Summations Only

Probably you wrote this before reading my later messages where I go into more detail. People receive compensation equal to the wealth they create. If you create a chair in your workshop and then sell it at a flea market for $50 then you've created wealth equal to $50. If you create a chair at your place of employment for which you receive $50 in compensation, then you've created wealth equal to $50.But if the company sells the chair for $100, that additional $50 is not wealth that you created. That is wealth that the company created, and it does not belong to you. It belongs to the company, or more accurately, to the company's owners, usually the shareholders.--Percy

Hi Dr Adequate,Since the thread is closing soon I should mention that I've changed my mind about whether financial regulations play a role in trickle-down economics. I think it might have been Rahvin who first suggested this (apologies if I've got the attribution wrong), and I now agree that financial regulations should be included as having an influence, and it can be a significant one. It was the lack of sufficient regulations concerning mortgage reserve requirements for non-banks that brought down Lehman Brothers.--Percy

The discussion forced upon me the realization that my ideas about trickle-down economics were frozen in the 1980s. I lived through the whole debate about the Laffer curve, supply side economics, and tax code simplification, and it all took place in the context of a top marginal tax rate of 70%. The argument was that lowering the top marginal rates would have two results:

1. Capital would be shifted away from tax avoidance activity to productive investment.
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2. The motivation to invest capital would increase because of the greater value of each dollar of return, and this should spur the economic by encouraging new businesses to form and existing businesses to expand.

This was disparagingly characterized by the Democrats as trickle-down economics, and so in my mind trickle-down economics is associated with the Reagan tax cuts, but it's really not the right term. The Reagan tax cuts were about making the most productive use of capital in order to spur the economy and provide jobs, not about giving money to rich. True, it let the rich keep more of their money, but it also provided motivation to make productive use of the money rather than doing unproductive things with it, such as stockpiling it offshore.Did it work? Who knows for sure? Teasing out cause and effect is impossibly difficult in economics. The economy certainly took off after the tax cuts, but energy prices that had been so high during the Carter years (some might remember the Arab oil embargo and long gas lines) dropped, and international tensions eased after Iran released the hostages during Reagan's inauguration speech.So does trickle-down economics work? Is giving money to the rich the best way to stimulate a sluggish economy? Sounds pretty stupid to me, but it does make sense in very limited contexts. If the rich are hiding large proportions of income from the tax codes because of high tax rates, and if capital is languishing unused because risk outweighs reward due to the same high tax rates, then cutting taxes should be highly stimulative. This was the situation in the early 1980s.But it is not the situation today. The financial rewards from the investment of capital are substantial and the risks are low. Dropping top marginal tax rates now would be like welfare for the rich. Given that we're much less socialistic than European countries I think our tax rates should be lower than Europe's, and somewhere in the neighborhood of where they are now seems fine.The problem is with all the loopholes, especially the ones that allow people like Romney to classify nearly all their income as long term capital gains and therefore subject to the 15% tax rate.--Percy