Dems should support supply side tax cuts-more govt. spending

We are entering the governing season and hopefully those of us on the left can transition from protest into policy.

I totally disagree with the Republican notion that raising taxes is always bad for the economy.

For instance if there are industries that provide goods or services where the consumer demand is very elastic, then a rise in corporate taxes (passed on to the consumer) won't have any negative effect on the economy but instead would raise government revenue.  For example, if the govt. raised taxes on luxury events such as the Super Bowl,tickets to the Oscars, or Professional Fantasy Camps-- there is so much demand and little supply that it would be a good way to raise revenue without badly impacting the economy.

On the other hand, Democrats who talk about "taxing the rich" under all circumstances as though it never matters are also wrong.

For instance, right now if you own a Starbucks franchise and are making a profit, the decision to expand and buy another store location is going to depend almost entirely on the tax environment you are expecting in the near future.   Therefore, a dramatically lower tax rate on that particular person can be the difference between:

a new store being built (construction jobs/remodeling jobs)
10 people having a job
an area having better choices in retail

and yes, that person making more money..

So in this instance, cutting taxes raises more government revenue, and keep taxes the same or raising actually lowers the revenue because it the margins some people will find it is not worth it to keep running a business at a reduced or non-existent profit.

I give these two examples to show that Democrats need to be smart and offer solutions that matter.  We should embrace supply side tax cuts where they work, and more federal spending where it can help.

1. We should cut taxes dramatically for people who are taking  a risk with their money to create jobs.  This should not extend to people who are making paper)or electronic) transactions in the stock market or some other virtual reality.  I'm talking about real risk that envisions real job growth.

2.  We should raise taxes on people who are gaining from unearned income unless they then risk it in a real venture.  So this would mean people who make money because they:

sold Google stock short  

or

hedged the U.S. currency against the Euro

should pay a higher tax rate

unless they took that money and did something productive like:

-bought and held stock in a company for a minimun of 1 year.
-bought and held debt in a company/government for a minimum of 1 year.
-started a business.

or some other economic activity that potentially could help the economy

3.  The government should pass a Universal Healthcare bill that reduced/removed the burden of healthcare from business.  This could be financied initially with debt.  If done correctly it would stimulate the economy because millions of people would become new healthcare consumers.  This is good debt because a healthy country would become more productive and easily earn more to pay off that debt.

4.  The government should dramatically increase the infrastructure spending to fix America's electicity grid, roads, rails, communication cables, etc.  Again, if done correctly it would stimulate the economy and it would be good debt passed on to the future taxpayers because they would have something to show for it.

There you have it, cut taxes for people willing to create jobs, leave them alone or raise taxes on the rich not taking real job producing risks, and massive new spending that will help the country in the long run.

Tags: craig farmer, Democrats, newliberal, obama (all tags)

Comments

9 Comments

supply side tax cuts-more govt. spending

If you frame it as "supply-side tax cuts" then it's a bad idea.  Goods are being stockpiled and there's excess production, so the problem isn't that suppliers need more stimulus, it's that nobody is buying anything.  But I could be persuaded that a hiatus before rolling back the Bush tax cuts might be helpful, since after all rich people are consumers too.  But those are demand-side.

Honestly: what kind of sense do supply-side tax cuts make right now?  Do you think business are going to take the money and start hiring people and producing more?  No, they won't, and they'd be crazy to.

by Jess81 2008-11-20 08:06AM | 0 recs
Re: Dems should support supply side tax cuts-more

OK a couple of things.

Starbucks is a poor example. All Starbucks stores are owned by Starbucks, they are not franchises.  However that's a nit pick I get your point, but it's not valid. The ability to expand depends on two main factors, neither having much, if anything to do with taxes. One makes the decision to expand based on projected demand, no demand, no expansion. Next cash on hand has only a minor roll in expansion. Most, if not all expansion is done through debt, sometimes long term and sometimes short or a combination of the two. No credit, no expansion. If it had to do with taxes, businesses would not have expanded and grown during the 90s when taxes were higher or in the 60s when taxes were substantially higher. Also lets remember, business debt reduces your tax burden. You pay Interest and principal with pre tax dollars - they are a costs.

Next let's lose the the notion of supply side economics. It is a false prophet.

by jsfox 2008-11-20 08:26AM | 0 recs
even if it's debt

there almost always a principal downpayment.

For instance, an owner will put down $20,000, borrow $80,0000.

So what I'm focusing on is what will determine whether a successful business owner keeps that money in the bank or takes a risk.

If there is a tax cut and they can project a profit or a bigger profit then they will be more inclined to take a risk.

The demand can and will be created. Businesses do research and figure out which areas will support what business.

For many/most products, the businesses have to create demand by taking marketshare from a similar product.

by yellowdem1129 2008-11-21 09:10AM | 0 recs
Where have you been for the last 28 years?

Supply-side economics does NOT work!  Ever!

Why?

For several reasons:

1)  Because by the time you get to the point where the proportion of your income you're saving in taxes could make a difference in your ability to contribute to the economy (consumer spending is the vast majority of our economic growth) then the money is meaningless to you anyway.  If you make a million dollars a year, is an extra few thousand going to make you go out and buy a new plasma TV?  No...but people in the middle class who have more money tend to consume more as a percentage of income, thus stimulating the economy.

2)  Businesses who have lower taxes don't use that money for job creation or business investment as a general rule (with the exception of maybe a merger.)  There are a few companies that buck this trend, but it's basically true.  What do they use it for?  Stock buybacks and dividends - things that shore up the investor class and their stock price.  If you give Microsoft another $20 million a year, are they going to create jobs with that money?  Nope.

3)  Businesses don't generally expand based on how much money they currently have - it's demand for the product/service that they have, regardless of how much cash is in the bank.  Do you think Starbucks would have several thousand stores if nobody drank coffee?  No...there's demand for their product.  In addition, most businesses don't save up until they have enough cash in the bank to expand.  They finance using debt, which is why we're going through something of an economic retraction right now.  Nobody can get loans.

The basic point is that you need 2 things to have a growing economy - a robust middle class with money to spend, and a robust credit market where businesses can obtain the credit they need to operate and expand.

Giving them tax cuts does nothing but enrich the investor class.

by Say Car Ramrod 2008-11-20 08:52AM | 0 recs
overall you're wrong

first, I agree that the whole "supply side" economics doesn't work.  I gave an example of why their theories that raising taxes is always bad is wrong.

but...

There is no question, that higher taxes decreases the incentive and opportunity to start businesses, becuase when the risk taker is figuring out what kind of profit they can expect if all goes well, it is lower.  There have to be and are some businesses that aren't profitable in a the current tax environment.  If there  projected profit level is ate up by tax, then they won't do it. Which leads to less tax revenue because there's less business.

For instance:

If you could invest $10,000 to make 2 automobiles, and sell them at $7000 each.  Your profit would be $4000.  Then you have to pay taxes.  There is a number at which you say,

....such and such amount is not worth all of this trouble.

100% tax leaves you nothing.
0% tax leaves you $4000.

Today, the average rich person would pay about $2000 in taxes (at all levels).

Obviously for each person the amount is different.  But also obvious is that the lower the tax, the more people will think it is worth it.

by yellowdem1129 2008-11-21 09:17AM | 0 recs
Reagonomics is a disaster

As Bill Clinton told us in 1992; you water a tree from the roots, not the leaves.

by wblynch 2008-11-20 09:11AM | 0 recs
Newt,

Is that you?

by IowaMike 2008-11-20 09:17AM | 0 recs
Re: Newt,

Of course it's Newt.

Haven't you read his anti gay diatribes?

by emsprater 2008-11-20 06:22PM | 0 recs
The buggy-whip industry

just needed tax incentives to expand.

That is, if you believe in supply-side econ.

by Neef 2008-11-20 07:27PM | 0 recs

Diaries

Advertise Blogads