Posted on 10/05/2020 7:29:35 AM PDT by knighthawk
Consider the following simple model:
If I or my business makes after expenses make $1M. Taxes (Total: local, state & federal) are 80% (just picking a number for percentage of taxes !).
$1M - .8 * $1M = $.2M or $200K ($200,000).
I or my business have to use the above result to pay investors, attract more investors (because I or business are a good investment!), I invest directly in the business, hire more workers to increase productivity, etc.
Clearly if taxes are lower I have more to do the above. If they are higher I have less. If they are high enough I shut down, lay off everyone and go home !
So which is better have more money after taxes to expand thus hire more people (and as a consequence make more money!) or have less perhaps lay people off and maybe even close up ?
It’s pretty simple if the business has more money it expands, more products made more people are hired and in the long run more is collected by government due to all this additional economic activity. Activity that wouldn’t exist if that “high tax 80%” was left in place & taken. Its been demonstrated time and time again. In modern times JFK did it, Reagan and others !
And the rate of 80% was picked just to have a number !
Well what do you do when you get a raise at work? Buy more stuff, do more home improvements, invest it?
Guess what, businesses do the same!
We don't disagree. The deficit adds to the debt. Debt service makes it harder to avoid a deficit and is very dependent on interest rates, which are in turn dependent on credit perceptions as well as monetary policy, which are partially dependent on debt, which is composed of cumulative deficits.
I could have been more explicit. It's not the deficit in any one year that matters... its the cumulative debt, as you've emphasized.
Yep And maybe I should have put it a bit different to begin with. I didn’t intend to contradict what you said, just add to it and make it a little more specific.
I appreciate the considered response.
I am for tax cuts for businesses that are in America and that directly lead to those businesses improving their operations and investing in their workers.
I am only against tax cuts for businesses that use the extra cash to invest in facilities in foreign lands and in bringing people from foreign lands here to displace hardworking Americans.
And where do stock buybacks fit into this?
"The underlying logic for the TCJA was that allowing companies to keep a greater share of profits, would stimulate investments in long term growth. Instead, the dominant company response to the TCJA was stock buybacks. For the first three quarters of 2018, buybacks were $583.4 billion (up up 52.6% from 2017). In contrast, aggregate capital investment increased 8.8% over 2017, while R&D investment growth at US public companies increased 12.5% over 2017 growth." source
Good point.
I’d have to do more research on it. But the figures cited are not inconsistent with the idea that the tax cuts spurred investment. A 52% increase in buybacks, compared to 8.8% and 12.5% increases for capital investment and R&D investment is interesting as far as it goes, but I’d be more interested in comparing the absolute numbers rather than percentages. Increasing spending from a dollar to 2 dollars represents a 100% increase. Increasing spending from $1,000 to $1,500 is only a 50% increase, so comparing percentages doesn’t tell the whole story.
Multinationals received a one time win-fall on their foreign profits. It’s conceivable that the win-fall exceeded their ability for capital investment at the time. There are only so many new plants, etc. that a company can build at any given time., so they parked some of the excess money into buybacks. That extra equity can always be traded for cash to finance future expansion.
Businesses & people do business where its cost effective to do business. You vote for Bozos who make it hard to do business here, they’ll go elsewhere, contract or shut down.
I am for freedom to do business where ever one can. I prefer it done here as much as possible. However I’m not going to punish someone because we foolishly made it impossible here.
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