Senate Income Inequality in the U.S.: Causes, Effects, Solutions

Not quite. The first dollar will have the same utility regardless of source. If you believe wealth has a diminishing marginal utility, like any other good, there is a real difference between the first and billionth dollar. Taxing them at the same rate is a higher burden on the former.

Obviously utility is a nebulous concept, and if you believe wealth has constant utility you won't agree with it. But assuming diminishing marginal utility of wealth, what you call inconsistent is consistent.

 

If you think that a person's tax rate should be based on how much of a "burden" it presents to them, then how do you measure that burden? How exactly does that relate to a person's tax rate and income level?

If you can't provide quantifiable answers to those questions, then all you really said is "the rich should pay more", which isn't really an answer. At some point, you have to actually define what criteria you use to set your standards.

Kimball Kinnison

 

KK

The tax rates are the quantifiable answer in regards to measuring the burden.

(Personally, I don't consider royalties to be the same as wages. They are actually closer to capital gains because they are a return on investment.)

Right, but I think they are taxed like regular wage income.

The difference is that wage income, once earned, is yours while you are employed. In that context, it is guaranteed. You may not be guaranteed employment, but you are guaranteed wages for the work performed...

Capital gains, on the other hand, are not guaranteed. With any investment, you run the risk of losing your initial investment from day to day. An investment worth $1000 today can be worth $500 tomorrow, or $1500. That doesn't happen with wages. It is a much higher form or risk, and very different in nature.

Wage income is yours once earned, but as I said earlier, especially nowadays, employment is a risk in that it could end at any moment for any reason. And I don?t think CG is a higher form of risk because a smart investor diversifies their risk and doesn?t act like a degenerate gamblor. Most investors invest money because they have money to lose, and they (if they?re smart) don?t put it all in a single investment. Naturally I generally buy stock when it is low (as I did with Apple years ago), so it was a modest risk, but not this be-all, end-all. I also invested elsewhere (mostly in various funds for retirement/family purposes). When I lose, I lose money but that was what I knew going in. Furthermore, without the hard-working people at Apple, the wage-earners, I wouldn?t have made a profit. Point being that labor and capital are intertwined, kinda like, ugh, midicholorians.

We agree on the political use of the term ?fair?. However, as with the term ?fair?, I don?t think ?risk? should be the only consideration for tax rates. I personally work much harder for my wage income than I did for income earned from a sale of Apple stock. And again, at the end of day, if earn $10,000 in wages and $10,000 in capital gains, it?s just income to me. And if a doctor earns $500,000 in wages, and hedge fund guy earns $500,000 in capital gains, I don?t see why they should pay different tax rates. A doctor is a particularly risky profession and requires tremendous skill and dedication. I?d say that?s much more risky than buying a modest amount of stock and seeing what happens.

No one is saying that a person who makes $100 million should pay less than someone who makes $10000. However, if you are talking about who has more to lose, or more to protect, then a flat tax answers that better than a progressive tax...

Jabba addressed this quite well.

I'd add that I certainly understand your point, but someone who makes $100 mil very likely has more assets to protect as well, then the guy making $10,000 per year. It?s not like the guy earning $10k per year has a home (or five), several cars, etcetera.

So it?s not that the guy earning 10k and 10mil have a relative equal amount to lose, rather that the guy earning 10mil has much, much more to lose.

My core problem with progressive tax rates, especially those that focus on the "super rich" is that they inherently single out a small portion of the population. How is that not essentially a bill of attainder? The higher you set the threshold for progressive tax rates, the fewer people who will be affected by it, and the closer it comes to being an obvious bill of attainder.

Has anyone ever filed suit regarding this, the bill of attainder and tax rates? I?m curious.

Anyway, my original point was that we don?t tax the ?super rich? really in a progressive way, or at least much less progressive than we used to. For example, a couple earning $250k pays a 33% marginal rate whereas a couple earning $140k pays a 25% marginal rate. A couple earning $5mil pays a 35% marginal rate. A big difference between $250k and $140k, but not so much between $5mil and $220k.

Here?s a chart of how rates have changed since the advent of the income tax:

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How do you measure that value he receives? The customary way is through the income a person receives.

By almost any standard, the rich pay far more in taxes than they receive in relative value. For example, in 2009, the top 1% (income over $318043) made 16.9% of the total AGI in the nation, but paid 36.7% of the income taxes. If their income is any sort of a measure of the value they receive from society, and taxes are a measure for how much they pay back, then they are paying more than twice as much as they receive (a ratio of 2.17). For the top 5% (including the top 1%, all income over $154643), they made 31.7% of the total AGI but paid 58.7% of the total income taxes (a ratio of 1.85). If you go to the top 10% (income over $112124) they earned 43.2% of the total AGI but paid 70.5% of the total income taxes (a ratio of 1.63).

If you disagree with this measure of the value someone like Bill Gates receives from society, then how would you measure it? (Please, be specific. If you can't quantify it, we can't actually compare it.)

Kimball Kinnison

 

The major difference is still that with investments, the value can fluctuate from day-to-day. The way the tax code is set up, the government expects to take a cut of any winnings you get (capital gains), but won't let you write off more than a token amount of losses (the limit is $3000 of capital losses per year). That strikes me as a one-sided approach to the risk of investment. The government wants its cut of the reward without suffering its share of the risk.

Except the question you are avoiding is the purpose of the risk.

When you invest money, that money is then used to do such things as directly create new jobs, jobs that couldn't exist without that investment. The reason for having lower capital gains tax rates is encourage people to take that greater risk and therefore spur the creation of more jobs in the economy. More jobs then leads to more income taxes being paid, which also increases revenues.

He also pays much, much more to protect what he has (and not just in taxes).

This still relates back to one of my earlier questions that no one seems willing to answer.

Is there a tax rate that you would consider immoral? If so, what is it?

For example, the top rate was at one time 90%. I would consider that immoral (in fact, I would consider anything over 50% total, between all taxes, immoral), because you are at the point that you are working more for the government's benefit than for your own. Because income is ultimately the result of trading labor for value, a tax rate that high says that the government has more right to your labor than y

 

Kimball, like Romney, most of Gates's earnings are not coming in the form of income taxable as income tax but rather various forms of capital gains, with taxes minimized by a team of tax attorneys. Gates like Romney is probably paying something much closer to 15% of his annual earnings than 36 or 37%. As you point out, the value to the top 1% of controlling 40% of the nation's wealth... is 40% of the nation's wealth.

But beyond that, wealth is highly convertible into political power. And political power is more than a little convertible back into economic power. What you get with an undemocratic division of wealth is an undemocratic division of political power. The guy for whom 99% of his wealth after taxes is discretionary income has an immense level of political power over the guy who has nothing left after paying for food and shelter. I don't know how to quantify that precisely other than to say the top 5% have a controlling interest in the nation's economic power and therefore a huge edge over the rest of you in controlling the nation's political power.

No need to quantify it precisely, but a 40-50% tax on all earnings above $1 million annually would be a great place to start.

 

KK

The major difference is still that with investments, the value can fluctuate from day-to-day. The way the tax code is set up, the government expects to take a cut of any winnings you get (capital gains), but won't let you write off more than a token amount of losses (the limit is $3000 of capital losses per year). That strikes me as a one-sided approach to the risk of investment. The government wants its cut of the reward without suffering its share of the risk.

Obviously I?m aware that investment value can fluctuate day to day, but that doesn?t mean the income on it should be treated differently than income earned on wages.

The government also wants its cut of the reward of my labor, but it doesn?t suffer it?s ?share of risk?. I do the work.

Is there a tax rate that I consider ?immoral?? I don?t know, probably. I just don?t think of it that way. Truth is, I don?t think our tax rates should be much different than they are now, just that income received should be taxed in a similar manner whether it is received from wages or capital gains.

And that is irrelevant. Nothing stops anyone, including Warren Buffett or Bill Gates, from donating anything they want up to their entire fortunes to the US Treasury. It's been that way since 1843.

It?s not irrelevant, YOU brought up Gates. And as citizens, Gates and Buffett (or whomever) are allowed to advocate and vote for their preferred tax policy, just like anyone else.

Except the question you are avoiding is the purpose of the risk.

When you invest money, that money is then used to do such things as directly create new jobs, jobs that couldn't exist without that investment. The reason for having lower capital gains tax rates is encourage people to take that greater risk and therefore spur the creation of more jobs in the economy. More jobs then leads to more income taxes being paid, which also increases revenues.

And when a wage earner spends their income in the marketplace, that creates more jobs, and thus more income taxes, as well. After all, something like 70 percent of our economy is consumer spending. And also, investment is well and good, but a company needs it?s wage earners/employees for the company to survive as well.

In other words, you want to have your cake and eat it too.

If your argument isn't logically consistent, then it is really worthless.

Is my argument ?worthless? to you professor?

Anyway, you?re also trying to have your cake, etcetera by going on and on about ?fairness?...well except for certain types of income.

Your favored candidate, Mitt Romney, isn?t advocating for an effective flat tax rate, and he?s advocating for taxation on capital gains on income only over $200k. So I assume his position is worthless and you will not be voting for him.

 

I think this deserves to be posted here too. What Rick Santorum said in Detroit last week:

"There is income inequality in America. There always has been and, hopefully, and I do say that, there always will be."

Link



Seriously?

 

The writer of that article should have provided the context of that quote.


Ghost, I am pretty sure that the 5 people that read the Senate also read the JCC.

 

The context you're whining about can be viewed in the link to Fox News at the top of the article. I know clicking links is very hard.

 

1) Raising an objection is not whining.

2) A journalist should provide the context of a quote within the article.

 

The most obvious amoral reason for providing a basic social safety net is to protect the interests of more affluent members of society. It's a way of buying social stability. These ideas are very old. Were the pharaos of Egypt really so wholeheartedly focused on the afterlife, or were they trying to scoop up the young and unemployed and keep them fed and out of trouble? Maybe the pyramids were just an early form of social safety net. Build a vast monument to the stability of the Egyptian civilization in order to promote the stability of the Egyptian civilization. Gothic catherals! Imagine what the building of those amazing churches must have done for local employment levels inside a typical medieval walled city.

No civilization is more than three meals away from revolution. That might not be a real quote. I can't find out who said that. But I'll take it as a given. "Bread and circuses." The Roman rich protected their interest through the dole, entertainment for the masses, fresh water, and, to some extent, sewer services. Bread prevents riots, fresh water and sewer services help prevent outbreaks of disease that can affect anyone and everyone.

One cause of the French revolution was a regressive tax that affected those living at the bottom of society most adversely. Another cause was food scarcity and massive food price spikes that sparked social unrest. Food scarcity and price spikes and the lurking threat of famine also influenced the social and political strife in Europe in 1848 and the Arab spring in 2011.

One of the reasons America doesn't have to provide as comprehensive a social safety net as Western Europe is that we have done a much better job of placating people with cheap entertainment in the form of network tv (it was Calvin and Hobbes who first recognized television as the opiate of the masses for modern capitalist societies, which is great, because we already have religion too!), basic cable, cheap recreational drugs, high prison occupancy and, more recently, inexpensive smart phones and internet access. The mark of a truly cynical and socially decaying society like ours is how well it finesses the process of providing as little as possible to the masses in order to buy their passivity.

The Pitchfork Level is the most basic metric of any civilization, defined as the quality of social safety net necessary to prevent aggregated discontent from toppling the power structure.

 

Gotta love those Christian values.

 

To clarify for anyone just coming in here, that was me quoting Rick Santorum in February. Just to be clear

 

Of course there ought to be income inequality in America. That's what capitalism does. The problem we have right now is not that we have income inequality, the problem is that we have extreme income inequality, and the first step towards fixing that is letting the Bush tax cuts expire for very high income earners.

Santorum's little half-truth there is basically saying "I am pro-capitalism" with the unspoken insinuation that Obama is against capitalism. Which of course is horse****.

 

http://www.theamericanconservative.com/articles/author/mike-lofgren/
An good article here, from a site I never visit.

Puts it better than I ever did.

 

So if you crystalise your losses and gains for a year, and the losses would outstrip the gains, you lot are capped at $3,000 of realisable losses? Idiotic! You're right though KK, the government over there should allow you to carry forward losses between fin years to offset future gains. Investors take the risk, and reap the reward but your system penalises the former and taxes the latter.

 

You can carry forward capital losses to next year's taxes. There's no limit to the amount that can be applied against capital gains. And each year up to $3,000 can be applied against earned income. Any unapplied loss can be carried forward indefinitely as a deduction.

 

OWS is raising money so they can buy consumer debt, then forgive it. Their plan is called the "Rolling Jubilee."

http://www.businessinsider.com/how-rolling-jubilee-works-2012-11

Occupy Wall Street has been out of the headline for a while now, but the group has launched a new plan that could gain them traction again.​

Rolling Jubilee is a plan to use money pooled from donations to buy distressed consumer debt at marked down prices. Then, instead of collecting it like a debt agency would, the group would forgive the debt.​

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One of the organizers of the project, David Rees, offers more explanation on his blog:​

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OWS is going to start buying distressed debt (medical bills, student loans, etc.) in order to forgive it. As a test run, we spent $500, which bought $14,000 of distressed debt. We then ERASED THAT DEBT.(If you’re a debt broker, once you own someone’s debt you can do whatever you want with it — traditionally, you hound debtors to their grave trying to collect. We’re playing a different game. A MORE AWESOME GAME.)​

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This is a simple, powerful way to help folks in need — to free them from heavy debt loads so they can focus on being productive, happy and healthy. As you can see from our test run, the return on investment approaches 30:1. That’s a crazy bargain!​

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That test run does sound impressive, and the idea of helping people in dire financial straits through unfortunate circumstances (for example, medical bills) is a noble one.​

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Could it work? Alex Hern at the New Statesman points out that, while the law is on OWS's side, the banks may not be. Hern points to Felix Salmon's discussion of the American Homeowner Preservation, which sought to buy up distressed mortgages and find ways for the homeowners to stay in there homes and pay off their debt.​

Here Salmon explains why that plan didn't work:​

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The idea might have been elegant, but it didn’t work in practice, because the banks wouldn’t play ball: they (and Freddie Mac) simply hated the idea of a homeowner being able to stay in their house after a short sale, and often asked for an affidavit from the buyer saying that the former owner would certainly be kicked out.​

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Regardless of these pitfalls, OWS seems to be putting a lot of effort into the project (a benefit concert with big name indie rock stars will take place in NYC next week). The plan will formally begin November 15th.​

 

Merk, isn't measuring individual charitable levels while you have a government in the business of social safety nets a bit of bootstrap levitation? Correlation doesn't equal causation - that article doesn't speak to motives for giving other than in speculative terms. You could just as easily ascribe those low charity levels to the fact that those with large sums of money directly or indirectly pay a good portion of cash into government by way of tax, and expect the government to take care of charitable activity for them?

Isn't the more true measure of charity going to be where you don't have a social safety net around and you rely on private donations to provide a (sort of) net? I don't have research around this, I'm just wondering if the numbers for this scenario are around anywhere.

 

A lot depends on how you want to look at the numbers.

For example, this page shows how charitable giving breaks down by region of the country. They also show what happens when you remove religious charitable giving from the equation. A similar breakdown is given by state, with comparisons to the 2008 election.

Now, I don't think it's fair to ignore religious charitable donations, because many aid organizations are religious in nature. For example, a portion of my charitable contributions last year were through donations to the Salvation Army, which is a religious charity. Are those donations less helpful than if I instead donated the items to Goodwill Industries (which started as a religious charity, but has become more secular)?

Similarly, I have provided a significant amount of assistance to a local organization meant to show our local "Christian Community in Action", in a variety of ways (including delivering donated furniture, providing meals for the homeless or donating to a food bank, or the activity we have coming up next month to perform repairs on several houses in the area). Are those donations less worthy because they went through a religious organization?