Democrats don't understand the effect of income taxes

The unintended consequences of tax and spend policies

Published on October 25, 2007 By Draginol In Democrat

Democrats, in general, are extremely ignorant about economics. It's difficult to even find a Democrat with any serious experience in running a business or having actually produced anything at all. Elected Democrats tend to be lawyers. At best, lawyers help honest business men and individuals settle a dispute. At worst, lawyers are parasites on society.

It is usually without irony that Democrats decry how much doctors make and how health care costs need to be controlled while ignoring that it is because of greedy lawyers and their lawsuits that have a major impact on the cost of health care.

I rarely hear Democrats complain about how much lawyers make. Democratic Presidential candidate, John Edwards had a net worth of over $60 million. Consider that. John Edwards doesn't produce anything. He makes no products or goods.

And it is because Democrats are so rarely involved in producing anything that they have such a lack of understanding in economics.

For example, Democrats always seem to fixate on earned income when it comes time to "tax the rich". Yet they seem oblivious to the implications of their policies. When you tax the earned income of the rich, you are really hurting the most vulnerable Americans. The "rich" who are earning their income simply pass on that tax to their least productive workers in the form of lost jobs and lower wages.

According to the New York Times (that right wing rag..) the richest Americans are:

Mostly self employed
Mostly run businesses

So what happens when you increase their taxes? You increase their expenses. And what happens if you increase expenses? You either have to make more money or cut other expenses. Most companies have "fat" they can trim -- employees whose employment are tenuous. There's basically a layer of the American workforce that I'd say is only borderline employable. During the good times, they have jobs because their marginal productivity is still worth it. But when times are tough, they're the first to get cut.

Raising taxes on the rich simply adds to the bottom line cost and it is those at the bottom that suffer first. Yet Democrats never seem to get this even though it's been demonstrated time and time again. It is one of the reasons why lowering taxes increases government revenue. It isn't due to "trickle down" economics but rather because the cost of doing business for the bulk of employers goes down allowing them to hire more people and invest more which in turn generates income at a greater rate than inflation. It's not rocket science -- unless you're a Democrat I guess.

Comments (Page 3)

Calor

on Oct 26, 2007

Democrats understand. They just have a different understanding than you do.

The money you generate owes much to the lucky coincidence of you being born in America. Without that bit of luck, you wouldn't be making all the money that you bemoan having to pay taxes on.

The Democrats rightly see that what makes it possible for the wealthiest to become wealthy is the infrastructure, people, and opportunity in this country. You benefit disproportionately from a fair court system, a strong transportation system, a stable government, a good public education system and so on. You aso benefit from living in a hyper consumer society in which citizens spend to within an inch of their means and often beyond. The government takes your earnings to pay to support the very things you rely on.

If anything, you are under taxed.

danielost

on Oct 26, 2007

so your saying it wasn't brads hard work. it was just because of all those things you listed. ok if that is true then why am i not rich. my father pinches every penny that they look like a train has run over it. he isn't rich.

brad earned his money by working hard for it. he stays rich by working hard for it.

danielost

on Oct 26, 2007

not only does he stay rich by working hard. he is able to employ how ever many people he employs. thus not only is brad feeding his family but he is also feeding the people that he employs. and you want to take all of his money away from why? so that you can be rich too without working hard for it. you want to be rich go out and work for it. remember you cannot get rich working for someone else. whether that someone else is brad or the government.

Calor

on Oct 27, 2007

Let's say Brad was born in Mexico.

Is he still a rich successful entrepreneur there? Or is he poor like most people in Mexico?

I'd guess, at best, he would be middle class in Mexico because they don't have the economic opportunities that we have in America. The corruption, the poor infrastructure, the uneducated workforce would make it hard for someone like Brad to be anywhere as successful as he is here even if he worked just as hard as he does here.

So why shouldn't Brad be assessed an amount that is proportional to the amount he benefits from the civil society that exists in the Unitd States to help pay for the maintainence of said civil society?

danielost

on Oct 27, 2007

all that means is you want to steal brads hard work.

laplace

on Oct 27, 2007

Republicans believe they can have their cake (lower taxes) and eat it too (spend like there is no tomorrow). How can we ever have a discussion about lowering taxes without addressing the spending side of the equation? Sorry, but maintaining world domination isn’t cheap.

Last year we paid a grotesque 400 billion in interest payments on the national dept (third largest expense in the budget). A cowardly Republican congress allowed the pay-as-you-go rules to expire in 2002 allowing them to spend their way to a record $8.5 trillion – adding about $3 trillion since Bush took office. Higher interest rates, rapid devaluation of the dollar and a bankrupt social security system are but a few things we can look forward to.

Republicans failure to understand the effects of spending and lack of political courage in asking the American people to pay for it (in essence that means asking us to endorse their policies by actually footing the bill) is *much* more despicable than Democrats’ inclination to tax.

Dr Guy

on Oct 27, 2007

Republicans believe they can have their cake (lower taxes) and eat it too (spend like there is no tomorrow).

You make a good point, and use the correct terminology. They were republicans, they were not conservatives.

cactoblasta

on Oct 27, 2007

Great summary, Leauki.

Draginol - you make a good point, but you're also forgetting an important factor.

Reducing taxes will raise inflation, which lowers the relative value of your wealth. Increasing taxes can work as a limit on inflation, which after all is one of the two great threats to any economy (the other being unemployment).

If raising those taxes decreases inflation, then your wealth will rise in relation to that of other Americans, simply because no tax is likely to affect your absolute wealth as much as it will that of middle and lower America. Your six dollars after tax is still three or six times as much as their one or two dollars after tax.

You have to try and look at the macroeconomic picture as well as the simple, immediately obvious impacts of tax law. Speak to an economist or someone who's worked on Reserve Bank policy for a better idea of how things are perceived (and therefore do) work than I can ever give.

After all, money is just a way of keeping score. If the number of points you can earn goes down, but you can actually increase your points advantage over other players through a rewrite of the redistribution code, then how could you possibly consider yourself disadvantaged through said rewrite?

StumpMan

on Oct 28, 2007

Cactoblasta, let me ask you a question.. With the current tax system, where is the incentive to do better for yourself?

For example, at my last job, over a period of several years, I got three promotions. Each promotion came with a pay increase. And each time I got more money taken out than I had previously. So finally, at my last increase, my paycheck was reduced to below what I made before I started.

You know what that taught me? DONT TRY TO DO BETTER...JUST BE MEDIOCRE. You try to do better for yourself, and you are penalized.

danielost

on Oct 28, 2007

Same as always - bigger paycheck,

So finally, at my last increase, my paycheck was reduced to below what I made before I started.

you need to learn to read cacto.

cactoblasta

on Oct 28, 2007

With the current tax system, where is the incentive to do better for yourself?

Same as always - bigger paycheck, bigger office, fancy title, a certain latitude to be smarmy to corporate inferiors that's otherwise known as status.

You know what that taught me? DONT TRY TO DO BETTER...JUST BE MEDIOCRE. You try to do better for yourself, and you are penalized.

Are you sure you filled out your tax return properly? Were your wages being garnished? I know things can be a little funny around the tax bracket borders, but with three separate promotions I would have expected enough wages growth to get past that problem. Unless of course they were sideways or extremely minor promotions, in which case you could still be in that zone and frankly apart from switching to a flat tax there's no way of avoiding you becoming a casualty.

In any case what was the specifics of your situation? It's possible you were being over taxed and you can apply for a fat refund for those years. You should really see a tax specialist and see whether there's anything you can do to get some of that money back.

Dr Guy

on Oct 28, 2007

Reducing taxes will raise inflation, which lowers the relative value of your wealth. Increasing taxes can work as a limit on inflation, which after all is one of the two great threats to any economy (the other being unemployment).

Nice attempt at understanding econ. But the cause of inflation is not too much spendable money, but too much money chasing too few goods. If you want, we can play devils advocate on this and show you were you are wrong, and how reducing taxes on the poor is bad.

First, reducing taxes on Brad will not make him go out and spend it on hamburgers. He will invest it in his company (hire another person, buy more computers, etc.). Now I do understand that some out there (Clinton, Edwards, Obama come to mind) think he will stuff it in a mattress, but while that is a popular myth among some, it is not reality.

By investing (not spending), he is creating more goods, so the amount of goods being chased by the dollars go up at the same time the number of dollars go up.

But what happens when you reduce taxes (those imaginary things since it has already been shown that the bottom 40% of earners pay no taxes - and there is not 40% poor in any developed nation)? Why they spend it! They pump it back into the economy chasing those flat screen TVs! So the worst thing Congress can do is reduce taxes on the poor as THAT will cause inflation!

But the reality is neither cause inflation. Why? Because the money spent by the individuals is not new money, just redirected money. The government was spending it before, now people are. Indeed, it is less inflationary, since the government does not invest, and hence all that money was being spent before, while now some of it is being invested, and thus increasing the capacity of the economy.

Now some may argue (correctly) that the money the government spends goes to companies that then invest the extra money. This is true. But that is a secondary effect of the money. And is also true of the money that Brad invested (it goes to people or companies who invest some of it as well). So the secondary effect of the money spent by both the government and individuals is the same. It is just the initial effect that remains. And that is, private citizens create wealth, government creates inflation.

Sorry this is so long. Hope you enjoyed it.

Noumenon72

on Oct 28, 2007

Actually, if you could get government to hold the line on spending, tax increases are good for investment. A $100 tax increase that goes to paying down debt adds $100 to the national savings rate. When you let Brad keep the $100 instead, some of it he'll invest and some of it he'll spend on hamburgers -- any part he spends on hamburgers increases consumption and reduces savings. Less savings, less investment. (Deficits are negative savings, so reducing the deficit is the same thing.)

This isn't an argument for any real-world tax increases. It's just examining the effects of a tax increase isolated from the additional government spending that usually comes with them.

Gideon MacLeish

on Oct 28, 2007

Are you sure you filled out your tax return properly?

Cacto,

Not sure how it is in the "merry ol' land of Oz", but here in the US, it works like this:

At the federal level, three different types of taxes are pulled from the paycheck: federal taxes, social security, and Medicare/Medicaid taxes. When your income is low enough, you only see the latter two (you ALWAYS see the latter two!) As your pay rises, yo're more likely to see federal taxes pulled. As someone who has worked a boatload of overtime in my life, I can tell you, there's a point after which you basically stop earning extra money because it's all going out in taxes.

Many states also tax at the state level, and rates can very widely. State taxes are structured differently, and the deductions aren't the same, so state tax withholding can climb even faster than federal withholding.

It is not abnormal for someone to receive less take home pay after certain salary increases. And it sucks royally.

Noumenon72

on Oct 28, 2007

Let's say Brad was born in Mexico.

Is he still a rich successful entrepreneur there? Or is he poor like most people in Mexico?

If I can totally distract from your main point, the world's richest man is from Mexico now. It's the world's 14th largest economy.

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