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I am not sure these specific points make much sense.

The first guy might well be right for his own situation: if his target customer benefits from the Obama plan, then he might as well, at least until other businesses start targetting te same people.

But there are also small businesses with rich customers, and these are hurt at the same rate that the ones with ordinary customers benefit. Unless, of course, Obama cuts more taxes than he will raise. But then companies that deliver to the government are hurt. Unless Obama wants to lend more to keep spending up, in which case future tax payers and companies are hurt. Economics isn't simple, and trickle-up is just as voodoo as trickle-down.

A similar problem for the other guy: why should higher tax rates encourage you to invest in your company? The whole point of investment is that you will get even higher earnings in the future, so at best you postpone the taxes together with your income.

by GreatZamfir on Wed Oct 22nd, 2008 at 05:11:05 PM EST
All those are not exactly the questions I myself had, they were in the same line.  The voice of the person on the street -- especially when they agree with you -- often has the ring of healthy common sense.  However, in matters economic, I always fear that common sense = oversimplification.

GreatZamfir: But there are also small businesses with rich customers, and these are hurt at the same rate that the ones with ordinary customers benefit.

And my first reaction to this was, "So what?  Let them eat bread."

But then I realized, a lot of small businesses that cater to rich customers may nevertheless employ middle and lower income people.  For example, someone who manufactures or installs jacuzzis or just plain old landscapers/gardeners.

A similar problem for the other guy: why should higher tax rates encourage you to invest in your company? The whole point of investment is that you will get even higher earnings in the future, so at best you postpone the taxes together with your income.

My "common sense" answer to this would be that -- like the guy said -- you make reinvestments, discount them from your adjusted gross income as an expense, and avoid paying the higher tax.

Then you say, but isn't the whole point of running my own business to make money for myself?  For many if not most people, probably true.

But even then, is it too naïve to believe that if you are incented to make those investments in your business now (i.e. to avoid having to pay Obama's higher taxes), then in the long run (assuming you made those investments wisely), your business will be even bigger and stronger, and thus you will be in a more secure position to enjoy your earnings, even at a higher tax bracket?

And yet, then I ask myself:  What if I purchase a relatively expensive piece of equipment as my reinvestment, and then suddenly economic conditions take a turn for the worse, and so now I cannot get a return on the investment in that equipment as quickly as I wanted to?  I might be able to sell back the equipment, but taking all things into account, it could very well be at a loss.  In such a scenario, it seems I might indeed have been better off paying the higher tax on my retained earnings rather than putting faith in the long-term pay-offs of reinvestment.

I am not a small business owner, so this is pure speculation.  Would be curious what more experienced people would have to say.

Truth unfolds in time through a communal process.

by marco on Wed Oct 22nd, 2008 at 06:09:51 PM EST
[ Parent ]
The first guy might well be right for his own situation: if his target customer benefits from the Obama plan, then he might as well, at least until other businesses start targetting te same people.
And this is the group that will likely most need help, and helping their customers will most help other business also.  If you want to stimulate the economy, providing money to the already well off is a  proven way not to do it.  They may have no good reason to spend it.  Providing money to those who are stressed will  insure that the money gets spent.

Increasing and extending unemployment insurance will also provide money that will get spent.  It also assists those who have been hurt for reasons having little to do with their own behavior.  If the cost of so doing predominantly comes out of the income and/or assets of the top 5%, that is appropriate, as that group has disproportionately benefited from the activity that has resulted in the current dislocation.

Best of all would be clawbacks on the income and bonuses of the beneficiaries of financialization, but that may not be politically feasible.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed Oct 22nd, 2008 at 08:03:12 PM EST
[ Parent ]
There are many moral reasons for more progressive taxation, but that is not really what this particular piece is about. People who fully agree with you on the moral part (including me if I were American) are probably already Democrat supporters.

The target here are people who fear that being too progressive in taxation will hurt the economy somehow, especially small businesses who are perceived as particularly important (and morally deserving) parts of the economy.

From that point of view, I don't think these people's arguments are strong. There are ways how Obama's tax plan may help or hurt the economy, but the mechanisms in this transcription are not among them. It's simply replacing Republican jabbering by Democratic jabbering.
Which I suppose is good if you suport the Obama tax plan for other reasons.

You give two new mechanisms: rich people save more and spend less of a boost in their income, and the countercyclical effect of unemployment benefits. I think the second has been well-observed, but is raising unemployment benefits in Obama's plans?

The first one is more troublesome. I mean, does America really need even lower savings rates? There might be some short term benefit from lowering taxes, but only if they are well timed as countercyclical spending. In general, changes in the tax system are not the best way for Keynesian policies.

by GreatZamfir on Thu Oct 23rd, 2008 at 07:42:02 AM EST
[ Parent ]
is raising unemployment benefits in Obama's plans?
No.  But it should be a part of a second stimulus plan.
does America really need even lower savings rates?
For that part of the savings that comes from the income of the top few percent this question is only relevant for that part of their savings that is spent in ways that benefits the domestic economy.  Investing in projects in foreign countries, converting the savings into foreign currencies and putting it into off-shore banks or buying shares and bonds of foreign countries does little for the domestic economy.  Putting those savings into domestic financial services industries and products has contributed mightily to the current problem.

As important as, if not more important than, the amount of savings is the disposition of those savings.  We could invest in an upgraded, electrified rail transit system for passengers and freight or we could spend an equivalent amount laying out double tracks in the desert, illuminated at night, spelling out "Time For Lunch" in letters only legible from space.  The two endeavors would have vastly different long term effects, even if the invitation is never accepted.  Building yachts and mansions is little better than building the second of the two rail projects.

For thirty eight years we have had rhetoric and policy that combined to place economic decision making in the hands of a tiny, wealthy elite.  By the fruits of their labor shall we know them.  The current situation is much like that described in German dragon myths.  The dragon has a horde of gold and jewels for which it has no use but it is fiercely guarding this treasure.  Wealth has been so concentrated and so disastrously deployed that the only way forward is to seize as much of the wealth as possible and return it to productive uses.

Given the level of sophistication of the general population, at least in the US, realistic proposals for  solutions to our problems along with the steps necessary to implement those problems cannot be discussed in public, given that one of the antagonists in the election is a feudatory of the dragons and the other is beholden to them.  More than just economic and tax policy must change.  

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Thu Oct 23rd, 2008 at 11:30:59 AM EST
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