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I remember St. Ronald saying a good thing about his income tax reform of 1986 was that it took millions of people off the tax rolls. It was also a selling point of Bush's 2001-02-03 tax cuts.
Ronald Reagan is not a saint to me even though I think he was a pretty good president. But he did a number of questionable things (expansion of government, retreat from Beirut, etc.) and most certainly was not perfect.
In any case, I have never been a fan of removing people from the tax rolls or require them to pay so little compared to others that they have no "skin" in the revenue side of the government equation and only in the spending side. That creates all kinds of moral hazards.
I once knew a very nice rich old lady who spent her life on building clinics and serving the ridiculously poor in the Third World. But she always required a payment from those whom she helped (didn't matter how trivial -- some eggs or a small chicken, if not money, but something), because she knew that people did not value what they received for free and grew dependent on them.
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FWIW, the market above 800k or so has been less solid than the market below that since the bubble burst. This "borderline" might go down somewhat, but absent a significant reduction in employment, Northern VA will not be all that affected by slight changes in marginal tax rates. (Or, did the place become a ghost town in the 1990s?)
I hope you are right, but it doesn't require an area becoming a ghost town overnight for it to decline and create genuine suffering. There is no magical energy shield around Northern Virginia protecting it from ill effects of the recession. For a number of reasons, we have been very lucky while many a region has suffered greatly. If the economy relapses into another recession and there is any kind of cut back in government spending (especially in defense contracting), this area is going to suffer as well.
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Originally Posted by CAVA1990
There's a good example of how higher taxes can boost output.
Sadly no. Higher taxes may in some cases force second spouse to look for work. That requires low cost child care (already high in supply-demand disparity in favor of the latter in this region) and most importantly unmet supply of JOBS. With higher taxes on businesses, I doubt there should be sudden increase to meet the demand of new job seekers.
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Originally Posted by stpickrell
Wait, all this from a 3-4% increase in marginal tax rates?
When you are playing with a highly complex economy, effects of marginal changes can be unpredictable. You are right that incremental increases rarely induce radical behavioral changes, but there are inevitably tipping points where they do. The problem is that you can never predict that tipping point.
A change of 4.6 points in taxes from 35 to 39.6 is actually an increase of over 13 percent. Add in the "surtax" on investment income for Obamacare that kicks in and we are talking about some real money for those folks with an annual income of $200,000 (or $250,000 for joint filers) who may or may not have a lot of spare cash depending on the state of their networth/wealth as opposed to income. I would not be surprised if there are a lot of families in this region that exceed this threshold who nonetheless do not have a whole lot of disposable income or accumulated savings to absorb the increases comfortably.
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Originally Posted by CAVA1990
Where'd you study economics? Labor is an input that produces outputs. More labor produces more outputs. In simple terms, if one worker can produce 100 widgets, 2 can produce 200. Pretty basic. Given demand, the price of widgets wil drop, thus you won't need double the amount of money to purchase them. .
Where did you study economics? If the demand for the widgets is inelastic, the higher supply will simply reduce price, which in turn will reduce the company's profit, which in turn reduces wages. In this simple world, the two jobs can conceivably only pay as much as one job did previously in real wage.
Yes, labor can be a huge input in the economic growth, but other things have to grow to create demand for the ensuing products (depending on elasticity of the product in question, different things are needed) for that to matter (otherwise you have the Soviet economy with nominal 100% labor participation rate with nary an increase in the attendant positive consequences). In reality, the economy is highly complex and unpredictable in some areas. Without a magical explosion of new jobs, higher marginal taxes will NOT increase labor participation and will most likely lower it.
I hate to break it to my fellow NoVAns who have gotten fat, happy and dumb in the go go years, but it's a lot easier to cut back on consumption, investment and savings than to land well-paying jobs, esp. for people who have been out of the workforce for any serious length of time.
For me personally, I am a contrarian investor, so I will be looking for opportunities where temporary mass psychology undervalues certain things. In order to do that I need increased liquidity, which means I will be reducing my consumption substantially and I am advising the same to family and friends who ask me for financial advice. I started to do that since mid-September and I've realized some nice gains on short positions I pounced on since that time. (And these will be taxed at pre-2013 rates too. )
Where did you study economics? If the demand for the widgets is inelastic, the higher supply will simply reduce price, which in turn will reduce the company's profit, which in turn reduces wages. In this simple world, the two jobs can conceivably only pay as much as one job did previously in real wage.
Nice try. The likelihood that a spouse would be entering an industry with inelastic demand is pretty minimal. Very few markets for goods and services have that characteristic (including child care). I'm sure JEB77 could tell you where I studied the subject. However, one normally learns about this in high school nowadays.
Nice try. The likelihood that a spouse would be entering an industry with inelastic demand is pretty minimal. Very few markets for goods and services have that characteristic (including child care).
Have you known demand for highly elastic goods to grow substantially during a recession or a stagnant recovery?
You would be surprised how inelastic demands for most "basic" goods are. Or you wouldn't be if you knew much economics.
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I'm sure JEB77 could tell you where I studied the subject. However, one normally learns about this in high school nowadays.
Why does another poster have to tell where you studied? Besides, I think I know already -- didn't you go to some second rate state school out west somehwere? We Northeastern Ivy League elites find that place very prole, what with all those immigrant Asians running about the place.
More seriously, I think that high school economics curriculum needs to change. Rational choice theory is looking pretty tattered nowadays and the sooner kids are exposed to behavioral economics, the better it is for them. Luckily for us in NoVA, we have here an epicenter of behavioral economics study.
Have you known demand for highly elastic goods to grow substantially during a recession or a stagnant recovery?
Yes. Grocery stores, fast food restaurants (dollar meal deals) and discounters like Wal-Mart do very well using price promotions during recessions. It also seemed during this past recession luxury retailers still did relatively well. Those in the middle however got pounded.
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Originally Posted by IndiaLimaDelta
Why does another poster have to tell where you studied? Besides, I think I know already -- didn't you go to some second rate state school out west somehwere? We Northeastern Ivy League elites find that place very prole, what with all those immigrant Asians running about the place.
That was an inside joke between JEB and me. I'm proud that my school has a huge cadre of rabid Asian woman football fans. I just wish we had a team that did them justice. Maybe our new coach will make that happen.
I think the only thing that's totally inelastic is your unwillingness to agree with me on anything.
I think the only thing that's totally inelastic is your unwillingness to agree with me on anything.
Yes, you are right, I am pretty inelastic to so many wrong and silly ideas.
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Yes. Grocery stores, fast food restaurants (dollar meal deals) and discounters like Wal-Mart do very well using price promotions during recessions.
You don't seem to understand the meaning of the word inelastic. Producers of inelastic goods and services appear to do well during a recession, because they have relatively stable business and do not suffer as much as those who provide elastic goods and services do (and whose demand can temporarily collapse).
By the way, the long term trend for fast food restaurants is not rosy. The demand from middle to upper middle class affluent consumers for fast food has declined significantly. The business is largely viable due to lower class population that is unwilling to embrace healthier eating. Thanks to the economic mismanagement of the president, we now have more people in that category (notwithstanding his propensity for eating arugula or the first lady's organic vegetable garden).
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It also seemed during this past recession luxury retailers still did relatively well. Those in the middle however got pounded.
True luxury goods are artisanal and have inelastic supply that almost always is outnumbered by demand. They have very stable prices. Mass "luxury" goods producers (e.g. Luxottica Group) generally do poorly during an economic downturn and did not do well in the United States and Europe. What saved them during the last recession was the phenomenal growth of their business in East Asia and other places like Brazil that had excellent growth while we and the Europeans suffered (I should note parenthetically that growth in many of these places are screeching to a halt as well).
Returning to the earlier conversation, are you suggesting that highly educated second spouses of families who need a second job to pay Uncle Sam's pence take up jobs as fast food restaurant, Wal-Mart and Sunglasses Hut (China) workers?
Returning to the earlier conversation, are you suggesting that highly educated second spouses of families who need a second job to pay Uncle Sam's pence take up jobs as fast food restaurant, Wal-Mart and Sunglasses Hut (China) workers?
No but their kids might when the allowance dries up. I thnk we're wandering way beyond a NoVA specific discussion.
Bringing it back home, would most upper income NoVAns prefer higher rates above a certain income amount or a phase out (or phase down) of deductions, which I assume will be more likely than than caps? I'm guessing those in the top 1% controlling the Republican position don't write off all that much as a percentage of income and capital gains so prefer the latter.
I think we're talking about two different types of elasticity/inelasticity. I was talking price, in response to another poster, and sounds like you're talking income. I don't disagree with your characterization of the latter but I don't think it applied to what I was talking about.
No but their kids might when the allowance dries up. I thnk we're wandering way beyond a NoVA specific discussion.
Yes, by all means, let's have them work at Mickey D's instead of making sure they are learning differential equations. After all, we don't need all this illegal immigrant labor if we simply undereducated our kids so that they take up menial labor.
You do realize, by the way, that the recession hit teenage workers very hard, right?
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Bringing it back home, would most upper income NoVAns prefer higher rates above a certain income amount or a phase out (or phase down) of deductions, which I assume will be more likely than than caps? I'm guessing those in the top 1% controlling the Republican position don't write off all that much as a percentage of income and capital gains so prefer the latter.
The problem with your premise is that it's wrong. "One percenters" do not control the Republican position. Super rich are often insulated from policy fluctuations like this and tend to have quite a few leftists among its ranks (the "Buffet Plan" anyone?). What all of this pointless class warfare stuff neglects is that higher rates eventually hit the middle class, either directly through inflation or indirectly through their ill effects on the economy.
It might come as a shock to you, but conservatives, regardless of their personal financial circumstances, actually oppose raising taxes, especially during a very fragile recovery on anyone out of this thing called "first principles." Contrary to what many leftists think (projection anyone?) conservative don't advocate policy proposals because these aid their own financial positions or help the one percenters. Leftists really should stop ascribing materialist motives to others.
It might come as a shock to you, but conservatives, regardless of their personal financial circumstances, actually oppose raising taxes, especially during a very fragile recovery on anyone out of this thing called "first principles." Contrary to what many leftists think (projection anyone?) conservative don't advocate policy proposals because these aid their own financial positions or help the one percenters. Leftists really should stop ascribing materialist motives to others.
And yet they're perfectly willing to cut deductions and reduce spending during said fragile recovery. Here's a novel concept, why not do a little of each? Politics should involve compromise not intransigence.
And yet they're perfectly willing to cut deductions and reduce spending during said fragile recovery. Here's a novel concept, why not do a little of each? Politics should involve compromise not intransigence.
They'd rather not do either. Given the choice between rates and deductions, they'd choose the lesser of the two evils, i.e. deductions.
Reducing spending is not something any politician of any stripe likes to do. But the adults in the GOP understand that our current path of entitlement spending is simply not sustainable. The current and soon-to-retire generations of retirees have paid less into the Social Security "lockbox" (what a joke of a term) than they draw and will draw in payouts (roughly 20-25% more), meaning the current and future generations of young workers will bear the additional burden of what was never intended to be a wealth transfer scheme, but a government run pension plan. It is particularly odious in that it robs from the less affluent young to pay the more affluent old.
Both Medicare and Medicaid are bleeding money at a rapid clip. Meanwhile national defense is only at about 20% of the federal spending and it's probably the only thing, along with the conduct of diplomacy, that the federal government was actually empowered to do by this thing called the Constitution.
As for compromise, it's hard to negotiate with a guy who adds more demands to his original position (including more spending), including a constitutionaly dubious request to transfer the power over national debt from the legislature to the executive branch. That guy is pretty flush with a sense of huge victory that wasn't and is under the mistaken impression that if the country goes off the budget cliff, the electorate would blame his opposition.
We'll see. Typically I'd expect the GOP to fold in a situation like this, but I'm ready for a surprise.
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However, one normally learns about this in high school nowadays.
