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Harris Sherline: Around and Around the Money Goes
Listening to pundits argue endlessly about taxes is enough to make your head spin — taxes are too high, they are too low, the “rich” are not paying their fair share, whatever that is, on and on. For whatever it’s worth, here’s my take.
Money is fungible, meaning that all dollars are indistinguishable from one another. Since there is no way of telling them apart and they all have the same value, when taxes are cut and “spendable” income increases as a result, do we really understand where the money actually goes?
Liberals, who oppose tax cuts in general, argue that reducing everyone’s taxes simply makes “the rich” and big corporations richer. The implication is that affluent taxpayers do not spend tax savings but hoard it or that the money disappears into corporate coffers, as if never to be used again. They also claim that tax cuts for the middle class and low-income taxpayers boost the economy because the money is spent immediately and that each dollar spent has a “multiplier effect” of two to 2½ times — that is, has an impact of $2.50 on the economy.
On the other side, conservatives believe that reducing marginal tax rates and implementing across-the-board tax cuts increases incentives to earn and invest, thereby stimulating the economy and creating jobs.
Where does a tax cut — any tax cut — go, since on the surface the money all appears to follow the same path, at least initially?
The impact of tax cuts for low-income taxpayers is obvious. The savings are normally spent on day-to-day needs, to help pay for rent, food or various goods and services, which immediately stimulate the economy. President Barack Obama’s “stimulus” distributions were intended to have this effect, but it didn’t work.
For one thing, most low-income taxpayers don’t pay any income tax at all. As a matter of fact, about 21 million wage earners are classified as “low and moderate income,” and since almost 50 percent of all American wage earners don’t pay any income tax at all, a “tax cut” has no direct effect on them.
On the other hand, tax savings that businesses receive are subsequently passed on to vendors, suppliers, employees and owners (stockholders, partners, etc.), and then make the same journey through the economy that low-wage earners’ money does.
Contrary to popular hype, the rich don’t just sit on tax cuts. They either spend it or invest it. If it is spent, the money goes to vendors, suppliers and employees, or to repay debt and, in turn, follows the same route that low-income taxpayers’ tax cuts do — it is either spent or saved. If it is saved, it isn’t hidden under the mattress but is deposited in banks or savings accounts or perhaps is used to buy securities, or it may be invested in real estate, to start new ventures or expand existing businesses — all of which stimulate growth.
The tax savings of the “rich” that are deposited with institutions are generally loaned out and repeat the same journey through the economy that any other dollars do, while stock purchases send it to other individuals or to corporations, to be spent for equipment, services, goods and payrolls, to expand or to pay dividends to their shareholders, thus repeating the cycle again, including turning over in the economy the same 2½ times as the money that is spent by low-wage-earners.
Tax savings of corporations also make the same circuit as the money from individual taxpayers — that is, to vendors, payrolls and profits, which are invested or distributed to shareholders. If they are distributed to shareholders, the payments are taxed as dividends, with the balance either being spent or saved, and going around again.
Around and around the money goes, but no matter what your political persuasion may be, perhaps the question that should be asked is: How does government create jobs without producing anything?
They don’t. Government can only spend or distribute money it takes from its citizens, unless it owns the means of production, and that’s socialism.
In 55 B.C., Cicero said: “The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance.”
If America does not return to the principles espoused by Cicero, we are doomed to go the way of the Roman Empire.
— Harris R. Sherline is a retired CPA and former chairman and CEO of Santa Ynez Valley Hospital who as lived in Santa Barbara County for more than 30 years. He stays active writing opinion columns and his blog, Opinionfest.com.
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» on 06.17.12 @ 06:11 AM
“If America does not return to the principles espoused by Cicero, we are doomed to go the way of the Roman Empire.”
Wow. Another scholarly conclusion by Harris Sherline.
It may have added some credibility if Harris had had the sense to talk about how much cash is sitting on the sidelines right now, not being invested and not paying vendors.
Take GE, for instance. They famously paid no tax last year., but have $85B cash on their balance sheet. That’s $70B more than they had in 2007. Their long-term investments have only increased by $25B, while their accounts payable have decreased 25%.
This situation is repeated ad nauseum among big oil companies, big pharmaceuticals, and big insurance here in the USA. It seems that our big corporations take their fungible dollars and hoard them in savings accounts. The wealthiest 1% of our individuals are doing the same.
Sure, extend their tax breaks so we can continue this capital stagnation.
In the meantime, the line workers at these companies, the ones who Harris sneers at for paying “no income tax,” have seen their real income decrease substantially over the past two decades. They are effectively paid less. And when it comes to paying taxes, they typically pay more of their income out (as a percentage) than their wealthy neighbors or these large corporations.
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» on 06.17.12 @ 06:57 PM
Hey Rambler, why doesn’t the Obama Administration or your other liberal friends support tax reform, which would eliminate all deductions, loopholes and exemptions for businesses and individuals. It would also lower the tax rates for everyone. Answer: Because all politicians (particular big govt types) would have to stop using the tax code for social engineering and paying off their special interest contributors.
Also let’s eliminate the tax exemption for municipal bond interest and the deductibility of mortgage interest, or is that too close to home for you.
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» on 06.17.12 @ 08:25 PM
Father Lou, tax reform is highly subjective. Take the mortgage interest deduction for example. Now why was that enacted, and to what tax bracket does it deliver the most advantage? Mine, and probably yours, though I am not very rich and suspect that you are even less so.
Renters pay tax on all the money they must use to pay rent. That isn’t fair, when the rest of us can write off roughly half our housing cost.
Everybody pays the same tax on gasoline, cigarettes, and food. Do rich people eat more, smoke more, or use more gasoline? Well, maybe if they fly a private jet, but then there’s a good chance they write that off on their corporate taxes. Above and beyond that, it’s all cake.
There’s a certain minimum income that every American must strive for to meet the basic needs of shelter, food, medical care, and children’s education. After that, it’s cake. Tax the cake.
Real tax reform doesn’t make the janitor pay the same percentage in income tax as Mitt Romney (though he may be paying more right now). It puts the higher burden on those who have benefited most from our economy and infrastructure.
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» on 06.17.12 @ 10:31 PM
Rambler, I never said the janitor should pay the same tax rate as the millionaire, although we both know the high income guy is paying much more taxes than the janitor. The top 1% pay 40% of the taxes. No, it is possible to have progressive marginal rates without all the loopholes and deductions; however, I would argue we could have fewer rates and all of them could be significantly reduced. Again, it is hard to achieve this because politicians like to use the tax code to influence behavior and reward their special interest buddies.
As for home interest deductibility and municipal bonds, all I was suggesting is that liberals don’t like tax breaks unless they are benefiting from them.
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» on 06.18.12 @ 09:17 AM
You spend a lot of time attacking “liberals” on principle, based on some aggregate “liberal” you’ve constructed in your head.
Instead, you might take a look at the real problems.
For instance, as the lower 50% of tax-return filing earners in this country make less, the upper 1% make more. One cannot happen without the other, unless you say that the top 1% make their money out of thin air. To make statements about how that 1% now pay more of the income tax is like using doublespeak.
We are taxed on our property, our income, and our purchases. Of the taxable purchases made in this country, the bottom 50% probably account for far more and pay far more tax than the top 1%. As a percentage of their total income, they certainly pay far more.
If you know 10 people who have a net worth over $10M, I’ll bet you cannot find more than one of them that did not get there by inheriting it, or if not, then by cheating a partner, a colleague, an investor, or their employees.
Tax the cake.
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» on 06.18.12 @ 11:26 AM
Let’s sort out the facts from the fiction. The bottom 50% do not pay income tax. They may pay into social security but we are told not to think of it as a tax (more like a Ponzi scheme). The bottom 50% on a percentage basis we receive far more from SS than the top wage earners.
“If you know 10 people who have a net worth over $10M, I’ll bet you cannot find more than one of them that did not get there by inheriting it, or if not, then by cheating a partner, a colleague, an investor, or their employees.”
This sentiment is a interesting Rorschach test into the inner psyche of our govt-loving, big spending liberal socialists. Wealth is a dirty word, only achieved by nefarious means. Of course, when govt forcibly extracts their pound of flesh from your hide with the threat of incarceration, you are only doing your civic duty as a citizen.
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» on 06.18.12 @ 06:10 PM
Social Security now? Figure out the percentages. The lowest 50% spend almost every penny they make on basic necessities, and something well north of 15% goes to taxes. The richest 1% spend about 1% of their income on basic necessities, and their effective tax rate is in the low teens. It’s the middle class, those making less than $250K AGI who pay the biggest percentage of their income to the federal government.
Obama tried to fix that, but you billionaire’s sycophants blocked him.
Look at the, what? 9th richest man in the world: Mark Zuckerburg. Is Facebook really the best we can do, and reward a guy like that for… a place for people to lose their spare time, their dignity, and their privacy?
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» on 06.19.12 @ 12:15 PM
Rambler, why do you pick Zuckerburg and not Soros or Buffet? They are far richer and made their money either skimming the wealth from others or down right screwing people. It wouldn’t be that the richer guys are big time liberal democrats would it? BTW Mark is 14th in the US and 25th world wide.
You might want to take a good long look at the worlds and particularly the US wealthiest people. Most made their wealth Rambler, not inherited it. And you might find it particularly galling that the biggest inheritors of wealth and the biggest parasites are liberal democrats. Not all mind you, Bill Gates is a formidable and generous liberal and the richest man in the US second in the world. He made his fortune much the same way your loathed Koch brothers did, earning it.
I think you allow your class envy to show through to much here. As Sherline points out the wealthy don’t just sit on their money they put it to work. Yes many companies and personally wealthy are holding their cash off shore until they see what happens in November. The quickest way to get that cash back into our economy so you and your liberal parasites can feed off it is to vote Obama out and elect a GOP majority. The quickest way to see that cash disappear forever is to keep Obama and give him what he wants. Of course that means less revenue to government, a poorer economy and more robust class envy from the like s of you.
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» on 06.19.12 @ 01:56 PM
Wow, Bishop ANchove, class envy? This from a guy who spent his career documenting OSHA and EPA compliance he didn’t even believe in? In the “semi conductor” industry. You must hate every PhD, MS, and BS you ever had to work under.
Sounds like an angry conservative parasite with a bad case of class envy to me.
Do you think Bill Gates didn’t cheat and steal to get where he got? He did. So did Steve Jobs, but maybe to a lesser extent. Jobs just rewarded his loyal market by moving his production to China. Let’s not even broach the sewer from whence the Dr.s Adelson and the Koch brothers emanate.
You don’t seem to think they should pay even 20% of their overwhelmingly high income in taxes! If they did, you think they (well at least Gates - he’s still alive) would leave the country. You are a pathetic kisser-upper.
The idiots park the money (made here, for the most part)off shore, waiting for a tax break? You fool. They are waiting for us to start buying again, but it is getting harder and harder for us to do so as our real income stagnates, or even declines.
So that capital continues to stagnate.
In nature, the best evolved parasites learn that they must keep their host relatively healthy. Some even provide a benefit for the host. The thing is, you view these uber wealthy guys as the host, and all of us as a bunch of ungrateful parasites, but it’s really the other way around.
These parasites, and I mean the conservative ones (Captains of Industry, Robber Barons, etc.), will kill their host, the U.S. market for their goods. They won’t find a new one if that happens.
Those of them who are liberals are absolutely correct in their political leanings.
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» on 06.19.12 @ 07:58 PM
OK, his understanding of economics may be weak, but Mr. Sherline has done a bang-up job of historical research. There has been a lot of doubt about his Cicero “quote”. See for example
http://www.roger-pearse.com/weblog/?p=5543
So it’s terrific that Mr. Sherline has been able to settle the matter. Could he fill everybody in on exactly where in Cicero’s writing this appears? Inquiring minds want to know.
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» on 06.20.12 @ 11:13 AM
Ramjet, you make more sense when you dial back the dopy “pissed off liberal” invective. You and I once agreed that when it comes to wealth it’s more important to distinguish between wealth generators (those who add more wealth to the economy than they suck out) and wealth accumulators (those who inherit or transfer wealth or suck more out than they generate - bankers and alike) than rich versus poor.
Right now you just come off as some whiny, crass, envious, loser jealous of those smarter and better than you that made their pot of gold you don’t deserve. Your whole liberal/socialist/progressive mantra reeks of class envy. That is bolstered by your abandonment of the above mentioned distinction and bifurcating wealthy into liberal parasites you love (George Soros) and conservative generators you hate (Koch brothers). Calling wealth generators parasites just because they disagree with you politically is in a word stupid. It’s a rather disgusting spectacle.
As for the rich I do not view them as the host you blithering idiot. If you actually understood what I wrote you would see that the economy as a whole, more particularly our sovereign economy, is the host. You would really have to be a friggen moron not to see that. How else could I make the above stated distinction between generators and accumulators (your terms BTW)?
As for parking their money off shore it absolutely is tied to tax rates. It’s your lack of comprehension here that explains your relative poverty and envy of the rich. The wealthy around the world learn pretty quickly where to park their wealth so dopy class envy Marxist parasites like you don’t get your undeserving grubby hands on it. How in the hell do you think the rich in Europe manage to stay rich in that God awfully socialist environment? In fact most wealthy who inherit their wealth or transfer it prefer your stupid socialist economies because it stifles upward mobility. Keep the stupid middle class fat dumb and happy and they won’t be motivated to climb the ladder to the elite classes. You are a tool Ramjet.
Hammie, Cicero, really? That’s what you come away with from the discussion? Can’t argue the point so point out insignificant or irrelevant errors to distract, is that it? Lou, its friggen hopeless, you can’t bring these guys to the table.
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» on 06.20.12 @ 01:40 PM
Hey Lou,
How much in Federal tax did you pay last year?
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» on 06.20.12 @ 03:18 PM
Someguy, sometimes I wonder how smart it is to reveal my identity on these discussion forums, but I would have to think about it before letting the world know how much federal taxes I pay. It is sufficiently high enough so that it is painful to me. I am sure there are many other people who also feel burdened by all the taxes they have pay to the various levels of govt. It would certainly feel better if I had some assurance the money was well spent.
Unfortunately, I will probably be paying much more in the future with all the proposed tax increases on the table. Obama wants to raise federal taxes and Brown wants to raise both the state tax and the sales tax. Helene Schneider is attempting to raise the sales tax, too. We have these property parcel taxes on the ballot and the city has raised utility rates 14 to 16% two years in a row. Sometimes, it seems like those of us in the private sector are working overtime to ensure the availability of generous public sector pensions and other benefits for this group of people.
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» on 06.20.12 @ 04:46 PM
AN50
OK, let me spell it out: many folks will accept as true any claim that they find congenial, once it bounces around the internet. The Cicero quote is a fine example: check how many times it’s been quoted in the blogosphere. Mr. Sherline’s economics “research” here has about the same depth, so why should we take it seriously? To be fair, Mr. Sherline begins by disclaiming: “For whatever it’s worth, here’s my take,” but the answer appears to be, “well, not much.”
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» on 06.20.12 @ 05:21 PM
Fair enough Hammie, touché. However, some of us tried to take it a little deeper, even after dealing with high emotions and class envy. But if the author of the original article shuts you down I guess there isn’t anywhere else for you to go?
Lou, learned a long time ago the hard way that the internet is no place for public display of personal information, including your name.
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» on 06.20.12 @ 06:23 PM
Bishop ANchove, inaccurate quotes and attributions are the signals of fraud. If you dig deeper into the arguments of fraudulent people, you don’t uncover truth, you uncover more fraud. This is where a college education might have helped you, had you acquired one.
Your message to us is this: Yes, his references are false, but his message is true, because I want to believe it.
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» on 06.20.12 @ 08:19 PM
I am not sure what Cicero said in 55 B.C., but there seems to be some consensus he said “the arrogance of officialdom should be tempered and controlled.” This quote would certainly be relevant today.
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» on 06.21.12 @ 07:19 AM
Nice diversion Ramjet, only in your case it doesn’t come close to letting you off the hook. Hammie didn’t come out of the box crying like a spoiled baby about how “all the rich are cheats and I didn’t get my share of the pie,” you did. Answer the charges or crawl back under your rock.
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» on 06.22.12 @ 08:33 AM
In response to Rantin’ Rammie’s diatribe regarding the “GE paid no taxes” urban legend, I refer you to the following article: http://www.propublica.org/article/setting-the-record-straight-on-ges-taxes.
The urban legend is wrong. Misreported by the NY Times and grew from there.
BTW, Rant, the amount of cash a company has is not what it is taxed on, just like you. Corporate income tax is levied on, guess what? INCOME!
I’m curious as to why the taxtherich types never pick on entertainers or sports figures, many of whom are millionaires many times over.
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» on 06.22.12 @ 09:29 AM
John, the article you cited points out how excessively complicated the tax code really is, when no one but the tax accountants can understand it. Reforming the tax code is a no-brainer, but the liberal Democrats refuse to do away with all the loopholes because of special interest influence and social-engineering meddling. As a result, the tax rates are way higher than they need be.
Rambler likes to castigate GE, but he fails to tell you that its CEO, Jeffrey Immelt, is best buddies with Obama. Obama appointed Immelt to head the President’s Council on Jobs and Competitiveness to replace Volcker. I wonder if Rambler can see the irony of pointing out GE as a symbol of what’s wrong with our economic system and not knowing about its strong ties with the Obama Administration.
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» on 06.22.12 @ 01:57 PM
It’s no more ironic than the biggest benefactor to the left being none other than George “the currency killer” and “third world pirate” Soros or that some of the richest people in the country are liberal democrats.
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