Hi, I have some Economics 101 questions - please help, thanks (percentage, accountant)

[Kenneth-Kaunda]

It redistributes it by the paying of wages to otherwise unemployed people.

my questioning may seem odd, ha ha,, but I am just aiming to have a 'theory room' type thread.

so ideally, non partisan , non-political - just a free question and answer session.

[Lincolnian]

Originally Posted by Willy702

But be careful of assuming the opposite is true, that tax cuts create jobs. Tax cuts create jobs only when you take a marginally negative business and make it profitable because the cost of taxes is now reduced. If a business is already making money, tax cuts only produce extra profits for the owners. Now the owners might spend some of their newly minted profits or expand business so there would be some potential for job increases, but its not a 1 to 1 correlation.

The bottom line for all three is to understand taxes are at an essence just a cost of doing business. When you do across the board tax cuts or increases to be "fair", expect to cause a lot of displacement in the economy. It isn't an efficient way to manage tax policy, but in current "soundbite" political climate they tend to be the desired answer. Taxes bad, tax cuts good is way too simplistic, but the average voter doesn't have time or interest in understanding it any better than that.

Very good point. This is the danger of the current debate. The past ten years have largely proven your point that general tax cuts do not necessarily lead to job creation. However, some tax increases can lead to elimination of jobs. Tax policy needs to be carefully constructed and loopholes, subsidies, and other details need to be taken into consideration to look at unintended consequences.

Identifying exactly who the "job creators" are and what specifically motivates them to create jobs is the problem. Ultimately, it is demand that creates jobs. However, stability and confidence can stimulate demand.

It is often stated that the top income earners pay the most income taxes. Although this is true, lower taxes for the majority with lower income will stimulate demand. Stimulated demand will increase employment and increase revenue to the owners. So even though they are paying a greater % of the taxes they will also increase their revenue.

[Kenneth-Kaunda]

That seems to make sense.

ie: all the money rises to the top anyway, so why not just tax the rich higher?

[NJBest]

Originally Posted by Kenneth-Kaunda

That seems to make sense.

ie: all the money rises to the top anyway, so why not just tax the rich higher?

Because that goes against an already established theory called trickle-down theory: Trickle-down economics - Wikipedia, the free encyclopedia

The idea here is that wealthy people take their money and invest in businesses and startups so they can hire people, thus passing the money down to the working class. If you tax the wealthy, they won't be able to invest in businesses.

[Kenneth-Kaunda]

I don't really believe that this theory actually works too well in practice.

The water tends to only trickle down just over half-way, and congregate in a pool at the top, as it does with a house plant.

[darkeconomist]

Originally Posted by NJBest

Because that goes against an already established theory called trickle-down theory: Trickle-down economics - Wikipedia, the free encyclopedia

The idea here is that wealthy people take their money and invest in businesses and startups so they can hire people, thus passing the money down to the working class. If you tax the wealthy, they won't be able to invest in businesses.

Supply-side economics. That doesn't work.

Job creation starts from consumers (wealthy and not). So, there is no reason to create a business if there is no demand from consumers. And that's what we see when we lower the taxes on the top percent of earners: the wealthy get to invest more money than before in financial instruments (not in the actual economy), while the not wealthy receive no benefit.

Trickle-down economics is an upward redistribution of wealth.

[BigJon3475]

Originally Posted by Kenneth-Kaunda

I don't really believe that this theory actually works too well in practice.

The water tends to only trickle down just over half-way, and congregate in a pool at the top, as it does with a house plant.

Okay, so who is better at having capital to invest in future business and industries?

The government bureaucrat who needs to have committees formed, cost analysis done, jobs summits, jobs councils, etc who will then go through what we call analysis paralysis even though it's not their money and if it's lost oh well or an actual investor whose money it is and who feels the entire pain if it all goes up in smoke?

This is the type of worst case scenarios when you try command style economics with government at the helm:


Communist grocery store.mp4 - YouTube

And there is literally thousands of examples of this type of command style cronyism when government get involved in business. This happens with mixed systems too where the private sector is alive and well but commanded by the government to do things or certain industries/companies are rewarded not because of what they know but for who they know. State capitalism looks hunky-dory until you see that our current state capitalism poster child is building ghost cities for people who can't even afford to live or open businesses there.


China's Ghost Cities and Malls - YouTube

[Kenneth-Kaunda]

From what I read, the wages for the common man in China are going up considerably now.

Plenty of work available for those who want it, and the infrastructure of Beijing puts many Western capitals to shame.

[pvande55]

The question about the sandwich shop is relevant today. A popular chicken sandwich outlet has lines of customers out the door everytime it opens a new shop. So it is providing a product in demand. Yet a goofy Chicago alderman is trying to block one opening in his ward. The new jobs created as well as convenience, not having to go five or so miles, don't seem to matter.

[Trackwatch]

Originally Posted by Kenneth-Kaunda

From what I read, the wages for the common man in China are going up considerably now.

Plenty of work available for those who want it, and the infrastructure of Beijing puts many Western capitals to shame.

So when are you moving there??

NO Homosexuals or same-sex marriage to worry about either.