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  1. #1
    Registered User Navynukeman's Avatar
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    Please help me understand this

    I am trying to understand economics and what is good/bad for the economy. After hearing about how republicans supposedly suppressed a CRS report (http://www.dpcc.senate.gov/files/doc...op%20Rates.pdf) on tax cuts, I wanted to look into this myself. I do not know too much about economics so please feel free to correct me wherever I am wrong.

    So first, why did the unemployment rate drop from 2003-2007? It seems like the economy was doing quite well after the bush tax cuts until the housing crisis in 2008.

    I read the entire report by CRS that studied the correlation between tax cuts and economic growth. But I don't find this study conclusive because they left out a lot of variables that affected the economy since 1950, and thus would affect the results of their findings.

    I just don't understand how taxing the wealthy more in america will help the economy grow. Why wouldn't it be more effective to broaden the tax base instead of increasing taxes? And how else do you broaden the tax base without giving wealthy people the incentive to invest and help small businesses to create jobs?

    Please forgive me for my ignorance. I am just trying to understand things
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  2. #2
    Registered User Navynukeman's Avatar
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    Anyone?
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  3. #3
    Part Animal, Part Machine cheerupemokid's Avatar
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    Originally Posted by Navynukeman View Post
    I am trying to understand economics and what is good/bad for the economy. After hearing about how republicans supposedly suppressed a CRS report (http://www.dpcc.senate.gov/files/doc...op%20Rates.pdf) on tax cuts, I wanted to look into this myself. I do not know too much about economics so please feel free to correct me wherever I am wrong.

    So first, why did the unemployment rate drop from 2003-2007? It seems like the economy was doing quite well after the bush tax cuts until the housing crisis in 2008.

    I read the entire report by CRS that studied the correlation between tax cuts and economic growth. But I don't find this study conclusive because they left out a lot of variables that affected the economy since 1950, and thus would affect the results of their findings.

    I just don't understand how taxing the wealthy more in america will help the economy grow. Why wouldn't it be more effective to broaden the tax base instead of increasing taxes? And how else do you broaden the tax base without giving wealthy people the incentive to invest and help small businesses to create jobs?

    Please forgive me for my ignorance. I am just trying to understand things
    You don't. And it's not even the wealthy people that are the issue it's the small business owners.

    Many small businesses elect to have the income from their business pass through to them, so it becomes a part of their income for tax purposes. They do this because it's an easier way to file taxes and allows you to avoid the double taxation that the IRS imposes on corporations. This makes them "wealthy" on paper. But what goes to their income tends to be put back in their business.

    Raising taxes in addition to the Obamacare taxes will kill and or prevent jobs from being created.
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  4. #4
    Registered User Navynukeman's Avatar
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    Navynukeman is offline
    Originally Posted by cheerupemokid View Post
    You don't. And it's not even the wealthy people that are the issue it's the small business owners.

    Many small businesses elect to have the income from their business pass through to them, so it becomes a part of their income for tax purposes. They do this because it's an easier way to file taxes and allows you to avoid the double taxation that the IRS imposes on corporations. This makes them "wealthy" on paper. But what goes to their income tends to be put back in their business.

    Raising taxes in addition to the Obamacare taxes will kill and or prevent jobs from being created.
    What I don't understand is why liberals would disagree with this??
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  5. #5
    The Admiral neonhypoxia's Avatar
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    Originally Posted by Navynukeman View Post
    I read the entire report by CRS that studied the correlation between tax cuts and economic growth. But I don't find this study conclusive because they left out a lot of variables that affected the economy since 1950, and thus would affect the results of their findings.
    This is the important part. You arenít going to find any study that doesnít leave out a lot of variables that could impact the economy. The number of variables possible is stunning. Even a low estimate that would include everything that had a feasible impact would put the number in the hundreds of thousands. So yeahÖ

    Originally Posted by cheerupemokid View Post
    But what goes to their income tends to be put back in their business.
    What you said up until here is correct, but this isnít. The income taxed is net, not gross. Any money that they do make which then goes back into the company is a business expense and thus is not counted in net income. So no, it does not reduce possible re-investment in the company that way.

    There is still an issue here though. For example lets say that you are a small business owner and you are paying your employees say 30k a year, but your net profit after taxes is 20k. In that case its likely that you may fire and employee because you arenít making what you consider to be enough money to live on. In cases like this where the profit is marginal enough that they would resort to firing people to say above water in terms of their own income then their taxes can indeed be a major factor in the number of people they employ. This is why you generally hear talk of only raising taxes on companies making a net income below a specific figure. They think that below that figure them may have to fire employees if their taxes go up because of their own personal income. However above that figure they believe that they wonít have to fire employees. Where exactly that number is at is a matter of debate, but it should be considered a factor.

    As for the incentive to invest part that you mentioned before, again that is a difference between net and gross income. If you were to invest in say a company, that investment is discounted from your net income, so at the pointed its not taxed. Itís the money you make off of that investment thatís taxed. So in that way it doesnít discourage investment. Although one could argue that once they make their money from that investment they would go and reinvest somewhere else, but again that is subtracted yet again as a business expense, so again it doesnít count there. Although for small investors just like small business owners the same argument could be made about living expenses but this only counts towards small investors and not large ones. And just like with business owners there is often a line drawn on the income for a different tax bracket there.

    Its also very important to note the differences in expenditures become income levels. A lower or middle class person is more likely to spend most of what they earn, and thus reinvest in the economy if you will via their purchases. An upper class individual on the other hand isnít likely to change their expenditures due to a small increase in taxes, or even start cutting coupons. So itís a much smaller factor in purchasing behavior when you change the taxes on the upper class, but itís a huge factor if you change them on the middle or lower class.

    The other issue here and its one thatís largely ignored is that the money taken in by taxes doesnít just disappear. Its not like it goes into a black hole of anything like that. The government does spend that money which again goes back into the economy. The purchase products from companies, employee people which then purchase whatever, and on and on. So that money does make its way back. For example I work for a company with major government contracts and if it wasnít for that money we wouldnít be purchasing the items we do from other vendors nor would we be employing the people working on those projects. So the money doesnít just disappear. Instead itís a question of where it can be taken from that has the less negative impact, and what expenditures will have the most positive impact.

    In short, econ is complicated.
    All of this has been posted before, and all of this will be posted again.
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  6. #6
    Registered User Navynukeman's Avatar
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    Originally Posted by neonhypoxia View Post
    If you were to invest in say a company, that investment is discounted from your net income, so at the pointed its not taxed. Itís the money you make off of that investment thatís taxed. So in that way it doesnít discourage investment.
    Wait so does this mean that the amount somebody invests is deducted from their net income before taxes? Sorry i don't have a lot of knowledge about investing.
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  7. #7
    The Admiral neonhypoxia's Avatar
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    Originally Posted by Navynukeman View Post
    Wait so does this mean that the amount somebody invests is deducted from their net income before taxes? Sorry i don't have a lot of knowledge about investing.
    Correct.
    All of this has been posted before, and all of this will be posted again.
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  8. #8
    Registered User Navynukeman's Avatar
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    Originally Posted by neonhypoxia View Post
    Its also very important to note the differences in expenditures become income levels. A lower or middle class person is more likely to spend most of what they earn, and thus reinvest in the economy if you will via their purchases. An upper class individual on the other hand isnít likely to change their expenditures due to a small increase in taxes, or even start cutting coupons. So itís a much smaller factor in purchasing behavior when you change the taxes on the upper class, but itís a huge factor if you change them on the middle or lower class.

    The other issue here and its one thatís largely ignored is that the money taken in by taxes doesnít just disappear. Its not like it goes into a black hole of anything like that. The government does spend that money which again goes back into the economy. The purchase products from companies, employee people which then purchase whatever, and on and on. So that money does make its way back. For example I work for a company with major government contracts and if it wasnít for that money we wouldnít be purchasing the items we do from other vendors nor would we be employing the people working on those projects. So the money doesnít just disappear. Instead itís a question of where it can be taken from that has the less negative impact, and what expenditures will have the most positive impact.
    I trust private investors' decisions with their money a lot more than the federal government.
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  9. #9
    The Admiral neonhypoxia's Avatar
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    Originally Posted by Navynukeman View Post
    I trust private investors' decisions with their money a lot more than the federal government.
    That's a valid viewpoint on the topic. Of course we aren't talking about about investing in companies here, atleast for the most part, but about building roads and schoold and things like that. Granted the governement does invest in companies sometimes, and actually they have a better record than the private sector does on the whole. But still, your viewpoint there is a matter of opion and as such its valid. Its more of a moral stance you took there. I wasn't looking to debate a moral position on the subject or anything like that. I was just trying to explain how the whole thing worked with regard to your question on the OP. So as long as you don't have any other questions or comments along those lines I'll leave. Nothing personal, but I don't feel like getting into a discussion either way on matters that are more towards personal opinion on the subject, whichever way those opinions may lean.
    All of this has been posted before, and all of this will be posted again.
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  10. #10
    Registered User Navynukeman's Avatar
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    Originally Posted by neonhypoxia View Post
    That's a valid viewpoint on the topic. Of course we aren't talking about about investing in companies here, atleast for the most part, but about building roads and schoold and things like that. Granted the governement does invest in companies sometimes, and actually they have a better record than the private sector does on the whole. But still, your viewpoint there is a matter of opion and as such its valid. Its more of a moral stance you took there. I wasn't looking to debate a moral position on the subject or anything like that. I was just trying to explain how the whole thing worked with regard to your question on the OP. So as long as you don't have any other questions or comments along those lines I'll leave. Nothing personal, but I don't feel like getting into a discussion either way on matters that are more towards personal opinion on the subject, whichever way those opinions may lean.
    Oh yeah im not looking to debate, but more to see other people's opinions. But yeah your post was very informative, so thank you
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