US Presidential Candidates

gcomeau wrote:

PeterZ wrote:
Not an apples to apples comparison, my friend. Throughout the 1950's the rest of the world had just completed rebuilding their decimated industries from WWII. The US manufacturing sector still had a massive advantage in production of just about everything. The US could have passed along higher costs and still managed to sell a sh**load to the rest of the world.

Try that now, and everyone will clean out clocks. We no longer have any serious advantage in almost any industry. Even our pharma industry gets hammered as other nations refuse to pay for the full R&D costs of our medicines. Higher taxes will mean higher prices which lead to lower sales of products produced domestically and sales of exports.

Please, do walk me through how higher top marginal *income tax* rates translate into higher product prices. I'm all ears.

Step 1. Taxes increase on corporate income because of fewer loopholes. 1955 corp rate was 52%, but still had loopholes. Increased corporate taxes and income taxes means corporations have less income and pass through entities taxed at the individual rate see a very large increase.


Step 2. Company raises prices to increase return to shareholders and owners of pass through entities increase prices to offset their lost income

Step 3. Reminder that incomes haven't increased for the vast majority of US taxpayers

Step 4. US Buyers see higher prices for domestic goods. Imported goods may remain constant if the foreign exporter is taxed abroad. Domestic exporters have to increase prices for the product they ship abroad.

Step 5. Us goods become more expensive relative to imported foreign goods

biochem wrote:Or we could just quit worrying about loopholes, dodges etc and just put in a flat tax (with a floor)

My preference has always been a sales tax collected by the states, not the IRS.

PeterZ wrote:

gcomeau wrote:Please, do walk me through how higher top marginal *income tax* rates translate into higher product prices. I'm all ears.

Step 1. Taxes increase on corporate income because of fewer loopholes. 1955 corp rate was 52%, but still had loopholes. Increased corporate taxes and income taxes means corporations have less income and pass through entities taxed at the individual rate see a very large increase.


Step 2. Company raises prices to increase return to shareholders and owners of pass through entities increase prices to offset their lost income

And stop.


You just said one post ago (and say it again further down this post) that increasing prices would tank their competitiveness and destroy their profits. I believe your exact words were that they would get their clocks cleaned if this happened.

So explain why they're doing it here in step 2 if that claim was true... because getting their clocks cleaned is not a path to higher shareholder return.

Do they not know that? Do they need you to go tell that to them maybe so they can make better decisions?


Or...... is one of the two claims you made wrong?

biochem wrote:Or we could just quit worrying about loopholes, dodges etc and just put in a flat tax (with a floor)

Because that has worked SO well when anyone got even close to trying it... Not.

gcomeau wrote:

PeterZ wrote:
Step 1. Taxes increase on corporate income because of fewer loopholes. 1955 corp rate was 52%, but still had loopholes. Increased corporate taxes and income taxes means corporations have less income and pass through entities taxed at the individual rate see a very large increase.


Step 2. Company raises prices to increase return to shareholders and owners of pass through entities increase prices to offset their lost income

And stop.


You just said one post ago (and say it again further down this post) that increasing prices would tank their competitiveness and destroy their profits. I believe your exact words were that they would get their clocks cleaned if this happened.

So explain why they're doing it here in step 2 if that claim was true... because getting their clocks cleaned is not a path to higher shareholder return.

Do they not know that? Do they need you to go tell that to them maybe so they can make better decisions?


Or...... is one of the two claims you made wrong?

Whether they raise prices or not, their incomes fall because taxes are raised. Raising prices will lower unit sales, but will make each unit more profitable on a pre-tax basis. They cut production to support the level of demand at the new price level. Odds are that they reduce jobs and other resources not needed to support the lower production levels. This way they may mitigate the degree of income loss by other costs savings to support the lower production level.

If the production levels are not changed, then each dollar lost to increased taxes hit income on a 1:1 basis. Reducing production allows the loss to be possibly slightly more favorable. Of course, the situation may preclude mitigating the loss income and then production wouldn't be reduced. Those situations are much more rare than ones where losses can be mitigated.

This has the effect of reducing aggregate supply in the US. Foreign exporters (importing to the US) do not work under these constraints. They can ship the same amount if not more goods into the US. Ceteris paribus the foreign company sells more goods to the US consumers at the same prices they have always sold their goods and the US sells less goods at the new price that optimizes their income.

Clocks will be getting cleaned. Just how cleaned depends on the degree that management can mitigate lost revenue and the degree of the tax increase.

Apologies for not being as explicit as you asked me to be.

PeterZ wrote:

gcomeau wrote:And stop.


You just said one post ago (and say it again further down this post) that increasing prices would tank their competitiveness and destroy their profits. I believe your exact words were that they would get their clocks cleaned if this happened.

So explain why they're doing it here in step 2 if that claim was true... because getting their clocks cleaned is not a path to higher shareholder return.

Do they not know that? Do they need you to go tell that to them maybe so they can make better decisions?


Or...... is one of the two claims you made wrong?

Whether they raise prices or not, their incomes fall because taxes are raised.

Yes, of course. So taxes have raised, their incomes have fallen. As intended.

NOW... from that point why are they raising prices if that is going to hurt their competitiveness and *further* drop their income Peter?

Raising prices will lower unit sales, but will make each unit more profitable on a pre-tax basis.

A situation that their marginal income tax rate has exactly ZERO impact on. So if they are not at the most profitable price point after the tax change, then they also were not at the most profitable price point BEFORE the tax change. So why exactly would they not have already raised the price in order to maximize their profits whether the tax rate changed or not???


The answer of course is that they already definitely would have raised the price, tax rate change or no, if it was more profitable to raise the price. Everything you are saying here has absolutely nothing to do with what the top marginal income tax rates are. Zip.

I was being a little silly

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PeterZ wrote:

biochem wrote:Or we could just quit worrying about loopholes, dodges etc and just put in a flat tax (with a floor)

My preference has always been a sales tax collected by the states, not the IRS.

Both.
Though I also favour a federal IRS that collects all the taxes and hands the states portions back.
Of course that complicates things slightly with them having to look at 51 sets of state sales taxes, but then I also favour a flat consumption(?) tax too.
(Same sales tax on everything sold at the retail point)

2 levels of IRS seems wasteful.

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biochem wrote:Or we could just quit worrying about loopholes, dodges etc and just put in a flat tax (with a floor)

Flat taxes ruin the poor.

"Flat taxes with a floor" aren't flat taxes they are progressive taxes with two tiers of progression. Which practically speaking are no different from progressive taxes with 3 or 4 or 10 tiers of progression and has nothing to do with whether there are loopholes or not. You can pass a loophole in a flat tax exactly as easily as you can pass a loophole in a progressive tax.


If you want to get rid of loopholes close the loopholes, but that has nothing to do with the degree of flatness or progressiveness of the tax structure.

The problem is that the tax system does two things: influence economic behavior and raise revenue for the government. The extent to which either result is intentional varies but, as with a great deal of government activity, administrations usually want to do both at the same time. This means they want an activity to continue in order to derive income from it at the same time that they discourage it. Loopholes are just a means of trying to tailor specific behaviors or activities out of the repressive effect while keeping a larger set for taxation.