Lowering taxes on the wealthy make them more wealth, and little else.

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steross

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#1
http://eprints.lse.ac.uk/107919/1/H..._KL9XlBrhQJvvZ3I3YgfT-lv5LBR9f1xA-S_3X9rNLlwY

Academic research from the London School recently released concludes causally that tax cuts for the wealthy raise their income but do not increase GDP or otherwise improve economic growth. I realize for many of you it is simply a belief system and no amount of academic work or data is going to change your mind. But, it does exist.


Quotes:
We find that major reforms reducing taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment.

.....
In this paper, we use data from 18 OECD countries covering the last fifty years to investigate the effects of major tax cuts for the rich on income inequality, economic growth, and unemployment. We contribute to the existing empirical literature in two ways: first, we use a newly constructed, comprehensive measure of taxes on the rich to identify years in which major tax cuts occurred across a wide range of advanced economies; and second, we move beyond correlational evidence on the economic
effects of taxing the rich by applying a novel matching method that allows for the estimation of causal effects from time-series cross-sectional data.
.......


Our results show that, for both matching methods, major tax cuts for the rich increase the top 1% share of pre-tax national income in the years following the reform ( + 1 to + 5). The magnitude of the effect is sizeable; on average, each major reform leads to a rise in top 1% share of pre-tax national income of 0.8 percentage points. The results also show that economic performance, as measured by real GDP per capita and the unemployment rate, is not significantly affected by major tax cuts for the rich. The estimated effects for these variables are statistically indistinguishable from zero, and this finding holds in both the short and medium run.
.......
Our findings align closely with the existing correlational evidence showing that tax cuts for the rich are associated with rising top income shares (Atkinson and Leigh, 2013; Huber et al., 2019; Piketty et al., 2014; Roine et al., 2009; Volscho and Kelly, 2012). We make an important contribution to this literature, however, as our empirical strategy allows for the estimation of causal effects.
 
Mar 11, 2006
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#3
I read this article previously. An alternative title could have been “Heavily taxing people does not increase economic growth and GDP”.

Nice to know that allowing people to keep the money they earned does not negatively effect economic growth.
 

steross

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#4
I read this article previously. An alternative title could have been “Heavily taxing people does not increase economic growth and GDP”.

Nice to know that allowing people to keep the money they earned does not negatively effect economic growth.
But, lowering taxes does increase inequality, which leads to revolution and strife.

Congrats on reading this previously. It was released 8 days ago.

As I said, for some it is a belief system. Best for society isn't even on the radar. I am not the least bit surprised that you are the first to poo-poo it with a hot take. I am impressed that you keep up with European economic research so well that one week is already old news for you.
 
Mar 11, 2006
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#5
But, lowering taxes does increase inequality, which leads to revolution and strife.

Congrats on reading this previously. It was released 8 days ago.

As I said, for some it is a belief system. Best for society isn't even on the radar. I am not the least bit surprised that you are the first to poo-poo it with a hot take. I am impressed that you keep up with European economic research so well that one week is already old news for you.
I am not poo-pooing it with a hot take. I am happy, although not surprised, that research shows that higher taxes do not cause economic growth.
I have made no bones about taxes being my #1 political issue. As someone who believes in freedoms, fairness, and treating people equally, I do not want to take even more in taxes from wage earners.
 
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Oct 30, 2007
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#6
Income & wealth inequality have increased throughout the entire modern era of our country. This will probably always be the case, because the upper class are savers and investors, while the lower class are consumers. The upper class uses debt to build wealth, while the lower class is enslaved by it. Tax rates don't really matter. Inequality will continue to grow until behavioral changes occur.

1608840138889.png


Trump's tax cuts led to the lowest unemployment rates in over 50 years, and the highest wage growth in over a decade. For the first time in history there were several million open jobs going unfilled, because there weren't enough qualified people to fill them. Best of all, the tax cuts didn't lead to less taxes being collected. Tax collection growth is projected to outpace inflation during Trump's presidency. All of this benefits the lower classes, but as I said above, inequality won't change until behavioral changes occur.

US tax collection by year:
1608844233329.png
 
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steross

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#9
Income & wealth inequality have increased throughout the entire modern era of our country. This will probably always be the case, because the upper class are savers and investors, while the lower class are consumers. The upper class uses debt to build wealth, while the lower class is enslaved by it. Tax rates don't really matter. Inequality will continue to grow until behavioral changes occur.

View attachment 87929

Trump's tax cuts led to the lowest unemployment rates in over 50 years, and the highest wage growth in over a decade. For the first time in history there were several million open jobs going unfilled, because there weren't enough qualified people to fill them. Best of all, the tax cuts didn't lead to less taxes being collected. Tax collection growth is projected to outpace inflation during Trump's presidency. All of this benefits the lower classes, but as I said above, inequality won't change until behavioral changes occur.

US tax collection by year:
View attachment 87933
Your rationale is backwards.

If the economic gains always go to the wealthy, then they will always be the savers because they have excess income over their needs. You cannot save when your costs of basic subsistence match or exceed your income.

And, of course, taxes matter.
I've spent part of my adult life in a country with more equality and higher taxation. If taxes didn't matter, their chart would look like ours, not like this:
1608862488460.png


If what you were saying were true that would be universal. It isn't. It is policy.

And, I will need to see the proof of causation about Trump's tax cuts as the fact that it happened is a correlation, not causation. We were already in a time of increasing economy tied to inordinately massive government spending and a very accommodative Fed. Saying that the tax cut "led to" any of the things that you mentioned needs explanation when there are many other factors at play that were already doing it before and after the tax cut.
 
Oct 30, 2007
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#10
Your rationale is backwards.

If the economic gains always go to the wealthy, then they will always be the savers because they have excess income over their needs. You cannot save when your costs of basic subsistence match or exceed your income.

And, of course, taxes matter.
I've spent part of my adult life in a country with more equality and higher taxation. If taxes didn't matter, their chart would look like ours, not like this:
View attachment 87935

If what you were saying were true that would be universal. It isn't. It is policy.

And, I will need to see the proof of causation about Trump's tax cuts as the fact that it happened is a correlation, not causation. We were already in a time of increasing economy tied to inordinately massive government spending and a very accommodative Fed. Saying that the tax cut "led to" any of the things that you mentioned needs explanation when there are many other factors at play that were already doing it before and after the tax cut.
The consumption mindset in our country definitely isn't universal throughout the world. 63% of households in the U.S. don't have $500 in savings for emergency expenses. It isn't because they don't have the means to save $500, it's because they would rather take on debt to buy the things they want than delay gratification by saving for it. The vast majority of people in our country would rather live at or above their means than live below their means and save. This mindset varies greatly from country to country. Many other countries save at a much higher level than ours.

I'm not familiar with the country of Australia like you. Some quick research shows that their income & corporate tax rates have been falling for decades, and they don't really seem to correlate to the U-shaped income inequality chart you posted. I would have to study their economic history more closely to come up with an informed opinion on this subject.

The economy is a reflection of just about everything going on in the world, so you can't really prove that tax reform caused anything. But all of those things occurred in the year following the tax cuts, so draw your own conclusions. It seems pretty apparent to me that the tax cuts at least contributed to these positive outcomes.

Merry Christmas. I hope you and yours have a good holiday.
 

Rack

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#11
I’d challenge to say that wealth has little to nothing to do with government in terms of taxation and everything to do with them fostering growth and innovation by their policies or, mostly, in fact, by their lack of them. The recent “look to the government to solve our problems” no matter how minor or major is a huge part of the problem for those who complain about things like their own personal wealth problems. Certainly the life skills needed are NOT taught in many families and it takes a breaking away from “the world owes me a living” (as goofy states in an old Disney cartoon) mindset. The good old take care of yourselves and others in your lives that cannot attitude, seem dangerously missing from today’s youth and some not so young. The solution to these problems is indeed the good old American work and savings ethic and the good old American charity. The second needs as much work as the first. The governments role is to Forster both of those two by enabling them to happen with incentive and low taxation...and to help when others cannot take care of them selves and the system of self sacrificing giving fails.
 

Rack

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#13
@olderschool - Merry Christmas to you too! It is honestly quite shocking to me that anyone would feel as you do about the American work ethic. Have a great day
 
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kenny41

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#15
I don’t necessarily think lowering or raising taxes will solve the problem as much as taxing everyone on an equal playing field. The reality is people under the average household income ($87k in 2019) are unfairly taxed in regards of their earnings and consumption. Most Americans fall into the category of paying payroll taxes. Wealthy Americans are more likely to be taxed via capital gains at a much lower rate or have their wealth stored in financial situations where the wealth gained isn’t taxed. Americans under the income average pay a higher percentage of their earnings towards consumption taxes (ala sales taxes). The tax structure is rigged to reduce the burden with those of means and hurt those who live hand to mouth. Capital barriers to entry in asset and equity markets also favor those who can afford to enter them. I think all income, regardless on how it was earned, should be taxed at the same rates. Doing so will probably curb income equality a little, but there’s a bigger elephant in the room on that topic.
 

OSU79

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#17
I'll throw out an unsubstantiated opinion (surprised? don't be):

"Tax cuts for the rich" are seldom narrowly defined and almost always include cuts well down into the American middle class, a group considered "rich" by most of the rest of the world. It's why Dems decry ANY tax cut as "for the rich" and Reps describe ANY tax cut as "for middle America." I would argue there has never been a Republican "tax cut for the rich" that hasn't benefitted most Americans, nor has there been a Democrat tax cut for Middle
America that hasn't hurt the poor. Because of our convoluted tax code the truly wealthy pay little to no taxes and the truly poor pay little on a total dollar basis, yet a far, far greater percentage of their income if they do have to pay. It allows both parties to be "right" in politician-speak while still pandering to their base.

I was a big supporter of the Trump tax cut not because I thought it was great policy, but because it put more money in a higher percentage of people's pockets. I don't think it was the greatest factor in the booming economy, but it did make more people feel like they were sharing in the prosperity. Would a UBI do the same? Possibly. I'm not necessarily a supporter, but I see some merit. My preference would be a flat tax on income with no deductions, though it would likely have a lower income limit beneath which you pay nothing.
 

OSU79

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#18
I don’t necessarily think lowering or raising taxes will solve the problem as much as taxing everyone on an equal playing field. The reality is people under the average household income ($87k in 2019) are unfairly taxed in regards of their earnings and consumption. Most Americans fall into the category of paying payroll taxes. Wealthy Americans are more likely to be taxed via capital gains at a much lower rate or have their wealth stored in financial situations where the wealth gained isn’t taxed. Americans under the income average pay a higher percentage of their earnings towards consumption taxes (ala sales taxes). The tax structure is rigged to reduce the burden with those of means and hurt those who live hand to mouth. Capital barriers to entry in asset and equity markets also favor those who can afford to enter them. I think all income, regardless on how it was earned, should be taxed at the same rates. Doing so will probably curb income equality a little, but there’s a bigger elephant in the room on that topic.
A succinct version of my take, sans a bit of rambling, therefore typed more quickly......
 
Mar 11, 2006
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#19
I don’t necessarily think lowering or raising taxes will solve the problem as much as taxing everyone on an equal playing field. The reality is people under the average household income ($87k in 2019) are unfairly taxed in regards of their earnings and consumption. Most Americans fall into the category of paying payroll taxes. Wealthy Americans are more likely to be taxed via capital gains at a much lower rate or have their wealth stored in financial situations where the wealth gained isn’t taxed. Americans under the income average pay a higher percentage of their earnings towards consumption taxes (ala sales taxes). The tax structure is rigged to reduce the burden with those of means and hurt those who live hand to mouth. Capital barriers to entry in asset and equity markets also favor those who can afford to enter them. I think all income, regardless on how it was earned, should be taxed at the same rates. Doing so will probably curb income equality a little, but there’s a bigger elephant in the room on that topic.
Combining federal income, state income, property taxes, and local sales taxes adjusts the discussion.
1) Fed income taxes: No doubt that the tax revenues are paid heavily by higher income earners. Just 3% of all income earners pay nearly 50% of all fed income taxes
* The top 1% earners pay 26.8% in taxes. Six times more of a percentage than the bottom 50% who pay 4.3%.
* The top 50% earners paid 97% of federal income taxes

2) Fallacies: “the tax structure is rigged to reduce the burden for those of means and hurt those who live hand to mouth”.
Our federal tax structure heavily hits those of higher incomes (see #1 above). Property taxes hit those with more expensive properties. State income taxes hit higher wage earners hard. None of those taxes provide the tax payer any more benefit than those who don’t pay the taxes.

Yes 3) Changing capital gains tax to equal regular tax rate:
Okay, but also need to adjust rules for capital losses. There are current very low maximum amounts that can be claimed as capital losses. If we want to tax people for their gains on their risks, we need to provide same allowances for losses on those risks.
 
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Rack

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#20
Merry Christmas to you too Mr. bootstraps!
How about your Pat yourself on the back for being so successfully self-made. Sheesh
I’m not all that successful but I have a ton of family who are and they are because of hard work. Im not in the group if 13 million millionaires yet. I’m too lazy and spend too much time on orange power and thus I don’t have nearly as much (not in their league even) as many of my direct relatives, who worked their arses off to get it. So I’m just reporting what I’ve personally seen in my extended and married into family, if I have a flaw in my reasoning it’s that my assumption of what is seemingly very common to me is pretty common place in most of America. That could be an issue with my reasoning. But I was just relaying personal experience. I sure didn’t mean to offend anyone, older school.

And I do sincerely hope you are well and your family is having a Merry Christmas! Enjoy the holiday!
 
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