Increasing income taxes 67% helps with the debt?

[rushmc 23]

Not in this case

http://chicago.cbslocal.com/2012/01/19/topinka-illinois-unpaid-bill-crisis-just-keeps-getting-worse/

The debt just got bigger

"America will never be destroyed from the outside,
if we falter and lose our freedoms,
it will be because we destroyed ourselves."
Abraham Lincoln

[rhaig 0]

after listening to opinions here, and discussing the issue over beer with local friends, I've come to the conclusion that lowering middle class taxes slightly will result in more spending, having a direct effect on the economy. Also raising corporate tax and high income rate (300000+? not sure of the number) will encourage re-investment in business instead of profit taking and have secondary positive impact on economy (have heard it called a reflected spending effect). However, without some tax reform, the second will be essentially useless as there are plenty of ways around it.

Also, the only way to get towards a balanced budget is to reduce spending while doing all of the above.

Those of you smarter than me on econ, please offer up other ideas.

--
Rob

[beowulf 1]

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Also raising corporate tax and high income rate (300000+? not sure of the number) will encourage re-investment in business instead of profit taking and have secondary positive impact on economy (have heard it called a reflected spending effect).

What percentage of taxes is enough?

When you raise taxes on a business it gets directly transfered to the consumer. That's the way businesses work.

[pirana 0]

Fairly good high level summation. We need more private spending & investment, less government spending, and less waste all around. How that is accomplished is where all the nasty politics kicks in.

The wild card that really upset the applecart is how poorly positioned we were to compete in a labor market gone global. It is why, despite every candidates refusal to admit it, the level of recovery we can expect to achieve will be measured in decades - not years.

" . . . the lust for power can be just as completely satisfied by suggesting people into loving their servitude as by flogging them and kicking them into obedience." -- Aldous Huxley

[rhaig 0]

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What percentage of taxes is enough?
[/reply[
yeah... I don't know that answer. depends on how much you can reduce taxes for the middle classes so they start spending.

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When you raise taxes on a business it gets directly transfered to the consumer. That's the way businesses work.

Of course the increase for the businesses will soak up a little of that middle-class reduction through price hikes, but they can also reduce tax paid by reducing their profit through building the company or other deductions.


you want the net effect to be businesses re-investing in themselves rather than profit taking, and consumers having a little extra spending money (not a lot or they'll save it and take cashflow out of the economy).

--
Rob

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[GeorgiaDon 362]

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you want the net effect to be businesses re-investing in themselves rather than profit taking, and consumers having a little extra spending money (not a lot or they'll save it and take cashflow out of the economy).

If I recall correctly, capital gains earned when you sell your house are deferred if you use the profit to buy a more expensive house as your primary residence. That seems to be an interesting model for business income. Capital gains reinvested in the business get taxed at some lower rate (say, the current 15%). Capital gains used to buy food/a yacht/etc for personal use gets taxed as ordinary income. That way mutual funds etc will still get that tax rate that is supposed to encourage investment*, but hedge fund managers will have to pay taxes at the same rate as their secretaries on the money they take from the fund to finance their personal lifestyle.

*It would also be interesting to see some real data that supports the idea that a lower tax rate is necessary to encourage investment. My understanding is that rates of investment are no higher now than they were before the capital gains tax was reduced to 15%. The point of the reduction was to encourage business investment; that can be regarded as an experiment, and the data can be analyzed. If the experiment did not yield the desired result (increased investment) it should be considered a failure, and the rate should revert to what it was before. Of course, this does not allow for matters of political influence and leverage, where "what is fair" becomes "class envy".

Don

_____________________________________
Tolerance is the cost we must pay for our adventure in liberty. (Dworkin, 1996)
“Education is not filling a bucket, but lighting a fire.” (Yeats)

[billvon 2,997]

>Increasing income taxes 67% helps with the debt?

>Not in this case

Actually it did indeed help with the debt. The deficit in 2011 was $500 million; the increase brought in an additional $7 billion.

So while it did not solve the problem, it did reduce the potential deficit from $7500 million to $500 million. Not bad, overall.

[beowulf 1]

not sure where you got your numbers but the deficit that was stated in the article for Illinois was in the billions of dollars.

[billvon 2,997]

>not sure where you got your numbers but the deficit that was stated in the article for
>Illinois was in the billions of dollars.

You're right. The $500 million was just one part of the 2011 debt; I misread the article. The debt is actually close to $13 billion. (Which is horrific, but still better than a $20 billion debt would be.)

As with the US debt, the solution has to be to dramatically increase income and decrease expenditures. It takes both.

(link to deficit numbers - http://www.bloomberg.com/news/2011-01-03/illinois-must-plug-13-billion-deficit-in-days-that-took-years-to-produce.html

[beowulf 1]

raising taxes has already been done and at some point raising taxes is counter productive. They need to start cutting spending.

[billvon 2,997]

>raising taxes has already been done and at some point raising taxes is counter
>productive. They need to start cutting spending.

Agreed. They need to do both.

[marks2065 0]

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>raising taxes has already been done and at some point raising taxes is counter
>productive. They need to start cutting spending.

Agreed. They need to do both.

like what was said, the taxes have already gone up, it is time to reduce the spending.

[kelpdiver 2]

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You're right. The $500 million was just one part of the 2011 debt; I misread the article. The debt is actually close to $13 billion. (Which is horrific, but still better than a $20 billion debt would be.)

As with the US debt, the solution has to be to dramatically increase income and decrease expenditures. It takes both.

Well, if the deficit was $13B last year as well, and the tax increases were matched by similar increases in spending, then the tax increase was just an enabler. Not the case here, but I don't think you can just say 'it could have been worse.' You need to look at the prior year spending and deficit.

The bigger problem apparent with Illinois is that the 13B deficit represents half their budget. IOW, they're spending $2 for every $1 in revenue. California's 20B deficit was part of a $100B+ budget, a much lower ratio.

[billvon 2,997]

>Well, if the deficit was $13B last year as well, and the tax increases were matched
>by similar increases in spending, then the tax increase was just an enabler.

Agreed - and in fact in Illinois discretionary spending _was_ decreased. What got them was:

-increased pension payments (which is a non-discretionary expense)
-a lot of people not paying their tax bills
-increased debt service

At this point they're actually bringing more than they are spending, which is good news for the future - and they're planning an additional 9% cut. Those two factors combined (tax increase, spending cut) may solve the problem, providing that they can overcome the costs of servicing and then paying off the debt they've accumulated.

[charlie5 0]

They need to increase taxes AND spending.

You have to spend your way out of economic downturns, right?

The feather butts bounce off ya like raindrops hitting a battle-star when they come in too fast...kinda funny to watch. - airtwardo

[pirana 0]

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. . . the level of recovery we can expect to achieve will be measured in decades - not years.

Point of clarification; the very long recovery I forecast is for those whose primary resource is their labor. Capital was only nicked and is already recovered. Imagine that.

" . . . the lust for power can be just as completely satisfied by suggesting people into loving their servitude as by flogging them and kicking them into obedience." -- Aldous Huxley