And while that isn’t as much an issue in the US, places like Bangladesh see huge disparity of wealth because those at the bottom have no opportunity acquire capital (see Banker to the Poor).
And that in lies the rub of capitalism–you need capital. With it you can invest and gain interest, without it you are forever paying interest.
The scenario in Bangladesh was that of cab drivers, who in effect pay nearly all of their salary to ‘rent’ their cab from a wealthy investor. As a result, the driver is kept so poor that he could never afford to own a cab. (imagine paying 60% interest on a car lease) That’s how the rich can get exceedingly wealthy while the poor continue to get worse.
So a lot of this doesn’t make as much sense to the average American because we have gotten used to cheap and easy credit, labour standards, and minimum wage laws. Consider that nearly all credit cards give a “float” of 20-25 days.
But if you step bank and consider two people, one with capital to lend, and one with desire to borrow, the discussion centers around that of interest, and what we would consider “fair.” The rise of pay-day-loans cast light on one issue.
Is there ever a rate where charging interest could be considered “theft from the poor by the rich?”
Have you considered the salary of those in the military? When you “cut military spending” it means cutting staff and closing bases. Mostly low income jobs, mostly rural bases.
So there is an example of how cutting taxes for the rich means taking money from the poor.
One involves a transfer of ownership from the one who earned it to somebody else. The basis of belief underlying each, as to who owns what and why, makes the difference. Because it leads to the kind of sewage Der Trihs has been spouting. If there were no difference between a tax break and a subsidy, there would be no such thing as the Earned Income Tax Credit.
I agree it is a mess. A fairer, flatter-but-still-progressive tax without a lot of deductions would be better overall.
But what would be better still would be a revamping of how we regards OPM (Other People’s Money). The default of one side in this thread seems to be to assume that everything belongs to the government, and it is simply a question of how much we let them keep. The rest the government grabs and spends.
What would be infinitely preferable - indeed, the only sustainable model in the long run - is
[ul][li]Decide what you want the government to do[/li][li]Figure out how much it will cost[/li][li]Decide how to extract that cost from the populace at minimum pain to as many as possible[/li][li]THEN STOP.[/ul]Because, even if you can come up with all kinds of lovely ideas of how great everything would be if only you had BIll Gates’ money to spend, you don’t have the right to Bill Gates’ money unless everyone agrees to share the pain as well as the wealth. [/li]
That’s not how transfer payments work.
The federal government spends most of its money on Medicare, Medicaid, Social Security, defense, and interest on the national debt. Interest and national defense are pretty much a wash - everybody is “benefited” by paying that to the same extent. But unless you are over 65, disabled, or poor, all the others are pretty much a case of robbing Peter to pay Paul. Medicare is running a deficit, Social Security will be bankrupt in a few years. And the reason for this is not because we don’t tax the rich highly enough, it is because these entitlements are growing faster than is sustainable.
So we are going to have to adopt my approach to those programs at least. We can’t just say “Oh well, Joe Blow makes too much money, so let’s just take it away from him and use it to treat Grandma’s congestive heart failure”. Because the price of treating her CHF and her hip replacement and her high blood pressure and her dementia are all rising faster than any sane person believes we can sustain.
I haven’t seen you reply to this yet, Wilbo. That graph you linked to does not show what you claimed. If all the various levels of income in the U.S. were seeing the same year-to-year increase, the lines would be parallel. They’re not. The 95th percentile has gone from about $90,000 to just under $160,000 (about a 77% increase); the 10th percentile from ~$7,500 to just over $10,000 (~33% increase).
There’s still plenty of room to debate who should pay how much, and why, but let’s get the facts straight, first.
Here’s a thought though: you a presenting a system where a person works hard, takes risks, earns income–and that income belongs to him and him alone.
But does that person do so in a bubble? By that I ask, what other factors ALLOWED him to earn income? Did he drive on safe and passable roads? Was his life free from violence? Did he have a food supply that frees him from toiling in the fields. Did he have clean water to run while he brushes his teeth?
So another way to think about it is that “the government” played a rather intricate part in that guy “earning” his income. So it only seems reasonable that the government would get some compensation.
Indeed, they are interesting, if only to see that very few people allow that there is a middle ground between “fat cat capitalists feeding on the blood of the peasants” and “factory workers should be glad to even have a job because without the genius capitalists they’d be farming mud”.
Personally, I think the reality is somewhere in between. You own what you earn, but owe a significant debt to the society that created the circumstances in which you could earn it. The level of that debt is something that can be debated, but the idea that there is no debt to be payed seems rather incorrect to me.
Or, to put it differently, if you’ve devised a game in which you are almost always the winner, it’s in your best interest to keep the game going by making it palatable to the losers, lest they stop playing altogether (or, perhaps worse, change the rules).
I agree with this, except for the characterization of conservative motives. I think most conservatives simply don’t know any better. When I was young, I was very happy to see my expenses go down with no thought to the other side of the transaction. Economics is complex, & multiple interests should properly be respected.
More a question of how it is acquired. Der Trihs is an atheist, so unlikely to use this terminology, but I will: Moneylenders, now euphemized as “investors,” are usurers; they can profit out of proportion to their personal effort, using money to breed more of itself. This is in effect a tax on the productive worker, & then to whine that that money is being taxed away by the people’s representative is hypocrisy by an aristocrat misrepresenting his case against his sovereign.
Not exactly whom we’re talking about. Those persons, while they have above average incomes, are typically middle class & should be expected to pay a normal middle class tax rate. We should all do so well. Nor, really, are we talking primarily about J.K. Rowling, who has made much more than that some years.
We’re talking (or at least I am, I can’t speak for the other leftists) about rent-seekers who own & profit from companies they do not work at & did not build. And those who use political pull to profit from public lands with low cost to themselves. And the sports team owners who take cities for more than then the city makes off the team. And the sort of venture capitalists who populated the show “Shark Tank.”
There is a point, no matter how nice a guy you think you are, that your business may be half a swindle, & more expensive to your country than you’re worth.
Wrong. They have been compensated, just not as much as the guy who came along later. Why should less creativity make more money?
No, in an ideal world, everyone could be an investor. Capital would not be overwhelmingly the province of old money.
Now, there is new money in the market, & there are funds to pool monies from small investors. So it seems like we lefties are fighting the 19th Century’s fights. But we are afraid of a country backsliding to a 19th-Century economy.
Appeal to absolute amounts, & a claim that percentages mean nothing. This feels like idealistic RonPaul libertarianism to me. Perhaps I misunderstood you.
I think we should if anything tax capital gains more highly, due to that disconnect, but we should only tax the net gains. If an investor takes a loss, he should get capital gains tax** back.**
Well, this is a pretty abstract statement. There is a question of where the fruit of that growth ends up & the shape of the economy afterward.
Encouraging investors to enrich themselves in safe investments is sort of redundant.
On the other hand, encouraging investors to take huge risks leads to its own problems. I wrote my macro term paper on Silverado Savings & Loan, a rather small outfit which cost taxpayers $1.3 billion when it folded. Even if it hadn’t folded, it would have cost its borrowers a lot–in fact S&L’s like that would fold due to borrowers’ inability to repay. I came to believe that high-risk high-return investing has upside-down incentives; the higher the potential return, the likelier that return is not realized to the ruin of both borrower & lender.
Both true.
I’m not sure what the best way to deal with investment risk is, but I’m not yet convinced that the way we do it now is perfect or even correct. Considering the amount of silly money sloshing around the finance sectors, I’m predisposed against it being correct.
As for how the rich make money, well, at some point we have to recognize that sufficient quantities of money can translate into capital which will breed even more money. So basing tax rates on income &/or wealth is close enough for our purposes to taxing big capital.
I understand that people believe there is a difference between a tax break and a subsidy, and I agree that this is why we have the EITC rather than mailing everyone with a kid $1000. But it’s the exact same thing.
When I get paid at work, I look at my salary and benefits as a total package. If I get a salary of $X and an insurance package worth $Z and a bus pass worth $Z, my total compensation is $X+Y+Z. If I look at another job that offers a salary of $X+Y+Z, but no insurance and no bus pass, they’re offering me the same amount of compensation.
And this is why direct subsidies are in my opinion better public policy than target tax breaks, for the very reason that people have the psychological block that a tax break lets people keep their own money, while a subsidy gives them someone else’s money. Subsidies are transparent, tax breaks aren’t. Subsidies are regarded as expenditures and are therefore looked at whenever we need to cut the budget, while tax breaks are regarded as laws of nature.
And this is why tax breaks multiply like cockroaches, because they are so much more palatable than subsidies.
But they are the same thing because they result in exactly equivalent results.
And I agree. But the sticking point is the third bullet point–the minimum pain point. Because I’m sure you’ll agree, extracting $1000 in taxes from a guy who makes $20,000 causes him a lot more pain than extracting $1000 from Bill Gates. And it’s not like it’s only the rich who pay taxes, or who’s money is taken for public use. I pay taxes, you pay taxes. A lot of taxes. And while it would be a nice gesture for me to agree that Bill Gates shouldn’t have to pay so much, it would also be nice if I didn’t have to pay so much. So if we’re going to cut taxes, which of us deserves a tax cut more, him or me? And if we’re going to increase taxes, which of us deserves to have their taxes raised, him or me?
Or maybe we should both have our taxes cut or raised by exactly the same amount. Except this is to argue that we have exactly the right mix of tax proportionality fairness.
It seems to me that during the last 30 years or so, the incomes of the really rich have increased dramatically, the incomes of the top half have increased nicely, while the incomes of the bottom half have been stagnant.
So if we’re going to talk about how much of a tax burden the different income segments should pay, whether the top earners should pay more taxes or less taxes, this information should be taken into account.
We used to have really high marginal rates on high incomes. Like during WWII, 90% marginal rates. In the postwar era, 70% rates. But then we decided that really high marginal rates were counterproductive, and dropped them down to the 30% range. Now, the thing is, when we take into account payroll taxes, that’s about the same marginal rate everyone pays. That is, we have a zero marginal income tax rate on low earners, but you pay social security tax (it’s 7% on your paycheck, but it’s actually 14% as anyone with self-employment income knows) and medicare tax on the first dollar you earn.
But that amount tops out, and so the really rich effectively pay a marginal rate of 0% on social security and medicare. And so we have a situation where we have an effective flat tax, where pretty much everyone except the really poor pay about the same percentage of their income in taxes.
Except, income growth in the highest tax brackets has gone up dramatically in the last few decades, of course coinciding with the drop in marginal rates for high incomes.
But since the point of tax policy is to raise taxes fairly and transparently to fund what we the people deem to be the necessary functions of government, this means that the really rich can afford to pay a higher marginal rate than they presently do. I’m not in favor of 90% or 70% marginal rates, but since I’m paying around 30% I don’t see why the really wealthy shouldn’t pay a slightly higher marginal rate than I do. Like, 35% instead of 28%. Or fuck, just make it the same goddam rate, and they’d pay more, because as Warren Buffet pointed out, he paid a lower percent of his income as taxes than his secretary did.
In other words, they’re making a lot more income nowadays, so how about they pay a little bit more taxes nowadays? And if we’re going to have spending cuts to offset tax cuts, howabout we cut my taxes instead of theirs?
That’s not really the case, since FICA are taxes you pay into a system to get a specific benefit out of that system. Although it’s not really a retirement fund, it acts like one. You pay in a certain amount with the expectation that you’ll get a cash payment later in life; not some nebulous government “benefit” that has to averaged out across everyone depending on how useful that “benefit” is to any given person. It’s not like income taxes that just go into the general fund to pay for all the other federal programs.
Well, it turns out that SS taxes really are income taxes. Because we have SS taxes set higher than needed to pay current SS payments. And the higher payments are part of the “trust fund”, which is when we borrow money from SS to pay for general revenue. And when the tipping point happens where we need to pay more out in SS than we get in, that means the general fund will have to pay back the so-called trust fund. And how will we do that? By paying income taxes.
The notion that “you paid into social security, so you’re just getting your money back when you retire” is a polite fiction, necessary to sell the citizenry on the notion of welfare for old folks.
Since we don’t want to see old folks out on the streets, we need to take care of them, which means social security, which is a fancy word for welfare for old folks.
No, you’re not getting “your” money back, but there is no other program that pays everyone [who pays into it] a cash benefit. And the benefits you get are based, in part, on what you put in. It is substantively different than the income tax.
The surplus being built up is to buy us time. When it starts to go negative, we’ll have to find a different way to fix it rather than to fund it from income taxes. That won’t fly.
You know, some of us (OK, I) have been getting into all this anarchist/socialist/workerist theory about how the rich are getting rich off the poor, but maybe gonzomax was just talking about sweetheart deals in public land leases & corporate welfare, crap like that.
John, there really isn’t an alternative. The general fund has benefited from FICA, a debt is owed, it’ll have to be paid back. Preferably with tax increases instead of more debt. That can be an income tax, a net worth tax (my pet idea), or a VAT (bleh), but it has to be done. I suppose we could try massive inflation as a “hidden” tax, but even if we could get around the Fed to do it, I think people would still notice & complain.
Well, I’m not a liberal, I’m a former anarchist turned social democrat, so I don’t know what liberals believe.
I think nationalists would say the people own it, workerists would say those whose labor made it own it, & certain hardline theological conservatives would maintain that God owns everything. And then there’s the argument that force precedes property, & our capacity to peacefully hold property is a development of an older & more natural system of seizure through political power.
As an [del]anarchist[/del] unbeliever in propertarian realism, I would say that at the most basic ontological level no one owns anything. Property is modified territoriality, & in the state of nature your territory is what you can hold onto. If the state has the power to take it away from you, then they may, & it’s not a given that you can or should get it back. But that may be too cynical for y’all.
I would say, “Of course. Now we’re just negotiating future benefits.” I suspect gonzomax is a workerist though.
:rolleyes: That’s unnecessarily narrow. They can receive stock as a benefit. They can push for a privately held company to go public, or a publicly held company to go private–into the workers’ hands. All that’s doable now.
They can organize & use their bargaining power to force the owners to put the company in their hands. They can even vote in politicians who will declare eminent domain on the company & run it as a public trust. Not all of this is practical, some is possibly illegal; but the law in this field has been changed before.
Which Joe Stalin did on a [del]national[/del] imperial scale. A government is quite capable of forming capital. If we’re exalting those who enrich the nation as a way of creating economic growth, massive socialism (leavened by a little entrepreneurship) is the historically proven way to go. Our privatization model has done all right, but it relied on high taxes & central planning in the middle of the last century, & for a generation now has been beset by bubbles in its desperate attempt to regain that growth.
Millionaires are middle-class now, due to inflation. Sounds like your friend is living the American Dream. Good for him. Really, he’s not the target of our ire.
[ul][li]Decide what you want the government to do[/li][li]Figure out how much it will cost[/li][li]Decide how to extract that cost from the populace at minimum pain to as many as possible[/li][li]THEN STOP.[/ul][/li][/quote]
Great. Not sure what “minimum pain to as many as possible” means, but it sounds utilitarian, maybe. But your first two points are constantly ignored by politicians, especially by the “there are no bad tax cuts” kind.
Believe it or not, Shodan, I agree with you here. I was on the right side of the aisle for years over this issue. I left the GOP over what seemed to be an even deeper lack of interest in economic sustainability than the Dems had.
The GOP, like it or not, is now the party of deciding how much they want to pay in taxes without reference to what they want the government to do.
(Also, their environmental policy is ridiculous. But that’s part of the same basic attitude, an unwillingness to husband “seed corn” resources, & a silly insistence on making as much money as possible for themselves right now. I think it’s a case of trying to be masters with no more than a “slave morality” to guide them.)
Who do you think it driving this push to privatize social security? I would have thought that a conservative would simply want to get rid of the damn thing and reduce the size of government along with the public’s reliance on government, but Republicans want to take your money and my money and put it in the stock market instead of in government bonds. I can make an argument for it but taking my money back is not it, in fact that sounds more like a retarded platitude.
Cutting taxes for the rich will result in higher deficits. You either have to increase taxes for the rest of us to maintain those tax cuts for the rich or you have to cut government spending on Social Security and Medicare, those are pretty inescapable facts, there simply isn’t enough “pork” or “fat” or “government waste” to fill that hole.
Your chart only goes to the 95th percentile. The family making $150K is not what we are talking about when we talk about the “rich”
Look at the incomes of those in the top 0.1%. Their share of the nations income has more than doubled since Reagan.
Here is what I have seen. The federal income used to be X. We reduced the amount we collected from the wealthy and now the federal income is X-Y. We are in a deficit position so the government raises that money by selling debt. The amount of federal debt bought by the wealthy approximates Y.
So what we have done, by virtue of the tax cuts for the wealthy, is transform $Y in taxes in our hands into $Y in treasuries in the hands of the rich.
Sure the market allocate that income to them but the market does not exist in a vaccum. They wouldn’t have made that money in Somalia or North Korea, they made that money here and some people think that they owe more to the society that allowed them to earn that wealth. People like Warren Buffett and Bill Gates.
I think this bears repeating. Rich is when your assets earn more in interest and dividends in a day than you can reasonably spend in a day. If you are struggling with the ferrari payments then you are not rich.
Capital accumulates. Its axiomatic. There is a time value to money and if you are rich enough your money will generate more income than you can spend and you will get richer and richer just by being alive. The truly rich don’t take risks, they don’t put a lot of their money in venture capital or start-ups. They put their money in laddered treasuries.
The concept of just compensation is tough. At some point you are no longer being compensated for your ability but for the huge amount of dollars involved. The CEO of some fortune 500 company doesn’t really EARN his money, he gets it because the company can afford it. Ibankers don’t make millions of dollars on a securitization deal because putting together the paperwork is such risky work, they get it because the deal is so huge than a tiny sliver of a multi billion dollar securitization is still millions and millions of dollars.
Capital on the other hand tends to earn what it gets. You have a million dollars in treasuries, well, you take no risk and you get the risk free rate of return. You have a million dollars in some startup well your expected return had better be a lot higher. With the adoption of portfolio investment, the premium for risk has dropped significantly but it is still there and rightly so.
The problem is that you end up with a lot of rich heirs who haven’t had a productive day in their life. We used to have something called the estate tax to dilute the dynastic accumulation of this sort of wealth, so that after some number of generations, there simply would not be enough there to live entirely off of the inheritance but the estate tax is so full of holes that your estate tax is inversely proportional to how much you pay your estate tax attorney (of course there is no estate tax right now and even after we reinstitute the estate tax, we are liekly to exempt the first $3.5 million).
I believe disparity in income is good for society. But I think those disparities should be justified by more than choosing the right parents or having a job that gives you outsized pay.