The Inequality Myth – Western Societies Are Growing More Equal, Not Less
foreignaffairs.com
foreignaffairs.com
One main point seems to be that the middle class is actually rich if you add up our home values and social security benefits. Those things aren’t liquid like AMZN or META stock, nor can I use them as collateral for loans to buy a yacht or manipulate elections (I guess I could get deeper in debt and risk losing my house with a HELOC).
Quote from the article: “capital taxation should target income rather than wealth or inheritances”.
Does the author not understand that billionaires have dozens of loopholes performed by dozens of accountants and lawyers to make them have minimal income on paper?
The reality (which this article doesn't mention) is that all income brackets have risen, but that there is more increase in the higher brackets. And it doesn't even touch on why this is happening: technology. In the old days the high skill worker was held back by all time spent on low skill tasks. Now our machines have taken over a lot of the low skill stuff, the actual value created by the high skill worker has risen faster than the overall average. Of course wages have spread out more! For that not to have happened would require very high taxation.
And, yes, we see celebrities making very big bucks. Once again, an inevitable result of technology. The "value" they produce is mostly an up-front cost, the per customer cost is low. Technology lets them reach an awful lot more customers, thus the customers will focus more on those they consider best. There also is an issue with the shift in the balance of power--it used to be the studios basically owned the careers of their stars. That considerably reduced the disparity but was it a good thing?!
As for loopholes: yes, they exist--but nowhere near like they used to. But if they can hide income do you not think they could also hide wealth? And inheritance is based on wealth. Loopholes are no reason to tax wealth or inheritance. And when you tax wealth you have the problem of that wealth often being extremely concentrated in the corporation that someone controls, they likely can't pay a wealth tax without selling off their company. But their company is valuable because they're running it well--you're going to destroy value this way.
As for Piketty--I tried to read his book. I couldn't stomach more than a few chapters because he kept making a fundamental mistake: assuming that as the form of wealth changed that it was still the same group controlling the wealth. No, fortunes rarely last more than a few generations.
There's also the fact that wealth "inequality" has a huge time component to it. Those starting their careers likely have little if any wealth and easily can have negative wealth (student loans.) By the time they retire any high skill worker should be a millionaire. (The next dollar of spending never provides as much value as the current dollar of spending. Thus your maximum value from your income will come if you spend at a fixed rate--and for a high skill worker to do that they will need to be a millionaire by the time they retire.) Those who want to portray it as a huge problem consistently avoid looking at this.
1) I don’t know that the freeing up of the “high skill worker” turns out as rosy as you paint it. My observation (I don’t have data on this, but it’s supported by driving through any medium-sized midwest city) is that technology leads to 10 low skill workers being replaced by 1 high skill worker operating machinery (or by offshore labor). People and entire cities are truly being left behind, not just experiencing a widening of a wage gap. What’s the solution here to people who aren’t economically viable anymore? I’m not sure. UBI maybe, but that’s a whole other can of worms.
2) I think there are ways of taxing wealth that aren’t very complex or onerous (eliminating the step up in basis for estates over a certain size would be one). They’re probably not running the business much anymore, especially since they’re not alive. If you still don’t like that, then taxing the huge loans billionaires take out and then pay for with stock that has grown faster than the interest rate on the loan (which aren’t technically income) as income would be huge.
3) Your last point about inequality being age-based is absolutely true (compound interest is amazing), but I think (and this is backed by the data) that our starting point (talking about income, here) as younger people is, even inflation adjusted, worse, and thus our compounding is starting from a much lower initial level. Assets we’d buy to hopefully compound are already so dang expensive that it’s hard to imagine them continuing to compound as they have. Further, I think it’s unlikely we will see the rates of growth we’ve seen over the last few decades for the next few. We’ve grown so fast, and true fundamentals (population decline, resource overusage, climate change) are going to make it hard to continue at this rate.
2) Please, keep the step-up! Note that the rich pay more in inheritance tax than they gain from the step-up. And the step-up acts as a fire break against sins of the past. I had to deal with my mother's estate. Oops--she didn't really know what she was doing with financial matters, she had kept everything less than 7 years old. All the stuff dealing with the basis for her house was older than that. Fortunately that was back when there was a one-time capital gains exclusion on your house--I gave up on trying to figure it out, reported the basis at $0 and used the deduction.
3) They aren't worse compared to their parents at that point in their life.
We will only see more of this toilet paper the closer we get to the fall.
Lots of western academics have seemingly started writing for Pravda these days. They are (deliberately?) missing the point: human perception of economic wellbeing is relative, not absolute. Antibiotics and running water are nice, but they are expected bare minimum.