GOP TAX PLAN

[spence]

Originally Posted by Jim in CT

What thoughtful people should be advocating for, is what Clinton/Gingrich did. Cut taxes in a way that is stimulative, and cut wasteful spending. It worked when they did it, it worked like a charm. How come no one remembers that?

Shhhhhhh, Jim...come here. Quietly please. Here, crouch down. I'm going to let you in on a little secret. Do not tell anyone. Here's the deal. The Clinton tax cuts and growth that followed...was during the dot.com bubble. I know. Really.

[Jim in CT]

Originally Posted by spence

Shhhhhhh, Jim. ...come here. Quietly please. Here, crouch down. I'm going to let you in on a little secret. Do not tell anyone. Here's the deal. The Clinton tax cuts and growth that followed...was during the dot.com bubble. I know. Really.

Maybe they helped fuel the dot-com bubble,by making it cheaper and more attractive, to take risk on new technologies and products? Maybe they made that surge better than it would have been, without it? Way too many moving pieces.

The growth during the Clinton and Bush years, was unlike anything my generation has seen. I'm not sure you've shot down my proposition that it might be a good idea to replicate that. Today, there are lots of technology and green energy ideas on the verge of taking off. Maybe tax cuts could help spur that along. Maybe it's worth a try. Anyone who claims to know that it can't work, is blinded buy ideology. If the Democrats were proposing this, everyone here knows you'd be cheerleading for it.

[spence]

Originally Posted by Jim in CT

Maybe they helped fuel the dot-com bubble,by making it cheaper and more attractive, to take risk on new technologies and products? Maybe they made that surge better than it would have been, without it? Way too many moving pieces.

Maybe it made the bubble worse because many saw the opportunity for greater profit? Who the hell knows, but what's certain is that the tax cuts didn't cause the growth, new technologies born from government funded programs did.

[detbuch]

Originally Posted by spence

But that's the rub. Big corporations in general have excess cash they're unwilling to invest because they don't see a return.

"Excess" cash that is held rather than invested for expansion, will lose value to inflation. But if it goes to bonuses or raises in salaries or stock dividends (providing that the business sold stocks), the bonuses and raises and dividends will either be invested or used to buy things, all of which fuels the economy. However, raising salaries with government fiat money can lead to higher salaries than profitable when the fiat money runs out if there is no actual growth in productivity and profit.

For many sectors capital investment goes to automation which further reduces the need for employment.

In a previous post you said that "new technologies born from government funded programs" caused growth. Now you're saying that much investment goes to "automation," which would be a new technology related to a companies production, and that it reduces the need for employment. Which, I assume, is a negative impact on economic growth. But, somehow, if the technology is "born" from a government funded program, then it will grow the economy. Which implies that private investment in new technologies does not grow the economy, or even shrinks it, but government investment in technology will grow the economy.

In total, you seem to be saying that either business will sit on excess cash which loses value due to inflation, or invests in automation which reduces the work force therefor shrinking the economy, or, somehow, if the government provides fiat cash, it will grow the economy, or if government "invests" in technology it will grow the economy, but private investment in technology is either ineffective or will shrink the economy.

Very complex, and confusing.

Of the articles you linked, the heritage piece is just standard conservative philosophy but doesn't take in the complexities of our current situation.

Your assertions are just the standard Progressive philosophy. As I have said, there are conflicting thoughts and analyses re economics and economic forecasts. Not just what you consider uncontested, universally agreed to theories or forecasts.

Progressive economics requires a complex, abstruse theory (exemplified by the complex mess of your above assertions) to justify spending more than the revenue collected, and the necessity to borrow in unlimited fashion in order to fund the Progressive model of government which controls and defines the shape and content of the societal order. All of which requires government command of the economy and ultimately requires government funding of the economy.

Until that ultimate model is in place, programs must incrementally be added in the move toward the desired government command. And, while the private market still funds the government via taxation, Progressive economic theory has to constantly adjust and increase taxation to pay for those programs in ways that give the illusion that they are adequately funded. And those programs require ever new regulations. All of which create new "crises" that must be responded to with even more regulations. Which, in turn, compounds the complexity of the taxing bureaucracy's codes and rates in order pay for new regs and programs and still maintain the appearance of favoring the majority of voters. And thus it can continue to expand the private sector's and its people's dependence on government and its regulations . . . and continue the increasingly complex tax system required to give the appearance of funding that growth.

We have massive debt,

It wasn't "conservative" economic philosophy that created that massive debt. It was various forms of Keynesian economics that created it.

a crumbling infrastructure, an evolving global economy etc... What is the impact of increased leverage in terms of debt service and inflation? Hello???

Infrastructure is addressed in the articles I linked to. "Conservative" economics is in favor of infrastructure. I am not sure that Progressive economics requires anything other than whatever government wishes at any given time. What happened to the promised spending on infrastructure in the Progressive stimulus bill. We are still waiting for it.

"Conservative" economics is all for debt "service" (reduction). Progressive economics constantly increases debt to expand government power. Inflation is necessary to help even paying for the interest on the debt in order to avoid default. But actually paying down debt is of no concern to Progressives.

The other one is more just reform minded but doesn't even support your argument for the most part. I'm not against reform, that's not what is really being proposed right now though.

I didn't intend to link to that one. As you say, it doesn't speak to anything now . . . or ever, since the reform it specifies ain't gonna happen no matter who is in power.

The one I intended to link to was this one (I replaced the wrong one with this in my previous post):

https://www.thoughtco.com/effect-of-...growth-1146370

This article reduces "conservative" economic policy to the basic requirements to which taxes should be addressed and for which government should spend. When government is restricted to its constitutionally required basics, tax policies don't have to be obscure, complex beyond readability, as Progressive tax codes must be in order to give the illusion of fairness.

[scottw]

Originally Posted by detbuch

Progressive economic theory requires a complex, abstruse theory (exemplified by the complex mess of your above assertions)

yup...the Progressive city council(unanimous) and the mayor plan to argue before the Supreme Court that personal income is not personal property....this should be good

https://www.seattletimes.com/seattle...l-judge-rules/

“In order to uphold its income tax, the city would have to convince a court that individual income is not protected by the constitution.”

At the Supreme Court, Seattle officials hope to attack the long-standing interpretation that income taxes are property taxes.

[Jim in CT]

Originally Posted by scottw

yup...the Progressive city council(unanimous) and the mayor plan to argue before the Supreme Court that personal income is not personal property....this should be good

https://www.seattletimes.com/seattle...l-judge-rules/

“In order to uphold its income tax, the city would have to convince a court that individual income is not protected by the constitution.”

At the Supreme Court, Seattle officials hope to attack the long-standing interpretation that income taxes are property taxes.

What your regressive mindset fails to process, is that high income individuals, only achieve that income thanks to everyone else- public teachers, libraries, public roads, police, etc. as senator warren proclaimed, if you have a business, YOU didn’t build it. YOU had help. YOU have to spread the wealth around to those who made your success possible.
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[spence]

Originally Posted by Jim in CT

What your regressive mindset fails to process, is that high income individuals, only achieve that income thanks to everyone else- public teachers, libraries, public roads, police, etc. as senator warren proclaimed, if you have a business, YOU didn’t build it. YOU had help. YOU have to spread the wealth around to those who made your success possible.
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Are you ok?
Posted from my iPhone/Mobile device

[Nebe]

Originally Posted by spence

Are you ok?
Posted from my iPhone/Mobile device

I don’t think so.
Posted from my iPhone/Mobile device

[spence]

Originally Posted by detbuch

In a previous post you said that "new technologies born from government funded programs" caused growth. Now you're saying that much investment goes to "automation," which would be a new technology related to a companies production, and that it reduces the need for employment. Which, I assume, is a negative impact on economic growth. But, somehow, if the technology is "born" from a government funded program, then it will grow the economy. Which implies that private investment in new technologies does not grow the economy, or even shrinks it, but government investment in technology will grow the economy.

In total, you seem to be saying that either business will sit on excess cash which loses value due to inflation, or invests in automation which reduces the work force therefor shrinking the economy, or, somehow, if the government provides fiat cash, it will grow the economy, or if government "invests" in technology it will grow the economy, but private investment in technology is either ineffective or will shrink the economy.

Very complex, and confusing.

I think you're making it complex and confusing, just like this new GOP tax plan. Now you can set up 529s for the unborn? This is the simplification that was touted?

A lot of private sector growth the past century has been led by government funding. That doesn't mean it all is, certainly business funds their own innovation programs to some degree.

From what I've seen though the real growth is most likely to occur when risks are taken that lead to really new ideas. These often aren't see as the most profitable or if really disruptive totally absurd. It's hard to automate something you've never done before so there's a surge of energy required to bring it to life. That creates growth.

A lot of business today is totally stale though, they look to be more efficient and minimize risks until the point at which they are obsolete. They don't do this what for a lack of capital -- many are still very profitable -- they do it as a matter of culture and a really big problem their religious adherence to the virtue of shareholder value.

But, this still remains the bulk of the corporate sector. If you want to spur growth just routing cash disproportionately to non-managerial shareholders doesn't seem like an effective place to put it. To do so at the expense of additional debt and inflation is even further counter productive.

This is a money grab plain and simple.

[Jim in CT]

Originally Posted by spence

From what I've seen though the real growth is most likely to occur when risks are taken that lead to really new ideas. .

Ding ding ding! Give that man a cigar!

Now Spence, take it one step further...when corporate taxes are decreased, does that make risk-taking more attractive, or less attractive, than when corporate taxes are higher?

Corporate income taxes are the cost of income. And page 1 of every undergraduate economics text says that when you decrease the cost of something, the demand for that something (no matter what it is), goes up. And the opposite is true when you increase the cost of something.

[spence]

Originally Posted by Jim in CT

Now Spence, take it one step further...when corporate taxes are decreased, does that make risk-taking more attractive, or less attractive, than when corporate taxes are higher?

Did you read my post? It's all there.

[Jim in CT]

Originally Posted by spence

Did you read my post? It's all there.

Oh, I did. I've also read Chairman Mao's Little Red Book. Similarly useful.

[scottw]

[QUOTE=spence;1132382]

certainly business funds their own innovation programs to some degree./QUOTE]



genius

[Jim in CT]

[QUOTE=scottw;1132395]

Originally Posted by spence

certainly business funds their own innovation programs to some degree./QUOTE]



genius

I don’t get it.
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[scottw]

Originally Posted by spence

This is a money grab plain and simple.

and there you have it...

raising taxes is not a "money grab".....celebrate!

lowering taxes is a "money grab"...and...deplorable

that's some pretty screwed up thinking...

oooh...here's more from Progressive Seattle

"They(city council) also claimed that the city has a right to tax people on the privilege of living in Seattle proper because city of residence is elective."

“Where you choose to live is a voluntary choice and you make that choice based on what the benefits are to that choice and also the detriment, whatever the tax consequences (constitutional or not) are to making that choice,” said Paul Lawrence, an attorney for the city, during the hearing. “If they don’t like the tax consequences that Seattle has chosen to do, an (unconstitutional)income tax, they can move to Bellevue.”

“We’re here to tax the rich,” proclaimed councilmember Kshama Sawant, the bill’s sponsor.

Then-mayor Ed Murray said that his “progressive city” had hit upon “a new formula for fairness.” (Murray resigned after the fifth allegation of child-sex abuse, was lodged against him).

Murray explained that he planned to use the revenue generated by the tax to lower other taxes.




great... more funding for these morons

[Jim in CT]

Originally Posted by scottw

and there you have it...

raising taxes is not a "money grab".....celebrate!

lowering taxes is a "money grab"...and...deplorable

that's some pretty screwed up thinking...

oooh...here's more from Progressive Seattle

"They(city council) also claimed that the city has a right to tax people on the privilege of living in Seattle proper because city of residence is elective."

“Where you choose to live is a voluntary choice and you make that choice based on what the benefits are to that choice and also the detriment, whatever the tax consequences (constitutional or not) are to making that choice,” said Paul Lawrence, an attorney for the city, during the hearing. “If they don’t like the tax consequences that Seattle has chosen to do, an (unconstitutional)income tax, they can move to Bellevue.”

“We’re here to tax the rich,” proclaimed councilmember Kshama Sawant, the bill’s sponsor.

Then-mayor Ed Murray said that his “progressive city” had hit upon “a new formula for fairness.” (Murray resigned after the fifth allegation of child-sex abuse, was lodged against him).

Murray explained that he planned to use the revenue generated by the tax to lower other taxes.




great... more funding for these morons

You can't make this stuff up.

[wdmso]

If the current tax set up is so horrible for companies why are they making record profits ? History has shown us big buiness can not be trusted .. whether it's labor laws of workers safety or the environment, so the likelyhood that any of this tax money will ever land in the pockets of their workers or be used for expansion is as laughably just like the administration thinking a 1000.00 tax break is going to change he lives of The middle class

[detbuch]

Originally Posted by spence

There is no explicit correlation between cutting taxes and growth. It is a myth.
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Depends on which "study" you prefer to believe. Most studies don't find an "explicit" correlation between taxes and growth regardless if whether or not taxes are raised or lowered. So "explicit" correlation is not a useful metric.

You may argue that other factors contributed to, or were the reason for, growth when the taxes were also lowered. But those other reasons were not a result of "explicit" correlation because they, too, were also historically in play when growth did not occur or happened less robustly. But the four times there was a significant lowering of federal business taxes there was significant economic growth.

Various "studies" show that lowering corporate tax rates have a greater impact on creating growth than lowering income or consumption or property tax rates. Other studies disagree. Again, when it was tried at the federal level, it created growth, and "other" factors were not consistently present in each case. That may not be an "explicit" correlation, it may be and "implicit" correlation, or just a correlation. But a consistent one.

Also, when I refer to "conservative" economic theory (basically updated classical economics), I'm not referring to Republican policies. Many Republican tax proposals are a mix of some "conservative" (classical) and some, often a lot, of Progressive ideas. As we are witnessing now, the Republican tax plan has been morphing, along the way to finalization, from a more "conservative" plan to an equally or more Progressive one as the planners keep caving in to political pressure.

Here is an article by the Tax Foundation supporting the theory that lowering taxes, especially corporate taxes, promotes growth:

https://taxfoundation.org/what-evide...xes-and-growth

Also, the article that I previously posted, which gives a good foundation on which type of programs government should and must spend tax revenue, should be read if you didn't already do so:
https://www.thoughtco.com/effect-of-...growth-1146370

Other articles disagree--but by theoretical or conjectural, not "explicit," reasoning. One of the most empirical reasons for disagreement is not necessarily that lowering tax rates does or doesn't generate economic growth, but that it grows income inequality. But, again, there isn't necessarily an "explicit" correlation between income inequality and economic growth, because "other" factors can always be pointed to as causation.

[detbuch]

Originally Posted by spence

I think you're making it complex and confusing,

You did that with your contradictions. And the Progressives do it by ramming their square peg spending into their tax funded revenue hole. They never shave the edges of their spending, they just artificially widen the revenue hole. So they have to keep trying to raise taxes on corporations and the rich to get revenue while making it appear that they are sparing or "helping" the so-called "middle class." But there isn't enough money in the pockets of business or rich folks to fund all their government expanding programs so they have to, quietly, "borrow" enough so they can at bare minimum, in order to hide the wealth they steal from us, to pay the monthly interest on the debt. But, like the spending addict or illegal gambling junky, never any payment on the debt capital.

So the debt keeps getting larger and keeps becoming a bigger drag on economic growth by pouring the nation's capital into the widening sewer hole of debt to the federal reserve or to China or to other foreign nations and to individual suckers who want to invest into the illusory "full faith and credit" of the U.S. government--all of whose collected interest payments from the government have lost value to government monetized inflation.

So, in reality, the middle class is "helped" to shrink or lose upward mobility, and the lower class is "helped" to expand and stay in place.

The process is obfuscatory, not transparent. It is obviously a slight of hand economic piece of magic meant to confuse us into believing that our life is made better. And it makes it more difficult, and progressively more impossible, for the private sector to bring back the middle class, and restore individual economic mobility as it is meant to do, and is capable, if let free, of doing.

just like this new GOP tax plan. Now you can set up 529s for the unborn? This is the simplification that was touted?

The original simplicity is being destroyed, as I pointed out before, by the cascade of cowardly concessions to political pressure.

A lot of private sector growth the past century has been led by government funding. That doesn't mean it all is, certainly business funds their own innovation programs to some degree.

That "lot of" is too vague to give us a clear picture (that unclear, confusing, obfuscatory lingo stuff). Is there also a lot of failure in the private sector led by government funding? Is the government preferable to private banks as a funder? Is it better to risk our tax dollars than those of the banks? Does the government take more risks than banks do? Is it economically and politically wise for the US government to be a bank, or to replace private banks? Does it distort, or erode, the relation of citizen to government in our constitutional system? Does it give the government more power to create winners and losers? Is it one of those ways of expanding the government's regulatory power over the marketplace? And a lot more relevant questions.

From what I've seen though the real growth is most likely to occur when risks are taken that lead to really new ideas. These often aren't see as the most profitable or if really disruptive totally absurd. It's hard to automate something you've never done before so there's a surge of energy required to bring it to life. That creates growth.

That requires more freedom and less taxes and regulations.

A lot of business today is totally stale though, they look to be more efficient and minimize risks until the point at which they are obsolete. They don't do this what for a lack of capital -- many are still very profitable -- they do it as a matter of culture and a really big problem their religious adherence to the virtue of shareholder value.

Sounds like the familiar, rather natural, pattern of birth, to maturity, to senescence, to death. Hard to shrug off. Very rare for any life form to escape. Probably good that it is so. Leaves space for the next generation, the truly new, the competitive battle, the free market.

But, this still remains the bulk of the corporate sector. If you want to spur growth just routing cash disproportionately to non-managerial shareholders doesn't seem like an effective place to put it. To do so at the expense of additional debt and inflation is even further counter productive.

Is there a lesson for government there about additional debt and inflation?

This is a money grab plain and simple.

That's a pejorative way of putting it. I resent how you characterize the fact that it will help me, at tax time, to grab back a good sum more of the money that the government took from me.

[spence]

https://www.bloomberg.com/news/artic...ward-investors

So there appears to be few economists who think this tax plan will grow the economy, the independent congressional analysis says it's going to add to the deficit, the Treasury department may have lied about it's analysis and CEO's plan to use the windfall to benefit shareholders.

What a victory for the Republicans.

[Jim in CT]

Originally Posted by spence

https://www.bloomberg.com/news/artic...ward-investors

So there appears to be few economists who think this tax plan will grow the economy, the independent congressional analysis says it's going to add to the deficit, the Treasury department may have lied about it's analysis and CEO's plan to use the windfall to benefit shareholders.

What a victory for the Republicans.

"appears to be few economists who think this tax plan will grow the economy"

when you poll Marxists only, that's probably true. I wonder what those same economists said about the Clinton/Gingrich tax cuts.

Spence, tell me where this statement is wrong, please...

Corporate income taxes are the cost of corporate income. When the cost of income decreases, the demand for income will increase. Some corporate projects might not make economic sense to undertake at a tax rate of 35%, but would make perfect sense at a tax rate of 20%.

Finally, returning some income to the owners of the company as dividends, doesn't help the economy? Unless they bury that money in their yards or burn it, they will use it in ways that cannot fail to help the economy.

"few economists who think this tax plan will grow the economy"

Finally, there is this...just the talk about the possibility of tax cuts, has helped push the stock market up. That hasn't helped the economy? Really?

[wdmso]

Originally Posted by Jim in CT

"appears to be few economists who think this tax plan will grow the economy" ( find the 1 guy guy who agrees with you out the thousands who dont just like climate change and use them to suport your factless argument
change )

when you poll Marxists only, that's probably true. (shows your bias against facts ) I wonder what those same economists said about the Clinton/Gingrich tax cuts. ( you love for living in the past )

Spence, tell me where this statement is wrong, please...

Corporate income taxes are the cost of corporate income. When the cost of income decreases, the demand for income will increase. Some corporate projects might not make economic sense to undertake at a tax rate of 35%, but would make perfect sense at a tax rate of 20%.

Finally, returning some income to the owners of the company as dividends, doesn't help the economy? Unless they bury that money in their yards or burn it, they will use it in ways that cannot fail to help the economy.(these companys are all ready flush with cash your guess is just that a guess not based in any evidence that they do that now or will do so in the future

"few economists who think this tax plan will grow the economy"

Finally, there is this...just the talk about the possibility of tax cuts, has helped push the stock market up. That hasn't helped the economy? Really?

Trump's tax plan, if it passes, will free up a little cash in the typical household's monthly budget. But the biggest winners are likely to be the wealthiest Americans, who are poised to save significantly .. just the estate tax supports this statement as Fact

[Jim in CT]

Originally Posted by wdmso

Trump's tax plan, if it passes, will free up a little cash in the typical household's monthly budget. But the biggest winners are likely to be the wealthiest Americans, who are poised to save significantly .. just the estate tax supports this statement as Fact

"shows your bias against facts "

What 'facts'? The GOP has studies saying the poor will pay less, the Democrats have studies showing that everyone making less than $500,000 will be tortured to death. As usual. We'll see how it plays out, and if (like with Obamacare) it turns out that the supporting party was wrong about everything they promised, they will (and should) pay a political price.

"these companys are all ready flush with cash"

Some large companies are flush with cash, true. Many, many smaller companies are not.

Here on this forum, Nebe said that a reduction in corporate taxes would help his business and therefore him personally. Is he some heartless, right-wing plutocrat?

I'm a lot of things, not all of them good. I'm not a hypocrite, and I don't ignore facts that I don't find convenient.

"the biggest winners are likely to be the wealthiest Americans"

The wealthy have more of their money invested in things that take advantage of things like this. That's just how math works. It may not be fair or "equitable", but I'm not sure it's bad. They wealthy will use that money in ways that cannot fail to help the economy. Not even Spence can make that wrong, he doesn't even try.

[scottw]

Originally Posted by wdmso

Trump's tax plan, if it passes, will free up a little cash in the typical household's monthly budget. But the biggest winners are likely to be the wealthiest Americans, who are poised to save significantly .. just the estate tax supports this statement as Fact

you just stated the obvious then pounded the desk and yelled "that's a fact!"

we're constantly told that typical households have little or no savings and I was reading recently that credit card debt has soared again...sooo...typical households will probably welcome a little cash in the monthly budget

I'm not an expert but I believe the wealthiest Americans have the most money and probably the largest estates sooooo.....

I'm still trying to figure out how the poor are going to pay more...

[Jim in CT]

Originally Posted by scottw

you just stated the obvious then pounded the desk and yelled "that's a fact!"

we're constantly told that typical households have little or no savings and I was reading recently that credit card debt has soared again...sooo...typical households will probably welcome a little cash in the monthly budget

I'm not an expert but I believe the wealthiest Americans have the most money and probably the largest estates sooooo.....

I'm still trying to figure out how the poor are going to pay more...

It’s going to pass. If it hurts the middle class, the gop will fairly pay a price. If it helps the middle class, the democrats will pay a price.

I read this morning that the claims that the middle class will see a tax hike, are based on the assumption that these cuts will expire in ten years, so at that point the middle class would see a tax hike. A deranged assumption. Even if the cuts were temporary, temporary cuts are better than no cuts.
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[spence]

Originally Posted by Jim in CT

Spence, tell me where this statement is wrong, please...

Corporate income taxes are the cost of corporate income. When the cost of income decreases, the demand for income will increase. Some corporate projects might not make economic sense to undertake at a tax rate of 35%, but would make perfect sense at a tax rate of 20%.

The front half of your statement doesn't make any sense.

The back half makes some sense but it's more complicated than you state. In capital budgeting the tax rate is just one variable in the calculation. The net return is a factor of investments, anticipated benefits, taxes on profit (income less expenses) as well as the hurdle rate etc...

Dialing the corporate tax rate down isn't going to impact investments as much because if the projects are justified they would typically need to be justified by a wider margin than the difference in tax rates provide.

Small business could be different.
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[scottw]

Originally Posted by spence

The front half of your statement doesn't make any sense.

The back half makes some sense but it's more complicated than you state. In capital budgeting the tax rate is just one variable in the calculation. The net return is a factor of investments, anticipated benefits, taxes on profit (income less expenses) as well as the hurdle rate etc...

Dialing the corporate tax rate down isn't going to impact investments as much because if the projects are justified they would typically need to be justified by a wider margin than the difference in tax rates provide.

Small business could be different.
Posted from my iPhone/Mobile device

that's right....dazzle him with BS

[Jim in CT]

Originally Posted by spence

The front half of your statement doesn't make any sense.

The back half makes some sense but it's more complicated than you state. In capital budgeting the tax rate is just one variable in the calculation. The net return is a factor of investments, anticipated benefits, taxes on profit (income less expenses) as well as the hurdle rate etc...

Dialing the corporate tax rate down isn't going to impact investments as much because if the projects are justified they would typically need to be justified by a wider margin than the difference in tax rates provide.

Small business could be different.
Posted from my iPhone/Mobile device

"The front half of your statement doesn't make any sense. "

If a business makes a dollar of income, today they owe Uncle Sam 35 cents. Am I going too fast for you?

"In capital budgeting the tax rate is just one variable in the calculation"

Agreed. But the cost associated with that one variable, is set to decrease significantly. So all other things being equal, when doing a cost/benefit analysis, the cost is going to decrease. Which makes investments look more attractive. This cannot fail to occur.

[spence]

Originally Posted by Jim in CT

If a business makes a dollar of income, today they owe Uncle Sam 35 cents. Am I going too fast for you?

Your wit is dizzying.

Agreed. But the cost associated with that one variable, is set to decrease significantly. So all other things being equal, when doing a cost/benefit analysis, the cost is going to decrease. Which makes investments look more attractive. This cannot fail to occur.

In simple terms, if you were to make a 10m capital investment that hoped to net 1.5m in profit, the proposed difference in marginal corporate taxes would be 2.25% of the total investment. That's not usually going to big enough to sway an investment decision given much larger factors. One reason is that the capital investment is risk adjusted using a hurdle rate which could be 19%. What kind of a return would you get if you just invested that 10m into bonds? This is usually subtracted and make the tax savings even less significant.

Note that the 35% rate is misleading. The effective average rate is closer to 20%...buy maintaining deductions that's even going to go way down which is why the deficit will explode.

The bottom line is that investment ideas are either good or bad. A good idea isn't going to be shelved because of a few percentage points...most companies either have the cash or can leverage given the low interest rates.

[Jim in CT]

Originally Posted by spence

The front half of your statement doesn't make any sense.

The back half makes some sense but it's more complicated than you state. In capital budgeting the tax rate is just one variable in the calculation. The net return is a factor of investments, anticipated benefits, taxes on profit (income less expenses) as well as the hurdle rate etc...

Dialing the corporate tax rate down isn't going to impact investments as much because if the projects are justified they would typically need to be justified by a wider margin than the difference in tax rates provide.

Small business could be different.
Posted from my iPhone/Mobile device

Dialing the corporate tax rate down isn't going to impact investments as much because if the projects are justified they would typically need to be justified by a wider margin than the difference in tax rates provide"

Pure speculation on your part.

Cutting the corporate tax rate tilts the scales of the cost/benefit math. It doesn't make every single project now viable. But it makes more projects viable.

Corporations often look for a 15% return on any investments. Being able to keep 80% of income versus 65%, is not an insignificant shift.




"