Silent majority fed up with Washington

[CBWx2]

Doesn't make sense to hire more and expand if business is flat regardless of the tax rate. What you are saying is if a restaurateur's tables are only ever 70% full, he will hire more cooks and waiters and add more tables if his taxes go from 35% to 70%??

It may not make sense for him to hire more, but it would make sense for him to lower his tax bracket by taking home less and use the additional revenue that creates to improve his restaurant and to increase pay or benefits to his existing employees.

In the above scenario, business is flat.  His tax bracket already is lowering, so there is no additional revenue to improve his restaurant or pay his employees more wages or benefits.

The additional revenue is created by him taking home less of the profits in order to lower his tax bracket. The money that he does not claim in taxes is additional revenue to spend on his business. Perhaps the word "revenue" threw you off. Capital might have been a better one to use.

And just to add, if his business is so flat that he's not in a higher tax bracket, then raising the top income tax rate isn't going to affect him, is it? This only applies to businesses that are profitable enough to place it's owners in that bracket. Don't know how you could have missed that.

[Chief Joseph]

Eliminating all those incredibly stupid ethanol subsidies would increase tax revenue, and LOWER FOOD COSTS. There are thousands of stupid and outdated subsidies that could be eliminated and would help the debt situation without raising tax rates.

The people who benefit from those "stupid and outdated" subsidies keep that cash cow alive by using a portion of their profits to hire lobbyists - and financing the reelection of the officials who keep those subsidies in place; a flaw in the system that allows it to be exploited.

[Biggs3535]

Doesn't make sense to hire more and expand if business is flat regardless of the tax rate. What you are saying is if a restaurateur's tables are only ever 70% full, he will hire more cooks and waiters and add more tables if his taxes go from 35% to 70%??

It may not make sense for him to hire more, but it would make sense for him to lower his tax bracket by taking home less and use the additional revenue that creates to improve his restaurant and to increase pay or benefits to his existing employees.

In the above scenario, business is flat.  His tax bracket already is lowering, so there is no additional revenue to improve his restaurant or pay his employees more wages or benefits.

The additional revenue is created by him taking home less of the profits in order to lower his tax bracket. The money that he does not claim in taxes is additional revenue to spend on his business. Perhaps the word "revenue" threw you off. Capital might have been a better one to use.

You're aren't following along.

The restaurant in the example is already operating at 70%.  The revenue and/or capital of the restaurant/owner has already lowered by the drop in business.  The owner is already taking home less because the business is flat.  He's not going to take home even less just to give him employees a raise.  Like JG? said, your scenarios are applicable in the real world.

[CBWx2]

Eliminating all those incredibly stupid ethanol subsidies would increase tax revenue, and LOWER FOOD COSTS. There are thousands of stupid and outdated subsidies that could be eliminated and would help the debt situation without raising tax rates.

The people who benefit from those "stupid and outdated" subsidies keep that cash cow alive by using a portion of their profits to hire lobbyists - and financing the reelection of the officials who keep those subsidies in place; a flaw in the system that allows it to be exploited.

Exactly.

[CBWx2]

You're aren't following along.

The restaurant in the example is already operating at 70%.  The revenue and/or capital of the restaurant/owner has already lowered by the drop in business.  The owner is already taking home less because the business is flat.  He's not going to take home even less just to give him employees a raise.  Like JG? said, your scenarios are applicable in the real world.

He will if it's either that or give it to Uncle Sam. That's the entire point here. If his take home income places him in the top bracket, it doesn't matter at what level his restaurant is operating at. That is all irrelevant. What matters is how much taxable income he is taking home.

If taking home $250,000 dollars in restaurant profits places him in a 70% tax bracket, which means after taxes, his take home income is actually $75,000, then there really isn't any incentive to take home $250,000 because you are only going to keep $75,000 of it. It makes more sense to just take home $170,000 and place yourself in the 28% income tax bracket because you are actually taking home more after taxes that way. So that leaves you with $80,000 that you have to do something with.

You can't claim it as income, so you might as well spend it on either improving your business, which places that money in the hands of outside vendors, or by increasing employee pay, which places that money in the hands of people who are more likely to spend it rather than stash it away somewhere. These things increase demand.

[spartan]

CBW, is anything you have just said backed up by any kind of study/theory?.

Your Dentist is going to hire a Hygienist only if he thinks he has the work for him/her to do. If he does't, he isn't going to hire one, regardless of his taxes. Also, no employer is going to cut his wages and pay his employees more because his taxes go up. He is more likely to cut his employees and increase his wages to make up for the lost income. You logic sounds great on paper IMO, but is in reality very naive to put it mildly. I am not rich but I do have the luxury of paying someone to do my yard and clean my house. I also send my kids to Private School. If my taxes go up to the degree that I have to choose, guess who is going to get it in the neck? My kids or the people I hire?

[spartan]

You're aren't following along.

The restaurant in the example is already operating at 70%.  The revenue and/or capital of the restaurant/owner has already lowered by the drop in business.  The owner is already taking home less because the business is flat.  He's not going to take home even less just to give him employees a raise.  Like JG? said, your scenarios are applicable in the real world.

He will if it's either that or give it to Uncle Sam. That's the entire point here. If his take home income places him in the top bracket, it doesn't matter at what level his restaurant is operating at. That is all irrelevant. What matters is how much taxable income he is taking home.

If taking home $250,000 dollars in restaurant profits places him in a 70% tax bracket, which means after taxes, his take home income is actually $75,000, then there really isn't any incentive to take home $250,000 because you are only going to keep $75,000 of it. It makes more sense to just take home $170,000 and place yourself in the 28% income tax bracket because you are actually taking home more after taxes that way. So that leaves you with $80,000 that you have to do something with.

You can't claim it as income, so you might as well spend it on either improving your business, which places that money in the hands of outside vendors, or by increasing employee pay, which places that money in the hands of people who are more likely to spend it rather than stash it away somewhere. These things increase demand.

This sounds flawed. It sounds like you are implying that once u reach 250k all of your income is taxed at 70%. It isn't, only that which is earned above 250k. Therefore there is no way he would lose that 80k.

[CBWx2]

CBW, is anything you have just said backed up by any kind of study/theory?.

It's just common sense, spartan. If you owned a business in 1980, you were far less likely to cut yourself a fat check than you were in 1986, because in 1980 you wouldn't have been able to keep it all.

Your Dentist is going to hire a Hygienist only if he thinks he has the work for him/her to do. If he does't, he isn't going to hire one, regardless of his taxes. Also, no employer is going to cut his wages and pay his employees more because his taxes go up. He is more likely to cut his employees and increase his wages to make up for the lost income.

He's not going to fire people to increase his income, because increasing his income places him in a higher tax bracket. That's the whole point. He makes more money staying at a lower tax bracket. So by not keeping the profits that place him at a higher bracket, he's actually bringing home more money, and that leaves more money to reinvest into his business. Thus, hiring an extra hygienist is no skin off of his teeth.

By having a lower taxes on top earners, there is no incentive to take home less and keep more in the business. By having higher taxes on top earners, there is more incentive to take home less and keep more in the business.

[CBWx2]

You're aren't following along.

The restaurant in the example is already operating at 70%.  The revenue and/or capital of the restaurant/owner has already lowered by the drop in business.  The owner is already taking home less because the business is flat.  He's not going to take home even less just to give him employees a raise.  Like JG? said, your scenarios are applicable in the real world.

He will if it's either that or give it to Uncle Sam. That's the entire point here. If his take home income places him in the top bracket, it doesn't matter at what level his restaurant is operating at. That is all irrelevant. What matters is how much taxable income he is taking home.

If taking home $250,000 dollars in restaurant profits places him in a 70% tax bracket, which means after taxes, his take home income is actually $75,000, then there really isn't any incentive to take home $250,000 because you are only going to keep $75,000 of it. It makes more sense to just take home $170,000 and place yourself in the 28% income tax bracket because you are actually taking home more after taxes that way. So that leaves you with $80,000 that you have to do something with.

You can't claim it as income, so you might as well spend it on either improving your business, which places that money in the hands of outside vendors, or by increasing employee pay, which places that money in the hands of people who are more likely to spend it rather than stash it away somewhere. These things increase demand.

This sounds flawed. It sounds like you are implying that once u reach 250k all of your income is taxed at 70%. It isn't, only that which is earned above 250k. Therefore there is no way he would lose that 80k.

I only used those figures to simplify my analysis. Whatever the floor of the top rate is, that's the ceiling of what a small business owner is going to be likely to take out of the business. If the rate is $250k or less, than any profits made above that mark are less likely to be pocketed and more likely to be re-invested.

[Biggs3535]

You're aren't following along.

The restaurant in the example is already operating at 70%.  The revenue and/or capital of the restaurant/owner has already lowered by the drop in business.  The owner is already taking home less because the business is flat.  He's not going to take home even less just to give him employees a raise.  Like JG? said, your scenarios are applicable in the real world.

He will if it's either that or give it to Uncle Sam. That's the entire point here. If his take home income places him in the top bracket, it doesn't matter at what level his restaurant is operating at. That is all irrelevant. What matters is how much taxable income he is taking home.

If taking home $250,000 dollars in restaurant profits places him in a 70% tax bracket, which means after taxes, his take home income is actually $75,000, then there really isn't any incentive to take home $250,000 because you are only going to keep $75,000 of it. It makes more sense to just take home $170,000 and place yourself in the 28% income tax bracket because you are actually taking home more after taxes that way. So that leaves you with $80,000 that you have to do something with.

You can't claim it as income, so you might as well spend it on either improving your business, which places that money in the hands of outside vendors, or by increasing employee pay, which places that money in the hands of people who are more likely to spend it rather than stash it away somewhere. These things increase demand.

This sounds flawed..

That's putting it mildly.

His examples aren't applicable to the real business world that is being discussed.

[spartan]

I only used those figures to simplify my analysis. Whatever the floor of the top rate is, that's the ceiling of what a small business owner is going to be likely to take out of the business. If the rate is $250k or less, than any profits made above that mark are less likely to be pocketed and more likely to be re-invested.

So your theory is that if you draconianly punish successful and good behavior, people will continue with that behavior purely for the benefit of others?

[CBWx2]

You're aren't following along.

The restaurant in the example is already operating at 70%.  The revenue and/or capital of the restaurant/owner has already lowered by the drop in business.  The owner is already taking home less because the business is flat.  He's not going to take home even less just to give him employees a raise.  Like JG? said, your scenarios are applicable in the real world.

He will if it's either that or give it to Uncle Sam. That's the entire point here. If his take home income places him in the top bracket, it doesn't matter at what level his restaurant is operating at. That is all irrelevant. What matters is how much taxable income he is taking home.

If taking home $250,000 dollars in restaurant profits places him in a 70% tax bracket, which means after taxes, his take home income is actually $75,000, then there really isn't any incentive to take home $250,000 because you are only going to keep $75,000 of it. It makes more sense to just take home $170,000 and place yourself in the 28% income tax bracket because you are actually taking home more after taxes that way. So that leaves you with $80,000 that you have to do something with.

You can't claim it as income, so you might as well spend it on either improving your business, which places that money in the hands of outside vendors, or by increasing employee pay, which places that money in the hands of people who are more likely to spend it rather than stash it away somewhere. These things increase demand.

This sounds flawed..

That's putting it mildly.

His examples aren't applicable to the real business world that is being discussed.

Have low top end tax rates created jobs? How about some real world evidence of that?

[CBWx2]

I only used those figures to simplify my analysis. Whatever the floor of the top rate is, that's the ceiling of what a small business owner is going to be likely to take out of the business. If the rate is $250k or less, than any profits made above that mark are less likely to be pocketed and more likely to be re-invested.

So your theory is that if you draconianly punish successful and good behavior, people will continue with that behavior purely for the benefit of others?

No, they will continue with it for the benefit of themselves. There's still a lot of money to be made as a business owner, regardless of what the top rate is. We are not talking about re-inventing the wheel here, spartan. The tax rate has hovered around the high 20's (Reagan) to the high 30's (Clinton) for the last 25 years and annual job growth has been significantly lower than it was in the 25 years prior when the rate was at 70% and higher. Coincidentally, so have employee wages.

[John Galt?]

To answer your question, the higher the rate is on taxable income for the wealthy, the less likely the wealthy are to claim corporate profits as taxable income. It takes away the incentive to reward CEO's and other executives with astronomical pay, because they aren't going to be able to keep it anyway.  If the option is not there to simply distribute profits as income to be pocketed, businesses often opt to re-invest profits in their companies rather than take the money out of the company and have a huge chunk of it going to Uncle Sam. This leads to higher salaries and better benefits for existing employees. It also leads to less layoffs and more hiring, which creates a better job market. Higher salaries and employment levels for the working/consumer class means more capital being infused into the economy, and more revenues for the government.

But that generalizes that "the rich" are just Execs at publicly traded corps. The fact is most of the +$200k/yr earners are smaller business owners that invest in their business as demand dictates. Doesn't make sense to hire more and expand if business is flat regardless of the tax rate. What you are saying is if a restaurateur's tables are only ever 70% full, he will hire more cooks and waiters and add more tables if his taxes go from 35% to 70%?? Sorry doesn't fly.

If the restaurateur's income increases while his business does not, where is that increased income coming from? What that means is that he's taking money out of his restaurant, either by decreasing the salaries of his employees, the quality of his product, or by firing someone.

What increased income? I never said anything about increased income. Re-read.

The restaurant runs at a flat 70% capacity, flat means no growth. It is a single owner so no matter the ownership type (sole prop, LLC, LLP, Sub-s) the restaurants profit is HIS profit for tax purposes. At 70% capacity (say he has 30 tables and 9 are always empty but 21 turn over 4 times a nite, avg table bill is $90; 4*21*90=$7,560/nite 26 days/month=$196,560 his total profit margin is 15%=$29484 *12 months) his income is $353,808 income-rich by Obama's standards. Currently he is taxed at 36% marginally, about 27.85% avg. (taxes about $98,547) and he keeps $255,261.

Now if his tax rate increased to 70% on the top margin (everything over $171,850) and his taxes increased by $67,324, then he has $67324 less money to spend on anything-period. So why would he spend money on expanding his restaurant if that will NOT bring in any more money (because he wasn't at full capacity to begin with)? Why would he hire more?

Your logic is he would hire more/spend more because spending $10,000 will only cost him $3,000 after taxes, BUT IT STILL COSTS HIM $3000 AND RETURNS HIM NOTHING. What rational person would spend do that?

I used this calculator for the tax estimates http://www.efile.com/tax-service/tax-calculator/tax-brackets/

Let's use your example of the dentist to illustrate. The average salary for a dental hygienist is approximately $60,000 a year. If you were to raise taxes on your dentist's take home income (presumably the money he takes home from the profits of his practice after his overhead is met), and those increases were close to $60,000, he's probably going to be more inclined to pay for an additional hygienist with that money rather than claiming it as income and turning it over to the IRS. After all, why wouldn't he? He's not going to be keeping it anyway, so he might as well spend it rather than fork it over to Uncle Sam.

Again, that logic only works if you increase the taxes to 100%. If the tax rate is 80% his choice is not pay a hygienist and keep $12,000 after taxes or pay a hygienist $60k and keep NOTHING.

Now the real world example is: Dentist makes $300k and pays $80,791 in taxes, the dentist's biz has grown to a point where if he hires another DH at $60k, she can service an additional X customers which will generate an additional $80k in Revs., $20k net to him. At a 33% marginal rate, he keeps $13,400 which is a 22.33% ROI on the salary, better than any other investment.
Now if the marginal rate goes to 70% and his taxes go up $41,715, now if he hires the DH, his $30k return is only $6,000 after taxes which is a ROI of 10%. To hire a new DH means he spends time interviewing, training, tons of extra paperwork, and for a 10% return it is just not worth it. Also, at 33% and $80,791 in taxes he could easily afford risking $10k-$15k-$20k on a new DH even if she didn't work out and he had to let her go after 2-3-4 months, but NOW he has to pay an extra $47K in taxes and that extra risk capital is GONE.

A rational person will risk $10k (2 months wages for a DH) if there is a better than 50% chance at making $13,400. But if the return is only $6,000 the risk and effort outweigh the rewards.

[John Galt?]

Doesn't make sense to hire more and expand if business is flat regardless of the tax rate. What you are saying is if a restaurateur's tables are only ever 70% full, he will hire more cooks and waiters and add more tables if his taxes go from 35% to 70%??

It may not make sense for him to hire more, but it would make sense for him to lower his tax bracket by taking home less and use the additional revenue that creates to improve his restaurant and to increase pay or benefits to his existing employees. These things are beneficial to the "real" economy, and they are what conservatives say a lower tax rate is supposed to achieve anyway. That's the whole premise of trickle down economics, but with trickle down economics, the money never actually trickles down. A high top income tax rate pretty much guarantees that it does.

How does that "make sense"?

Restaurateur makes $300k before taxes. Pay currently 33% of everything over $171,850. So he keeps $85,860.50 of the $128,150 in that highest bracket. Tax rate rises to 70%, now he keeps only $38,445. If he spends $129,000 on the restaurant so that his income is now $171k, then he keeps ZERO of the amount over $171,850. So you are saying he would SPEND $129,000 rather than spend zero and still have an EXTRA $38,445???

Total taxes at $171k=$39,198 leaving after tax income of $131,802
Total taxes if 70% rate on top tier at $300k=$128,903 leaving after tax income of $171,097

Therefore if he doesn't spend more to lower his braket he takes home $171,097, if he spends $129,000 he takes home $131,802. You are telling me that $131,802 >$171,097???