Explain the Higher Tax = Layoffs Argument to Me

[SilentRunning]

Again, the money that is taxed doesn't suddenly disappear out of the economy, it is recirculated back into the economy. The posts from some of you people are becoming more and more bizarre.

You favor taking discretionary funds from one individual and giving them to another?

So your uncle will give up his vacation money so that someone else can have a vacation.

 

[Phokus]

You favor taking discretionary funds from one individual and giving them to another?

So your uncle will give up his vacation money so that someone else can have a vacation.

Time for some econ 101: The multiplier effect.

I posted this in another thread and this appears to be relevant right now:

http://economicsintelligence.com/2011/05/11/what-the-mafia-teaches-about-fiscal-policy/

What the Mafia teaches about fiscal policy

The scientific evaluation of fiscal policy is quite a task. The mere observation that the world economy has recovered quickly from the recession of 2009 does not say anything. Nobody knows how things would have panned out without the economic stimulus packages. Economists also often struggle to disentangle cause and effect: Does growth accelerate because government spending increases, or is it the other way round?

Thanks to the Italian mafia, three economists have recently been able to solve this problem. In a fascinating paper entitled “Mafia and Public Spending: Evidence on the Fiscal Multiplier from a Quasi-experiment”, Antonio Acconcia, Giancarlo Corsetti and Saverio Simonelli analysed the effects of fiscal policy inItaly. They did not look at the whole country but focused on small regions.

Organised crime is a nightmare in Italy but it is a blessing for economists because it causes significant changes in government expenditures that are completely unrelated to the current economic environment. If a politician is arrested because of his connections to the mafia, all public investments in infrastructure and construction are put on hold immediately until the investigators have checked if the mafia had been able to channel money into their pockets.

“Public work and projects are started again only after investigation and scrutiny of previous tender procedures and decisions to establish that the contractors are not effectively mafia Associations,” the economists explain. “The dismissal of elected administrators is thus associated with sizeable fiscal retrenchment.”

Acconcia, Corsetti and Simonelli looked at more than 100 cities where local politicians were forced to resign because they were Mafia figureheads. Afterwards, local government expenditures declined on average by 20 percent.

It’s all about the multiplier

According to the paper, this was highly detrimental for the local economy. When the government expenditures were slashed by one Euro, the economic activity immediately shrank 1.40 Euro. In the medium term, the output losses accumulated to 2 Euro. Hence, the so called government multiplier was between 1.4 and 2.

 

[xBiffx]

You just said the BOLD is not the case in your earlier post.

Thanks for making it even more clear, that you are nothing more than slime that leaked out a dead donkey's anus.

Yes, you did. You made it pretty clear that the middle class HAS been growing. The reality is that is has not.

Listen, I know you want to be cool like the rest of the racist conservative shit suckers on these boards who love to spit on and downplay the existence of the poor and middle class in the world - but, you have to realize something every simple; the rich men who poop in your mouth and expect you lick them clean are NOT reading these forums and following the good fight you are putting up for them on their behalf.

You will not be rewarded.

You will not even be thanked.

You are nothing more than a self appointed fingerman swine shithead that is using his loathing and anger for those "lesser" than yourself and masking it as "good old American hard work".

You are:
1) too stupid to fool or rip off anyone, like the rich have
2) too retarded to realize you are "fighting" for someone who doesn't even know you exist
3) too angry to lift your hate of the poor and fellow man to realize this path you chose to harm them will even lead you anywhere

Quote me where I said anything you said I said. And resorting to childish name calling and bomb throwing just shows how much of a liberal you are. You are taking a page right from the Alinsky handbook. Please, get back on your meds, collect your thoughts, reread my post AND yours and calm down. Then come back with a legitimate reply.

 

[Patranus]

This is where the fallacy starts. If they can get away with moving those jobs to India and save money, they will do that regardless of a tax increase. They are doing that now and taxes have been lowered. Right now two major things have effected job creation. Demand for the service/product of the company and the Labor Surplus.

Most companies do not have the resources or expertise to outsource jobs to India.
As costs go up (and headaches due to over regulation increase) the up front costs become more manageable.

You claim that demand and labor are the current problems hindering job creating. That is incorrect. Right now the biggest hinderance to job creation is the availability of credit and that problem isn't going to be fixed soon thanks to Dodd/Frank.

 

[SilentRunning]

Time for some econ 101: The multiplier effect.

I posted this in another thread and this appears to be relevant right now:

http://economicsintelligence.com/2011/05/11/what-the-mafia-teaches-about-fiscal-policy/

Just what I thought, you can't explain your position.

 

[Phokus]

Most companies do not have the resources or expertise to outsource jobs to India.

This is what consulting companies are for. My company outsourced some stuff to India and they hired Accenture to do it.

 

[Phokus]

Just what I thought, you can't explain your position.

Are... you serious?

According to the paper, this was highly detrimental for the local economy. When the government expenditures were slashed by one Euro, the economic activity immediately shrank 1.40 Euro. In the medium term, the output losses accumulated to 2 Euro. Hence, the so called government multiplier was between 1.4 and 2.

For every tax dollar spent, 1.40 - 2 dollars gets created in the economy.

Your statement was fucking idiotic an non-sensical and only makes sense if the government taxes the money and doesn't recirculate it.

Does the guy who works for the FBI take vacations and eat at my uncle's restaurant? Does the guy who does construction on bridges take vacations and eat at my uncle's restaurant?

Are you really this retarded? (Rhetorical).

 

[Ausm]

Are you really this retarded? (Rhetorical).

LOL :biggrin:

 

[momeNt]

1 word to sum up the argument that has developed in this thread.

Liquidity trap.

 

[airdata]

Basically this :

Small business owner grosses 3M per year. Operational costs of business and wages for employees is 2.6M.

The people that fit this sort of description when given an extra tax would probably consider laying somebody off instead of taking a personal hit to their checking account.


But then there are many more people who fall into the whole '' buffett tax'' category who simply have more money than they know what to do with. Your CEO types who get bonuses amidst company wide layoffs. That sort of crowd.

 

[randomrogue]

The problem with just about every thread on these forums is that people come in here without really having any clue what they're talking about. I respect that each of us can have an opinion but come on now - don't jibber jabber about running a business and the economy when you've never dealt with it and know nothing.

I really do feel that discussing the recirculating of our money by the government is best left to another thread. This one is about job loss due to higher taxes. It happens. It's reality.

 

[SilentRunning]

Are... you serious?



For every tax dollar spent, 1.40 - 2 dollars gets created in the economy.

Your statement was fucking idiotic an non-sensical and only makes sense if the government taxes the money and doesn't recirculate it.

Does the guy who works for the FBI take vacations and eat at my uncle's restaurant? Does the guy who does construction on bridges take vacations and eat at my uncle's restaurant?

Are you really this retarded? (Rhetorical).

You are clueless.

The government does not create jobs. Repeat. The government does not create jobs.

Your uncle is not the only person getting taxed. Others who are taxed will not have dicretionary money for vactions and will have to increase prices. Those costs will get passed on to their customers.

Are you telling me that that construction worker and FBI agent don't eat at your uncle's restaurant and take vacations but will if you redistribute your uncles vacation money to them?

If you are implying that government spending will create those jobs then you don't understand that a government created/funded job is a net tax loss so that is one more person not paying their fair share of taxes.

 

[Patranus]

Basically this :

Small business owner grosses 3M per year. Operational costs of business and wages for employees is 2.6M.

The people that fit this sort of description when given an extra tax would probably consider laying somebody off instead of taking a personal hit to their checking account.


But then there are many more people who fall into the whole '' buffett tax'' category who simply have more money than they know what to do with. Your CEO types who get bonuses amidst company wide layoffs. That sort of crowd.

So simplify the tax structure. Either lower taxes and eliminate all loop holes or institute a flat tax.

But that won't happen.

 

[Phokus]

You are clueless.

The government does not create jobs. Repeat. The government does not create jobs.

Your uncle is not the only person getting taxed. Others who are taxed will not have dicretionary money for vactions and will have to increase prices. Those costs will get passed on to their customers.

Are you telling me that that construction worker and FBI agent don't eat at your uncle's restaurant and take vacations but will if you redistribute your uncles vacation money to them?

If you are implying that government spending will create those jobs then you don't understand that a government created/funded job is a net tax loss so that is one more person not paying their fair share of taxes.

And yet, economists have found that when you cut taxes permanently by $1, it has a multiplier of less than 1 while a spending increase of $1 creates a greater than 1 multiplier. It's almost like reality does not square away with your version of events and reality is a bit more complicated than your GOP talking point.

 

[Chiropteran]

Since most people don't run businesses and are generally stupid (as exemplified in this thread), they don't understand that many companies re-invest after tax income in order to maintain and/or grow their business. Let me illustrate with an example. Let's say a company has $10 million in "income" and after tax they are left with $6 million. In order to maintain and grow the business, assume the company has budgeted to spend $5 million in equipment and services, and the remaining $1 million to be passed to the owners as a dividend.

Assume there is a tax increase, where now the after tax cash flow they are left with is $5 million. They still need to spend $5 million in order to keep the ship running and moving, and the owners require the $1 million in maintain their yachts and vacations. What do you think management is going to do in order to find the additional $1 million? It will be a combination of reductions in headcount (lay offs), savings in expenses and reduction in the planned $5 million capital expenditure spend.

Hopefully this helps open up your mind a little bit. Or you can continue your class warfare populist rabble.

That is an interesting argument which sounds good at first glance, but it really leaves my main point ignored.

You suggest, after the tax increase, the company can lay off people in order to find an additional 1 million. My question again, is why wouldn't the company lay those people off today, tax increase or not, and enjoy an extra million(actually more) in profit now today?

The reason some seem to post is that there are "negatives" to laying off employees. Reduced output, slowed growth, whatever. But I don't see how those negative relate in any way to a tax increase or decrease or unchanged value. They exist in every case.

If the argument to lay off some employees in the case of a tax increase makes sense, the same argument makes *even more* sense in a case where the tax decreases or remains the same.

Super simple made up example-

Factory sells zarts. 1 factory worker can create 100 zarts per day, at a total cost of $100,000 per day wage, benefits, materials, lease, etc all included. Each zart will be sold for $1500, up to a maximum of 800 per day. Additional zarts won't sell.

So, 1 employee costs $100,000 to make $150,000 in a given day, $50k profit.

The company pays 50% of profit as tax, so net profit after tax of $25k per employee, up to 8.

Simple math says if the company employs the optimal number of employees, 8, they will make $200k a day.

Increase tax to 75% of profit. $12,500 net profit per employee after tax.

Company could change nothing, and make $100k a day. Or the company could lay off half the workforce, and reduce profit further to $50k a day. I can't understand any situation where it would make sense to fire an employee who brings in a net profit, and I also can't understand a situation where it makes sense to keep an employee who results in a net loss, regardless of tax.

Simply put, if the average employee makes you any money, unless tax rate increase to 100%, profit is a good thing and shouldn't be thrown out the window.

 

[SilentRunning]

And yet, economists have found that when you cut taxes permanently by $1, it has a multiplier of less than 1 while a spending increase of $1 creates a greater than 1 multiplier. It's almost like reality does not square away with your version of events and reality is a bit more complicated than your GOP talking point.

A multiplier in private sector hiring?

If the government spends 1,000,000 a portion of that money will come back in taxes. Let's say the tax rate is 20%. So 200,000 comes back to the government in "taxes." (not real tax revenue, just a return of previous taxes)

They spend that 200,000 and 20% comes back (40,000)

They spend that 40,000 and 20% comes back (8,000) ...

So yes there is an increase in economic activity at the expense of real tax revenue. So a government increases the economic activity while decreasing the tax base.

Any money spent by those employeed by the government is previous tax revenue so any jobs funded by it will create no future revenue for the government.

 

[Paul98]

Companies are limited to the costs they can control. Labor is one. They can't change too much how much they pay for the goods they need to produce their products. They can change how much their labor costs. When you increase taxes, thereby affecting their profits, they will react with what they can change. Companies try and squeeze out all they can, regardless of if taxes are low or high, but when you increase taxes, then the microscopes come out and cost cutting measures start moving to the front burner.

So the raising or lowering of taxes doesn't create or cost jobs. Companies should be working the best they can before or after the tax hike or drop. The taxes themselves don't change what should be done.

 

[xBiffx]

So the raising or lowering of taxes doesn't create or cost jobs. Companies should be working the best they can before or after the tax hike or drop. The taxes themselves don't change what should be done.

You missed everything I said. Raising taxes requires companies to react as to not loose profit margins. The most likely reaction is to cut labor costs but its not always the case. Some go out of their way before making this decision while others can do little else before throwing axes. Labor costs are one of the only costs they have control over and also are one of the biggest costs as well. Hence why this is the likely choice.

 

[Phokus]

A multiplier in private sector hiring?

If the government spends 1,000,000 a portion of that money will come back in taxes. Let's say the tax rate is 20%. So 200,000 comes back to the government in "taxes." (not real tax revenue, just a return of previous taxes)

They spend that 200,000 and 20% comes back (40,000)

They spend that 40,000 and 20% comes back (8,000) ...

So yes there is an increase in economic activity at the expense of real tax revenue. So a government increases the economic activity while decreasing the tax base.

Any money spent by those employeed by the government is previous tax revenue so any jobs funded by it will create no future revenue for the government.

We're in a liquidity trap with idle labor (so no crowding out effect) which is why public spending is necessary in the first place.

The next fun activity is you explaining how Germany, with top marginal tax rates of 45% (and VAT taxes on top of that) is able to have a thriving economy of 6% unemployment, 2nd highest exports in the world (with only a population of 80 million) and a very big social safety net.

 

[momeNt]

We're in a liquidity trap with idle labor (so no crowding out effect) which is why public spending is necessary in the first place.

The next fun activity is you explaining how Germany, with top marginal tax rates of 45% (and VAT taxes on top of that) is able to have a thriving economy of 6% unemployment, 2nd highest exports in the world (with only a population of 80 million) and a very big social safety net.

The Euro.

So many disregard all the monetary influences in an economy and only focus on the fiscal ones.

 

[Phokus]

The Euro.

So many disregard all the monetary influences in an economy and only focus on the fiscal ones.

They increased exports to China by about 40% back in 2010.

This:

http://en.wikipedia.org/wiki/Codetermination_in_Germany

Has a lot more to do with their economic success than the Euro (of course conservatives would scream SOCIALISM if we implemented something similar over here)

 

[Paul98]

You missed everything I said. Raising taxes requires companies to react as to not loose profit margins. The most likely reaction is to cut labor costs but its not always the case. Some go out of their way before making this decision while others can do little else before throwing axes. Labor costs are one of the only costs they have control over and also are one of the biggest costs as well. Hence why this is the likely choice.

I can see this being true if you look at it as an investment, where you start and invest x amount of money and get y return. Then there is a tax hike, so now you have x amount invested and get y-h return. Where you could instead cut the work force to keep your y% return margin, but now have x-c invested. So you get the same percentage return on your money, but just have less invested. Is this what you are trying to get at?

Edit: aka better to invest less and get same margin, then invest the left over money on something else where you can get a good margin?

if not here is another response

You are saying that tax increase causes a cut to the work force in order to keep the profit margin that you had before the tax hike? What I am saying is why does the profit margin matter more than the actual profit? So lets say they hike taxes, you cut your work force in order to keep the same profit margin. You also will be cutting your over all profits, so you will be making less than you would have if you didn't cut the workforce. Would that be true?

 

[randomrogue]

NO. You make the remaining work force do more work. You do get to a break neck point but that's really only important when the economy is as crappy as it is now. Then the business shuts it's doors and the owners invest their money elsewhere.

 

[Londo_Jowo]

What is the population of Germany?
What percentage lives off the government dole?
How many illegal aliens live in Germany?

 

[Craig234]

My uncle runs a restaurant. Here's how he explains it. Taxes determine whether or not he takes an extra vacation to the bahamas, it doesn't determine whether he hires an employee or lays one off. The ONLY metric he uses to determine hiring/firing is if there is increased/decreased demand for his product. The government could cut his taxes to 0% and he wouldn't hire a single new employee unless business picks up. Even if his taxes were 60%, it would be stupid of him not to hire more waiters if his customer size doubles.

Anyone who still believes in supply side economics: You're horribly retarded.

That's right. It's even more right because employees are paid with untaxed dollars.

If he hires a person, the money he pays them is a business expense - it's deducted from his revenues that are taxed, so he pays no more taxes by hiring someone, even if the rates are high - and actually, it's the opposite: the higher the tax rate, the more incented the business is to reinvest its revenue in the business, instead of taking it out as profit. That's GOOD for the economy.

High taxes are like a tax incentive for hiring and investing in the business.

The people arguing the opposite are only trying to shift taxes off themselves.