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April 18, 2009

Comments

Eric:

Good morning!

I might be inclined to support Matt's ideas, but I'd first like to see some other changes, like taxing realized gains as ordinary income and general reform of the tax code.

The revenue-collection thing I can get behind; the administration of social justice slightly less so. It's not fair by any conceivable standard that the highest income groups pay a lower effective tax rate than those below them. Let's fix that, please?

Alright slarti, yours first, then mine.

I'd first like to see some other changes, like taxing realized gains as ordinary income and general reform of the tax code.

That and closingt he hedge fund loophole. One of Chuck Schumer's Not Greatest Hits.

sorry for wasting bandwidth with a "me too" post, but what slarti and eric said.

do those things and see where we end up.

also, lefty though I am, I'm in agreement with slarti that the purpose of taxation is raise needed revenue, not to enforce social justice.

How about a 25% sur-tax for income up and above $3 million?

Eric, isn't the loophole that hedge fund managers get to treat their commissions as capital gains rather than ordinary income? If Slart's suggestion of taxing capital gains as ordinary income (which I wholeheartedly endorse) were implemented, then the loophole would no longer be doing the hedgies any good, so I wouldn't care whether their income was treated as capital gains or not.

kc: That's completely possible. I blame the early hour.

also, lefty though I am, I'm in agreement with slarti that the purpose of taxation is raise needed revenue, not to enforce social justice.

The accumulation of wealth being primarily a matter of luck, it can and should do both. They're not mutually exclusive. Taxation has always been an instrument of wealth redistribution which, it seems to me, must be thought to be isomorphic with social justice.

More tax brackets would also chop off the support of the almost millionaires that the billionaires enjoy. As it is now, those making $400K/yr are 'just like' those making $20M/yr. That's like saying those making $18K/yr have exactly the same interests and concerns as those making $900K/yr.

Better yet, make the rates continuous rather than bracketed. What's the name of the logical fallacy where no one can say in the spectrum where yellow shades into green, therefore there's no difference? That's what we have with these distractions over arguments about who 'the rich' are.

SoV,


make the rates continuous rather than bracketed.

I can't think of anything that would make the debate over tax rates more fun than reading a column by George Will about how the integral of the tax function unwisely burdens the wealthy. :-)

Yet more changes and brackets in the tax code will wreak havoc with the Tea Parties.

If we have a higher bracket every $250K, those in the higher brackets won't want to sit ans sip with the folks in the lower brackets any longer; the former will demand closed circuit T.V. to observe the proceedings, and valet parking and other perks.

Incentives will need to be introduced, like those ratty red bathroom carpets the airlines put on the floor for the red-carpet club members to stand on momentarily while they enter the planes ahead of the rest of us.

I once accidentally and undeservedly placed one foot on a red carpet and Dagny Taggert rushed over and asked me, "Is that the Chrysler Building in your pocket, or are you happy to see me?"

Which would have been fine if it had stopped there, but then she launched into a 417-paragraph screed about higher men and lower men and ... well, when I informed her I was travelling stand-by, she gave me a haughty look and I was whisked away for some Homeland Security wanding and fondling and yet another toothpaste tube confiscation.

Halfway through the interrogation, it occurred to me that I was paying a higher effective tax rate than just about anyone, including Dagny (who should change her name to Sally if she wants to have any chance with me), on my modest earnings, so I booked a flight to Texas and joined the secessionist movement.

I stand right next to Tom Delay (see Washington Monthly's Steve Benen for a rundown on Delay's secessionist strategy for Texas) because I want the two of us to have our very own state all to ourselves with a laser outline projected by a DOD satellite following us wherever we go. I'll do all the work and he'll do all the talking and we'll see how our two-man state's tax revenues start piling up.

Word is that Obama is going to call the Texas delegation into the White House for a little tete a' tete on secession with the President actually proposing it as a good idea and, for good measure, producing the freshly signed mutual defense treaty between the United States and Mexico to cooperate in all ways warlike against Texas' stupidity constantly overflowing its borders and seeking new territory to conquer.

make the rates continuous rather than bracketed.

Could be done tomorrow, for the people who prepare their taxes, or have them prepared, by software.

For the folks who have Uncle-Sol-the-accountant and his trusty Bomar calculator, not so much.

We'll live to see the day though -- and then the golden era of high-school calculus that it ushers in.

"It's not fair by any conceivable standard that the highest income groups pay a lower effective tax rate than those below them."

You don't have a very good imagination, or grasp of how diverse the conceptions of "fair" are.

It's not fair that the highest income groups pay a grossly higher dollar amount of taxes than people who earn less, but receive no fewer government services. "Fair" is that you get what you pay for, and pay for what you get, and I don't think the wealthy are getting nearly the services they're paying for.

Which unfairness is made inevitable by the fact that a lot of people simply can't afford to pay for their share of the government. But it being unavoidable doesn't make it "fair".

Actually, for a typical rate function for continuous rates, the total owed would just be the integral of that function, and that's what the taxpayer would use. For example, if the rate is given by r(x)=1+e^(-x), then the actual formula used to calculate the tax payment would be p(x)=x-e^(-x), which is not hard to evaluate. I suppose there would also be tables one could use to look up what is owed, the same as for the vanilla-standard 1040 type forms.

I don't think the wealthy are getting nearly the services they're paying for.

Which unfairness is made inevitable by the fact that a lot of people simply can't afford to pay for their share of the government. But it being unavoidable doesn't make it "fair".

Posted by: Brett Bellmore

You don't 'think' so? How about some evidence? I would say that it is just the opposite. Yes, 'the rich' certainly do benefit more from government than I do.

How about some evidence that somebody with an income of $1,000,000 is getting ten times more services than somebody with an income of $100,000? Do they have ten cops following them around providing body guard services? The paving in front of their house is ten times thicker? Maybe an aircraft carrier is parked off the coast to especially protect their home?

More likely they live in gated communities, and so aren't benefiting from police protection even as much as you are.

Does Bill Gates have the

Iow, you don't have any evidence, and you're not willing to do any research to prove otherwise.

Maybe an aircraft carrier is parked off the coast to especially protect their home?

Military spending appears not to benefit me at all these days. To the contrary, people like me bear the cost of a trillion-dollar war we neither wanted nor needed. And other, better connected, wealthier people seem to have done quite well by the invasion of Iraq and military spending in general.

The same with police 'protection'. If someone else has ten times the amount of stuff I do, you're absolutely right that they're getting ten times the protection.

I'm not particularly interested in trying to persuade you, however. As far as I can tell, you've already decided that you're not going to change your mind. So why don't you try to be more persuasive when you post? Cite facts, figures, studies, that sort of thing?

I'd like to see the capital gains tax made sharply progressive over time. In other words, very short-term (like I don't think the wealthy are getting nearly the services they're paying for.

Unless you consider that one of the things they're paying for is the system that made them wealthy in the first place.

Does anyone have any idea how much revenue would be generated by MY's proposal? The top 1% may be capturing all the increase in GDG since, it appears, the late 70's, but on the other hand there just isn't that many of them.

There's something seriously wrong with your posting mechanism. I'll try again:

I'd like to see the capital gains tax made sharply progressive over time. In other words, very short-term (like < 1 month) taxed at gambling rates (50%) gradually coming down to 15% or lower after 10 years. I think this would change our investment habits overnight, leading to a more stable and long-term oriented economy.

Brett,

...I don't think the wealthy are getting nearly the services they're paying for.

Unless you consider that one of the things they're paying for is the system that made them wealthy in the first place.

"Does Bill Gates have the"

No, he doesn't.

Show me one time Bill Gates has complained about inequality in government services. Show me one instance in which Bill Gates has turned down a marginal dollar because too many cents were taken out of it by the Federal Government.

Also, police service doesn't work the way you've described. They don't follow the millionaires around. The millionaires pay their taxes to have ten cops follow the $10,000 man around to make sure he's not scaling the walls of the gated community.

As to the thickness of paving, you may have something there. I think it's the extra length of the paving that the millionaire receives, not that there is anything wrong with that. Not to mention the gas and so forth to get the hook and ladder in front of the mansion and the extra fire hoses needed for dousing the flames in the 14,000 square foot carriage house so they don't spread to the big house.

It would seem to me, given the rationale for the Cold War and avoiding the extreme taking of property that the Russians would have imposed had they invaded, that in fact the aircraft carrier off the coast was and is protecting the big house as opposed to my little house, though I'm happy to be protected as well.

Plus, Grover Norquist has made a gold-plated career out of whining about the tax code.

Surely, he has benefited ten times more than I have.

How about some evidence that somebody with an income of $1,000,000 is getting ten times more services than somebody with an income of $100,000?

Well, presumably at some point the somebody with the income of $1,000,000 owned a business. (Or their parents or grandparents owned a business, or were tycoons of some kind.)

Did they pay for their employees' educations - the ones that made it possible to run that business - personally? No? Well, they're certainly benefiting from those educations.

Does the rich person pay out personally each time he wants to make a transaction and wants there to be a universal system of weights and measures and monetary standards in order to make the transaction quick, simple and cost-effective? No? Go figure.

They also don't have to pay for the armed guards to protect their business from rampaging bandits. Or their home. (A good man-at-arms is much pricer than the taxes you pay to police. Just ask Whitney Houston.) And of course, there's all the money you save on moats, moat maintenance, feeding the crocodiles in the moat, et cetera. This is because rich people, in non-civilized countries, are known as something else, and that something else is "the people who have the money I want" or more simply "targets."

Rich people get staggeringly more out of government than poor people do. They always have, because rich people are the ones who typically run government.

Two points:
(1) Like many others, I am opposed to the privilege currently afforded to capital gains as compared to other forms of income. However, I'd go further, and suggest the truly radical change of a highly progressive wealth tax (at, obviously, a very low rate even at its maximum), because otherwise people who are free not to realize their capital gains can find other ways to access the wealth they represent without paying taxes, and if they happen to die then no taxes are ever paid except for rare very large estates that haven't planned ahead. A wealth tax could also address the phenomenon that GHB may be alluding to, that capital gains can be compounded but tax on them paid once (if ever), while income is taxed continuously; arguably this difference in when the taxes are paid would mean that even if earned income and realized capital gains were to be considered identically then the effective tax rate on capital gains would be lower than that on earned income.

2) I like the idea of additional brackets, and I understand the attraction to the savvy people who comment here of a continuously progressive tax, but I think its psychology is all wrong. We're dealing with a population 30% of whom sympathize with the tax burblings of Not-Joe-The-Not-Plumber, and vast swathes of whom don't understand either the concept of taxable income or the concept of marginal tax brackets. The one virtue of a simple bracketed tax system is that anyone with a third-grade education can address it with a pencil stub and some paper. Taxes that can only practically be figured with a computer, extensive look-up-tables, or a decent calculator and some minimal algebra would be a real bear to sell to the public, even though the vast majority of that public aren't liable to pay them.

Of course, I do recognize that my second point makes an argument for simplicity and not confusing the voters while my first point calls for gobsmacking them, but I never claimed to be consistent.

Warren, no members of the public calculate their taxes with a pencil stub and some paper. In fact, they're not allowed to do that. They must look up their tax in the table (as long as their taxable income is below some high value) -- a table that only approximately matches what they'd get with their pencil, because it doesn't have a line for every individual number of dollars. Thus a change to a smooth function with effectively an infinite number of brackets would have no effect on the mechanics or comprehensibility of filing taxes. All that would happen is that the people making the table would use a different function.

How about some evidence that somebody with an income of $1,000,000 is getting ten times more services than somebody with an income of $100,000?


Here's a pretty standard scenerio for someone making $1,000,000+/year:

Say you're an upper-level manager at legal, financial, contracting or consulting firm. You almost certainly went to college, with a very good chance you went to at least one public university. Even if you went to a presitgious private university, it almost certainly receives government research, all sorts of tax breaks, etc. In any instance, your education was heavily subsidized by taxpayers – whether they participate or not. Moreover, a very good chunk of your employees below you (whom, without, you wouldn't be employed either) are also university graduates. The public subsidized them too and you're reaping the multiplier effect.

The business you work in also requires a huge amount of government services. You all probably fly a lot, so you're taxing the FAA much, much more than an ordinary citizen. If your business benefits in any way from government research, research funding, or contracting, you're allowed to profit via taxpayer subsidy. If you think this is a limited number of firms, I have only one response: Have you ever heard of that thing the government created/sponsored called “the internet”? Government regulates the very financial markets you benefit disproportinately from.

I could go on and on and on with examples...

Yes, everybody in our country benefits from these services too, but you consume a higher share of these services and reap a higher amount of rewards. You need to pull your god damned weight!

Also, Warren, could you explain your point about compounding of capital gains? Any income from the compounding would also be taxed, so I don't see where the lower effective tax rate would come in.


Let's go back to government research; science, technology and industrial policy; regulation, etc.

Modern aviation doesn't exist without military research and contracting in aerospace. Modern telecommuications doesn't exist if NASA and the military hadn't invested all those resources into developing satellites and launch vehicles to deliver them there. Almost all your modern commercial aircraft have at least a good chunk of their components which were spun out of military research.

The intial investments and research by the government is what created the internet in the first place. As Publius has pointed out much more coherently than I ever could; both the internet and modern telecommunications – and all the industries built upon them or seizing their competetive advantage from them because our government helped us get there first – would not exist without all of us taxpayers ponying up the dough.

We all get some benefits and we should all pay in proportion to the benefits we receive. As a wealthy person, your relative benefits are much higher than the general population. You wouldn't be where you are without the very economy the government has done so much to foster (it's far from perfect and our government f*cks up way too much, but I hear the Somalis are trying out the ultimate expierement in limited government and I don't reckon it's working out too well for them), so you should be paying and amount in-line with this. It's going to be higher percentage than everybody else and you're just going to have to deal with paying your fair share.

I need a drink now...

KC, because capital gains are untaxed until they are realized, they are compounded each year without a bite being taken out of them by taxes. At the end of this process, the gains are much greater than if you were to dedicate pre-tax earned income each year in amounts comparable to your unrealized capital gains.
Now, in the real world, I understand that investment funds, because of all the trades they do, might realize capital gains too often for this theory to hold - but it still seems plausible to me.

I might be inclined to support Matt's ideas, but I'd first like to see some other changes, like taxing realized gains as ordinary income and general reform of the tax code.

Since the argument is that without preferential tax treatment, people won't invest enough, I'd even allow rollover from one investment to the next without declaring it "realized". Sell one asset and use the proceeds to buy another within, oh, 90 days, and it's tax-free. Extend it to the little guys, too: interest on your savings account accumulates tax free. The banks and brokers already report to the IRS almost all the date needed to make it straightforward.

And yes, it would convert our present income tax into something almost indistinguishable from a consumption tax with the first few thousand dollars exempted.

The accumulation of wealth being primarily a matter of luck, it can and should do both. They're not mutually exclusive. Taxation has always been an instrument of wealth redistribution which, it seems to me, must be thought to be isomorphic with social justice.

I actually don't think the accumulation of wealth is primarily a matter of luck. Different people get wealthy in different ways. Unless you inherit it, it usually takes a lot of effort to get rich. Most folks that build their own fortunes do so by having good ideas, or creative ways of solving some kind of problem, or are just highly driven, have a very high degree of focus, and work their asses off.

Luck is always a factor, but IMO it's far from the primary one.

That said, the distribution of income, and even more so wealth, are way out of balance in this country. It would be great for public policy to work toward achieving a more even balance. Rather than doing so through the tax code, which is essentially a negative approach (taking money earned by one party and giving it to another) it makes more sense to me to balance it on the earning and ownership side.

People who work for a living deserve a larger share in the value they create. Rather than tax it away from the wealthy, IMO we should reorganize our commercial institutions so that more value created flows to workers, rather than flowing so disproportionately to ownership.

The point shouldn't be to "redistribute" wealth, it should be to distribute it more fairly in the first place.

"Fair" is that you get what you pay for, and pay for what you get, and I don't think the wealthy are getting nearly the services they're paying for.

If taxation is not about engineering social justice, it's also not about being "fair" in the kind of simpleminded schoolyard sense described here.

Taxation is the way government raises revenue. If income tax bugs you, we can do something else. Some countries use a VAT, long ago we used to run the country on tariffs and luxury taxes.

Any form of taxation you can come up with is going to hit some folks harder than others. Period.

If it's going to hit some folks harder than others, pick on the wealthier folks, because they can afford it. Unfair? Probably so. If you can think of a better idea, that is, net/net, less unfair overall, I'm all ears.

Fee for service, however, is the most unfair approach I can think of, because poorer folks will get nothing.

"Officer, that man robbed me!".

"An arrest will be $250.00, $500.00 if I also have to appear in court, and $1500.00 if I end up calling in backup."

Lather, rinse, and repeat for fire departments, food and building code inspection, schools, public health, etc etc etc.

At that point, just privatize everything but national defense and printing money and be done with it. But you'll be about two steps from Somalia.

I understand that investment funds, because of all the trades they do, might realize capital gains too often for this theory to hold - but it still seems plausible to me.

My understanding is that mutual funds are required to pay out their realized gains - creating a tax liability - but there is still no tax on their unrealized gains. In fact, there are funds that try to be "tax-efficient." avoiding dividend-paying stocks and minimizing the net realization of gains.

The process is more obvious when you hold an individual stock. If it goes up, say, 10%, you are wealthier by that amount - it's income - but you pay no tax until you sell. The effect is the same as in all those tax-free compounding examples you see in ads for IRA's. If you get 10% two years in a row and then sell, your gain is 21%, and you keep 17.85%. If you had to pay tax each year, and reinvest you'd end with 17.72% over the two years. Not much difference, but over longer periods it adds up.

My understanding is that mutual funds are required to pay out their realized gains - creating a tax liability - but there is still no tax on their unrealized gains.

Not quite. Mutual funds don't pay out their realized gains. They can always roll them back into other investments, or even hold them as cash.

Mutual fund distributions, which the investor is taxed on when they receive them, arise from redemptions. The rules are kind of complicated, but there are situations in which some investors cashing out of a fund force the fund to liquidate some of its holdings and pay the proceeds out as, effectively, a dividend to all the other investors, though it's taxed as capital gains. I have had some occasions when the distributions are large, and create a significant tax effect. The most annoying thing about them is that they tend to arise most frequently when the market is going down, because that's when you get a lot of redemptions.

JMN,

I thought that any realized gain created a tax liability for the fund investor (even though it might be reinvested rather than paid out as I said). Is that wrong? If so, does that mean that unless there are large net redemptions the tax situation is really under the fund's control?

I actually don't think the accumulation of wealth is primarily a matter of luck. Different people get wealthy in different ways. Unless you inherit it, it usually takes a lot of effort to get rich. Most folks that build their own fortunes do so by having good ideas, or creative ways of solving some kind of problem, or are just highly driven, have a very high degree of focus, and work their asses off.

Luck is always a factor, but IMO it's far from the primary one.

Do you have any evidence for this? My understanding is that income mobility has been decreasing, and that in fact, the U.S. has just about the lowest income mobility of all the developed Western countries. this is perhaps not the best link, but I'm feeling lazy:

By international standards, the United States has an unusually low level of intergenerational mobility: our parents’ income is highly predictive of our incomes as adults. Intergenerational mobility in the United States is lower than in France, Germany, Sweden, Canada, Finland, Norway and Denmark. Among high-income countries for which comparable estimates are available, only the United Kingdom had a lower rate of mobility than the United States.

This suggests then that luck is very much a significant factor.

I should note that the tax liability applies to net gains (I thought).

Do you have any evidence for this?

Anecdotal. What I've described is true of the people I know who are wealthy.

Most of the folks I know who are wealthy didn't inherit it, and acquired it by doing something exceptional in one way or another. They invented something, or just had really good ideas, or they work more or less 24/7. Usually some combination of those.

I do know some folks who inherited their wealth. The intergenerational mobility thing would indicate that inherited wealth is pretty common.

That said, it's still kind of hard for me to see redistribution as the best path to a more equitable distribution of income or wealth.

The US economy has grown enormously in the last 30 years, and has generated astounding amounts of wealth. Virtually all of that increase in wealth has gone to the top income earners. I find it hard, to the point of being impossible, to believe that the top percentiles of income earners are responsible for the generation of *all* of that wealth.

So I say the best path to economic justice is distribute -- not *re*-distribute -- the wealth created in this economy more equally to the folks who generate it in the first place.

Then you don't need to use the tax policy to even things out after the fact.

"If taxation is not about engineering social justice, it's also not about being "fair" in the kind of simpleminded schoolyard sense described here."

Of course taxation isn't about being fair. That's why my hackles rise every time somebody starts blathering about how this or that tax system, (Usually one that screws over somebody else.) is the only "fair" tax.

There's no such thing as a fair tax, any more than there's http://www.amazon.com/Rainbow-Cadenza-J-Neil-Schulman/dp/1584451238/ref=sr_1_1?ie=UTF8&s=books&qid=1240102557&sr=8-1>fair rape. We could get into a theoretical discussion of whether Miss January 2008 deserves to be gang banged 20 times more often than July, or just 5 times, and we'd be talking obnoxious nonsense.

Once you've decided to tax, "fairness" is out the window, it's already been ruled out with a vengeance.

We could get into a theoretical discussion of whether Miss January 2008 deserves to be gang banged 20 times more often than July, or just 5 times, and we'd be talking obnoxious nonsense.

wait... did i stumble into an Unfogged thread ?

Did they pay for their employees' educations - the ones that made it possible to run that business - personally? No? Well, they're certainly benefiting from those educations.

Sure. And they're paying the market rate for the result of those educations. Ever looked at how much a high school graduate earns, versus someone with a bachelor's degree, versus a master's and higher?

Maybe the degrees don't pay off in the first or second year, but they eventually do. That cost is borne by the employer, not the government.

Once you've decided to tax, "fairness" is out the window, it's already been ruled out with a vengeance.

You can always secede, Brett.

Seriously. What alternatives do you have? You're going to pay taxes. You should want to pay taxes, because taxes are what makes this country run. Could the country be run better? Certainly. But the direction that "better" represents is not going to have any wide agreement, amongst the other people that are also citizens of your country.

Do you have any evidence for this?

Anecdotal. What I've described is true of the people I know who are wealthy.

Most of the folks I know who are wealthy didn't inherit it, and acquired it by doing something exceptional in one way or another. They invented something, or just had really good ideas, or they work more or less 24/7. Usually some combination of those.

I do know some folks who inherited their wealth. The intergenerational mobility thing would indicate that inherited wealth is pretty common.

I don't know what your definition of 'wealthy' is, but according to my cite the odds of five people you know being born into a family whose income falls within the middle quintile and ending up in the top five percent of income earners(never mind the top one percent) is less than 1:100000000. That's right, less than one in one hundred million.

So either you're an extremely odd outlier, or these people you know aren't coming from the middle quintile. I'm guessing that they're not even coming from the fourth quintile, but rather the upper fifth.

So no, it's not just 'hard work' . . . and in fact I remain unimpressed by the whine from those who made it into the upper one percent or higher that they 'worked hard'. So what? So do lots of other people. Saying that these people got to where they were 'because of hard work' implies that this was the only factor, and has the concomitant implication that those who didn't reach such exalted heights did not only because they aren't such hard workers.

Do you have any evidence for this? My understanding is that income mobility has been decreasing, and that in fact, the U.S. has just about the lowest income mobility of all the developed Western countries. this is perhaps not the best link, but I'm feeling lazy:

By international standards, the United States has an unusually low level of intergenerational mobility: our parents’ income is highly predictive of our incomes as adults. Intergenerational mobility in the United States is lower than in France, Germany, Sweden, Canada, Finland, Norway and Denmark. Among high-income countries for which comparable estimates are available, only the United Kingdom had a lower rate of mobility than the United States.
This suggests then that luck is very much a significant factor.

Well, yes and no.

In fundraising circles, it's well known that few of the people we deal with are inheritors of wealth. And it's also well known that the people we look are generally a) entrepreneurs, and b) business owners. See studies such as THE MILLIONAIRE NEXT DOOR. Corporate officers and inheritors of wealth rank far down in the list. (There are several other studies such as the Bank of America High Net Worth Individuals studies, GIVING USA's annual studies and so forth).

Too, these studies have shown that the US during the 1980 to 2000 had the highest rate of growth of high net worth individuals. Almost all of these came from the business owners and entrepreneur segments. Some luck is involved there, but probably not as much as you think.

What am I saying? I'm not quite sure, but it's that hard work and skill are necessary, but not sufficient.Some luck is involved, but not as much as you think; personality, personal skills also count.

I thought that any realized gain created a tax liability for the fund investor (even though it might be reinvested rather than paid out as I said). Is that wrong? If so, does that mean that unless there are large net redemptions the tax situation is really under the fund's control?

Yes, the investor is responsible for realized gains, but only when they take cash out of the fund. If you don't receive a distribution, you don't pay tax. In that sense, it's just like holding stock. There are roughly three ways that you can receive a distribution that you didn't want. The first is if there are redemptions that force it; not only are the rules complicated on this, but I also don't know them. The second is if the fund decides that it has too many assets under management, and it tells investors that they are giving money back; in this situation, they'll usually solicit volunteers, but don't always get them. The third case is if the fund shuts down. Then you get all your money back whether you want it or not. Sometimes, they sell the fund to someone else who keeps it going under another name and ticker, though they often change the way that it's managed.

BB: "I don't think the wealthy are getting nearly the services they're paying for."

SOV: "You don't 'think' so? How about some evidence? I would say that it is just the opposite. Yes, 'the rich' certainly do benefit more from government than I do."

Someone did a study of this. I've read it somewhere on the internet. It contains many assumptions that are debatable but at least it is a starting point for discussion. I'll ask mr google to find it for me.

" So why don't you try to be more persuasive when you post? Cite facts, figures, studies, that sort of thing?" said SOV, the man who cited no facts or figures.

SOV
I read with interest the study that you linked to at April 18, 2009 at 07:42 PM. You use it as support that there is low income mobility in the US. The numbers in the study itself do not back up that conclusion.

For example, the Probability of Attaining Each Income Quintile in 1994-2000 Based on Parents’ Income Quintile in 1967-71 (table 3, p. 9 in the study) is interesting.

It shows that 58% of children whose parents were in the lowest quintile had incomes in higher quintiles. I guess the pessimistic way to look at this is that 42% of the children stayed in the same low quintile as their parents. What did the authors of the study choose to report in their summary? They said this "Children from low-income families have only a 1.1 percent chance of reaching the top 5 percent of the income distribution, versus children of the rich who have about a 22 percent chance." (summary, page i) Wow. 22:1 seems unfair. But how did children of the rich fare? It shows that 86% of children whose parents were in the highest quintile had incomes in lower quintiles. Only 14% of the children stayed in the same high quintile as their parents. Not only that, 6.1% of children of parents whose income was in the highest quintile fell all the way to the lowest quintile.

What can we conclude? It is almost 1.5 times (86:58) more likely that a 'high born' child will move down than a 'low born' child will move up. And for every 'low born' chjild who reaches the top quintile there is a 'high born' child that falls to the bottom quintile. (5.9:6.1)

Okay, those are extremes, but what about the other quintiles?
~58% of children of first (lowest) quintile parents move up.
~51% of children of second quintile parents move up vs 22% who move down.
~34% of children of middle quintile parents move up vs 45% who move down.
~30% of children of fourth quintile parents move up vs 45% who move down.
~86% of children of top quintile parents move down.

What can we conclude? There is plenty of movement up, down, and all around. Motion is towards the center. It is harder to stay at the top than the bottom.

SOV's one in a hundred millom represents the odds of picking five people completely at random, and having all five of them be ridiculously wealthy.

Which is not what russell has done at all.

Possibly I've misunderstood, but you're going to have to show more of your work, SOV.

Here's another interpretation gem from the study:

The study looked at what factors contribute to the intergenerational correlation of incomes. The leading factor is "Education of Head and Spouse" at 0.128 of 0.431 total correlation. (table 4, page 10).

How did the writer present this result? He said "13 points (or 30 percent) out of the overall correlation of 0.43 can be explained by the fact that parental income predicts the child’s education, and that of his or her spouse, which in turn predict the child’s family income as an adult."

Say what? The underlying statistics did not address at all how the parent got his/her education, i.e. whether the education of the parent arrived as a result of the grandparent's high income. The author just inserted this without support! The only thing the numbers said is a parents education is a correlative factor (about 30% of the total correlation) in the child's income future.

Aside: How much of a correlative factor is financial inheritance? Surprise, it's 0.002 of 0.431. Almost nothing.

As for the question of how much government services are recieved by each strata of income, I offer the report at this address:

http://www.taxfoundation.org/files/gfb31.pdf

It is over 30 years old but it is something.

Briefly, it concludes "While there may be wide differences among different families within the same income class, this study reveals that, for broad income classes, the taxing and spending activities of governments favor the lower income groups." See table 1 on page 5 for the distribution. They allocated benefits directly where possible and "one-half aIIocated by number of families, one-half by money income." where a specific allocation was not possible.

If this study is correct, it is not true to say the rich get a benefit in proportion to the taxes the pay as SOV, John Thullen, mightygodking, and awesom0 would like us to believe.

I have seen a more recent study which used different assumptions. I will continue looking for it.

I've seen a more recent study somewhere. I'll keep looking.

SOV
I find this statement that you made in your comment of April 18, 2009 at 10:28 PM. to be a bit of a red herring:

"I remain unimpressed by the whine from those who made it into the upper one percent or higher that they 'worked hard'. So what? So do lots of other people. Saying that these people got to where they were 'because of hard work' implies that this was the only factor, and has the concomitant implication that those who didn't reach such exalted heights did not only because they aren't such hard workers."

In particular, I ask 'worked hard' for what. Many people work very hard on being the best pianist they can be. The fruits of that are good piano playing. Other people work hard at making money. The fruits of that are generally elevated income and wealth. So, hard work alone is not relevant. What is relevant is 'hard work at making money'.

I don't know what your definition of 'wealthy' is, but according to my cite the odds of five people you know being born into a family whose income falls within the middle quintile and ending up in the top five percent of income earners(never mind the top one percent) is less than 1:100000000. That's right, less than one in one hundred million.

By "wealthy" I mean having enough money that, if you so chose, you could stop working without incurring any significant change in your standard of living. I mean being able to afford a fairly expansive standard of living in the first place. The folks I'm talking about probably have personal net worth in 7 or 8 figures, maybe more for some.

Basically, they are rich.

I would have to do a lot of homework to be able to argue with you about economic mobility in the US. And, for all I know, you could be right.

I have two points and only two points that I want to make.

First, even inherited private fortunes come from somewhere. There is a significant amount of luck involved in building a private fortune, but it normally also requires the individual to bring something extraordinary to the table as well.

Due to whatever quirk of fate or circumstance, I know a generous handful of people who have built a private fortune. Maybe 12 or 15. They didn't inherit it, they built it. Some came from upper middle class backgrounds (although not necessarily wealthy ones) and some not.

Some of them built their fortune off of inventions, some off of really creative and clever approaches to common problems. One guy just ran a simple, bread and butter small manufacturing business really effectively and sold it for a good dollar.

What they all have in common is that they work 24/7. They're always working. It's not work to them, it's like breathing.

It probably sucks to be their spouse, because they'll take a phone call in the middle of Christmas dinner, and they'll organize their family vacations around, frex, visits to European food preparation facilities.

So, based on my admittedly small but incredibly consistent sample, it is my educated guess that building a private fortune is not purely a matter of luck.

Note that none of the folks I'm talking about are or were executive management or FIRE sector professionals. I've come to see those folks as, essentially, a parasite class on the economy as a whole. No offense meant, personally, to anyone here in those professions, it just is what it is.

What I'm talking about are people who became wealthy as a result of creating a lot of actual value.

The second point I want to make is that, while I completely agree that the level of income and wealth inequality in this country is corrosive, I don't think the tax regime is the best way to go about it.

For one thing, it generates the kind of "they're taking my money and giving it to that guy" kind of resentful whining that we here on these threads every time the topic comes up.

Second, it sort of concedes the point of whether the wealth and income should have gone to the upper brackets in the first place. I don't believe that it ought to have, to the degree that it does.

Third, it gets the government into the tricky business of trying to manage exactly how much wealthier some people should be than others. That's an intractable question, and isn't one that is likely to be well answered by a committee of 535 public office holders.

IMVHO, a better solution is for the folks who actually *create the value that the income and wealth is based on* to have a larger share in that wealth and income.

At the moment, our commercial life and institutions are highly skewed to the interests of capital investors. Capital is an essential ingredient in productive enterprises, but it is not the only one. Capital in and of itself creates nothing.

I have no problem raising the marginal rates on top income earners if that's the best way to raise needed revenue. I'm fully in agreement with Smith's argument for a progressive tax scheme -- wealthy people will, as a purely pragmatic matter, be less harmed by a higher tax rate, so that is the least harmful place to place it, if a higher rate is necessary.

But I think using the tax regime as a way to level income and wealth (a) misses the point, which is that the income and wealth should have been more equitably distributed in the first place, and (b) it creates a climate of class resentment that isn't necessary, and is corrosive to public life.

Thanks -

" So why don't you try to be more persuasive when you post? Cite facts, figures, studies, that sort of thing?" said SOV, the man who cited no facts or figures.

Posted by: d'd'd'dave

Number one, I've already posted a cite. Number two, snipped your quote to change it's meaning:

I'm not particularly interested in trying to persuade you, however. As far as I can tell, you've already decided that you're not going to change your mind. So why don't you try to be more persuasive when you post? Cite facts, figures, studies, that sort of thing?

Posted by: ScentOfViolets

So at this point, Dave of the d's, you're receiving the cut until you apologize for this dishonesty. I don't have to put up this sort of thing.

SOV's one in a hundred millom represents the odds of picking five people completely at random, and having all five of them be ridiculously wealthy.

Which is not what russell has done at all.

Possibly I've misunderstood, but you're going to have to show more of your work, SOV.

Posted by: Slartibartfast

I'm just repeating what my cite says:

Children born to the middle quintile of parental family income ($42,000 to $54,300) had about the same chance of ending up in a lower quintile than their parents (39.5 percent) as they did of moving to a higher quintile (36.5 percent). Their chances of attaining the top five percentiles of the income distribution were just 1.8 percent.

Note also that I did not say 'ridiculously rich', btw, I said 'the top five percent'. Maybe that's your definition of ridiculously rich as opposed to merely rich; I prefer to avoid those terms altogether and concentrate on the actual numbers.

The government's service of protecting my property is worth more than it's service of protecting some homeless guy's property, and the value isn't measured by the respective number of people it takes to guard us.

Stop confusing cost with value, and you start to see what folks at the upper end get from government.

Lane Kenworthy has a relevant post suggesting that tax code progressivity is of little importance in reducing inequality.

The main reduction comes from government transfers.

What am I saying? I'm not quite sure, but it's that hard work and skill are necessary, but not sufficient.Some luck is involved, but not as much as you think; personality, personal skills also count.

Posted by: gwangung

The problem here is that this statement really doesn't mean a whole lot unless you can quantify what you mean by luck. Take everybody's favorite example, Bill Gates. I'm sure he worked very hard, and without casting aspersions on him through his product, I'm sure he was a bright kid. The fact of the matter is, however, that his 'luck' was being able to pitch his idea to IBM, and he was only able to do this because his mother sat on the board of directors. That's not the sort of 'luck' that is available to just anyone(I'll also note that Bill's family was very comfortably upper middle class at the least; he didn't come from a household with a $40K adjusted gross annual income.)

No, I don't dispute the fact that these individuals worked hard. But given the fact that others work just as hard if not harder, I'd have to say that your 'bit' of luck is really the determining factor.

I'm just repeating what my cite says

I don't see anything in that quote about a chance of 1 in 100 million. Slart seems to be correct, unless you're assuming Russell knows only five people in total.

As Slart says, "Possibly I've misunderstood, but you're going to have to show more of your work, SOV." So far you haven't shown it, though.

Third, it gets the government into the tricky business of trying to manage exactly how much wealthier some people should be than others. That's an intractable question, and isn't one that is likely to be well answered by a committee of 535 public office holders.

IMVHO, a better solution is for the folks who actually *create the value that the income and wealth is based on* to have a larger share in that wealth and income.

This accords with my beliefs as well. IMHO, the labor markets in this country are fundamentally broken and have been for some time.

But I really don't have any ideas on how to fix this, and I haven't met anyone who has. The best that can be done is, among other things, make sure the bottom 50% have roughly the same opportunities as the top 50%. That means, among other things, that there has to be some real redistribution of resources. Real redistribution, not the tiny dribbles that we have now.

At the moment, our commercial life and institutions are highly skewed to the interests of capital investors. Capital is an essential ingredient in productive enterprises, but it is not the only one. Capital in and of itself creates nothing.

I have no problem raising the marginal rates on top income earners if that's the best way to raise needed revenue. I'm fully in agreement with Smith's argument for a progressive tax scheme -- wealthy people will, as a purely pragmatic matter, be less harmed by a higher tax rate, so that is the least harmful place to place it, if a higher rate is necessary.

But I think using the tax regime as a way to level income and wealth (a) misses the point, which is that the income and wealth should have been more equitably distributed in the first place, and (b) it creates a climate of class resentment that isn't necessary, and is corrosive to public life.

Unfortunately, the class resentment right now seems very real and quite justified. And while I agree that taxation shouldn't be a means to 'punish the rich', I also think that taxation to prevent the intergenerational transfer of vast amounts of wealth from the parents to the children is an entirely legitimate function of government.

I'm just repeating what my cite says

I don't see anything in that quote about a chance of 1 in 100 million. Slart seems to be correct, unless you're assuming Russell knows only five people in total.

As Slart says, "Possibly I've misunderstood, but you're going to have to show more of your work, SOV." So far you haven't shown it, though.

Posted by: KCinDC

Sigh. 1.8 percent is 0.018, and (0.018)^5=1.89E-9, that is two billionths. I rounded up ;-) Any other questions?

SoV, I think you're missing one key point: two billionths is the likelihood that *any one* group of five people falls into the given category. The problem is that Russell undoubtedly knows *many* groups-of-five-people; if he knows N people, he knows N-choose-five such groups. N-choose-five rise at a faster-than-exponential rate, so it could easily overwhelm that small likelihood.

(Of course, all of this ignores the fact that Russell's set of acquaintances is not, in fact, randomly selected.)

" Capital is an essential ingredient in productive enterprises, but it is not the only one. Capital in and of itself creates nothing."

Got a looming problem here: That's less and less true every day, as automation advances, and eventually it's going to be entirely not true. Machinery started out just replacing muscle, but more and more it's replacing brains, too.

Even on the design end of things, the software we engineers use is doing more and more of the thinking for us, which is nice in that it relieves me of a lot of tedious detailing, but I can clearly see that the day is approaching when it will be able to do ALL of that thinking, and I'll be out of a job, too.

Got to face it: Eventually capital IS going to be the only input that matters. And people who don't have any are doing to be in deep, deep doo-doo.

Is the country going to be divided between people with capital, and people with votes? With the latter only having income because they've voted themselves income? I don't see how that works in the long run.

"If this study is correct, it is not true to say the rich get a benefit in proportion to the taxes the pay as SOV, John Thullen, mightygodking, and awesom0 would like us to believe."

I don't see how Thullen could be right, when you've got some people making 10,000 times the income of other people, and visibly not surrounded five deep in tax paid bodyguards, with the park service scattering rose petals in their path. The claim that somebody is getting 10,000 times the services another person gets is presumptively nonsensical, unless you can point to what they're getting.

Which is usually the point where the people claiming this go all tautological, and define government services in such a way as to make them inescapably proportional to income, by attributing to the owner of a business all the services the employees get, or defining not being stripped of your income as a service, or something else similarly circular.

Why 'progressive' taxation? For the same reason Dillinger robbed banks rather than public libraries: "Because that's where the money is."

No other reason.

i'm gonna have to side with Brett on part of this. the rich really don't use govt that much more than the non-rich.

even if they own a company which uses lots of taxpayer-funded resources, the company probably has some employees, and they all share in that benefit - it doesn't go to just the owners.

that doesn't mean i think progressive taxation is wrong, though.

and i fully encourage everyone who doesn't like progressive taxation to pack their bags and move to some other country. we'll do just fine without you.

The problem is that Russell undoubtedly knows *many* groups-of-five-people; if he knows N people, he knows N-choose-five such groups. N-choose-five rise at a faster-than-exponential rate, so it could easily overwhelm that small likelihood.

(Of course, all of this ignores the fact that Russell's set of acquaintances is not, in fact, randomly selected.)

This is the salient point. Any randomly selected group of 50 people whose parents came from the middle quintile will have, on average, just one person in the top five percent. Thus, of any randomly selected group of 250 people whose parents are middle class, five will, on average, be in the top five percent.

So the question is how many of these people does Russel know for various values of 'know'. I'm guessing the actual number is a lot closer to five than it is to fifty, let alone 250. That is, you've got hold of the wrong end of the handle. You've got to look at the 'wealthy' people he knows as the population you're drawing your sample from.

i'm gonna have to side with Brett on part of this. the rich really don't use govt that much more than the non-rich.

I think you've got to look first at what services the middle gets. Assuming I make $50K/yr, what am I getting? I'm leaving out taxes at the purely local or state levels, just looking at what the 'progressive' income tax gets me. Let's go back to that pie chart of federal spending that Russell linked to earlier.

Offhand, I don't see a whole lot in there that directly benefits me. Contrariwise, I do see a lot in there that seems to disproportionately benefit 'the rich', for example, military spending.

So, in your opinion, just what benefits am I getting from my federal taxes?

The chief benefit you get from paying taxes, is the same benefit most people get: Not getting thrown in prison, and maybe roughed up along the way.

Governments are protection rackets with really good PR. That's all.

Thanks, Brett; you've just conceded the point that people with fifty times as much stuff as I have do in fact get at least fifty times as much protection, given that the protection rackets aren't confiscating our stuff.

cleek: even if they own a company which uses lots of taxpayer-funded resources, the company probably has some employees, and they all share in that benefit - it doesn't go to just the owners.

Assuming that a very rich person owns a company with a workforce required, at least, to be literate, they benefit from tax-funded education.

Assuming that a very rich person owns a company that produces a physical product that has to be physically delivered, they benefit from tax-funded roads and/or a tax-funded postal system.

Assuming that a very rich person has got very rich because they founded a dot.com that actually took off and lasted, they benefited from a tax-funded Internet.

Assuming that part of a rich person (or rich family's) profits come from their company not paying employees enough for them to afford health insurance, nor providing it to most employees as an employment benefit, they are very directly benefiting from employing people who make use of the ER and other tax-funded welfare services to stay alive.

It could be argued that the merely rich don't benefit that much more from their taxes than the middle-classes; but the very, very rich are benefiting much, much more.

Only if you define "protection" in exactly the same way as protection rackets define it, which is not something I'm prepared to do.

If we meet in a dark alley, am I entitled to half the loot you've got on you, in return for not taking the other half? That's the kind of moral 'reasoning' you're applying here, the law of the jungle, by which muggers do nothing wrong, if only they give you a chance to hand over your wallet peacefully before assaulting you.

Well, considering that issuance and management of money itself is public good administered by the Federal Government, people with more of it clearly benefit more form government service.

Brett, you're the one who just defined it that way! Don't complain if I use your definition:

Governments are protection rackets with really good PR. That's all.

If that's how you really feel, you need to stand by it. If, otoh, you're just lobbing rhetorical firebombs, well, I think that's what you're conceding here.

So stop it, okay?

Assuming that a very rich person owns a company with a workforce required, at least, to be literate, they benefit from tax-funded education.

and so do the workers. without that education, they don't have those jobs.

Assuming that a very rich person owns a company that produces a physical product that has to be physically delivered, they benefit from tax-funded roads and/or a tax-funded postal system.

and so do the workers. without the roads, there is no company for them to work at.

the fuel the company uses to ship those products is also taxed.

postage isn't free.

Assuming that a very rich person has got very rich because they founded a dot.com that actually took off and lasted, they benefited from a tax-funded Internet.

if the company depends on the internet, then the workers benefit, too.

and, the internet isn't tax-funded these days.

Assuming that part of a rich person (or rich family's) profits come from their company not paying employees enough for them to afford health insurance, nor providing it to most employees as an employment benefit, they are very directly benefiting from employing people who make use of the ER and other tax-funded welfare services to stay alive.

and who pays for those tax-funded welfare services? hint: it's not the people who don't make enough money to buy insurance.

"There's no such thing as a fair tax, any more than there's fair rape."

"Governments are protection rackets with really good PR. That's all."

Brett, you don't seem to have any awareness that you're citing your prejudices as if they're facts. If I assert to you that governments are the most wonderful invention of mankind, here to help us all, and that taxes are the fairest, most enlightened, way to help us all, my assertions are as well-grounded and at least as convincing as yours.

Argument by assertion of prejudice doesn't, in fact, go very far.

You don't like governments, and you don't like taxes. That's nice, and you're entitled to your opinions. Opinions are just opinions, though.

Only if you define "protection" in exactly the same way as protection rackets define it, which is not something I'm prepared to do.

It's defining government by the ideas of George Washington, Thomas Jefferson, James Madison, Benjamin Franklin, John Adams, Alexander Hamilton, and Abraham Lincoln, among others, actually.

Why do you hate America, Brett?

The fact of the matter is, however, that his 'luck' was being able to pitch his idea to IBM

Actually, his luck was in IBM letting him retain licensing rights to DOS after they decided to put it on every PC they made back in the 80's.

But you are correct to note that having your mom on the board of a company you want to pitch to is a freaking huge advantage.

But I really don't have any ideas on how to fix this

There are lots of simple ways to address this without reinventing any wheels.

Give employees an equity position. Works great for startups, no reason it couldn't be more widely practiced.

Employee owned companies, which generally means companies in which employee ownership through stock or other means is greater than 50%, quite often do very, very well. The folks who work in them don't necessarily get billionaire rich, but lots of them get own your own home, send your kids to college, and retire at 50 rich, which sure as hell beats food stamps.

I can't imagine that it would be that hard to design public policy such that it made employee ownership a win/win for investors as well.

Starting point for further reading:

http://www.nceo.org/library/eo100.html

"Ownership society" ought to mean more than "go into more debt than I will ever be able to pay back and buy a house and a big TV".

If you create value for an enterprise and contribute materially to its success, you deserve a stake in that success, not just the least amount of salary the owners can get away with coughing up. My two cents.

That's less and less true every day, as automation advances, and eventually it's going to be entirely not true. Machinery started out just replacing muscle, but more and more it's replacing brains, too.

Even on the design end of things, the software we engineers use is doing more and more of the thinking for us, which is nice in that it relieves me of a lot of tedious detailing, but I can clearly see that the day is approaching when it will be able to do ALL of that thinking, and I'll be out of a job, too.

I'm not aware of any software automation tool that does anything other than crank out boilerplate code. That's a real time-saver, but I'm not sure it qualifies as "thinking".

I'd be interested to hear of any automation tool in any industry whatsoever that does more than that.

Got to face it: Eventually capital IS going to be the only input that matters.

Unless your understanding of the contribution of labor begins and ends with, basically, John Henry, the day you describe is never going to arrive.

If nothing else, somebody somewhere has to research, design, build, market and sell all of the groovy automation tools.

you've just conceded the point that people with fifty times as much stuff as I have do in fact get at least fifty times as much protection, given that the protection rackets aren't confiscating our stuff.

Touche! Well played.

cleek: and so do the workers. without that education, they don't have those jobs.

Indeed. Individually, each worker benefits by amount E. But, their employer benefits by amount E*w, where w is the number of workers. So, their employer benefits more, as an individual, than any one of the workers.

and so do the workers. without the roads, there is no company for them to work at.

Yes, and individually each worker benefits by amount R. But their employer benefits by amount (R*w)squared, since their employer got to set up a company on the basis that the government would pay for the roads which are essential to the employer's business. So the rich individual benefits far more, as an individual, than any one of the workers.

if the company depends on the internet, then the workers benefit, too.

Yes, and individually, each worker benefits by amount I. But the rich individual benefits by amount I*w. So the rich individual benefits far more, as an individual, than any one of the workers.

and, the internet isn't tax-funded these days.

Wouldn't have existed without extensive government investment and support, though.

postage isn't free.

No, indeed. But a postal system that delivers everywhere to every address at the same price for everyone is only available if it's a public - ie, government - institution. And any business which is dependent on the post office for its existence, while each individual worker benefits by amount P, their employer benefits by amount P*w, so as an individual, they benefit far more than any one of their workers.

Understand now how it is that the very rich benefit far more from government than less-rich individuals do?

and who pays for those tax-funded welfare services? hint: it's not the people who don't make enough money to buy insurance.

Hint: the Wal-mart owners do not pay, in tax on their vast income, enough to cover the ER and other welfare services their lowest-echelon employees use. The US doesn't tax the very wealthy enough to make up for those evil little dodges. So, you pay for Wal-Mart's profit margins, Cleek. I hope it makes you happy.

Assuming that a very rich person owns a company with a workforce required, at least, to be literate, they benefit from tax-funded education.

and so do the workers. without that education, they don't have those jobs.

Two points: how is the money collected for education? That's right, property taxes, and on local properties. If I pay on the order of $1,000/yr for forty years - just as a rough order estimate - then I've put myself through the K-12 school system and then some. No 'rich' person has done that for me. Secondly, since no one is saying that the 'non-rich' don't benefit, your point is nonsensical. The question is, who benefits more?

Assuming that a very rich person owns a company that produces a physical product that has to be physically delivered, they benefit from tax-funded roads and/or a tax-funded postal system.

and so do the workers. without the roads, there is no company for them to work at.

the fuel the company uses to ship those products is also taxed.

postage isn't free.

I'll stop quoting your post right here; the point is that you're not showing that the the 'nonrich' benefit as much from these civilized amenities as the 'rich'.

Sure, without these, your typical citizen is living in a mud hut or a log cabin or whatever metaphor you choose. But your typical 'rich' person falls far, far further. They're not living in tarpaper shacks, no, but otoh, they don't have private jets, sixty-room chateau's, imported caviar, etc either.

"So at this point, Dave of the d's, you're receiving the cut until you apologize for this dishonesty. I don't have to put up this sort of thing."

Sorry SOV, I was wrong, you had posted a cite with facts, I just had not reached it yet. I read the comments chronologically. You had not posted facts and figures prior to that comment where you chided someone else for not using facts and figures yet you had felt free to argue from a position of no cites yourself.

In Re the following quotes:

"IMVHO, a better solution is for the folks who actually *create the value that the income and wealth is based on* to have a larger share in that wealth and income."

and

"Capital in and of itself creates nothing."

I don't disagree that it would be good if labor earned more. And I don't disagree that money sitting in a pile accomplishes nothing. However, there is a concept that I think needs to get more play. Capital represents stored labor, or better, the ability to command labor. Labor, in and of itself, does not create much wealth. It is the combination of labor + transport + technology + knowledge + marketing + etc all bundled together into one venture that creates value. The bundler is generally the function that creates the value and that accumulates the profit. The knowledge provider thinks he's the guy because he's smartest. The labor provider thinks he's the guy because he did all the visible sweating. But neither did the step which is the special sauce. They could have. They were worthy enough. It's just that they didn't. It is what it is.

The knowledge provider thinks he's the guy because he's smartest. The labor provider thinks he's the guy because he did all the visible sweating.

And the bundler thinks he's the guy because he's the "conductor of the orchestra".

Without taking away from the unique value that entrepreneurial insight contributes -- for the purpose of understanding who deserves a stake in the outcome, there is no one person who is "the guy".

Nothing happens unless everybody plays.

"Well, considering that issuance and management of money itself is public good administered by the Federal Government, people with more of it clearly benefit more form government service."

Touche Andrew.

There's out of the blue, out of left field, and then there's Brett bringing up Miss January and Miss July in some sort of gangbang contest in a tax debate.

Gary asked a question that has crossed my mind before:

"Why do you hate America, Brett?"

P.S. What's a blogger got to do to get an open thread around here? Maybe throw a Tea Party?

@Slartibartfast:

Did they pay for their employees' educations - the ones that made it possible to run that business - personally? No? Well, they're certainly benefiting from those educations.

Sure. And they're paying the market rate for the result of those educations. Ever looked at how much a high school graduate earns, versus someone with a bachelor's degree, versus a master's and higher?

Maybe the degrees don't pay off in the first or second year, but they eventually do. That cost is borne by the employer, not the government.

This elides the actual meat of the first quote. The employer is not bearing the cost of education. The government, via educational subsidies, grants, etc. is doing so. The employee is selling their services, the employer is buying them. The government underwrote the training that gave the employee services to sell, and then dropped out of the picture (well, sorta, but we're speaking in broad generalities).

If the employer was bearing the cost of education, the schools would be getting a check from them. To claim otherwise is to claim that if Alice freely gives Bob a program she wrote on her time and her dime, and Bob then turns around and sells it to Carol, Carol is bearing the cost of writing the program. That's just not so: if Alice hadn't chosen to create it and give it to Bob, it wouldn't exist. Carol bought it from a reseller; she did not commission its writing. Bob may have invested weeks and months buttering up Alice with the explicit intention of obtaining and reselling her program, but Alice remains the one bearing the cost of creating it. Unless Alice is selling it to Bob, and the price he's paying is directly tied to how much Carol will then pay him for it, there's not even much of a case to argue that Carol is indirectly bearing the cost.

The point is that the government is encouraging and/or subsidizing the creation of a broad market of skilled employees that the employers can then to pay a market rate for. Without that, the employers would presumably have to train/educate after hiring people, or rely on a much smaller pool of would-be employees who could afford to pay for their own entirely unsubsidized educations... and who would thus demand a commensurately higher ROI for their services.

"It is the combination of labor + transport + technology + knowledge + marketing + etc all bundled together into one venture that creates value."

"Nothing happens unless everybody plays."

I think this is a point most of us can agree on, actually.

russell: "Give employees an equity position. Works great for startups, no reason it couldn't be more widely practiced."

Yes, it works great. 'Give' is not quite what happens in startups, though. The people who get equity usually receive it in exchange for lower pay than they could command without it and more work hours than they would commit without the hope that their piece of equity will payoff exceptionally.

'Give' rarely happens. There is a free exchange of values. One opts to take risk for a chance at a greater reward and another opts for a smaller, more certain reward. The rub arises later when the second guy sees that the risk paid off for the first guy and then starts to feel that he, the second guy, should get half the reward because he did half the work. He conveniently forgets that he sold his share in exchange for certainty in the beginning. There are more of the second guys in the world so their chorus of 'unfair' is heard by the majority of people as truth.

Equity in a company is property. If the government is going to give employees equity in companies, it's going to have to take that equity from the people who have it now.

Legally they can do it, but it's unquestionably a taking, and would have to be paid for as such.

I also question the notion that taking something from Peter to give to Paul actually qualifies as "public use". But in this case I suppose it's better than the government keeping that equity stake itself.

Jes,

I have two issues with your 12:47 comment.

First, I believe your formulas leave out a critical factor P which is the profitability of a task. P can be positive or negative. So that E*w*P or (R*W)^2*P or I*w*P could all result in a negative number such that the product value to the employer is negative even when the value to the worker is positive.

You have discounted the role of the Risk that I described in my 2:01p comment. Or, at the very least, assumed it is always a positive number.

Second, you say " But their employer benefits by amount (R*w)squared, since their employer got to set up a company on the basis that the government would pay for the roads which are essential to the employer's business." This is not accurate, real estate developers build and pay for the roads. They give the roads to the governments. All the governments do is maintain the roads; and that often poorly.

//"It is the combination of labor + transport + technology + knowledge + marketing + etc all bundled together into one venture that creates value."

"Nothing happens unless everybody plays."

I think this is a point most of us can agree on, actually.//

Yes. But I direct you to my 2:01p comment which shows how each is compensated. In short: everybody plays in exchange for for different mixtures of risk and certainty.

Indeed. Individually, each worker benefits by amount E. But, their employer benefits by amount E*w, where w is the number of workers.

i'd like to see some evidence for this.

But their employer benefits by amount (R*w)squared

and this.

let's see how you derived those formulas. show your work.

Wouldn't have existed without extensive government investment and support, though.

but it does now. the govt's involvement in the creation is bought and paid for.

No, indeed. But a postal system that delivers everywhere to every address at the same price for everyone is only available if it's a public - ie, government - institution

err, no, not really. single-price everywhere is a business model, not something that can only happen if the government runs something.

Understand now how it is that the very rich benefit far more from government than less-rich individuals do?

sadly, no. your list of assertions isn't as powerful as you seem to think.

----

Two points: how is the money collected for education? That's right, property taxes, and on local properties.

and presumably 'rich' people pay more in property taxes.

Secondly, since no one is saying that the 'non-rich' don't benefit,

nobody is saying otherwise. mm k. thanks.

Easy to develop a headache here, or even nausea. Most of the comments here discussing who's getting more or less value for their taxes have made reference to the past or the present. Maybe a discussion focused on the future would be more revealing. If the wealthy already get most of the benefits (and we already know for sure they pay most of the taxes), if we increase the general level of taxation and place the burden entirely on the wealthy, then we should naturally conclude from our earlier discussion that the benefits will go to the wealthy. If it is otherwise, please let me know where the crossover point is so that if I am not wealthy, I will at least know when I am beginning to get a greater rather than a lesser share of government services for the taxes someone else is paying.

"If the wealthy already get most of the benefits (and we already know for sure they pay most of the taxes), if we increase the general level of taxation and place the burden entirely on the wealthy, then we should naturally conclude from our earlier discussion that the benefits will go to the wealthy."

The benefits largely go to the wealthy today because the system is set up that way. If we change how government money is spent, that will no longer be the case.

This should be perfectly obvious, unless you believe government is structured by elves and magic, rather than, as it currently largely is, by the rich and powerful.

(Note that there aren't rich lobbyists lobbying for the poor. Representatives and Senators are not lined up to take lots of money from the poor to make sure bills favor them. Duh. )

"rich lobbyists"

Make that "highly well-paid lobbyists."

I'm OK with that. Before taxing anymore, let's see if we can change how the money is spent. After we succeed with that, then, if we need anymore, we can talk about tax increases.

cleek: single-price everywhere is a business model, not something that can only happen if the government runs something.

Except it is something that can only happen if the government is running the post office. There are too many locations it becomes unprofitable to deliver to otherwise.

sadly, no.

Oh well, too bad. Study harder and perhaps you will.

Why would anyone of sane mind who knows the wealthy always get the additional benefits of increasing taxation want to increase taxes before changing the system so that this is not the outcome? Oh, I know. Some difficult decisions would have to be made. So, if we just increase taxes, even though we know because of the corruptness of the system the wealthy will get most of the benefit, those who really don't make much of a contribution will still get an incremental benefit.

d'd'd'dave: I have two issues with your 12:47 comment.

I have been steering clear of the torture memo threads because you were trolling all over them. I have an issue with your still being here at all.

Except it is something that can only happen if the government is running the post office.

prove it. show your work.

""If the wealthy already get most of the benefits"

They don't get most of the benefits, unless you use a whacked out approach to measuring that, designed to make SURE that you find them getting most of the benefits.

They don't get most of the benefits

Sure they do.

Relative to income/accumulated wealth, the modest taxes the wealthy pay are a form of 'insurance' against loss of the social compact that allows them to keep and grow their wealth relatively unmolested.

In other words, they're protection money. Already said that.

That's what the social friggen contract of Hobbes (Pessimistic about when you are allowed to break it) and Locke (Optimistic about when you are allowed to break it) is - which can be roughly translated to "We'll both surrender our natural rights to take and do violence to a third, more neutral party called the State."

It's always has been a protection racket, the racket's alternative is, to quote Hobbes' state of nature:

“no place for industry, because the fruit thereof is uncertain; and consequently no culture of the earth; no navigation, nor use of the commodities that may be imported by Sea; no commodious Building; no Instruments of moving and removing such things as require much force; no Knowledge of the face of the Earth; no account of Time; no Arts; no Letters; and which is worst of all, continuall feare, and danger of violent death; And the life of man, solitary, poore, nasty, brutish, and short.” If this is the state of nature, people have strong reasons to avoid it, which can be done only by submitting to some mutually recognized public authority, for “so long a man is in the condition of mere nature, (which is a condition of war,) as private appetite is the measure of good and evill.”

"They don't get most of the benefits"

How much of the zillions of farm subsidies goes to the poor, Brett? How many of the defense contracts go to the poor? How many government contracts in general go to the poor? Which neighborhoods get better police protection? Rich ones, or poor ones? Which areas have better schools? Rich ones, or poor ones? Where does most government money go? TANF? How many states even give any TANF money to single men?

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