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 4)

Noumenon72

on Oct 28, 2007

Gideon, that just doesn't make any sense. For you to end up behind after all taxes are applied, the marginal rates would have to add to a total of over 100%. Even if you are in the 36% tax bracket paying New York's sales tax and city income tax and somehow paying Medicare and SS tax too, you are not going to get up over 80%. Now if you're getting some kind of benefit that phases out with income (the EITC?), those are the kind of situations where you can lose out by making more money. But there's no way you can take out 36% of something and end up with less money.

Edit: I'm from America and I work between 10 and 80 hours of overtime a month.

Noumenon72

on Oct 28, 2007

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

* Mostly self employed
* Mostly run businesses

Your link isn't to a New York Times news story, it's to some kind of book review of "The Millionaire Next Door." The main conclusions of that book are based on which millionaires returned the authors' survey and took time to have face-to-face interviews with them. There is some major self-reporting bias there.

Elected Democrats tend to be lawyers.

Elected Republicans tend to be lawyers too... I would think... they're the useful servants of the powerful. I Googled for this for a while but couldn't find a breakdown.

John Edwards doesn't produce anything. He makes no products or goods.

I love how the market is a perfect arbiter of value when it comes to knowledge workers like bankers, executives, and import agents, but when the system rewards a lawyer with a ton of money you're all, "What did he do to deserve that?" Like you were saying in the other thread, the economy ain't just mining any more. Not only do lawyers provide a service the market values highly, they're paid by the hour -- shouldn't that make them the most sensitive to marginal tax rates of all the upper class?

Gideon MacLeish

on Oct 28, 2007

Now if you're getting some kind of benefit that phases out with income (the EITC?), those are the kind of situations where you can lose out by making more money.

Nope, no benefit, noumenon. The way it has been explained to me (and the literally dozens of others I've talked to who have had similar experiences) is because I claim ALL my exemptions for withholding, at a certain point it calculates the wage for that pay period as if you were paid that for the entire year and takes out the deductions accordingly. Possibly bad accounting on the part of the employer, who knows, but a phenomenon I have not been REMOTELY alone in experiencing.

Dr Guy

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.)

Very good - but -

IF - the biggest uncertainty known to man. Except when it comes to government and taxes. Then we know that the IF is really a "no Way"

danielost

on Oct 28, 2007

(Citizen)Noumenon72

Now if you're getting some kind of benefit that phases out with income (the EITC?), those are the kind of situations where you can lose out by making more money. But there's no way you can take out 36% of something and end up with less money

did you even read what you wrote.

if you take 36% out of something that something is always less.

and by the way i have seen the samething with overtime and i am/was in the lowest tax bracket.

Draginol

on Oct 28, 2007

Cacto - there is little or no correlation between inflation and tax rates. I don't know where you got that idea but we have hundreds of years of data to demonstrate that they are not related.

Draginol

on Oct 28, 2007

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.

No, it simply transfers money from one person to another based on an individual choice. No different than what the government does except it's more efficient when it's between the citizen and the merchant than when it is between the citizen, the government, and another citizen/merchant.

Draginol

on Oct 28, 2007

I love how the market is a perfect arbiter of value when it comes to knowledge workers like bankers, executives, and import agents, but when the system rewards a lawyer with a ton of money you're all, "What did he do to deserve that?" Like you were saying in the other thread, the economy ain't just mining any more. Not only do lawyers provide a service the market values highly, they're paid by the hour -- shouldn't that make them the most sensitive to marginal tax rates of all the upper class?

No, my point is that John Edwards does not qualify for someone who should be dictating how our economy should work.

I don't have any problem with how much anyone makes as long as it is done in a free market.

My objection to Edwards is in the context of people complaining about how much doctors make as well as pointing out that Edwards peculiar "business" is not something that gives him a very good real world understanding of how market forces actually work.

Edwards millions are the result of manipulating a particular government system (the courts). By contrast, Bill Gates makes his money almost completely via the private sector.

Draginol

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.

That's really completely nonsensical.

At the macro level it is simply a question of who will produce more prosperity for society with a given dollar: A successful entrepreneur or the government.

People who have demonstrated the ability to produce jobs, create wealth, and provide new products and services are a better bet for $1 of "investment" than the government whose decision makers are largely economically clueless politicians who are often at best incompetent and at worst corrupt.

Jythier

on Oct 28, 2007

Taxes are crazy. But you can't, as much as you'd like, equate withholding to taxes. If you work overtime for a period, the withholding assumes you make that much EVERY period. You don't. Therefore, you're over-withheld for that period and you get it back in a refund at the end of the year. Federal taxes work in such a way that for each bracket, you get to keep x% of the money for that bracket. When you move up to the next bracket, it doesn't recalculate the taxes - you pay the same amount for the first $20,000 of taxable income no matter how much you make after that. So, whenever you get $1 raise, you get the raise less some percentage. But it will always be higher than before.

Gideon MacLeish

on Oct 28, 2007

True, jythier, but those interest free bank loans to the government are a royal pain, because the reason we accept overtime at some jobs is because we need the money NOW, not next April.

cactoblasta

on Oct 28, 2007

Cacto - there is little or no correlation between inflation and tax rates. I don't know where you got that idea but we have hundreds of years of data to demonstrate that they are not related.

I read about it in the paper. The Howard government cut tax rates in 2002 and the Reserve Bank of Australia has warned that any further cuts will result in inflation and they will be forced to increase interest rates to compensate.

I'm not trying to say our situations are the same, but the economists all work from the same textbooks so I figured there must be something universal to this. Sorry if I have it all the wrong way around!

Edwards millions are the result of manipulating a particular government system (the courts). By contrast, Bill Gates makes his money almost completely via the private sector.

Apart of course from a wide variety of extremely lucrative government contracts across the world. Much of a lawyer's work is done away from the courts anyway - you probably have experience of that. How many lawyer's hours of work have you been billed for outside of court time in comparison to court time?

True, jythier, but those interest free bank loans to the government are a royal pain, because the reason we accept overtime at some jobs is because we need the money NOW, not next April.

So you don't actually lose the money! I see now. Why not just negotiate with your employer to pay your own tax? That way you can make the decisions about how much to pay when and can make up the remainder at tax time. If it's possible to do that in the US it may well be worth it.

danielost

on Oct 28, 2007

not

Gideon MacLeish

on Oct 28, 2007

Why not just negotiate with your employer to pay your own tax?

Very few employers (in my experience) want to bother with the paperwork.

Dr Guy

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.

That's really completely nonsensical.

Not really, but it is simplistic. It fails to take into account who is buying the government debt. Your money is going directly into the economy. Less money, less to invest. That $100 the government borrows does take from the investment - for those of us who buy the bonds. However, as we have so often been told, not all bonds are bought with US savings dollars. Many are bought with foreign money (that is a whole nother issue). So let's say $50 is taken from the US investment dollar. That means that $50 is still left.

In the end, we cannot borrow forever. There has to be a point of diminishing returns when pushing government borrowing (good for individual wealth, but hardly conducive to investment in this country) to other nations is counter productive.

And THAT is where we have to be concerned about the exchange rate and other countries bailing on us. And that will come when the US bubble (the really big bubble) bursts. And no one KNOWS what that point is. But the best speculators will guess right. It has been over 50 years now, and so far, the bubble has taken some beatings, but so far not burst. WHy? Because those foreign investors still have confidence in the US (even when the democrats and the MSM shout doom and gloom).

And the model to predict that? I may not be as complicated as the weather and GlobalWarming, but so far, no computer has been created that predict that "simple" event. Much less the more complicated ones that we are supposed to beleive on faith alone.

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