Tax cuts- A simple lesson in economics

by **JimmyTango** » Thu Mar 25, 2004 7:37 am

Originally posted by RCglider
If you had a good history teacher, you would have learned that the Pilgrims tried Communism in it's most basic form. It failed. The problem? Human nature. Nope, it wasn't greed, it was because certain individuals did less work and expected the same benefits as those who produced more. Conversely, those that worked hardest didn't realize any more than the lazy. Gee, sounds like a typical UAW auto plant!! Seriously, do your history homework.

Ok, since you want to be a smart ass to everyone(and apparently started this thread to do it), if you had common fucking sense, you would know those Pilgrims were a community, not a country.

by **SavageParrot** » Thu Mar 25, 2004 8:46 am

Originally posted by RCglider
The problem? Human nature. Nope, it wasn't greed, it was because certain individuals did less work and expected the same benefits as those who produced more.

Or you could even say they were greedy....

You two (rc and jimmy) are making the same essential point, which is that communism will never work so there is really no need to fall out.

by **FarginMofo** » Thu Mar 25, 2004 9:12 am

Jobs/Outsourcing...big issue this political year with no simple solution.

Interesting POV ....

http://biz.yahoo.com/bizwk/040324/b3876078_1.html

by **Folic_Acid** » Thu Mar 25, 2004 9:29 am

Excellent link, Fargin. For those that don't care to read the whole thing, here's a brief quote from the article:

Now the ruling Bharatiya Janata Party (BJP) has learned from India's IT-services companies what a fantastic job-creator free trade can be. The government never protected Infosys or Wipro Ltd. (NYSE:WIT - News) with tariffs; they had to compete with global rivals on a level playing field. The result has been a thriving new sector for India, which, though small -- some 3% of gross domestic product -- has started to convince India's policymakers that lowering barriers is the way to go.

The summary - India is starting to convert to a free-trade, open market economy, and it's doing wonders for them. American-based companies aren't outsourcing jobs to India because they hate Americans or like Indians. They're outsourcing because it's now cheaper and easier to do business in India than it is in the US. Basically, India has chosen to compete with us in the free market, and we lost. We need to regain our competitive edge, rather than throw up protectionist barriers and penalties to try to prevent other companies from doing the same.

by **Mugzy** » Thu Mar 25, 2004 9:40 am

In the end, many that outsource to India will pay the price of upset customers. I know there has already been at least one company bring their support center back to the US after having MANY customers bitch about not being able to under stand the person on the phone.

by **LordX** » Thu Mar 25, 2004 9:42 am

Originally posted by RCglider
Also, business doesn't "pocket" tax breaks. When capital is increased, that means more money is available for investment. When government takes the money, nobody prospers.

This is just plain not true. The fundimental identity without imports or exports is that Y = C + I + G.

Unless you can argue that lowering taxes decreases consumption, or that it inclreases I more than taxes decrease (IE, more than all of the savings in taxes is invested, lowering real consumption) then unless you also lower government spending, all you do by lowering taxes is increase C at the cost of I.

Also, it's just plain not true that When government taxes the money no one prospers. Do you like driving? So do I. Who built the roads? Do you like police? So do I. Who pays their salaries? Do you like the fact that we have a Millatary defending us? So do I. Who buys the tanks? Government spending benefits all of us.

Trickle down economics was not some new invention by Reagan. It does work despite the lack of understanding of many on how economies and businesses function. The facts are indisputable if you are intellectually honest.

Trickle down economics, the belief that by injecting money into the very rich, such benefits trickle down to the poor was, in fact, invented by a cadre of right-wing economists during Reagan's term.

It certainly does not work. The gains in real income over the past decades is due soley to technical innovation, and not to some sort of capital explosion. The real tax legacy of the Regan years was a massive defecit, something we are still trying to struggle out from under. Tax cuts without decreases in spending, like what the Republicans continue to propose, is merely borrowing from our future to make us feel good now. There's something else that works like that - Heroin.

by **RCglider** » Thu Mar 25, 2004 9:47 am

Originally posted by Colonel Ingus
Capitalism produced the most prosperous nation in the world! KEERRECCT! Unfortunately we are much more of a socialist nation/government than we are capitalist.

And check out my Henry Ford comment. Thats actual history. Henry figured that if he paid his workers crap they could never afford his cars. So he didn't "maximize the shareholders revenue" he actualy paid his workers 5$ a hour. An unheard of wage for early 20th century! End result: His workers bought Ford's and his company was even more successful!

What a concept! Henry pays his workers well! his industrial base expands! There are more jobs at Ford! His workers became well off! Henry gets even richer! What a deal!

Sending American jobs overseas result in a huge labor cost savings for the business doing it. End result. Wealth is concentrated in fewer peoples hands in America. American money is going overseas to pay foreign workers. Less jobs here at home. Fewer people buying products and economy declines. More people get on the dole and the government tries to tax the haves to give to the greater have nots who are becoming displaced because there is no work (no work but they still have a vote).

What is one of the most important parts of growing a business? INVESTMENT! And if you don't invest in your market! (us) then it declines!

Continue this trend and there will be a hell of a lot more "poor people" who can't hire you.

Ford paid his workers $5 a DAY in 1914, not per hour. Still a high wage. He was the first to pay $1/hour later on. Autoworkers were making about $5/hour in late 60's or thereabouts as my brother-in-law recalls.

Ford didn't pay his workers in order to expand his industrial base, that's ludicrous. A company can't be supported by buying their own products!! He tried to keep them happy, but in 1941 they unionized. Happy workers don't unionize it is said. Let's not even get into the whole union thing. All I'll say is it's pretty bad when a line worker at GM makes more money than a doctor out of med school.

Yes, we are more Sociialistic, but in comparison to other industrialized nations, particularly Europe, much less.

by **LordX** » Thu Mar 25, 2004 9:50 am

Originally posted by PudriK
But if you agree that the Laffer curve is valid, then you must admit that lowering taxes on the rich can result in increased revenues, so the poor would not be carrying a larger burden.

The theory behind the Laffer curve is an identiy expansion. At 0% tax, the government makes income. At 100% tax, the government makes no income. The government currently makes income, so there must be at least one income maximizing point inbetween 0 and 100% where revenues are maximized, thus, increasing taxes may or may not increase tax revenues.

Of course, there's a huge amount of evidence that we are on the upwards sloping part of the Laffer curve. Witness Clinton. Witness Bush. Clinton raised the top tax bracket, and tax revenues went up. Bush lowered the top tax bracket, and tax revenues went down. This is not ceritus paribus, but it's evidence that at current rates, rasing taxes raises revenues.

As another note, the laffer curve is not definitivly valid. It presupposes that people have normal-function labor/leisure curves and ignores the target earner theory. Under a target earner theory, increasing taxes will always increase tax revenues untill the tax rate actually reaches 100%. There is no reason to believe that there are not a substantial number of target earners.

by **LordX** » Thu Mar 25, 2004 10:00 am

Originally posted by RCglider
All I'll say is it's pretty bad when a line worker at GM makes more money than a doctor out of med school.

Puuuulease. The median expected salary for a typical Physician - Generalist in Detroit, MI, is $150,469.

The median expected salary for a typical Tool and Die Maker III in Detroit, MI, is $53,750.

When you say "doctor out of med school," you're being decietful by including residents, who continue to require training and full-time supervision. Take a Full MD, and you've got a full and complete picture.

by **FarginMofo** » Thu Mar 25, 2004 10:45 am

Folic, the problem is that at least when it comes to these "white collar" jobs leaving the US, the "level playing field" is not level or at least not level for the American IT worker (other fields also but I'll just use IT).

Lets say you have 2 American companies - ABC and XYZ, both having 20 programmers in their IT department. Company ABC's 20 programmers are all local. The average salary between them is $60K/yr. Company XYZ outsourced its IT work overseas and cut its IT costs by more than 75%. Who has the competitive advantage? It will be only a matter of time before company ABC will need to make a similar move to stay competitive. At that moment, it becomes a level playing field for the both companies.

Where does that leave the American IT worker? Should American companies cut salaries of these jobs being outsourced in order to try to keep them local? Will cutting an IT job that makes 60k/yr down to 30k/yr fly? Going down to 30k may not even be low enough. How long will it take for IT workers in India to demand higher salaries thus bringing the salary playing field back up? Will it be brought back down again by the next country to "open up" and flood the job market with cheap labor?

How far can a single person making $30k/yr or less go in this country. At least where I live, the cost of living seems to be getting worse by the minute. Can you say "living with your parents"?

I guess what it comes down to is that if the American worker wants to keep these jobs being outsourced they better be prepared to compete globally. Curry anyone?

by **Murgatroyd** » Thu Mar 25, 2004 10:57 am

I've never tried curry.

But Fargin is 100% on the money (no pun intended). This is one instance in which I will come out and say that the government has to intervene in this, lest our jobs become exported and we sink into a third world status. There's no ethics to it - XYZ would put ABC out of business.

Once Indian workers start demanding higher wages, chances are they'll move the jobs elsewhere.

The recent accelleration of job exportation is frightening. Even beside that, companies are downsizing as it is. Hell, my company is laying off 1% of it's workforce today and tomorrow. 1% doesn't sound like a lot, but this company is the largest employer in central Massachusetts, and employs tens of thousands of people.

Companies are figuring out that they can maintain productivity with smaller staffing levels. So, what are you gonna do?

by **JimmyTango** » Thu Mar 25, 2004 11:19 am

Speaking of white collar exports, Goodyear just announced that they are now moving their white collar jobs over seas.

People confuse capitalism with what this country is. The country is NOT a capitalism, it is a republic. We use capitalism within the rupublic for our economic and market system. That does nto mean the government does not get to regulat businesses, it shoudl mean that they DO over look as they are looking out for us and itself.

Case in point: insurance. Does anyone here have home owners insurance? Call your policy maker. Ask them what happens if you have two claims in five years. Most policies are canceled at that time.

F'ed up, huh? You are PAYING for protection that they can take away from you because you are using that protection!!!!!!!

by **RCglider** » Thu Mar 25, 2004 11:43 am

Originally posted by LordX
Puuuulease. The median expected salary for a typical Physician - Generalist in Detroit, MI, is $150,469.

The median expected salary for a typical Tool and Die Maker III in Detroit, MI, is $53,750.

When you say "doctor out of med school," you're being decietful by including residents, who continue to require training and full-time supervision. Take a Full MD, and you've got a full and complete picture.

I said GM, that's a whole different animal. If you want to talk skilled trades (tool and die makers, electricians, mechanics) at GM, then it's not uncommon to see 80-100k+.

Take a full MD, subtract his malpractice insurance, overtime pay not covered, etc. etc. and that is the whole picture. The fact is, autoworkers have been riding the gravy train for many decades. Now however, my union "brothers" voted in a 2 tier wage system which they swore they'd never do. It's interesting how the threat of losing your job can change your attitude.

by **RCglider** » Thu Mar 25, 2004 12:03 pm

Originally posted by FarginMofo
Folic, the problem is that at least when it comes to these "white collar" jobs leaving the US, the "level playing field" is not level or at least not level for the American IT worker (other fields also but I'll just use IT).

Lets say you have 2 American companies - ABC and XYZ, both having 20 programmers in their IT department. Company ABC's 20 programmers are all local. The average salary between them is $60K/yr. Company XYZ outsourced its IT work overseas and cut its IT costs by more than 75%. Who has the competitive advantage? It will be only a matter of time before company ABC will need to make a similar move to stay competitive. At that moment, it becomes a level playing field for the both companies.

Where does that leave the American IT worker? Should American companies cut salaries of these jobs being outsourced in order to try to keep them local? Will cutting an IT job that makes 60k/yr down to 30k/yr fly? Going down to 30k may not even be low enough. How long will it take for IT workers in India to demand higher salaries thus bringing the salary playing field back up? Will it be brought back down again by the next country to "open up" and flood the job market with cheap labor?

How far can a single person making $30k/yr or less go in this country. At least where I live, the cost of living seems to be getting worse by the minute. Can you say "living with your parents"?

I guess what it comes down to is that if the American worker wants to keep these jobs being outsourced they better be prepared to compete globally. Curry anyone?

I'm not pretending to be an expert on economics, and don't understand the full dynamics of all this, but do have some observations and questions..

1. If the cost of housing is rising, and we all know it is, how can people buy them if the economy is so rotten and outsourcing has taken all these higher paying jobs? There's more big expensive homes going up in Michigan than I can ever remember.

2. What is so special about IT jobs that makes that field any more sacred than other jobs? Maybe $60/year depending on what they do is more than the market will bear? IT guys, don't take that as offensive, I've been in the same boat.

3. Who is buying all the cars?

4. How can the GDP be rising if the economy is so bad?

by **FarginMofo** » Thu Mar 25, 2004 12:23 pm

Rc, one word answers at least a couple of your questions - Debt.

Lets see (brief review of stats from posted article)

http://www.washingtonpost.com/ac2/wp-dyn/A10011-2004Jan12?language=printer

-- Americans topped 2 trillion dollars in debt for first time.
-- 2003 saw 1.6 million households file bankruptcy
-- average of $9000 in household consumer debt

IT jobs in themselves are not special. The same is happening in the engineering field, the accounting field, finance, etc, etc. Two things they all have in common are 1) high pay and 2) you usually have to earn a 4 year degree to hold down one of these positions, sometimes more. IMO, the more these types of jobs leave, the worse it is.

Tax cuts- A simple lesson in economics

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