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Taxes and fiscal cliff

Races for the Senate, U.S. House, etc. and other issues of national importance.

Re: Taxes and fiscal cliff

Postby HawkHead » Fri Nov 09, 2012 5:10 pm

Henry Vilas wrote:Conservatives complain that a small raise in the federal income tax on amounts earned above $250,000 will hinder small business growth. I ask how? If the small business owner wants his/her company to expand, I doubt if they would take much more than a quarter million in profits out of that business for personal income. Instead they would reinvest those profits in the business so it can grow.

Am I missing something here?


Yes, which makes your argument even more valid.

Reinvestment into the company with the IRS Code Section 168 and 179 depreciation rule makes reinvestment in a profitable company deductible in the year of reinvestment. So I don't have to pay taxes on it.

$500,000 profit from my business.

Scenario 1: $250,000 in W-2, $250,000 in earings. Individual tax ~$170,000
Scenarion 2: I reinvest $250,000 into my business. As their CPA I would suggest $150,000 in W-2, $100,000 in earnings. Individual tax ~ $68,000

So by reinvesting $250,000 into my business I save ~ $100,000 in taxes.
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Re: Taxes and fiscal cliff

Postby HawkHead » Fri Nov 09, 2012 5:15 pm

Henry Vilas wrote:Conservatives complain that a small raise in the federal income tax on amounts earned above $250,000 will hinder small business growth. I ask how? If the small business owner wants his/her company to expand, I doubt if they would take much more than a quarter million in profits out of that business for personal income. Instead they would reinvest those profits in the business so it can grow.

Am I missing something here?


Thier argument on the 3.6% tax increase doesn't hold water. The argument did hold water when the top tax rates were 80% or 60%.

When you made a $1,000,000 and you kept $200,000 that discourages business
When you made a $1,000,000 and you keep $614,000 instead of $650,000 that really doesn't discourage business.
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Re: Taxes and fiscal cliff

Postby Henry Vilas » Sat Nov 10, 2012 12:20 pm

The Journal Sentinel's take on the unsubstatiated conservative claim that any tax increase for the top 2% will hurt small businesses:

After President Barack Obama was re-elected, House Speaker John Boehner waited until Wednesday afternoon to say this:

"We aren't seeking to impose our will on the president. We're asking him to make good on his 'balanced' approach. A 'balanced' approach isn't balanced if it means higher tax rates on the small businesses that are key to getting our economy moving again and keeping it moving."

OK, but just who are these "small businesses"?

Under Boehner's expansive definition, they could be some of the wealthiest people in the country.

The Center on Budget and Policy Priorities reports that "of the top 400 people - who received $19.8 billion in S corporation and partnership net income in 2009 - 237 would be counted as small businesses" under this definition.
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Re: Taxes and fiscal cliff

Postby snoqueen » Sat Nov 10, 2012 1:26 pm

If you read the links in the J-Sentinel article HV posted, you'll see that the federal definition of small business is way, way larger than what you probably think of when you use the term.

Still, we need to know what Boehner means, and that appears to be somewhere near his working definition.

The other finding linked is that actual job creation is associated closely with how new a business is, more than how large it is. Here's a quote from the abstract of the article in the second J-S link;

...our main finding is that once we control for firm age there is no systematic relationship between firm size and growth. Our findings highlight the important role of business startups and young businesses in U.S. job creation. Business startups contribute substantially to both gross and net job creation.


If that's the case, maybe the Rs and the Ds can come to some sort of compromise by playing around with a definition of job creation that focuses more on new businesses than ones that have already hired their cohort of workers.

Sometimes I think the Rs -- or maybe both sides -- paint themselves into a corner with repetitive demands and announcements, and if they can be helped to appear to be focusing on something new, they can save face and move on without looking like they committed the cardinal political sin of changing their tune.
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Re: Taxes and fiscal cliff

Postby ArturoBandini » Sat Nov 10, 2012 2:13 pm

Donald wrote:I'm not afraid of the fiscal cliff. I'd love to see the rich get wiped out. If the Republicans want to play chicken, I'd just let them. One or two days of the stock market crashing would affect the hedge fund managers and super wealthy far more than a simple 3 percent increase in taxes. Go over that cliff for a week and we could wipe the rich out completely. If we're all going down, we might as well take the rich out.
So, to summarize this philosophy in one word, "Destroy!".

Although there is some element of truth to what you're saying - a large fraction of people at the bottom have zero or negative net wealth, no savings, and no real path to build those things. What do they have to lose? But destroying all productive capital because it's not distributed according to your idea of fairness is a very irresponsible thing to advocate.

btw, Ron Paul thinks we're already over the cliff, we just haven't accepted it yet. Whether you think his favored government strategy or its opposite is correct, he's probably right in any case - Congress reacts too slowly to prevent catastrophe.
We’re over the cliff. We cannot get enough people in Congress in the next 5-10 years who will do the wise things. We have to prepare for having already fallen off the fiscal cliff.
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Re: Taxes and fiscal cliff

Postby rabble » Sat Nov 10, 2012 2:24 pm

Yes, I believe we as a country have fallen, or more accurately are falling, over the fiscal cliff just as the planet has already succumbed to global warming.

As our species has done since before we walked upright, we are ignoring, denying, and reacting instead of preparing.
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Re: Taxes and fiscal cliff

Postby Huckleby » Sat Nov 10, 2012 2:39 pm

I trust that Boehner and Obama are going to work it out, they are both reasonable men who both desperately want a solution. And what is different this time is Obama is wiser from past fumbling, and the Tea Party just took it in the nuts in the election.
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Re: Taxes and fiscal cliff

Postby rabble » Sun Nov 11, 2012 9:34 am

Yeah, we can do a much better job of denying, procrastinating, and band-aid treatments of symptoms now.
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Re: Taxes and fiscal cliff

Postby Donald » Sun Nov 11, 2012 10:13 am

ArturoBandini wrote:
Donald wrote:I'm not afraid of the fiscal cliff. I'd love to see the rich get wiped out. If the Republicans want to play chicken, I'd just let them. One or two days of the stock market crashing would affect the hedge fund managers and super wealthy far more than a simple 3 percent increase in taxes. Go over that cliff for a week and we could wipe the rich out completely. If we're all going down, we might as well take the rich out.
So, to summarize this philosophy in one word, "Destroy!".

Although there is some element of truth to what you're saying - a large fraction of people at the bottom have zero or negative net wealth, no savings, and no real path to build those things. What do they have to lose? But destroying all productive capital because it's not distributed according to your idea of fairness is a very irresponsible thing to advocate.

What do people at the bottom have to lose? Nothing, because they have lost it all already. I don't look at it as "destroying productive capital." I look at it as teaching Republicans politicians and the wealthy elite a little lesson in reality. If it takes a week of them losing some of the wealth they don't put into productive endeavors, well, that's the kind of accountability they need to have.
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Re: Taxes and fiscal cliff

Postby gargantua » Sun Nov 11, 2012 12:35 pm

It must be the sequester portion of the fiscal cliff that everyone thinks will end civilzation as we know it. I say that because I do not believe the horrific claims of damage if the Bush tax cuts are allowed to expire and rates return to the levels of the Bill Clinton presidency. Remember that? Seems like the rich, and even most other people, were doing OK.

I think Obama has absolutely zero need to compromise on this. The House can either extend the Bush tax cuts for the middle class....or accept responsibility for caring so much about the 1% that they're willing to screw everybody else.

It's not like Obama's running for a 3rd term.
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Re: Taxes and fiscal cliff

Postby Stella_Guru » Sun Nov 11, 2012 1:20 pm

Donald wrote:What do people at the bottom have to lose? Nothing, because they have lost it all already. I don't look at it as "destroying productive capital." I look at it as teaching Republicans politicians and the wealthy elite a little lesson in reality. If it takes a week of them losing some of the wealth they don't put into productive endeavors, well, that's the kind of accountability they need to have.

The idea that the wealthy elite can be taught a little lesson in reality is absurd. Let a common enemy appear with a proposition like increasing their taxes and watch them weld into a cohesive, unified group boring down on the rest of us through high prices, huge profits, corruption, and betrayel of public office. Has Obama's $16 trillion in infusions from the public jam pot caused them to function as a social asset? Expect the big lie to be painted in even warmer, more sympathetic colors.
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Re: Taxes and fiscal cliff

Postby Donald » Sun Nov 11, 2012 6:37 pm

Yeah, the wealthy have a choice to make---the relatively small hit to their yearly income if their tax rate moves from 35 percent to 39 percent, or the huge hit to their accumulated wealth if the markets tank and a depression hits. It's not really a choice, but if they want to keep playing chicken, I suppose they will short the market as a hedge.
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Re: Taxes and fiscal cliff

Postby DCB » Sun Nov 11, 2012 8:11 pm

gargantua wrote:I think Obama has absolutely zero need to compromise on this.

Especially if the 'compromise' amounts to caving in to Republican demands.
David Dayen wrote:So Republicans get the same tax rates, and Democrats… no wait, Republicans ALSO get spending cuts (from a discretionary baseline that’s the lowest in 60 years) and unspecified “changes” to Medicare and Medicaid. This is a deal?
...

More than that, in economic terms, moving forward on austerity is absolutely insane. The relative lack of austerity and continued budget deficit in the United States, mostly due to gridlock, has kept the economy ahead of competitors. To the extent that there has been softness in the economy, it can be directly attributed to austerity – fiscal policy at the federal, state and local levels have actually dragged on growth since mid-2010, though not as much as it would if we let all these fiscal policies expire.


http://news.firedoglake.com/2012/11/09/ ... rationale/

Other respectable voices agree:
Paul Krugman wrote:How far should he go in accommodating the G.O.P.’s demands?

My answer is, not far at all. Mr. Obama should hang tough, declaring himself willing, if necessary, to hold his ground even at the cost of letting his opponents inflict damage on a still-shaky economy. And this is definitely no time to negotiate a “grand bargain” on the budget that snatches defeat from the jaws of victory.
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Re: Taxes and fiscal cliff

Postby ArturoBandini » Sun Nov 11, 2012 10:11 pm

Donald wrote:Yeah, the wealthy have a choice to make---the relatively small hit to their yearly income if their tax rate moves from 35 percent to 39 percent, or the huge hit to their accumulated wealth if the markets tank and a depression hits. It's not really a choice, but if they want to keep playing chicken, I suppose they will short the market as a hedge.
I think you are delusional about the magnitude of the problem. Moving top marginal rates from 35 to 39 percent would yield only a tiny fraction of the revenue needed to erase our structural deficit. What are pro-tax zealots going to do when they get their rate hike and they've solved about 5% of the problem? The spending must be reduced.

From DCB's article quote:
from a discretionary baseline that’s the lowest in 60 years
OK, how about the so-called "non-discretionary" parts of the budget? It all gets tacked onto the debt in the same way, so the difference between discretionary and non-discretionary spending makes little difference to our creditors and future taxpayers.
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Re: Taxes and fiscal cliff

Postby Donald » Sun Nov 11, 2012 11:00 pm

We have a revenue problem and a war problem, not a domestic discretionary spending problem.

Ending the Bush tax cuts for people making over $250,000 would get us about 0.5% GDP, which is a start on closing the 6% GDP deficit. But it is just a start. When the economy improves, moving the top rate to 45% moving the rates up progressively should be a priority. People need to pay for the government we need, not foist it off as debt for our children to pay.

But more could be done. Closing loopholes in the tax code would yield another 0.5% GDP. We could tax accumulated wealth above $5.0 million would get us 1% GDP. If we tighten rules on foreign income and other loopholes in the corporate code we could get another 1% GDP. Taxing fossil fuels would get another 1% GDP. Tax financial transactions to get another 1-2% GDP. There's always tax evasion to crack down on, which could garner 0.5-1% GDP. Remove the cap on FICA taxes, too.

On the spending side, health care reform should save 1.0% GDP. Ending the wars yields 1% GDP, and reforming military procurement will get us 1.5% GDP in savings.
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