State has negative revenue from corporate income tax  | ajc.com

We should scrap the corporate income tax anyway

In a sea of negative economic numbers, one stood out in the state revenue report Gov. Sonny Perdue issued Monday afternoon: In the month of October, Georgia actually had negative revenue from corporate income taxes.

That meant that over 31 days last month, the state paid out more in corporate income tax refunds than it took in in taxes.

85 comments

  1. South Fulton Guy says:

    One wonders how much additional state and local revenue there would be if residents with out of state tags registered their vehicles in Georgia after 30 days as the law requires.

    Perhaps the legislature can come up with something creative to reign in dollars improperly going to other state’s coffers.

    • B Balz says:

      Bad news is we are about $325M deeper in the hole than projected due to revenue decline and facing $2Bn in one0 time revenue shortfalls up to 2012.

      Georgia Budget Public Policy Institute offers some clear recommendations on how to resolve our deficit issues.
      Essentially, Georgia is not wasteful, we are not overspending, we have revenue issues including back taxes, and not enough new taxes.

      I don’t agree with their idea on a $1.00 per pack ciggy tax as our way out of our deficits, but the other ideas are fairly sound. Take a look-see, I have no affiliation with this group.

      See pages 5-6 in the following link:.

      http://www.gbpi.org/documents/20091109.pdf

    • Joshua Morris says:

      Dropping the corporate income tax would no doubt bring businesses to Georgia as well as allow those already here to experience better growth. The revenue source could be replaced by the increase in other tax revenue streams due to an improved business climate and a higher number of jobs in the state (income tax, sales tax, ad valorem tax, etc.).

      • Progressive Dem says:

        The optimal phrase being “no doubt”.

        See Mad Dog below about the signifigance and lack thereof corporate income taxes. The bigest obstacle to bringing new business to Georgia is education. We’re 49th in high school graduation rate, and nearly last in SAT scores. Business climate is a little more sophisticated these days. No longer is cheap land, cheap labor(non-union and unskilled) and low taxes a sufficient equation for economic growth.

        • Ramblinwreck says:

          You’re not going to fix government education till you pry it from the cold dead hands of the teacher’s unions and politicians. As it is now as long as there’s a vote to be bought by a politician we’re going to keep dumping more and more money into a provably failed model. The current system is more about keeping teachers employed than delivering quality education. Introduce competition into the model and you’ll see some improvement.

          • ByteMe says:

            Yeah, because teachers unions and politicians don’t exist in those states that rank near the top in education.

            Oops! Yes, they do.

          • Sheesh, this is blind leading the deaf…

            @Ramblinwreck: Georgia public schools are not unionized.

            @Progressive Dem: Georgia’s SAT rankings are largely due to the fact that everyone takes the SAT here, as opposed to most other states where only kids who definitely plan on college take it. Count only the students who go on to college and we’re well in the top-half. Ironically, giving all kids at least the opportunity makes our approach more egalitarian and “progressive”.

          • Mad Dog says:

            Perkins,

            If we rate all SAT results by including only those who go onto college, then where does our state stand?

            And how about some links for that?

        • Mad Dog says:

          Progressive Dem,

          No doubt that uneducated, tobacco dripping bubbas don’t attract those elitist software makers from the northern states.

          As to graduation rates, IN my humble opinion we doctor the rates to make them look higher than reality. I’m not sure of the formula but I think we only look at how many juniors become grads. If we looked at how many rising freshman became grads, we’d be last. Then, I’d like to see numbers on locations of the highest drop out rates. Then, look at why there.

      • Mad Dog says:

        Joshua,

        You’re using a theory that has never panned out.

        Cuts in taxation has never led to such an increase in economic activity as to create a new stream of income equal to or greater than the lost revenue.

        The best example is the Reagan era cuts. Revenue never grew enough to equal the cuts. That’s why the deficit grew 270% in eight years.

        And just to cut off the lame arguments about Democrats in Congress spent the savings…. research the Presidential budgets as sent to Congress versus the budget passed by Congress. Reagan may have spent the money but Congress just gave him whatever he asked for in budget.

        (Congress increased overall on budget spending about $200 billion during that eight years of budgets.)

        (Don’t forget that Reagan also signed the largest peace time tax increase in the history of our country during his first term. Mostly ‘sin’ taxes on the poor.)

        (Revisit real income for the bottom half of the nation during that period as well. That fell. While the top half got all the increases. No trickle down. Like the comics say, why would anyone want something that trickles?)

        Back to the theory you’re putting out there on bringing business to Georgia. Are there businesses moving around the country? Did Kia move here from a higher tax bracket?

        Your theory is from Riccardo’s comparative advantage. More a perversion of the theory. Perversion isn’t always sexual or bad. But is the cost of relocating so little that an unknown change in taxes will be offset? Meaning, if you’re thinking about relocating a business, is that change driven by high taxes or other factors?

        So where are your no doubt business going to come from? And what exactly is the difference in ‘state corporate tax rates’ between us and the other 49 states that will ‘force’ corporate decision makers to move an entire operation to a new region?

        • Mad Dog says:

          Joshua,

          I am in favor of temporary breaks for hardships among our surviving businesses. Spending programs that do not require tax filings and benefit only profitable multi-state or multinational corporations.

          But, that has its problems too.

        • GOPGeorgia says:

          MD,

          You need to do some research. Tax revenues increased under President Reagan with the tax cuts. Those are facts and easy to find. The deficit increased because of increased spending, not because of a lack of income.

          Receipts (revenues) increased from $1.077 trillion to $1.236 trillion during Reagan’s term in office using adjusted constant FY 2000 dollars. In real dollars without adjustments revenues went from 599 billion to 909 billion.

          While we are talking about it, average household incomes increased under President Reagan (for all classes, not just the rich), GDP increased, and after 1982, unemployment decreased.

          • Mad Dog says:

            GOP,

            Actually, I did the research.

            Reagan signed the largest peacetime tax increase into law. After that went into effect, revenues rose. But never enough to recover the lost revenue.

            Care to exchange links? Sadly, I lost my drive with my Reagan papers. Might be time consuming to recover all the research that I did.

            MD

          • Mad Dog says:

            At the end of 1979, the lowest quintile, bottom 20% of income, was $14,100 and minimum wage was $2.90 an hour. Minimum wage was raised to $3.35 in 1981. By 1989, that bottom quintile earned $13,500.

            Not an increase even in 2001 dollars. The low point for that quintile was 1983 at $12,500 and 1987 at $12,800.
            Conclusion? Minimum wages increased and earnings were up and down throughout the decade. Immediate changes from the 1981 tax cuts are not seen.

            If we choose 1980 to 1988, earnings fall from $13,600 to $13,000.

            The top 1% in 1979 earned $466,800 as the average income. In 1989, the top 1% earned an average annual income of $731,900. Might be a nice trend. The low for that group was 1981 at $437,800. The high average was in 1986 at $772,500. Now we see ups and downs again.

            For the second quintile we see pretty much the same story. In 1979 we have average annual income of $30,700. That falls to $27,500 in 1983 and peaks in 1985 at $29,900 and at 1989 at $29,900. Not much to call a growth trend.

            For the highest quintile we go from $119,100 in 1979 to $148,500 in 1989. Nice trend. For that group it peaks in 1987 at $149,200. The low point is in 1981 at $114,600.

            Without doing some heavy statistics, it looks to me like the top 1% got so much of an increase in annual income to raise the overall average while the bottom 40% got ZIP.

            From tax table 1B.

            The top 1% went from 9% of all income to over 12% of all income. About a 33% increase?

            Lowest quintile went from 5.8% percent of all income to 4.3% of all income. About 25% decrease?

            Those patterns remain about the same even in after tax income. The bottom 20% of the population lost from 6.8% of all income to 5.1%.

            Only the top 20% shows a growth in income share from 42.4% to 47.6% in after tax earnings.

            Effective Federal Tax rate for the bottom quintile rose from 9.1% in 1979 to 11.8% in 1984 then declined to 7.8% in 1989, returning to 9.1% in 1990.

            Second quintile rises from 15.8 in 1979 to a high of 17.1 in 1986 before falling to 16.0 in 1989. Ouch. That sucked for them. The effective rate rose for the middle three quintiles with only the top quintile showing a real drop. From 25.9 in 1979 to 24.8 in 1989,

            For the top 1%? The news varies. High of 34.4% in 1979, Expected. Lowest rate 24.9 in 1986. A change of 38%? (Those rates are for families with children, BTW.

            I stole all that from the CBO report,

            We need a word on how that report measured income. Income included “adjusted pretax comprehensive household income. That measure includes all cash income (both taxable and tax-exempt), taxes paid by businesses (which are imputed to individuals on the basis of assumptions about incidence), employee contributions to 401(k) retirement plans, and the value of income received in kind from various sources (including employer-paid health insurance premiums, Medicare and Medicaid benefits, and food stamps, among others). The tables use the Census Bureau’s fungible value measure to determine the cash equivalent of in-kind government transfers.”

            Complex to be sure.

            So, from these numbers, Reagan took from the poor and gave to the rich.

            Data from the CBO and the Census Bureau.

          • ByteMe says:

            From your cato link, GOPGA:

            Total Revenue Growth. Nominal federal revenues dou-bled in the 1980s from $517 billion to $1.031 trillion. From 1981 to 1989 real federal revenues climbed by 20 percent. As a share of GDP, however, federal tax revenues fell by 1.0 percentage point during that period.

            In other words, tax revenues did not grow as fast as the economy as a direct result of tax cuts. All things being equal, if tax cuts don’t suppress tax revenue growth, revenue growth should have at least matched the growth of things being taxed. But they didn’t.

          • Mad Dog says:

            That was a great comeback about the GOP taking back the Congress in 2010.

            History says that is very likely to happen in every midterm election. The ‘out’ party will show gains versus the ‘in’ party.

            The wiki entry is in dispute. Better to look at the links wiki provides. And always to look at the primary sources than secondary sources like Cato. Cato does not show much information on its ‘scholars’ except media credentials. That might be a meaningless comment. The group may have lots of professional papers in scholarly publications. Or just editorials in rags. Can’t say either way. Can’t help but wonder where they teach if any teach.

            Your mediamatters link disputes your point.

            “Moreover, evidence suggests that the Reagan tax cuts were not the cause of the revenue increases that did occur during the 1980s. As the Center on Budget and Policy Priorities (CBPP) has documented, citing figures from OMB, “Income tax receipts grew noticeably more slowly than usual in the 1980s, after the large cuts in individual and corporate income tax rates in 1981.” By contrast, “income tax collections grew much more rapidly in the 1990s,” when “marginal income tax rates at the top of the income spectrum were raised,” CBPP noted.”

          • GOPGeorgia says:

            In a hurry, will look at MD’s points later tonight.

            Byte,

            Your complaint is that even through the economy (GDP) grew, and tax revenues grew, they didn’t grow to tax more as a percentage? Isn’t it OK to just not tax as much as a percentage?

          • ByteMe says:

            Not if your government spending has to keep up with the demands of a larger citizenry/economy, no. And it did have to keep up spending, according to Reagan. But you want to ignore that side of things at peril to your credibility.

          • GOPGeorgia says:

            MD

            Please supply the links. I have no idea what tax table 1B looks like. I think you are skewing the data, but I’d need to see it in it’s raw form to be sure.

          • GOPGeorgia says:

            I give up (just kidding.) Lets all agree with Byte. Congress, regardless of who is President, can spend as much as it likes as it should be allowed to raise taxes to cover whatever they think it required. Is that what you are saying?

          • Mad Dog says:

            GOPGA,

            I didn’t change the data. Got it from the CBO which got it from the Census etc etc.

            I do wish I had the 79 and 89 IRS data tables for original data sets.

            When I’m able, I’ll look up some links for you. But, you can also find it with google. Plenty information for both sides of the debate.

          • GOPGeorgia says:

            Ok comrade Byte,

            Let us know when Primer Obama and the proletariat/congress will roll out the next five year plan, including health care for us. I’m sure Pravda/NY Times will do a feature story on Mother America and all planning done by the state.

            Don’t let them catch you sending e-mails critical of the Kremlin/white house or they will send you to Siberia/Detroit.

            Dosvidanya!

        • Joshua Morris says:

          “You’re using a theory that has never panned out.

          “Cuts in taxation has never led to such an increase in economic activity as to create a new stream of income equal to or greater than the lost revenue.”

          Actually, Mike, I never said anything about a “new” revenue stream. There should be no debate that added jobs increase sales, ad valorem, and income tax receipts, as well as lowering government outflow in unemployment and welfare payments.

          So this brings the debate down to whether lowering corporate tax rates actually draws businesses to a state. Any company that is trying to make its greatest profit will consider any savings possible, which includes the taxes it must pay. That’s not a theory–it’s just common sense.

          And don’t tell me where my theory comes from. It’s certainly not based on the failed or untested coffee-house philosophies I continue to hear from the left.

          History has shown that cutting taxes increases economic growth, even under John F. Kennedy.

          • ByteMe says:

            It’s certainly not based on the failed or untested coffee-house philosophies I continue to hear from the left.

            Nah, it’s the failed or untested smoke-filled backroom philosophies that get cooked up by corporatists looking to line their own pockets by snookering fools into thinking their “economic theory” is really sound thinking and not a load of hogwash.

          • ByteMe says:

            Oh, you mean they haven’t been allowed into your corporatist society? You have the membership lists handy? I want to check some names.

          • Mad Dog says:

            Please don’t move your goal posts. Prove now that the added jobs came from tax cuts …

            Or you can play the game that ‘new stream’ doesn’t mean revenue from new economic activity.

            So let me clarify. The theory simply goes, Cuts in taxes causes increased economic activity, that increases the tax base enough to offset lost revenue.

            Prove that and earn your Nobel Prize.

            BTW, Kennedy was dead before any taxes were cut.

            Your theory came out of your axx.

            Sony Ericsson didn’t say it moved into Atlanta to save taxes. Or to save costs. Sony said it moved to be near its largest customer…

            LOL!

            Lots of things are news to you.

  2. Thig says:

    I don’t believe Ga has a refundable tax credit for corporations, so any refund would be from a previous overpayment or from a loss carryback. Either way Ga got the money and now they are giving part of it back.

  3. Mad Dog says:

    Thig,

    Seems to me that people just don’t remember some things very well. Not picking on you. Just agreeing with you.

    I had been doing research on the 1929 era and I was very surprised by how much corporate money/taxes were given back by the Treasury Secretary, Andrew Mellon, for some very spurious reasons. Overall, his ‘refunds’ put at least a million dollars in his pocket.

    So, before we forget again, which corporations are getting this money back?

    Then, let’s try to remember to ask Why.

    MD

  4. Mad Dog says:

    We might want to revisit the 1950’s when federal corporate tax receipts were 6.4% of GNP (GDP). Now, or at least in 2003, federal corporate tax receipts are about 1.5% of GDP.

    Some one can look up the average growth rate of our economy by decade. I’ll bet the average growth rate has fallen while corporate taxes also fell.

    I’m suggesting what most ‘mainstream’ economists say is true. Cuts in corporate tax rates or receipts do not have a direct correlation to economic growth.

    For sources of ‘mainstream’ economists, specifically tax analysts look into the National Tax Association meetings, Orna Gafni, Benjamin Potter Rosanne Altshuler, Joseph Bankman, Michelle Hanlon, James Hines, and Eric Toder, Various participants at the University of North Carolina Tax Symposium and thePublic Economics United Kingdom Tax Weekend.

    Maybe we should review the 1250 Papal ruling of Pope Innocent the Fourth. Corporations have no soul and therefore cannot sin. Then leap to being a ‘Catholic county’ aka Christian to some. Christian countries should only tax souls that sin. Therefore are taxes are for sins. Therefore, conservatives are correct. They are wrongly taxed because they have never sinned.

    Or perhaps we should poll corporate ‘tax departments’ among the Forture 1000 companies. That does get done, btw. Most get comp’d on how much they save their companies. That’s measured by the effective tax rate. I’d bet none of these guys will say that ‘accuracy’ is any sort of a goal (Hollingsworth, Clark, Martire & Bartolomeo, and Croker and Slemrod.). Yeah. not one person polled among the Forture 1000 ‘tax departments’ said that accuracy was a goal in their department. LOL!

    Or we can look at the likely-hood of a corporation ever being audited. In 1996, about 2.34% of all corporate returns were ‘examined.’ Almost 50% of all corporations with assets over $250 million got an audit in 1996. By 2003, less that 1% of all corporations were ‘examined.’ Less that 30% of corporations with assets over $250 million were ‘examined.’

    In effect, corporate taxes have become voluntary. Creative compliance has become a serious income producing career. Only the weak threat of public intolerance forces any collection.

    Eliminate corporate taxes? LOL! I can already hear the “Since their aren’t any being paid, why not make it law?”

    That neutralizes the rational. IF THERE WERE NO CORPORATE TAXES, THE ECONOMY WOULD GROW.

    So if there aren’t any corporate taxes, why doesn’t the economy grow?

    Ya think there might be more to the economy than kissing corporate asses?

    MD

    • GOPGeorgia says:

      “Some one can look up the average growth rate of our economy by decade. I’ll bet the average growth rate has fallen while corporate taxes also fell. ”

      MD,

      According to your logic if we taxed corporations at 99%, our economy would grow?

      • As much as I am for limited government, it’s obvious that is not his position. Of course that would not grow the economy.

        I’m not saying he is right, but he already answers your question:

        “I’m suggesting what most ‘mainstream’ economists say is true. Cuts in corporate tax rates or receipts do not have a direct correlation to economic growth.”

        I think you are grasping at straws trying to connect his premise there with a 99% corporate tax. Although I am sure there are those out there who think that would be a good idea.

          • Would a reasonable prudent person thus assume that if you tax them 99% the economy grows infinitely? I would hope not, and from what I infer from his post – he doesn’t believe that either.

            I’d like to think that’s common sense, and I’m sure there is going to inevitably be a comeback post from him talking about how Republicans always try to misconstrue the facts or something.

            I’m making this assumption from his use of the words “mainstream economists” a title that lends some credibility to one’s understanding of how markets work. Any mainstream economist who advocates that you can tax all you want is a moonbat. Naturally there has to be a threshold where tax cuts do no good and tax increases do no good. Think of it like a glass of water – if there is no water it’s empty, too much and it runs over. Same premise – you need to hit the right spot for optimum performance. Note, that’s mainstream economists’ views not mine.

            A better argument against ‘the dog’ is that simply because there is no clear, strong correlation at the national level is not dispositive.

          • GOPGeorgia says:

            Wait, are you saying that if an individual or a corporation is taxed too much and you cut taxes, there might be more revenue? How Republican of you!

          • Ramblinwreck says:

            Is this the right time to point out that Corporations don’t actually pay taxes? Any tax on a corporation is passed through to the consumer of the good or service it provides. All corporate taxes end up as an embedded tax to someone else. The corporate tax issue is a way for politicians to appear to be taking a burden off the voter by taxing those mean old evil corporations.

  5. Game Fan says:

    JEEZ MAD DOG
    Awesome post. From some people’s view, (the ones who advocate rule of law and the level playing field concept) I’m of the opinion that the “mom and pop” and the “soul proprietorship” and the “individual” should be taxed at the identical rate as these legal fictions known as Corporations.

  6. Mad Dog says:

    GOP,

    You’ve taken a premise to the ridiculous. That my job. Cut it out.

    The overwhelming theory you’re searching for would be that government must find an optimum rate for taxation. 99% ain’t optimum.

    Points for good ridicule.

    MD

    • I am not convinced that we are not at an optimum rate. The evidence you have presented indicates that tax cuts are not directly related to economic growth, but fails to take into account other mitigating factors.

      The market does not work in a vacuum, there are countless factors that can impact the economy. I’d also posit that the optimum rate of tax cuts is directly linked to the rate of spending – what I am getting at, is increasing taxes is not a resolution to this issue. It’s unclear if it would grow the economy, due to the number of variables involved.

    • Joshua Morris says:

      Where do you think consumers get cash, Mike? Not everyone can split wood or grow tomatoes and sell them out of the back of their pickups.

      • Mad Dog says:

        Corporations grow on trees just like those pickups in your post. And that’s where your chicken and the egg argument belongs. In the back of a pick up truck headed to the dump.

        Like really … corporations print cash to give to consumers?

        • Mad Dog says:

          Josh,

          Just to help ya out …

          Which came first? Cash or corporations? Which doesn’t exist without the other … corporations or consumers?

  7. Mad Dog says:

    Ron,

    “Limited government” is something you don’t define. So please don’t say I’m for or against something that he can’t or haven’t defined.

    You’re sort of in limbo with a statement like, “I’m for limited government.” It’s the same as saying, “I’m for law and order.”

    No one can really agree or disagree with either of those.

    MD

  8. Mad Dog says:

    GOP,

    As I’ve discussed at length, taxes are a part of the price we pay for being Americans. Yesterday, we remembered the ‘few’ who have paid a 100% tax on all their future earnings. Yes, they are very few. Compared to those who only pay a few dollars but reap all the benefits of those “few.”

    🙂

  9. Mad Dog says:

    Rambling Wreck,

    Absolutely never true in the absolute. There are major four things that can happen to corporate taxes. ONLY one your theory addresses is price as a transfer mechanism.

    We could start an entirely new discussion by using basic accounting principals. No business should be considered to have made a profit until after liquidation. After liquidation, a surplus of capital proves profits. But that would be a distraction. But very simply, if the business was operated at a loss, then all taxes were transferred to the last set of owners.

    We could follow your logic that ‘costs’ are transferable. Then, the costs of the worker are transferred to the purchaser of labor. Since labor is a consumer, consumers transfer all their costs to employers. If a consumer dies in debt, as most of us now expect, then they were never taxed and successfully transferred ‘costs’ to others, like corporations.

    We could examine globalism. Few corporations operate in closed systems. Taxes levied in the US are paid in part by other nationalities. Either through your concepts of transfer mechanisms or as a cost of ‘foreignors’ doing business in the USA.

    We could even rightly say that ownership pays the ongoing ‘profits’ tax. A variation on the accounting issues of liquidation.

    Remember no S corporations are taxed at all. Moot point on transferism. Worth mentioning in the context of other comments about taxing small businesses.

    If we borrow from GOP, we could just take it all to the extreme. Corporations have no costs. All costs are transferred to someone else. Could we say all revenue is profit?

    I’ve lost track of what I wanted to say ….

  10. Mad Dog says:

    Ron,

    “I am not convinced that we are not at an optimum rate. ” Just referencing your post. Hopefully I won’t confuse all the issues with yours.

    Stating my opinion: There is no such thing as THE market, as a collective of all economic activity or any other definition. Markets are a human construction. Market theory was meant more or less to be a classroom tool to explain the general workings of the world.

    I tend to agree with Greenspan that the model is flawed in its ability to explain the world. Just throwing a non-mainstream economist into the fray, since Greenspan WAS once a leading proponent of the market theory. I would have considered him mainstream had he not backed a losing horse. Such being the nature of truth that if it is true today then it will be true tomorrow.

    Perhaps since you’re a self-identified Republican, you support the Reagan era tax cuts as a proof that cuts work. But, can you say that there were no tax increases during the Reagan era?

    I will give you a hint that the largest peacetime tax increase was passed during that era. All of which dilutes any theory linking taxes to increases or decreases in economic activity.

    Then,… as if I don’t have anything else to do today… globalism raises its ugly head again. Worldwide ‘corporate tax rates’ have been falling. Where’s the cut out that prevents these ‘cuts’ from driving an economic explosion worldwide? That’s the opportunity for you to list mitigating factors. Which if you list them, you make taxation less and less an issue.

    Solve that dilemma? Or acknowledge that corporates taxes have as yet an undefined role in the infinite variables of human economics?

    • I think, if anything, my posts have been an affirmation of your point that tax cuts have an undefined and unclear role. Conversely the same is true of tax increases, for if one was to be defined as conclusive – the other would also be easily defined with either an opposite or similar effect.

      You can believe the market is an artificial construction all day long, but the end result will be nothing. You spent several paragraphs defining concepts barely germane to this discussion, and even then only as a negation to my use of the word “market” as a synonym for economy.

      Your conclusion merely supports what I have already said – there is no absolute evidence that tax increases or cuts either increase or decrease economic growth due to the large number of variables involved.

      • Mad Dog says:

        Ron,

        If I defined terms that negated or attempted to negate your perception of ‘market’ as a synonym for economy, then the definitions were germane to your assertions.

        Defining terms … just basic respect.

        As a street term, “market” might seem to be synonymous with “economy” but it is not.

        But I understand you’re trying to agree with the premise that taxes are not THE overriding factor in economic growth.

        If you’ve like to engage in more semantic tyranny, please do so at your own chosen pace.

        • You have to keep in mind the audience of this website is varied – not everyone out there has a background with philosophy and economics; using layman’s terms isn’t tyrannical – it’s merely a courtesy. I’m sorry this has dragged this conversation so off track – had I known it would have been so controversial, I would have simply not used it.

          The central point still stands – as you said; taxes are not the overriding factor in economic growth.

          • Mad Dog says:

            Ron,

            I don’t even call it a layman’s term. Slang.

            If you want to say economy, say economy. When you use the wrong word is not courtesy. It’s a mistake.

            Mixing your ‘layman’s term’ with words like germane and depositive and affirmation and mitigating, just what’s up with that? Do you want me to believe your posts are directed to the broad audience? I don’t.

            You don’t get to control the meaning of words. If you could, you would be the Semantic Tyrant.

            You just need to decide what audience you want to reach. Layman or people with backgrounds in philosophy etc etc etc… or some other group.

            Maybe you want to be like me. I write when it makes me happy.

            🙂

  11. John Konop says:

    I think a lower capital gains tax would stimulate investment. But I do not think the same is true with corporate tax within reason. The below article does a great job explaining what I have seem on a micro level via capital gains tax.

    Capital Gains and Economic Growth

    Capital gains taxes are voluntary, paid only when appreciated capital assets are sold. President Bush reduced capital gains taxes on the sale of taxable assets that have been held for longer than one year (so-called long-term assets). Short-term taxable assets, held for less than a year, are taxed at a rate that usually is higher than the 15 percent long-term capital gains tax rate under the President’s tax reduction.

    The current long-term rate does not appear to discourage investors significantly from selling assets. However, high capital gains taxes do create what is called a “lock-in effect,” where investors avoid onerous taxation by not selling assets. Econometric analysis shows a strong link between higher capital gains tax rates and the lock-in effect.[2] Investors are willing to hold onto investments for a longer period of time in order to pay the lower taxes on long-term capital gains.

    If high taxes make investors unwilling to sell taxable assets, the lock-in effect can reduce economic growth by preventing the reallocation of capital in low-performing investments to more profitable ventures. Economic growth slows as new businesses find it difficult to acquire start-up or expansion capital.

    Though reducing the tax on capital gains is beneficial to the economy, a better tax policy would reduce the tax rate on all capital investment. A broad reduction in the taxation of capital will lead to more investment and more capital stock. As the Congressional Budget Office notes, “Reductions in capital taxation increase the return on investment and therefore the formation of capital. The resulting increase in the capital stock yields greater output and higher incomes throughout much of the economy.”[3]

    http://www.heritage.org/research/Taxes/wm1891.cfm

    • Mad Dog says:

      John,

      As interesting as an examination of capital gains taxation on the sell side of transaction might be, I don’t want any cookies from the heritage.org.

      Casual readers of the article won’t recognize the overall discussion is of ‘resistance’ to selling rather than a discussion of general investment decision making.

      For example, there are no capital gains on losing investments. Therefore capital gains taxes (CGT) have no effect on dumping of losing positions to seek advantages investments. A negation of the so called ‘lock in effect’ in the article.

      The article should discuss volatility and risk in the absence of resistance to be a little more fair handed. Not to mention investor emotions aka human behavior …

      Look for a good analysis of capital growth during liquidation … aka the Mellon advice to investors in 1929…. “liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate…”

      Pretty much “amass capital…dump investment instruments.” In the language of Mellon’s time, downturns were called panics not recession. If you check, I’d bet the saving rate has increased during this … panic … of our time. But credit is tighter than … So capital stock is increasing but RISK is perceived as unacceptable. Capital gains rates are much lower than rates on physical labor. If not, then everyone would be digging ditches, eh?

      Risk taking and risk adversity, human traits, are much better determinates of investment.

      Just adding a personal story. A friend of mine bought a building in Athens back in 1990. He sold it just before the real estate price collapse. Pretty much bought low, used the building, and sold high.

      He moans about paying 15% of $2 million to Uncle Sam. LOL! I call it bragging. He could have been digging ditches, driving a truck, or anything paying an ‘average wage.’ He would have paid a higher percentage in taxes and made less money. He would have paid more even if he had ‘earned’ income of $89,000 a year for 19 years, which is his NET AFTER TAXES FROM THE SALE.

      Where did he put the money? Not back into risky investments. Just say …. T Bills.

      But, that’s just a story.

      Delaying his taxation didn’t determine when he sold. He sold when he decided to retire.

  12. Mad Dog says:

    Game Fan,

    Not leaving you for last or leaving you out.

    There are indexes that track “small business tax rates” which can be compared to “corporate rates.”

    These ‘rates’ are from KPMG …
    Mexico ZERO
    Korea 12
    Canada 15.92
    USA 20
    UK 21
    Japan 24.79

    Those are ‘combined tax rates’ which include some ‘state and local’ or ‘regional’ taxes as well as central government rates.

    Tax revenue as a % of GDP
    USA 28 and rising
    Australia 31 and rising
    Ireland 32 and rising
    Germany 36 and steady
    France 43 and steady

    Overall regional rates
    Americas 27
    Pacific 30
    ‘Europe’ 38
    The ‘EU-19’ 38

    I didn’t verify any of those rates. I don’t think I have that ability. However, the source was giving a 40% rate for the USA … I thought it was a top marginal rate of 35%????? So there maybe computations like a combined central government/local/state rate.

    But, even at that, the numbers being from one source could should relate to each other as a measure. Other sources should be considered etc etc etc.

  13. DTK says:

    Mad Dog,

    The top marginal tax rate of 35 percent is for individual taxpayers, which also includes companies classified as “S” corporations.

    The 40 percent number is for the corporate tax, which is levied on “C” corporations.

    They are two separate things; if you didn’t know that, I really don’t know why anyone would believe any of your previous ramblings.

  14. Mad Dog says:

    D,

    I qualified myself as being unqualified on rates. The 40 rate is not accurate either. The top federal rate is 35%.

    From the 2005 CBO report on Corporate Income Tax Tares:

    Thus, in the case of the United States, the top statutory rate imposed
    in 2003 at the federal level on business income subject to
    the corporate income tax was 35 percent, and the average
    top statutory corporate income tax rate imposed by states
    in that year added just over 4 percent (after accounting
    for the fact that state taxes are deducted from federal taxable
    income)—for a combined top statutory rate of 39.3
    percent.

    I believe the correct link is http://www.cbo.gov/ftpdocs/69xx/doc6902/11-28-CorporateTax.pdf

    Thank you for making my ramblings more believable.

  15. GOPGeorgia says:

    For sake of conciseness, I will keep some of my points to 1980 to 88, the years that Reagan was in office, it can be argued that the tax cuts had effects lasting much longer than his Presidency.

    On your link to the CBO Effective Individual Income Tax Rate
    For the lowest Quintile from 1980 to 88 dropped by 1.1, the second lowest dropped by 1, the middle dropped by 1.5, the second highest dropped by 1.8, and the highest dropped by .8

    Therefore, everyone’s individual tax rates dropped during President Reagan’s terms.

    The Total Effective Federal Tax Rate For the lowest Quintile from 1980 to 2001 the furthers year on the page, dropped by 2.3, the second lowest dropped by 2.5, the middle dropped by 3.2, the second highest dropped by 2.2, and the highest dropped by .5

    Therefore everyone’s effective tax rates dropped after President Reagan’s terms, which can be attributed to the tax cuts.

    The same statements could be made about income. Most policy wonks, if they are being truthful, will state that effects of government spending and tax policy do not occur exactly at the time when they are passed, but will continue to impact the economy as long as they are in effect.

    As far as tax table 1.b goes, that describes the share of the taxes collected. Therefore, I give it no credence at all about shifting taxes. However, I think I’ve shown that everyone’s taxes decreased and tax revenues to the government increased due to more economic activity.

    So, from these numbers, Reagan made everyone richer and taxed less.

  16. Mad Dog says:

    GOP,

    You haven’t answered anything.

    Were people better off two years before Reagan or when he left office? A decade is the least amount of time to use as a measure, in my humble opinion.

    If we start at a time when we know things are bad then we have skewed the numbers.

    Speaking of skewing the numbers … Didn’t you say I had skewed the numbers? How so now that you’ve seen the data?

    You’ve not shown that income increased from one business cycle to the next. And you’ve not addressed income.

    Why did the top 1% see a change not remotely shared by the bottom 80%?

    Because the rich got richer and the poor got poorer. Reaganomics.

  17. Mad Dog says:

    LOL! You want to give Reagan credit for the recession in 1990? I mean if you’re going to give him extended credit for improvements … he has to take credit for the recession, too.

    Responsbility goes both ways.

  18. Mad Dog says:

    “As far as tax table 1.b goes, that describes the share of the taxes collected.”

    You’ve rejected that as … what?

    Table 1C, Number of Households, Average Income and Income Shares, and Income Category Minimums for All Households, by Household Income Category, 1979-2001.

    For the bottom 20% of all Americans, average income prior to the recession of 1980 is $14,100. The average falls from that date and doesn’t rise about $14,000 again until 1995 when the average become $14,500.

    From that I conclude that the botton 20% do not recover from the double dip recession, 1980 -1982, until 1995. Which is after George W. Bush raised taxes. (Read my lips, ‘No new taxes.’)

    And when did you prove the revenue increased as a result of Reagan’s tax decreases? From what to what? I don’t see that.

    I think we don’t have access to information that would really help discuss revenue changes from the tax decreases. It would be best if we could see revenue tagged to the specific types of taxes.

    That would be revenue from X-type taxes were XXX in 1979 to 1989. Then X-type taxes were cut XXX percent effective on XX/XX/XXXX.

    I happen to like the CBO report and it’s numbers. Seems to be good work. Some of the numbers are shocking when the elderly are broken out as a group. Did you look at those numbers?

  19. Mad Dog says:

    As hard as we’re working on this, IF we decide that people got richer and got taxed less, what do we say about the increases in the debt?

    Just asking. Don’t want to extend a new topic into the discussion.

    THAT topic is another case of beer and a dozen bags of pretzels.

  20. GOPGeorgia says:

    MD,

    We may have to agree to disagree. You say I haven’t answered anything, and I think I have shown where everyone was taxed less at the end of his two terms.

    I have rejected table 1b as irrelevant, because my earlier comment shows that everyone was taxed less. To imply that the taxes were shifted is disingenuous at best. You can talk about proportions of taxes paid all you like, but it’s impossible to lower everyone’s taxes by the exact same percentage as long as you have deductions. If you are paying less taxes, it’s hard to argue that someone is making you pay more.

    To be precise, I said you may have been skewing that data. Anything related to table 1b, was skewing the data. You have 5 posts to my one. I’ll make you a deal. Give me $1,500, meet with me twice a week for three months and I’ll teach you economics and how to read data and not just what you want to see. As for everyone else, they can read from our sources and draw their own conclusions.

  21. Mad Dog says:

    GOP,

    LOL! If you want to cut and run, go ahead.

    When you get a real job in economics and can prove the CBO is skewing table 1B … let me know.

    Until then, just say hello to your policy wonk friends for me.

    🙂

    • GOPGeorgia says:

      MD,

      I have a job in economics. To imply that because the percentage of taxes have shifted from one class to another means that classes are paying more in actual dollars is a false argument. The CBO isn’t skewing that data, you are using it incorrectly.

      Until you think about that and understand that, we don’t have much to chat about.

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