Taxes, taxes, taxes-raise or lower?
Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
I want to share something here. If there is still a question whether to raise or lower tax rates, please back it up with facts, or history, please.
This lesson will come in 3 parts.
Harding and Cololidge period
part 1 1920 1928
tax revenue of GDP 2% 3.9%(double)
unemployment 6.5% 3.1%
What caused it? Cut rates from 77% to 25%
1960 1968
tax revenue of GDP 2.6% 9%
unemployment 5.8% 3.9%
This was JFK time. Cut rates from 91 to 70%
1978 1986
GDP growth 0.9% 4.8%
tax revenue growth -2.6% 3.5%
Reagan slashed rates 25% across the board in 1981 and highest rate was 50%. He later lowered it to 28% top bracket.
3 examples from history. If we truly can learn from history, these examples should make it easy.
Why there is even a discussion on raising rates? It is really confusing to me.Rich
p.s. U.S. Budget Data for info
You haven't backed up anything with facts or history...in fact, you've provided essentially no useful information above. All you've done is to indicate that there *might* be a correlation between tax rates and unemployment.
But, while you may have given an indication of CORRELATION between the two, you've given absolutely no indication of a CAUSATION between the two (not saying it doesn't exist, but you haven't provided any reason to believe it does).
That's probably not what you wanted to hear (I assume you are trying to support a hypothesis that you'd like to be true), but those are the facts...
Here's another example to clarify:
I can provide plenty of data that indicates that from June through August of each year, the amount of ice cream eaten by kids increases. I can also provide plenty of data that indicates that from June through August of each year, the number of kids who die from swimming pool drownings increases.
Does that mean that eating more ice cream leads to increased risk of drowning in swimming pools? (let me know if the answer isn't obvious)
But, this is a great example of why it's so important that we improve the educational system in this country. When people don't understand these basic logical constructs, we have a problem that is much BIGGER and FAR-REACHING than just unemployment.
Because the country is broke.
You haven't backed up anything with facts or history...in fact, you've provided essentially no useful information above. All you've done is to indicate that there *might* be a correlation between tax rates and unemployment.
But, while you may have given an indication of CORRELATION between the two, you've given absolutely no indication of a CAUSATION between the two (not saying it doesn't exist, but you haven't provided any reason to believe it does).
That's probably not what you wanted to hear (I assume you are trying to support a hypothesis that you'd like to be true), but those are the facts...
Here's another example to clarify:
I can provide plenty of data that indicates that from June through August of each year, the amount of ice cream eaten by kids increases. I can also provide plenty of data that indicates that from June through August of each year, the number of kids who die from swimming pool drownings increases.
Does that mean that eating more ice cream leads to increased risk of drowning in swimming pools? (let me know if the answer isn't obvious)
But, this is a great example of why it's so important that we improve the educational system in this country. When people don't understand these basic logical constructs, we have a problem that is much BIGGER and FAR-REACHING than just unemployment.
I dont really believe the country is broke. There is just poor spending and zero accountability of the people in charge.
I have read several studies over the years that have looked at tax rates and the economy, and as I recall, none of them were able to link high or low taxes to an overall stronger economy. In other words, in some cases the economy was strong with high taxes and weak with low taxes and other cases it was strong with low taxes and weak with high taxes.
I will see if I can track down these studies, but if we are going to have a serious conversation about this, we are going to have to look much deeper than questionable causes.
The tax system in this country is a joke. Just because your marginal taxes are higher doesn't mean you pay more in taxes. In fact...I have paid less (much less) in taxes since our income has roughly doubled in the last 10 years. This is completely stupid if the idea is to get a progressive tax system.
The whole thing needs to be overhauled and we need to cut all sorts of stuff. Luckily I am starting to hear some decent proposals out of Congress now...including eliminating the payroll tax for a year.
Facts are facts. In 3 examples given, rates were slashed or reduced. In all 3, the unemployment rate decreased and TAX revenue INCREASED considerably during the same time. I guess this was just a coincidence. Give me your examples(over a reasonable amount of time) when rates were slashed and the opposite occurred, and I might see things differently.
I do like ice cream a lot, btw. Again, show me an equal amount of time when rates were lowered and this didn't happen, or when raising rates created less unemployment and more tax revenue, and I'll certainly re-think. If not, I'll just have another Dove dark chocolate ice cream bar. Pure fun! Rich
You provided the facts that when the tax rates are low, unemployment is low. Therefore, you conclude with certainty that tax rates influence unemployment rates.
I provided the facts that when ice cream sales are high, so are swimming pool death rates.
So, do you honestly conclude that more eating ice cream leads to death by drowning?
Or do you not get that the concept that two things can be related without one causing the other?
Can you give me an example of a time when ice cream sales were low but pool related deaths were high?
Probably not (they both occur EVERY summer), but that still isn't proof that eating ice cream causing people to drown.
Sorry Rich, but your conclusion based on the limited facts you've provided is ridiculous, and is only an indication of a basic ignorance of how correlation and causation work.
Here's some basic info that you probably won't read, but really should:
http://en.wikipedia.org/wiki/Correlation_does_not_imply_causation
I think tax rates definitely play a role although I don't think they are the sole cause. Regulatory environments definitely play a large role as well. However, it's hard to look at states like TX, TN, UT, etc. where taxes are relatively low compared to other states and dismiss tax rates out of hand when these states have pretty good job growth going on. If this country really wants to create jobs it needs to focus on a stronger dollar, not a weaker one.
Clinton imposed a huge tax hike in 1993. Unemployment dropped consistently over the next 7 years.
So, there is a 7 year stretch (about 8% of your time frame) that goes against your theory.
You conveniently ignored that period...
JSCOTT- you're forgetting the following. In ALL 3 instances, when taxes were SLASHED tax revenue INCREASED substantiaaly AND the unemployment decreased. You really are arguing in all 3 instances the changes would have happened WITHOUT the slashing of taxes? If so, show me a COMPARABLE length of time when your premise holds up. I gave you 3.Do you really think a reduction or slashing of taxes has no correlation to either item?
Your correlation and causation is fancy in terminology(which you like to use) but irrelevant in this discussion. Your link (which I did read) compares only TWO items and not three and is relavant to HEALTH issues. Again , stick to the thread. Taxes- raise or lower? I provided instances over substantial time that unemployment DECREASES, tax revenue INCREASES. Show me the contrary over comparable time that turns out differently- not ice cream or health care. That should be pretty simple for you.
Brian- I've lived in 2 of the 3 states you mentioned and they do "get it". Texas has created 37% of the jobs created in the U.S in last couple years, created over 200K in jobs and has companies moving there as fast as they can get out of their current states.
JSCOTT- 2nd post- You failed to list the actual % drop in real estate, % tax hike in 93, and how it affected tax revenue. Just the same 3 things I disclosed above. Maybe you came up with a decent argument finally. Add the missing parts, please. Rich
The job market in Austin is very robust. I still get 2-5 calls every day from recruiters right now. I doubt many places in the nation would be the same.
Taxes certainly are important, but they are not the only thing to focus on.
I never said there wasn't a correlation. There's clearly a correlation (just like there is a correlation between ice cream sales and swimming pool deaths).
What I said there was no indication of a causation effect, which is true based on the information you provided.
I've tried on multiple occasions to explain to you the difference between correlation and causation, but you either don't get it or are ignore it. Either way, if you can't grasp those basic concepts, you're not going to be able to grasp why your hypothesis is not supported.
Actually, it's not fancy, it's seventh grade mathematics.
Go find someone who is good in math/logic and whose opinion you respect, and show him this post. I'm quite certain he'll explain to you the logical fallacy you've made, and perhaps you'll believe him over me (and the rest of those in this thread who are saying the same thing I am).
Seriously, Rich?
If you think that article is about health care, then that means you *ONLY* read up to the third paragraph, which was a single example to illustrate the point of the REST OF THE ARTICLE.
Sorry, but you clearly *DIDN'T* read the article...
Huh? What does this have to do with real estate? None of your posts in this thread have said anything about real estate...
Now you're just making stuff up. Sorry, I can't debate under those circumstances...
Ahh....this thread reminds me of the good old BP days ;-)
Yes, trying to debate a topic that requires middle-school mathematics when not everyone on the thread understands middle-school mathematics... :D
J Scott
Correlation and Causation are definitely different. But let's be honest, any study of economics will state that taxation/unemployment/economic growth have a much stronger correlation and causation than ice cream and swimming, both popular summer time activities, but totally uncorrelated. (Although I have eaten an ice cream by a pool a few times.)
Economics 101 states that an economy is growing when cash flow is growing. During your second quarter of Economics 101, you will learn that the Private Sector will create MORE jobs with a given amount of money than the government will, thus creating more income tax payers. Most studies show that a private company can create 20 jobs with $1,000,000 while the Federal Government will create 5.
J, your ice cream/swimming comparison is like saying that if you want to be tall, become an NBA player. After all, the average height of an NBA player is around 6 feet 8 inches.
Most studies show that if you let a worker keep most of his/her money that they earn, and let them spend it as they like, the economy will grow and everyone prospers. The more you take in taxes, the worse the economy gets. I live in California and pay 10.75% SALES TAX. And look at the fiscal condition of California. California Income Tax is around 10%. We have the highest Gas Taxes of anyone. We have some of the highest Car Tags/Registration of anyone. TAXES, TAXES, TAXES. And what is California's Unemployment Rate? 12-13% with some cities in CA over 20% unemployment. There is a direct causation of raising taxes and raising unemployment in California, it is ongoing as I type this. Raising Business taxes and business leave the state or worse, close their doors.
You want to fix the US economy, here is a short list.
1. Eliminate Income Taxes. Penalizing folks for working hard and earning money is counter productive.
2. Institute a National Sales Tax.
3. Deregulate, Deregulate, DEREGULATE.
In California, the average time to open a business is TWO years, due to all the regulations. In Texas, it is six weeks.
REGULATIONS forced lenders to give mortgage loans to unqualified buyers. Let the lenders decide whom they feel is a good risk and get out of the way.
We can debate until the cows come home, but as I type this, Barry hasn't done anything that has helped the US economy rebound. The "hope and change" has been EVERLASTING Hope and a change in unemployment, rising faster that the heat on a Texas summer day.
Amazing how so many threads turn from the original intent or discussion to attacking the messenger . What a waste of time to try and discuss with those that just want to argue. Seems to be the same posters, many times. Too bad the differences can't be discussed without silly attacks.
Mike M- nice points, but useless with certain individuals...I don't know why I even try with some folks on here. Not worth the time. I'll stand by the original comparisons I gave, which is about slashing taxes, and its' relationship to unemployment drops and tax revenue gain-not ice cream.
Brian- you hit on the reason why a lot of the posters from "the good old days" are no longer around much on BP and many others leave for extended periods of time....Just not worth the effort.
Too bad. Rich
Yet an examination of historical tax levels and unemployment rates reveals no obvious correlation.
"The fact of the matter is, we have much higher rates of employment today than we did in 1954, but our level of taxation is considerably higher," said Gary Burtless, a labor economist at the Brookings Institution. "You simply can't look at total taxation to find employment levels."
By Jonathan Weisman
My problem with saying that taxes and unemployment are directly related is there are too many other variables to consider. For instance, there are some situations in which unemployment would probably be low regardless of the tax rate due to so many other factors (world economy, political environment, existing industry bubbles, etc). We cannot just look at snapshots in time and say taxes are low and the economy so is unemployment, that must be why. We have to take the time to go beyond that elementary research and look at the hundreds of other factors that could be contributing to low unemployment.
Rich: You list 3 examples that are approx 8 years a piece. If we look at these 8 year periods in which unemployment drastically changed, could we not name dozens of events, variables and reasons that contributed to the drop in unemployment? I am not saying you are wrong, I am just pointing out the fact that we need to really exam those periods of time to attempt to determine if lower taxes were indeed the primary reason for the improvement in unemployment.
Rich -
Without attacking, let me explain to you what the issue is here...
You presented a hypothesis that, on the surface, seems like it would make sense and be supportable based on common sense. But, there is a whole discipline of mathematics that deals with determining whether those things that seem to make sense really do, as our common sense often fails us (without complex math, common sense would still tell us that the sun revolves around the earth!).
Mike had a great example when he said, "...if you want to be tall, become an NBA player. After all, the average height of an NBA player is around 6 feet 8 inches."
To someone who doesn't understand the relationship between height and basketball (imagine an alien that came down to earth and saw the sport), that statement that Mike made actually makes perfect common sense; there are hundreds of data points to associate height and basketball players, so if you don't know any better, it's reasonable to assume that if you play basketball, you'll be tall!
But, of course, it's not true when you have a detailed understanding of what's going on; and more importantly, you don't need that understanding if you can do the math! You can do a mathematical analysis to determine which way the correlation goes and whether there is a causal effect.
You did the same thing with the taxes/unemployment correlation. On the surface, it seems to make perfect sense that there is a causation, or at least a serious correlation. But, mathematically, there's not enough data to say whether it's true or not.
Mike made the same mistake when he essentially said, "Taxes are high in California and so is unemployment, so they must be related." You know, California has the most earth quakes and also has the highest unemployment...why can't we assume that the number of earth quakes impacts the unemployment level? For someone who doesn't know any different, it makes JUST AS MUCH sense.
It boils down to the fact that if figuring out complex correlations and causation was a matter of just common sense, we wouldn't care if our economists had PhDs or dropped out in seventh grade. But, if Obama appointed a seventh-grade dropout to a major economic post with the reasoning, "He has good common sense," you'd likely be appalled, would you not?
I agree that correlation does not equal causation, but taxes certainly do matter. I hear about companies fleeing California and locating to Austin almost weekly because they are escaping the economic mess and high taxation out there.
J Scott, since I live in California now, I get to hear lots of California news. When I hear a Business Owner say that he is moving his business out of California, along with it's jobs, due to high taxes, how much more of a correlation do you want? I am talking about businesses with thousands of employees. Yes, there are a myriad of factors affecting unemployment, but TAXES are one of them. Logic dictates that if a business pays lower taxes, they can higher more people, and vice versa. Or they can pay higher dividends, do more R&D, expand, etc.... Alan Keynes was wrong.
Ugh. Please read what I'm writing instead of just arguing.
I never, ever said there wasn't a correlation between the two. In fact, let me quote myself from above:
"I never said there wasn't a correlation. There's clearly a correlation..."
Instead of just arguing, consider actually reading what I've written. You may find that I'm completely agreeing with you.
By the way, like we've already discussed in this thread, there's also a correlation between basketball players and height; and there's a correlation between ice cream and swimming pool deaths. Correlation doesn't always define an interesting or meaningful relationship.
This is why I don't disagree that there is a correlation between taxes and unemployment, but I also don't consider it very interesting or meaningful without more data (just like the ice cream and swimming pools).
Now , what I DID SAY is that there isn't any evidence (at least not presented here) that indicates a CAUSATIVE RELATIONSHIP between the two.
For anyone who doesn't know the difference between correlation and causation, I can see why what I'm saying is going right over their heads. But, the distinction is important enough that I would suggest everyone who doesn't know the difference (and the relationship) spend some time learning.
Here's another good read:
http://stats.org/in_depth/faq/causation_correlation.htm
Once you understand that causation has a VERY SPECIFIC mathematical definition, you'll start to see why three random examples from Rich and one from you doesn't prove anything.
In fact, when the most educated, experienced and respected economists in the country don't necessarily agree that there is a causative affect between taxes and unemployment, Rich's three examples and your one example aren't going to prove otherwise...regardless of how much you guys thinks you've "proven" it.
J Scott
I guess you are going a different direction in your thinking that Rich was and a different direction than I was. You were looking for proof of causation beyond the obvious correlation. Beyond the anecdotal evidence given regarding the state of California, causation in a complex economic system can be difficult, if not impossible, to obtain. Here is a direct quote from the article you linked,
Questions such as, "Did the Government's TARP money help or hurt the economy?" Both sides have been argued heavily. Or, "Did the government's bail out of companies help or hurt?" Again, both sides have been argued heavily.
Here is something that I find totally absurd. Chrysler released a Press Release that they had paid back there loan from the Federal Government. Fact is, they borrow the amount elsewhere and paid it off. That is like me bragging I totally paid off my mortgage when if fact, all I did was refinance. So why didn't Chrysler borrow the money from other sources to begin with? Why did the Federal Government interfere?
So while you argue, J, that there was no causation presented in the OP post, did you actually answer the original question, "should taxes be raised or lowered?"? I do know this, if my taxes are lowered, I will have more money to spend, given that I have the same income. How about that for "causation?"
J, I know you like to debate and I enjoy the debate with you. But sometimes we need to just answer a simple question. So what is your thought on "Should taxes (Federal Income Tax Rates) be raised or lowered, both at the individual level and the corporate level?"
I know Rich Weese is 100% against Income Tax, which is fine as his belief. I am not against Income Tax, per se, but I am against the current Income Tax Structure. Giving money to the government is like giving money to a church, it is hardly ever handled correctly, morally or ethically.
If you really want to "raise taxes" you need to:
1. Drastically simplify the tax code
2. Eliminate all of the games where people can mask income
3. Tax EVERYONE...everybody uses gov-mint services and everyone should pay
At the same time we need to cut out a lot of waste. I worked in the defense industry for almost a decade on some of the most advanced weapons systems we have and I can tell you that there are EXTREME amounts of waste. We can also eliminate many programs not needed.
We need BOTH cuts and "revenue" increases to fix the problem. Having a tax system that encourages hiring in our country would immediately raise A LOT of new taxes because the people that aren't working would now have income to tax.
That's all I was saying. There are lots of causal relationships in this world that are absolutely uninteresting and/or meaningless, and the taxes/unemployment relationship *MAY* be one of them, just like the relationship between height and basketball players (and ice cream/swimming pool deaths) is a correlation, but they're meaningless in helping to extrapolate anything else.
Without more information, there is no way to know if the taxes/unemployment correlation involves a causative effect (lower taxes causes lower unemployment) or if the relationship is just a coincidence (or based on other more important factors).
This is something that's being discussed on another thread, but in general, I believe we need to do two things:
1. Balance the Budget
2. Raise Taxes
#1 would require majorly slashing discretionary spending (defense, entitlements, etc) and changing the laws to slash mandatory spending (SS, medicare, etc), and would suck for a lot of people...but oh well...it's a sacrifice for the good of the nation.
In general, I'm against #2, but think it needs to be done solely based on the situation our politicians have gotten us into over the past 30 years.
And I'm NOT in favor of doing #2 if we don't do #1...you either do both or neither (and if you do neither, we need accept that we're screwed long-term).
Btw, if we can do #1 and then:
1. Reinstate the Bush Tax Cuts
2. Remove the major corporate tax loopholes
this country will be out of debt in 10 years.
It's a MAJOR sacrifice that most probably aren't willing to make, but it's a sacrifice I'm certainly willing to make (and reinstating the Bush Tax Cuts would affect me) if it means providing a debt-free country for my kids.