What the Rude Pundit Missed

[mindwalker_i]

The Rude One had a blog about the 5 most fucked up things in David Brooks' editorial in the NYT, but in my opinion, he missed the biggest one. First, here's the piece by Brooks, followed by Rude's blog:

http://www.nytimes.com/2011/10/11/opinion/the-milquetoast-radicals.html?hp
http://rudepundit.blogspot.com/

In Brooks' editorial, he makes the case that we shouldn't tax the rich more because it wouldn't make that big of a difference. If incomes of 1M to 10M are taxed at 50%, that would cut the deficit by only 1%. If they were taxed at 100%, that would only be 2% off the deficit (good to know linear equations still work in this universe - props, dude). Not a mention about what's fair, whether taxing hedge fund managers at 15% is fair while the middle class pays a much higher percentage. By that logic, we might as well not tax them at all since it won't make much of a difference.

But aside from fairness, one very good reason to tax the rich at a higher rate than the rest is that it provides an incentive for them to reinvest in their companies and by extension, the rest of the country. If an increase in personal take home pay is taxed at 90%, it's probably better to put that back into the business and make it stronger, possibly by paying the workers more and promoting loyalty among them, or by research into ways to make a better product. Mostly, taxing the rich more means they're less likely to commit fraud if the payoff is only 10% - think about the bankers who did all sorts of illegal things to foreclose in order to get a bigger bonus. Yes, it would probably help if we did something to rich people who broke the law, but my point stands.

So basically, Brooks' piece was a big, fat steaming pile of bull shit. I just wanted to clarify its true extent.

[dkf]

1. That incentivizes not paying out dividends too.

Is that a good thing?

[mindwalker_i]

4. Taxing the high-paid execs?

How does that work - taxing the top guys makes them NOT want to pay dividends? I don't understand the reasoning.

[unblock]

6. market forces may trump tax considerations

first, yes, it may well be a good thing to disincentivize dividends for the same arguments in the o.p., namely that this keeps money reinvested in the company, making it more secure, providing more jobs, etc.

second, if management is avoiding dividends simply too avoid high personal taxes, but can't find anything productive for the company to do with excess cash, then this inefficiency may make the company a takeover target (one factor in a complex equation, i'll admit) as a hostile entity might have something more efficient to do with that cash, or could even use that cash to pay for the takeover itself.

the mere threat of this may force management to dividend out enough cash to remove this threat, notwithstanding the tax implications.

[Warpy]

7. What has that got to do with personal income taxes?

We'd really like to know that one.

[Demeter]

2. Yes thanks. Excellent point, don't even have to drive "fairness" into the mix

(you want to repeal the speed of light? I think they just might have done that recently...)

[Zoeisright]

3. Right. Not to mention that linear thinking is incorrect.

When that money starts circulating in the economy, it brings in even more money. For instance, for every dollar the federal government spends on food stamps, it gets back $1.73 in tax revenue. For every dollar spent on infrastructure, $1.59 is generated. The money multiplies. As anyone with a brain knows.

http://thenextright.com/mead50/spending-vs-tax-cuts-bang-for-the-buck

[mindwalker_i]

5. I was hinting at that

Putting more into the business helps a lot of people, thus driving the economy more.

[Quantess]

8. Thank god I missed David Brook's column.

It's almost always a steaming pile, and he's one of the more moderate RWers.

[EdMaven]

9. 2% off the deficit a year, right?

even .5% off the deficit a year would bring it down substantially fairly quickly.

Plus the multiplier effects from putting more cash into the economy would as well.