Absolute wealth, relative wealth, taxes, and staying rich
summation.net
summation.net
There is no evidence presented.
I know a couple of billionaires. None of them are even trying to get richer. Their investments are all made in an attempt to make the world a better place, from their point of view. Getting richer is just a side effect of that. They want higher taxes because they think wealth inequality is bad, but they know that if they just give away their own money, it won't solve the problem, because there needs to be systemic changes forcing everyone to give their money away, otherwise the people who aren't giving their money away will just collect it from the ones that are, via middle class and poor intermediaries.
EDIT And any billionaire who says getting rich is a side effect is lying to someone. Possibly themselves. A billion dollars has never happened by accident.
> The article is trying to provide a framework for why it is that very wealthy people might be vocal supporters of taxes.
And I'm saying that it's wrong. They are vocal for higher taxes because they know that higher taxes reduce wealth inequality, and we know that inequality is bad for economic growth. But they also know that they can't just give their own money away to solve inequality, because then the people who aren't giving it away will just collect what they give away.
Even if your billionaire friends are super virtuous, it doesn't mean that other billionaires are the same. They could want higher taxes for the exact reason the article describes.
And regardless of why your friends say they want higher taxes, the bottom line is that it's very easy to say something is good idea when it doesn't affect you negatively. Did they also want higher taxes back when they weren't so rich, and were working on building their wealth? My guess would be no.
And also, you don't mention what kind of taxes your rich friends would like raised. I assume income taxes, of the sort that might not affect them all that much? How do they feel about wealth taxes, which likely would affect them? If they're in favor of higher income taxes but not the enactment of wealth taxes, then perhaps they aren't as interested in fixing wealth inequality as they say they are. It just sounds like, "we'd love to fix inequality, but only for the next generation; don't take away the result of how we've benefited from that same inequality!"
If I look at a list of top billionaires [0] all the American ones are men who are poster children of driving enormous economic growth, and frequently a great deal of social good. Bezos, for example & picking the top, is responsible for rewiring and modernising a big chunk of the worlds logistic systems in a way that was not going to happen if he had been taxed into oblivion.
The problem is the ossification of the upper class; and that is promoted far more by governments bailouts such as seen after the '07 financial crisis, or as will probably surface when people have time to go over what actually happened in the emergency COVID spending. Protecting idiots while they are in charge of the financial system is a much bigger drag on growth than the existence of wealthy people.
Now if we were to talk about stopping those sort of welfare-for-wealthy-people policies then I'm sure we all agree. But taxes are a different policy, they imply we keep going with the welfare and then guess where it landed to try and take it back. I don't buy that the democratic process can handle that level of precision.
Trying to tax billionaires out of existence while the existing ones enjoy a great deal of government support for the financial status quo is exactly the sort of kick-out-the-ladder behaviour the article would lead us to predict for people in quadrant 4 of the article's graph (which is where you're describing them). I'll even go as far as guessing they probably support policies that bring the US into line with Europe - because that is what the article would predict.
[0] https://en.wikipedia.org/wiki/The_World%27s_Billionaires#202...
If you're going to try to persuade me this is a good thing and not a Hobbesian nightmare, you're not going to succeed.
This isn't just about taxes. This is about humanism vs financial authoritarianism.
It's also about the fact that the world was both more stable and more obviously prosperous when tax rates were much higher.
Economies are supposed to be prosperity factories for everyone to enjoy, and not just billionaire factories for a few extremely privileged individuals whose wealth exists because they've placed unacceptable financial and personal burdens on the people who work for them.
In a world full of competition and alternatives, in a world where the low price is far from being the only differentiating factor, Amazon is winning due to innovation, better customer service and choice, massive, almost infinite, choice.
The world would be better if Amazon treated its employees fairly, hired enough of them that they didn't have to work themselves to the bone to achieve the desired speed of shipping, and allowed them the basic dignity and freedom every human being deserves.
The world would be better if the money Amazon has made were distributed much more evenly—even if it were only among Amazon's employees.
"This is a great idea, and should be in the world, as it makes it better" is not the same thing as "the person who came up with this idea deserves every cent they ever made."
The good aspects of any given person, company (or other organization—including countries), product, or service do not justify inequalities created by them, oppression perpetrated by them, and generally the negative things they create. The world is not black and white, and we can absolutely say "the convenience Amazon brings to retail is an amazing thing that is a benefit to the world," while also saying "Amazon is a predatory monopoly and monopsony in some areas, and should be better regulated" as well as "Jeff Bezos is a terrible person, and absolutely does not deserve the amount of wealth he has amassed."
And no, the world isn’t a better place with them unless your definition of world excludes billions of the population.
The “value” was lower cost (and later, convenience). But by hiding the actual cost.
Amazon grew a large customer by cutting corners, like sales tax; not taking monetary responsibility for defective and dangerous items; making IT “easier”, but eventually more expensive.
When that became insufficient, they began stealing small business ideas and making it their own.
In other words, their only path forward is becoming a monopoly. Not innovation.
Going to be a great world where success like that is "punished" in the name of "equality" or "equity"
The inevitable math is if income is taxed at 40%, it greatly diminishes the ability to grow wealth.
Instead of taxing wealth creation, the government should be taxing pollution.
Higher taxes for your billionaire friends, regardless of why they say they want them, will have the effect described in the article: your friends will remain just as rich, and it will be harder for other people below them on the ladder to climb up to them.
How exactly would taxing ultra-high net worth individuals make it harder for everyone else to get rich?
https://www.cnbc.com/2017/09/11/10-billionaires-who-grew-up-...
Interestingly—and I don’t know what to make of this—the US seems to have a fairly high percentage of “ultra rich” whose wealth is not primarily inherited (https://www.forbes.com/sites/niallmccarthy/2016/10/10/where-...). On the other hand, across the entire population, the US does relatively poorly on inter generational earnings elasticity (i.e., in the US, what your parents earn is a very good predictor of what you will earn) (https://www.oecd.org/centrodemexico/medios/44582910.pdf).
I think any such debate thus needs a stronger foundational discussion of what metrics matter.
> what your parents earn is a very good predictor of what you will earn
This makes perfect sense to me, as peoples' state in life is the sum of their choices. Successful parents proactively teach or passively show their kids habits and methods to being successful.
This is why I've advocated that the public schools should teach, as part of the core curriculum, basic accounting and finance. And even how to run a business. This would be a very cost-effective way to help the poor.
As to heritability of earnings, I think there are a number of potential causes:
* Parents pass on knowledge, skills, and values that are valuable.
* Parents pass on actual wealth, or social standing that can help accrue wealth (like helping their kids make business contacts or find internships).
* Parents buy their kids improved education or similar (e.g. childhood nutrition, college test prep, etc).
* Structural biases (racism, classism) tend to reflect attributes that are somewhat or fully inherited (ethnicity, accent, perceived social class).
* Earnings reflect things that are biologically inherited (intelligence, greed, etc).
I don't find the last point very compelling but I'm including it for completeness. But what I think this list demonstrates is that it's somewhat hard to understand just how pernicious the causes of low intergenerational social mobility may be—the first and last points seem kind of "working as intended" (in a meritocracy); the second and third points are troublesome, and the fourth point is deeply problematic.
The real pernicious thing is the assumption that one cannot improve one's state by improving ones choices and actions. People are not doomed to be poor because their parents are poor. But if a person assumes this to be true, they are indeed dooming themselves to poverty.
Yes, she was on the dole when she wrote Harry Potter, but that doesn't mean she grew up poor.
Another the list doesn't mention: Paul McCartney. Michael Jackson's estate is now over $1 billion.
And here is an article saying neither was Shultz: https://www.washingtonpost.com/politics/howard-schultz-says-...
https://en.wikipedia.org/wiki/J._K._Rowling
And Shultz was still in a government housing project.
Steve Jobs wasn't poor, but was certainly lower middle class.
As a middle aged single mother. She wasn't born that way. She still had her elite education and family connections as advantages. And she's not even American (this thread is about American billionaires).
> And Shultz was still in a government housing project.
Described by the residents as "middle class government housing".
The point is that Oprah is the only one who was born in the lowest quintile, the only who who didn't grow up with any advantages that helped her become a billionaire.
Though I'm curious how you believe government housing is some sort of elite advantage. Or what "family connections" you believe took Rowling right to billionaire status. I read about her education. Looked rather ordinary to me.
A tiny sample of outliers doesn't define a probability distribution. It's just plain wrong to suggest it does.
Of course, with Biden's inflation, everyone will be a billionaire soon!
> There is no evidence presented.
That is fair game when most arguments for the opposite are also presented without any evidence.
I tend to believe it. Trump shown us that the poor are so easy to manipulate into voting directly against their own interest that no one will be bothered to do much for their sake - it's not necessary at all for any politicians' goals. It's a balance of interest of rich (billionaires/centimillionaires) and middle class (the rest of the 1% or so). The rest of people are just taken along for a ride, some of them under false impression it has something to do with their interests.
Wealth equality has been tried many times, and turns out to be an intractable problem.
In a fair world, financial success would be based more or less solely on a person's abilities, and their effort and skill in making use of their abilities. Since those things will have wide variance, there will be inequality, but that kind of inequality is ok (though we should still have a safety net to ensure no one must live in poverty because of their lack of ability). Our world is not fair: luck, ancestry, and unbalanced power dynamics (among other things) have an outsized influence on financial success. And I fear it will only grow more unfair as time goes on.
Indeed, and free markets achieve that better than any other system.
Even if that wasn't the case, we don't really have much in the way of free markets in the world, or even within legal jurisdictions. Regulation is everywhere, and markets are always restricted to some extent. I don't believe that's a bad thing overall (for example, I don't think we should go back to allowing unrestricted child labor, or rolling back gains in the minimum wage), though often regulation does create unnecessarily inefficient markets (e.g., many credit airline deregulation as the main driver behind today's comparatively cheap ticket prices, but deregulation has not made flying less safe).
If we were to remove all regulation and bring markets as close to full freedom as possible, I would only expect income and wealth inequality to get worse, not better.
(Also, for anyone confused, I edited my wording after the parent quoted me, but my meaning is -- hopefully -- the same. Sorry about that!)
I recommend reading about the Soviet economy and how it functioned.
Do you really think that under socialism, people stop lying, cheating, and exploiting others?
Note that lying, cheating, exploiting is illegal in a free market.
People of course lie, cheat, and exploit others in our current system (and of course did so in the Soviet system as well). Some of it is illegal, but unfortunately happens anyway, because people are often vulnerable and law enforcement can't help them. Much of it is legal exploitation, too, though. Making markets freer can never fix these problems, by definition. Restrictions can, though they can't and won't fix everything.
I don't think my point a few steps upthread was that restrictions on markets are necessarily the answer, at least not in all cases. We need a fundamental shift in humanity's attitude toward what it means to live and prop up others so they can also live. I'm not really holding my breath for that to happen in my lifetime, though. So we need more blunt instruments like income and wealth taxes, wealth redistribution schemes that don't create more problems than they solve. It's hard to get right, and easy to get disastrously wrong, but I think it's worth trying. Our current trajectory puts us in line to eventually become a world of corporate-run states, and that's not going to be good for anybody but the shareholders and executives.
I'm sorry, but you're not going to change human nature. Every system that has tried to deny human nature, or change it, has resulted in misery, death and disaster.
Why not work with human nature? That's what free markets do. Free markets lift people out of poverty. Look what happened in the US 1800-1900. Scores of millions lifted themselves out of poverty into the middle class. Every country that tries this experiences the same result.
> that's not going to be good for anybody
So far, Amazon, Microsoft, Google, Netflix have improved my life in many ways.
The road to Utopia is not an all-powerful government that regulates and micromanages our lives. Freedom is the road.
Not once have seen changes to human nature.
> unprecedented growth
Are you sure about that? It was higher in the 19th century.
> only were unwound in the Reagan administration
Forgetting the stagflation of the 1970's and Carter's "Malaise Forever". Things got a lot better under Reagan.
The Guilded Age saw massive increases in the standard of living across the board. The notion that it was some hellish period in our history is unfounded. I've read "Titan", the biography of Rockefeller. The book failed miserably at presenting any evidence whatsoever that Rockefeller got rich at the expense of the poor.
Do you want your life specified and controlled by AI?
You wrote: "There are possibilities"
Enumerate the possibilities.
I would argue luck is the fairest system. Who has the right to complain to a die that their number didn't come up?
1. stay at home - luck will never find you
2. go out and socialize - luck will find you
For example, if you want to be a pro basketball player, you'll be more likely to get lucky if you start practicing basketball a lot.
Watch TV instead, and you have zero chance at a pro ball career.
Why? because there's uneven skills, uneven effort, uneven luck, uneven work ethic, etc, etc, etc.
As long as humans are involved... in all human history, in all societies, in all things there has been inequality and no effort so far has had any affect on it.
In fact, most efforts have made it worse across the board. Socialism and communism are failed experiments with a 100 years of history as proof.
And this is patently false:
> no effort so far has had any affect on it
FDR and the New Deal reduced inequality in the US and most Americans thought that was a good thing. Stalin and the communists reduced inequality in the Soviet Union. Their methods were less well received. But the question isn't whether there was less inequality but whether it was worth it. There are many societies today that take active measures to reduce inequality -- Finland is an obvious example -- and they are generally considered extremely successful.
Why reduce inequality? Because inequality reduces social cohesion, promotes corruption -- it produces people who can buy government policy and action --, reduces democratic control of the government, and the mass of people lifted up by its reduction benefit much more than the few wealthy people suffer who are made poorer.
"new deal reduced" and didn't remove. Inequality has grown steadily with a wider range of "all boats rise unequally".
"Why reduce" the goals aren't in question... simply the results. You can say you want to reduce inequality... but if the end result is more inequality and more suffering? then your stated goals don't match reality.
"inequality reduces social cohesion, promotes corruption, reduces democracy" all things that happen in the march towards "equality" and "equity".
"few wealthy" the problem is, again, the results... the harder the push for "equity" the more likely its everyone who suffers - not just the "few rich made poorer".
Here is the first line of the comment you are responding to:
> You can't eliminate inequality but you can reduce it. We can't eliminate disease but there is still medicine.
That was the important part. Making things better is desirable even if you can't make them perfect.
Inequality has indeed grown steadily. This is not because of FDR's programs, though, but because of measures taken since and other events: reducing marginal tax rates, reducing inheritance taxes, the weakening of the labor movement, globalization, and so forth. Also, incidentally, by asserting this you are contradicting your own previous assertion that nothing anyone has ever done has had an effect on inequality.
My main assertion is the stronger the push to end inequality, the more it does the opposite... the strongest pushes like Communism and Socialism are easily viewable through historical examples - or using present examples (IE: Venezuela). Yet pushes to use "Social Democracy" to enact the changes have the same, albeit slower, effect of not working or causing horrible effects (IE: growing inequality).
"here's the first line: can't eliminate disease"
likewise, if you want to walk that metaphore... we are approaching a time where diseases are increasing resistant to medicine and we are making things worse by creating worse diseases (IE: MRSA and antibiotic resistant "super" strains). We work to "cure diseases", have short term successes and, ultimately, make things worse.
you can look at countries like Sweden that are held up as examples of how it should be done... and see an increase in inequality across the board.
"make things better" I'm all for working towards better... but sweeping changes generally don't work because of unintended consequences (IE: Globalization and higher taxes closing small businesses and hurting competition and rising prices and etc)
Maybe I could be more clear... but I stand by my belief that the harder someone pushes for "equality" or "equity"... the more unequal and inequitable the results are.
Antibiotic resistance is surely a problem but it doesn't indicate a general failure of medicine. On all other fronts medicine continues to improve, and even in the case of antibiotic resistance we aren't giving up. Phage therapy is a thing. New antibiotics continue to be found. We strive to prevent the mis-prescription of antibiotics in, for example, animal feed. And interestingly, the slowdown in antibiotic discovery is in part a market failure: it's hard to make back research costs with antibiotics, so the free market doesn't provide them even though we need them. It's not a good metaphor for free market fundamentalists.
> I stand by my belief that the harder someone pushes for "equality" or "equity"... the more unequal and inequitable the results are.
I won't argue with you further.
More or less prosperous? More or less stable? More or less able to innovate and deliver?
All the FAANG companies are American.
https://nordregio.org/nordregio-magazine/issues/state-of-the...
"From having the second-lowest level of inequality in 2000, by 2017, Sweden had the highest level of income inequality in the Nordic Region. The overall income inequality between households in the same municipality was also higher in Sweden than in the other Nordic countries."
https://oxford.universitypressscholarship.com/view/10.1093/a...
"From an all-time low around 1980, income inequality substantially increased, reflecting a strong rise in top incomes and income from capital, more recently also a widening gap between bottom and middle incomes. Behind this are the dual income tax system, established in the early 1990s, the introduction of earned income tax credits, and a diminished coverage of social insurance programmes, which widened the income gap between employed and non-employed during the 2000s. The benefit and tax systems became less redistributive and thereby contributed to increased income inequalities"
That's not really a winning argument if you're trying to claim that Neoliberalism is the solution, not the problem.
Have they? Most social democracies seem to be going along fine.
There is a sliding scale between Hayek and Marx you know.. it’s not a binary choice
And the harder its pushed for "equality", the more it turns into bad times.
"binary" I never said it was... I said increasing efforts generally trend towards increasingly bad consequences - and we are talking about pushes to end "inequality" in this chain of conversation... the harder the pushes, the worse the outcomes.
At no point in any society has inequality been removed.
I think global inequality has drastically reduced these past 30 years. Don’t forget that 30 years ago for anyone in India or China the main prospect was subsistence farming.
And why are the consequences of curbing inequality increasingly bad? What is “increasingly bad” about the Nordic countries?
Social exclusion is terribly bad and must be fought at all costs, true. Consumption/income-measured, absolute poverty is bad in all or almost all cases - true, we could probably afford sacrificing some of the economic efficiency to eradicate it.
Relative consumption/income-measured poverty is not "bad" as long as it rises with overall income levels rising faster.
And wealth... why do poor people need any wealth at all? If anything, in socialist-ish, European countries most people don't have any wealth at all, they own nothing, they live for generations in regulated rental apartment - that regulated rental contract they can pass as inheritance is their biggest (although intangible) asset. They don't need any "wealth" - government covers all their risks and funds their healthcare, unemployment, education and retirement and they can literally live hand to mouth all their life and don't feel at all precarious (and this is why wealth inequality is bigger in EU than in US, even as income inequality is smaller).
Why reduce inequality? Because inequality reduces social cohesion, promotes corruption -- it produces people who can buy government policy and action --, reduces democratic control of the government, and the mass of people lifted up by its reduction benefit much more than the few wealthy people suffer who are made poorer.
Denmark doesn't.
Russia also has a higher GINI than the US, but I don't think most Americans would consider it a successful economy.
If you prefer oligarchy to democracy and are happy with corruption at all levels, there is indeed nothing morally wrong with wealth inequality.
If you're not a humanist and have given up on the lessons of the Enlightenment, that makes perfect sense.
Many of the people who argue the other way disagree with that assumption.
I would say historically equality has preceded and caused growth from Magna Carta onwards, do slave states progress more than those with hired workers? Did Monarchies progress faster than constitutional monarchies or republics?
There's an interesting argument that 20th century warfare lead to socialism since you need lots of healthy trained soldiers, compared with a knight on a horse where the power is concentrated. And so the country that promises more to their soldiers can steal progress from the others. And that might reverse again with robot-driven wars.
A libertarian perspective would point to what fraction of the billionaire's wealth was accumulated from free exchange versus coercion, corruption, nepotism, extracting rents and gaming the system as a better measure of both progress and equality.
Even the sophisticated arguments for inequality generally take the view that monopolies are bad, but any attempt to regulate them will be worse because it will be gamed by the powerful to achieve the opposite and strengthen monopolies.
wealth inequality isnt bad by any means, structural* poverty is. Stop this "equality" bullshit.
*there are various types of poverty: absolute poverty should be allieviated and situational (functional) poors should be reintegrated into society by education,job,training or any other means
* equality of opportunity
* equality of political representation
* equality of means
I agree that the last is the least important. Unfortunately, data and common sense both suggest that inequality of means results in inequality of opportunity (see e.g https://www.oecd.org/centrodemexico/medios/44582910.pdf), and that, in a democracy where money talks, it translates to inequality of political representation as well.
I was looking at this more in the Rawlsian sense of “everyone should have the same chances, such that if they had the same ability they could achieve the same thing.” I don’t think I (or most “meritocratic” societies) believe that social equalizers should completely eradicate differences in outcome that arise from innate differences in ability—but perhaps those differences should be somewhat reduced.
Concretely: if the same person were born rich or poor, they should be able to achieve mostly the same things. But if the same person were born stupid (or lazy) or smart, it’s probably ok if there is some resultant difference in outcomes, as long as all outcomes support basic dignity and needs, right?
https://www.vox.com/2015/1/19/7628801/obama-evidence-based-p...
As a billionaire, you're much better off donating your money to highly effective charities than lobbying the government to tax other billionaires so it will use the money from that to build bombs.
https://www.theatlantic.com/magazine/archive/2013/07/can-gov...
One example they cite is healthcare being more then 50% spent in treatments that don’t work. But they don’t say it is Medicare and Medicaid treatments. Even if it is Medicare+Medicaid alone is 38% of the budget, so it sounds like at least 14% or so is effective rather than just 1%.
Our federal government is projected to spend $5.8 trillion in 2021 alone. The entire Gates fortune is $124 billion.
And yet Gates probably does more for the world's poorest -- the federal government is overwhelmingly focused on serving Americans -- globally speaking, mostly wealthy white people: https://howrichami.givingwhatwecan.org/how-rich-am-i
What good is being done with that $5.8 trillion exactly? Is the federal government with its military interventionism, agricultural subsidies, etc. really doing 1000x as much good annually as the Gates Foundation? (The annual budget of the Gates Foundation is around 0.1% as large, at around $5 billion.)
The failed F-35 stealth fighter project alone has a total cost estimated at $1.7 trillion. Note that this has received almost no coverage. Defense contractors milk the federal government like there's no tomorrow and it doesn't get any attention because mentioning it doesn't serve either party's political goals.
Suppose we hypothetically took the entire Gates fortune and added it to the federal budget, so the government spends $5.9 trillion this year instead of $5.8 trillion. Would you even notice? How would you expect the $5.9 trillion budget world to be different from a $5.8 trillion budget world? I'm pretty sure that people in developing countries will miss the work done by the Gates Foundation a heck of a lot more than already-wealthy Americans will appreciate another $0.1 trillion in the federal budget.
Using evidence to focus on the most effective possible programs for helping the world's poorest goes a long way, and unfortunately the vast majority of the federal government's spending is not that. Increasing taxes on rich people isn't gonna change that. Before plowing more money into ineffective federal spending, we should first make it effective.
"It's ok to waste trillions, the important thing is for us to feel really egalitarian about it"
Aside from the lack of evidence given for basic claims (like that the rich support higher taxes), it seems to take as a given that all tax codes are regressive (what about wealth taxes?)—a critical assumption in its argument.
Yet even if the evidence were presented, causality would be tough to establish. An easy reason to assume, hypothetically, that countries with a higher degree of inherited wealth would have more popular support for higher taxes is not that taxes are a ploy by the rich (what?) but that democracies tend to favor higher taxes when wealth distribution appears less fair—and that getting rich due to the luck of birth appears especially unfair.
What’s especially irksome about this essay is that, if it has a policy argument, that argument seems to be, “give up on public policy. The rich will just pervert it anyway.” That’s very disappointingly cynical.
This is why we underline our argumentation with sourceable facts!
I also think it's very questionable the view that there are a certain number of rungs of the wealth ladder and you have to displace someone else to climb. That may be true if the purpose of wealth is to be highly ranked among the wealthy, but that is not what most wealthy people seem to care about.
The incentive for wealthy people is to avoid changes to the status quo. So billionaires tacitly benefit from stiff taxes on millionaires or new billionaires, because then they can't accumulate wealth so easily. Millionaires benefit from stiff taxes on the middle classes and new millionaires because then the competition can't climb out of the crab basket.
If the taxes were going to reshuffle the social order I suspect there'd be a lot less support from very wealthy people. It is a very rare soul who smiles when faced with an actual decline in their social standing.
The most confusing aspect of this is the fact that taxes are often progressive. Increasing taxes would then definitely hurt the wealthy more than the usurpers. This aspect of Hoffman's argument didn't make much sense to me.
This is especially important for that tipping point of reaching financial independence in my opinion. Higher taxes will make it more difficult for people on the tipping point to leave their jobs and retire early (Canada puts emphasis on this: taxes on investments have a margin rate, I think in US the rate is fixed, in UK it's definitely fixed, but correct me if I'm wrong). So let's say you make it big on a new altcoin, you have to pay a ton of taxes and your win is greatly reduced. Meanwhile, for who already has a lot of capital, it isn't hard to skirt around taxes because it becomes economical to setup corporations and trusts or to have residence in a different country. I'm not sure I'm explaining myself very well, but basically "becoming rich" for people who could potentially be rich, is hard because the taxman, as much as I think it's fair to pay tax, is taxing the upper middle class the most.
"The usurpers are not yet rich. They are trying to get rich. If they do eventually make money, they get to keep whatever is left after they pay their federal, state, and local taxes."
The reasoning about the "incredible run of ursurpurs" is a very flawed though. It's not like Bezos, Zuck, Jobs, Gates, Musk, Ellison, Page, Brin, et al. made their fortunes collecting their paychecks and funding their 401k's to the max and paying the top-level income tax bracket.
Their fabulous rise in wealth was because of the equity of the companies they founded becoming publicly traded at very high valuations.
Remember Jobs was only taking $1 in annual salary.
I'm not blaming the wealthy founders, they did remarkable things and deserve to be fabulously well compensated (not that fair or deserved have anything to do with it).
If anything I think the author should distinguish between capital gains taxes and regular income.
It doesn't need to be additivie. It can be a minimum offset against any other taxes paid, meaning that someone with $1 billion must pay at least $10 million (1%) in taxes per year.
If a law is passed that states that if your name is Jeff Bezos then you should submit 100% of your property to the state then it might be legal but it's still stealing.
It seems to be that the first thing that poor people vote for when they get to power, is more money for themselves.
I don't speak for white people any more than a Mexican speaks for all Mexicans or a gay person speaks for all gay people.
One mans opinion is just that... unless he has more evidence than his "well connected" words.
This seems to be the premise of the whole article: that being rich is some kind of big competition.
It feels presumptuous to me.
Perhaps there are people who are rich because they are smart, worked hard, and are fortunate. Perhaps these people generally also wish well for their peers?
Such a cynical view of motivation that this article presumes.
Capital gains taxes are purely based on profit; you can carry over $3k in losses each year, and that's a "common" tactic, to sell losing positions at EoY to reap the $3k benefit (which can carry over if >$3k).
Why don't we tax capital gains higher, perhaps average it over 5-10 years even, and continue to allow carryover of losses, etc... ? Surely there's middle-ground here that [most] everyone could support....
"If you bought an asset for $10,000 in 2000, for example, the BLS says you spent $15,700 in today's mini-dollars; if you sell it for $15,000 in 2021 you've actually suffered a loss, but will owe capital gains tax nonetheless" https://philip.greenspun.com/blog/2021/04/29/economic-wisdom...
Kind of a weird example to pick. Also, even if your investment lost against inflation, you still made money. Stuff that $10k into a mattress and you'll have $10k after 20 years.
I'm pointing out that a $5k return is still income. Compare:
Scenario 1: person stuffs $10k in mattress for 20 years. They have $10k at the start, $10k at the end. $0 taxes.
Scenario 2: Person invests $10k, makes $5k when they sell after twenty years. $10k start, $15k end. Pays capital gains on $5k.
Scenario 3: Person stuffs $10k in mattress, makes $5k in wages on twentieth year. $10k start, $15k end. Pays taxes on $5k.
Scenario 2 and 3 are similar, right? Both lose to inflation. The capital gains, however, have a max of 20% taxes.
I did a big TLH in March of last year when the market tanked. Now I have a bunch of assets that just entered capital gains again, but I still have to pay taxes on 75+% gains.
For the real wealthy they have other games they can play, such as charitable organizations or “pledged asset loans” which they take out take tax free, and when they transfer the assets and “reset” the cost basis — they can sell the stock at zero profit and pay back the loan.
Capital is taxed considerably more than you believe. If you own shares in a corporation, on every dollar of profit that corp pays 21% tax. The investor pays 23% on what's distributed. So on every dollar of profit, the government takes 39.2%
This is set to go to 28% and 40% respectively, for a combined tax rate of 56.8%.
Oh and I didn't mention state taxes. Tack another 8-10% on the corporate side and up to 13% on the income side. So if you had the misfortune of starting a successful business domiciled in California, on every dollar of profit:
Fed: 28 cents (corp tax) State: 8 cents (corp tax) Fed: 43 cents (Biden admin proposed top capital gains rate) CA: 13 cents (Top CA income rate) Shareholder: 8 cents
That's a 92% effective tax rate.
At lower income brackets you could throw in payroll taxes, but marginal rates go down considerably at payroll tax phase out levels.
My statement stands. There is a pernicious lie that the investor class pays low tax rates because their capital gains rate is a particular value. It’s just _one_ of the taxes paid on profits.
So that's a 72% effective rate. Which the company has the option of getting to 0% by just spending on new equipment, or hiring more people, or anything else they can write off to reduce profits to 0.
Which is kind of the point. They want to force corporations to spend all their money so it gets redistributed. The owner of the company still gets "richer" because they own all that stuff that was purchased or the IP produced by the extra workers.
But the implications are still valid. There is a considerable tax on investment income.
And yes, corporations have figured out ways around paying the tax, but not in an efficient or socially useful way. Corporations are forced to reinvest beyond their competency instead of just distributing returns and allowing investors to re-allocate capital.
No, it doesn’t, which is why many corporations with large profits still pay ~$0 corporate tax. On every $ of retained profits not negated by some special tax deduction, they pay 21% before considering special tax credits, sure. But the 21% is, as a result, an upper limit on the tax on retained profits, the lower limit is zero, and the biggest corporations tend to also have the most effective tax optimization (and also lobbying, so that the rules favor them from the outset) and so end up toward the lower limit.
> The investor pays 23% on what's distributed.
Nope, they pay the same rate as long term cap gains, 20% max (not flat, can also be as little as 0% depending on thr taxpayers income.)
> Fed: 28 cents (corp tax) State: 8 cents (corp tax) Fed: 43 cents (Biden admin proposed top capital gains rate) CA: 13 cents (Top CA income rate) Shareholder: 8 cents
Earlier, you correctly combined taxes where one applies only to the residual, despite the other misleading elements, but here tou seem to have forgotten how to do that and are, in addition to the mistakes made earlier, treating personal maximum tax rates applicable to distributions as applying not to the distributed amount but the amount before corporate taxes. This further overstates the total tax take.
I acknowledge the math error in a sibling post.
You can read a lot of Western political history since the industrial revolution, when the new class of mega rich Rockefeller types shocked the established orders, as filled with attempts/policies to prevent new Rockefeller like classes of entrepreneurs from happening. Perhaps counter intuitively, real free market capitalism is a great threat to the established political order since it produces the levels of wealth in new people that can actually change said political order.
I have worked in the US, Asia and Europe, and they are completely different places with different realities.
For example, in the US it is normal for medicine doctors and lawyers to be rich. That concept alone is very strange in the rest of the world. They have amazing doctors that are not millionaires.
In Europe wealth was created by colonies. The fact that today the US is the hegemonic power in the world means that today the rest of the world is a colony of the US, who could not stop printing dollars the rest of the world are forced to buy in order to buy essentials like energy, because the US controls militarily those energy places(Iraq, Afghanistan, Saudi Arabia and they want to control Iran, the only one left).
China and India are just overpopulated. Wealth in China is related to being close to the CCP, that is just a mafia, like in Russia, Communism makes it possible for people that fill a room to own the entire country.
You just can't understand what happens in those countries. In India you just can get killed if you try to save young women or men from the streets(and anger the mafias that profit from that). In China you will disappear if you do harm to the CCP.
In Africa wealth is related with controlling the natural resources the world demand. That usually means killing the members of the opposing factions and specially being in favor of the most powerful countries in the World, like the US or China. Only the countries in Africa that significantly lack natural resources live in peace and could aspire to prosperity.
The concept of the "American dream" only applies to the US. In China, Japan or Europe population are getting older at a never seen before rate and that is their main problem today.
To get rich 10 years ago with tax 30% it's easier than getting rich now with tax 40 or 50.
So they are pushing for higher tax so new riches are less motivated and reduce their changes too