Are the rich paying their 'fair' share?

[Al B. Sure!]

Well the tax paid may not be exactly 1%. The model isn't specified enough for us to know exactly what the new prices are; we just know that 0.8 * (interest the borrower pays) = (interest the lender receives). So if the new price the borrower pays is 5.5% then the lender will receive 4.4% and the taxes paid will be 1.1%.

I know. Just saying 1% for simplicity's sake. The difference between the two rates being the tax is the important part. Thanks.

[Kuciwalker]

Well the tax paid may not be exactly 1%. The model isn't specified enough for us to know exactly what the new prices are; we just know that 0.8 * (interest the borrower pays) = (interest the lender receives). So if the new price the borrower pays is 5.5% then the lender will receive 4.4% and the taxes paid will be 1.1%.

[Al B. Sure!]

Take Jaguar's orange curve #1 and intersect it with a new green curve #2 (that is the original green curve shifted left). Draw green curve #2 so that it intersects orange curve #1 directly above where green #1 intersects orange #2 (because regardless of where we collect the tax, from the lender or borrower, the economic effect is the same so the quantity of investment must be the same).

The position on the vertical axis where green #1 intersects orange #2 is the interest rate received by lenders after imposition of the tax (they receive something less than 5%). The position on the vertical axis where green #2 intersects orange #1 is the interest rate paid by borrowers (they pay something more than 5%). The difference is the amount of interest that is paid in tax.

Both graphs are "true" in that they show you the same answer for how quantity of investment changes; they just show you prices (interest rates) from different perspectives, lender and borrower.

So the borrowers would have a cost of capital between 5 and 6% and the lenders will be receiving as a return between 4 and 5% with the difference being the 1% (20% of 5%) that the government takes, assuming a 20% tax on profits?

Thank you for the clarification.

[Kuciwalker]

This is a really good explanation. I'm going to use your post elsewhere but add some further explanations for those who have difficulty understanding supply and demand curves.

My question is why does this change the demand curve and not the supply one? I would think the reduction in returns would make the supply curve shift to the left because investors would be discouraged from lending and would require higher returns for the same quantity supplied. Interest rates would therefore go up while quantity of loans will decrease.

Take Jaguar's orange curve #1 and intersect it with a new green curve #2 (that is the original green curve shifted left). Draw green curve #2 so that it intersects orange curve #1 directly above where green #1 intersects orange #2 (because regardless of where we collect the tax, from the lender or borrower, the economic effect is the same so the quantity of investment must be the same).

The position on the vertical axis where green #1 intersects orange #2 is the interest rate received by lenders after imposition of the tax (they receive something less than 5%). The position on the vertical axis where green #2 intersects orange #1 is the interest rate paid by borrowers (they pay something more than 5%). The difference is the amount of interest that is paid in tax.

Both graphs are "true" in that they show you the same answer for how quantity of investment changes; they just show you prices (interest rates) from different perspectives, lender and borrower.

[giblets]

I still want an answer from Jaguar. He might miss this if he sees this thread is now about 'Booty Warriors'



My question is why does this change the demand curve and not the supply one? I would think the reduction in returns would make the supply curve shift to the left because investors would be discouraged from lending and would require higher returns for the same quantity supplied. Interest rates would therefore go up while quantity of loans will decrease.

Or could they both shift a certain amount relative to the taxation levels and consequently reduce the quantity even more but have a more or less same interest rate, depending on the disparity between the tax rates?

If corporate profits are taxed, it doesn't impact the willingness of lenders to supply loanable funds because they aren't paying any new taxes. The corporations who must pay the tax are on the demand side.

[Al B. Sure!]

I still want an answer from Jaguar. He might miss this if he sees this thread is now about 'Booty Warriors'



My question is why does this change the demand curve and not the supply one? I would think the reduction in returns would make the supply curve shift to the left because investors would be discouraged from lending and would require higher returns for the same quantity supplied. Interest rates would therefore go up while quantity of loans will decrease.

Or could they both shift a certain amount relative to the taxation levels and consequently reduce the quantity even more but have a more or less same interest rate, depending on the disparity between the tax rates?

[Aeson]

That guy in the very top center is butt raping some poor fella who has a sheet over his head. Notice the casual observers in the bleachers they have set up to watch. This clearly happens very often...

[BlackCat]

He doesn't want to be a pedophile in prison...

That was just to speed up his experience curve - robbing a bank will prolong that

[Al B. Sure!]

May I suggest that you make a small collection of childporn on your computer, send an anonymous message to the police about this, and in a couple of years tell about your experinces.

He doesn't want to be a pedophile in prison...

[BlackCat]

Isn't the butt rape thing exaggerated?

May I suggest that you make a small collection of childporn on your computer, send an anonymous message to the police about this, and in a couple of years tell about your experinces.

[Al B. Sure!]

Isn't the butt rape thing exaggerated?

Yes and no.

Depends what sort of prison you're in and who's around you. A minimum security prison filled with people serving 1-2 years on petty crimes, no one should be butt raping. When you're dealing with guys serving 25 to life or something, yeah, there's probably butt rape.

Note that you have people doing serious time in minimum security prisons as well, though; it's very common, actually, for guys who have done 20+ years on a life sentence with good behavior to be put in minimum security with guys who are serving 1-2 years. I know someone who just did 2 years in a state minimum security facility and he was with a guy serving life on a double homicide.

There's also this:



Don't get too caught up with the bars and cells, though. Most offenders in the US live like this but less crowded:



They have a fair amount of freedom of movement.

[Hauldren Collider]

Isn't the butt rape thing exaggerated?

[pchang]

New data from 2008
Tax returns for people making > $500,000 = 22% of all income but 32% of all income taxes.

[giblets]

Not really. How many convicts have you known?

It's pretty sweet in there. They have cable tv in the cells, air conditioning and heat, 3 hot meals, commissary store where they can buy whatever, exercise equipment, library, etc.

If you value necessities more than freedom (and have no aversion to butt rape), it's not a bad setup.

People get this idea of prisons from tv and movies that just isn't true.

Yeah, just a little butt rape and no freedom. No big deal.

[Fake Boris]

Sounds like you've found your career path