The true job creators.

Scioch

Just happened on this video and it really got me thinking. I have heard the argument from FG/Lab/FF about not taxing the rich because it will drive investment out of the country and be counter productive in creating new jobs. I heard them trot it out time and time again to refute SF/ULA proposals of taxing the rich to give consumers more money to enable the economy to grow.

In this video an American venture capitalist argues that it is indeed the consumer who powers job creation and not the rich. He argues that what current law makers accept as fact (taxing the rich leads to less jobs) is actually just faith and is erroneous and has been shown to be over the course of the last 20-30 years.

His main point seems to boil down to the fact that demand leads to jobs. Money in the hands of the rich doesnt increase demand as rich people do not consume that much more than the average person. That money in the hands of consumers will create demand and jobs so power an economy so this thought that reducing the amount available for investment will harm the growth of the economy is false. It would increase the growth because it will increase demand and would be better all round.

Sorry if its been discussed before.

https://www.youtube.com/watch?v=bBx2Y5HhplI

Pedant

The "rich" already pay a lot more taxes than people who earn less money. Taxing will not encourage job creation.

And it's not just the "rich" who create jobs. What about small businesses? It's extremely hard for small business to start up, develop their business and create new positions because of rent and rates. Reducing taxes across the board, and not just on the rich, will stimulate job growth in the long run.

What we have now is large foreign businesses taking over because they can at least afford rents and rates (unlike smaller business). Instead, Ireland should stimulate it's local economy (which is weak) by reducing taxes on small businesses.

If you do reduce taxes for smaller businesses it will increase the amount of money available to them which in turn will encourage them to expand, create jobs and thus increase demand. This may also encourage money to flow downwards from larger businesses who will be forced to compete.

Chuck Stone

Watched that video before - there was uproar in some sections of the media in the US over it. Another interesting statistic I read recently was that only 3% of the rich are actual entrepreneurs/innovators.

Based on U.S. tax return data, only 3% of the wealthiest 130,000 Americans are entrepreneurs. Most are in management or finance.

Source

Chuck Stone

Pedant wrote: »

The "rich" already pay a lot more taxes than people who earn less money.

Reductive nonsense. They pay more in federal/stae taxes. As a percentage of income the poor pay a lot in VAT and other flat charges. If you were to consider wealth rather than wages alone the richest get off light.

Taxing will not encourage job creation..

How does that tally with the fact that the US was booming during the 50's when taxes were high on the rich?

Scioch

Pedant wrote: »

The "rich" already pay a lot more taxes than people who earn less money. Taxing will not encourage job creation.

And it's not just the "rich" who create jobs. What about small businesses? It's extremely hard for small business to start up, develop their business and create new positions because of rent and rates. Reducing taxes across the board, and not just on the rich, will stimulate job growth in the long run.

What we have now is large foreign businesses taking over because they can at least afford rents and rates (unlike smaller business). In stead, Ireland should stimulate it's local economy by reducing taxes on small businesses.

The amount of tax being paid isnt really my issue, all that relates to is public services. Reducing tax on lower earners by taxing higher earners more puts more money into consumers pockets which increases demand and leads to job creation. So taxing in that regard may encourage job creation.

Its tough for anyone to start up when demand is low. Unless the demand is there a business cannot survive anyway so lower taxes although helping a business establish itself isnt a long term solution because that in itself wont sustain jobs only demand will. And reducing taxes across the board isnt feasible currently is it ? Not without the public sector taking a huge hit anyway.

Scioch

Pedant wrote: »

If you do reduce taxes for smaller businesses it will increase the amount of money available to them which in turn will encourage them to expand, create jobs and thus increase demand. This may also encourage money to flow downwards from larger businesses who will be forced to compete.

I dont see how a business can expand without the demand and I dont see how the demand can exist from small business being set up. The business cant survive on the custom of its own workforce so the business cant create the demand. It has to already exist and for it to exist you need consumers.

As Chuck said the rich get off light in terms of overall wealth. And that wealth isnt pumped back into the system through consumerism and creating demand. Chuck also pointed out that only 3% of the richest 130k in the US are innovators creating new demand. The rest I assume simply either wait to capitalize on whatever demand arises or manage existing portfolios.

So in terms of growth and demand the argument for not taxing the rich so they will invest in the country seems rather empty to me. As is the argument that they pay more than the average worker which in terms of proportion of wealth is a long way of equal.

Eliot Rosewater

LordSmeg wrote: »

I dont see how a business can expand without the demand and I dont see how the demand can exist from small business being set up. The business cant survive on the custom of its own workforce so the business cant create the demand. It has to already exist and for it to exist you need consumers.

20 years ago, was there demand for handheld devices which you could use to be constantly plugged in with your friends through "social networking" sites? Not really. The hypothetical demand existed, but the hypothetical part is important: if you asked a random consumer in 1992 what they wanted, they wouldn't have started describing Facebook, despite its current popularity. Maybe floppy disks with larger memory.

The point is that demand is a two way thing. Demand for items is created both when consumers desire something and when companies provide products that people will desire. There was no demand for smart-phones in 1992. If you had abolished VAT and other taxes in 1992 smart-phone sales wouldn't have appeared. It took innovators to create smart-phones before they could be demanded and before their production could create employment.

And having an entrepreneurial environment helps current demand too, I think. The living standards in the Western world have increased dramatically over the last 60 years. This is in part due to capitalistic competition which has resulted in fewer economic resources being required to do the same thing. Low taxes perhaps influenced some people to enter the market with a pre-existing product (say, televisions) and, through efficiencies, lower the price.

I think your point has a lot of merit, too, by the way. Perhaps the solution is to lower taxes on both groups.

Duck Soup

There was a concerted effort in US political discourse to rebrand wealthy people as 'job creators'. This was done at suggestion of the Republican political consultant Frank Luntz - the same man who sent out a directive to Republican politicians to only ever refer to oil drilling as 'energy exploration' and renamed 'inheritance tax' as 'death tax'.

All well and good, but it's wrong on two counts. Firstly, it's companies that create jobs in any modern economy not high worth individuals. Even a start-up will typically have a couple of directors and hiring is done through the limited company, rather than through an individual. This is done for a variety of reasons, amongst which are the tax benefits (plus possible grants) available to a registered company and also the limited liability should things go pear-shaped. Point is, it makes absolutely no sense to cut taxes on the personal taxes of wealthy individuals and expect it to have the slightest impact on job creation.

If you want to make job creation easier than tilt policy towards the real supplier of jobs - companies. That would include lower payroll taxes, streamlined and more intelligible paperwork and favourable rates and incentives for small businesses.

Secondly, there is no job creation without demand. If you simply cut tax rates, both personal and corporate, the supply-side theory says you unleash accelerated spending and manufacturing, kicking off the next virtuous circle in the economic cycle. I have a few problems with this theory. If you cut tax revenues for government, you cut government spending. If the state sector then lays people off, you have less demand, not more. The whole thing is posited on the private sector being more 'efficient' with money, but since you're talking about aggregate demand efficiency isn't the issue, but spending is. Which is where the supply-side argument runs into trouble.

Companies and high worth individuals do have one thing in common. They save. Corporate profits in America are now higher than they were pre-crash, but they're sitting on approximately $2tr of cash. This is for a variety of reasons, but bottom line is they're not spending it. High worth individuals on the other hand always save a much larger percentage of their worth than poor people. As such, they are lousy stimulators of demand. (Joseph Stiglitz has a new book out on this subject called 'The Price of Inequality').

Ultimately, the key to job creation is a prosperous and secure middle and working class (they spend more and save less than the wealthy), which explains why the US economy was so buoyant in the 1950s under what many today would view as punitively high taxes. As Stiglitz points out, rich people having an increasingly large share of a nation's wealth is simply inefficient. Give a thousand euro to a billionaire and he puts it in a bank or a shoebox. It's dead. Give a thousand euro to someone on minimum wage and they spend every last cent. The multiplier effect is in action.

You want to create jobs? Create a strong and secure working and middle class.

http://www.vanityfair.com/politics/2012/05/joseph-stiglitz-the-price-on-inequality

poeticseraphim

Eliot Rosewater wrote: »

20 years ago, was there demand for handheld devices which you could use to be constantly plugged in with your friends through "social networking" sites? Not really. The hypothetical demand existed, but the hypothetical part is important: if you asked a random consumer in 1992 what they wanted, they wouldn't have started describing Facebook, despite its current popularity. Maybe floppy disks with larger memory.

The point is that demand is a two way thing. Demand for items is created both when consumers desire something and when companies provide products that people will desire. There was no demand for smart-phones in 1992. If you had abolished VAT and other taxes in 1992 smart-phone sales wouldn't have appeared. It took innovators to create smart-phones before they could be demanded and before their production could create employment.

And having an entrepreneurial environment helps current demand too, I think. The living standards in the Western world have increased dramatically over the last 60 years. This is in part due to capitalistic competition which has resulted in fewer economic resources being required to do the same thing. Low taxes perhaps influenced some people to enter the market with a pre-existing product (say, televisions) and, through efficiencies, lower the price.

I think your point has a lot of merit, too, by the way. Perhaps the solution is to lower taxes on both groups.

Why is it entrepenuers and capitalists always require this special enviroment to thrive ....it is the antithesis of capitalism..

If demand is there someone will take the opertunity to meet it. And others fail and shrink ..and that is part of a healthy economy.

And businesses fail and thrive based on their abilty to survive and meet real demands.

Business fuelled by excessive tax cuts etc

Companies fuelling desire has almost always resulted in an over valueing of that industry and an overestimation of demand. Followed by bust.

Demand is influenced by many social factors....the internet could not have boomed in a population that was illiterate.

Television could not have become popular in a society working victorian labour hours.

Tax cuts have to come from somewhere ...they affect things like education and health and leave less revenue for govt to invest in society.

And this affects demand...how many ipods are sold in third world societies ??

A developed social state structure benefits capitalism in ways beyond economics.

Capitalists best protect their position in society by protecting the society they live in.

If they cannot survive in an enviroment that protects lower incomes, the vulnerable and the poor then they need to die off for other businesses that can fullfill that niche.

Capitalists adapt to society to survive not the other way around. And if businesses don't realize this they ( of anysize ) they will not and should survive.

If they are relying on tax cuts for growth it will only be temporary. And i don't think it is sustainable.

We have to stop relying on credit and tax cuts to grow an economy....and stop thinking that tax cuts come from nowhere ...we pay for them...

KyussBishop

I think it's fair to say that money that stays in the bankroll of a company is put to more productive use than that which goes into an 'entrepreneurs' pocket; in a companies bankroll it is far more likely to be reinvested into something useful.

Companies collectively make money and innovate, and while the management (including the entrepreneurial founders) play a part in all of that, they are shít out of luck without their employees.

Most of the big money makers today work in finance, and the entire financial system today has been shown to be rotten to the core, with fraud on multiple levels; these are not 'entrepreneurs' earning money from their own ingenuity, these are people abusing a very (deliberately) broken system for their own profit.


To me there seems to be very little to lose in gradually increasing tax on high earners, even if it makes them leave the country (which seems an argument, leaving the country, heavily needing statistical backup):
The companies profits are not affected, so nobody else is out of a job, and someone can take the high-earners job when he leaves.

Will the high-earner take his saved money out of Irish banks? Unless there is a threat to tax the persons savings, I don't see the logic in this, but even if it happens it's a once-off loss to the economy and after this there is nothing to lose from the higher tax.


A lot of good arguments in the thread so far, undermining the (not often challenged) arguments against higher taxing of high-earners.


It would be very interesting to see a separate discussion on worker-run businesses; I'm not convinced the mythical 'entrepreneur' has any advantage of skill or ability over others, except that enforced by financial backing and strict hierarchy within business.

There are growing co-op (worker-run) business movements across the world at the moment, which look like they have a high potential for being the future landscape of business, but which are still at a relatively early stage of adoption.
These seem a much more interesting method of running business, in a much more ethical, transparent and fair manner (no ridiculous wages for their hierarchical founders), which would be interesting to discuss the benefits and pitfalls of.

Eliot Rosewater

poeticseraphim wrote: »

Why is it entrepenuers and capitalists always require this special enviroment to thrive ....it is the antithesis of capitalism..

Really? If taxes are higher potential gains from a business venture will be reduced and there will be less of a reason to start the venture. Isn't that just classic capitalist logic?

poeticseraphim wrote: »

If demand is there someone will take the opertunity to meet it. And others fail and shrink ..and that is part of a healthy economy.

I don't think that's true. The cost of meeting demand is a major factor as to whether that demand will be met. This is why space-craft tourism isn't a big industry.

poeticseraphim wrote: »

A developed social state structure benefits capitalism in ways beyond economics.

Capitalists best protect their position in society by protecting the society they live in.

In overall long-term sense, possibly. Even if so, the whole thing is a classic Prisoner's Dilemma. There are massive incentives for mankind, all together, to, say, abolish harmful carbon emissions. On an individual basis, it makes sense really to maximize them, as you only bear a tiny fraction of the cost.

jimmycrackcorm

All our FDI jobs come from rich people who invest their wealth in shares in the companies who invest here. After that consumers create jobs in the local service sector following that.

So Intel invests in new jobs in a plant here and the local Centra hires more deli staff because consumers need more chicken rolls.

Duck Soup

Just a couple of final thoughts before I turn in for the night. Eliot is right that consumers in 1992 have no idea what they would want in the future and that really visionary companies can anticipate demand and create demand for products consumers didn't know they wanted. However...

However, you can't grow markets without growing incomes. The iPhone 8 might be able to do the ironing, sing me to sleep with a lullaby and blow me like a bugle, but if I don't have money in my pocket I can't buy one. This is not a hypothetical point. From David William's column today:

Over 1.8 million people had less than €100 left at the end of the month after paying all their bills. And nearly a quarter of credit card owners rely on another credit card to pay their bills at the end of the month.

Without a great mass of people having decent and reliable incomes, you have a vision and a warehouse full of unopened boxes of your vision.

The other thing to note is that because wealth has shifted upwards, and middle incomes either flatlined or risen by a much smaller margin than for the wealthy, the demand-led boom was funded in large measure by credit, particularly in Ireland. Forget for a moment about the bank guarantee and all that followed, personal debt followed by the credit crunch followed by trying to pay down personal debt is going to flatten Irish consumer spending for years.

http://www.davidmcwilliams.ie/2012/07/16/searching-for-real-growth

Manach

My own non-expert opinion it is a skilled workforce that drives the economy. Whilst the basic skills are obtained during normal school years, the drive to get the changing skills comes from the workforce members themselves. The optiminal way to achieve these is to buy the education, with would imply a lessening of the tax burden as the private sector has the better flexiblity to meet the changing skills gap. Unfortunately the present government has both increase the tax take from the workforce, it also reduced tax-breaks on monies spent on education.

Eliot Rosewater

KyussBishop wrote: »

I think it's fair to say that money that stays in the bankroll of a company is put to more productive use than that which goes into an 'entrepreneurs' pocket; in a companies bankroll it is far more likely to be reinvested into something useful.

But isn't the argument of the video that it would be better in an entrepreneurs' pocket, because he will spend it and provide demand? I think one of the problems here is that it is good if the money stays in the bankroll and if it also goes into entrepreneurs' pocket. The video persuasively argues that increased disposable income in lower-income families is a good thing. However, the question is: is it a better thing than the alternative. There are multiple nice ways to spend €50; the economic challenge is to choose the best way!

KyussBishop wrote: »

To me there seems to be very little to lose in gradually increasing tax on high earners, even if it makes them leave the country (which seems an argument, leaving the country, heavily needing statistical backup):
The companies profits are not affected, so nobody else is out of a job, and someone can take the high-earners job when he leaves.

In fairness, the problem is when the high earner takes his job with him, which given modern job mobility is increasingly easy. Or worse, when a whole factory is moved abroad, like with Dell in Limerick -- though I know that wasn't just about tax.

KyussBishop wrote: »

It would be very interesting to see a separate discussion on worker-run businesses; I'm not convinced the mythical 'entrepreneur' has any advantage of skill or ability over others, except that enforced by financial backing and strict hierarchy within business.

I find the lack of worker-run businesses highly interesting. Is it because worker-led groups are harder to manage? Or is it because, maybe like you're hinting at, that the single entrepreneur can more easily plug in to investment sources?

Blowfish

Duck Soup wrote: »

Companies and high worth individuals do have one thing in common. They save. Corporate profits in America are now higher than they were pre-crash, but they're sitting on approximately $2tr of cash. This is for a variety of reasons, but bottom line is they're not spending it. High worth individuals on the other hand always save a much larger percentage of their worth than poor people. As such, they are lousy stimulators of demand. (Joseph Stiglitz has a new book out on this subject called 'The Price of Inequality').

You are missing one obvious part though. When 'saving' the wealthy don't sit on piles of physical cash/gold. Their wealth is either off in a hedge fund somewhere or in a bank.

If it's in a hedge fund, lots of it will be invested into profitable companies or bonds, hence helping businesses create jobs. If it's in a bank, it's used as reserve to create loans, again helping businesses create jobs.

KyussBishop

Eliot Rosewater wrote: »

Really? If taxes are higher potential gains from a business venture will be reduced and there will be less of a reason to start the venture. Isn't that just classic capitalist logic?

That isn't true for taxing high earners though; it's not corporate tax (which would affect business) it's income tax on high earners, which affects just them personally.

Eliot Rosewater wrote:

But isn't the argument of the video that it would be better in an entrepreneurs' pocket, because he will spend it and provide demand?

That's exactly it though, wealthy people are far more likely to save a much higher percentage of their earnings than spend it.

Eliot Rosewater wrote:

In fairness, the problem is when the high earner takes his job with him, which given modern job mobility is increasingly easy. Or worse, when a whole factory is moved abroad, like with Dell in Limerick -- though I know that wasn't just about tax.

True that would be an issue, but how many high earners would be taking the job with them? (and if it's a low enough number, does that matter in the long term, since more people will train to get that job?)

As for the factory: Again, it's income tax on high earners, not corporate tax, so the factory would have no reason to move.

Eliot Rosewater wrote:

I find the lack of worker-run businesses highly interesting. Is it because worker-led groups are harder to manage? Or is it because, maybe like you're hinting at, that the single entrepreneur can more easily plug in to investment sources?

It's more profitable (personally) to have a majority stake in a business and use hierarchy to concentrate the profits as you like (i.e. in your pocket), than to have ownership distributed between all workers, which also gives them a say in how the business is run and how wages are determined.

The grand majority of wealth in the economy is concentrated in the hands of those who want to make a personal profit from it, and who thus would prefer to start (or invest in) a business where they maintain hierarchical/majority-stake control; there is a lot less wealth in the hands of those who would desire a co-op.

I don't think it's so much that entrepreneurs can plug into investment sources more easily, but I do think a lot of them have the advantage of already having significant wealth.


As for other reasons why worker-led groups are not so common: It is interesting to consider; I'm not sure of the inefficiencies of co-op businesses compared to regular ones, or the advantages etc., it would make for an interesting discussion.

Would be useful to have a good resource to read more about it actually.

KyussBishop

Blowfish wrote: »

You are missing one obvious part though. When 'saving' the wealthy don't sit on piles of physical cash/gold. Their wealth is either off in a hedge fund somewhere or in a bank.

If it's in a hedge fund, lots of it will be invested into profitable companies or bonds, hence helping businesses create jobs. If it's in a bank, it's used as reserve to create loans, again helping businesses create jobs.

An equal amount of money that the wealthy are taxed upon goes back into the economy through reduced taxes on lower earners and through public spending as well; there isn't a loss, and it's arguably distributed more fairly, and in a way which increases general economic demand (through the spending of the lower earners).

Duck Soup

Blowfish wrote: »

You are missing one obvious part though. When 'saving' the wealthy don't sit on piles of physical cash/gold. Their wealth is either off in a hedge fund somewhere or in a bank.

If it's in a hedge fund, lots of it will be invested into profitable companies or bonds, hence helping businesses create jobs. If it's in a bank, it's used as reserve to create loans, again helping businesses create jobs.

There are a few different elements at play with what you're talking about.

Money in banks - especially in the current environment - is just sitting there. It's not being loaned. Consumers and businesses both are finding it extraordinarily difficult to get credit.

The other thing to say is that hedge fund money is directed primarily at investment, not demand. Without consumers to buy, nobody invests. Without consumer demand, you might just as well throw the money down the drain. So they sit on it, as do the corporations.

And let's go back to Stiglitz's point about economic efficiency. Pouring money into banks, hedge funds etc is beneficial to a future buoyant economy (as is government spending on infrastructure) but doesn't prime demand. That still relies on consumers with money. The most efficient recyclers of money and stimulators of demand are those on relatively modest incomes.

Jimmy, on the previous page, makes a similar point to yours about Direct Foreign Investment. Leaving aside how much money in a company is corporate and how much from outside, via hedge funds, investment banks etc., the decision to locate in Ireland is a decision made solely by the corporate entity.

If it's for reasons of production or distribution internationally (Apple, Google etc) then they are looking for good infrastructure, educated/skilled workforce and favourable corporate tax rates.

If it's to sell within that economy (such as many international retail outlets made in Ireland during the boom years: Habitat, Ikea, TopShop etc), then they're looking for consumers with money in their pockets. No money, no Habitat, no chicken roll boom in Centra.

It all boils down the same handful of things. Favourable environment for companies. Consumers with cash in hand. Government doing the right thing with education, infrastructure etc (a much underplayed part of the equation, IMO).

poeticseraphim

Eliot Rosewater wrote: »

Really? If taxes are higher potential gains from a business venture will be reduced and there will be less of a reason to start the venture. Isn't that just classic capitalist logic?

Not necessarily high taxes and high entrepenureship go well together..Norway has more entrepreneurs per capita than the United States .

Start up activity in Norway or Denmark per capita actually outweighs that in America .

If there is statistical evidence to show low taxes directly result in economic prosperity.

Infact some of the countries in Europe like Norway and Sweden have grown durinng the economic crisis while some countries with the lowest have shrunk.

What these taxes are spent on is important ...infrastructure in Norway is amazing and saves a business in cost hugely

It is cheaper to hire an Employee in Norway compared to America bcause they have healthcare and the employer does not cover health insurance.

The profits come from costs saved.

Low taxe promtes business is an idea promoted by those who just want low

taxes there is little to support that it leadsto higher living standards and plenty of evidence that it does not.

It is how tax is spent that counts,America wastes a lot on the military for instance.

Also even in more raw capitalist countries like America they have huge property taxes...and still a productive property and real estate sector.

And it has to be asked does unrestrained capitaism with low taxation contribute to poverty?

SupaNova

If solving our problems was as easy as just putting cash in the hands of consumers Zimbabwe would be an economic powerhouse.

If we confiscated or taxed billions from the mega rich and all those corporations sitting on piles of cash and gave it to consumers tomorrow we would simply have a rapid inflation. The same amount of goods and services would still be in existence but a much greater amount of money to bid for them.

SupaNova

Chuck Stone wrote: »

How does that tally with the fact that the US was booming during the 50's when taxes were high on the rich?

Schiff on supposed higher taxes in the 50's:
http://www.youtube.com/watch?v=6drf0DsnHRw

It tallies with the response to the depression/recession in 1920:

The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. No wonder, then, that Secretary of Commerce Herbert Hoover — falsely characterized as a supporter of laissez-faire economics — urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored.

Instead of “fiscal stimulus,” Harding cut the government's budget nearly in half between 1920 and 1922. The rest of Harding's approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third. The Federal Reserve's activity, moreover, was hardly noticeable. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.”2 By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and was only 2.4 percent by 1923.

laoch na mona

in any economy employment is created based on the demand so no taxing the rich would not have an adverse effect on job creation because those with the ability to create a business will want to create a business in order to increase there wealth

KyussBishop

Worth repeating again (as it comes up a lot): Taxing the income of high earners is not to be conflated with taxing corporations or the savings of the wealthy.

nacho libre

laoch na mona wrote: »

in any economy employment is created based on the demand so no taxing the rich would not have an adverse effect on job creation because those with the ability to create a business will want to create a business in order to increase there wealth

..but if they're paying higher taxes they might be less wealthy than they otherwise would be if they set up a business in another country, where the tax rate is lower and the demand is the same. Therefore from their perspective, isn't this a disincentive to create a business, despite the consumer demand, in a country with a higher tax rate for the rich?

KyussBishop

It depends on what their market is; if they're trying to tap into the Irish domestic market then they have to setup here, whereas if they want to tap into an export market then what you state may be an issue.

In that case (tapping an export market), Ireland has one of the best corporate tax rates around, so that's an immediate benefit for setting up here rather than elsewhere; if they setup elsewhere, and someone takes their business model and implements it with Irelands lower corporate tax, the business in Ireland has that as a significant advantage.

So basically, we'd still be promoting profitable business, whilst at the same time disincentivizing excessive salaries for management types, who usually don't provide a proportionally representative (in relation to salary) benefit to the business (that isn't enforced by privilege in placement and/or hierarchy).


On the topic of worker-run businesses: An awesome example of an extremely creative company, which is one of the most successful in its field, is Valve.

I stumbled upon this blog from them today (big fan of their games and do work with utilizing Steam), which is a nice bit of synchronicity as I was just saying in this thread how interesting it'd be to have some reading material on worker-run business
It's not all about how the business is run, but it gets to there and is very interesting:
http://blogs.valvesoftware.com/abrash/valve-how-i-got-here-what-its-like-and-what-im-doing-2/

Here is another entry, which also has a link to a pdf which describes their work model in much more detail:
http://blogs.valvesoftware.com/abrash/what-valve-looks-for-when-it-hires/

I work with games myself, and that'd pretty much be the dream place to work at for any game developer (or well, anyone capable of working in that field; they hire all sorts); someday maybe

laoch na mona

nacho libre wrote: »

..but if they're paying higher taxes they might be less wealthy than they otherwise would be if they set up a business in another country, where the tax rate is lower and the demand is the same. Therefore from their perspective, isn't this a disincentive to create a business, despite the consumer demand, in a country with a higher tax rate for the rich?

it would cost more to go to a new country then it would to to pay tax in the country there in

AlekSmart

Duck Soup wrote: »

Ultimately, the key to job creation is a prosperous and secure middle and working class (they spend more and save less than the wealthy), which explains why the US economy was so buoyant in the 1950s under what many today would view as punitively high taxes. As Stiglitz points out, rich people having an increasingly large share of a nation's wealth is simply inefficient. Give a thousand euro to a billionaire and he puts it in a bank or a shoebox. It's dead. Give a thousand euro to someone on minimum wage and they spend every last cent. The multiplier effect is in action.

You want to create jobs? Create a strong and secure working and middle class.

http://www.vanityfair.com/politics/2012/05/joseph-stiglitz-the-price-on-inequality

Yet,from what we can decipher,the current Government is intent on demonizing these very clases...?

Right now,the Irish Working and Middle Classes occupy the most insecure position ever,with almost daily demands being made of them in terms of increased contributions,decreased entitlements,reduced earnings and arbitrary State Imposed limits on their ability to work legally.

As todays IMF Broad-Hint indicates,somebody in power has to do some creative accounting very soon....:rolleyes:

sock puppet

Duck Soup wrote: »

There are a few different elements at play with what you're talking about.

Money in banks - especially in the current environment - is just sitting there. It's not being loaned. Consumers and businesses both are finding it extraordinarily difficult to get credit.

Oh really? How low do you think AIB's LTD ratio is then?

Duck Soup

sock puppet wrote: »

Oh really? How low do you think AIB's LTD ratio is then?

No idea, but I'm sure you'll enlighten me. 140%? I know that AIB is required to get the loan-to-deposit ration down to 122.5% by December next year.

The deposit situation is lousy because money has flowed out of Irish banks. However, the banks are under instruction to make up the shortfall in deposits from sales of assets, not by cutting lending.

The loans are therefore high in relation to deposits precisely because the deposits are vanishing, not because more loans are being given out. Does that mean the banks can't lend any more? Absolutely not. Quite the opposite.

On the contrary, AIB and BoI have been expressly mandated to lend €3.5bn in the next 12 months, as part of their rescue package. Presumably the government has seen too much across Europe and globally of banks being bailed out only for the banks to use the money to repair their tattered balance sheets.

The argument from small businesses and small business associations is the banks aren't lending enough to SMEs. The argument from the banks is that there aren't enough SMEs looking for loans.

And sooooo we come back to consumer demand. With no consumer demand growth, it's suicidal for a SME to borrow money. It would also be suicidal to lend it to them.

The banks have the money (they were given large amounts of it by the government) and were told expressly to lend a big fat chunk of it, while mending their loan-to-deposit ratios by flogging stuff off.

They're not lending. There's no one to lend to, and no reason for anyone to borrow. And until you stimulate demand, none of that's going to change.

poeticseraphim

laoch na mona wrote: »

it would cost more to go to a new country then it would to to pay tax in the country there in

True BUT..also this

Thats not really why high taxation does not have to shrink an industry....the demand is still there in that country ....someone will find a way to meet it ..if they pack up..some other type of business or form fills that demand..even if it means more smaller businesses instead of one huge multi national...the demand by consumers does not shrink with a tax on rich people for most businesses...

Whether jobs and supply are created by one big huge wealthy corp or many smaller businesses competing does not matter ..perhaps it is betteras there is more competition between many smaller businesses rather than one big one..


The market/demand does not shrink in most industries with a tax on the wealthy ....businesses evolve to fullfill that demand and that niche they become smaller or more streamlined to make it profitable...but there is many of them to fullfill the demand...

Or their profits become sustainable as larger companies and more stable rather than rapid

High tax economies still have industry ...sweden and norway have the highest taxes in the world and very successful economies even now..


It is demand that drives business ...costs are based on structure and raw products , labour costs etc ....structure costs LESS in high tax economies MUCH LESS...raw products are not realy an issue in todays economy and labour costsare less in todays economies...

Companies can make a better more sustainable profit once they adjust ....costs could actually less

in the News today there was story about a large call centre company here having to import 500 workers with language skills (which our ed system does not support) they were warning business was becoming expensive here due to suitable labour shortages....AND THERE IS HIGH UNEMPLOYMENT HERE! This business warned it would have to leave this country (despite low corp tax) as savings are not offset by costs caused by lack of structure and finding suitable labour.

Yet we are told that these low taxes are needed ...I call BS

We had low taxes for YEARS during the fifties etc and still had trouble luring businesses ..it was making education free at third level that changed things and developing a suitable labour force cheaply

There is a demand for educated labour and structure not being met partially because of lack of funding in our education system as we need cuts to fund low taxation to lure and keep businesses who find our lack of funding in structure and education costs them money.

Erm Yeah that makes sense


High taxation can help bueiness ...if it is done correctly

SupaNova

Duck Soup wrote: »

On the contrary, AIB and BoI have been expressly mandated to lend €3.5bn in the next 12 months, as part of their rescue package. Presumably the government has seen too much across Europe and globally of banks being bailed out only for the banks to use the money to repair their tattered balance sheets.

It would be stupid for them to make loans just to meet a mandate if the loans they make wont be profitable.

The argument from small businesses and small business associations is the banks aren't lending enough to SMEs. The argument from the banks is that there aren't enough SMEs looking for loans.

I presume the argument is that there aren't enough SMEs looking for loans that will be profitable for the banks. There is plenty of other things that good be done so SMEs would be able to offer more attractive propositions for banks, reduce the minimum wage, reduce red tape, etc.

And sooooo we come back to consumer demand. With no consumer demand growth, it's suicidal for a SME to borrow money. It would also be suicidal to lend it to them.

Why do Keynesians completely ignore prices, as the price of a good increases consumer demand decreases. If businesses could offer services at lower prices demand would be there, to do this they need lower costs, they need lower regulation burdens and wage costs.

This complete ignorance of price reminds of Krugman's babysitting co-op:
http://www.youtube.com/watch?v=lCQ_N9wj41Q

Duck Soup

SupaNova, I wouldn't ignore prices at all, it's just that the evidence is that there simply isn't the money in the economy, irrespective of what happens with prices. From David McWilliams column of July 16th.

Over 1.8 million people had less than €100 left at the end of the month after paying all their bills. And nearly a quarter of credit card owners rely on another credit card to pay their bills at the end of the month.

So prices can change, but you still can't sell to people with empty pockets. What people have, they're already spending. And a good chunk of it I'd guess is paying down of debt.

The other thing I'd say is that prices can only come down so far relative to costs. Wages remain stubbornly high, rents the same, materials are getting more expensive, not less.

I can't think of any of the Keynesian or neo-Keynesian economists that say it's a simple matter of splurging cash. Do all those other things - support SMEs, cut red tape, give business tax breaks etc. But I can't see any way around some form of fiscal expansion (which will have to come from Brussels) Europe-wide to reflate demand.

As for the banks, the complaint - made in a spat I think with the Credit Review Office - was not that there weren't enough profitable SMEs to back (to fulfill their obligation to lend a combined €3.5bn annually), but that there aren't enough SMEs applying for loans, full stop.

If your sales are static or falling, short of necessity or emergency, why would you ask for a loan?

SupaNova

Duck Soup wrote: »

The other thing I'd say is that prices can only come down so far relative to costs. Wages remain stubbornly high, rents the same, materials are getting more expensive, not less.

You can point to interventions that are keeping wages and rents high though, they don't have to be as stubborn as they are. On the point about people having only €100 left after bills, this is mostly due to having too big a mortgage that they took on during the bubble.

I can't think of any of the Keynesian or neo-Keynesian economists that say it's a simple matter of splurging cash. Do all those other things - support SMEs, cut red tape, give business tax breaks etc. But I can't see any way around some form of fiscal expansion (which will have to come from Brussels) Europe-wide to reflate demand.

We can agree on doing all the other things. I think what Keynsians forget is that this isn't just a monetary and debt problem, we have real world physical tangible problems remaining after the bubble. We have plenty of labor and capital geared towards construction, but no need for it and we have constant complaints from IT companies about the lack of people with skills in that area.

It was constant interventions to promote housing combined with a flood of cheap credit that created this discoordination. The idea of stimulus, to take the capital that was produced during the boom and hire people to use it, does nothing to sort out the problem of discoordination between the capital and labor that is needed and what we have. And as soon as government stimulus is pulled you are still left with the same problem.

As for the banks, the complaint - made in a spat I think with the Credit Review Office - was not that there weren't enough profitable SMEs to back (to fulfill their obligation to lend a combined €3.5bn annually), but that there aren't enough SMEs applying for loans, full stop.
If your sales are static or falling, short of necessity or emergency, why would you ask for a loan?

Yes why would someone waste money expanding if they can't get a return that would justify the expansion.

C14N

I've tried reading through the thread but it's getting late and I must be off to bed.

While I generally agree with taxes on very high earners, I think there is a problem with taxing all high earners. You can say "we can take the personal money, it's the corporate tax that matters" but if you're starting a business in Ireland with the hopes of making it a big, thriving company, it helps to have the potential riches to make you want to do it.

Starting a business is hard work and it's risky. If you're thinking of doing it, it would be discouraging to think that even if you did manage to become rich and earn €500k a year (for example), you will only end up taking half of it home.

Similarly, it's not very encouraging to educated workers to think that their moderately high salaries (say over €100,000) will be heavily taxed. College costs money as it is, and take several years of your life. If you realise when you get out that there's a country next door who also wants you and you're going to get a good deal extra in the pocket, it's going to be attractive for exactly the kind of people we want to keep. Why would I work for Google Ireland and get charged 50% when I could work for Google UK and get charged 25%? (not actual figures, I'm just giving them as examples)