Friday, August 13, 2010

Tax rates have no impact on corporate investment

Take an investment opportunity that will either double the investment or lose it all.  We can compare it to a wager, and assume that no fun entertainment value exists in the wager.  We can compare a tax rate to a partner that funds a percentage of our bet, and so will take a percentage of the winnings.  Corporate taxes are such that when you lose, you carry the writeoff to other projects; present, past and future.  So the partner analogy holds approximately if you lose as well.

The only significant consideration in whether you place the wager or not, is your confidence in winning.  Whether your partner's share is 39% or 36% has absolutely no relevance.  It is dishonest for republicans to lie that a 36% tax rate on the "investment class" is going to create jobs and investment compared to a 39% tax rate.

The deficits vs growth debate places too much emphasis on growth.  First, in the short term, if you grow the deficit by $10T to spend on wars and cocaine, you will mathematically directly grow the GDP by at least $10T.   It is a sugar high, with no lasting economic impact.  When you reduce the deficit from year to year, you will cause a reduction in GDP by the amount of the cut.

So deficits directly cause growth.  But it does not cause investment and jobs, especially not when it is made by changes in the top marginal tax rate.  Deficits and a high total debt burden make the confidence of wagering on America very low.  It makes job creation and investment unattractive.  A path to the economic collapse of America is vivid to all.  Made even more vivid by the blatant corruption to ensure collapse by diverting economic sustainability to the greediest wealthy. A vivid path to collapse is directly related to the large debt burden, and there are 2 stark political choices.  Pillage all you can before the inevitable collapse, or prevent it.

A tax rate can be more attractive than a partnership agreement, because you retain control in how and when you pay your partner (assuming the partner doesn't want his cut immediately after each wager).  If you win the wager, you can pay yourself a higher management fee, or spend to make friends and influence people.

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