Quote from Ricter:
If jem is proposing to lower payroll withholding, a socialist idea because it would give the masses more money to spend, an idea which worked during this crisis for the commies in Australia, then I agree. That would no doubt generate sales.
But if it is merely business taxes, you can forget it. They're based on a rate applied to sales and revenue, so if sales are slow, so are the taxes. Furthermore, we have cash and access (though not yet "easy") to credit, so if more money in my accounts would generate more sales, trust me, I'd be spending some of it. Doesn't work that way.
Richter did you read the artilce Jame L linked to?
Lower rates causes business investment - higher rates cause tax avoidance schemes and tax shelter investing.
Tax shelter investing is not the most productive job creation mechanism.
When people believe their businesses are going to more profitable in the future they focus on business expansion.
When people are concerned about cap and tax and other taxes looming... they refuse to deploy assets.
When people see tax cuts on the horizon they put capital work.
As a trader or investor how can you argue with that.
Finally, if you really want to get academic... here it is.
Tax income vs capital deployment face what would like rainbow if you graphed it.
at the low end some tax will make govt revenues go up and not really change people's capital deployment decisions much. Especially of some of those taxes went to infrastrucuture which supported the business.
At the other end who would risk capital and create jobs if the government took 99 percent of your profits.
Therefore along the curve raising taxes prevents capital from being deployed (and therefore causes a lack of job creation) and it can lower tax revenue. Vice versa for tax cuts. When you go all the way over to the no tax side you obviously do not raise revenue by lower taxes... an if you do not provide courts, law and infrastructure that would be bad for business.
The question is where are we on the curve.....
However, even more important to our future is where do the investors with the risk capital think we are....
Are their investments likely to receive better or worse tax treatment by those policies being contemplated by the current crop of socialist dems?
That is the problem with our current economy.
Pelosi and Reid combined with Cap and Tax and Obama care have created a hostile environment for people who wish to risk their capital on future profits.
Therefore less jobs.
If you are correct about taxes being passed through... then lower prices frequently mean higher sales. Eventually more people are put to work.
