NPR managed to piss me off again this morning. I don't remember who was talking but they were painting a doom and gloom image of the US debt, and how it would suddenly hit us and we would be like Greece and Ireland and Spain, and how we could fix this by cutting the deficit NOW and by keeping the federal books like a responsible homeowner. But that's a whole load of crap.
First: Greece, Ireland, and Spain would not be such big problems if it weren't for the Euro. We don't have that problem. We aren't sharing our fed with Germany, so if a real problem develops we have a solution that the other nations don't: print money. Yes, wealthy people don't like that because higher inflation eats at their wealth, but for the rest of us, and our nation, it would solve any "debt crisis" fairly painlessly.
Second: The government is not your or my or anyone's household. We have fiat currency (which, no matter how much you hear otherwise, has been far more stable and beneficial to the economy than gold or silver or other commodity backed currency). If the government has too much debt interest rates go up (which, actually is similar to if I have too much debt and ask for a loan), but the US government can't actually default on debt because...IT CAN PRINT MONEY! If people start worrying that the US will resort to printing money...interest rates will go up. Inflation will also go up, and inflation makes debt smaller! A household cannot do anything that will cause inflation and shrink it's effective debt.
Third: "Addressing the deficit" now will make things worse, not better. What we need is to kick start the economy, then worry hard about our future deficit. Boosting the economy costs money which means more spending and bigger deficit, but a economy back on track produces more jobs, stuff, gdp, revenue...everything! If we can get the economy back up, then that will do more to help the deficit/debt picture than would cutting the military budget by 50% and eliminating social security! Again, this is not like a household. When a household is in debt, and having income issues, then cutting back is probably the best thing...because it is the only thing. If a household member decides to buy a 50" 3D LED television it isn't going to help that person improve their financial situation. If the government pours the percent equivalent into the economy boosting consumption, that does improve the government's financial situation.
Tuesday, November 30, 2010
Thursday, November 18, 2010
The Tax Cut Argument
I'm really, really, sick of hearing about tax cuts for rich people meaning more jobs from small businesses. There is no reason to suspect those things are connected. In fact, it makes much, much more sense for the opposite to be true. Just think of what can happen with more/less money...
When people get tax cuts:
1. Poor tend to spend the money: food, clothing, bills, entertainment, whatever. They don't have much so giving them more will increase what they spend.
2. Middle class is a broad ranging group, but some will spend more, some will save more (debt reduction counts for saving so far as the economy is concerned). Middle class small business owners (the vast majority of small business owners) that operate debt free may be able to expand business somehow, say marketing or more R&D. There is an outside possibility that they could afford to directly hire, but probably not. Still this is a group that can really help out the economy if given tax cuts.
3. Rich is tricky for a few reasons. First, pinpointing where "rich" begins is a bit tricky, but I'll go with the $250k/year group. Second, many, many rich people are just rich. They don't own business, many don't even work! Some rich, however, are business owners and do "create jobs" so the question becomes what is the utility of giving them extra money...
It's important to note first that when the above $250k tax bracket is cut by say 1% that someone making $260,000/year only sees a tax reduction of $100/year. That's not enough to do anything meaningful with and is likely to disappear into some savings/investment account without any notice by the tax payer. So there isn't any real meaningful difference until you get to people making significantly more than the break point. Then, you have to figure what the incentives are.
If a very successful business owner is receiving $500k/year compensation, and they get an extra $25k back in taxes (that same 1%), then they could, arguably, hire a worker ($12.50/hr full time). But if that was worthwhile, wouldn't they already be hiring that worker with some of the take home they are already receiving? What kind of crappy successful business person would see investing in a new employee as worthwhile but refuse to do so when they are already getting $500k compensation? If it is worthwhile (that is, it will pay off) then it is the proper business decision anyway, and the individual clearly has the wherewithal to do it as is!
More, if a business person is really motivated to make as much money as possible, (and this is the assumption) wouldn't raising their taxes, then, force them to work harder to bring their after tax income up? Wouldn't tax increases mean that they would need to invest more, hire more, expand more so that they could make the same as if taxes were lower?
It makes less sense every time I hear it. If business owners become successful due to that combination of smarts and greed, then higher taxes should force them to work harder. Lower taxes would mean they need to work less/expand less/hire less.
I feel the same way about cap gains taxes: if cap gains taxes go up people need to invest more to earn the same rate of return...higher taxes should be an incentive to invest more, not less.
I wish someone could explain to me why this thinking is wrong and cutting taxes for rich people means unicorns for everyone, but it looks like the history of tax cutting for rich people actually bolsters my position.
When people get tax cuts:
1. Poor tend to spend the money: food, clothing, bills, entertainment, whatever. They don't have much so giving them more will increase what they spend.
2. Middle class is a broad ranging group, but some will spend more, some will save more (debt reduction counts for saving so far as the economy is concerned). Middle class small business owners (the vast majority of small business owners) that operate debt free may be able to expand business somehow, say marketing or more R&D. There is an outside possibility that they could afford to directly hire, but probably not. Still this is a group that can really help out the economy if given tax cuts.
3. Rich is tricky for a few reasons. First, pinpointing where "rich" begins is a bit tricky, but I'll go with the $250k/year group. Second, many, many rich people are just rich. They don't own business, many don't even work! Some rich, however, are business owners and do "create jobs" so the question becomes what is the utility of giving them extra money...
It's important to note first that when the above $250k tax bracket is cut by say 1% that someone making $260,000/year only sees a tax reduction of $100/year. That's not enough to do anything meaningful with and is likely to disappear into some savings/investment account without any notice by the tax payer. So there isn't any real meaningful difference until you get to people making significantly more than the break point. Then, you have to figure what the incentives are.
If a very successful business owner is receiving $500k/year compensation, and they get an extra $25k back in taxes (that same 1%), then they could, arguably, hire a worker ($12.50/hr full time). But if that was worthwhile, wouldn't they already be hiring that worker with some of the take home they are already receiving? What kind of crappy successful business person would see investing in a new employee as worthwhile but refuse to do so when they are already getting $500k compensation? If it is worthwhile (that is, it will pay off) then it is the proper business decision anyway, and the individual clearly has the wherewithal to do it as is!
More, if a business person is really motivated to make as much money as possible, (and this is the assumption) wouldn't raising their taxes, then, force them to work harder to bring their after tax income up? Wouldn't tax increases mean that they would need to invest more, hire more, expand more so that they could make the same as if taxes were lower?
It makes less sense every time I hear it. If business owners become successful due to that combination of smarts and greed, then higher taxes should force them to work harder. Lower taxes would mean they need to work less/expand less/hire less.
I feel the same way about cap gains taxes: if cap gains taxes go up people need to invest more to earn the same rate of return...higher taxes should be an incentive to invest more, not less.
I wish someone could explain to me why this thinking is wrong and cutting taxes for rich people means unicorns for everyone, but it looks like the history of tax cutting for rich people actually bolsters my position.
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