Income Inequality: So What?

[dcarrigg]

Re: Income Inequality: So What?

+100

The fundamental distinction is not between the rich and the poor. It is between the state privileged and the non state privileged. See Oppenheimer's political means (coercion) and economic means (peaceful trade).

It's not only banksters, military industrial complex, big pharma etc. who operate via political means. Government teachers for example are also state privileged, but their share of the loot is much smaller. At the same time there are people who got rich via the economic means.

I do think there'd be much less income inequality on the free market, but income inequality per se is not the problem. The problem is the stealing and the looting via the state.

None of this does anything to change the fact that a larger share of the pie is going to interest, dividends, inheritance, and capital gains and a smaller share of the pie is going to wages, bonuses, benefits and other labor income year after year for decades now. Labor's share is declining. That's what's killing opportunity in America. And that doesn't distinguish CEO's from doctors from lawyers from teachers from cashiers from farm laborers. All of their wages added together are losing ground to passive income. All the pie-in-the-sky theorizing about capitalism and free markets and voluntary exchange doesn't change the fact at the macro-level that the returns to capital are outpacing growth and consuming labor's share of income. Further deregulation of finance and tax cuts on estates, capital gains, dividend, and interest income will only exacerbate the problem (since these forms of income are already taxed at lower rates than labor income). I find the distinction between public and private sector employment to be far less interesting, relevant, or drastic (it's cubicles all the way down) than the distinction between active and passive income. That's the real driver of wealth inequality. It's not what the teacher earns vs what the doctor earns. It's how many billions Alice Walton inherits and how fast compound interest grows those billions compared to what anyone who works for a living at all earns.

[geodrome]

Re: Income Inequality: So What?

None of this does anything to change the fact that a larger share of the pie is going to interest, dividends, inheritance, and capital gains and a smaller share of the pie is going to wages, bonuses, benefits and other labor income year after year for decades now. Labor's share is declining. That's what's killing opportunity in America.

Out of curiosity, what reforms would you propose to address the problem?

[Thailandnotes]

Re: Income Inequality: So What?

Out of curiosity, what reforms would you propose to address the problem?

Trump was elected because nobody laboring in the US has gotten a raise in 40 years despite huge increases in “productivity.”

The solutions are numerous and obvious. Single payer healthcare would have changed the course of American politics forever, unleashing charitable giving and entrepreneurship like never before.

Increasing the “death tax” would have reduced the deficits slightly, but more importantly gone a long way towards restoring a consensus that there's a balance between the economic take of capital and labor. I know some distant relatives of Sam Walton. They are not billionaires, but their conservative investments generate 10 million dollars a year in very lightly taxed income. And in case you think there are a few hundred of these recipients, try 1,000's.

[dcarrigg]

Re: Income Inequality: So What?

Out of curiosity, what reforms would you propose to address the problem?

A host of things. The simplest way to think about it is to think about how things worked before. Even in the early Reagan years, we didn't give tax preference to passive income, active and passive income were taxed the same. 50 years ago, passive income was taxed at a higher rate than active income. Seems stupid to tax working harder vs passive income if you at all care about rewarding merit. The estate tax has been the single hardest cut tax in the past 30 years. Why not give that one a rest? Getting money out of politics and setting the old campaign finance rules back up wouldn't hurt. McCutcheon was worse than Citizens United in that respect. Eliminate offshore tax havens. The US has the power. It might take sanctions and blockades, but just do it. I'd also make financial crimes crimes again. The biggest mortgage fraud in history wouldn't go down with nobody going to jail. Separating investment and commercial banking would be nice. But honestly, I'd straight up regulate finance a lot harder. Hard position limits on futures and swaps. No more letting Goldman drive the nation's entire aluminum supply in circles around Detroit to pretend they're going to use it for real production and jack up prices for everyone. No rent backed securities. No student loan backed securities. No incentive to make derivatives off people's pain and suffering and chop them up and sell 30 years worth of their tears into the future to somebody who then is incentivized to recoup their investment by raising rates and rents and punishing those paying them. Especially not when Moodys flakes out and rates this garbage AAA. The ratings agencies are so corrupt it's ridiculous and the way they are designed--where there's only 3 of them and the banks are practically their only customers--makes it so there's always an incentive to lie and rate a turd AAA if JP Morgan tells them to, which is how we got into the last financial crisis. Program trading is also ridiculous. Nanosecond arbitrage is stupid and serves no human purpose. I'm of the rare, and dying, opinion that The Market should serve man; man should not serve The Market. We've seen how scripts and bots can bamboozle people and alter their opinions in social media. What do you think they do to day traders? They just evicerate them. It's more bots trading with bots now than actual people trading with people, and by definition, the bots can't either be rational or be solving the economic calculation problem, since they're not rooted in human action. Market exchanges don't have to allow that any more than they have to allow a company to list on them. Just like with roads, speed limits might be prudent. I'd even call for maximum and minimum limits there, to prevent sketchy VC backed things like Stockpile from holding the float for 48 hours and executing trades that benefit them in the meanwhile. Regardless, I could go on about this forever. Point is banking can't be the wild west. It needs tight rules, or it gets out of hand, and due to the principal-agent problem among others, people get hurt.

[vt]

Re: Income Inequality: So What?

Most people have access to tax free compounding with 401K plans. The latest statistics say 79% have access through employers but only 32% participate.
The problem is getting them to invest even a small amount.

One can say they need every dime live on. However I have friend who is a single mother, now retired, who had a 403B and a Roth IRA while living on an income of $40,000 in the D.C. area. She bought a small, suburban townhouse with another woman and her portion of equity was enough to buy a small condo in Florida. So don't say working people can't save. I can show you countless examples of people I know. No inheritances, no divorce settlements.

People need to be taught to save, to take advantage of programs. To not rely on a government with diminishing ability to help because of fiscal mismanagement.

There is likely only 30,000 individuals with the large inheritances you speak of that pay capital gains income. As stated they are already paying a huge amount of taxes. But wait you say, they are taxed lightly. Yes compared to what they would pay on regular income. But nowhere is the realization that for many they sacrificed and took enormous risks to build over decades businesses and investments. There is no law preventing anyone from saving, from starting a business, from investing a bit each paycheck.

We are unfortunately a consumption society that collects instead of one that balances the two. Why do some want to punish the savers, the risk takers, the builders?

We still have estate taxes for large fortunes. Very few pay because in reality very few have extra large fortunes.

We simply need to get more saving, more taking at least small advantage of retirement accounts, more trying to improve skills. Many millions do and succeed at some level.

[vt]

Re: Income Inequality: So What?

DC, I do fully agree on regulating the financial industry. FIRE needs to be much reduced as part of the economy. As EJ has said we need to get back to the productive economy.

Why was no one involved in the worst excesses you mentioned indicted, tried, and put in jail. You had a Democrat President and Congress. Yet nothing was done. Of course we know that both parties were up to their necks in working with the perpetrators of the meltdown. But nothing would have stopped the
prosecution of the crimes. Where was the liberal media? Where were the protests?

Trump at least seems to want to help the working man and woman. And labor statistics seem to be improving for wage increases starting and minority workers making gains. One can disagree with other Trump activities, but there is greater growth of employment.

Somehow more taxes on workers and those who have sacrificed and been successful seems the wrong road.

I heard a comment a few years ago the if you confiscated all the wealth of the richest 400, you would only be able to run the federal government for 9 months. Think about that for awhile.

[dcarrigg]

Re: Income Inequality: So What?

Where were the protests?

They were literally at Wall Street.

[dcarrigg]

Re: Income Inequality: So What?

To not rely on a government with diminishing ability to help because of fiscal mismanagement.

The real fiscal mismanagement is multiple trillion dollar tax cuts for the wealthiest inheritors and corporations in the midst of the greatest budget deficit since WWII. When it comes time to talk about "diminishing ability" everyone is going to remember who jammed their hands in the till.

Why do some want to punish the savers, the risk takers, the builders?

That's why. These monarchs and lords and feudalists who pass their wealth down in six generation iron trusts are only missing their crowns. And just like real nobility, they use the state as a piggy bank. Every dollar cut in a tax credit, every dollar written off, is one of trillions that will be borrowed. They're shifting the tax burden off of themselves and onto their workers, raiding the treasury today, and making their workers' children pay the price.

[vt]

Re: Income Inequality: So What?

Wrong protest, wrong target.

https://www.theatlantic.com/business...t-work/246041/

[vt]

Re: Income Inequality: So What?

DC, first I am not against an estate tax. Just one that taxes estates too small. I feel a $5.5 million a year exemption per person is fair. The recent rise to $11 million plus per person is too large.

2nd there are very few very large inheritances. The Walton's are a rare example. Most of the Forbes 400 are 1st generation, some with a head start of maybe a few million, but many of those levels are lost too.

One really has to study to understand how the tax law really works. A good example is from this article about Mitt Romney. The Romney's set up a $100 million trust for their 5 sons so they would have no estate tax when Mitt and Ann Romney die.
Here's what you and many others miss. I didn't remember it at first. The money used to set up the trust WAS taxed. The estate and gift tax exemptions are equal and either or. If you gift a large amount of money over the exemption it is taxed at the same level as estate taxes. So the government gets money earlier at the same percentage. Taxes are not escaped. The Romney's paid the tax for their sons, and thus reduced the size of their estate.

https://archives.cjr.org/the_audit/b...estate_tax.php

Most large estates will likely go to foundations that will likely help the poor more than being funneled through layers of governments.

And where do you get "multi trillion dollar tax cuts for inheritors"?? When the exemption as $5.5 million the total tax collected in a recent year was $20 billion, which was one half of 1% of the taxes collected. Do you have documentation to support multi trillion?

[vt]

Re: Income Inequality: So What?

We need to educate our children in business and entrepreneurship at an early age. Pitbull came from 1st generation poverty to a multi million dollar business some talent but many times more good business sense.

https://www.vanityfair.com/culture/2...and-ambassador

These success stories and others are possible. But millions more can become successful through the proper educational training that does not think profit is a dirty word.

[geodrome]

Re: Income Inequality: So What?

A host of things. The simplest way to think about it is to think about how things worked before. Even in the early Reagan years, we didn't give tax preference to passive income, active and passive income were taxed the same. 50 years ago, passive income was taxed at a higher rate than active income. Seems stupid to tax working harder vs passive income if you at all care about rewarding merit. The estate tax has been the single hardest cut tax in the past 30 years. Why not give that one a rest?

I agree about equalizing tax rates from passive and active income. I would do it by cutting taxes on active income of working Americans.

I don't like chipping in for mass murder in the Middle East and other parts of the world. Don't feel like chipping in for Bankster bonuses. And I don't like being forced to chip in for your grandmas hip replacement. Charity is good, but it should be voluntary. I like tax "loopholes" and I want as many as possible for myself and my fellow working Americans.

Interesting that no one mentioned the Fed. If a fairy let me eliminate one government agency, it would be the Fed.

[dcarrigg]

Re: Income Inequality: So What?

I agree about equalizing tax rates from passive and active income. I would do it by cutting taxes on active income of working Americans.

I don't like chipping in for mass murder in the Middle East and other parts of the world. Don't feel like chipping in for Bankster bonuses. And I don't like being forced to chip in for your grandmas hip replacement. Charity is good, but it should be voluntary. I like tax "loopholes" and I want as many as possible for myself and my fellow working Americans.

Interesting that no one mentioned the Fed. If a fairy let me eliminate one government agency, it would be the Fed.

Tax cuts are chipping in for banker bonuses as far as I'm concerned. And the Fed is already borrowing big time to pay for our last 10 tax cuts. Cutting taxes more just means putting even more on the credit card.

[jk]

Re: Income Inequality: So What?

a tax of 0.1% or even 0.01% on the nominal value of all financial transactions wouldn't effect ordinary investors much at all [$100/100k or even 10/100k] but would throw a little sand in the wheels of financial manipulation and millisecond arbitrage.

[vt]

Re: Income Inequality: So What?

Reason for lower capital gains rate is likely because of inflation effect. In reality capital gains should be
indexed to inflation to account for the risk of holding gains longer term.

Current income is taxed as it is because it isn't put at risk for long periods of time.
Most workers are taxed below the capital gains rates anyway.

Indexing to inflation would be fairer than just a one year holding period.