The Rich Aren't Stupid

[FranchiseBlade]

I rarely start purely economic threads, but this whole idea that the wealthy need tax breaks so they can invest in new jobs and expand their businesses is so absurd that I felt it deserves its own discussion.

We've all seen the figures that historically giving money to the wealthy when economic times are tough, they don't spend it on investing in job creating endeavors. They build their own savings, and that money doesn't really help the economy as a whole.

There is good reason for that. Why any smart businessman look at the economy right now, and think they should hire a bunch of new workers and open new businesses? People aren't buying they are holding on to as much as they can and dealing with the tough times. Nobody who knows anything about business is going to increase their workforce when there isn't a need for more workers.

That's why we need incentives and government stimulus to middle class and those that will spend that extra money. Once they get the money the data shows they pour it back into the economy. If there is enough stimulus to these groups they provide the demand which will make it profitable for businesses and the wealthy to hire more workers and expand. Then it's smart business to expand.

The idea that giving money to the wealthy is going to cause them to hire unneeded workers and wrecklessly expand their businesses is just silly, but we here conservatives and people on this board touting this line of reasoning all the time.

[Depressio]

Originally Posted by FranchiseBlade We've all seen the figures that historically giving money to the wealthy when economic times are tough, they don't spend it on investing in job creating endeavors.

I haven't seen the figures.

However, I used to always wonder why there seems to be continuous tax cuts for the rich throughout my life. Then, finally, someone introduced me to the "trickle down" concept a few years ago. Immediately I thought it was BS and would never happen. If there's research that shows that, I'd love to see it -- validating my initial thoughts is always a good feeling.

[Sooner423]

Seems pretty simple doesn't it? The trickle down effect is just what it sounds like; pissing on the middle and lower class.

[rocketsjudoka]

Another issue is that in a consumer driven economy while the wealthy consume a lot they will never consume enough goods and services to stimulate an economy of our size and nature. For example a very rich guy might buy twelve Bentleys but he wouldn't buy a 1,000 Chevys.

[FranchiseBlade]

Originally Posted by TSchmal I haven't seen the figures. However, I used to always wonder why there seems to be continuous tax cuts for the rich throughout my life. Then, finally, someone introduced me to the "trickle down" concept a few years ago. Immediately I thought it was BS and would never happen. If there's research that shows that, I'd love to see it -- validating my initial thoughts is always a good feeling.

Here's one article talking about the history of tax cuts for the wealthy.

http://www.bloomberg.com/news/2010-0...dy-s-says.html

Give the wealthiest Americans a tax cut and history suggests they will save the money rather than spend it. Tax cuts in 2001 and 2003 under President George W. Bush were followed by increases in the saving rate among the rich, according to data from Moody’s Analytics Inc. When taxes were raised under Bill Clinton, the saving rate fell.

[bingsha10]

I know this will go over most of your heads but here it is anyway: Real growth can't occur without real savings.

Now where those savings should come from may be debatable. But to suggest that building savings doesn't help the economy IN THE LONG RUN is precisely the same thinking that got us into this situation in the first place.

And you can't be intellectually honest and point to Bush tax cuts without also acknowledging that the FED's loose monetary policy for the past 15 years more than canceled out whatever positive effect those may have had on savings.

[rimrocker]

And the corollary to that is being rich doesn't make you smarter than people who aren't rich.

[Qball]

Originally Posted by bingsha10 I know this will go over most of your heads but here it is anyway: Real growth can't occur without real savings. Now where those savings should come from may be debatable. But to suggest that building savings doesn't help the economy IN THE LONG RUN is precisely the same thinking that got us into this situation in the first place.

Yes, it's important where savings should come from but more important is where savings should go to. Under the trickle down philosophy, tax savings of the rich should be used to save/invest. Instead of investing into companies, they buy safety nets like commodoties. Now someone buying gold, pork, or corn will not help stimulate the economy as much as it would if the investment went to intel, walmart, or citi.

Just my perception of it.

[rocketsjudoka]

Originally Posted by bingsha10 I know this will go over most of your heads but here it is anyway: Real growth can't occur without real savings. Now where those savings should come from may be debatable. But to suggest that building savings doesn't help the economy IN THE LONG RUN is precisely the same thinking that got us into this situation in the first place. And you can't be intellectually honest and point to Bush tax cuts without also acknowledging that the FED's loose monetary policy for the past 15 years more than canceled out whatever positive effect those may have had on savings.

True and I don't think anyone is completely discounting savings the point though is if you are talking about spurring economic development savings in the short term isn't going to do that, one reason why we track consumer spending as an indicator of economic health. What the FB's point is is that tax cuts that primarily benefit the wealthy isn't the economic panacea that many would have you believe.

[bingsha10]

Originally Posted by rocketsjudoka True and I don't think anyone is completely discounting savings the point though is if you are talking about spurring economic development savings in the short term isn't going to do that, one reason why we track consumer spending as an indicator of economic health. What the FB's point is is that tax cuts that primarily benefit the wealthy isn't the economic panacea that many would have you believe.

I agree. This is a very big problem. Cutting taxes on the rich while deficit spending isn't doing jack to help the economy. And trading securities isn't helping anyone except to the extent that companies are actually able to realize those gains and buy capital. That can't happen overnight and in many cases it may not happen at all. But it is beneficial insomuch as if no one is allowed to save, we're totally screwed.

[FranchiseBlade]

Originally Posted by bingsha10 I agree. This is a very big problem. Cutting taxes on the rich while deficit spending isn't doing jack to help the economy. And trading securities isn't helping anyone except to the extent that companies are actually able to realize those gains and buy capital. That can't happen overnight and in many cases it may not happen at all. But it is beneficial insomuch as if no one is allowed to save, we're totally screwed.

You're right savings should be part of everyone's plans. However when talking about spurring a deeply troubled economy the idea that tax breaks and stimulus for the wealthy will create jobs and help the economy is bogus.

However increasing the ability for consumer spending and having that spending will spur companies to grow hire more, and help the economy. As people are employed, and incomes and rise savings should definitely be important and will make for a more sound economy over time.

It's not that savings aren't important.

[pgabriel]

it hilarious that people who argue that income disparity isn't bad, want middle class people to save.

close the income gap

[bingsha10]

Originally Posted by FranchiseBlade You're right savings should be part of everyone's plans. However when talking about spurring a deeply troubled economy the idea that tax breaks and stimulus for the wealthy will create jobs and help the economy is bogus. However increasing the ability for consumer spending and having that spending will spur companies to grow hire more, and help the economy. As people are employed, and incomes and rise savings should definitely be important and will make for a more sound economy over time. It's not that savings aren't important.

why is the economy deeply troubled? It is because of an overexpansion of the money supply causing people to think they had more resources than they had leading to a very inefficient allocation of finite resources (too many houses).

Yes, you are right, tax breaks for the rich by themselves do nothing. But not because of the nature of tax breaks. Its because the rest of the system is set up to force everyone to spend spend spend. If we don't the govt. does it for us. That is unsustainable.

I'm sure we disagree about the long term effects of using the money multiplier every time GDP goes down. Tax cuts aren't a panacea. But pursuing the third world policy of inflating our way "out" of this mess isn't a panacea either.

[FranchiseBlade]

Originally Posted by bingsha10 why is the economy deeply troubled? It is because of an overexpansion of the money supply causing people to think they had more resources than they had leading to a very inefficient allocation of finite resources (too many houses). Yes, you are right, tax breaks for the rich by themselves do nothing. But not because of the nature of tax breaks. Its because the rest of the system is set up to force everyone to spend spend spend. If we don't the govt. does it for us. That is unsustainable. I'm sure we disagree about the long term effects of using the money multiplier every time GDP goes down. Tax cuts aren't a panacea. But pursuing the third world policy of inflating our way "out" of this mess isn't a panacea either.

Lack of savings, and bad credit risks, and too much spending was definitely a cause of the crash, and those problems need to be fixed. However with unemployment where it is, and the consumers not spending anything, then a stimulus could help. In fact the greatest turn around was happening when we had stimulus for first time home buyers, cash for clunkers etc. things were improving, as soon as the stimulus ran out, the housing market tanked again.

The trend was the same during the great depression. With the stimulus and works programs in full effect recovery started. It took a downturn when they started to cut back on it, and then realized they needed that stimulus.

Tax cuts for those that need them will use them to boost the economy in the short term are a good idea. Long term then there needs to be measures to encourage responsible spending and savings.

[rhadamanthus]

[SamFisher]

Originally Posted by bingsha10 I know this will go over most of your heads but here it is anyway: Real growth can't occur without real savings. Now where those savings should come from may be debatable. But to suggest that building savings doesn't help the economy IN THE LONG RUN is precisely the same thinking that got us into this situation in the first place. And you can't be intellectually honest and point to Bush tax cuts without also acknowledging that the FED's loose monetary policy for the past 15 years more than canceled out whatever positive effect those may have had on savings.

Actually no - it doesn't go over my head it makes me want to bash it against the wall. Collective action problems are nothing new and have been a recognized phenomenon for hundreds of years. You are proposing that people can collectively save their way to prosperity. Well, it's never happened, and will never happen, due in part because of the fact that a collective refusal to engage in consumption will not, in fact, increase consumption, in either the long or the short run. Not a hard concept, it's actually much harder to convince yourself that the opposite is true, though I see you have.

Why don't you drop some Say's law on us so we can have a good laugh at your expense?

[juicystream]

It really depends on the type of tax cut an who the rich are to how effective trickle down is. I strongly prefer tax cuts/credits that encourage investment, such as the energy credits, homebuyer credit, etc.

[wakkoman]

It's still baffling how a 1 year FICA holiday is not being discussed. Both sides get something out of it.

[Major]

Originally Posted by wakkoman It's still baffling how a 1 year FICA holiday is not being discussed. Both sides get something out of it.

We sort of already have this on the business side. If I hire someone who's been unemployed for at least 60 days, I don't pay SS tax on them for a year. And if I keep them for a year, I get another $1000 tax rebate. The employee can't replace another employee I let go unless that employee was fired or leaves themselves (I can't lay people off and hire replacements). The theory there is right, though the execution is not perfect. I'd take out the 60 day aspect. And I'd put more things in to encourage a net increase in payrolls because, right now, I get that savings anytime an employee leaves on their own rather than just when I expand. And I'd make it last longer than a year, but phase out over a couple of years.

I prefer something like this over a 1-yr universal FICA holiday, because that spends a lot of money to give a tax break for employers already employing people, rather than spending it to create new jobs.

[juicystream]

Originally Posted by Major We sort of already have this on the business side. If I hire someone who's been unemployed for at least 60 days, I don't pay SS tax on them for a year. And if I keep them for a year, I get another $1000 tax rebate. The employee can't replace another employee I let go unless that employee was fired or leaves themselves (I can't lay people off and hire replacements). The theory there is right, though the execution is not perfect. I'd take out the 60 day aspect. And I'd put more things in to encourage a net increase in payrolls because, right now, I get that savings anytime an employee leaves on their own rather than just when I expand. And I'd make it last longer than a year, but phase out over a couple of years. I prefer something like this over a 1-yr universal FICA holiday, because that spends a lot of money to give a tax break for employers already employing people, rather than spending it to create new jobs.

Thats a credit that not enough employers know about. I don't like it because you shouldn't hire based on who has been unemployed longer.