Tax plan

[TGHusker]

I might as well put this here since it has to do with taxes.

 

Yes living here in Tulsa this is constantly on the news. I'm blaming the repub legislature and repub governor - Mary Fallen who was on Trump's transition team. They spend money like it is water during the great fracking boom days and began to cut taxes. Money was rolling in. So what do they do - they start cutting taxes the year the bottom started to fall on the oil prices (may have been the year before). Our teachers are some of the lowest paid in the USA and many are leaving to better paying states like Texas. Yet our legislature's answer isn't to repeal the cuts but to cut school spending and shut down state parks, etc. You all know I believe in limited taxes but it has to be in relationship to the commitments made and the services that we want govt to provide. I see both parties getting drunk on power and spend like drunks to keep the power - I saw very little budget restraint in Okla under either party. However, wt Dems we know they will spend, the Repubs tell you otherwise and end up doing the same thing. At least the Dems are honest about it. Yes, I'm painting the repubs wt a broad brush (I can - I are one .... at least for now). There are some good repubs in the party who are trying to be fiscally conservative and prudent but like in DC they are a minority. Watching the repubs in Kansas and now in Okla I have taken a different view towards this 'cut taxes at all cost' mantra. Back to the national level: While I do believe in the basic principle that cutting taxes can produce increased govt revenue via economy growth, you cannot do it while spending big time like GWB did by spending on 2 wars. There has been historical data showing where JFK and Reagan's tax cuts increased revenue - however under Reagan - winning the cold war with increased spending on the military was a higher priority than a balanced budget.

[zoogs]

You all know I believe in limited taxes but it has to be in relationship to the commits made and the services that we want govt to provide.

This. We can ALWAYS spend less in theory. This tax relief is purchased at a cost.

 

And empirically I believe your "cut taxes, grow the economy" model is flawed and not supported at least recently.

[TGHusker]

 

You all know I believe in limited taxes but it has to be in relationship to the commits made and the services that we want govt to provide.

This. We can ALWAYS spend less in theory. This tax relief is purchased at a cost.

 

And empirically I believe your "cut taxes, grow the economy" model is flawed and not supported at least recently.

 

The economy grew dramatically under Reagan & it worked for JFK. I think the economic conditions in the 2000s are different and the tax cuts were ill advised. That is why I think it is wrong to say a certain policy is a placebo that will work at all times under all conditions. Tax cuts for tax cuts sake alone (ie fulfill a campaign pledge) will always fail. That is what Bush did and he did it at a time of fighting 2 wars, a dot.com recession and then a 911 recession. There is a balance between regressive taxes - too much taxes that steals from the nation's productivity and creativity and too little taxes which fail to support the services our society needs from the govt.

[BigRedBuster]

TG, your post above spells out a real problem with doing any tax reform. The economy ebbs and flows. It's constantly changing. A tax cut might make perfect sense in one year and a couple years down the road it's horrible. Same with raising taxes.

 

Making tax changes either way is a long drawn out process that lags the indicators showing the change is warranted or needed.

I wish there was a mechanism that isn't human or politically motivated that would adjust taxes as the economy is happening. That would have to be one hell of a complicated formula though and every industry is different.

[RedDenver]

 

 

 

 

 

 

El Diaco....

 

Thanks for the discussion on this. Actually, I was looking at this for our own company just the other day. Our company is 72 years old and I wanted to see how our tax burden has changed over the years. I went back and tried to piece together "income before tax" and "taxes paid" to get a percentage.

 

The last 5 years look like:

 

2016 33%

2015 36%

2014 34%

2013 36%

2012 41%

 

That is just Federal income Tax.

Not to start a sh#t storm, but that's why it sort of pisses me off when people who are paying 15% or less federal and only their half share of fica have no problem with tax increases and are opposed to cutting taxes for businesses. I don't mind paying my fair share but it has not been my experience that it's necessarily fair. The problem lies in the tax code that allows the $250+ club to pay way less. I've got no problem getting rid of the loopholes that allow this.

 

My business is an LLC and the business itself is not taxed. All pay and profits flow directly to my personal return for taxes.

 

I completely agree with you. That's why I have advocated for a very long time to put the corporate tax rate at a very low rate or even make it ZERO. Then, offset that by taking out loopholes and deductions so that the people who benefit from that corporation pay their fair share of taxes.

 

The entity of a company (especially when you talk public companies) is nothing more than a shell that within it, people work and gain financial benefit. So, taxing the shell where the work is done makes no sense. Tax the people who take money out of the company for personal benefit.

 

That's why I have no problem with the 15% corporate tax rate....as long as their are other tax reforms that go along with it.

 

And...personally....just my own opinion is that it should be illegal for the government to take more than 30% of anyone's income. But....that might be for another discussion.

 

The problem with setting the corporate tax rate (or an income tax rate) low is that it encourages the corporations to hold onto their money as opposed to spending it. And spending is what drives the economy.

 

I'd be all for setting the corporate tax rate low or even to zero if there was a way to minimize their saving and maximize their spending. And I'd be even more in favor of it if the corporation was encouraged to spend on it's middle-class and lower employees (however we want to define that). But I don't know of a good way to do either of those things.

 

I don't buy that.

 

Ultimately, the company is going to spend the money. Even if they don't, they aren't going to put it in a bank earning .00001% interest. They are going to invest it in maybe other company stocks which that company is using it to invest and grow.

 

Tell me......why would I allow our company to grow it's savings to millions of dollars and do absolutely nothing with it? A company would love to have a certain level of savings just like a married couple with kids for security. But, that company isn't saving for retirement. Once it has a certain level of savings, there really isn't a need to keep it growing. The stock holders are going to want that money working for them.

 

You're right that over a sufficiently long period of time, the company will spend that money. Here's an article discussing Google's and Apple's cash positions (I think the article is from 2016, but the exact period this covers doesn't matter) that shows that it is possible for corporations to have huge cash reserves. That's tens to hundreds of billions of dollars for each company (depending on your definition of "cash"), so not an insignificant sum, and so far the investors have not made them spend that money (or at least when that article was written).

 

The problem lies in when the corporations save and for how long. Corporations will tend to save when there isn't a better way to spend their money - usually that will coincide with a poorly performing economy. And corporations saving instead of spending hurts the economy, which leads to worsening economic conditions and more corporations saving. There's obviously a lot of factors I'm leaving out here for simplicity, but that's the basic idea.

 

My solution is to limit their saving in all economic conditions, which obviously isn't optimal but should minimize the vicious cycle I described. If you've got an idea to fix that saving vs spending in varying economic conditions, I'm all ears.

 

A second-order problem is that even if the investors make the corporations hand out that cash to investors, the rich tend to have more investments and can save more than they spend (as compared to people who need to spend that money), so we've shifted the problem from corporations saving instead of spending to individuals saving instead of spending. I'm not sure if that's better or worse for the economy.

 

From your first article.

 

 

If you notice, the vast majority of this is in long and short term securities. Those are largely going to be stocks and bonds. Both of which, when invested, benefit other people. This is where I'm saying that money is still working for the economy as it's invested in ways it's still working. Is it the same as handing the cash out to the poor? No, but it's far from not being in the economic system.

 

Also, you are looking at two very odd companies. These two companies are not the normal corporations in the US in many ways.

 

One more thing. How much of this is the money that Trump would like to get repatriated back into the US? Tech companies tend to have a problem with this.

 

The bolded part at the end of your post is simply not a factor to me...IF....the appropriate tax reform is done. Anytime I have talked about this, I have said that I am fine with drastically lowering corporate tax rates IF appropriate tax reform is done along with it. I have said repeatedly, that we need to be taxing the people who benefit from the corporation. That would be employees AND investors.

 

So, by investors wanting that money distributed to them (which is perfectly understandable and shouldn't be looked at as horrible or evil) they would then be kicking in a taxable transaction and the government would get their share.

 

We're in agreement on the bolded part at the end. My issue is with the current system.

 

Google and Apple may not be a good representation, but they are both in the top ten of the S&P by market weight. And your point about repatriation is a good one that also has no easy answers. It's one of the reasons I'd be in favor of low corporate tax rates if we could address other issues like saving vs spending.

 

As for whether the Google and Apple cash is actually helping the economy isn't as simple as saying "It's in the stock/bond market, so it's helping". It would require looking at what those other companies are doing with the investment. I agree though that's it's likely you're correct that it helps the economy in another way. I guess the question is whether that's sufficient as opposed to taxation to drive the economy out of dips/recessions. I honestly don't know and suspect it's not a simple question to answer.

[knapplc]

The economy grew under Reagan for a lot of different reasons, including the faux "war-time" economy he spurred to end the Cold War, in part because he decreased taxes, and in part because he raised taxes.

 

When Reagan took office in 1981 he cut taxes. But he had the largest peace-time tax hike in history in 1982, raised taxes again in 1983, 1984, 1986 & 1987. In addition, a lot of the deductions middle-class Americans used to enjoy were taken away, so while taxes themselves may not have been raised further, the tax burden on the family rose.

 

It is not so easy to say "Reagan fixed the economy by shrinking government & cutting taxes," which is today's Conservative mantra. The economy somewhat fixed itself (like it did under Clinton, although he gets a lot of undue credit for it), and Reagan was never successful in shrinking the government.

[TGHusker]

TG, your post above spells out a real problem with doing any tax reform. The economy ebbs and flows. It's constantly changing. A tax cut might make perfect sense in one year and a couple years down the road it's horrible. Same with raising taxes.

 

Making tax changes either way is a long drawn out process that lags the indicators showing the change is warranted or needed.

I wish there was a mechanism that isn't human or politically motivated that would adjust taxes as the economy is happening. That would have to be one hell of a complicated formula though and every industry is different.

Correct. I think Reagan's cuts and JFK cuts were appropriate because the tax rates were pretty regressive. However, GWB was ill timed not only because of the economics at the time but also because our taxes were not overly burdensome at the time. Yes, it would be nice to have no taxes and roads, and schools and medicare etc just magically appear but it doesn't work that way. If you like what the govt provides there is a real cost to us as individual tax playors (also true if you don't like some of what the govt does - however the govt is for all people and none of us get all that we want)

[zoogs]

I recommend this piece of reading: https://www.nytimes.com/2015/07/24/opinion/paul-krugman-the-mit-gang.html

 

More on supply-side vs Keynesian: https://www.nytimes.com/2017/04/24/opinion/zombies-of-voodoo-economics.html

 

Yes, the U.S. economy rebounded quickly from the slump of 1979-82. But was that the result of the Reagan tax cuts, or was it, as most economists think, the result of interest rate cuts by the Federal Reserve? Bill Clinton provided a clear test, by raising taxes on the rich. Republicans predicted disaster, but instead the economy boomed, creating more jobs than under Reagan. (...)

 

Oh, and lets not forget recent experiences at the state level. Sam Brownback, governor of Kansas, slashed taxes in what he called a real live experiment in conservative fiscal policy. But the growth he promised never came, while a fiscal crisis did. At the same time, Jerry Browns California raised taxes, leading to proclamations from the right that the state was committing economic suicide; in fact, the state has experienced impressive employment and economic growth.

 

In other words, supply-side economics is a classic example of a zombie doctrine: a view that should have been killed by the evidence long ago, but just keeps shambling along, eating politicians brains. Why, then, does it persist? Because it offers a rationale for lower taxes on the wealthy and as Upton Sinclair noted long ago, its difficult to get a man to understand something when his salary depends on his not understanding it.

The bold in particular. There's a reason this fantasy persists. Think of the people claiming it as self-seeking snake oil salesmen going door to door and shouting, "BUY THIS THING, it'll PAY FOR ITSELF!" We have to give a lot more scrutiny to such lavish promises.

 

Mediamatters: https://www.mediamatters.org/blog/2017/04/26/worst-economist-world-says-trumps-tax-cuts-will-do-impossible/216181

 

The idea that tax cuts pay for themselves has been thoroughly debunked by years of research. Yet Moore heaped praise on Trump’s plan while parroting unfounded claims that it would grow the economy and benefit all Americans.

[BigRedBuster]

Another way of looking at Apple's savings is that it's slightly over one year's worth of revenue. The above chart has their cash and short term investments at $237.5 billion. Their sales in 2016 were $215 billion. That's a lot of savings. However, the tech industry is extremely volatile and I could see how one bad year could take a lot of those savings.

 

Contrast that with a company like Coka Cola Bottling who is in much more stable industries. Coke doesn't have anywhere close to the cash reserves that Apple does, simply because they don't need to have as big of cushion for security reasons.

 

You are correct, it is a very complicated issue. Just looking at the dollar figures alone doesn't tell anywhere close to the full story.

[Danny Bateman]

The economy grew under Reagan for a lot of different reasons, including the faux "war-time" economy he spurred to end the Cold War, in part because he decreased taxes, and in part because he raised taxes.

 

When Reagan took office in 1981 he cut taxes. But he had the largest peace-time tax hike in history in 1982, raised taxes again in 1983, 1984, 1986 & 1987. In addition, a lot of the deductions middle-class Americans used to enjoy were taken away, so while taxes themselves may not have been raised further, the tax burden on the family rose.

 

It is not so easy to say "Reagan fixed the economy by shrinking government & cutting taxes," which is today's Conservative mantra. The economy somewhat fixed itself (like it did under Clinton, although he gets a lot of undue credit for it), and Reagan was never successful in shrinking the government.

 

Interesting. I've heard the bit about Reagan actually raising taxes many more times than he cut them. But all anyone hears about Reagan is the quoted in your last paragraph. We all know shrinking government and slashing taxes is conservative utopia. But given what you and zoogs described, it appears that mantra is applied in a braindead manner and isn't intellectually honest.

 

Brownback's Kansas IS a good indicator of exactly where a conservative utopia can lead you economically.

 

BRB mentioned a radical overhaul of the system to drastically slash corporate rates or eliminate them completely if and only if we also increase taxes appropriately for those benefitting from companies, including investors.

 

But given the current climate, that's not realistic at all. The GOP has already made overtures about "correcting" Dodd-Frank. They're not going to put in place legislation to put any additional tax burden on investors or anyone else, period.

[JJ Husker]

 

 

El Diaco....

 

Thanks for the discussion on this. Actually, I was looking at this for our own company just the other day. Our company is 72 years old and I wanted to see how our tax burden has changed over the years. I went back and tried to piece together "income before tax" and "taxes paid" to get a percentage.

 

The last 5 years look like:

 

2016 33%

2015 36%

2014 34%

2013 36%

2012 41%

 

That is just Federal income Tax.

Not to start a sh#t storm, but that's why it sort of pisses me off when people who are paying 15% or less federal and only their half share of fica have no problem with tax increases and are opposed to cutting taxes for businesses. I don't mind paying my fair share but it has not been my experience that it's necessarily fair. The problem lies in the tax code that allows the $250+ club to pay way less. I've got no problem getting rid of the loopholes that allow this.

My business is an LLC and the business itself is not taxed. All pay and profits flow directly to my personal return for taxes.

Why would it start a sh#tstorm unless you're assuming someone in this topic is paying less than 15% in taxes and saying those things?

One thing I don't like is people who assume you must be poor if you don't want taxes lowered. Now I'm the ine making an assumption but it's something I see all the time from Republicans. It's similar to thinking anyone protesting or rioting must be on welfare or not have a job.

Now that said - I pay a lot more than 15% and don't want taxes decreased, and I don't have any problem with poor people paying less than 15%.

15% of a poor person'a income could cause them to starve to death. $3,000 from an income of $20,000 is money that goes to surviving. They shouldn't be paying more and still have every right to their opinion.

Sorry, I didn't state what I meant properly.

 

It pisses me off when people (anybody) don't have a problem with increasing my taxes or are against reducing my taxes. And by "my taxes" I mean anyone who is in a similar tax situation to me. That is not as selfish as it may sound. I don't pretend to know what non business owners, that don't earn in the same range as I do, may pay in taxes. I do know that I pay more than my fair share.

 

I too may not have a problem with reducing taxes for the poor or increasing them on the rich but whatever classification and situation I'm in, I'm getting screwed. And I never said anyone was not entitled to their opinion. You can have a perfectly valid opinion that could still piss me off. I shouldn't have said that anyone stating that opinion was only paying 15% or less. I have no idea what someone else may be paying. But I am 99% certain that nobody paying as much as I am, relative to my income, would be against reducing taxes.

[zoogs]

I don't mean to be callous; "middle class" is a large brush and covers people in a lot of very different situations. But yeah, there are people in more desperate straits. By a lot. If giving the middle class a break means keeping the poor ignored, that's not a price I'm willing to pay.

 

That said, I think we can ease burdens and help everyone. What if we pushed through single payer? Offered more financing for higher education? Had stronger consumer and employee protections?

 

We pay one way or the other. Crazy things happen when income inequality is allowed to fester. If we want to change that, the middle class has to shoulder part of the burden. It's hard to accept "well, give us a break, too, and just let the very rich pay for it" as the (entire) answer.

 

Though tbh, that's where the bulk of the makeup has to come from, I Think, so we're practically not very far. It's just everyone always runs on severing middle class solidarity with the poor by telling us that we are the ones who should be the focus of policy. Even Democrats, mostly. Even Bernie, to an interesting extent.

[JJ Husker]

I'm not saying and didn't say the middle class shouldn't shoulder some of the burden. Of course they should. As a group they should shoulder most of the burden. And on an individual basis, those in the middle should pay a higher percentage than the poor and a lower percentage than the rich. Problem is, I believe the middle (or possibly upper middle) are currently covering more than should be required.

 

Maybe my situation is unique? Is it reasonable that I should pay an effective rate of 40%. I can hardly be considered rich or ultra wealthy. If the burden requires someone in my financial situation to pay 40%, then the burden is too GD much. If everyone at my income level and above paid in 40%, they wouldn't have to collect one stinking cent from anybody who made less and we'd have revenue surpluses out the wazoo.

 

So don't act like I said the middle shouldn't have to pay their fair share.

[zoogs]

I don't think I'm saying you said that -- I'm just stating my general view on the standard "we need to cut taxes for the middle class" spiel that we hear politicians use regularly.

[JJ Husker]

I don't think I'm saying you said that -- I'm just stating my general view on the standard "we need to cut taxes for the middle class" spiel that we hear politicians use regularly.

Oh okay, sorry.

 

My view is that they need to quit saying it and actually do it. It may be that "the middle class" is too broad of a term. All I know is they sure could cut taxes in my general vicinity.