How to Improve the Economy and Reduce the Deficit…

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When I write my articles I try to keep as positive as possible.  I hope some of my other articles like How Life Coaching has Helped Improve My Business and Life and Improving Business and Life by Changing Your Attitude: A Personal Case Study of 2013 have shown you that I strongly believe in the power of positive thinking to improve one’s business and personal life.  Since I like to write positively – I stay as far away from political pieces as I can since many people have a negative attitude towards politics or one party.  However, Ben Leybovich recently wrote an article on the minimum wage and I was sucked into commenting on his article and Ben urged me to write an article in regards to my comments and views.

Ben’s article argued that the minimum wage needs to be raised in order for lower income families to make enough to afford the basic necessities of life.  I hold a completely different view – that we should have a free market and the government should not force business to pay their employees a higher minimum wage.  I think a higher minimum wage will cause business to hire less people, charge more for products, cut back on services, and ultimately hurt the economy.  This article is not about the minimum wage, but other national policies that I think will improve the economy and reduce the deficit.

When I write this article, I am not writing as a Democrat or Republican. I am writing about what I think can improve the economy and reduce the deficit with a mix of liberal and conservative ideas.  If you must know, I consider myself an independent and although I am a registered republican, I stopped voting along party lines years ago.  I now vote for the best person, not a party.

Taxing the Wealthy

My entire theory is based on the United States tax policy and how it affects the rich, poor and investments.   I used to be a strong believer that the lower taxes are, the better the economy will be.  I have recently completely changed my philosophy and I now believe raising taxes on the wealthy may increase our economic production.

The Clinton Era

Before many of you roll your eyes and stop reading, let me explain a few things.  Taxes were raised under Clinton, but he also did many other things with the monetary policy  that were not exactly liberal.  I also know that Clinton didn’t do it all, he had help from Congress, the Senate and not all the changes may have been his idea.  You can argue whether it was Clinton or the Republicans made the changes, but I am going to refer to it all as Clintons doing just to make the article easier to write.

  • He raised top two tax brackets to 36 and 39.6 percent.
  • He lowered the tax rate on the poor significantly by revamping the welfare system.
  • He lowered the capital gains tax rate from 28 to 20 percent.
  • Spending was cut from 22% of GDP to 18% of GDP.

These policies made huge changes in the economy and were a huge change from where we are now.  They were other factors that affected the economy like the .COM boom, but I think the Clinton policy changes made a huge difference in economic production.  The policy changes coupled with an economic boom also produced a surplus in the federal budget.  It’s hard to believe now with our current deficit, but there was a 198 billion dollar surplus in 2000.  Other economic indicators also showed a very healthy economy: unemployment was 4% and the economy was growing at 4.2%.  There were plenty of jobs for everyone and minimum wage was not a hot topic, because most people could find jobs paying above minimum wage.

Promote Investment

There are so many variables that go into the US economy that no one can know or sure what works and what doesn’t.  Republicans will say it was the things they believe in that worked and Democrats will say it was the things they believe in that worked.  I personally think it was a combination of both liberal and conservative ideas.

I believe the federal governments policies at the time promoted business investment and consumer spending big time.  I’ll go after the hottest button first; raising taxes on the wealthy.   Clinton raised taxes to 39.6 and 36 on the top two tax brackets, but the economy still went crazy.  There are many factors that could have pushed the economy up, but I will explain why I think the higher taxes actually helped the economy.

The biggest thing that changed my mind from taxes needing to be lower for the wealthy to taxes needing to be higher was a discussion I had with my banker.  I was asking her about 1031 exchanges and if she was seeing an increase or decrease in the number she was seeing.  She said she is seeing very few exchanges, because taxes are so low investors aren’t exchanging their properties, they are taking profits.  The investors figure taxes will never be this low again so the smart move is to take profits now and pay taxes instead of reinvest in more property.

I started thinking, if the little investor is using this strategy, I bet the big boys are too.  Economically it makes sense to defer taxes as long as possible when taxes are high and take profit and pay taxes either when they are low.   We have seen a struggling economy for years, even with taxes on the rich at some of the lowest rates in history.  I know taxes aren’t the only thing that affect the economy, but they do affects business owners investment strategies.  Personally I don’t think low tax rates promote investment, they promote profit taking.

It is not only the level of taxes that causes businesses to invest or take profits, but the anticipation of what future tax rates will do.  If businesses assume tax rates are going to rise soon, I think that promotes profit taking even more.  They want to pay the lower rate on as much as possible before the rates increase.  Once the tax rates increase the businesses will go into tax deferment mode until taxes go down again.  It is very clear the federal governments tax system promotes investment in the economy.  There are huge tax breaks for investing in your own business, investing in your retirement or buying Real Estate.  When taxes go up, I don’t think businesses will cut back since they pay taxes on profit.  The more expenses you have the less profit and less taxes you pay.  It reminds me of my accountant’s advice when I started to make good money and I saw my first big tax bill to the IRS.  I asked him what I could do to pay less taxes.  He said, “a big tax bill means you are doing good, you made a lot of money and didn’t spend very much either.”

He is no longer my accountant, because I was looking for real advice on how to lower my taxes.  The point of the story is that people and business pay less in taxes the more money they spend on deductible items: entertainment, real estate, infrastructure, staff, etc.  The government tax policy makes sure those deductible items help our economy.  I think businesses will increase investment, increase hiring, increase infrastructure if tax rate go up so they can pay less taxes.

Lower Taxes on Lower Income

Here is another hot topic that I will share my views on.  The lower the income, the lower tax rates are and many people feel this is unfair.  I happen to think that the lower tax rates are on low income earners – the better it is for our economy.  My reasoning is that the low income earner historically saves less money than the high income earner.  If tax rates are lowered on the top 1%, the top 1% are probably not going to go on a spending spree and buy a bunch of consumer goods.  The top 1% became the top 1% by saving money, investing wisely, or building a business.  Most of the low income earners are living month to month with a long list of items they would love to have if they could afford them.  Many low income earners will immediately spend any raise or tax break they receive, which will boost the economy.  This is why many people think the Clinton tax break on the poor was a huge boost to the economy, just as many others think the tax increase on the rich was a boost tot he economy.  I think both worked.

Right now, I don’t think we need to lower taxes on the low income earners, because they are extremely low to begin with, but I don’t think they should be raised any either.


Clinton was able to reduce spending dramatically while in office.  Right now the federal budget is about 25% of GDP compared to 18% when Clinton was in office.  A huge worry in the US and world economy is budget deficits and increasing government debt.   No matter what is done,  spending has to be reduced.  I won’t talk much about this because I am not an accountant who can decide where to cut spending.  I don’t know the right answers, because I don’t know enough about the situation to know where to make cuts. However,  I do know it is much easier to give people money, than it is to take away money you are already giving them.  Any time an increase in the budget is proposed it needs to be scrutinized, because it is going to be very hard to reverse any increases.

Possible Derailments

My theory is based largely on tax deductions and I have a major concern with a few things I have been hearing on tax reform.  One item I have heard is the removing of many deductions for businesses and individuals.  I think eliminating deductions would be a huge mistake, because that would decrease  incentives to invest and spend money.

I also think increasing the capital gains tax would be a mistake, because a low capital gains rate promotes quick buys and quick sales.  Buying and purchasing are one thing that drives the growth rate and creates jobs.  Increasing the capital gains rate may cause there to be more holding and less selling.  To drive the economy we need a lot of selling and a lot of buying.


I believe by raising taxes on the wealthy – it will promote investment and economic growth as well as provide more revenue to the federal government to reduce the deficit.  I think cutting spending is a huge part of reducing the deficit, but I don’t know if enough can be cut to make a real difference in our economic environment.  We can’t remove deductions and other incentives to invest in the economy, that would counteract the entire point of the tax system.

As far as Ben’s article about raising the minimum wage: I think raising minimum wage will hurt the economy and be a temporary fix for the low income earners.  To best help the low income earners, we need higher paying jobs, not a higher minimum wage.  Improve the economy, decrease the deficit and higher paying jobs will help low income earners not care about the minimum wage.

The minimum wage will become what it was meant to be, a starting point for those entering the workforce.

Thoughts? Join the discussion below in the comments! Let me know if you agree or disagree- and why.

Photo: David Pearson

About Author

Mark Ferguson

Mark Ferguson is a has been a real estate investor and real estate agent/broker since 2002. He has flipped over 165 homes in that time, including more than 70 in the last three years. Mark owns more than 20 rental properties that include single family homes, as well as commercial properties, including a 68,000 square foot strip mall. Mark has sold more than 1,000 homes as a real estate agent and is the owner/managing broker of Blue Steel Real Estate in Greeley, Colorado. Mark started the InvestFourMore blog and website in 2013, which has hundreds of article on real estate. Mark is constantly sharing his insights, case studies, and interesting things that happen to real estate investors on both his blog and well-known sites like Forbes.


  1. Well written and reasoned arguement. I moved here originally from England and would describe myself as a Republican, but on attaining citizenship registered initially as an independent then a Democrat, probably more to yhe right of that party. I think you need a fair minimum wage that allows low income earners to pay their bills whilst holding one job. A problem I hear locally is people have two or three jobs, but their primary job keeps changing their work schedule and this causes them to lose job two or three because they cannot offer consistent availability. If job one paid enough they would not need two and three.
    I agree with you oower taxes on low income will be spent not saved, and many high earners are using shelters and other means to avoid higher rates, so raising those higher rates wont increase spending.
    More than anything we need politicians willing to work together regardless of party for the good of the country and not holding the country hostage or damaging it through party poitics. Business people want consistency and stability it gives them courage to invest not see saw rhetoric and policy.

  2. I know I’ll sound hard core conservative but when you have 43% of people paying no federal tax there is something fundamentally wrong.

    I also don’t like how people do math on a single mother on minimum wage trying to support herself. I’m a professional make a good salary, and my lifestyle would change quite a bit if my wife didn’t work. If you are single, get a roomate etc. I have no interest paying for your baby when I am trying to get my own three kids through college with zero help from our government (because me and my wife both work as I mentioned).

    #1 thing is spending as you pointed out. Why do we need to increase spending every year? Did everyone get a 5% raise every year the last 3-5 years? Nope, but our government did, and my property taxes got at least 3%. It’s crazy. I don’t know where it ends.


    I like your logic, I think you put it together very well and agree with some of your policy changes.I however have developed this understand of how our economy operates and mote importantly how our monetary policy operates and feel the vast majority of folks out there have the wrong goals in mind. You as many do (and I used to as well) believe that federal government needs to run at least a balanced budget and even better a surplus for the economy to improve. I see this as the wrong balance considering the way our monetary system operates. The balance that needs to be achieved is between the private sector, the public sector and the foreign secctor. The US has a sizable trade deficit, this is a drain on the private sector as it represents an outflow. To make up for this outflow their needs to be a balance. This balance is brought about by a credit expansion in the private sector in either the household or corporate sector. Of course as we all know, credit growth in the private sector has its limits as it needs to be paid back as the private sector cannot create currency. This leaves the public sector to provide the counter balance for our trade deficit in order to allow the private sector sustainable growth. During the 90’s there was a large credit expansion in the private sector while we still had a growing trade deficit. This is what eventually lead to the collar in 2001 and again 2008. If the federal government had not stepped in to stabilize the private sector the private sector would have increased its downward spiral. The private sector has maintained low growth with government infusions. The difficult part is that our monetary policy and fiscal policy do not operate in cooperation with one another. We could also promote further policy to lower our trade deficit. Fantastic article, I love this topic and once I had a solid understanding of the operations of our monetary system my business and decision making has improved greatly.
    If you want to learn more on this concept, visit it is a fantastic resourse and has a tireless operator that loves to teach. Please watch the video as well, technicalities aside it gives a great overview of credit, inflationary and deflationary pressures and how they interact in the economy.

    • Kyle, Thank you for all the information! I will be the first to admit I have a lot to learn on the subject. I agree about the public sector needing to step in to avoid a complete collapse in 2008. It was a scary time for businesses and the commercial world.
      I have no reason to doubt your analysis on the deficit, but I would think that having such a large deficit creates a lot of uncertainty and doubt in businesses. At some point we have to start reducing debt, not adding to it exponentially.

      • Thanks for the reply. Yes it is a difficult concept to understand as common knowledge teaches us that the government should operate the same as we do but as an individual our position is a lot different than the federal government which is not only just a currency user like me and you but rather a currency issuer as well.
        This goes into your statement on debt. Our national debt has been on an upward climb sincethe begining of our country. As a matter of fact, the 7 times in US history where the national debt took step down, these instances where immediately followed by a recession or depression, everytime. The time that it would make sense that our country should be in the best shape, every single time has led to a recession or depression. With that information I knew there had to be something wrong with my old way of thinking.
        As of right now our national deficit is lowering as the private sector is healing. The debt to income ratio for individuals had reached unsustainable levels thus when the party stopped it stopped fast as people had less income from other people and businesses spending less. Lower incomes and less spending caused a lowering of asset prices. All these things fed on themselves and the government was the only entity that could fill that void. However deleveraging is not something that happens overnight and thus has to run its course. The economy remains in muddle through stage as their is adequate government support and improving balance sheets in the private sector. Mark you hit on a fantastic point is this pspot as we analyse the private sector balance sheet. The households (sector) are those with the worst debt buildup that led to the great recession. The other half of the private sector from households is the corporate sector, in the private sector as a whole it shows a lot of money going to savings but a lot of that has been in the corporate sector as companies are unsure of the future because their main driver (households) cannot give them adequate demand when the household sector has such weak balance sheets. Thus corporations sit on cash and take profits. There seems to be little incentive to reinvest in such an environment which does hamper the strengthening of the households. Prudent and comprehensive tax reform would have a profound effect on economy how ever it would be scary to change something that continues to grow more complicated but also serves a purpose with the web of deductions millions of Americans use all the time.
        I would like to see a separation in capital gains classifications. I believe that buying a house, putting thousands of Dollars into that house, hiring workers and buying supplies, updsting the infrastructure of a home and improving a neighborhood has a much better effect on the economy than purchasing Home depot stock at $20 and 6 mo ths later selling it at $30. Those events are taxed completely the same but have dramatically different effects on the economy. My home depot srock purchase doesn’t even go to home depot but rather just another guy like me that has decided to sell. Maybe that guy was selling to spend that in the economy but by and large it is just a sloshing around of funds dedicsted to investing from one spot to another which does little to increase spending or economic growth.

  4. A few thoughts (turned out to be longer than I wanted):

    1. Republicans v Democrats: There is no such thing in my opinion – all are politicians. Whoever pays the piper, not only dictates the tune but also calls the dance steps to follow. For the politicians, you only need to know who sponsored, and/or is keeping, him/her in office, and you can foresee what policies they will be proposing. The only difference between a republican and a democrat in my opinion is how they think you should skin a cat (read the people). While there are many ways to skin a cat, whichever way you do it, the cat won’t like it.

    2. Taxing the wealthy: The wealthy earn low wages and make most of their income as capital gains. The high wage earners are mostly the higher end of the middle class. If you want to tax the wealthy, you go after the capital gains and not just the high wages. I don’t see why capital gains should be taxed any lower than income when the ‘investor’ has already been compensated for his risk by his/her getting the lion share of proceeds. Clinton did not increase taxes on the wealthy, but on the middle class. The short term effect was that the wealthy had more money available to invest, but the long term effect was that it shrunk the middle class, and was one of the factors that set up the recent recession. A problem with macroeconomics and policies is that it is often difficult to discern the cause and effect of various policies particularly in the long term.

    3. Low Income: A minimum wage should be a safety net that is rarely needed and not a source of forced wage increase i.e. in a good system, there should be few companies that need to raise the salary structure to meet the minimum wage. On the other hand a minimum wage should not be measure of basic living but more as a way of limiting exploitation. You should NOT be comfortable living on a minimum wage as that is counterproductive. What you want is that the system is competitive enough that the typical worker earns well above the minimum wage and can live comfortably. I am not a big fan of having too many favorable provisions for lower wage earners. Your standard of living should correlate directly to your income even if the roll off is shallow at the lower end. I should not be better off earning a lower income but unfortunately that is what we have in the US welfare and tax systems, where a family earning less than $35K are likely better off than one earning 2x as much ($70K).

    4. Economic Productivity: To make an economy productive, you need a situation where there is
    – Capital: The US has enough capital available for investment but currently the distribution is lopsided and too few have control over too much. This is an inevitable consequence of capitalism as it tends towards a modern form of feudalism. One possible solution is to not only tax what people earn but also what they hold on to i.e. encourage the wealthy to spend more and put money back into circulation.
    – Labor: There should be a labor force of good quality and quantity. The US has the quantity but lacks the quality. The measure of quality is beyond just skill and knowledge, includes other factors such as work ethic, distribution of skills and population, etc. The outsourcing practice has add a very negative effect on the system as it has wiped out some job types/classes and allowed the wealthy to hide more money overseas. The US labor force have high disproportionate number of lawyers (who only make the society litigation happy) and finance types (who try to make a dollar from 50 cents without adding any real value), instead of having more of engineers, scientist, medical etc. who actually improve the standard of living in the society directly
    – Reward system: Productivity and risk taking should be rewarded on a linear scale, but that is not the case in a society where the entertainment industry is excessively overcompensated, a welfare system discourages productivity, and the reward for productivity grows exponentially (e.g. most corporations are top heavy, with 90% of the productivity being consumed by the top 10% of the organization).
    – Fair Umpire: A regulatory system that ensures a fair playing field, where my size and/or position does not award me an undue advantage over others. Not a system in which some financial institutions are deemed too big to fail and bailed out at the expense of those they have robbed, while other companies are left to go belly up. Not a system where some organizations harbor information to protect their own interests e.g. real estate agents and MLS. All animals should be equal, but in the US, some animals are more equal than others.

  5. Tosin, thank you for taking the time to comment! I agree with much of what you say. I had a hard time figuring out where I was on the capital gain tax. Maybe I let my subconscious make the decision for me, because a raise in that tax would affect me the most with fix and flips.

    One thing I did not talk about was the corporate tax rate, I think many high earners use corporations to pay less taxes as well as capital gains. I have multiple corporations for my business. I would guess raising the corporate tax rate would encourage investment as well, as long as the corporations did not move overseas!

    Like you said, there are so many variables and it takes so long to see the actual changes in macroeconomics that it really is a guessing game.

    • Mark –

      First of all, kudos for writing this. Secondly. double kudos for being honest! Lot’s of good stuff. One thought:

      True statement – Our Economy is a YOYO, and has been for years. There are many reasons for this both monetary and fiscal in nature. One of those reasons is that there is much too much encouragement of trading activities relative to investing by way of low CAP Gains rate. Too many people are in and out, which creates wealth for the few who know how to do it but does not trickle down since there is no long-term management. I say higher CAP Gains rate is on tap to encourage more investment in lieu of trading. This point of view will not be popular with flippers, but our system of risk/reward is completely off which leads to all kinds of not so good consequences. If people want to take a big payday, fair enough – but they should expect to pay more for it…

      • Ben, I Kyle’s earlier point of separating capital gains into categories. I am not sure how you would do it, but like he said. Flippers put so much money into the economy, where money traders not so much. A flipper hires contractors, pays Realtors, gets loans, insurance, buys a ton of supplies and do a lot for the local economy. I wonder if there could be some sort of active capital gain tax for those putting in work and building something versus pure paper.

  6. Mark,

    If your objective is to fix the economy and reduce the deficit, you provided the primary solution with your comment on the current 25% spending to GDP ratio. If we got back to an 18% ratio, much of the problems in the economy would disappear over a relatively short number of years.

    However, your comment that “raising taxes on the wealthy will promote investment and economic growth as well as provide more revenue to the federal government to reduce the deficit.”… well, that is simply not supported by history. Additional revenue has almost always equalled increased spending, not a deficit reduction. The notion that raising taxes promotes investment is not historically supportable either. As one example, look at corporate tax rates and the double taxation policies of the U.S. Gov’t. If money EARNED overseas was allowed to be brought home without being double taxed, we would see significant investment in the U.S economy. What we have now as a result of corporate tax policy is billions upon billions of dollars being held, and reinvested, overseas. Not a benefit to America in any way.

    • Steve, you seem to think that their is a coorelation between the amount of tax revenue that the government brings in and how much it spends. Do you think that that has ever really been a factor? A part of the solution, I believe is that we must understand what spending is for the federal government. Cutting taxes and buying people cellphones are both spending when you get right down to it. This is extremely important to understand. Once you realize this you see that Reagan’s policy was largely a success because he was such a big spender.The benefit was that his methodology for spending was a lot more efficient in the economy than through other channels.
      So our focus should not be on policies that lower the deficit but rather policies that will be better for the economy as a whole.

      • Kyle, I don’t believe I made a correlation between how much the Gov’t brings in and how much they spend. Clearly, right now, they spend far more than they bring in. Although the spending to GDP ratio is an imperfect benchmark, the ration for the U.S. is currently the highest it has ever been, excluding WWII. Interesting to note that all the Western European “Socialist” countries have spending to GDP ratios well beyond 20%, to be conservative. I don’t want to emulate them. I have read some of you other posts in the past and tend to agree with you for the most part, but I will never agree that a tax cut… allowing someone to keep more of what they earn, can in any way be considered a form of spending. This is the typical liberal, big gov’t speak that comes from politicians that always want more, and see Gov’t as being entitled to take it.

        • Steve, I was refering to the “increased revenue almost always is matched by increased spending, and the government deficit doesn’t shrink”. I agree with your statement but I was just trying to say that tax revenue is largely irrelevant to how much the government spends.
          As for the tax cuts being equivalent to spending. I am simply saying that it is equivalent on a balance sheet. If taxes are cut 10% in any area and that reduces revenue from that tax by 6% from the year prior, then on paper at the end of the day it functions the same asspending. This way to look at it is purely mathmatical, as it leaves all polotics and policy approaches out. Just shows an expenditure. With that I can assure you I do not share the liberal stance on any thing that I can think of off hand and would not consider myself liberal. I agree that income tax cuts do come individuals and a tax cut is letting someone keep there own money but on a balance sheet it looks the same way.

    • Hi Steve thank you for the comment. I took your statement the same way Kyle did, but maybe it was the way it was worded. I personally don’t think increased revenue equals increased spending. That may not be what you meant after reading your next comment. I think raising tax bracket percentages is different than double taxation rules for corporations. To be honest I don’t know that much about corporation taxation rules overseas.

  7. Mark, very well written. My 2 cents worth: 1- Why does the Government (us taxpayers) spend or give away sooo much money over seas? 2- If the Government was to raise import taxes higher maybe that would create more jobs here in the US. At least raise the taxes on the owners who takes their business out of the country for lower cost production. 3- Schooling: Lower the cost of community college for the poor so they CAN get a better job. 4- Welfare: Make them prove they are entitle to it and not just a handout. Some have the same lifestyle as a family earning an average income without having to do any physical work.
    Even though I’m not the smartest guy on the block, these are some of my thoughts. Investors in most categories DO create jobs, purchase materials and add a lot to the economy.

  8. I hate to be the gloom and doom guy here, but we have opened Pandora’s box, it is a bit late to think we are ever going to pay back the national debt in the manner one clears a debt in the private sector. The debts we are racking up are larger then has ever been recorded in the history of the world.

    That said, all debts being generated by public sector are going to be repaid one way or another. Politicians will make us feel better by saying we are putting this burden on future generations (grandchildren) but we know better I hope.

    Higher interest rates, taxes, and inflation are going to pay the debt, hopefully we are not going to become a third world country when the dust clears. We can only hope during this period the dollar does not slip from being the world’s reserve currency as the British pound did in the 70’s. If this happens the lifestyle of most American Citizens is going to be greatly effected.

    I hope the recent buying frenzy by foreign nationals of American assets, REI especially has not been lost on BP members. These folks are the smart money, converting soon to be less valuable dollars into hard assets.

  9. You make some very compelling arguments, some I agree with and some I do not. But I have heard so much about how “Clinton balanced the budget” when he DID NOT. Following is the annual National Debt from 1997 t0 2012:
    09/30/2012 16,066,241,407,385.89
    09/30/2011 14,790,340,328,557.15
    09/30/2010 13,561,623,030,891.79
    09/30/2009 11,909,829,003,511.75
    09/30/2008 10,024,724,896,912.49
    09/30/2007 9,007,653,372,262.48
    09/30/2006 8,506,973,899,215.23
    09/30/2005 7,932,709,661,723.50
    09/30/2004 7,379,052,696,330.32
    09/30/2003 6,783,231,062,743.62
    09/30/2002 6,228,235,965,597.16
    09/30/2001 5,807,463,412,200.06
    09/30/2000 5,674,178,209,886.86
    09/30/1999 5,656,270,901,615.43
    09/30/1998 5,526,193,008,897.62
    09/30/1997 5,413,146,011,397.34

    This is taken from the website, “” The National Debt has gone UP every year since Andrew Jackson was in office, with a very few exceptions, ie, 1950 to 1951 the debt was reduced by about $2B and from 1955-1956.

    What Clinton actually did was to have MORE income than expenses NOT COUNTING INTEREST ON THE NATIONAL DEBT. Don’t we wish we could NOT count interest on the mortgages of our investments.

    Anyway, with a 300,000,000 + member economy, there just aren’t any easy fixes.

    • Mortgage interest and government interest are different. The US government doesn’t have to pay interest on its debt. I say have to because it usually chooses to. It has the right to sell debt directly to the federal reserve which doesn’t charge interest. They typically don’t do this though most is sold through the open market.
      They literally could get a loan from the fed and pay every country back tomorrow with no interest. I’m stretching a bit here for illustrative purpose

      Technically there is some money the fed does charge interest but it rebates it back to the US treasury each year. Yes it keeps a chunk for operations.

      Theoretically the US could take a no interest loan from itself and buy other countries debt with that loan and earn the interest from that debt. It does do this to a small degree.

  10. The question isn’t whether or not to raise the minimum wage, or levy higher taxes on business, or individuals. The problem is, we have a government that is totally out of control, and growing by leaps and bounds. EVERY agency in the Federal, State and Local governments have waste, fraud and abuse. It’s not about getting more money for government to spend, it’s getting government to learn how to cost effectively spend the money they take from the taxpayers.

    When we have children and families that are unemployed in America due to the policies of our government, industries wiped out, etc., something is wrong.

    We need a revolution of sorts in order to reign in government, and stop the abuse of power. When we have politicians thinking it’s their business to tell us what size soda we can drink, what our kids can do when off the school campus, it’s gone to far.

    There is absolutely NO accountability in government. EVERY agency in the federal government should be audited by an independent company, and find out where the money is going, and cut out the ridiculous spending (the sex life of shrimp, etc.), and prioritize our spending, AMERICA FIRST! Free up the free enterprise system from regulations, and let America grow. Get rid of the EPA.

    Just my two cents worth!

    • Hi Karen, I completely agree about government needing to stay out of our lives. If they spent more time on thinking about ways to cut spending, then how they can save the average person from themselves I think we would be in a much better place.

  11. First of all I am grateful for the time put into this article and the replies that followed. It really hurt my head reading this, but it has also helped me with my understanding of this subject. And kudos the Mark for bringing forth his opinion on this subject; that can be tough especially with all the intelligent opinionated people on this forum. I mean that in the most respectful way.

    All the brain hurting stuff aside, I totally agree with Karen Margrave. This is the starting point. Out of control entitlements and all the other out of control spending needs to stop. Plain and simple our government spends money with ZERO accountability. That is the first place to correct this mess.

  12. Michael Woodward on


    Although I appreciate that you’re a regular contributor to BiggerPockets, I think writing an article like this doesn’t improve BP content but rather fuels division. It’s a little like bringing up politics at a family reunion. I think it’s out of place here. Since you’ve affected the atmosphere with your opinion, I feel the need to respond.

    Ronald Reagan said it right when he said that “government is not the solution….. government is the PROBLEM.” The nature of government is to drift toward corruption as it grows larger. Increasing taxes just speeds up the process. Why do you give so little credence to reducing spending? Spending is the fuel in the flame of corruption.

    There is a roll for government but it should be limited to just a few very small areas. We need local police protection, safe roads to drive on, and security from foreign countries (and individuals) that would like to pillage our country and destroy what many Americans have fought and died to create.

    The government of this country was created by the founding fathers specifically to limit the power and scope of its government and protect us from the oppression that they fought against in the Revolutionary War. It’s sickening to see it growing more and more powerful (and corrupt). How many of our personal freedoms have we seen taken away in the past 20 years? ……gone to the airport lately?…….had your personal activity data accessed by the government lately?……been a target of the IRS recently?……. Where will it stop?

    • I firmly disagree that BP is no place to discuss politics. You’re spot on correct in everything else you say. We’ve been way too polite and way too lazy for far too long. It’s gotten to the point that Mark’s post get’s plaudits for clear thinking (Sorry Mark, I couldn’t resist). Seriously, as citizens, we need to consider these things. As investors, we are trying to take control of our future and provide for ourselves and our families. These decisions and the direction of the federal government have a direct and significant impact on our businesses and our lives. We should be embarassed to address these topics. In fact, we should be leading these discussions.

    • Oh I dont know Michael, are the debates and differences of opinion out of place? The economy and government certainly have an affect on real estate on every level. Yes I see the back and forth on this site about political issues and the economy; however, I think i am enriched because of it. Josh and the others keep a close eye on the place, and I think that most contributors respect each other at the end of the day.

    • Michael, I debated long and hard whether I should write on this topic or not. In the end I decided to just do it, even if some people might look at me in a different manner because of my views. Many times on my blog I have considered not writing an article, because I felt it was too personal or was a little out there. Those actually turned out to be come of my most popular articles, because no one else was talking about those topics.

      Now, I also realize the BP community is very tight nit and very intelligent. I was going to give warnings throughout my article for people to be nice and not through out the name calling and other political BS. But, I figured BP was above that crap and so far I have been right. Yes, there are differences of opinion, but they have been expressed in very intelligent and respectful ways.

      I completely agree with you on spending and government intrusions. The reason I don’t talk much about it, is because our politicians have been promising us lower spending since I was born and it has never really happened. We can all talk about how the government should spend less money, but once you start giving people money it is really hard to take it away. We had a recent tax break that was taken away last year I believe. I don’t remember the details, but I remember all my Facebook friends) some who are die hard conservatives and want reduced spending), bitching and whining about their paychecks getting smaller. I tried to remind them this was a temporary tax cut and you should be happy you had a couple years with the tax break. All they can see is a tax increase, it is the same with any other entitlement, grant or tax break. Once you give it to people, they will fight tooth and nail to keep it. That is why it is so hard to cut spending. If I thought we could actually cut spending realistically, then I would focus more on that aspect.

  13. The big debate. Yikes. Well here goes nothing.
    So as someone who owns and has substantial say in many businesses many would think that I feel higher taxes on the rich (or the so called job creators) is a bad thing. Truth is that no matter how much money I am allowed to keep (same with overseas investors), it doesn’t make sense to create a business here where there is not enough money at the bottom to sustain a new business. We are “not” job creators as all the parties like to say. We are opportunists.

    We see an opportunity to invest because there is a demand. The demand is always the keeping up with the jones’s mentality. Its not a bad thing its what creates velocity. When personal debt (not government debt) reaches the point where there isn’t enough money to buy non essentials the only way to help out is add income to the consumers by lowering taxes on their side of the tax bracket, or by raising their income. If that doesn’t happen then debt has to be illeviated in some other way.

    Ive never gone to one of my employees and said your lucky I gave you a job. Im lucky they will work for me and make me money. This is not semantics its not chick or the egg. If it was you would be saying a business person should invest in a bad area where there is no demand to create jobs when the only thing that person would be doing is blowing their money. The government is the only entity that can actually create jobs without demand whether that’s ok to do or not is debatable and probably depends heavily on whether you think government debt really should ever get paid back.

    Should it? Well government debt is definitely not the same as personal. Its written in our own currency for a reason. So that it can never be defaulted on. The only possible way for the U.S. to default on it is to say they aren’t paying it. We would only not pay us because of our lack of understanding of how government debt is different than personal.

    Its crazy to me that people always throw out china as the country that owns the US. When Japan owns almost the same amount of US Debt as China. The US itself owns more than 4 times the amount of debt on itself than either of those countries. Its also never stated that for every dollar in US debt owned by a foreign entity the US treasury holds 70 to 80 cents of foreign debt.

    Fairness of taxation. Im not really saying they should or shouldn’t raise taxes. IF they decide to raise them though they should be only on the upper portion of the tax bracket. They will get benefit from government spending right along side the workers as the workers spend their money. “Everyone is technically taxed the same” they have the same rules and tax brackets some just don’t make it to the top brackets. Even the super wealthy don’t get taxed on their first 10,000. SO any change in a progressive tax structure is fair because its placed on everyone. The lower tax brackets for businesses help smaller businesses to grow while the higher taxes on the upper earners doesn’t hurt them at all. It helps pay for the system that allowed them to get to that point in the first place.

    How often do you hear this. I can’t hire employees because Im taxed to death. I can’t make it because Im taxed to death. That is a bunch of crap. If you have said this you are so full of it or you have a really bad accountant. If you are struggling to get by and are paying “any” substantial income tax you need to get a new accountant. Truth is you are probably just struggling and blaming your problems on taxes you don’t really pay. (Or shouldn’t be) Just because you hit the next tax bracket doesn’t make your entire income subject to the higher tax.

    Great post, I don’t agree with everything but its good to get people thinking about their business differently.

    • Thank you for the detailed reply! Many people forget that even the rich don’t pay taxes on the first income the earn for the year. True, the poor aren’t paying taxes, but neither are the rich for that income earned below a certain level.

  14. I feel like I’m in Bizzaroland. I thought I was on an investors forum yet Ben wants to raise the minimum wage and Mark wants higher taxes and to keep wonderful, arbitrary deductions. Do we want a planned economy or not? I sure don’t. Mark, you say you that we should have a free market, but you really don’t seem to believe it.

    Where to start? Your holy grail seems to be a strong economy. That’s a result, not a principle. You’re starting from a poor foundation.

    High taxes on the ‘rich’: Democrats think taxing the rich highly is fair. At least they are trying to find a principle. You’re trying to use the tax code to get ‘the rich’ to spend or invest, but it’s hard to spend or invest capital when it’s being taken from you. Do you really think that the economy will be better off if the government is taking confiscatory taxes from the very people who’ve demonstrated the ability to invest wisely and profitably? At the same time you like really low (no) taxes on lower income people. Sure they’re just going to spend it, but that does very little to increase investment or create jobs. Worse still, they aren’t paying anything for our government or the safety net so they’ve no incentive to keep it reigned in. No country can survive long when nearly half the country is getting a free ride. Sooner or later you’re going to run out of other people’s money.

    It seems like you want to use the tax codes and deductions and credits to force spending where you want it. What part of a free market don’t you get? The government is supposed to provide a level playing field and then stay out of the way. The only way this could be good for the economy is if the government knows how to spend money better than free individuals. It sure seems to me that you don’t really believe in the free market much at all.

    Certainly we agree on the need to keep capital gains taxes low. We also agree that limiting federal spending is important, but I don’t think you understand why that’s a good thing. Is there a principled reason for doing or is it just that you associate the relatively lower budget of the Clinton years with economic growth?

    • Actually just about every economist on the planet from both sides believes that money spent by the poor does more for the economy than anything else. The velocity of money is at its highest when this happens.

      The reason that the government can spend money better is because they can put it to immediate use without an increased debt burden on any class of citizen. (Not that its always done this way) Contrary to popular belief the government does not have to pay interest on its debt. It only chooses to at certain times.

      Its not like raising taxes on the rich is punishment. They don’t go back in time and tax earnings from the year before. Changes in tax codes are for the future years. Hence if they make more money its very likely due to more government spending (unless they are rappers and sports stars blowing their money) which allowed them the opportunity to make even more money. The extra money they are being taxed because of higher incomes would most likely be the result of any kind of stimulus so I would think its fair to increase that portion of income. Businesses are saying they are struggling so if their taxes did go up it would only be on the top portion of their earnings and if they are all of a sudden not struggling and have earnings “well theres the improvement needed to justify the higher taxes”.

      I really don’t think higher taxes are necessary on the top but if people want to actually try to balance anything (again I feel its unnecessary) that is the only place to do it. Regardless higher taxes on the top tax brackets has never proven to be harmful. Higher taxes on the middle has.

    • Hi Alan,
      I understand your concerns, but I do have a couple of counter points. Like Rook said, the entire notion that business can’t invest because taxes are higher and they make less money is completely false. Taxes are paid on income after expenses and deductions, not before. Any investment in the business, expansion, etc will be used with money before taxes are paid. We all know well ahead of time when taxes are increasing so there should be no surprises. That is what the main point of my entire article was about. If taxes rise, businesses will want to increase investment and expenses to pay less in taxes.

      It was already mentioned, but the wealthy get to pay no taxes on the same money they earn as the poor do. Their tax rate only goes up on the money they make over certain amounts. It’s not like the poor get a tax break if they make under $50,000 and the rich don’t.

      • I disagree with this simply because I believe that businesses, and individual investors as well, will always want to minimize their tax burden, whether taxes are rising or falling.

        In this year, there is a certain amount of investing that you or I or any large corporation can do. Even if, hypothetically, you make the most sound investments possible, lowering your tax burden the most you can, eventually that day of reckoning comes and you have to pay taxes.

        The difference between paying 10%, or 20% or nearly 40%, or whatever it may be, can be a large amount of money that you need to fork over to the IRS, and that is now cash that you simply cannot use next year, to invest.

        Take the fact that you cannot use that money next year, because you gave it away, and then compound it over 10 years or 20 or whatever, and do that year after year of paying, say, an upper level of 39% instead of some number much below that, and the amount that you will lose out on from investing can be really big.

      • I’m not GE, but I do consider myself a businessman. I have to make money to invest in my business. I can only invest those $s that your government is kind enough to let me keep. Of course tax rates impact the $s that businesses have to invest. More importantly, it’s a basic matter of freedom and liberty. What of life, liberty and the pursuit of happiness? You’re taking of 50% or more of everything I make is a direct assault on my freedom and I take it personally.

        Worse than all this, is your attitude about government debt. You’re living in wonderland. Debt has a huge impact on the economy. The limited spending and balanced budget of the Clinton years are the only thing they had going. If the government is spending all those billions of dollars inefficiently (the only way it can), those $s are not being invested in the private economy. That spending is not helping the economy at all. If that’s any way to run an economy, why not just crank up the printing presses even more and pay all the welfare queens $100k a year? Seriously, we’re almost Greece already. Printing money is as old as organized governments. It never ends well. The printed money only has value as long as people believe trust the people printing it. Eventually, inflation will come and we’ll never be able to pay our interest on the debt. If we try printing more money to cover the interest payments it will just fuel higher inflation. Our economy will burn just like Greece’s and Spain’s has for the last few years. You probably don’t remember the late 70’s. That’s what Kinesean economics get’s you. Reagan fixed it by strengthening the $ and lowering taxes (especially taxes on the rich).

          Alan, Here is a chart of annual deficits. Please look starting in 1981, Reagan’s policies where very beneficial for the economy but I believe we have a large misunderstanding of how our fiscal and monetary policy operates. As you can see Reagan’s administration ramped up spending as was neccessary to assist in turning the economy around. This is why I say that cutting taxes is the same thing as spending when you get right down to the ledger. Reagan chose to promote spending much more efficiently in my opinion by reforming the tax code and putting that money into the hands of folks who would invest it in the economy.
          As for government’s spending on low income folks through assistance and no taxes, it is actually efficient in that those folks do not have the capacity while on assistance to do much besides consume. They do not save, and they do not invest. However every nickle that they spend contributes directly to another person’s paycheck. Yes this might not encourage folks to get out from under their burden and position in life but it is money injected directly into the economy. For example if a person gets food stamps, they can now buy food at the local grocery store. That purchase goes to the store which can now buy more stock, pay its employees and possible add other locations and upgrade equiptment. Then that money goes to vendors, employees purchases to support their families, Investments In the community like contractors or buildings. Lets look at anotherscenario, a tenant recieves section 8 assistance. They can now afford housing, that income goes directly to a landlord. Now if the landlord takes that money and reinvests in the property through upgrades or appliance purchases or just growing his business again that money is back into the economy. However lets say this landlord (could be any business or person for that matter, decides to recieve their income and put their profit into a safe at their home and pile up cash. Now that money is no longer at work in the economy and it is infact a drag on the economy.
          Lastly, you said the US is on the path to Greece or Spain. I will tell you it is impossible with our current monetary system. Spain and Greece and the other Euro nations, gave up their monetsry sovereignty when they joined the Euro. They now individually do not control their own monetary policy but only their fiscal policy. This is what has lead to the downfall of the Euro. The US federal government is however in control of its monetary policy and its fiscal policy and has the ability to work those hand in hand. In the US through its tax system fixes trade imbalances between the individual states which also do not have control of monetary policy. In the Euro these imbalances are not resolved and such has caused massive problems.
          If you would like to understand more on these concepts please visit It has been the best resource for me in understanding these complexities where common sense seems to disagree with reality in our economic world. Look under tools and resources and read all those articles as they are a great overview to some of these concepts as wellas bust some of the persistance myths about how monetary policy should operate.

        • Regan led the largest spending increase as a percentage of current debt than any other president. Not sure why you would bring him into it since the debt tripled under his presidency (his doing or not). Second most was bush jr. then obama (at least since the trillion dollar mark) Im not against his spending or any of the others Im just saying you can’t use him as a proper example since he ha the worst record.

          Yes crank up the presses that is exactly what we should be doing. We have this false belief, which is the exact opposite of logical thinking that cutting jobs and spending helps. When we should be adding more jobs, fixing infrastructure when people want to work which can help get rid of programs like welfare etc.

          Once the unemployment rate hits an acceptable number the government should then cut back to allow the free market to do the rest. Like a thermostat it will continue to get better then eventually go back down. Then the government can add jobs again. They should be shooting for a certain range of employment. Not adding too many jobs that inflation is forced through lack of demand but enough to keep the opposite from happening.

          Its not the printing presses that cause the inflation. Yes many people think that but that would assume that the inflation equation has static variables. There is variable change as you add money you create more jobs which creates more products those two variables counteract each other as they are on the opposite sides. (That is just the simple version). Yes if you print money and nothing else happens and people arent asked to work for the money then the money is devalued but that is not how the money is introduced into the system.

          Keeping the job market stablized and balancing the budget are separate items. I really doubt its possible to cut and create jobs without stimulus at the same time.

          I don’t feel higher taxes on the rich are necessary either but if you feel like balancing the budget then that is the only logical way to attempt it. Since they gain from more spending as well. Plus most roads, schools, police, fire dept. caters to helping business anyways. We don’t build roads so people can drive their neighbors house. Its so they can drive to work or drive to the mall to buy something. Same with schools its so we can train our children to work for someone to make someone money as well as get buy themselves.

          Unlike greece and Spain we actually can print our own money in our own denominations. Basically the fed can buy bonds directly before they go on the open market. Those other countries can not do that. They must be bought from private buyers first before their version of the fed can buy them. This happened when they went to the Euro (that is only an assumption of when it happened, but it did happen at some point). So that is incorrect to assume we can be like them or that hyperinflation will happen like zimbabwe or Germany etc.

          When the fed buys bonds and holds them they aren’t sold to other investors for a profit. The interest does technically get charged but it is rebated back to the treasury basically no interest.

          Most people and most politicians don’t know this, some that probably do ignore this because it is hard to explain or that they feel that it won’t help them get elected or stay in their position.

          That being said, if you don’t believe it there really isn’t any way you will change your mind and I understand that.

        • I was born in 79. I don’t remember the 70’s. 🙂

          I assume you are talking about the other comment about debt? I have said multiple times I think debt is not a good thing, but I have no confidence in our government to reduce it. Or are you referring to someone else who had mentioned debt is not as bad as most people think?

  15. Just a note about real estate investors because I know people will say we are creating jobs here by spending our money fixing homes etc. Sure that’s true to some degree but really we are spending our money because we feel that we can either resell the houses (to a consumer) to make more money or rent them out to (to a consumer) and make a profit. It is the fact that prices are somewhat realsitic for end buyers to buy. Will that last who knows. But its the buyers and renters that ultimately created their jobs. They probably work for the state or fed and your trying to take their job away so they can’t buy your house or pay your rent.

    • Rook, that is a good point that I think was at the heart of Ben’s article. For the most part the wealthy create products and services for those that are not wealthy. The overwhelming majority of people in the world are not wealthy so it makes sense they buy most of the products. We want the people who buy our products, rent our houses, use our services to have enough money to keep buying stuff from the wealthy.

      • Well said.

        Whether right or wrong I’m actually pleasantly surprised at how many of the bigger pockets members have some compassion for the less fortunate. I’m not saying they are good with handouts but it seems many are OK with assistance at least some. I think some people hear the word handout and assume they just get assistance for nothing. Yes a few do but the majority of people getting help work full time or at least have multiple non full time jobs.

        I just personally will have a spot because I have not always been as fortunate as I am now. The system that is in place was good enough to help me get where I am and I’d hate to see itgo.

      • And sometimes we forget who made us rich. Ya it was our work and risk taking but without consumers buying what we are selling where would we be. Besides I’m not too big to fail yet and if I do fail its nice to know I won’t have to starve to death and I’ll benefit from lower taxes until I get back in the game.

    • Why would you minimize the investment we put into the houses we buy. We take functionally obsolete and/or damaged housing, buy it, buy materials and hire contractors to rehabilitate it and either sell or rent it to others. The people taking on the housing are buying materials or hiring contractors directly. They’re just consuming the goods and depreciating the asset. Consumption does not create jobs or wealth. What we do does. Of course our motivation is not to create jobs, but certainly it’s not a goal of the renter either. I’m trying to engage in business. I make investments and try to offer a product someone else values so that they’ll pay me and they can specialize in their corner of the market. Ultimately the choices we make as real estate investors drive the economy as much as anything. There should be no ‘to some degree’ about it.

      • Alan, please describe to me how you will suceed in real estate if folks can not afford to purchase or rent your products. Those folks that ” are just consuming and depreciating and asset” as you describe are the only reason you are in business. I would debate that folks living in a home are not depreciating an asset either, the that is regardless.
        Let us say that the government cuts off funding for the section 8 and other similiar programs as well as heating and utility assitance. These actions would first of all cost real estate investors a lot more are utility rates would further increase from non payment. Landlords with tenants who lost their assistance would suddenly no longer be able to pay rent. They will also realize they do not have a lot of options to move anywhere else aso will require a costly and drawn out eviction process which will further be extended by the increased volume of cases. The tenant has nothing to lose by doing this because they literally have nothing to lose. Now you must also spend money on making your property rent ready and maybe improving it some because you realize that your competition has just gone through the same thing as you. Not only do you have a lot of competition because many folks moved out which lowers your rental rates but you also are faced with evaluating a slew of prospective tenants that are recently out and making up every story in the book to get in your place. Th best tenants have their choice of anywhere they want to go. There is also less demand as families are living together to pool resources. Now many properties go vacant for for extended periods of time. This not only costs landlords money to pay the mortgage and taxes and insurance but also increased vandalism because of folks being cut off from their resources. This causes more properties to foreclose and property values to decline. Landlord’s no longer have the rental income they used to and are still paying mortgages and expenses just like prior. So their standards of living also decrease thus they spend less on consumer purchases like eating out and retail spending. This takes away income from the resturants and retail stores who then also must cut back, some will cut workers or hours and some will be forced to close. Lending dries up because demand for purchases shrinks. This leads to further declines in asset prices, thus people have less wealth and sre even further constrained from spending. All these things contribute to lower incomes and less profits in business which invariably leads to lower tax revenue. This is deflation, without the federal government stepping in to bring about stablization there is nothing anyone can do. It is how our economy operates. Federal spending does not have a real constraint on spending but must promote price stability. I hope I have made this clear. Please let me know if I can clarify anything for you.

        • Kyle,

          I agree with you that any particular sector of our economy will benefit if people are given money to spend on it (spending programs or targeted tax credits), or if taxpayers are given a tax preference like the mortgage interest deduction. Many real estate investors benefit from Section 8, even if they don’t directly participate, as it increases demand for a certain type of housing.

          On the other hand, these programs are paid for through income and other taxes, thus taking that same amount of money out of the economy, and thereby decreasing the amount of money that other taxpayers would either invest or spend. While a real estate investor may benefit from Section 8, the broader economy may suffer slightly. Each time a spending program expands, one sector of the economy is helped. Meanwhile, all other sectors, including real estate, are hurt as money is diverted away through more borrowing or taxing to pay for expanding a program. Spending programs are usually considered a zero-sum game. The same is true of borrowed money – it would have gone somewhere else if not for the government selling treasury notes.

          I’m guessing you’re familiar with the standard economic-minded argument against high marginal tax rates and means-tested spending – reduced incentives to work longer hours or work more demanding jobs, reduced incentives earn more because benefits phase-out, etc.

          I didn’t used to believe these arguments until I realized how much the marginal rates for income, both sides of FICA, and phase-outs added up to.

          My own perspective is that real estate as an industry probably benefits more than it is hurt through taxation and spending. Section 8, government-backed loans, and tax preferences like the mortgage interest deduction direct much of our economy to real estate. That doesn’t mean all investors benefit though. If housing prices are higher due to government-backed loans, for example, then an investor may pay more when acquiring a property.

          I appreciate your post. Keep up the discussions 🙂

          Thanks for the reply. I hold a different understanding than in your 2nd paragraph. I do not subscribe to the “crowding out” theory with my understanding of how our monetary system operates. This link describes it clearly. It is near the bottom of the article (point 3). There are also some reference links highlighted that provide further clarification.

          I do firmly believe that our tax system needs to be reformed but I believe it should be done to promote efficiency rather than to lower the deficit. I just do not think or see any imperical evidence that would show that it is beneficial to focus solely on federal deficit reduction. I do not think that is a balance that is a prudent goal but rather understanding all the factors in play and understand that we must balance the public, private and foriegn sectors to promote economic growth.
          I love these types of discussions. I always learn something 😉

        • Kyle I posted a reply above to a comment earlier. I think your thoughts are fairly in line with mine. I do however thing stuff will eventually correct itself after huge deflationary periods (like you mentioned) much worse than what we have now. Eventually leading to very very high unemployment Like 50 % or more, stopping only at the point when the people with all the assets, houses farms, energy etc hit whatever point needs to hit to correct.

          The thing is why should we allow it when we don’t have to. Its completely unnecessary, and when we hit that point crime will be so high Im not sure Id want to be one of the rich ones left.

          Im curious your thoughts since you have a similar perspective and Mathews since he seemed against that belief to some degree without going crazy on anyone.

          Oh and the 50% unemployment is obviously just a number thrown out for example it could be 30% it could be 80%. Its most likely not close to the bottom if there was no help at all though.

        • Rook,
          I agree it does seem our thoughts are closely aligned. Do you have any websites or resources you frequent to learn more or analyse economic conditions and explain what is actually going on?
          I do not know what would be able to bring the US economy out of a significant deflationary cycle outside of federal government intervention. The federal government was needed during the great depression and the federal government reacted much more swiftly during the great recession. Neither one was perfect but I think a lot of information is available to learn from these events. I think in a deflationary cycle it continues to feed on itself and needs assistance from the only source that can provide relief.
          I however do not see that as a likely scenario in the US. I just do not see it as politically possible for our politicians to sit idly by and do nothing. It might not be the right thing but fortunately in this case our leaders are not shy about throwing money at a problem. While the congress has done a relatively poor job on fiscal policy, we do have good leadership at the FED in control of our monetary policy. I worry about Bernanke leaving just for constistance sake but do feel that there will not be a dramatic change of course.

          I would say the evidence that it would not correct is on its own would be Europe and specifically Greece. I believe the Euro zone has an inherently flawed montary system as anet import country such as Greece has no means to balance naturally. When they had their own currency and a free floating exchange thier currency would naturally adjust to the other countries to counter balance their net exporter status. Now they do not have that and without a political joining they are not acting as one unit but still seprate countries. Greece took austerity very far and it only eexasperated the problems. They did get bailed out and will continue to be as that is the only mechanism possible to correct the trade imbalance. This structure hurts the entire zone but because of the misunderstandings they have not corrected this flaw.

        • Kyle,

          Good point regarding the “Crowding out” theory. I think the debate over crowding extends back to the degree to which the government or federal reserve’s ability to create money is limited. Since money is a proxy for things of value – good, services, etc – if the supply of money expands faster than the economy, inflation will result. That concern is why there is alot of disagreement on whether it is wise to continue the “quanitative easing” and similar programs of the past few years. We haven’t seen major inflation so far, likely because the velocity of money is slow as banks are being cautious on lending and consumers confidence remains slow.

          If the amount of money our government can create, in the long term, is limited by inflation concerns, then excess spending, and the borrowing to fund it, would seem to compete with other demands for money, including those from the private sector.

          The crowding issue, and questions about inflation, seem to be among the many topics that monetary experts differ on. At least the US is not stuck with an external monetary system like Greece and Portugal are with the EU, 🙂

        • Kyle Hipp.
          Thank you for posting the link, I can’t respond to your next post for some reason.

          I do try to learn as much as possible from discussions like this one. And I know that the author Cullen Roche tried to make a point of US currency and US tax liability, government budget deficit and net private-sector saving, but he lost me there. When he brings an example to prove someone wrong he needs to be 100% sure his example is right. The thing is, I sell books and have been doing it for about past 8 years. Not on a full time basis, but as a good side income. The fact is, 22$ received from a book sale, are not taxed by Uncle Sam. In fact, if you sell on Amazon, up to 2000$ of your sales are not taxed (it might be 2.5K or so, I haven’t checked it lately). The point is, with the average selling price of 20$ you need to sell at least 100 books a year to be eligible for Uncle Sam’s taxation (I think Amazon requires sales of more than 250 items). Now, I’m talking about any book, not just the book of R.Murphy because as I understand Mr. R. Murphy had published his own book, which is entirely different story. If you sell 100 different books per year, you should have an inventory of about 500 books. You can actually have an inventory of 100 books only, but then you would need to buy your inventory somewhere, so you would need to have a place, other than your house for 100 people to come and sell their books to you, so you can resell the books, or at least a place to keep the books. You can buy on one site and resell on another, but that would require a full time involvement and you would need to sell much more than 100 books to make a living. You also need to spend on packing and shipping. You can save on packing and shipping if you sell before you buy, but this way you can hit a zero with your reviews very soon, unless you sell at least 1000 books a month and you also need to buy a program that checks web sites all the time. Also, do not forget about 15% commissions if you sell on line (like on Amazon). Amazon would spend the money on their employees, advertisement, investing in other things, making the website better. The bottom line is, before Uncle Sam sees it’s 1st dollar from you, you have spent thousands of dollars. Uncle Sam did not need to spend anything “into existence,” he didn’t even know about your existence as a business.

          Now, if you wrote a book, like Mr.R. Murphy, you need to pay a publisher to publish it. Also, I do not believe Mr.R.Murphy would want to deal with handling individual orders, packing and shipping, so he should pay a seller in the US. To sell 100 books of the same inventory in the US, he needs some type of advertisement involved. As an author, he can deduct seller commissions and advertisement from his taxable income. So, Uncle Sam would need to wait for some time for the 1st dollar to come from Mr.R. Murphy. In meantime, Mr.R.Murphy have spent at least one thousand dollars in the US “into existence” for a publisher, seller commissions, advertisement and so on. I believe, his 1st year sales would not even cover his spending. So, in reality as oppose to “mythical anarchist world,” or even world of “highly developed government” by Mr.Roche, 22$ from a book sale are not taxable. If you’re are taxed, you have invested thousands, otherwise it’s not at all profitable. So, the story should start from Mr.R. Murphy investing thousands of dollars into US businesses in order to sell his book for 22$. And here I’m stuck, because I don’t see the point of the story, because in my opinion he wasted his money, but supported some US business (good for him). Where is the moral, though? I can’t see any correlation to saving coconuts, or “net private-sector saving.” Mr.R.Murphy should at least get return on his investment before he even starts thinking about saving. Or may be the story is about him saving and saving and finally splurging on publishing his own book.

          Going back to the original article, 50 coconuts reserve makes more sense even though it’s not a currency (on Crusoe’s isolated Island- the novel- that would serve as a real currency, I’m pretty sure locals had no use for USD). Please, don’t think that I support R.Murphy’s views (can’t make a decision based on one paragraph only), I’m just saying that Mr. C.Roche could’ve brought a better example that makes sense, then it would be easier for me to consider the rest as credible.

        • Galya,
          I don’t believe you went back far enough. You started your thought process with a man spending US dollars to publish his book. How did that man get US Dollars? What is the only entity that can create US dollars and every have created us dollars. It is the us federal government. The federal government runs an annual deficit which acts as a counterbalance to the money leaving the US through the trade deficit. Beyond that their is also a great growth through the banking sector.
          Have you every gone to the bank to take out a loan and through your conversation the loan officer stops and says ” excuse me I need to verify that we actually have $500,000 to loan out”. Nope they are not constrained by that. They operate through the Federal Reserve system and recieve funds on demands as loans create assets for the bank.
          The point of the article was that we use US Dollars and not coconuts. The coconuts referance was referring to austrian therory and their explanation of monetary policy. I lotdrally spent 6 months on that site and other research before I could speak to others about it. It realized it was making sense but could not put it all together right away because we have been trained to think of everything so backwards in reality. Now it is a lot clearer but I am by far no expert.

        • Kyle Hipp: (I’m not sure this reply will show up where I want it to be). Thank you so much, now it makes sense!!! Just in case you know, what is the deal with private sector saving and government budget deficit. Can’t figure out what he was trying to say.

          rook: that’s not what I actually wrote. Thank you for your reply.

        • Gayla,
          I guess I misunderstood what this meant, “When he brings an example to prove someone wrong he needs to be 100% sure his example is right. ” I assumed you were saying that when “roche” (I still havent read his article but should I guess) replied to someone else’s article or comment saying they were wrong, you were implying that he shouldn’t give an example to prove someone wrong unless he knew he was 100% right.

          I guess that’s what I thought you meant. in that instance Id say then no one can reply or give opinion on anything regarding economics since economics is all theory.

          If I misunderstood that comment sorry, wasn’t meant to call you out anyways mostly meant to show that no one can be right on this subject for sure but debate by example is pretty much necessary whether right or wrong it gives the reader the other sides thought process.

          So your other comment “And I do agree that minimal wages should not be raised artificially since it will only lead to other employees to be laid off to afford the increase for those that get raise.” Was doing the same thing that roche was doing (even though you agreed you made a claim as to what would happen with no proof).

          I have no problem with that at all, just wanted to show that giving an example of what might happen (or will happen if thats what you believe) is totally fair game in a debate.

      • Galya,
        I would recommend visiting and going under the tools and resources bar, it has a couple sub sections there like myth busting and recommended reading. Undersatanding monetary realism is a good place to start a primer if you will.
        As for you question on private sector saving and government deficits. Most people seem to think that the economt would do better if the government ran at least a balanced budget. This shows that that is the wrong balance to achieve. The balance to look at is between the 3 sectors, public sector (federal government), private sector, and foreign sector (trade). In order for the private sector to achieve savings the public sector must run a deficit greater than the nations trade deficit. The trade deficit represents outflows of money from the private sector, in order to bring the private sector whole the public sector is the only sector available to bring balance, thus the need for a deficit. This works the other way as well. In Singapore, they have a trade surplus which also allows them to have a public sector (government) surplus as well as the govenment surplus is less than the trade surplus, leaving room from private sector savings.
        I firmly believe with a proper understanding of the operational realities of our monetary system that policy could better even out the boom and bust cycle. This goes in line with what Ben Bernanke was able to do with monetary policy alone with his lifetime of study on the great Depression.

        • Kyle Hipp,
          Thank you again for your answer and for your time too. I promise I will read more articles (actually wikipeida “deficit spending” helped me understand more), but I feel there is something fundamentally incorrect in my thinking, and I feel you can help me find it out. And if I won’t get it this time, I’ll just let it incubate, I may get it later. 🙂 It seems that what you’re saying is if private sector is saving money that would lead to deficit in public sector.

          1. Is “saving” the same as surplus?

          2. Does it matter if private “saving” is in a bank or in a private safe (hidden under the ground)? I thought that having savings in banks leads to direct return into economy (loan, interest, people can buy cars, houses, open businesses). And is it “bad?”

          3. Are the stimulus packages a part of governmental/public deficit? If not, what is?

          Thanks again.

        • Galya,
          I was in the same boat as you. I believe that common sense and common knowledge on our economic and monetary opperations is fundamentally flawwed. I spent 6 months solid just studying it because it turns so much on its head but once I gor it, it explains everything.
          1. Yes private sector savings could also be described as private sector surplus.
          2. It doesn’t matter if the money is saved in a bank or in a safe or in the backyard. Savings are not bad but must be understood. For example the Japanese people are very savings oriented and that coincides with Japans very large national debt. I guess it could be like a manual transmission car, it is not inherently good or bad but must be understood to be used correctly. The rest of your question goes into another whole ratsnest (on read the article on inside and outside money as a starter). The banking system does not need deposits to lend operationally, but like I said that goes with a whole slew of other things.
          3. Federal government deficits are any expenses more than their revenue. So stimulus, social security, tax cuts are all spending at the end of the day. Revenue is any money it brings in.

  16. I believe that one of the laws of economics, as immutable as laws of physics, is that prices follow wages. I also believe prices rise quicker and further than wages.

    A raise in the minimum wage will price out those who were earners at the previous minimum wage, now putting them out of work, and most likely to be taken care of by the masses.

    If there are people earning a wage around the area of the federal minimum wage, and they are struggling to get by, I believe this has less to do with how much money they earn, and instead has everything to do with the inflation that our government has allowed, and I would say perpetuated. No one benefits from inflation more than the government. They are the first to spend the newly printed money. Then come individual politicians, who can only keep the promises they make by continuing to inflate the money supply through more and more borrowing (money printing, since they borrow from the Fed mostly).

    And then lastly, of course, the issue of paying employees. Take Joe Business Owner who has 50 employees at $8 each. Tell him he now has to pay them $10 each and he’ll simply fire 10 and spread the workload over the remaining 40. Joe Business Owner shouldn’t be chastised for this. He is simply looking to find the best deal he can on a service (in this case, labor), just like one might do when looking for someone to clean their carpet, or do their yard work.

    Also, raising the highest income level only hurts those that are not truly wealthy, but probably better classified as upper-middle class. Many of them business owners, and the like, making $300k+ or so. The truly wealthy, and I mean TRULY wealthy, are not hurt by the highest tax bracket going up, because they don’t earn the lion’s share of their income, as income. They earn it as capital gains. Don’t believe me? Check out both Mitt Romney and Barry Obama’s tax returns they showed last year. Both of them paid an effective rate of roughly 14% or so.

    There is however, one group of people that do benefit largely from a raise in the minimum wage. Labor unions.

  17. Your perspectives are interesting, and I appreciate your article.

    The news media repeats some generalizations that aren’t always correct about tax rates. Here are some clarifications.

    1) Marginal tax rates on the wealthy are currently higher than they were under the Clinton era. The top marginal rate for non-wage ordinary income was 39.6% from 1993 to 2000. Now it is 39.6% + 3.9% investment tax + about 1% for the “Pease” phaseout of deductions.

    2) Marginal rates on lower income levels were not decreased under either Clinton or G.W. Bush. A person with AGI over $9,000 is taxed at a marginal rate of 15% + 15.3% self-employment or FICA tax. (Most economists argue that the employee actually pays both sides of FICA through lower wages, so the 15.3% is correct for both self-employed and W-2 employees.)

    In the late ’90’s and early 2000’s, Washington added more ” tax credits”, which are really spending. These credits actually phase out as income increases, so they actually increase the implicit marginal tax rate, and thus reduce the increase in take-home pay as one earns more. It’s as if the government gives everyone money, then imposes high tax rates on lower income levels to take it back. Since the credits increase spending by those eligible, they drive up the price somewhat for goods lower income persons buy; anyone who does not qualify for the credits is at a disadvantage.

    3) The “47% who don’t pay taxes” may be technically correct, but most of the people who owe no taxes are being taxed considerably – it’s just that the spending in the form of tax credits exceeds their tax liability.

    4) Most economists and tax policy experts support low rates and a broad base. Instead, we currently have fairly high marginal rates with lots of deductions and credits, similar to what we had in the 1970’s. The deductions encourage people to spend money on certain items at the expense of others. Low rates and few deductions encourage consumer spending to follow consumer preferences, and encourage investment to go where there is greatest economic need (signaled by higher returns).

    Thank you for your article. .I hope you’ve found my points insightful to this discussion.

  18. This is a nice article with a couple of sensible solutions. Author admits he doesn’t really truly understand what works and what doesn’t, arguing that no one does. I humbly suggest the author look into neo-chartalism or some post Keynesian economists such as wynne godley, to get a better understanding of monetary economics. There are a select few who “get it” but they are ignored by the mainstream because full employment and price stability do not align with the goals of those in charge of congress and the president.

    • Very interesting ideas. I agree with much of what those theories state. I could see banks over lending and debt increasing to unsustainable levels in the mid 2000’s. I never understand how giving out 110 percent loan to value 2nd loans made any sense to banks. Much of the boom was attributed to people borrowing money on their homes. I think the idea of banks and the market driving itself has a lot of validity. I would think government actions have some effect on the economy as well. A lot of those ideas are over my head for now and I will have to read up some more.

  19. I must say that I am appalled by this article regarding matters of such importance to investing decisions and wealth creation. Therefore, I feel an obligation to respond.

    1. Republican or Democrat: You claim that you are neither a democrat nor a republican. Based on this article, you are definitely a liberal democrat who believes that wealth comes from the government so just admit it.

    2. Taxing the wealthy – Every business venture is funded by the after-tax savings of someone. I have built several businesses and inevitably I have had to fund the start-up with my own savings. So, if you think that increasing taxes on the wealthy will somehow promote prosperity you are delusional. If you increase the taxes on the wealthy you simply reduce the supply of capital available for investment. Wealth is the cumulative effect of saving and investing and the largest single obstacle to you ever accumulating wealth is the rate of taxation. High taxes simply keep those without wealth from ever accumulating it. Those who are already wealthy will find ways to avoid taxation and keep their money.

    3. The Clinton Era – You mentioned that you were born in 1979 so you are but a youngster and grew up in the age of prosperity. I hate to burst your bubble, but Clinton had very little to do with the prosperity he inherited. Allow me to explain how that transpired. In 1979, Democrat Jimmy Carter was president and Iran took 52 Americans and held them hostage for 444 days. We had 13% inflation which went up to nearly 15% in 1980. By 1982, unemployment exceeded 10% and the prime interest rate was 21.5%. The top tax rate was $70%. Needless to say, they economy was not good. In 1980 Americans elected Ronald Reagan president. He cut the top tax rate from 70% to 50% and then to 25%. He also reduced government regulation and the economy took off like a rocket. We went from recession to almost 8% growth by 1984. Inflation fell to under 2% and interest rates fell dramatically. In spite of the reduced tax rates, tax revenue to the government soared as the economy boomed. This era of prosperity continued into the Clinton years because the cold war ended and the republican congress cut government spending dramatically. Clinton did manage to raise taxes but the economy was so strong by that point that it just shrugged it off.

    4. Promote Investment – You are talking in circles that make no sense. If you want to promote investment, simply reduce the burden of regulation and taxation.

    5. Lower taxes on lower income – Currently the effective tax rate on the lowest level is actually negative, they get a refund even though they never paid any taxes. How much lower should it go? There are so many programs available that many people make it their career to get qualified for everything from food stamps to heating assistance to section 8. If they are good they will have an effective income of about $50K per year. None of them seem to be starving to death. In fact, obesity seems to be the biggest problem they have. You seem to think it is good for the economy to take from productive, hard-working people and give it to people who do nothing? I believe it would be far better if they got a job and contributed to the economy.

    6. Spending – First, Clinton did not reduce government spending; the republican congress reduced the growth of government spending and the economy boomed. Since the economy boomed, federal spending as a percentage of the total economy fell. We could do the same again if we can get the economy growing at 4% or more per year and reign in the rate of growth in spending to 2% per year.

    7. Possible derailments – The federal debt is the biggest threat to our future prosperity. With interest rates at near zero, the interest on the debt is negligible. But, if interest rates rise to only say 5%, then the interest payments on $17 trillion of government debt will be $850 billion per year. That is more than we currently spend on defense or social security or Medicare.

    8. Conclusion – To quote Ronald Regan: “In this present crisis, government is not the solution to our problem; government is the problem.”

    • I was hoping we could avoid judgement and labeling, but I guess it was bound to happen. No, I am not a liberal democrat just because I don’t agree with you on everything. I can tell by your comments you did not really read my article, but assumed you knew everything a “liberal” would say.

      1. No, I made my own wealth. I’ll be in the top tax bracket myself next year.

      2. You are contradicting yourself. You say taxing the wealthy is the single biggest obstacle to building wealth, but then admit te wealthy will avoid taxes and be fine at the end. That’s te point of my article, the best way to avoid taxes is to spend money.

      3. Yes, I may be young but I know history. If you read my article you would see hat I am very clear Clinton did not do it all on his own. I wrote that I would use Clinton’s name I make the article easier to write, Ben if e wasn’t directly responsible for those actions.

      4. That has been argued quite well in the comments here. That is your opinion not a fact.

      5. Once again, read what I wrote. I never said lower taxes more, I said low taxes are good for low income earners because everything they make they spend. I also said nothing about entitlements or giving money to the low earners, I only said they joule have low taxes.

      6. See what I wote previously about Clinton.

      7. I mention I am concerned with rising debt as well.

      8. I would agree, but if you want to live in a society with nice roads, police, fireman, schools etc. you have to have government.

      I think there has been an amazing discussion in the comments on advanced economic theory. This is not a liberal versus conservative battle of words.

    • Duane,
      You clearly have a lot of passion and feel you had to contribute. I am also compelled to respond to your comment because I feel if you would harness your passion productively it would have a positive effect so here I go.
      1. Regardless of political party, are all American citizens and by and large I believe folks want what is best for the country and it just happens that we are all individuals that think differently. I have always found that when I do not attack someone and I make an honest effort to understand their point of view is the only way to have them listen to my point of view and might even have a chance to alter their perspective on an issue. As I said you seem passionate and want what is best for the country. With that it would be benficial to effectively persuade others to your point a view and I just can’t see how you feel your appoach is beneficial.
      2. I am not sure how familiar that you are with our monetary system or the intricacies of our banking system but investment capital is not constrained by personal savings. Even outside of that, spending a decent amount of time on this site you have got to see the amount of creative finance approaches that are available. I would say the statement I have the biggest issue with is that high taxes simply keep those without wealth from ever accumulating it. I don’t know how a successful business person could ever say that with a straight face. With tax rates climbing on the highest earners this year how many of them do you believe will turn down a great investment because they face 4% higher tax rates? Or lets even analyse those without wealth, first lets go low to the folks you lumped together later and essentailly called lazy leaches. Folks in this position have all the opportunity in the world to break through to have the priviledge (a little sarcasm) to build a business and get that higher tax rate. How many rags to riches stories to we hear throughout the generations. Tax rates, or inflation, or interest rates will not deter someone with a passion and an idea. This has been proven time and again.
      3. You cannot take all credit away from Clinton because of congress and give all the credit to Reagan and not consider congress. Logic is flawed on that. Now I have a couple tweaks. Deregulation – The breakup of Ma Bell started in the 1970’s. This spurred all kinds of innovation in the telecommunications industry. The deregulation of the air, trucking, and rail industries was also started in the 1970s. Deregulation in these industries also lead to innovation and a lowering of costs and availability to all American and opened up possibilities never seen before. You also failed to look at monetary policy at all through the last 30 years which was very influential on economic conditions. As for Reagan’s policy. The federal deficit boomed under his administration because of Reagan’s spending and that did as you said give the economy the kickstart it needed. Reagan’s spending was pushed largely through tax cuts but was spending all the same as displayed by increased, dramatically increased deficits.
      4. On promotion of investment in Mark’s blog. I would ask you to give this a little more thought. I know if you think about it that you could understand the concept. If you have a profit of $100 and will get $15 taken in taxes, you are ok with that. If the rates rise and $30 will get taken in taxes you might think to yourself. How about I take $50 and buy some equiptment that I have been delaying or invest that money into this or that to grow my business or improve efficiencies so then I have less of a tax burden and my margins will actually increase after this purchase as well. It is a pretty business oriented approach to handling your finances.
      5. I have pretty thorough description of what happens if we too dramitically pull assitance away. I completely agree with you that those folks that are physically and mentally able should do what they can to become a productive member of society but the path to get there is difficult as many folks just do not know how, it really is that simple and someone needs to show them and that is a huge undertaking. Unfortunately just putting a single mother with 3 kids out on the street and telling them to get it together is not going to work.
      6. I covered some of this earlier, can’t give all the credit to congress in once stance and all to the president in another. But yes spending does not lower and you are also accurate that the US never lowers its deficit or debt to GDP through cuts but rather we grow our economy out of the situation. We could do a lot if the US economy ramped up to 4% but I did not see you mention a catalyst for that to come about. Any ideas?
      7. I think that nuclear war is the biggest threat to future prosperity. If North Korea and Iran develop their nuclear programs and send a bomb our way that would destabilize our economy and cause massive harm…. ok maybe I am being a little facetious there to prove a point. What would be the catalyst for interest rates to rise to 5%. Why would we allow that to happen? I know you might think we do not have control over that hut if history is our guide, we sure do. When are these bond vigilantes going to finally come like so many folks have been calling for for the last 5 years. What happened when the US had its credit rating lowered… interest rates went down on treasuries. Have you ever had that happen on a credit card? That is because you and I are operstionally different than the federal government. Look at Japan, they have a debt to GDP of over 200% and their interest on their 10 year maturity note is lower than the US at roughly 1%.
      I think that is enough for now. Thanks Daune, I am glad you decided to comment.

      • Kyle,
        Thanks for the lecture.
        1. I agree. See my apology to Mark.
        2. I do understand the monetary and banking system, thanks for asking. I also understand that investment capital itself is not constrained by personal savings. However, the average person starting a small business does not have access to this investment capital. The vast majority of small businesses are started with either the personal savings of the owner or a cash advance on a credit card. As for high rates of taxation being the single largest impediment to wealth creation, I think you completely missed the point. The more the government takes, the less there is left to live, save and invest. Those whom have already amassed their wealth pay their taxes with the excess.
        3. I’m glad you agreed with me that deregulation had a huge positive effect on the economy. As for your argument that the increase in government spending was responsible for the boom, I was there and I vehemently disagree. Large increases in government spending didn’t inspire anyone. The large reduction in tax rates and the opportunity to keep more of what you created did. Besides, government spending has gone through the roof the last four years and this economy sucks.
        4. You are over-thinking the whole thing. When people get to keep more of their money through lower taxes and it is easier to invest because the government regulations are reduced and they get to keep more of what they make – they will invest more. Simple.
        5. I ran a direct sales company for many years and our biggest challenge was finding people who would work. Most would rather get a government handout. I am not saying that we should throw people out on the streets. But, if you make it too comfortable, they will stay on the government dole.
        6. Reduce government spending, reduce government regulation, eliminate deductions and reduce tax rates. It would also help to reign in the EPA as they are strangling businesses.
        7. The catalyst for increasing interest rates will be inflation. And, if our government keeps printing and spending money at the current pace, hyper inflation is coming soon. I can guarantee you that if inflation reaches 10-15% per year again like it did in the late 70’s, you will beg the Fed to raise interest rates to control inflation. Because, if you want a 15% return on your invested capital and inflation is 15% per year, you will need to earn 30% returns. That, my friend, is not easy to do. What if you only earn 10%? After inflation, you lost money.

        • Good points from both Duane and Kyle. Two things to keep in mind:

          1) Higher marginal rates decrease the after-tax return for a business venture, but don’t necessarily decrease the risk or work effort.

          2) When businesses reinvest profit, it is often with after-tax dollars. Chapter C Corporations pay corporate income tax (~ 35%) prior to reinvesting the money. S Corps, LLC, and sole proprietors pay tax at their marginal rate (non-wage) or marginal rate + self-employment (for their wage portion). Higher tax rates mean less money to reinvest.

          3) Access to capital is difficult for small or starting businesses, and may lead to permanent loss of control of the business to outside investors. This sacrifice may remove one of the main motives for starting some businesses – personal autonomy.

          4) The really high marginal rates from 1945 to 1964 (93%) and 1964 to 1981 (70%) were under a different tax system, with income defined more narrowly, huge deductions for depreciation and many person expenses, and other loopholes, It is very difficult to compare tax rates under that system to now.

          Effective tax rates were not necessarily higher than now, as sophisticated people targeted whatever segments of the economy were getting good deductions. The 70% and 93% tax brackets didn’t raise much revenue, as it’s not likely worth the risk of an unexpected loss if there is little upside. Most tax scholars do not favor high rates like those.

          It’s been an interesting discussion – I just wanted to add these background facts. Thank you for reading this. 🙂

        • Don’t worry about business worry about the people first. Business will be fine when people are. The opposite of that mentality is the ideal of today. Well here, If you are whining because your business is struggling oh boo hoo. Its not a person. IF your business is struggling than you aren’t paying income taxes at least, that is best benefit of a progressive tax system. Allows the opportunity for new start-ups to succeed, just the opposite of your statement above. They don’t pay taxes in the beginning. At least not income tax. Maybe shut down and let the others competing with you get your existing customer base. You are probably over saturated or just shouldn’t have a business. “this is directed at anyone here”

          People that aren’t working and not trying to work should definitely not get as much help as others (maybe no help but Id rather them get food and shelter so I don’t have to worry as much about getting shot because we cut the police force down and they are now super desperate) No healthy and sane person wants just barely enough to live. Yes some people to try to screw the system, very few though in the grand scheme of things. Most people that get assistance are actually working. The majority full time.

          “Duane” You had a hard time finding people that would take a job in direct sales or that could keep the job? That sucks Ive never had that issue so its hard for me to really believe (I know that type does exist though), Ive had friends turn down jobs that I thought could use them but they weren’t living off food stamps, they were not doing well though. I have on the other hand had a tough time getting good help. Direct sales is a tough arena and I would think you had to pay pretty well to get qualified people or was it commission based? I own two car dealerships and it is very sales oriented business (obviously) Definitely have a hard time with sales people in that field but typically they don’t just quit because they would rather have a handout (Im sure they would if handouts actually paid well but they don’t so lets be real) they quit because they were making less than minimum wage or busting their butt and maybe making a tiny bit more than minimum wage. The low wage was probably their choice because of the way our pay structures are commission based. (we do pay a low wage with lower commissions) but its still tough to swallow and tough for people to choose that pay structure. I can’t say I blame them. Especially if they don’t have what it takes as sales is tough for most people.

          If people having money at the top because we low upper taxes actually worked we would be booming right now and never hit the recession/depression were in. Corporate and personal taxes are extremely low compared to what they have been in the past. Investment just doesn’t have the impact people claim it does. Especially when Investors are doing it so slowly (yet the top earners have more money than ever).

          Inflation is not based off the amount of money printed. Its not related to spending, the only times you see mass spending and then real high inflationary periods is after a war. Inflation is a combination of many things. The short answer is additional money the same amount of consumers and the same amount of products. But that assumes those variables stay constant. They aren’t. Additional money when added will lead to more workers and more products made etc which keeps inflation down.

          My guess is war spending although it does add jobs, the goods and services rendered don’t keep the equation stable. That would seem to make sense of higher inflation after wars.

          I am probably wrong about all of this, but anyone (even here) that “knows” they are right and they have the for sure answer is definitely wrong.

        • I should clarify that the comment I just made was “not” directed at anyone here. I said “was” lol my mistake, tried to comment from my phone.

          Thanks for your response. I hope I was able to get my point across without coming across too snarky.
          2. I guess my point is that higher tax rates do not necessarily lead to higher tax revenue. I believe as was a main point of Mark’s blog was that if tax rates are hiked business and people will reinvest money to create efficiencies and grow their future revenue as opposed to taking profits and triggering the tax. Don’t get me wrong I am not calling for tax hikes, I would much rather see a broadening of the tax base, cut deductions and lower rates. For example on what I am talking about. I am a buy and hold investor. I want to “flip” in the future but the last two times I had that as an option, I ended up keeping the property. The higher tax rate of short term capital gains encouraged me to not take my profits but rather keep the property and gain larger future returns.
          3. Yes I do believe that prudent deregulation is beneficial. You may vehemently disagree but we are talking about the same thing. This goes with my alternate understanding of our monetary operations. You stated that lower taxes lead to the boom, I completely agree but I am saying that tax cuts IS spending. It looks the same on a balance sheet as instead of spending money and creating a deficit, the reduced revenue through lower taxes which also created a deficit. I think this path was much more productive as you do. A deficit was created to stimulate the economy and fill the void, the methodology was just different than we normally think of spending.
          4. Recovered it in 2. I understand your thought process but also believe it varies by person. If someone gives me $5,000, I might save that for emergencies or pop it in a RothIRA as I do not need that money. If I save it and out it in a bank account it is not doing anything for the economy. If I put it in my Roth IRA, again it does little for the economy, it will have a stablizing effect on the assets like stocks that I purchase. However someone with more needs unmet gets $5,000 they might use that to upgrade vehicle or repair their current on, or pay for the new furnace they have been limping alongfor the last couple years or maybe pay off a debt which will then allow them to use that income not going towards debt repayment back into the economy. A person’s spending is equal to another person’s income. To save extra money stops that money from being another person’s income. It is really that simple.
          5. I definately hear you, I know a lot of lazy people.
          6. I believe we need to always be analysing our regulatory environment and making prudent adjustments. I also would like to see a flattening of the tax code. As for government spending I can’t disagree more. The US economy was/is in a balance sheet recession targeted in the household sector( in the private sector). The foriegn sector (trade) is still in deficit. In order for it to be possible for the private sector to save, specifically the household segment of the private sector as the corporate segment has a historically high savings rate, their needs to be money to save. The public sector is the only entity available to facilitate savings in the private sector. The private sector can’t even push it off through debt accumulation as it did leading up to the collapse. The debt to income ratios for the household sector exceeded the limit. They are now deleveraging which means money is going to debt repayment as opposed to spending in the economy which removes another person’s income. Please watch this video to have an easy but simple example of what I mean. At the top.
          7. You say the catalyst for higher interest rates will be high inflation and then you go as fsr to say the hyperinflation is on its why. I would ask what would bring about inflation? We are currently fighting deflation which was the intent behind the monetary operations. I see impericle evidence that hyperinflation is not just around the corner, not even close. We do not have any of the afflictions that traditional lead to hyperinflation. Please visit and look under tools and resources and then under recommended reading. Their is a excellent thesis on the causes of hyperinflation that should ease your mind as it was a horrible feeling knowing our country was headed for the crapper no matter what we did before I started to understand the reality of how things actually worked.

  20. Mark,

    Raising taxes on the wealthy will not increase revenue. Unfortunately, it will make it decrease. The wealthy have the ability and resources to find ways to avoid the taxes.
    It will, though, decrease their spending and hiring. In some cases, it will cause them to revoke their citizenship.

    • So Im not sure if you are just making an assumption or if someone told you that increasing taxes on the wealthy will hurt revenue but it won’t or at least has never in the past (I suppose it could this time). It has also never hurt job growth or economic growth. There is no correlation between raising taxes on the top and a negative impact on the economy.

      Im not making the claim that higher taxes help the economy at that level either but feel I have to say something on your comment.

      One of our largest booms was during the highest effective tax rates on the corporate side and the income tax. Corporate taxes were around 50% (effectively less but still) Income taxes topped out over 70%. Slow down everyone Im not saying that is why it was booming.

      There was most likely a bunch more spending going on hence the reason they raised the taxes, that I have not checked. That would most likely be the reason for the booms.

      Sure a few people might leave but someone will take that opportunity to take their place. Businesses don’t hire or layoff because of taxes. Taxes are for the most part after profit. Cutting employees to save from taxes would give no gain in income. I know I have never layed someone off to avoid taxes on my net profits. The wage your paying offsets the income.

      If people want to use taxes as an excuse to layoff people I guess thats what they will do but its just a lie to try to manipulate people into hating government even more. The truth is if they want to pay less taxes they should make less money, hiring more people when they didn’t need too, would actually cause them to pay less taxes because they would be making less money.

      If you want to pay less taxes spend more on advertising, hire some more people make less of a profit. Maybe the marketing will payoff next year maybe not but you will definitely make less money and pay less taxes, so yes make as little as possible to pay as little as possible.

      Businesses don’t hire for reasons like that, they hire because they cant keep up with production, or other similar reasons. Because they are doing more business. Not because their taxes are low or high.

    • Side note to the above: For the last 12 years or so we have had one of the lowest income tax rates on corporate and regular income. They are the lowest they have been in a very long time for any sustained period. Yet the last 6-8 years depending on what part of the country you live in have been the worst they have been probably in your lifetime or at least close to the worst.

      Im really not correlating anything to taxes as there are so many other factors just trying to show the lack of correlation between low taxes and prosperity.

      • On top of that, the top 1-5% are wealthier than they have been ever. Yet we fail to go out and create all these jobs. Why: because we aren’t stupid, we aren’t going to invest in a new business startup (unless extremely innovative). There is no one to buy the service or product so our money just sits. Nothing to do with taxes. Any new business I have ventured to start in the last 5 years I go into knowing that I am only trying to put the neighbor business out of business. I need his/her customer base to survive. Not a great strategy but the only way to grow. Thats job swapping not creation.

  21. Although I find all this back and forth somewhat interesting (mostly because the majority of entrepreneurs here are somewhat like minded, obviously with some nuanced differences), the conversation would be even be occurring if the Federal Gov’t stayed within their Constitutional mandate. Sadly, their scope, and therefore spending, has grown exponentially in the last 90 years or so… mostly beginning with Woodrow Wilson, and continuing its growth in the aftermath of the Great Depression.

    • Yep, although I don’t really mind the debt as I explained my stance above. Ever since regan and bush jr the numbers have gotten crazy that trillion dollar number is seriously staggering, now obama as well. But then again they were saying the same thing when it was a million dollars.

      • I believe earlier in Clinton’s first term there was a $35 billion stimulus of sorts proposed and it was attacked as an insane amount of money to spend on stimulus. It aill never get paid back and will ruin the nation. Hyperinflation…… HYPERINFLATION! !! Now that is barely a drop in the bucket. True that it was never paid but it never is and until we become a trade surplus nation to a degree that lower the debt would be possible it never will.

  22. Mark,
    After reading my post again, I would like to apologize for the tone as it was not called for. It was wrong of me to pass judgement on you – even though it was meant as a joke. I have no idea of your political persuasion nor do I care. I was not trying to offend you but, in a crude attempt at humor, apparently I did. Please forgive me.
    I did, in fact, read your article several times. Having grown up in a time of high taxation and extreme government intervention in the economy, I have a different perspective. I was attempting to make a point about the economics of high rates of taxation on wealth creation and human behavior. You are wise to choose real estate in which to invest as it is a tax advantaged investment which makes it far easier to create wealth in real estate than almost anything else. Unfortunately, this bias toward real estate from the government distorts the market which leads to bubbles and crashes like we experienced in 2008-9.

    • I am really glad to hear that. I have had my posts that were supposed to be funny taken the wrong way many times. I have learned to add a haha, lol, 🙂 or j/k whenever I am joking because it is so hard to joke while writing.

      No worries.

  23. Mark,

    I want to commend you (and Ben too) for addressing controversial topics head on and not shying away from them. The idea that raising taxes on the wealthy will promote investment seems counter intuitive but once you remove the emotion out of it, your reasoning does follow a logical path so perhaps you are right. Regardless of why we are in this mess (2 wars, entitlements, government waste etc.) the money has been spent & taxes will have to go up on almost everyone sooner or later. May as well tighten our national belt now and get it over with rather than kicking the can down the road for future generations to deal with.

    Thanks for a thoughtful post!

    • Thank you Emma,
      I mentioned this in another comment, but there are a lot of comments to sift through! I was very hesitant about writing on a political subject. I very happy that this has a been a productive discussion. I have learned a lot and I actually feel better about our economy than I did before.

  24. Mark,
    I wanted to echo Emma…I too appreciate you and Ben delving into these controversial topics. I have learned a lot from this post as well as Ben’s recent post on minimum wage. In addition, the comments are thought provoking as well. I think that is always a good thing!

  25. Great article, Mark.

    I’m trying to read all your articles, this one is one of the best. Even though I do not agree with everything you wrote, there are pretty good points. Ex. the one being when you asked your banker about 1031 exchange and her response to it.

    And I do agree that minimal wages should not be raised artificially since it will only lead to other employees to be laid off to afford the increase for those that get raise. And then you’ll have more work load for the remaining employees, the remaining employees in turn would try to cut corners to keep up with the workload, they will make mistakes and get fired, and since now (due to their fired ex-coworkers) there is competition for their place, they can be easily replaced. Which in good economy should lead to lowering wages as a result of healthy competition. Anyway, there were so many responses posted, so I will keep it short.

    Great job on the article, keep posting, I’m your hugest fan. I understand how sometimes you feel that writing your honest opinion will deter people from reading you. But I think as long as it’s honest and you can explain where your views are coming from and the logic behind your opinion, you’re going to be ok. Even your twin brother would not agree with you 100%, and people can change their opinion over time, so there no point to try and write only on subjects that everyone would agree on.

    • Gayla,

      You posted someone shouldn’t write a reply unless it was 100% fact (basically about roche) I didnt read the article you were referring too.

      How are you proving that the minimum wage increase would for 100% fact cause a layoff for some while others get a raise. (im advocating raising it lowering it or keeping it the same) Im just saying no one ever has 100% proof it is all theory. I choose to error on the side of doing good for people since there is no real proof that either way is right.

      Heres the other side of raising the minimum wage. It gets raised no one gets laid off (maybe a couple small businesses that are in such a spot that they are going to close soon anyways. Now there are more customers for the remaining businesses because everyone has a lot more money (a little raise on someone barely getting by is a lot of expendable income). The businesses that now get the customers from the failed businesses also get new ones from people that choose to always spend every dime they get. Now those businesses need to hire more people. (the few people that got laid off).

      Im not saying that is definitely what would happen, but very well could. I would guess its more likely than the other scenario. From my businesses it would only hurt a few of them but since it would increase my customer base the stuggling ones might get better and the better off businesses would definitely get better. (Im using coffee stands that I own for this example)

      Who really knows. I know the raises definitely won’t end the world like some people want to claim.

    • Not slamming anything you said, just making sure to point out that you don’t need to bee 100% proof when trying to disprove something that isn’t backed by 100% proof.

      It would be nice but its impossible

      • Hi, rook.
        It does actually help when you read what others are talking about before you reply 🙂 It helps everyone in general 🙂 And I know you wrote another reply, but can’t find it here, so I’ll reply to that one here too.

        Ok, so let’s start with the article that you haven’t read. Mr.Murphy wrote a book, Mr.Roche pointed out that Mr.Murphy’s world described in the book is mythical and not real and brings an example of what is going on in the real world in the US. In this example he says that 22$ received from selling a book would be taxed. Here’s his statement “And some portion of that $22 goes to Uncle Sam.” No, it doesn’t. 22$ received from book selling are not taxed. This is not a theory and I can prove it.

        I personally have trouble following any author’s logic if I can see a verifiable fact being wrong. I do agree that economics is all theory, but when anyone brings their theory they base it on some facts. Everyone can interpret the facts differently, hence we have different theories. But the facts have to be correct (especially easily verifiable ones) in order for your theory to be credible and for other people to accept your theory. Well, in my case… to understand your theory. But don’t worry, Kyle Hipp helped me understand it, at least better than before. 😉

        • So my reply to your comment was to point out that you were doing the same thing as you claimed roche was doing. I don’t need to read his story to know that. What I mean by that is that you made a statement about raising the minimum wage causing people to cut jobs. That was my point, not that anyone is right or wrong etc. I just wanted you and others to see that even though I knew what you were getting at, your point in a comment about raising minimum wage was stated without proof. Yes you were agreeing with someone but knocking ones theory without facts is the same as agreeing because you used a theory as fact.

          As for your example, you can’t disprove his statement that some of that money is taxed. You think you can but really can’t. That is the thing people always quote facts which aren’t really facts. They seem like they could be but a fact is the sun is hotter than the moon. That is provable. But when someone hits you it hurts isn’t really a fact even though it really seems like it. Some people like “pain” or some people have high tolerances and on and on. How hard is the punch and on and on.

          For the 22 bucks in the book. Prove it then. I read your post and it doesn’t really prove there isn’t tax on the 22.00. It proves that in that one exact scenario you are talking about there is very little tax(there actually would still be some tax on that situation but your right it is very very minimum) Ive written a couple books (granted they are ebooks) Yes I paid taxes on them without a bunch of sales, my expenses were very null. I paid more than your scenario would show but it is a different scenario. Im sure roche was generalizing which is what you should do when giving examples. (personal opinion of mine).

          Im really not trying to call you out, its just a good example of how one person can read something and see facts while reading something else and seeing just a theory. In reality facts are almost impossible to come by and really are only used to attempt to back up theories in a debate. I mean it is definitely a fact that raising the minimum wage makes people paying the minimum wage have to pay more but what does that actually truly prove. (Im not knocking your thoughts on it just showing that it isn’t a fact and thats ok)

        • Gayla,
          I read that article. Glad you got me to check it out. I am surprised at how similar his thoughts are with mine and my comments in this thread. Especially regarding the inability for the US government to go bankrupt because their debt is in US currency which is pretty much my points above to others.

          Anyways, I guess I am not seeing what you are with the 22 dollars example. Now that I read the article it really does appear he is just generalizing the tax on the 22 dollars as an example. He is not wrong to say that. Maybe you don’t pay tax on the 22 dollars but Ive paid tax on just a couple of books. So he isn’t wrong it is just an example. In reality I would say the author of that book is definitely paying taxes on the book. Regardless the tax on the 22 dollars isn’t even relevant to his argument.

          It is just a side note. More importantly (which is the words he actually says immediately after the “he pays some tax on that 22 dollars” statement) he is talking about how the money came into existence in the first place.

          I have no idea if he is correct, his argument is logical but would take much more thought for me to decide. But I do believe the whole tax on the 22 dollar thing shouldn’t have been something to make anyone not believe the article. It does’t even matter if that is a fact because its situational. It was just a side note. Which I actually do believe that particular writer (assuming he is popular) is paying some tax.

          I don’t necessarily see any real proof either but it is just his theory. The author of that book uses examples as well that aren’t proof. The entire coconut thing. I mean as a reference to our society today where is he getting the coconuts from. Someone planted them before him or owned the land they were on so he could technically owe the people that he owned the trees or owned the land that the trees were on. (Thats the same as a tax in that situation) Then someone could say its his own land. Well how did he get the land. Well he bought it.. How did he buy it. Well he worked for a coconut farmer that had a bunch of land that he bought from the government.

          So the coconut example can be tore apart further. (of course if you keep going maybe its proven correct) but I went further than the author of that book did (ok i only read roches exerts so maybe I didnt) and I found flaws (lack of proof) Yet he decided to write a book knocking the way government works without any real proof. So I feel like Roches argument against it is perfectly acceptable.

  26. Presley Reeves on

    Wow! The American Dream really is dead. We are becoming Europe, with high unemployment, high taxes, high regulation. Good by freedom. Too bad there is no place else to go on this earth to be free. No understanding of what make an economy sing here.

  27. Sorry, rook.

    I consider my time as valuable. Time is money in my world. If I spend it, it either has to bring money or give me some new knowledge that will eventually bring me more money. Even spending time with my family I can tie to money making. This conversation with you lost it point long time ago, because I believe it does not bring any knowledge to either of us, and thus pointless. If you were to suddenly start making a career in selling books, I would’ve thought that proving something may help your career and would be helpful to you, otherwise it’s pointless. And if you were to start selling books you would’ve already found my info useful and researched yourself how much is taxable and where (depending on where you want to sell).

    Sorry, I don’t want to be rude to you by just ignoring your posts, so I’ll just tell you that I really don’t have time for things that are in my opinion pointless.

    • No worries. I didn’t think you were getting it as per your reply to several other comments not just mine. Wasn’t trying to influence your decision anyways just trying give you a different perspective on the article you talked about.

  28. Mark,

    Thanks for voicing your opinion on these topics.

    My advice to you is to keep reading lots of books and blogs and other info on these topics. I’m sure your thoughts & opinions will change.

    Any serious discussion of our country’s debts and deficits needs to address where we stand.

    Our economy is about $14 to $15 Trillion dollars (as in 1,000 Billion). The government budget (the one that has not passed and thus the federal government is shut down) is about $4 Trillion … give or take a few hundred Billion.

    No consider a Trillion.

    One million seconds ago …. was last week (11 1/2 days ago)
    One billion seconds ago …. was 32 years ago
    Thus One trillion seconds ago …. was 32,000 years ago (Mary and Joseph were still 30,000 years from a famous donkey ride)

    Our cumulative national debt (which will be headlines next week) is almost $17 Trillion. That means if everyone took all of their profits and paid it towards this national debt, we still would have about $3 Trillion more to go. Anyone want to work just to pay down the debt?

    Truthfully, if you add in the amount needs to be set aside TODAY to pay for future Medicare and Social Security benefits, our debt is in the $60 Trillion to $100 Trillion range.

    But Mark, your solution is to tax the wealthy.

    I did a back of the envelope calculation once a while ago. IF your taxed all of the Fortune 500 at 100% of their WEALTH (NOT income derived from that wealth) you would raise a little over $1 Trillion. OK, that only leaves another $16 Trillion to go and that tax increase has crippled the economy. This presumes that these wealthy will just say “sure here is a check for all my wealth.” If you were # 501 or 1,001 or 2,001 you would also meet with their accountants and attorneys about ways to shield their wealth … if they have not already.

    Conclusions: We do not have a tax revenue problem. We have a spending problem. If you want to raise the needed amount of tax revenues to end the deficits and reduce the debt, you have to tax the middle class. That is where the most of the wealth resides (less wealth per person but A LOT MORE PEOPLE).

    The Simpson-Bowles report outlined what actions were needed back in 2009. That report stated that all the easy actions were gone. Every choice going forward would be painful to somebody or some groups. That report hit the trash can before the ink was dry.

    Sorry for throwing cold water on this topic.

    • Hi Kevin, thank you for the comment. I agree debt is a problem, but I don’t think our government can make the needed cuts. They can’t even keep the government from shutting down. The government right now is more concerned about “winning” than what is best for the American people.

    • Kevin, lets think about this backwards for a second. Federal government debts are from spending in the private sector primarily. If the federal government did not spend $7 trillion over the last 6-7 years the national debt would be roughly $10 trillion. This would be a good thing right? Lower federal debt. Now ask yourself this. If the federal government did not spend that $7 trillion that means that it never entered the private economy. Do you feel our economy would be in a better or worse position about $7 trillion lighter?

      Just a little reverse engineering project.

      • Kyle, I don’t follow your logic. If you are saying that government (borrowing and) spending is good because it adds to our economy then you are correct but that is only half the story. The money has to come from somewhere. Right now (and over the last decade or so) we have spent more than the tax revenues the government takes in. So the government borrows the difference. Eventually, the lenders (those holding the Federal debt) want the money back with interest. To pay those debts tomorrow, the government must either reduce spending in other areas OR raise taxes. If higher current government spending adds to the economy then reduced future government spending subtracts from the economy. Higher future taxes also subtract from the economy. Taking $100,000 from the private sector means that taxpayer cannot spend that money on goods or make investments.

        If you feel that higher federal spending is only a good thing then you should be all for minting a few trillion dollar coins or one quadrillion dollar coin, taking it to the Federal Reserve and asking for change and spending all of it.

        Think about it.


          This is a good video that simplifies a lot. As for the lenders wanting their money back with interest, that is true but the US by and large has never reduced its debt. The 7 times in US history where the US ran a surplus or close to it, we have gone into recession or depression. We always grow our economy out of a poor debt to GDP ratio. The largest holder of federal debt is the federal reserve, they pay the bulk of their profits back to the treasury. The reason that foreign countries like china purchase our debt is because it is the best use of US Dollars that they acquire from their trade surplus with the US. The chinese government has limited uses for the US Dollars. They can’t spend it in there economy because they don’t use Dollars.
          The US debt represents private sector savings. When there is a drain on the US economy via a trade deficit ( lets say $500 billion a year) the private sector requires a balance and they can take on debt to make up for it or the remaining entity the public sector can makeup the difference.
          As for the coin Idea, yes the US treasury could mint a platinum coin and deposit it at the FED and extinguish debt without any effect on our economy, just as a bypass to the foolosh debt limit. This doesn’t mean the federal government can spend and unlimited amount of money without causing problems. We are constrained by the productive capacity of the US economy. I just believe that we are currentlt operating on the incorrect information when talking about fiscal policy as we believe that a balanced federal budhet would be beneficial without considering other factors, namely the trade balance.

        • Kyle, if printing more money was the simple solution to solving debt problems and had not side effects (inflation, devaluing the currency) then Greece, Italy, Spain etc (before joining the EU) and many small countries would be the most prosperous nations on the planet.

        • It isn’t spending and printing money without regard for devaluation of a currency or without regard for inflation. Those are obviously very important but must be understood in order to impliment prudent monetary and fiscal policy. The problem with the EU currently is that their is no mechanism for a balance. Greece being a net importer has no way to stop the flow from its economy now that it shares a currency ans has given up its monetary sovereignty. When Greece had its own currency, the currency would exchange for less than the german currency thus create a balance. Now no matter how much Greece cuts its budget, it will only deepen its hole.
          I know it is far from a mainstream view, I spent a lot of time reasearching this daily. I saw no way out in my previous beliefs which were very similiar to yours. I wanted the government to responsible for its spending and budget correctly as I do. I have come to realize I still want these things but I believed that the federal government operates under the same rules as a household but now realize that this is not the case. Visit if you would like to learn more. The worst visiting this site would do is give you a better understanding of another way of thinking and make you more capable of refuting claims such as mine. The best case is that like me it would change your entire viewpoint (over a 6 month time period for me) and create a confidence in our economic future like never before. I am able to invest much better than ever before. I was hesitant before, waiting for the next unexpected turn in the economy but now I feel much better with my understanding of the possibility of future turns.
          Good luck Kevin, I hope you give it a read and thanks for listening.

        • Kyle, I have a question/observation. Assuming what you say is correct and the debt is not as bad as most think. Do you think the policy makers and financial people running the country hold that same philosophy or are they just getting lucky that spending money and racking up debt may be good?

          It frustrates many of us to see nothing really being some to reduce spending when we think that is a major problem and polls show it is a major problem too. So, do politicians just not explain that it’s not really that bad in fear of looking insane? Or do they just not know and thing happen to be working out. If there was a master plan behind all of this and the politicians knew more than they seem to know it would be reassuring.

        • Mark,

          I believe that most of the politicians do not believe that the debt is serving as productive purpose as it actually is. I think most have heard this but our politicians are by and large a product of those who elected them and like you said would be taken apart by critics. I think the main reason we are where we are is that it is also politically difficult to dramatically cut spending or raise taxes and not have a large effect on the economy. Food stamps keep many small local businesses in business and those jobs that come. Section 8 prevents a massive reduction in the amount of households. Defense spending keeps a lot of manufacturing jobs especially here in wisconsin (ships and different tactical vehicles). Not to many people want their taxes raised (some want other people’s taxes raised but not their own. Also I would say that economics is not the speciality of most of our politicians.
          I do believe however that the folks at the FED understand how our monetary system operates for the most part, even if they can’t come out and say it as bluntly as I have. BenBernanke has said the FED is only half of the equation and to reach their goal of full employment and managed inflation they need congress to act with prudent fiscal policy.

          At the end of the day, I believe that the congress will continue to do what is neccessary because it is politically unfeasible to take actions that dramatically cut spending whether it be raising taxes or cutting spending. We will continue to muddle through as the household sector continues to repair their balance sheets. I was nervous with Ben Bernanke leaving but do feel tgat Janet Yellen will not shift course see dramatically and pose major problems. For now we must hope that congress acts like responsible adults and pass the CR and raise the debt limit before a y more damage takes place.

  29. Mark,

    With all due respect, I’m having a difficult time grasping your point on how increasing taxation brings on prosperity. Allow me to ask you a question, first. Is an individual’s experience (like you banker, in this case) entirely indicative of a present ongoing trend?

    Secondly. Even if investors cash out their properties to take profits are you thinking these investors just keep their cash in the bank at such low rate of returns? Or are you thinking they are just spending it? Unlike lottery winners, investors and business owners don’t waste their profits on spending sprees. Chances are that they either find other avenues to make better returns in others sectors of the economy or they prefer to stay liquid till new opportunities arise either in the real estate sector or other sectors. When an investor moves his capital to a different economic sector it doesn’t mean he’s hurting the economy, it means he’s seeing something in another sector that is unseen by the untrained eye. Economic prosperity is achieved through a natural balance of capital distributed in sectors which are in demand at the time.

    Thirdly, wealthy people and businesses will continue to exploit the loopholes allowed in the IRS code to minimize the taxation. I believe you fired your accountant who was not using these loopholes, thus you were looking at benefiting from less taxation. Why is it then OK for other wealthy folks to pay higher taxes when you prefer to pay lower taxes?

    Fourth point I’d like to make is the U.S.’s current debt and budget. Our entire nation’s Debt/GDP ratio is over 100%. The debt I’m referring to is the already funded liabilities of over $17 Trillion. It does not include the unfunded liabilities of social security, medicare, medicaid, food stamps, govt future subsidies, etc. So, if our nation is producing less than its debt what makes you believe increasing taxation will put a serious dent into the outstanding debt? And have we seen some serious attempts from the government to reduce the budget anytime in the past 20 years? Actually better to go even three decades ago when starting with the Reagan’s era we’ve seen substantial increases in the money supply. Money supply expands when there is not sufficient revenue (in this case taxes) to satisfy the expenses. If the central bank had to resort to such method then what gives the govt the incentive to reduce its budget?

    I hope that you reconsider you stand on taxation. A free market should not be hampered by heavy taxation. BTW, didn’t the colonies decide it was time to become independent from the British Empire b/c they were tired of the empire’s taxation burden on them? This was followed by the War of Independence. What we need is a serious reduction in the size of the government. When the govt. is smaller it requires less money to be sustained. The bigger the govt, the more the appetite for taxing its citizens. Best wishes to you!

    • Thank you for the comment Carmen.
      A lot of these points have been discussed in the comments so I will keep it short.

      Your second point is inline with my thinking. If investors did cash out and go on a spending spree it would help the economy, because they are spending money. It is when they save money and don’t reinvest that they hurt the economy. We all want a certain amount of liquid money around, emergency fund or are looking for a time to cash out on certain investments. When taxes are low is when investors tend to cash out, because they will pay less to the tax man. When taxes are high the incentive is to keep your money invested or reinvest your money as soon as you cash out (1031 exchange). The tax code was created to encourage spending and investment, especially in Real Estate. The more money you spend, the more deductions you get and the less taxes you pay.

      On your third point, a higher tax bracket on the wealthy will affect me. I am in that higher tax bracket and I will pay more taxes. I am okay with it, not all of my income is taxed at the higher rate, only that which is over a certain amount. The argument that I shouldn’t be trying to find loopholes is silly, why would I not take advantage of the legal way to file taxes that saves me the most money? Of course I pay the lowest taxes I can that is allowed, why not? It doesn’t change what I think the national policy should be.

      Your idea of “heavy taxation” is all relative. Right now taxes on the wealthy are some of the lowest they have ever been in the modern era. They have been extremely low for many years and our economy has not done well. Obviously there are other factors too, but the point of my article was that the raising or lowering taxes relative to what they are or what investors think they will be drives many investment decisions. If taxes are perceived to be high, investors will invest more to save money, if they are previewed to be low, investors may sell and take profits without reinvesting. Many of those loopholes you talk of are not tax avoidance, but tax deference. The investor will wait for low taxes to cash out and tax the tax penalties he has been deferring.

      I feel the government needs to cut spending too, but like you said they have not been able to do it in 30 years. I don’t trust them to be able to do it now.

      • Hi Mark, and thank you for your candid reply. I hope you don’t mind me coming back on the topic of taxation. What you describe as a cure for an economic recovery is in line with the Keynesian Economics model embraced by the Western World, especially our country. It’s been accelerated after 2008 R.E. crash and the 2009 banking crises. This macro economic model does not work and not because I say so but because it’s clear proof we’re in serious trouble due to the monetary expansion and the large debt our govt and its citizens have accumulated. When Savings is being replaced with Debt there are serious repercussions. And to make my point let’s continue further to your recent thought.

        You’re saying “Your second point is inline with my thinking. If investors did cash out and go on a spending spree it would help the economy, because they are spending money. It is when they save money and don’t reinvest that they hurt the economy.” Mark, our lines of thought are not close, they are actually opposite. It’s Keynesian Economics versus Austrian Economics, where your thought pattern is Keynesian and mine is Austrian. Going back to these folks that cashed out, these investors who cashed out have at least two feasible choices to do with their money.

        1. They save and this act of saving according to Keynesian model, is detrimental to the economy overall. Whereas you claim the money stays passive in the bank, I say that the bank lends it to other entrepreneurs who either expand their business and/or allows new start-up capital for new businesses. How can this hurt the economy? Banks don’t keep much deposits in reserves only a very small percentage (I believe 10%) of their assets are held in reserves. The Keynesian belief applies to what is seen, such as when folks spend money they help the local restaurants, the local retailer, etc. Now this is where the Austrian School shines by highlighting on the unseen events. You see, Mark, most people only think in terms of consumer goods. But to produce consumer goods we must produce capital goods. Here is a simple definition of capital goods according to Investopedia.

        In conclusion, by spending on consumer goods we take away resources which would otherwise finance capital goods. But most American people don’t realize how this event played such a role in the U.S. manufacturing moving overseas. And this, my friend, is part of the problem (not the entire problem). We have become financially unstable because from a nation of savers we became a nation of spenders.

        2. The other feasible option is for the investor who cashed-out to not keep his money saved at the local bank (which pays him 1% per year on his money) and invest it in another investment which pays a better rate of return. When the annual deposit returns are below the average annual rate of inflation, it’s not unreasonable to think an investor is smart enough to go where there are better returns, which would outpace the rate of inflation. Now, such shift in the sector goes back to what I stated in my previous comments. Shifting capital from one economic sector to another does not hurt the economy. We don’t need govt interfering with the natural process of the free markets.

        Money taken from the real estate sector and invested in the manufacturing sector, for example does a great deal of good for the economy. First of all, it would eliminate the malinvestments in the real estate sector. Remember the good old days of the real estate boom when everyone felt entitled to own a home, or the “investor” who was making an offer on a Florida condo only to sell it in 6 months for $100K more? These were malinvestments which had to be eliminated via the bubble bursting and its deflationary effects. We need not recreate another one and that is what could happen if real estate is artificially manipulated to grow. Bernanke would like to see that happen but I would not trust the man who didn’t see the real estate crash coming and didn’t admit it even when a collapse was quite obvious. The growth in real estate would still exist but it would be at a slower pace because it would be an organic growth, not artificial. The other unseen event would be capital invested in the manufacturing sector right here in the U.S. This way we would be able to return this vital sector back home from Asia. Of course, the govt would have to help, as well, like minimize taxation and give incentives to entrepreneurs to start these new manufacturing plants, to eliminate protectionists tariffs, to remove the burdensome laws and restrictions that are currently in place. A while back I read a book called “Economics in One Lesson” by Henry Hazlitt. You seem like a very brainy guy and I believe you may be interested to read it. It’s short and simple, I think you’d like it. And if you do read it, I really would love for you to contact me and tell me your thoughts. If you wish, of course.

        Finally, I’d like to make my last point on taxation. What makes people believe that their money is better spent by a government than by the private sector? Is the govt entity smarter, better qualified to handle money and projects than the private industry? If governments didn’t exist I’d say the people would be smart enough to design and build infrastructure, education, security, transportation, etc. They would do it better with less money and less waste. That is what humanity did before govts grew to empires. Thank you for reading my points, I hope they will help if not convince you but at least stir up the desire for you to want to know even more.

        • Thank you for the info! You may be right on many points and I will try to check out that book, but I have a long list a head of it. One think I would ask is what you think the tax rate should be?

          Here is a great article (although a couple years old) on tax rates.

          The US has the lowest overall tax rate of every developed country in the OE except Mexico and Chile. Forbes and Investopia also have similar articles showing the US has one of the lowest overall rates.

          In theory it would be great of the private sector took over the public services and ran them more efficiently. The private sector invests in things that make money. If that was done the rich would afford all the nice services and the poor would live in poverty. Many African countries have some of the lowest tax rates in the world with little government involvement. Look at how they are run! I have talked to many a cab driver from the region and everyone says it is hell, the rich take everything and the poor can only hope to one day move to a county like the US. Obviously talking to cab drivers is not conclusive, but it jives with what see on tv and the news. Have you been to Mexico or other third world countries (not the resort areas). it is not pretty. Living on dirt with no running water is not rare.

          Carmen, I applaud you for knowing what economic model you subscribe to. I do however disagree. If we follow the Austrian economic model with our current monetary system we would be in a lot of trouble. Please read the article I have posted. I’ll have to keep this short as I am in a busy day. As for Mark’s thought’s on taxation, I understood them differently than you. For a business to take profits because there are low taxes will spur the economy on in a fundamentally different way that if a company does not pull that money out of the business but instead reinvests the money to grow the business. This I believe the the driving intent of Mark’s therory. If I have a real estate business, I can pull out $100,000 in profit and be taxes on it at a low rate and do with it what I please in my personal life. Maybe I will invest in the stock market or build and emergency fund, neither one has a large positive effect on the economy. Maybe I want to update my kitchen or buy a new vehicle, these are more beneficial for the economy. Now if I decide that it would be better to keep that money in my business and not disburse as income then I could put that into upgrades on some properties or upgrade my computer system or purchase a new office building for my company. This was the intent of keeping money in the business.

        • Very good points Carmene and very interesting discussion Mark.

          To Mark – The US appears to collect lower taxes in part because of the way taxes are calculated. The US makes far more use of “refundable tax credits” as a means for spending than many other countries, and in addition, does not tax many types of social spending, unlike many other nations. The result is that it looks like our government collects less in taxes and spends less than it really does.

          For example, suppose our government hypothetically wants to give someone $10,000, and that person is subject to a 33% marginal income tax rate. One way to do this is by giving them a $10,000 refundable tax credit. The way tax and spending data are tabulated though, it would appear that the IRS simply collected $10,000 less in total tax revenue and that spending was increased by $0. Another way to do this is to give the person $15000 in additional government spending, subject to the 33% income tax. The government is spending $15000 and collecting an additional $5000 in income tax revenue. The two methods are economically identical, but the first method (tax credits) makes it look like total taxation and total spending are lower than with the second.

        • Hi again Mark, thanks for the article. When paying attention to the chart (and eliminating the views of the huffington post editor) I come to the conclusion that taxation is not a key factor of economic growth. If that was the case it would mean that all countries which tax their citizens at a high rate should be experiencing high economic growth. With one or two exceptions, ALL countries who tax their citizens a higher rate are in more dire economic shape than the U.S.

          Now, Mark, you’re just enticing me to analyze each of your comments:-)
          “In theory it would be great of the private sector took over the public services and ran them more efficiently.” Why would you think that the private sector does not have the ability to handle the economy in a more efficient way? Why is not feasible in practice? I’m not implying a drastic change overnight, but with time and with each generation, civilization can get used to the idea of being more independent from govts.

          “The private sector invests in things that make money. If that was done the rich would afford all the nice services and the poor would live in poverty.” The rich become richer when their products and services are being afforded by larger percentages of the population. We have to be realistic that not all people can be rich, but when poor people’s standards of living are increased they are able to make the rich richer because now they’re able to afford the products and services that they were not able to afford when they were poor. Now, there are two kinds of rich people. The rich who fairly earned their riches by producing products and/or services which society finds it increases their standard of living. The other kind are the rich who steal from the middle class (by making them poor) and this appears to be termed as wealth redistribution. An example is a politician who takes bribes from a corporation to vote for or against a new law/regulation. Another example would be of a large bank who fails but is “saved” by the govt with taxpayer money. This event is called “Moral Hazard”. Another type is a big farmer who somehow manages to be subsidized by the govt again with tax payer money (this creates an uneven level for his smaller competitor who cannot benefit from the govt subsidy and thus eliminates competition which is very important to us, the consumers). I can give you many more, but I think you’re primarily thinking of the rich being the kind who “exploit” the poor.

          “Many African countries have some of the lowest tax rates in the world with little government involvement. Look at how they are run!” They have low tax rates by default, Mark. When there is little productivity how can you tax people? Productivity must exist for taxation to incur.

          “I have talked to many a cab driver from the region and everyone says it is hell, the rich take everything and the poor can only hope to one day move to a county like the US. Obviously talking to cab drivers is not conclusive, but it jives with what see on tv and the news. Have you been to Mexico or other third world countries (not the resort areas). it is not pretty. Living on dirt with no running water is not rare.” Yes, Mark, I have been to Mexico but talking to a cab driver is hearing about his sad life. Poor people don’t like the rich, that has been around since at least Robin Hood. Yes, the Mexican cab driver aspires for a better life and it;s human nature to want a better life. He thinks that coming here he’ll achieve economic prosperity. But again this is no proof that taxing citizens more increases prosperity. May I recommend you pull a chart on the internet with the ranking of govts corruption worldwide? That may be a starting point. And there are no coincidences.

          One final thought. If you think a govt is better equipped to handle the economy and that is why in your mind taxation is pivotal, then may I bring in the subject of USSR? Why did communism collapse? I tell you why as I was born and raised in that part of the world. Centralized economies always fail, sooner or later. Soviet Union’s economy collapsed and that event lead to what we only know as “Mr. Gorbachev, tear down this wall!” Cheers to you;-)

        • Carmen, I think you are missing my point. I am not saying high taxes=better economy. I am saying the perception of whether taxes will be higher or lower in the near future affects how businesses invest. If they think taxes are going to be raised, then they may invest more into their business to show less profit and pay less taxes.

          True the countries with higher taxes are in worse economic shape than the US, so are the countries with lower tax rates. My point isn’t that a high tax rate equals better economy. It is that most businesses know our tax rate is very low and if they think that tax rate will be raised then they may invest in their business more.

          I was actually talking about UScab drivers from Africa or other third world countries. They have left everything behind to come to the US, including their families. One I just talked to in Dallas, said his country discovered oil, it made no difference what so ever to the poor people. I don’t think rich people are evil, I like rich people. Rich people give more money to charity than by a huge margin dollar wise than anyone else. From looking at other countries in the world with little government involvement, the private sector does not build roads, build schools, build hospitals, or make food unless it is a key element to their business and workforce.

          No where have I ever suggested anything like the USSR system of government. I never said we should increase government, I for a smaller government and I am simply saying a slight raising of taxes may cause an increase in business investment. I also trying to use tactics that would have real world applications. Our government has shown me absolutely no progress towards reducing it’s size. It is very easy to give people money and programs, it is much harder to take it away.

        • H, Carmen, sorry if this got posted not in the right place, I seem to have troubles finding the right “reply.”

          There are many things I disagree with you, but mainly I disagree with your explanation why USSR had failed. It failed because everyone was stealing at their workplace, and the higher their position was the more they were stealing. It was a norm because this is how you they could afford to pay for other services, expensive tickets and so on, by stealing products that they were suppose to sell. No one can go on for too long when employees are stealing. It doesn’t matter if you’re centralized, private or entrepreneur if your employees steal from you, you will collapse. There were other problems like overproduction and poor management and poor financial decisions which did cause problems too. But if your employees are stealing from you, that’s pretty much the end.

        • Galya,
          What you’re describing are events that have definitely occurred and which directly and indirectly contributed to the economic collapse. There has been an economic collapse and I’m sure you can’t really deny that. Do you remember the long lines for basic consumer products? Those long lines were because of scarcity. Scarcity is often seen when the govt interferes in the market by price fixing. Scarcity is often seen when govt owned industries produce little of value to exchange with other countries. Does anyone here remember during the Cold war ear how many consumer products did they buy that were made in U.S.S.R. I lived in a neighboring country and we were able to purchase nothing of decent quality made there. Of course there was nothing of value produced in my birth country either. While living there I traveled throughout both Eastern and Western Europe. I can’t say it was any different. My point is not to put down you country. Our country was experiencing the same fate under a centralized economy.

          What’s clear is that a govt owned economy aka communism does not have great enough productivity to experience prosperity. There has never been prosperity when a country had such an economic system. I agree with you 100% that there was a lot of stealing, bribery, fraud which all contributed indirectly to the economic collapse. Yes, it can happen in a state owned or privately owned company, but it is much more likely to happen in a state owned company. In a private company the employee is fired or let go before the company goes down the drain. That’s why capitalism has always been a better economic system.

        • Kyle,

          Thank you for your thoughts. First of all, let me say that, virtually 100% of the people I spoke with who discredited the Austrian School of Economics are the ones that never read one book written by the Austrian Scholars.

          OK, so you’re saying that “If we follow the Austrian economic model with our current monetary system we would be in a lot of trouble. Please read the article I have posted. I’ll have to keep this short as I am in a busy day.”

          Kyle, I have a busy day, as well. Would you be kind to summarize what the author is saying in the article you posted? Would you also be kind to briefly tell me why do you think that following the Austrian monetary model would bring us so much trouble?

    • Mark,

      Ok, perception is the anticipation of future higher taxes, prompting the investor or business owner to act according to what he thinks is best for him and his business. Perception or not, how does it change the subject of higher taxation relative to the improvement of the economy, which is the subject of your article?

      “From looking at other countries in the world with little government involvement, the private sector does not build roads, build schools, build hospitals, or make food unless it is a key element to their business and workforce.” Mark, the private sector in those countries is very small due to lack of local capital. So when the private sector is barely existing it cannot provide the roads, schools, hospitals, etc. But changes are happening as of now, good changes, where outside capital is enticed by the natural resources and the cheap labor. But it will take time for the average people to experience a rise in their standard of living.

      “No where have I ever suggested anything like the USSR system of government. I never said we should increase government, I for a smaller government and I am simply saying a slight raising of taxes may cause an increase in business investment. I also trying to use tactics that would have real world applications. Our government has shown me absolutely no progress towards reducing it’s size. It is very easy to give people money and programs, it is much harder to take it away.” No, Mark, you have not suggested a USSR system, I know that but i had to bring it up because there is a danger when the govt takes control of all the sectors of the economy and that is what’s happening under our very own eyes. I’m glad that you don’t believe in big govt. My disappointment is with the baby boomer generation that freely accepted the idea of govt dependency via govt hand outs (social security, medicare, prescription programs, etc.) When people’s lives are so dependent on their own govt they relinquish their rights and freedoms to the hand that feeds them. The hope is in young people such as you, your generation seems to be overall smarter and more willing to be self-sufficient.

  30. Keep in mind the 1031 exchange is only available for real estate investing. For most investments, higher tax rates discourage selling and reinvesting somewhere else, even if that new investment appears to serve greater economic need, and thus offers a better risk/reward balance. If an investor owns 50% of small business X, has experienced huge gains in the past, but no longer expects significant appreciation,

    High tax rates might temporarily help real estate, because of the 1031 treatment. With high tax rates, an investor might choose to either 1) keep money in an existing investment or 2) move it to another real estate investment via 1031 to defer taxes on prior gains, as opposed to moving it to some other investment that does not get 1031 treatment in which case he/she would pay taxes on prior gains. That preference for real estate might keep more money in that sector of the economy, but would do so at the expense of another sector, where it might serve greater need.

    Marginal tax rates are not really that low by historical standards, unless you are thinking of the 1945 to 1981 period. It’s difficult to compare rates with that period, because back then there were huge loopholes for favored activities. People would deliberately invest in real estate even if the investment itself would lose money, because they would save more in taxes than they lost on a bad investment.

    Effective tax rates on taxpayers in the lower 40 to 50% by income are really low, but that is more due to government spending that is distributed through refundable tax credits, than because of low marginal tax rates. The “effective marginal tax rate” (marginal rate after taking into account phaseouts of benefits and tax credits) is actually very high for many people, thus making it hard to increase income.

  31. Steven Seeger on

    Mark, when I see suggestions about taxing the rich I always ask the person who makes the suggestoin to watch a video called “Eat the Rich” by “Bill Whittle” Here is a link for your convenience:

    The real benefit under Clinton was that our last federal budget (today at just over $3 tn a year, and that does not includel entitlements) was 1.8 tn. I see no reason why the first Bush budget had to be 2.1 tn when he was supposedly a conservative. I left he GOP in 2005 as it became clear we had a spending problem, not a taxing problem.

    We spend over 4 times what NASA’s budget is on food stamps every year. Pretty crazy.

  32. It is a bit worrying in the UK that people are expecting the government to enforce a drop in energy costs and are waiting for it to happen rather than taking things into their own hands.. smart home systems, insulations etc. Given not everyone can afford to, but there are plenty who are far from proactive and are waiting for something to happen which to my knowledge has not happened yet (a decrease in energy prices.. they’ve been steadily rising in the UK).

  33. Hi, I know this has nothing to do with what you guy are talking about, but I’m 16 years old and a junior in high school. In AP English, we’re doing a candidate project. We each got assigned a certain topic and I received economy. can you guys help me on ideas and solutions? I have ideas on how we should fix unemployment rates, also reduce the shrinkage of middle class, but I have no valid solutions. Also, if you guys can give me more ideas on how we can improve the economy, that would be great too. I’d really appreciate the help because I’m having a hard time.

    • Ashley,

      First, congratulation on reaching out to others for input.

      Second, your topic is incredibly broad and filled with differing viewpoint. Read the above discussion for proof.

      I encourage you to read a lot more (starting with your high school economics text), then hitting the library for other economics text but be aware that this topic has been around and debated for centuries.

      I will impart two principles that stem from economics.

      First, economic players (business and consumers) will always do what they individually feel is in their own best interests.

      Second, what someone earns someone else has to pay. Be careful of how you account for money used to distribute to people for spending.

      If your solutions include taxing the rich, or businesses or some other segment of the economy, there are not enough rich to tax and solve any of our problems (only put a dent in the problems). And taxing a group will cause them to react in ways that reduce the taxes that they pay and thus reducing the projected tax revenues.

      If you would like for someone to review your essay, feel free to contact me (go to the main bigger pockets website and look me up).

  34. Alan Mackenthun

    Interesting that you ended up on BiggerPockets (good move), and I can see why you posted on this article, but posting a new forum thread might be more appropriate. IBD ( has an editorial today directly addressing income inequality that might provide some insight. If you’re asking about economic policy, you have to take a macro view. People want to save and invest. Anything that can be done to encourage that helps, anything else hurts. Investors apply money and effort to build a business that will return profits. In the process they hire people and make things that people want. Everyone wins. Regulations slow investment. Changing or unknowns stop investment. If you don’t know what the costs or constraints are going to be you’re less likely to invest. IMHO the Dodd Frank financial regulations and Obamacare are to prima fascia examples of this. People complain about a do-nothing congress, but that’s much better than just doing things. Obamacare added tremendous liabilities and burdens on business, but worse still are the exemptions, delays and changes that Obama has single handedly enacted that keep changing the playing field. Congress has gotten in the habit of passing temporary tax law changes. This mutes their effectiveness since businesses can’t count on them long term. If tax cuts or credits are going to expire, you can’t really build a business on them. Minimum wages are populist ideas, but who is to say that if someone want’s a job – any job to get experience that someone willing to pay them a bit on a trial run can’t do so? Aren’t we supposed to be free people? Some regulations are necessary, but should the federal government really be telling people what kind of light bulbs they have to buy? All these regulations constrain and slow down businesses. More importantly, energy is the lifeblood of an economy. Cheap, reliable power directly reduces costs and can greatly boost an economy. The biggest source of electricity in this country is coal and Obama’s war on coal is economic suicide. Renewable energy sounds good, but the sun doesn’t always shine and the wind doesn’t always blow. Unreliable power makes for a 3rd world economy and that’s where Obama is pushing us. Boost coal, boost oil exploration, boost natural gas exploration and distribution and boost other reliable energy sources like nuclear power. The economy could boom and as in the 80’s and 90’s, all boats would rise.

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