I try to keep my posts rational and impartial, this one may come across grossly less so. What would the results be of an income capping tax of $1,000,000. Essentially meaning a 0% tax on all income below that mark, and a 100% tax on all income not reinvested above it. If the theory behind lowering taxes on the wealthy is that they will reinvest in employees if they have more money, then forcing them to reinvest or be taxed out of their income seems to be an ideal solution. This is just a theoretical exercise of course, but I would like response of possible and probable outcomes. Just for the record, I don't personally believe the government SHOULD do this, only that it might be the most effective method. The best idea is not always the right idea when people's livelyhoods are at stake.
Interesting proposal. 100% taxes are generally bad idea since they remove all incentive to make income in that bracket. With any other rate, you are always better off making more money. Even if the rate is 90% on the top rate, you wind up with more net income by making dollars that fall in the bracket. This is particularly true of income that is result of arbitrage and passive investments in equities, which is mostly the province of the top bracket. But your reinvestment requirement would of course change that dynamic. Essentially it would cap income at $1M, so the incentive to reinvest would be to keep the $1M a year rolling in for future years. This might work with the superwealthy who don't work for a living, but I suspect it would have an adverse impact on those who actually perform work to make their salary. Actors, professional athletes, salesmen. Since these types of worker would quickly "max out" on their investments needed to provide $1M a year for life, they would have no further incentive to work. For instance if a professional basketball player gets $21M a year and thus reinvests $20M every year, it's only a matter of a few years before he has amassed a large enough fund to insure that he gets $1M every year just from low risk investments. After that point is reached, why should he continue to play basketball?
How would you define reinvestment? If speculative gambling in equity and commodity markets is considered reinvestment then your tax proposal would only limit spectacles of consumption while accomplishing little else.
To be honest, I don't really know. I imagine it would be in whatever hypothetical, job creating, way the top 1% claim they would be reinvesting their capital, if only the government would let them keep it. In regard to the example of the basketball player; good. He should retire at that point, he is not providing a service which someone else isn't waiting in line to fulfill equally well. Infact, the constant rotation of top tier retirements might even cause an excess of job creation, as positions of advancement frequently open up. Maybe. Probably not in basket ball or acting, but in industry, maybe. Again, this is all just hypothetical.
I disagree about the basketball player. Our current system produces really good basketball players which have some social utility -- we like watching them play. Generally if you reward people with high compensation for doing something, you get better and better performers entering the field. With your proposal, you have the opposite incentive. The incentive is for the best players to retire as soon as they get their requisite retirement amount (or continue to play but just phone it in). Presumably over time you'd get poorer and poorer performers. Now with basketball players, it might not matter much. With salesman, it might matter a lot, since much of our economy is driven by sales. It not only takes a good product to compete, but good salesman. If I'm correct, and the incentive is to get your fill and retire, we would again have negative competition with poorer and poorer sales performance over the long haul.
More money does not automatically guarantee more employment or higher wages or more benefits, etc. Having more money to spend in business does not necessarily translate to more demand on products and services. Conversely if there is less money to run business, this can have an immediate and direct effect. IMO there are only two ways to see significant economic growth; 1. US industry must become more competitive in order to bring jobs back to the USA. 2. The US must increase exports by a couple of trillion$.
The only way the US is to become more competitive is by convincing the people with the money that the best place to put it is in medium term US business innovations and productivity improvements. Unfortunately current US policy discourages this sort of activity through tax and trade policies that do not distinguish between foreign and domestic and short and medium term investments. Other nations like Germany have long held policies that do and the results are clear. US policy created a long term trend of disinvestment while German policy created a long term trend of reinvestment. Germany is the second largest exporter in the world with record employment while having higher taxes and wages and a higher cost of doing business than in the US.
Investments seek out profits...ROI. Wherever we find decent ROI, we will find investments. When the risks are very high, with questionable or risky ROI, I suspect investments will be lower. I think the USA needs to get away from being 60% personal consumption of the economy. This needs to drop to 40-50%. Exports need to be greatly increased! Whatever it takes to achieve this ratio is what the USA, industry, and it's citizens need to do...
Simple people do what is best for them, okay I just made a million dollars if I make more I lose it or have to invest it (which I'm assuming is a government regulated device so likely not very good option) but I have to keep working or I can take rest of the year off, keep my million and be happy maybe even enjoy the people in my life. Or simply put yourself in this position and think, what would you do faced with this option?
Government policy can have a lot of influence on risk considerations. The government can use policy to reduce risk in some areas of investment while increasing it in others. But as I said US policy is not geared towards encouraging the sorts of investments that lead to increased innovation and productivity improvements in manufacturing. Since this is the only way the US can increase exports and reduce its dependence on personal consumption there is a great need for a change in US policy, like maybe actually adopting a formal industrial policy like every other developed nation has.
LOL you know what you are saying? We are now screwing up the way we are regulating that sector of the society, so give us more control of that sector so we can do a better job.
No, what I am saying is that the reason the sector is screwed up is because there is no coherent policy and if there was one it would not be. Coherent regulation based on a stated policy would end up being less regulation, not more. There is a big difference between haphazard reactionary regulation and regulation that is guided by long term policy. The US has the former but needs the latter.
1. Congress would exempt itself from such a law. 2. Political campaign contributions would become 100% deductible. 3. Whatever was not contributed to campaigns could be found in anonymous numbered bank accounts overseas.
You surely just read that Cisco Systems is going to terminate about 6500 employees...to be more competitive and maximize profits. Let's use this situation and ask the question; What is government currently not doing, or what can government do differently, to give Cisco the best possible business environment? You must be able to articulate the answer to this question because it's not clear to me how much the government can actually do?? Cisco needs to be more competitive to drive more demand to the company. How much of this problem can be solved by government and how much by industry and workers? I suspect the answer will show that while the government can help, the bulk of the problem lies outside of government...
How do you think that Korea came to dominate LCD manufacturing and Taiwan to dominate PC manufacturing? These were no flukes of circumstance but the result of deliberate government policy. First, a little primer on how the tech manufacturing industry works. Modern tech plants cost a $Billion or more, the first to market can garner high prices, quickly pay off the cost of the plant and plow profits into R&D for the next generation of products. As more manufacturers enter the market the price drops, often by orders of magnitude as the early entrants have already recouped their initial costs. Those who are late to market by as little as six months can never recover their costs and their $Billion+ investment is lost. There are shuttered chip plants all over the world that never made a penny. Korea has long benefited from its proximity to Japan. Japanese companies have for a long time transferred mature manufacturing technology to Korea where manufacturing costs are lower so they could concentrate their resources on advanced technology. This was the result of the formal industrial policies of both nations, Japan to maintain the cutting edge, Korea to gain manufacturing expertise. Korea moved early to secure LCD technology transfers, manufacturing agreements, and to build far larger LCD manufacturing plants than the market dictated to achieve economies of scale early on while also developing its own R&D labs to push the technology, all from a new government industrial policy of directed investment in nascent technologies with huge growth potential. Korean manufacturing expertise was well established, this was the next step. At the same time Taiwanese manufacturers were eager to enter LCD manufacturing and were gearing up to spend $Billions on LCD plants using basically all the available funding in the nation. The government industrial agency saw this as a disaster. Korea was already so far ahead there was the reality that these new plants would suck up all available investment and end up losing it all. However, there was an opportunity in manufacturing everything else for the PC market and with enough directed investment to achieve economies of scale and a community of PC manufacturing that would spur R&D Taiwan could quickly come to dominate the sector. Besides that, there was an already extant ship manufacturing industry. So, the government pulled the plug on all the planned LCD plants and pushed the industry into motherboard, power supply and drive manufacturing where Taiwan now dominates and has an edge that will keep it ahead of competitors. Cisco systems has lost its edge. Due to the demands of Wall Street investors it can no longer invest enough in R&D to stay on the cutting edge and upgrade its manufacturing to keep it all in house. Since the US policy encourages financial short term profit seeking over long term industrial growth this is what happens.
Do you prefer to have the economic system of Korea or of the USA? If your answer is the USA, then we are not going to have government funded private industry. Government can assist 'some' with subsidies or other concessions, but outright funding of private enterprise won't happen. So if we live within the free enterprise system we have today, what exactly can government do to assist US industry in becoming more globally competitive? If eventually Cisco Systems can no longer compete, then they will close the doors. This means they will have lost the battle. If they lose to another American company then shame on Cisco. If they lose to international companies, then is there anything at all that companies like Cisco can do to keep a portion of their operations on US soil thereby creating US jobs? At the end of the day, no matter how much any government funds a private enterprise, that business must be able to compete globally. If the ongoing costs of doing business in the USA are too high, US companies will lose no matter up-front government funding. If you want government to provide up-front funding, and provide operating capital for the long term, then you will have achieved transitioning the USA into a Korea...
At the end of the day a policy that puts immediate financial reward over all other benefits to society will result in a bankrupt nation bereft of productive employment. What Korea and Taiwan accomplished was by directing private investment through government policy. The actual investment by the government was negligible. You are barking up the wrong tree.
The 'policy' does not focus on financial rewards. Financial rewards and keeping score is created by the ego of man. In my experience, and most of those I know, we are driven first by our passions of innovating or creating, and any financial rewards are simply a bonus. I think S. Korea relied heavily upon foreign investment, along with a domestic focus to produce certain products using their low-cost labor and automation. How much monetary role the government has/had in industry I don't know. But whatever it is they do in S. Korea, from foreign investment, to government policy, to automation, it is also done in the USA. What's missing in the USA is the ability to provide low-cost labor and/or low operating costs. One thing I do agree with S.Korea on regarding the USA is we MUST greatly increase our exports! How we can achieve this is the $64 million question. But if we don't rabidly pursue this goal, I believe our future will be quite limited...and not very much fun...
The Green Party had a 100% tax on income over a certain amount. What would the result of such a law be. First, the $25million house you live in would be the property of the company. The $150k car the same. A ton of money were be deferred to the future. Best of all there would be a total exemption for politicians and their friends.
Mythology. Government tax and investment policy in the US does little to distinguish investment types. Other nations do, like Korea and Germany. Germany is the second largest exporter in the world with labor costs higher than in the US. Labor costs in Korea are not that much lower than in the US anymore, otherwise Hyundai would not be building cars here. Simply reducing the cost of labor will solve nothing. As I have been saying, until the US adopts a tax and investment strategy actually geared towards manufacturing like other nations have, there is not much that can be done.
