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Comment by rayiner | Hacker News Reader

> The bigger issue with wealth inequality is the investor class and favorable treatment of capital (low capital gains tax rates, carried interest, shady real estate business, etc.)

It’s not that either. Total realized capital gains income in 2017 was $660 billion. 30% of that went to the bottom 99%. So you’re talking about $462 billion to the top 1%. Even totally confiscating that income and redirecting it to the bottom 99% would only increase income for the bottom 99% by 5.5%.

People see eye popping CEO pay but divvying up a few very high incomes doesn’t go far. 60% of all income is earned by the top 60-99%. 40% is earned by the top 20%. A lot of income inequality is driven not by CEOs and billionaires, but educated urban professionals. College administrators, programmers, doctors, IT managers, etc.

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Even 5.5% would be a big deal for many people. Minimum wage is about to hit $15 in california, so 30k/yr netting you another $1650. 4/10 americans can't come up with $400 without selling something or incurring debt; this would at least be breathing room.

I agree that parceling it out piecemeal might not be the best way to spend that sum. $462b could be put into an education or infrastructure trust, and pay dividends towards our schools, public housing, roads, and transit networks. And that would be $462b per year dumped into this trust.

> ...this would at least be breathing room.

It might just be the analogy talking; but that sounds like the plan to fix a problem that does not actually fix the problem. It may be a bad plan.

> $462b could be put into an education or infrastructure trust, and pay dividends towards our schools, public housing, roads, and transit networks.

If you think about it, you may discover you are describing what already happens. Your proposed solution is the fund managers are ... y'know, some bureaucrat ... and some % of the fund goes to government coffers. The current situation is the 1% are fund managers and the withdrawal rate is linked to their taxes paid. At a very high level all that proposal does is fiddle around the edges with what the effective rate of withdrawal and what gets invested in and it is entirely possible the total take will drop. The wealthy currently invest in housing, education & transit very visibly.

It is very unlikely that a government fund would survive without attracting a serious wave of leeches; the incentives to raid the fund and waste the money would be huge. The process is fraught. It would be far safer and probably more effective to look to incentives rather than subject investment to the erratic outcomes of government voting.

It probably doesn't have to said, but there would be huge repercussions if it was no longer possible to make income on capital investment. 5% is if you magically redistributed the money.

But if that happened, every small business in America would cease to operate immediately. Corporations would be instantly worthless.

> Even totally confiscating that income and redirecting it to the bottom 99% would only increase income for the bottom 99% by 5.5%.

Your unstated assumptions are that capital gains are the entirety of value and this is a zero-sum game. I posit that CEOs and the 1% are playing[0] a negative-sum game by shipping jobs overseas and underpaying their workers. Even though it is a net-loss to the system, their incentives are such that they defect at every turn since they gain more from a "loss".

[0] All shareholders benefit, not just the 1% - but the lower segments don't gain as much, and lose in their non-shareholding, employee roles

>Your unstated assumptions are that capital gains are the entirety of value and this is a zero-sum game. I posit that CEOs and the 1% are playing[0] a negative-sum game by shipping jobs overseas and underpaying their workers. Even though it is a net-loss to the system, their incentives are such that they defect at every turn since they gain more from a "loss".

It's not a net loss to the hundreds of millions of Chinese and Indians who have been lifted out of poverty in the past couple decades. Their gain has vastly outweighed what the American working class lost.

Which is why American populist politicians have to invoke unrealized on-paper wealth in order to convince supporters that the populists could give them everything they wanted by taxing the uber-wealthy. This wouldn't work, of course; those figures are just current stock price * total holding, and if you make everyone sell at once whilst disincentivising holding American companies that paper wealth will just vanish.

But what's important is what that redistributed money is doing. It would flowing into local economies and getting spent many times over (until it gets back to the top and repeats the process). It would not be sitting in safe investments. It would not be wreaking havoc on the housing markets. It would not be funding the WeWorks of the world. It would be driving demand from the ground up.

>realized capital gains

so, the amount of wealth they convert into yachts, but not the amount of wealth that they actually accrue which is usually many multiples of that...

Unrealized wealth is just a number on a ledger. To actually do anything with the wealth (not just buying yachts or New York investment properties, but paying for lobbyists or campaign contributions) you have to realize those gains.

>Unrealized wealth is just a number on a ledger.

Be serious.

I’m completely serious. Jeff Bezos’s billions mostly just represents the right to receive a share of Amazon’s profits in the future. If AMZN goes up, he gains billions in “wealth.” But to actually have any impact on the external world with that wealth, he has to either receive dividends, which are taxed as income, or realize the gain. Even if he takes a loan with Amazon stock as collateral, at some point he has to realize some gain somewhere to have cash to pay back the loan.

Even to the extent we should care how rich a billionaire gets, surely we only care to the extent they can actually do things with that wealth. Bloomberg has to realize gains to pay for his campaign ads. Bezos has to realize gains to buy WaPo (in his personal capacity). Why on earth should we care about illiquid wealth that can’t be used to do anything?

Why on earth should we care about illiquid wealth that can’t be used to do anything?

You can watch here[1] how Larry Summers asks Emmanuel Saez, the leading proponent of wealth taxes, how liquid wealth gives individuals power in their personal capacity. Given how extremely underwhelming Saez's response is, I can't imagine any of the wealth taxes proponents having a good answer for the illiquid situation.

[1] - https://youtu.be/oUGpjpEGTfE?t=3869

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