[msickmeier]

I am having some correspondents with someone and they presented me with this question. It seems pretty of the mill, but I wanted to see if I could get some other peoples perspectives;

“Why is only labor and not businesses and investors asked to contribute to reducing the deficit?

Conservative governors vilify the sellers of labor (in this case public workers, particularly teachers) but don’t ask the buyers of labor (businesses) or investors to do their share. Yes; deficits can be remedied by cutting costs but they can also be eliminated by raising revenues. The argument is that if taxes are raised on businesses, they will leave the states and investors will change their investing strategies, thus eliminating jobs. Almost a decade of tax cuts introduced under the previous administration did not create jobs so one might expect raising them to the level before the cuts might not reduce jobs. Certainly reduced estate and gift taxes can’t be argued on the basis of job creation and are essentially a means of further concentration of wealth in the hands of the already wealthy. ”

[swalsh81]

Interesting question. I’ll see what I can do point by point

*WARNING WALL OF TEXT*

Why is only labor and not businesses and investors asked to contribute to reducing the deficit?

Conservative governors vilify the sellers of labor (in this case public workers, particularly teachers) but don’t ask the buyers of labor (businesses) or investors to do their share.

This statement is a bit of a false dichotomy. It seems to say that businesses and investors already pay no taxes, will have their tax rates kept at 0 and only the workers will suffer new taxes. This couldnt be further from the truth. I do not recall the source for this, but you may have heard people talk about how the top 1% of earners (ceos, businesses, investors etc.) pay 50% or 70% or some large number of the taxes. On the surface, this is irrelevant if they also make 50% or 70% of the income. But, in fact, they make about 30% of the income. Meanwhile, the lower large portion of the income brackets made something like 15% of the income and paid 3% of the taxes. Thus, the businesses and investors are already paying much more so it would not be unreasonable or unfair for the lower brackets to pay more because they are already paying significantly less as a proportion of income. This wasnt the page I remember but there is alot of good graphs http://www.businessinsider.com/who-pays-taxes-2012-8?op=1

Secondly, this completely misses the fact that, for all practical purposes, businesses do not pay taxes. This is from my blog which I started and then, unfortunately, cannot keep up with. http://lawperverted.wordpress.com/2012/08/07/do-corporations-pay-taxes/

Yes; deficits can be remedied by cutting costs but they can also be eliminated by raising revenues.

In theory, he is correct. But unfortunately, the Laffer curve will come back to bite him. A 0% tax rate will yield no taxes for obvious reasons, but so will a 100% tax rate because 1) there will be no incentive to work and 2) there will be no money with which entrepreneurs and business owners can invest thus stalling the economy. This means that you can only raise taxes to a certain point (all other things being equal) after which tax revenue will begin to fall. What that point is no one actually knows, but tax increases are not a panacea. By extension, this will mean that, after that point the government CANNOT spend more money and it will necessarily go to debt because tax revenue cannot be raised by further tax increases.

The argument is that if taxes are raised on businesses, they will leave the states and investors will change their investing strategies, thus eliminating jobs. Almost a decade of tax cuts introduced under the previous administration did not create jobs so one might expect raising them to the level before the cuts might not reduce jobs.

I am not sure how we got from deficits to jobs but here we are. Again this statement can only be true ceteris paribus. The reported unemployment numbers are pretty…cooked. They leave a lot of people out, they have adjustments, they say nothing about quality of production etc. Not that I agree with everything (or much at all) Bush did, but if he wants to look at presidencies he can look at this graph of population-employment ratio http://www.aei-ideas.org/2013/01/the-dismal-december-jobs-report-shows-a-lost-year-for-u-s-workers/ Bush came in with the .com bubble popping (fault of the FED), monetary expansion(fault of the FED), 9/11 and a new war. He lowered tax rates and employment actually did increase. Then the housing bubble popped (fault of the FED) and employment nosedived with it. But, one thing this shows is that you must use the comparisons with other things equal. The economic situation is very much different from the time that Bush lowered taxes to now.

Certainly reduced estate and gift taxes can’t be argued on the basis of job creation and are essentially a means of further concentration of wealth in the hands of the already wealthy.

This statement assumes that, even if wealth was justly gained, after a certain amount of money, it is justifiable for someone else to confiscate it and that it is the right of the government to determine how much money is too much and at what point private property should be seized. See Bastiat for more on that. “The Law” and his articles in “Economic Sophisms” are both very good.

I have a spreadsheet that I have taken then data from http://www.usgovernmentspending.com/ along with inflation and population data and done some analysis. Hopefully one day I can get it all up on the internet somewhere. One interesting and relevant point, since he wants to compare now to Bush, is that, in 2012 dollars, in the year 2000 the government received about $9600 per person and spent about $8500. Revenue went down in the middle of Bush’s presidency, but in 2007 (right before the housing crash) the government received, once again, about $9400 even with the tax cuts. However, what changed was spending which sat at just over $10000 per person. In 2012, the government received almost $7900 per person but spent over $12,000. I say this to point out that, yes, tax revenue has in fact gone down, though not necessarily because of the Bush tax cuts but it is the spending that continues to increase. I would venture to say that the person you are talking with does blame the spending on the Iraq war (no we shouldnt have gone into Iraq etc nor should we have stayed indefinitely) but does not acknowledge that spending on entitlements has risen like it has. Another thing I found (and you will mostly have to take my word for this since I cannot link the chart from my excel) is that overall military spending per capita in adjusted dollars has remained basically static overall since the end of WWII. It has fluctuated up and down but the trend line is for the most part level. Entitlement spending, on the other hand has ballooned. That is of course not to say that military spending isnt too much anyway.

[msickmeier]

Wow, thanks so much. What a great response.

[maester_miller]

I would also like to point out that the assertion that “labor” “businesses” and “investors” are three mutually exclusive classes is absurd, in and of itself.

Every individual is a laborer. Bill Gates, Mitt Romney, and Warren Buffet all sell their labor to one extent or another. A “business” is nothing more than a mutual association of individual laborers. Why businesses have to pay taxes at all is beyond me. Furthermore, the success of businesses contribute directly to the quality of life of individuals. If Apple’s taxes are increased, your Iphone will cost more. The classification of “investor” is also silly. Almost all Americans are investors in one aspect or another. Anyone who has a pension plan, an IRA, or a 401k is almost certainly an investor and will see their retirement savings diminished as a result of increased capital gains taxes.

To pretend that labor, business, and investors are all completely separate and opposing interests is absurd. A large majority of Americans are a part of all three of these groups.

[swalsh81]

Thanks for pointing that out SmartMuffin. I intended to say something about that but, as you might see, I got a bit sidetracked

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