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October 07, 2011

Comments

Well, at least you're not demanding the reintroduction of 8-track tapes.

I'm sure you're more-than-reasonable demands will get all of the consideration that they are due.

Damn! That's probably one of the reasons I need to leave: I don't have that ability to be a tough negotiator, so I have to decamp to a country with universal health care.

I can't respond sarcastically to this. It hurts too much. Those people who support Republican policies would have caused death and financial ruin for millions of Americans if their budget had passed. So if some of them immigrate, wonderful. I wish they all would.

Snarki, well 8-tracks aren't likely. But I was hearing yesterday that there is a mirco-phenomena of bands selling music on cassette tapes. (The subject arose due to the Compact OED looking to drop the entry for cassette tapes on grounds that they were no longer in use. They apparently got some push-back.)

It seems that it's not so much that people prefer to play music that way. It's that, unlike a digital download, there is something physical that they can hold, so they feel connected to their favorite bands. Who knew?

We'll just replace them with wealthy Chinese immigrants.

The United States is the most popular destination for Chinese emigrants, with rich Chinese praising its education and healthcare systems.

That is, if we don't dismantle the very things they like about the US.

"them" being wealthy American expatriates...

Paul Caron runs a wonderful and informative website, which is generally a must read for tax professionals. That said, the good professor also seems to be happy to parrot right wing silliness (as shown by his quote in the post and his constant linking to WSJ Editorials on taxes, the latter of which hilzoy classically destroyed here (come back hilzoy!)).

That said, what explains the apparent large increase in U.S. citizenship renunciations in 2010 and first quarter 2011 (as noted in the two linked taxprof posts)? Well, it doesn't seem to be any giant fear of Obama. If so, one would have thought the biggest spike to be in 2009, which admittedly is bigger than 2008, but below the 2005 number in absolute terms.

What's really going on? Increased FBAR enforcement and the enactment of FATCA, the combination of which has made it more problematic for U.S. expats to keep their citizenship (and its associated benefits) than to give it up, so they have been doing the latter.

"This President constantly demonizes the wealthy"

Professor Caron must be living in a different universe than I am. "constantly"???

Actually, I'm not sure arguing that the income most common to the wealthy, i.e. capital gains, should be taxed at the same rate as other income counts as demonization. But even if it does, I don't see a drumbeat of that, even in the last few months.

OK, one possibility does come to mind. If you count NOT actively trying to extend the moritorium on estate taxes as constant demonization, then I suppose maybe there's a case.

On the BCS, well, it's a farce. I've made my views on amateurism in U.S. college athletics known here, which doesn't really touch on the BCS, other than to say that any concern about the educational impact of an additional 2 or 3 games on a handful of major college football teams/players is laughable.

The best thing that could happen to college football as a sport in general (excluding paying the players), would be to have the Big 12 and Big East implode, and consolidate into 4, 16 team super conferences (ACC, Big 10, Pac-12, and SEC). Those conferences could then collectively give the finger to the NCAA and BCS, and devise a playoff system whereby the 4 conference champions (or maybe the top 2 teams), compete for the national championship (perhaps with some sort of accommodation to a team or two outside those conferences).

Feh. If you want to renounce citizenship to avoid taxes, live it up. Very highly paid people in countries with relatively high tax rates (think: Keith Richards) have been doing this for a long time, and the world does not come to an end.

Plus, it will be an excellent opportunity to the put the Galt hypothesis to the test.

Let the wealthy job creators exit stage right and we will see whether the net effect on the overall health of the economy is positive, negative, or negligible.

My money is on negligible.

I do have friends that have left the country already, or plan to, for other reasons.

One couple are both self-employed with a small child. He is a carpenter, she is a milliner. Yes, there still are milliners. The cost of health insurance for them and their child was making them broke. She was born in Canada, they now live in Nova Scotia.

Another woman is an extraordinarily talented graphics software designer and engineer. Same deal - young kid, health care and higher ed costs are too high, she was born in Canada, they now live in Toronto.

One other guy was career Navy, then a high-mid level executive with a multinational, then back into the Army to go to Iraq and work with folks there -- Iraqi folks -- who are trying to set up small businesses. Three small kids. He's just generally disgusted with the US, and sees it as a dysfunctional society at this point. His wife is Danish, so he's going to finish up his Army tour then they're off to Denmark.

I don't see anything in the WSJ about those folks.

Increased FBAR enforcement

Seriously, they couldn't figure out a way to fit a "U" in that acronym? :)

For your amusement, here is a 1985 comment from someone who supported (strongly!) taking capital gains as ordinary income:

We're going to close the unproductive tax loopholes that have allowed some of the truly wealthy to avoid paying their fair share. In theory, some of those loopholes were understandable, but in practice they sometimes made it possible for millionaires to pay nothing, while a bus driver was paying 10 percent of his salary, and that's crazy. It's time we stopped it….

What we're trying to move against is institutionalized unfairness. We want to see that everyone pays their fair share, and no one gets a free ride. Our reasons? It's good for society when we all know that no one is manipulating the system to their advantage because they're rich and powerful.

That would be, or course, that notorious rabid liberal and demonizer of the wealthy . . . Ronald Reagan. Perhaps Professor Caron, et al., have heard of him?

russell: Seriously, they couldn't figure out a way to fit a "U" in that acronym? :)

Nope, and only one "u" when you spell the whole thing out ("Report of Foreign Bank and Financial Accounts, Form TD F 90-22.1").

As you note, people have renounced U.S. citizenship to avoid U.S. taxes for decades, which has gradually resulted in a tightening of the rules until now there is an actual exit tax for such people. But the number of people who (a) are rich enough, (b) are willing to screw their country out of tax due, (c) have the monetary situation such as it makes sense, and (d) willing to put up with the subsequent restrictions on their ability to travel in the U.S. (e.g., as a former colleague of mine said to someone who was thinking of expatriating for tax purposes, "do you really want your tax planning to drive how often you can see your grandchildren?"), such that it "made sense" to renounce for tax purposes has always been very small, and with the new exit tax, along with a tax imposed on bequests from an expatriate, it's likely to be even smaller going forward. But, even under the old rules, it was generally unheard of for someone to expatriate because of the ordinary income tax burden (mainly because it was hard to maintain the same level of income once you had to spend most of your time outside the U.S.).

But what is driving the recent spike in renunciations is the increased difficulty U.S. expats find in (i) opening a simple checking account (or other financial account, such as a retirement, brokerage, or mutual fund account) with a non-U.S. financial institution where they live due to FATCA; (ii) being employed by a non-U.S. company given the additional burden they and/or the company will have in complying with U.S. tax rules (greatly heightened recently due to changes to the FBAR rules); and (iii) the generally draconian FBAR penalties for failure to file the form, whether or not any additional U.S. tax was due (e.g. $10,000 for a single failure to file, and depending on circumstances, a % of the HIGHEST balance in the account at any time during the period for which the form was not filed).

So, my guess is that alot of U.S. expats, who have held onto U.S. citizenship as it was convenient and generally didn't cost them anything other than filing U.S. tax forms (because they didn't owe any U.S. taxes due to the foreign earned income exclusion and foreign tax credits), have decided to renounce as it is now making it difficult for them to live their lives overseas by, e.g., by making it impossible for them to conduct normal consumer banking and financial transactions and/or continue/get employment, and not because of any fear of an increase in the amount of U.S. taxes they might owe under the Dread Pirate Obama.

But it's certainly a convenient statistic to drive certain narratives.

(There is also a not insignificant number of people that did not even know they were U.S. citizens in the first place, and upon discovering that fact renounce as they generally don't have any connection to the country.)

There are good reasons for treating capital gains differently, e.g. sale of a family business represents a one time windfall following years, even decades, of hard work.

There are plenty of other good reasons: encourage long term, higher risk investment with reduced tax burden. This is not irrational.

That said, I agree with Russell: feel free to leave. I would add: don't ask to come back.

Ugh--we are in nearly complete agreement. I would simply have a 10 game regular season with the top 32 teams playing in a five round, single elimination play off (maybe with a preliminary wild card arrangement to sort out any ties for 32nd place). Each game would be the X bowl, so pretty much most of the bowl games would still be, well, bowl games.

There are good reasons for treating capital gains differently, e.g. sale of a family business represents a one time windfall following years, even decades, of hard work.

There are plenty of other good reasons: encourage long term, higher risk investment with reduced tax burden. This is not irrational.

Certainly these concerns could be addressed with certain exemptions while still taxing capital gains more progressively, even if at lower rates than regular income, depending on the situation.

I'm sure we could manage a reasonable compromise between 1 - all capital gains are just like regular income and 2 - capital gains are nothing at all like regular income and should be taxed exactly as they are now (or not at all).

I love the idea of commemorating Malcolm X with college football bowl games. (That is what you meant, right, Mck?)

McTx: Ugh--we are in nearly complete agreement.

Well then I take it back. ;-) 32 teams sounds like a lot, but were it to come to that I wouldn't object.

Other reasons for a lower capital gains tax include inflation and, in certain cases, double taxation.

sale of a family business represents a one time windfall following years, even decades, of hard work

You could look at it that way. Another way is just to see it as an acceleration of future cash flows from the business into the current year, and since such cash flows would have been taxed at the ordinary income tax rate in future years, why not also upon acceleration?

Also, consider that a great deal of U.S. equities are held in tax-deferred accounts, such that there's no tax upon sale until $$ is withdrawn from the account, which is then taxed at ordinary rates. So a lower capital gains rate isn't of much help.

Ugh--we already have a Top 25. To get a play off, you'd need to add 7 teams or have some bye rounds. Money being a big reason for bowl games, the more the merrier.

HSH--right. There is room for compromise.

Open thread, this seems to be kind of a problem:

A computer virus has infected the cockpits of America’s Predator and Reaper drones, logging pilots’ every keystroke as they remotely fly missions over Afghanistan and other warzones....
“We keep wiping it off, and it keeps coming back,” says a source familiar with the network infection, one of three that told Danger Room about the virus. “We think it’s benign. But we just don’t know.”

Uh, maybe we should stop until we get it cleared up? I mean, considering that whole Skynet thing and all.

I think we should have playoffs between expat's and assign their tax burden each year on a progressive scale based on their overall ranking after the playoffs.

I assume there is some common skill at which they can compete, or just make it am expat Hold Em tournament where they throw all of their tax money in and win it back based on where the lose out.

As for college football, I cant wait for the season to be over usually, please don't make it longer or even less meaningful by imagining that any playoff system would not eventually become a farce.

And I love college football, you know, the autumn sport where a few teams get a chance to play on Christmas and New Years Day.

No, wait, that's baseball now, never mind.

Computer security -- one hs to wonder just how big a mess will have to occur before it starts getting taken seriously. (We'll know people are taking it seriously when they move off of Windows.)

But perhaps it's like traffic safety: the only thing that will get people's attention is either someone they know personally gets seriously hurt (financially, most likely), or they somehow find themselves in a position to see others getting hurt. Until that happens, we'll keep seeing laptops with sensitive data stolen from casually parked cars, viruses let loose on systems due to insufficient protections on network connections or just someone using personal storage devices to put up a picture (they think) on their work site, etc.

(perhaps with some sort of accommodation to a team or two outside those conferences)

Ugh--we already have a Top 25. To get a play off, you'd need to add 7 teams or have some bye rounds. Money being a big reason for bowl games, the more the merrier

So which one is it? Lose all the fun and go with only the BCS conferences or have a true playoff? I'm all for keeping as much tradition as possible, but look at the tradition of college basketball and March Madness. You can keep the bowls in a playoff. Quit trying to keep the Boise State's out of it while keeping the Iowa States, Vanderbilts, Wazzus and the entire Big East Conference in it. Go with a playoff. 32 teams sounds fine. Maybe smaller.

McK,

There are good reasons for treating capital gains differently, e.g. sale of a family business represents a one time windfall following years, even decades, of hard work.

Wait a minute. Isn't that windfall just deferred pay for labor? So why should it be taxed at a lower rate than other labor income.

Jack works hard for ten years as an entrepreneur, and builds a business, which he sells, rewarding him for his work.

Jill works hard for ten years at a profession, or as a corporate executive, and earns a large income, rewarding her for her work.

Explain again why Jack's labor income should be taxed at a lower rate than Jill's?

I'm thinking of expatriating for non tax reasons. I have noticed that they are now searching and interogating people as they leave the US, not just as they come in.
Makes me nervous because I've read a lot of history.

byomtov,

Jack works hard for ten years as an entrepreneur, and builds a business, which he sells, rewarding him for his work.

Jill works hard for ten years at a profession, or as a corporate executive, and earns a large income, rewarding her for her work.

Explain again why Jack's labor income should be taxed at a lower rate than Jill's?

The US income tax is progressive. If Jack's entire labor income is all realized in a single year as regular salary, it is taxed much more heavily in total than Jill's, since hers was spread over a decade and benefited from multiple exemptions, deductions, and incidences of lower rates.

Explain why Jack's labor income should be taxed at a higher rate than Jill's?

Derek seems to be arguing in favor of income averaging, or something equivalent.

I think it's been a while since we've had income averaging as part of the tax code; last time it made an appearance it was (IIRC) there to ease the effects of wage inflation during the early 1980s.

Wikipedia says income averaging was eliminated as part of the 1986 Tax Reform Act.

I don't have any problem, in theory, with the practice of taxing people on their income averaged over several years, but I think the problem with that is you'd have to be very careful to avoid having tax due during years where the person in question had no income at all, which is something of present & immediate concern.

Makes me nervous because I've read a lot of history.

Reading a lot of history will do that to you.

Please, feel free to leave the country. Nobody is going to stop you.

Plus, we now search and interrogate people when they come to this country?

If Jack's entire labor income is all realized in a single year as regular salary

First, whatever "exemptions, deductions, and incidences of lower tax rate" are available to Jill, are also available to Jack.

Assuming Jack is the owner of the business, Jack in fact has a much broader range of exemptions etc available to him than Jill does.

Second, the US income tax regime is progressive, but only to about $400K. After that it's flat. The other payroll-related taxes - SS and Medicare - are either totally flat, or significantly regressive.

Also, once you get above the bottom brackets, the difference in top marginal rates is just not that great. The difference between the rate on ~$35 and ~$400K is ten points.

So, all in, if Jack decides to defer compensation totally, for ten years, and takes ten years of salary in one lump, he may pay at a higher effective rate than if he had paid himself year by year, but not by that much. Probably within about 5 points either way.

Assuming he does this, it's likely he will do so because he will roll whatever compensation he might have received back into the business. So, the business grows bigger and faster, and he ends up with more in his pocket at the end of ten years, income tax regime notwithstanding.

Folks make that kind of calculation all the time. Delayed gratification, bigger reward. You wait to get paid, you get more money.

It's an incentive that sort of drives itself. I'm not sure it needs that big of a boost from the tax code.

We shouldn't punish or totally stifle entrepreneurial effort, and we don't.

Assuming Jack is the owner of the business, Jack in fact has a much broader range of exemptions etc available to him than Jill does.

Just one that russell neglects to mention: as the owner, Jack gets to choose what health insurance is available to employees. If the company is a corporation (even if Jack owns most or all of it), that coverage, including his, is totally deductable from the business' income. And is not charged as income to any employee, including IIRC Jack (even if he is only taking $1 per year as nominal salary).

On the other hand, Jill gets what is on offer. Even if she would prefer a different plan. (To be sure, if Jack's business is set up as a partnership or LLC, then his health insurance may be deductable for the business, but is charged as income to him personally. Ah, the joys of the tax code.)

Derek,

It's probably impossible to equalize the two situations, but the progressive tax argument has holes in it also. Jack will draw some relatively low salary while he builds the business, and this will be lightly taxed, so the lump sum at the end reflects income above some low level. If he paid ordinary income rates on that it wouldn't be a lot different than Jill's situation. She too pays a low rate on the lower tiers of her income. Besides, capital gains can often be timed to minimize taxes, while salary can't.

Still, I wouldn't object to some sort of averaging scheme to try to address this in the context of equalizing the rates.

My main point though is this. When we are talking about entrepreneurs a fair part of what is considered capital gains is really labor income. Similarly, when we talk about professional and technical workers, at least, some of what we call labor income is return on investment in human capital. From an economic point of view I see no huge difference between spending money on the training needed to become a neurosurgeon and spending money on factory equipment. Both involve spending now - deferring consumption - to generate income later. Taxing that income differently seems odd to me. And of course that doesn't just apply to neurosurgeons. Most reasonably well-paid jobs require training.

Jack and Jill went up the hill
To fetch a pail of water.
Jack fell down and broke his crown,
And Jill came tumbling after.

Up Jack got, and home did trot,
As fast as he could caper,
To old Dame Dob, who patched his nob
With vinegar and brown paper.

See, Jack gets health care.

As for Jill, she tunbled after, never to recover, and was later spotted at an Occupy Wall Street demonstration.

I think the ex-patriot numbers have been inflated by the number of times a guy with the initials BOB threatened to emigrate to Belize.

I wonder if those emigrating because of high taxes know about this, as they whine from a distance:

http://www.washingtonmonthly.com/political-animal/2011_09/if_a_tax_cut_falls_in_a_forest032315.php

I wonder, too, what emigration rates from the U.S. were in 1955 (91% top marginal tax rate, with multiple tax rates below that higher than today's 35%), and 1964 (top marginal tax rate 70%, again with progressive rates below that higher than today's 35%).

Could it be that instead of a relatively flat, much less progressive tax regime in the U.S. being the problem, what we are experiencing is a much more highly progressive rate of anti-Americanism among the more well-off than was true in the past?

By anti-American, I mean what some of us might be accused of by Joe Kernan, Larry Kudlow, and Laura Ingrahm, to name just a few of the enemies in our midst, if WE emigrated to take lower paying jobs abroad or left for health insurance reasons.

Roger Ebert on Occupy Wall Street and the Tea Party.

http://blogs.suntimes.com/ebert/

Click on the video at the end of Andrew Breitbart threatening to murder the Left, and a barely sufficient answer to the vermin from a former military man.

Language alert for those at work.

I started reading Ebert again as much for his political commentary as his movie reviews after THIS a couple of years ago:

http://crooksandliars.com/karoli/i-dont-caleb-howe

Caleb Howe, subhuman coward and contributor to Redrum and compatriot of other politically-disfigured pieces of malformed character like Erick Erickson and Moe Lane.

Bullies, tough guys, like Andrew Breitbart, toward whom Occupy Wall Street may have to change their non-violent stance if they hope to live to see another day.

Being stopped and searched and more when entering the U.S.: Peter Watts. There are endless cases of confiscations and detainments while entering the U.S., citizen or not.

No reasonable suspicion is necessary according to United States v. Arnold.

[...] DHS policies after Arnold
On August 1, 2008, the Washington Post reported that Department of Homeland Security policies allow federal agents to “take a traveler's laptop computer or other electronic device to an off-site location for an unspecified period of time without any suspicion of wrongdoing.” [15] Further, “officials may share copies of the laptop's contents with other agencies and private entities for language translation, data decryption or other reasons.” [15] Senator Russell Feingold called these policies “truly alarming” and said that he intends to introduce legislation soon that would require reasonable suspicion for border searches, as well as prohibit profiling on race, religion, or national origin.[15] Meanwhile Ryan Singel of Wired.com recommended placing one's electronics and papers “in a first class U.S. mail envelope and stamp it—or even better mail it to yourself before the trip,” [16] since ‘officers may not read or permit others to read correspondence contained in sealed letter class mail (the international equivalent of First Class) without an appropriate search warrant or consent’.
Read about Jacob Appelbaum, etc., etc.

Paul Karl Lukacs: I Am Detained By The Feds For Not Answering Questions.

These aren't remotely isolated cases. It's SOP at whim.

Again, it's that Watts was arrested for resisting arrest while leaving the US, not entering.
I recently read "On the origin of teepees" by Hughes, and he happened to mention that he was almost shot by customs while leaving the US.
Entering is a different story. I have no problems with searching and questioning people trying to get in to the country.

http://andrewsullivan.thedailybeast.com/2011/10/ignorance-2012-ctd.html

One wonders, doesn't one, whether the Obama-tax-hating do*che patriots lighting out for other countries pronounce the names of their new homes, like Herman Cain, and every other baby-talking Republican bullet-headed swine candidate (hat-tip to Balloon Juice) pronounces Uzibekibekibekidickistanthemanny, as a way of demonstrating their tough-guy foreign policy chops.

So, if Uzbekistan thwarts the Obama's administration's overtures for logistical support, rationally fearing that Republican fascist filth might be installed in power in 2012 and make fun of their country, should Cain, formerly of Godf*ckers Pizza, be arrested and executed for treason?

Well, of course they can arrest and/or execute the Republican frontrunner. The precedent is set.
The important thing about the new laws is not that the constitutional protections have been stripped, because they've always been more in the way of guidelines rather than actual, what do you call them, laws, it's that there is now a process where white people, not just colored people, and rich people, not just poor people, can have their constitutional rights adjusted.
There are now forms to fill out that allow you to kill all the bankers in a perfectly legal fashion. The whole Dan Davies/Dsquared imbroglio is now past tense.
They have changed the laws to make stealing legal, so we can't put them in jail for stealing, but we can execute them for being treasonously inconvenient.
Kind of reminds me about how hate crime laws work. It was always grounds for extra punishment if a black person hurt a white person, compared to hurting another black person, but with hate crime laws you could now administer extra punishment if a white person hurt a black person.
The unofficial is now official.

Click on the video at the end of Andrew Breitbart threatening to murder the Left

Andrew Breitbart is a punk.

And any person wearing he uniform of this country who claims to "have his back" is a punk as well. They should be banned from military service, and should consider themselves lucky if they're not hung for treason.

He talks about lefties not being willing to "cross that line". He should thank god that that is so.

What color is his shirt? It's brown.

Not gonna try and link but Sullivan is live-blogging the Republican gunslinger/twit debate tonight ... while on Vicodin.

For those, like Gary, who don't like Sullivan's treatment of the Left (I don't either; I prefer my conservative apostates to be more along the lines of John Cole), his remarks might earn him some redemption.

I'm going to go over to David Frum and see if he's shot himself yet.

There are good reasons for treating capital gains differently

IMO there are good reasons for treating *some kinds of capital gains* differently.

But we don't distinguish between them.

Somebody starts a business, forgoes income they could have had from that business for years, and then cashes in when the enterprise has achieved robust health?

I am more than open to that person getting a break.

On the other hand: I am fairly sure I hold equity in, frex, WalMart. Because I have a 401K, which is invested to some degree in equities, and WalMart is a commonly held one.

But I really don't know if I do, or don't. I certainly have no meaningful involvement in the governance of WM. It's highly unlikely that the dollars I have 'invested' in WM even made their way to WM. Most likely, I bought shares from the guy who bought them from the guy who bought them from the guy (... lather rinse and repeat ...) who bought them from WM.

I don't even shop at WM.

The person who stocks the shelves at WM contributes infinitely more than I do to the value of WM. And I mean infinitely literally, any number over zero goes to infinity.

But that person's income from WM is taxed at a higher rate than whatever I eventually gain from being an 'owner'. Where 'owner' means, I hopefully bought a chunk low and sold it higher. Which sounds like 'speculator', to me.

All capital gains are not the same. They differ in the value they create, they differ in the amount and nature of risk involved, they differ in the quality of the 'investors' interest in the thing invested in.

But we don't make any meaningful distinction between them.

russell, I seem to recall reading that 401k distributions, taken as income, tax all of the money (including the gains) as regular income. IOW, your gain is taxed as ordinary income.

The proper cite would be IRS rules, but I'm going to instead go to Wikipedia. Because I'm not going to Teh Source, please don't take this as a contradiction, but rather a suggestion of how 401k holdings might be subject to different rules than ordinary capital gains (i.e. general non-tax-sheltered gains).

I seem to recall reading that 401k distributions, taken as income, tax all of the money (including the gains) as regular income.

I stand corrected.

Kindly consider the example of my personal 401K as a distraction.

Instead, consider my wife's retirement accounts that are funded with after-tax money as an example of hands-off speculative investment in publicly traded equities.

Long story short, not all capital gains are treated the same.

Things are excluded from consideration as capital gains, such as 401K money, are obviously a different kettle of fish.

Thanks for the clarification slarti.

My sense is that the economy is well served if capital is incentivized to invest. Some ventures are riskier than others but there are relatively few--I know of none--new ventures that are risk free. New ventures that prosper and grow are good for the economy. Ventures that fail are the downside of investment. Gov't mitigates the losses and encourages further investment by reducing the tax burden on long term capital gains.

The sense I get of the underlying angst with capital gains is that buying and selling publicly traded securities really isn't capital formation, it's just, well, buying and selling publicly traded securities. For many, the benefit to the economy of this kind of activity doesn't justify preferential tax treatment.

The solution-or one solution--is to allow cap gains treatment on the initial sale of stock, i.e. by the initial purchasers, but not on subsequent sales.

The problem with doing so is this: if you take away cap gains treatment for subsequent securities purchasers, you reduce the market for securities, both demand and price, and wind up indirectly discouraging the initial investors because, if they don't have a ready market for their stock, there is no point in investing in the first place.

A second point in support of preferential tax treatment is that we want to support long term thinking and planning in business endeavors. My take is that companies who strive meet or beat predicted quarterly earnings forecasts think near term and not long term. Long term thinking makes for a sounder operation, less lay offs, better growth etc. Expecting investors to take the same attitude introduces an element of useful stability into the economy.

The combined risk factors and long term thinking merit preferential tax treatment.

There is a way to address cap gains. Like ordinary income, you can have progressive rates. This is the easiest approach and so long as there is a meaningful delta between ordinary and cap gains rates, you still incentivize investment, particularly for small to medium sized investors.

A less obvious approach would be to allow corporations to deduct dividend payments rather than require that dividends be from after tax profits. If more companies paid more dividends, there would be more and better reasons for smaller investors to get into the market, i.e. immediate return on investment. Having a place where middle class investors and savers can put their money and get a return is, on balance, a good thing.

"The sense I get of the underlying angst with capital gains is that buying and selling publicly traded securities really isn't capital formation, it's just, well, buying and selling publicly traded securities. For many, the benefit to the economy of this kind of activity doesn't justify preferential tax treatment."

I'm with you, MckT, on the concept of capital being incentivized to encourage capital formation by the financial markets in the service of the real economy.

We can differ on the details.

Whatever we do with capital gains tax rates, it seems to me we should incentivize longer-term investing, which we do now, to some extent.

I'd prefer a transaction tax on the types of hyper-short-term trading practiced today by the big institutions and hedge funds.

Bank of America selling a basket of securities to Citigroup and back again in a few seconds is what exactly? I'd call it financial masturbation to the benefit of no one but a few.

All of my remarks here are within the context that I don't buy two arguments: that hyper trading increases market liquidity to any societal or economic benefit, AND that market participants are neither incentivized nor deincentivized to any noticable extent except by extremes -- example: 100% or 0% tax rates.

Complain, yes. Change investment behavior that matters to the rest of us, no.

I could be convinced that spreads between the sell and ask are narrowed by the increased liquidity allegedly provided by high-frequency trading, etc.

Show me the studies.

However, I don't believe the long-term investor changes his or her behavior based on the spread.

I'd prefer a transaction tax on the types of hyper-short-term trading practiced today by the big institutions and hedge funds.

Subject to details, I am in favor of something like this.

However, I don't believe the long-term investor changes his or her behavior based on the spread.

Leaving aside that your grasp of sophisticated securities trading is way ahead of mine, in McKT's perfect world, people like me could read a prospectus, understand it and be certain that it accurately reflected the company's financial status and that, if it didn't, CEO's and CFO's would do the perp walk with no excuses that "they didn't know" or "had a good faith belief." Also, in that perfect world, I could get a quarterly dividend if profits were above X net of reinvestment.

My sense is that the economy is well served if capital is incentivized to invest.

I'm with you, MckT, on the concept of capital being incentivized to encourage capital formation by the financial markets in the service of the real economy.

We've all been around this rhetorical mulberry bush a number of times, so I will begin by offering the standard stick and dead horse caveat.

That said, there's virtually nothing you could say about the virtues of capital formation that can't also be said about the necessity of labor.

If nobody shows up to actually do the thing that the enterprise gets paid for, nobody gets paid.

The signal difference between the two is that labor generally needs no carrot to induce it to play. The stick of not eating is generally sufficient.

To borrow from another thread, one reason I wish there was a modern equivalent to the timeless concept of the commons is that it gave labor an out.

If the terms of employment weren't sufficiently attractive, you could generally cobble a livelihood together from resources whose availability was guaranteed as a matter of right, or at least publicly recognized convention and practice.

In fact, one of the strongest arguments in favor of enclosure and the privatization of the commons was that it would force all of those 'idle' commoners into the labor market.

They weren't idle at all, they just weren't making their labor available for the wages on offer.

Instead of working for somebody else for a wage, they were growing or hunting or catching their own food, or making their own clothes tools furniture or other goods, or gathering their own fuel 'by hook or by crook' from 'waste' land, or engaging in cottage industry for whatever small amount of cash they needed, or bartering the fruit of any or all of the above for whatever they couldn't make or grow for themselves.

Or, if the weather was fine that day, maybe they just went fishing. Why not?

Different world. Personally, I'm sorry to see it gone.

To me, it seems like 'making more money' would be a sufficient incentive to invest, and that 'getting a larger return' would be an adequate reward for assuming risk.

It also seems to me that 'capital formation' per se is hardly a problem at the moment. There's more cash laying around doing nothing than you can shake a stick at, and the capital gains rates are historically fairly low.

People are not declining to invest because they're afraid of getting whacked by Uncle.

But if you tell me that a tax regime approximately half that of earned income is what we need to convince people to take their money and turn it into more money -- and further, that that must apply to any and every form of capital gain, regardless of what actual value it creates -- then I suppose it must be so.

That said, there's virtually nothing you could say about the virtues of capital formation that can't also be said about the necessity of labor.

Dealing with the world we now have--urban, enclosed, etc--there is no need for labor unless and until capital is focused and an enterprise unfolds. Labor remains idle unless and until capital is incentivized to invest.

The contribution of labor, at the granular level, is variable. Some folks add real value, others are collecting a paycheck. We've had this discussion too.

but if you tell me that a tax regime approximately half that of earned income is what we need to convince people to take their money and turn it into more money -- and further, that that must apply to any and every form of capital gain, regardless of what actual value it creates -- then I suppose it must be so.

No, I am not saying that. I would tax long term gains from sale of publicly traded securities as follows:

up to 250K at 20%

250K to 500K at 25%

over 500K at 30%

But, none of this until spending is first brought into line with the current revenue stream.

if you take away cap gains treatment for subsequent securities purchasers, you reduce the market for securities,

Well, I'm noy sure this is true, or that it's true to a significant enough extent that it matters. First, as to liquidity, IIRC a hugely significant amount of liquidity is generated by to high frequency traders such as the Goldman Sachs's of the world, and they pay the same rate on capital gains as ordinary income. Similarly, hedge funds owned through partnerships owned by individuals engaging in similar trading don't benefit because the trades are short term and taxed at ordinary rates (though there are other advantages).

Second, as to a secondary market in general, a huge amount of securities are held in tax-deferred accounts and by non-profit entities, neither of which benefit from a reduced rate on capital gains.

Third, to the extent we're talking about U.S. securities, foreign investors in U.S. equities pay no U.S. tax on gains from the sale therefrom (and are generally not taxable on such gains in their home country, though I'm not entirely sure about this). Thus, neither to they benefit from a lower cap gains tax.

Fourth, as to incentives for "long term thinking and planning in business endeavors," this seems wholly irrelevant to to any kind of publicly traded equity security, as you note in your reference to quarters. To the extent you're talking about some sort of initial investment in a start-up business or the decision to start a small business, I find it hard to believe that anyone factors in the capital gains rate into their decision to start a business or fund a new one, unless you think the payoff (in terms of "we'll sell it!") will be in the next 5 years or less.

There is a way to address cap gains. Like ordinary income, you can have progressive rates.

We do have a progressive rate on capital gains. It's just that the rates are 0% and 15%.

there is no need for labor unless and until capital is focused and an enterprise unfolds

And there is no unfolding until somebody shows up and does something.

Don't think so? Build out a lovely new factory, or grocery store, or medical practice, but don't bother hiring anyone.

See what your ROI is.

The contribution of labor, at the granular level, is variable.

The contribution of capital, at the granular level, is variable.

Some people make net new money available to an enterprise.

Some people speculate, which through some numerous levels of indirection may or may not make some incremental contribution to a secondary market for the paper the original guy holds.

We've had this discussion too.

Yup.

I hear what you're saying. I don't see that you hear what I'm saying.

"leaving aside that your grasp of sophisticated securities is way ahead of mine,"

Leave it way aside, because whatever grasp I though I had was lost long ago and I have the investment record to prove it.

It used to be a pursuit; now an interest I keep up on more or less by reading.

Investing in equities for the small-time amateur is a mug's game.

In fact, given the market's performance over the past dozen years ago, even the long-term amateur investor has at best a hit or miss chance of building a nest egg.

"not until spending is brought into line with the current revenue stream".

Check my figures, but that would mean 40% across the board cuts. Not going to happen, and if it did, say goodbye to lots of things, the economy first, but also the revenue stream would be further drastically reduced by higher unemployment, including among the huge Lockheed Martin workforce.

Presented in terms of the of GDP or GNP or whatever, the current revenue stream is about 15%, making it the lowest since 1950 or thereabouts.

Why not say cut spending, if you must, to reflect the highest percentage revenue stream reached in whatever year that happened to be, during a normalized, growing economy.

"Build out a lovely new factory, or grocery store, or medical practice, but don't bother hiring anyone."

Yet another problem because, believe me, they are trying:

http://andrewsullivan.thedailybeast.com/2011/10/a-digital-intern.html

Yes, yes, the guy who manufactured the new Apple device is paying taxes.

To the Chinese government.

Henry Blodgett, former Wall Street shill who retailed bullcrap to investors during the dot.com bubble while his investment firm talked out of the other side of its mouth in-house, now explains Occupy Wall Street to the rest of us:

http://www.businessinsider.com/what-wall-street-protesters-are-so-angry-about-2011-10?op=1

Pretty well, too.

Hey man, what kind of tent city is that? The dude has a piano, fer chrissakes.

Whiner.

Even if McTx got his way, and "government spending" got cut to, say, 15% of GDP, we would STILL have to fight over who should pay how much of that amount. We would still have to divvy up the tax burden between the "job creators" and ... what shall we call everybody else? "Job consumers", maybe?

None of the arguments about what tax rates ought to be, on what forms of income, seem to depend on what the aggregate level of taxation ought to be. They might be good arguments or bad arguments, but they could be the SAME arguments whether we cut "government" to 10%, or 5%, or 1% of GDP. The "job creators" could (and I say, would) offer the exact same arguments that their share of the tax burden is too big, and the burden ought to be shifted towards the people who merely "consume" jobs.

McTX, being a reasonable man, might possibly agree to pay a bigger share of a smaller total tax burden, but I wonder how many of his former party would go along.

--TP

I would agree to higher taxes if, as a precondition, we didn't spend anymore this year than we spent last year, and if we did that two years running and then capped spending increases thereafter to match inflation. Painful but do-able. By cap, I don't mean every department gets what it got the year before. I mean a total cap with Congress free to reapportion among the various priorities as it sees fit.

Build out a lovely new factory, or grocery store, or medical practice, but don't bother hiring anyone.

I don't think this is or ever has been the problem. Just the opposite. No one is building factories. Labor does not supply capital and labor without capital is idle. Capital without labor simply doesn't appreciate, and being liquid, capital can go where it pleases. Labor, not so much.

Labor, not so much.

To the extent that this is true, does it mean that labor should go scratch, or what?

Thullen's link should be mandatory reading material for everyone who thinks OWS is just hating on the rich and corporations without regard to how some of the rich and some corporations have gotten so much money while everyone else has been left to, once again, go scratch.

I'd throw in a bit more on the level of political influence that money increasingly represents, Citizens United being the poster child of late for that phenomenon.

But, none of this until spending is first brought into line with the current revenue stream.

This is simply impossible under current economic conditions, short of serious societal decay, which would cause problems several orders of magnitude greater than those represented by federal budget deficits.

Oh! I forgot my point on the capital gains tax rate differential. Once we've removed the non-taxable folks (pension funds, non-profits, non-U.S. citizens), and the corporations, from the owners of "capital", especially in the securities markets, who owns the vast majority of the rest of the capital/securities in the country? The top 1%, who are also the ones that benefit most from the rate disparity.

McKinney,

You would "agree to higher taxes if ..." Never mind the "if" for a minute. I want to be clear on what "higher taxes" means.

Just for the sake of concreteness, let us imagine that right now, total tax collection is $2T. On the face of it, you would agree to let that rise to (stay calm; it's just an example) $3T. That's one meaning of "higher taxes": more total dollars collected by the government.

Certainly one way to collect 50% more total dollars is to collect 50% more from every single taxpayer. We could, for example, add one line to the end of every single tax form: after the "Line N: Tax you owe" line, we add "Line N+1: multiply Line N by 1.50 and send it in." Everybody pays 50% more tax than he's paying now.

And certainly a different way is to diddle with various rates, exemptions, deductions, credits, and so forth in the tax code. When all the diddling is done, some people end up paying more dollars, some end up paying fewer dollars. Or let's say the tax code is diddled in such a way that it collects 50% more total dollars, but some people pay 90% more than they used to, some only 10% more than they used to.

Now, I make no assumptions about which people are which. For instance, let's divide Americans into two classes this way: the "upper class" currently pays $1T; the "lower class" currently pays $1T; every American in the "upper" class is "richer" than every American in the "lower" class. Define "richer" by wealth or by income, as you prefer. Either way, I hope it's clear how we find the dividing line between the classes. In principle, we line Americans up in order, from richest to poorest. We start at either end of the line. We add up each person's tax bill as we work our way into the line. When the total reaches $1T, we say: "Here is the dividing line."

Two things should be obvious: the "lower class" may contain many more people than the "upper class"; but each class pays the same number of dollars to the Treasury.

So: each class pays $1T now, for a total of $2T. After we diddle the tax code, the people in one of those classes end up paying $1.9T, the people in the other class $1.1T, for a total of $3T. Individuals within each class may have wildly different results, but one class as a whole sees a 90% tax increase, the other class as a whole sees a 10% tax increase; the government collects 50% more tax revenue.

All these numbers are just examples, okay? They are only meant to illustrate a concept in concrete terms. The concept is that diddling with the tax code can redistribute the SHARE of taxes paid by each class. It would take very, very careful and convoluted diddling to end up with each class paying the same share before and after.

I would be guessing (and you might have to guess, yourself) which "class" you fall into, as defined above. So I emphasize that I make no assumptions about whether, or which way, you would agree to change the SHARE of taxes paid by each class.

The point I want to drive home is that there are many different ways to "agree to higher taxes" (or "lower taxes", for that matter) and most of them involve changing the SHARE of taxes paid by any particular class (or any particular individual, for that matter). It should be especially obvious that "revenue-neutral" changes to the tax code do nothing but change the distribution of the tax burden among classes or individuals. You can be for higher, lower, or the same, overall taxes completely independently of who you think should end up with a higher, lower, or unchanged tax bill.

So I am curious, McKinney: what constraints would you put on on your willingness to "agree to higher taxes"? Assume your conditions on spending are met. Spending is off the table as an argument. You've got your way on spending. We're only talking taxes here. Would you "agree to higher taxes" regardless of how the higher tax burden was divvied up between "classes"? Would you be okay with one class paying 90% more and the other only 10% more? And, for the two classes as I defined them, which would you want to be which? Or would you insist on the "Line N+1" approach? Or what?

--TP

Capital without labor simply doesn't appreciate, and being liquid, capital can go where it pleases. Labor, not so much.

OK, now we're getting down to it.

To the extent that this is true, does it mean that labor should go scratch, or what?

Whether that's McK's intent or not, that's the end result.

If folks contributing capital decide not to invest, they will probably continue to eat.

If folks contributing labor decide not to work, they will probably not continue to eat.

That is the difference.

I appreciate McK's candid statement of it here. It has bugger-all to do with which of the factors - capital or labor - are more essential, or create more value, or who assumes more risk, or any of the usual claptrap.

Capital generally has the luxury of walking away from the table. Labor generally does not.

That is the difference.

And so capital investors get the nice shiny carrot of a preferential tax rate. No carrot or stick is required for labor, their need to eat will do the job.

And in fact they should thank the capital investor for 'creating' their job for them.

So I am curious, McKinney: what constraints would you put on on your willingness to "agree to higher taxes"? Assume your conditions on spending are met.

If I understand the question, I would max any tax bracket for earned income out at 45%, maybe 42.5%, with income averaging for the "one off" windfall someone might get in a particular year. I would max out cap gains at 30-35%, over 1mm in cap gains, again with averaging or an elective one year option to pay at, say 20%, with a lifetime waiver thereafter of any right to average. Are these the constraints you are talking about?

What can be accomplished in a country of 10 mm people doesn't translate into a country of 300mm people. If we have to reduce federal services to maintain a viable economy, that is what has to be done.

To the extent that this is true, does it mean that labor should go scratch, or what?

Whether that's McK's intent or not, that's the end result.

If folks contributing capital decide not to invest, they will probably continue to eat.

It is not my intent, simply a statement of what I think is an immutable fact. I could be wrong, but I don't think I am.

All kidding aside, I've been grateful for every job I've ever had. I seldom was the only candidate and I was damned glad to have the work.

I suppose what would be of interest to me would be to have a world described in which capital is compelled to invest in a particular way to the benefit of labor and, having been so compelled, is content with the compulsion and in which the world functions successfully for all involved.

My take is that a semi-Utopia is not a realistic goal. Individuals limited in their economic activity to gov't approved endeavors with significant labor burdens imposed from the inception of any enterprise simply won't become active to the degree necessary to produce widespread employment.

Providing and maintaining public goods creates a nice base for employment, which provides customers for those looking to employ capital (and more labor). The government doesn't have to mandate any particular forms of economic activity; it just has to target spending in productive ways that benefit citizens and businesses alike. The rest will take care of itself, with a bit of regulation to address potential exploitation.

But public goods are a waste of time and money, since the private sector doesn't desire to provide them. And regulations just slow things down by disallowing company towns and the externalities borne by the suckers downstream.

Oh, well. Economic might makes right. Sucks for everyone else. If the state only backs the powerful, it won't have to do anything. Sounds like a win-win.

I wrote one reply, failed to post and so here's the short version:

The government doesn't have to mandate any particular forms of economic activity; it just has to target spending in productive waysthat benefit citizens and businesses alike.

As simple as it sounds, if that is all gov't needed to do, then why hasn't it already done so? It's not as if it hasn't had the time. My answer: gov't is sub-optimal at targeting spending. The usual by-product is crony-capitalistic bad investments with a very limited number of private entities getting the benefit of taxpayer funding while the rest of the economy gets by on its own.

The stimulus was 800 billion plus and, best case, saved or created 4mm jobs, if I am remembering the stats correctly. That is 200K per job, which is the opposite of smart targeting.

The gov't liberals are willing to trust to manage, direct and target billions and billions is the same gov't it by and large refuses to trust on national security matters. I see a disconnect here.

Fundamentally, given the scale and heterogeneity of the US, the best result is obtained by letting market forces decide where money goes. Not a libertarian paradise unrestrained by regulation, but not one where spending priorities are set by people without a vested interest in the success or failure of their investment.

The stimulus was 800 billion plus and, best case, saved or created 4mm jobs...

About half the stimulus "package" was tax cuts, not spending. And much of the spending went to state governments, partly offsetting their spending cuts. Had the federal government actually shelled out $800B to hire workers directly, or to buy stuff from private-sector companies (thus hiring workers indirectly), it seems very doubtful that the cost per job would have been anything close to $200K.

With $800B of actual spending, you could hire 4 million Congressmen and still have money left over. With just $400B of actual spending, you could hire close to 8 million median-income workers. If the other $400B of your "package" was tax cuts, and if tax cuts were really a more efficient way to "create jobs", you'd think we'd be facing a labor shortage by now.

--TP

TP--If the money wasn't spent by someone, where did it go? What tax cuts, other than the 2% FICA rebate?

The gov't liberals are willing to trust to manage, direct and target billions and billions is the same gov't it by and large refuses to trust on national security matters. I see a disconnect here.

I don't trust the current government to do that. I just think it's possible in a saner world than the one we live in. There's lots of very obvious work to be done and lots of people looking for work to do. We're just too screwed up do anything about it.

TP--If the money wasn't spent by someone, where did it go?

Look for a graph of excess reserves held by banks over the last several years. Essentially, a good bit was stuffed into the national mattress.

excess reserves

I just think it's possible in a saner world than the one we live in.

HSH, pretty much anything is 'possible'. However, the human condition militates against, IMO, our gov't doing anything on a sustained basis that requires the level of insight and prudence the endeavor you desire would require.

An economy, when up and running, that lets people provide for themselves and make their own choices is about as good as it gets. For good or for bad.

McKT:

For the Obama stimulus passed in 2009, THESE tax cuts:

http://www.politifact.com/truth-o-meter/statements/2010/jan/28/barack-obama/tax-cut-95-percent-stimulus-made-it-so/

Which were bigger tax cuts for the first two years than the Bush tax cuts were for the first two years. I can supply a link to that if you like.

The comparison over ten years is eye-opening, too.

The 2% SS tax holiday you refer to was part of the budget deal for 2011, I believe, which is over and above the previous Obama tax cuts.

I believe the cuts were for those working and making less than $200,000, and weren't noticed much because, instead of a tax rebate, fewer dollars were withheld from paychecks .... and spent for the most part, as intended by policy wonks.

Doing it through withholding was smart economics, but stupid political strategy. It permitted demagogues to tell people that taxes were not cut.

Which is why we had Tea Partiers, who had received tax cuts through less withholding, claiming that Obama not only did not cut taxes but, indeed, raised taxes.

To this day.

Well, after they got done begging that the government stay out of Medicare.

Obama should have delivered checks in person to every working household, but some Tea Partiers would have peeked through the blinds and wondered why a witch doctor was standing on their porch ringing the doorbell.

Thanks Countme-in. Also interesting: "Obama, given his policy agenda, had steered directly into the looming precipice of the submerged state: existing policies that lay beneath the surface of U.S. market institutions and within the federal tax system. Contrary to opponents’ charges that his agenda involved the encroachment of the federal government into private matters, Obama was actually attempting to restructure a dense thicket of long-established public policies, but ones that are largely invisible to most Americans — and that are extremely resistant to change."

McKinney, you may know this old joke: the optimist believes that we live in the best of all possible worlds; the pessimist fears that may be true.

As for "what tax cuts?", see this Wall Street Journal table for excruciating detail.

--TP

However, the human condition militates against, IMO, our gov't doing anything on a sustained basis that requires the level of insight and prudence the endeavor you desire would require.

An economy, when up and running, that lets people provide for themselves and make their own choices is about as good as it gets. For good or for bad.

None of this addresses the idea of public goods. People can make all sorts of individual choices outside of that realm without government direction. They build the roads. You drive where you please, or stay home and look at porn on your computer, or rebuild old Camaros, or buy a telescope and study astronomy, or make independent films, or host beer tastings - whatever. I'm not talking about total control over every choice, economic or otherwise.

The endeavor I "require" is simply one of better governance than we now have, as opposed to throwing the public sector baby out with the bath water. But if no one advocates for better governance and effective policies, I suppose it will just get worse and worse, which will look more and more like government being unable to do anything right. That's a bit circular, no?

So I guess individual actors in the private sector will do their usual excellent job of fixing roads and electrical grids and such, since there's no such thing as a free rider problem, and that they'll continue to allocate resources wonderfully, like building a bunch of houses no one really needs.

But if no one advocates for better governance and effective policies, I suppose it will just get worse and worse, which will look more and more like government being unable to do anything right. That's a bit circular, no?

And there is no shortage of politicians willing to promise exactly what you desire. The problem is, they don't deliver, and as the country and the gov't get larger and larger, with bureaucracies more and more entrenched, there is damn little even a well meaning politician can do. The president can't govern by decree, so we are left with a congress and senate that have demonstrably failed to exercise the kind of sound management the country absolutely needs. If the solution is to give them more money and hope they get it right the next time, then, I suggest, we are seeing the triumph of hope over experience. Rather, and this is probably doomed as well, we should first require real fiscal discipline and once we see concrete results, then revisit raising additional revenue. If that means cutting back across the board, then that is what we have to do.

So I guess individual actors in the private sector will do their usual excellent job of fixing roads and electrical grids and such, since there's no such thing as a free rider problem, and that they'll continue to allocate resources wonderfully, like building a bunch of houses no one really needs.

Electrical grids are generally private sector operations and gov't involvement is local, not national. Road maintenance and construction? Fine. That covers what fraction of the budget? Too many houses? Who is on the hook for that? Not the feds unless they are underwriting that endeavor.
You imply the gov't should allocate resources with that last line, which contradicts your initial statement that the private sector is free of that kind of gov't planning. HSH, which is it? Should the feds determine how many of what sized houses the country needs every year? Personally, I'd rather decide that myself as a potential home buyer than have to wait for a federally issued permit.

I suppose what would be of interest to me would be to have a world described in which capital is compelled to invest in a particular way to the benefit of labor

You might be interested in looking at:

The role of labor in corporate governance in Germany, arguably the most robust economy in the EU.

The cooperative model typical in Emiglia-Romagna Italy, which allows small, locally owned businesses to achieve economies of scale sufficient to make them competitive in a modern economy.

The Mondragon cooperatives in Basque Spain are sort of the textbook example of labor-directed corporate governance.

These examples are not exactly what you asked for, because I don't think exactly what you asked for exists. "Capital compelled to invest to the benefit of labor" has a kind of "eat your spinach" flavor to it, I'm not sure you could ever build a particularly successful economy on that model.

What they are examples of are models of corporate or economic organization where labor has a much greater voice in governance, and where a greater portion of the wealth created flows to workers. And all are examples of very robust and successful economies and/or enterprises.

And, where the capital investors make money as well. In some cases, because the capital investors and the workers are one and the same folks.

Everybody's happy when everybody makes money.

MckT:

"I suppose what would be of interest to me would be to have a world described in which capital is compelled to invest in a particular way to the benefit of labor."

Frequenting a blog with a sizable population of attorneys presents a problem for the earnest but naive layman in that a attorney will often lean a hand on the cyberspace juror's rail, grasp a coat lapel with the other, gaze off into some unfocused middle distance, and to no one in particular, but for the benefit of the jury, the judge, and to the amusement of the gallery and the press, pose a question whose answer everyone knows can't be found in law books, nor in any of the great works of literature, but is obvious to all and yet, luckily, difficult to prove conclusively, much like the nose on a Picasso portrait, which is plain for all to see, or is it?

No, one must reach for "The Essential Groucho" for the answer and respond "Why, any 4-year old could tell you the answer to that question!", to which, the attorney, who's got the jump, natch, AND the same essential reference work back at the Flywheel, Shyster, and Flywheel law offices will respond with a certain dramatic flair: "Someone run out and find me a four-year-old! Your honor, I request a six-month recess to give my esteemed colleague and rival six months for discovery!"

"Granted! Adjourned for six months!"

Russell does nice work here (these are examples of enlightened capital, to which labors responds with enlightenment in kind, but let's face it, the spinach will be eaten, one way or another), but I'll be back in a moment, or six months, like Matlock, with further responses.


Well, would MckT be persuaded in the spirit of Russell's "the capital investors and the workers are one and the same folks" that MckT, the capital investor, was compelled by various agencies -- his profession, the government, and himself, to invest in MckT's, the worker, law degree?

Taxpayers were compelled to invest their capital in the fairly plush public offices in which MacT plies his craft.

The owners of the Shirtwaist Triangle Factory, (AFTER the fire) and every other structure since then and forever it shall be, were and are compelled to invest capital in worker welfare and safety.

Though I'm pretty sure before the owners locked the doors from the outside, they answered complaints from the women regarding "conditions" by sniffing "No one is forcing you to work or stay here."

Fast food workers are in many instances compelled to purchase their uniforms from the capital running the restaurants.

With 9% (16.5%) unemployment, you might as well lock the doors from the outside before you tell them "no one is forcing you to work here".

More on point, what about this:

http://www.law.uchicago.edu/files/files/218-crs-stock.pdf

An ambiguous issue, to be sure. But may we at least agree that capital should be compelled by government and labor to provide transparency, at the very least, to workers before the latter put up THEIR capital to boost the share prices of owner's capital?

You imply the gov't should allocate resources with that last line, which contradicts your initial statement that the private sector is free of that kind of gov't planning. HSH, which is it?

I'm not implying anything. I'm directly rebutting your suggestion that the private sector is so much better at allocating resources than the government that the government should just get out of the way.

If, in the housing example, the government had required banks to be properly capitalized and that savings banks and investment banks had to be separate from one another, we would likely have avoided most of the housing bubble/global financial crisis. The government doesn't need to decide what size houses or how many we need, and certainly not what kind of house you, as an individual, should be allowed to purchase. It just needs to be sure the financial system is stable, for the general welfare of its citizens and the overall long-term health of the economy.

Are you suggesting that the derivatives of derivatives that led to the bubble and financial crisis were good things and we should be glad that the government stayed out of the way and/or in any way facilitated such at the behest of banking lobbyists and campaign contributors?

That aside, the government allocates resources all of the time, otherwise it would never be doing anything. Sometimes it screws up and sometimes it does well. I'm sorry (not) if I have ideas about what it should be doing and what it shouldn't, and that I think there are some things that only the government can really do, in the area of public goods, FREX. It's also sorry (for real this time) that you think it's impossible for the government to do the things only it is in a position to do, for the fact that it has been failing particularly badly as of late.

I want it to do better, because it has been failing. That's the whole point, really, so we agree on the failure, even if I disagree on your point that it's just the way things have to be whenever the government is involved. Our government has done better in the past and governments do things better in other places, without human nature being any different in such times or places.

There have been and are people within government whose agenda seems to have been and to be to dismantle and reconfigure government for the sake of the few over the sake of the many. I believe it is their success that represents the largest failures of government. I oppose them and their agendas and their policies, because I believe that without them, government can work better and do more of what it should be doing.

From what I can see, you support the dismantlers of government because you believe a high degree of failure is inherent to government, so, to you, the dismantling is the cure rather than the disease (AFAICT, IMVHO, etc.). I think you believe these things in good faith and that you are simply facing what you think is an ugly truth that I'm unwilling to accept. It's probably going to take more than a back-and-forth between us on this blog to change either of our minds on these foundational aspects of our reasoning, so we'll probably have more or less the same conversation again, as we have before, until something big happens to change one of our minds (or both and we reverse roles).

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