Taxes (Very Original, I Know)

Tell me where I go wrong—that’s all I ask for you to do. I’m tired of hearing politicians’ sound bites, and I’m tired of reading (and making) snarky comments on RHP that don’t do much but hijack mid-sized threads. I want to have a serious, legitimate discussion about these issues (and I’m trying to capitalize on that initiative before it fades back into cynicism, so help me out), so engage me if you’re interested. Call me naïve if you want to, but I’m willing to risk starting this discussion anyway. I’m not an economist, so don’t expect me to be, and I won’t expect you to be one, either.

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Hypothetically speaking, why would lowering taxes for corporations spur more job growth through investment in the economy? Corporations are making record profits, and yet those corporations’ work forces are shrinking or at best staying constant. Even if you don’t see that as an intrinsically negative consequence of wealth inequality in the United States, why would you assume that corporations need even more money from tax breaks before they suddenly decide to reinvest it? Is there a secret profit margin companies require before they feel generous enough to reinvest “excess profit” back into the economy?

In response to similar questions, the current field of GOP candidates has typically produced an answer along the lines of, “Obama has created so much ‘uncertainty’ in the economy that no companies want to spend their money.” (I find it ironic that “uncertainty” is so inherently ambiguous a word in the first place, but that’s another story.)

I haven’t seen any data to support that claim. Here’s a quote from an article (full disclosure: the author writes for a left-leaning think tank) that makes a preliminary effort at refuting that claim:

From http://www.epi.org/publication/regulatory-uncertainty-phony-explanation/

The National Federation of Independent Business (NFIB), which describes itself as “the leading small business association representing small and independent businesses,” does a regular survey of small businesses. One question that has been asked since 1973, is “what is the single most important problem your business faces?” The answer choices are inflation, taxes, government regulation, poor sales, quality of labor, interest costs, health insurance costs, the cost of labor, and other matters. Interestingly, the single largest response is “poor sales,” the choice of 30 percent of respondents since President Obama was sworn in (averaging the 10 quarters between early 2009 and spring 2011). In other words, slack demand appears to be the key concern of small businesses...

Besides the NFIB survey of small businesses, there are two recent surveys of economists that also indicate the “uncertainty” story is baseless. First, the Wall Street Journal’s recent survey of economists (Hollander 2011) showed that “U.S. companies are reluctant to hire—but not because of uncertainty over government policies…. A majority of the 53 economists surveyed (Izzo 2011) from July 8-13…say it is the lack of demand that is keeping hiring down.” EPI’s Isaac Shapiro wrote a blog post about the National Association for Business Economics’ recent survey of 250 of its members, who include both academic business economists and practicing business economists (i.e., those who use economics in the workplace). According to Shapiro (2011), the survey contains the following results:

*The vast majority (80 percent) of those surveyed believe the current regulatory environment is good for American businesses and the overall economy.
*The large majority of business economists believe concerns about economic uncertainty are a proxy for generalized concerns about the bad economy. (That is, the concerns do not reflect business worries about regulation.) Few believe economic uncertainty is a major concern that is holding back economic progress.

I struggle with the idea that the government is somehow a bully that waddles around the country looking for ways to terrify innocent businesses. Perhaps some of this so-called “uncertainty” is self-imposed?

Along those same lines of thought, as far as wondering aloud how tax breaks spur job growth, beyond what personal income threshold does a person become a “big”-business owner? Would conservatives ever be willing to make an effort to quantify differences between “small”- and “big”-businesses for the purposes of taxation? Even on a gradual scale? I find it hard to fathom that a majority of the millionaires that would be included in the now doomed millionaires’ tax bracket in the Senate jobs plan would actively be contributing personal income into their own small businesses, if they even owned them.

Originally posted by wittywonka
Tell me where I go wrong—that’s all I ask for you to do. I’m tired of hearing politicians’ sound bites, and I’m tired of reading (and making) snarky comments on RHP that don’t do much but hijack mid-sized threads. I want to have a serious, legitimate discussion about these issues (and I’m trying to capitalize on that initiative before it fades back into ...[text shortened]... be contributing personal income into their own small businesses, if they even owned them.

Any business decision is risky because you need to invest spend and hope to make money later. Whether or not you actually make an investment is based on expected profit and expected costs. When taxes (like any costs) are increased it therefore makes everything any investor considers doing less attractive and therefore you are less likely to undertake any business endeavor.

When one invests it can help job creation. Jobs can be created permanently (you start a business that hires people) or temporarily you hire a whole bunch of people to build/ set up your office and indirectly you create something of value that other people use and hire or your employees consume stuff and others hire.

If I were starting a business or buying a building I certainly would try to do it in an area with less taxes and when taxes are raised I would certainly feel like the government is throwing another hurdle in my way.

I do believe that corporations normally have huge incentives to re-invest. It is a way of saying that we have the next great idea or we have confidence in ourselves. When they do not re-invest they are not being malicious but are saying that there simply aren't opportunities out there.

Originally posted by wittywonka
Tell me where I go wrong—that’s all I ask for you to do. I’m tired of hearing politicians’ sound bites, and I’m tired of reading (and making) snarky comments on RHP that don’t do much but hijack mid-sized threads. I want to have a serious, legitimate discussion about these issues (and I’m trying to capitalize on that initiative before it fades back into ...[text shortened]... be contributing personal income into their own small businesses, if they even owned them.

A friend of mine once defined a recession as no more and no less than an economic situation in which the rich are unwilling to share their wealth.

Originally posted by quackquack
If I were starting a business or buying a building I certainly would try to do it in an area with less taxes and when taxes are raised I would certainly feel like the government is throwing another hurdle in my way.

One might invest in an area with higher taxes because they are the means of supplying a well-educated, healthy workforce.

Originally posted by wittywonka
Tell me where I go wrong—that’s all I ask for you to do. I’m tired of hearing politicians’ sound bites, and I’m tired of reading (and making) snarky comments on RHP that don’t do much but hijack mid-sized threads. I want to have a serious, legitimate discussion about these issues (and I’m trying to capitalize on that initiative before it fades back into ...[text shortened]... be contributing personal income into their own small businesses, if they even owned them.

C&B is most companies biggest expense. When Obamacare was passed, nobody really knew what was in it. Businesses had no idea how much they were going to be asked to ante up for "free" healthcare -- but they knew it would be a multiple of how many workers they employed. So they slowed down the hiring based on that uncertainty. That lead them to start building up cash.

The other trend has been that Americans stopped being able to use their houses as cash machines and so demand started to slump. So again, businesses reined in the hiring.

More unemployment obviously reduces demand still further. So it starts a deflationary cycle.

I'm not sure a business tax rebate will do much.

Originally posted by Teinosuke
One might invest in an area with higher taxes because they are the means of supplying a well-educated, healthy workforce.

If indeed higher taxes lead to higher education. Suburban schools are much better than urban schools and the city tax in New York is ridiculously high.

Originally posted by spruce112358
C&B is most companies biggest expense. When Obamacare was passed, nobody really knew what was in it. Businesses had no idea how much they were going to be asked to ante up for "free" healthcare -- but they knew it would be a multiple of how many workers they employed. So they slowed down the hiring based on that uncertainty. That lead them to start buil ...[text shortened]... rther. So it starts a deflationary cycle.

I'm not sure a business tax rebate will do much.

So businessmen are illiterate?

The provisions of the bill are pretty straightforward. I find it hard to believe that hiring decisions in 2010 were affected by a program that doesn't even go into effect until 2014. Most businesses won't be affected at all except favorably.

Originally posted by quackquack
If indeed higher taxes lead to higher education. Suburban schools are much better than urban schools and the city tax in New York is ridiculously high.

That must be why there are hardly any businesses in New York City.

Uncertainty is the problem, though. People in general are uncertain about their jobs. This of course leads to people saving money instead of spending. This leads to businesses not hiring because of uncertainty about consumers spending money on their products. Many companies cut back when the recession was deepening and aren't eager to hire again if the workforce they have can meet demand. If they can make a profit with a smaller workforce, and still meet the demands of their customers, why wouldn't they do that? Smaller workforces mean less hassle for owners and managers.

Originally posted by no1marauder
That must be why there are hardly any businesses in New York City.

(1) It certainly isn't the city's education system that attracts business there.

(2) Many people live outside the city the avoid the burdensome taxes and many business have and continue to move to other places outside NYC.

(3) NYC and NY State have decreased in population as people move to areas with fewer tax burdens.

Originally posted by wittywonka
Tell me where I go wrong—that’s all I ask for you to do. I’m tired of hearing politicians’ sound bites, and I’m tired of reading (and making) snarky comments on RHP that don’t do much but hijack mid-sized threads. I want to have a serious, legitimate discussion about these issues (and I’m trying to capitalize on that initiative before it fades back into ...[text shortened]... be contributing personal income into their own small businesses, if they even owned them.

Part of the problem is the intentional muddying of the waters by leftists, and to some extent by corporate big business which really doesn't mind a big government environment.

Corporations and the rich are lumped together as a boogieman. Corporations are largely owned by small investors, often grouped together as mutual funds, pention plans, etc. You read about the big guys, the Buffets. You don't read about the thousands of IRAs, 401ks, 403bs, etc. which rely on corporate profit.

Then the rich are also ill defined. Loosely, most people think of the rich as people who have a lot more than they do.

"Hypothetically speaking, why would lowering taxes for corporations spur more job growth through investment in the economy?"

In the current international market, corporations can seek the most favorable tax situations in multiple countries, just as they seek cheaper labor if all else is equal. If our taxes are much higher, and they are, corporations will at least locate their financial offices, accounting so that they can pay the lower rate.

Sometimes we benefit from such competition, example of this are the locating of BMW, Mercedes, and VW plants in the US.

"Even if you don’t see that as an intrinsically negative consequence of wealth inequality in the United States, why would you assume that corporations need even more money from tax breaks before they suddenly decide to reinvest it?"

This mixes the matter of corporations and the rich. Yes, Microsoft and Bill Gates represent a large corporation and a very rich CEO. Far from the norm. A lot of corporations barely make ends meet. GM and Chrysler would be out of business today without government bailouts.

Profit margins tend to be a lot lower than most of us could even consider, which is why market downturns tend to upset larger corporate entities so badly. Then if they do well for a couple of years, the left is at their throats for excessive profits.

On "uncertainty", there can never be a business model that doesn't include some. Business people are risk takers. But to the extent they can the seek predictability, stability, to that they can properly assess and measure their risks.

Obama's health care plan, creates massive uncertainty, and instability. In its first couple of years hundreds of companies have applied for waivers. Like much federal legislation, it provides for masses of bureaucrats who will write regulation implementing the bill, and nobody knows what they will write. At a time when health care was often a third or more of the cost of hiring an employee, now all the old equations go out the window, but it is virtually guaranteed that the new costs will be greater, perhaps exponentially.

I will concede that really big business generally likes the highly regulated atmosphere. It harms them far less than the pesky start up competitors. They have in house law departments, and accountants, and compliance experts to deal with issues that smaller entities have to handle by the seat of their pants.

As to defining big or small businesses, why? Is it fair that big and small live by different rules? In some ways, they already do. What small business on the verge of collapse, could get billions of dollars in government loans? Or get the government to tell their creditors "buzz off" you lose? The taxpayers bailed out AIG, and the company immediately gave employees big bonus checks. GM did the same right after telling many of their dealers to take a hike. It should be pretty clear that a great deal of the unfairness and inequity actually originates from government involvement in business.

Originally posted by normbenign
Part of the problem is the intentional muddying of the waters by leftists, and to some extent by corporate big business which really doesn't mind a big government environment.

Corporations and the rich are lumped together as a boogieman. Corporations are largely owned by small investors, often grouped together as mutual funds, pention plans, etc. You ...[text shortened]... unfairness and inequity actually originates from government involvement in business.

Exactly! no1m, here is your answer regarding uncertainty over health care. And it is absolutely true that over-regulation stifles competition, especially from small businesses which in the end would generate the most jobs!

Nice post.

"Overregulation" is bad by definition, isn't it?

Originally posted by KazetNagorra
"Overregulation" is bad by definition, isn't it?

Yep... Almost as bad as underregulation...

Originally posted by Teinosuke
Yep... Almost as bad as underregulation...

You know, I've just had a thought. Maybe regulation ought to be just right! 😲