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Paul Ruth

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Use the tax deductions system to spur economic groth, and this is not just another tax cut idea.

I would like to share an idea I had to one, help resort the government budget, and two, to increase economic activity. I have entitled my idea The Non-Profit Employment Incentive: It is outlined in brief below.

The basic concept is for profit businesses large to small, to help employ people who they may lay off, or those who need a job through non-profits. The system would work just like the donation program for tax deductions and so on, only these donations would go specifically to employ people at non-profits. So if company A donates $1 million to a non-profit to hire 20 people for a year, then they would get a tax deduction, and/or reduce liability, and so on.

The two major benefits to this program would be increased employment and economic stability, and increases tax revenue without having to raise taxes. When someone is employed that salary is spent 5 to 7 times in the economy, which also means that tax revenue would be 5 to 7 greater for that money. This should spur economic growth, and make downturns less painful in the future.

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    Mar 27 2011: for heaven's sake ...nomore tax laws. Lets get a flat tax....you spend a lot...you pay a lot. You don't spend much...you don't pay much . Fair enough NO LOOP HOLES !!!
    • Mar 27 2011: Hear hear!
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      Mar 27 2011: A flat tax rate only help the weathy becasue it becomes a regressive tax. It is basic economics.
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        Mar 27 2011: How you figure that ? BTW Jobs have been lost because of deregulation. You can thank greedy americans for that.
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          Mar 28 2011: "Opponents argue that flat tax systems place an undue burden on the lower and middle class by removing deductions and expanding the tax base to include every level of income. They claim that moving to a flat tax system shifts the tax burden from the rich to the poor, those who are most effected by taxes and least able to pay. By exempting unearned income like interest or dividends, opponents argue, that the working class is supporting the idle rich. Some flat tax systems in the U.S. get around this by exempting from tax those who fall below certain income limits or by offering special exemption or tax credits for lower income individuals"

          http://taxes.about.com/od/statetaxes/a/Flat-tax.htm

          lets say everyone pays a 10% flat tax rate. Person A makes $1 million and pays $100,000 leaving with $900,000

          Person B makes $30,000 and would pay $3,000 leaving with $27,000.

          Seems fair, BUT that 3,000 means a lot more to person B than 100,000 mean to person A. What is the true difference in lifestyle from 1 million to 900,000? Not much.

          That 3,000 is taking away $250 a month which is a huge difference when thinking about the type of apartment a person B is living in.

          It is harder for a lower income person to maintain a livielihood than a higher income person. In reality the 3,000 means more to person B, than 100,000 means to person A.

          Over deregulation has lead to a rise in greed and corruption with the loss of jobs. Plus it has reduced the number of competitiors in the market. At the same time an overly regulated market can slow down progress. There are many reasons why jobs have been lost. Globalization, mechanisation, and higher efficency has lead to more jobs being lost.

          America needs to find a new way to distribute wealth, and a flat tax will not do it.
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        Mar 28 2011: in your longer argument, you say 900k is almost 1m, but 27k is grossly different than 30k. i wonder what measurement supports that claim. 27k was a luxury income a hundred years ago. what happened since, so today 27k deserves tax cut? or what if we take the world distribution? 27k is dream salary in most parts of the world. also, how do you know how people feel about it? mathematically, they are the same proportions. 30k is of course less than 1m, but how much less? around one third, just like the flat tax would be. psychologically, we are all different. there is no general intrinsic value to money, only individual valuations exist. maybe that 100k tax means the child of that "rich" man will go to a better school. rich lives their children less?

        btw if observe carefully, everyone draws the line between poverty and luxury somewhere around his/her level. above, there are those who earn sick luxury wages, below the unlucky or the lazy. the world's income distribution is kind of a smooth curve from below one dollar to a few hundred dollars per day. if you include the extremes, even wider.

        and please don't talk about deregulation, the (western?) world goes in the opposite direction for a good 50 years at least, probably more.
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          Mar 28 2011: Poverty is determined by the established standard of living in a given country. This standard of living is based on what things cost in that country. So yes, 30,000 a year means a lot more in a poor country than is does in the United States, but it does not mean that people making thatincome with three children are not struggling in the US.

          If someone cannot afford the food at their local store, I would stay that they are living in poverty. It would be nice for the poor in developed countries to buy food at prices of developing countires, but that is not how market economies work.

          27K was a luxury at one time, but it is called inflation!! As long as wages keep up with inflation, then it becomes a wash.

          Since the standard of living is fixed to a certian point, a flat tax is regressive. It is harder for the person making 30K to pay 3K than it is for I million to pay for 100,000. Based on a accepted standard of living in a country is is much harder for a poorer or middle class person to pay a flat tax simply becase they are closer to the base line standard of living. Everyone in a country pay the same price to survive, but not everyone makes the same amount. REGRESSIVE!!!!

          Most countires around the world are poor becasue they are torn apart by war, governmental corruption, and an unwillingness to accept a free market system. Simply re distributing out the wealth is called communism, which for most cases does not work. Why has China embraced a more and more market system, becasue it works.

          My original idea uses the free market system to generate wealth for all in a free market system.

          and on deregulation. I know the EU has had to regulate many countries that entered their system becasue some countries needed the regulation to be included in a functioning international trade. In most ways the "West" has deregulated if you look at the consolidation in the banking industry, utilities in the US, corn production in the US, and the consolidation in the Oil industry.
      • Mar 28 2011: Paul: A flat tax is NOT regressive! In your example, you compare someone on a very low income with someone on an enviously high income, which can prove almost anything. They are going to have very different lifestyles regardless of how they are taxed. But the basic concept that if I earn twice what you do then I pay twice as much tax as you do is so abundantly fair that it is hard to understand how anybody could criticize it. If I earn twice what you do I likely consume fewer taxpayer-funded services, so the system is already what you call "progressive".
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          Mar 28 2011: It is always easier to point the finger at the poor, and this is what a flat tax does. It blames peoeple for being poor.

          There is a baseline standard of living. It is called the poverty line. The closer someone is to it the worse a flat tax gets. It becomes no different than a sales tax, which is regressive.
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        Mar 28 2011: there is no such thing as large part, say 10% of the population can't buy food in stores. economy adjusts, and demand finds its supply. food is expensive in the U.S. exactly because people have enough money to buy it. in a rich country, negligible percent of the population have problems buying food. if they do, it is because they bought too much whiskey. i mean, come on. in my country, a kg (about 2 lbs) of white flour costs less than USD 0.50.

        if you take a look at PPP corrected GDP-s, you see that nepal has 1/20 of the income of the US. it is not nominal value, it is price-corrected.

        i'm not talking about the inflation. inflation corrected average GPD per person in the united states, in 1800, was USD2000. inflation corrected! today it is almost 40000.

        and value is still personal and intrinsic. you can't compare what $3k means for X and for Y. this just does not make sense. it is the same as asking if i like chicken more than joe does. what is the unit of liking chicken?
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          Mar 28 2011: Food is expensive in the US becasue most people can buy it. Not all.

          This is not value judgements. It has to do with people trying to survive. A flat tax works only for the wealthy. Why do you think the US has been on a progressive income tax for so long?

          If it was really going to help all people, then it would have switch. Conservitives have dominated politics in the US, and it still did not change. Why? becasue a flat tax makes no sense.
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        Mar 28 2011: saying that something is good because we do it for so long, is rather self defeating when you are here to propose an idea. why do you think your idea is not implemented already, if it is so good?
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          Mar 28 2011: I think you need to look at history a little closer. Just in general.
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    Mar 29 2011: All I have left to say is that this is the reason why the last recession happen. People like this walk around with their eyes closed and fail to anything about it. Just keep carring on like nothing happened, adn we should keep things as normal.

    The Glass Steagall act was repealed in 1999, which mean the regulation was taken away, one reason for the crash. Know you history better!!!!!
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      Mar 29 2011: sorry for not being a mind reader and not knowing US legal history, being a hungarian. repeal of that specific law changes nothing, the fdic still exists, and backed up by federal budget. repealing the GS law is only a minor tweaking. the US has no free banking system, and not only for this reason.

      has ever occurred to you that maybe you are the one that walk with eyes closed?
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    Mar 29 2011: Paul.........Think about tiers.....If you make 100,000,000 dollars a year and you pay 50% tax you still have 50,000,000 left. That is not pocket change. Would you begrudge the guy who makes 30,000 dollars ayear and pays 3000 in taxes, his standard of living. Oh I know............that is not fair but it is just and it won't happen because those making big bucks don't care about justice (there are exceptions)
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    Mar 28 2011: In the early 2000's we gave companies as much freedom and money as they have ever had in 100 years. If allowing companies to have this much money spuuly and control this much wealth, then somebody please explain the crash of the whole system in 2008.

    Maybe reading the official report might help clear some minds: http://www.fcic.gov/
    • Mar 28 2011: Paul: You started this discussion with the idea of using the tax system in an innovative way, but you have migrated to a strong focus specifically on poor people, with your various remarks about "progressive" and "regressive" taxes and their effects on the poor. I suggest there are better ways of alleviating poverty than what you propose, but that would be the subject of a whole new discussion.
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        Mar 28 2011: The I would like to hear them!!! Becasue so far, many things have not worked.
    • Mar 28 2011: The crash of 2008 is very simple to explain. Way back in Jimmy Carter's day, some "progressive" types proposed that if more low income people could be helped to own their own homes, they would join the middle classes as their homes appreciated in value. Policies were implemented to enable this, mainly in the form of government guarantees of mortgages through Fannie Mae and Freddy Mac. Subsequent presidents continued with the process, and inevitably what followed was a bubble in home prices. More and more poor people were enticed into mortgages they really couldn't afford by being offered specially low initial rates. Banks could do this because the government backed their mortgages, so there was no risk. As the poor bought their own homes, others moved up into bigger homes, and so on up the chain. More and more people buying houses pushed the price of houses up and up and up. Even those who didn't move up to a bigger house borrowed against the increasing equity in their existing house. At the same time, interest rates have been kept artificially low for years. Companies with cash looked for places to invest that cash that would return more than just a couple of percent. So some clever financial types started buying shaky mortgages from the banks that held them, bundling them with credit card debt and unsecured lines of credit, and sold them to companies as AAA-grade investments. Then the inevitable happened: Joe Sixpack could no longer pay his mortgage when it came up for renewal, nor could tens of thousands more like him. Pop. House prices collapsed, the so-called AAA-grade 'paper' proved worthless, everybody and his brother started defaulting on everything, and down came the house of cards.

      Message: While putting poor people in their own homes may be a worthy goal on the surface, every social policy has unintended consequences. The "greedy" bankers were only partly to blame. None of this could have happened without interference in the system.
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        Mar 28 2011: Did you read the report??

        The previous ideas of puttin gpeopl ein home was correct with bank failures in the early 1990's. It does not explain 2008. Which is why the government needs to find ways to control companies. This means through taxation and regulation. A flat tax only help the wealthy continue to support the wealthy.
        • Mar 29 2011: Here is what the report says:

          "There was an explosion in risky subprime lending and securitization, an unsustainable rise in housing prices, widespread reports of egregious and predatory lending practices, dramatic increases in household mortgage debt, and exponential growth in financial firms’ trading activities, unregulated derivatives, and short-term 'repo' lending markets, among many other red
          flags."

          It follows that with:

          "... the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards."

          Which is pretty much what I said. It seems you are blind to any truth other than that which fits your preconceived ideas of social fairness.
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    Mar 27 2011: Just allowing companies to have more money to hire people would not make sense becasue why would a company hire people that they do not need.

    The idea is to use money that they give to charity already to focus it on developing more jobs. It may not be a full 100% liability reduction either. Companies would be in favor of suppoting the idea becasue it help to expand the economy, which means more people can buy cars, more can buy homes and so on.

    As I said, when someone is employed the money is spent 5 to 7 more times, which would increase tax revenue in the larger picture. So in a 3 year plan the government would be bringing in more money without pulling money out of the economy. This is not a short sighted plan.

    It not exactly a loop hole since the money is not going directly into the company pockets. If a bank is able to use some of their gains to spur more people to buy houses, and for more companies to start up business, then it create a more sustainable economic landscape. I agree that there just needs to be more taxes collected, but it does not solve the economic woes.

    ####If a company A makes $10 million and reduces by $1 million, true the tax revenue would be less from that company. BUT, since the money is going to sepcificly to create jobs, then those jobs have to pay income tax. So the 1 million is still being taxed. Plus that million would get spent in the economy 5 more times increasing overall income, which increases tax revenue. Not to mention more people would spend more, (sales tax revenue), and more people could buy more houses (property tax revenue) ########

    The idea uses the fundemantals of a free market economy to generate more wealth. Thanks for commenting.
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      Mar 28 2011: what is better than a good business? a bigger good business! if i have a company that performs well, i definitely want to expand it. open a new shop, a new factory, get new clients, increase production. to do so, i need capital.

      every money spent is spent multiple times. you can't count it on the benefit side, but ignore on the downside. as you take away money from a company, you take it away many times as well. governments often brag about how good what they do is. but they often forget to mention the price of it.

      except you want to take away from a functioning, successful company, and give to someone else. at best it is a net zero, but more probably a net negative transaction.
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        Mar 28 2011: There are times when a company can't expand even if they are doing well. This was the problem in the great depression. There were companies that were making profits. The issues was that there was no more markets to be explored becasue everyone else was too poor to aford to buy things.

        Most of the time good companies tend to keep things stable. If they need capital to be given to them by the goernment to expand, then they are not a stable company money wise. Good companies make their own capital, by being good companies.

        If companies are pulling in profits, then those profits are going to a few people (like investors, and the rich) who spend their money at lower rates than somone who is middle class. Plus, the profits are after they have paid their labor cost.

        True societial wealth is created by creating jobs. More importantly creating middle class jobs. It is better for the money to be in middle class hands becasue they spend a larger percent of their income than the rich. There is only the benifit side to what I am saying. MY idea is not to take money away from companies, but allow them to make the best decesion.

        This is pretty simple economics. Thanks for commenting.
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          Mar 28 2011: it is not possible that a company does well, but can't expand. if the entire economy is shrinking, the company still can take away market from competitors. remember, "doing well" means doing better than the competitor.

          we exactly talk about companies that ARE about to expand, but can not, since you took away their profits. it is also not true that companies make capital for themselves. this is only one way, the other is through the banking system or other forms of investment.

          it is also not meaningful to "spend at lower rate". put in bank, store at home in a sac, or buy a luxury yacht, neither will put the economy in any worse shape. what counts is the amount of value created by labor, and the amount of consumption. what can put the economy down is malinvestment. another thing is government policies that deter people from saving.

          your economics is indeed simple, and just as wrong. you buy keynesian views on face value. i don't recommend it.
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        Mar 28 2011: I think that you are forgetting that sometimes companies lack an incentive to invest. This is why they do not expand. In fact over expansion is a common cause for a company failing. Companies even if doing well, can't expand becasue the risk is too high. Taking out other competitors market share only adds to more risk if the economy gets worse.

        If some put money into a bank, and the bank cannot lend because the economy is not growing fast enough, then what good is it to creating wealth?

        Yes I do support Keynesian view becasue the classical economic view of the early 2000's lead to a greater problem later. Sure drop taxes for the rich, lower interest rates to nothing, and let business run wild. That really turns out well. Then again what would you really know about the economics of the Industrial revolution where there was great masses of wealth created, as most people were living in a poverty hell. How about the 1930's when people rioted and were killed becasue people did not have enough to eat. I think you need to look at the human side of your thoughts.

        The key to any economiy is jobs. Why do you think investment stops when the unemployment rate spikes? Companies historically do not always create new jobs. In fact they look for way to cut them becasue labor is a cost. Then again I am sure you are happy about the banks sitting on huge amounts of money, and not lending to small business after they were bailed out by this evil government. People like you always are aginst government involvement until the system is about to collapse. You may say let it fall BUT, it bring everyone down with it.

        Maybe you are the one that needs to wake up and stop putting trust into the wealthy. Comapnies do not work in the interest for all. Yes it is simple, but you have yet to understand it.
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          Mar 28 2011: some companies don't want to expand, some make mistakes, and so on. it does not matter as long as there are companies, many of them, that do expand and do make good decisions. that is how capitalism works. you are tried on the market.

          banks lending and the economy growing is in reverse relationship than you suggest. if there are savings, the economy grows. except if the money markets are crippled by stupid state regulations.

          the key to economy is not jobs, but production.

          unemployment rate spikes because there is no investments. more precisely, after a period of massive malinvestments, the labor markets can't adjust because of stupid regulations.

          i don't put trust in the wealthy. i put my trust into people. responsible, autonomous, hard working people.
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        Mar 28 2011: This is your problem with seeing the correct side. Capitalism sometimes does not work!!! Take a look at history. Pure capitalism is dangerous. The US deregulated engergy and we got Enron. Deregulate banking and we got AIG. Yeah there were banks that were doing right, but the system was corrupt.

        Less enforced regulation on oil lead to the gulf oil spill.

        Maybe you should read up on what is was like in Detroit in the 1930's when ford would lay off thousands of workers at a time.

        Time and time again we go over Classical economics, and it fails, and it fails, and fails again. The princuples are solid, but the practice is not perfect. The problem is that hard working people get screwed by the wealthy if something does not step in to enforce. Supply side economics is over. Grow up and look around. It no longer works, nor does it explainn what happened in 2008.
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          Mar 28 2011: i took a look at history, and i read a lot about it. pure capitalism does not exist, and did not exist ever. the closes thing was the post industrial revolution england and US. but marxism quickly started to erode it, remnants of the power houses too, then came the wars, and came the "progressives", and keynes, and all went downhill from there. enron and recent banking shenanigans all happened on a throughly regulated economy. the oil spill also happened due to idiotic regulations: liability cap, state granted license, and all. in detroit, in 1930, there was a so called "bust" that followed the so called "boom", which was caused by idiotic bank regulations and the also idiotic government.

          classical economics does not exist. since keynes, we can call it officially dead. but even before that, states were pre-keynesian. what you observe now is the failure of interventionalism and keynesianism. and true you are, they fail all the time.

          however, i recommend you studying austrian economics, instead of the classical british. smith and ricardo were geniouses of their times, but the true masters of economics were the austrians. and it not only explains what happened in 2008, but predicted it!
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        Mar 28 2011: The recent economy was not thoughly regulated. You need to look up the repealed Glass- Steagal act. How is that a regulated banking system?

        Oil companies blatantly ignored the regulations in place, and then paid off regulators. The system became corrupt. The history in detroit was a result of bad banking and over speculation, which is why we must look ay other ways of creating wealth other than just companies.

        Allowing too much trust in companies is dangorous. A main componant of Austrian economics is laize fair economics which is the same of the industrial revolution. Putting everything back to a individual behavior is an easy answer but may not expaln it all. Why would someone working in a best interest write bad loans? Why would people sign loans they do not understand? The glass steagall act could have scientifically predicted the outcome. This means that economics is not purely behavioral. There are also actions that can be taken to correct bad behavior. Austrian school of economics is really just taking the next step from Smith: http://www.econlib.org/library/Enc/AustrianSchoolofEconomics.html. Individual right to choose, economies work best when people seek the best for themselves.

        Keynesians also predicted 2008 becasue there was an obvious demand pull inflation in housing. The market became over saturated (which means banks could no longer write any more loans, meaning that they could not expand even if they wanted to) and housing prices shot up across the US.

        Austrians are really just more well thought out classic economist. Austrians just deny that economies can be judge and predicted by ideals, and math.
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          Mar 29 2011: the glass-steagal act is a bank regulation. how would that prove your point? free (state provided) deposit insurance is the worst thing ever. it undermines risk awareness of banks, and creates incentives to reckless lending. one of the main causes of our problems. such regulation has no place in a free economy.

          corruption is part of the state. why there is corruption in every country?

          i don't trust companies. i trust the system. the system will give negative feedback for any harmful activities, and positive feedback for efficient service.

          why would people sign loans they don't understand? answer yourself. you say people are stupid? i don't think that. those so called "bad loans" were actually very good. free party for a few years, with no risk other than losing a house that you never could afford anyway. banks also won. every participant won. that's rational. we, all others, lose. thanks, wise government! good job!

          keynesians possibly predicted, but only in the bathroom or basement or somewhere. look up peter schiff videos on youtube, he debated a lot of "experts" from 2005 up to now. this is documented. what keynesian wrote or talked about a bust before 2007?

          just? not just. that is a very tiny detail in austrian economics. the important thing is that it is based on human action, how people act and react. an austrian for example never would such a silly-billy thing that demand pulls the economy. not more than the cart pushes the horse.
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    Mar 26 2011: Did you hear that GE paid NO taxes last year? Screw all the manipulation of the tax system through central planning. Some flat tax will probably get more money from the wealthy than what we get now. Every time some hair-brained deduction comes along only the rich figure out how to profit from it. (Krisztian - you got me thinking a lot about a VAT).
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      Mar 26 2011: if we have a state that determines taxes, it is good to be so huge that you are on par with it, and can influence it, and bargain with it. good luck for the SMEs to survive.
  • Mar 25 2011: Say a company makes $10 million profit and pays 40% of its profits in taxes. That means it would pay $4M in tax, leaving $6M in after-tax profit. If it donated, say, $1M as you suggest, and if the whole thing were deemed to be a deductible expense, it would reduce its profit to $9M, so it would pay $3.6M in tax, leaving $5.4M in after-tax profit and leaving the taxpayer on the hook for the $400,000 difference. Its shareholders are out of pocket by $600,000. They wouldn't like that. So, for your idea to work, the tax reduction would have to be an additional $600K to compensate the shareholders, which means the whole $1M cost would, in fact, be borne by the taxpayer and not the company.

    I second Krisztian's idea.
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    Mar 25 2011: what if the company simply gets a tax deduction, so they can extend their business and hire more people?
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      Mar 27 2011: Maybe things like the GE situation shud be written out of the tax laws. You do know how that came about ? Shelters are off limits.
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        Mar 28 2011: as i said in my other comment here, if the state can create exceptions, it is handy to be a powerful company. if you have like hundred employees, and a few million budget, you have zero chance to bargain for tax reduction. if you are GE, that's a whole different story.