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The next time your Republican uncle tells you that increasing taxes is bad for the economy, be sure to tell him that's he's right. And that he's wrong. It all depends on whose taxes you increase.

GDP-tax

Any Keynesian economist would look at this graph and say, "Well of course! That's just what we expect." Basically, the graph shows that when you tax the middle class more, you get weaker growth, and when you tax the rich more, you get stronger growth. Follow below the arabesque to find out why.

When you get a dollar, there are only two things you can do with it: you can spend it, or you can save it. Those two paths lead to very different economic outcomes. Spending the dollar means you get something real in the real world: a pair of shoes, a haircut, a new car. Saving the dollar means you don't get any of those real things. Instead, you get a bank statement (or a 401K statement, or a brokerage statement) that says you own a dollar. I'm going to call these two paths the real economy (which is spending) and the paper economy (which is saving).

GDP (Gross Domestic Product) is the best measure of how the economy is doing overall, but what is GDP exactly? Simple: GDP is spending, and nothing but spending. GDP is the real economy in a nutshell. When spending goes up, that is a basic measure of demand in the economy. More spending means more demand for goods and services, so businesses hire more and the economy expands. Less spending means less demand for goods and services, so business lay off, and the economy shrinks.

There are three big components of GDP: consumer spending (the largest part), business spending on new plant and equipment (which is called Gross Investment by economists, but it's still spending for real things) and government spending. There's also an import/export adjustment, which is small.

That means if the GDP is to grow, spending in the real economy must grow. So how can that happen? One way is to increase the money supply by printing new money; but that has the downside of causing inflation. Another way is to increase the loan rate.

When you get a loan (let's say for a car), the bank checks your credit and if you're a good risk, they give you a check for, say $20,000 which you use to buy the car. The bank gets the money from the deposits of people who have saved. So by giving you the loan, the bank has moved $20,000 out of the paper economy and into the real economy. That increases spending by $20,000 which increases GDP by $20,000.

The key point: anything that moves money out of the paper economy and into the real economy is good for GDP. The reverse is also true: anything that moves money out of the real economy and into the paper economy is bad for GDP. When you pay back that car loan, that's $300 a month you don't have to spend on dining out, new shoes, or toys for the kids. So a loan is like a big BANG of economic stimulus, followed by a long slow hiss of economic drag as you pay it off.

Now consider the effect of taxation. If you're poor or middle class, chances are you spend nearly every dime that comes in. If you have savings, it's not much, at least not compared to what you spend. So if the government takes a dollar out of your pocket, that's a dollar you won't spend.

Now if the government turns around and spends that dollar itself, it's a wash: the dollar you don't spend gets spent anyway, and total spending (GDP) remains the same. But chances are, the government won't actually spend all of that dollar in the real economy: the government has debts too, and has to pay interest and principal to service those debts. If the government's debt service is greater than yours (which is generally true if you're middle class) then the dollar the government taxes away from you will end up being spent more in the paper economy than it would have if they never taxed it in the first place. In other words, the government will spend less of the dollar in the real economy that you would have. That means the real economy takes a hit with that taxed dollar, and GDP goes down. That's reflected in the red bars in the graph above.

But, as F. Scott Fitzgerald said, the rich aren't like you and me. A rich person spends a small fraction of his income in the real economy. Mostly what he does with his money is savings. He might call that "investment" because he's buying stocks and bonds and mutual funds, but that's not the same thing as "Gross Investment" when a business buys new plant and equipment; in economic terms, he's socking away his money, i.e., saving it in the paper economy. He just has a brokerage statement instead of a bank statement, but it's just as much paper.

So when you tax a rich person more, his spending doesn't go down much at all. He's still going to eat lobster and wear Gucci. Instead, he will pay the tax bill by saving a little less. And when the government gets the rich person's dollar, the government is going to spend most of it in the real economy. In effect, the government is moving money out of the paper economy and into the real economy by taxing the rich guy. And anything that moves money out of the paper economy and into the real economy will stimulate GDP, just like the loan did. But the difference between the loan and the tax is huge: the dollar taxed from the rich guy doesn't have to be paid back. Taxing the rich therefore has the same big BANG of stimulus as the loan, but without the long slow hiss of economic drag at the end.

That's why the blue bars at the right end of the graph (the incomes of the rich) show positive correlations between tax rate and GDP growth. When you tax the rich more, you're moving more money out of the paper economy and into the real economy, and GDP goes up.

The economic mess, and how to get out of it

Normally the way we get out of a recession is for the Fed to lower interest rates. That has the effect of stimulating more loans, which cause a lot of those BANGs that gin up the GDP.

But the current recession is different. The Fed has already lowered interest rates to essentially zero, and they can't go any lower. So more loans ain't gonna happen.

That means we need more spending from other sources, and since consumers can't, because they have no jobs, and business is afraid to, that leaves government spending as the last resort.

So let's see if you've been paying attention. Since we need government spending to pull us out of the recession, which of these is the best policy?
a) government borrows the money and spends it.
b) government taxes the middle class and spends it.
c) government taxes the rich and spends it.

If you said (c), you win the kewpie doll.

Can we do it?


Here's our current income tax structure: a nearly flat tax.

tax1

There are 64 years in the period 1947-2010, which breaks down neatly into quartiles. Here are the tax structures during the top 16 years for GDP growth:
tax3

See any difference between these? I thought so. Not many flat taxes there. Now here's the bottom quartile: the tax structures in the worst 16 years for GDP growth.

tax2

Hmmmm. A few progressive years, but mostly it's flat-tax city. 'Nuff said.

Sources for the graphs

I started with two spreadsheets from the Tax Foundation: first, their income tax rate history; and second, payroll tax rate history (which is Social Security and Medicare). The income tax rate history includes an inflation adjusted section (in constant 2011 dollars) which I used in the graph. The payroll tax spreadsheet does not correct for inflation, so I corrected for it myself using the same annual CPI numbers found in the income tax history spreadsheet.

Having those data, it is possible to compute the unadjusted tax rate (in any given year) for any given income level. In the early days there was only one filing method, which is comparable to today's married filing singly; so I used the married filing singly rates throughout. Because there are a lot of income levels, I simplified things by using a logarithmic scale: I started with an income of 103.5, or $3162, then went to 103.6 =$3981, and so on, up to 107 =$10,000,000. I computed income tax and payroll tax in constant 2011 dollars for each such income level using the tax brackets for each year, and a final tax rate for both combined.

From the Bureau of Economic Analysis, I found real GDP growth rates for each year (in two spreadsheets: pre-1969 and 1969-present; in both cases you need Section 1 data).

Then I just ran a correlation between GDP growth and total tax rate (income tax plus payroll tax) for each income level for all years 1947-2010. You can include earlier years if you want, but the gigantic up-and-down swings of the depression and war years (and the huge 1946 postwar recession) swamp the more meaningful modern data.

(I actually computed up to 108, or $100 million, but things didn't change for incomes that high: correlations still look postive by about the same amounts.)

Obviously this doesn't account for a lot of things, like tax deductions, tax credits, and so forth, so you'll have to remember that your taxable income and your gross income are two different animals. So while median individual income in the US is about $39,000 and median household income is about $50,000 you should subtract 12 to 15k (standard deduction plus a bit more) to get something like 25k to 35k for the median taxable income for individuals and households. Very rough, but that should be about right.

And of course, the correlations are rather weak: only at incomes above $600K or so are they statistically significant at the 90% confidence level.

But with those caveats, it's still pretty neat that the graph shows just what one would expect. At the far left end, taxing the poor has almost no effect on GDP (because the small amount of money they make has a tiny influence on the economy). The middle class (upper, middle and lower) is where the action is for consumer spending; taxing them is bad for GDP. The upper class is where the action is for saving; taxing them is great for GDP.

3:07 PM PT: Rescued? AND recommended? And 14 hours after posting it? You guys are, without a doubt, the greatest.

Originally posted to The Numerate Historian on Fri Dec 30, 2011 at 01:06 AM PST.

Also republished by Community Spotlight.

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  •  Tip Jar (172+ / 0-)
    Recommended by:
    elwior, ozsea1, peachcreek, DRo, Simplify, luckylizard, dugjxn, Prospect Park, JamieG from Md, concernedamerican, JugOPunch, IreGyre, SoCalJayhawk, maybeeso in michigan, GeorgeXVIII, emal, Gary Norton, Roger Fox, Odysseus, Lcohen, tb92, trumpeter, Captain Chaos, middleagedhousewife, eyesoars, profundo, buddabelly, Jake Williams, CT yanqui, lostinamerica, semiot, ban nock, ManhattanMan, docmidwest, scorpiorising, Leo in NJ, leolabeth, Regina in a Sears Kit House, monkeybrainpolitics, opinionated, LynChi, phonegery, Toon, ZedMont, montressor, cai, eztempo, howd, mcgee85, gatorcog, sleipner, Meteor Blades, ferg, Jim R, sc kitty, greenomanic, kingneil, artisan, where4art, TBug, Flying Goat, anyname, banjolele, caliberal2001, Laughing Vergil, Renee, guppymoo, bloomer 101, Cassandra77, MrJayTee, legendmn, Frankenoid, lovespiral, Dragon5616, TomP, profh, Shliapnikov, Horace Boothroyd III, 1Nic Ven, Nellebracht, mlharges, oakroyd, h bridges, bnasley, J Ash Bowie, UncleCharlie, Shockwave, Habitat Vic, tofumagoo, LaughingPlanet, blueoasis, salmo, Preston S, FogCityJohn, Chrisfs, MsGrin, Mindmover, psnyder, Boberto, Pam from Calif, PatriciaVa, asterkitty, Eddie L, Zinman, kathny, flavor411, kck, sawgrass727, oceanview, Danno11, DixieDishrag, Glen The Plumber, Hawksana, DBunn, melpomene1, Judge Moonbox, water willow, 42, hazzcon, baldski, CTLiberal, randallt, leu2500, dotsright, Youffraita, Matt Z, Nowhere Man, JanL, Things Come Undone, Lefty Coaster, camlbacker, Bule Betawi, robbinsdale radical, MartyM, anodnhajo, annan, dmhlt 66, jimstaro, Punditus Maximus, kyril, DiegoUK, filkertom, allenjo, MBNYC, WI Deadhead, democracy inaction, kurt, tb mare, JDWolverton, Tillie630, jhop7, happy camper, emmasnacker, bfbenn, rlharry, gerard w, US Blues, BlueDragon, Hirodog, prettygirlxoxoxo, TexasTom, matador, juliesie, inHI, Sharon Wraight, Mr Bojangles, HeyMikey, bostonjay, J M F, cotterperson, clinging to hope, Tim DeLaney

    We are all in the same boat on a stormy sea, and we owe each other a terrible loyalty. -- G.K. Chesterton

    by Keith Pickering on Fri Dec 30, 2011 at 01:06:14 AM PST

  •  It's late, I'm headed to bed (21+ / 0-)

    See you in the AM.

    We are all in the same boat on a stormy sea, and we owe each other a terrible loyalty. -- G.K. Chesterton

    by Keith Pickering on Fri Dec 30, 2011 at 01:19:30 AM PST

    •  Very interesting... but a bit suspicious (3+ / 0-)
      Recommended by:
      nextstep, kyril, WI Deadhead

      Growth has a strong negative correlation with tax rates on incomes of $100,000 but a strong positive correlation with tax rates on incomes of $200,000(?) (hard to tell because your blue section in the graph is not labeled as tightly.)

      But don't tax rates on incomes of $100,000 and $200,000 correlate very closely?  

      It seems very strange that there is such a difference in the correlations of two very closely correlated variables with a third variable.

      In fact, this very abrupt transition around $150,000 is very suspicious.  It suggests that this effect is primarily based on one period with a strong correlation... which may very well be a historical coincidence (ie. imposition of higher taxes on the wealthy at the end of the Depression when the economy was already exiting the Depression and growing very strongly.)

      Have you looked more closely at the sensitivity of this result to a small number of years?

      •  Where did you get "strong"? (0+ / 0-)

        It should be pretty clear from the y-axis that all correlations here are pretty weak (as mentioned in the diary). The 90% confidence level for significance is +- .163, which means only incomes above about 600k have significant correlations. Since I'm only looking at years 1947-2010, there are no Depression effects. Further, since the x-axis is logarithmic (as explained in the text, and as should be obvious from a glance), it's pretty easy to determine the exact income levels associated with each colored bar.

        If you think my analysis is flawed, there is enough information in the diary for you to replicate my work entirely. Then you can write your own diary and tell us where I'm wrong.

        We are all in the same boat on a stormy sea, and we owe each other a terrible loyalty. -- G.K. Chesterton

        by Keith Pickering on Sat Dec 31, 2011 at 10:46:17 AM PST

        [ Parent ]

    •  The Analysis in Diary is highly suspect (2+ / 0-)
      Recommended by:
      johnny wurster, WI Deadhead

      People who follow the US economy even casually understand the US GDP is about $15 trillion/yr  see here

      in a comment below, the diary's author writes:

      For 2009: GDP 55,755.70, Government spending 11,670.10, ratio 20.9%.
      For 2010: GDP 58,106.20, Government spending 12,011.20, ratio 20.7%.

      By the author getting such a basic part of the data grossly wrong, one cannot have confidence in the author's competance for any part of the diary's analysis concerning GDP or any other economic issue.

      The most important way to protect the environment is not to have more than one child.

      by nextstep on Fri Dec 30, 2011 at 11:25:11 PM PST

      [ Parent ]

      •  It's quite a bit of an oversimplification, but (1+ / 0-)
        Recommended by:
        Keith Pickering

        overall I think he's on the right track.
           It's well known that a major fault of modern economics is not taking class into account. That a rich person isn't going to spend money the same way a poor person is.

         I'd go one step further: recently a lot of economists were complaining about a "global savings surplus". Which I dismissed when I first heard it. After all, who has extra money that you know?
           But then I got to thinking. The 1% are getting richer every day. The wealth disparity is growing larger every day. That small percentage have to invest that enormous amount of money somewhere.
           So what you have a huge amount of un-productive cash washing around the world, looking for the highest rate of returns possible. When the amount of cash gets that large, it becomes a destabilizing force in global economics.

          Thus taxing the rich would also contribute to calming the global financial system.

        "The rich are only defeated when running for their lives." - C.L.R. James

        by gjohnsit on Sat Dec 31, 2011 at 07:08:05 AM PST

        [ Parent ]

  •  When taxes are progressive in nature, (32+ / 0-)

    as they used to be, there is more money in the hands of the job creators, working folks, and state and local governments.
       

    "We the People of the United States...." -U.S. Constitution

    by elwior on Fri Dec 30, 2011 at 01:21:53 AM PST

  •  Very simple and hard to explain! (11+ / 0-)

    Here's the challenge for Dems. They must explain that money has to come out of dividends and into company equity. That means buying heavy equipment and hiring.

    Right now we are not taxing the dividends enough. If we do, the stockholders are happier with higher stock values.

    When you do that demand for goods goes up.

    Quidquid latine dictum sit, altum viditur.

    by MrMichaelMT on Fri Dec 30, 2011 at 04:02:16 AM PST

    •  Actually, taxing dividends (13+ / 0-)

      more would discourage companies from paying shareholders (including 401ks and IRAs) part of the profits.  Usually a good stead dividend is a sign of good management.  A growing dividend over a number of years is a sign of good management which achieves growth as well and one that cares about its shareholders, its future, and by clear connection, its customers.  (Look up Dividend Aristocrats for examples of the few companies that achieve both dividends and growth).  Instead, you are right, if taxes on dividends go up more companies would push for higher stock values.  Most already do.  However, higher stock values can be achieved many ways, by hype, by deception, by luck, and most of the time, management will do this in order to be able to cash in their options on stock paid to them.  If management owns dividend stock instead of options on stock, instead of price becoming the objective, a good solid dividend becomes the objective.  Increasing heavy equipment and hiring is NOT what taxing dividends would achieve.  You would get even more Enrons, Worldcoms, Madoffs and the like using fraud to make their profits look larger, or companies like Sunbeam or Newell which cut US jobs and ship them overseas to cheaper paying, less regulated states.  This boosts profits and that is what boosts share price.  Dividends are already taxed when they are paid while capital gain tax is only paid when you sell.  This means steadier government income as well from dividend taxes, which lessens the boom/bust government spending cycles.  Taxing dividends even more would make the volatility of the market even higher than now as everyone shifted to the shell game of trying to sell at the top of the market, take their gains and only then pay tax, or on the opposite hand, sold shares at a loss and wrote off that loss on their taxes.  I invest only in dividend paying stocks now, and look very carefully at their record of paying and increasing those dividends and how they do that, and I look at management compensation.  I have learned, painfully, that management paid mostly by stock options tends to goose the share price, then take the money and run, leaving shareholders and the next management team holding the bag, and sometimes, winding up the firm.  I also look carefully at whether companies value shareholders and workers, and almost without exception, good dividend paying firms come out on top, with only the rare exception of firms like Apple.

      America needs a UNION NEWS channel. We (unions) have the money, we have the talent. Don't buy 30 second time slots on corporate media, union leaders; fund your own cable news channel and tell the real story 24/7/365

      by monkeybrainpolitics on Fri Dec 30, 2011 at 02:17:14 PM PST

      [ Parent ]

      •  And by the way, see Meteor Blade's just posted (7+ / 0-)

        diary on options.  http://www.dailykos.com/...

        He describes very well the effect pay in options has on behavior of firms.

        America needs a UNION NEWS channel. We (unions) have the money, we have the talent. Don't buy 30 second time slots on corporate media, union leaders; fund your own cable news channel and tell the real story 24/7/365

        by monkeybrainpolitics on Fri Dec 30, 2011 at 02:20:31 PM PST

        [ Parent ]

      •  Plus, speculative bubble markets are less likely (2+ / 0-)
        Recommended by:
        monkeybrainpolitics, elwior

        when companies and investors focus on dividends over stock price growth. Dividends usually come out of actual earnings, while bubble stock prices are just that - speculative hot air. Bubble prices are a zero-sum game: somebody's huge gain is another person's loss when the bubble bursts. Steady dividends give investors an incentive to keep good stocks rather than to trade in and out causing volatility.

        I'd love to see higher capital gains taxes over dividend taxes - it would restore some sanity to the stock market. But trading and volatility is how the financial industry is making much of their profits, so I'd be surprised to see a tax change that discourages trading and speculation.

        •  You're absolutely right (1+ / 0-)
          Recommended by:
          elwior

          If Americans really wanted business to conduct itself properly, they would insist that managers be paid in stock only, that all stock must pay a dividend, and that no manager could sell more than 10 percent of their stock in any given year.  That way mangers would have to share profits with shareholders (and most firms are actually owned indirectly by average Americans whose retirements and insurance coverage rests on shareholding and dividends).  Managers would have to manage for the longer term since they would be stuck with stock for up to 10 years after they left a firm (keep that max selling of no more than 10 percent of their stock pay a year as a requirement after they leave a firm).  Paying in stock alone instead of pay would also make managers have to produce value that raises the stock price or they would have to produce dividends, and they would have to do it in a sustainable manner over a long period since their pay would be tied for a long time to that firm.  If the US then changed the rules to permit firms with overseas profits to repatriate those profits without tax penalty as long as they paid them out in dividends and/or in US based investment in productive facilities and personnel, then we would really see a boom, and one that would not be of a bubble type.  Combine these moves with card check, and we would go a very long way in reversing our present troubles and inequalities.

          America needs a UNION NEWS channel. We (unions) have the money, we have the talent. Don't buy 30 second time slots on corporate media, union leaders; fund your own cable news channel and tell the real story 24/7/365

          by monkeybrainpolitics on Fri Dec 30, 2011 at 07:26:59 PM PST

          [ Parent ]

      •  This is just silly (2+ / 0-)
        Recommended by:
        nextstep, johnny wurster

        There is no financial difference between paying a dividend and increasing stock price with a buy back.

        It's mainly a tax issue which one a company chooses.

  •  Oldie but Goodie (14+ / 0-)

    An honest heart being the first blessing, a knowing head is the second..Jefferson's Letter to Peter Carr

    by JugOPunch on Fri Dec 30, 2011 at 06:07:38 AM PST

  •  We need to try to show (19+ / 0-)

    That increasing the marginal rate for high income earners is actually a great way to get them to put the money back into the economy.  

    When they are faced with paying a higher tax rate on some money, they may be more likely to put that money back into their business.  Usually, the argument against a higher marginal rate is that it hurts small business owners.  

    Well, they get to reinvest their money in their business.  They get to hire someone.  They get to do even more to improve the overall economy that way.  

    I am an atheist for moral purposes. Seriously.

    by otto on Fri Dec 30, 2011 at 06:57:41 AM PST

  •  Bush proved (20+ / 0-)

    Beyond a shadow of a doubt...cutting tax rates for the wealthy does NOT equal more investment or jobs. Trickle down is bush it....the past decade proved that beyond a shadow of a doubt

    The past decade of lower taxes for the wealthy and corporations also proved.

    Cutting taxes for the wealthy has only led to wealthier wealthy. That's all who benefitted. No one else did.

    Jobs were not created. These so called job creators are not creating jobs here...they are just sitting on their piles of wealth amassing more by saying we need to keep tax cut in place for bajillionaires because we  are the "job creators". good one...why is it with all their new wealth jobs creation levels are nil or dropped for the past decade...

    Corporations are sitting on piles of cash...and many have had record profits, yet they have not created  jobs or as this diarist and another who recently posted has shown have not reinvested it into a their own companies to spur growth.

    The tax cuts for the wealthy do not/did NOT trickle down as income inequality is at its largest in decades and the middle class is shrinking and falling.....trickle down economics is republiCON bullshit.

    The whole republiCON theory of economics regarding, tax cuts, job creation and unregulated free markets is just pure unadulaterated lies, bullshit and nonsense.....and yet it is still sold by these snake oil salesmen republicons as truth.

    The whole job creators need more

    The Plutocratic States of America, the best government the top 1% and corporations can buy. We are the 99%-OWS.

    by emal on Fri Dec 30, 2011 at 08:10:19 AM PST

  •  Gah... (5+ / 0-)

    Meant to hit preview and wasn't thinking hit post....multitasking and touch pad autocorrect key board takes some getting used to...gah.

    That said, my last sentence should be deleted...just as giving the wealthy more tax cuts because they create jobs......that theory should be deleted too.

    The Plutocratic States of America, the best government the top 1% and corporations can buy. We are the 99%-OWS.

    by emal on Fri Dec 30, 2011 at 08:23:41 AM PST

  •  Keith (16+ / 0-)

    You have the basics right.

    But,

    -GDP growth is reliant on Resources, Energy, Population growth and Productivity. Much of our post New Deal economic growth occurred because we had cheap and plentiful and easy to find energy and resources, and our population was growing, these 3 now hinder economic growth. Conventional wisdom says the days of 4-8% growth are gone, and 3-3.5% is about as good as its going to be.

    -WE used to spend 5% of GDP on infrastructure, now its 2%. Thats currently a reduction of 500 billion dollars, or between 10 to 12 million jobs.

    -The 1986 Tax Reform Act,  reduced deductions and exemptions for investing incountry by 70-80%. Instead the 86 TRA incentivizes capital flow to overseas and into speculation, and removed tax incentives that funneled as much as 2-4% of GDP into jobs stim. This currently equals a jobs loss of 8 to 14 million jobs.

    -Post 86 TRA we have the jobless recovery.
    Gramm–Leach–Bliley Act in 1999 repeals parts of Glass Steagall II leads to mortgage/banking failures.

    New Deal tax policies and Glass Steagall made for a stable economic system that created jobs. There were no Depressions, recessions were short and shallow.

    Only 3 of 15 recessions between 1938 and 1986 dipped below negative 1%. 1 in 3 recessions post 86 TRA (1990-2000-2008) went negative 4%.

    From 1838 to 1938 there were 25 downturns, 3 lasted less than a year, The rest 1-5 years. There was a depression about every 20 years.

    http://en.wikipedia.org/...

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Fri Dec 30, 2011 at 09:19:59 AM PST

  •  Great Diary...! (1+ / 0-)
    Recommended by:
    radical simplicity

    Just a graphing suggestion. Your first graph has the X-axis on a log scale.

    Try a natural scale. This will make the graph very long, but it will no longer distort the HUGE difference between those who make $5 million/year and those who make $15,000.

  •  Great charts. They tell the story so well. (6+ / 0-)

    Thank you.

    Science is hell bent on consensus. Dr. Michael Crichton said “Let’s be clear: The work of science has nothing to do with consensus... which is the business of politics. Science, on the contrary, requires only one investigator who happens to be right,”

    by Regina in a Sears Kit House on Fri Dec 30, 2011 at 01:51:46 PM PST

  •  Thanks for running the numbers (2+ / 0-)
    Recommended by:
    elwior, kyril

    And, for graphic 'em up.  The visuals appeal to my attention deficit mind.

  •  Looking at Real GDP growth Vs Total Government (0+ / 0-)

    Spending over the same period as the above diary - 1947 to 2010 also using linear regression we get an important result.

    There is a NEGATIVE correlation between total government spending and REAL GDP growth (i.e. growth after adjusting for inflation).  The correlation is -0.422844695 with a Pearson product-moment correlation coefficient of -0.277875011.

    This means as the share of GDP going to Federal, State and Local spending increases, real GDP growth tends to decrease.

    A following diary should show the details of the above calculations.

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Fri Dec 30, 2011 at 03:16:17 PM PST

    •  That undoubtedly is dominated by long-term (3+ / 0-)
      Recommended by:
      Nellebracht, elwior, kyril

      secular trends. It's well known that attempts to infer causation based on that sort of data are worthless. The current diary, which could be supplemented by numerous international comparisons, at least uses data which have some fine-structure, forming something like experimental controls.

      Michael Weissman UID 197542

      by docmidwest on Fri Dec 30, 2011 at 03:34:33 PM PST

      [ Parent ]

      •  There are many studies over decades and across (1+ / 0-)
        Recommended by:
        Samulayo

        countries that show once essential infrastructure for commerce, and other core functions of government are in place,  higher shares of GDP for government spending results in lower GDP growth.

        Looking at developed economies, the high growth economies of the world have lower shares of GDP spent on government than those with lower growth.

        The most important way to protect the environment is not to have more than one child.

        by nextstep on Fri Dec 30, 2011 at 04:06:02 PM PST

        [ Parent ]

        •  SHARES. Yes, that's the EFFECT, not the cause. (4+ / 0-)
          Recommended by:
          Zinman, radical simplicity, elwior, kyril

          When consumer spending drops, GDP drops, and the government portion of GDP MUST GO UP, even in the absence of any policy change.

          The rising share of GDP during a recession is a necessary effect of the recession, not the cause.

          We are all in the same boat on a stormy sea, and we owe each other a terrible loyalty. -- G.K. Chesterton

          by Keith Pickering on Fri Dec 30, 2011 at 04:11:51 PM PST

          [ Parent ]

          •  You are only looking at the very short term (0+ / 0-)

            incremental effect of changes of GDP, rather than the macro levels over the business cycle.

            The good years of the 1990s saw government spending's share of GDP decline from 37% at the end of Bush 41 in 1992 to 33% during the last year of Clinton in 2000.

            Now we run spending at 41% of GDP.

            During the times of high marginal tax rates for the wealthy, government spending as a share of GDP were far far lower than today.  Government spending was 24% in 1950 and 29% in 1960, 31% in 1970 and 34% in 1980.

            The most important way to protect the environment is not to have more than one child.

            by nextstep on Fri Dec 30, 2011 at 04:29:41 PM PST

            [ Parent ]

            •  ummmmmm ... (2+ / 0-)
              Recommended by:
              Nellebracht, elwior

              Current government spending is less than 21% of GDP.  So you're off by a factor of 2.

              Methinks I smell a troll.

              We are all in the same boat on a stormy sea, and we owe each other a terrible loyalty. -- G.K. Chesterton

              by Keith Pickering on Fri Dec 30, 2011 at 04:56:46 PM PST

              [ Parent ]

              •  Where do you get total government spending (2+ / 1-)
                Recommended by:
                Wham Bam, Samulayo
                Hidden by:
                Keith Pickering

                at 21% of GDP?  By total I refer to Federal, state and local with adjustments for intergovernmental transfers.

                You can conviently see this data graphed at http://www.usgovernmentspending.com/...

                In Paul Krugman's blog he puts just Federal spending at 24% of GDP in Fiscal 2010 see http://www.usgovernmentspending.com/...

                Your 21% of GDP does not even cover Federal spending.

                I am not a troll but you are a fool for being so mis-informed.

                The most important way to protect the environment is not to have more than one child.

                by nextstep on Fri Dec 30, 2011 at 06:25:47 PM PST

                [ Parent ]

                •  The BEA (2+ / 1-)
                  Recommended by:
                  Nellebracht, elwior
                  Hidden by:
                  nextstep

                  http://www.bea.gov/...

                  Table 1.1.5, Gross Domestic Product. Top line is total GDP, last bold line is government expenditures, including state and local.

                  For 2009: GDP 55,755.70, Government spending 11,670.10, ratio 20.9%.

                  For 2010: GDP 58,106.20, Government spending 12,011.20, ratio 20.7%.

                  So, I've got official data from the US government. And you've got data from a rightwing website, run by a guy who's writing a book called "Life after Liberalism".

                  Not a troll? Prove it.

                  We are all in the same boat on a stormy sea, and we owe each other a terrible loyalty. -- G.K. Chesterton

                  by Keith Pickering on Fri Dec 30, 2011 at 06:49:21 PM PST

                  [ Parent ]

                  •  You Read the Tables Incorrectly! GDP is not $58T (0+ / 0-)

                    You wrote:

                    For 2009: GDP 55,755.70, Government spending 11,670.10, ratio 20.9%.

                    For 2010: GDP 58,106.20, Government spending 12,011.20, ratio 20.7%.

                    The table you reference gives the quarterly results as annualized numbers it looks like you added the numbers together which is an incorrect understanding of the numbers.

                    Right at the top of this table it says:

                    Table 1.1.5. Gross Domestic Product
                    [Billions of dollars] Seasonally adjusted at annual rates
                    Last Revised on: December 22, 2011 - Next Release Date January 27, 2012

                    One can take the average of the 4 quarters to get an annual total of $14,526.55 for 2010 GDP (this is not the exact total for 2010 - but very close due to seasonal adjustments)

                    For total government spending you took the number that did not include transfer payments - programs such as Social Security, Medicare, Medicaid, etc..  These government programs are however a very important part of government spending.  Transfer payments are not included here - as the results of transfer payments appear in Consumption and putting it in both places would result in double counting.  So paying for a public school teacher is in the government number, but Medicare paying for a $10,000 procedure is not.

                    The right data for Total Expenditures from BEA is Table 3,1 Line 33 "Total expenditures".  Taking the 2010 average of the annualized quarters we get:  $5,538.8 for 2010 Federal, State and local government expenditures.

                    Dividing Total Expenditures by GDP  ($5,538.8/14,526.55)  we get 38% not the 20.7% you incorrectly calculated.

                    Your giving me a HR was rude and uncalled for.  I have therefore returned the favor, but I will remove the HR you earned only after you remove the one you gave me.

                    I will not ask you to prove you are not a fool.

                    The most important way to protect the environment is not to have more than one child.

                    by nextstep on Fri Dec 30, 2011 at 08:24:46 PM PST

                    [ Parent ]

                    •  Counting transfer payments (2+ / 0-)
                      Recommended by:
                      elwior, kyril

                      as a part of government spending is probably not a valid way to make your argument. When you wrote above that

                      There are many studies over decades and across
                      countries that show once essential infrastructure for commerce, and other core functions of government are in place,  higher shares of GDP for government spending results in lower GDP growth.
                      you probably weren't looking at studies that included transfer payments in these other countries and time periods. (Or, if they did, do they then show the U.S. as a major outlier, considering how U.S. GDP grew after first Social Security and then Medicare were instituted?)

                      Let us all have the strength to see the humanity in our enemies, and the courage to let them see the humanity in ourselves.

                      by Nowhere Man on Fri Dec 30, 2011 at 10:42:53 PM PST

                      [ Parent ]

                      •  Transfer payments are part of Government Spending (0+ / 0-)

                        When GDP is calculated it accounts for goods and services produced and used in either consumption or investment or export by citizens or government.

                        The accounting for spending in GDP data varies by country when it comes to items like government paid health care and some other transfers.   For example, the National Health Service in the UK gets included in its GDP calculation for Government consumption, while Medicare is not included in the US.

                        With transfer payments, taxes must be collected or debt sold or monetized to pay for these transfers, so paying for transfers has the same burden on the economy as any other government spending.

                        The most important way to protect the environment is not to have more than one child.

                        by nextstep on Fri Dec 30, 2011 at 11:05:33 PM PST

                        [ Parent ]

                        •  Well, let's see... (0+ / 0-)

                          Social Security taxes were first collected in 1937, which was a pretty good year for a then-dismal economy. (The US infamously slipped back into depression in 1938, when Roosevelt was persuaded that government spending had been dangerously high.) But since the U.S. entered WWII in late 1941 -- and had been helping to arm both sides before then -- it's hard to directly measure Social Security's impact on the economy. It does seem safe to say, though, that Social Security did not cause the wreck of the U.S. economy.

                          How about Medicare? The Social Security Act of 1965, which established Medicare, was signed on July 30 of that year. Unemployment was then 4.4 percent. By February 1966, unemployment had dropped under 4 percent; it pretty much stayed below that level until 1970, at the start of the second year of a Republican administration.

                          So what data are you looking at?

                          Let us all have the strength to see the humanity in our enemies, and the courage to let them see the humanity in ourselves.

                          by Nowhere Man on Sat Dec 31, 2011 at 08:31:08 AM PST

                          [ Parent ]

                    •  Just to let you know nextstep, (4+ / 0-)

                      you should not give out an HR in retaliation for one given to you. And you should not be calling others here a "fool."
                         Further, you are breaking a cardinal rule by exhibiting dickishness (as Kos calls it) in someone else's diary. And beyond that, you jumped on at the start, and have persisted throughout.
                         You should remove your HR and apologize to this diarist.
                       

                      "We the People of the United States...." -U.S. Constitution

                      by elwior on Sat Dec 31, 2011 at 12:03:40 AM PST

                      [ Parent ]

    •  That's an effect, not a cause. (4+ / 0-)

      Consumer spending is the most highly flexible and responsive part of GDP. When consumer spending falls, GDP MUST fall as a result. That leaves government spending (which is the second-largest component of GDP) a relatively larger portion of GDP, even if the government takes no action and makes no policy changes.

      We are all in the same boat on a stormy sea, and we owe each other a terrible loyalty. -- G.K. Chesterton

      by Keith Pickering on Fri Dec 30, 2011 at 03:38:42 PM PST

      [ Parent ]

    •  Number of things wrong with that correlation (4+ / 0-)

      First of all, why would you compare total government spending to real GDP growth?  Wouldn't it make more sense to compare real government spending growth to real GDP growth  in subsequent periods?  Or government spending as a proportion of GDP to growth in the subsequent period?

      Even in the latter comparison, you'd have to account for causality, as KP points out.  Is the higher share of GDP by the government a result of less spending by consumers or business?  In that case, it's not higher government spending that's the problem, but lower private spending/increased private saving.

      In fact, that would be a chart I'd like to see, the correlation between growth in government spending to growth in the GDP in subsequent periods.  I wonder how to make that chart?

      From such crooked wood as that which man is made of, nothing straight can be fashioned. -Immanuel Kant

      by Nellebracht on Fri Dec 30, 2011 at 04:08:42 PM PST

      [ Parent ]

  •  You are assuming our economy is a problem. (5+ / 0-)

    But it's doing exactly what the law makers have set it up to do. We working class types just aren't supposed to benefit.

    Poverty = politics.

    by Renee on Fri Dec 30, 2011 at 03:19:28 PM PST

  •  Nice charts but (1+ / 0-)
    Recommended by:
    kyril

    the analysis seems sloppy at points. Obviously savings that go into financial manipulations, real-estate bubbles, and other ways of extracting more wealth without producing anything do not make a positive contribution to the economy. However, you seem to suggest that saving itself is bad. In the context of our unusually low saving rate, that generally doesn't make sense, except as a very short-term response to the recession.

    The key is not to figure out how to increase consumption and reduce savings, but how to increase real productive investments and value-producing consumption by reducing wasted resources (unemployment, luxury, and war).

    I've been reading a lot of Robert Frank, who has wonderful expositions of those issues, albeit repetitive.

    The bottom line- that everything goes better if we can redirect resources away from zero-sum competitive uses by the rich- is the same as yours.

    Michael Weissman UID 197542

    by docmidwest on Fri Dec 30, 2011 at 03:42:29 PM PST

    •  The way to increase gross investment (3+ / 0-)
      Recommended by:
      elwior, kyril, Kickemout

      is to increase demand. I.e., increase spending. No business will expand unless they see a need to. They're not in it for charity.

      We are all in the same boat on a stormy sea, and we owe each other a terrible loyalty. -- G.K. Chesterton

      by Keith Pickering on Fri Dec 30, 2011 at 03:44:47 PM PST

      [ Parent ]

      •  true (0+ / 0-)

        and right now probably the best form of spending is on basic infrastructure and public services. I didn't follow the part your argument about why that sort of governmen spending isn't better in the long run than say spending on individual goods by people making upper-middle incomes.

        Michael Weissman UID 197542

        by docmidwest on Fri Dec 30, 2011 at 05:21:34 PM PST

        [ Parent ]

        •  I didn't say it was ... (1+ / 0-)
          Recommended by:
          elwior

          Though it might be, especially considering our infrastructure is in sad shape. Japan tried to infrastructure-spend its way out of the 1990's slump, but since their infrastructure was already pretty new, they just ended up building bridges to nowhere.

          But really, that's a fairly small detail, IMHO. Let's just get us moving forward first, and worry about the speedometer reading later.

          We are all in the same boat on a stormy sea, and we owe each other a terrible loyalty. -- G.K. Chesterton

          by Keith Pickering on Fri Dec 30, 2011 at 05:40:30 PM PST

          [ Parent ]

    •  Also, the savings rate is not the problem (2+ / 0-)
      Recommended by:
      elwior, kyril

      and never is, during a recession. Low savings is only a problem if it affects capital formation, and that's clearly not the issue now. Banks are awash in money that they can't loan, or are afraid to.

      Low savings rate/low capital formation is usually only a problem at the peak of boom times. We're not there, so there's no need to worry about that now.

      We are all in the same boat on a stormy sea, and we owe each other a terrible loyalty. -- G.K. Chesterton

      by Keith Pickering on Fri Dec 30, 2011 at 04:14:18 PM PST

      [ Parent ]

      •  agreed for the time being (0+ / 0-)

        We need stimulus because we're still stuck with high unemployment. However, your argument seemed to be framed in more general terms, as if saving was bad per se. The flip side of Keynes is that in boom times the government needs to save or encourage savings to allow stimulus in bust times. And more generally, regardless of the vagaries of capitalism, some mechanism is needed to set aside resources for productive investment.

        Michael Weissman UID 197542

        by docmidwest on Fri Dec 30, 2011 at 05:25:38 PM PST

        [ Parent ]

  •  Missed in the Anti Tax Bogus-ness? (6+ / 0-)

    Has anyone considered the base, psychological response of the wealthy class related to high taxation?

    i.e. when the wealthy class is taxed more, they are "forced" to invest more-- to make more profit, which yes is taxed, but ultimately they end up with more wealth-- not less due to taxation.

    Of course part of the math is the tax deductions, write-offs, deferrments, etc., which means many don't pay the "high" tax rate they continually moan and groan about.

    The "irony" is the wealthy are fond of criticisizing "lazy workers"... all while it appears they themselves have become lazy due to low taxation. Low taxes means the wealthy don't have to work (invest) as much in order to maintain their wealth.

    "I don't feel the change yet". Velma Hart

    by Superpole on Fri Dec 30, 2011 at 03:56:17 PM PST

  •  Extremely good analysis (3+ / 0-)
    Recommended by:
    Keith Pickering, Matt Z, elwior
  •  So why did President Obama's Justice Dept enable.. (2+ / 0-)
    Recommended by:
    scorpiorising, greeseyparrot

    ....a regressive tax this week, when it ruled for internet gambling.

    http://abcnews.go.com/...

    Online Gambling, Casinos to ‘Sweep’ U.S. in 2012

    Forget the monkey or the rooster, 2012 could be the year of the gambler and experts say that while that would mean more money in states’ pockets, it could also put young people and adults at further risk of addiction.

    On Friday, the Justice Department reversed its previous stand on the 1961 Wire Act — saying that it applied to sports betting but not online gambling — after years of hunting down online casinos like the billion-dollar-plus Full Tilt Poker.

    I guess it's a lot easier to increase the tax burden on the working poor and middle-class than having the courage to ask the really wealthy to pay their fair share.

    In IL, the Dem Governor increased the flat income tax by 66% on the working poor.

    In CA, the Dem Governor wants the middle-class to vote against their economic interest, to vote themselves a tax hike.

    Are Dems who ask the working poor to shoulder a heavier tax burden really championing their economic interests?

    Learn about Centrist Economics, learn about Robert Rubin's Hamilton Project. http://www1.hamiltonproject.org/es/hamilton/hamilton_hp.htm

    by PatriciaVa on Fri Dec 30, 2011 at 04:57:21 PM PST

    •  Because they're idiots? (3+ / 0-)
      Recommended by:
      water willow, elwior, HeyMikey

      But seriously, "fair share" is a losing argument, and we need to bury it. What "fair" means is different for everyone.

      The argument we need to make is: taxing the rich more will boost the economy. And we have the data to prove it.

      Hard to argue that we need to keep the economy down so that the rich can increase their kids' trust funds.

      We are all in the same boat on a stormy sea, and we owe each other a terrible loyalty. -- G.K. Chesterton

      by Keith Pickering on Fri Dec 30, 2011 at 05:03:45 PM PST

      [ Parent ]

      •  It's not a losing argument (1+ / 0-)
        Recommended by:
        juliesie

        And it's easy to explain.

        Income is income. All income, from any source, should be taxed at the same rate.

        I don't care it you made it from work, from gambling in the market or from gambling in the casino. It all gets taxed the same. That would be a good start. I would, however, exempt all state run lottery winnings. That would get those who are sure they're going to win the lottery any day now on board. And it wouldn't make much difference, since they're such a small part of the total.

        I'd also have a tiny stock transaction tax, and a millionaires surcharge.

        Those are all easy to understand. Most people would think those were fair, and not onerous.

        •  Because there's no legal obligation to gamble. (0+ / 0-)

          Yeah, I know, for many it's an addiction.

          But if you don't want to pay the gambling tax, then don't gamble. Or if you want to pay a lower gambling tax, then gamble less. Unlike most any other form of taxation, it's optional.

          "The true strength of our nation comes not from the might of our arms or the scale of our wealth, but from the enduring power of our ideals." - Barack Obama

          by HeyMikey on Sat Dec 31, 2011 at 11:49:23 AM PST

          [ Parent ]

  •  If you tax a business or the rich (4+ / 0-)

    The business or rich will find ways to increase their expense that can be deducted (such as hiring another person or buying  new computers or machinges) to decrease income subject to tax  --so that means good for employment and GDP.

    And if you tax investment income like ordinary income and not 15% ---businesses or the rich will actually want to invest in a business that will hire people instead of playing the wall street casino game that does nothing to employ another person but instead increase prices of commodities.

    Root of Job Loss: Low capital gains (tax incentive) for stock market casino compared to real businesses that produces Jobs. Great Business idea A Dept Store that sells only made in america goods

    by timber on Fri Dec 30, 2011 at 04:57:30 PM PST

    •  Absolutely right about investment income (3+ / 0-)
      Recommended by:
      Keith Pickering, UU VIEW, elwior

      Its putting the cart before the horse for folks to talk about raising top rate to Eisenhower levels before investment income (cap gains/dividends) is taxed like ordinary income instead of the 15% flat tax rate.

      Would be even better to (as William Vickrey suggested) tax unrealized capital gains.  Vickrey figured out that simply levyng a capital gains tax upon sale or owner's death (thus ending the "stepped-up tax basis" that wipes the capital gains slate clean when heirs take the property) and then adding an interest charge for each year asset was held would raise the same amount of revenue as an annual accrued gains tax but far easier to manage.   As it happens, all three things (ordinary tax rates for investment income, retrospective accrued gains tax, ending stepped-up basis) could be accomplish by amending one subsection of the tax code.

      Section 1 of Title 26, the United States Code is amended by striking "(h) Maximum Capital Gains Rate”  and inserting after subsection (g), the following,“(h) Vickrey Tax”
      “Notwithstanding any other provision of law, if the taxpayer disposes of a capital asset then the rules of 26 USC 1291(a)(1) shall apply to any gain recognized on such disposition in the same manner as if such gain were an excess distribution in respect of stock in a passive foreign investment company.”

      http://www.law.cornell.edu/...

       

  •  Awesome job. Now let's talk confiscatory tax rate (6+ / 0-)

    You could also do something about the confiscatory rates of the Eisenhower era.

    Essentially, we could have a 90% rate on income AFTER a certain threshold.  Peg it to 40 times average worker salary.

    That would be about $2,000,000 in todays dollars.  After that point, the 90% rate kicks in.

    That leaves you with limited options.  Wait until average worker salary goes up, or distribute the money to shareholders.

    We succeeded very well as a country and society under this very same scenario, up until Kennedy.

    Chime in on this for me please.  I'd really appreciate some historical background on what the political context was in America when these rates were instituted.

    I'm well aware of the context in which they went away.

    It's the inequality, stupid.

    by Boberto on Fri Dec 30, 2011 at 05:00:44 PM PST

  •  Why just not print more money and spend it? n/t (0+ / 0-)

    Rick Perry is George Bush without brains.

    by thestructureguy on Fri Dec 30, 2011 at 07:05:29 PM PST

  •  Wholly Incredible! (2+ / 0-)
    Recommended by:
    Keith Pickering, elwior

    You have explained and simplified this wonderfully; thank you, this is very, very helpful.

    I had a little chuckle at this...

    I simplified things by using a logarithmic scale: I started with an income of 103.5, or $3162, then went to 103.6 =$3981, and so on, up to 107 =$10,000,000. I computed income tax and payroll tax in constant 2011 dollars for each such income level using the tax brackets for each year, and a final tax rate for both combined.

    lol, you "simplified" things. That looks far from simple to me.
     

  •  This is a great diary (3+ / 0-)
    Recommended by:
    Keith Pickering, Matt Z, elwior

    Thank you so much for the hard work!

  •  Good work. And don't forget, (1+ / 0-)
    Recommended by:
    elwior

    when we only compare taxes to income, we only get half the picture.  Our current tax system is barely progressive with respect to income (as you point out, close to flat tax), and it's actually regressive with respect to income at the very top end (all the more reason to increase tax rates there).

    But what people can afford is a function of wealth as well as income, and wealth is far more skewed than income.  Taxes compared to wealth are extremely regressive, with at least the bottom 40% of Americans paying more each year in total taxes (including regressive state, local and payroll taxes) than their entire net worth, while the top 1% only pay between 2% or 3% of their net worth in total taxes each year.

    Some combination of wealth and income would be a better base for measuring whether taxation is progressive or regressive, but any inclusion of wealth exposes how regressive our tax system is overall.

    The accumulation of wealth, especially through non-productive financial speculation and manipulation, has hurt the economy, consistent with what this diary describes.

    It is not "punishment" or "envy" or any other such reason that we should raise taxes on the wealthy--it is what our economy needs, and it is what is sustainable and fair, especially after so many years of counterproductive tax cuts for the wealthy.  (A fair number of wealthy Americans, such as Patriotic Millionaires for Fiscal Strength understand this.  The greedy 1% may or may not understand it, but they don't care.)

    Whether through higher top income tax rates, taxing capital gains and dividends the same as earned income, a transaction tax, a higher estate tax, or some combination of the above, you are exactly right that our economy will suffer until we increase or restore higher taxes on the wealthy (and, preferably, spending that money in ways that are true investments in a better future).

    Civil marriage is a civil right.

    by UU VIEW on Fri Dec 30, 2011 at 11:03:17 PM PST

  •  You lost me at "GDP = spending". (1+ / 0-)
    Recommended by:
    johnny wurster

    It doesn't. Per Macroeconomics 101:

    GDP(Y) = C+I+G+NX.

    C = spending on consumption.
    I = Investment.
    G = Government spending on goods & services.
    NX = Net Exports.

  •  Tax revolt (0+ / 0-)

    Fairly remarkeable awareness emerging of the permanent criminal class and their purchased legislative terror aparatus in Washington.

    However you all are so miniscule and any of your awareness will be eclipsed in the public dialog by their next war.

    Maybe what your frustrations should be directed to Obama who has done nothing about anything, and if he won't do it who will. They have no problem with executive the executive orders to destroy your freedoms, why wouldn't exective orders be used to shut this bullshit down.

    Perhaps someone like Obama is told the way it is going to be or he will get Kennedy'd.

    About the only leverage you have is Obama.
    There is almost no way with the surveilance, and certainly impossible for the majority with W2's.

    If anyone could figure out a way the only other leverage is a Tax revolt until demands to clean up the special legislation out of the tax code at a minimum and then to restore tax credits for all employment and income expenses incurred by the W2 workers. For example almost all gasoline, almost all medical expense is employment expense. Even rent/mortgage is an employment expense dictated by locality to imcome production. Once all extra-ordinary expenses dictated by the location-transportation-medical services required for income production are
    credited off the top line for the W2 slave, then you are approaching a functional sustainable income incentive.

    By time the W2 slave has paid all the employment taxes down to gasoline, the auto note, auto insurance is legislated and not discretionary employment expense for example, you are all working for negative retuns.

    That is how they got you through the taxatation confiscation structure. Slaves.

  •  I like to save up before I buy something. (0+ / 0-)

    Does that make me bad for the economy? It sure gives me more peace of mind than I had back when my savings was, as you put it, "not much". My savings has totaled more than 100% of my gross income for at least the last half of my life now, and I never made more than about $70k a year, and generally less than 60k. Never thought of myself as anything more than just peeking into the middle class.

    Moderation in most things.

    by billmosby on Sat Dec 31, 2011 at 06:18:31 AM PST

  •  GDP (0+ / 0-)

    I actually don't know everything going into and anything calculated by the govt would be a lie anyway so it means nothing. Keep it very simple at a top level and so you statement that it is spending is so bad but it could miss key points that is falsified by inflation/monitatization schemes.

    If they inflate 5%, the GDP should automatically be up 5%.

    This is one of the notorious lies about China. Their loan balances expanded 20% last year and their GDP grew 8%,
    that is a 12% real GDP loss and china is already collapsing, can only build so many empty cities.

    If US banks just made up 20% of GDP in new loans out of thin air, I'm pretty sure US GDP would be 8% that year too.

    How the lending expands GDP even when real GDP is collapsing, the last bush years the people extracted 7-8% of the value of GDP out of home equity loans, and the GDP growth was 2%. I read litterally FED reports, not 2nd hand info.

    I said on this site that at a minimum top level real GDP was falling 5%, 7% new debt - 2% growth.

    I then said that real inflation was 5% in bush years.

    Then GDP was falling 7% factoring in inflation losses, and now some say that the
    economy actually contracted 10-12% which would be the multiplier factor of default.

    Other optimistic economic types here were more popular than I and I quit posting.

  •  And don't forget, low interest rates on (1+ / 0-)
    Recommended by:
    billmosby

    traditional investments induce rich people to find alternative investment strategies that are either separate from or detrimental to the real economy.

  •  The psychological component (0+ / 0-)

    is just as powerful.

    You touched on it here:

    A rich person spends a small fraction of his income in the real economy. Mostly what he does with his money is savings. He might call that "investment" because he's buying stocks and bonds and mutual funds, but that's not the same thing as "Gross Investment" when a business buys new plant and equipment; in economic terms, he's socking away his money, i.e., saving it in the paper economy.

    Even beyond that, being able to keep more of the money (low taxation) is a disincentive to give raises, invest in business, give to charities, etc.

    Suppose that instead of having a top tax rate of 33%, we changed so that the tax rate on the first million of income was 33%, but went to 90% on the second million.

    In the first example, the guy who makes $2 million gets to "keep" 670k of the second million, so investing that million in his business effectively costs him 670k.

    In the second, he could only keep 100k of that second million, making the ROI for that second million much more attractive.

    Of course, that's an extreme example, but the point stands. Being able to hoard money, as it stands now, leads to outrageous bonuses, options and such...heck, you could even look to this as the reason you can't get into a professional sports arena for any reasonable sum anymore.

  •  too simplistic ... without (0+ / 0-)

    saving, you don't get investment, ie money to build factories. Also ignores the role of public spending on education as source of ideas needed for growth. Lacks analytical depth.

  •  1. Register. 2. Vote. 3. Run for office. (0+ / 0-)

    If all this Occupying doesn't translate to more progressive votes in Congress, it will come to nothing.

    "The true strength of our nation comes not from the might of our arms or the scale of our wealth, but from the enduring power of our ideals." - Barack Obama

    by HeyMikey on Sat Dec 31, 2011 at 11:51:29 AM PST

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