[HN Gopher] The economic consequences of major tax cuts for the ...
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The economic consequences of major tax cuts for the rich
Author : rustoo
Score : 57 points
Date : 2022-01-07 21:23 UTC (1 hours ago)
(HTM) web link (academic.oup.com)
(TXT) w3m dump (academic.oup.com)
| eigenrick wrote:
| I see this argument thrown around a lot. It seems like previous
| research has also indicated that this was the case. However, I
| have some questions:
|
| 1. If "The Rich" (This paper defines them as the top 1% income
| earners) having tax reductions does not grow the economy or
| reduce unemployment, is there a wealth bracket in which tax
| reductions _do_ grow the economy?
|
| 2. Does _raising_ taxes on "The Rich" grow the economy?
|
| It seems like this is the kind of research done to solve an
| argument, but if we actually think that tax rates should factor
| into economic policy, then we should determine the actual effect
| of taxation policies on every quantile, not just the top 1%.
| andrewl wrote:
| A RAND Corporation study from a couple of years ago concluded the
| upward redistribution of income has cost American workers $50
| trillion over the past several decades:
|
| https://democracyjournal.org/arguments/how-much-has-inequali...
| oa2022 wrote:
| Stealing corrects inequality and we can't find any effect on
| growth (often we saw that the more we steal the more they work)
|
| Therefore, stealing good.
|
| The examples are many. Venezuela, Argentina, Soviet Russia,
| Southern Europe, even Britain pre-Thatcher
|
| Rich people 100% flee from high tax countries and also work less
| if they stay
|
| If the ship keeps moving when they flee, it doesn't mean you are
| not ripping off the motor.
|
| #####----#####
|
| Now, in response to the clown below:
|
| The most offensive thing about socialists to me is their language
|
| Calling freeloaders to people that pay over 50% of their income
| in taxes is comically absurd
| giraffe_lady wrote:
| If stealing corrects unjust inequality then it is, in fact,
| good. Yes.
|
| This is literally the principal behind "if you are starving it
| is not morally wrong to steal food." Which I know a lot of
| people disagree with and I don't need to hear the arguments
| about _again_. But my conscious is clear; some forms of theft
| are not wrong.
| oa2022 wrote:
| You could have shortened it to "I am a socialist/leftist" to
| save words
|
| Let me know when you come to London so I double lock the
| entry door
| giraffe_lady wrote:
| Oh shit really? I actually don't know much about politics,
| is that what socialism is? I do think I'm a leftist, but so
| are a lot of people who don't hold this view, so I don't
| think that alone would be sufficient to communicate it.
| Plus, the weight of this conviction has much more of a
| basis in my religion than my politics so it's arguably not
| even relevant.
|
| Anyway I am quite well paid myself these days, so I have no
| need or moral justification to steal.
| vannevar wrote:
| Does your "Toddler's Guide to Economics and Taxation" say
| anything about freeloaders who leverage public services in a
| stable republic to build a fortune and then refuse to pay their
| share of upkeep on those services and that republic?
| nightski wrote:
| I'm not sure using taxes as a way to combat income equality is
| effective either. Just because taxing the rich less allows them
| to make more money does not imply taxing them more allows the
| non-wealthy to prosper.
| eigenrick wrote:
| I think the point is not that it's taking money from the rich.
| I mean, that's a necessary part of it. The point is that that
| money is forced to recirculate in the system.
|
| The thing people seem to forget is that taxed money doesn't
| just disappear. It right back into the economy. The target,
| predominately, is the working class, either directly via Gov't
| employee wages, or social programs. Or it goes back indirectly,
| through Gov't contractors. At which point it filters back up
| the system to the rich.
| nightski wrote:
| The rich do not usually sit with cash in their bank account,
| and even if they do the system is built to keep that money
| recirculating. Banks use fractional reserve lending to take
| those deposits and lend them out several times forward.
| Otherwise the money gets invested in companies from your
| large caps, small caps, VC, to angel funding, etc...
|
| Basically there is no such thing as stagnant money imho.
|
| What taxes imply (again in my opinion) is that we believe the
| government is better at investing that money than the economy
| participants themselves. In some cases that is true where the
| return is over several decades or there is little to no
| direct monetary return at all (but still very necessary -
| social programs). But in many cases it is not.
| abeppu wrote:
| I think it's also key to distinguish between wanting to "combat
| income equality" and "allow[ing] the non-wealthy to prosper."
| There's that old Thatcher parliament quote responding to
| concerns about rising inequality, where she characterizes the
| left as being pleased if the poor become poorer so long as the
| rich fall further.
|
| I think taxes (if we plug various holes) can decrease income
| inequality, but the challenge is efficiently spending the
| proceeds in a way that lifts up everyone ... and not creating
| firehoses of public spending that primarily benefit the same
| small pool of companies.
| ajsnigrutin wrote:
| I live in a former socialist country, with current "left" (red
| star in the logo) parties, who scream a lot about "tax the rich".
|
| In reality, if you look at their proposed policies:
|
| * nothing happens to the poor (since they already pay almost zero
| taxes)
|
| * nothing happens to the rich, because they start a company in
| bosnia, or delaware or panama (I have no idea how the panama
| papers were forgotten by the people and the media), funnel the
| money, and again pay (almost) zero tax
|
| * and me, an engineer with an above-average paycheck, but way
| below "rich"? I get fucked with the higher taxes.
|
| I don't need the rich to have higher taxes, I'd be happy if they
| atleast paid the current ones, or atleast the same percentage of
| income (in real sense, not accounting sense, since there are many
| ways to earn very little on paper, but buy a lot of stuff with
| that) as I do.
| justinzollars wrote:
| I used to believe taxes were a good way to redistribute wealth.
| That is until I moved to San Francisco and saw how a welfare
| super state prioritizes its spending. $75,000/tent/year homeless
| camping sites, 2 million heroin needles, community ambassadors
| who aimlessly wonder the mission district with multilingual
| pamphlets on how to sign up for welfare benefits. Billions
| funneled to nonprofits, who in turn support politicians. Lavish
| state retirement benefits at the expense of cutting community
| services.
|
| Sure, raise taxes on the rich, but the plot is lost.
| imtringued wrote:
| We shouldn't tax work at all. We should tax resources and land
| because they are part of nature and we should use them as
| little as possible for efficiency's sake.
|
| A tax on work basically tells us to use people as little as
| possible, e.g. use more automation than necessary. You end up
| with a situation where you both have too many robots and too
| many unemployed people.
| scotu wrote:
| false dichotomy, even if you believe SF spends money wrong,
| that doesn't justify the tax cuts for the rich
| justinzollars wrote:
| That's not true. If the money is wasted, why tax at all? It
| seems punitive. Many that wish to see money lit on fire,
| rather than put to productive use.
| nodesocket wrote:
| I'll approach this from a different perspective, in the last 20
| years can pro-higher tax proponents provide proof of a single
| program that actually improved the quality of life of US citizens
| in the middle class? I suspect, many will spring up and suggest
| Obama Care, but where is the data to support this? I know myself
| and my families health insurance continues to rise and rise (self
| employed). My mother is on Medicare and pays absurd prices for
| her diabetes medication and testing equipment (smart device).
| Democrats continue to fail to address the costs of medical care
| for middle class and even upper middle class. There are programs
| for low-income but once you reach middle class levels all these
| programs no longer qualify.
|
| We all work hard for our money (ok maybe not all), but my
| mentality is let me accumulate as much wealth as I can (I'm
| better at investing and returning yield on money) in my younger
| years. I'll make the decisions which programs/charities and
| people I wish to support.
| lostcolony wrote:
| So what you're saying is "because I personally don't see the
| benefit, I don't want the rich to be taxed higher", and for
| some reason are conflating your middle class income with that
| of the uberrich?
|
| I don't think anyone is suggesting "Hey, let's increase taxes
| on those making under a million a year". But there is no good
| reason that the people making a billion a year are paying the
| same 37% as the people making $600k.
| nodesocket wrote:
| Except that's not what is being proposed (they claim their
| tax hikes only affects the ultra rich which is patently
| false). Also, I am not middle class, and I plan and have
| goals to continue to make more income and grow my wealth for
| myself and my family.
|
| Biden's plan to eliminate capital gains or increase it is bad
| for everybody and investment and growth. The income cap to be
| able to contribute to roth-ira (tax free growth) is absurd.
| Everybody should be able to contribute the maximum to a roth
| regardless of income. Ok, I'll do back door conversion or
| mega backdoor (Biden plan calls for elimination of back door
| conversions).
|
| There is a war on wealth, and it's not just against
| billionaires. This is just what they want you to believe.
| abeppu wrote:
| I think now is a really hard time to ask "what have my tax
| dollars gotten me?"
|
| - We all got free vaccines, produced in record time.
|
| - A lot of people are getting the child tax credit.
|
| - A lot of people got extended or expanded unemployment
| benefits.
|
| - Some jobs were sustained by PPP funding.
|
| - A lot of people were able to stay in their homes both because
| of eviction moratoriums and rent repayment programs.
|
| - Literal military personnel were setting up and staffing
| hospitals.
|
| Sure, you might say, but all these things are temporary
| responses to a short-term-ish crisis. And that's true; and
| that's also partly what the state is for, right?
|
| But in normal times, I was raised middle class and:
|
| - I went to 3 public schools and a state university
|
| - Growing up my parents regularly took me to the public
| library. I later became a volunteer there.
|
| - When I commuted daily, it was on public transit.
|
| - I backpack in USFS wilderness zones. I maintain a plot at a
| community garden managed by my city's parks department. When
| it's sunny I run through a park with a literal polo field.
|
| - When I am choking on wildfire smoke, I know that state and
| federal firefighters are trying to control it.
|
| - I haven't had the time yet, but I want to take free Spanish
| classes at my city's community college.
|
| - I drink clean municipal tap water and flush into a municipal
| sewer.
|
| - And basically every item I've bought has traveled over public
| roads, bridges, etc, which I navigate with GPS.
|
| I'm not saying we get a good deal. Public spending is often
| laughably inefficient or downright corrupt. But to pretend one
| doesn't benefit at all seems like it's failing to notice a lot
| of the fabric of our world, or appreciate how much worse it
| could be.
| nathan_phoenix wrote:
| > We find tax cuts for the rich lead to higher income inequality
| in both the short- and medium-term. In contrast, such reforms do
| not have any significant effect on economic growth or
| unemployment. Our results therefore provide strong evidence
| against the influential political-economic idea that tax cuts for
| the rich 'trickle down' to boost the wider economy.
|
| The conclusion taken from the abstract.
| subroutine wrote:
| As part of the series on "Rising _tides_ not lifting all boats
| ", and "tax cuts for the rich don't tend to _trickle_ down "...
|
| https://cushman.host.dartmouth.edu/books/CommonSenseFM/Chap5...
| nightski wrote:
| That same saying could be used for the other argument. Rising
| taxes not lifting all boats. Taxes for the rich don't tend to
| trickle down.
| nimbius wrote:
| an unsurprising find, considering its birthright was US
| president Ronald Reagan who had invented it out of whole-cloth
| to evangelize and tantalize neoliberal reforms during his
| presidency.
|
| It strikes me as fascinating that so many of these reforms,
| once touted as essential and prudent, have over two or more
| decades proven to be outright political grifting.
| lapetitejort wrote:
| Didn't the idea start with the Laffer Curve [0] during the
| Ford admin?
|
| [0]: https://en.wikipedia.org/wiki/Laffer_curve
| carbonguy wrote:
| From the abstract:
|
| > We find tax cuts for the rich lead to higher income inequality
| in both the short- and medium-term. In contrast, such reforms do
| not have any significant effect on economic growth or
| unemployment. Our results therefore provide strong evidence
| against the influential political-economic idea that tax cuts for
| the rich 'trickle down' to boost the wider economy.
|
| I'd be interested in hearing from those who consider this a
| surprising result. To me it seems entirely expected, but with
| online echo-chambers being what they are I have no doubt my lack
| of surprise could just mean I'm in an informational cul-de-sac.
| AnthonyMouse wrote:
| > I'd be interested in hearing from those who consider this a
| surprising result. To me it seems entirely expected, but with
| online echo-chambers being what they are I have no doubt my
| lack of surprise could just mean I'm in an informational cul-
| de-sac.
|
| What people think causes wealth inequality: Low tax rates on
| higher income people.
|
| What actually causes wealth inequality: Corporate mergers,
| consolidation, lack of antitrust enforcement.
|
| When does Zuckerberg have more wealth? When Facebook has a 900
| billion dollar market cap and he pays a 70% tax rate, or when
| Facebook has a ten billion dollar market cap and he pays a 30%
| tax rate? (Hint: 30% of 900 billion is a lot more than 70% of
| ten billion. Also, he doesn't pay the tax until he sells
| anyway, which he doesn't.)
|
| The problem with all of these studies is that people think the
| top tax rates were significantly reduced during Reagan, which
| is around the same time we stopped enforcing antitrust, so they
| see the effect of the latter and ascribe it to the former.
|
| But we can distinguish them because the first one never
| actually happened. The _nominal_ tax rates decreased a lot
| during Reagan, but that 's because it coincided with the
| closure of a ton of tax loopholes that meant that high income
| people never actually paid those rates. Government revenues as
| a percent of GDP have basically been flat since the end of WWII
| and are about the same now as they were under Kennedy and LBJ:
|
| https://fred.stlouisfed.org/series/FYFRGDA188S
|
| So any study that purports to use this to show what happens
| when you "lower taxes" faces the trouble that the tax lowering
| never really happened in practice.
| jevoten wrote:
| > When does Zuckerberg have more wealth? When Facebook has a
| 900 billion dollar market cap and he pays a 70% tax rate, or
| when Facebook has a ten billion dollar market cap and he pays
| a 30% tax rate?
|
| This is a bad example. All else being equal, society doesn't
| care if there's one 100-billionare, or 100 1-billionares, if
| the rest of the income- and wealth- distributions remain the
| same. What really drives the inequality is, as you noted,
| consolidation, lack of antitrust enforcement. When a market
| is reduced to a handful of companies, that don't compete, but
| collude. And lack of labor organization to serve as a
| counterweight.
|
| (This is meaningful because, if you split ownership of a
| company among more people, their personal wealth may be
| lower, but the company still acts as a unit on the market.)
| edmcnulty101 wrote:
| That's very interesting. We just hear 'tax cuts for the rich'
| and just get angry about the privileged not paying their fair
| share.
|
| 'Tax cuts for the Rich' has become kind of a buzzword phrase,
| like defund the police or climate change.
|
| it sounds totally obvious on an emotional level but the devil
| is in the details.
| AnthonyMouse wrote:
| It's actually worse than that because we have a tax code
| that actively promotes corporate expansion.
|
| If you're Walmart and you're making money and you've got a
| billion dollars in after-tax profit, what do you do with
| it?
|
| You could reinvest the money in the company. Open more
| Walmarts. Then you have a billion dollars to invest.
|
| You could pay it out as dividends to the shareholders. Then
| the shareholders, they're investors, they go invest in
| something else. Somebody goes out and builds more Walmart
| competitors. But dividends are income, even if you reinvest
| them. So if Walmart keeps the money and uses it to build
| more Walmarts, they get a billion dollars. If they pay the
| money out to the investors to invest in something else, and
| there is a 15% tax rate on dividends, there is only $850M
| to invest in the competitors. That's a huge disadvantage
| for the competitors, which induces the shareholders to
| prefer to invest in building more Walmarts.
|
| Now guess what happens to that incentive if you raise the
| tax rate on dividends to 25%.
|
| We could fix this by making dividends a tax deduction to
| the corporation. Right now Walmart makes a dollar, they pay
| corporate tax on it, then if they reinvest it themselves,
| no more tax. If they pay it as a dividend, it's taxed again
| before it can be reinvested in anything else. If the
| dividend was a deduction to the corporation, it would be
| taxed _either_ to the corporation _or_ to the shareholder,
| but not both as it is now -- and so there would be no
| preference for keeping the money inside the corporation and
| increasing its size.
|
| This sounds like "tax cut for corporations / rich people"
| but it's really just doing away with the tax penalty for
| removing money from a corporation to invest it in a
| different one. Which is the thing that reduces wealth
| inequality.
| deltarholamda wrote:
| In the distant--but not too distant--past, "the rich" often
| meant business owners who might make a lot of money, but
| employed a lot of people. The idea of cutting taxes would mean
| more available capital for business expansion.
|
| It's not really the case so much anymore. A decent Silicon
| Valley salary would put you in the top 10% of earners, and a
| Python programmer doesn't usually hire a lot of people. Top
| 1%ers tend to be of the financial rent-seeking sort, who might
| hire some people, but they're not expanding the concrete pylon
| plant to another state or anything like that, which would
| expand middle class wages and/or employment.
|
| The gutting of the industrial base since Reagan cut high tax
| rates for the top earners demonstrates that things don't always
| work out how you expect.
| lostcolony wrote:
| Business investments have always been a deductible expense.
| The idea that by saving rich people money, they would invest
| it in their business, is obviously bullshit; they can just
| invest the money and not be taxed on it anyway.
|
| It's doubly bullshit given that businesses are also separate
| taxable entities. Don't take the money out of the business if
| you don't want it to be taxed as income; invest it back in so
| it becomes an expense, and neither you nor the business
| (effectively) pay taxes on it.
|
| So, no. Even with a solid industrial base, "trickle down
| economics" was still just as obviously bullshit.
| InTheArena wrote:
| I feel like this is a straw man arguement - There is a
| presupposition that the only purpose of tax-cuts here is
| trickle down effects. There is also a concern of increasing
| inequality.
|
| Modern Inequality is _not_ driven by tax rate. The tax system
| in the USA is a income tax (the only thing authorized in the
| constitution). What folks here have created is wealth that is
| relatively il-liquid. What has changed is that interest rates
| are low enough that the wealthy have used loans against their
| stock to generate revenue. This is also because of the
| government working to keep interest rates artificially low.
|
| On the flip side, the poor in America pay virtually no federal
| income tax, and rarely state income once tax credits and rates
| are worked in.
|
| So who would increasing the tax rate hurt? The middle class -
| upper middle class in particular. They don't have the capacity
| to do investment backed loans to circumvent income tax, nor do
| they qualify for reduced tax rates (often zero at a federal tax
| level) for poorer Americans.
|
| I suspect the point where tax rates for the rich matters sailed
| a long time ago. It was effective in some places, ineffectual
| in some other places. It certainly was part of the financial
| breakthrough in the 1980s, but had other problems.
|
| So instead, a more basic question - what is a fair level of
| taxation given equal protection clauses in the USA? and also
| given that we don't want to disincentivize people working to
| better their own financial situation.
| commandlinefan wrote:
| > any significant effect on economic growth or unemployment
|
| Do high taxes have any significant effect on economic growth or
| unemployment?
| aemreunal wrote:
| I don't think this is surprising either. The whole "trickle-
| down economics" arguments for such tax cuts have always
| sounded... bullshit (for lack of a better word), exacerbated by
| the fact that decades of it (since the Reagan era in the US,
| for example) has only served to make the rich richer, poor
| poorer and erode the middle class completely. If it was a
| brilliant idea (i.e. the idea that the the only thing holding
| back the rich from elevating everyone else from poverty were
| those pesky low 10s of percent taxes) that worked, everyone
| would've been favor of it and we would've eliminated taxes for
| the rich completely by now.
|
| It's always good to have scientific data and analysis confirm
| your intuition, though.
| wang_li wrote:
| The poor are not getting poorer and the middle class is
| becoming rich. In the US anyway. Fundamentally the problem is
| that people think that someone having more money than then is
| some kind of ethical issue. Not to mention something like
| 100% of these analyses are univariate and that makes no sense
| at all since it's perfectly rational that a 20 year old has
| much less wealth and income than a 60 year old with an
| advanced degree and 40 years of work experience.
|
| We could just as easily be outraged that some people have
| more life expectancy than other people. Seems unfair that a
| person who is 60 and has 15-20 years of life left has to work
| 40 hours per week to maintain their lifestyle which is
| exactly the same amount of hours a 20 year-old who has 55-70
| years remaining expects to work in a week.
| [deleted]
| lostcolony wrote:
| I mean. I guess I'm glad someone is out there actually looking at
| the data. Unfortunately I'm pretty sure it's not going to
| actually sway anyone.
| lapetitejort wrote:
| Sure, tax cuts haven't work yet, but that's because they're
| still too high!! One more should do it.
| labster wrote:
| I doubt tax cuts for the rich would do it alone. Perhaps when
| combined with a 40 year copyright extension will we really
| see a flourishing of the poors.
| slickdork wrote:
| Question I'm asking in good faith: will this proof have any
| consequence for the bottom 99.99%? Is there a way this research
| helps shape policy?
| dnate wrote:
| Not unless the bottom 99.99% take action. As most already
| suspect what this research shows, the sad answer is: No
| jimhefferon wrote:
| Is it possible that it moves the Overton window? I mean, in the
| US there has been serious funding for decades aimed at moving
| the needle around things like guns and taxes. And that
| organized long term effort has been very successful. Possibly
| some of these things may result in some swing back to the
| middle?
| nickff wrote:
| It's not a 'proof', it's a statistical study, and econometrics
| rarely convince anyone of anything.
| imtringued wrote:
| If you had a free market, then the rich would either invest
| their money or they would lend the money out at a reasonable
| interest rate. The latter doesn't actually happen because they
| also have the option of simply holding onto it if nobody
| borrows it. (Of course in fractional reserve banking new money
| is created with every loan but the lender's money is out of
| circulation).
|
| Money has an insurance effect. Simply having money lets you pay
| off random expenses. It also doesn't spoil like goods. If we
| had a grain money system, then the central bank would pass the
| cost of grain storage onto the holder of the dollar bill which
| would give the lender an incentive to lend it out even at 0%
| interest, which protects the lender from the storage costs.
| This is known as liquidity preference. The borrower has to
| compensate the lender for giving up the liquidity benefits of
| money.
|
| Right now cash itself has no storage costs, so nobody will lend
| it at 0% interest.
|
| In theory giving the rich money through lower taxes lowers the
| interest rate because they lend it out. However, as I said,
| there is no mechanism that actually lets it fall to 0% (extreme
| cases like deflation can in theory justify negative rates). If
| you were to charge a negative interest rate on a bank account
| to enable 0% loans, then people just pull their money out and
| hold cash instead.
|
| The free market basically ends the moment markets are saturated
| and everything only makes enough money to cover its own costs
| with 0% profit. This is one of the areas where Marx was
| correct. Once profit is gone, the system collapses because
| someone forgot to enable the 0% interest feature of money.
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