Tax incentives vs tax cuts

[chamaeleo]

There are many ways to promote economic recovery, although by some folk's measure the only effective method is cutting taxes (Period!). Especially for the rich who, theoretically, will recirculate their bounty into the economy by buying stuff, hiring employees, etc.

However, has this ever been the case? There are moments in US history where such tax cuts were made, and the economy did anything but improve...in fact, our deficit typically skyrockets.

If I were a wealthy man in an uncertain economy who has just received a nice break on my taxes...where exactly is my incentive to risk surplus personal gains on my business?

I'd like to open the floor to debate another idea: instead of (or possibly, in addition to) giving tax cuts and hoping that trickledown isn't a misguided myth...create special tax incentives that encourage reinvestment in business, efficiency improvements, creation of jobs, and so on. This would essentially be reinforcing the notion that trickledown exists, indeed, it would amplify the efforts of those businessmen willing to brave their uncertainty. Examples:

New hires: for each additional employee position created and maintained for 1 year, 10% of their annual salary returns to the owner as a tax rebate,

Vehicle fleet optization: total MPG for company vehicles is tallied each year, any improvements from year to year are rewarded with a rebate (based upon amount of improvement),

Employee raises: 50% of raise amount returned as a rebate for that year,

Employee continued ed: 30% of training course /testing fees for employees returned to owner,

Brick & mortar renovation: 15% towards materials/labor invested in business property improvements.

...and so on. These are just off the top of my head, values based on nothing in particular...feel free to contribute your ideas too.

Although plenty of tax loopholes already exist for businesses, the idea here is to think up incentives which would encourage economic growth and not simply reward folks for having a business license. Focus upon: employee hiring, retention, and personal development; improvements in efficiency; property improvements; and generally any other investment which results in creating work for people (contracted and otherwise).

Thoughts? Criticism? Snarky, unproductive opinions based on preconceived notions?

[Boyar Son]

Companies want to work with the smallest number of people efficiently to maximize profits. It's about the bottom line, I can't help but think this is just a discount and they wont be making less when they hire more workers just to hire. Seasonal employees get laid off anyway.

This would be much better around the end of the year though, when companies start hiring for the holidays

[chamaeleo]

Of course, but when a company is poised for expansion and is weighing cost/benefits of hiring vs making do...a tax incentive might tip the balance. Besides, when winds shift South you can always lay him off: employment being anything but a guarantee.

[Phier]

You don't hire new employees without new customers.

Tax cuts > tax incentives.

[chamaeleo]

What then, does the businessman do with his tax cut? Is it simply used to cushion the blows of economic tragedy until better times, a life preserver if you will? In which case...how is this any different than welfare, except perhaps in scale?

You see, I need more to go on than "rich guys given tax cuts create jobs, unless business is bad; but then we give em tax cuts anyway...just in case." This is circular logic, but maybe this explains why trickledown is imaginary?

[Phier]

What then, does the businessman do with his tax cut? Is it simply used to cushion the blows of economic tragedy until better times, a life preserver if you will? In which case...how is this any different than welfare, except perhaps in scale?

You see, I need more to go on than "rich guys given tax cuts create jobs, unless business is bad; but then we give em tax cuts anyway...just in case." This is circular logic, but maybe this explains why trickledown is imaginary?

What does the average American do with his tax cut, especially if its a real tax cut and not a rebate? Spends it. What helps the economy more, me hiring an employee I don't really have the customers for, or me going out to dinner every Friday night and watching a movie with my family?

I'd love to hire a new front desk person, but a one time tax break is not going to cut it, I want this person to be there for 10+ years, not be seasonal. As such I need more patients to do so, and they need to have the money to pay me. If a business is at such a razors edge that the only reason they are hiring is because they get a tax break, odds are they should be looking to increase productivity not hire.

When you tax yachts are are only hurting the guys building the yachts not the rich guys buying. Quit focusing on income and instead on basic logic.

Ask butchers and restaurant owners, ask dog groomers and bicycle shop owners, what they would rather have.

[roy34543]

I guess lowering sales taxes might help, as the best way to encourage recovery is to get people to buy things. But then again it might not help if people just use the savings to pay off their debts and save anyway . Theoretically speaking the best way is to make saving money extremely unprofitable and paying off debts very easy, but that leads to a lot of other economic problems.

[JP226]

Tax incentives are taxcuts. And the government and state governments already offers a massive variety of incentives. For instance, you buiild a building in a run down area you get a credit per worker that you hire and an even hire credit if the worker is from a run down area. They give tax incentives for certain industries. In Florida we want to foster the space industry now that NASA is dead. So we offer credits for capital investment in private space launches. We offer salary credits for hiring scientists and engineers. Then there are incentives for scholarship funds, where you get a dollar for dallor credit but those are capped. I know the Florida one was capped in total around a hundred million for everyone involved. SOme states setup actual investment firms. We had this one credit that was setup to where companies invest anywhere from 25 to 100 million in special sectors picked out by the government, you'd get a certain amount of the income arising out of the project itself as a credit against corporate income tax. That was a flop because of the way it was written, there was something like a 10 year period on the credit and it took a couple years from planning to actually breaking ground and building the project and then earning profits because the loss would be written off anyway that nobody would ever take advantage of it. Then they have tax incentives where you give specifically designed government agencies cash to invest, they give you your money back plus a credit equal to 10% of said investment.

All the states do this and the feds as well. Do they work? Who the hell knows. I've seen some silly presentations that they do. One said 70 million dollars in credits would generate 7 or 8 billion in economic activity. That's a 11000% return and probably not likely. It's all theory though, tax cuts working is more or less theory. You can't separte the hundred million things going on in the economy to pinpoint what kind of impact they had. However, at the sametime, it doesn't take an economic genius to figure out that government money has to come from somewhere and that's going to have an impact.

[JNS]

The effectiveness of taxcuts is really difficult to understand and even more to quantify. For exaple your average republican will always mention how reagan's tax cuts stimulated the economy, and led to that large period of growth in the 90's. Yet now, taxes for almost everyone are either as low or lower and we seem to be in an unsormountable hole.

Also you have to take into account the target in the cuts. Give a $200 cut to 1000 middle to lower class people and they might spend it all in a variety of things , from maybe going to the movies, dining or maybe even save it, diversifying economic activity and creating demand in different areas. Of course this is a one time thing and it might not do much in the long run. Give a $200k cut to someone wealthy and he might expand his residence (creating jobs for architects, carpenters etc.), he might buy a sports car, invest it in his buissness or in the market, or he might just waste it in some luxury that may not have involved much labor and is simply overpriced. Maybe diversity in economic growth is something that also should be targeted in economic policy, rather than just growth that may be only benefiting certain industries.

[Armenum]

The reasoning that tax cuts magically boost the economy (especially with major deficits) is rather flawed. Society can't rely on the elite for jobs to be magically created and for economy to be boosted. Government must step, maintain a stiff progressive tax, and invest in country infrastructure and projects, which will in turn reliably create jobs. What was the biggest boost for the US economy over the years? The war effort, a governmental effort.

In the end, the elite class are primarily concerned with their own wealth and standing, rather than the rest of the country. To be firmly reliant on their ability to create jobs for others is naive.

[Angrychris]

thousands of years show the same trend. The circumstances have only changed.

[Rolling Thunder]

Tax cuts cause economic growth? Yes. Are they as efficient as increased government spending? No.

Why?

Simple. Increased government spending is pure consumption - it directly increases the gross GDP of the nation. Less T, however, means that a proportion of the money not being taxed will be spent on consumption, yes, but another proportion will be saved. How much of this is dependant on the marginal propensity to save of the nation - however, personal tax cuts affecting the rich will result in proportionately less consumption than those affecting the poor, as the rich, being relatively secure economically, have a higher marginal propensity to save than the poor.

GDP= C + I + G+ (X-M)

[JP226]

Simple. Increased government spending is pure consumption - it directly increases the gross GDP of the nation. Less T, however, means that a proportion of the money not being taxed will be spent on consumption, yes, but another proportion will be saved. How much of this is dependant on the marginal propensity to save of the nation - however, personal tax cuts affecting the rich will result in proportionately less consumption than those affecting the poor, as the rich, being relatively secure economically, have a higher marginal propensity to save than the poor.

Yes but the Rich boost I which indirectly boost C and you are looking at it in one time period as the world is multitemporal.

[Rolling Thunder]

Yes but the Rich boost I which indirectly boost C and you are looking at it in one time period as the world is multitemporal.

Yes, but the lag between that shift in I and the on of the boost to C is the issue with tax cuts. Personally, I'm all for them, but they aren't the most efficient way to immediately promote growth.

[JP226]

However the cost of spending in the longrun is paid with in taxes. It's not like we ever raise taxes THEN spend. And I'd always rather look at things in the long instead of the short.

[Rolling Thunder]

However the cost of spending in the longrun is paid with in taxes. It's not like we ever raise taxes THEN spend. And I'd always rather look at things in the long instead of the short.

Fixing economy: Think short.
Not needing to fix economy: Think long.

[JP226]

Then you have to insert the dynamics of information and whether or not the markets and investment and people for that matter these days, understand the cash is real. Plus your routine issue with savings. Stimulating consumption is always short sighted.

It's one thing to have cash, it's another to have something to spend it on.