on the company. When Steve Jobs started Apple it was an incredible success. He left in 1985 and Apple languished losing market share to windows and the IBM platform of computers. He returned in 1996 as CEO and Apple took off again. Is that merely coincidence? Was he just there at the right times? I don’t think you give enough credit to a good CEO.

All that being said, you put me in the awkward position of having to defend some of the less effective or bad CEOs. I can’t do it. The only thing I can say is that once you lump them all together, you miss the point and the opportunities.

And just as a side note. You can look around the world at medical issues and find the same abuses regardless of the public vs private arguments. People that couldn’t get what they needed when they needed it. If you are covering millions of people, there will be some sad or unfair stories. I neither condone the mistakes nor condemn the entire industry, anymore than I condemn or condone the entire medical profession when a mistake is made.

jerv's avatar

@Jaxk Many point to Reagan as the greatest financial mastermind we’ve ever had in the White House, and it seems that no conversation about the current state of the economy is complete without somebody blaming W for it. And you can’t deny that a lot of shit hit the fan between 2001 and 2008.

Unfortunately, human nature is such that you are generally left with three choices; punish the innocent, let the guilty go free, or spend lots of time, effort, and resources doing things on a case-by-case basis and wind up being seen as capricious and/or discriminatory.

I can’t help but recall my stepfather at the company he works for. He is an engineer and the company was about three heartbeats away from going out when he got hired on. He butted heads with the President, won by sheer force of personality, and got them to build something that now makes up >95% of their business that currently does more sales in a month than they used to all year not too long ago.Unlike most companies though, that company decided to reward the person responsible even though that person isn’t some suit in the corner office. Sometimes the CEO is to praise for a turnaround, but sometimes they are to blame for not listening to their underlings. Either way, the CEO gets paid handsomely. Jobs and Iacocca did a great job pulling their companies out of a nose-dive, but are they the norm or are they especially good? Considering how few SEC, FTC, and other legal complaints I’ve heard about their companies compared to others, I’d say the latter.

Mistakes happen only occasionally. When they become too common, that is actually either malice and/or incompetence, neither of which deserve reward. At best, they deserve a little punishment, like being forced to live on only $200K/month instead of $200K/week until you can get your company to get it’s shit together and do their job more efficiently and accurately. I wont bore you with the details on my dealings or the dealing of y friends and family beyond saying that the insurance companies aren’t doing their jobs unless their sole job is to enhance shareholder value and has nothing to do with the health and welfare of the people paying them to take care of their health and welfare.

I place Apple and Chrysler in a different league anyways. You don’t need a car or a computer, so if they can design and build a product that people want badly enough to buy despite having other options out there (PCs, Hondas, what-have-you) then go right on ahead.

When you apply the same Capitalistic philosophy to some other things though, then we are getting into “dick move” territory. Screwing with people’s livelihoods or even lives for the sake of profit isn’t right.

Jaxk's avatar

“Sometimes the CEO is to praise for a turnaround, but sometimes they are to blame for not listening to their underlings”

Yes that is the measure. I don’t know if the president you refer to was a bonehead or a good guy. It is unlikely that you father in law won buy force. He either had trouble convincing the president or the president finally decided to let him fail (in which case he was a real bonehead). Either way the decision to hire and implement the idea sound like they were good ones.

A good CEO is not expected to have all the ideas. Maybe not even any ideas. They are expected recognise good ideas and surround themselves with people that have expertise. They are expected to encourage those around them to offer up good ideas. When a CEO believes he is the smartest guy in the room, he’s a bad one.

Just for arguments sake, the job of a CEO IS to enhance shareholder value. But that means providing a better product at a better price than their competitors. It’s all part of the Free Market system. What we have done is to limit competition in the insurance industry. I don’t understand why but we don’t allow competition outside the state boundaries. One of the most used clauses in the constitution is the interstate commerce clause. The government is to insure free and open trade between the states. In the insurance industry we don’t allow that. I don’t get it. If you had more choices and your insurance company was non responsive, you could switch. Right now you’re options are limited.

I know I sound like a broken record, but it’s not that insurance needs to be treated differently, it is that insurance IS treated differently. If it were treated the same, your options would be better, the pricing would be better, and your service would be better. Limiting competition makes you a captive audience.

jerv's avatar

@Jaxk There is a bit more to it that I won’t get into, but I think that this guy would fall outside anything you’ve seen.

If you enhance shareholder value by providing a better product at a better price then all is well and good. If you enhance shareholder value without doing so though, then you fail. Of course, if you provide a better product at a better price without enhancing shareholder value, you also fail.
Apple provides a decent product at a price the market will bear and boosts Apple’s stock prices; Steve Jobs does his job. Hiring Jonathan Ive was also a smart decision on his part. Insurance companies provide mediocre products (at best) at prices bordering on sodomy, and often to a captive audience in a non-competitive manner (not for the reasons you state exactly, but more because most people are stuck with whatever the boss offers (if anything) ), so they can eat a bag of dicks. Banks are outright predatory and are really into Schadenfreude, so they are no better. Brokers are a diverse lot, and I have no problem with some financier making a percentage on commission for handling the affairs/money of the rich, but then there are the corrupt ones who are only a small step above pedophiles.

But little of that matters to those of us in the bottom 90% since that money doesn’t come back once it goes up. The only way to put more money in the pockets of the average person is to print more and devalue every dollar in existence. It didn’t used to be that way, but these days…

Jaxk's avatar

@jerv
I was going post a long philosophical argument (actually wrote it and erased it) but that’s not my style. you obviously have a problem with the financial sector. I’ll just say I disagree. I do however find your last sentence interesting.

“It didn’t used to be that way, but these days”

It makes me wonder if you’d like to go back to where there was more opportunity, or go forward on the path we’re on.

jerv's avatar

@Jaxk I miss the days of opportunity, when hard work guaranteed at least enough success to live indoors and eat on a regular basis. Nowadays, it’s mostly luck and birthright.

I think we have different enough philosophies that we are better off agreeing to disagree.

crazyivan's avatar

Not sure which times we’re talking about, but did that guarantee count for the hard work of minorities at that time as well?

Jaxk's avatar

@crazyivan

I’m not sure what guarantee you talking about. If it was equal opportunity as opposed to equal results, yeah. Like a poor minority from a broken home that has the opportunity to go to Harvard and grow up to be President.

crazyivan's avatar

I was talking about the “good old days” that jerv was referring to (pre poor minority from broken home that had the opportunity to go to Harvard and grow up to be president)

jerv's avatar

Actually, I was referring to just the ability to survive on two incomes period and retire by age 70 rather than work until you are too feeble and then living on dog food. Being able to become a mllionaire or POTUS is just a bonus. Not to long ago, it was possible for an average guy to support a wife and maybe even a kid or two, but today even many two-income households can’t pull that off (assuming they can even find two jobs), but so long as Wall Street is doing fine, who cares?

crazyivan's avatar

One thing that has been understressed in this whole conversation is the widening of the income gap. That is truly the biggest problem facing the middle class… ie the fact that the middle class is slowly disappearing.

jerv's avatar

@crazyivan Yep. It’s all fry-cooks and fat cats with little in between.

Jaxk's avatar

I have to admit it becomes a bit tedious trying to explain how this works. It sounds like you want business to provide more jobs at higher salaries. Me too. The problem seems to be that you believe the best way to get them is to penalize business. That they’re making so much money that the government has to go out take it away, then give it back to us in some form of entitlement. That way we get even with those bad guys at the top and we’ll call it making them pay their fair share.

The problem is it never works that way. Have you heard about Obama’s latest gimmick where he is going to get even with the multinationals that make money over seas and then pay lower taxes overseas. He says this encourages them to invest overseas so he’ll shut that loophole. Sounds good on the surface. Unfortunately those corporations bring that money back to the US, put it our banks and use it for investing everywhere, here included. Now, with the new Obama plan any money they earn overseas and bring back here will be taxed at the US rate. Of course since we have the highest corporate tax rate in the world, that means they pay higher taxes here. Still sound good? Well unfortunately the result of all this will be that corporations don’t bring the money back here. They leave it overseas in foriegn banks and use it for foriegn investment. The more we penalize the more business leaves the country.

It works the same way as Kerry’s boat taxes. If he brings his $7 million yacht to Massachusetts, it will cost him an extra $500,000 in tax, so he docks it in Rhode Island. Hell, why wouldn’t he. We want to think that taxes have no impact on behavior but they do. If you want jobs to come back, if you want the economy to grow, create a business friendly environment. If you think you can penalize business to make them come here or stay here, you’re missing the boat (no pun intended).

We’ve been driving manufacturing overseas for decades. It’s not because companies are evil, it’s because they can’t compete here. Regulation and taxes have driven them to seek alternatives. And we are poorer for it.

jerv's avatar

@Jaxk So the solution is to keep wages flat for most people and increase CEO salaries from 30–50 times the average worker’s income to >500 times that? By that logic, out economy would be perfect if only one person in this country had even a penny to their name!
You claim that I underestimate the value of a good CEO, but it sounds like you place little/no value on those beneath them, or on the general public. Who buys stuff when almost nobody has any disposable income, or possibly no income at all?

Now, maybe if the big boys paid anything then the government wouldn’t have to rape small business owners, and might be able to lower rates all around. But if you want to penalize small businesses such that they won’t ever grow or keep all of the money at the top so that the little guy can’t even get the startup capital to shoot for their dream (or even three meals a day) then we have a problem. (Banks nowadays are a little stingier about loaning than you think unless there is a “gotcha” in there, but that is a whole other discussion.)

I am all for Capitalism, and I find it funny that Capitalism is our undoing; we can no longer make better products at better prices, largely as a result of our own actions. We are getting hung out to dry by stuff that could (and should) have been fixed long ago when it was still relatively painless to do so. But not to worry; only ~95% of us will suffer while the rest of us prosper beyond our wildest dreams.

Jaxk's avatar

@jerv

“So the solution is to keep wages flat for most people and increase CEO salaries from 30–50 times the average worker’s income to >500 times that”

I’m not sure what you want with that statement. I can only assume you want government to step in and fix something, I’m Not sure what. It sounds like what you need is a federal job. Over the past two years, while the private sector has been dying, 6 figure salaries for federal employees have jumped from 14% 19% of all federal jobs. Civilian salaries in the DoD jumped dramatically. those making $150,000 or more increased from 1,868 in December 2007 to 10,100 in June 2009. When the recession started, the Transportation Department had only one person earning a salary of $170,000 or more. Eighteen months later, 1,690 employees had salaries above $170,000.

Since the top 10% starts at about $100,000, it seems we are just shifting the top salaries from private sector to the public sector. I guess we all just need a government job. Once we all get on the government payroll everything will be better. I’m not sure who’ll pay the taxes, but we can worry about that tomorrow.

jerv's avatar

@Jaxk I would prefer if business would regulate itself and make government intervention unnecessary, and would also like to keep government small and fat-free, but we both know that neither of those things will ever happen. We also both know what happens when the government tries to fix stuff, but at this rate I don’t think they can do much more harm.

I may be repeating myself a bit here, but this is a more complete list of what I want to see. I would like to see is the tax rates adjusted such that higher income brackets pay at least the same percentage of their income in taxes as those in the middle. A progressive system rather than a bell-curve. You say it isn’t fair to make the rich pay 55% in combined taxes (federal plus state and others), and yet, whether you realize it or not, you said that it is fair to do the same to the less affluent, especially the middle class. WTF?!

I would like to see corporate taxes apply to all, great and small, thus easing the burden on the mom-and-pop businesses, and possibly lower the overall rate enough to make us more competitive internationally. If we can’t manage that then maybe we shouldn’t even be in the business of business; survival of the fittest and all.

How about some hefty tax incentives to create jobs? I would like to see companies invest a little more in their workforce and their infrastructure and a little less in their boardrooms; let the rising tides lift all boats. And no more “golden parachutes”; if the company shits the bed then the exec’s wallets go with it just like the guys on the shop floor. What is fair about regular workers rarely enjoying the good times and the CEOs rarely suffering the bad? Hell, since the productivity per worker has gone up in recent years, each employee is more valuable, so why not at least outpace inflation? Oh, that’s right; CEOs are more valuable than everything else on Earth combined and we should pay them even more than we already do for the mere privilege of being blessed with their presence.

As for the rising salaries in government jobs, I am not fond of the implications of more bureaucracy, but I would wager that paying 1,690 people around $200K each generates more economic activity than paying 17 people $20M each so I don’t really know how to feel about that beyond saying that if Capitalism worked then the private sector could easily match that. In fact, they probably can but won’t.

BTW, I worked for the US government once, and you couldn’t pay me enough to go back on Uncle Sam’s payroll even as a civilian at ten time the salaries you cite.

ETpro's avatar

@Jaxk One thing I would like is for government to step OUT and quit extending tax credits to corporations who off-shore jobs. Republicans are doing their level best to prevent any change to that law. More and more Republicans, with their new Tea Party energy, are proposing ending the minimum wage or lowering it. This is not going to help income disparity. It’s going to widen it. Also, Republicans are holding hostage across the board tax cuts that benefit mainly the middle-class unless the wealthiest 2% gets a huge tax cut too. And they claim that top tax rates should be cut even more. If they offer any plan to reduce the deficit growth that would produce, it is some nonsense about a spending freeze or more efficiency in government. With the Bush tax plan, you could cut out the entire federal government’s discretionary spending—all of it—and we would still be running a deficit. Their real target is entitlements. They’d give to the rich, and take from the poor to pay for it. That won’t help income disparity.

The Wealth disparity today is the highest it has ever been since records on it were kept. Since you are on the top end, I can understand exactly why you see that as a fine situation. What baffles me is how you get so many Joe Six-packs to vote with you to destroy their own economic future.

Jaxk's avatar

@jerv

“I would like to see corporate taxes apply to all, great and small, thus easing the burden on the mom-and-pop businesses, and possibly lower the overall rate enough to make us more competitive internationally.”

You understand that we have the highest corporate tax rate in the world. To make matters worse we also have the most complex tax code in the world. It takes twice as many hours to submit a business tax return (about 189 hours) as any other country. We think we can solve this by making the tax code more complex and the taxes higher.

The 55% number was not other taxes but merely income taxes. For some obscure reason you all seem to think that by raising the income tax rate, you will penalize those that don’t pay income taxes. I can’t imagine what your thinking. Do some CEOs make too much, absolutely. Do some CEOs make too little, absolutely. You think you can fix that by legislating it. It doesn’t work.

What kind of tax incentives do you suggest for creating jobs? The government does not create jobs. The only thing the government can do is get out of the way and private industry will do the rest. How do you incentivize a company to hire more workers than it needs? You can’t. The way it works is that if a company can reduce it’s cost, it sells more product. If it sells more product it hires more people. Or if a new idea can be brought to market it creates a whole new start up. Consequently hiring more people. What we have been doing is making it more expensive to run a business and more expensive to start a business. When you raise the cost of business, you lose volume either because people can’t afford as many or to foriegn competition. Jobs are the name of the game and we are moving in the wrong direction. More taxes, more regulation all cost money making domestic products more expensive and reducing volume.

As for your budget argument, it a false argument. Obama has increased the budget by a $Trillion. That’s not his specials like TARP and Stimulus but rather his general budget. If you assume that Obama’s budget is a given, then yes reducing it becomes a nightmare. But if you go back to the 2008 budget, you end up with a manageable problem. And surprisingly we had plenty of services under that budget. It’s time to stop worrying about how much some are making and start worrying about jobs. We’re moving in the wrong direction.

Jaxk's avatar

@ETpro

Unfortunately that’s a complete misread of where I stand in the pecking order. Currently I run a small business that barely survives. I have invested every thing I have in that business and if it succeeds I succeed. If it fails I lose everything (house, car, savings, retirement). The best way for me to succeed is for the economy to improve.

There is no proposal from either Democrats or Republicans to lower any tax rates. The proposal from Democrats is to raise rates on what they want to call the wealthy. What ever happens with this proposal it will not affect my taxes one dime. What it will affect is the economy. I need the economy to grow, you seem to be more interested in punishing those you dislike.

The Joe Six Pack guys you so easily disparage have one concern. Make the economy grow and jobs with it. They seem to have learned something you’ve yet to grasp. If the company they work for makes money, they do better. They get better raises, they get better promotions, generally their lives improve. On the other side, if their company is doing poorly, not making money, their raises disappear, no promotions, more work with fewer people. Generally not good. The war on business hurts them rather than helps them.

But of course these guys are only thinking of themselves. they should be looking to punish those that make more than them even at their own expense. That’s what the Democrats want.

jerv's avatar

@Jaxk So the answer is high rates for small business and zero taxes for the big boys? Honestly, I think I didn’t make myself clear, but I think part of the reason corporate tax rates are so high is because only the little people pay.

And again, I would love it if legislation weren’t needed, but you can’t let a six year old pyromaniac stay home alone without a babysitter; self regulation hasn’t worked too well.

When you raise poverty and unemployment rates, you also lose volume so it’s a wash.

And yes, we are moving in A wrong direction, but a different one from earlier this decade. Just as an engine re-build is harder than an oil change, we need to do some drastic things to get back on course. I don’t think there is any wining, but going the way we have since 2000 is a sure way to lose, whether it’s the Bush plan or the Obama plan.

BTW, if the company doing better benefits the average worker, why are the benefits not trickling down? Bonuses for execs are up, but not average wages or other compensation for us peons.

Jaxk's avatar

@jerv

I don’t know what to tell you. You seem convinced that there has been a period of little to no regulation but that is simply not supported by facts. Your generalities don’t cut it and seem to be a belief in the Democratic talking points rather than any basis in reality. Regulation has been building for decades, hell a lot longer than that. The example of ‘the straw that broke the camels back’, is not really true. It is the cumulative weight of all that crap that has been piled on the camel. Now that the camels back has been broken, you think we can fix it by piling on even more.

Every piece of regulation has a cost. If I look at the health care bill, generally it shouldn’t affect me. Small business, 6 employees, no affect, right? Wrong. The paperwork involved will increase dramatically. All a result of the expansion of the 1099 rules. I will at least double my cost for tax accounting as well. All because of a little piece that shouldn’t even be in a health care bill. So far over the past 3 years I have had to do a major change based on new regulation. Each year the new regulation has averaged about $40,000 in new cost. If I were looking to start my business today, I wouldn’t do it. The regulatory burden is just too great.

The regulatory burden eats up about one third of our total GDP. And you think we need more. You believe it is the ‘Fat Cats’ at the top that have created this mess and you’re right. Only problem is, it’s the fat cats in Washington that have done it.

Jaxk's avatar

BTW, if the top 20% earn 50% of all income as stated in the question and you all want them to pay there fair share, I think you accomplished that. the to 5% of incomes pay 60% of all income taxes here. The top 25% pay 86% of all income taxes. I’m not sure how much bigger their share should be.

Jaxk's avatar

yes yes, there s/b their.

ETpro's avatar

@Jaxk You wrote: “You understand that we have the highest corporate tax rate in the world. To make matters worse we also have the most complex tax code in the world. It takes twice as many hours to submit a business tax return (about 189 hours) as any other country. We think we can solve this by making the tax code more complex and the taxes higher.”

I understand that all too well. I have never argued for a higher corporate tax rate. And I would strongly support tax simplification for individual returns so long as that’s not acheived by a flat tax—with is terribly regressive.

The sad fact is that high US corporate taxes apply to the small guys like you and me, but the world’s most profitable corporation, Exxon-Mobil, paid no US corporate taxes in 2009. That makes a terribly lopsided playing field where the small businesses that really drive job growth are at a huge disadvantage against the multinationals as well as all the off-shore competitors who pay low or no corporate tax.

I favor ending corporate taxes period. I’d rather revenue be charged on income, capital gains, and very large inheritances only. Corporate taxes only add to the cost of goods for consumers and for government—so we the people all end up paying them anyway. But the high US rate (second only to Japan and you see how sluggish their economy has been for a decade now) puts the US at a real disadvantage. End that disadvantage, and end the tax breaks for multinationals who off-shore jobs, and we will put America back to work pronto.

jerv's avatar

@Jaxk That’s not the first time you’ve misrepresented/misunderstood what I’ve said, but that is the first time I’ve seen those numbers. I got mine from a variety of sources, or rather, from the government data with corroboration from other sources.

Let me see if I can find some more patience. I have no problem with disagreement (I actually enjoy it, so long as its civilized and intelligent) but getting misunderstood or having my words twisted deliberately gets to me.

Jaxk's avatar

@jerv

I’m afraid I don’t know what you think I’ve twisted.

Jaxk's avatar

@jerv

Here’s another site with the same numbers but also has a rather interesting description of some of your issues. You may find it an interesting read (or not).

jerv's avatar

@Jaxk Actually, I find that pretty interesting, and it’s nice to be able to find more complete info that is slightly more recent than 2006.

Oh, and the reason I got cranky is mostly that I didn’t say that; @ETpro did in the original question and missed the “in the original question” part of your post. Having words put in my mouth is a real pet peeve of mine, but my reading accuracy suffers when I am tired like I have been the last few days.

cockswain's avatar

Hey, the search option worked! I was going to post a question on this topic and found a great discussion instead. Good job.

crazyivan's avatar

Been a minute. I’d be happy to see this one resurrected.

ETpro's avatar

@cockswain Fluther has definitely improved that search tool. It’s one change I strongly endorse. The old one was pretty pathetic.

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