Liberal myths vs. reality

BubbleBliss wrote:

dblboggie wrote:

BubbleBliss wrote:
Yes, those tax cuts increased median family income, but you have to look at how median family income is calculated. The tax cuts did nothing for middle class families, all that money stayed at the top. Of course a LOT of money went to the top, that's why median family income increased. If you look at how much middle class incomes have increased over the past decades, you'll see that those tax cuts didn't do anything for the middle class.

This ignores the drop in unemployment. That drop was a direct result of upper income people now having the money needed to expand their small businesses or start new ones. Those businesses are responsible for a significant majority of the jobs created in America. Those previously unemployed people, got jobs that hadn't existed when the federal government was seizing 70% of the wealth of upper income Americans. That's the trickle down effect of cutting top marginal tax rates.

That trickle down also manifests itself in increased spending on all manner of goods and services by upper income persons - purchases which also help create jobs for those producing and selling those goods and services.

In truth, under Reagan, middle class income increased 11 percent after adjusting for inflation, while nearly 20 million new jobs were created. This isn't an opinion, this is according to the US Census Bureau - see graph below:

Sure, unemployment decreased but that's not what I've been saying.
What I'm saying is that whenever somebody wants to advocate tax cuts for the rich, they always quote the fact that medial household income increased and that the economy boomed. Yet the fact that most of that growth went to the top 10% of the country is always ignored. Median family income will increase even if ONLY the top 1% of the country earnes a tremendous amount of extra money.

But think about it for a second. Those cuts (which were for all tax brackets by the way) for the top marginal rates returns that money to those who are the most productive in society. The so-called "rich" or "millionaires and billionaires" are the very people who hire others. These people are the risk takers. They bet their hard-earned money on their businesses and take the risk of winning big or going broke. They hire other people, giving those people a means of supporting themselves and their families. If we look beyond the demagoguery of the wealthy and just view the scene objectively, it is the wealthy (and most small business owners would be considered "wealthy") that provide opportunities to those who are not willing to take those risks, to put everything on the line to launch a business, work the long hours it takes to make a small business a success, and fight the government bureaucracy and regulatory hurdles that stand in the way of nearly all business endeavors. An increase in median family income can only occur if a member of that "median family" is employed.

We keep demonizing the risk takers, the entrepreneurs, the people who put it all on the line and create a successful business against all odds. All of the monster national and multinational corporations first started off with a single person with a brilliant idea made real through extremely hard work and much personal sacrifice. If you studied the history of any of them, you would find at their genesis one person who said "I can do this" and then proceeded to do it. Many of them had failures early on, persisted undeterred and ultimately realized their vision.

So yes, when tax cuts are instituted across all marginal rates, the wealthy will always get a larger amount of dollar gains because they have much more invested, but they do not necessarily get a larger percentage gain. There's a difference between volume and percent here. Someone who is a "millionaire" (through their own hard work by the way) who gets a 5 percent cut in their taxes, will retain a very significant amount of money. Someone who is a middle income earner, who gets a 10 percent cut in their taxes, will retain a significant amount of their income, but the dollar amount would of course pale in comparison to the 5 percent gain by the wealthy. But why should we begrudge them that? More often than not that gain, or some portion of it, goes right back into their businesses.

This is the 21st century, not the 18th or even the 19th, class warfare has become a political tool with absolutely no basis in reality; particularly in modern Western nations.

What I don't understand, and I'm being perfectly frank here, is why people are so down on the producers in society, the people who take the risks and do the hard work it takes to create successful businesses that hire a significant majority of Americans giving them the means to better their lives.

What you fail to realize is that most rich that can save money on taxes don't automatically invest that money back into their company. When entrpreneurs put the money they save away into their bank account instead of re-investing it in their or other companies, then there is no positive effect for anybody but the entrpreneur.
Nobody is down on the producers of society, they take a large risk and they earn lots of money for it. Sure, the more money you make, the more taxes you have to pay, but in the end you still get to keep a lot more money than most other people in society, which is your reward for taking a risk and opening your own business. The whole "why punish those that take a risk" talk is nothing more but taking a subject to the extreme, since nobody is punishing the risk takers, no matter what conservatives say.

BubbleBliss wrote:
What you fail to realize is that most rich that can save money on taxes don't automatically invest that money back into their company. When entrpreneurs put the money they save away into their bank account instead of re-investing it in their or other companies, then there is no positive effect for anybody but the entrpreneur.
Nobody is down on the producers of society, they take a large risk and they earn lots of money for it. Sure, the more money you make, the more taxes you have to pay, but in the end you still get to keep a lot more money than most other people in society, which is your reward for taking a risk and opening your own business. The whole "why punish those that take a risk" talk is nothing more but taking a subject to the extreme, since nobody is punishing the risk takers, no matter what conservatives say.

The statement in dark-red above has no corroborating evidence. How do you know this? What "rich" are we talking about? What about those small business owners (whose average earnings are $233,600 - SEE HERE)?

As for the underlined statement, again, this is not necessarily true. The more money sitting in banks, the more those banks have available to lend. Many entrepreneurs start their businesses by risking their fixed assets as collateral for such loans - during times of normal economic activity of course. Many banks have tightened lending and many entrepreneurs are holding back on launching their own businesses until the economic picture becomes more stable. But under normal conditions, an increase in money in banks translates to an increase in funds that other small businesses can access to expand and entrepreneurs can access to start a new business.

As for your close, my economic professor would most heartily disagree with you. We have been discussing the impact of taxes on businesses. Taxes are punishment, anyway you look at it. The question is, is the tax punishment high enough to discourage economic activity or cause it to relocate? Or is it reasonable enough to allow for a continuation and even expansion of economic activity in situ?

But the bottom line is that taxes are punishment. People react to taxes as punishment. Taxes elicit the same behaviors from consumers and producers that physical punishment does - an avoidance of that thing that causes pain (in whatever form).

Let me counter your first question with another question... how do you know that these people actually invest their saved money into their companies? Sure, they might pay off outstanding loans or something like that sooner, but doing that and actually investing in your business are 2 different things.
Not to mention that small business owners have a limited amount of customers, so it's not likely that they will hire new workers, unless the have an excess demand of their product, which is unlikely.

The money laying in banks doesn't have a large effect on the amount of loans given out by banks, the Federal Reserve is responsible for that.

Well, that's good that you are discussing that question, but my answer to that question is no. If they were to take home less than other people who did not take the risk of becoming an entrepreneur, then yes, it would be a punishment, but right now it is not.
Of course looking at taxes from an economic perspective is important but you also have to look at them from other perspectives as well, which is something most economic professors do not.

BubbleBliss wrote:Let me counter your first question with another question... how do you know that these people actually invest their saved money into their companies? Sure, they might pay off outstanding loans or something like that sooner, but doing that and actually investing in your business are 2 different things.

I did not make the claim that “most rich that can save money on taxes don’t automatically invest that money back into their company.” I would rather we start with having you corroborate that statement. From whence do you derive this information?

However, I’m only too happy to answer your question – I don’t know that these people actually invested their profits in their businesses. Search as I might, I have been unable to find any even remotely reputable source for information on what small business owners do with their profits. This is why I called you your statement above. I’ve scoured the SBA and the Census Bureau and found nothing on this at all. I even searched the Heritage Foundation and found nothing that answers that question. So, when you said “what you fail to realize” I immediately suspected that you might be venturing conjecture yourself – hence my questions.

The best I could provide is anecdotal and based on my personal experience. I have only ever worked for or with small business owners. In every case, these owners were constantly investing in their businesses. For instance, I worked as a management consultant for a small business that provided management training and consulting to – funnily enough – small business owners. We had hundreds of clients from all over the country. These were small shop owners who employed anywhere from 2 to 50 or more people. In nearly every case, these small business owners were investing at least some portion of their profits back into their businesses. In every single case, they were investing their profits in hiring the company I worked for to get better at running their businesses. In addition to that, the owner of the firm I worked for was also investing his profits back into his business. During the 3 years I worked there the firm grew by about 25% or more and made 2 moves to larger quarters over that period. This has been the case for every small business I have worked for and also for those businesses I did communications work for as an independent contractor.

BubbleBliss wrote:Not to mention that small business owners have a limited amount of customers, so it's not likely that they will hire new workers, unless the have an excess demand of their product, which is unlikely.

Again, where are you getting this information? What do you mean “a limited amount of customers”??? How did you arrive there? I know lots of small businesses that have thousands of customers. Hell, I work for one right now! And the owner has hired 3 new people since I started working there.

BubbleBliss wrote:The money laying in banks doesn't have a large effect on the amount of loans given out by banks, the Federal Reserve is responsible for that.

No, the Federal Reserve is not responsible for that. The Federal Reserve does set interest rates, and those do certainly have an impact on borrowing and saving. But it is the banks that small business owners go to for loans, not the Federal Reserve. And if the banks have lots of money just sitting there doing nothing (again given normal economic activity – not the mess we have today), well that is money that can then be put to work as loans to small businesses (and big ones as well).

BubbleBliss wrote:Well, that's good that you are discussing that question, but my answer to that question is no. If they were to take home less than other people who did not take the risk of becoming an entrepreneur, then yes, it would be a punishment, but right now it is not. Of course looking at taxes from an economic perspective is important but you also have to look at them from other perspectives as well, which is something most economic professors do not.

First of all, most economic professors do look at taxes from other perspectives – even in my class we have discussed the normative economic justifications for taxes and government regulation. It is all a part of economics. But just because there’s a “good reason” for a tax, it does not change the fact that a tax is punishment. And I don’t mean punishment in the sense that the entity levying the tax is actually penalizing some wrongdoing, or even doing wrong by levying the tax. What I mean is that justified or not, a tax is a penalty on production. It’s a cost of doing businesses. BUT, when the tax rate reaches a certain level, then that acts as a brake on economic activity – it becomes more trouble than it’s worth to do business. People tend to do those things that bring them pleasure or reward (another way of saying pleasure), what economists call utility. People also tend to avoid those things that bring them pain. This is human nature. Taxes are pain, profits are pleasure. Tax too much, and productivity will drop. This is economic fact. Why? Because you get less of that which you punish, and more of that which you reward. This isn’t rocket surgery ( I love that line.) It’s basic economic reality and basic human nature.

dblboggie wrote:

I did not make the claim that “most rich that can save money on taxes don’t automatically invest that money back into their company.” I would rather we start with having you corroborate that statement. From whence do you derive this information?

However, I’m only too happy to answer your question – I don’t know that these people actually invested their profits in their businesses. Search as I might, I have been unable to find any even remotely reputable source for information on what small business owners do with their profits. This is why I called you your statement above. I’ve scoured the SBA and the Census Bureau and found nothing on this at all. I even searched the Heritage Foundation and found nothing that answers that question. So, when you said “what you fail to realize” I immediately suspected that you might be venturing conjecture yourself – hence my questions.

The best I could provide is anecdotal and based on my personal experience. I have only ever worked for or with small business owners. In every case, these owners were constantly investing in their businesses. For instance, I worked as a management consultant for a small business that provided management training and consulting to – funnily enough – small business owners. We had hundreds of clients from all over the country. These were small shop owners who employed anywhere from 2 to 50 or more people. In nearly every case, these small business owners were investing at least some portion of their profits back into their businesses. In every single case, they were investing their profits in hiring the company I worked for to get better at running their businesses. In addition to that, the owner of the firm I worked for was also investing his profits back into his business. During the 3 years I worked there the firm grew by about 25% or more and made 2 moves to larger quarters over that period. This has been the case for every small business I have worked for and also for those businesses I did communications work for as an independent contractor.

Well, seeing that previous tax-breaks didn't do anything for the middle class except for create some more jobs, I'd assume that not much of the money was reinvested into companies, since there obviously was no wage increase or anything of that kind. But like you, I cannot find and specific data, so this is only an assumption.

As far as your stories go, I know several people whose parents own small businesses like small stores, gardening companies, etc. and whenever they make more money, whether it's from cutting costs or raising prices, it almost never gets invested into the company. The wages of the workers stay the same and the amount of work opportunities stay the same since it is a relatively small town and such companies cannot work outside of that town (that's what I meant by limited amount of customers, btw). The only thing they sometimes do is buy new cars or other equipment for the company or buy some advertising space. None of that really affects the worker or leads to the company hiring new workers.

dblboggie wrote:

BubbleBliss wrote:Not to mention that small business owners have a limited amount of customers, so it's not likely that they will hire new workers, unless the have an excess demand of their product, which is unlikely.

Again, where are you getting this information? What do you mean “a limited amount of customers”??? How did you arrive there? I know lots of small businesses that have thousands of customers. Hell, I work for one right now! And the owner has hired 3 new people since I started working there.

I think I answered this above. If not, I'll explain it again.

dblboggie wrote:

BubbleBliss wrote:The money laying in banks doesn't have a large effect on the amount of loans given out by banks, the Federal Reserve is responsible for that.

No, the Federal Reserve is not responsible for that. The Federal Reserve does set interest rates, and those do certainly have an impact on borrowing and saving. But it is the banks that small business owners go to for loans, not the Federal Reserve. And if the banks have lots of money just sitting there doing nothing (again given normal economic activity – not the mess we have today), well that is money that can then be put to work as loans to small businesses (and big ones as well).

The interest rate set by the Federal Reserve is the single biggest deciding fact of whether banks are lending or not. It's not about how much money banks have laying in their safes, they have plenty money laying around, it's about the interest rate the Federal Reserve sets.

dblboggie wrote:

BubbleBliss wrote:Well, that's good that you are discussing that question, but my answer to that question is no. If they were to take home less than other people who did not take the risk of becoming an entrepreneur, then yes, it would be a punishment, but right now it is not. Of course looking at taxes from an economic perspective is important but you also have to look at them from other perspectives as well, which is something most economic professors do not.

First of all, most economic professors do look at taxes from other perspectives – even in my class we have discussed the normative economic justifications for taxes and government regulation. It is all a part of economics. But just because there’s a “good reason” for a tax, it does not change the fact that a tax is punishment. And I don’t mean punishment in the sense that the entity levying the tax is actually penalizing some wrongdoing, or even doing wrong by levying the tax. What I mean is that justified or not, a tax is a penalty on production. It’s a cost of doing businesses. BUT, when the tax rate reaches a certain level, then that acts as a brake on economic activity – it becomes more trouble than it’s worth to do business. People tend to do those things that bring them pleasure or reward (another way of saying pleasure), what economists call utility. People also tend to avoid those things that bring them pain. This is human nature. Taxes are pain, profits are pleasure. Tax too much, and productivity will drop. This is economic fact. Why? Because you get less of that which you punish, and more of that which you reward. This isn’t rocket surgery ( I love that line.) It’s basic economic reality and basic human nature.

You look at taxes as a punishment no matter of the amount of taxes to be paid, I look at it as a responsibility.

And I believe the line goes "rocket science", not rocket surgery.... at least that's how I always heard it.

I don't really want to get into the middle of a good debate, but I have to restate something I've said a long time ago.

My old boss (back in Texas) got tax breaks from the Bush cuts. What did he do? He bought more heavy equipment. He bought a dozer, 2 road graders, 2 rubber tire loaders, 2 track hoes and a couple other small tractors. What happened? The company payroll went from 12 to over 30 people. Also, the price tag for all that equipment wasn't chump change. Yeah, there were massive tax write-offs, but the positive is more work for the company, more employees, more money for the company and paychecks for people that had no job or had a shittier paying job beforehand.

So, when people tell me tax breaks for the wealthy (and business) don't work, there's a personal experience story.

Okay, back to our regularly scheduled debate...........

BubbleBliss wrote:

dblboggie wrote:I did not make the claim that “most rich that can save money on taxes don’t automatically invest that money back into their company.” I would rather we start with having you corroborate that statement. From whence do you derive this information?

However, I’m only too happy to answer your question – I don’t know that these people actually invested their profits in their businesses. Search as I might, I have been unable to find any even remotely reputable source for information on what small business owners do with their profits. This is why I called you your statement above. I’ve scoured the SBA and the Census Bureau and found nothing on this at all. I even searched the Heritage Foundation and found nothing that answers that question. So, when you said “what you fail to realize” I immediately suspected that you might be venturing conjecture yourself – hence my questions.

The best I could provide is anecdotal and based on my personal experience. I have only ever worked for or with small business owners. In every case, these owners were constantly investing in their businesses. For instance, I worked as a management consultant for a small business that provided management training and consulting to – funnily enough – small business owners. We had hundreds of clients from all over the country. These were small shop owners who employed anywhere from 2 to 50 or more people. In nearly every case, these small business owners were investing at least some portion of their profits back into their businesses. In every single case, they were investing their profits in hiring the company I worked for to get better at running their businesses. In addition to that, the owner of the firm I worked for was also investing his profits back into his business. During the 3 years I worked there the firm grew by about 25% or more and made 2 moves to larger quarters over that period. This has been the case for every small business I have worked for and also for those businesses I did communications work for as an independent contractor.

Well, seeing that previous tax-breaks didn't do anything for the middle class except for create some more jobs, I'd assume that not much of the money was reinvested into companies, since there obviously was no wage increase or anything of that kind. But like you, I cannot find and specific data, so this is only an assumption.

As far as your stories go, I know several people whose parents own small businesses like small stores, gardening companies, etc. and whenever they make more money, whether it's from cutting costs or raising prices, it almost never gets invested into the company. The wages of the workers stay the same and the amount of work opportunities stay the same since it is a relatively small town and such companies cannot work outside of that town (that's what I meant by limited amount of customers, btw). The only thing they sometimes do is buy new cars or other equipment for the company or buy some advertising space. None of that really affects the worker or leads to the company hiring new workers.

Actually, those jobs the tax breaks created did a LOT for the middle class. You seem to forget what we were discussing just on page back. In truth, under Reagan, middle class income increased 11 percent after adjusting for inflation, while nearly 20 million new jobs were created. This isn't an opinion, this is according to the US Census Bureau. More people moved from the middle class to upper middle class

According to the Joint Economic Committee of the US Congress, the percentage of households in the low income category dropped during the 1980s. This group comprised 27.5 percent of all households in 1980, 28.5 percent in 1982, and only 25.3 percent by 1989. As a share of all households, the proportion of those with low incomes became less prominent by the end of the 1980s.

Meanwhile, the percentage of households with incomes over $50,000 jumped from 17.6 percent in 1980 and 1982, to 23.5 percent in 1989. This remarkable increase in the proportion of high income households is another sign of solid income growth.

Notice how the strong upward mobility has affected the middle category. This group comprised 55 percent of all households in 1980, 53.8 percent in 1982, and 51.1 percent by 1989. In this one sense, the middle class did indeed shrink during the 1980s. Is this good or bad?

If the middle class shrinkage had resulted from massive income losses resulting in expansion of the low income group, it would clearly signal that something was seriously wrong. However, a review of the data shows that the reverse was happening. Income gains were pushing a greater proportion of middle class households into the high income category. Of the 4 percentage point reduction in the middle class percentage between 1980 and 1989, all of it is accounted for by net upward movement into the high income category.

So clearly the middle class fared very well as a result of the Reagan tax cuts.

As for your anecdotal experience in small town America, I would be extremely reticent to extend that experience as representative of small business behavior on a national scale were I you. While it is almost certainly true that not all small businesses invest increases in profits back into their businesses thus creating jobs – particularly those with a limited customer base due to location and type of business – it is also almost certainly true that there are those that do reinvest profits back into their businesses. And my anecdotal experience was with a significantly higher number of small businesses over a longer period of time and a much, much wider geographical area (the entire country). Not only that, I was the personal management consultant to well over 300 small business owners, and a trainer of well over 2000 small business owners (I delivered the 2-day weekend seminars for the company) during my time with this company. Not only that, but I provided marketing and public relations services for a wide variety of small businesses that ranged in size from 30 or so employees to over 300 employees. The vast majority of these small businesses routinely invested profits back into their businesses. The least successful of my clients were the ones not making the investments into their businesses that were necessary to stay alive and grow in a competitive marketplace.

BubbleBliss wrote:

dblboggie wrote:

BubbleBliss wrote:Not to mention that small business owners have a limited amount of customers, so it's not likely that they will hire new workers, unless the have an excess demand of their product, which is unlikely.

Again, where are you getting this information? What do you mean “a limited amount of customers”??? How did you arrive there? I know lots of small businesses that have thousands of customers. Hell, I work for one right now! And the owner has hired 3 new people since I started working there.

I think I answered this above. If not, I'll explain it again.

That’s fine, I got it. Though I still think it is a mistake to extend that limited anecdotal experience to the entire body of small business owners. There are huge numbers of small businesses in very large cities that have international client pools. One such company was a PR client of mine for 5 years. They created and sold software. And I saw their company grow tremendously over the 5 years I was doing PR for them (their sales more than doubled over that 5 years).

BubbleBliss wrote:

dblboggie wrote:

BubbleBliss wrote:The money laying in banks doesn't have a large effect on the amount of loans given out by banks, the Federal Reserve is responsible for that.

No, the Federal Reserve is not responsible for that. The Federal Reserve does set interest rates, and those do certainly have an impact on borrowing and saving. But it is the banks that small business owners go to for loans, not the Federal Reserve. And if the banks have lots of money just sitting there doing nothing (again given normal economic activity – not the mess we have today), well that is money that can then be put to work as loans to small businesses (and big ones as well).

The interest rate set by the Federal Reserve is the single biggest deciding fact of whether banks are lending or not. It's not about how much money banks have laying in their safes, they have plenty money laying around, it's about the interest rate the Federal Reserve sets.

Again, this is not true. If there’s no, or little, money in a bank, it doesn’t matter how low or high the interest rates are, banks can only lend so many dollars against the actual dollars in their bank.

Low interest rates certainly make it more attractive for businesses and individuals to borrow, for instance, but that money has to be there first. That requires that people make money and then deposit that money in a bank. And banks get their money from businesses and individuals – not from the Fed.

dblboggie wrote:

dblboggie wrote:

BubbleBliss wrote:Well, that's good that you are discussing that question, but my answer to that question is no. If they were to take home less than other people who did not take the risk of becoming an entrepreneur, then yes, it would be a punishment, but right now it is not. Of course looking at taxes from an economic perspective is important but you also have to look at them from other perspectives as well, which is something most economic professors do not.

First of all, most economic professors do look at taxes from other perspectives – even in my class we have discussed the normative economic justifications for taxes and government regulation. It is all a part of economics. But just because there’s a “good reason” for a tax, it does not change the fact that a tax is punishment. And I don’t mean punishment in the sense that the entity levying the tax is actually penalizing some wrongdoing, or even doing wrong by levying the tax. What I mean is that justified or not, a tax is a penalty on production. It’s a cost of doing businesses. BUT, when the tax rate reaches a certain level, then that acts as a brake on economic activity – it becomes more trouble than it’s worth to do business. People tend to do those things that bring them pleasure or reward (another way of saying pleasure), what economists call utility. People also tend to avoid those things that bring them pain. This is human nature. Taxes are pain, profits are pleasure. Tax too much, and productivity will drop. This is economic fact. Why? Because you get less of that which you punish, and more of that which you reward. This isn’t rocket surgery ( I love that line.) It’s basic economic reality and basic human nature.

You look at taxes as a punishment no matter of the amount of taxes to be paid, I look at it as a responsibility.

And I believe the line goes "rocket science", not rocket surgery.... at least that's how I always heard it.

There are many, many, individual people that look at taxes as a responsibility. And this goes for businesses as well. But there is a big difference between the behaviors of a single person and large groups of people. There’s an old saw that goes something like “a person is smart but people are stupid” or some such thing. In effect, large bodies of people behave differently than single individuals.

Taxes have a proven effect on people and businesses as a whole. Raising taxes ALWAYS has the predictable effect of decreasing the taxed behavior. This decreases the tax base and results in lower revenues even though the tax rate has been increased. Lowering tax rates encourages the lower taxed behavior, which expands the tax base, offsetting some if not all of the revenue loss.

Oh, by the way, the “rocket surgery” thing was a joke. Get it? It’s a cross between “rocket science” and “heart surgery.” I saw some place selling T-shirts with “It’s not rocket surgery” on them and I thought it was very funny.