10-05-2016, 04:59 AM
(10-04-2016, 01:32 PM)fredtoast Wrote: If companies want to spend money on investment then higher taxes are actually an incentive. Every dollar they re-invest is a tax deduction that reduces their taxable income.
No, that's fundamentally wrong. Every dollar they invest has an after-tax cost of say $0.65, so the tax "incentive" only reduces, not eliminate, the investment cost approximately 1/3. So spending $1 to save $0.35 isn't what we would call an incentive.
Investments are tax advantaged, but the demand and ROI has to be there, and higher taxes raises that ROI which actually deters investments that would otherwise be made.
If I make 10% ROI in a tax-free environment, but you then raise my tax rate to 50%, now I have to make a 20% ROI to get the same yield on that investment. This is why tax-free municipal bonds have a lower yield than comparable taxable bonds because it's the after tax return that matters to investors.
Again, there are many factors involved here...but the empirical data is pretty conclusive that higher taxes and higher government spending is correlated with lower growth and higher unemployment. And that's not an argument for no taxes, or even that very low taxes are optimal.
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