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Old 10-08-2012, 05:53 AM  
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Originally Posted by rivalarrival View Post
Money != wealth. Money's relationship to wealth is the inch's relationship to a rope. Money is a way to measure wealth, but it is not wealth itself.

It's quite common for the rich to leverage the desperation of the poor against their own self interest. They participate in, and perpetuate a system where the poor are compelled to undervalue their worth in order to survive. The rich hire a lot of workers and use their labor to earn a hell of a lot of money, and the rich then pass out a little money to the people who actually performed the work. That is the recipe for American manufacturing, retail sales, food service, etc. Pay a worker $8/hr, use them to generate $12 worth of net earnings.

Now, I don't begrudge anyone the right to turn a profit. But the growth of profits, CEO earnings, and the personal wealth of the rich has grown to levels that became unsustainable long ago.

Taxing the rich at higher levels won't increase tax revenue from employers. Decades of evidence show that tax rate is not significantly related to tax revenue. So, the only real effect we can get from adjusting the tax rate is how taxpayers react to it. A high tax rate entices businessmen to spend their money on deductible expenses. As a businessman myself, I can choose how much money comes out of my business and comes to me in profits. If tax rates on my personal income are low, I pull more money out and spend it on myself. When they're high, I spend more on payroll.

In this way, high tax rates increases the "velocity" of money - how fast it is spent after it is acquired. The higher the "velocity" of money, the faster the economy moves. A stagnant economy is a dead economy.
As far as businesses (such as manufacturing) paying the wage that the market bears based on the jobs/workers ratio I think that system works fine.
Do I wish I got paid more? Sure. Do I wish that everyone could get paid more? Sure. So you are a business owner. Okay, well if you have employees then the wages were raised 15% would you have as many employees? Would you pass the expense on to your customers? Or would you yourself take a paycut?

Your tax example about high personal taxes resulting in you spending more on payroll etc, that sounds good. I honestly don't know enough about that end of it. I do understand supply and demand fairly well I think. I also think that the more money one earns (or just has) the more potential for building wealth. That is how I think the wealthy seem to get so much wealthier. Also, I see people doing things themselves that have a tremendous detrimental effect on their "wealth". You could take everything away from the "billionair" and put him next to a lower income person and then give each one of them $100,000 dollars to do whatever they wanted to with it. How do you think that scenario will turn out if you leave them be for a year or so? Then, whose "fault" would it be do you think?

Honestly, I think that what we need is for everyone in school (probably last couple of years of highschool) to be required to take a "personal finance" class. I'm not talking about just learning how to balance a checkbook type of stuff. I'm talking about learning about compounding interest, lottery tickets, about credit cards, and how they work, smart investing, depreciation of high ticket items, and some statistics on those subjects to give a clear picture of how those things effect people. I think that would go a long way. Many people end up in the hole and in poor financial shape because of the CHOICES that they made under some misunderstanding of how something works. And then there are those that just figure the gov't will care for them when they screw up....
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Old 10-08-2012, 08:30 PM  
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Kent, Ohio
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Originally Posted by YelloJeep View Post
As far as businesses (such as manufacturing) paying the wage that the market bears based on the jobs/workers ratio I think that system works fine.
Do I wish I got paid more? Sure. Do I wish that everyone could get paid more? Sure.
I agree with the principle of the free market. But for a market to be truly free, any two people who choose to do business with eachother must be on equal footing. Both parties must be under commensurate levels of duress, otherwise free market economics demands that the weaker party give up greater concessions than the stronger. The greater the difference in "strength", the greater the concessions the weaker party must give up.

This is why I don't have a huge problem with unions - up to a point. A union counteracts the inherent imbalance. (Of course, they can also go too far the other way, causing damage to the company)


Quote:

So you are a business owner. Okay, well if you have employees then the wages were raised 15% would you have as many employees? Would you pass the expense on to your customers? Or would you yourself take a paycut?
Hmmm... I'm not suggesting either. Remember, wealth is measured in dollars; wealth isn't dollars. If my net worth yesterday was a million dollars, and I spend $20,000 on a new car , my net wealth today is still a million dollars. But now $20,000 worth of that wealth is in the form of a car instead of a couple stacks of hundred dollar bills. But the difference to the economy is that I've consumed $20,000 worth of goods. I've done $20,000 worth of business and my wealth is the same. I've increased the velocity of money. (Yes, a car is a depreciable asset so this example isn't perfect, but I think you'll see the point I'm trying to make)

If I purchased that vehicle for purposes of doing business, I've decreased my taxable income for this year. (Yes, it's a fair bit more complicated than that, but we need not delve into the intricate complexities of the tax code when we're discussing this broad principle.)
Quote:

Your tax example about high personal taxes resulting in you spending more on payroll etc, that sounds good. I honestly don't know enough about that end of it. I do understand supply and demand fairly well I think. I also think that the more money one earns (or just has) the more potential for building wealth. That is how I think the wealthy seem to get so much wealthier.
Agreed. And I don't begrudge people the right to make their money work for them.

Are you familiar with the Laffer curve and/or Hauser's law?


Hauser's law is what I'm citing when I say that the tax rate does not have a direct effect on tax revenue. Tax revenue has been approximately 19.5% since WWII, despite massive fluctuations in actual tax rates. The government is always going to collect about 19.5% (+/- ~4%) of GDP in taxes, so the best tax rate is the one that maximizes GDP.


The Laffer Curve tells us that beyond a certain point, increasing tax rates does not increase tax revenue. Conservatives cited the Laffer Curve in justifying supply-side economics in the 1980's. They slashed tax rates. And they were correct. But the laffer curve is just that: a curve. Modern conservatives are taking the lessons of the 1980's (lower tax rates spur the economy) and trying to apply it where tax rates are already at record lows. They're looking at the right side of the curve and saying "The lower we go, the better!"

The problem is that we seem to be on the left side of the curve right now. We're below the most efficient tax rate right now, which is contributing to the sluggishness of the economy as well as the deficit.


Quote:

Also, I see people doing things themselves that have a tremendous detrimental effect on their "wealth". You could take everything away from the "billionair" and put him next to a lower income person and then give each one of them $100,000 dollars to do whatever they wanted to with it. How do you think that scenario will turn out if you leave them be for a year or so? Then, whose "fault" would it be do you think?
You want me to say that the billionaire will be better off, but unless the billionaire was able to utilize the value of his name and pedigree, it's a tossup as to how successful either of them would be. Just because you know what a billion dollars looks like doesn't mean you can create it yourself.
Quote:

Honestly, I think that what we need is for everyone in school (probably last couple of years of highschool) to be required to take a "personal finance" class. I'm not talking about just learning how to balance a checkbook type of stuff. I'm talking about learning about compounding interest, lottery tickets, about credit cards, and how they work, smart investing, depreciation of high ticket items, and some statistics on those subjects to give a clear picture of how those things effect people. I think that would go a long way. Many people end up in the hole and in poor financial shape because of the CHOICES that they made under some misunderstanding of how something works. And then there are those that just figure the gov't will care for them when they screw up....
You won't find me disagreeing on the need for effective instruction in personal finance, and I agree fully that a lot of people are in poor financial shape because of their own mistakes. A lot of people put themselves in desperate situations. But here's the thing: Once they put themselves in such desperate circumstances, they're easier to take advantage of, and they're competing for the same jobs as you and I. Their desperation drives down the compensation I can command, making their suffering my problem. When this happens, we might very well find that public assistance is cheaper than the damage they do to the market, not to mention the cost of crime.
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Old 10-11-2012, 06:03 PM  
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The curves regarding the impact of taxation seem to be pushing the envelope of . . . wasn't it de Tocqueville that said "taxation is the art of plucking the geese with the least amount of hissing"? Taxation is just a means of financing a growing government. I think we need less government, not more as the government has proven itself to be self-serving, crony supporting and inefficient.
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