The Economic Consequences of Major Tax Cuts for the Rich [pdf]
eprints.lse.ac.uk
eprints.lse.ac.uk
You can either allow inter-generational wealth to build, or claim to be a meritocracy; not both.
The Wealthiest 1% Inherited An Average Of $4.8 Million:
https://www.peoplespolicyproject.org/2017/10/10/the-wealthie...
In no scheme can you regulate away all forms of unearned advantage. The skills, capacities and potential we are born with vary.
People are tremendously motivated by providing for their children. Taking that motivation off the table will drive people to places where they can achieve it.
The long-term, highest-net-value producing system of distributing power / responsibility will be a meritocracy.
Second, money doesn't "dwindle" on its own. Unless you are actively gambling it away (literally or metaphorically), a large amount of money by itself produces more money of value at a certain baseline rate (by the ability to make broader and individually-riskier investments while managing aggregate risk - tl;dr, "why banks are profitable"), entirely independent of the merit of the person with the money. And even if you were to bury it in the ground like the dude in the parable of the talents, it would only lose out on inflation. It wouldn't rot or evaporate.
Finally, a couple of generations is a long time! Nations rise and fall in less time than that. My grandparents grew up under the British Raj. The whole of the Soviet Union lasted a couple of generations. If your "meritocracy" recognizes merit with latency on the order of a couple of generations, I'm not sure it's an effective meritocracy. If the US Senate had free and fair elections once every generation, replacing one-third of the participants each generation and allowing senators to hand-pick their successors whenever they wanted to retire, would you call that government a democracy?
1. Disagree. Yes, money can be used to buy power. But it's not power in itself. A strong meritocracy would focus on giving positions of responsibility (auditing/regulating/decision-making type powers) to people who show the merit to perform them well. Money is an advantage, but it is not the power to shape social systems.
2. Rich heirs who put all their wealth into safe investments and sit on it also aren't really getting much out of it. And that money isn't sitting away in a vault, it's a part of the economy. Rich heirs who buy yachts and mansions and hang with celebrities, but lack the merit to contribute anything useful, will burn through (most of) the wealth. It's not just common... it's the default outcome within a few generations.
3. Yes, generations are a long time. But that latency would apply to personal/family wealth rather than decision-making authority.
I'm not a pro-inheritance maximalist. I agree with various forms of taxation on inheritance. But there is value is allowing people to be motivated by their family's future. Inheritance is not inherently at odds with meritocratic assignment of political power.
Try convincing someone who has to work multiple jobs to support themselves and their family of that.
"A strong meritocracy would focus on giving positions of responsibility (auditing/regulating/decision-making type powers) to people who show the merit to perform them well. Money is an advantage, but it is not the power to shape social systems."
A "strong meritocracy" has about as much chance of existing as a non-corrupt totalitarian or communist system.
2. When you put your money in safe investments and sit on it, you get the interest out of it, which is hardly "not really getting much out of it!" Let's say you can get a 2% annual return by just not being actively bad with your money. If you have, say, a million dollars, then you can get $20K/year, forever, doing nothing - which is higher than the US minimum wage. It's not a lot of money to a rich person, but it's the difference between working and not working. And a net worth of a million dollars is hardly yachts-and-mansions levels of rich - it appears to be roughly the 90th percentile for net worth in the US, i.e,. one in ten people have access to this level of wealth. (Yes, I'm looking at real data from a real country, because if your system only works in theory, it doesn't work.)
And, of course, it's the difference between being motivated to work and not being motivated to work. You are correct that there's value in allowing people to be motivated to work - inheritance destroys that!
2. It's not about the unfair value that heirs get. It's about whether that would significantly distort the function of meritocracy. Yes, it's unfair that someone might get a 20k annual dividend, just like it's unfair that some people are born stunningly gorgeous or incredibly genius. As long as wealth tends to dwindle, these marginal inequities would not disrupt a functioning meritocracy.
On the final bit, the question becomes whether the motivation to provide for one's kids is greater than the demotivation of inheritance. I think the former is greater. Especially in people who might have a shot in creating a fortune.
Which raises another point -- one focused on real data rather than theory. Do you think it'd be a good move for a country to significantly clamp down on inheritance on its own? What impact would that have on the country's ability to attract and retain top talent?
OP's point was that you can't, you either support the meritocracy or you support inheritance providing some people an unjust advantage.
The general understanding of a meritocracy is that merit is rewarded. "Having wealthy parents" isn't usually considered a merit...
1. Good education hard to come by in the US, and immense wealth allows some people almost automatic access to the best education while others are outbid (either via property/school districts or via private school "donations" for entrance or via access to best prep services or via influence which is used to navigate "leadership" based entrance applications for k-12 schooling )
2. See item 1 -- this should not happen in the US, but it does. Our population has grown, but we've underinvested in schooling and all the foundational systems. The number of great schools has not necessarily grown with population. I see it myself in my hometown as skyscrapers rise, but schools are not built in proportion.
Allowing intergenerational wealth to bypass Problem 2 allows the plutocracy to avoid the problem with money (Problem 2) since it isnt their own problem anymore.
I agree with the other comments that meritocracy and inheritance are not at odds, especially if the meritocracy component is referring to positions of power & responsibility.
But your point is valid wrt America as it is. Education is a lynchpin of meritocracy. So, America's solution may need to include some reshaping of inheritance as a means to reshape the mechanisms of meritocracy. But the facile leftist take of (more or less) "ban inheritance" would be an overstep and create far more problems than its simplicity solves.
Yes. Being raised in a world where your physical needs are never even remotely considered is without question the single most important factor that leads to radically different outcomes in life.
The fact that accomplishments are contributed to by material advantages supplied by parents (and more generally the network people are born and raised into and in) means that those accomplishments are less due to individual merit. The total contribution is 100%, so more of one contribution is less of the other.
Consider someone being gifted $999,999 and earning $1, then bragging about being a millionaire.
Or more realistically someone bragging about coming from an Ivy League when their parents are alumni and big donators.
Plenty of accomplishments become lesser when more context is revealed.
They already get a lot of advantages during their life because of the position and wealth of their parents.
Is it bad to leave things for your kids? Nope, it's completelhy natural. But you can't claim that the society where that happens is a meritocracy.
Personally, I came from a family of public schoolteachers. Even though many families had many millions more than we did, I think our society, as experienced by the median and mode citizens, is far more a meritocracy than a plutocracy.
Does everyone get a full reset and the exact same starting point as everyone else, as if life were a board game? No, of course not. Would the world be better if it worked that way? It would undeniably be more "fair", but I think less desirable.
If you have less opportunity you must work much harder to be successful than a person who has more opportunity.
I honestly think that natural evolution of this process is better than government-managed.
Because the smart people who accumulate more advantages tends to share it with other more and this helps them to maintain wealth. Dumb wealthy - will self-destruct faster via natual evolution of events.
Whenever government decides that they can do it better - disaster results typically follow for all.
I can't quote a study, but I think crime rates go down considerably when married and with children. You have a lot more to lose. You want to make sure you're their for your children and they have the advantage of being in a stable loving home
As far as being there for your children, again, I don't see the connection with estate taxes, your children will definitely need you even if you can't pass down 5 million dollars worth of assets to them.
[0] https://www.nytimes.com/2019/09/05/learning/should-gifted-an...
As someone who went through gifted classes in public high schools, as they exist, I have no issues with them being removed. They have very, very serious issues with socioeconomic discrimination and discrimination against people with mental health issues, from first hand experience. So unless we can figure out better ways to select people for them, and so far it looks like we can, I agree that they do more harm than good compared to the alternatives.
Sincerely, a former gifted student that's also a first generation immigrant that didn't end up addicted to any drugs or getting beat up for the sole reason that I was able to hide my ADHD until I got into college. Three of my gifted friends, two of which got into gangs and one of which was struck to depression to the level of suicide attempts, weren't so lucky.
Either we find a way of selecting gifted students without rejecting the most vulnerable ones that need the most help, which apparently we can't right now, or we desegregate schools.
But either way, I credit the program I was in with saving my life essentially. Also, very few people were willing to put in the work needed for this program. My high school was significantly harder than my college, with the exception of a few classes.
This is stated as fact, but what exactly is the assumption based upon? If it were true, wouldn’t you expect people without children to stop being contributors to society?
>I think crime rates go down when married and with children. You have a lot more to lose
Even if this correlation is true, it doesn’t mean the correct choice is to turn into that. Immigrants also commit less crime because they have much more to lose, it doesn’t imply citizenship should be on the chopping block
We're talking about one single type of inter-generational transfer, the one that happens at your death. America has historically been against inter-generational transfer at this point, because it helps to create an oligarchy.
There are many parents who don't pass on anything to their children beyond what they did to get them to adulthood, believing the best thing to bequeath your child is a solid upbringing and strong sense of responsibility, independence rather than entitlement and dependence. And there are many children, like myself, who want no inheritance, who even think it immoral to take any.
It seems to me that inheritance should be taxed at a rate that it dwindles to zero after a few generations to balance equal opportunity and distribution of wealth with the incentive to build things to provide a better existence for our offspring.
* - The general inability of grandchildren to effectively manage the wealth passed down to them from their grandparents and parents. This is made even worse when it's an operating business.
The Du Pont family https://en.wikipedia.org/wiki/Du_Pont_family#Family_tree
The Vanderbilt family https://en.wikipedia.org/wiki/Vanderbilt_family#Vanderbilt_f...
The Rockefeller family https://en.wikipedia.org/wiki/Rockefeller_family#Members
The Astor family https://en.wikipedia.org/wiki/Astor_family#Astor_family_tree
The Ford family https://en.wikipedia.org/wiki/Henry_Ford_family_tree
The Mars family https://en.wikipedia.org/wiki/Mars_family
S.C. Johnson & Sons https://en.wikipedia.org/wiki/S._C._Johnson_%26_Son
We'll have to wait and see for the Kochs and Hunts.
A shocking number of large properties in the US have not been sold in multiple generations. A lot of old money "just" owns land and extracts rents for that ownership. Many of those people have jobs, so they do not necessarily look like the idle rich. But they have a somewhat easier time because they receive some portion of the ongoing value of land (this could be rents, timber sales, mining rights, etc.).
I'm not sure about the numbers, but many of the great, inter-generational fortunes may have been built on businesses (consider the oil business) that are problematic for future generations (although great for the inheriting offspring).
40000 * (1.07 ^ 70) = $4,559,575
If you can buy a car, you can make your beneficiaries multi-millionaires, if you want to.
Edit: Let me expand. You won't get 7% real returns on $40K. Yes, the S&P500 can return that much, but that's before inflation.
OP was comparing the cost of a car now to the average wealthy person's inheritance now, which isn't a fair comparison. You have to account for inflation over 70 years.
https://www.investopedia.com/ask/answers/042415/what-average...
40000 * (1.09 ^ 70) = $16,669,203.
The first calculation uses 7%. It is the real return. You'll actually have $16m, but the purchasing power would be $4.5m in 2021 dollars.
Though I would be most people just don't have 40,000 lying around, they usually have to get a car loan and borrow that.
Meritocracy: A system in which advancement is based on individual ability or achievement.
If you think the most able individuals are creating and running the largest organizations, and know whats best for those organizations, why would you want the state to allocate those resources upon death of the individual?
Also, most people have a time span much greater than their own life. I know I do. If I knew I wasn't able to leave a better life for my decedents, I wouldn't work as hard. If you have a wealth creation mindset (wealth is created) then this would be devastating to productive individuals
As for not working as hard, plenty of rich people have recently declared the majority of their wealth won't go to their children. So certainly won't have a 'devastating' effect as you claim!
And if they do, if you believe in meritocracy, it won't matter as that wealth will be squandered away with each subsequent generational transfer, as is often the case.
The best reason for a meritocracy isn't fairness or justice, it's the benefits it creates for everyone. When someone smart is given control over resources, they create more resources, for themselves and others.
I trust the creator of wealth (small, medium, or great) to allocate it intelligently far more than I trust a bureaucracy to do so.
A lot of them are actually putting the wealth into foundations that their children will end up controlling. I believe Warren Buffet has done that.
So even though their children might not have all that wealth outright, they still have the influence and wealth that comes from control of that wealth through the foundations.
They've taken advantage of the schools, infrastructure, courts, laws, etc.
It's a social contract, it's two ways, and part of the price of all that stuff they've been using is to pay inheritance tax.
If they don't want to pay, they could go to a country without all those benefits. But they shouldn't expect to be able to take everything with them, it's not just theirs.
To prevent the formation of feudalistic aristocracies. There's no difference between empowering bloodlines drawn from wealth or monarchy. You're still going to end up with incredibly corrupt and incompetent people running the show because they didn't earn their position -- they were born into it.
If you actually believe in meritocracy, why do you want to pass on your wealth to your children? If you do that, they won't be able to demonstrate their "individual ability or achievement."
The Walton family can't throw my in prison. In fact, they can't do much of anything to me besides perhaps denying me a Sam's Club membership.
Monarchy and wealthy families are not the same. Hyperboles like this don't serve your case.
If you believe in meritocracy and you pass your company on to your children who are not suited for the role, then they'll fail and lose it all, as is often the case.
They most certainly can. They simply have no reason or motivation to.
In company towns the boss could absolutely have you thrown in jail if they felt like it. If Carnegie didn't like someone then the Pinkerton's would happily take care of them.
The only reason we haven't seen modern equivalents to the above scenarios is that the information age has increased competition. But if you already don't feel like you could sue any of the Walton's for any reason and win... then just wait for when their wealth is 10x larger.
The Disney family can. [0]
‘What one fool can do, another can.’
https://unclewalts.com/wwwd/hey-walt-does-disney-world-have-...
You're making this about "big government". A red herring straw man.
That's not the point. The point is that it does not go to your children or whomever you choose as inheritors (aka your dynasty). There are many ways this could be handled. For example, when you die, the resources/wealth reverts back to the commons. A simple way to do that would be to it distribute equally over the whole population.
Or perhaps distribute it equally to everyone under the age of, say, 30.
Regardless, that's a whole other topic. It's separate from the point being made.
And besides, only private wealth is subject to inheritance tax. Public corporations don't die with their founders, and private businesses are assessed for value, usually with significant tax breaks.
None of this changes the fact that inheritance is the opposite of true meritocracy. It gives the mediocre an unearned safety net and starves, stresses, and distracts talent from a modest background.
If wealth is large enough, then useful incomes can be maintained in perpetuity - meaning the great, great grandchildren are still living off of the wealth created centuries ago.
The latter case was common in Europe, but relatively rare in the US due to the estate tax. Historically, landed gentry were rarely bastions of wealth creation and innovation - and are usually more focused on fending off threats to their inherited wealth than creating more wealth.
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel."
Wealth dissipates very quickly especially with the nature of dilution as a bloodline grows exponentially. If you notice most inherited wealth that's more than a few generations is in authoritative states. I don't think its due to the estate tax as there are always ways to get around it.
There was a general practice that samurai funded positions for the children of their servants. By the time of the meiji restoration the number of servants a Samurai supported had grown by nearly an order of magnitude. Meanwhile the productive land remained fixed.
Unfortunately this lead to the productive assets of Japan being directed to support an increasingly capital inefficient consumption system. There is no natural reason to assume that an estate would be obliterated with time.
Pros: Meritocracy which emphasizes personal responsibility and makes it clear that the whole ship rises or sinks together. Would diminish disparities.
Cons: Lot's of nitty gritty complications, loopholes, etc. attachment to places and things. Longevity, medicine, and wealth.
I'm not interested in having a deep argument on this one (since it's all hypothetical). I was just replying to your feelings.
We are allowing the government to build inter-generational wealth by reducing the inter-generational wealth of the citizens & their families via taxes & printing fiat. The tax revenue & money printing benefits the people who control the aspects of the economy (aka the wealthy). Estate taxes only gives more power the largest, most entrenched power, which is the government, corporations, & it's beneficiaries. The ultra-rich families who would have to pay these taxes also benefit from the consolidation of wealth via government & corporate control even more aspects of life. This leaves out middle-class families, where parents can longer pass along a house & land to their children/grandchildren without being heavily taxed. Instead, the house & land go to "the people", aka under the control of the government, corporations, politically powerful, & the ultra-wealthy. Independent families lose, the well-connected utra-wealthy win.
What has happened in America is a major (and I mean major) shift towards individualism. The 'pull yourself up by the bootstraps' mentality was never applied to people independent of their family. For most history, people were indivisible from their family, except perhaps in law.
If dad rises through the ranks, people would have viewed that as dad pulling his family up in status. The meritocracy would have been applied to what was then seen as the fundamental building block of society -- the family.
Today, we view individuals as the fundamental building block of society.
The two views are incompatible, IMO.
The US has long had profound objections to inter-generational wealth transfer, entirely independent of our conceptions of the relative importance of family vs. individual.
No it hasn't. If that were true, we would expect strict inheritance laws discouraging wealth transfer. But we've never seen that in the United States.
By and large, people saw individuals as inseparable from their family. Even the most individualistic thinkers of the 18th century would be considered practically Confucians today.
The United States has long embraced the inheritance of wealth. What we reject is the inheritance of title that gives some man authority or primacy over another independent of his own contribution to society as measured by his wealth. In the UK that we left, a commoner could have been richer than an old-money aristocrat, but not be considered his equal due to nepotistic aristocracies.
The legal mechanism for this has been the inheritance tax, which has existed more or less since the founding of the republic. Historically, it served as a substantial reducer of inter-generational wealth transfer. However, over the last 5 or 6 decades, objections by the rich to moving the thresholds to keep up with inflation and/or typical wealth levels among the top quintile etc. and/or rates for this tax have made it much less effective in this role.
https://andrewtobias.com/jefferson-madison-and-washington-on...
I think you'll find that this was a very different take on it than the one held by those in power back in England at the time.
In my comment history, you'll find a few comments about the issue of couples having fewer and fewer children.
Toqueville's points work so long as people have on average, more than two kids. With the decline in birth rate, we risk descending into primogeniture by attrition, which is terrible.
Let's pretend money had nothing to do with it. Simply by virtue of being my child, I am able to train them and pass knowledge in such a way that they have an inherent advantage to other children. Would this be unfair? Ultimately, it's the same thing! They now have an advantage over others.
Now, should we seize 100% of all wealth upon death? Otherwise, my children will get something more than others, and over time this compounds to be a significant advantage.
The average person does not want zero control over raising their children. This comes from a belief in the family unit - a private, self-organized entity that is separate from the state. Families are biologically predisposed to help their own members and exclude outsiders. This manifests itself in innumerable ways such as gifting money to family members, taking vacations with family, investing in each other's businesses, and on and on.
You will never be able to prevent people from giving their children wealth. It is biologically predisposed. Also, no one likes paying taxes - nobody! When given the opportunity, even middle class people alter their behavior to avoid even small taxes, like when people drive from one state with sales taxes over the border to another (Massachusetts residents driving to New Hampshire - extremely common) to avoid a 6.25% sales tax.
What you have is incentives - we all want to help our children, and pay the fewest taxes. The state can pass whatever laws they want, but everyone is incentivized to avoid them, and will find new and clever ways to do so.
Capital management is not a trivial task. Successful management of great sums requires great skill and attention. The world is fraught with dangers when handling a fortune.
As an aside: America is not a meritocracy. It's a dynamic, imperfect system, often described as a presidential republic, and we're constantly rewriting the rules of the game.
What a great person should yearn for is opportunity - access to capital need not be inherited. I think we should strive to empower our best people with capital resources appropriate to their level of skill and experience. I don't think the government is the best mechanism for choosing who those managers should be, but I think it should definitely have a role in making sure the game is fair.
But now I'm curious what the median inheritance is for the 1%? Lower than that (mathematically) but is it $0? I might take that bet. But the SCF doesn't seem to go finer than the 1% bucket. Anyone know?
https://www.federalreserve.gov/econres/notes/feds-notes/weal...
I’m in favor of inheritance tax. But I can see an argument that things just stop making sense when you start slicing into smaller units than the family. I think we’d have to say it’s a meritocracy of families. If families want to support some of the individuals within them out of proportion to their economic contribution, maybe that’s their business.
While it rubs me the wrong way to know that people are out there coasting on the backs of more productive family members, I think the bigger story is some people are out there equipped to be knowledge workers in superstar cities, and others aren’t. This advantage is definitely related to family but isn’t literally inheritance. High earners become high earners well before their parents die. That’s just extra.
Inequality has more causes than inter-generational wealth and a lack of an estate tax. Canada for example is a more economically equal society and does not have an estate tax AFAIK.
Just to stop fake news: The tax cuts increased the exception for estate tax from $5.6M to $11.2M ($22.4M for married couples.) After that amount, the estate is taxed at 40%.
OP may feel that's the same as removing it. Or they may have been misinformed & actually thought it was removed. Either way it's incorrect.
(And this is not to defend or condemn the tax bill. I just think it's important to get accurate facts on the table. I have my own opinions on how we should reform estate taxes, but my focus would be on cost basis, not exemptions.)
I think calling this a "scientific consensus" is a bit inaccurate. There's very little consensus in economics (and one can argue about the level of science as well).
As the linked study (and many others like it) shows, it doesn't actually work in practice.
Wealthy people invest in things that wealthy people want to invest it.
(Democratic-ish) governments, for all their many issues, tend to invest in things that can be justified to much broader populations (yes, I know, lots of exceptions to prove the rule)
Increasing private investment and decreasing public investment isn't a "cancel each other out" situation.
Only if you only think about it. This is the danger of theoretical predictions without empirical backup: the path of the Laffer curve is dependent on more than just the tax rate, and is likely also historically dependent.
Every time someone dares to suggest that a policy designed to benefit elites will hurt others, a clown car full of economists drives up. They pile out, tripping over each other to explain to us how we just aren't smart enough to understand economics and how actually cutting taxes for the rich (for the Nth time) will create such extraordinary economic growth that everyone's boat will float upwards as a result.
Of course, they are wrong, but next time this topic comes around I guarantee the clown car will be there and in the meantime it behooves us to stockpile ammunition.
See also: shipping all the manufacturing to China.
How is this related? I enjoy not having to pay $2000 for a cellphone and $500 for a pair of sneakers
Also, the numbers you cite seem pretty dubious. Yes, if you want to do onshore manufacturing today, it's twice as expensive, but propagating that all the way into the cost of the goods assumes 100% of the cost is in manufacturing, that there would be zero economy-of-scale benefit from retaining our manufacturing base, and it assumes no benefit to your income from the increased economic re-circulation. Those... aren't neutral assumptions.
This is a separate matter from the one in TFA but the players and strategies are similar.
If manufacturing didn't go to China it would've went to Vietnam or another country with cheaper low skilled labor. Long term automation will eat those jobs anyways
* Subsidies for relocation
* Subsidies for retraining
* Subsidies for drug rehabilitation
All of which could have been funded by the greater economic growth generated by trade. If you want Americans to pay more for goods to subsidize the cost of living of groups of Americans, make it a transparent tax. Don't hide the cost in greater coats for goods.
Also where was this concern when these same issues were hitting poor urban regions throughout the 80s and 90s?
It’s related because economists and politicians say it’s good for everyone, when in reality it’s only good for the wealthy.
http://www.stat.columbia.edu/~gelman/book/gelman_quotes.pdf
Possibly the most fundamental distinction between economics and other fields is that, in economics, it seems to still be permissible to start with your conclusions and then work back from there.
This is only really true in the most contentious subjects studied in economics, and even then, I don't think economics is unique or even unusual in this respect. Unpalatable results go unpublished in many of the social sciences.
Sadly this doesn't make it distinct from other fields at all, at least within the social sciences. Much of sociology is built on explicit anti-positivism and anti-empiricism.
If we take, for the sake of argument, (edit: what I'm guessing is) your unstated major premise of a deontological approach to ethics, then yes, you're absolutely right, no amount of positive economic outcome could possibly justify forcibly depriving people of their rightful property, because the ends never justify the means.
However, for the sake of keeping the discussion sane, I'd argue it's important to come out and say that this is where you're coming from, rather than just saying that "this misses the fundamental issue." Because, to someone who prefers almost any other general approach to ethics, it is absolutely central to the fundamental issue. And you can't really just dismiss all those other ways of thinking by just ignoring them.
This isn't surprising; a tautology almost. But it doesn't really give us any answers. The real question is: is that a bad thing, and if so how bad is it?. Wealth inequality has been a constant of the human condition since the first farmers learned to aggregate more grain than others. But what, if any, deleterious effect does this actually have on society? And does the concentration of wealth lead to innovations only possible with such an ability to deploy capital in a highly targeted manner?
Bezos (a major political donor) lost a NASA contract for 10 billion to SpaceX. He freaked
So the US Senate, looking out for their buddy, simply added the 10 billion to their next budget directly for him:
https://theintercept.com/2021/05/25/jeff-bezos-blue-origin-s...
Just one small example
This doesn't sound like money for Jeff Bezos. It's money for NASA. What it sounds like is some tortured analysis of a bill that probably isn't going to pass by a journalist who also hates rich guys.
Ah, it was Steyer I think, just came to me.
This is just a laffer-curve-style argument. Draw a graph. Point to one end, and mumble. Point to the other end and mumble something else. Say "We want to be here" while pointing somewhere on the curve.
While it remains unhappily true that lots of people are taken in by this sort of argument, it also remains true that it's an astonishingly weak sort of argument.
Because the motivation of a lot of the people arguing for "raising taxes on the rich" is to indeed leave the curve altogether.
Will small increases or decreases in tax rates fundamentally alter GDP? I think obviously not.
But those attempting to make a data-based argument for introducing MMT or a UBI with significantly nationalized elements of the economy (healthcare, energy, etc.) are laughable, when the evidence is so overwhelming that these ideas lead to adverse outcomes in the long-term.
I'm not attempting to straw-man, just to cut the meat to what people are actually arguing about (which isn't a couple percentage points in a tax rate). And it's important to flip it and be honest...and say, no, the data does indeed show without question that freer societies are way better -- and it's just that simple.
This is just absurd. "Better" is not a metric.
By the metrics most widely used worldwide, the Scandavian countries are "better" than the US, while also being "less free".
You may disagree with the metrics for "better", and/or you might disagree with the metrics for "less free", but the core point is that these things are not simple.
Where they do benefit is when you, say, lower every bracket by 2%. But that is fundamentally different from your proposition.
https://www.washingtonpost.com/business/2019/10/08/first-tim...
Let's say that you've got a nice little setup for yourself. $1.5M/yr in personal income, with another US$8M or so flowing into things you indirectly (in time or space) will benefit from.
Now let's bump up the top marginal rate to 95% on amounts over $1M. You're personal income is reduced by an amount on the order of $400-500k per year. You're not likely to just accept that, and live on less. Instead, you're going to rearrange things so that you're back to the same "take home" personal income, while the "diversions that benefit you" drop a corresponding amount.
However, the counterfactual is more interesting here - it suggests that, from a purely macro perspective, that the spending enabled by higher taxes...does nothing for economic growth. (Note: this does not detract from the humane/ethical argument of redistribution, which I leave for others to cover)
If a study was done to answer the counterfactual, my bet is that the result of higher taxes would actually increase GDP because the rich will do everything possible not to pay for those taxes. So they will do things like spend more on R&D, or increase wages, or buy equipment. In other words reduce their tax burden. If given the choice between the government burning profits via taxes, or spending more on wages and investment, they will choose the latter.
Some how we've simultaneously got both surplus capital and huge a decline of new business formation. Coincidence?
My pet theory (hunch) is that transaction costs discourage large funds from making medium and smaller sized investments. The uniqueness of Y Combinator kinda supports this hunch.
- The effects of increased spending are not necessarily the same as the inverse of the effects of decreased spending. I think you'd need to do a lot of work to get that relationship clear, or do a study specifically on raised spending vs. gdp. And historically the period in the US with the greatest growth in tax rate (the post-WW2 period) was also a period of tremendous gdp growth, but obviously there are a lot of confounding factors there.
- Government spending is largely decoupled from revenue these days anyways. Tax cuts rarely come with proportional spending cuts and no matter what the US is still dumping ~a trillion a year into defense and related industries.
What I'm struggling with, however, given the assumption above (spending is decoupled from tax revenues), is that while the paper suggests a lack of incentive to cut taxes, it equally suggests a lack of disincentive to cut taxes.
https://stats.stackexchange.com/questions/511294/what-are-th...
There are three massive problems with this paper:
1. Their dependent variable for measuring the impact on economic growth is GDP, which includes government spending. By their methodology, if you cut taxes (and government spending) by 50%, you will see a 10% drop in GDP (since government spending is ~20% of GDP).
2. Who cares about income inequality (or even GDP growth in the first place)? What you really want to understand is: how well off are people in society? What is the distribution of life outcomes? GDP is a famously flawed metric for quality of life[0].
3. They are failing to account for a key confounder: spending. Ceteris paribus, we should expect GDP to decline with tax cuts not met with spending cuts (even after accounting for #1) since debt servicing load will increase.
Not only does this paper say nothing about what we actually care about: how well off is society when cutting taxes on the rich, but it comes off as a pseudo-rationale for confiscatory policy justified by nothing other than envy.
[0] https://www.nber.org/papers/w23306
(edit: formatting)
People said this after Reagan was elected and that idiot Laffer got to shape tax policy. They were laughed out of the room with the "grown-ups" in it, and was certainly not seen as a tautology back then. Nor has it been seen that way by a couple of generations of Republican tax cut boosters, including (notably) Grover Norquist.
> Who cares about income inequality (or even GDP growth in the first place)? What you really want to understand is: how well off are people in society? What is the distribution of life outcomes? GDP is a famously flawed metric for quality of life[0].
Caring about income inequality is quite different than caring about GDP. And it is precisely caring about income inequality that become a visible point of difference between the left and right, particularly since Piketty's book.
Right: my thesis is that unless you are simply envy-stricken, income inequality is a red herring distracting us from interesting metrics like "How well-off is the median person? 10th percentile earner? 1st percentile earner?" and that GDP is a flawed proxy for this.
You appear not to share this view.
It's not punitive confiscation. It's taxes to fund the decided needs of society, where the needs are established using the mechanisms of government (as flawed or otherwise as they might be).
> ... (punitively) would destroy working capital and investment capital which would would lead to lower incomes for everyone
This seems like the reciprocal of the now completely debunked claim "reducing taxes would increas working capital and investment capital which will lead to higher incomes for everyone".
There are so many bundled assumptions in your claim here, most notably that higher incomes require private investment. There's no particular evidence that this is true (although there is a lot of hand-waving "common sense" pronouncements from certain parts of the political landscape designed to us think that it is obvious).
In my defense, I had assumed I was taking a neutral position when focusing on the question "What is the marginal impact on societal welfare of taxing less progressively?" And my argument is that this paper does nothing to further our understanding towards that inquiry (despite ostensibly purporting to).
I am deliberately attempting to avoid discussing topics such as "the morality of wealth redistribution" or "the proper role of government in society" in the framing of my objection. I find that letting one's values show on internet message boards is treacherous for one's karma.
Also, amusingly, many of those commenting negatively here about tax cuts for the rich, the 1% or income inequality are themselves part of a very lucky global 1%.
The point isn’t about wealth inequality inherently being a terrible thing - it’s that wealth inequality without any checks or balances has lead to a lot of terrible things like the gutting of the middle class in the US. We are supposed to be freer than we’ve ever been yet we live in a new age of serfdom. The gains of our economy go to the top 1% (or even less). It is not being shared to all and thus why people are pissed because they’re paying more in taxes to support these guys than some of the 1% when it comes to proportion of their income.
People just want equality. They don’t give a shit if you have billions. They want billionaires to pay the fair amount the rest of us W2 slaves have to deal with and not use pledged asset lines and stepped up basis to avoid ever paying taxes.
You get to design / vote on the tax system that you will live under, but then you are born, and you don't know where or to whom. Will you be Jeff Bezo's littlest kid? Or a crack baby? Who knows, but choose wisely.
(frankly the veil of ignorance works really well for most politics, and is really easy to understand)
Warren Buffet, who gives away a ton of money, famously has been revealed to pay little.
John Kerry, mega-wealthy politician, parks his yacht across state lines to avoid paying state taxes.
Bill Clinton donated his used underwear to charity and took as much as $15 a pair for them. In 1988 dollars!
Of course there are plenty of other rich people who pay next to zilch. It's going to be hard to stop them.
More incentives for spending and investing - the creation of transactions - will accomplish velocity better.
Problems start with the super-wealthy apply their wealth outside of business and industry and use it to influence political outcomes. In this manner, they are acting as un-elected politicians and undermine democratic policies and governance.
The question to contemplate is how to maintain the system that yields the most benefit in its pure form, and yet keep its vulnerability of concentrating influence in the hands of people who are not granted that influence democratically?
Asserted without evidence. There's no inherent reason that a world in which ubiquitous e-commerce was the name of the game, but there was no Amazon, and in which all of the employees in this sector made middle-class income, should be impossible. Would that be a better world than ours, even though it could still be entirely capitalist? I would say so.
No increase in productivity required.
Think this through; is Somalia poor because their government doesn't give poor people enough money to consume?
No. Somalia is poor because they produce very little right now (for a variety of reasons). If you look at countries that have recently increased their standard of living on a massive scale, such as China, they have done so not because they consumed their way there. A huge amount of investment into productivity was undertaken.
When my team of 100 crack assassins/financial shenanigan wizards target the richest 100 Americans individually in their own homes, I don't think this will matter too much. We'll get the money.
>after your 20 million American's burned through their $50k, they'd be back to square one.
Sure, but their standard of living would meanwhile have increased.
Obviously, it's a reductio ad absurdum, but I'm using it to prove a point.
Your use of Somalia merely proves that a certain level of productivity (shall we call it GDP?) is required for this thought experiment to even make sense. Yes, a certain level of society-wide wealth is necessary for redistribution to even be possible. And indeed, one could try to improve productivity instead of or in addition to redistribution.
But none of that means that in a society with as much productivity (a high GDP, if you like) as the USA, redistribution could not also be used to increase the standard of living.
More democratic? Yes
Point taken tho
Just because you've successfully created a wildly successful business, does that imply that you should now also be the person to decide how all that money is spent? Why would society agree to this? We can acknowledge that you might be a brilliant business person without simultaneously and implicitly agreeing that you're just the smartest person around and should clearly get to control where all that revenue flows to.
Hence, the 1950s & 1960s idea of taxation: you can earn boatloads of cash, but we'll tax a lot of it away from you. You'll still have enough to be crazy rich and lead a life everybody else can only dream of, but you're not going to control the disposition of (say) US$20B.
For the record, we’re no where near a breaking point in America. For as much complaining you see on HN and reddit and twitter, people in real life are happy.
Amazon, Walmart, and Microsoft have added tremendous value to the world.
all that money could have been invested into people who actually spend it in the economy, instead of hoarding all that excess wealth.
Although I think they should probably be taxed more, those hyper billionaires tend to give huge amounts to charity too. And it's not always for shamefully self-serving/partisan purposes such as Bezos propping up the Washington Post.
By creating Amazon, Bezos added tremendous value to our world, and he deserves his profits from it.
This seems like an uncharitable statement. In many cases (although maybe not the majority), the wealth generated is additive to society and and not "taken" because it might never have existed otherwise.
Consider PayPal. Did the development of PayPal take or give to society? It seems to me that it increased the wealth of everyone both in a direct sense and also indirectly through the enablement of large scale secondary and long-tail economies in Ebay.
This statement isn't to suggest a reason for "tax breaks to the wealthy," only to offer an alternative theory to "taken disproportionately."
Amazon for example - how much wealth has Amazon created for everyone else? A lot and many, many factors more than Bezos' net worth.
Granted not every wealthy person creates wealth this way - some influence politics to get unethical things done that put them there. But we shouldn't clobber the idea of wealthy people because some people cheat.
How big that chunk should be, and what the process(es) should be used to decide on its disposition are open for debate, certainly. But the idea that because $X flowed towards Amazon, and everyone did that voluntarily and feels good about it, now Bezos gets to decide how the accumulated sum should be spent - I don't consider that a sensible view in any way.
> Wealthy people have taken disproportionately from society
And I just don't think that's true at all. Yeah, we can figure out how to better tax extreme wealth, but this wave of sentiment I see more and more of that wealthy people are evil, or parasitic, is just wrong in my opinion.
Let's say I do a really hard physical labor job, and I work at it 40 hours a week for 50 weeks a year. As a result, I make $45k (or $60k, or $80k or $100k - at this scale, the numbers don't really matter)
Is there any possible rationale for how any amount of succesful "business-ing" could ever justify why a person doing that for a year should end up with an income in the tens or hundreds of millions?
We could concede that perhaps the business-ing has results that affect far more people in a positive way than the manual labor ever will. But the notion of people "taking disproportionately from society" could really be stated as "I don't care what you did last year, there's no possible activity you could have carried out that justifies you earning US$200M". That's a position that could continue to be held even if every cent of that US$200M arose from conscious, voluntarily, beneficial transactions. You don't have to agree, but there are people (I suspect I am one of them) who just don't believe there can ever be a justification for incomes at this level.
Yes - imagine that job was cutting down trees and the amount of hard labor it took to cut down a tree was very high. You decided to invent chainsaws. Now each person doing this labor (which is now less hard) can cut down more trees and you need fewer people overall to cut down more trees and you can pass the savings on to your customers who now get lumber more cheaply. This gets passed onto people who build things with wood so now there are more people "business-ing" across these larger industries and fewer people doing the tough work. People have more options now. And more people can build things out of wood opening it up to a larger and larger number of people creating more happiness than before.
So this 1 invention not only created great wealth for the person who invented it but also created much wealth for society as a whole. the guy cutting down trees before the chainsaw couldn't afford much but now because his productivity is increased he too can afford lumber to build things because the price of it has diminished.
The whole game is to find inefficiencies in things, make them more efficient so you can lower the price of it and make it available to more people. This has happened in consumer goods, food, travel, and just about every other industry. So as income inequality has grown, access to life enhancing things has grown. And we've more or less eliminated poverty along the way.
That's a viable argument if the domain of the argument is only economics.
Some people want the domain to be restricted to economics only, of course. Some of us think that morality / philosophy plays a role too.
So we can recast your example in more general terms. Suppose that what society "said" about invention was along the following lines:
"We want to see productivity increase, and so we value and cherish invention, particularly invention that enhances the efficient use of human labor. People who manage to invent tools and processes that increase efficiency can expect to see some part of economic value of their inventions accrue to them. So, if you want to be richer and improve the wealth of our society, please go ahead and do so with your creativity and imagination and organizational skills. But if you imagine it as a pathway to unimaginable wealth, understand that this will not happen. To be blunt, just because your invention creates US$200M of value to society, you will not be US$200M richer under any circumstances."
In the end, it depends on what you think really motivates people.If you think that chainsaws get invented because people dream of being unimaginably richer than their neighbors, you will likely think that any limitations on how wealthy someone can be will cause us to miss out on possible improvements. But I don't believe that (and I could cite lots of evidence that money is almost the worst possible human motivator for most Americans), and I think that we can cap income and wealth without destroying innovation and productivity gains, while still leaving room for some people to be substantially richer than others.