Trumped up trickle down or Clintonized?

[nailer]

Originally Posted by Dondilion

But collectively what they (billionaires) do with their money?

They keep most of it. How do you think they came to be billionaires?

[Rajoo]

Originally Posted by Dondilion

But collectively what they (billionaires) do with their money?

They mostly accumulate it and get into a numbers race with other billionaires. They very seldom put it to use for the good of the society and our real estate tax loopholes (tax deferment) make this eminently possible.

[Pio1980]

Originally Posted by Rajoo

They mostly accumulate it and get into a numbers race with other billionaires. They very seldom put it to use for the good of the society and our real estate tax loopholes (tax deferment) make this eminently possible.

The Golden Rule.
Those with the gold make the rules. Thus, gold rules.

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[whell]

Originally Posted by BlueStreak

Trickle down is ridiculous because it assumes that if the wealthy have more money, they WILL use it to hire more Americans.............

Unless, of course, they made that fortune operating overseas.

Yes, that's what "trickle down" has come to mean. But Trump isn't proposing "trickle down". Trump is proposing a derivative of supply side economics.

[donquixote99]

Originally Posted by whell

Yes, that's what "trickle down" has come to mean. But Trump isn't proposing "trickle down". Trump is proposing a derivative of supply side economics.

Ah, such subtle economic genius!

[Rajoo]

Originally Posted by donquixote99

Ah, such subtle economic genius!

Wiki:
Supply-side economics is a macroeconomic theory that argues economic growth can be most effectively created by investing in capital and by lowering barriers on the production of goods and services.

Where does capital come from?
Tax breaks of course with no preconditions, so in effect a gift.

Lower trade barriers? Mexico, China here we come.

So net effect is that this is a tax payer funded permanent exportation of jobs.
Delphi Electronics comes to mind or see Mitt Romney.

[Pio1980]

Originally Posted by Rajoo

Where does capital come from?
Tax breaks of course with no preconditions, so in effect a gift.

Lower trade barriers? Mexico, China her we come.

So net effect is that this is a tax payer funded permanent exportation of jobs.
Delphi Electronics comes to mind or see Mitt Romney.

As always, follow the money.

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[whell]

Originally Posted by Rajoo

Where does capital come from?
Tax breaks of course with no preconditions, so in effect a gift.

What are you talking about?

Example: let's say I live on a piece of property that has lots of trees. I cut down a tree and make 10 baseball bats out of it. In this example, the tree is capital - specifically the wood from the tree.

If I invest in someone else's business - via direct investment or stock purchase - I am adding capital to that business.

A capital gains tax is the increase in value of the capital that may be realized when capital is sold. If my investment in the business increases in value when I sell my stock - or when my direct investment is paid back - I am subject to tax on that gain.

Capital is not sourced from a tax break. However, if the tax rate on gains are too high, there is a risk that the tax becomes a disincentive to invest. Money - capital - is then more likely to sit on the sidelines in low risk, low return instruments. Lots of cash on a corporate balance sheet can make a company appear healthy. But it's also can be a sign of a company not making R&D investments or capital improvements. On a macro scale, it can negatively impact economic growth.

Sound familiar?

[donquixote99]

Originally Posted by whell

What are you talking about?

Example: let's say I live on a piece of property that has lots of trees. I cut down a tree and make 10 baseball bats out of it. In this example, the tree is capital - specifically the wood from the tree.

If I invest in someone else's business - via direct investment or stock purchase - I am adding capital to that business.

A capital gains tax is the increase in value of the capital that may be realized when capital is sold. If my investment in the business increases in value when I sell my stock - or when my direct investment is paid back - I am subject to tax on that gain.

Capital is not sourced from a tax break. However, if the tax rate on gains are too high, there is a risk that the tax becomes a disincentive to invest. Money - capital - is then more likely to sit on the sidelines in low risk, low return instruments. Lots of cash on a corporate balance sheet can make a company appear healthy. But it's also can be a sign of a company not making R&D investments or capital improvements. On a macro scale, it can negatively impact economic growth.

Sound familiar?

The tree isn't capital. The tree is a resource. It's 'land' in the classical economics set of inputs: 'land, labor, capital.'

The capital in your example would be the equipment to cut down the tree and make it into baseball bats and transport them to market, among other things.

Capital may be created from existing inputs. For example, if you already have a blacksmith forge, you could use it to make an axe to cut down the tree. Or, capital may be the invested surplus of previous activity. For example, you might sell the blacksmith shop to get money to build the baseball bat shop, with the necessary saws and lathes and finishing equipment and so on.

Here's where the capital gains tax might bite, of course: it takes from the proceeds of the blacksmith shop sale, if there are gains. You might not have enough for the baseball bat project. Or, looking forward, you might want to sell the baseball bat shop as a stepping stone to build a plywood mill in a few years, but if the capital gains tax were too high, the numbers might not work, and you might say the heck with the whole thing and stick to blacksmithing. Lots of growth doesn't ever happen.

All this was your point, and you're probably feeling great now that I reinforced it for you so nicely. But hold on.

I've just made an argument for trouble if the capital gains tax is too high. There is also trouble if it is too low, or abolished altogether. Too low a capital gains tax incentivizes capital owners to liquidate, since the gain is untaxed, while income from operations or dividends is. This can be a drag on the economy, if the new uses of capital turn out to be less efficient that the ones that were liquidated.

In terms of our example, we're selling a known good business, the baseball bat shop, to get cash to build a plywood mill. There are risks here--the plywood business might present unforeseen difficulties. Loss to the owner, and to the economy. There's even more risk of negative growth because the new owners might not be so good at the baseball bat business.

So, the successful owner should stay with the productive baseball bat business unless there's a real quality opportunity for growth. The incentives are probably balanced best if there is the right amount of capital gains tax, to keep the analysis tax neutral between sticking with an existing income source, or liquidating it to invest in a new one.

[whell]

Originally Posted by donquixote99

The tree isn't capital. The tree is a resource. It's 'land' in the classical economics set of inputs: 'land, labor, capital.'

The capital in your example would be the equipment to cut down the tree and make it into baseball bats and transport them to market, among other things.

The tree is capital as since it can be argued that the value is increased by human labor in this example. Also in this example, the tree is the "raw material". Raw materials are capital.