LibriumArcana.Games

Republicans and conservatives always fight back against proposals to raise taxes on corporations and rich individuals by making two basic claims. First, such proposals amount to un-American "class warfare", pitting the working class against corporations and the rich. Second, such proposals would take money for the government that would otherwise have been invested in production and thus created jobs.

Neither logic nor evidence supports either claim. The charge of class war is particularly obtuse. Consider simply these two facts. First, at the end of the second world war, for every dollar Washington raised in taxes on individuals, it raised $1.50 in taxes on business profits. Today, that ratio is very different: for every dollar Washington gets in taxes on individuals, it takes 25 cents in taxes on business. In short, the last half century has seen a massive shift of the burden of federal taxation off business and onto individuals.

Second, across those 50 years, the actual shift that occurred was the opposite of the much more modest reversal proposed this week by President Obama; over the same period, the federal income tax rate on the richest individuals fell from 91% to the current 35%. Yet, Republicans and conservatives use the term "class war" for what Obama proposes – and never for what the last five decades have accomplished in shifting the tax burden from the rich and corporations to the working class.

The tax structure imposed by Washington on the US over the last half-century has seen a massive double shift of the burden of taxation: from corporations to individuals and from the richest individuals to everyone else. If the national debate wants seriously to use a term like "class war" to describe Washington's tax policies, then the reality is that the class war's winners have been corporations and the rich. Its losers – the rest of us – now want to reduce our losses modestly by small increases in taxes on the super-rich (but not, or not yet, on corporations).

To refer to this effort as if it had suddenly introduced class war into US politics is either dishonest or based on ignorance of what federal tax policies have actually been. Or perhaps, for conservatives, it is a convenient mixture of both.

Much the same sort of analysis applies to the Republican claims that taxing corporations and rich people takes money that would otherwise be invested in business growth and thus create jobs. Last Friday, the US Federal Reserve reported a record quantity of cash on the books of US businesses (over $2tn). Even with the currently low taxes on businesses and the rich, that money is not being invested and is not creating jobs. It is not being distributed to anyone else and so is not being spent on consumer goods either. Taxing a portion of that money to finance Washington's stimulation of the economy by spending that money – or even better, by using it to hire and pay the unemployed – would be a much more effective way to provide jobs than leaving it as cash hoards in corporations' coffers.

Last month, Warren Buffett upset many of his "mega-rich friends" by what he stated categorically in a New York Times op-ed. He made it clear that he had never encountered any serious investor who decided whether or not to invest based on tax rates. It was always the prospects of profit that made the difference. He then urged Americans to raise taxes on the rich like himself. He also hinted – none too subtly – that it was becoming politically dangerous for the whole economic system's survival to keep having the minority of extremely rich people paying federal tax at lower rates than the middle- and low-income majority.

The final irony of loose talk about class war is this: the Republican and conservative voices opposing all tax increases for corporations and the rich thereby provoke, as Buffett intimated and New York Mayor Michael Bloomberg more explicitly warned last week, a renewal of class consciousness in the US. Then, Washington might learn what class war really is.

The Minx wrote:I also think that if businesses are taxed more, they'll just hire less and increase consumer prices.

I think that the corporations and banks are hoarding money since the collapse four years ago happened because they ran out of cash.

Derek Thunder wrote:Que? I thought that taxes were assessed on profits and that payroll falls under expenses.

You may have to elaborate on this. My understanding was that the prime mover of the recession was the speculative bubble in real estate and its subsequent bursting.

The Minx wrote: They are, but why should that prevent them from hiring less and raising prices?

The Minx wrote:Yea, but conditions are not the same in that case. For every dollar that a company has to pay to the IRS, they will take some cents from their investors i.e. from profits, some cents from their workers and some cents from their consumers.

The Minx wrote:Basic supply and demand says otherwise.

Cynical Cat wrote:

The Minx wrote:Basic supply and demand says otherwise.

Yes, they do. Supply and demand applies to all the companies in that business, not just yours. Competition and what your customers are willing to pay matter. The grocery store I work at ate two price increases on avocados before increasing the price at the third increase. The customer still has to decide to buy that avocado or that washing machine or that Mercedes at that price, forgo the item, or look for an equivalent someplace else. The costs to make an item may have gone up 10%, but sometimes its worthwhile to eat that cost and no lose the sales.

Cynical Cat wrote:On the other hand, Games Workshop has significantly cut the costs of producing its miniatures while jacking the price. They can get away with that as long as people still buy Warhammer 40K figurines from them. Until they hit the threshold where people say "this is too much to pay to play a miniatures game even one I really like" they'll get away with it.

Stofsk wrote:Cat gets points for referencing GW in a thread about economics, class warfare and the law of supply and demand

The Minx wrote:: Any time taxes go up, a lot of stores will be faced with a choice like that third time when you did in fact raise prices.:

Cynical Cat wrote:Most taxes are on profits, not costs.

Cynical Cat wrote:If we increase the tax rate on the wealthy, which is what is being discussed, there is no cost increase to eat (which, as I pointed out, doesn't immediately lead to increased prices). The businesses are already trying to maximize profits.

Cynical Cat wrote:If jacking up prices is going to increase profits, that is what they'll do regardless of whether or not their profits are going to be taxed at a slightly higher rate.

The Minx wrote:
They're still faced with the choice of taking the hit to their profit or raising prices to offset some of their losses. Some will still choose the latter.

Um, the OP speaks of taxes on corporations and the wealthy, not just on the wealthy.

Cynical Cat wrote:If jacking up prices is going to increase profits, that is what they'll do regardless of whether or not their profits are going to be taxed at a slightly higher rate.

Conditions are not the same then. The consumer always bears some part of the increase in taxes on companies.

If increasing they thought increasing their prices would mean increasing their profits, they're going to do it anyway.

As previously explained, no they don't. Let me give you a specific example. Guess where Big Pharma pays higher taxes, Canada or the US? The answer would be Canada. Guess who pays more for drugs, Canadians or Americans? The answer is Americans.

Lots of factors influence pricing and it is already set at the level where a company thinks they will generate maximum revenue. That they get to keep less of that revenue tomorrow won't change the price because the price is already at the optimum level to generate profits. If their costs go up then they'll consider upping the price, but that's neither guarranteed nor necessarily the case with a tax increase. They will, as I've shown, eat the cost increase if they think that will be the best choice to generate revenue or jack the price if they think they can make more money that way, regardless of whether costs go up or down.

The Minx wrote:
Except it would not do so anyway, if the tax is not present. The conditions are not the same with and without the tax.

You can't really compare the two counties, since as you say, there are many factors which affect price. But any tax is going to shift the supply curve to the left, which means higher prices and lower sales.

Cynical Cat wrote:The conditions for the consumer haven't changed and increasing the price above the previous level puts the business at a competitive disadvantage during a recession. It's not like they magically decided they all of a sudden want more money, they always want more money.

Cynical Cat wrote:I can, because your argument is that prices will increase during a brutal recession because taxes on profits have gone up. That's far from a certainty. As for Big Pharma, for example, our drug prices are determined by a deal the fed negotiated (instead of rolled over) with Big Pharma for our medical system. Said deal is much more important than the tax rate when it comes to determining drug cost. Likewise, the North American economy has taken a beating. Less profit doesn't mean a price increase.

frigidmagi wrote:Minx taxes are the lowest they've been since WWII, profit is at record highs, unemployment is not lowering. What do you suggest we do? Because from where I'm sitting, I would say that the one problem that Corporations don't have (especially given that most of them turn a profit from their taxes) isn't a wearisome tax burden.

The Minx wrote:
I meant that the conditions are changed by the tax. The companies won't raise prices because they suddenly want more money, they will raise prices because they don't want less, and the government is taking some of it now. They will still get less, of course, but not as much as they would have had they not raised prices.

The Minx wrote:CC, you need to look at it from a supply-demand point of view. Look at what a supply-demand graph looks like. If you add a tax, you shift the supply curve to the left. That increases prices.