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Paying a higher capital gains tax would put the money collected into the system to create velocity. Paying a higher income tax would be an incentive to spend...higher expenses or be stuck with the first sentence, which would have the same effect.
Do not have time to answer all the posts. I have work to do.
Believe it or not the old high tax level on the largest earners actually resulted in a lot of extra reinvestment into companies (and it still does this in places like Germany) even if the company is in a capital intensive but low rate of return business like most industrial firms. The reason is because in the 50's and 60's business owners would avoid taking profits out as personal income beyond a certain level because the tax rates got so high it was no longer cost effective. Instead they'd either come up with noncash ways to reward employees if they felt that person deserved more (like a company car or better insurance or paying for a big fancy office Xmas party, etc...) or more commonly they'd simply reinvest the profits into expanding the company even into questionable markets or into unproven products simply because that was still a better use of the money then letting the taxman get it (either as a 92% tax rate on personal income or as taxable corporate profits).
That meant even low margin capital intensive businesses like manufacturing were able to keep enough money on hand for the low end of the cycle where as now days corporate raiders would go after any company sitting on lots of cash but which had a low P/E ratio. Heck, in Germany companies typically had so much extra profits they couldn't distribute to shareholders or employees in a tax efficient manner that companies ended up buying large share steaks in companies they worked with simply because it gave them something to do with the cash and it helped form a long term bond between customer and supplier. This is a huge reason Germany companies are often the best at what ever they do even if the ROI is pretty low plus it is why German companies almost never get bought out by foreign companies even while American companies do all the time.
Yes, economists can say this tax structure results not investing where it will get the highest ROI and instead continually putting money back into old businesses simply because it's the most tax efficiency thing to do. Fair enough, on a macro level you'd find companies open yet another store or office in a marginal or questionable town simply because that resulted in the least taxes paid. Of course, it also meant employment increased faster then it otherwise would have and it also meant companies took more risks with new product lines simply because the tax laws meant they had to find SOMETHING with in the company to spend the money on.
The main effect of cutting personal income tax levels for high earners was to have owners take ever more money out as personal income instead of reinvesting it (which is both good and bad depending on what sort of behavior you want to encourage via the tax code) so that most low margin businesses which were capital intensive (like manufacturing or chemicals or raw materials, etc...) found it ever harder to get access to capital at rates foreign competitors could (because places like German and Japan still encouraged companies to reinvest rather then distribute profits to shareholders) so US based capital intensive industries started to die out or move to countries which subsidized them. Now betting on the stock market or futures markets gets loads of investment (because it can produce a high ROI in a short period of time) but the real economy suffers from a lack of reinvestment. That tells me we've gone from one extreme to the other and now we need to move back to the middle.
The problem with the economy is the velocity of money or in our case the lack of velocity.
Velocity is speaking of the average frequency with which a unit of money is spent. To give you a very rough understanding, let’s assume a very small economy of just you and me, which has a money supply of $100. I have the $100 and spend it to buy $100 of flowers from you. You in turn spend $100 to buy books from me. We have created $200 of our "gross domestic product" from a money supply of just $100. If we do that transaction every month, we will have $2400 of annual "GDP" from our $100 monetary base
P=MV, where P is the nominal gross domestic product (not inflation-adjusted here), M is the money supply, and V is the velocity of money. You can solve for V by dividing P by M. By the way, this is known as an identity equation. It is true at all times and all places.
The Fed is trying a grand experiment that is not working. The tarp stimulus was supposed to put a lot of money into the economy thereby creating velocity. Two problems. The banks are holding on to the money. Corporations are holding on to the money and the very wealthy are holding on to the money. The tarp and stimulus money has not been put into circulation. It has not "trickled down". The second problem is that if it is put into circulation all at once it could lead to massive inflation.
Simple solution. Tax the rich use the money to pay for infrastructure repairs which will increase transactions thereby increaseing velocity. Reducing social programs actually decreases velocity as that money is usually spent very quickly thereby increasing velocity.
How will taking money out of the economy and sending it down the black-hole sewer of government going to help?
Paying a higher capital gains tax would put the money collected into the system to create velocity. Paying a higher income tax would be an incentive to spend...higher expenses or be stuck with the first sentence, which would have the same effect.
Do not have time to answer all the posts. I have work to do.
You are assuming people are forced to realize capital gains. Many people would choose not to sell an asset and if they need income from it they would just get an asset backed loan or margin.
You are assuming people are forced to realize capital gains. Many people would choose not to sell an asset and if they need income from it they would just get an asset backed loan or margin.
In the short term this is true, but eventually it will have to be realized. It would certainly would be better to count the net increase or decrease on a yearly basis and tax on that so there would not be such a lag.
This is a bunch of non-sense. P = MV is Price = Money x velocity of money. The higher the velocity, the higher the price. Hyper inflation is the cause of high velocity. No one want to hold on to money that loss value.
The simply solution is NOT increasing tax. It is reduce spending and deregulation. Government has no incentive to make a profit, and that's the reason why money going to the government will not put into good use. They just wasted it because there is no profit money. When they need more, they just increase tax or inflation. Government jobs are not productive. For example, road construction. What good does it make if you have to destroy perfect good road or create job? Or build a bright to nowhere?
Money is best let to the private hands where it will be spend/invest wisely.
You completely misunderstand the subject. We are not talking about productivity here. You are making ideological arguments. Here is an article that may help you understand the subject a little better.
The author of the article has identified the problem as I have, but has not made any real solutions to the problems. I have.
In the short term this is true, but eventually it will have to be realized. It would certainly would be better to count the net increase or decrease on a yearly basis and tax on that so there would not be such a lag.
You clearly need to learn about things like 1031 tax exchanges before you go around touting suggestions like this again.. Its quite embarassing..
You are assuming people are forced to realize capital gains. Many people would choose not to sell an asset and if they need income from it they would just get an asset backed loan or margin.
The OP doesnt even know that people can sell and asset, and still not recognize gains from it, simply by locking away the profits in escrow and rebuying something else withing a certain period of time..
taxing corporations is just a sales tax on middle and lower income people.
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