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Civil discussion and debate on real world events and issues.


Society - Inequality vs. Equality

   
Quote:
Originally Posted by Surrealistik View Post
Estate taxes. These were demonstrated effective at arresting, and even reversing the perpetual and compounding accumulation of wealth in a study that examined its concentration.
Interesting idea. Though after quick browsing it's a bit odd comparing to what I'm used to (in my country in close family, as long as all paperwork is done no tax from inheritances and gifts is due) and idea of using at top moment rate of 55% in 1994 sounds harsh plus I'm impressed by creativity of idea of generation-skipping transfer tax. (yes, I'm indeed impressed)

Assuming that you would really have something even more powerful than that how big market distortion would you expect? Except of course aggressive tax planning (you know, these guys would have the best tax advisors)
Spending last few years of ones life on travelling around the world because anyway those money would be mostly taken by the gov sounds fair and reasonable, doesn't it?

Quote:
Furthermore, increasing taxes on capital gains and dividends for the rich would also help as this is their primary income source; there is no good reason for secondary market gains to be so heavily tax advantaged. Keeping them tax advantaged specifically for the middle class/poor continues to encourage investment among the lower socio-economic groups. Primary market capital gains should however be exempted from these increases in all cases; tax discounts on true venture capital investments are a good thing, and conducive to growth/constructive risk taking. I personally feel taxes here should be cut further.
[...]
I also agree that policies/registered accounts with inflation indexed annual limits, like the Canadian Tax Free Savings Account, that encourage saving and wealth accumulation are also great tools in this regard. An opt-in tax advantaged or free escrow system with likewise limits might even be better than the more fluid TFSA. Tax deductions for financial advice/consultation among the poor-middle class might also help diminish the huge advantage the rich have when it comes to wealth management, while simultaneously encouraging saving and investment.
Sounds more or less reasonable.

However, you told how you are going to hunt for treasures of the rich and not how are you going to make poor save. I'm curious what's the saving ration among US bottom 20%? (So I'm curious whether slightly improving returns would make a huge difference.

To be honest I have mixed feelings on the subject - I mean from one thing I don't like too much idea of distorting reasonable market incentives. (No, that's NOT a statement "all taxes are evil", there are cases when taxes create good incentives like taxing recreational substances or pollution). On the other hand I found odd that the US has higher Gini coefficient than the EU taken as whole, even when it contains both rich western Europe and post-communist countries.

Quote:
Originally Posted by MonkWren View Post
We could also go with a Scandinavian-style tax system of really high income taxes and few other taxes. Seems to work for wealth/income redistribution AND improving quality of life.
I'm curious whether copying Scandinavian ideas would work in countries with lower human capital. My bet is that's not so well. (In the same way as highly developed Norway does not suffer from resources curse in contrast to let's say Russia, Venezuela or Saudi Arabia; yes, exaggerated comparison but I want to make clear what I mean)

I think you aren't comprehending the math the tax would be 40% x (income-$40,000)
so for the following income:
$30,000= 40%*-$10,000= -$4000
$50,000=40%*10,000=$4,000 (effective 8%)
$60,000=40%*20,000=$8,000 (effective 13.3%)
$100,000=40%*60,000=$24,000 (effective 24%)
$140,000=40%*$100,000=$40,000 (effective 28.5%)
$200,000= 40%*$160,000=$64,000 (effective 32%)
$500,000=40%*$460,000=$184,000 (effective 36.8%)
$1 million=$384,000 (effective 38.4%)

is that graduated enough?

Quote:
Originally Posted by Surrealistik View Post
Massively progressive income tax alone doesn't address _existing_ wealth inequity, or at best does so inefficiently, though it is good at arresting its growth.
I feel like arresting it's growth in the US is a reasonable goal at the moment; massive changes in wealth redistribution would create a lot of unnecessary societal upheaval, I think.

Quote:
Originally Posted by TW Teczka
I'm curious whether copying Scandinavian ideas would work in countries with lower human capital. My bet is that's not so well. (In the same way as highly developed Norway does not suffer from resources curse in contrast to let's say Russia, Venezuela or Saudi Arabia; yes, exaggerated comparison but I want to make clear what I mean)
Thankfully, the US still maintains pretty high human capital, not to mention huge productivity rates. That said, there would need to be some significant changes to the education system (of course, education reform is a whole other beast to tackle).

Quote:
Interesting idea. Though after quick browsing it's a bit odd comparing to what I'm used to (in my country in close family, as long as all paperwork is done no tax from inheritances and gifts is due) and idea of using at top moment rate of 55% in 1994 sounds harsh plus I'm impressed by creativity of idea of generation-skipping transfer tax. (yes, I'm indeed impressed)

Assuming that you would really have something even more powerful than that how big market distortion would you expect? Except of course aggressive tax planning (you know, these guys would have the best tax advisors)
Spending last few years of ones life on travelling around the world because anyway those money would be mostly taken by the gov sounds fair and reasonable, doesn't it?
It's difficult to arrive at a specific % without modelling a budget and examining how much is needed. I might look into this later, but for now, even at a cursory examination I'm fairly confident that one as high as 55% isn't required.

Further, yes, they can engage in an orgie of consumption assuming they wish to leave little to their kids out of spite for the taxman, but even consumption and travel are taxed (economies here and abroad will love it by the way). I also doubt that they can spend enough on travel alone to meaningfully impact their taxes. With a properly constructed regime, the only escape is capital flight to off-shores; the rest of the first world has comparable (or worse) tax burdens. Maybe they can become African warlords in a true free market anarchy? Lol.

As per the article, incentives as they relate to estate taxes are preserved because the estate tax hits after death. It only has to apply necessarily to a fairly small fraction of the population if the study is to be believed. Further, it's important to note that improved wealth and income equity tends to be correlated with increased demand and growth. Granted, the model they use features ideal conditions without any capital flight or off-shoring, so taxation must be higher or more inclusive to compensate for this revenue loss, but the net burden shouldn't be undue.

Quote:
However, you told how you are going to hunt for treasures of the rich and not how are you going to make poor save. I'm curious what's the saving ration among US bottom 20%? (So I'm curious whether slightly improving returns would make a huge difference.
I recommended inflation adjusted flat capped (limits not indexed to income), registered tax free savings accounts, including opt-in 'escrows' and tax credits for financial planning and investment consultation, as well as preserved tax advantages for the poor-middle class. Aside from that, increasing obligatory pension contributions, or creating obligatory locked in savings contributions, but I am leery about obligatory savings programs.

Concerning new ideas, a sort of public pension pool funded by negative tax for the working poor (reportable income required) that pays out tax free annuities/dividends might be a good idea (these distributions could be reinvested at their option). The principle would be accessible to them once they had passed certain income thresholds for a number of years.

As for savings rates by income/wealth, I haven't been able to find those yet. I agree they would be interesting (and depressing).


Quote:
Originally Posted by silveroak View Post
I think you aren't comprehending the math the tax would be 40% x (income-$40,000)
so for the following income:
$30,000= 40%*-$10,000= -$4000
$50,000=40%*10,000=$4,000 (effective 8%)
$60,000=40%*20,000=$8,000 (effective 13.3%)
$100,000=40%*60,000=$24,000 (effective 24%)
$140,000=40%*$100,000=$40,000 (effective 28.5%)
$200,000= 40%*$160,000=$64,000 (effective 32%)
$500,000=40%*$460,000=$184,000 (effective 36.8%)
$1 million=$384,000 (effective 38.4%)

is that graduated enough?
I understand it fine. My answer would be no. 24-36% on 100,000 to 500,000 only? 40% on the ultra wealthy (10-100+ mil) is probably at the fringes of what I'd consider acceptable.

Really though, the exact numbers are contingent on how much is needed, but I think 24% on +100k is a little light, as is 40% on the ultra-rich. Granted, my bias is to more as a Canadian where additional revenues are needed for expanded social programs.

Negative taxation is an interesting thought. I'm not sure how I feel about that exactly, at least at echelons as high as 30-40k. I feel 30-40k is high enough to be taxed, albeit at minimal levels.

I assume these taxes are federal only, or are they meant to be aggregate?

those would be federal. Odds are the negative income tax at the Federal level for $30k-$40k will merely offset state taxes. Two points inform this- the first is my belief that taxes should never get as high as 50% and the second is the fact that having income tax higher than capital gains destabilizes an economy (especially when income from investment is taxed higher). It is also interesting that, regardless of the tax schemes employed in the past taxes have almost always managed to collect 20% of the GDP. Starting from that point, plus the idea that an immediate tax change should not be overly radical, I think that teh 40% number ius good to start with, keeping in mind that when pursuing equality the ideal should be to bring the lowest up rather than the highest down. Certainly they deserve to shoulder more of the burden as they can affoard more, but at the same time taxing someone to punish them for being lucky or wealthy is simply counterproductive. In the accounting of Saturn that comes from the Roman saturnalia he descibes an ideal time before the reign of Zeus- a golden age when all were equal, when food grew without being planted, and people gambled betting nuts rather than money or land- it doesn't take much reading however to realize that this golden age was one which simply predated agriculture and the human race had small enough numbers to not need agriculture. Hardly what we should be looking for as we structure a modern 'golden age' of economic equality- or more accurately greater equality, since achieving actuial equality would probably have results in line with Saturn's "golden age"

I don't think anyone here expects or pursues 'utopia', perfect equality or a golden age.

The real objective is to achieve an increase in income and wealth equality such that long term economic performance is improved, disastrous consolidations of economic power are averted and reversed, and the standard of living for the majority reaches levels comparable or superior to those of other first world countries.

Concerning your numbers, yes, their suitability is also contingent on state rates. So what would you propose for them? That said, I still believe 30-40k should be taxed (as opposed to being tax neutral post state taxes and negative federal taxes). You make enough at that point to weather at least minimum taxation without too significant an impact on your standard of living, especially post credits.

As for your 50% tax aversion, keep in mind that credits and discounts exist, and tax evasion/avoidance must be accounted for (just as prices must increase to account for theft, so too must taxes). While I can certainly understand and empathize with the psychological reasons for such a number, it is important to note the influence and necessity of the above.

Quote:
Originally Posted by silveroak
the second is the fact that having income tax higher than capital gains destabilizes an economy (especially when income from investment is taxed higher)
Oh? Where did you discover this? I'm genuinely curious. And what do you mean by income from investment precisely? There are a lot of things that qualify for that description.

Ah, but part of my plan I should have mentioned is to eliminate the credits and discounts- so the numbers actually mean what the numbers mean.

As to the instability it is a simple engineering problem. investments are made to maximize gain, which is a combination of dividends (income) and capital gains. Capital gains expectations are based on the expected future performance of the company, which is in turn based on the past performance. As such capital gains become the feedback mechanism on the control mechanism of market forces, while dividends or current earnings are in essence the signal. price is defined against amrket expectations of percentage return on investment applied to future expected dividends and price fluctuations- when expectations of a price going up drive the price up faster the feedback mechanism has gone into an unstable configuration where it will oscilate with a natural frequency of geometric gains followed by collapse. That is what causes feedback when you put a microphone in front of a speaker as well as what has led to the cyclical recessions of the past few decades.

Quote:
Originally Posted by silveroak View Post
Ah, but part of my plan I should have mentioned is to eliminate the credits and discounts- so the numbers actually mean what the numbers mean.
Don't like it. Credits and discounts are important levers of influence the government should not be without.

Quote:
Capital gains expectations are based on the expected future performance of the company, which is in turn based on the past performance.
As an investment advisor, I can tell you that is fundamentally incorrect. Past performance is indeed a factor, but present and future plans, and growth outlooks (which may or may not be substantiated) , as well as political and macro economic climates are major, or even dominant drivers.

Quote:
As such capital gains become the feedback mechanism on the control mechanism of market forces, while dividends or current earnings are in essence the signal. price is defined against amrket expectations of percentage return on investment applied to future expected dividends and price fluctuations- when expectations of a price going up drive the price up faster the feedback mechanism has gone into an unstable configuration where it will oscilate with a natural frequency of geometric gains followed by collapse. That is what causes feedback when you put a microphone in front of a speaker as well as what has led to the cyclical recessions of the past few decades.
Yes, this is the mechanism for a bubble; inflated expectations outstripping reality's ability to meet them. However you do not articulate the exact mechanism by which taxes on earned income that are higher than those on income from investment (I assume that's what you mean) begets instability. Further, you need to keep in mind that economic assertions require evidence because economic behaviour isn't always rational. Remember, economies are driven by people, and people are heavily motivated by emotion and subjective considerations (incidentally, this is precisely what allows bubbles to form).

No, that is not what I claimed. What i claimed is that income taxes (especially on dividends from investments) being higher that capital gains taxes leads towards instability. If you are looking at a claim I did not make then you certainly will not find support for it in my argument.
Also while economies are driven by people people in aggregate follow predictable patterns of behavior- which is why so many wall street firms are modeling investment patterns amongst common (less educated) investors in order to capialize better on their lack of education (in short as things stand now encouraging those without to invest will wind up giving more to the 1%) and yet when it comes to tax policy the big players are even more predictable because they are closer to a model of rational behavior.

Quote:
Originally Posted by silveroak View Post
No, that is not what I claimed. What i claimed is that income taxes (especially on dividends from investments) being higher that capital gains taxes leads towards instability. If you are looking at a claim I did not make then you certainly will not find support for it in my argument.
This is an important clarification; you need to be more precise in your statements. Personally, I agree that income taxes on earned and dividend income should not be higher than capital gains barring capital gains in primary markets/venture capital. However, I am not so convinced that such a policy of higher dividend/earned income taxes _necessarily_ leads to instability. That's a pretty substantive claim, and I don't see the evidence or compelling logic in support of it. Your assertion appears to be that tax advantages on capital gains vis a vis alternate forms of income are a primary causation of bubbles. While they certainly promote speculation and therefore potential instability if advantages are not keyed to longer time frames, I sincerely doubt that even in this case such tax advantages are a main or even substantive driving factor of bubbles.

Quote:
Also while economies are driven by people people in aggregate follow predictable patterns of behavior- which is why so many wall street firms are modeling investment patterns amongst common (less educated) investors in order to capialize better on their lack of education (in short as things stand now encouraging those without to invest will wind up giving more to the 1%) and yet when it comes to tax policy the big players are even more predictable because they are closer to a model of rational behavior.
And yet there are all manners of potentially surprising or counterintuitive behaviours discovered in the field of economics. I agree that as an aggregate things _tend_ towards predictability, and well constructed logical models and hypothesis' will tend to be more right than they are wrong, but it's not an absolute. This is important to note. We cannot apply Aristotelian models of pure logic (or what is otherwise believed to be logic) to semi-chaotic environments and expect that alone to hold; that is hubris, and the death/frustration of many an investor and economist.





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