Well said Shodan - it’s like dumbing down the SATs or giving runners a head start.
Why? Not being snarky, I am really looking for a logical reason that is unfair.
Well, one potential problem that had not occurred to me before the current financial crisis was the following:
The problem of maintaining financial stability in an economic system where extremely large wealth disparities produce extremely large investments in extremely risky financial instruments.
In the past, I’ve mostly been in favor of reducing income inequality at the bottom, but haven’t cared very much how extreme it gets at the top. If a few multibillionaires are using thousand-dollar bills to stoke the solid-gold furnaces of their private steamships, what harm does it do me? “Excessive” wealth, where some people have so much more than the average person could ever need that it essentially counts as “play money” or a form of scorekeeping, may be a bizarre cultural phenomenon but it has no serious social or economic consequences. Or so I thought.
But da-yumn, looking at some of the crazy shit that brokers pulled to try to leverage massive returns on this massive wealth, I’m starting to wonder about that. Increased wealth understandably encourages increased risk tolerance. And when you have truly massive amounts of “play money” roaming around the markets looking for the next killing, you start to tilt the system towards overall levels of risk that endanger the performance of the whole thing. I am not happy about the swamp of recklessness and irresponsibility that the “play money” has encouraged our financial system to create.
So yeah, maybe we just need more effective regulation of financial instruments and don’t need to worry about distribution of assets. But on the other hand, it may turn out that we also need to simply set limits on how much “play money” it’s allowable to accumulate. I’m not happy with that prospect, but I am starting to take it seriously.
No progressive taxation scheme I’ve ever seen tries to balance out wealth or income, so it leaves unequal distribution in any case, which is fine.
Say we cut all taxes for the bottom 95% (with no negative income tax) and had the top 5% pay it all. We wouldn’t be giving money to anyone, so Shodan must think this scheme is fine, right. 
The philosophy of progressive taxation is to equalize the pain we all must bear to support our government. The really poor are in enough pain even with very little taken out in taxes. The very rich can have a lot taken out and feel very little pain. That’s not punishment, that is equity in a way that matters.
I can personally testify that when my income doubled during the bubble and my taxes soared, my pain level from these taxes actually decreased. I’ll take being rich with Obama’s new tax rate over being upper middle class with Bush’s (or even Obama’s reduced rate) any day. Does anyone really think someone would renounce the opportunity for wealth due to higher taxes? Anyone with more brain cells than Joe the Plumber, that is.
Who says it should? I was just responding to the question in your thread title, about the reasons that many people think that unequal wealth distribution is unfair.
Yes, I’m firmly in the school of thought that holds that “life isn’t fair” in general, and no entity, governmental or otherwise, has any business advocating the removal of all unfairness.
Still, there are some kinds and degrees of unfairness that we’re more willing to tolerate than others. So I can’t agree with you that it’s automatically unreasonable to expect that anything should be “fair”, or that we are never entitled to try to make something more “fair”.
The problem is not that 5% - it’s those that are just over the higher taxes line. Yes, I find it completely believable that someone who could be interested in buying a business would not do so, because the tax burden would eat away at the personal gain. That is a shame, because it stems job creation and economic growth.
A “business person” is not usually a Carnegie or Walton - they are mostly regular people who are starting out, and made it just a little bit. You see this especially in the local service industry - HVAC companies and the like. They run their own thing, make enough money to have some extra, and live a happy life through their own hard work and good decision making.
As I understand it, yes it is. The idea is that we raise taxes on the rich, but 95% of us get a tax refund.
What’s the line about SATs?
“Tests aren’t unfair. Life is unfair, and test just measure the result.”
I don’t see how this is encouraged by wealth disparities. Pooling money in a pension fund, for instance, is subject to the same risk, and no individual pensioneer is that much richer than any other.
IMO, because there is no CEO on this planet who provides 300% of the value that I do to the company. Sure, they bring more to the table in terms of business contacts, knowledge, skills, abilities, what have you. So they can make 10 times what I make and that’s still quite a nice six-figure salary. Or 20 times what I make because they probably do add 20 times the value to the company than I do – and that gets them a 7 figure salary that can surely support their McMansion, BMW collection and private schools for their children. I’ll continue to drive my 15-year-old Honda home to my 65 year-old house with the broken ridge cap that I can’t afford to fix right now because I really value having nights and weekends off and because I hate golf.
But 300-400%? And I don’t get a measly 5% bonus next year because some fatcat has a billion dollar golden parachute? :dubious: No. Fatcat can suck it. There’s adequate compensation for value added to the profitability and growth to the company and there’s some asshole getting filthy rich on my back.
My parents actually watch this–they’re self-employed and keep their pay just at the top of their current tax bracket. For a while they had another guy working for them, and while they were paying him a higher gross income, he still had a lower net income because he was in a different tax bracket.
But pension funds have nowhere near the high level of risk tolerance that individual “play money” investors do. Quiiiiiiiiite the opposite, AFAICT.
The fact that a pension fund may have about the same amount of net assets to invest as an extremely wealthy individual investor doesn’t mean that its destabilizing influence on the financial system would be comparable.
Because we have to tax something. Better unearned income than earned, IMO.
If you make it too easy for someone to end up in a position of wealth and power as a result of luck (and not of skill), you have another problem. Instead of having the smartest and most motivated people in your positions of wealth and power, you have the people who have the richest parents, regardless of ability. That’s not so good if the people in those positions of wealth and power are expected to actually do something about a situation in the company, country, or what have you. Numerous monarchies have run into problems at various times in history because of this. A monarchy is of course an extreme example of this kind of thing, but it does show some disadvantages of letting people rise to the top by luck rather than ability.
Not a logical argument, but still…
From Give Me a Break:
“Disney CEO Michael Eisner has taken home over $1 billion dollars. That seems ridiculous, and yet, after Eisner took charge, Disney’s net worth climbed from $2 billion to…$42 billion. Forty-two billion is $41 billion more than Eisner has been paid.”
So, is $1 billion too much, even knowing that, under his oversight Disney’s value increased so dramatically? What if you dropped the compensation, and only got Michael Shmeisner. What of the jobs and investment that would be lost, benefits that help the “little guy”?
I’m…not going to answer the OP’s question. I’m not convinced that unequal wealth allocation is meaningfully “fair” or “unfair.” However, I believe too much concentration of wealth is dangerous. It can create a situation where a few in a highly wealthy minority dictate to the larger economy or state in the interest of expanding their advantage. This becomes a vicious cycle that creates even more concentration of wealth, & creates a lot of temptation to abuse of power.
What I usually run into are those who think redistribution is somehow unfair or sinful–I guess since it relies on extortion to work?
…
You know, what might be unfair is that concentration of wealth can impede the idea of “equality of opportunity,” a phrase used by Ronald Reagan to describe what he supposedly believed in, but which is now being denounced on the Right. If one can use his wealth to give a leg up to his children, then there is an inequality of opportunity; & that’s fairly described as unfair, if anything is unfair.
Perhaps equality of opportunity can be better served by inculcating the principle that the next generation are all our children, & we should invest in public goods to benefit all of them; rather than in wealth redistribution from Henry Rich-Man to Stanley Poor-Man, as such. But certainly, inherited advantage is an “unfairness.”
Again, so long as he’s not taking the money from the top 5% to give it to another income bracket, it’s not Wealth Redistribution, it’s a different funding theory, as you describe here:
Personally, I’m in favor of Robin-Hood-ing the supremely rich, but let’s be clear on definitions here. The Federal gov’t has a lot of bills to pay, Medicare isn’t going away or getting cheaper, new funds must be added, & it’s not sensible to insist on taking them from lower income brackets that have lost real purchasing power over the last few years. (Consumption has stayed high due to self-destructive & unsustainable borrowing, not maintainance of income in real terms.)
That isn’t how taxes work. If you are “just over” the line, you will not be affected. Only a tiny percentage of your income will be taxed more than the rest.
As for “fairness”, I don’t see unequal wealth distribution as “unfair” either.
But there is no such thing as a free lunch. The government spends money, and it has to come from somewhere. Even borrowing money affects us all. It doesn’t make sense to gut the middle class. It makes sense (and is perfectly fair) for the rich to pay a higher percentage.
Such a system is both beneficial for everyone (the country is a worse place to live when the middle class is gutted, and the economy historically does better under more progressive taxation), and has a kind of intuitive “fairness” in the sense that rich people have more stuff for the government to protect.
How is that possible? Tax rates are marginal, meaning that if your income shifts to a different tax bracket, you pay the higher tax rate only on the part of your income which is above the cutoff for that bracket.
So if, say, you have $30K of (post-exemption, post-deduction) taxable income which is all taxed at the 20% rate [numbers pulled out of ass for illustration purposes], you’re paying $6000 in federal income tax, which leaves you a net amount of $24K.
If your taxable income then goes to $31K and puts you in the 25% bracket, you don’t pay 25% on the whole $31K. You’re still being taxed at only 20% on the first $30K, and at 25% on the last $1K. So you pay ($30,000 x .20 + $1000 x .25) = $6250 in tax, leaving you with a net amount of $24,750.
Your net income did not decrease because you moved into the next bracket. (It would have if you’d paid 25% on the whole $31K, leaving you with only $23,250 net, but the tax system doesn’t work that way.)
Unless there’s some stuff with deductions or the Alternative Minimum Tax going on, it’s not possible for federal income tax alone to reduce your net income when you increase your gross income.
Really? Value-added is not a logical argument?
Okay, well, I guess that explains why I make 0.04% of the CEO’s salary and am not a CEO myself.
What if it’s the only way to achieve equality of opportunity? I think there’s a straw man peeking up in your argument. If we define these terms as to apply to persons; Equality of Outcome, in any sustainable sense, is impossible; & Equality of Opportunity, in a perfect sense, is also impossible or damn close; but reasonable parity of opportunity is desirable. And that reasonable parity, or imperfect equality of opportunity, is not well served by high concentration of wealth at the top.
Imagine a small minority controlling the media, guaranteeing access for their offspring to the “best” schools, & then at the intersection of these, controlling the definition in the popular mind of what are the best schools.
Or an industrialist who receives 0.5% of the GDP of a 10,000,000-population state in his personal income, & partially controls 5% of GDP through his company, & can bend the ear of legislators with ease; those who oppose him, he can have replaced with his massive power to buy advertising.
Are these not potential threats to equality of opportunity, at the very least?
The USA used to have a vast petit-bourgeoisie who owned their own land, businesses, farms. Much of that’s been taken away over the last generation, in the name of “efficiency” or, ironically, “competition.”
My grandfather lived in a world where a normal middle-class guy could start his own business. Now the great proportion of normal middle-class guys accept that they live in a world of chains & mega-corporations, & they aspire to working for someone else–well-compensated proletarians, but still not self-made, or owner-operators. This reduces personal autonomy & freedom. Now, it’s not a total shift; there are still small businesses, & there were large companies before. But in the age of Wal-Mart, is equality of opportunity still out there?
True.
I’m having trouble with the semantics of this sentence.
Are you saying that they are not injuring others & thus we should not justify progressive taxes on a non-existent injury? I may grant that we should not suppose injury, but as stated above, I don’t support progressive taxation solely on the basis of supposed injury, so I deny your major.
Or are you saying that we should eschew progressive taxation on the basis of a non-existence of injury; that we should tax them at the same rate because they are not injuring anyone? That’s bizarre, to base a positive policy (flat tax advocacy) on a lack of something. Unless you imagine that only injury could justify any deviation from flat tax policy, which I think is economically naïve.
Oh, say, crime, drug and alcohol abuse, teen pregnancy, and other self-destructive behaviors. I’m not saying that inequality is causing these…but I think it is contributing to them.
[And, in preview, thanks Kimstu and Carmady for explaining how marginal tax rates works. I was going to respond to that…and I always get a little sentimental on this point since my very first post on the StraightDope oh so many years ago was precisely to correct this notion that you could make more money but have less post-tax because you got pushed into a higher tax bracket.]
It could be. Or do you think it should not be as an absolute?