Why trickledown economics works!

Why trickledown economics works!

The purpose of this thread is to explain to people why trickledown economics works. With the news of the government only expanding the bush tax cuts to people making under $250,000 and increasing the so called “rich” Americans, I wanted to explain why this is a bad idea.

Update: Nancy stretch face just announced the house will not vote on extending the tax cuts for no one. So everyone’s taxes are going up from 3-5%. Thanks libs!

I’m trying to be the lest political I can but the most ignorance I find on this board comes from liberals or democrat supporters. Their arguments come as “if you give tax breaks to the rich they are just going to send their money to off shore bank accounts.” Or “they are so rich what’s another million extra dollars when they have 10 million already” another favorite is “the rich get richer and the poor get poorer” I find all these statements as talking points from the MSM. They provide no evidence and no substance and come from people who I believe have no concept of the market and how business is ran.

Why do the “RICH” need tax breaks? Simple, they need more money to start businesses and open up branches in new markets. Let’s create a business model. Let’s say the federal corporate tax is 35 %( I believe this number is correct) and state corporate tax is another 10%. (California) So right off the bat you are going to pay 45% in any gross profit.

Let’s say your net sales is $5,200,000 (revenue) for the year and you’re a small construction company

A good guess of goods sold would be (cost to supply jobs and finish)
Materials $2,200,000
Labor and Burden $1,213,000
Subcontract $87,000
Total Cost are $3,500,000

This leaves us with $1,700,000 Gross Profit and 32.69% margin (margin is the percentage of return on our sale, our $5,200,000 number)

But wait we must now pay for overhead! (the cost to keep the doors open and pay admin)

General and Admin expenses
Insurance $237,000
Facilities Expenses $84,000
Vehicle expenses $241,000
Other $656,000
Total overhead expense $1,218,000

We are now left with $1,700,000- $1,218,000 = $482,000 profit at 9.27% margin (margin is the percentage of return on our sale, our $5,200,000 number)

Now its April 15th, Time to pay taxes!!! Our profit of 482,000 must now be taxed at 45% so $216,418 gets taken for taxes. We are now left with $265,582 our company made for the year at 5.10% Margin (margin is the percentage of return on our sale, our $5,200,000 number) and this is a very conservative number. Company usually make about 3% return on investment!

So we invested 5.2 million dollars to make $265,582! These are true life real numbers. It takes a lot of money to invest and make money. And to be able to finance this work for the year the company need to have 5.2 million in the bank! So when you libs talk about company hording money in banks that’s not the case. The companies need this money in the bank to finance the jobs and as insurance if anything goes wrong.

So the next year we have 265,582 to invest with. We need at least $350,000 to open another branch and start work but since 45% went to taxes we have to wait and save till next year to open up another branch and hire more people to bring in more money. If we were taxed only 25% this number would have been achieved and we would have hired more people and started up more jobs!

These are the number and numbers don’t lie. You need a large bank roll now a day to make a little money. If only our taxes were cut for company it would take less money to start up more companies in more markets to gain more jobs. simple as that.

Remember the owner of the company is forking out 5.2 million of his own money for this company. if it falls he loses it all ( unless you know obama and he bails you out) other wise he is intiteled to the win falls and the money the company makes. would you be willing to lay your life on the line like that to make a buck. lucky your have bosses who are. other wise you would not have a job.

like a coments said below dont forget the owner will take out 60k for himself in this company so we are left with $205,582 to invest in growing the company. Not alot!

May I ask a somewhat person question? I am not asking for any specific details. I just wish to know...

Do you make more than $250,000.00 a year?

reply to post by Hefficide


no i do not. I make $60,000 a year. what does that have to do with anything? did you not read and understand the model?

The way it works is that IT DOESN'T!!

You mention creating businesses and jobs but do you realize that those businesses make the creator even more money?? I don't see any trickle down happening when this is the case. The amount of money that employees get compared to the amount the employer gets is a great gap.

Plus it is not trickle down at all. Employees are usually paid via income the business makes and the rest goes to the actual company(for product or storage in a company bank account). So technically there is no money from the rich going to the poor.

Sure places like Wal-Mart create jobs and help economies in their locations but do you see the employees or regular corporate workers making it big? The heads of the company just make more and more money and the employees just get a little bit of the income built off of sales and nothing from the employer directly.

reply to post by camaro68ss


I understand the model. In fact I've understood it since Reagan first began implementing it. I just have strong doubts about its veracity as a sustainable system.

Before trickle down economics this nation had a thriving middle class. Look what we have now.

Trickle down economics, ultimately, assumes that the rich will fill their cup and then it will overflow. We didn't count on the reality that the rich would just keep finding bigger and bigger cups.

Yes, some of the people who would have been middle classed did make it to the "faux rich" level because of trickle down economics. But most of us just got used to having less.

The OP is explaining trickle down economics which start with businesses, with the hopes that tax cuts in the business sector will trickle down in the form of decreased cost of goods, and more jobs, to the individual and, other than a few minor issues (that have no real bearing on the example), he's giving a rather good explanation of it.

the issues, in case you're wondering, corporate taxes, for 12/31 year end filers, is March 15th, not April 15th and the tax rate on the federal level is 35% for taxable income over $50,000. Below that, the tax rate is 15% but, as I said, it's inconsequential to the example.

Originally posted by camaro68ss
Why do the “RICH” need tax breaks? Simple, they need more money....

Really? Give me a break. They are banking millions, billions, trillions.....a bit more taxing on them isn't going to make or break them....specifically, it won't break them. Most of these rich elite make enough money, just off the interest of their current wealth, to create new jobs, raise wages, etc. It's only greed that prevents them from doing it. So, if they want to be greedy and hold on to their wealth like it's the antidote, I say tax the @&*^# out of 'em.

reply to post by Aggie Man


you dont understand the money thay are banking is to finace the company and new projects. by making these new projects they create jobs and inturn make more money for themself. They started the company and run it. they are intiteld to the million doller salerys. they are staking there lifes on every job.

I also have some strong doubts about its veracity in a practial application. I do appreciate you articulating this is this manner, though, it is helpful to have something to reference.

My main issue is that everyone talks about Taxing the rich and defend it with some guy who runs a business. Unless this is a Sole Proprietorship or a Partnership (both of which are becoming endangered species in this law suit happy culture), a business is not the same as a "rich person" in the eyes of most people.

The guy who owns the construction business, in your example, is probably either not taking a return off his business (no pay at all) if he was already wealthy, or he is getting something like 60K income as the President and CEO of his own 5 million dollar company, just so he can to to expand and grow.

A successful business takes time and patience. You don't bottom out and break the bank to open a second business... That is too risky. So yeah, I disagree with taxes in general. There are better ways to accumulate operating funds for the government (including cutting 90% of the government programs), but I think the message needs to address what people are really seeing, which is not small businesses struggling to survive, but rich people driving "paid-for" mercedes and going on vacations.

If you give more money to the poor they will do what they do best, spend it to survive, they will not "hold" onto it like many of the wealthy do. So this will immediately stimulate the economy which "trickles up" towards businesses.

Most businesses I have worked with will not be significantly affected by any tax increases, as there are still many ways to reduce profit through reinvestment back into the business and numerous write-offs. Most successful businesses tend to have very good credit and utilize loans to operate on, as is how the system is setup. Also, if a business will go out of business, or close, due to such a minor tax increase then it would be doing nothing more than bringing early the inevitable. And if that does occur, then another business, probably a larger one in a similar market, will expand and service those orphaned customers. Business is essentially a living organism that will always, regardless of tax cuts or not, size itself to maximize profits. Where one company fails another steps in. A tax-cut for the wealthy will change nothing. A tax-increase will only cause business to become more efficient, and in the short-term may lead to job losses but once the trickle-up begins many of those will be called back to meet the demand and in the long-term the businesses will expand.

The wealthy have also been consistently making generous returns on their wealth over the past decade, even during these economically dismal times, yet we are not seeing any trickle-down from those, and instead are seeing things tighten up, people being laid off, and the spending by the wealthy actually tightening and going into foreign investments and solid assets in order for them to preserve wealth, all of which do little to stimulate job growth or the economy.

Tax cuts for the poor will indeed be one be one of the best ways of stimulating the economy, as they will have no other choice but to spend every dollar they receive which will then be instantly transferred to businesses and eventually to the wealthy who will be able to gauge the economic stimulus and reinvest said profits. It is also one of the better forms of stimulating as it requires little speculation because consumers will buy what they need and it will be easy to see where the demand is and allow businesses to adjust accordingly. This is preferable instead of the wealthy "speculating" on what to do with their vast tax cuts and where to invest, expand, or hire and making a gamble that may or may not pay off.

I am personally not wealthy by any means, and am a registered Republican. But I do not agree with Reaganomics or the whole trickle-down theory, as it has been consistently shown to be less effective than stimulating the bottom. There is already a vast pool of money held by the wealthiest individuals and businesses that are sitting stagnant and doing little to directly stimulate jobs or the economy. By raising taxes for those who would not even feel it, and reallocating those funds to those who need it the most, the economy will be stimulated many times over. In the long-term the economy and yes, even the wealthy, will be better off.

Man i really dont understand you all here. The numbers dont lie. you tax this company more it becomes stagnate there is no gain on gambling 5.2 million a year. if there is no gain why have the company anymore. So now he closes shop because he is taxed to a Level that makes no sence to risk that much money for little return and now retires. in the process he laid off 20-30 people.

Why risk 5.2 million when there is not good return on investment? how can not cuting taxes make it to where company will invest and grow in new markets to make themself more money inturn hiring more people?

Originally posted by camaro68ss
reply to post by Aggie Man

 

you dont understand the money thay are banking is to finace the company and new projects. by making these new projects they create jobs and inturn make more money for themself. They started the company and run it. they are intiteld to the million doller salerys. they are staking there lifes on every job.

No, I do understand. new projects...blah, blah, blah.....WHERE are the "NEW" projects? Is the project to see who can have the fattest personal bank account?

What I have seen since Regan's trickle down is an increasing disparity in wealth between the upper class and the rest of the country. I think that just about any statistical analysis you can find on this subject will point in the direction that "trickle down" is, and has been, a total failure.....unless you happen to be one of the rich elite.

I find it a scary proposition that tax cuts for the rich are so strongly defended by the people that would benefit the most by increasing taxes for the rich. I figure it must correlate to the American "pipe dream" that someday "I" will be rich.....and when "I" get rich, "I" don't want to be taxed.

America, you are being fleeced.....and we take it with a smile politely ask for more.

reply to post by camaro68ss


Oh great, more taxes for everyone. YAAAAAAAY!!! Aren't the democrats great? I love their new definition of compromise:

1. We have the potential to pass anything we want without any votes from you
2. We want you to 'compromise' with us
3. Compromise means that you vote for our ideas
4. What? You have ideas of your own? Sorry that's not gonna fly
5. Oh...so now that we've integrated 0 of your ideas you're going to vote against us in a unified block? whatever
6. Ug.... now we can't even get our members to vote in a unified block
7. OBSTRUCTIONISSSSSTTTTSSSS!!!!

reply to post by snusfanatic


the sad part is this demo is of a small company and its owner. his company makes over 250,000 a year and is considerd "rich" by the goverment. but by all means he is not rich at all. this is why the goverment is crushing small company!

reply to post by camaro68ss


Well of course, you can't start a class war in a country with this large of a middle class without breaking a few eggs.

reply to post by camaro68ss


But 250k is more than many people can hope to make in a decade!

So I consider that rich by all means. xP

(The president doesn't even make that much per year!)

Nobody likes to admit it but, we have been getting a free ride for decades, rich and poor. We must raise taxes because what we have given to the IRS is not enough. It would have been enough, but we got scammed by the Bush war con job.

Originally posted by TheBloodRed
reply to post by camaro68ss

 

But 250k is more than many people can hope to make in a decade!

So I consider that rich by all means. xP

(The president doesn't even make that much per year!)

That 250k is not for himself its to reinvest back into the company. yes he could take it but his company would not grow. the point of starting a company is to grow it and make more money. growing hires more people. i think you miss the concept

there seems to be some confusion here. Trickle Down Economics involves across the board tax cuts and breaks to BUSINESSES. Not rich people. The concept, as explained in the OP, is simple. Give them a tax break, producing more left over money and that money can (operative word) be used to expand, creating more jobs, and increase production, creating less expensive products (supply goes up, price drops with the demand) and the buyer of those products now pays less, giving him (or her) extra money. Thus, the money has trickled down.


Now, not all businesses will use the extra money to expand because not all businesses need to expand. Not all businesses will automatically be able to produce a cheaper costing product either, simply due to the nature of those businesses.

For those of you that want to argue that it doesn't work, take a peek at how the economy moved after Ronnie put this in action. Did it come down eventually? Of course. Was it because of the trickle down plan? No.

The economy is cyclical and all the white house can do is tweak the cycle, try and spur it to move up slower, or faster or try to shorten the downward portion of said cycle.

Generally, when you tweak something that runs in a cycle, there's going to be a counter balance to it so, if you make the economy move higher, faster, it will, invariably, fall lower and faster as well.

the best thing the white house can do is not panic and try and create a rapid, sharp economic recovery because the opposing cycle could be biblical.

Originally posted by earthdude
Nobody likes to admit it but, we have been getting a free ride for decades, rich and poor. We must raise taxes because what we have given to the IRS is not enough. It would have been enough, but we got scammed by the Bush war con job.

True bush spent almost one trillion on the war but Obama has spent almost 2.5 trillion in 18-19 months. i dont care for ether of them. bush spent to much and obama spent even more!