This is adjusting the inflows not the outflows of rich people (and thus low marginal propensity to spend) people. So while every revision teaches us more things, this doesn't isn't really hitting "where the action is".
Remember that in macroeconomics, saving is the break, and spending is the gas.
Holding that $5 prevents any business to business transactions and possibly causes the company to constrict employees economy mobility or requires laying people off.
By making the 1% richer through reduced taxation is actually economically harmful in the long run and reduces economic mobility. Same as politicians supporting budget cuts.
If money simply rotates between customer and employee, that business never existed in the first place - because somebody had to invest in the first machine, coffee, location, etc.
1) That's not what the parent meant by "holding that $5." They didn't mean investing it, they meant electing not to spend it. It isn't used to buy coffee, not is it put in the bank, it is put under the mattress (per say).
2) That is not how modern investing works. If you invest $5 into a company, that company does not get $5 to grow their business. Modern investing is quite different than the idea many of us were taught as a kid. Angel and seed investing are more related to this concept you are implying, but not the type of investing most people do: i.e. buying something on the NYSE. That kind of investing has extremely different metrics for success that do not necessarily rely on generating better products or even a "better business." (different metrics are often used to define this -- state yours and you'll start a hot thread -- so quotes)
I don't have statistics on how much money is "under the mattress". I expect little enough that I don't need it. All the more so when our oh-so diligent govt mostly doesn't care either and navigates based on "money supply" actually in circulation. Happy to be corrected if someone has data.
"Spending $5 on coffee ... lets that business ... re-invest ..." means I'm giving them $5 and they are choosing to hold or they reached their tipping point of saving and can initiate a re-investment. That $5 could be used as simple as replacing a broken electrical outlet cover or fund constructing a drive-though. Could also go to funding the employee pizza party to invest in employee satisfaction.
Just like cars, some business investments are fully paid off and are now just there for utility. Only need operations and maintenance costs. Investment does not mean you need to by another car or build another location.
Is that a more clear?
Everyone stepping on the brakes means no one is going any where. Just like everyone stepping on the gas means no one is going any where. Wouldn't the 2007-2008 financial crisis be a good example of both? Didn't too many people overspending, which originally looked good on paper, turned out to become a head on collision causing too many stepping on the brakes because they could not afford the gas?
Your previous post contrasted spending $5 on coffee as letting that business operate, versus holding the $5 as not allowing that.
I pointed out that there is no such thing as merely withholding the $5. That is, in the real economy, the $5 that is not spent in day to day operation is instead invested. The choice is not between buying the coffee and doing nothing. The choice is between buying the coffee and leaving the $5 either for you or for someone else to invest (through your bank). Either way it's getting invested. THAT $5 is what created a coffee house in the first place. I was pointing out the fallacy of these $5 being somehow idle and out of the game. Sure a little money is out of the game (perhaps under a mattress) but not much.
I agree with gas vs brakes analogies in the economy. Even if I have a hard time with yours. Economic policy and overall mood can push people to spend more or save more (which gets invested). That investment activity can be very productive or not very. In extreme cases it's really but really not productive - just the best that people can think of. In some cases it's a bubble which seems like a good, productive idea at the time - and then isn't. Sure. And all economies need both spending and at least long term investing.
You introduce something new in this response (I think) "some business investments are fully paid off and are now just there for utility." I don't think that's correct. Money / capital has an opportunity cost. Either that business produces now (dividends or value increases) or it's held in the hope that soon it will, or it's sold to someone who thinks they can do better and the money redeployed somewhere else. More so if it's actively losing money. Holding the business is an active management decision for that capital at each moment. Even when that decision is "no change, carry on". "Paid off" would be about what happened 20 years ago and usually never even gets looked at. It's rarely relevant. See also "sunk cost fallacy".
This is assuming zero govt. corruption.
Also, the 1% don't save. They invest. Which would have created the coffee shop in the first place.
There's really no need to blame the 1% for your coffee shops.
You think those are the only kind of investments? The local small businesses don't get loans? The local small businesses don't depend on other businesses?
I guess you are not from the US but I really am a fan of better economics and financial education worldwide.
There are no Scrooge McDucks hoarding gold coins in a vault.
The Scrooge McDucks are landowners who disproportionately benefit from low property taxes relative to the security they receive from the rest of taxpayers paying for police/courts/etc. For example, a coffee shop or whatever business built on someone else’s land might as well just be a job you bought for yourself, because the landowner is going to come for the extra profits at some point.
The US does allow for copyright/IP though, which adds an additional asset to rent seek from.
asking as someone who's never owned property.
https://en.wikipedia.org/wiki/Land_value_tax
Also, get rid of 1031 exchange.
https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_...
Once land is properly taxed, supply of housing units will increase to limit its price.
Precisely why the LVT is inherently flawed and regressive, and prone to abuse and exploitation by the rich and powerful, instead of being dictated by the aggregate market demand of regular citizens.
>Empirical data from the US and France, however, indicates that ownership of land value (in absolute terms) is negatively correlated to the social welfare weight. Middle income households would pay relatively more land value taxes than high income households, but less in absolute terms.
Unfortunately, the "relatively more" aspect (to one's income) is what matters.
LVT is predicated on this idea landowners will be forced to "make efficient" land for common good, as an empty lot is taxed the same as the skyscraper. In practice, this just makes desirable areas unaffordable for the middle class and completely forces out the lower class. e.g. it _makes explicit_ into the tax laws, what is already happening in practice with property tax.
property taxes in a desirable area say "sorry you're poor and your house isn't nice, but you pay less tax than your rich neighbor". LVT says "don't let the door hit you on your poor ass on your way out, but if you want to stay you can pay the same tax as Mr Moneybags next door".
Not to mention the irony that LVT actually decreases the value of the land.
>If buyers know that they’ll have to pay £10,000 in tax on a piece of land they valued at £100,000, they’ll only be willing to pay £90,000 for that land. The tax lowers the returns from land ownership which is reflected in the value of the land. The current owners of land are the ones who bear the full cost of future tax bills.
Again this disproportionately affects the middle class landowner and unceremoniously kicks the lower-class former-landowner who inherited the property out of the landowner class.
LVT is ultimately the billionaire's dream. It's a dressed up neo-Eminent Domain, pretending to be progressive while being punitive to those without means.
Worst of all* is the suggestion LVT it discourages land speculation - it actually does the exact opposite. It severely exacerbates speculation, akin to how people scalp concert tickets or limited edition Jordan shoes today.
*there's also countless issues with trusting the government to evaluate the land; the issue of value vs. area; subjectivness of varying types of land value from agricultural farmland vs. industrial land vs. service-oriented vs. transport/logistics vs. inherent value from resources, but "make the poor family living in a shack pay the same tax as the rich guy who build a skyscraper" is sufficiently flawed without going in depth into those issues.
One is incentivizing land to be used more productively, for example for public transit, higher density housing, so that more people benefit.
Another is a too large rich/poor gap.
The latter problem requires a different solution, which is taxes to redistribute wealth.
Where are the 1% most likely going to invest to maximize profits? More likely with stocks or areas with a higher yield. Sticking with coffee, very unlikely that they will invest in the shop down the road. More likely in Starbucks. Yet franchises actually slowly siphon out the local economy. Unless there is a means to bring wealth back in the community, it will slowly die.
When was the last time you saw Starbucks investing in the community, such as helping finance / sponsor the local boys and girls baseball teams? Would it be more likely that local coffee house or business will be doing just that versus Tesla? Is that not an economical investment, one in the community, where the local food truck can benefit from those local baseball games?
This weekend I dined at a restaurant where the bartender was living out of his car for a portion of his life. Talking with him I also found out, he is going to school for botany. Turns out he taught himself how to grow and maintain exotic plants. Going there and tipping is an investment in him and those around him in my community. A social economic investment as such is very unlike going to be from 1% wealthy that are looking an a pure financial gain.
An unbalanced economy where the wealth are very top heavy prevents local investments. For example, lets say the taxation is cut for them and thus needs to cut funding for Mental Health Facilities. That reduced the probability to invest in people that could be assisted in becoming a more stable part of society. Doesn't a dramatic cut in education speeding reduce the ability for a more talent pool of people in the community? This type of investment must be long term and equivalent to R&D in a company. It does not pay off right away but done the road it has a high potential.
Economic abuse can be exacerbated by large economic inequality. Take a bank, turns out that there are 100 deposits in the bank to fund the loans departments. One person's account contains 90% of all funds. Now that one person closes their account and the bank becomes defunct and all others loose. With enough wealth people can concluding to make this happen. Lets conclude to invest in a bank, that has stock in the market, though deposits. We become over 60% of the loan department. We wait a while and then start shorting the bank stock. Pull our money out and make money on other people misery. Where a well balanced economy would prevent this ability and create a more long term stable economy.
Fraud is part of every Government and society. Some people just want to make as much money as possible as soon as possible. No matter how big or small the community is. Decent firewalls need to be put into place to prevent it and forensic accounts needs to be deployed to find it. Fraud is crime, is it not? Where does most crime take place? Probability states in larger populations such as California and Texas versus smaller ones such as Maine and Wyoming. Based of probability, wouldn't most fraud be from the more affluent individuals?
Look at Toyota vs Ferrari. Ferrari is priced for the rich and has the highest margin per vehicle between the two. Toyota is priced for the non-rich, produces the most cars, employees more people directly, and has more manufactures. Toyota is more of a driving force for the economy though initial sales and second hand market than Ferrari. Driving force of any economy is not dictated by the wealthy but by everyone else. Coffee is no different. 1% cannot economically support that coffee shop, it is the community with spending power that can.
*Fixed wording.
When it comes to talking about the wealthy I like to frame the problem a bit differently. Instead of focusing on the ceiling, it is better to focus on the floor. I don't care if there is an unbounded ceiling (that would be preferable if possible) but I do care about a bounded floor. There are many ethical reasons to care about the poor, but understanding capitalist economics as a river flowing, poor people are also sinks (like the rich). They too are not able to effectively spend money, or even generate capital in the first place (remember, this is a positive sum game where the point is to generate more capital[0] year over year). We don't actually want poor people, and we don't actually want less people. So the best solution is to make these people not poor. I don't know if the answer is through UBI or actually addressing the complex issues within our society that prevent people from climbing economic ladders[1]. Unless you believe that poor people are genetically different (no evidence) or that they're "too far gone" (extremely weak evidence and doesn't argue against fixing the new generation), then it makes sense to help these people out. After all, the government's role in economics (it is a player) is to prevent these types of pooling and to promote competition. It is really an extension of the ideas behind why we monopoly bust. Not because monopolies are always bad (sometimes they are good. Damn network effect), but because the power is abused in such a way that capital resources pool into a system that prevents the economic growth of the society as a whole.
The huge irony is that part about how helping the poor helps the rich. I'll put it this way: a king a few hundred years ago lived a worse life than many middle class people. They did not have plumbing or working toilets, as good of health care, could not travel around the world in hours, and honestly most probably did not have as good quality of food (new cooking techniques, accesses to new spices, access to goods throughout the year, overall variety, etc). These are not things you can directly "buy" but rather you have to let the chaotic nature of the system create these things. You kinda just got to throw money into the wishing well and wait for it to happen, but it happens faster when more people are not struggling economically. They can still be extravagantly wealthy while advancing this too. Let's be real, there's no way the top 50 richest people can spend their money in their lifetimes.[2] The truth is that going for the "highest score" is over-fitting to the metric and actually harms performance.
Weirdly the first part (depression paradox) of this point is made in a South Park episode: https://southpark.cc.com/episodes/9do3gw/south-park-margarit...
[0] Capital is a vague term. Using here vaguely to not just mean cash, but goods, innovation, research, etc. But do not confuse economics with a zero sum game (common). Most games are not zero sum except in very simplified cases or special cases (like an instantaneous snapshot).
[1] Nearly everything we oversimplify. The world is incredibly complex. First order solutions aren't good enough for this modern world. Stop using them. It isn't that they aren't "good enough" it is that in complex systems using a first order solution can actually take you away from the optimal solution, not just inefficiently towards it. If you think about it you'll be able to find some examples (best to do this thought experiment: think of a simple and reasonable solution to a problem that completely backfires. If you need help Google "Cobra Effect").
[2] It's important to remember that capital works differently for the rich. Since the capital is difficult to spend at a rate that greatly depreciates itself, the interest factor plays a dominating role. While you or I grow little interest on our money because our small principles, the rich have huge principles and even a small dividend on that is an absurd amount of money. E.g. if we had a billion dollars and got a 1% yearly return on it (for easy math) that's $10m/yr. It is definitely possible to spend that money in a year, but it is more difficult to spend that much every year.
So, from the perspective of economic growth, we want people to spend as much as possible, not save.
Beyond the money itself that is spent that spurs growth, you also can add on the fact that people with minimal savings are forced to work to survive. People with lots of savings are more inclined to lounge around and be unproductive.
Of course, one could also argue that people with minimal savings are less creative, because they're in constant survival mode and grinding out the style of work they've always done.
That feels like a perversion of the credit industry. We can clarify that we want people to have as much excess income as possible, spending a fair percentage of it. If they're spending more than a sustainable amount, they are incurring excess and efficiencies and/or deficit spending which will have a suppressive effect on spending over the long term.
Obviously that isn't true on smaller scales, living paycheck to paycheck isn't considered a good thing.
It just means it is nuanced to discuss these problems from a Macroeconomic perspective. On the one hand saving a little is good for individuals on the other spending is better for the "economy".
If the economy is a car then people saving extra is the equivalent of hitting the brake pedal and people spending more is the equivalent of hitting the accelerator (or gas) pedal.
So the huge cash reserves of large companies are a brake on the economy which is why all the politicians are so keen to increase corporation tax /s
I don't really understand how increasing corporate tax could encourage corporate spending. It seems to me the opposite is the obvious mechanism. The more money that goes to the government, the less money a corporation has to put into the economy. If the corporation is in a "save" mode, they're more likely to spend less if they are taxed more than they are to continue the same spending and save less.
Maybe that's not what you're saying or maybe the effect is different than I'd expect (economics is weird sometimes) but I don't get your point there.
Right now companies are saving up profits in their bank balances. I think if you increase the tax they pay then those balances will grow more slowly and the tax money will flow into the economy via the public sector. You think the companies will spend less but I'm not sure why companies would scale back operations?