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I don't really care if you agree or not. Just saying what I think.

Tuesday, April 19, 2011

The Tax Disparity Chart

Posted by L S. "Spencer" Olsen at 8:28 AM

Why is it you can always count on liberal think-tanks to miss the point completely? In the article I found yesterday, Thinkprogress busts out this gem of an article:

REPORT: In 12 Years, Income For Richest 400 Americans Quadruples, Tax Rate Nearly Halved
New data released by the IRS reveals that, over a period of 12 years, tax rates for the richest 400 Americans were effectively cut in half. In 1995, the richest 400 Americans paid, on average, 29.93% of their income in federal taxes. In 2007, the last year for which the IRS has released data, the richest 400 Americans paid just 16.63%.

Then they put all these neat charts and graphs showing us how the tax rates went down...



And Income went up...



Then they top it all off with this gem...

If the richest 400 Americans simply paid the same effective rate in 2007 as they did in 1995, the government would have collected over $3 billion in additional revenue. Some millionaires agree that the reduction has been unfair and have formed a group, Patriotic Millionaires for Fiscal Strength, to demand higher taxes.

The Fail here is amazing. First of all, let me get this out of the way:

Dear Patriotic Millionaires for Fiscal Strength,

Please just write a bigger check to Uncle Sam next April.

Thanks,
Spencer

Next, let's talk about these charts.
You've got a couple of charts that basically spits out the following formula:
4n/2=2n
In other words, at half the tax and quadruple the income, the actual income to the Federal Government doubled.
THE INCOME DOUBLED AT HALF THE TAX RATE!!!
...where have we heard this before..?
OH YEAH!!!
"During the great tax debate of 1975 to 1986, the opponents of the supply-side view argued that it was unrealistic to expect lower tax rates to lead to increased tax revenues. According to the critics an increase in the tax base that was large enough to increase revenues would require an unrealistically large elasticity of labor supply (increase in hours worked due to higher after-tax wages). In response the supply-side proponents stressed that reductions in tax avoidance activities, as well as labor-supply effects, would enlarge the tax base when the rates were reduced. According to the supply-side view the combination of a decline in tax avoidance and increase in business activities would permit lower rates with little or no loss of revenues in the top tax brackets. At the same time, most supply-side economists, though perhaps not all, noted that reductions in low tax rates would lead to revenue losses. "
 James D. Gwartney. "Supply-Side Economics." The Concise Encyclopedia of Economics. 1993. Library of Economics and Liberty. Retrieved April 19, 2011 from the World Wide Web: http://www.econlib.org/library/Enc1/SupplySideEconomics.html

Turns out that when taxes are lower, rich people tend to earn more. Think about it... where do rich people get their income? Not usually from an hourly wage pushing paper - no rich people invest. They invest in the market, businesses, etc. THIS IS HOW THEY MAKE THEIR INCOME. When tax rates are low, they get to keep more of their revenue to invest and make more taxable revenue.

It's not rocket science. And yes, I know that tax rates alone do not an economy make, but you can see a direct correlation between low tax rates and high revenue. It happened in the 80's after Reagan lowered income taxes.

But the fact that these "Geniuses" missed the higher tax income is not the best part. The best part is that they state that if only we have taxed this higher income at a higher rate, we would have made $X. They forget that if the tax rate had stayed the same, there is a chance that the taxable income might not have had the same growth rate and probably would have ended up less than the income they got at half the rate. It's simple, simple, simple math:
10% of 1000 is 10
and
20% of 100 is 2
Let's get in the way-back machine and take a look at my post here...
where I said:
Here's where it gets interesting. Our games pay out at an average of around 90% so as I stated above, the gameroom is essentially keeping 10¢ on every dollar that comes in. The operators complain all the time that if only the payout percentage were lower that they would make more money. In other words, the operators want to keep 20¢ of every dollar. So they whine and complain that they are losing money because the percentage is too high.

Because of this factor (competition) we have to maintain high payouts so that the customer will feel like playing our games is worth time and money. The real way to make money is through volume.

Volume works like this:
10% of 1000 = 100
20% of 200 = 20

Did you catch that? Higher percentage means nothing if the volume is not there. What I end up telling our site owners is that if they don't think that they are making any money then you need to increase your volume - promotions, clean your gameroom once in a while, put lights in your parking lot, feed your customers, etc.

Interestingly enough, this doesn't make a dent. The scenario goes like this...

A game paying 95% has yeilded a gross revenue of $20,000. The gameroom operator calls and tells me that this game is "killing" his gameroom. "If it only paid at 90%, I would have made $40,000!"

BZZZZZZZZZZZZZZT!!! Wrong. Why, because you cannot control how much money goes into the games - that's up to the customers (volume). If your game paid out less, there is a high possibility that it would not be as popular a game and would therefore have lower volume yielding lower profit.

In all cases, our higher payout games routinely outperform our lower payout games because the customer gets to keep more of his or her own money. It's that simple.

So good job, ThinkProgress. You get the award for idiot of the year. You tried to make a point and ended up falling on your face. Keep 'em coming.

 

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