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The economic consequences of major tax cuts for the rich

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Re: The economic consequences of major tax cuts for the rich

#31

I'm not sure using taxes as a way to combat income equality is effective either. Just because taxing the rich less allows them to make more money does not imply taxing them more allows the non-wealthy to prosper.

I think it's also key to distinguish between wanting to "combat income equality" and "allow[ing] the non-wealthy to prosper." There's that old Thatcher parliament quote responding to concerns about rising inequality, where she characterizes the left as being pleased if the poor become poorer so long as the rich fall further.

I think taxes (if we plug various holes) can decrease income inequality, but the challenge is efficiently spending the proceeds in a way that lifts up everyone ... and not creating firehoses of public spending that primarily benefit the same small pool of companies.

Re: The economic consequences of major tax cuts for the rich

#32

From the abstract: > We find tax cuts for the rich lead to higher income inequality in both the short- and medium-term. In contrast, such reforms do not have any significant effect on economic growth or unemployment. Our results therefore provide strong evidence against the influential political–economic idea that tax cuts for the rich ‘trickle down’ to boost the wider economy. I'd be interested in hearing from those…

I feel like this is a straw man arguement - There is a presupposition that the only purpose of tax-cuts here is trickle down effects. There is also a concern of increasing inequality.

Modern Inequality is _not_ driven by tax rate. The tax system in the USA is a income tax (the only thing authorized in the constitution). What folks here have created is wealth that is relatively il-liquid. What has changed is that interest rates are low enough that the wealthy have used loans against their stock to generate revenue. This is also because of the government working to keep interest rates artificially low.

On the flip side, the poor in America pay virtually no federal income tax, and rarely state income once tax credits and rates are worked in.

So who would increasing the tax rate hurt? The middle class - upper middle class in particular. They don't have the capacity to do investment backed loans to circumvent income tax, nor do they qualify for reduced tax rates (often zero at a federal tax level) for poorer Americans.

I suspect the point where tax rates for the rich matters sailed a long time ago. It was effective in some places, ineffectual in some other places. It certainly was part of the financial breakthrough in the 1980s, but had other problems.

So instead, a more basic question - what is a fair level of taxation given equal protection clauses in the USA? and also given that we don't want to disincentivize people working to better their own financial situation.

Re: The economic consequences of major tax cuts for the rich

#33

From the abstract: > We find tax cuts for the rich lead to higher income inequality in both the short- and medium-term. In contrast, such reforms do not have any significant effect on economic growth or unemployment. Our results therefore provide strong evidence against the influential political–economic idea that tax cuts for the rich ‘trickle down’ to boost the wider economy. I'd be interested in hearing from those…

> I'd be interested in hearing from those who consider this a surprising result. To me it seems entirely expected, but with online echo-chambers being what they are I have no doubt my lack of surprise could just mean I'm in an informational cul-de-sac. What people think causes wealth inequality: Low tax rates on higher income people. What actually causes wealth inequality: Corporate mergers, consolidation, lack of an…

That's very interesting. We just hear 'tax cuts for the rich' and just get angry about the privileged not paying their fair share.

'Tax cuts for the Rich' has become kind of a buzzword phrase, like defund the police or climate change.

it sounds totally obvious on an emotional level but the devil is in the details.

Re: The economic consequences of major tax cuts for the rich

#34
post #30

Earlier quoted context omitted.

I don't think this is surprising either. The whole "trickle-down economics" arguments for such tax cuts have always sounded... bullshit (for lack of a better word), exacerbated by the fact that decades of it (since the Reagan era in the US, for example) has only served to make the rich richer, poor poorer and erode the middle class completely. If it was a brilliant idea (i.e. the idea that the the only thing holding…

The poor are not getting poorer and the middle class is becoming rich. In the US anyway. Fundamentally the problem is that people think that someone having more money than then is some kind of ethical issue. Not to mention something like 100% of these analyses are univariate and that makes no sense at all since it's perfectly rational that a 20 year old has much less wealth and income than a 60 year old with an advan…

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Re: The economic consequences of major tax cuts for the rich

#35
I see this argument thrown around a lot. It seems like previous research has also indicated that this was the case. However, I have some questions:

1. If "The Rich" (This paper defines them as the top 1% income earners) having tax reductions does not grow the economy or reduce unemployment, is there a wealth bracket in which tax reductions do grow the economy?

2. Does raising taxes on "The Rich" grow the economy?

It seems like this is the kind of research done to solve an argument, but if we actually think that tax rates should factor into economic policy, then we should determine the actual effect of taxation policies on every quantile, not just the top 1%.

Re: The economic consequences of major tax cuts for the rich

#36

I'll approach this from a different perspective, in the last 20 years can pro-higher tax proponents provide proof of a single program that actually improved the quality of life of US citizens in the middle class? I suspect, many will spring up and suggest Obama Care, but where is the data to support this? I know myself and my families health insurance continues to rise and rise (self employed). My mother is on Medica…

So what you're saying is "because I personally don't see the benefit, I don't want the rich to be taxed higher", and for some reason are conflating your middle class income with that of the uberrich?

I don't think anyone is suggesting "Hey, let's increase taxes on those making under a million a year". But there is no good reason that the people making a billion a year are paying the same 37% as the people making $600k.

Re: The economic consequences of major tax cuts for the rich

#37
post #14

Quoted post unavailable.

If stealing corrects unjust inequality then it is, in fact, good. Yes.

This is literally the principal behind "if you are starving it is not morally wrong to steal food." Which I know a lot of people disagree with and I don't need to hear the arguments about again. But my conscious is clear; some forms of theft are not wrong.

Re: The economic consequences of major tax cuts for the rich

#38
post #14

Quoted post unavailable.

If stealing corrects unjust inequality then it is, in fact, good. Yes. This is literally the principal behind "if you are starving it is not morally wrong to steal food." Which I know a lot of people disagree with and I don't need to hear the arguments about again . But my conscious is clear; some forms of theft are not wrong.

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Re: The economic consequences of major tax cuts for the rich

#39

I'll approach this from a different perspective, in the last 20 years can pro-higher tax proponents provide proof of a single program that actually improved the quality of life of US citizens in the middle class? I suspect, many will spring up and suggest Obama Care, but where is the data to support this? I know myself and my families health insurance continues to rise and rise (self employed). My mother is on Medica…

So what you're saying is "because I personally don't see the benefit, I don't want the rich to be taxed higher", and for some reason are conflating your middle class income with that of the uberrich? I don't think anyone is suggesting "Hey, let's increase taxes on those making under a million a year". But there is no good reason that the people making a billion a year are paying the same 37% as the people making $600…

Except that's not what is being proposed (they claim their tax hikes only affects the ultra rich which is patently false). Also, I am not middle class, and I plan and have goals to continue to make more income and grow my wealth for myself and my family.

Biden's plan to eliminate capital gains or increase it is bad for everybody and investment and growth. The income cap to be able to contribute to roth-ira (tax free growth) is absurd. Everybody should be able to contribute the maximum to a roth regardless of income. Ok, I'll do back door conversion or mega backdoor (Biden plan calls for elimination of back door conversions).

There is a war on wealth, and it's not just against billionaires. This is just what they want you to believe.

Re: The economic consequences of major tax cuts for the rich

#40

Earlier quoted context omitted.

> I'd be interested in hearing from those who consider this a surprising result. To me it seems entirely expected, but with online echo-chambers being what they are I have no doubt my lack of surprise could just mean I'm in an informational cul-de-sac. What people think causes wealth inequality: Low tax rates on higher income people. What actually causes wealth inequality: Corporate mergers, consolidation, lack of an…

That's very interesting. We just hear 'tax cuts for the rich' and just get angry about the privileged not paying their fair share. 'Tax cuts for the Rich' has become kind of a buzzword phrase, like defund the police or climate change. it sounds totally obvious on an emotional level but the devil is in the details.

It's actually worse than that because we have a tax code that actively promotes corporate expansion.

If you're Walmart and you're making money and you've got a billion dollars in after-tax profit, what do you do with it?

You could reinvest the money in the company. Open more Walmarts. Then you have a billion dollars to invest.

You could pay it out as dividends to the shareholders. Then the shareholders, they're investors, they go invest in something else. Somebody goes out and builds more Walmart competitors. But dividends are income, even if you reinvest them. So if Walmart keeps the money and uses it to build more Walmarts, they get a billion dollars. If they pay the money out to the investors to invest in something else, and there is a 15% tax rate on dividends, there is only $850M to invest in the competitors. That's a huge disadvantage for the competitors, which induces the shareholders to prefer to invest in building more Walmarts.

Now guess what happens to that incentive if you raise the tax rate on dividends to 25%.

We could fix this by making dividends a tax deduction to the corporation. Right now Walmart makes a dollar, they pay corporate tax on it, then if they reinvest it themselves, no more tax. If they pay it as a dividend, it's taxed again before it can be reinvested in anything else. If the dividend was a deduction to the corporation, it would be taxed either to the corporation or to the shareholder, but not both as it is now -- and so there would be no preference for keeping the money inside the corporation and increasing its size.

This sounds like "tax cut for corporations / rich people" but it's really just doing away with the tax penalty for removing money from a corporation to invest it in a different one. Which is the thing that reduces wealth inequality.

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