Here I go again with a question in an area I know nothing about.
'Those in the know' say the problem with the economy is lack of jobs. If tax cuts are the answer, how many people would you hire if you got, lets say, a 20% tax cut? Why wouldn't you have hired them anyway?
When I dont make any money, I dont pay any taxes.
When the economy tanked, I laid off the two guys in the shop.
It wouldnt have made any difference if my taxes were zero- no income, no employees.
If, on the other hand, I am busy, as I have been in the past and it looks like I may be next year, it makes no difference if my taxes are 25% or 35%- I cant get work out the door without employees, and I will hire em.
So, on my tiny scale, it makes zero impact.
a small anecdote explaining the " lower taxes increases jobs" position. Most of us would agree that at some point in time "everyone" expands their spending to match their available free money. Thats true of just about anyone I know in the usa, including myself at times. Say Joe the plumber's business is doing well and in the end( forget business styructure, immaterial in this example) pays 30% in state and federal taxes. Now Joe has to come up with that 30% religously. Now say there is a tax reduction to 25%. Joe has 5% more in his pocket. is he going to hire anyone? Maybe maybe not, hiring has less to do with taxes and more to do with orders/ demand as Ries has demonstrated. He may however buy that new tool or fix that roof thats starting to get bad, employing others in the community( if even for a temporary basis). Now you take that impact across everyone making , say $40k a year. Make it pretty widespread. The impact of the spending of all those people, even if they only spend part of the 5%, can be pretty significant. The significant spending of a LOT of people with extra money in their pocket instead of the government pocket increases demand and creates jobs.
say you have 50 million people in the usa with an additional $2000.00 per year take home pay.... that makes $1 billion dollars spent in the economy making jobs... Now there are those that will say that you just underfunded government that 5%. Thats a difficult thing to say as if more people work revenues increase... but its kinds like forecasting the weather, everyone has a different forecast and they all say they are correct.
Wile I don't know about zero impact, broken down to the level of each employee it doesn't make that much difference for the reasons Ries just posted.
OTOH if you take the economy as a whole, a few % increase/decrease might be just enough for a large corporation - or in fact a whole sector - to decide that it is cheaper to send work elsewhere,
which results in neither Ries or myself having enough work to employ anyone.
I know you've been harping about the regulations in another thread and Ries said it wasn't that important.
Well, for us small guys it might only be a few percentage here and there that is directly involved with our daily operations.
But then we have material suppliers who must also add a few percentage here and there.
Then you have outsourced operations - heat treat, plating, painting etc - who also adds some more.
Your tooling or machinetool supplier must also comply with some, adding a little more to the list.
Bottom line is, at the end of the day it is almost impossible to figure out how much extra you end up paying due to increased taxing or regulation.
I did post a link in your other thread about the electricity rates in CT. If you figure that my average monthly bill is between $1200 - $1800/month here, it would be approximately half of that
in say Wyoming. Spread over the whole year, the difference is roughly a 3 month salary of an employee. And that figure is easily calculated 'cos you directly see the rates.
Add to it the local sales and income taxes vs. some other state - like NH for example - and you have even more disadvantage, not only as a company but as an individual as well.
Then you have an approximately $.25 price difference for gasoline between CT and neighboring MA. Care to guess how many residents of Enfield for example fill up in their hometown when a 5min drive
will save them not only $10/full tank, but also on groceries?
Imagine if Suzie Homemaker takes the time with the family van across state borders to save a few bucks, just how many medium and large corporations do the same on the global scale?
So, in summary I am kind of in the same position as Ries. A few percentage points here and there won't make or break us, but we do see some differences in expenses based on the local tax codes.
What we don't see is how much additional income we don't get because of the very same local tax codes.
It's interesting how the news shows, every night, tell us (after the fact) why stocks went up and down that day. Problem is, none of these shows are much good at predicting where the market will go that morning. All of which is to say that a lot of economics is based on emotion as much as rationality. A new wave of psychological economists is even getting Nobel prizes these days for such notions of bounded rationality, starting with Danny Kahneman.
A better explanation, IMO, would be that markets rise when:
1) There are enough inputs (skilled labor, raw materials, capital . . .) to go around, AND
2) There's a reasonable free and fair market, AND
3) Consumers (historically, about 75% of our economy) are feeling confident.
Today's politicians are pretty much doing everything in their power to rob us of the feeling that either party is competent, willing to work on behalf of the nation, or not beholden to special interests. Indeed, making the current administration look bad has been pretty much the sole mission of the Republican Party (funded by special interests) for the past three years. What the Republicans haven't been able to screw up by obstruction, the Democrats have frequently managed to screw up on their own.
We also have rigged markets in large sectors of the economy.
Dealing specificallly with the tax question -- there's plenty of evidence that returning taxes to historically slightly higher rates doesn't have much impact on the availability of capital and can have a positive impact on such things as workforce skills and infrastructure. Indeed, a properly structured tax code would reward the creation of real value added and (relatively) punish schemes that merely skim money off the top.
As just one example of how we're screwing up, the Journal recently had an article on companies building ultra high speed microwave networks between places like Chicago and New York. The motivation wasn't helping business with e-commerce, kids with homework, or anything remotely productive. Instead, it is to give traders a sub-second advantage in executing trades (stocks, derivatives, etc. etc.). None of that has anything to do with investing in America -- it's investing in the ability of inside interests to skim more money off the top.
A typical example here: http://www.wallstreetandtech.com/it-...ture/240004665 You can bet they'll get a tax deduction to pay for much of the network, and then the traders tax preferences for their profits.
I would like to point out that if I choose to buy a new machine or fix the roof, both of those are tax deductible business expenses- which means a higher tax rate would actually encourage me to do those things- but, again, neither can be done if I dont have income from sales.
If I am making money, I invest in my business, and SAVE on my taxes.
This year you can expense up to $139,000 worth of machines from your taxes- but you have to have made more than $139,000 to take advantage of that. Gotta have income to have deductions.
Also, Seymour- you sure would be a lot better off with socialist electricity, like we have out here.
$1200 to $1800 a month?
Jeez, lots of months my 3 phase bill for the shop is under a hundred bucks. I dont run air con, though, just welders and machine tools. I pay nine cents a kwh, plus a few fees. No demand charge, either, on an account as small as mine- you need to be a big factory around here to hit demand charges. (I have 400 amps of 3 phase 240)
You see, we have these big dams that government paid for, way back in the 30's to the 50's, so there is no profit in the power until it hits my local utility- means cheap power.
When I used to live in Seattle, it was even better- Seattle City Light, the government owned city utility, owns its OWN dams up on Ross Lake, and pays nobody for its power- just pays off bonds to pay for the installation,most of which are long since paid off and pays for its overhead. So we have much lower rates. We did get screwed around in Seattle by Enron, and lost some money there that raised our power rates, but in general, up here in the Northwest, we are real happy with our socialist city and BPA power- its usually the cheapest in the country.
Originally Posted by Ries
Well Ries, that sounds like a confident vote for trickle down economics.
Or to put it in another way, You think Romney's annual deduction of $75,000 for a horse is perfectly justified?
I mean, the horse has a stable on a farm and is attended to by a full or part time person right?
If so, increasing taxes would motivate him to buy 2 more horses he?
With that said, I sure hope you don't run your business on those principles tough. That is to say that you fix your roof because it need's fixin', not because you save on your taxes.
large Corps have more money than they have ever had and they are still not hiring. They wont hire in the US or any where for that matter, as long as they can automate and use subcontractors there is no need to take on long term employee commitments. Taxes are a small percentage of the cost of an employee, benefits and wages are the main cost drivers. Why buy the cow when the milk can be squeezed by someone else and given to you on the cheap.
Originally Posted by SeymourDumore
NO, actually that is an endorsement of an Industrial Policy- thats where the federal government makes legal, tax, tariff, and regulatory decisions to encourage business and jobs.
Every other industrialized nation does this intentionally, while we have a tax code riddled with lobbyist bought exceptions.
I think its great that government would encourage companies to build factories or buy machines. And I see a very clear difference between doing that, and allowing the very rich to pay no taxes by deducting the mortage interest on mansions, by misusing the IRA laws to shield hundreds of millions from taxes, and to deduct expensive horses.
I also dont think Lamborghinis should be deductible as work vehicles.
What I am saying is that, given the choice between paying income tax on profit, or buying a new machine, I have often, in the past, purchased machines. Using the Section 179 deduction, I have expensed those machines in the year of purchase, offsetting the tax I would otherwise pay on profitable years.
I have then gotten more work as a result of having increased capacity and capabilities in my shop, and, in turn, kept my guys employed.
If I dont have income, and a clear vision for what to do with that machine, I would not buy it. But the ability to expense it sure helped me purchase it, so I guess I definitely believe that there is a more direct cause and effect between Section 179 and jobs than there is on the actual tax rate and jobs.
Again- the tax rate in our country is what is called a "marginal tax rate"- which means that the higher percentages ONLY kick in on the last dollars over the limits- so, for instance, if the Bush tax cuts are not kept in place for the top 2% who clear over $250,000 NET income on their tax returns, they would only pay the higher rate on any income over $250,000. They would still get the same tax cuts as the rest of us on all their income under $250,000.
What that means is that the amount of additional tax you pay if you have a very good year is pretty small, and, in most businesses, not enough to radically alter your hiring practices.
Corporations usually pass on all profits to owners and shareholders, and US corporations pay one of the lowest ACTUAL, as opposed to Nominal, corporate tax rates in the world.
The tax raises or cuts being discussed right now are all about personal income, not corporate.
Corporations are not hiring, or hiring, not based on personal income tax brackets, but based on market conditions, and lack of demand.
My problem with the tax code
If I make $30K in a year, atthe end of the calender year I buy a machine for 29K and pay tax on $1K. Correct?
The following year I make $30K. I put it down on a building. Lower monthly payments and less interest to a bankster. Great! No, hold on. You have to amortize that for 30 years. so you pay the TAX on the $30K this year (minus 1/30?). But you dont have the money to pay the tax because you put it on a building. So you put much less down so you can pay the tax and give more to some guy in a tie at the bank.
I can understand amortizing a million dollar shopping center. But a $100K building? Lot of guys here spend that (and more) on one machine! Low dollar buildings should have the down payment written off in the year it is expenced.
Depreciation is a very complex thing in our tax code.
When I started in business, you had to depreciate all your tools- and there are different amounts of years to depreciate a building, or improvements to a building, or office equipment, or machine tools, or a work truck.
Every one is different, and its really complicated to keep track of it all. I used to do it by hand, for well over ten years now I use a program like Turbo Tax, and I still have a couple of pages of just depreciation, with all these different amounts being taken off for varying amounts of years, for different things.
The current Section 179 expense clause is always changing, too.
There is no promise you get to expense ANYTHING in one year- its a total crap shoot every year what the amount will be, or if that instant expense clause will be there at all.
I agree, it would be great if you didnt have to depreciate buildings over 30 years. But thats the way the tax code has been written for a very long time.
While on this topic, think of the inverse. What happens to economic activity if taxes go up? The "most people spend almost all of their free money" rule actually applies very far up the income scale. (Especially among software geeks.)
So, you raise taxes, this means less free cash. What happens? Less spending. Often nobody will get directly fired, but rather indirectly. As in, the tax hit made hiring a service to do yard work too costly, so the taxpayer does it himself. Less money for yard maintence company, and eventually 1 less job doing yard work. Too much of a tax bill? Change oil yourself. Local garage eventually fires one of the oil changers. And on and on.
So a "tax and spend" plan can only help if the number of jobs it creates is larger than the number it destroys. That could at least in principle happen, but it won't happen if easing and/or "stimulus" are either captured in funny places (stuck in the banking system, sucked up in environmental impact statements, directed to industries that use specialized labor and hence don't actually hire generic unemployed people, etc.), or just structured poorly.
It's really quite easy to have a monetary easing or a stimulus that "creates" or "preserves" some number of jobs, but is a net loss because it destroys more jobs than it creates. It's also really easy (and quite common) to create "incentives" that simply move activity around - cash for clunkers mostly moved up car buying (which then fell back) and destroyed some inventory of old but redeemable vehicles. In short, it had little if any net effect on base economic activity, and in some sense destroyed real wealth. Tax incentives for 1st time home buyers had a similar effect - a spike up, followed by a drop after the tax break expired.
So reducing tax burden, especially reducing tax burden on a long term (predictable) basis will likely have constructive effects. (But only to a point - too little taxes -> too little government -> somalia...)
Now, that said, there are lots of straightforward plans from both the right and the left that might actually help, but which will never happen because politics is explicity about NOT being straightforward. Politicians don't want a simple tax code, because that removes one of the very biggest things they have to trade for money, electoral support, etc. So don't hold your breath for any straightforward plan that might actually work - straightforward things that might work are not actually allowed.
This is close to what I think but it misses a factor that multiplies the drain income tax has on the economy--
Originally Posted by WILLEO6709
Say I make $100 per hour. I have to pay $40 of that in taxes (fed/state/local). My take home is $60 dollars per hour. That means I break even hiring someone for $60 per hour to fix my roof, car, etc. That person's take home from that $60 will only be $36--maybe $40 assuming lower tax bracket. Those percentages on take home are actually low since there is SSI and if self employed you'll lose anther 7.5%. Bottom line is if you can do the work yourself, unless someone will work for less than half your hourly rate it is more economical to do it yourself even if there is paying work waiting to be done!
Read an interesting book on financial advice where the author had recommended to most of the "working class" i.e. those that know how to use a hammer, that they would be better off if they could find a way to take time off work and build their own house. My wife and I did this by buying fixer-uppers and working nights/weekends Did our homes and some rental properties. You see all the gains without the taxes. At least until you sell, but that's another story.
Other item that has to go with the tax cut is a faith the economy will get better. Without it you see the funds go into paying down debt as everyone hunkers down to wait for the economy to pick up. This lowers interest rates. Those living off their savings/investments now get hammered. Sound like today's news? We would probably be better off if the pols on all sides would just shut up. Most people have short attention spans and the economy will pickup somewhat. Less worry about the future means more spending now.
Originally Posted by bryan_machine
say you have 50 million people in the usa with an additional $2000.00 per year take home pay.... that makes $1 billion dollars spent in the economy making jobs... Now there are those that will say that you just underfunded government that 5%. Thats a difficult thing to say as if more people work revenues increase... but its kinds like forecasting the weather, everyone has a different forecast and they all say they are correct.[/QUOTE]
Thats actually 100 billion.
Well Ries, so am I to understand that your position is that increased taxes encourage spending, except when such spending is done on lavish items such as mansions, lamborghinis, horses and perhaps yachts?
Curious question: Why is a roofing contractor more important than say a builder of marble staircases, a craftsman of wood sailboats, a stable hand tending to horses or a guy assembling the lamborghini?
I mean I agree with the tax shelters and all, but if we're all for equality than why should a mortgage interest on a double wide be deductible but not on a beachfront mansion with 20 bedrooms and a pool?
Also, the way I read it the US has much larger than average corporate tax rates. In fact, virtually the entire EU is based on substantially higher personal tax rates than corporate rates.
Granted, due to various loopholes the effective rates might be lower than average, but a good number of those loopholes are not available to small schmucks like you and I.
Lastly, I believe corporations can't pass on the tax burden to shareholders, which is why the whole hooplah about capital gains taxes.
I for one am in strong favor of having the corporation deduct any and all gains that are in shareholder's hands and pay taxes only on the leftover profits.
Then, the shareholders are fully liable on their share not as capital gains but rather true income.
I know a felow in the Phila area that bought houses... ROW houses, and INSIDE the row and ALL BRICK (no painting).. for those who are not familiar with the Inside the row house, it has common walls with the neighbor and since the inside the row has a minium of 3 fewer windows, that's less cost if and when they need repair/replacement....
Originally Posted by ARKTinkerer
He rented them to QUALIFIED renters.... STRICT qualifications...
As time went on he ended up with well over 40 houses... and when he was ready to retire and move to FLA he looked at the payment records of the tennents and sugested the very good ones BUY the house from him... Low down payment, he even credited some of the former rent as down payment and then gave them a mortgage. So now he's collecting mortgage payments instead of rent and the people end up as home owners... they take better care of the house and if they run out the mortgage for 30 yrs, there's his retirement income.
the OP is somewhat wrong in the assumption that Tax Cuts are the answer to lack of jobs.
They are a part of it but I think a larger part is regulation.
I would consider the tax code as regulation also.
While agree with Ries that the tax code does not determine if I'll hire another, demand does.
If your goal is to increase employment the solutions are simple. Eliminate the costs/regulations/liabilities with employing workers.
As a business owner I had spikes of work where I needed more labor to push product out the door. I didn't hire anyone to meet these needs. I used temporary workers. I used temps because I knew that my need for their labor was temporary, I didn't need highly skilled people to do the jobs, and the cost to me was probably about 1/2 what it would of been if I had to hire them.
I ran a very profitable Tool and Die Shop. In the last couple of years I had gross profits above 50%.
The worst year I ever had was a little under 9%. most years were around 15-20%.
Now before all the whines start on how I was exploiting the workers let me tell you this. I paid for ALL my employees health ins., I matched a retirement plan up to 4% of income, I had paid vacations. I was not screwing anybody.
Now back to reducing the costs/regs./liabilities.
1st lets stop this ridiculous habit of making employers pay for benefits to employees. This done by politicians to get votes and nothing else. It does our society no good. Time to be honest with people and treat them like adults. If you are going to say that Social Sec., unemployment and workmans comp are necessary and all workers should have them then why should they be welfare programs paid by for by someone else? Why not have the people who benefit pay for them? Its interesting in that as an employer I had to pay unemployment ins but could not collect, I was subsidizing others ins.. I myself think all these should be elective not mandatory. Also lets call employer paid portion of health ins. what it really is, its pay for labor. If it costs the employer 10K/yr, the employee now owes taxes on 10K more income. This would be a start to fixing the health care in this country but that's anther discussion.
As far as regs., wow that's the biggest impediment to job creation in this country there is. I am not suggesting allowing to dump raw sewage in rivers I am suggesting eliminating reg.s such as having to have a license to do a job, having to build/use your building to the Governments satisfaction (type of door knobs, height of toilets, mirrors, size of parking lots, bathrooms, how you use the space), what your equipment has to have to comply. Tax law, I asked 3 different accountants about a tax liability issue and got 3 different answers, the state wanted to handle it one way the feds another. All the while it was costing me money in Accountants and lawyers. Tax law alone is one of the most costly. I could go on and on about this but anybody who has dealt with OSHA, IRS, or any of the other Government alphabet agencies will have his own horror stories. And all of these things do nothing but make it harder for an employer to just concentrate on making product. And if your not making product what do you need employees for?
Boil it all down and its plain for anyone who wants to see that there is alot of stuff an employer has to deal with that has nothing to do with the process of making a profit. And don't fool yourselves, if an employer can't make a profit then there is no use in being an employer. The question is is the hassle of being an employer worth the reward. Everyone's level of hassle/reward is different, but if we lower the hassle level maybe more people will become employers and there will be more employment/jobs.
As mentioned above there is no incentive at this point for politicians to solve these problems, they'll do much better for themselves buying votes, pointing fingers at each other. All the while our society suffers.
I admit, I am biased towards manufacturing, steady jobs that actually make things day in and day out.
Originally Posted by SeymourDumore
And I dont believe that increased taxes OR decreased taxes automatically encourage jobs or spending- I think the situation is much more complicated, and includes the influence of interest rates, the real estate market, global economies, oil prices, psychology, and voodoo. I think it depends on how you tax who, for what income, and then what you do with the money, too. I think its simplistic to think that raising taxes on the rich will fix everything, and I have seen from the last 12 years that LOWERING taxes on the rich doesnt seem to fix everything either- we have the lowest effective taxes on rich people that we have had in over 50 years, and somehow, we are not all fully employed and driving new cars.
I think that tax policy that encourages living wage jobs is a good thing.
I do think that there is a difference between letting Paul Allen write off his 3 yachts, one of which is Octopus, 414' long and sports two submarines and two helicopters, versus letting a company write off a new VMC.
I am not "all for equality", and I dont believe in tax shelters- I believe in the USA encouraging companies to provide jobs for its people, so they can buy their own houses, and maybe a rowboat.
As for corporate tax rates- the USA has one of the highest NOMINAL corporate tax rates- but it also has so many loopholes that virtually no companies pay that rate. Surely you have heard of how 26 major US corporations paid ZERO taxes for the last 4 years?
If you take an average US company, say, United Technologies, and compare the corporate tax it pays with its German competitor Seimens, you find that Seimens pays more tax, even though our "nominal" tax rate is higher.
As a small schmuck who has been a corporation for something like 12 years, I am an S type corporation- which means my company has always been able to pass gains and losses on to me, personally, and I dont pay that high nominal corporate tax. If I actually make any money, it passes thru to my personal income tax form. Which is kind of a loophole, I guess, but the taxman gets his cut, it just comes from a different checking account.
I think you are a bit confused about capital gains and taxes- a corporation doesnt call up its shareholders and ask for money to pay taxes, no, but individuals do pay capital gains taxes on increases in value of their stock when they sell it. I cannot imagine how your plan of deducting imaginary, temporary gains and then making shareholders pay tax on them would work- gains are only realized when stock is sold, and so taxes are due when gains are realized. If a company could somehow claim a deduction because its stock went up in price, the amount of fraud and manipulation that would occur would be staggering.
The way it works now, you buy something, and when you sell it, if you have made a profit, you pay a tax on the profit.
What, exactly, would be a "leftover profit", and who would decide what it was?
And what if, after the shareholder paid taxes on that, the stock went back down again- does he get a refund?
Sounds confusing and bound to fail, to me.
To me, its pretty simple that the system we have voted in is- you make money, no matter how, and you pay taxes on the income. The trouble comes when lobbyiests manage to create different types of profit, and then get their patrons taxed at lower rates for their "special" income, while you and I pay at the highest rate for our ordinary income. I am in favor of ALL income being taxed at the same rate- I am not convinced in the least that investment income somehow deserves special treatment.