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Do we need a 20% Tax Cut?

To anyone who still believes the nonsense that cutting taxes for the rich will stimulate job creation or the economy, Politico points out that between the year 2000 and 2009, the real amount that people pay in taxes went down by 20%. That’s right, we cut taxes significantly, and what happened?

Are we now awash in jobs? Is our economy booming? Hardly. During that time period, we didn’t create a single net job.

In fact, our country pays less of its GDP than most countries in the world. We pay 24% of our GDP in taxes, compared to countries like Germany, which pays 37%, or Canada with 31%. Even countries like Norway, which pays 41% of their income in taxes, is doing better economically than we are.



  1. C.S.Strowbridge wrote:

    Higher taxes on corporations encourage reinvesting profits into expanding the companies. As it is now, it makes more sense to take that money out of the company in the form of bonuses for executives, dividends, etc.

    Saturday, April 9, 2011 at 7:33 am | Permalink
  2. Dan wrote:

    My property taxes have gone WAY up, and will be increasing significantly again this year, at the same time the Whirlpool factory in town has had theirs cut. Perhaps if I threatened to move to Mexico…

    Saturday, April 9, 2011 at 8:38 am | Permalink
  3. Jason Ray wrote:

    @CS – Speaking as a corporate business executive, I agree with your core point but disagree with the specific characterization that higher taxes encourage reinvestment of profits. Taxes are paid on profits, so higher taxes do not incentivize taking the (now lower) profits and investing them. Larger profits do give business more flexibility in how they can chose to invest in the future growth, because small profits lead to conservation not investment.

    That said, your core point is correct. When corporations have a high profit, the first demand from shareholders is to let them benefit directly by paying the profit out, not in spending it on business growth. And if a company has to chose between spending money to invest in future growth (lowering their profits) or giving the money to the government, they will always chose to spend the money. So higher tax rates do tend to generate more investment in growth.

    What works far better than lower tax RATES is specific tax deductions or credits that target desired invesment. The R&D tax credit is one example, and a tax break for hiring workers in the US instead of in foriegn countries would be another.

    Bottom line – all well off individuals and all profitable corporations can stand to pay more in taxes than they are now. The path to compromise between liberals and conservatives on this issue is to increase the higher end and corporate tax rates, eliminate tax give-aways that do not target specific investment in the economy, but INCREASE the number of tax credits and deductions available to these groups that will promote investment specifically in job growth and economic prosperity.

    Saturday, April 9, 2011 at 9:53 am | Permalink
  4. PatriotSGT wrote:

    I agree, we have begun reducing the size of government and when the discussion begins around the 10 year budget proposal of Congressman Ryan we need to include some tax increases. If the proposed cuts are utilized I’d be for returning to Clinton era tax rates for all. I would also be in favor of closing all the loopholes that corporations legally enjoy along with ending all corporate subsidies. I like the fact that SS and Defense was deliberatley left out of the proposal so that those issues can be discussed individually and not used as bargaining chips.

    Saturday, April 9, 2011 at 10:37 am | Permalink
  5. C.S.Strowbridge wrote:

    Jason Ray wrote: “Speaking as a corporate business executive, I agree with your core point but disagree with the specific characterization that higher taxes encourage reinvestment of profits. Taxes are paid on profits, so higher taxes do not incentivize taking the (now lower) profits and investing them.”

    If you make $100 million in profits and reinvest $75 million back into the company, your actual profit is only $25 million. You only pay taxes on $25 million. The hope is if that $75 million will create a higher return in investment than just pulling the money out and loses some to taxes.

    If taxes are too low, then the risk of reinvesting isn’t worth it.

    Saturday, April 9, 2011 at 4:06 pm | Permalink
  6. C.S.Strowbridge wrote:

    “…when the discussion begins around the 10 year budget proposal of Congressman Ryan…”

    That budget proposal is a pile of shite. Anyone who discusses it like it is a legitimate proposal has as much credibility as a young Earth creationist has at National Academy of Science.

    Congressman Ryan is proposing 3 TRILLION in tax cuts and his plan would make the deficit situation worse.

    Saturday, April 9, 2011 at 4:09 pm | Permalink
  7. PatriotSGT wrote:

    “…proposal is a pile of shite” well since it seems to be the only proposal out there, I guess it’ll have to be a starting point. I don’t think Weiner’s 400 million will quite do the trick either. Pelosi doesn’t know how to do a budget, but we can hold out hope for Reid I suppose. I’m not quite sure how cutting 6 trillion would increase the deficit, but if you say so…

    Whats your Proposal CSS?

    Saturday, April 9, 2011 at 6:11 pm | Permalink
  8. Iron Knee wrote:

    Ryan is not talking about cutting $6 trillion in spending, he’s talking about $6 trillion in tax cuts.

    Saturday, April 9, 2011 at 7:53 pm | Permalink
  9. C.S.Strowbridge wrote:

    “I’m not quite sure how cutting 6 trillion would increase the deficit, but if you say so… ”

    It’s not my say so, it’s the CBO’s say so.

    And I repeat… Paul Ryan is cutting taxes for the rich by nearly 3 TRILLION. It’s not a serious proposal, do not treat it as such. It is not a starting point. It is a joke.

    At best it is a joke.

    “Whats your Proposal CSS?”

    Step one. Raise taxes on the rich and close corporate tax loopholes. Taxes have historically been 18% of GDP, but right now they are at 14%.

    End subsidies to big oil.

    Ban all outside money from elections.

    The largest air force in world in the United States Air Force. The second largest is the Unites States Navy. Pick one. Get rid of the other.

    The United States has enough nuclear weapons (including those in reserve) to nuke every city in the world with a population over 1 million 13 times over. Get rid of two thirds of those.

    Get the fuck out of Afghanistan and Iraq. Make it an orderly retreat, but get every single American troop out of there A.S.A.P.

    Find out who fixed in the intelligence (and it was fixed, it was not faulty) and put them in jail for a long, long time.

    The infrastructure in the United States is in massive need of repair / replacement. Spending money on infrastructure has the best multiplier effect, especially with so many people unemployed. This includes high speed rail, public transit, and massive, massive solar and wind farms.

    Increase regulations on banks to the point where they get the fuck out of investing. Banks should deal with savings and loans, and those should be guaranteed by the government while investment firms should be on their own to die if they screw up.

    Investigate the banking crisis, find out who authorized such risky investments in the first place, sue them for all they are worth.

    End the war on drugs.

    Ban all privatized jails.

    Ban all private contractors in military operations.

    That’s off the top of my head. I would go on, but I have to review Mandrake.

    Saturday, April 9, 2011 at 8:04 pm | Permalink
  10. Dan wrote:

    Bravo on ALL counts CSS! How about one payer health care. Publicly funded elections, open ballots/vote fusion. The Navy still needs aircraft for the carriers, there’s nothing like a floating airport for gun boat diplomacy, perhaps if the two didn’t duplicate “services” provided…

    Saturday, April 9, 2011 at 10:43 pm | Permalink
  11. Jason Ray wrote:

    @CS – You should have read my entire post, we’re in violent agreement – I was just questioning your semantics. Companies do not “make profits and then reinvest them, resulting in lower profits” – they spend money on things (expenses, not profits) and by having higher expenses they have lower profits on which they pay taxes. And in the vast majority of cases, the budgeting process works the other way around – the amount a company is willing/able to spend is decided first, then decisions about how the money gets spent come second. We’re in agreement, though, that companies that face higher tax rates on their final profits will tend to spend money rather than just pass the profits to shareholders, especially since most large companies are C corporations where the profits are taxed TWICE if they are distributed to shareholders – once as profits, and once as individual income.

    FYI that works on individual rates too – if we have a more progressive and fair tax code, then there is every reason to have a higher marginal rate on bonuses and dividends over a certain amount. I agree (generally) with Republicans that having high capital gains rates tends to cool the desire to make investments, but there is no reason that what is a capital gain for this purpose could be redefined to make the right outcome – incentivize people to invest their money on things that add jobs and grow the economy, and tax them at a higher rate for money they take out of circulation or pay themselves as dividends.

    Regarding your plan for deficit reduction:

    Agree with points 1 and 2.

    I agree with point three on elections but its not going to happen, so I would prefer to focus on controlling (and requiring disclosure of) ALL money that ends up impacting elections.

    Point 4 is a bit blown out of proportion. The air resources of the Air Force and the Navy have significantly different missions, configurations, and deployments. And as we witnessed in Iraq (1 and 2) and in Libya, control of the air is the best way to minimize American casualties while maximizing our military leverage. It would be foolish to “get rid of one of them” or even cut them both in half. That said, I completely agree that the total Defense budget needs substantial reduction, and that there are certain to be major overlaps between branches that could be reduced or eliminated. Not to mention changing the procurement process to allow real cost savings and efficiencies. As with every other spending area, we need to involved experts that are NOT in the current “chain of command” (or current feeding trough line) to drive re-engineering that makes sense while continuing to preserve our advantages.

    I agree with the idea of reducing nuclear weapon although again your point is overstated – we can’t actually nuke every city over 1M 13 times over, because while the number of WARHEADS is large enough, the number of WEAPONS isn’t – and multiple warhead weapons are designed to be fired at a single (large) target, not several targets spread out over too large an area. You can’t fire one MIRV at Los Angeles and hit San Francisco also, for example. Note that a substantial reduction will not actually cut spending as much, because we aren’t building that many new weapons or warheads and the costs of security and storage of the ones we have are fixed for a large number of weapons – taking half of the warheads out of a single silo or depot doesn’t change the costs a penny.

    Agree we need to end all of our wars (and “not war” in Libya) in an orderly manner, and that will help a great deal. We can’t just ship everyone home in a few weeks, though. We need a REAL plan and timetable to bring things in Iraq to a close, and we need to finalize what things have to look like in Afghanistan to do the same.

    Disagree that any of these infrastructure ideas will reduce the deficit – it’s logically impossible to reduce deficits by spending more money. Stimulate the economy, yes. Put people back to work, yes. Good ideas, yes. But they will actually increase the deficit not reduce it, so there is a real limit on how much we can afford to do, and the stimulus effects (as they impact the budget and deficit) are far future, when the deficit challenge is all too immediate.

    Disagree with the sweeping statement about “getting banks out of investing.” The financial system is far more complex than that, and the interdependency of the holders of capital and the investors of capital make this suggestion a bit too naïve. That said, agree that more limits and controls are needed, and the financial reform s passed last year are nowhere near enough.

    Agree with the emotion about suing (or jailing) those responsible for the financial meltdown, but its not so simple. The vast majority didn’t do anything that was illegal. It SHOULD have been illegal, but it wasn’t, and our legal system doesn’t give remedies for something that was legal at the time.

    Generally agree we should end the war on drugs, because we’re not winning anyway, and it is better to regulate and tax than try to stop the inevitable. I belive it should be illegal to manufacture or sell a product that is universally addictive and creates criminal behavior, however, so perhaps rather than “end the war” we should just pick our battles with great care.

    I don’t have enough information to comment thoughtfully on the last two, but I suspect banning all private enterprise from jail or military operations is not possible and not the best approach. I do agree with you, however, that the justice system and the military should not be operateds as a for profit business. It puts all the incentives in the wrong places.

    Sunday, April 10, 2011 at 12:50 am | Permalink
  12. ebdoug wrote:

    No one has mentioned “get health care out of the work place” to lower cost of production to lower cost of goods. Lower your rising grocery bill, etc. All sorts of jobs will be created when 2014 comes around and employers will be able to get workers who don’t have to worry about health care insurance.

    Allow the tax cuts to the rich to expire so that people like me who are living on dividends pay our fair share of taxes. 120 billion extra a year. (got in a discussion with someone in the grocery store Friday about this in our Red Neck Republican town. I’m not sure if she knows me, but I know her. She isn’t hurting. She agreed with me totally)

    Christian Science Monitor has a graph of percentage of taxes countries pay out. We are not being overly taxed.

    GE: Not paying taxes. GE is going to start making enough solar panels to power 80,000 new houses a year. I’m sure that is part of the reason they paid no taxes. Start up costs. Job creation.

    “Hot” Read the book “Hot” China and we are guilty of causing the temperature on this earth to rise. And we can’t just cut that back with solar panels as when we cause the ice caps to melt, we leave black water which attracts more heat from the sun. There is a point of no return when we will wipe out 75% of species on this planet, probably us with them.

    Solar panels. I put in six last week to power just lights and computer in my living room. Fun to not turn off a light when I leave the room. Just basically fun overall.

    there is a town in Oregon going green. Also Ron Sims has pushed for a lot of green in Washington state.

    Going green is going to produce many many jobs at least temporarily.

    Sunday, April 10, 2011 at 5:09 am | Permalink
  13. PatriotSGT wrote:

    CSS – Again, I have not read Ryans proposal, but it is the only one out there. Is there a democrat equivelent? No.

    However, on your points I can surprisingly agree with a good many or at least consider them as I stated in #4.

    On the raising taxes – not 1 penny more, until the Democrats come up with a plan to reduce the deficit and a plan to reduce the long term debt. Not 1 cent.

    I agree we need to get out of Iraq, Afghanistan and Libya, Korea, Kosovo, Germany and Egypt. Interestingly our agreement with Iraq runs out at the end of this year, which means all foreign troops are supposed to leave. Most of the Iraq government wants us to leave. I bet we are still there on 1 Jan. Tell that to the President.

    What Jason said about the nukes.

    Reducing the size of the Military, I agree, as soon as we get out of all the countries mentioned above. Our Navy, the finest Navy to ever sail the seas is larger then the next 17 navies combined. But, it is our quick response and force projection around the globe, (and why China has never tried to invade Taiwan) We must be careful in reducing it too much.

    Absolutely investigate the banking crisis, they were all rewarded, while taxpayers got punished. But, like with GEs CEO getting rewarded for paying no taxes with a job by the whitehouse, so did Geithner get rewarded for being a wall street insider. Who’s gonna investigate?

    Ban ALL contractors who serve the military? Well most of that is for the war effort and will go away, if they ever end the wars. But, since they make such nice political contributions to whoever is currently elected, now you know why we are still at war. Also, If we were to “do it ourselves” in the military, (never been done, armies have always been supported by civilians since before the roman legions). Congress has reduced the size of the fighting force that they now must use the Guard to accomplish their missions. We would need to double the size of our force (you guessed it they never really reduced it, just turned Soldiers into civilians) and bring back the carpenters, plumbers, laundry, tailors, typewriter repair guys, etc.

    Savings and Loans and the banking side of the Banks is insured by the gov. I agree the investment side should sink or swim on its own. I would not have given 1 penny in bailouts to any bank. They don’t give bailouts to their customers, so why should taxpayers bail them out?

    All in all not a bad start to a conversation. Perhaps you should call your congressman or senator and tell them to draft a proposal, if not, run against them since they won’t.

    Sunday, April 10, 2011 at 8:29 am | Permalink
  14. TENTHIRTYTWO wrote:

    Patriot: I hope Ryan’s proposal doesn’t include the stoning of puppies every Thursday. Otherwise all your “at least he’s proposing something even though I haven’t read it” posturing may become embarrassing.

    If it isn’t already.

    Sunday, April 10, 2011 at 12:21 pm | Permalink
  15. PatriotSGT wrote:

    1032 – understood, and I included it because I doubt too many others have read it either.

    Sunday, April 10, 2011 at 2:11 pm | Permalink
  16. Jason Ray wrote:

    @PSGT – I think you should reconsider the “not a penny more” tax stance as a blanket statement. There are tax “increases”, like ending oil company subsidies, which are a no-brainer and should happen regardless of what we do with restructuring government. In the main, though, I agree – increases in taxes should be PART of as comprehensive plan, not something we just do while we hope a plan develops. It would be too easy to just raise revenues, see the danger shrink, and start punting solutions down the road again – except we’ll have already fired the “raise taxes” bullet as part of a solution.

    @1032 – Paul Ryan’s proposal does not include puppy stoning. Unless you consider sacrificing the elderly to the Deficit gods, it doesn’t include any specific death threats. It is, however, not a starting point for a discussion – it’s a “perfect conservative world” fantasy. I was really hoping for better – Paul Ryan is a smart guy and a REAL starting point plan would have paid big dividends for the Republicans (political dividends, that is). As it is, they propose a non-starter that makes them look like tools of the rich and uncaring about the vast majority of the poor and the old. Which, given that many of them ARE tools of the rich and uncaring, is not the best strategy 🙂

    @PSGT and CS – one more comment about nuclear weapons. The vast majority of them aren’t targeted at population centers anyway. Most weapons are targeted at other nuclear weapons and strategic military targets. If anyone was actually going to fight a nuclear war, the last thing they would hit would be population centers, and then only as a “final strike” as their going down. There are enough major population centers in the blast zone of real military targets that you don’t have to target civilians directly. The good news is that the chance of a strategic nuclear conflicts involving multiple weapons exchanged between superpowers is vanishingly remote now, so we can afford to scale some back without significant risk – it just won’t cut the defense budget that much.

    It will be interesting to see what the President says on Wednesday. It was also interesting to see everyone is still punting Social Security down the road – politically wise, but financially foolish since any changes you make to SS almost demand some long term savings support to help retirement, and that means you need to start it as soon as possible. Waiting until 5 yewars before the program goes red won’t help.

    Monday, April 11, 2011 at 5:29 pm | Permalink
  17. PatriotSGT wrote:

    Jason Ray- I should clarify and say income taxes. Fees and taxes on consumer type products (gas, phone, cable, electric etc. should be discussed case by case. What I don’t like is when they say one thing then do another, or when they put a specific use tax into the general fund. For instance, in my state they brought up legislation to add a %tax to gasoline (in the middle of hyper escalation of gas prices)for which they already have a flat rate tax. The money they said would be for infrastructure. We all need that, right? Keep up the roads, bridges etc. The flat tax was supposed to be paying for that, but they’ve been raiding it to balance the budget. Then they said we propose an alcohol tax to pay for poor disabled kids. Awe, who can vote against the kids? Then they re-wrote the legislation so that thekids would only get 5% of the money and the rest to the education budget, but for only 2 counties. By the way those 2 counties are the mmost populated (most voters). What about the rest of the state?
    I don’t like it when they play these games. Or when they ask teachers to contribute an additional 2% on their retirement, then put that money in the general fund to balance the books, leaving a huge unfunded part of teacher pensions.
    You know who’s screwing them all? Democrats. I live in like the bluest state. I just don’t get how they get away with it.

    Tuesday, April 12, 2011 at 4:21 pm | Permalink