Property

[spidermantx]

So I don't think anyone should start out life with more then anyone else. So I think the government should take away everyone's money and redistribute it evenly.

[psikeyhackr]

Money and wealth are two different things and a government with that much power would present some difficult management problems.

In fact I think we have a government presenting us with difficult management problems already.

psik

[spidermantx]

Money and wealth are two different things and a government with that much power would present some difficult management problems.

In fact I think we have a government presenting us with difficult management problems already.

psik

Yea, but if you cannot stop them, might as well join them.

I mean really, what is a government, with near limitless powers, run by the majority going to do? Clamor for more and more redistribution of wealth. Because as the government redistributes wealth, it creates more jobless people. Which means more poor. And what do the poor want? More money. And, if they have the power to do it, what will they do? Take it by force.

[Bonniedundee]

I mean really, what is a government, with near limitless powers, run by the majority going to do?Show me a government like this? Few governments in history has been actually run by the majority, they are almost always run by an elite ruling class even if they have a certain popular input like ours.

Almost all governments do the exact opposite of what you say, they violate property to redistribute wealth upwards.

[spidermantx]

I mean really, what is a government, with near limitless powers, run by the majority going to do?Show me a government like this? Few governments in history has been actually run by the majority, they are almost always run by an elite ruling class even if they have a certain popular input like ours.

Almost all governments do the exact opposite of what you say, they violate property to redistribute wealth upwards.

Well, of course that will be the end result. The same thing will happen to the U.S. that happened to Rome. Eventually, we will get a dictator. Like I said, big government just results in more poverty.

[coloradoatheist]

If you want to cause a civil war it's a good start.

Mike

[spidermantx]

If you want to cause a civil war it's a good start.

Mike

Well, we are already doing it. Social healthcare will be the next step.

[coloradoatheist]

If you want to cause a civil war it's a good start.

Mike

Well, we are already doing it. Social healthcare will be the next step.

While I don't agree with socialized health care it's not going to cause civil war.


Mike

[Loren Pechtel]

So I don't think anyone should start out life with more then anyone else. So I think the government should take away everyone's money and redistribute it evenly.

One of the biggest differences is the quality of parenting. You're going to make every kid raised by the state??

Anyway, your proposal will wipe out the capital society needs to function. We'll be knocked back to third-world status.

[Trout]

So I don't think anyone should start out life with more then anyone else. So I think the government should take away everyone's money and redistribute it evenly.

I'd temper that proposal.

Allow everyone to keep very large amounts of assets to be passed on, etc but the ultra wealthy should not be allowed to pass on mega dollars beyond a certain point as it causes (in part) massive power continuance trends which are unhealthy for us all.

Wealth lost past that magic number X could be placed into free educational programs for example, for the kids smart and driven enough to make the grade and the remainder placed into a continuous government managed interest free loan based bank for young businessfolk.

That way the money actually benefits far more people, opportunities are much more even, power stays away from near intergenerational monarchies and for the vast majority (maybe 90%+) of the population, the incentives to manage household money, etc is still there and your kids still benefits from it.

But, doing this would require ripping apart the system and the people that run it would never allow that. There are also quite a few odd people making nothing comparably that also oppose it :D

[laughing dog]

Like I said, big government just results in more poverty. You got evidence that larger gov't causes more poverty?

[James Madison]

So I don't think anyone should start out life with more then anyone else. So I think the government should take away everyone's money and redistribute it evenly.


This is an interesting suggestion. I see you want people to start out life on equal footing but the result will be a constant redistribution of the money, wealth, assets, etcetera with accumulation of each, for any prolonged period of time, nearly impossible.

[laughing dog]

So I don't think anyone should start out life with more then anyone else. So I think the government should take away everyone's money and redistribute it evenly. Have you ever read Rawl's Theory of Justice ? It is an attempt to deal this issue without the necessary requirement of equal distribution.

[Gamera]

I'd temper that proposal.

Allow everyone to keep very large amounts of assets to be passed on, etc but the ultra wealthy should not be allowed to pass on mega dollars beyond a certain point as it causes (in part) massive power continuance trends which are unhealthy for us all.


Exactly. It is important not to allow superwealthy people, because they dominate society through capital, subverting democratic self-governance. The superwealtlhy are the biggest threat to real democracy.

So I would add, that in addition to preventing dynasties, we should raise the tax rate on the top 1% (after creating a more rational top bracket, say with a $1 million and up definition), to Eisenhower levels (i.e., 90%). Billionaires are not affected by tax rates. They are not waiting around for a tax break to invest or consume. They make more money on interest in a month than most people in the world make in their entire lifes. So we can tax that bracket freely without affecting their economic behavior, and use those funds to capitalize the lower brackets, resulting in more saving, more investments and more consumption -- i.e., more economic growth.

[YHWH666]

So I don't think anyone should start out life with more then anyone else. So I think the government should take away everyone's money and redistribute it evenly.

Here we have an example of black propaganda, (http://en.wikipedia.org/wiki/Black_propaganda) although, its not a particularly good one. You could try and be a little bit more subtle. The people you are trying to misrepresent (socialists?) don't actually think that way or advocate that.

Black propaganda is propaganda that purports to be from a source on one side of a conflict, but is actually from the opposing side. It is typically used to vilify, embarrass or misrepresent the enemy. It contrasts with grey propaganda, the source of which is not identified, and white propaganda, in which the real source is declared. The term is also sometimes used as a synonym for particularly malicious wartime propaganda or falsification of information that is captured by an enemy.

Black propaganda may also be used on one's own side, generated by altering genuine enemy propaganda in such a way as to distort its message. This is a particularly powerful tool if the target audience has a poor understanding of the language of the enemy, and is often used to insult the intended recipients, leading to a rallying effect.

[chapka]

I'd temper that proposal.

Allow everyone to keep very large amounts of assets to be passed on, etc but the ultra wealthy should not be allowed to pass on mega dollars beyond a certain point as it causes (in part) massive power continuance trends which are unhealthy for us all.

Wealth lost past that magic number X could be placed into free educational programs for example, for the kids smart and driven enough to make the grade and the remainder placed into a continuous government managed interest free loan based bank for young businessfolk.

[snip]

But, doing this would require ripping apart the system and the people that run it would never allow that.

Huh? This is basically the system we did have up until 2000. When a rich person died, the government took (roughly speaking) a little over half of that proportion of their estate that was over a certain large amount ($650,000.00 in 2001). This money was used to support programs such as Head Start and school lunches.

Then the Republican congress and President Bush branded the estate tax as the "death tax," convinced everyone (falsely) that it was going to destroy all small businesses, and got it slowly repealed. It's scheduled to be eliminated completely in 2010, then pop back up in 2011, which will make it a perfect time bomb for the Republicans to use in the lead-up to the 2012 elections. The same Congress also cut funding for many of the social programs that make up the other side of your proposal.

So in other words, what you want to do is restore the system we had in 2000, but increase the top marginal estate tax rates.

[Nice Squirrel]

Here we have an example of black propaganda, (http://en.wikipedia.org/wiki/Black_propaganda) although, its not a particularly good one. You could try and be a little bit more subtle. The people you are trying to misrepresent (socialists?) don't actually think that way or advocate that.

Thank you. I have learned a few things today.

[B.S. Lewis]

If you want to cause a civil war it's a good start.

Mike

Lol. What would be the cutoff that decided which side people were on - 50th percentile of wealth? I can just see everyone breaking out their tax returns and trying to calculate whether they should be wearing blue or gray.

[worldwide]

So I don't think anyone should start out life with more then anyone else. So I think the government should take away everyone's money and redistribute it evenly.

One of the biggest differences is the quality of parenting. You're going to make every kid raised by the state??

Anyway, your proposal will wipe out the capital society needs to function. We'll be knocked back to third-world status.

capatalism will knock us back to third world status too. at least if we don't start regulating it more than it is now. as the trend continues and as the wealth becomes more and more concentrated the system will collapse and those with the wealth will flee to china or someother place where there are still consumers

however while i agree with an estate tax i think the OP is a bad idea

[Loren Pechtel]

So I would add, that in addition to preventing dynasties, we should raise the tax rate on the top 1% (after creating a more rational top bracket, say with a $1 million and up definition), to Eisenhower levels (i.e., 90%). Billionaires are not affected by tax rates. They are not waiting around for a tax break to invest or consume. They make more money on interest in a month than most people in the world make in their entire lifes. So we can tax that bracket freely without affecting their economic behavior, and use those funds to capitalize the lower brackets, resulting in more saving, more investments and more consumption -- i.e., more economic growth.

In other words, convert a lot of capital to consumer spending. Lower the standard of living of the nation.

[Nitrousoxide]

You know what's funny? When you start taxing the top income brackets so much that the total amount that ends up in their pockets is LESS than lower income brackets, it destroys the desire for people to try to accumulate wealth.

Why should a person invest so much that he earns 1 million back a year when he only gets to keep 10% of that (or 100 thousand).

That obliterates the urge to invest and create capital.

[spidermantx]

One of the biggest differences is the quality of parenting. You're going to make every kid raised by the state??

Anyway, your proposal will wipe out the capital society needs to function. We'll be knocked back to third-world status.

capatalism will knock us back to third world status too. at least if we don't start regulating it more than it is now. as the trend continues and as the wealth becomes more and more concentrated the system will collapse and those with the wealth will flee to china or someother place where there are still consumers

however while i agree with an estate tax i think the OP is a bad idea


Yea, because regulations are great!
http://www.freeliberal.com/archives/001016.html
http://www.heritage.org/Research/Regulation/HL422.cfm
http://www.econlib.org/library/Enc/UnintendedConsequences.html
http://www.econlib.org/library/Columns/y2007/Whitmanincentives.html

[Gamera]

So I would add, that in addition to preventing dynasties, we should raise the tax rate on the top 1% (after creating a more rational top bracket, say with a $1 million and up definition), to Eisenhower levels (i.e., 90%). Billionaires are not affected by tax rates. They are not waiting around for a tax break to invest or consume. They make more money on interest in a month than most people in the world make in their entire lifes. So we can tax that bracket freely without affecting their economic behavior, and use those funds to capitalize the lower brackets, resulting in more saving, more investments and more consumption -- i.e., more economic growth.

In other words, convert a lot of capital to consumer spending. Lower the standard of living of the nation.

So your assumption is poor people don't ever save capital and start businesses? A rather absurd and false premise.

It's hilarious how the market fundis despise small business people, despite all their promarket verbiage.

[Loren Pechtel]

In other words, convert a lot of capital to consumer spending. Lower the standard of living of the nation.

So your assumption is poor people don't ever save capital and start businesses? A rather absurd and false premise.

It's hilarious how the market fundis despise small business people, despite all their promarket verbiage.

Sure they save *SOME*.

However, most poor and middle class people spend most of what they make. Few start businesses.

The people at the very top, however, save most of what they make.

Does it not follow that the savings level will drop if you move the money from the rich to the poor and middle class????

[laughing dog]

You know what's funny? When you start taxing the top income brackets so much that the total amount that ends up in their pockets is LESS than lower income brackets, it destroys the desire for people to try to accumulate wealth.

Why should a person invest so much that he earns 1 million back a year when he only gets to keep 10% of that (or 100 thousand).

That obliterates the urge to invest and create capital.
Funny how it don't really retard US growth in the 50s and 60s.

[Stinger]

You know what's funny? When you start taxing the top income brackets so much that the total amount that ends up in their pockets is LESS than lower income brackets, it destroys the desire for people to try to accumulate wealth.

Why should a person invest so much that he earns 1 million back a year when he only gets to keep 10% of that (or 100 thousand).

That obliterates the urge to invest and create capital. Of course. Anyone with any capital and means will simply move to another country that values job creation and economic development. And the US economy would soon resemble that of Cuba.

[Nitrousoxide]

Funny how it don't really retard US growth in the 50s and 60s.

The supposed mechanism that Eisenhower was using for growing the economy was actually not the tax rates *per say* but that a budget surplus increases the savings rate. Raising tax rates on the rich was just a way to achieve those budget surpluses.

We actually have instances where the central government goes from a deficit to a surplus, and we find no substantial increase in savings. From 1981 to 1989 we had a budget deficit, but from 1998 to 2001, we had a budget surplus.

However, the savings rate you would expect to find given this mechanisms that Eisenhower was assuming did not appear, in fact they were slightly reversed, with the period from 1981 to 1989 having a 18.2 savings rate, while the period from 1998 to 2001 had a savings rate of only 18. One of the main reasons is that while forced savings increases as a result of the high taxes, voluntary savings decreases by a similar amount. The people cannot save what they do not have after all. The net result is either no gain in savings, or slightly less thanks to government inefficiencies.

The economy managed to succeed DESPITE the high tax rates that Eisenhower imposed, not BECAUSE of them.

http://www.cato.org/pubs/pas/pa517.pdf

Here's a small entry on it in Wikipedia.
http://en.wikipedia.org/wiki/Golden_Rule_savings_rate

[coloradoatheist]

While useful Nitrous he was asking about people moving or hiding their money. I'll have to investigate a) what actual tax rates were then. because marginal rates don't mean as much unless it includes what's taxed. b) when tax shelters started becoming the norm.

Countries that have had high tax rates have experienced brain drains. France was reported to lose a millionaire a day.

Mike

[Loren Pechtel]

You know what's funny? When you start taxing the top income brackets so much that the total amount that ends up in their pockets is LESS than lower income brackets, it destroys the desire for people to try to accumulate wealth.

Why should a person invest so much that he earns 1 million back a year when he only gets to keep 10% of that (or 100 thousand).

That obliterates the urge to invest and create capital.
Funny how it don't really retard US growth in the 50s and 60s.

Funny how there wasn't really such a rate back then to say that it didn't retard growth.

It was a book rate that was rarely paid due to loopholes.

[laughing dog]

It was a book rate that was rarely paid due to loopholes. The effective rates were lower than the statuatory ones, but they still were high relative to the 1970s on. And guess what, they did not retard growth.

[laughing dog]

The economy managed to succeed DESPITE the high tax rates that Eisenhower imposed, not BECAUSE of them. Thank you for agreeing that high tax rates do not necessarily retard growth.

[Nitrousoxide]

The economy managed to succeed DESPITE the high tax rates that Eisenhower imposed, not BECAUSE of them. Thank you for agreeing that high tax rates do not necessarily retard growth.



I never said that. Success despite something is entirely consistant with that something hampering it none-the-less.

[laughing dog]

Thank you for agreeing that high tax rates do not necessarily retard growth.



I never said that. Success despite something is entirely consistant with that something hampering it none-the-less. It is also consistent with that not hampering it. So, I guess your evidence didn't show very much. The reality is that economic research cannot show much of a link between tax rates and saving behavior. In fact, one of the great puzzles in applied economic policy is the inability to stimulate saving via the tax code or other gov't policies.

[Nitrousoxide]

Taxing actually does reduce saving of a certain type, voluntary saving. I explained that in my post.

Still though, if one is aiming at using taxes to increase saving, one would be unjustified in raising taxes then.

[laughing dog]

Taxing actually does reduce saving of a certain type, voluntary saving. I explained that in my post.. No, you asserted in your post. Theoretically, a tax on saving could reduce it (via the substitution effect) or increase saving (via the income effect). Studies on effect of taxation on saving do not agree on the empirical effects - implying that whatever the effect, it has been historically very small.


Still though, if one is aiming at using taxes to increase saving, one would be unjustified in raising taxes then. That is simply untrue. If taxes were increased, and private saving fell by less than public saving rose, overall saving would rise. Sorry, but it is just not true that increases in taxes necessarily reduces overall saving.

[Nitrousoxide]

But we actually do see a marginal decrease in savings as a result of a government surplus. The Cato paper provided some examples from the US, Great Britain, Japan, and Australia. So it must be that the substitution effect and government inefficiency are lowering overall savings.


It could, theoretically, increase savings, but only if you just reallocate those taxed dollars to another group that would invest more of that money that the original group would have. You're not going to get that increase if the government doesn't add it into it's expenditures like that though.

Even so, what income group saves more than the rich? None. So neither will you get an increase by reallocating that money, nor will the government force savings by just raising taxes without raising expenditures (in a reallocation project).

So, unless you have some bizarre society where lower income earners save MORE than higher income earners, you're not going to get a net increase in the overall saving rate by raising taxes on the rich. You'll lower that rate by a marginal sum.

[laughing dog]

But we actually do see a marginal decrease in savings as a result of a government surplus. The Cato paper provided some examples from the US, Great Britain, Japan, and Australia. So it must be that the substitution effect and government inefficiency are lowering overall savings. Some examples are not sufficient proof. In the economics professsion, the debate is not even close to being considered over.


It could, theoretically, increase savings, but only if you just reallocate those taxed dollars to another group that would invest more of that money that the original group would have. You're not going to get that increase if the government doesn't add it into it's expenditures like that though. Not true. If taxing saving reduces personal saving by 8 billion, but gov't saving increases by 10 billion, then the overall net saving rose. That is one possibility.

It is also possible that an increased in taxes stimulates saving via the income effect, so that personal saving actually rises.

Those are just two possibilities. The point is that there is sufficient slippage and difficulty in tracing the precise effects so that applied research has not been able to put the question to rest. It is still an article of faith that a reduction in taxes stimulates private saving.

[Nitrousoxide]

The point of the examples is that theory aside, there isn't actually a history of raising taxes increasing savings, in fact, the opposite seems to happen. How it happens, is somewhat of a mystery, and whether under specific conditions it might raise savings is also a mystery, but if past indication is any gauge of future performance, we would expect to see similar results should we enact similar policies in the future.

Just to make sure, by the income effect, you mean that the money raised by the taxes will be given to other individuals (by perhaps paying off government debts, or straight up government allocation programs), thus acting as income right? You're not saying that the money taken is simply stored in the government's coffers correct? I'm just not entirely sure who you mean is getting the income.

[laughing dog]

The point of the examples is that theory aside, there isn't actually a history of raising taxes increasing savings, in fact, the opposite seems to happen. No, the history is that there is not a consistent effect.

T
Just to make sure, by the income effect, you mean that the money raised by the taxes will be given to other individuals (by perhaps paying off government debts, or straight up government allocation programs), thus acting as income right? You're not saying that the money taken is simply stored in the government's coffers correct? I'm just not entirely sure who you mean is getting the income. I am referring to the microeconomic theoretical effects of any price change: the income and the substitution effects. A tax on savings has two effects on a saver. The tax reduces the return on saving, which makes current consumption cheaper (since one is foregoing less future consumption). This causes more current consumption and less saving (the substitution effect). However, at the same time, the tax on savings reduces future income, so more saving is required to meet any specific future income goal (the income effect). Both effects work on all households, and which effect dominates can vary, depending on preferences.

As a result, there is nothing in economic theory that indicates that an increase of a tax on saving necessarily causes a reduction in personal saving or necessarily causes an increase in personal saving.

[coloradoatheist]

While this has been interesting, there's also a problem calculating savings rates. Instead of calculating savings, net worth would be a better calculator because tax policies definitely effect the things that effect net worth more than savings. An example I can think off the top of my hand was Reagan's tax policy changes on investment property in 83 where tax losses were reduced which caused a drop in property values.


Mike

[chapka]

You know what's funny? When you start taxing the top income brackets so much that the total amount that ends up in their pockets is LESS than lower income brackets, it destroys the desire for people to try to accumulate wealth.

How exactly would that happen? In the current U.S. system, there is no way that someone with a higher income before taxes can end up with a lower income after taxes, because taxes are assessed in brackets.

Why should a person invest so much that he earns 1 million back a year when he only gets to keep 10% of that (or 100 thousand).

Because he gets A HUNDRED THOUSAND DOLLARS. Duh! If you don't want a hundred thousand dollars a year, I'll take it. If the option is keeping the money under the mattress and earning no return, the incentive to get a hundred thousand dollars a year instead is obvious.

Here's a pop quiz: do you have a checking account and a savings account? How much interest did you earn on your savings account last year? I'm betting it was less than $100,000.00. But I'm also betting that you, like most people, keep some money in your savings account because you know that it pays better interest than your checking account. If so many Americans are willing to do that for $50 a year or less in bank interest, why is it incredible that they'd do so for $100,000 in investment interest?

[Nitrousoxide]

You know what's funny? When you start taxing the top income brackets so much that the total amount that ends up in their pockets is LESS than lower income brackets, it destroys the desire for people to try to accumulate wealth.

How exactly would that happen? In the current U.S. system, there is no way that someone with a higher income before taxes can end up with a lower income after taxes, because taxes are assessed in brackets.

It's not too hard to do even now, that system just makes it even worse as it could take you down by several tax brackets, depending on the rates of those lower ones. Suppose the one end limit on a bracket is at 100,000 dollars. If you earn 99,999 dollars, you'll be on a lower income bracket and might have a rate of say 25% for the ease of calculation. That's roughly 75 thousand you get to keep.

If, instead, you earn 100,000, you would be in another tax bracket. We'll say that this one has a tax rate of 30%, a mere increase of 5%. In this case, you get to keep exactly 70,000 dollars of your income.

By making one more dollar in income, you've actually LOST some 5,000 dollars of worth.

The higher the difference in tax rates between brackets, the futher into that next tax bracket you have to go before your actually better off and not worse off. In fact in that example you would need to earn about 107 thousand to just match the amount you get to take home at 99 thousand. That whole range of 7 thousand there is where a raise is actually a pay cut.

Super high tax rates on those in the plus million range make investing in those big projects far less appealing. Especially if they will actually be getting back LESS than if they invested less and were in a lower tax bracket. That discourages the accumulation of the capital needed for starting up either new buisnesses or new sectors of an existing buisness.


Why should a person invest so much that he earns 1 million back a year when he only gets to keep 10% of that (or 100 thousand).

Because he gets A HUNDRED THOUSAND DOLLARS. Duh! If you don't want a hundred thousand dollars a year, I'll take it. If the option is keeping the money under the mattress and earning no return, the incentive to get a hundred thousand dollars a year instead is obvious.

Here's a pop quiz: do you have a checking account and a savings account? How much interest did you earn on your savings account last year? I'm betting it was less than $100,000.00. But I'm also betting that you, like most people, keep some money in your savings account because you know that it pays better interest than your checking account. If so many Americans are willing to do that for $50 a year or less in bank interest, why is it incredible that they'd do so for $100,000 in investment interest?

You comparison is a false one. The effort needed to switch your funds from your savings account to your checking account is marginal. It takes all of a minute, so your income per hour from doing so is actually quite high.

Investing 1,000,000 dollars does not take a negligable amount of your time, and the lower you force the returns on that investment, the more appealing other uses of that time are. In fact, if you're getting some 10% of the non-taxed return on your investment, your in danger of entering the range where it's not worth the person's while to actually spend the time managing that investment. They might well decide to give up on the investement entirely and simply work as a wage earner which actually hurts the prospects for the creation of new capital.

[Gamera]

So your assumption is poor people don't ever save capital and start businesses? A rather absurd and false premise.

It's hilarious how the market fundis despise small business people, despite all their promarket verbiage.

Sure they save *SOME*.

However, most poor and middle class people spend most of what they make. Few start businesses.

The people at the very top, however, save most of what they make.

Does it not follow that the savings level will drop if you move the money from the rich to the poor and middle class????


Another factually false statement that is the premise of the cheap labor conservative corporate fetish. About half of all jobs in the US come from small mom and pop businesses, started by moms and pops.

As to the top 1% saving most of their income, while the poor don't, the tautology is hilarious. They rich "save" because the literally can't spend all their income. The poor need their income to get pay. Cycle captial to the poor (in terms of higher taxes on the rich, and more government services to the lower brackets) and the lower brackets will have more income, and hence be able to save.

I almost think your parodying market fundamentalism, your cliam is so absurd.

[Gamera]

You know what's funny? When you start taxing the top income brackets so much that the total amount that ends up in their pockets is LESS than lower income brackets, it destroys the desire for people to try to accumulate wealth.

Why should a person invest so much that he earns 1 million back a year when he only gets to keep 10% of that (or 100 thousand).

That obliterates the urge to invest and create capital.

Yes, there are a lot of people out there who think, I'd love to become a billionaire, but it isn't worth given the progressive tax rate.

This is the kind of absurdity and incoherence the market fundis are reduced to.

By the way, do you have any imperical evidence that anybody ever avoided becoming a millionaire because they didn't like the marginal rate?

Any evidence whatsoever?

(by the way, since 40% or so of the superwealthy inherit their wealth, your whole premise is nonsense at least 40% of the time)

[Gamera]

Taxing actually does reduce saving of a certain type, voluntary saving. I explained that in my post.

Still though, if one is aiming at using taxes to increase saving, one would be unjustified in raising taxes then.

Explain to us how in increase in the tax rate applied to multimillionaires will retard their savings rate?

Are you really claiming that billionaires worry about putting away money for a rainy day, and if you raise taxes they "spend" their vast income instead.

Here, I'll help you. Let's say the rate on Bilil Gates income is raised to 70% as in the good old days of that socialists Kennedy). Gates gets $50M in interest income. Explain to us how the higher rate will affect what he does with his income.

[Gamera]

But we actually do see a marginal decrease in savings as a result of a government surplus.

This is false. A marginal decrease in capital gains taxes results in increased revenues, due to a one time readjustment of portfolios (mostly by the wealthy, who have portfolios) to lock in the lower rate.

After that revenues fall off and the government is in a worse position.

It's the trick both Reagan and Bush2 used to claim the lowering taxes results in higher revenues. In the short run, yes. In the long run, no.

[Nitrousoxide]

Yes, there are a lot of people out there who think, I'd love to become a billionaire, but it isn't worth given the progressive tax rate.

This is the kind of absurdity and incoherence the market fundis are reduced to.

By the way, do you have any imperical evidence that anybody ever avoided becoming a millionaire because they didn't like the marginal rate?

Any evidence whatsoever?

(by the way, since 40% or so of the superwealthy inherit their wealth, your whole premise is nonsense at least 40% of the time)


Perhaps you missed my last post. I'll give a real world example to help things out.

For singles
The tax bracket of 25% is from 31,851-77,100 dollars.
the tax bracket of 28% is from 77,101-160,850 dollars.
If you earned 77,100 dollars on the last year, you would get back 57,825 dollars after taxes.

If you got a raise of 1 dollar, you would suddenly be getting back 55,512.72 dollars instead. A decrease of 2312.28 dollars. If you got a raise of 2,000 dollars, you would still be earning less than you did before you entered the new tax bracket. You would actually need to earn 80,312.50 before you've just matched the amount you took home on the salary in the lower income bracket. That whole space from 77,101 to 80,312.50 all results in a pay cut rather than a pay raise.

The bigger the gap between one the tax rate on one bracket and the next, the larger that space where you actually earn less than in a lower tax bracket is.

Having a tax rate of 90% at 1 million would make earning something like 400,000 dollars return more to you after taxes (depending on how exactly the system is setup).

You'll kill any sort of large investments. Any thing which requires a great amount up front, but which returns a great deal ( like for instance, a refinery for oil) will find that they return less for the investers than say opening a burger king. So you will get NO new refinerys opening.

Power plants, factories, anything big and expensive to start up will become less profitable than smaller prospects.

But this destroys heavy industry.

[chapka]

How exactly would that happen? In the current U.S. system, there is no way that someone with a higher income before taxes can end up with a lower income after taxes, because taxes are assessed in brackets.

It's not too hard to do even now, that system just makes it even worse as it could take you down by several tax brackets, depending on the rates of those lower ones. Suppose the one end limit on a bracket is at 100,000 dollars. If you earn 99,999 dollars, you'll be on a lower income bracket and might have a rate of say 25% for the ease of calculation. That's roughly 75 thousand you get to keep.

If, instead, you earn 100,000, you would be in another tax bracket. We'll say that this one has a tax rate of 30%, a mere increase of 5%. In this case, you get to keep exactly 70,000 dollars of your income.

By making one more dollar in income, you've actually LOST some 5,000 dollars of worth.

I don't know what tax system you're talking about, but it's not the U.S. tax system. That's simply not how it works.

Let's take your simple example of two tax brackets:

0-99,999: 25%
100,000+: 30%

In this case, if you made $99,999, you'd pay about $25,000, as you correctly point out, since all of your income is in the lower tax bracket. To be precise, you'd pay $24,999.75.

If you made one more dollar in income, you'd be bumped up into the next tax bracket. But all this means is that you pay at a higher rate at the marginal income in the new tax bracket; the new rate doesn't apply to all of your income. In other words, you still pay $24,999.75 in taxes on the first $99,999 of income, since that income is taxed at the lower marginal rate. You have one dollar of income which is now taxed at the higher marginal rate, on which you pay 30% tax, or $0.30. Your total tax bill is not $30,000; it's $25,000.05. That's five cents higher than it would have been had all of your income been taxed at the lower marginal rate, but you still end up with more money than you did when you earned less.

If you think you get an actual "pay cut" when you move between brackets, then you have badly misunderstood the American income tax system. I sincerely hope that you don't do your own taxes. If you don't believe me, have a look at the 2006 IRS tax schedule (http://www.irs.gov/formspubs/article/0,,id=150856,00.html).

Because he gets A HUNDRED THOUSAND DOLLARS. Duh! If you don't want a hundred thousand dollars a year, I'll take it. If the option is keeping the money under the mattress and earning no return, the incentive to get a hundred thousand dollars a year instead is obvious.

Here's a pop quiz: do you have a checking account and a savings account? How much interest did you earn on your savings account last year? I'm betting it was less than $100,000.00. But I'm also betting that you, like most people, keep some money in your savings account because you know that it pays better interest than your checking account. If so many Americans are willing to do that for $50 a year or less in bank interest, why is it incredible that they'd do so for $100,000 in investment interest?

You comparison is a false one. The effort needed to switch your funds from your savings account to your checking account is marginal. It takes all of a minute, so your income per hour from doing so is actually quite high.

Investing 1,000,000 dollars does not take a negligable amount of your time, and the lower you force the returns on that investment, the more appealing other uses of that time are.

Investing $1,000,000 can be done almost as quickly as opening a savings account. Mutual funds and CDs don't take all that much active management. And even if you have more complex investments, if you're investing at that level, for a few percent of whatever you would otherwise earn you can have a professional manage it for you. In fact, if you're investing at that level, it's probably a good idea to have a professional manage it for you anyway.

And if you don't invest it, what exactly do you think your other options are? Again, I just don't see millionaires choosing to stuff their mattresses with money.

In fact, if you're getting some 10% of the non-taxed return on your investment, your in danger of entering the range where it's not worth the person's while to actually spend the time managing that investment. They might well decide to give up on the investement entirely and simply work as a wage earner which actually hurts the prospects for the creation of new capital.

Are you seriously suggesting that managing an investment portfolio is more work than a 40-hour-a-week job? That people are going to just stuff that money back in the mattress and go out and flip burgers for a living instead because having all of that money in the stock market is just too much trouble?

If you're saying that lower effective returns might prompt people to choose lower-yield investments which are easier to manage, I might listen to you. Sure, if the upside is that much less, then someone might be tempted to go with a mutual fund instead of starting a small business that they run themselves. But the money is still being invested. The idea that it's going to be taken out of the economy - that they're going to withdraw it from the bank and hold it as cash - is just silly.

[Gamera]

Yes, there are a lot of people out there who think, I'd love to become a billionaire, but it isn't worth given the progressive tax rate.

This is the kind of absurdity and incoherence the market fundis are reduced to.

By the way, do you have any imperical evidence that anybody ever avoided becoming a millionaire because they didn't like the marginal rate?

Any evidence whatsoever?

(by the way, since 40% or so of the superwealthy inherit their wealth, your whole premise is nonsense at least 40% of the time)


Perhaps you missed my last post. I'll give a real world example to help things out.

For singles
The tax bracket of 25% is from 31,851-77,100 dollars.
the tax bracket of 28% is from 77,101-160,850 dollars.
If you earned 77,100 dollars on the last year, you would get back 57,825 dollars after taxes.

If you got a raise of 1 dollar, you would suddenly be getting back 55,512.72 dollars instead. A decrease of 2312.28 dollars. If you got a raise of 2,000 dollars, you would still be earning less than you did before you entered the new tax bracket. You would actually need to earn 80,312.50 before you've just matched the amount you took home on the salary in the lower income bracket. That whole space from 77,101 to 80,312.50 all results in a pay cut rather than a pay raise.

The bigger the gap between one the tax rate on one bracket and the next, the larger that space where you actually earn less than in a lower tax bracket is.

Having a tax rate of 90% at 1 million would make earning something like 400,000 dollars return more to you after taxes (depending on how exactly the system is setup).

You'll kill any sort of large investments. Any thing which requires a great amount up front, but which returns a great deal ( like for instance, a refinery for oil) will find that they return less for the investers than say opening a burger king. So you will get NO new refinerys opening.

Power plants, factories, anything big and expensive to start up will become less profitable than smaller prospects.

But this destroys heavy industry.

You don't understand marginal rates, do you?

It ALWAYS pays to make more money, and you ALWAYS take home more income by making more money, even if you wind up in a higher bracket (unless the tax on the next higher margin is 100% which it isn't). The ONLY dollars that are taxed at the higher rate are the dollars in the higher bracket. Bill Gates pays the same rate as his janitor on the first $15K he makes (leaving aside AMT).

Honestly, you are utterly ignorant of how our marginal system works. Amazing.

[Gamera]

It's not too hard to do even now, that system just makes it even worse as it could take you down by several tax brackets, depending on the rates of those lower ones. Suppose the one end limit on a bracket is at 100,000 dollars. If you earn 99,999 dollars, you'll be on a lower income bracket and might have a rate of say 25% for the ease of calculation. That's roughly 75 thousand you get to keep.

If, instead, you earn 100,000, you would be in another tax bracket. We'll say that this one has a tax rate of 30%, a mere increase of 5%. In this case, you get to keep exactly 70,000 dollars of your income.

By making one more dollar in income, you've actually LOST some 5,000 dollars of worth.

I don't know what tax system you're talking about, but it's not the U.S. tax system. That's simply not how it works.

Let's take your simple example of two tax brackets:

0-99,999: 25%
100,000+: 30%

In this case, if you made $99,999, you'd pay about $25,000, as you correctly point out, since all of your income is in the lower tax bracket. To be precise, you'd pay $24,999.75.

If you made one more dollar in income, you'd be bumped up into the next tax bracket. But all this means is that you pay at a higher rate at the marginal income in the new tax bracket; the new rate doesn't apply to all of your income. In other words, you still pay $24,999.75 in taxes on the first $99,999 of income, since that income is taxed at the lower marginal rate. You have one dollar of income which is now taxed at the higher marginal rate, on which you pay 30% tax, or $0.30. Your total tax bill is not $30,000; it's $25,000.05. That's five cents higher than it would have been had all of your income been taxed at the lower marginal rate, but you still end up with more money than you did when you earned less.

If you think you get an actual "pay cut" when you move between brackets, then you have badly misunderstood the American income tax system. I sincerely hope that you don't do your own taxes. If you don't believe me, have a look at the 2006 IRS tax schedule (http://www.irs.gov/formspubs/article/0,,id=150856,00.html).



Investing $1,000,000 can be done almost as quickly as opening a savings account. Mutual funds and CDs don't take all that much active management. And even if you have more complex investments, if you're investing at that level, for a few percent of whatever you would otherwise earn you can have a professional manage it for you. In fact, if you're investing at that level, it's probably a good idea to have a professional manage it for you anyway.

And if you don't invest it, what exactly do you think your other options are? Again, I just don't see millionaires choosing to stuff their mattresses with money.

In fact, if you're getting some 10% of the non-taxed return on your investment, your in danger of entering the range where it's not worth the person's while to actually spend the time managing that investment. They might well decide to give up on the investement entirely and simply work as a wage earner which actually hurts the prospects for the creation of new capital.

Are you seriously suggesting that managing an investment portfolio is more work than a 40-hour-a-week job? That people are going to just stuff that money back in the mattress and go out and flip burgers for a living instead because having all of that money in the stock market is just too much trouble?

If you're saying that lower effective returns might prompt people to choose lower-yield investments which are easier to manage, I might listen to you. Sure, if the upside is that much less, then someone might be tempted to go with a mutual fund instead of starting a small business that they run themselves. But the money is still being invested. The idea that it's going to be taken out of the economy - that they're going to withdraw it from the bank and hold it as cash - is just silly.

Nitros is utterly ignorant of how the marginal system works. It amazing how market fundis are so completely ignorant of how our tax system works. I'm appalled.

[chapka]

Yes, there are a lot of people out there who think, I'd love to become a billionaire, but it isn't worth given the progressive tax rate.

This is the kind of absurdity and incoherence the market fundis are reduced to.

By the way, do you have any imperical evidence that anybody ever avoided becoming a millionaire because they didn't like the marginal rate?

Any evidence whatsoever?

(by the way, since 40% or so of the superwealthy inherit their wealth, your whole premise is nonsense at least 40% of the time)


Perhaps you missed my last post. I'll give a real world example to help things out.

For singles
The tax bracket of 25% is from 31,851-77,100 dollars.
the tax bracket of 28% is from 77,101-160,850 dollars.
If you earned 77,100 dollars on the last year, you would get back 57,825 dollars after taxes.

Once again, you have completely misunderstood the way marginal tax rates operate. Again, according to the IRS (I'm using 2007 numbers, since I that appears to be what you're using):

If taxable income is over $31,850, But not over $77,100, The tax is: $4,386.25 plus 25% of the amount over 31,850

In other words, you don't pay the marginal rate on all income; you pay the marginal rate on marginal income. In this case, on a taxable income of $77,100, your total tax bill is $15,698.75 and you keep $61,401.25. $15,698.75 is 25% of $45,250 (your marginal income between $31,850 and $77,100 plus $4,386.25, which represents your income below the margin being taxed at 10% and 15% in the lower two brackets).

If you got a raise of 1 dollar, you would suddenly be getting back 55,512.72 dollars instead. A decrease of 2312.28 dollars.

Again, let's see what the actual tax rates say:

If taxable income is over $77,100, But not over $160,850, The tax is: $15,698.75 plus 28% of the amount over $77,100

So for your hypothetical, you would pay a total tax of $15,698.75 plus 28% of that one dollar raise, for a total of $15,699.03. Your take-home income would be $61,401.97, which is higher than you were making before your raise. Not a decrease; an increase.

If you got a raise of 2,000 dollars, you would still be earning less than you did before you entered the new tax bracket.

Again, apply the formula. At $79,100, your tax bill is $16,258.25, and your take home pay is $62,841.25. You're making $1,400 more than you were before.

You would actually need to earn 80,312.50 before you've just matched the amount you took home on the salary in the lower income bracket.

Again; at $80,312.50, your tax bill is $16,598.25, and your take-home pay is $63,714.25. You haven't just matched your previous income; you're making $2,300 more in after-tax dollars on your $3,000 raise.

Having a tax rate of 90% at 1 million would make earning something like 400,000 dollars return more to you after taxes (depending on how exactly the system is setup).

Assume the current system, but with an extra top rate of 90% on income over $1 million.

$400,000 of taxable income means a tax bill of $119,074.25 and a take-home income of $280,925.75.

$1,000,000 of taxable income means a tax bill of $329,074.25 and a take-home income of $670,925.75.

$2,000,000 of taxable income means a tax bill of $1,229,074.25 and a take-home income of $770,925.75.

High marginal rates mean income grows more slowly, but it still always grows.

But this destroys heavy industry.

As long as it's worthwhile to put your money in the bank instead of the mattress, heavy industry will continue, because banks will continue to loan them money.

[Gamera]

[
In other words, you don't pay the marginal rate on all income; you pay the marginal rate on marginal income. .

It is absolutely appalling that Nitros doesn't understand this basic premise of the marginal rate system. But weirdly I know numerous market fundamentalists who suffer from this same ignorance of basic tax and accounting principals.

It's like fundis who call on a "flat tax", not realizing that if you tax gross income without deductions for costs, you've just put every single business in America into bankruptcy.

[chapka]

Here's my idea for a hybrid flat tax/progressive tax proposal:

Tax income at marginal rates, but only count deductions against the lowest marginal rate. Set the first marginal rate higher than the current rate (start at about 25%) and the income ceiling for that marginal rate higher (say $65,000). Make up for this with higher marginal rates (and an effectively lower value for deductions) at the low end, and a higher EITC at the low end.

For most people, this allows all of the efficiency benefits of a flat tax; it's easy to fill out your taxes, and withholding is predictable based on your standard deduction. But it still allows progressive taxation at the high end.

If you earn under $65,000 and don't itemize your deductions - in other words, if you're a 1040-EZ filer today - your taxes are practically done for you. Your employer withholds your exact tax amount based on your standard deduction, as do your bank and any other smaller income sources you might have.

If you itemize deductions, all you have to do is add up the value of your deductions, subtract the standard deduction, multiply the result by 25%, and request that amount as your refund.

If you make it into a higher bracket, all you have to do is pay the marginal tax on your income over that level. Your deductions are still paid at a 25% rate and don't vary with your income level. You can either get a refund for 25% of the amount of your deductions at the end of the year, or submit them to your employer's accounting department and have your withholding reduced by the same amount and a line item included on your W-2.

It may not seem like a huge change, but in practice, I think it will reduce the number of dependencies and make tax calculations (especially withholding) more predictable, allowing most people to file a return without sending or receiving a check.

[Nitrousoxide]

Whoops, I was terribly mistaken about marginal rates. I'll admit that.

Still though, if you raise taxes on the upper pay tiers, what effectively forms is a "soft cap" in how much you can earn. It isn't technically a hard cap in that it would be illegal or impossible to earn more, but what it does do is make every dollar and minute spent on investments return less and less to you. It can, if the rate is high enough, come to a point where it becomes not worth your while to increase your income after tax by 10,000 dollars because doing so would require an immense amount of work on your part.

[Gamera]

Whoops, I was terribly mistaken about marginal rates. I'll admit that.

Still though, if you raise taxes on the upper pay tiers, what effectively forms is a "soft cap" in how much you can earn. It isn't technically a hard cap in that it would be illegal or impossible to earn more, but what it does do is make every dollar and minute spent on investments return less and less to you. It can, if the rate is high enough, come to a point where it becomes not worth your while to increase your income after tax by 10,000 dollars because doing so would require an immense amount of work on your part.


Again, if you make more money, you're ALWAYS better off, unless the next higher bracket is 100%. It isn't.

Morever, moving to the top 1% is rarely the result of calculated effort, where you sit down and decide you whether it's worth the effort to move up a bracket given the marginally higher rate (which is currently barely progressive anyway).

40% of the richest Americans simply inherit their superwealth. You could tax them at 99% and they'd still be better off than if they didn't inherit the money. So a rate increase has NO impact on their economic acitivty.

As to the other 60%, they are usually involved in a business that "takes off" and begins making more and more proft at an accellated rate, far in excess of the labor they put into it. So I don't see any evidence of any person every deciding against making more money out of fear of a higher tax rate.

Like I say, do you have any evidence that a would-be billionaire decided to stop working because he was worried that by making billions of dollars he would have to pay higher income taxes. The claim is absurd on its face.

[Gamera]

Here's my idea for a hybrid flat tax/progressive tax proposal:

Tax income at marginal rates, but only count deductions against the lowest marginal rate. Set the first marginal rate higher than the current rate (start at about 25%) and the income ceiling for that marginal rate higher (say $65,000). Make up for this with higher marginal rates (and an effectively lower value for deductions) at the low end, and a higher EITC at the low end.

For most people, this allows all of the efficiency benefits of a flat tax; it's easy to fill out your taxes, and withholding is predictable based on your standard deduction. But it still allows progressive taxation at the high end.

If you earn under $65,000 and don't itemize your deductions - in other words, if you're a 1040-EZ filer today - your taxes are practically done for you. Your employer withholds your exact tax amount based on your standard deduction, as do your bank and any other smaller income sources you might have.

If you itemize deductions, all you have to do is add up the value of your deductions, subtract the standard deduction, multiply the result by 25%, and request that amount as your refund.

If you make it into a higher bracket, all you have to do is pay the marginal tax on your income over that level. Your deductions are still paid at a 25% rate and don't vary with your income level. You can either get a refund for 25% of the amount of your deductions at the end of the year, or submit them to your employer's accounting department and have your withholding reduced by the same amount and a line item included on your W-2.

It may not seem like a huge change, but in practice, I think it will reduce the number of dependencies and make tax calculations (especially withholding) more predictable, allowing most people to file a return without sending or receiving a check.


What problem are you trying to solve with a flat tax?

People who have W2 income have very little trouble fililng out a 1040. You take the W2 and deduct the allowable deductions. Then you look at the tax table. Takes 30 minutes.

Deductions are good things not bad things. I want more and more deductions, not less.

[laughing dog]

Investing 1,000,000 dollars does not take a negligable amount of your time, and the lower you force the returns on that investment, the more appealing other uses of that time are.
It can take no more effort than moving funds around accounts.

[Nitrousoxide]

Again, if you make more money, you're ALWAYS better off, unless the next higher bracket is 100%. It isn't.

Morever, moving to the top 1% is rarely the result of calculated effort, where you sit down and decide you whether it's worth the effort to move up a bracket given the marginally higher rate (which is currently barely progressive anyway).

40% of the richest Americans simply inherit their superwealth. You could tax them at 99% and they'd still be better off than if they didn't inherit the money. So a rate increase has NO impact on their economic acitivty.

As to the other 60%, they are usually involved in a business that "takes off" and begins making more and more proft at an accellated rate, far in excess of the labor they put into it. So I don't see any evidence of any person every deciding against making more money out of fear of a higher tax rate.

Like I say, do you have any evidence that a would-be billionaire decided to stop working because he was worried that by making billions of dollars he would have to pay higher income taxes. The claim is absurd on its face.


You're only looking at the problem from an accounting perspective, and ignoring the problem as a whole. A rational person needs to consider the amount of BENEFIT or UTILITY he obtains by any increase in income and examine that against the opportunity cost that he must suffer from obtaining it.

For instance, when I go into work on Monday, I'll be gaining various benefits, such as money. To decide whether that is the rational thing to do, I need to consider my BEST ALTERNATIVE to see if I obtain an economic profit (not an accounting profit) by going to work.

Let's say that my best alternative is setting up a lemonade stand and selling them for 5 cents a glass and that I wouldn't sell many glasses. It's pretty clear that I'm making an economic profit by going to work.

Now imagine that instead of my best alternative being selling lemonade, it was browsing Ebay and that I could earn about 12 dollars an hour doing that. I would be doing the irrational thing by going to work as my best alternative has a higher return that what I'm actually doing.

The alternative needn't be strictly monetary either. When you ask yourself whether you should work another hour over time or go play basketball, you are making the same comparison, but you are comparing the utility you get out of basketball playing to the utility of another hour of work.

You actually see people doing this sort of thing on a daily basis when they say things like, "I just isn't worth the time for me to do that."

There comes a point at which the investors will be better off spending their time and efforts elsewhere if they are looking to maximize their utility. The higher you have tax rates, the lower the income level which we find that happening.

[laughing dog]

There comes a point at which the investors will be better off spending their time and efforts elsewhere if they are looking to maximize their utility. The higher you have tax rates, the lower the income level which we find that happening. You keep repeating the false pseudo-economic argument. Whether or not higher tax rates deter investment depend on which effect dominates - the income or substitution effect. Your claims are theoretically false and have not empirically verified in terms of the economics profession as a whole. Why do you persist in perpetuating them as if they are generally accepted?

[Gamera]

Again, if you make more money, you're ALWAYS better off, unless the next higher bracket is 100%. It isn't.

Morever, moving to the top 1% is rarely the result of calculated effort, where you sit down and decide you whether it's worth the effort to move up a bracket given the marginally higher rate (which is currently barely progressive anyway).

40% of the richest Americans simply inherit their superwealth. You could tax them at 99% and they'd still be better off than if they didn't inherit the money. So a rate increase has NO impact on their economic acitivty.

As to the other 60%, they are usually involved in a business that "takes off" and begins making more and more proft at an accellated rate, far in excess of the labor they put into it. So I don't see any evidence of any person every deciding against making more money out of fear of a higher tax rate.

Like I say, do you have any evidence that a would-be billionaire decided to stop working because he was worried that by making billions of dollars he would have to pay higher income taxes. The claim is absurd on its face.


You're only looking at the problem from an accounting perspective, and ignoring the problem as a whole. A rational person needs to consider the amount of BENEFIT or UTILITY he obtains by any increase in income and examine that against the opportunity cost that he must suffer from obtaining it.

For instance, when I go into work on Monday, I'll be gaining various benefits, such as money. To decide whether that is the rational thing to do, I need to consider my BEST ALTERNATIVE to see if I obtain an economic profit (not an accounting profit) by going to work.

Let's say that my best alternative is setting up a lemonade stand and selling them for 5 cents a glass and that I wouldn't sell many glasses. It's pretty clear that I'm making an economic profit by going to work.

Now imagine that instead of my best alternative being selling lemonade, it was browsing Ebay and that I could earn about 12 dollars an hour doing that. I would be doing the irrational thing by going to work as my best alternative has a higher return that what I'm actually doing.

The alternative needn't be strictly monetary either. When you ask yourself whether you should work another hour over time or go play basketball, you are making the same comparison, but you are comparing the utility you get out of basketball playing to the utility of another hour of work.

You actually see people doing this sort of thing on a daily basis when they say things like, "I just isn't worth the time for me to do that."

There comes a point at which the investors will be better off spending their time and efforts elsewhere if they are looking to maximize their utility. The higher you have tax rates, the lower the income level which we find that happening.

Do you have any impirical evidence that progressive tax rates have ever affected economic behavior. If so, cite it. Otherwise, you've only supplied anecdotes whose validity I dispute.

[Loren Pechtel]

It's not too hard to do even now, that system just makes it even worse as it could take you down by several tax brackets, depending on the rates of those lower ones. Suppose the one end limit on a bracket is at 100,000 dollars. If you earn 99,999 dollars, you'll be on a lower income bracket and might have a rate of say 25% for the ease of calculation. That's roughly 75 thousand you get to keep.

If, instead, you earn 100,000, you would be in another tax bracket. We'll say that this one has a tax rate of 30%, a mere increase of 5%. In this case, you get to keep exactly 70,000 dollars of your income.

By making one more dollar in income, you've actually LOST some 5,000 dollars of worth.

No. This is a common misconception but it never happens with income. Tax rates apply only to the dollars in that bracket, not to all dollars.

There are cases where earning an extra dollar will cost you money but they are all related to phaseouts of deductions.

[Loren Pechtel]

Sure they save *SOME*.

However, most poor and middle class people spend most of what they make. Few start businesses.

The people at the very top, however, save most of what they make.

Does it not follow that the savings level will drop if you move the money from the rich to the poor and middle class????


Another factually false statement that is the premise of the cheap labor conservative corporate fetish. About half of all jobs in the US come from small mom and pop businesses, started by moms and pops.

As to the top 1% saving most of their income, while the poor don't, the tautology is hilarious. They rich "save" because the literally can't spend all their income. The poor need their income to get pay. Cycle captial to the poor (in terms of higher taxes on the rich, and more government services to the lower brackets) and the lower brackets will have more income, and hence be able to save.

I almost think your parodying market fundamentalism, your cliam is so absurd.

Lets say we move the poor to middle class levels (something totally unrealistic). What happens? They have middle class savings rates. That's nowhere near enough to allow society to function.

Note, furthermore, that all the money they are investing still needs to be invested. Thus the only money that could be redistributed without causing harm is what they actually spend. There simply isn't that much spending by the rich to make much of a difference.

[Loren Pechtel]

But we actually do see a marginal decrease in savings as a result of a government surplus.

This is false. A marginal decrease in capital gains taxes results in increased revenues, due to a one time readjustment of portfolios (mostly by the wealthy, who have portfolios) to lock in the lower rate.

After that revenues fall off and the government is in a worse position.

It's the trick both Reagan and Bush2 used to claim the lowering taxes results in higher revenues. In the short run, yes. In the long run, no.

No. Reagan's benefit was for a totally different reason: He closed a million loopholes and thus improved the actual spending efficiency.

[Loren Pechtel]

Here's my idea for a hybrid flat tax/progressive tax proposal:

Tax income at marginal rates, but only count deductions against the lowest marginal rate. Set the first marginal rate higher than the current rate (start at about 25%) and the income ceiling for that marginal rate higher (say $65,000). Make up for this with higher marginal rates (and an effectively lower value for deductions) at the low end, and a higher EITC at the low end.

For most people, this allows all of the efficiency benefits of a flat tax; it's easy to fill out your taxes, and withholding is predictable based on your standard deduction. But it still allows progressive taxation at the high end.

If you earn under $65,000 and don't itemize your deductions - in other words, if you're a 1040-EZ filer today - your taxes are practically done for you. Your employer withholds your exact tax amount based on your standard deduction, as do your bank and any other smaller income sources you might have.

If you itemize deductions, all you have to do is add up the value of your deductions, subtract the standard deduction, multiply the result by 25%, and request that amount as your refund.

If you make it into a higher bracket, all you have to do is pay the marginal tax on your income over that level. Your deductions are still paid at a 25% rate and don't vary with your income level. You can either get a refund for 25% of the amount of your deductions at the end of the year, or submit them to your employer's accounting department and have your withholding reduced by the same amount and a line item included on your W-2.

It may not seem like a huge change, but in practice, I think it will reduce the number of dependencies and make tax calculations (especially withholding) more predictable, allowing most people to file a return without sending or receiving a check.

This doesn't work in multi-job situations.

Married couples where they both work are multi-job situations.

[Gamera]

This is false. A marginal decrease in capital gains taxes results in increased revenues, due to a one time readjustment of portfolios (mostly by the wealthy, who have portfolios) to lock in the lower rate.

After that revenues fall off and the government is in a worse position.

It's the trick both Reagan and Bush2 used to claim the lowering taxes results in higher revenues. In the short run, yes. In the long run, no.

No. Reagan's benefit was for a totally different reason: He closed a million loopholes and thus improved the actual spending efficiency.

Well, I agree that the 1986 Tax reform act was good in many ways in closing off tax shelters. However, claiming Reagan improved spending efficiency is laughable. He gave the US the biggest deficits in history (until Bush, another market fundi came along).

[Gamera]

Another factually false statement that is the premise of the cheap labor conservative corporate fetish. About half of all jobs in the US come from small mom and pop businesses, started by moms and pops.

As to the top 1% saving most of their income, while the poor don't, the tautology is hilarious. They rich "save" because the literally can't spend all their income. The poor need their income to get pay. Cycle captial to the poor (in terms of higher taxes on the rich, and more government services to the lower brackets) and the lower brackets will have more income, and hence be able to save.

I almost think your parodying market fundamentalism, your cliam is so absurd.

Lets say we move the poor to middle class levels (something totally unrealistic). What happens? They have middle class savings rates. That's nowhere near enough to allow society to function.

Note, furthermore, that all the money they are investing still needs to be invested. Thus the only money that could be redistributed without causing harm is what they actually spend. There simply isn't that much spending by the rich to make much of a difference.


This assumes a static economy.

First, the lower brackets have a motivation to become owners and start mom and pop businesses all the time. Give them more capital, and they will presumably start more. You can't compare middle class Americans with poor American moving up to the middle class in terms of their likely economic conduct.

Second, the issue isn't investment but who makes the investment. Your class prejudice against working people is sad. GIve them more money and they will save, and thus reap the benefits of the savings, rather than the top 1% doing so.

Finally, economic growth produces more wealth and hence more savings. Consumption is about 70% of GDP. Increase consumption, you increase GDP and hence wealth.

[Gamera]

It's not too hard to do even now, that system just makes it even worse as it could take you down by several tax brackets, depending on the rates of those lower ones. Suppose the one end limit on a bracket is at 100,000 dollars. If you earn 99,999 dollars, you'll be on a lower income bracket and might have a rate of say 25% for the ease of calculation. That's roughly 75 thousand you get to keep.

If, instead, you earn 100,000, you would be in another tax bracket. We'll say that this one has a tax rate of 30%, a mere increase of 5%. In this case, you get to keep exactly 70,000 dollars of your income.

By making one more dollar in income, you've actually LOST some 5,000 dollars of worth.

No. This is a common misconception but it never happens with income. Tax rates apply only to the dollars in that bracket, not to all dollars.

There are cases where earning an extra dollar will cost you money but they are all related to phaseouts of deductions.


Nitrous has admitted this boner. Regrettably it is ignorance of basic tax and accounting principals that drive most conservative economic policies.

Giving tax cuts to billionaires is an example. What a dumb idea that was doomed to produce no jobs, no economic growth.

[worldwide]

capatalism will knock us back to third world status too. at least if we don't start regulating it more than it is now. as the trend continues and as the wealth becomes more and more concentrated the system will collapse and those with the wealth will flee to china or someother place where there are still consumers

however while i agree with an estate tax i think the OP is a bad idea


Yea, because regulations are great!
http://www.freeliberal.com/archives/001016.html
http://www.heritage.org/Research/Regulation/HL422.cfm
http://www.econlib.org/library/Enc/UnintendedConsequences.html
http://www.econlib.org/library/Columns/y2007/Whitmanincentives.html


yes that's what i think- every regulation is a great idea! do you think anyone, no matter how liberal, would think there can't be bad regulations? i turly hope you don't.

do you think all regulations are bad? even with your response i wouldn't believe that you do.

[Loren Pechtel]

No. Reagan's benefit was for a totally different reason: He closed a million loopholes and thus improved the actual spending efficiency.

Well, I agree that the 1986 Tax reform act was good in many ways in closing off tax shelters. However, claiming Reagan improved spending efficiency is laughable. He gave the US the biggest deficits in history (until Bush, another market fundi came along).

Clarification: He improved spending efficiency in the economy as there wasn't the vast amount of effort wasted on tax shelters.

His actions didn't hurt government income even though the tax rate was cut considerably because people didn't really pay the high rates before.

His problem is the same as every Republican since: Spending.



Please note that even though I favor free-market economics that does *NOT* mean I agree with Republican economics!

[YHWH666]

Whoops, I was terribly mistaken about marginal rates. I'll admit that.

Still though, if you raise taxes on the upper pay tiers, what effectively forms is a "soft cap" in how much you can earn. It isn't technically a hard cap in that it would be illegal or impossible to earn more, but what it does do is make every dollar and minute spent on investments return less and less to you. It can, if the rate is high enough, come to a point where it becomes not worth your while to increase your income after tax by 10,000 dollars because doing so would require an immense amount of work on your part.

You're only looking at the problem from an accounting perspective, and ignoring the problem as a whole. A rational person needs to consider the amount of BENEFIT or UTILITY he obtains by any increase in income and examine that against the opportunity cost that he must suffer from obtaining it.

For instance, when I go into work on Monday, I'll be gaining various benefits, such as money. To decide whether that is the rational thing to do, I need to consider my BEST ALTERNATIVE to see if I obtain an economic profit (not an accounting profit) by going to work.

Let's say that my best alternative is setting up a lemonade stand and selling them for 5 cents a glass and that I wouldn't sell many glasses. It's pretty clear that I'm making an economic profit by going to work.

Now imagine that instead of my best alternative being selling lemonade, it was browsing Ebay and that I could earn about 12 dollars an hour doing that. I would be doing the irrational thing by going to work as my best alternative has a higher return that what I'm actually doing.

The alternative needn't be strictly monetary either. When you ask yourself whether you should work another hour over time or go play basketball, you are making the same comparison, but you are comparing the utility you get out of basketball playing to the utility of another hour of work.

You actually see people doing this sort of thing on a daily basis when they say things like, "I just isn't worth the time for me to do that."

There comes a point at which the investors will be better off spending their time and efforts elsewhere if they are looking to maximize their utility. The higher you have tax rates, the lower the income level which we find that happening.

I think you missed what he is saying. He is talking about taxing the uber-rich like the top 0.5% --- people that don't have to work for their income. Say like Paris Hilton, Bill Gates, the Wal-Mart heirs ect. The amount of time and/or effort Paris Hilton puts into investing a million could just as easily be at or near zero. More so if you consider the fact that the very wealthy can (and do) hire specialists (more competent than themselves) to do this for them. A person like that can fall into a coma for a month and still make more money than you and I combined will make in a dozen lifetimes-- by doing literally nothing.

Even if we, for the sake of argument, accept you premises regarding the "BENEFIT or UTILITY he obtains by any increase in income and examine that against the opportunity cost that he must suffer from obtaining it." It still just does not apply to the very top brackets.

For instance, Bill gates could take all his net worth (53 billion circa 2003) and transfer it into a static no-interest bank account. let say he lives to be a hundred and ten or something-- another 55-60 years.
60 x 365 = 21,900 days

$53,000,000,000 / 21,900 = $2,420,091

This means: without gaining another cent in the rest of his life Bill Gates can blow over 2 million dollars per day, every day, and still have billions leftover when he dies. The biggest "cost he would suffer" would be having to come up with creative ways to actually spend that much money every day. kinda like Brewster's Millions (http://en.wikipedia.org/wiki/Brewster%27s_Millions_%281985_film%29)

I just can't see where you can even begin to apply your whole incentives argument to cases like this. A 90% tax rate on people like this will have no tangable effect on the "BENEFIT or UTILITY" they experience.

I really don't understand why you think that they would suddenly stop investing or have some other dramatic change in their economic behavior.

Very likely they would still be out to make money. No?

[Loren Pechtel]

Lets say we move the poor to middle class levels (something totally unrealistic). What happens? They have middle class savings rates. That's nowhere near enough to allow society to function.

Note, furthermore, that all the money they are investing still needs to be invested. Thus the only money that could be redistributed without causing harm is what they actually spend. There simply isn't that much spending by the rich to make much of a difference.


This assumes a static economy.

And why shouldn't it be considered basically static for evaluating this?

You are proposing a shift in the where the money is. This doesn't change the size of the economy one penny. You are changing the pressures on the economy, the result will deviate from the current path but the current position isn't moved.

It's like turning the steering wheel on the car. Does it make your car change position? No.

First, the lower brackets have a motivation to become owners and start mom and pop businesses all the time. Give them more capital, and they will presumably start more. You can't compare middle class Americans with poor American moving up to the middle class in terms of their likely economic conduct.

And why not???

Second, the issue isn't investment but who makes the investment. Your class prejudice against working people is sad. GIve them more money and they will save, and thus reap the benefits of the savings, rather than the top 1% doing so.

For the purposes of the economy it makes little difference who makes the investment. It's probably somewhat better if the rich guy does it because he's got a better idea of what is a good investment and is less likely to waste the effort.

You are asserting something *WILDLY* different than what has been observed and you are providing no evidence that it will happen.

Finally, economic growth produces more wealth and hence more savings. Consumption is about 70% of GDP. Increase consumption, you increase GDP and hence wealth.

Except you just destroyed the economy, not boosted it!

*ANYTHING* that lowers capital investment harms us. *ANYTHING*.

You are converting money from capital to consumer spending. That means you're lowering the capital.

Having increased consumer demand without the factories to supply it will simply result in inflation and eat up the benefit you thought you were getting.

[Loren Pechtel]

Nitrous has admitted this boner. Regrettably it is ignorance of basic tax and accounting principals that drive most conservative economic policies.

Giving tax cuts to billionaires is an example. What a dumb idea that was doomed to produce no jobs, no economic growth.

Actually there could be a considerable benefit from giving them tax breaks. They are going to invest that money, not spend it. More investment = a higher standard of living.


Personally I favor a system of taxing consumption rather than income. Encourage everyone to invest.

[Gamera]

Nitrous has admitted this boner. Regrettably it is ignorance of basic tax and accounting principals that drive most conservative economic policies.

Giving tax cuts to billionaires is an example. What a dumb idea that was doomed to produce no jobs, no economic growth.

Actually there could be a considerable benefit from giving them tax breaks. They are going to invest that money, not spend it. More investment = a higher standard of living.


Personally I favor a system of taxing consumption rather than income. Encourage everyone to invest.

So billionaires are waiting around for a tax cut to invest their money.

BWHAHAHAHAH! I just love the ignorance of market fundis.

By the way, is the "investment" you mean the stock market? And that "investment" goes to the companies, right?

BWHAHAHAHAHAH!

[Loren Pechtel]

So billionaires are waiting around for a tax cut to invest their money.

That's not the issue. The issue is shifting money from consumption to investment.

BWHAHAHAHAH! I just love the ignorance of market fundis.

You seem to think that you can wave a magic wand and make the impossible work.

By the way, is the "investment" you mean the stock market? And that "investment" goes to the companies, right?

BWHAHAHAHAHAH!

We've already discussed this. May I suggest rereading the thread before making assertions that have already been refuted?

[chapka]

This doesn't work in multi-job situations.

Married couples where they both work are multi-job situations.

Yes, it does, as long as the joint deduction is twice the single deduction.

Again, because most people fall into one broad bracket, your employer simply doesn't need to know your filing status or your total family income. Each employer withholds at the single 25% rate, accounting for one standard deduction. At the end of the year, if your itemized deductions are less than your standard joint deduction, you have no refund or tax due. Otherwise, just as with single filers, you add up your deductions, subtract your (joint) standard deduction, and ask for 25% back.

A single person with two jobs would be underwithheld unless he or she told one employer that they were the "second job" and should withhold at a higher rate.

[chapka]

You're only looking at the problem from an accounting perspective, and ignoring the problem as a whole. A rational person needs to consider the amount of BENEFIT or UTILITY he obtains by any increase in income and examine that against the opportunity cost that he must suffer from obtaining it.

You get this right here, but then you don't follow through. I think it may be because you have a distorted idea of what "investing" money really entails.

There comes a point at which the investors will be better off spending their time and efforts elsewhere if they are looking to maximize their utility. The higher you have tax rates, the lower the income level which we find that happening.

In fact, this is simply not the case. In practical terms, it is never going to be not worth someone's time to invest their money.

First of all, if you don't invest your money, you aren't just treading water; you're getting poorer. We live in an inflationary age, and money stuffed into a mattress will be worth less tomorrow than it is today.

Second, that really is what we're talking about; money stuffed into a mattress. Is it really any less effort to put your money into a mattress than it is to put it into a bank account? If nothing else, for millionaires, keeping all of their money in currency would be heavy, and you wouldn't make back in saved bank fees what you lost in bank interest.

Putting your money in a bank account, or into bonds or mutual funds or other low-management, long-term investments is the least taxing, lowest return kind of investing in most cases. But it's all that is needed for the economy to work and for all kinds of investment to flourish.

People make the kind of cost-benefit decision you're talking about all the time, and it doesn't stop investment. I make that decision when I put my money into a bank account, despite knowing that I could earn better interest on that money by more active investments. How do I know that? Because I know banks make a profit. If it's too much trouble for an individual to invest, they can "hire" a whole company of full-time financial managers just by making an ordinary bank deposit. If following the market is too much trouble, any number of mutual-fund managers will be glad to take on those duties. And no bank or investment corporation is going to tell its employees, "Don't worry too much about making money - we have plenty, and we pay a lot of taxes anyway."

In other words, even if the top bracket was 99%, you'd still be better off with your money in the bank than out of it. And once it's in the bank, individual income tax rates won't stop the bank from trying to earn as much return on it as possible.

[Nitrousoxide]

You've made some good points there, and I'll grant that perhaps the exact method which I was arguing was flawed. However, your point about inflation brought to mind another issue which I think would convince even you that there can come a point in the tax rate at which it can become illogical, even from an accounting perspective, to invest more money rather than simply buy stuff.

Consider a tax rate of 99% like you mentioned. It would seem that a rate so high would make easy and secure investments, like putting your money in the bank or in bonds, unable to outpace the affects of inflation. If you're looking to increase your total worth, you'll have actually reached a point at which those low return investments will no longer actually earn you any money, thanks to decreasing value of the dollar. All they will do at that point is merely slow the rate at which your total value decreases.

You might still be able to turn a profit after taxes and inflation with some of the higher returning investments, but those are more time consuming and risky. That riskyness can also make the expected returns (thanks to the possibility of failure) below that which would be required just to match inflation, again making investing in those illogical from an accounting perspective.

Sure, you won't be quite as bad as if you simply stuffed it into your mattress, however, you would be better off buying things, rather than investing with that money.

The exact tax rates which would be required to make investing with various return rates unprofitable I know not, but they certainly do exist.

[chapka]

Sure, you won't be quite as bad as if you simply stuffed it into your mattress, however, you would be better off buying things, rather than investing with that money.

In other words, investing in the commodities markets. Or, more realistically, in the real estate market. Inflation doesn't affect all investments uniformly. "Buying things" is the fundamental act of investing, not its antithesis.

[Nitrousoxide]

I actually meant just buying for your personal consumption.

Unless your new investments can return enough profit so that after 99% (for example) of it is taken out, you've still managed to exceed the amount you lost in value from those dollars which were inflated while being invested, you'll have reached a point where you simply cannot increase the rate at which your wealth increases.

If you cannot increase the rate at which your wealth increases, and in fact, if the rate at which your wealth would increase actually goes down now that the money cannot be kept ahold of without loosing value (IE there are no investments you can make with any additional money once you've reached that 99% income tax rate which exceed the value lost to inflation), you will reach a hard cap on wealth, not only on the increase in wealth.

Eventually the amount lost from inflation on all of your dollars will match that max amount you can earn, making any further increases of wealth impossible.

Will real estate return enough to counteract inflation and then some at a 99% income tax rate? I suspect not.

[chapka]

Will real estate return enough to counteract inflation and then some at a 99% income tax rate? I suspect not.

It doesn't have to, for two separate reasons.

First, real estate and other commodity investments are not affected by inflation in the way that dollar-denominated investments are.

For example: assume I buy a house for $100,000 and a bar of gold for $10,000. Then assume that there's rapid inflation, such that consumer prices double with no other significant economic effects (unlikely, I know, but stay with me).

If you want to buy a house now, it would cost you $200,000, since your money is worth less; and the bar of gold would cost you $20,000. So if you want those things, you will give me $200,000, or $10,000. If there has been any appreciation in those investments, you will also pay me a premium for that.

That's how we define inflation; it's how much more you have to pay for the same basket of goods. If you're the one paying, inflation reduces your take. If you're the one with the basket of goods, by definition, inflation increases, not decreases, the amount of money that basket is worth.

So yes, real estate can beat inflation. In fact, if maintaining value is of more concern to you than return on investment, that probably increases, not decreases, your incentive to invest in real estate.

Second, not investing doesn't beat inflation either; in fact, it's even worse. It just has to beat leaving the money in your mattress. If inflation is 5% and you can only make a real 3%, after taxes, on your investments, you will lose money at the end of the year. But you will lose less money than if you simply left the money in your mattress and lost the whole 5%. People will still invest, especially in low-outlay ways like bank accounts, if that's the case.

[Loren Pechtel]

This doesn't work in multi-job situations.

Married couples where they both work are multi-job situations.

Yes, it does, as long as the joint deduction is twice the single deduction.

Again, because most people fall into one broad bracket, your employer simply doesn't need to know your filing status or your total family income. Each employer withholds at the single 25% rate, accounting for one standard deduction. At the end of the year, if your itemized deductions are less than your standard joint deduction, you have no refund or tax due. Otherwise, just as with single filers, you add up your deductions, subtract your (joint) standard deduction, and ask for 25% back.

A single person with two jobs would be underwithheld unless he or she told one employer that they were the "second job" and should withhold at a higher rate.

And the brackets are exactly doubled for the married rate.

It still doesn't work if the two people are in different brackets.

[chapka]

Yes, it does, as long as the joint deduction is twice the single deduction.

Again, because most people fall into one broad bracket, your employer simply doesn't need to know your filing status or your total family income. Each employer withholds at the single 25% rate, accounting for one standard deduction. At the end of the year, if your itemized deductions are less than your standard joint deduction, you have no refund or tax due. Otherwise, just as with single filers, you add up your deductions, subtract your (joint) standard deduction, and ask for 25% back.

A single person with two jobs would be underwithheld unless he or she told one employer that they were the "second job" and should withhold at a higher rate.

And the brackets are exactly doubled for the married rate.

It still doesn't work if the two people are in different brackets.

It does, because, remember, any deductions or credits are only applied at 25%. In other words, a deduction which is worth $100 to someone in the bottom bracket is worth $100 to someone in the top bracket, too. If the couple are jointly in a higher bracket, then they both ask to be withheld at the higher rate, or both pay the difference in April. Remember, it's not possible for two people filing jointly to be in different brackets.

[Gamera]

[[Q
That's not the issue. The issue is shifting money from consumption to investment.

But billionaires do NOT invest their vast income. So it is the point.

You seem to think that you can wave a magic wand and make the impossible work.

No, you can set up rules that capitalize the lower brackets, which results in more economic activity and hence more wealth.

We've already discussed this. May I suggest rereading the thread before making assertions that have already been refuted?

Translated: you think investing in the stock market is an "investment" in the capital sense. It is not.

[Loren Pechtel]

That's not the issue. The issue is shifting money from consumption to investment.

But billionaires do NOT invest their vast income. So it is the point.

Oh? The only way they get to be billionaires is by investing what they make, whether it's in the stock market or their own company.

No, you can set up rules that capitalize the lower brackets, which results in more economic activity and hence more wealth.

No. What are those lower brackets doing with the money to make economic activity? Spending it! Thus the capital isn't there to build new factories. The standard of living falls.

We've already discussed this. May I suggest rereading the thread before making assertions that have already been refuted?

Translated: you think investing in the stock market is an "investment" in the capital sense. It is not.

As I said, read the thread!

Investing in the stock market doesn't actually directly invest in the means of production in most cases. What it does do is provide a secondary market for those who actually do invest in the means of production without which they would not have done so.

[Gamera]

4527902Oh? The only way they get to be billionaires is by investing what they make, whether it's in the stock market or their own company.

We've already established this isn't true in at least 40% of the cases, where the top 15 inherit their wealth.

Moreover it's irrelevant. We are talking about the economic conduct of billionaires. They make so much income they do not and cannot invest it. They put it in the stock market. Billioniares simply don't start too many mom and pop operations.

No. What are those lower brackets doing with the money to make economic activity? Spending it! Thus the capital isn't there to build new factories. The standard of living falls.

70% of GDP is consumer driven. Do the math. The more consumption, the more economic activity. But of course, the idea that the lower brackets don't invest in mom and pop businessess is simply false as all the data shows. 50% of all jobs derive from mom and pop businesses. Make more capital available to the lower brackets and you'll see more.

Why is it that conservative have such contempt for small businesspeople nowadays?


Investing in the stock market doesn't actually directly invest in the means of production in most cases. What it does do is provide a secondary market for those who actually do invest in the means of production without which they would not have done so.

Translated: playing the stock market is not a capital investment and doesn't increase production in the slightest.

[Loren Pechtel]

[QUOTE=Loren Pechtel;

We've already established this isn't true in at least 40% of the cases, where the top 15 inherit their wealth.

Those are all the immediate family of someone who got there by investing.

Moreover it's irrelevant. We are talking about the economic conduct of billionaires. They make so much income they do not and cannot invest it. They put it in the stock market. Billioniares simply don't start too many mom and pop operations.

But by doing so they encourage others to invest in new businesses. Without the secondary market of the stock market the primary market would be *MUCH* smaller.

Note, also, that Warren Buffet does buy out small companies whose owners want to cash out their equity. While this doesn't directly create new companies it's even more of an incentive for others to invest.

70% of GDP is consumer driven. Do the math. The more consumption, the more economic activity. But of course, the idea that the lower brackets don't invest in mom and pop businessess is simply false as all the data shows. 50% of all jobs derive from mom and pop businesses. Make more capital available to the lower brackets and you'll see more.

Bad data. 50% of jobs are from businesses of 500 people or less. That's hardly mom & pop!

Those in the middle class are capable of starting small businesses if they want to--for them to have more capital will make little difference in the business formation rate. It will, however, eat up capital.

Note, furthermore, that you keep shooting yourself in the foot here. Your 70% of GDP figure is another bullet through the center. The only relevance of this figure to the debate is that if they had more money they would spend more. If they spend more they aren't investing it! You can't have it both ways! In the long run the *LOWER* that figure the better off we are.

Why is it that conservative have such contempt for small businesspeople nowadays?

Where did this come from?

Translated: playing the stock market is not a capital investment and doesn't increase production in the slightest.

Not quite. Just because the effect is not direct doesn't mean it doesn't happen.

Lets wipe out the secondary stock market and see where that leaves us:

The venture capitalists have no way to cash out of their winners. Rather than recycling their cash to invest in new high risk ventures they are stuck holding the ones that already made it. Most of these are still growing rapidly, though, and not paying dividends. It's going to be a long time before they get their cash back, they won't have the cash to invest in the next round of start-ups. The venture capital industry virtually disappears. That has a catastrophic effect on business creation.

[Gamera]

[[E]

But by doing so they encourage others to invest in new businesses. Without the secondary market of the stock market the primary market would be *MUCH* smaller.

To make economic policies that result in a few people accumulating billions, which go into the stock market, which according to you encourages a secondary market, is about as Rubegolbergesque a way of encouraging capital formation one can ever come up with.

Here's a concept. Raised taxes on the top 1%, cycle that capital to the lower brackets, watch the lower brackets consume and invest in mom and pop businesses, and watch the economy grow, resulting in more investment.

Clinton did it. It worked.

Note, also, that Warren Buffet does buy out small companies whose owners want to cash out their equity. While this doesn't directly create new companies it's even more of an incentive for others to invest.

The idea that people start small businesses hoping to go public only makes my point that we should cycle capital down to people starting small businesses.

Bad data. 50% of jobs are from businesses of 500 people or less. That's hardly mom & pop!

Actually its 100% and they are mom and pop. People start restaurants everyday, on a shoe string, and whamo, they're hiring 50 people.

Those in the middle class are capable of starting small businesses if they want to--for them to have more capital will make little difference in the business formation rate. It will, however, eat up capital.

All the more reason to cycle more capital down to the lowest brackets.

Note, furthermore, that you keep shooting yourself in the foot here. Your 70% of GDP figure is another bullet through the center. The only relevance of this figure to the debate is that if they had more money they would spend more. If they spend more they aren't investing it! You can't have it both ways! In the long run the *LOWER* that figure the better off we are.

You're stuck on step one. Step two is that as businesses prosper they accumulate capital and can invest and reinvest in new ventures. Try again.


Lets wipe out the secondary stock market and see where that leaves us:

The venture capitalists have no way to cash out of their winners. Rather than recycling their cash to invest in new high risk ventures they are stuck holding the ones that already made it. Most of these are still growing rapidly, though, and not paying dividends. It's going to be a long time before they get their cash back, they won't have the cash to invest in the next round of start-ups. The venture capital industry virtually disappears. That has a catastrophic effect on business creation.

A curious argument since most successful venture capitalists DON"T go public. They are quite happy to run a privately own company and make a large profit. Where did you get the idea that you have to go public to make money?

[chapka]

[[E]

But by doing so they encourage others to invest in new businesses. Without the secondary market of the stock market the primary market would be *MUCH* smaller.

To make economic policies that result in a few people accumulating billions, which go into the stock market, which according to you encourages a secondary market, is about as Rubegolbergesque a way of encouraging capital formation one can ever come up with.

I'm not sure you understand what Loren is saying.

Businesses raise capital by selling stock. If you buy stock in an IPO, for instance, or in any public offering, or from a company's treasury, you are directly capitalizing that company.

When you turn around and sell that share to another investor, you're operating in a secondary market; the company doesn't get any new capital from it. But if you hadn't been able to do that - if, once you invested, you were stuck with that company and whatever dividends it paid until it wound up or went bankrupt - then you probably wouldn't have made the investment in the first place.

That secondary market in shares may not directly capitalize the company, but without it companies couldn't raise capital at all.

Lets wipe out the secondary stock market and see where that leaves us:

The venture capitalists have no way to cash out of their winners. Rather than recycling their cash to invest in new high risk ventures they are stuck holding the ones that already made it. Most of these are still growing rapidly, though, and not paying dividends. It's going to be a long time before they get their cash back, they won't have the cash to invest in the next round of start-ups. The venture capital industry virtually disappears. That has a catastrophic effect on business creation.

A curious argument since most successful venture capitalists DON"T go public. They are quite happy to run a privately own company and make a large profit. Where did you get the idea that you have to go public to make money?

Venture capitalists don't generally make much, if any, profit until the companies they fund go public. Not the venture capital funds themselves, but the companies they invest in. Without an IPO, the only way to get their capital investment out of the company and move on to the next investment is to wind up the company and sell the capital assets. Without a secondary market in shares, there won't be any IPOs.

[unrealist42]

I got an idea. Let's just not let anyone inherit anything. Total wealth confiscation upon death. No giving any money to your children after they reach 21 and a severe limit on what you can give them before that, pocket money only.

All school admissions on merit with free tuition etc. If you don't want to go to college you get to go to any trade school free. If you don't want to go anywhere you get $20,000 cash.

Everyone gets a $50,000 stake at age 21.

Everyone get another $50,000 at age 30.

No income taxes, no limit on wealth accumulation.

Give everyone a grubstake and let the brains rise to the top.

[Nitrousoxide]

Oh golly, that's a great way to obliterate family owned buisness. Got a small store in a small town that's too small to go public? Are you nearing your final years? Well sucks to be you, say bye bye to that buisness when you die.

The only companies that could survive in that environment would be corporations.

[chapka]

I got an idea. Let's just not let anyone inherit anything. Total wealth confiscation upon death. No giving any money to your children after they reach 21 and a severe limit on what you can give them before that, pocket money only.

This would be basically impossible to implement and enforce, and it wouldn't work as well as you'd think anyway.

Remember, younger kids can't work, so their parents have to support them somehow. Most of the time they don't do this through monetary gifts now, but they still manage to transfer a fair amount of we