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Edwynn -> RE: They're both nuts. (12/8/2010 12:39:41 AM)
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quote:
ORIGINAL: TreasureKY
Small businesses rely heavily upon owner investment and bank credit, averaging about $80,000 a year for young firms.
So... if individuals have more cash through lower tax rates, those that wish to are better able to start those new businesses. Particularly since the banks aren't lending as much these days.
Why would they invest when there are no customers? It doesn't matter if they had twice what they have to invest as they do now, by whatever means, they aren't going to hire if people aren't buying their products or services. Businesses invest and hire based on expected return. They do not keep on investing willy-nilly just because they possess or can obtain more funds.
I'll let them explain:
http://businessforsharedprosperity.org/resources/The+Business+Case+for+Letting+High-End+Tax+Cuts+Expire
Small business hiring is driven by customer demand, not tax rates
“Expecting high-end tax cuts to trickle down as job creation is about as reasonable as pouring gasoline on your hood and expecting it to fuel your engine. I’ve run a small business for more than 30 years. When people tell you that small business owners will use the money they save from lower tax rates to hire someone, they’ve got it backwards. Either they’ve never run a small business or they’re trying to mislead you. My tax rate doesn’t effect hiring. If I think I can do more business, my company will hire more workers. The costs of finding, hiring and paying new employees are business expenses. They’re deducted up front from our taxable income.” —Lew Prince, Managing Partner, Vintage Vinyl, St. Louis, MO.
"Money that a small business owner pays in employee wages or other business expenses is not included in the owner’s taxable income. Small businesses will not hire workers or make new investments unless they expect enough demand for their products and services to justify the increased capacity. Owners base decisions to reinvest business revenue back into the business on expected demand for their products and services, not on income tax rates."
“As a Certified Public Accountant and business owner, I know the impact of taxes up close and personal. The claim that ending Bush’s tax cuts on income over a quarter of a million dollars will hurt the economy, reduce employment and burden small businesses is patently false.” — Brian Setzler, President, TriLibrium, an accounting and business advisory firm, Portland, OR.
This is a long established fact known to those who understand business investing, as anyone who reads legitimate economic or financial publications knows, but you'll rarely see mention of it in the mainstream press. Lenders and businesses alike are dealing with a severe aggregate demand shock right now, and the disinclination to borrow has as much or more to do with the investment drop-off as the disinclination to lend.
As far as the spending that would help businesses, all macroeconomics textbooks explain that by the marginal propensity to consume (mpc) parameter, the wealthier one is, the more they save and less they spend from a given increase in disposable income.
A recent study done by Moody's to reaffirm this, from Bloomberg:
http://noir.bloomberg.com/apps/news?pid=newsarchive&sid=acalbjpnIxcE
So extending the lower tax for the wealthiest will do not do anything for the economy, not induce investment, will do nothing for hiring, but rather will only dig us deeper into an already deep hole.
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