President Obama Re-Elected - Page 279

On August 12 2012 13:53 Kaitlin wrote:
People should stop using the term loophole when they don't know specifically what they are talking about. There are specific reasons for particular things in the tax code, which are called "loopholes" by people who have no idea what they are talking about. If you want to complain about a loophole, explain the nature of the loophole, why it's there, and why it shouldn't be.

On August 12 2012 13:53 Kaitlin wrote:
People should stop using the term loophole when they don't know specifically what they are talking about. There are specific reasons for particular things in the tax code, which are called "loopholes" by people who have no idea what they are talking about. If you want to complain about a loophole, explain the nature of the loophole, why it's there, and why it shouldn't be.

On August 12 2012 11:53 RenSC2 wrote:

You call it common sense, but it only creates a very short term effect while hurting the future. Taxing stuff doesn't just make the money disappear. Instead, it goes to the government who then spends that money on other things. The money that the government spends puts a lot of people to work, both directly (government employees) and indirectly (doctors/nurses/receptionists/administrators who help medicare/medicaid people or entire corporate structures of private companies who have contracts with the government). Then those people all get paid and they have money to spend. Part of that money goes back into the government system as taxes and part of it goes into other businesses and people and the cycle continues.

GDP is really a measure of how well the money is flowing. If the money is constantly flowing around in and out of people's pockets, then the GDP will be high. Taxes legally force outflows. If the tax money is spent even remotely wisely by the government, it creates personal inflows. And yeah, I know our government doesn't exactly spend wisely (handing out money all over the world, paying debt to foreign debtors), but still most of the tax revenue goes back into US citizens pockets in one way or another.

So what happens as you reduce taxes? Initially, people have extra money to spend as you noted, and the extra money gets spent in a more efficient way and everything seems good (GDP goes up). However, this process has reduced the forced outflows other than basic living expenses. For someone making millions of dollars in a year, basic living expenses account for only a small fraction of his expeditures. That means that the millionaire (I use the word "millionaire", but it could actually be anyone whose income exceeds his expenses) can sit on his money. We call this "savings". While we generally think savings are a good thing because it protects a person's future, it does hurt GDP (money isn't being spent). The only way the millionaire will put that money back into the economy is if he sees an opportunity to make a return on his money (investment). Hopefully, for the sake of the economy, he makes a bad investment and loses his excess money and it goes back into the system. However, many investments are good ones, and they serve the purpose of pooling even more money in a single person's hands and out of the economic flow.

In a lower tax situation, the money slowly gets concentrated into fewer peoples hands. And while those people might want to invest that money, there's no opportunity for investment because the market's ability to buy is slowly crippled since the money is more and more concentrated. That equals one dead economy (hello recession!).

If you want a healthy economy, I'm quite convinced that you need to brutalize the very rich with taxes and keep moderate taxes for the middle class. Then just hand that money out to the poor to cover basic living expenses... you can do it through subsidized/free housing, food stamps, and free health insurance rather than actually handing out money. Or you can do it through massive public works/infrastructure projects to create jobs and consumers which increases demand and opens up opportunities for investment and allows the skilled rich to continue to be very rich despite the taxes while the less skilled rich fall back into the middle class. When you have all of this, you have massive flows of money (massive GDP) and you also have a high tax rate to take advantage of that high GDP. In turn, the government might actually be able to balance a budget or even ::gasp:: get a surplus (which should be the goal while we have such a massive deficit).

Unfortunately, this will likely never happen. Since the tax hikes would only be as permanent as whoever is in office, there'd always be uncertainty. If someone did come in and raise taxes, the rich would sit on their money and complain about how it destroyed the economy (while they destroy the economy by sitting on their money). They'd then put all the blame on the president and support the opponent's cadidacy who promises to lower taxes. Since they only have to wait it out for 4 years, this long term plan would never get the traction it needed. Instead, we keep getting candidates promising quick fixes (yaya tax cuts for the rich) which continues the cycle of long term economic problems for the US.

On August 12 2012 13:57 BluePanther wrote:


It's called a loophole because you can abuse it to lower your tax rates to levels far below what they were intended to. I'm not a tax lawyer, but one of my best friends is at a world-renown legal tax firm (McDermott NYC). He was explaining to me yesterday how he was setting up a tax haven for banana growers by converting their crop to insurance bonds in some random island and then deducting them. I didn't fully understand it (i'm not a tax lawyer), but the short end of it is that you can abuse the HELL out of the system if you know how to. And those big companies can afford to hire the people who know how to.

He's a diehard economic conservative, and his words were "it's ludicrous how someone like me can do stuff like this."