Signs of the Times - and a question

[whell]

Originally Posted by d-ray657

Wouldn't one answer be that, as you mentioned, the tax abatements are carefully targeted to areas where there otherwise would not be investment. It is presumed that there are plenty of areas where the infrastructure and other market conditions make investment a reasonable business proposition without a subsidy. Bottom line is that we really can't afford to subsidize business across the board, any more than we already do with the investment in infrastructure, police and fire protection, and education.

Regards,

D-Ray

How is it a subsidy, rather than reducing the cost of capital and the cost of engaging in business activity? And if that reduction in cost results in an increase in GDP and in increase in employment (and a resulting increase in payroll tax revenue) doesn't that make the exercise pay for itself?

On the contrary, of what economic value - and what economic benefits are generated - value are all of the empty or half empty buildings, all of the idle production equipment, and all of the idle workers? The "For Lease" signs represent an economic cost all by themselves.

[d-ray657]

Originally Posted by whell

How is it a subsidy, rather than reducing the cost of capital and the cost of engaging in business activity? And if that reduction in cost results in an increase in GDP and in increase in employment (and a resulting increase in payroll tax revenue) doesn't that make the exercise pay for itself?

On the contrary, of what economic value - and what economic benefits are generated - value are all of the empty or half empty buildings, all of the idle production equipment, and all of the idle workers? The "For Lease" signs represent an economic cost all by themselves.

Would you be open to a stipulation that the decreased taxes are only available to those who can document new investment in productive activity? Our experience of the past few years have been that despite the protection of these "job creators" from any increased tax burden, they have been sitting on piles of money. I don't have any reason to believe that a further reduction in taxes would result in putting the additional capital to work instead of simply adding to the pile.

Regards,

D-Ray

[whell]

Originally Posted by d-ray657

Would you be open to a stipulation that the decreased taxes are only available to those who can document new investment in productive activity? Our experience of the past few years have been that despite the protection of these "job creators" from any increased tax burden, they have been sitting on piles of money. I don't have any reason to believe that a further reduction in taxes would result in putting the additional capital to work instead of simply adding to the pile.

Regards,

D-Ray

Except that's not the case exclusively.

A reduction in capital gains would also benefit the nation's increasing population of retirees. Many of them have retirement nest eggs invested in mutual funds, conservative stocks, bonds and money market funds. Some of these create capital gains tax liability for them. Reducing that would give these folks more disposable income resulting in greater purchasing power and likely additional spending (stimulative).

I am by no means rich, but we have been able to squirrel away some savings, much of which is invested in mutual funds. I pay capital gains taxes any year that these investments produce a positive ROI. Speaking selfishly, it would reduce my taxes, increase our savings and help out our rainy day fund.

Assuming for the moment that there's an economic benefit to cities and states to lower taxes and create economic activity, there's also the other side of the equation that goes something like this: those buildings with the For Sale and For Lease signs right now are generating no tax revenue for the cities and states where those buildings sit. If, for example, the capital gains rate was reduced from 15% to 10%, and such a change resulted in an increase in business activity, wouldn't the revenue generated - even though its 5% less than would have otherwise been collected - be better than the $0.00 in revenue that is collected currently?

Or, if the MI business tax was reduced from the current 4.95% to (for example) 4.95%, and this attracted investment and business activity to the state that did not previously exist, wouldn't the benefits outpace the cost? Sure, you'd ultimately need to generate enough activity to make the benefits worth the cost to the business tax, but in the meantime, the state is also collecting increased revenue from sales tax, income tax, and (possibly) property tax due to the increased activity.

[noonereal]

Originally Posted by whell

A reduction in capital gains would also benefit .

really?