To be fair, whether a corporation's extra earnings are directly re-invested or paid out to shareholders/owners who then turn around and re-invest it in other businesses, it doesn't change the fact that it is re-invested. People with money don't just sit on it and stick it in a bank account hiding it away. They're greedy and always want more of it so they re-invest some of it to earn them more.
1. Yes, but it's a cycle. Spring comes before Summer comes before Fall comes before Winter comes before Spring. This is why gbaji saying you have to start at Summer to get to Winter is ridiculous. It's a cycle, eventually you will loop through the process regardless of where you start.
If you give wealthy individuals more money, a certain percentage will go to personal consumption, and a certain percentage will go to investment. With that investment a certain percentage may flow into more job creation or higher wages, which gives poor people money to split into a certain percentage of personal consumption and investment. That is all through.
What is false is that you have to start at a particular point in the cycle. Business revenue doesn't spawn out of thin air, it comes from consumers. You can start with poor people i nthe cycle as well.
That's not the point. I'm not claiming you have to start at a particular point in the cycle. What you're missing in your analogy is that taxes aren't part of the cycle. They are a drain on it. It doesn't matter at what point in the cycle taxes are applied, they take away from it, and slow down economic growth as a result, which negatively affects everyone in the cycle
Reducing taxes reduces that negative effect. That's it. Doesn't matter where it happens. Here's the thing though, the vast majority of taxes are paid by the "top 10%" (or however you want to measure things). It's not about a starting point in the cycle, but that any significant reduction of the tax burden on the entire cycle will always appear to "start" with the wealthiest becuase they're the ones paying the lion's share of the taxes.
We could reduce the total tax burden of the bottom 50% of the population to zero, and not have much of an effect on anything, simply because that 50% only pays 2.75% of all income taxes. You're mistake is even thinking of this in terms of "where in the cycle" the tax cuts are occurring. As you pointed out, it's a cycle. It doesn't matter "where" the drain is reduced. But any decent sized reduction in total tax burden will always appear to "start" at the rich. The top 1%, in contrast, pay nearly 40% of the total tax burden. So yeah, it's always going to look like they're getting a better deal out of *any* tax cut.
A $600/year tax burden reduction is far far more significant to a person earning $50k/year than a $100k/year reduction to a person earning $5m/year. Because the latter person is almost certainly not living on anywhere near 100% of his earnings. Probably not living on more than maybe 10% of those earnings, with the rest being invested in some way. He's already calculated how much he needs to maintain his (high) standard of living, with the remaining several million going into investments. The $100k/year decrease just increases the amount he invests. It doesn't affect his lifestyle one bit. The former person? 600 bucks, while tiny in comparison, is the difference between being able to get your car repaired, or fix the water heater, or pay of the credit card at the end of the month, versus slipping behind on payments for things because you aren't quite making enough to get by.
Relative impact to the person kinda matters, but unless we dip into tax credit territory (which is another word for government welfare), you can only reduce tax burden relative to the existing tax burden. Which is already quite small for the "poor" side of the cycle.
Give poor people more money and a certain percentage will go to personal consumption and a certain percentage to investment. That personal consumption flows towards wealthier individuals who own companies who then have more money and a certain percentage will go to personal consumption and a certain percentage will go to investment... etc.
Correct. Again though, how do you "give poor people more money"? I happen to think that increased employment opportunities is a var better way to go then direct money transfers to poor people. The former helps people move out of poverty *and* grows the economy (cause they're producing more economic value than they are consuming). The latter just costs us all money. I've done this math on the forum before. If we assume that X dollars of consumption (or investment for that matter) has the exact same macro economic effect regardless of how the person obtained the money, then the key difference is that in the employment model, the worker produced something of economic value, thus adding to the size of the pie. In the latter case, he did not.
Targeted tax cuts for the poor or wealthy don't affect whether or not the cycle occurs, but what they do affect is the timing and allocation of funds throughout the system. The water cycle still occurs whether it is winter or summer, but events like climate change shift the overall balance of how much water is locked up in ice versus how much is liquid or vapor.
I'm not sure what point you're trying to make here. Again, it's not about the people being "targeted", but where the money is currently (or, more accurately, where the money is currently coming from, which is "the rich", not "the poor"). It's not about picking between people. Again, I think it's your choice to view it that way, but I don't think it's an accurate model to use here.
2. He is privileging some types of money over others. The wealthy don't only invest and the poor don't only consume. A large number of non-extremely wealthy individuals have some sort of investment (say their retirement savings). While this is likely a smaller and more diffuse ownership percentage in a given company than the investment class of Americans, it's no less real. My $5 dollars of Microsoft stock is just as good as Bill Gates' $5 of Microsoft stock, he just has more of it. (Please ignore that yes there are different classes of stock).
Again. Irrelevant to tax cut plans. If the objective is to increase economic growth, then you have to reduce the drain on that economic growth. That means you take less money from the cycle. Period. Doing so in anything remotely close to an even manner will always result in vastly more "tax cuts" for the rich simply because they currently pay the vast majority of the taxes. You're basically complaining about a mirage that doesn't matter one bit.
It's like having a leaky hose. Where do you apply patches? Where the water is leaking out, right? You'd be insane to approach it any other way. This is no different. If you want to decrease the economic drain of taxes on the entire system, you have to do that where the most economic drain is. Trying to apply some kind of "this person versus that person" logic to this is a mistake IMO.
I'm not making any sort of valuation of the people, or the degree to which their money spends/invests. That's totally not the issue. My point is that reducing the tax burden on the system will spur economic growth. Period. And that benefits everyone. Edited, Dec 8th 2017 7:31pm by gbaji