Are Republicans opportunistic liars, or just stupid?

[_Bond James Bond]

http://www.usgovernmentspending.com/budget_pie_gs.php

Alrighty let's cut the entire welfare budget, around 12% of the Federal budget for FY 2012, which is around 450 billion dollars (see link). That cuts the deficit down to around 800 billion. What should we cut next Ajax?

[_krose]

In other words, you're gross profit -

I am?

What have you heard?

[_krose]

Explain to me how a tax on profit, which is also, by definition, a tax on savings, investment, and entrepreneurial risk, does not affect praxological [sic] decision making.

I don't hire someone simply because I have enough money to pay them; it has to make sense for my business. I will only hire an additional person if that person is needed to take advantage of some opportunity, and the hiring will result in more profit than cost. Similarly, the reason to eliminate a position is that the cost of the employee is higher than the benefit provided.

Either way, employee wages are deducted first, then what remains becomes my taxable personal income. A higher tax on my personal income doesn't take away money that could have been used to pay an employee. It might affect my personal spending, of course.

But if I choose to eliminate a productive employee (one who adds more value than cost to my company, which is the only reason to have an employee in the first place) because I think doing so will net me more personal income, I'm an idiot who deserves to go out of business.

Letting a productive employee go will end up costing me, no matter what my personal tax rate is. Even if the state takes 95% of my personal income, firing people who are making me more than they cost me will just give me less money to be taxed.

______________________________________


A simplified example (ignoring fixed expenses, COGS, etc.):

Let's say I have one employee, and we each bring in $10,000 per month, so I pay her $6,000 per month (including benefits and other employee expenses). That gives me a personal income of $14,000 per month. Let's say my taxes just went up to 50%. I am left with $7,000 after taxes.

I don't think that's enough, so I react by firing my employee to keep more money for myself (because I'm stupid). I now have the $10,000 that I bring in all to myself, and my after-tax income is now $5,000.

Oops! I'm making less now, but at least I got rid of that damned employee!

[_krose]

If you had chosen to argue that raising my taxes will result in less consumption, you would have a valid argument. The only way a tax increase affects employment is if it causes consumers to spend less. Without people buying its products, a business can't make more money by hiring an employee.

Consumer spending is the key to employment. It doesn't matter how rich or poor the spender is, it's the act of buying goods and services that creates the need for greater employment. But rich people are less effective consumers, because they spend a lower percentage of their incomes.

One person with a yearly income of $5 million probably won't spend much of that income. But 500 people making $100,000 each will probably spend most of their combined $5 million, which means more spending overall, and the need for more workers to meet the demand.

This is why the notion of rich people as "the job creators" is just plain wrong, and those who repeat that canard are either ignorant or lying.

It's also the reason why the most effective stimulus is to get money into the hands of the middle and lower classes. Unemployment benefits, for example, are spent quickly and completely. In fact, each dollar of unemployment yields around $1.50 in economic benefits. Food stamps have a similar effect.

[_Kevin Graham]

I don't hire someone simply because I have enough money to pay them; it has to make sense for my business. I will only hire an additional person if that person is needed to take advantage of some opportunity, and the hiring will result in more profit than cost. Similarly, the reason to eliminate a position is that the cost of the employee is higher than the benefit provided.

As a business owner in practice, I have tried to pound home this exact point numerous times. But folks like Droopy simply don't get it. They seem to live in this delusion that says the more money a business owner has, the more people will be hired. Therefore, let them keep as much of their tax money as possible because that will increase employment. This kind of reasoning is laughable to those who have actual owned a business and we already know from historical precedent that this is a myth that doesn't live up to the hype. In a period of record profits for businesses, along with record lows in taxes, corporations have not interpreted any of this as an incentive to go on hiring sprees. The theory has been proved to be myth, and one that Droopy and his ilk refuse to abandon.

The example I presented was hiring teachers for an English school in Brazil. If I only have 30 students, I don't need to hire more than two teachers. If the government decided to let me keep all the taxes I paid, and I put an extra $10,000 in my pocket, that would have no effect on my decision, as a business owner, to hire more teachers. With only 30 students, hiring a fourth or fifth teacher would be a waste of money, so why do it?

The only reason I would need to hire more teachers is if... (drum roll) ... consumer demand increases. If suddenly an extra 50-100 students registered for classes, then I would need to hire more teachers to accommodate the increase in business. This is the whole point of the stimulus, which is designed to put more money into the hands of consumers who spend. When people have extra money to spend, then they start engaging in activities like learning a second language.

[_MeDotOrg]

The Chinese very well could decide to foreclose this country due to the current debt crisis. What stops them if not our military?

How, exactly, does our military keep the Chinese from foreclosing on us? "Keep lending us money or we'll nuke you?" Or maybe send in a team of Navy Seals to open up a line of credit?

[_ajax18]

One person with a yearly income of $5 million probably won't spend much of that income.

But if he invests that money, how is that money not still in the economy as if it had been spent?

[_Kevin Graham]

One person with a yearly income of $5 million probably won't spend much of that income.

But if he invests that money, how is that money not still in the economy as if it had been spent?

The point is by doing that the money is put into the wrong area of the economy. If someone invests $5 million into my English school, how does that solve the problem of low consumer demand? I could use that money to build a second school, but who am I going to teach if none of my potential students/customers have extra money to pay for classes?

What I'll do is sit on that money until consumer demand warrants such an investment on my part.

Consumer demand is what drives an economy and if you're trying to "kick start" a stagnating economy, you have to ignite consumer demand from the bottom up, not from the top to bottom.

[_Quasimodo]

The Chinese very well could decide to foreclose this country due to the current debt crisis. What stops them if not our military?

How, exactly, does our military keep the Chinese from foreclosing on us? "Keep lending us money or we'll nuke you?" Or maybe send in a team of Navy Seals to open up a line of credit?

Ajax doesn't have a very good understanding of international finances (like many other things). The Chinese do not lend money to the US out of the goodness of their heart. Like a bank, the Chinese see money lent to the US as a good investment for which they will receive a profit. It also helps them in the realm of international trade. The US is China's best customer right now.

China has no fear that the US will default. The US government has no fear that China will "foreclose". That is not even possible in international finance.

I think that maybe Ajax is equating this with his own personal finances and thinking back to the day when the loan company repossessed his El Camino.

[_Bret Ripley]

gross profit - the funds remaining to you after all business overhead - including the largest chunk, payroll, is deducted ...

Point of order: you have described net profit, not gross profit (gross profit does not include "all business overhead"). Just FYI.