data indicates progressive taxes have more of a disincentive on growth than regressive taxes

I was listening to an interesting presentation in a video, where data was used to point out that, as taxes are raised on the rich, the overall economy shrinks a little bit, counteracting the effect of increasing tax rates on the government's revenue.

No matter what type of different progressive tax types were used, the government revenue from that tax didn't increase much over the long-term.

There was one interesting exception to this in the data, and that was regressive taxes. As government collected more regressive tax, the amount of revenue from that tax really did increase.

The video is here. (skip to 7:05 into the video)

This all flies in the face of what most people would expect.

I have a theory that could explain this. I think that income in the hands of business owners is very important to invest. The business owner can't expand their business, which grows the economy, without that money. When you look at most small to medium sized businesses, what do they do with that money? They pour most of it back into their business.

When you tax lower income people (not poor, but just lower income) that tax isn't taking away from investment, it's just cutting into their consumption. Not only that but the tax affects the balance of supply and demand, effectively forcing these middle class workers to have to demand higher gross incomes, to maintain the same disposable income. (Somewhat of a similar effect to minimum wage or forcing people to pay for their own healthcare)

Now, I'm not saying tax the rich as little as possible and get rid of progressive taxes and shift the burden on lower income people. But I do believe this phenomena holds true over a certain range of tax rates, and could explain the interesting correlation seen in the data.

I think what this all demonstrates is that, to grow the economy, shifting income towards investment is more important than consumption.

 

I think most talk about personal and business taxation is meaningless. Taxation is not a tool to guide the economy. Taxation is required in order to fund the governments which we demand. Talking about taxation without talking equally about spending is a fool's game! How much we spend determines how much taxation we are required to pay. Why do we have regressive taxes; they are required to fund certain government spending. For example, fuel taxation is supposed to generate enough income dedicated to funding transportation projects...if people want less fuel taxation then people need to accept less transportation infrastructure. Local governments have little choice but to apply sales taxes in order to fund their governments. How taxation is applied to public and business is quite complex. Why do we have a zillion tax points; to spread the burden of taxation. I've often wondered why we need county governments? Why can't this be dealt with at the local and state levels? I recently read that in the USA all governments combined collect between $6-$7 trillion in taxation. I don't think tax problems are progressive or regressive; tax problems are more about government spending! And, the $6-$7 trillion DOES NOT include the $1 trillion in deficit spending! So our governments are spending ~$8 trillion per year which is a gigantic burden on everyone...

 

Combine the two and you get to understand the social wage. This is typically low, reflecting low levels of real redistribution (and, as inequalities grow, economic growth suffers)

 

In the USA there is no such thing as a social wage...

 

Its an economic term that refers to the interaction of tax and benefits. It tends to strike outcome inconvenient for the right as many benefits actually go to the middle classes.

 

To artificially force wages to satisfy politics denies the job seeker his right to compete in the labor force. Those who acquire education and skills and work hard must be differentiated from those who don't. Providing those who don't put forth the effort with forced income/benefits does nothing but lower the productivity and increase the cost of labor...

 

You're wrong. Its a statistical measure, applying good ole economics, that looks at whether government expenditure and tax are actually redistributing. Even progressive tax doesn't necessarily lead to a positive social wage, given many expenditures are skewed in favour of the middle classes.

 

That is because the poor do not have lawyers to dodge the regressive taxes. But the real question should be which tax cuts stimulate the economy most. We already know that cutting progressive taxes on the wealthy has a minimal positive effect on the economy, but unfortunately we have never tried regressive tax cuts equal to the Reagan, Bush or Tramp tax cuts. Apparently the Right is too afraid to try those tax cuts because they already know they would create many more jobs than tax cuts on the wealthy.

Foe example, if we had replaced each of Bush's stupid American job killing tax cuts when they expired, DOLLAR FOR DOLLAR, with a cut in the job killing payroll taxes, this would have given the American wage earner an immediate increase in take home pay to spend on a regular basis without costing the employer a single penny thus stimulating demand, and the businesses that employ Americans would have an immediate cut in the cost of labor without downsizing or outsourcing a single American job as well as saving the cost of compliance. The businesses that employ the most AMERICANS would have gotten the most benefit from the tax cuts, exactly the group of people you would want to benefit most from tax cuts. And Tycoons who increased profits by outsourcing American jobs for cheaper foreign labor, would not have been rewarded like they were by Bush with a tax cut on that profit gained at the expense of American jobs.

Cutting regressive taxes is ALWAYS better for economic growth than cutting progressive taxes!

 

totally wrong of course. They pay all the taxes so cutting their taxes has the most effect. What a surpise that the liberal got it perfectly backwards.

 

in America we believe in freedom, not redistribution. It's why the old world has 65% of the per capita income of America.

 

exactly!! redistribution discourages both those how give and those who receive the redistributed money. It is a lose lose proposition!

 

You think low growth because of inequalities is a celebration of freedom?

 

we are predicting 4-5% here growth because of freedom, at least more freedom that you have in the old world!

 

You can expect growth after crisis. Bit obvious really. Imagine the growth you would achieve if you didn't have inequality of opportunity...

 

Experience has proven that perfectly wrong, no surprise you are a Con.

 

Trumpettes predicted 5.4% growth last quarter, the first since the cuts took effect, and it actually 2.0%, about the same as Obama the only difference being the Right called 2.0% a "ROARING" economy!!!!!

 

I think taxes do have to go up a little bit on the rich. But by "rich" we do have to be careful who that qualifies, what income level threshold we are talking about. There are plenty of households earning $150 or even $300 thousand a year who consider themselves middle class.

There's also ample evidence to show that as taxes start increasing on $100,000+ earners above 50 or 60% overall rates, government revenue doesn't increase that much. The taxes start becoming a disincentive to economic activity, and in any case if these high income earners have less dispossable income, they're not spending as much.

Ironically, government spending could be a major source of inequality. Think about private contractors, or an excessively large army of very well paid bureaucrats with generous comprehensive lifetime benefits. When you're taking money and giving it to someone who earns more money than the person you took it from.

That's spot on of course.
That is the controversial question, to which we can't agree.

But I think my OP did touch on the importance of not having rates too high on the types of taxes that would reduce investment - and by that I want to emphasize productive investment, the types of investment that would be likely to benefit the economy.

These are typically smaller medium to medium sized businesses (although small businesses can sometimes eventually grow into medium sized businesses), not talking about banks or big financial institutions.
Unfortunately, as we have seen in the last few elections, there are few people to stand up for the medium sized business owner.

(Large corporations may represent most of the economic activity, but they generally don't represent most of the potential for growth of that economic activity.)

I think when we're talking about most of these gigantic corporations and financial institutions, taxes do not really behave as a major economic disincentive, and they already have plenty of availability capital, and in any case some would say that there's a major parasitic aspect to that most of that capital (concept of economic rent). Of course, "fighting for the small business owner" can oftentimes be used as political cover for the interests of much larger financial services.

 

Government spending is not about 'redistributing'? Government spending is about managing the government that Americans demand...

 

This isn't about moan about the general nature of government spending (e.g. military waste). It's about calculating how taxes and spending interact for an individual's well being (e.g. if taxes are used to fund health and education then the net effect can be positive, reinforcing redistribution)

 

Healthcare and education for the public, as well as other programs, can't be about 'redistribution' since these programs are available equally to all citizens...

 

Interesting comment.

I have tried to find a treatise on the benefits of Progressive Income Taxation. I can't find it. There is no such proof-positive. (Or if there is, it is hidden in someone's draw at a university.)

Which is why I have come to the Income Cap. Yes, a more progressive taxation system is necessary - especially in America where one sees that the highest tax-bracket is taxed less than the next-highest.

But the actual tax-payments scheme (who pays what by income bracket) seems progressive:


The above does not seem to be all that progressive!

So the Tax Foundation nicely does it another way:


Much better, right? Just the progressivity that one might want!

Why not end this mindlessness of Wealth accumulation and simply put a limit on upper income by means of a 100% tax. Then we'll see what happens ...

 

A completely worthless chart because the wealthy can "adjust" their taxable income down to next to nothing. Notice the Right never post gross income and tax rate only "adjusted" income!!! The Right also never includes payroll taxes, 2/3 of wage earners pay as much or more in payroll taxes as income taxes whereas payroll taxes are capped for the wealthy.

 

If you are saying that present tax-rules pertinently favor upper-incomes, I can agree.

We should throw the entire tax-system into a bog, edict a progressive tax (without the slightest loophole for whatever the reason) along with a 100% tax at some upper-income threshold. (Say, $5M)

For as long as Americans, regardless of income-level, vote Replicant then upper-income taxation will favor Wealth accumulation at the top. And we all know what that means.

This:


What kind of country are we living in when 0.1% of upper-income Americans pay taxes allowing them to garner the same percentage of total net Household Wealth as the other 90%

That crossover seen in the above two lines came during the Great Depression, and it was then that Roosevelt had the courage to change upper income taxation from already 80% to above 90% - see here:


Which is were we should have kept them. But, no. It was JFK (yes, read the above graphic) who started the trend downward in upper-income taxation to 70%. From there, Reckless Ronnie sunk upper-income taxation to around 30% - and the Dork reduced it recently even further.

The crass evidence of what the really Replicants want can be read in that history. Absolutely low upper-income taxation for those who give them the money to spend on winning elections.

Ain't no way to run a Real Democracy ...

PS: Manipulating upper-income taxation and a warped electoral college that allows them to win presidential elections that they should not have won are the most important weapons in us by the Replicant Party. The evidence of both mechanisms is pathetically obvious.

 

You're wrong. For redistribution to occur benefits must exceed costs for the low paid (and vice versa for the middle and upper classes). That necessarily must include the nature of government expenditures.