Trickle Down Economics for Wall Street3 min read

Lower corporate tax rates can make sense for helping society and isn’t something I want to address directly. Lower personal income tax rates for extremely high ($1,000,000+) wage earners does nothing for society as a whole. We need to stop having income tax discussions in the context of it helping society, as it is absurd.

I’ll be discussing taxes from the perspective of a company that manufactures a good, as that is the easiest way to think about a business. I won’t even bother touching a non-business owner such as a Wall Street banker as there is no conceivable justification that that helps society.

The Argument

Providing a tax break to a company that is well funded in a market that is saturated does not provide any value to society. Even in the scenario where a company uses a tax break for advertising or marketing and gains more market share (a well funded company wouldn’t suddenly be able to do this with more funds) it is merely shifting market share around and does not provide any new economic output. The argument for a tax break helping a market get saturated seems to run counter to free market ideals and what investment banking is supposed to do. They have nearly unlimited funds and should be able to choose a winner in that market to fund to saturate it.

The argument for giving a tax break is really only relevant when talking internationally. This conversation must compare companies that are operating internationally, in different countries, and have a lower cost of doing business comparatively outside of tax rates. Taxes are only a small portion of the expenses a business pays though, and a large portion includes wages, capital investments, materials, and other operating expenses such as IT. Comparative taxes on businesses should be the same internationally to allow for competition to be equal, so leveling that playing field is good. Using it beyond that gives an advantage or makes up for other expenses that are higher due to other factors in the business environment.

A lot of what is said above applies to corporate tax rates, but what about personal income taxes? Small businesses in the form of LLCs will usually appear as taxable, personal income. This becomes complicated, but to keep it as simple as possible: Lowering tax rates on high wage earners hardly helps people that own an LLC that are what you would call the “sympathetic” set. Money invested back into the company or spent by the company is deductible from taxes, so the business must be successful and operating very well in order to start seeing significant enough profits to start benefiting from tax breaks for wage earners over $1,000,000. If the business has $1,000,000 in profits and no need for reinvestment, I don’t see why you need to be a protected class.

I’d love to see something that shows otherwise, but the math doesn’t seem to make any sense to me. Lower personal income tax rates for extremely high wage earners don’t benefit society, only the individual. If those higher earnings are a good thing should be an entirely different conversation. We shouldn’t be having it in the context of it benefiting society.

When discussing lower rates on high income brackets, in almost all cases you are talking about giving tax breaks to Wall Street bankers. If that is what you want to do, please argue it from the perspective of why Gordon Gekko having an extra $1,000,000 will benefit society as a whole.

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