Who Actually Earns $400,000 Per Year?

by Emily Guy Birken · 5,068 comments

Surgeons

After the unending media coverage of the fiscal cliff throughout December 2012, it was a relief to everyone when a last-minute compromise was reached. In particular, the most reported-on compromise had to do with the extension of the Bush-era tax cuts. Those cuts will remain in place permanently for any individual making less than $400,000 per year, and for couples earning less than $450,000. Those fortunate few who make more than that amount will see their rates rise from 35% to 39.6%.

The news about this particular tax rate increase got me wondering: what professions can expect to earn that kind of money? Since I don’t personally know anyone bringing home $400,000 per year, I decided to find out what kind of jobs command such high salaries:

1. The President

Perhaps the most famous $400,000 per year job is the leader of the free world. The office of president not only pays a $400,000 annual salary, but also provides the president with a $50,000 annual expense account, a $100,000 nontaxable travel account, and a $19,000 entertainment account.

There are some obvious downsides to this particular career, however. Besides being very difficult to get, the job is highly stressful, and advancement post-office can be considered somewhat iffy. And, of course, you can’t expect regular raises: the last salary increase for the commander-in-chief (from $200,000 to the current rate) was in 2001. Prior to that, the previous raise (from $100,000) occurred in 1969.

2. Surgeons and specialists

Even a local general practitioner can expect to pull in over $100,000 per year, but the real money in medicine is reserved for those who specialize. Anesthesiologists, heart surgeons, and brain surgeons can all expect to make up to $400,000 per year at the height of their career. Plastic surgeons can make up to twice that amount.

3. CEOs

The median salary of a Chief Executive Officer is over $700,000. These directors are in charge of both short- and long-term profitability for their companies. CEOs generally have to know the industry backwards and forwards (although there are certainly plenty of counter-examples), and need to have worked their way up over many years.

4. Wall Street Bankers and Lawyers

If you work in either finance or finance law, the place to go for fat paychecks is Wall Street. According to an October 2012 report, “the average salary of financial industry employees in New York City rose to $362,950 in 2011.” While that still falls short of the mark required for the higher tax bracket, it’s important to remember that this figure represents the average (meaning some people are making more) and that there have almost certainly been raises in the past year and a half.

The Top Percent of the Top Percent

These high-income earners are really rare. Consider the fact that most articles listing the highest paying jobs in America don’t even include any professions with median salaries of $400,000. Those individuals making $400,000 per year are in the top one percent of the top one percent — and often, they’re also public figures.

Thankfully, even though individuals in this bracket are few and far between, the government estimates that raising the tax rate on this small group will raise about $600 billion in new revenues over the next decade.

Not bad for a group that small.

What other professions that earn annual incomes of $400,000? 

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{ 5068 comments… read them below or add one }

Stevendad March 19, 2015 at 6:39 am

Peter from 20 years ago sounds like Stevendad from 30 years ago. 100+hour work weeks and lotsa home cooking. Now being punished by high (but not high enough for some) taxes.
I ran into this article: http://twitter.com/washingtonpost/status/578372084952354816/photo/1
and would love some comments. The overlay correlation of the income disparity map is extraordinarily close to that of the counties that voted for Obama map. Do liberals talk so much about inequality because of guilt? Or do their local liberal policies cause inequality? Other explanations? Steven H, Peter and JTM have any ideas?

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Steven H March 24, 2015 at 6:31 pm

Inequality is caused by political and monetary control of those who have money over those who don’t. It is caused by the natural tendency of wealth to trickle up, not down, unless government actively counteracts that trend. It is caused by growth of capital tending to exceed growth of salaries. You may recall a bestselling economics book of groundbreaking research made that point recently.

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Peter N March 24, 2015 at 9:15 pm

“Inequality is caused by political and monetary control of those who have money over those who don’t.”
Libtard non-sense.

” It is caused by the natural tendency of wealth to trickle up, ”
Well yes. There are those that know how to generate wealth and those that just consume it.

“It is caused by growth of capital tending to exceed growth of salaries. ”
Not quite. It is cause by the increasing percentage of wealth being generated by capital.
Basically, machines are replacing people in low skilled jobs or one can buy low skill over seas skills cheaper.

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Normal Joe March 26, 2015 at 9:00 pm

@Peter N Please desist with the ad hominem attacks. It accomplishes nothing other than poisoning the well. It is my earnest hope that if you are either unwilling or unable to assimilate reason over ideology, then at least there are others that find the exercise enlightening and therefore useful. There are just as important things in life, and business, as wealth accumulation. Many people more clever than I have recognized and accept that as an oligarchy public policy is shaped by and for those with the money for lobbying and supporting political campaigns. Both political parties have succumbed to the pressure turning our legislative process into a tool of those who finance it. Your opinion is unsupportable without your circular reasoning.

Let’s separate wealth from income. Wealth, as I define it, is the accumulation of assets, be they cash, investments, and property. Income, is simply cash flow. It is this cash flow that has been seriously hijacked by fewer and fewer people since the ill advised implementation of Reagan’s voodoo economics we now call “trickle down.”

What those who share some of your points of view need to understand is that these voodoo economics is an ideology without empirical evidence that it functions as it is purported to. And this almost dogma like commitment is preventing you from accumulating more wealth because of the negative impact on the engine of the economy, consumer demand.

In a previous post I used the term “trickle up” as a metaphor for the way cash flow enables wealth accumulation. The current state of our economy illustrated by the severity of the recessions, the longer it takes to emerge from recessions, and the slum lord way we are forsaking our infrastructure are all related to this severely constrained cash flow. What we see instead are corporations buying back issued stock to reduce the number of shares in circulation resulting in paper profits and the illusion of wealth. There is no incentive to invest in the means of production.

It seems that every Republican President this century who left a trashed economy upon leaving office, starting with Herbert Hoover, believed in “trickle down” economics. Will Rogers explains why, despite its devastating effects on the poor, the GOP may forever be enamored of the concept.

“The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover didn’t know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night, anyhow. But it will at least have passed through the poor fellow’s hands.”

The minimum wage went up in 13 states — Arizona, Connecticut, Colorado, Florida, Missouri, Montana, New Jersey, New York, Ohio, Oregon, Rhode Island, Vermont, and Washington — either thanks to automatic increases in line with inflation or new legislation, as Ben Wolcott reports in his analysis at the Center for Economic and Policy Research. The average change in employment for those states over the first five months of the year as compared with the last five of 2013 is .99 percent, while the average for all remaining states is .68 percent.

Digging deeper, all but one of those states are experiencing increases in employment, and nine of them have seen growth above the median rate.

Wolcott’s analysis builds on a previous one from Goldman Sachs, which did the same evaluation for just January and compares it to December of last year. It found that the states that had minimum wage increases experienced faster job growth than those without a raise.

This doesn’t mean that increasing the minimum wage necessarily creates more jobs. “While this kind of simple exercise can’t establish causality, it does provide evidence against theoretical negative employment effects of minimum-wage increases,” Wolcott writes. Indeed, it adds to the evidence that higher minimum wages may not hurt job growth as much as some have warned. Washington has the highest minimum wage and saw the biggest increase in small business jobs last year. Its job growth has also remained steady and above average in the 15 years since it raised its wage. When economists studied state-level minimum wage increases over two decades they didn’t find any conclusive evidence that the raises impacted job creation.

These very same states are showing economic growth higher than those who have not raised their minimum wage rate. How is Minnesota’s economy doing compared to Wisconsin’s which is in the process of doubling down on tax breaks for the wealthy and refusing to bow to the pressures for raising the minimum wage?

http://www.minnpost.com/macro-micro-minnesota/2013/02/walker-vs-dayton-smackdown-which-governor-has-better-economy

http://www.huffingtonpost.com/walker-bragman/minimum-wage-a-simple-fact-check_b_3114239.html

http://davidjamesbrunner.org/en/the-case-for-restricting-stock-buybacks/

http://www.washingtonpost.com/blogs/wonkblog/wp/2012/09/25/the-case-for-raising-taxes-on-capital-gains/

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Dude April 5, 2015 at 4:38 pm

That was impressive, but too much effort for a troll. Signed, a Republican who admires your argument backed with data.

Lance B May 5, 2015 at 1:07 pm

There is nothing normal about your response. I’ll bet you’re a stitch at parties.

Steven H May 12, 2015 at 4:50 pm

Late comment to Normal Joe’s March 26 post at top of page: GREAT POST. Thanks for the data.

Peter March 25, 2015 at 7:31 am

I need to read over this at home. Unfortunately my firm blocks twitter so I can’t look at it at work….been meaning to read and comment though.

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Steven H March 26, 2015 at 9:29 pm

The states that vote for GOP also correlate to greatest dependency on government. This doesn’t necessarily mean anything, as this article fairly discusses,
http://www.cheatsheet.com/business/10-states-most-dependent-on-the-federal-government.html/?a=viewall
with multiple detailed reasons for the top 10 government-dependent states, 8 of which happen to be red. Finding simplistic correlation of one set of data to another often means very little and speculation just invites a false sense of proof to a predisposed bias, as exhibited in your post.

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Stevendad March 19, 2015 at 8:08 am

Just had a chance toread through some of the posts while I was out.

Steven H, here is why you said we left ( to paraphrase) “they left because they could not support their weak positions”

I left because you were being arrogant, abrasive, closedminded and dogmatic.

Just to be clear.

It’s fascinating to see you have changed your position ZERO since your first post. And yet you constantly say how fair minded and open you are.

Not to dredge up the past, but I had to defend myself from your falsehood.

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Steven H March 24, 2015 at 6:22 pm

Stevendad,
“I left because you were being arrogant, abrasive, closedminded and dogmatic.”
As were you, if you recall correctly. You apologized at the time but seem to have forgotten that part. Why try to stir it up again?

“It’s fascinating to see you have changed your position ZERO since your first post.”

Not true. Just another potshot from the peanut gallery. I will listen to any facts you choose to provide but I will not be lured into another p*ssing match.

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Steven H March 24, 2015 at 6:46 pm

Steven dad comments in quotes:
“Something ignored here is that capital can and will flee and the very hard working will quit working.”
Agreed, except the very hard-working are mostly the middle class, not the very wealthy, and the fleeing capital is their labor and ingenuity which is underused.

“Again, SS and MC are NOT taxes as much as enforced saving for old age.”
Agreed.

“Also, it is assumed that there is NO immorality in taking something from those who work very hard and smart and giving to those who don’t.”
Exactly. We need to stop doing that. Which is why wealth and income needs to be moved back to the hard-working middle class. Our gross overpayment of investment class is indeed immoral.

“Again 100% taxation of the 1% doesn’t solve our deficit.”
No, but quarter to half of the deficit could come from the upper 0.5% or so and it would bring us a whole lot closer.

“We must and will go lower and lower OR seriously curtail payouts. Only other option locking up a lot of long term debt and printing money to inflate our way out of it.”

Deficits are less than 3% GDP. Growth is over 2% GDP. When Deficit = Growth as % GDP, that IS a balanced budget in national economic terms. Anything beyond that and we are paying down Debt/GDP over time.

We need to stop talking like we need we have to reach $0 deficit to balance the budget, or that we EVER need to drop total debt below $17T. We dropped Debt/GDP from 100% plus in WW2 to 32% in 1980 without lowering the total debt even a dollar or maintaining a negative deficit. Deficits were generally 1 to 2% of GDP and total debt multiplied.

We need to understand the math and aim for realistic goals or we will never succeed. $0 deficits and lowering total dollar debt are not practical or useful goals. Cutting investment in education and slashing safety nets is neither necessary, nor productive.

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Peter March 25, 2015 at 7:33 am

“the very hard-working are mostly the middle class, not the very wealthy”

This is the error in your perspective in a nutshell.

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Peter March 25, 2015 at 7:34 am

And nobody is going to care about debt as a percentage of GDP when the bills come due….. all that matters is the actual number and whether we can afford to pay it.

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Steven H March 25, 2015 at 8:45 pm

If we can drop the deficit/GDP ratio below GDP growth rate (and we are very close), we ARE paying the bills and Debt/GDP ratio falls. It really does not matter if the raw dollar amount falls any time soon, as long as the economy can grow and population can grow. There is an eventual limit to both, but probably not even in our grandchildren’s lifetimes.

We do not need to drop the deficit to $0 in 10 years or in 50 years, or maybe ever. Realistic goals are to get deficit/GDP down to 1.5 or 2% and concentrate on getting growth higher than that. If we can get Debt/GDP down close to 30%, as it was in 1980, we can maybe manage to pay the rest off quicker. It might take us 30 or 50 years to get that far, and maybe raw dollar debt will be $25 or $30 trillion after inflation and economic growth. It won’t matter.

The point is that we must not strangle the economy and suffocate the middle and working class with needless austerity to meet economic goals that make no sense.

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Steven H March 25, 2015 at 8:35 pm

No, not an error, but it is the heart of our disagreement. You have convinced me you are a hard-working entrepreneur. But I am not convinced that very many of the $5 million plus earners work any harder or smarter than an average construction worker.

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Peter March 26, 2015 at 10:03 pm

That’s a shame. What an odd perspective. Seems like everyone who wanted to could just make $5 million then if it is no harder than construction work. Come on…..

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Steven H April 2, 2015 at 6:53 pm

The perspective is not as odd as you think. People are clever at different things. I know a very smart lady who could run a business but she is particularly clever at mechanical things and loves working at a specialty bicycle shop as a mechanic. Some people are clever at construction, others at art, others at communication, others at engineering, others at money. Those who are clever at money aren’t any smarter or harder working than the honest ambitious hard-working people at comparable skills in other specialties. They are simply clever with money. Too clever, sometimes.

Peter April 3, 2015 at 4:31 pm

But you imply that the financial industry is responsible for the income disparity or makes up the majority of the 1%. Maybe your beef is with hedge fund managers and the like and not with the 1% you continouously attack. That 1% is largely made up of hard working people – many small business owners – who have a skill and made good decisions (and of course, had some good fortune along the way)

It’s clear you hate a lot of the “traders” and “money people” on Wall Street and certainly feel ill will towards those that inherited wealth. But why you keep separating a skilled mechanic from a skilled doctor, lawyer, business owner, or even mutual manager I am unclear about.

Peter April 3, 2015 at 4:31 pm

Mutual FUND manager that should read.

Peter April 3, 2015 at 4:32 pm

And some jobs pay more than others. That is life. Someone who can fix ceramics is not going to make more than someone who can perform heart surgery.

Steven H April 13, 2015 at 9:43 pm

“And some jobs pay more than others. That is life. Someone who can fix ceramics is not going to make more than someone who can perform heart surgery.”

Of course. And if you recall, I keep saying that skilled professions are important. Even a mutual fund manager may have an important job. Yet even people with important and necessary jobs can be overpaid. All evidence indicates our financial industry is bloated. The individuals within that industry are not evil or devious, but our society has provided poor motivation. We encourage more people than necessary to go into banking and high finance by overpaying them, and also undertaxing those large incomes. It should be no surprise that we get overly-risky financial schemes and complicated unmanageable financial instruments. We reward this behavior with high salaries for dubious work and then government bailouts to reward failure. If we want a different result, we need different incentives and a MUCH smaller proportion of the economy devoted to finance.

Peter N March 24, 2015 at 9:29 pm

““Again, SS and MC are NOT taxes as much as enforced saving for old age.”
Agreed.”
you are both wrong. SS and MC are a wealth transfer program. If it was enforced savings I would get back what I put in.

““Also, it is assumed that there is NO immorality in taking something from those who work very hard and smart and giving to those who don’t.”
Exactly. We need to stop doing that. Which is why wealth and income needs to be moved back to the hard-working middle class. Our gross overpayment of investment class is indeed immoral.”
You are confusing working hard with working smart and the true value of what is being done.

““Again 100% taxation of the 1% doesn’t solve our deficit.”
No, but quarter to half of the deficit could come from the upper 0.5% or so and it would bring us a whole lot closer.”
This is dangerous talk. You all might as well be communist.

“Deficits are less than 3% GDP. Growth is over 2% GDP. When Deficit = Growth as % GDP, that IS a balanced budget in national economic terms. Anything beyond that and we are paying down Debt/GDP over time.”
What non-sense.
GDP is not a measure of the increase in wealth.

It is clear the libtards are clueless.
I have zero faith in our economic system now. I am looking at buying real assets like property, gold, weapons and food.

If you believe the government you are a fool.
Those that can create wealth will survive the coming chaos but it won’t be easy.

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Peter March 25, 2015 at 7:38 am

““Again, SS and MC are NOT taxes as much as enforced saving for old age.”
Agreed.”
you are both wrong. SS and MC are a wealth transfer program. If it was enforced savings I would get back what I put in.

—- I won’t get anything close to what I put in and many will get more than they put in. Some won’t get anything at all (if they die before 62).

Bottom line is – and we aren’t changing Steven H’s point of view of this – is that he thinks the middle class works very, very hard for inferior wages while the super rich ‘do nothing’ or very little and just accumulate more wealth. This shows his ignorance and in spite of example after example, anecdotal stories and other evidence – he will not change his point of view. Honestly, if I felt the way he did I would likely share his worldview. I TOTALLY see his point of view. I just think it is narrow-minded and categorically wrong.

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JTM March 25, 2015 at 3:59 pm

Peter – A few simple calculations would show that you will most likely get back at least as much as you paid in to SS as long as you retire at the normal time and live at least 11 years beyond. I don’t know your age, but know you are a bit older than me. I used birth of 1960 and an SS calculator with max earnings for each year. The maximum SS tax payment (employee + employer) this year is $14,694 time 35 years is $514,290, this would be the absolute maximum in today’s dollars you could have paid in, the actual total is way lower. The monthly SS payment then is $3,861, leaving 133 months needed to recoup all inflation adjusted payments. this disregards the facts that monthly payments will go up with COLA and that the earliest years max payments were only $2200. Yes, you may receive less, but that would also mean to paid in less some years. Like many other insurance programs, losses by some (early death) make up for others coming out ahead (living longer). It’s a bit of a stretch to call it wealth transfer though.

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Peter March 25, 2015 at 4:42 pm

That’s fair enough….

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Steven H March 25, 2015 at 8:20 pm

“Bottom line is – and we aren’t changing Steven H’s point of view of this – is that he thinks the middle class works very, very hard for inferior wages while the super rich ‘do nothing’ or very little and just accumulate more wealth.”

Overstating my position does not prove my actual position wrong.

Bottom line is that there is a very simple test to determine whether wealthiest people are earning more money per effort than the past. You just have to look at whether wealth and income of the richest people grow at a faster percentage than the rest of the population, and …. yep, that is what is happening.

It’s not that I think rich people do nothing or very little. That is a complete and utter exaggeration of my position. They are just overpaid by a certain amount, as per relative to both historical norms and proven optimum income distributions. Why do you always take my positions, exaggerate them into absurdity, and then ridicule my arguments based on things i never said?

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James March 26, 2015 at 9:16 am

your position is absurd enough without exaggeration

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Steven H March 26, 2015 at 9:32 pm

And your actual point, if you have one, is …? Or are you just trolling?

James March 27, 2015 at 7:09 am

Quotes from this page alone……

Steven H – “the very hard-working are mostly the middle class, not the very wealthy, and the fleeing capital is their labor and ingenuity which is underused”

Steven H- “I am not convinced that very many of the $5 million plus earners work any harder or smarter than an average construction worker”

Steven H – “Businessmen alone do not create wealth … unless and until they collaborate with the middle class to do so. If you think the middle class needs you more than you need them, you are a fool.”

Steven H – “Companies and their high paid management teams are getting rich off of conditions that simultaneously enable them to lord their power and control over the rest of the country.”

Peter – “Steven H thinks the middle class works very, very hard for inferior wages while the super rich ‘do nothing’ or very little and just accumulate more wealth”

How is this an exaggerated restatement? At least own what you believe. You almost never mention the middle class without the adjective “hard working” before them – even calling them “ingenious”. And you have spoken repeatedly about the rich as using their wealth and power to accumulate more wealth, earning more than they deserve, and not creating jobs or anything of value. Own it at least…..

Peter March 27, 2015 at 9:09 am

We could add this quote from Steven H: “You confuse accumulation of wealth with creation of wealth. Some businessmen create wealth with their efforts. Others accumulate it. Many create some but accumulate more than they create”

Steven – at least own the fact that you think that the large majority of the super-wealthy are not job creators or helpful to the economy – they are simply using their existing power and wealth to accumulate more wealth – far more than they deserve, far more than in history, and far more than is good for society at large. Meanwhile, the middle (and lower) classes are full of hard-working people who are largely the ones responsible for the success of our economy – but they aren’t getting their fair share – due to policies that favor the rich and undermine their negotiating power.

You don’t believe that the rich are there because they took risks, have special talents or skills, or simply worked harder and/or smarter than others. You also don’t believe that the middle class’ perceived struggle is due to automation, a changing economy, their own lack of skills or work ethic.

Own your opinions. I think it is very telling that you react the way you do to your words being restated. I really don’t think you even hear yourself…. (this is the dogmatic, closed-minded trait that Stevendad was referencing)

Ken really hit the nail on the head with your lack of acceptance of “ownership” as one of the key factors in income disparity. I think that is the biggest missing link in your arguments. You dismiss this far too readily and continue to insult and blaspheme the successful. Say what you want about my point of view, but I don’t do the same thing for the lower wage earners. Why would I? I used to be one myself. (See the Peter from 20 years ago post that you didn’t reply to)

Steven H March 28, 2015 at 7:49 pm

Peter ========
Steven – at least own the fact that you think that the large majority of the super-wealthy are not job creators or helpful to the economy – they are simply using their existing power and wealth to accumulate more wealth – far more than they deserve, far more than in history, and far more than is good for society at large. Meanwhile, the middle (and lower) classes are full of hard-working people who are largely the ones responsible for the success of our economy – but they aren’t getting their fair share – due to policies that favor the rich and undermine their negotiating power.
=====================
Yes, This is a pretty good restatement of my position. Very good.

Peter =============
You don’t believe that the rich are there because they took risks, have special talents or skills, or simply worked harder and/or smarter than others.
=================
Now there is considerable subtlety missing from the statement. For example, who are we talking about as rich in this case? I have REPEATEDLY stated that I think small businessmen are important to the economy, and that entrepreneurs who invent, build, and/or sell their products and services to the economy are not a big driver of high income disparity. MANY of these folks work very hard and have special talents and skills that improve the world. And this category seems to include most of the high income posters on this site, who seem (based on their own posts) to fall somewhere in the 98 to 99.5 percentiles. It is more correct to state that I believe large percentages of the upper 0.5%, and especially the upper 0.1% receive far more of the national income than they seem to earn. As you accurately restated for me above, this INCREASE in reward is largely due to changing rules and negotiating power, and changing world conditions, and not due to any particular INCREASE in meritorious skill or virtue on their part.

I AM particularly critical of the financial industry whose actions were a major contributor to the 2008 downturn and near-collapse of the banking system. Many of the 0.1% play in this game, and the actions they have taken and the risks they take with OTHER people’s money yield little benefit to the economy and do not merit the kinds of incomes these people receive. So yes, THIS particular faction of folks (not all of the 0.1% – but they know if the shoe fits) is pretty much worthless in my opinion. They have NOT created wealth and they have destroyed much wealth very recently.

Peter =======
You also don’t believe that the middle class’ perceived struggle is due to automation, a changing economy, their own lack of skills or work ethic.
===========
In order: Yes, yes [I actually DO believe], no, and no [you are correct I don’t believe]. The no’s are because the MIDDLE class clearly does NOT lack skills or work ethic. The yes to automation and changing economy simply acknowledges that the economy is changing, as it has every decade in this country’s history. The difference in the last 35 years (which so closely echoes the gilded age in latter 19th and early 20th century) is not that the economy is changing, but that we are allowing the wealthy to benefit disproportionately from these changes, largely through new rules established of, by, and for the wealthy.

We are a nation for a reason. We vote for a reason. We band together for a reason. We create this country’s infrastructure, policies, communities, families, schools, banks , governments for a reason. And that reason is to establish a more perfect union, not to let a small percentage of the folks run roughshod over everyone else, using the nation’s resources for their own extraordinary gain.

Peter March 29, 2015 at 8:15 am

You can keep trying to slice your targeted “enemy” group even further if you like (eliminating small business owners, wealth creators and 90% of the top 1%), but every single solution you are suggesting impacts those people significantly.

The problem is that even though it sounds appealing to most, just hitting the top .1% – while avoiding hitting any job creators in that group – doesn’t make the desired impact of bringing in tons of revenue and/or burgeoning the middle class. You have to hit the small business owners too and other people who do create jobs, drive the economy and are products of the American Dream.

Steven H April 5, 2015 at 6:13 pm

Peter, tell me how increasing taxes on the upper 0.2% or so affects the rest of the upper 1%. Tell me how making it less profitable to invent credit default swaps hurts anybody.

Steven H April 11, 2015 at 7:40 pm

James, the absurd position is thinking that the tiers within the 1% earn 2x, 3x, 5x or more of their historical norms and that they can and should continue to extract such incomes out of the economy while most incomes are stagnant for decades. The crazy statements are those of Peter N who proclaims he is a slave to the impoverished class. The economy changes but human nature changes very little. Those who strive their whole lives for money and power never satisfy their appetite and will always proclaim themselves exceptionally worthy and others unfit. But as a society, we can learn from history. We saw the rise and downfall of a gilded age in the late 19th and early 20th century. Surely we can learn by example and dismantle this gilded age economy in a more civilized and organized way than continually pumping more the economy’s wealth into the upper echelons of power and finance, until economies collapse and/or the populace revolts.

Steven H March 25, 2015 at 8:30 pm

Peter N,

You confuse accumulation of wealth with creation of wealth. Some businessmen create wealth with their efforts. Others accumulate it. Many create some but accumulate more than they create.

GDP is directly proportional to sum of earned income of the population, which absolutely means increased GDP measures increased wealth of the nation. Debt/GDP stays constant (balanced budget) when % GDP growth = Deficit/GDP. That’s not nonsense. That is math.

Businessmen alone do not create wealth … unless and until they collaborate with the middle class to do so. If you think the middle class needs you more than you need them, you are a fool. Those that create wealth (middle class and true entrepreneurs) will survive the coming chaos. Those that merely accumulate wealth will not.

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Peter N March 27, 2015 at 9:00 am

GDP is not a measure of increasing wealth. Got that!!!? GDP is simply a measure of economic activity. Rebuilding New Orleans increased the GDP but rebuilding what as lost isn’t a gain.

“Businessmen alone do not create wealth”
30 years ago my company had 3 owners only. Somehow we created enough wealth and opportunity without others to start hiring and expanding. If what you said were true then we would be stuck back with the 3 owners only.

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Peter March 27, 2015 at 9:12 am

I have certainly created a great deal of wealth for many. My employees, my clients, and all of the personal contractors I have employed over the years at my house. When I was making $20k/year I was creating wealth for nobody, including myself. Now that I make more money, I create wealth for dozens of people – not JUST myself.

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Steven H March 28, 2015 at 7:55 pm

Did you have customers? Did you work with a bank? Did you drive on roads? Did you build all of your equipment and buildings yourself, or did you hire other people to do that or buy the buildings and equipment other people built?

Businessmen are part of a system. They are ONE cog. Businessmen alone do NOT create wealth.

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Peter N April 16, 2015 at 11:28 am

Yes, we do. I automate machinery that makes products faster, cheaper and of higher quality. These are all value added processes. I do have customers and I get e-mails on how we have improved production, reduced rejects, maintenance etc.

Steven H March 28, 2015 at 7:59 pm

Peter ========
I have certainly created a great deal of wealth for many. My employees, my clients, and all of the personal contractors I have employed over the years at my house.
============
Yes, small businesses often are drivers of wealth creation, and the creators/founders of those businesses are an essential element in the process that includes many people and a lot of pre-existing infrastructure.

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Peter March 29, 2015 at 8:36 pm

I work for a major corporation. One of the big banks is our parent company. So not really a small business owner per se….although am paid totally on commission and take 100 percent of the risk when I started.

Peter March 29, 2015 at 8:37 pm

But thank God there are roads between my house and my office. Without them I probably would have never been so successful.

Steven H April 9, 2015 at 7:52 pm

“roads …”
Totally agree. And banking infrastructure and an education system, and all the rest. Glad you acknowledge the importance of all that.
😉

Steven H March 28, 2015 at 8:04 pm

Peter No =================
GDP is proportional to national income which IS a measure of increasing wealth. What you describe are anomalies in the system. There are many activities that generate income but do not generate overall wealth for the nation. Romney’s vulture capitalism, for instance. Credit Default Swaps, Selling overrated mortgages. Rebuilding New Orleans is actually a gain, as there will always be natural disasters, and restoring those losses is a gain relative to not restoring them. No one got paid to destroy New Orleans, unlike the bankers who got paid extraordinary sums to destroy the economy.

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Peter N April 16, 2015 at 11:32 am

GDP is not a measure of increasing wealth. It is just a measure of economic activity.

Steven H March 25, 2015 at 9:04 pm

I’m restating this because it is the obvious and seemingly irrefutable heart of my argument:

“Bottom line is that there is a very simple test to determine whether wealthiest people are earning more money per effort than the past. You just have to look at whether wealth and income of the richest people grow at a faster percentage than the rest of the population, and …. yep, that is what is happening.”

The other point that this brings up is that I have been told here that high income disparity is largely due to automation and availability of cheaper labor overseas. This increases incomes to companies in this country. OK. But then the argument goes that average US citizens and workers do not deserve any of that increased profit because they did not work harder to earn it. But business owners and investors seemingly DO deserve that increased profit … even though they also have not worked any harder to earn it.

Why do the richest people “deserve” more of our national profits, but average citizens do not, if the money is basically a windfall that is unearned by both groups?

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Peter March 26, 2015 at 1:54 pm

Not sure if you are asking me, but I have never said anything about people deserving or not deserving their income.

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Steven H March 26, 2015 at 9:55 pm

Peter =====
The job market, suppressed wages, etc. comes back to my point all along with the lost manufacturing and unskilled labor jobs in our economy due to the information age. The unskilled shouldn’t be “compensated” for this.
=========
I understand what you are saying, but wages are going lower on both skilled and unskilled jobs. The availability of cheap labor overseas drives part of this, as does automation. But another large part of it is the OTHER disparity: negotiating power. Cost of flight training to be an airline pilot is $100K but entry salary is about $20K. Students are paying out the nose for college education, but unemployment of college grads is high, and there are more college grads than ever before to BE unemployed. Amazon forces even seasonal factory workers to sign non-compete agreements limiting there job hiring opportunities for 18 months after the seasonal work. Skilled people are suffering low wages along with unskilled, and companies invoke unreasonable burdens on workers, because the large airlines, banks, stores and other companies have negotiating power mostly unfettered by govt or union limitations.

Companies and their high paid management teams are getting rich off of conditions that simultaneously enable them to lord their power and control over the rest of the country.

Why should the richest and most powerful be compensated highly for the advantages that globalization and automation provide, but the rest of the country is not allowed to benefit from those same advancements, and indeed, is made to suffer because of them?

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Ken March 26, 2015 at 6:00 pm

“….This increases incomes to companies in this country. OK. But then the argument goes that average US citizens and workers do not deserve any of that increased profit because they did not work harder to earn it. But business owners and investors seemingly DO deserve that increased profit … even though they also have not worked any harder to earn it….”

The reason that “average citizens” do not “deserve any increased profit” (two inflammatory ways of expressing this viewpoint, IMHO) is not because “they did nothing to deserve it”. The reasons they do not receive “excess” profit, whatever that is, are because 1) they signed employment contracts, which they signed, which had stated dollar figures indicating their complete, agreed-upon compensation; and 2) unlike investors or business owners, they did not have an ownership interest in the retained earnings (the “excess” profits).

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Ken March 26, 2015 at 6:20 pm

Sheesh… said “signed” twice. Oh well… lol. Did I mention they signed those employment contracts?

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Ken March 26, 2015 at 6:27 pm

And I guess a third, corollary, reason non-investors do not receive “excess” profits is because non-investors took no risk commanding (“deserving”) the excess profits as a reward. It’s basically a risk-reward thing. If you play it safe and don’t take the risk of losing your capital, you can’t complain that you don’t share in the rewards.

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Peter March 26, 2015 at 9:53 pm

Obviously. And it doesn’t matter “how hard they work” either. Which is why I have always wanted my own business or to take a job like the one I have which has ZERO salary. I take the risk but I keep the rewards. My assistants get a paycheck.

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Steven H March 26, 2015 at 9:57 pm

So those who get control and capital are allowed to use their wealth and power to accumulate more wealth and power until the rest of the country is essentially enslaved to them. And you see no problem with that?

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Peter March 26, 2015 at 10:00 pm

Power is different than wealth. Yes, you should be allowed to accumulate more wealth. And no this should not result in more power. I have lots of wealth myself and almost no power. The two don’t have to be correlated. Unfortunately they are but the way to change this isn’t to keep people from accumulating wealth. It is to reform the corrupt campaign financing practices that allow corporations to buy politicians.

Peter N March 27, 2015 at 9:07 am

More non-sense. You are free to start your own company anytime. You always decline. In the United Welfare States of America you don’t even have to work at all, those that pay taxes are your slave.

Steven H March 26, 2015 at 10:10 pm

Ken, your argument assumes that the reward of capital is a fair return for the risk … or if you don’t like the word “fair” then substitute “sustainable”. I think you can agree that there CAN exist conditions where entrepreneurial risk exceeds the potential reward and thus business growth is slowed. This could happen from market conditions, but also from over-taxation or over-regulation. If you agree, then you must also agree that the converse condition CAN exist: where reward exceeds risk and businesses and business income grow quickly. You may see no downside to this latter condition, but it has a cost: it cannot be sustained indefinitely and the extra reward comes from someplace, and and that someplace is getting depleted.

So are we in a stable economy with balanced risk/reward of capital, or one where risk is under-rewarded, or over-rewarded? How do you think that can be determined?

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Ken March 27, 2015 at 6:36 am

It’s not really an argument, Steven. I was just explaining the reason why owners and investors participate in profits, while rank and file employees don’t. I get it that you don’t like the system, but that’s the reason why profits are apportioned the way they are. It has everything to do with risk taking. Risking failure is what causes someone to participate in company profits, if and when profits occur.

At any rate…. With regard to your question about the economy overall, I would say the US economy is the most robust, diverse, vibrant economy in the world. It has the most opportunities for success, and the fewest barriers to entry of any country I can think of. It has produced more wealth for more people than any other economy in the history of civilization. I’d say that’s a pretty good track record.

As far as risks and rewards go, I think (mostly) efficient markets overall determine the risk-reward tradeoff. This scenario plays out every day in the financial sector. Where risk exceeds the potential reward, the price of the investment vehicle decreases accordingly until risks and rewards reach equilibrium (based on available information). The same is true in the reverse.

And the same is true on a broader scale with entrepreneurship. As long as the rewards are out there, a certain portion of talented, self-assured, risk-taking individuals will take on that risk, despite the fact that 80% of small businesses fail. Most people, however, will not take the risk. Most people will opt for the security of a known paycheck, predictable hours, and so on, and forego the risk of failure.

So, after all of that, I would pose an alternate series of questions to you: Is having the most vibrant economy in the world, with the most opportunity and fewest barriers to entry a good thing, or a bad thing? When people are willing to take the risk of an 80% failure rate and achieve profitability anyway, is it fair that the government then takes 75% of their money (as is the case in France)? Where do you think the taxation line is where people will stop taking risks because the government will just seize the profits anyway, and thus the rewards are not commensurate with the risk? 50%? 60%? 80%?

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Ken March 27, 2015 at 7:00 am

I guess my series of three questions in the last paragraph really boils down to the last one… the first two being more rhetorical in nature……Where do you think the taxation line is where entrepreneurs will cease taking risks because too much of the potential rewards are taxed away?

Ken March 28, 2015 at 4:37 pm

So to be fair, and to answer your initial question more directly… I would say that your question about whether there can be imbalance in the risk-reward equation is pretty interesting, and a good question.

I would say that in the short term, yes, there can and are imbalances in the risk reward structure, and in both directions. In fact, I think that markets (and businesses) in the short run are rarely in perfect equilibrium. There can be, and almost always are, things in the short term which skew results in either direction temporarily. In the short term, there are always forces that are affecting things, new information, new ideas, new inventions, whatever, which have not been appropriately priced (absorbed?) into the risk-reward tradeoff. Kind of like “The Borg”, in a way. lol

Anyway, having said that, I would say that in the medium to long term something very close to equilibrium prevails. We never have perfect information, but in the medium to long term we get pretty close. And the markets overall, armed with almost perfect information will almost always act rationally. Individual people and businesses will do the same, and will act in their own interests. Like investments overall, if there are business opportunities available which command certain returns, people will build things to take advantage of those until equilibrium (or something close to equilibrium) is reached.

There is no such thing as a free lunch.

Steven H March 28, 2015 at 9:49 pm

Ken ====
“I would say that your question about whether there can be imbalance in the risk-reward equation is pretty interesting, and a good question.”
=======
Thank you.

Ken ===
I would say that in the medium to long term something very close to equilibrium prevails.
======
I see what you are saying here. I agree that there are short term imbalances that even out. But the “long term equilibrium” you describe is accomplished with the relatively long-term rules of the system. In other words, the economy is series of chemical reactions contained within a bottle. Equilibrium of sorts is reached within the constraints of the bottle. But what if the size and shape of the bottle itself is forcing an imbalance that causes the system to fail?

The “equilibrium” we are reaching under the current rules of the system is unsatisfactory to most people. This “equilibrium” pushes money out of the middle class and into the upper management, corporate, and financial sectors. Much of what I hear as arguments defending the status quo seems to be mechanical descriptions of how equilibrium is maintained within this bottle. I understand risk/reward processes, capitalism, and free markets. What I am suggesting is that the bottle itself has been reshaped, and it is making most people less prosperous and a few people very prosperous. What I am proposing is that the bottle be reshaped again to make this country and economy more rewarding for more people.

If actions are found and taken that reshape the bottle to restore prosperity to the middle class, then the whole country will benefit.

So when I say that risk-reward is imbalanced and you say it reaches equilibrium, we are speaking truths from differing perspectives. We have equilibrium within current rules. But I would say the current rules are unsustainable, because they put the majority of Americans at great disadvantage. And in a democracy, the majority eventually gets its way.

Stevendad March 26, 2015 at 1:58 pm

Steven H Only reason I brought up past is you said I left because I couldn’t support my positions. Wrong. And no, you really haven’t changed.
$18T with Normal rates around 4% doubles or debt payments. That will rob all the social programs more than anything. Assuming we eventually balance the budget. BLOAT is the problem. MORE BLOAT is not the answer.
SS and MC are intended to be an insurance/ savings for old age. Thus they should not be a wealth transfer vehicle. They have already been a generational wealth transfer vehicle. I will pay in about $500k and get back 240 x $3200=$760k, assuming colas eliminate inflation and I live to about 87, which is about expected at present age. Of course, would be millions in stock / bond mix mutual fund…
Any comments on the overlay of Obama voters and income disparity maps?

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JTM March 26, 2015 at 2:29 pm

I do somewhat question your total paid in amount, but I’ll let that go, and I agree that it has been a huge generational wealth transfer. One thing you are overlooking is the actual insurance factor, these programs also have provided insurance coverage for reasons other than retirement – survivor and disability for ourselves and to support our families. Yes, it’s forced insurance and by it’s nature insurance provides more compared to the input to some than others. There are “winners” and “losers”. There are those like Paul Ryan who are huge “winners” and receive thousands without ever working because their parents died while they were young. My brother was a “loser”, he died single at age 31 after years of paying in, my sister is a “winner”, she has been on SS disability for decades due to a bad car accident after only a few year of full time work, my father is a “loser” as he maintained good health, began receiving SS at 62, but died at 65, my grandfather (and many more from his generation) has been a huge winner by living into his 90’s. So, yes, you may have been able to do better in the markets yourself (though not guaranteed), but you cannot forget about the other benefits you didn’t use, but which could have made a huge difference for you and your family.

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Stevendad March 31, 2015 at 4:57 pm

Max amount for 40-45 years plus lesser for 20 years. Should be around $500k.

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Peter March 26, 2015 at 9:57 pm

Stevendad – I do think it is interesting that DC shows up as one of the most unequal cities in light of our discussion of the area a few weeks ago (and one or two pages back). The Federal government has been responsible for the growth in the DC area with its never-stop-spending mentality and it has truly helped the whole area. We have very little poverty in our area yet it rates “unequal”. This is likely because the top is so much higher here – the median income is over $100k at last check – not that poor people are being left behind. I don’t care what the top guy makes as long as there is a middle class and little poverty.

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Stevendad March 31, 2015 at 5:25 pm

The Feds are “the Blob”. Primary interest is increasing its own size. Again, the system is inherently wasteful and inefficient. Efficiency, productivity and going under budget are punished, bloat and waste rewarded. DC reminds me of Corsucant in Star Wars.

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Peter March 31, 2015 at 7:14 pm

Which is why it makes me insane when I hear that the solution is that I give them more money.

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Ken April 1, 2015 at 5:33 am

No matter how much revenues go up, the federal government outspends it. We need something like a constitutional amendment to prevent unbalanced budgets — something with real consequences for non-compliance, not these fake borrowing limits that always get increased in the next “crisis”.

Steven H April 2, 2015 at 6:41 pm

Ken, your comment is a cop out: “No matter how much revenues go up, the federal government outspends it. ” That has not been true for 8 of the 12 post-war Presidents, for whom Debt/GDP declined during their terms. Only Reagan, the Bushes and Obama had this issue. And only Obama had a good excuse.

It is possible to get Debt/GDP to decline. It’s been done for 2/3 of the post WW2 Presidents. The one singular common thread among every one of those fiscally successful administrations is not that spending/GDP was lower, but that tax rates on the wealthiest were higher.

We do need a balanced budget amendment of sorts, where balanced means we at least hold Debt/GDP steady, and aim to lower it. The way to accomplish this is to raise the dues of the club members to pay for the voted expenses. Congress needs to determine the expenses and investments that are appropriate, and then set tax levels to pay the bills.

I’m sure that is not what you meant, but it actually makes more sense. When you have a golf club, you don’t ask what the members want to pay (which is nothing), and then fail to water the greens because you can’t pay the utility bills. You determine expenses and set revenue accordingly.

Steven H April 2, 2015 at 6:29 pm

So cynical. GOP reminds me of the Dark Side, but that doesn’t make it so.

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Steven H April 2, 2015 at 6:43 pm

… that was to stevendad …

Peter April 3, 2015 at 7:13 am

Again you talk about debt/GDP. That isn’t what everyone else is talking about. We are talking about the government spending more than they are bringing in. Period. Clinton understood this (it’s math)…. Understand that is the point everyone is making regardless of how you want to keep framing it with debt/GDP.

Steven H April 3, 2015 at 3:04 pm

I grant that the definition of balanced budget is when expenses = revenue. My point is that we need to accomplish achievable goals. It has been remarkably rare to have balanced budgets for 2 consecutive years at any time in the last 115 years, and yet we have shown it is possible to at least get deficits less than economic growth, thus lowering the debt/gdp for decades at a time. Even Clinton never balanced the budget for even one year, as you can tell because raw debt increased every single year. Real debt per capita DID go down in his last 4 budget years, and debt/GDP went down 9 points, which are impressive accomplishments. Let’s aim for something like that, but not tilt at windmills of pure balanced budgets.

Peter April 3, 2015 at 3:08 pm

I think it is a sad state of affairs when a truly balanced budget is an “unrealistic goal”. I don’t believe this. We should be able to get awfully close to a balanced budget now with the explosion of the Information Age and record low interest rates. And to be honest we don’t have a choice. Gonna be ugly when rates go up.

JTM April 3, 2015 at 3:25 pm

Peter – It is sad that a balanced budget does not truly mean balanced, but a shrinking deficit is as best as you are going to get with even the majority of the most conservative representatives in congress. I challenge you to name one congressperson who is willing to not just cut budgets that other congresspeople are interested in but to give up enough on their own priorities to make that happen. A balanced budget with the current congress just can’t happen, it’s a pipe dream.

Peter April 3, 2015 at 4:27 pm

Agree. A balanced budget with our current state of politics is impossible. Both sides too stubborn and playing a dangerous game of chicken. It’s a myth that conservatives want to “cut expenses” and “scale back government”. They are no different than their liberal counterparts. I am continuously depressed that for the last two administrations we have had no real “meeting of mind”, no real compromise. Most of the things that have gotten done have been rammed through the process (Iraq war, ACA, etc) rather than thought out with compromise. My same frustration with some in this conversation. Just think – if it is hard for people to think outside a “platform” on an anonymous comment thread, how hard must it be when you are elected by a party?

In many ways the real pipe dream I hope for is a complete renegade (like what Gary Johnson did in New Mexico, but on a national scale) to become president and Congress to fill up with these types of people.

Normal Joe March 29, 2015 at 10:07 pm

Peter N – Please explain to this lowly accountant what you mean by “creating wealth.” From an individual perspective and by any definition I can find anywhere else wealth is defined in one word, savings. Savings that are the function of cash flow in excess of expenses. Then there are varying ways that these savings can be put to use to increase their value. The least risky is in government secured interest earning accounts insured by the FDIC through more risky investing in the stocks and bonds of public companies. The only method that places the most risk on the individual is investing into a private company to provide working capital that can be used for the means of production or inventory used to produce products. Creating or accumulating, it’s all the same thing. So, please, show me where there is a difference?

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Peter N March 30, 2015 at 11:40 pm

“I can find anywhere else wealth is defined in one word, savings.”
That is a good start.

My company automates production. This allows our customers to make more products better and perhaps cheaper but the bottom line is they they get a return on investment that can be saved or spent on new automation or returned to the stock holders.

Farmers grow wealth.
Miners mine wealth.

Steven H is hung up on GDP. GDP is just a measure of economic activity. It doesn’t have anything to do with making a net gain.

Basically it comes back to what you said, cash flow in excess of expenses.
Draw a circle around any entity, a family, city, state, country. If what it consumes is greater than what it generates it will soon be in debt or broke.

Another thing that Steven H is hung up on is the diminishing share of the wealth that the workers get. It is simple, capital ( wealth ) buys machines that automate production. A greater percentage of the wealth is created by wealth in the form of capital or machines than by labor than ever before and the percentage will become greater. I don’t make the rules. This is just the way things are. Politicians can’t change it. The problem is that people aren’t adapting to the new reality and this new reality will be always changing unless something blows us all back to the dark ages where the machine don’t work. Even then the machine will come back.

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Steven H April 11, 2015 at 7:20 pm

So in your simple world, workers who are displaced by automation have no value so they should die. Or they should start businesses (for which they have no capital and for which there is no market because consumers have been displaced by automation) or they should pay exorbitant fees (which they cannot afford) to get educations for careers that may also be displaced by the changing economy. The winners win it all and the losers are just discarded like old technology. Sounds very third world to me. It only is appealing if you are in that fortunate 1 or 2%. Too bad the rest are unlikely to go along with this scheme.

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Peter April 15, 2015 at 9:39 am

Didn’t think Peter N said any of that. It’s not offensive to say people have to “adapt to a new reality”. They do!

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Dude April 5, 2015 at 4:41 pm

I was impressed by the 4600 comments over two years, but looks like the same three dudes arguing. Lol

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Steven H April 9, 2015 at 7:58 pm

Join in, dude!

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Peter April 6, 2015 at 12:11 pm

Steven H: “Peter, tell me how increasing taxes on the upper 0.2% or so affects the rest of the upper 1%. Tell me how making it less profitable to invent credit default swaps hurts anybody.”

Neither of things affect the rest of the 1% or hurt anybody. Agreed. But they also don’t even come close to solving the problems you are concerned with – namely income inequality. And I love how it is now the top 0.2% when all along you were singling out the top 0.1%. This is the slippery slope…

Run the numbers…. unless you completely rape the top 0.1% (or 0.2% as you say), you don’t change anything. And jacking their taxes up exponentially could – potentially – also have adverse economic effects.

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Steven H April 9, 2015 at 7:45 pm

Raising taxes not only raises revenue. It also sets priorities and changes behavior. Right now there is a battle between Wall Street and engineering firms for the best and brightest minds in America. Wall Street has been winning because their pay scale is outrageously high. Putting higher taxes on outrageous incomes and capital gains above a threshold, as well as putting fees and time delays on the high speed trading system, and maybe reinstating Glass-Steagall and putting real teeth in the Dodd-Frank laws, all might help quash the outrageous money-leech that is today’s American banking and investment and financial system. And maybe it will encourage the best and brightest minds to pick a constructive engineering career instead of a destructive career peddling junk bonds and false securities.

A few years ago, pundits were railing about how we would have trillion dollar deficits as far as the eye can see unless drastic cuts were made in the budget. There were no drastic cuts but the deficits have dropped by more than half, largely due to sensible and necessary tax increases, and a start on recovery and economic growth. Running the numbers on revenue from tax percentages alone would not make the difference that tax revenue and spending constraint and growth managed together.

The economy is a bit like a business; say an airline. You can’t run an airline by constantly cutting expenses like employee salary and airport infrastructure airplane maintenance and funnel all the savings to the big earners in top management. You certainly can’t claim that this “creates wealth”, despite the growing pot of money in the CEO’s bank account. What it creates is not wealth, but an impending disaster. Planes and infrastructure degrade, grumpy employees don’t do their best work, and eventually the airline economy has to be rebalanced. The cause of the problem is not the breakdown of employee’s families, or their education, or their lack of motivation. You can’t point to the remaining career mobility from baggage clerk to manager as a sign nothing is wrong. You can’t realistically rail about how CEOs take bigger risks than baggage clerks; they do, but that misses the big picture that baggage clerks still need to feed their families. Eventually you have to face facts and fix the problem: that the business depends on ALL of the sectors of the business getting attention, and ALL of the gears getting greased, not just the ones who have been well-oiled all along.

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Peter April 14, 2015 at 7:17 am

“peddling junk bonds and false securities”

There is nothing wrong with “junk bonds”. Frankly, they are typically a part of a well diversified portfolio. Not sure what a ‘false security’ is.

“revenue from tax percentages alone would not make the difference that tax revenue and spending constraint and growth managed together”

Excellent point and one I have been making all along. Still waiting for the spending constraint though….

Your airline analogy is very confusing. Corporate America has largely done the smart thing coming out of a recession – cutting expenses. This must be done when revenues slow and you don’t have the ability to print money or borrow from the American taxpayer. This helps keep companies afloat rather than having them go under altogether (where nobody makes any money).

I’m dealing with a client who owns a mid-size engineering firm now that has had the same employees for years and continues to pay them far more than their competitors and give them large bonuses each year. Some of these people as a result have been with the firm for 30 years. The problem is now that their overhead is so high that they can’t competitively bid on the work. Prior to 2013, the company had only had one “loss” year in 42 years. They have now had two in a row. Something has to be done or the company will go out of business. The owners of the company aren’t getting “rich” at all – they may end up with nothing. In order to keep the company afloat they are going to have to get rid of some of these loyal employees – or lower their pay. This isn’t “heartless” or “greedy”. It is business and it happens every day. The error that this company made was overpaying their employees so aggressively for so many years. Eventually the bubble bursts and revenue can’t support it, no matter how good it might be. Kind of like the Federal government (or even on a personal level)….. overspending always catches up with you.

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Steven H April 14, 2015 at 8:12 pm

“false securities” is a play on words of course. It indicates the false sense of security you get from owning investments that are rated higher than their real quality or value.

My point is that the financial industry is bloated. It rose from 2% of economy in 1880 to about 6% in 1930, when the crash and depression and bank failures dropped it back down to 2% in early 1940’s. It has now risen to somewhere between 7.5% and 8% of economy. We don’t NEED that many high paid people sitting around trying to invent clever ways to pull money out of the economy. We either have too many people in finance, or are paying them too well, or both.

http://tcf.org/blog/detail/graph-how-the-financial-sector-consumed-americas-economic-growth

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Peter April 15, 2015 at 9:34 am

Some of the financial industry growth is due to organic (and positive) factors though. For instance, 401ks didn’t even exist before the 70’s. If you go back 60 years, very few people had investments such as stocks, bonds and mutual funds. Now, an overwhelming majority of the public holds some of these securities. More people own homes than in years’ past as well. Pensions are just about extinct as well, meaning that every citizen needs the financial services industry to help them realize their dream of retirement. This creates an expanding – or even exploding – need.

The financial industry growing as a percentage of the economy is not driven by hedge funds, “false securities” or repackaging derivatives. You are correct however, that money management and its high risk/reward structure is taking some of our brightest minds away from science, engineering and medicine.

I think you continue to think of the financial world as a bit more nefarious than it is. The problem is this – just as in any industry, companies are going to try and sell you whatever you will buy. If you will pay $200 for a handbag just because it has a certain label on it, then we will gladly sell it to you. Fortunately, there is no industry as tightly regulated (particularly after 2008) than the financial industry. Just try to refinance a mortgage and see how much paperwork you have to fill out. I get calls all the time from people wanting to pull out more equity from their homes but can’t – the banks are denying them having a higher than 80% loan-to-value ratio.

People need education – scams and self-serving greedy people aren’t going away any time soon. I mean, how are credit cards and paycheck cashing services LEGAL? Credit cards have done FAR more damage to the average American’s balance sheet than credit default swaps ever could.

Steven H April 14, 2015 at 9:14 pm

“Waiting for spending constraint”?
Obama is first President ever since 1950 (I didn’t look back farther than that) to preside over drops in real per capita spending for 4 out of any 5 years of their terms. (2010, 2012, 2013, 2014). Clinton had a better overall run with a final real spending per capita only 2.4% higher in 2001 relative to spending 10 years earlier.

If you say that it is unfair to compare today’s spending to the exceptional 2009 spending, then consider that Obama’s spending in 2014 is only 15.6% higher than 10 years back, in 2004 (again in real per capita numbers). Only Clinton’s long term spending profile (spending growth across 10 years) is better than Obama’s, even going back into the 60’s.

If you are waiting for spending constraint, wait no more. This is about as good as it gets.

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Peter April 15, 2015 at 9:37 am

If this is as good as it gets, we are in BIG trouble.

Peter N April 16, 2015 at 11:40 am

It isn’t a matter of IF.
We are in big trouble.
When SHTF there will be a lot of people on the street and there will be no help for them because the gov won’t have any money unless it robs it from those that have money in the banks in excess of $100K. This is what happened in Cyprus.

BTW, I just pain my taxes. I am not happy when so many don’t pay any.

Steven H April 16, 2015 at 9:05 pm

Peter, one of the frustrations I have had is how the economic discussions in this country over the last few years (or even the last few decades) have been distorted by the aggressive marketing of political ideology and the discarding of facts. I would say one of the biggest distortions has been the hysteria over government spending.

Here are a few of the political assertions, heavily sold and marketed by billionaire funded “news” outlets, that have been completely counter to reality:
– Obama’s spending spree created the trillion dollar deficits.
– In an economic downturn that lowers revenue, government should cut spending accordingly.
– Failing to raise the debt ceiling would not impact our ability to pay our bills and would improve the economy and our credit ratings.

There are many more, but these three in particular are so obviously and demonstrably false that it has shocked me how presumably intelligent leaders could be persuaded to utter them, and that a sizable percentage of the population was ever persuaded to believe them.

Of course, the 2009 trillion dollar plus deficit was set in motion before Obama stepped in office, and most of it was due to the drop in revenue from the skyrocketing unemployment and corresponding business slowdown and drop in GDP that began in 2008. There never was an Obama spending spree. There was a great big recession. Economists agree on very few things, but most would certainly agree that governments need to apply stimulus, not proportional austerity, in an economic downturn. And the debt ceiling arguments for not raising it were absurd beyond measure.

And yet this obsession with spending persists even though real spending per capita has gone down 4 of the last 5 years, and the ten year spending rise trend is lower in percentage than just about any other post WW2 ten year spending percentage rise falling outside of the Clinton years.

I understand there is an obsession on the political right with cutting government, and cutting taxes and cutting business regulations and just letting business do whatever the heck it wants. But for gosh sakes (to keep the language clean), can’t we keep the conversation honest?

Spending trends are not worse than the past. They are better. Really. Debt has to be addressed. Fine. But it will take a little more revenue (not less) from those who can afford it (not those who can’t), a growing economy (that depends on a recovering middle class, not an expanding wealth reserve to the upper class), and long-term spending growth constraint, not short-term budgetary slash and burn. Anybody who says different is peddling snake oil.

When and if the SHTF (as Peter N says), the wants of the 1% will be heavily outvoted by the needs of the 99%. Peter N may be surprised at who actually ends up on the street. My recommendation is that we avoid the whole SHTF scenario, and stabilize the economy before it gets to that point.

Peter April 17, 2015 at 7:25 am

Steven H – from your last post….

I agree with you that the political assertions you listed are generally counter to reality. But don’t be surprised that politicians utter those phrases – of course they do! They are simply trying to juxtapose themselves against the other “side” so that they can get reelected. Logic plays little role. And please tell me you aren’t REALLY surprised the public believes them? The public’s “informed” level is so full of propaganda on all sides of the argument – and in all honesty, how is the public supposed to understand something like the impact of the debt ceiling? Most people can’t tell you how many degrees in a right angle or what an adverb is – and they were actually TAUGHT that in school. When did the masses ever learn about the debt ceiling other than from “news” or “propaganda”?

I also will stay away from your continued finger pointing to the right as the cause of everything evil. For instance, I couldn’t disagree more that the right wants to cut government. If that was the ACTUAL case, wouldn’t they have done so when they were in office? This is no different than the left being “anti-war” – it’s all politics of convenience and they all sing from the same songbook. Don’t be fooled.

And you are right – it must be contained with long-term spending constraint – which our current political structure (right OR left) does not have the b***s to do. This spending constraint would be torn to shreds by other politicians looking to get ahead. “So-and-so proposes that we cut funding to our schools, military and retirees! Outrage!!!! Vote him out!!!!”

The scenario you describe where the 1% is on the street and the 99% rule the world is a bit ridiculous too. Compare our situation to China. Almost 1 billion people live below the equivalent of $5 a day. If that country was a democracy, wouldn’t those people vote to furnish their own immediate needs? And would that be good for the long-term prosperity of the nation?

If we have a SHTF scenario – why would small business owners and people who have accumulated wealth, property and employ others be on the street?

Ken April 17, 2015 at 10:22 am

Here are the spending numbers in constant $2009 for selected administrations (source: http://www.usgovernmentspending.com):

WWII FY 42-45 Yearly avg deficit $497b; Yearly avg per capita deficit $3576.50
Kennedy FY 62-63 Yearly avg deficit $33b; Yearly avg per capita deficit $179
Johnson FY 64-69 Yearly avg deficit $348b; Yearly avg per capita deficit $161.85
Nixon FY 70-74 Yearly avg deficit $55b; Yearly avg per capita deficit $269.80
Ford FY 75-77 Yearly avg deficit $181b; Yearly avg per capita deficit $833.33
Carter FY 1978-1981: Yearly avg deficit $146b; Yearly avg per capita deficit $662.50
Reagan FY 82-89: Yearly avg deficit $306b; Yearly avg per capita deficit $1289.75
Bush 41 FY 90-93: Yearly avg deficit $370b; Yearly avg per capita deficit $1463.75
Clinton FY 94-01: Yearly avg surplus $3b; Yearly avg per capita surplus $6.50
Bush 43 FY 02-09: Yearly avg deficit $466b; Yearly avg per capita deficit $1558.13
Obama FY 10-14: Yearly avg deficit $962b; Yearly avg per capita deficit $3074.00

If you look at the individual years of Obama, again in constant $2009, this is what you get:

2010 total spending $5.868T; total deficit $1.294T; per capita deficit $4134
2011 total spending $5.935T; total deficit $1.299T; per capita deficit $4035
2012 total spending $5.819T; total deficit $1.086T; per capita deficit $3290
2013 total spending $5.630T; total deficit $679b; per capita deficit $2012
2014 total spending $5.546T; total deficit $484b; per capita deficit $1403
2015 total spending $5.685T; total (projected) deficit $582b; per capita deficit $1655

Now, if you focus only on the last few years of Obama, then yes, the deficit is less than half of what it used to be in the first years of his administration. And yes, there is a trend where the deficit has been lowered each year under his administration (except for 2015, where it ticked upwards a bit). But that’s only because the latter years are being compared to the outrageous deficits in the first years. All the deficits are ridiculously high in actual dollar terms. So is spending.

This is like raising the price of a Volkswagen Beetle to $3 million; then reducing the price to $1.5 million and claiming credit that you “reduced the price by 50%”. What a deal, eh?

While you are being factually correct that you lowered the price by 50%, you leave out the fact that you are limiting the time horizon to create a false narrative. Plus you are dealing in percentages only, not actual prices. In doing so, you are enhancing the false narrative by never mentioning the $3 million price, the $1.5 million “sale” price, or that the Beetle is nowhere close to being worth either one of those two prices.

In the case of Obama, his average deficit of $962b/year is more than twice as high as any other administration. His administrations are spending almost $6 trillion a year. In inflation-adjusted dollar terms, these have been the six highest spending years in American history. Also in inflation-adjusted dollar terms, they are six of the top seven deficits in history. Only GWB’s last year, 2009, was higher.

So getting back to the original charge that government will simply outspend whatever revenues that come in…..The only presidential administration that can perhaps claim any credit at all is Clinton’s, which is the only one which had a surplus in the last 50 years. All other administrations fit the initial charge, which was that government simply outspends whatever revenue it gets.

Peter April 17, 2015 at 10:36 am

AMEN. But it is more depressing for us to think that ALL politicians are idiots and spending our nation into bankruptcy. It makes people feel better to think that “their team” is doing things right and the “bad guys” are screwing it up. But facts are facts – we MUST get our spending in control before interest rates rise – or none of this rhetoric is going to matter one bit.

Ken April 17, 2015 at 11:38 am

And just for clarity’s sake, per capita spending in constant $2009 for the last 15 years looks like this:

2001 $14358
2002 $15106
2003 $15581
2004 $15845
2005 $16140
2006 $16597
2007 $16791
2008 $17683
2009 $19400
2010 $18972
2011 $19040
2012 $18525
2013 $17791
2014 $17395
2015 $17698

So to me it looks like per capita spending is not going down at all, but rather, continuing to go up. If you compare where we are now to where we were 15 years ago, not only are we spending more overall as my previous post noted, but we are spending more per capita as well.

If you compare 2015 versus 2001, for example, we are spending 23% more per person in 2015 than in 2001. Or take 2014 versus 2002, and we spent 15% more in 2014 versus 2002. If you compare where we are now in 2015 ($17698/person) to where we were 30 years ago, for example in 1985 ($11103/person), after adjusting for inflation we are spending 59% more on each person today than we were in 1985. The same holds true across the board. While there may be minor variations downwards in a particular year or two, the overall trend is clearly upwards.

Steven H April 18, 2015 at 7:49 am

It’s getting awkward to reply at this indention level, but one more to Ken, then I am jumping to the bottom of the page.

Ken, why are you quoting total (federal plus state plus local) government spending and debt? I think that muddies the water. Most of our discussions here have stuck to federal tax, debt, revenue, and spending. I know the usgovernmentspending.com site defaults to total unless you click federal. Were your references to total instead of federal done purposely?

Ken April 23, 2015 at 5:14 pm

The debt numbers are all federal debt.

Checking the spending numbers….

Meg April 13, 2015 at 5:05 pm

Ok I’ll admit it. I’m one of “them”. The $400k earner club. I’m on a plane returning from a business trip. I have to say that if my 5% increase will help I’m happy to pay it. The cannibalism capitalism we are employing in this country is not working.

I’m willing to pay more and for that I’d like us to have world class infrastructure built by US citizens and legal immigrants paid a fair and living wage.

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Steven H April 13, 2015 at 9:49 pm

Thank you for your comment, Meg. There is nothing wrong with being a high earner, from my perspective. Congratulations on your success and your obvious appreciation of the country that helps you accomplish it.

And that term: “cannibalism capitalism”. Brilliant. I wish I’d said it. It describes our current economy very well.

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Ken April 14, 2015 at 10:50 am

Meg — Can you explain what you mean by “cannibal capitalism”?

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Ken April 14, 2015 at 10:51 am

I meant “cannibalism capitalism”, needless to say.

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Steven H April 14, 2015 at 6:13 pm

Ken,
I am also interested in hearing Meg’s description, but meanwhile, i have found an entire book on the topic:

Cannibal Capitalism: How Big Business and the Feds are Ruining America

You can see an excerpt here:

https://books.google.com/books?id=iXcGpNyjMGIC&pg=PA21&lpg=PA21&dq=cannibalism+capitalism+define&source=bl&ots=4dISLa7R36&sig=biwk_S8GF967WfBgenwFwoOWCsA&hl=en&sa=X&ei=wLktVcnyL8acNrS5grAD&ved=0CFUQ6AEwCA#v=onepage&q=cannibalism%20capitalism%20define&f=false

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Peter April 15, 2015 at 9:25 am

Not a bad read at all…. What is happening in China is fascinating. Our politicians and their self-serving, short-term motivation continue to cut this country’s growth off at the knees. This is why I think we need smart business-oriented people in Congress and in the White House rather than lifelong politicians, actors, POWs, community organizers :), etc. Business people have experience with getting things done with a long-term bottom line in mind. Think this is already starting to happen to some degree in Congress…. but it is TOO slow. We still have too many dogmatic crazy loons getting elected.

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Peter N April 16, 2015 at 7:17 pm

I read the link it too. I have been to China twice. The article is right about buying natural resources and especially controlling rare earth metals. This shows strategic foresight that the US lacks. I disagree that capitalism is a problem. It is politics and lack of leadership that is the problem. Our leaders only want to get re-elected.. They are fools and fools, libtards, elect them.

You wouldn’t want to live in China. The air pollution is awful. There isn’t any place for kids to play. Traffic is crazy. There are a lot of concrete forests, apartments, that aren’t occupied. The last time I was I was there was for 2 weeks. That was about the time it took to clear my lungs from the cough from the pollution. There seams to be security or police all around but they really seem to be more helpful than anything else.

China is not a communistic country anymore. There is plenty of private property and business. China is controlled or authoritarian. A lot is permitted as long as it doesn’t challenge those in power. They are pragmatic and playing the long game.

Our current president is just trying to hold things together until he is relieved.

From a technical standpoint. I participate on a Chinese forum. They may be good at memorizing and research but innovation is lacking.

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Peter April 17, 2015 at 7:08 am

Agree with you completely that the politicians (and the political system) are the problem but disagree that it is just “libtards” as you put it. While they have a giant amount of self-serving fools in office, the right has some of the biggest fools of all.

I made the same observations about China from my visit there. Have some good friends that live there as well and they talk extensively about the poverty in the countryside and low wages. They aren’t a perfect society by any means, but because they have leaders that aren’t worried about re-election they at least can (idealistically) make decisions that help the country going forward. Of course, this might mean mass poverty in the short-run. No leader in America is willing to make these sacrifices – nor are the American people. So we will just burn the candle as hard as we can until it goes out.

Normal Joe April 24, 2015 at 11:21 am

I’ve been both busy with other important chores, but also wanting to be more introspective regarding this topic. This thread is way to long to research every post so I’m just going to share a recent find by a noted economist Joseph Stiglitz published in June 2012.

“The Price of Inequality

NEW YORK – America likes to think of itself as a land of opportunity, and others view it in much the same light. But, while we can all think of examples of Americans who rose to the top on their own, what really matters are the statistics: to what extent do an individual’s life chances depend on the income and education of his or her parents?

Nowadays, these numbers show that the American dream is a myth. There is less equality of opportunity in the United States today than there is in Europe – or, indeed, in any advanced industrial country for which there are data.

This is one of the reasons that America has the highest level of inequality of any of the advanced countries – and its gap with the rest has been widening. In the “recovery” of 2009-2010, the top 1% of US income earners captured 93% of the income growth. Other inequality indicators – like wealth, health, and life expectancy – are as bad or even worse. The clear trend is one of concentration of income and wealth at the top, the hollowing out of the middle, and increasing poverty at the bottom.

It would be one thing if the high incomes of those at the top were the result of greater contributions to society, but the Great Recession showed otherwise: even bankers who had led the global economy, as well as their own firms, to the brink of ruin, received outsize bonuses.

A closer look at those at the top reveals a disproportionate role for rent-seeking: some have obtained their wealth by exercising monopoly power; others are CEOs who have taken advantage of deficiencies in corporate governance to extract for themselves an excessive share of corporate earnings; and still others have used political connections to benefit from government munificence – either excessively high prices for what the government buys (drugs), or excessively low prices for what the government sells (mineral rights).

Likewise, part of the wealth of those in finance comes from exploiting the poor, through predatory lending and abusive credit-card practices. Those at the top, in such cases, are enriched at the direct expense of those at the bottom.

It might not be so bad if there were even a grain of truth to trickle-down economics – the quaint notion that everyone benefits from enriching those at the top. But most Americans today are worse off – with lower real (inflation-adjusted) incomes – than they were in 1997, a decade and a half ago. All of the benefits of growth have gone to the top.

Defenders of America’s inequality argue that the poor and those in the middle shouldn’t complain. While they may be getting a smaller share of the pie than they did in the past, the pie is growing so much, thanks to the contributions of the rich and superrich, that the size of their slice is actually larger. The evidence, again, flatly contradicts this. Indeed, America grew far faster in the decades after World War II, when it was growing together, than it has since 1980, when it began growing apart.

This shouldn’t come as a surprise, once one understands the sources of inequality. Rent-seeking distorts the economy. Market forces, of course, play a role, too, but markets are shaped by politics; and, in America, with its quasi-corrupt system of campaign finance and its revolving doors between government and industry, politics is shaped by money.

For example, a bankruptcy law that privileges derivatives over all else, but does not allow the discharge of student debt, no matter how inadequate the education provided, enriches bankers and impoverishes many at the bottom. In a country where money trumps democracy, such legislation has become predictably frequent.

But growing inequality is not inevitable. There are market economies that are doing better, both in terms of both GDP growth and rising living standards for most citizens. Some are even reducing inequalities.

America is paying a high price for continuing in the opposite direction. Inequality leads to lower growth and less efficiency. Lack of opportunity means that its most valuable asset – its people – is not being fully used. Many at the bottom, or even in the middle, are not living up to their potential, because the rich, needing few public services and worried that a strong government might redistribute income, use their political influence to cut taxes and curtail government spending. This leads to underinvestment in infrastructure, education, and technology, impeding the engines of growth.

The Great Recession has exacerbated inequality, with cutbacks in basic social expenditures and with high unemployment putting downward pressure on wages. Moreover, the United Nations Commission of Experts on Reforms of the International Monetary and Financial System, investigating the causes of the Great Recession, and the International Monetary Fund have both warned that inequality leads to economic instability.

But, most importantly, America’s inequality is undermining its values and identity. With inequality reaching such extremes, it is not surprising that its effects are manifest in every public decision, from the conduct of monetary policy to budgetary allocations. America has become a country not “with justice for all,” but rather with favoritism for the rich and justice for those who can afford it – so evident in the foreclosure crisis, in which the big banks believed that they were too big not only to fail, but also to be held accountable.

America can no longer regard itself as the land of opportunity that it once was. But it does not have to be this way: it is not too late for the American dream to be restored.”

http://www.project-syndicate.org/print/the-price-of-inequality

I think this better defines the source of our economic calamity and why we are not out of the woods yet due to pragmatic business leaders narrowly focusing on their shareholder value and failing to recognize their symbiotic relationship with the macro-economy. This perspective eliminates the poison well dilemma and puts a more neutral narrative that may be more easily assimilated. There is more from this Nobel Laureate in economics in the links provided below. His arguments also bolster what another economist, Robert Reich, has been trumpeting for years.

https://youtu.be/Hp9PJK-FNyg

http://www.project-syndicate.org/focal-points/stiglitz-on-america

http://en.wikipedia.org/wiki/Joseph_Stiglitz

Mark April 15, 2015 at 12:25 pm

What about sports players?

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Peter April 16, 2015 at 11:17 am

Athletes salaries keep going up – as TV deals from all the major sports keep going higher and higher. The reality is that there are quite a few professions that make up the almost 4 million people that make over $400k/year.

Doctors, small business owners, lawyers, financial people, corporate executives, professional athletes, and politicians probably make up the majority I would think.

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Peter April 16, 2015 at 11:17 am

Actually athletes would be a small portion – there are probably around 1500 of them making over $400k I would think….. small portion of the 4 million.

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Steven H April 16, 2015 at 9:14 pm

Here is another bit of reading. It would be easy to discard it as a bit of partisan statistical manipulation, but the research seems deeper and more substantial than that. Below is a lead-in excerpt. There are some interesting stats but you will have to follow the link at the bottom to see them. I am tempted to get the book.

====== Forbes Article =======
The common viewpoint is that Republicans are good for business, which is good for the economy. Republican policies – and the more Adam Smith, invisible hand, limited regulation, lassaiz faire the better – are expected to create a robust, healthy, growing economy. Meanwhile, the common view of Democrat policies is that they too heavily favor regulation and higher taxes which are economy killers.

“Reason and facts are sacrificed to opinion and myth. Demonstrable falsehoods are circulated and recycled as fact. Narrow minded opinion refuses to be subjected to thought and analysis. Too many now subject events to a prefabricated set of interpretations, usually provided by a biased media source. The myth is more comfortable than the often difficult search for truth.”

Senator Daniel Patrick Moynihan is attributed with saying “everyone is entitled to his own opinion, but not his own facts.“ So even though we may hold very strong opinions about parties and politics, it is worthwhile to look at historical facts. This book’s authors are to be commended for spending several years, and many thousands of student research assistant man-days, sorting out economic performance from the common viewpoint – and the broad theories upon which much policy has been based. Their compendium of economic facts is the most illuminating document on economic performance during different administrations, and policies, than anything previously published.

http://www.forbes.com/sites/adamhartung/2012/10/10/want-a-better-economy-history-says-vote-democrat/
==========

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Peter April 17, 2015 at 8:46 am

Not diving into partisan debates (think this divisive rhetoric is a large part of the problem) – but anyone with knowledge of the economy will tell you that the actions that the Fed, Congress, the White House takes in a given era usually don’t affect the economy until years later. We will see the effects of the current administration in the next 5-10 years for instance, not immediately. I told all of my clients in 2008 that it didn’t matter who won the election – whomever won would be the steward for a great economic recovery and get (or take) the credit for it. We were just so in the doldrums and had a tailwind of stimulus – it was inevitable regardless of which inept captain was at the helm. So, really any article that tries to line up economic growth during an administration with the credit for such isn’t really that informed in my opinion.

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Steven H April 18, 2015 at 8:06 am

I only agree partially with your statements. I agree there are long term economic impacts to any administration but I counter that there are also impacts that become evident in 2 to 8 years … well within the bounds of a 1 or 2-term Presidency. It is true that economic experiments are difficult to evaluate, as you cannot rewind and run the same precise conditions with different stimuli. Yet that does not render the referenced analysis as completely null and void.

While I understand and respect your aversion to partisan political wrangling, it is also evident that there is a legitimate discussion to be had on policy vs results. The reason for bringing up GOP vs Dem is not so much “my team vs. your team” as an attempt to evaluate the effectiveness of policies that pit limited government/lower tax/laissez-faire against govt social programs/higher tax/business regulation.

So when the short-term impacts of one set of policies tend to degrade the economy, and a different policy set tends to improve the economy, I would argue that we should abandon fealty to the damaging policies and look harder at implementing the favorable ones. All within balance and reason, of course.

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Peter April 21, 2015 at 7:19 am

I would believe you that it isn’t about bringing up “team vs team” if you had ever shown any diplomacy on this front. You are clearly on one side and you and I disagree on one key point about “Dems vs GOP”…. You think there is a big difference between the two. I don’t.

To be clear, I agree there is a big difference in how they try and position themselves. I don’t agree that there is a big, fundamental difference between how they act and the policies they champion when in office. We should always look to implement better policy – OBVIOUSLY…. – but to act like the Dems have had one set of policies for the last 40 years (which you think are great) and the GOP has had a polar opposite, misguided plan is just not true. Plus, not every Dem is the same nor is every republican.

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Steven H April 22, 2015 at 3:43 pm

“I would believe you that it isn’t about bringing up “team vs team” if you had ever shown any diplomacy on this front.”
I think it’s a bit unfair to dismiss any argument I put forth on on policy just because I advocate for one side for the argument. That’s like saying you can’t listen to any argument i put forward claiming to prove the earth is round, because i have previously stated that I believe that it IS round, and that I have undiplomatically made fun of those who proclaim it to be flat.

“I agree there is a big difference in how they [Dems vs GOP] try and position themselves. I don’t agree that there is a big, fundamental difference between how they act and the policies they champion when in office.”
I agree that Obama’s policies have been as almost as pro-bank as the GOP, and Bush2 was lousy at shrinking government. And yet, on every policy listed below, it is pretty hard to claim that GOP and Dem are equal, and it is pretty easy to predict how different administrations will act and individual legislators will vote on these4 issues based on party. Such partisan-based predictions may not be correct 100% of the time, but they will be right well over 75% of the time.

[Dem vs GOP]
Tax Increase vs Tax Cut (especially on higher earners)
Business Regulations (More vs Less)
Military Budgets (Relatively Lower vs Higher)
Social Policy Safety Nets (Increase vs Cut spending or Privatize)
Labor Policy (Pro-union vs Anti-union; and Raise Min Wage vs Not Raise)

While you can easily find instances of Presidents or Party not following up on their ideological promises, I think that is not the same as both Parties being equal. If you carefully and honestly review how politicians of different parties vote and act on the above issues, I think you would be hard-pressed to paint the parties as anything even close to equal.

Steven H April 22, 2015 at 4:09 pm

So the point is that policies that favor big-business and the financial industry while suppressing unions and pro-labor policy have generally had a negative medium and long-term impact on the economy. I ding both the GOP and Dems (e.g. Clinton’s dereg of Glass-Steagall, favored by GOP, but allowed into law by his hand) on this line. Similarly, ATTEMPTS to shrink the government by “starving the beast” (cutting taxes and revenue, but not actually cutting spending) do not improve the economy or shrink government; they just drive up deficits (Math works!). All of the above are bad policy and need to be abandoned.

Taxes need to be raised to pay the bills, and they need to be raised on people who can actually pay them, and if they need to be raised it should be done gradually to do no significant harm to the taxpayers or the economy. This is not partisan, it is just common sense. GOP and Dem alike managed to have sensible tax rates in the post WW2 years until the 80’s. The debt is not so much a partisan issue as a failure of 3 particular presidential administrations to follow mathematically sound tax policy. And income inequality (and the corresponding economic instability and slow growth we now experience) is not a partisan issue as much as it is a recurring over-confidence of politicians in both parties in the supposed virtues of deregulated capitalism and unrestrained financial speculation.

Steven H April 23, 2015 at 4:42 pm

Note: In one of posts above “these4″ issues did not mean “these four issues”. I accidentally struck the “e” and the “4” key simultaneously. And then I listed 5 issues, so I just wanted to clarify that I can count. 😉

Normal Joe April 24, 2015 at 4:32 pm

JUL 6, 2011
The Ideological Crisis of Western Capitalism
Joseph Stiglitz

NEW YORK – Just a few years ago, a powerful ideology – the belief in free and unfettered markets – brought the world to the brink of ruin. Even in its hey-day, from the early 1980’s until 2007, American-style deregulated capitalism brought greater material well-being only to the very richest in the richest country of the world. Indeed, over the course of this ideology’s 30-year ascendance, most Americans saw their incomes decline or stagnate year after year.

Moreover, output growth in the United States was not economically sustainable. With so much of US national income going to so few, growth could continue only through consumption financed by a mounting pile of debt.

I was among those who hoped that, somehow, the financial crisis would teach Americans (and others) a lesson about the need for greater equality, stronger regulation, and a better balance between the market and government. Alas, that has not been the case. On the contrary, a resurgence of right-wing economics, driven, as always, by ideology and special interests, once again threatens the global economy – or at least the economies of Europe and America, where these ideas continue to flourish.

In the US, this right-wing resurgence, whose adherents evidently seek to repeal the basic laws of math and economics, is threatening to force a default on the national debt. If Congress mandates expenditures that exceed revenues, there will be a deficit, and that deficit has to be financed. Rather than carefully balancing the benefits of each government expenditure program with the costs of raising taxes to finance those benefits, the right seeks to use a sledgehammer – not allowing the national debt to increase forces expenditures to be limited to taxes.

This leaves open the question of which expenditures get priority – and if expenditures to pay interest on the national debt do not, a default is inevitable. Moreover, to cut back expenditures now, in the midst of an ongoing crisis brought on by free-market ideology, would inevitably simply prolong the downturn.

A decade ago, in the midst of an economic boom, the US faced a surplus so large that it threatened to eliminate the national debt. Unaffordable tax cuts and wars, a major recession, and soaring health-care costs – fueled in part by the commitment of George W. Bush’s administration to giving drug companies free rein in setting prices, even with government money at stake – quickly transformed a huge surplus into record peacetime deficits.

The remedies to the US deficit follow immediately from this diagnosis: put America back to work by stimulating the economy; end the mindless wars; rein in military and drug costs; and raise taxes, at least on the very rich. But the right will have none of this, and instead is pushing for even more tax cuts for corporations and the wealthy, together with expenditure cuts in investments and social protection that put the future of the US economy in peril and that shred what remains of the social contract. Meanwhile, the US financial sector has been lobbying hard to free itself of regulations, so that it can return to its previous, disastrously carefree, ways.

But matters are little better in Europe. As Greece and others face crises, the medicine du jour is simply timeworn austerity packages and privatization, which will merely leave the countries that embrace them poorer and more vulnerable. This medicine failed in East Asia, Latin America, and elsewhere, and it will fail in Europe this time around, too. Indeed, it has already failed in Ireland, Latvia, and Greece.

There is an alternative: an economic-growth strategy supported by the European Union and the International Monetary Fund. Growth would restore confidence that Greece could repay its debts, causing interest rates to fall and leaving more fiscal room for further growth-enhancing investments. Growth itself increases tax revenues and reduces the need for social expenditures, such as unemployment benefits. And the confidence that this engenders leads to still further growth.

Regrettably, the financial markets and right-wing economists have gotten the problem exactly backwards: they believe that austerity produces confidence, and that confidence will produce growth. But austerity undermines growth, worsening the government’s fiscal position, or at least yielding less improvement than austerity’s advocates promise. On both counts, confidence is undermined, and a downward spiral is set in motion.

Do we really need another costly experiment with ideas that have failed repeatedly? We shouldn’t, but increasingly it appears that we will have to endure another one nonetheless. A failure of either Europe or the US to return to robust growth would be bad for the global economy. A failure in both would be disastrous – even if the major emerging-market countries have attained self-sustaining growth. Unfortunately, unless wiser heads prevail, that is the way the world is heading.

Read more at http://www.project-syndicate.org/commentary/the-ideological-crisis-of-western-capitalism#1F7P1DOwdHFTGT9A.99

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James April 27, 2015 at 6:50 am

LOL. If we could only get the liberals in power everything would be fine. Effing right wingers….GRRRR

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Normal Joe April 27, 2015 at 7:34 am

It’s not as much as getting liberals in power as it is stopping the really stupid mistakes. I’d support anyone that exhibited something other than failed ideology.

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Peter April 28, 2015 at 7:01 am

Exactly my argument. But I don’t see it as one sided as some. It is rare that I see anyone LEFT or RIGHT talk in politics with any sense about the economy. And when they do (Ron Paul, Ross Perot, Gary Johnson, etc.) they are labeled as outsiders or loons and largely quieted by the press and the establishment.

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Ken April 29, 2015 at 8:36 am

I think most of the reason for our national debt revolve around one basic truth….. which is that there are lots of political benefits to overspending in the short-term, and almost no political benefits to working within a balanced budget for long-term financial health. Consider……

By overspending you can create a “legacy” for yourself, albeit at the expense of your grandchildren’s generation. You can “bring home the bacon” to your constituents, proving that not only are you doing something in Washington, but that your constituents are the beneficiaries. Re-elect me because I got DC to pay for this, that, and the other thing in our state. Nevermind that the nation as a whole can’t afford it. We’ll just borrow the difference. Applause. Woo hoo. You tell ’em.

Contrast that to someone who looks to the long-term financial health of the country and says “Hey guys, sorry, but um…..we just can’t afford this kind of debt”. That just doesn’t have the right ring to it as a campaign platform. My fellow constituents, my big accomplishment in DC these past few years is that I made sure we didn’t overspend. Sure this, and that, and the other thing didn’t get done in our state, but that’s because we as a country can’t afford it. I made sure that we didn’t add more debt to a budget that is already way out of balance. Crickets.

Peter April 29, 2015 at 1:27 pm

Amen. And it is even worse than that. The first type of politician you described gets spending approved and puts it in the budget for years to come. (i.e. Obamacare) Then, when the prudent politician turns down new spending because we can’t afford it, he is actually “cutting programs”. His opponents will say he is cutting funding to the military, education, health care, etc. and that he doesn’t care about the welfare of the American people. There are none of these things you can cut without someone going crazy – and there is always a politician to come in on his horse and champion their cause.

One really cool case study of how this can be done is Gary Johnson’s tenure in New Mexico. Read about that….. not sure this can be done on a Federal level but would love to see someone try.

Peter N April 30, 2015 at 1:20 pm

I have invited all liberals and especially Steven H to create their own companies and show us how it is done. They haven’t and they can’t. Libtards only know how to take what is not theirs and buy votes with what they have taken.

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Normal Joe May 1, 2015 at 1:38 am

It is well documented that the “Libtards” you so like to denounce are the only ones that have reduced deficit spending over the past 30 years. The last one to do so did such a good job there was a real possibility that the national debt could have been erased. The last of the questionably frugal “CONservatives” then promptly erased that budget surplus with giveaways to the pharmaceutical industry, a cut in the very taxes that were doing exactly what some here want to be done, and spent trillions on questionable military strategies all on the backs of the taxpayers of the future. The military industrial complex made billions off those contracts and we’re not supposed to tax them to help pay off that debt? The bozos in Washington are even trying to cut expenditures to programs promised to those brave men and women who gave their blood and friends for those military adventures whining “we can’t afford it.” Hogwash!

Nobody’s hands are clean, many economists warn that austerity measures don’t work, corporations are sitting on mountains of cash, and 90% if the gains from our economy over the past decade and more has gone to only a select few. The tax breaks given to the religious entities could completely pay for the food stamp program, which by the way, also lines the pockets of the big farmers with significant amounts of cash. Major corporations are realizing billions in profits but somehow end up either not paying taxes or getting millions in rebates?

The infrastructure, invaluable to American businesses both small and large, is in need of serious upgrading from the years of neglect by short sighted leadership. That is an investment in tomorrow’s economy akin to upgrading a factory that has nothing but upside potential. Any government money spent in that endeavor would come back in the form of increased tax collections putting out of work construction workers back in the game. As a former construction worker in housing myself, it is an irrefutable fact that in any downturn, construction feels it first and climbs out of it last.

Instead of arguing over who created the mess and who is paying for it, why don’t we do something novel and rely on time tested measures by upgrading the means of production and distribution, put people back to work paying taxes to rein in deficit spending over the long haul, and grow the economy for everyone. It is becoming painfully evident that what we are doing now, growing only the upper crust, is not only not working, but consigning the whole country to future third world status.

And, for you Peter N, I had a business. It didn’t go broke, it was sold off to pursue new opportunities due to the changes in technology and skill sets. It was successful, but in construction subject to too many variables. It was a roller coaster ride swaying from feast and famine. When times were slow, we worked on the technology we used to make it more efficient for the next wave. Like you, it was in a niche market appealing to people that wanted better quality and efficiency. The advent of the big business model for home building started to shut us out of the market because quality is not in their dna. Things change, you learn to move on, and set the sails in a different direction.

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Peter May 1, 2015 at 7:43 am

AMEN – great post. Especially this part –

“The tax breaks given to the religious entities could completely pay for the food stamp program, which by the way, also lines the pockets of the big farmers with significant amounts of cash. Major corporations are realizing billions in profits but somehow end up either not paying taxes or getting millions in rebates”

It really is corporate America that is sitting on the mountain of cash as you put it. That’s where the revenue-side solution begins in my opinion – not by taking more money out of my pocket and other high wage earners. But it’s so obvious why they attack me and not General Electric or Apple. I may have money, but have no power. The corporations are electing people on both sides –

Peter N May 1, 2015 at 8:30 pm

I am not a fan of the pharmaceutilcals either. One drug I use cost $389 a for 3 months supply but only $109 from Canada but that is illegal. Obama care has done nothing to reduce the price of drugs in the US. Obamac care has only suceeded it making me pay for these drugs for other people. I am bitter.

I am a small business owner. I/we create jobs and wealth. I/we provide 401K and health care for about 30 people. Why should I be forced to provide more health care for those that don’t deserve it? Health care is not a right.

My bitch is that libtards bitch and moan but they DON’T CREATE JOBS OR WEALTH. They take from those that do.

Clinton dodged and ducked difficult issues. He let North Korea build nuclear weapons and Islamist get away with the first attack on the World Trade Center.

I think George W Bush is an idiot. I didn’t vote for him either but he had to respond to terrorism. He didn’t do anything about North Korea but I think his hands were full.

By ducking issues and maintaining peace at the cost of security the tech bubble was allow to happen but it wasn’t sustainable.

In my opinion the only decent president we have had is Reagan and Kennedy. Kennedy may have been a democrate but he was pragmatic. He cut taxes.

All the rest of the presidents have been fools. I didn’t like George H Bush’s new world order.
Obama has been a complete disaster but the resulting disaster hasn’t happend yet. Who ever wins the next election will have his or hers hands full and will probably preside over an economic melt down.

Peter May 1, 2015 at 8:36 pm

Agree……although I would add Clinton in there.

Steven H May 9, 2015 at 7:10 am

Peter n ============
Why should I be forced to provide more health care for those that don’t deserve it? Health care is not a right.
==================
“life, liberty, pursuit of happiness” are rights in the US. You have none of those without sound, affordable, available healthcare. So it is a right. And who are you to decide who is “deserving”? You are not a god.

Peter n ==============
My bitch is that libtards bitch and moan but they DON’T CREATE JOBS OR WEALTH. They take from those that do.
====================
Complete BS. The country always does better under Democrat leadership that adheres to serving the greater population. The country always falls apart when adhering to principles that primarily serve the needs of the richest constituencies, as Republicans most often do. Democrat principles create jobs and wealth. GOP principles accumulate the wealth created by all and hand it to the rich.

The “Creator” deistic arrogance that you espouse is a complete myth and self-promoting foolishness. You, Peter N, don’t create a single job. The market and the disposable income of the economy create the opportunity for job growth and you and businessmen like you service that opportunity to make a profit. The market creates jobs, and the market consists of all elements, yet by glorifying your small (yet important) part in the process, you diminish and deny the importance of everyone else. This is how you and people like you justify the extraordinary redistribution of wealth from the poor and middle to the rich, by exalting yourselves as “Creators” and accusing all others as “undeserving” of even the basics required for a decent life.

Not all GOP or businessmen are as arrogant and self-promoting as yourself (note the more reasonable posters here, such as Peter and Ken) , but the attitude is certainly widespread. The “Creator” arrogance has permeated the political talk of the GOP leaders and has sickened most of the rest of us with its disregard for the greater populace. Recall that whole 47% thing that torpedoed Romney’s chances. It is almost inconceivable to me how our political process has become so divisive that a major Presidential contender feels comfortable completely disregarding the humanity and relevance of half the population, even in a private talk to the monetary elite.

As long as this “Creator” arrogance is the prevalent attitude of you and those like you and the leaders of your party, you will be despised and reviled by the rest of us who understand the truth.

Peter May 13, 2015 at 9:12 am

Steven H – you ask Peter N “who is he to decide who is deserving?”….. that is all you do on here! You have constantly passed judgment – more than anyone else on here – about who deserves what credit or income and how much of it they should receive. With all Peter N’s language and shots at you, I think one place he outclasses you is in this particular vein. Your posts have been downright offensive to those of us that have sacrificed EVERYTHING for years to build the businesses, wealth and income we have accumulated. You my friend are the one who is telling people what they do and don’t deserve.

Steven H April 27, 2015 at 2:23 pm

Thank you, Joe for posting the above article, and the one just a few posts above that. The writing of Stiglitz is both plain-spoken and authoratative, lending greater understanding to the sources of excessive income and wealth inequality, and great weight to the arguments that it MUST be turned around. Surely, such concrete and well-founded arguments can help persuade Peter and Ken and James. But I have been disappointed before …

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Peter April 28, 2015 at 7:04 am

LOL – once again an article that starts to have some interesting thought processes is tainted by accusations and one-sided politics. This article is like something that would be on Fox News – a narrative that speaks to one faction of people. I’m exhausted by this.

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Peter April 28, 2015 at 7:20 am

Actually let me rephrase…. it is just too transparent that a left-wing article (which has some excellent points and breakdown of the problem, by the way) gets labeled as “plain-spoken, authoritative, well-founded, concrete, etc.” by you, Steven H….. Yet a similar article written from a right-wing source or even a neutral one (like Ken posted a few months ago) gets met with cynicism and is discredited.

It’s ridiculous and painfully transparent and makes it hard to even work through a solution. Again, I think this illuminates the problem with our politics today. Nobody is open-minded – everyone is sticking to a “script” or “platform” and refusing to budge from their side. The days of master negotiators who can work out compromise like Reagan, Clinton, O’Neill, Gingrich, etc. are waaaayyyy behind us unfortunately.

So we continue to spin our wheels and talk AT each other….and we spin into debt and financial trouble.

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Ken April 29, 2015 at 1:16 pm

I, too, thought the article was very far left of center, though I did not find this surprising, coming from a professor at Columbia University.

I found his viewpoint on Eurozone and Latin American countries not particularly compelling, nor did I find what I read particularly intellectually honest. He mentions Greece, Ireland, and Latvia as examples of failed austerity, but never mentions that his own approach to governing — i.e. tax-and-spend, cradle-to-grave social engineering — is what got these countries into their financial mess in the first place. He then implies that the solution is more of the same, i.e. more tax-and-spend.

Steven H April 30, 2015 at 7:24 pm

Peter ==========
Actually let me rephrase…. it is just too transparent that a left-wing article (which has some excellent points and breakdown of the problem, by the way) gets labeled as “plain-spoken, authoritative, well-founded, concrete, etc.” by you, Steven H….. Yet a similar article written from a right-wing source or even a neutral one (like Ken posted a few months ago) gets met with cynicism and is discredited.
==============
I’m not sure which post of Ken’s posted articles was “neutral”.

Surely not the one (or two actually that he posted) from the National Center for Policy Analysis (usually characterized as right-wing think tank) that dismissed the disparity between the upper 1% and the lower 99% by stating that poor people get divorced, economic tax-unit quintiles have some variations in actual population, and that there is still some economic mobility among the quintiles, none of which addressed the actual issue that the lower 4 quintiles and most of the upper quintile are being impoverished by the small minority at the top of the upper quintile.

I stated my detailed objections to at least one of those right-wing articles in a couple of posts,
http://moneyning.com/career/who-actually-earns-400000-per-year/comment-page-10/#comment-997864

pointing out the factual errors and inconsistencies in the arguments. I did not just dismiss it because it “sounded right-wing”, and certainly not for any neutral analysis. I dismissed it because it mangled its facts and arguments.

This article of Joe’s did not pretend to be as analytical as Ken’s but it also has a more logical argument. Maybe reading its core point without the distracting adjectives and opinionated language states the message better …

===
The remedies to the US deficit follow immediately from this diagnosis: put America back to work by stimulating the economy; end the wars; rein in military and drug costs; and raise taxes, at least on the very rich. But the right instead is pushing for more tax cuts for corporations and the wealthy, together with expenditure cuts in investments and social protection that put the future of the US economy in peril and that [effectively breaks] the social contract. Meanwhile, the US financial sector has been lobbying hard to free itself of regulations, so that it can return to its previous [destructive] ways.

But matters are little better in Europe. As Greece and others face crises, the medicine is austerity packages and privatization, which leave the countries that embrace them poorer and more vulnerable. This medicine failed in East Asia, Latin America, and elsewhere, and has already failed in Ireland, Latvia, and Greece.

There is an alternative: an economic-growth strategy supported by the European Union and the International Monetary Fund. Growth would restore confidence that Greece could repay its debts, causing interest rates to fall and leaving more fiscal room for further growth-enhancing investments. Growth itself increases tax revenues and reduces the need for social expenditures, such as unemployment benefits. And the confidence that this engenders leads to still further growth.

Regrettably, the financial markets and right-wing economists have gotten the problem exactly backwards: they believe that austerity produces confidence, and that confidence will produce growth. But austerity undermines growth, worsening the government’s fiscal position, or at least yielding less improvement than austerity’s advocates promise. On both counts, confidence is undermined, and a downward spiral is set in motion.
===

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Peter May 1, 2015 at 7:03 am

Like Ken pointed out there is a great deal of this article that is fundamentally wrong. But like most articles if you don’t take everything for face value you can extract some good points amidst the political agenda.

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Steven H April 30, 2015 at 8:18 pm

Ken =========
I think most of the reason for our national debt revolve around one basic truth….. which is that there are lots of political benefits to overspending in the short-term, and almost no political benefits to working within a balanced budget for long-term financial health.
============

I actually agree with this as an observation of political and human nature. (Shock!)

And it certainly appears that this is a critical volley to be applied to both sides of the political divide. Dems spend on their priorities while taxing those not in their political base, while GOP spend on THEIR priorities while cutting taxes to their base and cutting benefits to those NOT in their base.

But this (no political benefits to working within a balanced budget for long-term financial health) is not really a perpetual truth. Consider that in the post WW2 economy until the Great Recession, Presidents and Congresses of BOTH parties regularly reduced Debt/GDP with the exception of the administrations of just three Presidents: Reagan, Bush and Bush2.

And if we look at traditional economic/social arguments of the two parties, they might go like this:
GOP: Minimal government interference, low taxation, and free exercise of capitalism with a minimum of business regulation will allow all people to earn their wage fairly and will most efficiently lift up all people and the economy.
Dem: Unrestrained capitalism tends to shift power, income and wealth up the ladder, and thus a strong government is required with the ability to create and enforce regulations that prevent fraud of business against business or business against customer. Additionally, safety nets are necessary to lessen extremes of poverty, and economic protections are required to minimize the excesses of extreme wealth.

This small govt/big govt argument is nothing new. And both arguments seem to have their merits in theory. What is new and what has devastated the economic arguments are the following flagrant violations of common sense that got passed off as essential political dogma for decades and are still espoused even today among the mathematically challenged:

1) Deficits don’t matter. (Quote from Cheney)
2) Tax Cuts pay for themselves. (Reaganomics)
3) You should never ever ever raise taxes. (Grover Norquist)

1 and 2 are slowly losing potency as sound economic arguments (but were fiercely defended just a few years ago), yet even today, GOP politicians still swear allegiance to Grover rather than to mathematically sound tax policy.

You and I know that Deficit = Expense – Revenue.
If you agree on expense (which is almost Congress only purpose: to determine spending to meet the needs of the country), then you must establish revenue to match expense or you will have a deficit. If the tax rates to meet such expense are truly unbearable, then expenses should be cut. This is the eternal political tug of war.

But to insist that Congress establish a spending budget and then simultaneously demand that tax rates must not ever be raised to match that budget, or to profess a belief in magical drastic tax cuts that don’t create deficits or even to deny the significance of deficits at all, is lunacy.

For the sake of political balance, I would like to offer corresponding statements from the left, but there seems to be no such counter-balance in craziness. In general, the left quotes economics experts and the leaders of the current TP right-wing (who are not intellectual economic conservatives by the way, and also not in line with most of the conservative posters here) quote the needs and wishes of their richest constituents, no matter how crazy the economics comes out.

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Peter May 1, 2015 at 7:02 am

This is so full of a partisan script I won’t touch most of it – but have to throw out one comment I’ve made at least 20 times before.

“But to insist that Congress establish a spending budget and then simultaneously demand that tax rates must not ever be raised to match that budget, or to profess a belief in magical drastic tax cuts that don’t create deficits or even to deny the significance of deficits at all, is lunacy.”

I have never suggested “magical drastic tax cuts” or denied the significance of deficits. Quit raging against the machine and talk logically to those of us that talk logically to you.

I’ll say it for the 100th time – WE HAVE raised taxes – and entirely on the rich. Mine went up about 40% from last year. But that’s not enough to “pay congress’ bills”. The analogy is like my wife joining a country club and a gym and then explaining to me that I don’t make enough to cover these expenses, even though my pay keeps rapidly rising.

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Steven H May 1, 2015 at 7:41 pm

Calm down Peter. For the 100th time, I am asking, not for YOU to pay more taxes, but for you to stop supporting the flat tax on the 1%; meaning that it is in the best interest of you at the lower echelon of the 1% and all of us if there were additional tax brackets above your pay level. It would increase revenue AND provide less incentive for destructive economic behavior.

And I am pointing out that there is insanity in the economic arguments but that it is not from all politicians. It is just as damaging for you to discount all politicians as equal as it is for others to take blind partisan sides on teams. All politicians are NOT equal, and it would help if we all came to agreement on which arguments are ridiculous, even when they come primarily from one party. Government can make a difference, and there are differences in how some policies favored by a given party impact the economy. Sometimes truth is inherently partisan.

As Normal Joe pointed out in the post you praised, “It is well documented that the “Libtards” [Peter N] so like[s] to denounce are the only ones that have reduced deficit spending over the past 30 years. The last one to do so did such a good job there was a real possibility that the national debt could have been erased.”

But when I say “Consider that in the post WW2 economy until the Great Recession, Presidents and Congresses of BOTH parties regularly reduced Debt/GDP with the exception of the administrations of just three Presidents: Reagan, Bush and Bush2.”, it’s the same truths, but you don’t listen to me.

Of course, I also liked the rest of Normal Joe’s post, which was also very very good. I guess if I have to be the bad cop that makes his post sound more reasonable, then so be it.

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Peter N May 1, 2015 at 8:37 pm

“As Normal Joe pointed out in the post you praised, “It is well documented that the “Libtards” [Peter N] so like[s] to denounce are the only ones that have reduced deficit spending over the past 30 years. ”
Only by ignoring real problems like North Korea, Iran and Islamic terrorist.

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Steven H May 1, 2015 at 9:15 pm

Yeah. Right. Except it was Bush2 who ignored Bin Laden that Clinton’s administration had been closely tracking, even though the spy agencies begged W to stay focussed. W’s foreign policy set us back decades. But that’s another topic.

Normal Joe May 2, 2015 at 9:12 am

Peter N, your opinion presuming ignorance by your loyal opposition is pure ideology, not fact. The two parties we have been relegated to serving, instead of them serving us, have historically approached problems in different ways. While conservatives chose to engage in overt mechanisms (big stick), liberals, on the other hand, engage in covert mechanisms (speak softly). Both are correct when the situation warrants it. Situational leadership a core competency of any entity, private or governmental. To infer that something is ignored when it is just approached differently comes off as superficial and divisive. You are entitled to your opinion, but to assert it as fact is a specious argument. How quickly we forget how the Clinton administration had Al Qaeda on the radar screen and the Bush administration just dropped the ball.

Steven H May 1, 2015 at 9:05 pm

I should clarify:
“All politicians are NOT equal, and it would help if we all came to agreement on which arguments are ridiculous, even when they come primarily from one party, or from both parties, or from ‘our’ side or the other side.”

As you even said Peter: “Agree with [Peter N] completely that the politicians (and the political system) are the problem but disagree that it is just “libtards” as [Peter N] put it. While they have a giant amount of self-serving fools in office, the right has some of the biggest fools of all.” I am just trying to call out the fools. Stop taking it personally when the shoe does not fit.

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Peter May 2, 2015 at 5:44 am

Pointless…. You and I have different goals in the debate. I’m trying to think through the problem and explore solutions. You are trying to blame Republicans for the problem and fit the problem into a rhetoric and ideology. The last few posts are about as obvious as any.

Peter May 2, 2015 at 5:45 am

And the shoe doesn’t fit what?

Steven H May 5, 2015 at 9:26 am

Peter: How can you honestly be searching for solutions if you are not willing to critique the obviously ridiculous solutions and also apply a fair evaluation to proposed solutions?

You and I agree that taxation and regulation of big corporations will help reduce their outsized influence and raise needed revenue to pay down government deficits and debt. Yet you are unwilling to make such a statement about highest earners (way above your income scale) who obtain extraordinary shares of wealth and income from capital gains and “carried interest”. Why is that?

James May 5, 2015 at 2:44 pm

I don’t agree with that though – I don’t think that there is anything wrong with people earning “extraordinary” (subjective) shares of wealth and income through capital gains. And carried interest is only an issue for hedge fund managers, so not really the crux of the issue here. Just more politics. You refuse to ever point the finger as the “liberal” constituents – only attacking right wing policy and supporters. This is a much bigger problem.

Peter May 5, 2015 at 2:45 pm

Well said James….was just about to reply and you said it better than I was going to. :)

Peter May 5, 2015 at 3:04 pm

Along those same lines, I bet if I tried to tell you that there was a severe problem with our welfare system and it should be reformed, you would jump all over me. Is it possible that our flawed welfare program is more of a problem than hedge fund managers paying capital gains rates instead of income tax rates on fund gains? Is that even a possibility in your ideology?

Steven H May 7, 2015 at 2:55 pm

Peter,

Yes there is a problem in our welfare system. As in every economic venture of humans, there is inefficiency and fraud that can vbe rooted out. It is not unique to welfare or government programs, however. I have seen similar inefficiencies in big corporations.

In fact, one of my gripes about excessive income inequality is that it is a huge inefficiency in our system. Too much money goes where it does not improve the lives of the people it goes to in any meaningful way, and it is taken from people whom could really use it to improve their lives. It also damages the economy, removing money from the middle class who will spend it and stimulate the economy and giving it to the wealthy class who seek primarily to retain it for their heirs or spend on frivolities.

Aside from that, the biggest problem with our welfare system is that it is a constant reminder of the very income inequality which produces so much poverty and amplifies the need for government aid to the poor. The biggest reduction to food stamps and welfare spending would occur when we educate people to be skilled at the jobs that this country requires them to do, and pay a living wage for the jobs we require them to do. Even if it is serving us fast food or cleaning our hotel rooms. Raising minimum wage, and establishing a sane trade policy that restricts the unfair advantages of foreign countries that they obtain through currency manipulation and oppressive labor practices would be a good start. Free college for qualified candidates in needed fields of expertise would be another.

But do I believe “reform” should consist of privatization, block grants to states, or blanket budget cuts? No, because that is not reform. That is just spending cuts.

What reforms would you have in mind?

Peter May 8, 2015 at 5:35 am

Missing the point really….just saying there are much, much greater problems with our budget and Fed Govt’s role in the economy than whether hedge fund managers pay capital gains rates.

Steven H May 8, 2015 at 8:50 pm

“just saying there are much, much greater problems with our budget and Fed Govt’s role in the economy than whether hedge fund managers pay capital gains rates.”

No actually the very largest problem in out economy is income disparity and lack of economic growth which are tightly related. It also produces (or at least exacerbates) the very poverty that costs government so much money in food stamps and welfare. The economy is inefficient. You cannot fix ANYTHING in the economy without addressing income disparity.

It’s all tied together. Take money from the poor and middle class, and consumption is reduced, the economy slows, poverty increases, government spends to compensate for the increased poverty, taxes have to go up on the rich, they complain and take control, reducing taxes on themselves, cutting poverty programs, all amplifying the original problems.

We have to stop the cycle of insanity. High income disparity was disastrous in the late 1800s, in 1929, in 2000, in 2009, and now. We MUST fix it. Or nothing else will ever get fixed.

Steven H May 9, 2015 at 8:11 am

Peter,

I guess what I am saying is that I believe YOU are missing the point.

A business story may help. My wife worked of a while at one of those boutique exercise gyms for women. The business changed hands and the new owners promptly focussed on cutting costs to balance the costs and expenses. They stopped providing free water for customers, eliminated the refrigerator that kept the water cold, cut out the competitions and prizes that were used to motivate the exercisers. Basically an economic austerity program focussed strictly on cutting costs. The error in their assumptions was that membership would stay constant or even increase with such a policy. Customers left and failed to renew. New customers dwindled. The business failed.

Had they simply controlled costs, maintaining customer benefits, while focussing on increasing membership, they would have had a much higher probability of success, but they couldn’t see it.

Similarly, the focus on cutting welfare programs to reduce deficits misses the real need. Welfare costs will decrease if we improve our economy and reduce poverty; if we invest in our middle class which will grow markets and opportunities for businessmen; if we focus on reducing the high income disparity that makes our economy inefficient. If we just focus on cutting poverty relief programs, we just get more poverty and more costs down the road to alleviate its effects. And that model will fail.

Steven H May 10, 2015 at 6:41 am

James =========
I don’t think that there is anything wrong with people earning “extraordinary” (subjective) shares of wealth and income through capital gains.
==============
Of course you don’t. That is due to the inherent human ego that says what we do and long and strive for is the most important thing and cannot be overemphasized. A drummer in a band may think there cannot be too much drum, and the trumpet player thinks there cannot be too much trumpet. It takes a suppression of ego and an awareness of the contributions of all instruments to strike a successful balance.

The problem with people earning extraordinary wealth through capital gains or any other means is not due to what they receive, but due to what others do NOT receive as result. You can’t spend all your time focussing on the plight of the rich people whose taxes might increase (“punishing the successful”, so they claim) and ignore everyone else, and still get a balanced view of what needs to be done.

The repeated claim that what very rich people make has no impact on what you or what middle class people make is incorrect. We are all part of a system that allows and perpetuates high income disparity. CEOs, bankers, hedge fund managers, all make high incomes because a stystem has been put in place that allows almost all GDP gain each year to go to just 1% of the population. The system is clearly broken and must be fixed.

James May 11, 2015 at 11:22 am

What did others “not receive” due to Bill Gates and Steve Jobs’ accumulation of massive wealth and income? Your logic sounds good for politics, but doesn’t make any sense. Once again a lack of understanding of the economy. It is not a zero sum game.

Steven H May 12, 2015 at 5:21 pm

James,

1) A few business superstars do not represent the whole economy.
2) What did the heirs of Jobs and Gates do to earn their extraordinary fortunes? Wouldn’t that money be better served going to people who will build new businesses?
3) “Not a zero sum game” is a tired argument already addressed. It is also not a zero-gain loss. Just because business leaders and bankers help increase national profits a little does not make them deserving of nearly 100% of GDP increases.

Steven H May 12, 2015 at 5:23 pm

sorry – messed up my own term. It’s not a zero-loss gain. Meaning high incomes and wealth increases come partly from wealth creation but most often also from wealth accumulation of other people’s contribution.

oregonbowguy the May 2, 2015 at 7:38 pm

So…while it’s great that folks outside WA and Oregon talk about all the new jobs being created, the absolute FACT is employers cut 40 hour jobs to 30 hour jobs to avoid Obama care mandates. My son lost his 32 hours each month in a company that had 300 employees. Now they have over 425 employees and NOT ONE is full time.

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Peter N May 3, 2015 at 8:33 am

I believe you.
So who do you blame?
The business owners or obama care?
Do you know how much it would cost that business to pay the $2000 fine or provide healthcare for that many people?

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James May 4, 2015 at 2:03 pm

One of the most direct unintended results of the plan. As is typical – most of these behemoth government plans have unintended consequences or aren’t totally thought out as they should be because they are built by politicians.

Just imagine this – say your family of 5 “elected” me to run your household finances. What would I change once I got “in office”? I would try and improve your lives of course….maybe some productive things like better nutrition, education for your children, environmental quality, etc. Of course, all of this would cost you. But if I could structure it to where it didn’t really hurt you today – but maybe some point down the road….or if it didn’t hurt you particularly, but maybe your neighbors – you wouldn’t really mind, would you? First of all, it is unlikely you would even know. You would just be so happy that your life is so much better and that finally someone is running your household who cares about your needs.

Juxtapose this with someone who takes over your household, makes you eat smaller portions and cuts out junk food from your grocery budget, eliminates this expense and that and has you saving 20% of your pay each month. No chance that guy gets re-elected. Politics…..

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Steven H May 5, 2015 at 9:18 am

Excellent point. I haven’t figured out why there has not been a push to implement the obvious solution: Charge businesses a proportional share of healthcare costs for hours below 30/week. If employee is 15/hr a week, business still pays half of what they would owe for 30 or 40 hr work week. This makes full time employees a bargain and removes the incentive to cut just below the step function threshold of 30 hours.

Step function thresholds are almost always a bad idea.

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Peter N May 5, 2015 at 9:15 pm

“Excellent point. I haven’t figured out why there has not been a push to implement the obvious solution: Charge businesses a proportional share of healthcare costs for hours below 30/week.”
Well you are smarter than most libtards.

“Step function thresholds are almost always a bad idea.”
yep.

@OregonBowGuy. My company is in SW Washington. We have created 2 new jobs so far this year. We are about a 30 people company now. These jobs include healthcare and 401Ks. Mr OregonBowGuy I understand your concerns but you must ask yourself are the libtards really helping? The libtards have been in control of Detroit and Baltimore and see where that has got them. I am not a libtard. I create jobs and wealth for me, my company and my customers.

Now can you create jobs that pay the wages and benefits you think everyone deserves? No.

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Steven H May 7, 2015 at 8:54 pm

Wow. A compliment from Peter N, backhanded though it may be. I’m glad that you agree with the suggestion.

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Peter May 7, 2015 at 8:05 am

Steven H – “For the 100th time, I am asking, not for YOU to pay more taxes, but for you to stop supporting the flat tax on the 1%; meaning that it is in the best interest of you at the lower echelon of the 1% and all of us if there were additional tax brackets above your pay level”

Let me recap your points and see if I’m understanding….
– you are not asking those with under $1m in income to pay more taxes.
– taxes have already gone up enough for people under $1m in income.
– you want there to be a few higher brackets beyond the $1m barrier

I would love for you to – with actual numbers – give me a proposal here. What would the income tax rate be on income over $1m. Currently, those people are in the 39.6% tax bracket, but also have the 3.8% ACA tax on top of this. So they are at 43.4% currently. Where should we take this bracket? And please confirm that you are leaving those of us under $1m in income alone in your proposal.

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Steven H May 8, 2015 at 9:17 pm

I would love to give you a proposal with actual numbers spreadsheeted out. That will take some time to put together. Here is the rough idea however.

The ACA tax of 3.8% is currently applied to “certain investment income” of joint filers with > $250K income. I assume this creates somewhat of a effective sliding tax bracket from 39.6% to 43.4% as percentage of “new” income consists of these applicable investment types. I’ll treat incomes of $40oK to $1M as being in a 43.4% bracket. I’d add new brackets approx as follows
$1M to $4M – 48%
$4M to $16M – 53%
$16M to $100M – 58%
$100M up, and corporations – tax incentives introduced to compel reinvestment in US companies, domestic hiring, living wage scales for employees, and investment in training and education.

Indeterminate areas that need refined plan:
Capital gains rates may need to increase on $1M plus earners.
Inheritance loopholes introduced in last 3 decades may need closing.
Carried interest rules need to be adjusted to account that this is really just wage income for many high earners like hedge fund managers.
Education funding from federal and state governments must be increased, and education costs must be better controlled.
Incentives should be devised to promote small business creation over corporate mergers and big corporation monopolism.

After the economy absorbs these changes, grows some more, and stabilizes, EVERYBODY’s tax rates go up 2% if needed to pay the bills. Thus top tax rate will be at effective 60%.

Other than the future projected 2% increase that everyone pays, you pay no more of a rate than now.

Detailed projections of such a plan are difficult. I am not the CBO. But I may be able to spreadsheet out some rough projections. Just realize that revenue from tax increases will not remove 100% of deficits by themselves. Economic growth will cover a large part when we get the economy back on a sound track.

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Peter N May 9, 2015 at 8:30 pm

I would simply move to another country that is freer. The US is no longer the home of the free and the brave.
I am taxed at the highest rate.
I create wealth. I create jobs.
Why should I bother?
Tell me.
I am sure there are other places that would appreciate my skills more.

I like this guy
https://www.youtube.com/user/stefbot
He is more libertarian/pragmatic than conservative or libtard.
I think he is canadian.

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Steven H May 9, 2015 at 8:40 pm

Well since I am not proposing taxing YOU at a higher rate, at least not right away, and 2% more of your income at some indeterminate future time is a pittance, I’m not really sure why you would move. As for the other uppermost earners, where would they go? Most first-world nations have higher tax rates than I propose on high income. 3rd world nations are not particularly safe. People always threaten to leave the US if rates go up, but its not all that likely. And frankly, we have other entrepreneurs who would love to take their place.

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Steven H May 9, 2015 at 8:45 pm

And even if you are in the $1M club, Peter N, a 5% increase is hardly worth complaining about to live in the greatest country with the greatest opportunities. This country charged much higher tax rates for your relative income level in earlier decades and the country was plenty free and brave. It still is “free” for you. Why do you so object to freedom and prosperity being restored for everyone else?

Peter N May 9, 2015 at 9:05 pm

$1M, not quite yet but that isn’t the point. You are willing to kill the goose that lays the golden eggs.

There is even an exit tax where you pay taxes on wealth you have already paid taxes on. The US is not free.
http://www.forbes.com/sites/robertwood/2014/08/07/many-americans-renounce-citizenship-hitting-new-record/

Peter N May 9, 2015 at 9:40 pm

” we have other entrepreneurs who would love to take their place.”
If they could they would. It is a global economy so they would have to compete with me no matter where I was or where they are.

Peter May 11, 2015 at 10:34 am

Steven H – Let’s focus in on this….
$1M to $4M – 48%
$4M to $16M – 53%
$16M to $100M – 58%

There are about 140,000 people who fall in these brackets. Those 140,000 people currently pay slightly more than 16% of all income tax receipts. (more than the bottom 80% combined) This dollar figure is around $270 billion.

So – your brackets are basically increasing their income taxes between 5% and 15%. (just assuming all are at the 43% as you did in your example) Based on this scale, you would raise somewhere around $25-35 billion. And this is assuming that all of these people stay in the US. Many are types that could do their business anywhere in the world, so it is somewhat silly to think none of them relocate.

You said it yourself – this is already the greatest country with the greatest opportunities. Just not buying that taking more money from less than the most successful 150,000 people (who are already footing the bill for more than 80% of our country) to cut 20% off of our deficit is really a solution. Feels good politically though…..

Peter N May 12, 2015 at 12:59 am

“Well since I am not proposing taxing YOU at a higher rate, at least not right away, ”
You are a libtard. You simply don’t get it. You libtards have already raised my taxes to 43% and I don’t make $1M.
You think your taxes will only affect the very rich but they don’t. They affect small business owners too. These are main street people not wall street people.
You simply don’t get it. There isn’t enough money in taxing the 0.1%.
There will be a big financial disaster sooner or later. I will have no sympathy for the libtards rioting in the streets. They better not come my way.

Peter May 18, 2015 at 1:10 pm

And no reply to my post about the fact that he is talking about taxing only 140,000 people more to pay for all the spending.

Steven H May 12, 2015 at 6:58 pm

Peter N,

The “goose that lays the golden egg” is not the rich folks. It is the middle class, and they are the ones being hurt and that need saving.

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Peter N May 17, 2015 at 8:42 pm

They, the workers, can only work with stones, knives and bear skins without capital.

The middle class need to save themselves. They need to be better than the machines and foreign workers. There is little hope.

Peter May 11, 2015 at 10:52 am

Steven H – since you like history so much and seem to long for the rates of the 1950’s and 60’s. Let’s examine that 1950’s 90% tax rate myth a little bit closer…..

– Did you know that from 1950 to 1963, income tax revenues were 7.5% of GDP – lower than during the Reagan Administration (when rates were being cut dramatically) and in any era since?

– The reality was, nobody was paying those egregious tax rates. There were only a few people in that bracket and there were TONS of loopholes at the time.

– The economy was very stagnant in the 1950’s – in spite of the dominant world position we had coming out of WW2. In fact, we had 3 recessions in that era.

Economic growth has a MUCH greater effect on the income tax receipt revenue the government receives than playing with the brackets. The 1950’s evidence shows this. The obvious solution here is to cut spending or at least minimize spending to things that help grow the economy. But that doesn’t work politically.

Also – did you see the recent study in the UK that determined that cutting the top tax bracket from 50% to 45% was revenue NEUTRAL? Basically, this is where revenue maximization tops out. Which is just about where we are today.

And don’t think for a minute that all that the current administration wants to do is tax the 140k people making over $1m. They know this doesn’t solve anything, so they will be forced to tax those between 250k and $1m as well. And THAT slows the economy for sure as these are high spenders, employers and small business owners.

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Steven H May 16, 2015 at 9:48 am

Peter ==========
– Did you know that from 1950 to 1963, income tax revenues were 7.5% of GDP – lower than during the Reagan Administration (when rates were being cut dramatically) and in any era since?
===============
What source are you using?
usgovernmentrevenue.com indicates 1950 federal income tax revenue was 8.73% GDP but 1951-1963 all hovered from 10 to 13% GDP.
http://www.usgovernmentrevenue.com/revenue_chart_1950_2017USp_16s1li001mcn_F0f10f
You may be referring to INDIVIDUAL income tax revenue vs TOTAL income tax revenue (which includes corporate income tax). Individual federal income tax may have been closer to 7.5%.

Of course, this forces the question: Since revenue from corporate income tax has dropped, and there is continued pressure that corporate rates are too high, doesn’t individual income tax need to be increased more, to compensate? Or do we need to actually increase tax rates on the big corps? Or both?

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Steven H May 16, 2015 at 9:52 am

Peter =======
– The reality was, nobody was paying those egregious tax rates. There were only a few people in that bracket and there were TONS of loopholes at the time.
============
No one paid the high rates because there was little incentive to pay anyone at the salaries that would put people in those high tax brackets. Thus suppressing high corporate wages and reducing inequality. Which is precisely the point.

IMHO, the primary function of high marginal tax rates on high wages is not to raise revenue from those high wages, but to prevent people from making those wages in the first place. Sounds like it worked.

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Steven H May 16, 2015 at 10:10 am

Peter =====
– The economy was very stagnant in the 1950’s – in spite of the dominant world position we had coming out of WW2. In fact, we had 3 recessions in that era.
=========
Real per capita GDP growth in 1950s averaged just slightly under 2% annually vs just slightly over 2% for 70’s, 80’s, 90’s. Only the 1960’s stand out as remarkable with average annual GDP growth of about 3.5%. So despite the small recessions and fluctuations in the post WW2 economy, 1950’s were no more “stagnant” than most decades since, including the Reagan and Clinton years.

See first chart. (Ignore the text. It has lots of adjectives and you seem to dislike those.)
http://www.motherjones.com/kevin-drum/2011/01/myth-slow-growth-revisited

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Peter May 18, 2015 at 12:03 pm

If the economy was so strong in the 50’s, then I find it odd that JFK ran in 1960 on a mantra of “getting the country moving again”. And by the way – once in office, he then lowered taxes.

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Peter May 12, 2015 at 8:15 am

Here’s a thought we haven’t explored…..

What if we didn’t tax income anymore? Or at very least went to a flat 10% tax or something like that. Then, we jack up taxes on earnings from capital – capital gains, dividends, rental income, interest, etc.

Would be curious to hear from some of the more economically astute posters in here about what impact they think this would have. This would certainly hit the wealthy much harder than the poor.

The question is, would this discourage savings? Savings and investing are the key to our public being able to take care of themselves. The lack of it is why so many people are in such poor financial shape. However, more spending is good for the economy, which does create more jobs. Food for thought…..

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Ken May 14, 2015 at 7:02 am

Interestingly, I had been thinking something similar, but not about the 1950s versus today. My thought was more about what has gone on in the last three or four decades, as it relates to who is paying what portion of the federal tax bill.

So I went out and did some research. The purpose of the research was to verify, or challenge, the claim that the top 1% are paying less of the nation’s federal tax bill now than they did 30 or 40 years ago. This assertion has been made numerous times, along with the allegation that tax laws have been rigged to favor the 1% over that time period. Yet no compelling evidence has ever been offered to prove these claims. At least not in my mind there has been not been compelling evidence.

So I thought that in order to make a judgment, I would need to look at two things: 1) the percentage of the nation’s federal income tax bill paid by households in the top 1% over the past several decades, and 2) what the effective federal tax rate was for taxpayers in all tax brackets, including the 1%, in those decades.

To answer the first question I found this website from the National Taxpayers Union. http://www.ntu.org/foundation/page/who-pays-income-taxes For some reason its data includes years 1980 through 2012, but stops at 2012. Not sure why. Anyway, I think this website clearly shows that the answer to question #1 is that the top 1% have steadily borne more and more of the federal tax burden over the past three and a half decades. So if there is rigging of tax laws going on to favor the 1%, the rigging doesn’t seem to be working. Whether the share of tax burden borne by the 1% is “enough” or not is, I think, the substance of the ongoing debate in these threads.

To answer the second question, I found this website from the Tax Policy Center http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=456 . It shows that the top 1% are being taxed less at the federal level, as a percentage of their incomes, in 2011 than they were in 1979. The top 1% paid an effective federal tax rate of 35% in 1979 versus an effective rate of 29% in 2011. But it also shows that ALL taxpayers are paying less in 2011 as a percentage of their income than they were in 1979. In 1979 the lowest quintile, for example, paid an average of 7.5% tax rate, while in 2011 they paid an effective rate of 1.9%. And that’s true across the board for all income levels. So everybody’s taxes went down between 1979 and 2011, at least on a tax percentage basis.

So at this point I am leaning in the direction that the 1% are not soaking the rest of the country, nor rigging the system to get away with scandalously low tax rates. In fact, it seems they are shouldering more of the burden of the federal system than they were 36 years ago, albeit at lower rates than 36 years ago.

Thoughts?

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Ken May 14, 2015 at 7:12 am

Looks like I clicked on the wrong “Reply” button. My previous post is in response to Peter’s previous post re: 1950s taxation vs. today.

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Peter May 14, 2015 at 8:31 am

Don’t see your reply anywhere. ??

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Peter May 14, 2015 at 10:14 am

Oh there it is…haha

Ken May 14, 2015 at 11:56 am

It was “awaiting moderation” for a long time due to its length, I think, but the follow up comment of mine was short so that got posted first.

JTM May 15, 2015 at 3:31 pm

Been gone a while as I hadn’t been receiving updates until a bunch flooded my mailbox yesterday and kind of forgot about it.

At first blush, my question is why have we cut taxes so dramatically that we now owe Trillions with no end in sight? We are only crippling our future. Also, why are many wealthy continuing to fight to lower taxes even more, often using the argument that taxes have been raised dramatically on them? This seems to refute their reasoning, and while I’ll give that some rates have been raised, it’s only on portions of income.

This all seems to point to the debt problem being at least equally a revenue as a spending problem. The debt problem is what scares me the most as the debt service will soon start to overwhelm all discretionary spending.

Obviously not likely, if we act soon social security can become less of a problem without dramatically hurting anyone as small changes can make big differences while we still have decades. This problem is also somewhat temporary as the boomers die out and the millennials become the next boom. Medicare is in more dire straights, but changes will be less dramatic the sooner they are implemented. One thing that seems to often be overlooked (on purpose by some) is that changes don’t have to come from increased costs or decreased service, both of the programs have huge overhead/running costs. I’ve never heard of any real discussion on controlling those parts of the equation, why is that?

Personally, I feel the problem is too big to grow our way out of. I don’t see a way out without raising taxes in some way, be it raising/eliminating the taxable limit for FICA, raising the retirement age, charging higher rates for medicare to the wealthy, or something else. Too many people have paid in expecting these programs to be there when they retire that pulling the rug out from under them would likely cause more harm to the economy than raising taxes.

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Peter May 15, 2015 at 7:00 pm

Great points JTM. Well put. I think we don’t talk about those things because of politics. Reforming social security with slight changes or cutting fat from the budget, making things more efficient, etc aren’t headline grabbers and vote getters. I totally agree….pretty soon it won’t be an issue as the debt problem will swallow all discretionary spending whole.

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Steven H May 16, 2015 at 4:04 pm

Nice post, JTM. It does seem like raising the retirement eligibility age for Medicare and Social Security would stabilize costs on those programs, but i wonder how the business community will react to the extra years THEY are then expected to pay for their older employees health care and continued employment. Will it motivate more firings of employees in their 60’s? What will happen to people in the gap? Will it end up costing even more for government to have to pick up costs for care of people that fall in the gap?nIt just makes me think even more strongly that universal health care along the lines of the Canadian model is a better way to go. It has saved costs and kept the Canadians quite happy.

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Peter May 16, 2015 at 7:45 pm

Wait…..have to chime in here. Canadians from what I hear by and large HATE the health care system there.

Steven H May 16, 2015 at 8:44 pm

Peter, it is a myth, propagated by conservative politicos this side of the US border, that Canadians hate their healthcare. From a 2012 poll of Canadians:
The online survey of 2,207 respondents by Leger Marketing found universal health care was almost universally loved, with 94 per cent calling it an important source of collective pride – including 74 per cent who called it “very important.”

Look here for more info.
http://www.marketwatch.com/story/myths-about-canada-us-health-care-debunked-2012-08-09

Steven H May 16, 2015 at 8:45 pm
Peter May 17, 2015 at 6:12 am

I don’t read conservative media stuff (or really any political media) – I was just going off of anecdotal stories from friends and clients that live in Canada.

Things like epidurals being “extra” when having a baby…..two aspirin are included. Or another friend who broke their ankle ice skating and waited 10 hours in the ER. But I stand corrected…..the poll must be correct.

Steven H May 17, 2015 at 1:25 pm

Peter,
While I believe you when you say that you don’t read political information and that your information comes from Canadian clients, I still have to point out how effective the political propaganda and whisper campaigns have been at getting out bad information. On this topic and many others, outright lies are spread initially through political channels and then to the conversations of like-minded people everywhere. When people hear the same misinformation repeatedly, it begins to seem true.

I know I have heard how bad the Canadian healthcare system from all over … except when I look up actual Canadian polls and writers and users of the system, and then I find that it’s popularity is overwhelming. It’s not perfect, of course. What is?

Just out of curiosity, I looked up the epidural thing, and found this article and these posts in comments:

“Louise
November 23, 2009
I live in Canada, in Alberta actually. I have had both my children here and I work for myself so I don’t have ’employer’ benefits. I had a private room both times with my own bathroom and shower. I had a great view from the window that was the size of the entire wall and my child slept in the same room with me. There was also another bed brought into my room for my husband to sleep on. We were fed all the proper meals, given the pads, creams and diapers. I had an epidural with my first and equal care with my second…at the end of the journey…I went home without a single cent out of my pocket for my care nor my childs.”

“mommyingaround
October 7, 2009
We had our baby in Vancouver, BC – well specifically at the Burnaby hospital and we didn’t have to bring anything. Everything was provided for us such as newborn diapers, wash cloths, towels, ice packs, pads, breast cream, pills, food… everything! And when we left, they allowed us to take extra supplies home such as ready to feed formula, syringes so we didn’t have to go shop for it right away. Our private insurance paid for the semi-private room and we had no bills in the end. We stayed for 3 1/2 days. Everything was covered and the service was awesome! I was so grateful and think everyone having a baby should have that kind of care and not worry about paying more bills.”

http://www.assertagirl.com/2009/10/07/giving-birth-in-a-canadian-hospital/

Peter May 17, 2015 at 4:14 pm

Great to hear. Now I know.

Peter N May 17, 2015 at 9:02 pm
Ken May 18, 2015 at 5:35 am

I had an interesting interaction with a few Canadians a few years ago about their health insurance, too. Again, this will be anecdotal evidence, but I think it’s interesting to note….

Like many others I remain skeptical that their health insurance system is as good as ours, mainly due to long wait time for routine services.

So some Canadian employees of our company were here in the US on business, and I had a chance to talk to two of them, both women. So I asked an open-ended question about their health insurance system, what do they think of their health insurance system?

To my surprise, both were very positive about it. So I pressed a little further and asked about wait times for services. They both said they never had to wait excessively long, and were surprised that Americans have that perception.

Now, those were just two people, but again both were positive about the system. I still wonder to this day, however, why it is that so many people come to the US rather than going to Canada to have complex, high-risk surgeries performed.

Peter May 18, 2015 at 5:43 am

And in no way should it be suggested that a universal health care system is bad for a people anyhow. Even if there are wait times and inefficiencies.

Steven H May 15, 2015 at 3:53 pm

I have long contended that “the percentage of total taxes paid by the rich” is the wrong statistic to evaluate, and is rather deceptive. Yet it keep getting repeated as if it has meaning.

Consider the following hypothetical, which is roughly based on stats comparing 1979 to 2011. Let’s say the richest 1% more than doubles their share of all income from 10% of all national income to 24% (this includes capital gains and differs from some other charts that exclude them). Simultaneously, their effective tax rate (the percentage of their own income that they pay in taxes) drops from 35% to 29%. The total effective tax rate of the total population drops from 22% to 18% in that same time period. So who wins and loses?

You have to spreadsheet this all out to solve the percentages but here are results:

a: Income shares of: (Everyone, Upper 1%, Lower 99%)
1979: 100%, 10%, 90%
2011: 100%, 24%, 76%

b: Effective rates of (Everyone, Upper 1%, Lower 99%)
1979: 22%, 25%, 20.6%
2011: 18%, 29%, 14.5%

c: Percentage of all income paid as tax by (Everyone, Upper 1%, Lower 99%)
(product of (a) and (b))
1979: 22%, 3.5%, 18.5%
2011: 18%, 7%, 11%

d: Percentage of all taxes paid by: (Everyone, Upper 1%, Lower 99%)
((c) x 100/22 for 1979 or x 100/18 for 2011)
1979: 100%, 16%, 84%
2011: 100%, 39%, 61%

So, since the upper 1% went from paying 16% of all taxes in 1979, to 39% of all taxes, they are getting a raw deal, right? Wrong!!

e: Let’s calculate post-tax income as share of all income: (all, 1%, 99%)
(a)-(c)
1979: 78%, 6.5%, 71.5%
2011: 82%, 17%, 65%

So post-tax income shares went up from 6.5% to 17% (a relative increase of 162%) for the upper 1% and it went down from 71.5% to 65% (a relative decrease of 9%) for the lower 99%.

It’s as if (using similar ratios to above) 100 guys together make a million dollars, and 1 guy has 10% of that or $100K, but has to pay 35% in taxes or $35K. A few years later, the one guy manges to get $240K of the million dollars and has to pay taxes of 29% of the income which is about $70K in taxes. He then complains because his tax bill doubled and his percentage share of taxes also went up!!!! But he is clearly the winner because his pre and post-tax income more than doubled at everyone else’s expense!!!

Clearly, the “we paid a higher percentage of all taxes” argument is a complete canard. Who cares what you have to pay in taxes if your share of pre and post tax income more than doubles? Their share of taxes doubled becuse their share of income MORE than doubled.

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Steven H May 15, 2015 at 3:55 pm

Typo correction
b: Effective rates of (Everyone, Upper 1%, Lower 99%)
1979: 22%, 35%, 20.6%
2011: 18%, 29%, 14.5%

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Peter May 15, 2015 at 7:02 pm

This is so silly. If you can constantly twist stats and use things like “debt as a percentage of GDP” as some sort of valid measure and make up things like “zero loss gain” that isn’t even a real thing, how can you be the stats police for this forum? Seriously. ….

Steven H May 16, 2015 at 8:08 am

I’m not twisting stats and it is not silly. It’s mathematically obvious to anyone who can use a 4 function calculator, that even with a flat income tax rate, if you double your share of national income, you will naturally double your share of national taxes paid. To act like it is some sort of burden on the rich for that to occur is the really ridiculous thing. And yet it gets quoted over and over and over.

The crazy thing is that effective income tax rate on the rich DROPPED 6 points (to just 83% of what they would have paid with steady effective rate) while their income share more than doubled from 1979 to 2011. Explain to me again how this is worthy of complaint.

There is no validity to complaining about a rising percentage of taxes paid by the rich when almost all of the growth in national income goes to the upper 1%. It’s just crazy.

As for the continued complaints about using comparisons to GDP, go read an economy text, or talk to an economist. Stop complaining to me about your dispute of a universally referenced economic measure. GDP is proportional to the national income and it measures a very real tangible thing. When the country has more national income, it can afford to spend more on infrastructure and programs to help and promote the community. That is why spending and revenue and debt as a percentage of GDP are relevant measures. Your complaint against that measure is political and ideological and not economic.

Steven H May 16, 2015 at 8:20 am

As for “zero loss gain”, that is just as real a concept as “zero sum game”. In case you missed the earlier post where it was explained:

“Zero sum game” is a game where every gain by one person is balanced by a loss by someone else. Economies re said to not be a zero sum game, because inventions, processes, and businesses can create efficiencies that increase the overall wealth in the game, such that gains by one person do not necessarily indicate losses by someone else.

“Zero loss gain” is the idea that gains by one person NEVER mean a loss to someone else. It is used to imply that all gains by some players in a game have zero impact to any one else in the game. It is also used to suggest that rich people create all of their wealth and income with their own efforts and that any losses by other people are due solely to their own failures.

Rich people often proclaim “It’s not a zero sum game, you know”, which is true, but what they are usually trying to convey is that “it’s a zero-loss gain”, which is NOT true.

Steven H May 16, 2015 at 8:35 am

Peter,
So explain to me how anything I stated in my statistical post was “twisted”. I worked hard to make it mathematically robust and am offended that you dismiss it, seemingly due to your objections to its conclusion and not its argument.

James May 17, 2015 at 9:50 pm

Dude – you are just going round and round here. Think there has been ample rebuttals of your core ideas which are so extreme and politically motivated. Just read back. Statements like “rich people create all wealth with efforts and all losses by others due to their own failures” is a straw man argument. Neither Peter, Ken or even Peter N has suggested that ALL is caused by this. Are there any OTHER people who think like Steven H who can offer a more sensible argument without made-up economic terms and convenient statistics and polls? Where are the liberals who think for themselves? I would love to hear their point of view…..seriously

Peter May 18, 2015 at 8:23 am

—-As for “zero loss gain”, that is just as real a concept as “zero sum game”—–

Actually, no it is not. The zero sum game is an actual mathematical theory – and one that no rational economist believes that economies work in this construct. If that were the case, the “pie” would never grow.

The zero loss gain is a theory pioneered by an individual in a comment section on the internet. It is made up. It makes no sense. It doesn’t exist.

Can you just admit that you think the economy is a zero-sum game? Please?

Ken May 18, 2015 at 6:01 am

“….It’s as if (using similar ratios to above) 100 guys together make a million dollars, and 1 guy has 10% of that or $100K, but has to pay 35% in taxes or $35K. A few years later, the one guy manages to get $240K of the million dollars and has to pay taxes of 29% of the income which is about $70K in taxes. He then complains because his tax bill doubled and his percentage share of taxes also went up!!!! But he is clearly the winner because his pre and post-tax income more than doubled at everyone else’s expense!!!……”

OK, so here we go, Steven. You’ve gone to some lengths in previous posts to say that you agree that income is not a zero sum game, yet this example is a zero sum game, is it not? And by providing this as the example, does it not show that you really think income is in fact a zero sum game? Well, whatever. I don’t want to get all legalistic. It’s could be just an analogy for illustrative purposes.

So setting that aside for the moment, I have what I think is a better analogy of the federal tax system. Many have probably heard this analogy before, but I have my own twist to it at the end….

Suppose that every day ten men go out for lunch and the tab for all ten comes to $100. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
All for the same meal.

So, that’s what they decided to do. The ten men ate lunch every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve. He said, “Since you are all such good customers, I’m going to reduce the cost of your daily lunches by $20. Food for the ten will now cost just $80.”

The group still wanted to pay their bill the same way we pay our taxes, so the first four men were unaffected. They would still eat for free. But what about the other six men — the actual ‘paying’ customers? How could they divide the $20 windfall so that everyone would get his “fair share”? They realized that $20 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being “paid” to eat his lunch. So the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same formula based on what was paid, and he proceeded to work out the amounts each should pay!

And so: The first four continued to eat lunch for free (no change)
The fifth man, like the first four, now paid nothing (100% savings).
The sixth now paid $2 instead of $3 (33%savings).
The seventh now pay $5 instead of $7 (28%savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $14 instead of $18 (22% savings).
The tenth now paid $50 instead of $59 (15% savings).

Each of the six who had been paying was now better off than before, and they all still ate the same meal. But once outside the restaurant, the men began to compare their savings. “I only got a dollar back out of the $20 savings,” declared the sixth man. He pointed to the tenth man, “but he got $9″! “Yeah, that’s right,’ exclaimed the fifth man. “I only saved a dollar, too. It’s unfair that he got back nine times more than I!” “That’s true!!”shouted the seventh man. “Why should he get $9 back when I got only $2? The wealthy get all the breaks!” “Wait a minute,” yelled the first four men in unison. “We didn’t get anything at all. This payment system exploits the poor!”

So the nine men surrounded the tenth guy and beat him up. The next day the tenth man didn’t show up for lunch. He moved to the Cayman Islands where he ate lunch for free the rest of his life. The other nine men sat down and ate without him at their same old restaurant. When it came time to pay the bill, however, they discovered something interesting. Between them all they didn’t even have enough money to pay half the bill!

And that, in my mind, is a much better analogy of how our tax system works. The people who pay the highest taxes get the most benefit from a tax reduction. Tax them too much or attack them for being wealthy and they might not show up to eat any more. In fact, they could start eating lunch some other place, or some other country, where the atmosphere is friendlier.

So I guess what I would say in all of this is that my original point was about who pays what of the federal tax bill. While I understand your point that wealthier people can afford more, that doesn’t erase the fact that they are paying everyone else’s way. I also don’t agree that wealthy people become wealthy by taking money from the poor.

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Ken May 18, 2015 at 6:03 am

p.s. I also don’t believe that the income pie is a fixed size.

Peter May 18, 2015 at 8:14 am

I don’t think there is any proof whatsoever in academic and economic research that the wealthy are becoming wealthy by taking money from the poor. (this would imply a zero sum game) Steven H clearly believes this to be the case – as evidenced earlier by the comment that Jobs and Gates’ money might be ‘better served going to those that might start a business’ (i.e. the middle class). He clearly believes that the more money Bill Gates or anyone of means makes, the less there is to go around for everyone else. And he believes policy – mainly income tax law changes – can change this. He also doesn’t put weight in the possibility that higher tax rates on the wealthy might:

a) slow economic growth
b) cause some wealthy individuals to operate in other countries
c) increase unemployment

I categorically disagree.

Ken, you have stated this to Steven H many times before – and although he denies it, he clearly believes that the economy is a zero sum game. He tries to get around it by using some made-up philosophy of a zero-loss gain, but at the heart of it he believes that the …. and I quote…. “lower tax rates on the rich enabled high income disparity” and that this disparity isn’t FAIR. The interesting concept is that I think he believes that if we had much higher rates on the rich in the past 10-20 years that we would have had the same economic growth but a more even income curve. Somehow the cashiers at WalMart would be making more money and the CEO’s would be making less. There is no sound economic evidence to show that this would have indeed been the case.

Ken May 18, 2015 at 11:41 am

I think the point Steven is trying to make is that non-owners help create profits, yet don’t share in company profitably beyond their level of contracted salary. And there is a point to that. Without rank and file workers, some level of profitability would not happen. Profits would surely be lower.

I think the missing piece in Steven’s view, however, is the risk-reward equation. Owners participate in profitably because owners take the downside risk of failure. They risk bankruptcy, for example, if the business fails. They risk not being able to meet payroll and having to take out short-term loans. More generally they take on all the risk of owning and managing the business.

Non-owners avoid the downside risk of ownership and the downside risk of failure, trading their labor for a fixed income via an employment contract. In other words they do not have an ownership interest in the business. But by avoiding downside risk, non-owners forego their opportunity to participate in upside profits. At least under the capitalist system they do. Their compensation instead is limited to their salary as reflected in their employment contract because they are not owners, and do not take the risks that command those kinds of rewards. That’s it.

Stated another way, I think Steven’s main objection is to the capitalist system in general, and the risk-reward structure. I think this is the crux of the matter.

Peter May 18, 2015 at 11:55 am

OK – thanks for the reply, Ken …. but isn’t your example more true of small business? To play devil’s advocate, his beef is probably better aimed at corporate CEO’s vs. the rank and file employees. While a CEO definitely shares in the risk/reward equation through bonuses, stock options and general job security – they don’t risk bankruptcy or not being able to meet payroll.

That gets to your point about Steven H being against capitalism. I have tried to have the debate in the context you just described – with small business owners and risk/reward systems. And several of us SBO’s on here have shared how we manage our cash flow and pay our employees, which hopefully opened his eyes that at least in the small business spectrum, capitalism isn’t as evil as he might have read or heard. He eventually somewhat backed off of small business owners being the real “problem” in income disparity.

Most of his issues have to do with people not being paid “what they deserve” or “what they are worth”, which lies in the fundamentals of capitalism. How would you argue that a CEO’s pay being 10’s of millions of dollars vs. the regional supervisor getting $50k being OK? And does taxing the CEO more change ANYTHING?

JTM May 18, 2015 at 2:36 pm

Problem is, with the government it’s more like the owner is saying he’ll offer a line of credit that needs to be eventually paid off. Those at the top get an increasingly larger piece of pie. If the economic pie doesn’t grow big enough, fast enough, when this line comes due it will disproportionately effect the lower income levels who are less able to handle a cut in spendable income. At the same time, the wealthy will wag their finger and say “we told you so”, though the problem originated with many of them either saying they pay too much taxes or others get to much (much like the poor in your story complaining the wealthy get too much).

There is a balance that must be made. We are far from it. There are good arguments for the wealthy, yet they ignore that there are equally good arguments from the poor. When the vast majority of our current spending comes from SS, Medicare and Defense with interest soon to overwhelm, where do you make cuts/tax increases? That is reality. We have to start making hard choices as the future deficits portend to dwarf any spending you label as waste.

I’m sorry Peter N, but there are going to have to be some hurt for the wealthy as there will for the rest of us, we are not the leaches you are looking for. The lower 50% (43% as of 2013 don’t pay federal, the number is shrinking as the economy gets better) may not pay much in income taxes but they do pay many other taxes and are a large part of the economy. Everyone who works in that lower half pays FICA, which comes to as high a percent as many wealthy individuals/corporations. They are contributing to where the vast majority of spending goes, yet you would give them no credit for that.

JTM May 18, 2015 at 3:23 pm

The major issue with this analogy is that it’s quite simply not true. Federal income taxes are NOT the only source of income, they are only 42% of the federal pie, FICA covers another 40% and this is overwhelmingly paid by not in the upper echelons of income both because there is a cap and because many upper income people have earnings that are not taxed by FICA.

Ken May 19, 2015 at 5:11 am

Actually, JTM, I think the analogy mostly holds true.

First, the 42% part holds true in its entirety.

Secondly….the part about 40% of revenue coming from FICA…. You’re right that the percentages don’t hold entirely true as per the lunch analogy. However, they still hold mostly true.

I think you’ll agree that the big guys always pay the maximum in FICA taxes, whereas the guy earning the average salary of ~$38,000/year pays about one third of that.

Now, if you compare on a percentage basis of salary, the little guy is paying a higher percentage of his salary for FICA vis a vis the big guy, which I think was your point. And yes, the percentages represented in the analogy were only for federal income taxes, not federal income taxes plus payroll taxes.

However, the analogy was about who pays what percentage of the entire federal tax bill, not who pays what percentage of their own salary in FICA taxes. Further,, if you look at who pays what of just the FICA portion of the bill, the big guy still pays on average three times as much as the little guy. So the analogy generally holds true, just not at the same percentages as for federal income taxes.

Finally, I’m not sure how the portion of the big guy’s income not subject to FICA is relevant to the conversation. Again, the analogy was about who pays what portion of the total tax bill, not who gets away with not paying FICA on portions of their income.

Moving on, I actually agree that FICA limits probably can and should be raised. For most of us, I think that makes intuitive sense. But that also assumes that the feds would handle the additional revenue stream appropriately. To say the least, I am skeptical about this part of the equation. The federal government’s track record on handling our money is not good.

JTM May 19, 2015 at 2:28 pm

Ken – Fine, yes, strike my second statement. It just gets a bit irksome when people say 40-50% don’t pay income taxes because they generally conflate that to no taxes at all which is terribly not true. Also, many of those who don’t pay any taxes are retired and already paid for decades. They are not the bottom feeders many on the right claim them to be. Stories like yours and statements like Romney’s 47% statement put down the many retirees that paid taxes for decades and many of which are Republican.

What do you have to say about my first response?

Ken May 19, 2015 at 5:17 pm

JTM — I would say that the reason our national debt is so high and so out of control is because the federal government consistently overspent (and related to that, over-promised benefits), and either mismanaged or was outright dishonest with the money with which they were entrusted on the public’s behalf.

I would say that the cause for most of the problems lie in what I said a few pages back, which is that there are a lot of short term political benefits to overspending (re-election being one of them), and that there are few political benefits for making the hard choices needed for long-term financial health.

I’ll pick Social Security as my poster child example. Back when first proposed, the public was told that the money taken from their paychecks would go into a special account with their name on it. As we now know, only half of that statement was true. People did get an account with their name on it. The money part? Well… big shocker here…. that disappeared pretty quickly, replaced by IOUs. Lots of reasons for why the system started going bankrupt, but most of it had to do with over-promising of benefits (overspending), and mismanagement of funds (ineptitude).

I would say that, more generally, when 60% of the country is receiving some form of government assistance, something is desperately wrong. There are too many people in the cart, and not enough people pulling the cart. For example, it used to be that back in the beginning of SS, there was a 16:1 ratio of workers to SS beneficiaries. Taxes were the lesser of 1% of your income, or $1000. Now there is a 3:1 ratio, moving towards a 2:1 ratio, and you know what the numbers are for tax rates..

Anyway…. I agree that the country is in deep financial trouble. I see it mostly as a spending and mismanagement problem. But that is neither here nor there. Political nitwits past and present got us here, and now we need to make some hard choices before things come crashing down. Unfortunately, nobody so far has been willing to do that. And when hard choices are offered, such as reductions in benefits, all the usual political interest groups come out squawking, and the politicians do nothing.

Peter May 20, 2015 at 6:51 am

Ken – Very well said. I completely agree and could not have worded it better myself. The problem on the spending side is due to overpromising and short-term gratification like you mentioned.

But there is one additional problem inherent in government with how it is run. I see here in the DC area situations where a Federal agency has “money to spend” before the fiscal year is out – since it is in their budget – and they scramble finding “something to do with it”. Nobody would manage their personal budget this way – nor would a corporation do this. Both would simply save the money for later use. The government budgets don’t often operate this way – if they don’t use all of the money, then they will be susceptible to losing the same allowance the next year. The system is built for waste, which makes it so inefficient and results in SS, Medicare, etc. (and soon to be ACA) such a mess.

The spending side is so flawed – and on the revenue side you have “too few people pulling the cart” as you mentioned. When looking at this total equation, this is why I find it foolish to blame the “few people” that are pulling the cart for being the primary problem. I also think it is crazy to blame those on government assistance or struggling in poverty. The problems lie in our own government officials, the system of spending itself and the irresponsible short-sighted behavior of our leaders. There must be some movement to have visionary business-types get involved in government and right the ship before it all blows up in our faces.

Steven H May 16, 2015 at 3:31 pm

So, Ken, to condense my response:
1) People believe the richest 1%, 0.1% and 0.01% are soaking the rest of the country, not primarily because of lower tax rates on the rich, but because of the income dollars shifted from middle class to wealthy, and the high proportion of new national income that is redirected to those uppermost tiers. The lower tax rates on the rich ENABLED high income disparity, and that is why most of us object to them.
2) The percentage of taxes paid by the rich increased because the percentage share of income of the rich increased. This is not a burden on the rich but a natural consequence of the rich getting a much larger share of the pie.

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Peter N May 17, 2015 at 9:20 pm

“) People believe the richest 1%, 0.1% and 0.01% are soaking the rest of the country, not primarily because of lower tax rates on the rich”
Libtard lies. I pay heavy taxes. Half the people pay little or nothing.

” but because of the income dollars shifted from middle class to wealthy,”
Because the most of the wealth is produced by knowledge or machines.

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Peter May 18, 2015 at 8:17 am

As insane as it is to some that there is high income disparity or wealth disparity….it is also insane to many that half of our country pay little or nothing in taxes. Both “complaints” have validity.

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Steven H May 18, 2015 at 4:30 pm

Let’s make a deal.
I double your income for the same work and double your taxes. Is that a great deal? Will you appreciate the windfall, or will you complain about the tax increase.

Let’s make another deal.
I drop your effective federal income tax rate from 4% to zero, and your effective total federal tax rate from 14% to 7%, but to get this deal you have give up 20% of your income. And by the way, you don’t get a choice in the deal, but you do get to choose how you feel about it. Do you rejoice in the fact you pay less taxes or do you feel cheated that you were forced to give up more salary than the tax savings? Do you think it’s fair that the same people who received the windfall of your lost income now deride you for not paying a federal income tax?

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Steven H May 18, 2015 at 4:18 pm

The “half pay no taxes” argument is weak.
1) The lower 90% are effectively paying a 20% “tax” of lost income due to that income being shifted to the 1%. If they were given their due in wages, I’m sure they would be happy to pay more in federal income taxes.
2) The federal income tax is not the only tax. Even the workers in the lowest quintile pays 20% of their income in some sort of local, state or federal tax (in addition to the lost wages “tax”). So pretending that they do not contribute to government and society is not true.

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Steven H May 18, 2015 at 4:20 pm

“Because the most of the wealth is produced by knowledge or machines”
You left out political bullying and economic manipulation.

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JTM May 19, 2015 at 4:19 pm

Peter N – While asking Steven to cut his Libtard lies, you should refrain from your Conservi-dunce lies as well. Half the people pay little or nothing IN FEDERAL INCOME TAXES. Which ignores the fact that a very large percent of this number is retirees, that the number of non-retirees in your scope has been dropping fast and that these same “dead-beats” pay plenty of other taxes.

“Because the most of the wealth is produced by knowledge or machines.” -Well, sure, but where would we be without the peons being able to spend on the junk put forth by those who own knowledge and machines? or the workers they continue to want to push down wages on? Whether you want to admit it or not, trickle down doesn’t work, our economy is built on lower levels being able to buy which creates profit for those higher up. Investment depends on having customers, investment doesn’t create customers. No customers means no investment.

Also, while you complain about federal income taxes, the reality is they are historically low with recent tax cuts such as those by Bush being paid for with increased debt not decreasing spending (yes, I understand there have been some minor increases on certain income, let’s just put a hold on that for a moment). We need to curb the deficits and due to increasing spending on interest, SS and medicare which are required spending, these deficits will be almost impossible to cut significantly without increasing tax rates or cutting SS, Medicare and Defense.

How do you propose the US government give you your “much needed” tax relief without dramatically hurting the rest of the economy or further increasing the debt?

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Steven H May 18, 2015 at 4:42 pm

Ken,
1) Thanks for attempting to express my side of the argument.
2) Yes the “fixed pie” in my example was illustrative and for simplification. I don’t believe the economy is fixed and I am well aware that the economy grows on a real per capita basis. . How could I quote all the statistics I express here and not recognize that?

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Steven H May 18, 2015 at 5:07 pm

Ken (continued),
===============
I think the point Steven is trying to make is that non-owners help create profits, yet don’t share in company profitably beyond their level of contracted salary. And there is a point to that. Without rank and file workers, some level of profitability would not happen. Profits would surely be lower.
===============
Correct, that is part of my point.

===========
I think the missing piece in Steven’s view, however, is the risk-reward equation. Owners participate in profitably because owners take the downside risk of failure. … More generally they take on all the risk of owning and managing the business.
============
I am aware of the risk/reward equation and it was the basis of an earlier discussion you and I had. I queried whether it is possible for entrepreneurs to be either under-paid or over-paid for a given level of risk. I believe it is possible for either to occur. So my contention is that entrepreneurs and business owners need a suitable reward for risk, but that the current reward is excessive.

Market forces are not perfect at assessing reward, although they do a good job of “sorting” reward; i.e. generally (but not always) those who work harder and/or have the more valuable skill get paid more. But the slope of how MUCH more is subject to political and social manipulation. That seems pretty obvious. And that is where I have a dispute with the current risk/reward equation.

==============
More generally they take on all the risk of owning and managing the business.
==============
Do business owners really take on ALL of the risk? I’m a parent. I invest in my children, in their moral training, in their education, in their health, in their attitudes and manners. I put a huge investment in time and money and preparing them for life. Additionally, they put a huge amount of their own effort in those same ventures. There is huge risk in all of that effort. If my children start their own business, they will take another type of risk. But if they seek to work for an employer, they also take a risk with the direction of their entire life. Will this business be worth the investment in time and energy? Is the employer honest? Will pay raises be accorded fairly? Just because every single employee takes these same risks and makes these same efforts does not make those efforts worthless, nor the risks without measure or value.

Business owners are not Creators of jobs or wealth nor the sole risk-takers in creating a functional society. Such statements go beyond recognition of entrepreneurs and instead diminish the humanity and very essence of the rest of society.

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Peter May 18, 2015 at 6:16 pm

But the second you “appoint” some authority to determine what a “just reward” for any given level of risk – you are changing the game from capitalism to something else entirely. Who should make this call? The American worker? The voter? How can one determine how much creators, innovators and small business owners should make? If I open a restaurant is there a cap as to how fast it can grow? If it becomes a nationwide franchise is that too much reward for me?

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Steven H May 18, 2015 at 7:39 pm

Who said anything about “appointing” someone? Markets are not perfect nor standalone. There are always competing interests at the controls. Surely you recognize this. Tax policy, business policy, regulations, all impact income disparity.

Come on now. How is it that changing policy to your advantage is capitalism, but changing policy to the advantage of the lower 99% is “something else”. It’s a sliding control, a pendulum, a variable control with many hands on the lever. It’s all capitalism and democracy. No one is changing that. The redeeming virtue of democracy is that wealth and income can be taken away from the majority for only so long, and then the voters start to take notice and rebalance the equation.

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Peter May 18, 2015 at 8:11 pm

I don’t want to change the policy. You do. You think our economy is unfair. I don’t. You think that there is a lever you can pull (income tax rates) that will somehow make everything fair (which would need an appointee to determine what fair really is). I don’t agree.

Fair and “deserved” or “like it was in years past” are all arbitrary subjective measures. They are not pure economics nor are they any part of capitalism.

Peter May 18, 2015 at 6:19 pm

Your analogy about your children is asinine. You are missing the point. We all take risk when we drive a car or go outside. We are talking about economic risk. Giving up salary or security for upside. The backbone of American capitalism. The gold rush….. small businesses…..pioneers….start up companies…..venture capital…..mom and pop stores…..the list goes on and on and no country provides the opportunity that America does for this. And you want to cap the upside.

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Steven H May 18, 2015 at 7:56 pm

Rather tactless comment, Peter. YOU are missing the point. People create markets and market needs. Businessmen don’t. And if you don’t understand my defense of the people who become your employees, and their essential contribution to your success, then you are the one who is donkey-like. Businessmen merely service the market needs to make a profit. Society creates all of the infrastructure, experience, tools, supplies, security, monetary instruments, and education institutions that the businessman requires to do his job. Self-exultation of businessmen as the only people who take risks, as Creators of jobs and wealth, as the irreplaceable gods of prosperity, is absurd and arrogant. Businessmen are important. Just like everyone else.

You seem to forget that the US exists as an entity of the people, governed by the people, and benefitting all the people. We are not a capitalist society serving business first and a democratic society second. Capitalism is a tool to motivate and reward effort that benefits the country. Nothing more. It is not a game intended as “winner-take-all”. When the actions of the bankers and investors CEOs end up damaging the economy (as they just did), and depriving the majority of the country of the rewards of rising GDP (as has been happening for decades), and creating historically high income disparity, then the rules must be adjusted to correct the imbalance.

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Peter May 18, 2015 at 8:14 pm

Never said or implied any of this. There is that straw man again.

Although I will say this. My employees are not essential to my success. I am. If my employees all died tomorrow I would go hire more of them. There are more people that can do their jobs than can do mine. And they make enough to be in the 1-5% themselves. The woman that sits at the reception desk could be replaced by hundreds of people.

Steven H May 18, 2015 at 8:34 pm

If your company disappeared tomorrow, another would take it’s place run by someone else, if there was a market need. That’s all I’m saying. No one is irreplaceable.

Peter May 19, 2015 at 6:55 am

Let’s explore that…. so if another company replaced mine – would they be as efficient? I think it is fair to say they wouldn’t, since if they would they would already be doing what I’m doing. There is clearly a market need or I wouldn’t be successful – the question is what would the quality of the business be? That is driven by the entrepreneur or the “talent” that is the heart of the business – not by the replaceable employees that file papers, answer phones or do other tasks that run the day-to-day of the business.

Under your philosophy, businesses would slowly be weakened, as would productivity and real economic growth. If my replacement did 70% of the revenues, he/she would only be able to carry 70% of the overhead. Hence, people that you are looking to protect would lose their jobs.

Steven H May 20, 2015 at 1:37 pm

Peter =========
[with Steven H responses in brackets.]

Let’s explore that…. so if another company replaced mine – would they be as efficient? I think it is fair to say they wouldn’t, since if they would they would already be doing what I’m doing.
[No, if you already productively fill the market niche, there is no hole in the market for them to fill.]

There is clearly a market need or I wouldn’t be successful
[Yes there is. And if your company disappears, it will create a hole in that market need which someone else will fill. If you decided to take a permanent vacation to Bermuda, someone else might even be so clever as to set up shop in a similar location, with similar marketing, and with many of your same employees who already have expertise in the industry. We all think we are irreplaceable, but it is not true.]

Under your philosophy, businesses would slowly be weakened, as would productivity and real economic growth.
[I don’t see how my philosophy has anything whatsoever to do with weakening business or economic growth. I can’t see that you have established any connection between the two.]

Peter May 20, 2015 at 2:04 pm

I am not sure you will see this the way I’m describing, but to clarify….. My industry in particular is highly competitive. There are scores of people doing what I do and some are more successful than others. The reason why I am more successful than some is due to the fact that the service I provide is superior to others in some way. (Otherwise, they would have never changed over to my services)

Remove me from the world and you are right – there are others that do what I do. However, they were options when I was alive and the public didn’t choose them over me. This means that my clients will then be forced to choose a substandard option. Sure, there will still be options but they will be substandard.

You are right that not everyone is irreplaceable. But many are. What makes our country great is the competitive capitalism that allows the cream to rise to the top. You made this argument months ago with professional athletes – and it was as invalid then as it is now. If the whole NBA walked away to play overseas because of severe pay cuts, there would indeed still be an NBA as there are lots of people who would love to play basketball for money. However, isn’t it better to have the BEST basketball players in the NBA? That’s why it pays the way that it does. If a league started in France that paid 10x the salaries, you would see the NBA players leave. Despite your best intentions, these are irreplaceable employees. The league would die if they didn’t have the best players.

You insult and cheapen the talented people that have made this country so successful. And people on the other side cheapen the impact that the laborers and rank-and-file employees contribute. All are important, but the rank and file are far more replaceable than the jobs that require talent, risk-taking, education or experience.

Steven H May 18, 2015 at 8:23 pm

Ken, I think that focussing on the “risk/reward” equation is at the heart of understanding this discussion. I think your point is how relatively higher risks earn relatively higher rewards (when the risky venture is successful). I think we can all agree with that.
$Reward = K * Risk * Success_multiplier.
What we are disputing is the value of K.

What is difficult to dispute is that the function K has gone up for high earners and down for low earners. I mean, that is basically what the income disparity charts express. The upper echelons of incomes within the 1% earn 2 or 3 or 4 times the income share of the historical norm, while the lower 90% have 20 to 25% less total income share than past norms. Yes, history changes, globalization, tax policies, mechanization, loss of manufacturing, all of those things changed and impacted the equation. But those are just detailing the mechanics of how K has changed at different income levels. Whatever the mechanism, it is now harder for lower income people to advance, and the rewards for the same risks at the top are greater. That is the only possible interpretation of increasing income disparity. Human genetics have not changed in the last century. People are the same. Mechanization has been happening for 2 centuries or more. Globalization has been increasing since ships started sailing the world. But something else must have happened in the early 80’s. This is when US median income stopped growing and upper incomes took off, when most families’ personal debt increased, when government debt skyrocketed. What happened? What changed K?

What massive economic changes can be traced to those few years that changed the country and stalled the advance of the middle class for decades and pushed us into ever more frequent and damaging recessions? Most causes discussed here have been decades or centuries in the making, with slow incremental changes in any decade. Only a massive disruption in government economic policies could cause such an abrupt change in national economic fortunes. Isn’t it about time we got back to more proven stable policy? Like taxing at rates that pay the bills, and not over-rewarding high risk?

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Peter May 19, 2015 at 6:50 am

The market determines K – not tax law. Since 9/11 and the post-dotcom boom recession, and consecutive administrations that can’t seem to see across the aisle, people have become more risk averse. This is one of the main reasons why the Fed has kept interest rates so low – to encourage risk taking (i.e. investing in the stock market). There is a huge premium (K, as you call it) for taking risk in this environment because so few people are willing to take it.

Sure, I suppose you could do things like increase the risk-free rate, increase minimum wage, increase entitlement programs to help those that do not want to take any risk in their investments or careers – and we have done some of this in recent years. But that is just a knee-jerk reaction to a period where “K” is higher than normal.

Plus, if you do something like increase interest rates you bring along a whole other source of problems. Low interest rates really hurt the non-risk taker – but help those that are starting or growing businesses IMMENSELY. This just widens the gap between the risk takers and the conservative. However, if you were to raise interest rates you would absolutely, 100%, without question slow the economy which hurts everyone.

These are the factors that affect this “K” you discuss…..and it has happened over and over again in these types of periods in the economic cycle. It is not a democrat or republican issue. It is not a masterminded plan by the 140,000 people you want to tax heavier. These are economic cycle issues – difficult as they may be to manage – and not solvable by simply taking more money from a handful of people.

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Peter May 24, 2015 at 4:54 pm

<<>>>>

Steven H May 18, 2015 at 5:10 pm

===========
Stated another way, I think Steven’s main objection is to the capitalist system in general
===========
No that is not it at all. Reducing high income disparity does not diminish capitalism.
Increasing taxes on the richest of rich back to previous tax levels does not diminish capitalism.

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Steven H May 18, 2015 at 5:17 pm

Ken,
I don’t really understand why people think that lunch group (sometimes expressed as drinking group) story is so well loved. I find the inherent assumption in it flawed.

It assumes that the ten guys are all paying different amounts for the same product. That is not the case with taxes. Taxes are a fee based on the reward you receive from working in society. You receive more reward, you pay more tax. And ultimately if one emtrepreneur leaves the “restaurant” and their is a market niche left behind, another entrepreneur steps up to fill it.

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Peter May 18, 2015 at 6:13 pm

We are all paying taxes for the same public good – education, roads, security, infrastructure, etc. That’s the point of the story. And that last assumption is a big one. You view entrepreneurs as disposable and replaceable, when in reality – it is the unskilled laborer or common worker that is the replaceable one. Again, you have it backwards.

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Steven H May 18, 2015 at 7:32 pm

… But the entrepreneur extracts more out of the public good for himself. Granted, he puts in extra effort, but also would never make profits without the efforts put in by everyone else. The businessman makes use of more resources to support his business. Historically, almost everyone recognizes this: businessmen pay a tax back to society as a portion of what they profit from society. To rewrite the story to imply they are voluntarily contributing a gross excess of their share of cost of “the public good” is a little crazy and certainly out of the mainstream.

We are ALL expendable, Peter. Clever new businessmen replace clever old businessmen all the time.

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Peter May 18, 2015 at 8:16 pm

We ready pay back a portion of what we earn to society. I think mine was around 40% this year just on the Federal level. But still not enough…..

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Peter May 18, 2015 at 8:17 pm

Should real “already” pay. But God knows I have said this 100 times by now.

Ken May 19, 2015 at 6:51 am

I disagree. We are talking about who pays what for the services that we all share equally. People who pay most of the bill are not getting any more services from the government than people who pay less. In fact, I think it can be reasonably argued that people who pay less typically receive more services than those who are paying more. The lunch group clearly expresses this point.

I understand your position is that the people who are paying more should be paying more, because they earn more money. But the analogy is more about how payment of the federal tax bill is spread across society, at least in terms of federal income taxes, and the fact that some people pay a lot of the federal tax bill while others pay very little, yet everyone receives roughly the same level of services.

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Ken May 19, 2015 at 7:13 am

In my first paragraph above, I meant that the lunch group analogy clearly expresses the idea that some people pay most of the federal income tax bill, but everyone shares in government services on a roughly equal basis. That’s the main point, not that it can be argued that those who pay less often receive more in government services while paying less. I think that latter point is also true, but that is a minor point, and not central to the lunch group analogy.

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Steven H May 20, 2015 at 1:28 pm

Ken ======
… the lunch group analogy clearly expresses the idea that some people pay most of the federal income tax bill, but everyone shares in government services on a roughly equal basis
==========

And this is where you and I are not in agreement. I understand your perspective, that we all live in the same society, and we all receive certain benefits in equal measure from government. We all drive on the roads, use the banking system, and benefit from the national safety provided by the military.

However, there is another idea that what the government provides is not a set of services to individuals, but instead the establishment and maintenance of an infrastructure that is necessary to have a productive society. And since it is known and expected that some individuals will personally profit more from that infrastructure than others, it also makes sense to charge a fee as a percentage of economic benefit received from the overall infrastructure (hence, a tax) rather than a flat fee per individual for direct government services.

In other words, the government establishes and maintains the economy, and you are paying for use of the economy, and your taxes are proportional to the benefit you extract from use of the economy.

Some other reasons it makes sense to have a fee per economic benefit are several, a few of which come to mind immediately.
.1. Persons who profit more from society actually use more of the resources. Businesses and businessmen rely more heavily on all aspects of infrastructure, including roads (for supplies and product delivery), the banking system (more economic transactions), and even the courts (copyright, civil lawsuit, etc). Right away, this refutes the notion that each individual is receiving equal services, and contradicts the assumptions of the lunch analogy.
.2. As a practical matter, a fee per economic benefit (a tax) is the only way a government can be financed. This is always how it is done for national governments, whether that be a fee on economic trade (import/export taxes), a fee on purchases (excise or consumption tax), or an income tax, or some combination of above. A flat equal fee per capita would not provide enough funding and would bankrupt poorer members of society.

Lastly, the lunch analogy separates the bar owner (proxy for government), lunch fee (taxes), and lunch service (government services), from the wealth and income status of the customers (citizens). In reality, government services are essential to the society and economy which enables citizens to establish businesses and earn a living. By severing the link between the services and the economy/wages infrastructure, the lunch analogy is able to create an absurd parody of reality, rather than reflecting reality itself.

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Peter May 20, 2015 at 2:13 pm

There is so much I disagree with in this last post. Let me start with one item that is the most outrageous….

“Persons who profit more from society actually use more of the resources. Businesses and businessmen rely more heavily on all aspects of infrastructure, including roads (for supplies and product delivery), the banking system (more economic transactions), and even the courts (copyright, civil lawsuit, etc). Right away, this refutes the notion that each individual is receiving equal services, and contradicts the assumptions of the lunch analogy”

I am definitely in the top 1/2 of the top 1% in income, but none of this applies to me. I don’t ship anything, nor do I import tons of supplies. I don’t use the courts AT ALL. And what are these “economic transactions” that the government is covering for me? I pay all of my own overhead and the only government services I can think of that I use are the Postal Service and the road back and forth to my house.

My brother makes almost nothing as a musician in a major city but rides the bus or subway everywhere he goes, received Federal and state assistance to go to college, lives in rent-controlled housing, and relies tremendously on local, state and Federal government to improve his surroundings (parks, roads, trash, etc.)

If you had actually ever been a businessman you would understand. The difference is I have lived on almost no income AND been a 1%’er. The reality you think exists is in a straw man’s world.

The fact that you put the road system or my employees who answer my phones on somewhat equal “essential importance” to my talents and expertise as determining factors of my rise to the 1% is so offensive and misguided. But I have said it before…..

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Peter May 19, 2015 at 7:52 am

Steven H – “Taxes are a fee based on the reward you receive from working in society. You receive more reward, you pay more tax.”

This implies that we are all contributing the same to society. If we all contributed the same, but received different rewards, then this would be valid. The reality is that we are all contributing unequally – and “rewarded” unequally as well.

However, the point of the analogy is that we are all contributing unequally to the tax revenue bottom line – but “rewarded” equally there. In fact, like Ken says – those that contribute the most are likely receiving less than those that contribute the least.

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Normal Joe May 19, 2015 at 7:19 pm

Whew! I got an email message that Ken replied to JTM regarding taxes and it took me an hour running through the thread and couldn’t find the specific post. I hate that. I hope I haven’t forgotten what I wanted to add, but here goes.

The discussion was primarily about FICA taxes and benefits. From what I understand, mostly because I am rapidly approaching that point where I have to make some tactical decisions, is that the benefits paid out is linked to what you have paid in. That means that those who haven’t really generated much wealth will recieve less from the pot.

I’ve been lucky in that I’ve been hovering right around the limit for two decades despite it’s annual increases. That qualifies me for the maximum payout. If I continue to work while collecting, my payouts can be reduced if I earn too much. The longer I delay collecting up to age 70, the more I can receive. But I increase my risk in dying too early to collect that amount. Bottom line, nothing is guaranteed and I think that reality is grossly overlooked by the critics.

I’ve stated it before and I will remain consistent, the limit should be eliminated, or at least increased to $1,000,000. I would suggest an according increase in benefits payable for those contributing more, but it should be limited by any passive income earned at retirement. The original intent of the Social Security program was to deal with the very real problem of senior poverty that was rampant at the time of it’s inception. That remains a noble and worthy goal.

I do share your concern about the uses of those funds. It has been very unfortunate that those in power made the decision to invest those funds in Treasuries. That is the crux of our conundrum. It essentially made those funds accessible to the Federal General Fund creating a giant Ponzi Scheme for our government. We must separate these funds from Treasuries into a blind managed trust with minimal investment in Treasuries and manged like a professional mutual fund with performance standards and remedies for mismanagement. Only then can we be assured that the hard earned dollars of every American is never misappropriated again.

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Normal Joe May 19, 2015 at 7:24 pm

A quick follow-up. I find it particularly disturbing that it is those who don’t need Social Security are the most vocal about it’s cost versus value. Maybe it’s just a lost perspective of it’s genesis coupled with an underassessment of it’s value.

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Peter May 19, 2015 at 9:05 pm

I for one would much rather give up my SS than have some sort of wealth or passive income tax. Can you explain further how that would work anyway? Would I pay annual taxes on unrealized capital growth?

Ken May 20, 2015 at 5:21 am

Normal Joe — I just happened to pick SS as my example because I remembered some specifics about it. I am well aware of its genesis and value. It’s not because I devalue it because I don’t need it as much as others.

The point I was making is that I could have picked any government program — SS, Medicare, Medicaid, WIC, Amtrak, whatever — and all of them are in financial trouble, mainly due to overspending, over-promising of benefits, and either managerial ineptitude or moral turpitude.

Can you think of any federal program offhand which can be described as financially healthy? I can’t. Not the big ones, anyway.

Normal Joe May 20, 2015 at 9:43 am

Thanks Peter and Ken for your replies and observations.

Peter – I think the objective of SS is to prevent poverty from creeping up on the aged in society as an unintended consequence. Allowing a person to forego their SS contributions in lieu of taxes on subsequent investment income is consistent with that objective, but I would not be the one to make that decision for another. Passive income as it is realized essentially becomes ordinary income for the retiree and should be included in the determination of benefits distribution imo. Unrealized capital growth is only paper income that could vaporize as we observed in the financial services meltdown we just endured and should not be taxed. This gets into one of the many reasons the tax code is so cumbersome, trying to address every contingency when some, if not many, are unknown.

Ken – If you look past the some three decade assault on SS by the Koch brothers the numbers tell a different story. On May 31,2013 the Kochs’ Heritage foundation reported:

“Social Security ran a $55 billion deficit in 2012, closing out three years of consecutive cash-flow deficits as the program’s unfunded obligations continue to grow.”
http://www.heritage.org/research/reports/2013/05/2013-social-security-trust-fund-reports-massive-deficits-benefit-cuts

While the Social Security Office of the Chief Actuary reported surpluses of 68.6, 69, and 54.4 billion consecutively. Ironically this was a little less than a third of what was recognized in 2007 due mostly to the effects of the great recession and the combined impacts of a decreased tax base and increased distributions that recession created.
http://www.ssa.gov/OACT/STATS/table4a3.html

A graphic presentation of the past 28 years tells the story of the impact of homes converting to two income families and the subsequent double whammy of the Great Recession and the wage stagnation of the latest anemic recovery.
http://www.ssa.gov/OACT/ProgData/assets.html

Despite many claims to the contrary, Social Security has been a world class success when the filters of the Koch echo chamber are removed. What is really happening is the Social Security Trust Fund is going the way of the Transportation Highway Fund. A systemic failure to anticipate future expenses with those in rural states condemning any moves to increase revenue resulting in a self fulfilling prophecy.

The US Postal Service has served this country extremely well with the best service in the world for almost three centuries. But once again, the forces that believe government can do no good have hamstrung the Postal Service Administration with financial standards no corporation has to match with the thinly veiled objective of proving that success as a failure. The current challenges facing the USPS are substantial now that email and social media are stripping from them one of their traditional sources of income. Surprisingly, junk mail (as I like to call it, direct marketing to those who embrace it) is apparently continuing to grow, but it’s future is very clouded.

Both of you state very honest and valid claims that bear careful consideration. The fact remains that there are government programs that do provide utility and support the growth of wealth. The wealth enablers are just as important as the wealth creators of which we all are in one way or another, except for the poor who live from hand to mouth.

Peter May 20, 2015 at 2:21 pm

Interesting post, Normal Joe. Thanks for sharing.

Ken May 23, 2015 at 8:37 am

Normal Joe — Read through your post, and have some comments, but will save them for another post.

First, it seems like one of your links is pointing to the wrong article. The link from this passage refers to a SS article, not an article on the effects of two income families. I’d be interested in reading the article about the effects of households becoming two-income families. Thanks.

“….A graphic presentation of the past 28 years tells the story of the impact of homes converting to two income families and the subsequent double whammy of the Great Recession and the wage stagnation of the latest anemic recovery.
http://www.ssa.gov/OACT/ProgData/assets.html
….”

Ken May 24, 2015 at 7:41 am

Normal Joe —

Here are a few articles on the USPS’s financials which seem at least to indicate that things are not that great.

http://www.logisticsmgmt.com/article/financial_issues_continue_to_weigh_on_the_usps/

http://fas.org/sgp/crs/misc/R41024.pdf

http://www.gao.gov/key_issues/us_postal_service_financial_viability/issue_summary

How do you interpret these, in light of the article you posted? I noticed that these three articles are not authored by the USPS. One is from the GAO, and one other is from Congressional Research Service.

Ken May 25, 2015 at 8:05 am

Normal Joe — Doesn’t the lone fact that SS does not have any of the actual money that is supposed to be in the trust fund, and instead has IOUs, mean that the program has been fatally mismanaged?

Interestingly, we have a similar thing going on here in Illinois. For the last several decades (and perhaps longer, nobody quite knows for sure) money which was deducted from state workers’ paychecks and which was supposed to be deposited in their pension fund (by law), instead was illegally redirected and used somewhere else. Nobody knows where it went, either, of course. The pension fund now has a $105 billion shortfall.

Peter May 26, 2015 at 7:43 pm

That is a big issue isn’t it….why shouldn’t pension money be required to be held in a separate account? Or at least 80-90 percent funded. Hard to imagine how people could misappropriate those kinds of funds – but when it happens it seems as though it is typically the public sector. Look at California as another example.

Peter N May 22, 2015 at 10:37 pm

“Steven H – “Taxes are a fee based on the reward you receive from working in society. You receive more reward, you pay more tax.””
More libtard speak. Change receive to earned.

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Peter May 23, 2015 at 8:22 am

No, you just happened to be the businessman standing there when the revenue came in. If you weren’t there, someone else would be. Has nothing to do with you. So receive is the right word.

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Steven H May 24, 2015 at 12:52 pm

Well said, Peter. Thanks for the unexpected defense.

Peter May 24, 2015 at 4:53 pm

LOL the fact that you agree with that sarcastic reply is amazing….. Wow.

Steven H May 24, 2015 at 10:20 pm

The fact that you don’t speaks worlds.
You know if people are hungry, and the restaurant on the corner goes out of business, a new restaurant usually pops up. It is sometimes better, and sometimes worse, depending on the skills of the management, cook and staff. But no one is irreplaceable. And the business both “earns” and “receives” its income. And when it goes away, another does indeed replace it.

Just as long as the wealth creators (the customers) continue to have disposable income to spend.

Steven H May 20, 2015 at 1:33 pm

Peter =========
Steven H – “Taxes are a fee based on the reward you receive from working in society. You receive more reward, you pay more tax.”

This implies that we are all contributing the same to society. If we all contributed the same, but received different rewards, then this would be valid. The reality is that we are all contributing unequally – and “rewarded” unequally as well.
==============

No I don’t state or imply anywhere that everyone contributes the same to society. What I state is that the vast majority of people contribute something. If you just a buy a drink at the corner store, you have paid a government tax. If you clean a hotel room, you contribute to the nation’s commerce.

All I am implying is what is plainly on the surface of my statements. Government establishes an economic infrastructure. People benefit from the infrastructure. People should pay tax in proportion to their benefit, to the government which establishes the infrastructure which enables the benefit.

Furthermore, “in proportion” includes the idea that progressive taxation may be necessary to balance the risk/effort/reward equations at all income levels to keep the system balanced.

All of the above is widely held as both fair and practical and successful in implementation.

So I am confused at the point of any serious advocation of the lunch analogy. It imparts a set of distorted assumptions (that government services are for individuals rather than infrastructure; and that government services are disconnected from the means to acquire wealth and income) and implies an impractical solution (that everyone should pay an equal dollar amount for lunch, aka government services), and a warped set of conclusions (that any other taxation solution is inherently unfair; that rich people are exhibiting extraordinary generosity in paying higher amounts for “equal” services, and that if we chase rich people away by taxing them in a way they disagree with, they cannot be replaced.)

Over time, I have had several people present this analogy to me as if they expected me to be swayed by some deep truth in it, and they then await my inevitable revelation to a new point of view. It may be useful for you to know that this story only preaches to the choir of people who already agree with it in the first place, and it has little or no persuasive ability. Those of us who disagree with its conclusions are just irritated by it, and can see through its facade to its glaring flaws. Therefore, quoting this story, or advocating for its perspective, actually does more harm than good to your’s and Ken’s argument. For if the best arguments you can express are on such shaky foundations as this story, then your philosophy really begins to look fragile and indefensible.

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Peter May 20, 2015 at 2:18 pm

I never trumpeted this analogy or took it as seriously as you just did. But the quote of mine you highlighted up there is still the truth.

And don’t forget, we already have progressive taxation, which I completely support. I absolutely don’t mind paying more than others. But it isn’t because I received more of a “reward” from society or because I used for government infrastructure. It’s the same reason I give more to charity than most of the population – it is simply sharing the wealth to help the less fortunate.

But again…evidently it’s not enough.

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Peter May 20, 2015 at 2:19 pm

(Why can’t I avoid typos…should read “used MORE government infrastructure”) You have had some crazy arguments, but the fact that the rich use more government infrastructure and thus should pay more is the craziest one yet.

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Steven H May 20, 2015 at 7:36 pm

Crazy but true.

But the more important point is that the rich extract more benefit from the infrastructure and that is what ultimately justifies a taxation on income and profit.

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Peter May 21, 2015 at 7:08 am

No kidding….hence the progressive tax system that we have.

Steven H May 20, 2015 at 7:40 pm

You defended the analogy so I brought it up in my reply to you. I don’t take it seriously at all. It is silly in my opinion. But it seems important to many people of the conservative ilk. So I thought it was worth taking a few minutes to detail its flaws from my perspective.

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Peter May 20, 2015 at 8:12 pm

Nope. I didn’t.

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Steven H May 24, 2015 at 1:20 pm

Peter, I have to correct something technical about our differing understandings of the term zero-sum game. I thought I had explained this before, several times, but I tend to get wordy, so perhaps my intent was lost in the excess verbiage.

Zero-Sum Game is NOT actually a mathematical theory (as you stated) but is instead a named idea or concept or situational representation USED in Game Theory and Economic Theory. It is just an idea with a nice title to reference the idea. According to Wikipedia:

“In game theory and economic theory, a zero-sum game is a mathematical representation of a situation in which each participant’s gain (or loss) of utility is exactly balanced by the losses (or gains) of the utility of the other participant(s).”

In economic terms, it represents a zero-growth economy.

It actually has absolutely nothing to do with whether or not income inequality involves rich taking from the poor or not. You can hypothesize economies where the rich DO take from the poor in both zero-sum and non-zero-sum games. Conversely, you can hypothesize economies where the rich do NOT take from the poor in both zero-sum and non-zero-sum games.

So when you say:
“I don’t think there is any proof whatsoever in academic and economic research that the wealthy are becoming wealthy by taking money from the poor. (this would imply a zero sum game)”
… you are then equating 2 ideas which are almost completely independent. The existence of one thing does not require or even imply the other.

Still don’t see it? Let me explain once again, with an example.
A society can improve its efficiency in business and have a net per capita real annual increase in income of 2.5%. This, by its very definition is NOT a zero-sum game.

Now, that income can be distributed in many many ways throughout the economy. My position has been that this distribution is heavily influenced by many policy factors: tax policy, labor policy, trade policy, education policy and costs, etc., all of which are adjustable and changing year to year, and almost none of which are directly attributable to “the free market”.
One way of distributing new income growth throughout the economy is [Plan A] to set policies such that everyone receives roughly an equal percentage of growth; i.e. approximately a 2.5% real raise each year across all industries and pay grades for the 2.5% net growth in national income. Another possibility [Plan B] is to set policies such that all of new income goes to only the richest individuals in society, say the richest 1% for this example. A final example [Plan C] is to take all of the income growth PLUS some previously existing income and add it to the income of the upper 1%, which necessarily lowers the average income of the lower 99%.

The existence of Plan A or Plan B or Plan C are ALL within the confines of a Non-Zero-Sum Game, as I already established. My claim that either Plan B or C are truer representations of our current economy have absolutely nothing to do with implying a zero-sum game.

Get it?

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Peter May 24, 2015 at 4:52 pm

I get it. But nothing you say works. You want a desired result but your cause and effect logic with economies is very flawed.

What if all of that 2.5% growth is attributable to the technology sector? Should dry cleaners get a raise? Construction workers?

The problem you continue to have is that you have a desire for a certain solution but aren’t open to following the logic of how what you want might come to be. You want the solution to be one way and no matter what anyone tells you, you dig in.

I think you are just going to remain frustrated with the current situation with the perspective you carry.

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Steven H May 24, 2015 at 9:42 pm

I’m proceeding one step at a time. I think we now understand and agree what a zero-sum game is.

Now let’s talk about the concept of a zero-loss gain. It is also just an idea or concept with a name. It is not a theory that can be proved or disproved or that requires some vetting by an official trade group or publication. Humans express ideas all the time. They are all over this blog. Your rejection of the very existence of an idea or concept just because I came up with a unique three word shorthand for it is unjustified, and a bit illogical.

A zero-loss gain is just a shorthand for the concept that “wealthy people do not take money from the poor”, which is a phrase I hear (in various forms) from you and Ken and James all the time. . You said the concept that they DO implies a zero-sum game (which we now agree and understand is incorrect; no such connection is implied). What I am saying is that the concept that the rich never get rich at the expense of the poor can be called a concept of zero-loss gain. Meaning that the gain of the rich (supposedly) creates zero loss to the middle class or poor.

James called this a straw man, that:
=== Statements like “rich people create all wealth with [their own] efforts and all losses by others [are] due to their own failures” is a straw man argument. Neither Peter, Ken or even Peter N has suggested that ALL is caused by this. ===
Well pardon me. I thought that was precisely what was being proclaimed, if not completely 100% of the time, then certainly mostly, like 80 or 90%.

What do you say? Do you believe that the distribution of most of the nation’s gain in national income to the 1% has any impact on the stagnancy or decline of income to the rest of the nation? Or do you believe that our economy is better described by zero-loss gain?

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Peter May 24, 2015 at 9:55 pm

I didn’t say I agree. I said I get it. And that your logic about how economies work is so flawed. And you doubled down with an even longer post that makes no sense. I’m not sure how you expect anyone to debate with you. Read your last post back. What is your point? We all know your very extreme opinions, what do you hope to gain from the debate?

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Steven H May 24, 2015 at 10:03 pm

How can we debate if the terminology has no definition?

I am trying to express ideas precisely. You and Ken keep trying to use the concept of zero sum game incorrectly. This is not a matter of opinion. The concept has a very specific definition and I am trying to use it precisely, and also express another precisely defined concept of a “zero loss gain”.

All I am getting from you is that you “get” my definition, but do not agree with it and that my expressions of a concept “don’t exist” because you didn’t read the precise name of the concept in a journal.

Precisely what do you not agree with in my post about zero sum game if you “get” what I am saying? How can we talk if you will not even discuss precisely what your words mean and accept my plain definitions of what I mean?

Steven H May 24, 2015 at 10:12 pm

In Plain English:
1) Do you believe that changes in government policies (tax, trade, labor, regulation) can change the distribution of national income across various income levels (either low to high or high to low) or not?
2) Do you believe that the progressively higher percentage increases in income of the 1%, 0.1% and 0.01% over the last 35 years have anything to do with the stagnation or decline of most American’s income in that same time period? Or are they separate events?

Peter May 24, 2015 at 10:26 pm

1) barely if at all unless extreme changes
2) of course – that is the very definition – your question answers itself

Peter May 24, 2015 at 10:33 pm

I mean I follow your incorrect understanding of the economy. With all due respect, though….. You and I just don’t see the mechanics of the economy the same way. You value the common man’s role more than the entrepreneur. You value brains, drive and ingenuity much lower than I do. But I’m not going to try and have this debate with you on an economic level. I have tried to be patient and even educate (in as unbiased a way as anyone on here) and you will have none of it. You think you understand cause and effect in the economy but you do not. This is the chasm that exists between you and almost every other poster on here. Your passion and persistence is impressive however and I do believe that you truly care about people. But the logic is deeply flawed. I’m sorry, but it just is.

Steven H May 24, 2015 at 9:56 pm

Peter =====
What if all of that 2.5% growth is attributable to the technology sector? Should dry cleaners get a raise? Construction workers?
=========
You are missing the point. My “Plan A” was just a vastly simplified expression of a concept. Your statement is taking it to absurd extremes. However, “Plan A” does actually roughly represent the economy in the 50’s, 60’s and early 70’s. Overall national gains in income were spread throughout all income levels roughly equally. Individual companies and industries still had profits and losses based on their own competitive efforts, but income gains within those companies and businesses were distributed with roughly equal percentage gains at different income levels.

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Peter May 24, 2015 at 10:27 pm

And in circles you go again……I ask once more….what is your point?

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Peter May 24, 2015 at 10:29 pm

We have progressive taxation. The wealthy already pay far more than the poor. Your other proposals that only go after a little over 100k people don’t raise enough revenue. Let’s get away from you explaining the economy to us all through your prism and tell me…… What exactly do you hope to gain from the debate? What is your point?

Peter N May 24, 2015 at 9:13 pm

“One way of distributing new income growth throughout the economy is [Plan A] to set policies such that everyone receives roughly an equal percentage of growth; ”
Why should everyone get a equal percentage of growth when they have contributed nothing?

BTW, my company is in the process of creating another high paying job. That will be 3 this year or a 10% increase. That is 3 more people where we are paying into their health care and social security. What have the libtards on this forum done?

My company creates wealth and jobs. I don’t see why the libtards want to punish me so with high taxes. I could just take my ball and go home and then what? There would be a lot of people without jobs and health care and the gov wouldn’t get their income taxes. I have more than I need. I can live for 4 years on what I paid in federal income taxes alone.

At some point the whole economy will crash do to crushing federal debt and fiat currency. This disaster will be cause by libtards and their policies. Then what libtards? You have killed most small businesses and imposed rules so that others are not profitable.

I can tell that Steven H is a libtard through and through. He doesn’t give those that earn money any respect. Some how he thinks we magically receive money. He and other like him have my contempt.

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Steven H May 24, 2015 at 9:46 pm

You think 90% of America contributes nothing?

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James May 26, 2015 at 1:07 pm

I’m surprised anyone still trying to reason with him. He doesn’t get it….the hope is that he isn’t part of a majority. Just like I hope there aren’t a whole lot of Ted Cruz/Michelle Bachman/Sarah Palin types on the right, I hope there aren’t a lot of Steven H’s on the left.

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Steven H June 2, 2015 at 4:07 pm

Bernie Sanders is getting bigger crowds than Hillary or any of the GOP hopefuls. And Bernie is much farther left than I am.

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James June 3, 2015 at 12:44 pm

Glad to see you have a candidate! Good luck with that.

I do love how we measure these people by how big the crowds are – if that were the barometer then Bill O’Reilly should run for president.

Steven H June 3, 2015 at 10:14 pm

James, the point about the crowds at Mr. Sanders’ rallies is not so much about Sanders’ viability as it is about the mood of the country. Elizabeth Warren and Bernie Sanders are sounding a populist message that resonates strongly among ever larger and more prominent swaths of the country. You and Peter may like to pretend the things I say are “extreme” or unreasoned, when in fact the arguments I state here are merely echoes of award-winning economic research and the attitudes I express are increasingly in the political mainstream.

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James June 4, 2015 at 7:24 am

That doesn’t make them right.

Steven H May 25, 2015 at 7:10 am

Peter =======
You and I just don’t see the mechanics of the economy the same way. You value the common man’s role more than the entrepreneur. You value brains, drive and ingenuity much lower than I do. But I’m not going to try and have this debate with you on an economic level. I have tried to be patient and even educate (in as unbiased a way as anyone on here) and you will have none of it. You think you understand cause and effect in the economy but you do not. This is the chasm that exists between you and almost every other poster on here. Your passion and persistence is impressive however and I do believe that you truly care about people. But the logic is deeply flawed. I’m sorry, but it just is.

… What exactly do you hope to gain from the debate? What is your point?
=========
You ask about my goal. Partly I am trying here to cut through the BS and false narrative to discuss factual statements about the economy. I thought at least that part would be easy. But even here I strike resistance.

1) I value the role of the entrepreneur AND the common man. Most of the arguments from you and Ken and James and Peter N diminish the importance, the intelligence, and the value of most Americans . I don’t have time to search for everyone’s precise quotes, but you have each basically (if not in these precise words) indicated that only the businessman is irreplaceable, only the entrepreneur has truly earned a pay raise, and that it is entirely fitting and proper that only the 1% benefit from the entire increase in GDP and national income while everyone else’s incomes stagnate or decline. This is BS.
2) Economic discussions – I don’t pretend to be an economic expert. But I am disappointed at the level of discussion I see here that purports to explain the economy. The following are a few of the ideas that get repeated that are false narratives or just blatantly in error:
(a) Misuse of Zero Sum Game – Stating that the rich benefit PARTLY at the expense of everyone else is equivalent to belief in a “zero sum game” and is therefore proven wrong. No its not. You are misusing the concept.
(b) Tax Blame – It is a worthy complaint that about half of Americans pay no income tax, and this indicates those who don’t are lazy and being carried in the wheelbarrow by everyone else. No its not.
(c) Benefit Blame – It is a worthy complaint that around half of HOUSEHOLDS contain at least one individual who receives a government benefit (food stamps, unemployment, SS, Medicare, Medicaid, income tax transfer payments for being poor). This indicates that about half of Americans pay no income tax, and this indicates those who receive benefits are lazy and being carried in the wheelbarrow by everyone else. It’s not and it doesn’t.
(d) High Tax Woe – It is a worthy complaint that the highest incomes pay a higher percentage of income taxes than in the past decades. No it isn’t. Shares of taxes go up with shares of income. It’s silly to complain about a natural consequence of being richer than everyone else.

3) Economic cause and effect – You have tried to “educate” me with nonsense.
(a) You say that high income disparity is a part of the business cycle. It clearly is not. Unless you consider rise of labor unions, increases in federal tax rates, and economic collapse part of the business cycle. High income disparity has not changed as part of the increasingly volatile recessions over 35 years. Only labor unions and govt policy changes have ever reduced income disparity. Try to prove me wrong with historical example
(b) You say you are not aware of any economic theory that indicates the rich have taken from, or benefit at the expense of, the middle class and poor. Read Piketty, or Reisch, or Krugman, or any of the other major economists who state that theory rather precisely. It is what high income disparity is all about. You can disagree, but pretending these theories don’t exist is BS.

There is more but I am out of time.

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Steven H May 25, 2015 at 11:19 am

2(C) above had a cut and paste error it should have read:

(c) Benefit Blame – It is a worthy complaint that around half of HOUSEHOLDS contain at least one individual who receives a government benefit (food stamps, unemployment, SS, Medicare, Medicaid, income tax transfer payments for being poor). This indicates that those who receive benefits are lazy and being carried in the wheelbarrow by everyone else. It’s not and it doesn’t.

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Peter May 25, 2015 at 7:11 pm

Before I dive into all of this lets take this one by itself…..

WHO cares? Are we arguing over what people say what or are we talking about the issue. The only fact there is that half of all people have some benefit. End of story.

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Steven H May 26, 2015 at 7:19 pm

Its a false narrative used to distort and distract. It has no place as a complaint in an intellectual debate.

The problem is that a huge percentage of the national income has shifted from the poor and middle to the top, and all I hear from the top is complaints that the poor are hungry and have to be fed and that the rich are wealthier and better paid and so they have to pay more tax. There is a simple solution to both problems. Shift more income from top back to middle and top will pay less tax and middle and poor can better take care of themselves.

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Peter May 25, 2015 at 7:18 pm

” that only the businessman is irreplaceable” not entirely…but certainly more so than the common worker

“only the entrepreneur has truly earned a pay raise” nope. But they deserve whatever they did earn regardless of the proportion to others who took safer, simpler jobs or paths

“and that it is entirely fitting and proper that only the 1% benefit from the entire increase in GDP and national income while everyone else’s incomes stagnate or decline”. No. I don’t believe the words “fitting” or “proper” have any place in our debate. That is a judgment call and one I don’t claim to make.

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Peter May 26, 2015 at 9:15 am

Also – quoting so-called “major economists” holds zero weight. One thing I can tell for sure from being in the financial services industry for over 20 years is that there is an economist or expert somewhere that believes every single theory or prediction for the future you can imagine. To call Piketty, Krugman or Reisch (who I have never even heard of) MAJOR economists is hyperbole.

It’s kind of like diet and nutrition. There are scores of “experts” – but really most are trying to sell books (read: Piketty). All have different ways you can eat healthier, exercise, etc. Some have validity, others don’t. But the real “experts” who know about nutrition aren’t trying to reinvent the wheel or peddle books.

The point is that you can always find someone to support your theory, no matter how misguided or uninformed it might be. That doesn’t make the people that support you any more valid or important than anyone else – nor does it make them “major”.

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Peter May 26, 2015 at 9:18 am

….oh I assume you meant Robert Reich… my mistake on that one.

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Steven H May 26, 2015 at 7:11 pm

Sorry for the misspelling …

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Steven H May 27, 2015 at 4:20 am

Thomas Piketty is one of only 18 economists to win the prestigious Yrjö Jahnsson Award; a biennial award given by the Finnish Yrjö Jahnsson Foundation and the European Economic Association (EEA) to European economists under the age of 45 “who have made a contribution in theoretical and applied research that is significant to the study of economics in Europe.”

Robert Reich is an American political economist, professor, author, and political commentator. He served in the administrations of Presidents Gerald Ford and Jimmy Carter and was Secretary of Labor under President Bill Clinton. Reich is currently Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California, Berkeley. He was formerly a professor at Harvard University’s John F. Kennedy School of Government and professor of social and economic policy at the Heller School for Social Policy and Management of Brandeis University. He has won awards and national recognition for his influential writings on economics and public policy.

Paul Krugman is an American economist, Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and Distinguished Scholar at the Luxembourg Income Study Center at the CUNY Graduate Center. In 2008, Krugman won the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for his contributions to New Trade Theory and New Economic Geography. According to the prize Committee, the prize was given for Krugman’s work explaining the patterns of international trade and the geographic concentration of wealth, by examining the effects of economies of scale and of consumer preferences for diverse goods and services. Krugman is known in academia for his work on international economics (including trade theory, economic geography, and international finance), liquidity traps, and currency crisis. Krugman is ranked among the most influential economic thinkers in the US. In 2015 The Economist listed him as the 2nd most influential economist in the world.

Yes these are major economists, and yes they know and understand how economies work. Do all economists agree on everything? Of course not. But these are not backwater economists I found under a rock just to agree with some cockamamie theory I dreamed up. They don’t just talk about economics to sell books (and especially not Piketty; his bestseller was a research tome and its popularity was a surprise to everyone).

I talk about tax and government policy influencing income disparity, not because I am misinformed, but because I am informed by some of the greatest economic and policy minds of the generation. So, to sit back and tell me that that the writings of award winning economists are irrelevant and hold “zero weight”, and that the economy does not work like I say it does, just because YOU don’t understand or can’t quite visualize how tax policy can influence income disparity is arrogant and absurd.

I have tried to educate you as gently as possible, but you still insist that the current income disparity is just part of the business cycle and that tax and government has had and can have very little influence on it. I’m sorry to inform you that the economy just doesn’t work the way you think it does. It just doesn’t.

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Steven H May 27, 2015 at 4:40 am

I should be more precise. Peter, I think you understand limited aspects of finance and economy ver well, but there is a whole lot you can learn from experts in the field of economics and public policy if you will just open your mind.

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Peter May 27, 2015 at 7:07 am

That’s like telling a nutritionist that that they should really listen to Dr. Atkins’ new revolutionary ideas. Again, this is somewhat pointless to debate. We all see your point of view at this point and clearly there is no refuting it. While I respect your frustration with the income disparity in America today, both your causes and solutions are misguided and largely driven by politics rather than logic. I think you dismiss some amazing things about our society like income mobility, freedom and liberty, and the entrepreneurial spirit – which is a shame. But again, after about a year on this site it is silly to think that a random anonymous poster like me is going to carry any weight against an ingrained political belief.

Again, I continue to ask for supporters of Steven H to speak up and help bridge the gap in the discussion if possible.

Steven H May 29, 2015 at 5:15 am

Hmmm. Actually I feel like I am trying to tell the Atkins dieter to talk to a nutritionist. But then nutritionists carry no weight (literally LOL) because for every nutritionist, there is an equal but opposite nutritionist, right?

If you disagree with me, I am just encouraging you to follow your own advice and ignore the political fluff (like reinforcing the half pay no taxes narrative), and to respect experts in the field, and to address their ideas instead of rejecting everything you disagree with as “just politics”.

My advocacy for reducing income inequality began with intuitions and observations, and was reinforced by studying the Saez spreadsheets on historical income levels since early 20th century. It continues because, as a parent, I am concerned for the careers and well-being of my children as they enter a society where concentrated wealth, income, and power reduce opportunities and income mobility for many Americans.

It is offensive to me that you discard my ideas and posts and arguments as “driven by politics” (which is so far from my motivation that I’m not even sure what that means), and that you say that I “do not understand how the economy works” when I am quoting economists who are experts in that field, and you say that experts hold no weight in the argument (but you do?).

I don’t think your motivation is political but I do believe it is economic in the personal sense. Sometimes you seem persuadable by data and logic but mostly you ignore it and revert back to your instincts and embrace any article posted which throws glitter and rainbows on the issue and says that there is no problem, the numbers aren’t that bad, nothing has really changed, and if it has, it’s just due to hard work and good old American capitalism, and it all evens out.

You seem to be proving the maxim that ““It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Peter May 29, 2015 at 7:24 am

First of all, I do ignore the half pay no tax “narrative”. Please don’t confuse me with others on here. I’ve tried to talk about this from an economic perspective.

Secondly, my opinions are far from self-serving. If the changes I think are necessary (significant spending cuts for instance) are implemented, my pay will absolutely plummet. The reason why I make so much money is due to the astronomical ballooning of spending by the government in the DC area. I am simply a benefactor of this. I’d be in the 1% without it, but not nearly as high up the ladder as I am.

You have to remember that those of us that write $300-500k checks to the government every year are VERY frustrated with the spending side of the ledger and the politics that muck up anything being done smartly with our money. Just saying that the government would be more effective if they only had a few more of my dollars is really asinine.

Finally, by reading your posts you can tell that while you have read plenty of information about the economy, you don’t truly understand how it works. For instance, I could read countless books about lacrosse strategy but not really comprehend the nuance of it unless it is a sport that I know and play. I’m not saying you are an idiot – and don’t mean to offend – but do think it is best for us to stay away from debating the inner workings of the economy….and I have tried to avoid that with you of late.

The reason why I say you are driven by politics is because you are worried about upward mobility for your children but seem to seek out evidence that tells you that it is not there for them, rather than objectively observing the world, listening to others, and accepting that this might actually not be the case.

The numbers obviously say that we have more income disparity now – nobody is denying that. But I have offered TONS of solutions and causes all along the way….. most of what I think it boils down to is the shift in technology and automation, and the unwillingness for companies to spend and hire in the current economic environment. The Piketty point about r>g is also an interesting factor as well. It is NOT primarily due to tax law or government policy – which time and time again has proven to have somewhat minimal impact. This is where we disagree – I don’t believe tax laws caused this situation and nor do I believe that is the solution. It’s convenient politically – but the solution (like most good long term solutions) is far more nuanced and subtle and might require some effort by the American people.

Mike K May 25, 2015 at 10:06 pm

I fail to see the argument here. In a Federal or State run institution or business it is ok to question to question the salaries of those who work within the institution as they are paid for by the people and the taxes those people pay. However, one can not question the salary of someone in the private sector. Those decisions are made internally within a company and the company along with the free market determines what someones “job” is worth. The only caveat to this are companies that have been bailed out by the federal govt using tax payer dollars. It would be impossible to argue that within a private company the owner/CEO should only make X percent more than his employees. Who would determine such percentage? Who should decide what a CEO should or should not make vs his employees in a private company? At the same time the fundamental principal of capitalism is the freedom to leave. If one either disagrees with the owner and what he or she makes vs himself than the employee has the freedom to leave the company.
Also, keep in mind that a man or woman who makes 400,000 dollars a year pays a far greater percentage than someone making 40,000 dollars a year. And those who make under a certain amount do not pay anything at all. Now you can argue all day whether that progressive tax system is correct, that’s not what I’m trying to argue as it is a futile argument with which to exhaust oneself. However, the CBO argues that even if we do raise the rates on the wealthiest Americans we will only make 600 billion over 10 years. Now there is a saying in accounting and it goes like this “That is like pissing in the ocean and thinking the tide is going to rise”…meaning, 60 billion a year for 10 years is no where near what we need in order to pay off the 17 trillion in debt. The solution has to be far more complex than that and at some point will probably involve a significant amount of financial pain for all Americans.
Finally, there is an aspect of economics that many people simply do not take into consideration and that is the idea of work and ability. Regardless of what your parents tell you not everyone can be a surgeon or a CEO. Those types of people are few and far between. You could work your entire life and get straight As in every grade through college and never attain those types of positions or salaries. The reality is who you know and what kind of life you are born into is a huge determining factor, though it is not the only factor it is a BIG factor. There are exceptions to those rules however, they are just that—exceptions, they are by no means the rule.

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Peter May 26, 2015 at 6:43 am

Totally agree. Well put….it is capitalism at its very essence and I for one am uncomfortable with the thought of the government telling private companies or small business owners what they can and can’t pay their employees. Freedom and liberty are key components here and reducing spending and general waste would generate far more $$$ than any of these other ideas being thrown around on this thread.

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Allisonfaye May 26, 2015 at 7:27 am

I kept waiting for someone to point out the economics of it all. What the Steven’s of the world fail to recognize is that pay is determined by economic principles. You have a huge supply of unskilled labor for reasons I won’t go into (think immigration) which drives the price down. The fact of the matter is that those highly paid CEOs are paying half and in some cases more of that income in taxes. How much would be enough for you, Steven?

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James June 4, 2015 at 7:23 am

No answer to that one Allison. :)

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Peter May 26, 2015 at 10:46 am

Speaking of Piketty, I wanted to share one other thought on here that we haven’t totally explored – the wealth tax. (And my apologies for all the posts of late- holiday weekend=free time!)

One of the key points in Piketty’s book is the suggestion of a wealth tax – about 1% or so paid each year based on your net worth. This wealth tax idea is a perfect example of what I have been railing against for months – an idea that appeases politically, but in reality would not work, would never get passed, helps the gov’t bottom line very minimally AND would cause a myriad of reporting and enforcement problems.

First of all, we have indeed discussed the impact of taxing the “wealth” of individuals on the overall economy, productivity, jobs, etc. But let’s even put that point aside for a moment….

The wealth tax would actually require a constitutional amendment to be passed, since it is what is referred to as a “direct tax”. This is similar to the 16th Amendment being written to add income taxation.

A wealth tax of 1% on all households with more than $1.3m of net worth – as Piketty proposes – would only add revenue of about $20 billion. A number that could very easily be offset by job loss and the hit to capital growth and GDP.

Then, there is the issue of the practicality of a wealth tax. Let’s think this through. If I am taxed on my total net worth, how do I report this? Clearly my investment accounts and real estate holdings will likely then be reported the government each year. But what about artwork, jewelry, precious metals, etc. Wouldn’t you think that the wealthy would quickly find ways to rearrange their wealth in items that are harder to track? And if they do, who enforces this? Can the government raid my home and look for artwork?

The other enormous practical killer to this tax would be owners of businesses and farms. Many of these people have a significant reportable net worth but very little cash flow. Farm owners in particular get rocked by this (as they do currently with estate taxes) – where they have to basically sell the farm to come up with the cash to pay the taxes. This would also be a bit of a blow to retirees who have not been big earners but saved their whole lives and would then be taxed on their lifetime nest egg.

There is a reason why multiple countries have tried wealth taxes and since abolished them. They are unenforceable, impractical and don’t even serve the bottom line as those that support them wish they would. Even so, someone can write a book espousing this and get a politically-charged faction of the population all riled up and excited about this possible panacea.

There is nothing wrong with tossing out these ideas – in fact, when I first heard about this I found it fascinating to research and brainstorm. But someone claiming that a “major economist” says a wealth tax is a good idea because you think it will redistribute wealth as you deem to be fair doesn’t not make it “substantive”.

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Steven H May 26, 2015 at 7:25 pm

I don’t see practicality in a wealth tax. I do object to the increasing number of loopholes in inheritance taxes. Children and grandchildren of the extremely wealthy should not become like royalty not needing to ever contribute their own efforts to society.

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Peter May 26, 2015 at 7:35 pm

What loophole is there in the estate tax? Please let me know …. I advise people on this for a living and don’t know of these loopholes. Curious what you could be referring to.

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Steven H May 27, 2015 at 4:47 am

Loophole was perhaps not the best word. I am referring to recent (last couple of decades) changes in laws and rules that affect generation skipping taxes, portability, and the general increases in estate tax exclusions and lowering of rates. There are a lot of estate tax leniency changes that go under the radar of most political discussion.

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Peter May 27, 2015 at 5:40 am

Again, I ask …. What are you referring to? The exemption is higher than it was 20 years ago. I know of no changes to generational skipping and don’t know what you mean by “portability” when it comes to estate planning. If there is “a lot of leniency that goes under the radar”, can you give me one example? Estate taxes are a place where I don’t see the nefarious rich pulling one over on the government. Would love to know what you are referring to other than the exemption rising.

Steven H May 28, 2015 at 8:24 pm

http://journalofaccountancy.com/issues/2012/jul/20125070.html
New portability rules: A cure for incomplete estate planning
July 1, 2012

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Peter May 28, 2015 at 9:16 pm

This is a clerical change. It does nothing. Prior to this rule, couples would set up bypass trusts or make will provisions to use both of their individual exemptions. Now they are letting people skip that line in their wills or setting up trusts to allow a couple to use each of their exemptions. Is hardly a loophole. Just a long awaited clerical adjustment – the only people that lose in this deal are attorneys.

Peter May 29, 2015 at 9:28 am

Steven H – This is a great example of what I was talking about above which makes you look politically motivated. If you read this article you posted and understood estate tax law, you would see that this is not a loophole, doesn’t ‘benefit the rich’ and really is a non-event. It just helps people who were lazy and didn’t go through the legal hoops of setting up proper estate planning.

Yet you say you “object” to the “increasing number of loopholes” and “changes in laws that affect portability and generation skipping”. None of this is happening. Don’t you see how the political spin machine works? I know you see it with Fox News….but it happens more places than there. Someone, somewhere says “the laws have loosened on estate taxes” and gets their constituency all fired up when in reality nothing really changed. The truth isn’t important, only the political and emotional angle. I have belabored this thread here because it is a prime example of what you claim to not be doing.

Steven H May 31, 2015 at 5:24 pm

This has nothing to do with politics. Why is everything you disagree with labeled political?

I had read some years back about changes to rules on generation skipping trusts that served as a loophole to estate taxes. I haven’t followed this closely. I just said I was concerned about such issues that often do not discussed openly.

It turns out some of the rules I was concerned about expired or were changed back around 2010 I think. I also googled that some portability rules changed regarding estate planning, though I did not investigate deeply. So again, I was not following this closely.

But I am surprised that you knew of no such changes and claimed you were unaware of portability affecting estate planning. So I sent you a link to inform you. You’re welcome.

Peter June 1, 2015 at 7:52 am

Seriously? Of course I knew about this as it is what I do for a living. You referred to “increasing number of loopholes” and then all you cited was the ability for a couple to use both personal exemptions without use of a marital or bypass trust. I hardly thought THIS minor clerical change was what you were referring to.

You imply that the rules are loosening up to help the “fat cats” pass the money on to their children and avoid estate taxes, but I continue to wait for evidence of this loosening.

The point is you heard a sound bite and took it for face value without using your brain. That’s what I mean about political motivation. The sound bite appealed to your emotions and worldview and you accepted it as fact. And you were wrong.

Steven H June 1, 2015 at 6:50 pm

Peter ====
I know of no changes to generational skipping and don’t know what you mean by “portability” when it comes to estate planning.
=========
Sorry. I mistakenly misinterpreted your above statement to mean that you knew of no changes to generational skipping and didn’t know what “portability” means when it comes to estate planning. You must have meant something other than what you said.

No wonder you and I don’t see eye to eye.

Steven H June 1, 2015 at 6:53 pm

I didn’t “hear a sound byte”. I read an article a while back which is now OBE. I referenced portability as another recent rule change. That’s all. I never made a big deal about this. I just said I am worried about changes in estate tax law, which you already admitted are happening with increased exemptions. So quit playing games and let this one go.

Peter June 1, 2015 at 7:08 pm

Sorry dude. You got caught making statements about something you don’t know about for political effect. There is enough of a real problem to talk about. You don’t have to stoop to this. I just wanted to know what you thought was happening in estate tax law that was favoring the rich and can’t imagine your entire point wan the “portability” change you quoted. Come on now. Problem is without someone in here who is licensed to give estate planning advice, your statements go unchecked and people believe estate laws are being changed to help the rich. That is absolutely categorically WRONG.

Steven H June 3, 2015 at 10:02 pm

Rich folks keep TRYING to repeal estate taxes and generation skipping taxes. These did expire temporarily in 2010, as I’m sure you are aware. Then they got reinstated. In 2015, HR Bill 1105 passed the House and will repeal these taxes again if Senate passes it, as well as reduce rates on gift taxes. Are you aware of this?

Meanwhile exemptions keep getting increased. My statements were entirely well-founded. The rich have been successfully watering down the estate tax as you yourself have noted. And they are trying to even eliminate these taxes. And most people are unaware. Which is all precisely what I said I was worried about.

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JTM June 4, 2015 at 8:45 am

My problem with the full repeal of estate taxes: those who inherit get a step up in value without paying taxes on those earnings, or they can maintain the old value if it’s gone down. Why should these earnings escape taxation just because the person who earned them died?

Possibly the rate is too high, but then there is a high deductible ($5million I believe) before any taxes are needed to be paid and those with this type of wealth generally have estate planning to mitigate the cost. Therefor, eliminating estate taxes seems more like buying financial support from the uber wealthy than doing something productive. It will only increase the wealth divide and the public debt while doing little to increase investment that creates jobs and sidetracking our leaders from working on things that will help us all.

But, I guess that is today’s government, argue about things to get donations for the next election and distract the electorate in order to not argue about the things that matter because they don’t want to compromise or make the hard decisions that are needed.

Ken June 5, 2015 at 7:32 am

JTM — I’m guessing one argument against estate taxes is that the money which is growing in the estate has already been taxed once before it ever gets to the estate, so to tax it again would be double taxation.

Ken June 5, 2015 at 7:44 am

On second thought, that would also be true of all investment returns. Well, whatever.

JTM June 5, 2015 at 8:03 am

Ken – That would be true of the invested amount, but many of these investments have considerable unrealized gains. Imagine someone who bought stock in GE, IBM and the like when it first started trading and none has ever been sold. These gains could be transferred from generation to generation with each iteration getting a free step-up in value. If the stock was sold at the stepped up value, no taxes would be paid, and if it was sold at a loss, it could decrease the taxes paid by more than the total original investment.

The original investment may have been taxed, but the investment is nothing compared to the value they hold today. It doesn’t feel right that such huge amounts of wealth should not be taxed the same as those who actually work for their money. Ideally, only the increase in value would be taxed, but the original investment can be hard to determine at times.

Peter June 5, 2015 at 9:50 am

Most proposals for the full repeal of estate tax (like was the case in 2010 when estate taxes were repealed for one year) is that there would be no “step-up” in basis.

Steven H May 26, 2015 at 7:33 pm

I find the usefulness of Piketty’s book, and the writings of most economists, is primarily in the analysis of the past to guide us to future actions. The data about income and past tax rates and government policies and the effect on economies is more useful to me than imaginings about an untried wealth tax.

This is where we can learn that our current income disparity is remarkably high, that such high income disparity is damaging to the economy, and that government policies have a significant influence on that disparity.

That is much more useful to me than blind and unfounded devotion to an idealistic capitalism.

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Peter May 26, 2015 at 7:40 pm

Then why don’t you concur with the findings of most economists?

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Steven H May 27, 2015 at 4:48 am

which is …

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Peter May 27, 2015 at 5:42 am

There is no point if you don’t see how Piketty’s recommendations would harm the economy. Google the countless rebuttals of Piketty’s book. I don’t have time to keep explaining.

Peter May 27, 2015 at 5:55 am

It really is the same argument I was having with the “new economy” theorists in 1999. I tend to believe in tried and true economic cycles and principles. My thinking of centuries of economies both big and small doesn’t change due to an aberration in a particular statistic. Maybe one day the old theories won’t work, but every time we believe that “it’s different this time” we tend to receive a swift reminder.

Steven H May 27, 2015 at 5:28 pm

There is a lot more to Piketty than his suggestions for the future. Focussing only on the potential damage if the highest tax rates he suggests are implemented is a bit of a straw man. My impression is that he was suggesting maximum rates that might be feasible. The real meat of his books IMHO is the analysis of the past and how historic tax rates, which were not catastrophic but actually beneficial, played out in the real world. Quantification of the problem and understanding of causes is much more important than fear-mongering based on an extreme solution that is unlikely to get implemented and is far beyond what most folks propose.

I had somewhat the same3 problem with Reich’s book Aftershock. His analysis of causes was great, but his suggestions for fixes went beyond practical solutions in my opinion.

“Peter: I tend to believe in tried and true economic cycles and principles. ”
As do I. Which is why I propose tax levels that have worked in history and I want to return to disparity levels that are proven successful, and to get away from the New Gilded Age economy which is damaging.

Steven H May 27, 2015 at 5:32 pm

” … rebuttals of Piketty’s book …”
mostly focussing on the proposals and not the research. The research has held up to criticism.

Peter May 27, 2015 at 10:18 pm

The more I think about the Piketty book and general thesis, the more I wonder why there isn’t a more simple solution. He talks correctly about how the wealthy (including corporations) won’t spend if returns on investment outpace economic growth. This is very true – and his fear is that as the wealthy save and invest more eventually investment income will outpace earned income.

Then why not LOWER income tax rates and increase investment taxes like capital gains, dividends, etc? Seems like that would get the desired effect or reducing this rate of return disparity which is the central position of his book.

Ken May 28, 2015 at 6:20 am

http://blogs.wsj.com/economics/2015/02/09/thomas-pikettys-focus-on-the-1-is-a-flawed-measure-of-inequality-paper-says/

“….This critique is in line with a recent IGM Economic Experts Panel, a survey of top economists — including Acemoglu — on public-policy issues. The survey includes both liberal and conservative economists, and is meant to be broadly representative. A survey in October found that 63% surveyed disagreed with Dr. Piketty’ claim that r > g has been the greatest driver of wealth inequality in the U.S. since the 1970s. Of 34 responses, only one agreed. Many disagreements centered on the multiplicity of factors, while others cited high incomes and technology as the primary drivers of inequality.”

Peter May 28, 2015 at 7:04 am

Technology and automation, in my opinion, is the KEY driver of income inequality. In the last 100 years we moved from an agricultural economy to a manufacturing one to the information age. As far as jobs go, we need to focus on changing our education system to reflect the new world we live in so people are better prepared for the 21st century work force. This will help the struggling far more than redistribution of income.

Steven H May 31, 2015 at 5:27 pm

“As far as jobs go, we need to focus on changing our education system to reflect the new world we live in so people are better prepared for the 21st century work force. ”

I agree with this. By the way, this is certain to require more regulation of the education system, and will probably require additional tax revenue at the state level, and perhaps also federal. States are cutting education funds which is the exact opposite of what is needed.

Do you support the government interventions required to accomplish your stated goal?

Peter June 1, 2015 at 8:00 am

I would love for the hundreds of thousands of dollars I already pay in tax every year to go to a revamped and improved education system. Of course it’s all irrelevant unless we have better appropriation of the current budgets and smart fiscal decisions.

This is also where I do contribute most of my charitable giving – to local schools and education programs that are in need. I know what I’m doing won’t “solve” the problem, but if it helps a few kids here and there it is worthwhile.

Peter June 1, 2015 at 10:42 am

….and I would much rather see my tax dollars go to education than just simple entitlement programs or even directly into pockets of others.

For what it’s worth, about 2% of the Federal budget is spent on education. Over half is SS, Medicare and other social programs. Seems like we could strike a better balance there.

Steven H May 28, 2015 at 8:15 pm

Upon doing a bit more research, I find that even Piketty disagrees with “Piketty”, or at least his media portrayal as a one-idea man.

====
In a forthcoming paper for the American Economic Review, published online, Piketty seeks to “clarify the role played by r > g in my analysis of wealth inequality.”

That simple equation says that inequality rises when the return on capital (r) is greater than economic growth (g), assuring that “wealth accumulated in the past will inevitably acquire disproportionate importance.” In other words, the rich get richer while the poor stay poor. In Capital, he suggests that r > g is the normal historical state, and that eras when inequality shrinks are unusual.

Many economists have considered this to be the central hypothesis of Piketty’s nearly 700-page tome. But Piketty argues in his new paper that the predictive power of that equation has been overstated in some discussions of his work. “I do not view r > g as the only or even the primary tool for considering changes in income and wealth in the 20th century, or for forecasting the path of income and wealth inequality in the 21st century,” he writes. Institutional changes and political shocks, he says, also play a role. He adds, “I certainly do not believe that r > g is a useful tool for the discussion of rising inequality of labor income: other mechanisms and policies are much more relevant here, e.g. supply and demand of skills and education.”

As Capital Ideas discussed in “How Piketty Is Wrong—and Right” (Spring 2015), on some major points, such as the importance of skills and education in driving inequality of labor income, Piketty agrees with his critics, including Chicago Booth’s Kevin M. Murphy and Robert H. Topel.

Specifically, Murphy and Topel argue that “the failure to produce a sufficient number of high[ly] skilled workers has contributed both directly and indirectly to the observed rise in inequality.”

Piketty reaches some of the same conclusions about the role of skilled workers in Capital.

In his new paper, he also cites research by Chicago Booth’s Loukas Karabarbounis and Brent Neiman, which suggests that labor’s share of gross domestic product has declined globally for the last four decades—in part, they say, because the decline in the cost of capital has made it cheaper for businesses to invest in capital rather than labor.
====
http://www.chicagobooth.edu/capideas/blog/2015/march/piketty-clarifies-capitals-big-idea

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Peter May 29, 2015 at 7:10 am

No question the absence of skilled labor has played a major role as we have talked about before – and the importance of education.

Ken May 26, 2015 at 2:48 pm

In addition to the wealth tax, Piketty has also suggested 55 and 80 percent income tax brackets for the United States. Here’s a fairly lengthy article from The Tax Foundation projecting the effects tax brackets of 55 and 80 percent would have on the US economy.

http://taxfoundation.org/article/what-would-piketty-s-80-percent-tax-rate-do-us-economy

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Ken May 27, 2015 at 6:06 am

Here’s an interesting article, I thought, on income inequality, though it was written some 20+ years ago. It admittedly comes at the topic from a conservative viewpoint, though I found that at least they were being honest about that. Far too many authors, pundits and scholars go to considerable lengths to conceal their political affiliations and motivations.

http://www.americanexperiment.org/publications/reports/the-truth-about-income-inequality

One reason I say the article was interesting is because it hit on some of the points and counterpoints posters on these threads have brought up to explain income disparity — family structure being a major one, movement between quintiles being another, and number of hours worked being a third.

Its major conclusions: both income and wealth are broadly distributed in the American economy; income mostly reflects the distribution of work; economic mobility has never been greater; and the reason income inequality has assumed a central role in public discourse is politics more than economics.

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Peter May 27, 2015 at 7:43 am

I like how it references the income disparity pre-WW2 which I have talked about on here. In the early 20th century it was ridiculous with the Carnegies, Rockefellers, etc. that controlled most of the country. The current environment is nothing like that at all.

I also was thinking today about where all this talk was during 2008…. a 50% stock market decline hurt me severely – as it did other middle and upper tier earners and savers. Those of us with capital saved are going to grow our wealth during periods of growth and lose our wealth during periods of struggle. Those with salaried jobs are going to see pay raises during periods of growth and layoffs during periods of struggle.

Politics are really ruining our country in my opinion. We can’t talk about anything (income disparity, global warming, gay marriage, balancing the budget, etc.) without political “narratives” being thrown at each other. I am deeply worried that there is little reasoning anymore….that the internet, Fox News and most other media sources have brainwashed the public too deeply. So there we stand opposite each other spitting narratives (I suppose they could be called “platforms” haha) at each other.

In a way it is like arguing about religion. The argument goes nowhere because the believer says “It’s just what I believe” or “the Bible says this, so it is true” or “these are widely accepted beliefs by millions and millions of people”. These are NOT defenses. I fear that our Congress is like Steven H and Peter N trying to get policy passed. How is that even possible?

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Ken May 27, 2015 at 8:07 am

And I guess it goes without saying that a major reason the article was interesting for me, too, is that it explains (concurs) with more of what I have seen and experienced in my 35+ years of professional life. Namely, that a multiplicity of factors are involved in why the economy is the way it is, not just one factor (e.g. “the rich” screwing everybody else); that family structure matters; that number of full-time workers in the household matters; that hours worked per week matters; that it is the most vibrant economy in the world,; that incomes are mobile and people change jobs/careers/quintiles frequently and in both directions; that for the most part the system is not rigged (other than in favor of the educated, talented and hard-working); and so on.

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Peter May 28, 2015 at 3:02 pm

So I guess the question I would ask you Ken is….do you think that the problem will take care of itself as the economy cycles and businesses and the public adjusts? What assistance – if any – the government offer that would be impactful? In the age of technology – what can be done to help society at large and keep us from having an angry mob who feels “victimized” by the system?

Ken June 2, 2015 at 1:34 pm

Peter — I had a much longer reply, so this is the reduced version, if you can believe it…

Education it has been said, is the great equalizer. I agree. It was for me, my parents, my children (already), and nearly all the people I’ve known who have earned a higher education. And since we are now in a globally competitive marketplace, to me it makes sense to equip our citizens with world class educations so they can compete globally.

So I would support something along the lines of significantly reduced tuition rates for American citizens, with lowest rates for citizens born here in the states. The next lowest rates would be for naturalized citizens, and the significantly higher/highest tuition costs would be for foreign students. Or programs like the one we talked about in an earlier thread where entrepreneurs voluntarily teach free classes at community colleges on topics such as investing, or household budgeting, or similar. Or enhanced free tuition programs, like the one we have for veterans under the GI bill. I think that is goodness and should continue. Things like that.

But in my mind, free education would only for people who earn it. You have to earn a free education by performing something like military service, as in the GI bill. We could find other ways for people to earn a free tuition, basically amounting to service to the country that is similar in duration and scope to military service.

For the rest of the people, e.g. t hose not performing qualifying military or public service, they have to pay at least something for their education so they have skin in the game. If not, too many people will start seeing education as an entitlement, and we will have abuse in the system just like we have with current entitlement systems.

Further, even after we do all of that, we will still have a certain percentage of the population who will still complain that the system wasn’t fair, was rigged, wasn’t available to them the way they wanted, was “too hard” to graduate, the grading system wasn’t “fair”, didn’t measure “true” ability, was too cloudy for most classes they attended, or too sunny, or whatever. That’s human nature, and we need to be prepared to hear those kinds of choruses no matter what we do.

Finally, you asked what we can do to deal with a significant part of the country which is like an angry mob who feels victimized by the system. I think the best we can do is something like my previous suggestion — offer ways for people to improve themselves that are accessible and affordable. Ways that are universally known, universally accessible and universally affordable. But as I said, people need to help themselves by making their own lives happen. Hand outs are not the solution.

If, after all that, and after having universal higher education, progressive taxation, numerous other government programs and benefits, the best economic system the world has ever known, with the most opportunity for the most people the world has ever known, with the most successful people the world has ever know, and a part of the country still believes they are being screwed and nothing will satisfy them other than throwing out the entire system and starting over….. well, then I’m not sure there is much we can do.

In my experience, it is very difficult to dislodge a belief system once it is embedded in a person’s emotions. If they are bound and determined to believe a certain way, you really can’t argue against it, because their belief is not based on an objective rendering of all relevant facts. It is a hodge-podge of selected facts and figures, and selectively ignored facts and figures, carefully constructed over time, reinforced in their emotions with only those events which validate those beliefs. Events which disprove or contradict the belief system are tossed aside as “not relevant”, or “unimportant”.

You’ve mentioned that it is difficult to argue against religious beliefs. I think the same is true with politics, and for similar reasons. There are certain articles of faith in each system which cannot be proven or disproven, only “the weight of the evidence” kinds of conclusions which can be drawn based on how many sources you draw from, and which sources. And if someone discards evidence which does not support their view, well, it’s tough to change their mind. They have assumptions or viewpoints about the world which cannot be dislodged without challenging the foundations of that system, and they are already convinced their system is “right”, and others are “wrong”.

Allisonfaye May 28, 2015 at 4:55 pm

Well, you didn’t ask ME the question but I will give my opinion. You could start by not having one political party stoking the flames of class warfare to further their political agenda.

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Peter May 28, 2015 at 9:11 pm

I didn’t know you were reading! :). Believe me we are glad to have others in the conversation. And what you stated is certainly a start. We have to work together on this.

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Peter June 3, 2015 at 8:57 am

Ken – Great post above. I do agree with your ideas – that not only providing education for free (or subsidized) under certain parameters would be a huge step to improving the lot of the majority of Americans. I also would add that CHANGING the education system would be a key as well. I don’t claim to be expert in this, but it does seem reasonable that we would be better off as a society if we had a more practical curriculum including typing (A MUST), money management, and other basic office and technology skills vs. chemistry, calculus, world history and literature. (Probably opening myself up to criticism here by naming a few subjects, but just merely examples)

I think the first step is changing the political system. What you laid out in your last post, Ken, was a process to begin to change things to help most Americans – there was no political motivation there. I don’t feel like our leaders are sitting down thinking “how can we solve the problems of our nation” as much as they are thinking “how can we propose or pass something that will appease our constituents”. The ACA, the Patriot Act, Dodd-Frank and a whole slew of other legislation of the last 20 years have been very indicative of this.

My first step in improving the lot of most Americans – which I by the way think is quite good and that the US continues to offer the best opportunities in the world – would be campaign reform. We must get corporations’ influence minimized the best we can. The extreme conflict of interest of people moving back and forth between positions of power in government and positions of power in industry is VERY troublesome. (i.e. the Secretary of the Treasury working for Goldman Sachs)

Finally, what you said about arguing politics (compared to religion) is so, so true. And the internet fuels this with countless blogs and pseudo-news sites that just feed into whatever narrative and ideology you wish to adopt. Initially I was encouraged to chat on this comment thread because there were so many reasonable open-minded people having discourse from all sides of the discussion. That is unusual for a comment thread.

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marc monyek June 4, 2015 at 1:35 pm

It amazes me that these comments are still going.
It also amazes me that there are comments that the top 1% don’t pay enough in taxes when that group pays the bulk of taxes.
However, I am going to make a surprising comment to the conservatives on this. I do not have problem with the inheritance tax at a reasonable level.
Reasonable to me probably exempts $10 million and has a sliding scale to 40% at $100 million or more. I haven’t researched this, it is just my sense. Then, have very beneficial offsets to charity while the person is alive and in the estate. That way, the uber rich can have a choice, they can let the government redistribute their wealth or they can do it in a way that they think benefits society. They still would be able to take care of family members very well if they choose.
My personal plan is with any funds in my estate to have them be used for my grandchildren and greatgrandchildrens education. My heirs don’t need cars and fancy houses they didn’t work for themselves. if they earn it great. But the greatest difference maker I can make in my family is to give them the opportunity for education.
At the end of the day almost all of the uber – rich cant and don’t spend their net worth. Most of them give it to charity and/or pay estate taxes.
So, I don’t see what the debate is about. It may take decades, but these people are usually focused on building their businesses and/or they have a major shareholding that is worth billions that they don’t wish to liquidate. The critics of the uber-rich should mind their own business.

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Normal Joe June 5, 2015 at 5:42 am

I’ve stumbled upon some very revealing tax data that clearly shows the bottom 20% pay taxes despite any claims to the contrary. The biggest flaw with this report is that it represents tax policy and is not what is actually paid. We all know that many in the upper 10% utilize many strategies to lessen that bite as allowed by law with a few exceptions.
http://ctj.org/ctjreports/2015/04/who_pays_taxes_in_america_in_2015.php#.VXEkPs9VhHx

Here’s an interactive map and links to the report describing the regressive impact of each state’s tax policies.
http://www.itep.org/whopays/

For your convenience, the link to the report is:
http://www.itep.org/whopays/full_report.php

As the 2016 silly season gains momentum, we’re going to see alot of claims and analysis. It’s going to be very challenging successfully separating the chaff from the wheat.

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Peter June 5, 2015 at 9:47 am

So much of this boils down to the taxation of investments IMO….. Now that I make far more income than I need to spend, I simply sock a way quite a bit of it – not only in 401ks and IRAs but deferred comp and even taxable investments like mutual funds. These mutual funds are taxed every year, but at a lower rate than my income. I also own a house that is far less expensive than what I could afford – meaning my property taxes are a lower percentage of my total income.

When I was making very little, I didn’t participate in the 401k and I spent every penny of my income. (meaning higher consumption taxes like property tax and sales tax).

Seems to me that those that want to ‘stick it to’ the 1% should focus on the taxes on investments like capital gains and dividends – and maybe even the elimination of deferred comp plans. Because based on the charts in these articles, total tax paid will always be skewed somewhat since the 1% don’t necessarily consume all of their income.

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Peter N June 6, 2015 at 8:14 pm

Normal Joe, Steven H has posted a link to that site before somewhere above. The bottom 20% don’t pay any FEDERAL INCOME tax and usually get something for nothing. Actually the number is somewhere between 45 and 50%.

Peter, my situation is a lot like yours except I am still working for now. The only big difference is that I have always been a saver/investor. I haven’t had a credit card since the early 1980s. I consume little of my income. My federal taxes are 80% of my expenses. Does that seem fair? At this time my investments are doing well but I have little confidence they will continue to do so because the dollar is debased by the federal reserve.

If you raise taxes on investments people will dump them before the tax increase. That will cause a crash in this environment and hurt all with 401Ks. The fact that I can only write off $3000 a year on loses means that it wouldn’t be worth while investing.

The other fine point or problem I have with your taxation on investments is that you simply lumped all investments into investments. What about companies? They need investments. Companies create jobs. Companies create wealth. In our case our company also pays health care and matches 401K contributions. When the gov raised the capital gains tax and obamacare tax the government now effectively owns 29.2% of my company. Does that seem right to anybody?

Our company use to be in Oregon. Oregon has a high income tax both personal and on business. We moved across the river to Washington where there is no personal or business income tax. We have a sales tax and business and occupation tax. The B & O tax is a small percentage on the gross. What really irked us in Oregon is that they wanted our business to pay a Tri-Met ( bus transportation ) tax when there were no bus lines near the business park we where in and no one had ever come to our business by bus because we are not a commercial business the gets walk in off the street business like a grocery store.

My point is that increasing taxes and the cost of doing business will only cause business to move. Just do a google search for companies moving out of… you will see a list of states. You will even see the US in the list.

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Peter June 8, 2015 at 11:57 am

I’m actually still working too. The lion’s share of my taxes are because of my income. And I was just throwing the question out there….. it just seems to me that the voice out there that says we need to “equalize” things usually is talking about a) raising taxes in some fashion and b) increasing breaks/handouts/support for the lower and middle classes. My only point is that this goal of theirs would be better served by attacking investment income taxes like capital gains rather than income taxes.

And yes, while I try not to think of taxes and such as “fair” or “deserved”, I am in the same boat as you. I actually spend as much on taxes each year as I do to provide for my family of 5 (and we live a very good lifestyle too).

My main point of contention is with anyone that thinks by giving the government more money something will improve (the economy, mobility, equality, etc.). This is completely and utterly idealistic and without absolutely dramatic changes it’s not even impactful.

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Ken June 9, 2015 at 6:44 am

I guess that’s the weak link part of the redistribution argument to me, too. Despite $25+ trillion in entitlement spending since The Great Society, income disparity is the worst it’s ever been.

So I have to ask…. How much of income disparity is the federal government’s fault? I mean, if income redistribution works as a method of closing the income disparity gap, then with all that money that the feds have had over the last 50 years they should have been able to bridge a lot more of that income disparity gap, right?

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Peter June 9, 2015 at 9:44 am

That’s the problem with this whole argument. You can’t say things like “the policies of the last XXX years have created great income disparity” and only refer to income tax rates. Maybe the things you mention (entitlement programs) are part of what we need to throw out or reform to fix the problem.

The reality is – like you stated below – that people want to believe there is a simple solution, especially a solution that doesn’t affect them. If I was struggling like I was 20 years ago, it would be tempting to believe that by reducing my taxes and raising taxes on other people who make much more than me, that the economy would improve, my income would rise and more people would have happier lives. Who wouldn’t vote for that?

Steven H June 9, 2015 at 8:00 pm

“The bottom 20% don’t pay any FEDERAL INCOME tax and usually get something for nothing.”
Your poverty-envy is remarkable. The poor do not get something for nothing. From Normal Joe’s article (which i did not link to because i had not seen it):

“But in sum, the nation’s tax system is barely progressive. Those who advocate for top-heavy tax cuts and erroneously claim the wealthy are overtaxed focus solely on the federal personal income tax, while ignoring other taxes that Americans pay. As the table to the right illustrates, the total share of taxes (federal, state, and local) that will be paid by Americans across the economic spectrum in 2015 is roughly equal to their total share of income.

? The richest one percent of Americans pay 23.8 percent of total taxes and receive 22.2 percent of total income.

? The poorest one-fifth of Americans pay 2.0 percent of total taxes and receive 3.2 percent of total income.

? Each income group will pay a total share of taxes that is quite similar to each group’s total share of income.

? Contrary to popular belief, when all taxes are considered, the rich do not pay a dispropor­tionately high share of taxes. Although each income quintile pays combined federal, state and local taxes that are roughly equivalent to their share of the nation’s income, this by no means indicates our tax system is fine as is. In a truly progressive tax system, millionaires and billionaires wouldn’t be paying roughly the same tax rates as working families earning $100,000 per year.”

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Ken June 8, 2015 at 1:07 pm

Over the course of the past few months, a thought occurred to me, that to me seems fundamental to this ongoing debate of how much taxation is “enough”.

I think in Steven H’s view of the world, it seems to me that we citizens are allowed to participate in society because government sets the rules and regs and so forth. And to the extent that we benefit via the income we earn, we are charged an escalating fee based on how much income we earn. I think he said something close to this in one or two recent posts.

There was just something that bother me about that whole line of though, which I couldn’t put my finger on exactly. Then it came to me: the starting point in that line of thinking is that the federal government is the pre-condition, the starting point of everything. We should be happy that government allows us to participate, and by extension, almost no amount of taxation is too large as a price to pay for this gift. This is, in my mind and needless to say, is in direct contrast to how our founding father envisioned things.

They specifically structured things so the federal government had only enumerated powers, with all other powers not specifically enumerated “reserved to the states, and to the people”. In other words, the federal government should be no larger than the smallest size which does the country good.

Over time, needless to say, and due to continuing abuse of the commerce clause, the federal government has inserted itself into nearly every aspect of our lives. In addition, it has grown wildly out of control, outspending by $. Kind of like “The Leviathan”, if you will.
They wanted limited federal government, and so the federal

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Allisonfaye June 8, 2015 at 1:10 pm

VERY well put!

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Ken June 8, 2015 at 1:12 pm

Oops. Hit the reply button too fast. Anyway… You can all probably see where my previous post was headed.

Limited smaller federal government with enumerated powers, or much larger, more invasive, higher taxing government which controls much more of people’s lives, including the outcomes (income disparity) of their economic fortunes, their labor, their investments, and so on.

Anyway… Not sure if I am expressing it as well as I could, but I think the founders’ intent is being usurped in how things are being run today.

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Ken June 8, 2015 at 1:14 pm

Wow, lots of typos and no proof reading in previous posts. Sorry.

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Peter June 8, 2015 at 2:45 pm

Agree with all of this – although I don’t put much weight myself in what our founding fathers intended. It is, after all, a different time and situation. But nonetheless I personally – independent of any other construct or philosophy – don’t love the idea of a society where government is at the epicenter and is the way you described. No doubt we need government (at all levels) – but they should serve the people, not the other way around. Good post…. Steven H is offended at our complete taking for granted of the things “government provides” and gives them the credit. It isn’t as extreme of course, but I suppose it is like when a North Korean man has good fortune and they thank Our Surpreme Leader. I would like to think the USA is the total opposite of whatever that is.

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Ken June 8, 2015 at 4:43 pm

I think government should appreciate the fact that we allow them to exist, not the other way around. I get the feeling that Steven sees it the opposite way, that government is the prime mover, and we should appreciate the fact that government allows us to participate in the economy.

And what I stated was just a feeling I get from reading his posts about taxation (and other things) — taxes being a “fee” for participating in the economy, and so forth — that the view is as though the economy starts and stops with government. To me the comments have the flavor and tone of European style democracies, where government is at the center of everything, the first, best choice for all problems. Whenever something happens, people ask “What is the government going to do to fix things?”, rather than “What can I do on my own to fix things?’
This latter of these two questions is the American view, by contrast and by tradition. Government is typically considered the last, usually worst, least efficient choice. You only go there as a last resort, or if forced / mandated into participating in a government run monopoly, such as SS, Medicare, and all the rest.

Peter June 8, 2015 at 5:57 pm

We definitely see eye to eye on this.

Peter June 9, 2015 at 10:33 am

To elaborate on this…. it seems as though there are many scholars and voices out there that genuinely believe that the European style of democratic government is better. They point to places like Sweden and Denmark as ideals…. These countries have very, very low Gini coefficients (low income disparity). Could this actually work in the US? Sweden in particular is a bit of an anomaly as it has about the same population as North Carolina and a highly homogeneous work force. The US is far more diverse and 35x larger.

I personally don’t see how this could work. In fact, the economists I have read that have studied this say it wouldn’t just slow the US economy to switch to an approach like Sweden – it would slow the entire world economy since the US is over 20% of the world’s economy. (Sweden is less than 1%). We are in a unique spot as a country in that we are the world’s technology and innovation leader. We also do not have the option to reduce our military and defense to the size of Scandinavian countries either.

One interesting thought I have seen discussed that might help the approach for solutions is the formal recognition of a “two-class society” in the US – one that encourages growth and innovation at the top, but also a more adequate safety net for every one else. We really may already be there – it would simply be acknowledging it rather than shaming it.

Ken June 9, 2015 at 1:18 pm

I would add that even with homogenous workforces, quite a few more European countries, all of which have had similar or higher populations than Denmark and Sweden, have had notably poor results with the socialist democracy approach — notably Ireland, Portugal, Italy, Spain and Greece. If you want to look outside of Europe, you can see failed social democracies in Cuba and Venezuela as well.

Steven H June 9, 2015 at 8:17 pm

You talk of government, businessmen and citizens as if they MUST be warring factions. Government is the means that citizens use to organize society. Business is the means that citizens set up to organize financial affairs and trade of goods and services. It’s not them against us. It’s all US.

Or at least it should be. If individuals take control of government OR business in order to achieve extraordinary profit personally at unfair expense of everyone else, then the system must be fixed. Government can be corrupted as can business. Business controlling government through financial bribe and “donation” is the worst.

This is where Democracy is a great equalizer. If the majority are getting taken advantage of, the majority can vote to correct the situation.

But it is not the case that government ALLOWS citizens to participate. Government is not separate from citizens. It IS the citizens.

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Allisonfaye June 10, 2015 at 5:24 am

That might be great in theory, but it’s no longer the case. I live in the suburbs of Illinois and I started reading the Tribune daily instead of Sundays about a year ago. Not a day goes by when there is not an article about how corrupt our state or local govt is. It is rampant. While it may or may not be the case everywhere, the govt became about enriching themselves at the expense of the people who pay taxes by buying people who don’t.

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Peter June 10, 2015 at 10:18 am

And THAT is a hard thing to vote out of office….

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Steven H June 20, 2015 at 2:14 pm

Corruption is a human trait that, sadly, is hard to eliminate. We have to battle it in our culture and in our laws. And the newspapers you read, while discouraging you with stories of corruption, are also uplifting society and improving government by rooting out and exposing such corruption, allowing punishment and eviction of the perpetrators.

We rely on government, not because it is perfect or incorrigible, but because it is the means by which ordinary citizens can wield control of our society and our lives. We cannot vote out a corrupt businessman but we can vote out a corrupt government official. Andd government can be used to regulate and punish the corrupt businessman as well.

Despising government because there are a few corrupt people in it is like despising an entire store because a few clerks shoplift. Dump the clerks. Keep the store.

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Peter June 23, 2015 at 10:26 am

I don’t despise government. Just think it has its place and question when it oversteps its bounds. Both government and business have their corrupt individuals.

I do think that the last 12-15 years of government has been largely inept though.

Man-of-Reason June 10, 2015 at 6:46 pm

Who were the “founding fathers” to understand and devise solutions to problems in the 21st century?

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Ken June 11, 2015 at 5:22 am

The people who created the greatest nation that civilization has ever known? The people who understood the tyranny that government wrought in their countries of origin, and specifically came here to establish a different order?

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Man-of-Reason June 11, 2015 at 6:24 am

Yes, our Founders were great men of the Age of Reason who created a great country once ruled by the citizens thereof. It was the first “government of the people….” But many countries in this world now have democratic governments and the United States is no longer first in many areas such as standard of living, life expectancy, medical care, poverty and hunger relief, educational opportunities, or measures of happiness. We are first among first world nations in military power spending more that the next ten nations combined. We incarcerate five times as many people per capita and lead those nations in violent crime and gun deaths by far. We have the greatest inequity between those at the top and bottom, and less opportunity for upward mobility than other nations or indeed our own nation just 50 years ago. We are not the least corrupt, allowing great sums of money to rule our politics to the point of verging on an oligarchy rather than democracy. We do have the smallest and least centralized federal government however, and collect the least revenues per GDP.

Great men from the Age of Reason would be the first to tell you that greatly limiting our democratic republic because of their distrust of other forms of government in the 18th century, especially monarchies, is not reasonable in the 21st century. The challenges we face today are extremely different from theirs and require different solutions, many of which have now been demonstrated by other nations. They believed first and foremost in science and reason and so should we. Stop dragging out “our founding fathers” to curtail discussion and progress in finding solutions and making this nation the “greatest” again.

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Ken June 11, 2015 at 6:46 am

The Founding Fathers…. Those would be the people who understood human nature well enough to limit (enumerate) the federal government’s powers, separate powers among different branches of government, predicate the entire system on the notion that citizens have inalienable rights endowed by their Creator (not by government), and so on. Hugely radical ideas at the time, and still radical today…. for some.

Ever since then, those stuck in Old World thinking — Divine Rights of Kings, monarchies, government is the starting and ending place for everything, centralized control and manipulation of society is a good thing, etc. — have had a different vision, and want to alter our country to be like it used to be.

Kind of smart people, those Founding Fathers, I would say. And I would say they are still relevant now, largely due their understanding of human nature, their understanding of governments, and why we should resist centralized government control of our lives, by and large.

Man-of-Reason June 11, 2015 at 8:44 am

For their time, our founders were indeed smart. They were products of a different age and time however, and did not have the advantage of the tremendous increase in human knowledge and changing world landscape we experience today. Their assumption that newspapers and pamphlets would remain the inexpensive forms of media where every man could express ideas, didn’t imagine radio, television, and Internet where those with lots of money propagandize the American public and the thoughts of common folk are generally excluded from wide audiences. They couldn’t foresee a world where communication between countries didn’t take months. They believed the U.S. Should be neutral, especially in the affairs of Europe. They could not foresee the need for a strong and decisive government which would act as the leader in a very complex and dangerous world.

Yes, the founders were very smart, but they’d be the first to agree that nothing is written in stone and many adjustments to governance must be made to accommodate changing conditions of time.

Ken June 11, 2015 at 9:55 am

I can actually agree with most of that, especially the last paragraph.

However, I would caution that human nature is to try to control other people, take their stuff, and impose your ideas on them, especially when you can gain an advantage by doing so. And while there certainly are a lot of examples of private industry taking advantage of people, government is uniquely positioned with both legislative and military means to do the same. Abuses of governmental power are well-documented throughout history.

And so I think the discussion here revolves mostly around how much is enough, and what are government’s legitimate areas of influence, or not.

OakyDope June 10, 2015 at 8:24 am

Hello everyone… I’ll say I read a little less than half the posts here over the past hour, and its getting me all gassed up… I’m a millenial, not an economist, not a financial guy, not an accountant… I don’t know much about much (yea, I’m humble like that), just a guy realizing how totally screwed I am in this world thanks to previous generations, convoluted and corrupt systems, greed, and “individualism”/selfishness.

First couple things…
#1 Stop using GDP in your arguments… As far as I’m concerned its essentially a useless indicator as it tells you almost nothing about the health of a country… Read the book “The Leading Indicators by Zachary Karabell”.

#2 Voting is a sham. “We the people” are given a pre-selected group of candidates which have already been bought by the oligarchs of the nation. As stated in a South Park episode, you’re always given the choice to vote for either a Turd or a Douche.

Also, another thing that grinds my gears, is there is absolutely ZERO accountability for any politician to follow through on any of the lies they tell you on the campaign trail. They will tell you literally ANYTHING to get your vote, and will follow through on almost none of it. But unfortunately we’re all used to that cause its just business as usual. The United States of America has their leadership bought and sold to the highest bidder, just like any 3rd world country, but ours is much more sophisticated behind cloak and dagger. Its become a money making machine to run for President… I mean, look at Jeb Bush, waiting until the last possible second to declare that he’s running for President so that he can skirt the donation rules… cause if he hasn’t declared yet, he can accept donations of any size.

Besides that, I’ll say I can’t wait for your generation to die off (no offense). I assume you’re all in or around the “Baby Boomer” generation, possibly the worst generation in American history in my opinion. All this talk about SS, MC, Pensions, etc… none of the generations after you will be able to capitalize on any of it, while your generation sits there and complains that they won’t get enough of it. You’re the most polluting, corrupt, selfish generation, leaving behind a pile of problems for generations after you to clean up. I guarantee you that even though I have and will continue to pay into all these programs, that I won’t see a dime out of any of them, so quit you’re complaining about not getting enough out of it when you retire, CAUSE MY GENERATION WONT SEE ANYTHING. I work for a large utility company which conveniently discontinued pensions 1 year before I was hired, but I will still be working hard so that all the old-heads will be able to retire nicely, and then when its my turn to retire, its “good luck, I hope you saved enough”, even though I get paid like a plebian.

On another note, the world currently has the resources to provide every person on the planet the 5 things that every living breathing person deserves.
1. Clean Water
2. Healthy Food
3. Shelter
4. Healthcare
5. Education
Every single person on the planet deserves those things. How about instead of spending a billion dollars a day (or more) on a war, we spend a billion a day on those 5 things. To say otherwise is anti-human… far too much “us vs them” these days as opposed to just US as humans. When people feel they are being treated unfairly, thats when violence and crime runs rampant. And for the record, if people are given these things, there will still be reason to work and make money, so that individuals can purchase whatever other things their heart desires. When I was 18 my parents had the option to say “get outta the house, buy your own food and water, finish school, and go regularly to the doctor without any help from us”. Instead I was given these things by my parents (yes they worked for the money to pay for these things, but stay with my argument here). Am I any worse off or lazier because these things were given to me, instead of “earned” by me? No. This is especially important since automation is/will continue killing every unskilled (and into the future, even skilled) jobs and all those 5 things are only rising in cost every year. And while I’m on wage-slave talk, I do believe that people need to make more than others, but its becoming grossly absurd when the CEO of my company makes over $25 million per year, which is over 500x what I make. Do I think because he’s the CEO he should make 2x what I make? No. But over 500x? That’s ridiculous. There should be a cap on what the multiplier is between the top and bottom of every company, depending on size. 20x? 50x? 100x? I don’t know the magic number, but there should be some regulation on it. Share the wealth buddy, we’re all just trying to get by, working hard every day just like you, but I can barely afford a 1 BR apartment and survive on my own given my college debt (my parent split it with me and I’m still buried), car loans, rent, high cost of food, saving for retirement (no SS cushion for me…), etc.

From what I’ve learned about the United States, I want to be the greatest Devils Advocate on the planet. I want to steal as many peoples jobs as possible through the design of robots, automation systems, etc. so that everyone is out of a job and I collect all the money. Then I’ll turn around and say you’re all lazy leeches trying to steal my money and tax me 50% on my $10 billion per year (you think I can survive on $5 billion? I don’t you lazy leech…).

I don’t know… that was a long winded and scatterbrained rant of many of the things that were going on in my head as I was reading your posts. I’m sure most of that is pretty dumb, and I’m sure there’s a lot more, but I don’t have the time to type it in… I’m too busy figuring out how to put you out of a job for my own personal gain like a true American.

#Trolling #Ranting

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Peter June 10, 2015 at 10:23 am

Thanks for venting here – great contribution. Two quick things…. First of all, I completely agree with your assessment of our political system. It is perceived choice, but not really choice. Politicians are barely distinguishable from one another anymore and I still can’t believe that people by the US vs THEM Argument with conservatives and liberals. It is nonsense. No matter who is in charge, the same things keep happening – but like you said, it is cloak and dagger.

And secondly while I’m not going to trash the baby boomers I do want to go on record that I am actually part of Generation X. I don’t know if I would put it like you but there were definitely some poor decisions made that will really screw us and our children down the road.

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Peter June 10, 2015 at 10:27 am

Not sure how a CEO cap would work. So if the next Apple comes through and their Steve Jobs has a salary cap, what do they do with the extra money? I suppose in theory they can pay their employees more, but why wouldn’t they just retain the earnings in the company? I assume you would also cut off all roundabout compensation programs like deferred comp, stock options, restricted stock, bonuses, etc. I don’t think your idea would have the desired result though unless you made corporations pay their employees a certain percentage of revenue. And I certainly would be against that….

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Peter June 10, 2015 at 10:29 am

One final thought. I was with you until I got to the end. Why is there a perception that you have to put someone out of work to make money? There are those that do that but most of the 1%ers I know aren’t of that ilk.

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Peter N June 11, 2015 at 9:51 pm

While I agree that GDP and voting is a sham, I don’t think you have a right to the 5 things you posted.

In Washington State there have been 2 times where the Republican candidate for governor won the election until democrats requested multiple recounts until their candidate won.

GDP is a measure of economic activity, it doesn’t have anything to do with wealth building activity.

Take away government and place yourself out in the sticks. There is no food, water shelter, healthcare or education unless you provide it for yourself. There is no right to these things.

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Peter June 12, 2015 at 7:05 am

Peter N – I agree, there is no “universal” right to those things, but in a developed and advanced society like ours, we should certainly be able to provide this to everyone. That’s all I’m really saying here. Maybe “right” isn’t the right word….but it certainly something I would think our government can provide.

I would actually change the list to this:
1. Water
2. Food
3. Shelter
4. Security
5. Health Care & Education at a base level

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Steven H June 15, 2015 at 9:06 pm

Nice post, OakyD, and I’m glad to hear from a millennial.

Re GDP: I have only read a summary of “The Leading Indicators”, but it sounds like a good read. A agree that GDP is a limited measure, but I counter that it does have its uses in these economic discussions, in that US GDP is proportional to the sum of all incomes in the country (Last I checked, sum alf all incomes was typically about 85% of GDP). So when real GDP goes up at 2% per year, but upper incomes increase at higher rates and most incomes stay stagnant, it tells us something. But it only a reference point, and i agree that it means nothing about how most people’s conditions improve. The economy of the lower 90% in this country is far different from the economy of the upper 1%. Rising tides stopped lifting all ships in the 80’s.

I share your concern over the multipliers across incomes in the country. If you like messing with numbers, look up the spreadsheets of Emmanuel Saez, a California researcher on incomes. His charts have a lot of info on ratios of pay scales across the economic spectrum It’s very enlightening. The following link is an Excel file download.

http://eml.berkeley.edu/~saez/TabFig2013prel.xls

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OakyDope June 10, 2015 at 8:58 am

Oh yea, the tax code should be greatly simplified, by first having ZERO loopholes. Everyone gets taxed 25% on all income/dividends/capital gains/etc. that combined are over $30,000 (e.g. if you make $200,000/yr you pay 33% in taxes. Done.

Also, minimum wage should be directly tied to cost of living and inflation, and renamed “minimum living wage” that should be updated every year. It can be a simple equation and its the right thing to do. Anyone who works 40 hours a week deserves to be able to live a decent life, whether you’re picking up my garbage, or sitting in a high-frequency trading firm doing NOTHING for society… opening a program and clicking “start trading”, sitting back and collecting… Ugh I don’t even want to get started about them it makes me sick…

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Peter N June 11, 2015 at 10:09 pm

I agree that that tax code should be simplified. I could live with your plan.

Minimum wage is another issue. People must be worth what they are being paid.

Although I don’t like high speed trading and would tax it so it wouldn’t be profitable, I don’t think your view of what it takes to do high speed trading is anywhere near correct. It takes a considerable investment in computers and direct communication links to get the data and then there is the programming that must make the decisions better than other companies computers and algorithms.

“Anyone who works 40 hours a week deserves to be able to live a decent life, ”
Define decent. There are people in India that live on $300 a year. I have seen them.

I wonder how many hours a week the basic hunter gather worked?

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OakyDope June 10, 2015 at 9:00 am

****Oh yea, the tax code should be greatly simplified, by first having ZERO loopholes. Everyone gets taxed 25% on all income/dividends/capital gains/etc. that combined are over $30,000 (e.g. if you make less than $30,000, you don’t pay taxes). If you make more than $200,000/yr you pay 33% in taxes. Done.*********
Something got messed up there sorry.

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Man-of-Reason June 10, 2015 at 7:28 pm

You have to realize that progressive income taxes offset regressive state and local taxes. Those on the low end of the scale pay a much greater percentage of their incomes in property, gas, sales, and all other taxes and fees than those at the top. For example, in Washington state, the bottom fifth pay 17.8% of income to state and local taxes on average, while Bill Gates pays less than 3%. Actually, even with today’s progressive income tax rates, Mr. Gates pays a little less in taxes as a percentage of income than almost every other Washington citizen. (He’s acknowledged this and recognizes the illogic) As you attempt to “simplify” and flatten income taxes, the inequality becomes that much more pronounced.

Scaling income tax rates to income is not difficult and the scales were easy to follow as published and were fair. Eliminating the unreasonable loopholes, however, would be a great advancement. Unfortunately, our corporate masters who now control our legislatures, will not allow any of this since it would negatively effect tomorrow’s bottom line.

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OakyDope June 11, 2015 at 7:24 am

Hmm… I don’t quite understand what you mean when you say “As you attempt to “simplify” and flatten income taxes, the inequality becomes that much more pronounced.”

I get the part that people on the lower end of the scale end up paying a larger percentage of their income on state and local property taxes, sales taxes, gas taxes, etc. – But that’s because those are all consumption taxes. Perhaps there needs to be a scaling consumption tax as well?

But if income taxes were flatter, proportionally we’d all be paying the same percentage wouldn’t we? (assuming the elimination of loopholes)

According to the income tax strategy I laid out, no one would pay federal income taxes on the first $30,000, then between $30,000 – $200,000 the tax on everyone would be 25%, and then everything above $200,000 would be taxed 33%.

Say Bill Gates made $1 billion last year. He would pay no taxes on the $30,000, then 25% up to $200,000, and then the other $999,700,000 would be taxed at 33%.

I think the feeling of inequality would be greatly reduced with that type of strategy… No? But then again I don’t really know what I’m talking about… I’m way out of my league on this topic.

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Peter N June 11, 2015 at 10:20 pm

I like that you think consumption taxes are fair.

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Peter June 12, 2015 at 6:35 am

The thing people miss is that we WANT the 1% to reinvest their assets in businesses, stocks, bonds, etc. rather than purchasing things. This reinvestment helps drive prices of these assets up which helps everyone with their 401ks, home prices, etc. and allows others to accumulate wealth.

Of course, some people don’t participate in their 401ks, run up credit cards and do not own a home. Those people will continue to be left behind.

Man-of-Reason June 13, 2015 at 2:49 am

That’s one reason for high income taxes on those taking the most in personal income out of corporations. It encourages them to reinvest instead.

Peter June 16, 2015 at 8:45 am

Good point in theory…. but instead corporations just seem to be hoarding the cash or pushing the funds into deferred comp programs which kick the taxation down the road.

Steven H June 20, 2015 at 2:00 pm

That’s a reason to use the tax code to compel corporations to actually invest in American factories and jobs and in wage increases for their workers, rather than hoarding cash. Use it or lose it.

Peter June 23, 2015 at 10:23 am

I don’t follow. Personal income tax or corporate tax? How can you force a company to not retain earnings?

James June 24, 2015 at 7:44 am

He’s not going to reply Peter as this backs him into a corner with his endgame he wants (higher taxes on the rich)….nor will he reply to your questions in the other threads. He’s too busy verifying Jefferson quotes down below. (haha)

Steven H July 12, 2015 at 11:39 am

Peter, there are many ways (tax breaks, etc) to incentivize companies to reinvest in the company, common worker wages and benefits, new jobs, job-training, etc., rather than hoard cash or raise management salaries.

James, trolling and sniping is discourteous. If you have nothing to add to the conversation, please refrain from posting.

Man-of-Reason June 12, 2015 at 2:43 pm

History

The federal income tax was initiated in 1913 and by 1918, it had become extremely progressive, “progressive” meaning that the more the family income, the higher percentage they paid. The marginal tax rates progressed from 6% for those with AGI’s between $0 and $59,438 in today’s dollars in 56 steps all the way to 77% for all earnings over $14.8 million. Although that sounds “complicated, it’s not. A reference chart was given each tax preparer so that he could find his AGI and the corresponding tax owed. IRS did the math.

By 1929, with a administration and congress more sympathetic to big business and the wealthy, those steps were reduced to 22 and the top rate to 25% for income over $1.3 million. That meant that the super wealthy now paid a similar percentage to those making a fraction of what they did. We went into the Great Depression. So much for “supply side”.

By WWII, the marginal tax rates were again very progressive with the top rates from 91% to 94% for those earning more than $3 million to pay for the war. That was reduced to 70% for those earning more than $1.16 million in 25 brackets by JFK in the early 1960’s.

By 1980, those brackets had been reduced to 16 and the 70% top bracket applied to all making more than $587K. Then Reagan was elected and worked hard to lower taxes, claiming supply side bs that the more we lower taxes, the more business booms and the more people pay in taxes. By 1988, he had flattened the tax schedule to 2 brackets. Everyone paid 15% on the first $56K, and 28% on all income over that. The national debt tripled, creating a stimulus from the borrowed money, but causing problems many years later. Where Americans once believed that those earning the greatest should be progressively taxed at higher percentages on their incomes, especially to prevent an inordinate accumulation of wealth and power by a few, the burden was flattened so that the middle class many times paid a greater percentage of all taxes because of the regressive nature of state and local taxes, and wage, wealth, and opportunity inequities widened.

Bush 1 saw the national debt problem and raised taxes. But Americans no longer valued fiscal responsibility. They liked living large on borrowed money and dumped him for Clinton in the next election. Clinton raised taxes to 39.6% in five brackets on all income over $288K by 2000. I’m sure he would have liked to structure a much more progressive code, but the measure squeezed by in 1993 without one Republican vote. They screamed, “recession!”, but you know what happened instead. So much for “supply side”, aka, “trickle down” bs.

And then we come to Dubya. He again cut taxes and drove up the deficits after Clinton had left such a nice surplus. He left the next President with the greatest recession since the 1930’s and Obama’s inability to raise taxes or cut spending without risk of falling back into recession (as FDR found out in 1937). So much for “trickle down”. Obama, however, did raise taxes on families earning more than $400? To bring the tax brackets up to 7.

It’s not the number of brackets that really confuse people doing their own taxes. We don’t have to do math, but only read a chart and add in the excess over $X. It’s the exemptions which must be simplified. Yes, those who are very wealthy, and the corporations will try to confuse people so that they pay less and you will pay more. My opinion of fairness harkins back to 1818, before the wealthy and corporations propagandized the public, lobbied the legislatures, and purchased politicians with unlimited contributions so that their bottom lines and political power were enhanced at your expense.

Sorry for so long a response.

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Man-of-Reason June 12, 2015 at 2:45 pm

History

The federal income tax was initiated in 1913 and by 1918, it had become extremely progressive, “progressive” meaning that the more the family income, the higher percentage they paid. The marginal tax rates progressed from 6% for those with AGI’s between $0 and $59,438 in today’s dollars in 56 steps all the way to 77% for all earnings over $14.8 million. Although that sounds “complicated, it’s not. A reference chart was given each tax preparer so that he could find his AGI and the corresponding tax owed. IRS did the math.

By 1929, with a administration and congress more sympathetic to big business and the wealthy, those steps were reduced to 22 and the top rate to 25% for income over $1.3 million. That meant that the super wealthy now paid a similar percentage to those making a fraction of what they did. We went into the Great Depression. So much for “supply side”.

By WWII, the marginal tax rates were again very progressive with the top rates from 91% to 94% for those earning more than $3 million to pay for the war. That was reduced to 70% for those earning more than $1.16 million in 25 brackets by JFK in the early 1960’s.

By 1980, those brackets had been reduced to 16 and the 70% top bracket applied to all making more than $587K. Then Reagan was elected and worked hard to lower taxes, claiming supply side bs that the more we lower taxes, the more business booms and the more people pay in taxes. By 1988, he had flattened the tax schedule to 2 brackets. Everyone paid 15% on the first $56K, and 28% on all income over that. The national debt tripled, creating a stimulus from the borrowed money, but causing problems many years later. Where Americans once believed that those earning the greatest should be progressively taxed at higher percentages on their incomes, especially to prevent an inordinate accumulation of wealth and power by a few, the burden was flattened so that the middle class many times paid a greater percentage of all taxes because of the regressive nature of state and local taxes, and wage, wealth, and opportunity inequities widened.

Bush 1 saw the national debt problem and raised taxes. But Americans no longer valued fiscal responsibility. They liked living large on borrowed money and dumped him for Clinton in the next election. Clinton raised taxes to 39.6% in five brackets on all income over $288K by 2000. I’m sure he would have liked to structure a much more progressive code, but the measure squeezed by in 1993 without one Republican vote. They screamed, “recession!”, but you know what happened instead. So much for “supply side”, aka, “trickle down” bs.

And then we come to Dubya. He again cut taxes and drove up the deficits after Clinton had left such a nice surplus. He left the next President with the greatest recession since the 1930’s and Obama’s inability to raise taxes or cut spending without risk of falling back into recession (as FDR found out in 1937). So much for “trickle down”. Obama, however, did raise taxes on families earning more than $400? To bring the tax brackets up to 7.

It’s not the number of brackets that really confuse people doing their own taxes. We don’t have to do math, but only read a chart and add in the excess over $X. It’s the exemptions which must be simplified. Yes, those who are very wealthy, and the corporations will try to confuse people so that they pay less and you will pay more. My opinion of fairness harkins back to 1918, before the wealthy and corporations propagandized the public, lobbied the legislatures, and purchased politicians with unlimited contributions so that their bottom lines and political power were enhanced at democracy’s and everyone else’s expense.

Sorry for so long a response.

Steven H June 15, 2015 at 8:17 pm

Very nice historical summary. Good job, MOR.

Peter June 16, 2015 at 7:42 am

MOR – most of this history recap is accurate, but of course it does leave out some giant circumstances that framed most of these changes. The government’s manipulation of money supply and interest rates had FAR more to do with the Great Depression than the tax brackets, for instance.

Nonetheless, the tax code is far too complicated – but there are a few reasons why.

First, like you stated, there are tons of breaks, deductions, credits, etc. in the tax code for special interests. Let’s talk about this for a minute…. Many of them are for things like education and raising children, special needs care, health expenses, charitable deductions, passive income, depreciation of assets, business expenses, etc. I think even the most ardent 1%-haters would probably approve of many of these things, but I could be wrong.

Secondly, the tax code is intentionally confusing in my opinion for political reasons. The public is constantly being played by politicians and left and right wing rhetoric (as evidenced by some of the less informed posts on this blog). The more complex the structure, the more that someone can cherry-pick pieces of it to try and make a point or win votes. If it were more transparent (like the chart from 1919 you mentioned), then the public wouldn’t be so easily manipulated. And controlling the minds of the people is the key to politics, isn’t it?

Steven H July 12, 2015 at 11:33 am

Oakydope,

In rereading this section, it looks like nobody answered your question. I’ll give it a shot.
OakyDope: ========
Hmm… I don’t quite understand what you mean when you say “As you attempt to “simplify” and flatten income taxes, the inequality becomes that much more pronounced.”

But if income taxes were flatter, proportionally we’d all be paying the same percentage wouldn’t we? (assuming the elimination of loopholes)
=========
Middle and low income folks spend most of their money on
(a) essentials of survival: food, shelter, transportation
(b) modest luxuries to improve quality of life: vacations, nicer house or car, entertainment, hobbies

Richer people spend money on above plus some of the following:
(c) long term investments
(d) owned business
(e) more extravagant luxuries (much better house, car, travel, entertainment)
(f) savings intended to pass along as inheritance

The idea of progressive taxation is that essentials of living and modest luxuries should be taxed at a much lower rate than the more extravagant expenses of the rich. Certain exceptions are made for investments in business and capital gains as that activity is good for society and the country. However, the American Dream was never intended to allow just a few people to extract and control the vast majority of the country’s wealth and resources.

Thus, getting back to your question, taxing everyone at the same rate (flat tax) and oversimplifying tax code (removing allowances for education, and child-rearing, and/or removing the incentives that guide investment into areas favorable to society) may sound fair and even-handed on the surface but actually increase the high income disparity and put rich folks even more at an unfair advantage to everyone else.

Make sense?

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Steven H June 15, 2015 at 8:46 pm

Tax “simplification” in the 80’s is what screwed up the tax code. Reagan did the 2 or 3 rate plan and we went into deep debt. We now ALREADY have a net tax code that is almost completely flat. Adding up the entire tax burden (federal, state, local, sales, property), you get
Lowest 20% receive 3.3% of all income and pay 2.1% of all taxes.
Middle 20% receive 11.2% and pay 9.9%.
Within the upper 10%, the upper 1% receive 21.6% and pay 23.7%.
The next 4% receive 14.2% and pay 15.2%.
The next 5% receive 10.1% and pay 10.7%.

The good news for all you flat-taxers out there is that we already have a flat tax system. The bad news is that it is not working. A more progressive system is necessary, both to finance the country, and also to relieve the current economic burdens on poor, working, middle classes and even on the entry level entrepreneur.

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Steven H June 15, 2015 at 9:09 pm
OakyDope June 10, 2015 at 11:09 am

It’s not so much that you have to put someone out of work to make money. I’m just being overly-cynical to make the point that soon people who are uneducated and don’t perform skilled labor will REALLY be a burden on society. Right wingers tend to think that those people are lazy and a burden on society now when currently they have a job making minimum wage (which truly isn’t enough to live on these days), yet still have to take advantage of government programs to sustain themselves. What do these tycoons think will happen when the unskilled laborers can’t get a job all together because everything is automated? Capitalism is about profit. Period. If a CEO realizes he can make more profit by automating his service, rather than paying 10,000 employees, he will toss them to the curb in a heartbeat to line his own pockets as well as the shareholders. The world population is only rising and those types of unskilled jobs are shrinking. Hence my “5 things everyone deserves” portion. What’s good for the general populous is good for every individual, including those at the top. If our entire population is properly educated, everyone can contribute to the society as opposed to being a burden on it.

And to your point about the “next apple-steve jobs” scenario, yes I think that if I’m part of a company that is exploding and doing amazing things, I should share in the wealth associated with that. I’m part of the engine that makes it go, not just Steve Jobs. The money should be reinvested into the employees, the company, and the surrounding community. But, if I can be naïve and idealistic for a moment, the art of “good will” is lost these days, in that companies will only donate to their community if they can write it off on their taxes. If they aren’t going to see any benefit from the donation, they won’t do it. I suggest watching the news documentary show VICE on HBO. There is an episode in regards to how oil companies (Exxon, etc.) go into 3rd world countries, promise the poor people that they will build housing and schools and clean water wells, and then don’t follow through with any of it. They just end up essentially stealing the resource from them at bottom dollar costs, polluting their community (because there are no environmental laws… and if there are they aren’t enforced), and never doing anything for them. Its sickening and maddening when you see how many billions of dollars of profit these companies make PER QUARTER and still don’t have the heart to follow through on their promises to these people.

In my opinion, capitalism is a great tool to build and grow a country quickly. But I think capitalism has kind of run its course in America. Inefficiency is built into the system. You think the iPhone 6 is the best technology Apple has? No way. But the technology they have today won’t be available for another 5 years, because they have to sell 5 more iPhone models to the masses before they can release the best tech to us. So that’s 5 years of phones which are technically outdated the second they are released, solely to make it so that your customers have to buy 5 more iPhones from you. Wasteful. Stupid. I heard a quote I really liked one time, hopefully you’ll glean something from it like I did. It simply says “We didn’t move out of the stone age because we ran out of stones”. We need to realize our resources on this planet are finite, and we’re ruining and wasting them. It should be more of a resource based economy, IMHO. How to get there is a whole other can of worms that I couldn’t answer.

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Peter June 10, 2015 at 11:36 am

Very true about the unskilled labor point. And it is going to get worse. We must educate and train our population. Kind of what Ken and I were talking about earlier and certainly a better solution than just taking more money from the rich and giving it to the poor.

And don’t forget that automation also makes products cheaper – which helps the bottom 20% afford things like IPhones which 30 years ago would have been only for the wealthy.

I totally disagree with your Apple IPhone perspective. That is a HIGHLY competitive industry – to think that they intentionally sit on advanced technology that is ready to be released just so you buy and intermediate model seems a bit cynical to me. But I do see your larger point. Kind of like dividing up the final sequels to Twilight and Hary Potter into 2 movies so you can make more money. Hardly see this as evil though.

Like your take on the 5 rights of life and using resources. Don’t think we will be primarily a resource based economy but it should be more of a part of it. Crazy to think that millions of people around the world starve while great wealth is concentrated in certain places. I sure would be happy to feed someone with my excess – I could probably care for an entire African village – but unfortunately people get in the way and corrupt even care giving endeavors.

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OakyDope June 11, 2015 at 8:01 am

Just a minor example to illustrate the point you disagreed with regarding the Apples slow release technology in order to sell more units (thereby wasting the earths – and everyone’s – resources).

NFC (Near Field Communication) allows devices to interact with each other when they are touching or are very near to each other. This tech is used for mobile payments, games, and other things. In 2010, Android released the Samsung Nexus S, which was the first mass produced device to have the technology in it. According to your theory, this space is so highly competitive that Apple should have been right on their tail with their release of an NFC phone. But…in 2015, (5 years later I might add…) Apple finally released the iPhone 6 with NFC tech in it, and is advertising it as the biggest new thing. You think Apple could have released the iPhone 4 (2010), 4S, 5, 5C, or 5S with that technology in it? Yes, they definitely could have, but they had already decided the trickle of technology they were going to release through those next 4 models before the iPhone 6, so they say to themselves “hmm….we have all this great tech right now. But if we release each little piece of tech one model at a time, we could sell the same person 5 phones over the next 5 years, instead of 1 phone over the next 5 years.”

Also @Peter — if you’re looking to unload some excess cash, donations to the OakyDope fund are now open! My student loans could be paid off for the low low donation of $50,000! Haha!

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OakyDope June 11, 2015 at 8:10 am

Also don’t get me wrong. I think that every mindless task that is repetitive, dirty, unsafe, etc. should be automated. Human beings weren’t meant to stand on a factory line and put the same thing together 10,000 times per day. But that’s why everyone needs the “5 rights of life” (namely in this case, to be educated), so that they don’t end up with no options when the automation revolution occurs.

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Peter June 12, 2015 at 6:32 am

I do think that government (or even the greater public good) can enable everyone to have the 5 things you listed. However, retirement was not one of the “basic rights of life”. Why do we have a social security system then? I would much rather dismantle this system and beef up a public health care program. It is not a ‘basic right’ to retire at 66.

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Man-of-Reason June 12, 2015 at 3:10 pm

Over a third of Social Security recipients live on it alone, without which, they’d be destitute. It was never meant to be a “retirement system” but only to prevent such destitution. It works.

Good to see you’re still here Peter. I don’t seem to have missed much.

Peter June 12, 2015 at 7:14 pm

It is such a relief to have you back! Thanks for returning.

Peter June 16, 2015 at 7:27 am

In theory, social security works. The math behind it is completely flawed however – and we should have moved the retirement date back years ago. Like Clinton likes to say, it’s just “math”. And the math on the SS system is very flawed.

My only point is that if we are going to talk about things as “rights” that retirement is not one of them.

Ken June 16, 2015 at 2:12 pm

The essence of a Ponzi scheme is not simply its statistical unsustainability. The essence of a Ponzi scheme is that it is like an addictive drug. Once someone enters into it, he finds it psychologically impossible to face the reality of the unsustainable statistics of the program. He refuses to get out in time. His participation in the scheme fundamentally changes his outlook toward reality. He is no longer capable of being persuaded.

The only end to Ponzi schemes is its complete destruction, either through a precipitous collapse where checks start bouncing, or through draconian benefit cuts, or significantly higher age restrictions before people start receiving benefits. Unless there are immediate negative sanctions that result from continued participation in the Ponzi scheme, which there never are until the end, the Ponzi scheme will continue until its statistically inevitable demise.

Normal Joe June 16, 2015 at 2:44 pm

The only reality that makes Social Security a Ponzi Scheme is the inability of elected official to keep their filthy hands off of the Social Security Trust Fund. There are bound to be times of excess inflow as well as excess outflow. That is a function of the way the population ebbs and flows. The original creators of this anti-poverty success story (and there is more than sufficient empirical data to support that statement) never anticipated the likes of Ronald Reagan’s belief that deficits don’t matter. It is also arguable that there are times for deficits and there are times for austerity. The difference in opinions surround under what circumstances each is appropriate public policy. Let’s not throw the baby out with the bath water because it is impossible to agree. I’m confident that once we remove the legalized bribery that has been institutionalized and the career paths of politicians are limited somewhat with their ability to move right into lobbying positions, there is the very real possibility of righting this ship of state. It is going to be painful and that pain must be shared. Someone much more clever than me once said, the best way to know that you have a good law is if nobody likes it.

Ken June 16, 2015 at 3:50 pm

What makes Social Security a Ponzi scheme is that it was predicated on an ever-expanding base of participants to primarily benefit the initial participants. Further, as is often the case with unsustainable government programs, government propped it up far longer than its financials would have allowed it to exist in the private sector, because government could force near-universal participation, and then increase taxes by 1200% over eighty years. Then, after all that, as you pointed out, politicians stole the money anyway.

Sounds a whole lot like private sector Ponzi schemes to me, the main difference being that in the private sector Ponzi schemes are illegal.

Peter June 17, 2015 at 8:03 am

Agree with your take Normal Joe – that it wouldn’t have been perceived as a Ponzi scheme had the political leaders kept their hands out of the till. However, the system was also slow to adjust to changing demographics as well.

I don’t agree that the statement that “1/3 of social security recipients live on it alone” justifies the program. I think it shows the desperate need for better education and planning by our citizens. My mother is one of these people – in her 70’s and living on SS alone. She did not get in this situation due to a life of hard luck – she got there because she almost never thought about tomorrow. She spent what she earned and made poor decisions. SS is a great safety net for these people (as is unemployment, welfare, etc.) but it should not be “the plan”. MUCH more needs to be done to educate our public about saving, planning and sacrifice.

Ken June 17, 2015 at 10:14 am

I agree that just because somebody has not saved for their retirement does not mean they are a victim. There are a whole lot of people who lived their lives as grasshoppers rather than as ants, and that’s the main reason they have no retirement savings.

Of course, the usual posters here will immediately say I am blaming the victim. I guess I would say that I disagree that everyone is a victim. There are a whole bunch of people who do not have retirement savings because of their own lifelong series of choices and behaviors. That’s not victimhood. That’s cause and effect.

Like Peter’s mother, my sister and brother in law are in this group. He is a lawyer, and she was a school teacher. But now as they approach their 60s they have zero savings, because they spent like grasshoppers (i.e. drunken sailors) their whole lives. They will be two people for whom their entire retirement income will be Social Security. Are they “victims” who were just “unlucky”? If they are victims of anything, I would say they are victims of their own behaviors and choices. “Luck” played little to no role. I feel bad for them because their retirement will suck relative to ours, if my brother in law ever gets to retire at all. But it’s as clear as day why they are in the financial straits they face today: they put themselves there.

I posted a story here many months ago comparing my dad versus my uncle, both men substantially equal backgrounds, finances, family structure, WWII military service, and so on. My dad was an ant, and my uncle a grasshopper. And once again, due to lifelong series of grasshopper choices and behaviors on the one hand, versus lifelong series of ant choices on the other, my uncle had no retirement income other than Social Security, while my dad retired comfortably.

Having said all of that, the difficult thing (especially for us ants) is that it somewhat makes no difference how people arrived at retirement age with no financial support other than Social Security. People need money on which to live. And the fact is that both grasshoppers as well as “true victims” have no money, which in some measure does justify a level of safety net.

The problem is how to differentiate grasshoppers versus true victims, if that is even possible, or worth our time. And the question, too, is how much, or to what degree, these groups should be saved with SS benefits.

I guess I always think that once you reach your SS full retirement age (FRA), you can work and your SS benefits will not be reduced. And regardless of whether you have reached FRA or not, work is always an option, except for the disabled. We need to get away from this notion that SS needs to provide enough benefit so that people can live comfortably and do not have to consider other sources of income. Most financial sources I have read hit this issue hard — the “three-legged stool” and all that.

I know that in my own case, we spend more than what our combined SS benefits (as they currently stand) will bring in. So either we will need to have money saved (which we do), and/or have a pension (which we will have). But if we didn’t have those other two sources of income, we would need to consider working while also drawing SS benefits.

Peter June 17, 2015 at 11:14 am

Well said Ken. It’s meant to be a floor – a base level of income that is humane – not a panacea for retirement.

I did a seminar years ago in a very poor section of town at a local church. We had about 500 people in the room and we were talking about saving for retirement. I asked the room – “How many of you in the room would quit your job if your boss said that you would no longer be paid for your first hour of work each day?” To my surprise, only about 50 people raised their hands. I asked why more people didn’t raise their hands and they replied “I need my job – I have a family to feed”.

Which brought me to my next point. Instead of your boss cutting your pay, what if you SAVED your first hour of pay every day? I ran the math on this for them – if someone making minimum wage had put their first hour of pay away each day into a balanced (stocks/bonds) mutual fund their entire career, they would accumulate something like $750k by age 66.

Most of these people had never ever thought they could have assets upwards of $100k, let alone $750k. They were literally blown away. And don’t tell me that they can’t afford to save their first hour of pay, because we all manage when we are met with difficulties that are out of our control. And 90% of the people in the room said they wouldn’t quit their jobs, remember?

The reality of these people (as I talked to them individually after the seminar) was that they had been brought up to believe in mantras like “live for today” and “you can’t take it with you”. EVERY single person I talked to was riddled with credit card debt that was crippling them. Some even told me that their parents had taught them to run up credit cards because the debt is forgiven when you die anyway.

It’s amazing to me the total lack of education in finances that the public has. If our government HONESTLY cared about its citizens, education is where this should start. We had insufficient education going on in the homes of poor communities about sexual things, so we added it to the public school curriculum. Smoking has been greatly reduced as well due to education. We can do the same for finances.

Again this is a better solution than libtards or neo-Cons whining about the “other side” or both sides saying “we need more money”. Also a better solution than me writing a check and spreading it among the 500 people in my seminar. Real, meaningful, permanent solutions.

Steven H June 15, 2015 at 8:34 pm

Peter, I am all for educating the population. I would particularly like it if the short-sighted state legislatures and governors (e.g. Kansas) would stop using education funding cuts as a means to reduce taxes (for political self-promotion and not economic sense).

But we, as a country, also need to figure out what we need our people to do. What is the economic mission of the country? Manufacturing? High tech? Computer programming and services? Fast food? The idea of throwing a bunch of teenagers into college and hoping they can figure out something that will be productive and useful just by “pursuing their dream” is crazy, especially at $100K/diploma. I’m not at all proposing central planning, but some kind of resource planning and prediction is necessary, as is required in any business plan. Surely the resources of industry and the country can be used to project the market situation a few years into the future to guide our young people as they seek to learn a skill and pursue a career.

And of course we have to have an economic flow that makes sense. The idea of continually squeezing the middle class so that corporate executives can reap the savings will not work much longer. And that is what all my railing about excessive income slopes is all about. A more educated populace is worthless if we continue to overcharge for the education and underpay the graduates.

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Peter June 16, 2015 at 7:23 am

The public (and the economy) has always adjusted to the changing times and is in the process of doing so again. The government can use tax laws and exemptions, credits, etc. to try and guide it one way or another but they aren’t going to pilot the ship. Anecdotally, I’m seeing more and more young people forego the $100k education -realizing what a giant waste of money is.

My point about the education system (as are most of my points about government) is that it isn’t an issue of education budgets being cut, but an issue with the existing funds being appropriated properly. We need to adjust our education system for modern society. I am in my early 40’s and don’t have a clue how to FULLY use and repair most of the devices I have in my life. My kids have never learned about any of this in school but already know more than me. This is a great example of a market that could be served. The youth have a huge advantage in this and could be aided by our school system.

For instance, my teenagers go to one of the best school systems in the country where they have embraced the use of IPhones in school as part of the learning curriculum. They even take tests on them – which give instant results to the teacher’s computer. I have family members with kids in other schools where IPhones are not allowed in class. It’s simple things like this – common sense things – that we need to talk about. Not political nonsense about neo-Cons or libtards or “more money would solve the problem”.

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Peter N June 11, 2015 at 10:46 pm

I am in automation. My company makes automation controls that makes machines better. In many cases the machines do replace humans. In some cases they even replace other machines.

Eventually there will be many people replaced by machines. Educating them will not be possible because most will not be trainable or they would have done so in the first place.

Foxconn in China wants to have a million robots. That will replace a lot of workers there.

“In my opinion, capitalism is a great tool to build and grow a country quickly. But I think capitalism has kind of run its course in America.”
America is only about 60% capitalism, the other 40% is socialist. Capitalism hasn’t run its course, socialism has. When SHTF it will be the small entrepreneur that can provide what people want that will survive.

“You think the iPhone 6 is the best technology Apple has? ”
Apple is developing their own improvements on chips that are commercially available. Competition is tight and it takes a while to generate new technology at an affordable price.. Apple is sitting on technology and risking that others provide this hidden technology first.

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Marcmonyek June 12, 2015 at 6:03 am

It astounds me that there are still comments being posted on this blog. I will make one more. Looking up something unrelated I came across information on the uber uber rich Walton family worth $145 billion collectively.
Many people on this post and elsewhere criticize the rich for not paying enough in taxes. The Waltons are also criticized for giving very little to charity unlike Buffett gates and others. The waltons collect $3 bln in dividends a year.
What about taxes. I assume the waltons pay 20% on their dividends or $600 mln/year. They also own half of Walmart which is most of their high net worth which pays over$8 bln in taxes so their pro rata share is $4 bln. Of course we all pay a prorata share of taxes for the stocks we own.
So, are the waltons paying enough? I think $4.5 billion a year for one family is enough no matter how much they have.
The waltons have chosen to stay involved in Walmart and keep their capital locked up there. They came from a modest background and it has worked out unbelievably well. 30 years ago sam Walton was worth$2.8 bln so the family is 50 times richer. Obviously pretty smart.
Walmart is controversial particularly on the labor side and I won’t get into that. But they do employ 2.2 mln people and create savings for customers all over the world. Net net it’s quite a story.

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Steven H June 15, 2015 at 8:12 pm

Wal-mart has created more paupers and destroyed more businesses than any other enterprise. Many of the people who work there can’t afford to shop there even at the low low prices, and require taxpayer subsidized assistance just to eat.

Wal-mart is nothing to be proud of. It is an ugly blot on the American economic landscape.

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Peter June 16, 2015 at 7:25 am

It is a great story on both sides of the coin – the entrepreneurial spirit of a small company growing to unbelievable heights – and the dangers of a quasi-monopoly in small town USA.

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Steven H June 20, 2015 at 2:32 pm

There was an interesting exchange between Man-of-Reason and Ken up the thread on June 10th, but I am commenting on it here. The discussion was whether the wisdom and insights of the Founding Fathers are relevant today and whether they should be adapted. I have 3 responses to the conversation.

1) First I heartily agree with Ken’s statement: “I would caution that human nature is to try to control other people, take their stuff, and impose your ideas on them, especially when you can gain an advantage by doing so. ”
It’s an unfortunate truth in human nature but we have to remember this as reason not to put faith in unregulated or laissez-faire economies.
2) I add my enthusiastic agreement to Ken’s for MOR’s statement: “Yes, the founders were very smart, but they’d be the first to agree that nothing is written in stone and many adjustments to governance must be made to accommodate changing conditions of time.”

Along that line, I recall the following quote wisely made about how laws should be considered over time:

“Some men look at constitutions with sanctimonious reverence, and deem them like the ark of the covenant, too sacred to be touched. They ascribe to the men of the preceding age a wisdom more than human, and suppose what they did to be beyond amendment…But I know also, that laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths disclosed, and manners and opinions change with the change of circumstances, institutions must advance also, and keep pace with the times.” — Thomas Jefferson

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Steven H June 20, 2015 at 2:42 pm

Item 3) The following paragraphs are composed of quotes from our founders. Each sentence is either a direct or faithfully paraphrased quote from Thomas Jefferson, Alexander Hamilton, Benjamin Franklin or Adam Smith (author of “Wealth of Nations”, which helped to inspire our system of capitalism). The intent of the phrases as presented has been kept consistent with the intent of the phrases in the original context. Only modernizations of the language, and some connective phrases, have been applied.
These quotes express a view on taxation that is insightful, and still relevant.

===
Tax Advice From Our Forefathers
— A compilation of wisdom. —

Taxes are never welcome. They seldom fail to excite uneasiness and rebellion. This is why governments are often more willing to borrow against the future rather than raise taxes in the present. But succumbing completely to such temptation is dangerous; it can result in national economic distress and even bankruptcy. Certainly, every specific proposal for a raised tax is sure to meet with opposition. This is why it is of utmost importance that no one should sink under the burden. It is the duty of the legislature to hold the scales with a judicious hand and balance one proposal against another. The great art is to distribute the public burdens fairly, such that they do not fall too heavily upon any single part of the community. But note that the necessities of life — food, shelter and transportation — are the greatest expense of the poor, and the greater part of their little revenue is spent in getting it. In contrast, the luxuries and vanities of life occasion the principal expense of the rich. Therefore, it is completely reasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

Some have noted that the collection of taxes already falls principally on the rich. But I say that it is our desire to make them contribute the whole money we want, if possible. The rich must be made to pay for their luxuries. And we have a hope that they will furnish enough for all the expenses of government and the interest of our whole public debt. I tell you now that an enormous proportion of property vested in a few individuals is dangerous to the rights and destructive of the common happiness of mankind; and, therefore, every free state has a right by its laws to discourage the possession of such property. It is the government’s prerogative to take such action because property superfluous to basic survival of the individual and family is in fact the property of the government, who, by its laws has created the nation’s wealth, and so it may therefore dispose of or recall that wealth at will, whenever the needs and welfare of the country’s citizens require it. Therefore, we ought to go as far as may be practical in making the luxury of the rich a tributary to the public treasury, in order to diminish the taxation burden on the poor.

The issue today is the same as it has been throughout all history, whether man shall be allowed to govern himself or be ruled by a small elite. And from my experience, I have seen that man is an animal which devours his own kind, for I can apply no milder term to the general prey of the rich on the poor. So the greater goal is to establish political equality by blocking the opportunities of the fortunate few to accumulate an immoderate, and often an unmerited and unearned accumulation of riches. Instead, there ought to be a smooth and silent operation of laws and policy which reduce levels of extreme wealth and raise people up from extreme poverty towards a humane and comfortable standard. Indeed, the poor and middle classes should see the government supported, their children educated, and the face of this country made a paradise by the contributions of the rich alone, without anyone else being called on to spend a cent from their earnings. It is in fact a happy and fortunate circumstance that the interests of the government and this nation coincide with a proper distribution of the public tax burdens, and also with the need to guard the least wealthy part of the community from oppression!

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Steven H June 20, 2015 at 3:06 pm

In case you want to know the actual quotes that comprised the above:
=====
Tax Advice From Our Nation’s Forefathers
Direct quotes, without the paraphrasing:

Taxes are never welcome to a community. They seldom fail to excite uneasy sensations more or less extensive. Hence a too strong propensity in the governments of nations to anticipate and mortgage the resources of posterity rather than encounter the inconveniences of a present increase in taxes. . . . when not dictated by very peculiar circumstances, is of the worst kind. Its obvious tendency is, by enhancing the permanent burdens of the people, to produce lasting distress, and its natural issue is in National Bankruptcy.”– Hamilton

Every proposal for a specific tax is sure to meet with opposition. – Hamilton

… it is of the greatest importance that no one should sink under the immediate pressure. – Hamilton

It must be the province of the legislature to hold the scales with a judicious hand and balance one by another. – Hamilton

The great art is to distribute the public burdens well and not suffer them, either first, or last, to fall too heavily upon parts of the community; else distress and disorder must ensue. – Hamilton

The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich … It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.– Adam Smith, author of “Wealth of Nations”, an early treatise on what we call capitalism, published 1776

As these [the collection of taxes] fall principally on the rich, it is a general desire to make them contribute the whole money we want, if possible. – Jefferson

The rich must be made to pay for their luxuries – Hamilton

And we have a hope that they will furnish enough for the expenses of government and the interest of our whole public debt, foreign and domestic. – Jefferson

That an enormous proportion of property vested in a few individuals is dangerous to the rights and destructive of the common happiness of mankind; and, therefore, every free state hath a right by its laws to discourage the possession of such property. – Franklin

Property superfluous to such purposes [food, shelter, and survival of the individual] is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand. – Franklin

make it a fixed point of policy in the national administration to go as far as may be practicable in making the luxury of the rich tributary to the public treasury, in order to diminish the necessity of those impositions which might create dissatisfaction in the poorer and most numerous classes of the society. – Hamilton

The issue today is the same as it has been throughout all history, whether man shall be allowed to govern himself or be ruled by a small elite. – attributed to Jefferson

Experience demands that man is the only animal which devours his own kind, for I can apply no milder term to the general prey of the rich on the poor. – Jefferson

The great object should be to combat the evil: 1. By establishing a political equality among all; 2. By withholding unnecessary opportunities from a few to increase the inequality of property by an immoderate, and especially an unmerited, accumulation of riches; 3. By the silent operation of laws which, without violating the rights of property, reduce extreme wealth towards a state of mediocrity and raise extreme indigence towards a state of comfort; – Hamilton

The farmer will see his government supported, his children educated, and the face of this country made a paradise by the contributions of the rich alone, without his being called on to spend a cent from his earnings – Jefferson

Happy it is when the interest which the government has in the preservation of its own power, coincides with a proper distribution of the public burdens, and tends to guard the least wealthy part of the community from oppression! – Hamilton

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Ken June 22, 2015 at 4:38 am

And here are a few more quotes from Jefferson which somehow did not make the list….

“A government big enough to give you everything you want, is big enough to take away everything you have.”

“When we get piled upon one another in large cities, as in Europe, we shall become as corrupt as Europe.”

“The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.”

“It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.”

“I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”

“My reading of history convinces me that most bad government results from too much government.”

“The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government.”

“To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical.”

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Ken June 22, 2015 at 4:42 am

And in general I think one of the central issues in this ongoing debate are that one side sees the rich oppressing the poor, while the other side sees government as oppressing everybody.

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Ken June 22, 2015 at 4:49 am

Or maybe should be reworded to say ….. “One side sees the main economic villain being the rich. The other side see the main villain being big government.”

Peter June 22, 2015 at 9:38 am

I actually have a book of Jefferson quotes that sits in our living room and it always strikes me as funny anytime someone starts quoting him. He was what I wish more people were like today – he was a thinker. If you look over his whole lifetime, he said many things that contradict each other depending on what phase of his life he was in and conclusions he was drawing. Just look at his comments on religion as another example….

But anyhow, I’ve been staying out of this debate because I don’t really care what Alexander Hamilton thought about taxation and government, since it was a VERY different time. I would also hope that 250 years of wisdom and experience has evolved us to a higher level of thinking.

There is no doubt that the debate lies in what Ken stated.

Steven H June 23, 2015 at 7:46 pm

Or some see the rich as oppressing everybody and buying the government.

Steven H June 23, 2015 at 7:53 pm

Jefferson favored small government and Hamilton favored a stronger Federal role. The point is that the Founders did not all speak with one voice. They set up a system with checks and balances, with the ultimate check being the will of the people.

I find it absurd that people demonize our government and in the next breath they praise the people who established it. Our government is us. It is what we make it. If we allow it to be sold to the highest bidder, it will not serve us well. But the people can always elect better leaders, and therein lies our salvation. Not with selling our collective souls to Big Bidness.

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Ken June 24, 2015 at 5:37 am

“…..I find it absurd that people demonize our government and in the next breath they praise the people who established it. Our government is us. …”

And I find it absurd that people say “our government is us”, and then in the next breath demonize administrations from the opposing party. (Reagan, Bush 41, Bush43, any Republican administration in general).

Or when they admit that government can be sold to the highest bidder….but again…. only getting annoyed when it is sold to those of the opposing party. (the Koch brothers, but not George Soros).

When it is sold to people of your own party, or when it create laws out of whole cloth via the courts, or when it runs up $18 trillion in deficits, or passes legislation in the middle of the night without allowing legislators time to read it, and so on, well then that’s fine.

Seems to me that you really mean “our government is us….when it accomplishes the goals I want it to accomplish.”

Ken June 24, 2015 at 8:42 am

And of course the gist of my point from which this thread originated was not about quotes at all. My point was to be wary of fundamental changes to our system of government masquerading as “progress”. The clever yet insidious part of the term “progress” is the embedded assumption that because it is labeled as “progress” and is new, it therefore must be better. This is a non-sequitur, of course. The real meaning of “progress” as used in this context is “something fundamentally different and which we want to present as being something other than what it really is”.

The nature of our government as it was first established is that it should be limited, with enumerated, separated powers. Limited centralized government, government distributed more among the states, and the people, rather than centralized. There are those who can’t stand the idea that we have been so successful with this model, because it means that they are basically wrong about human nature, wrong about government, and wrong about what makes for real “progress”. They are continuously trying to remold us back to being more like the centralized, government-first nanny states in Europe under the banner of “progress”, because that’s all they know, and because they want to control other people. They want an ever larger, ever more centralized, ever more intrusive government inserting itself into every nook and cranny of our lives. “Progress” in their minds is defined as more government programs, more debt, more redistributive transfer payments, and more centralized control of people’s lives. The worst thing is to have people free enough to decide for themselves what is best in their own lives, such as the terms and conditions of their own employment contracts.

More generally, when sweeping changes are proposed, and they fundamentally alter the relationship between the people and the government to create more government power and control over people’s lives, we should be extremely wary. A central reason why people came here to the US, and the reason they still come here, is to escape centralized governmental power in their home countries. This vision of limited government, arguably the most successful government in the history of the world, is under continuous assault by those who want to change the fundamentals of the system under the banner of “progress”.

Steven H June 24, 2015 at 9:19 pm

Ken, it is always appropriate to analyze and criticize specific policies, individuals, and aspects of government. What I find contradictory and non-sensical is the demonization of our current form of government which has evolved completely along the designs of the founders. Small state-centric government failed with the Articles of Confederation and the stronger more evolved and prosperous federal model has existed in its current form for about a century at least. We are not the farmer nation that Jefferson idealized and so we have adapted, successfully, and as necessity has required, as per the legal and social and economic guidelines wisely established more than two centuries ago.

We have not lost our way. We keep losing it and finding it again. We change because it is necessary. We progress into the future because the visions of the past are no longer appropriate. The argument and push and pull over government programs and size is a necessary argument. But I do not accept that we are so far removed from the founders intention, nor that we have moved in some direction that requires rapid retreat to some past mythic “perfection”.

What I am saying is that we HAVE controlled spending, we ARE recovering from recession, and the most successful among us are far from being oppressed by overbearing taxation. We should just buckle down and pay our current bills as we continue the wrangling over spending levels. To avoid this simple step is lunacy.

The current arguments in Washington about highway spending is a perfect example of how ideological opposition to taxation defies common sense. Federal gas taxes are supposed to fund highway maintenance but have not been raised from its level of 18.3 cents/gallon for 22 years. The Dems and GOP agree that a new 6 year highway bill should be funded, but they can’t agree on how to fund it. The U.S. Chamber of Commerce, AAA auto club and American Trucking Association said in a letter to members of Congress that raising the gas tax would be the easiest way to close a transportation funding shortfall that has reached an estimated $16 billion per year. Yet Congress is afraid of raising taxes, even when the stakeholders who would be expected to oppose such an increase are pleading for the increase. Lunacy.

James June 25, 2015 at 6:14 am

“we HAVE controlled spending”

Outrageous statement…..

Steven H June 23, 2015 at 8:23 pm

Ken, I didn’t include these quotations because Jefferson didn’t actually say most of them. You get a score of only 3.5 out of 8 (43.75%) on Jefferson quote accuracy. It looks like you must have gotten most of these out of a chain mail. Fully half are false, and another is significantly altered.

1: “A government big enough to give you everything you want, is big enough to take away everything you have.”

This quote first appeared in print in 1953. The quote was not attributed to Jefferson until recently. No credit for this one.

2: “When we get piled upon one another in large cities, as in Europe, we shall become as corrupt as Europe.”

This is a genuine quotation, although slightly altered from the original, which reads, “I think our governments will remain virtuous for many centuries; as long as they are chiefly agricultural; and this will be as long as there shall be vacant lands in any part of America. When they get piled upon one another in large cities, as in Europe, they will become corrupt as in Europe.” Close enough. Full credit.

3: “The democracy will cease to exist when you take away from those who are willing to work and give to those who would not.”

This “Jefferson quote” first appeared in 1986, slightly after Jefferson’s death in, oh, 1826. No credit.

4: “It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world.”

This quotation is genuine, from a letter to Antoine Louis Claude Destutt de Tracy of December 26, 1820. Full Credit.

5: “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”

Almost right: actual quote is: “”if we can but prevent the government from wasting the labours of the people, under the pretence of taking care of them, they must become happy.” – Thomas Jefferson to Thomas Cooper, November 29, 1802

Close enough. Full credit.

6: “My reading of history convinces me that most bad government results from too much government.”

This is from a John Sharp Williams speech about Jefferson. Sorry, no credit.

7: “The strongest reason for the people to retain the right to keep and bear arms is, as a last resort, to protect themselves against tyranny in government.”

This quotation has not been found in any of the writings of Thomas Jefferson. It is often seen preceded by the sentence, “No freeman shall be debarred the use of arms,” which is from Jefferson’s draft of the Virginia Constitution.

No credit.

8:“To compel a man to subsidize with his taxes the propagation of ideas which he disbelieves and abhors is sinful and tyrannical.”

This quotation comes from Jefferson’s Virginia Statute for Religious Freedom, although it is misquoted. The original reads, “…to compel a man to furnish contributions of money for the propagation of opinions which he disbelieves and abhors, is sinful and tyrannical…”

1/2 credit: Jefferson did not actually reference taxes in his quote and that significantly twists the meaning.

Read more: http://www.businessinsider.com/thomas-jefferson-quotes-that-were-actually-just-made-up-2013-9#ixzz3dwg6eSQf

Also check Monticello.org for “Chain Email with 10 Jefferson Quotations”

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Steven H June 23, 2015 at 9:09 pm

A more complete explanation of number 8 is that it is a quote from legislation. Jefferson presumably wrote most of the “Virginia Statute for Religious Freedom” although a copy in his hand is not available. The thrust of the legislation (and hence the meaning of the quote) is that men should not be compelled to support specific religiouns with their taxes. The meat of the statute is here:

“We the General Assembly of Virginia do enact that no man shall be compelled to frequent or support any religious worship, place, or ministry whatsoever, nor shall be enforced, restrained, molested, or burthened in his body or goods, nor shall otherwise suffer, on account of his religious opinions or belief; but that all men shall be free to profess, and by argument to maintain, their opinions in matters of religion, and that the same shall in no wise diminish, enlarge, or affect their civil capacities.”

Just trying to be helpful …

Steven H June 23, 2015 at 9:10 pm

religions, not religiouns … sheesh.

James June 24, 2015 at 7:40 am

Wow, this was important to the debate. Thanks for clarifying. This is what happens when we quit THINKING and start trying to prove an endgame solution.

Steven H June 24, 2015 at 6:00 pm

James,

So … when your side praises the founders’ writings, even when the actual quotes are contrived or just made up, as intelligent guideposts, it is thinking. But when my side points out that the founders actual writings overwhelmingly support the idea that rich prey on the poor and should be compelled to pay for most of government, you are saying that is not thinking.

Methinks you are the one focussing on the endgame and ignoring all intelligent, factual, and historically sound arguments to the contrary.

James June 25, 2015 at 6:13 am

I’m sorry….what is my “side” again? And what is my endgame? Would love to know….. we all know what your side and endgame is, however.

Peter June 25, 2015 at 8:29 am

Steven H – you are the one who is part of a ‘side’. You’ve accused me of being on a side as well – namely as a conservative – which is laughable. I haven’t voted for a Republican president but twice in my lifetime.

Steven H June 25, 2015 at 9:51 pm

Well, James and Peter, my “side” and my “endgame” is simply trying to find the truths in all of these arguments and dispel the lies, the distortions, and the nonsense. I point out that half of Ken’s “Jefferson quotes” are a bunch of made up political crap passed around in chain mailings, and you two inexplicably use that as an excuse to attack ME for not “thinking” and for taking a “side”. Why not attack Ken for not bothering to spend a few seconds to verify information before posting it? Because, apparently, he is on your “side”, and I am not. But I am simply on the side for truth. What side are you on?

Ken June 26, 2015 at 7:02 am

No, Steven. As many of us have been able to see for a very long time, you are not close to being on the side of objective “truth”. You are on the side of your own political truth, which you then present as though it is objective truth.

You are on the side of big government at all costs. You are on the side of big government at all deficits. You are on the side of “whatever the problem is, more taxing and more spending is the answer”. You are on the side of European socialism. You are on the side of creating budgets that outspend even the monumental tax revenues that the federal government has collected these past several decades. You are on the side of trying to make these gigantic increases in government spending seem normal by always relating them to GDP, rather than being intellectually honest and presenting them in per capita constant dollars. You are on the side of glossing over the fact that relating spending to GDP is merely a measure of affordability, not of whether the government deserves to automatically grow without providing added value. Your defense of this position is “Other countries do it this way”, as though that is a compelling argument. You are on the side of “The government is us”, to shut off debate when the party in power conforms to your ideals of big government intrusiveness. But when opposing parties are in power and implement their ideas, you switch your argument from “The government is us” to “It is always appropriate to analyze and criticize specific policies, individuals, and aspects of government.” You are on the side of the government violating fundamental principles of contract law, and reinterpreting the terms and conditions, and in particular the compensation elements of those private employment contracts, to conform with your idea of fairness. You are on the side of misrepresenting entire industries when it suits your purposes (insurance and financial services, to name one), and then ignoring the experience of experts in those fields because it doesn’t fit your belief system. You are on the side of legalistically calling people out when they unintentionally misquote key political figures, as though that disproves the larger point of the quotes. You are on the side of raising federal income taxes to 80% (Piketty) or 90% (Jimmy Carter, Bernie Sanders), with 100% taxation being, of course, complete economic slavery. You are on the side of aligning with people who create “world class research”, but who have never produced any world class results. You are on the side of blaming a 2008 world-wide recession on a president you didn’t like. You are on the side of exonerating a president you do like, despite the fact that after almost seven years in office, the recovery from that recession is anemic at best. You are on the side of ignoring key aspects of income inequality, such as the constant movement between quintiles that is common in the US, or the advent of the Information Age in general, in order to support your political position.

So no, Steven. You are not on the side of truth. You are on the side of your own selectively applied, politically motivated interpretation of truth.

Peter June 26, 2015 at 7:30 am

Well said…saved me the trouble of typing this all up. The only additional point I would make is that Ken’s tirade (which I agree with every single word) isn’t just because he doesn’t agree with you.

I wouldn’t say these things about MOR, JTM or Normal Joe (to name a few).

Steven H July 6, 2015 at 9:28 pm

Wow, Ken, what a load of horse-hockey. Shame on you, and on Peter too, for endorsing this tirade. I point out a blatantly false set of quotes and you two think it is appropriate to make me the whipping boy and caricatured representation of every liberal idea you have ever ground your teeth at.

I thought about writing a comparable parody of economic conservatism to proclaim as your “beliefs”, but what is the point of that, amusing as it might be? I KNOW that your belief systems are more nuanced than that, even when a tirade like the above (and its full endorsement) makes you both temporarily SOUND like a couple of raving conservaloonies.

So let’s just break down a few of your hurled barbs that fail to hit the mark.

– [You are on the side of big government at all costs.] – no
– [You are on the side of big government at all deficits.] – no
– [You are on the side of “whatever the problem is, more taxing and more spending is the answer”.] – no

Then after the above absurdities, the following barbs are suppose to sound equally ridiculous, when they are not. You are getting closer to the target, while still a bit off.
– [You are on the side of European socialism.] When it works, yeah. Denmark and Sweden have some of the happiest people on earth. Who wouldn’t want that?
– [You are on the side of creating budgets that outspend even the monumental tax revenues that the federal government has collected these past several decades.] Monumental is relative. I think your perspective is skewed as to what monumental is when tax revenues and tax rates have been slashed for most of the last 35 years.
– [You are on the side of trying to make these gigantic increases in government spending seem normal by always relating them to GDP, rather than being intellectually honest and presenting them in per capita constant dollars.] There is nothing intellectually honest about using “constant” dollars that are based on the minimums to survive, and not the increasing complexities and expectations of modern life and amenities.
– [You are on the side of glossing over the fact that relating spending to GDP is merely a measure of affordability, not of whether the government deserves to automatically grow without providing added value.] – Not glossing at all. Social Security and Medicare keep our elderly from falling into abject party in retirement or when the economy falters. That is added value. Interstate highways are added value. Banking, military, food inspection, medical research, are all added value. Increased access to healthcare is added value. And yes, it is ALL about affordability; you got that one right. We can afford to make life better for everybody and so we should.
– [Your defense of this position is “Other countries do it this way”, as though that is a compelling argument.] And your defense is that “you don’t like the way everybody does it”, which is supposed to be a compelling argument?
– [You are on the side of “The government is us”, to shut off debate when the party in power conforms to your ideals of big government intrusiveness.] – No, just to shut off the absurd assertions that government is evil.
– [But when opposing parties are in power and implement their ideas, you switch your argument from “The government is us” to “It is always appropriate to analyze and criticize specific policies, individuals, and aspects of government.” ] – That is not a switch. Those ideas coexist very comfortably in a sane perception of the world.
– [You are on the side of the government violating fundamental principles of contract law, and reinterpreting the terms and conditions, and in particular the compensation elements of those private employment contracts, to conform with your idea of fairness. ] – Not sure where this one is coming from. Healthcare court decision? The absurd arguments wherein Scalia dissented from his own previous legal judgments?
– [You are on the side of misrepresenting entire industries when it suits your purposes (insurance and financial services, to name one), and then ignoring the experience of experts in those fields because it doesn’t fit your belief system.] – Not sure about this one either. Perhaps you mean the argument you made about using private industry measures for evaluating insurance policies of people under 65 to equally evaluate and compare to Medicare policies of people over 65? That was a patently absurd assertion, at least the way you initially described it, and you have yet to explain how it makes sense. People over and under 65 clearly have different sets of medical costs, right?
– [You are on the side of legalistically calling people out when they unintentionally misquote key political figures, as though that disproves the larger point of the quotes.] – Own up to your mistakes. You are a grownup. You started the spat by tossing out a bunch of irrelevant and incorrect quotes as if THAT meant something. My list of quotes composed a coherent argument and had a point. Yours were incorrect and pointless, and mostly proclaimed by incidental editors and pundits of no intellectual consequence. Just admit it.
– [You are on the side of raising federal income taxes to 80% (Piketty) or 90% (Jimmy Carter, Bernie Sanders), ] – Yes, but at absurdly high income levels only.
– [with 100% taxation being, of course, complete economic slavery.] – Hahaha. You’re funny. Minimum wage is economic slavery. People who might, in this improved reality, hit those high tax rates would be the slave owners.
– [You are on the side of aligning with people who create “world class research”, but who have never produced any world class results.] – ??? Now you are just raving. You don’t like the research so you get to assign it a downgraded rating. What the heck are you even talking about???
– [You are on the side of blaming a 2008 world-wide recession on a president you didn’t like.] – Actually on the policies that he and his party and like-thinkers across the globe have promoted: that you should give rich people as much money as they want because that will somehow make the world better.
– [You are on the side of exonerating a president you do like, despite the fact that after almost seven years in office, the recovery from that recession is anemic at best.] – The slow recovery is mostly because the politicians i don’t like have blocked 80% of the President’s policies. But he still managed to save millions of jobs, the auto industry, and get more healthcare access for most Americans. So yes, I’m fond of the guy.
– [You are on the side of ignoring key aspects of income inequality, such as the constant movement between quintiles that is common in the US, or the advent of the Information Age in general, in order to support your political position.] – No. I don’t ignore those. I have addressed and refuted those directly, multiple times, for those who actually read and listen. Movement between quintiles is irrelevant when 4.5 of the quintiles suffer for the benefit of the uppermost slice of the upper quintile.

I have opinions, no doubt. As do you, Ken, and Peter, and every human on this blog. And I am willing to question my opinions and examine facts. But don’t have the unmitigated gall to toss out a bunch of made-up quotes as if that constituted an intellectual argument, and then get huffy because you got called out.

I am after TRUTH and FACTS. That is all I have ever pursued here. I will be happy in the future to discuss these with you when you choose to present some.

Allisonfaye June 22, 2015 at 1:03 pm

I always find it interesting to read the posts that want to tax wealthy people more. I live in the Chicago area and there is practically not a day that goes by that there is not an article in the Tribune about some huge, taxpayer funded fiasco in which someone got paid off by someone, gave someone a huge paying administrative job or huge pension, or the original intent of the spending program was not achieved by a glaring margin. There are never talks of reigning this stuff in. We just re-elect the mayor who put the plan in in the first place.

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Steven H June 23, 2015 at 8:27 pm

“There are never talks of reigning this stuff in.”
I disagree. That conversation never ends. Nor should it. As long as there are people in power, whether in government or business, there is always risk of corruption and waste and we always need to be vigilant and watchful to reign in such behavior.

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Steven H June 23, 2015 at 9:00 pm

And Allison, it is not a matter of taxing rich people “more”, but taxing everyone at a balanced rate, with progressivity applied. As noted further up above, our current tax system, when all taxes are tallied, is basically flat. Rich people contribute only a few percent share more in total taxes than they receive in income, and all quintiles pay into the government coffers.

We should worry less about the direction of taxes and more about setting the rates at levels that all can afford and which will pay our debts. Our nation already has the lowest tax burden in first world nations and we are deep in debt. We can’t just keep cutting taxes. We need to invest in the country and restore the treasury to sound levels.

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Allisonfaye June 24, 2015 at 5:26 am

‘Balanced approach’ is just Democrat doublespeak for raising rich people’s taxes yet AGAIN. I am guessing, Steven, based on your leftist leanings that you are a Clinton supporter. Just curious what you think about all the $$ SHE has taken into her foundation in exchange for buying govt influence?

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James June 24, 2015 at 7:46 am

That’s odd…I thought we just raised taxes on the rich? When are we going to cut spending?

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Ken June 24, 2015 at 12:24 pm

Good question, James. We never seem to quite get around to talking about spending cuts, only revenue increases, as though increasing revenue is going to solve everything. Here’s a listing of what spending has been, in constant $2009, over the years. Note the overall trend, regardless of administration. Source: http://www.usgovernmentspending.com

Year Per Capita spending in constant $2009
1940 1901
1941 2094
1942 3582
1943 6877
1944 7857
1945 8121
1946 4786
1947 3084
1948 2749
1949 3093
1950 3381
1951 3352
1952 4262
1953 4561
1954 4494
1955 4319
1956 4295
1957 4428
1958 4572
1959 4796
1960 4827
1961 5137
1962 5154
1963 5266
1964 5461
1965 5430
1966 5816
1967 6404
1968 6778
1969 6814
1970 6948
1971 7211
1972 7482
1973 7432
1974 7438
1975 8180
1976 8642
1977 8671
1978 8811
1979 8842
1980 9352
1981 9672
1982 9916
1983 10286
1984 10379
1985 11013
1986 11384
1987 11476
1988 11707
1989 12004
1990 12543
1991 12804
1992 13041
1993 12980
1994 12988
1995 13204
1996 13233
1997 13310
1998 13507
1999 13690
2000 14011
2001 14358
2002 15106
2003 15581
2004 15845
2005 16140
2006 16597
2007 16791
2008 17683
2009 19400
2010 18972
2011 19040
2012 18525
2013 17791
2014 17395
2015 17698 (projected)
2016 18102 (projected)
2017 18491 (projected)

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Steven H June 24, 2015 at 8:30 pm

“We never seem to quite get around to talking about spending cuts”. You mean like the cuts in 2010, 2012, 2013 and 2014? Do you mean the fact that every year from from 2012 to the projections of 2017 you listed are set to be below the levels of any of the years 2009-2011? I find it really ironic to hear all the complaints about how spending cuts never happen, when those complaints follow the only time period since WW2 when we have actually had spending cuts in 4 out of the last 5 years (according to your own figures quoted above).

And what are you trying to say with extensive table above? That per capita real govt spending should be constant? That we should go back to 1950 spending levels of only 20% of our current spending (in real per capita 2009 dollars), or 1940 levels of only 11% of current govt spending?

And does it even make sense to use inflation adjustment as the measure? Inflation is based on the costs of the minimum necessities of life for individuals: food, shelter, transportation. For individuals, it fails to account for increased medical and education costs, for example, which have grown much faster than inflation.

On the national level, inflation does not account for growing complexity of national infrastructure, highway systems, banking, regulation, nor the reasonable establishment of programs to assist the old, poor, and needy in society. Are all of these things unworthy of national investment from your perspective?

I realize that this argument of big and small government is a lively and age-old pastime in the political realm. And I recognize that government can be too big but I also recognize that elements of it can be too small. Too small and underfunded to properly enforce its financial regulatory system, for instance, resulting in strong potential for economic shenanigans in the financial and banking industry which can devastate our economy. We’re lucky that hasn’t happened. Oh, wait …

Perhaps you truly believe that spending per capita (in 2009 dollars) should hold steady or even shrink forever, even as the economy and national income grows. But if you look around the world, that is not what countries do. Countries don’t lock into decades old inflation constant spending levels. They increase spending in proportion to their economic growth.

Discard for the sake of discussion the extreme points of “failed” economies like Spain and Greece as well as the extraordinary “socialist” successes like Denmark and Norway. Look at stable economies of USA, UK, Germany, France, Canada, Japan, and similar countries. Government in these countries grows with GDP because GDP represents national income and economic activity. Some countries have higher taxes to devote more of their national income to government programs, but all of that spending is simply fed back into the country to promote more growth. Some manage it better than others.

Now let’s look at the countries I just mentioned (basically the G7 without Italy) and see their level of taxation vs GDP:
https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP

France: … 44.6%
Germany: 40.6%
UK: ……… 39.0%
Canada: … 32.0%
Japan: ….. 28.3%
US: ………. 26.9%

The US is at the bottom of the list. The BOTTOM!

So doesn’t it seem a bit strange the people who get most worked up about taxation are the very richest people in the very richest country in the very richest century at a time when the ratio of rich incomes to median is at its highest level in a century, and when the taxation level of the country is lowest of all of its peers and the taxation rates of those richest folks (while raised once recently from post WW2 lows) is still lower than it has been for most of post WW2 history? If tax rates on the rich were really high, historically, relative to other countries or relative to the rest of the citizens, I could perhaps see grounds for complaint. But there is NOTHING that justifies the hysteria of the rich that has prevented this country from tapping its ABUNDANCE of wealth to simply pay the bills.

Peter N June 25, 2015 at 8:51 pm

You simply don’t get it. Why should I pay taxes so some politician can buy votes from people that support policies I don’t agree with?
I am all for social Darwinism now.
The last SCOTUS decision makes me sick. It is clear that SCOTUS is not about interpreting law as written. They can interpret law any way they want.

James June 25, 2015 at 6:12 am

I would hardly call 2010 and the following years cutting spending – the bailout money stopped.

It’s like a family who runs up $50k in credit card debt and “cuts spending” for the following year, only to run up another $20k.

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Peter June 25, 2015 at 8:26 am

Actually, the richest of the rich get most up in arms about wasteful spending for political gain, special interests, lining corporate pockets, and often for no reason whatsoever. This is the ticking time bomb that is going to explode and devastate the middle and lower income groups. The richest of the rich don’t believe that pumping more money into the government’s hands will help avert this disaster.

Steven H June 25, 2015 at 9:30 pm

“Pumping more money into the government?” We’re talking about paying the bills and cutting debt, not piling up spare gold bars. Spending has been restrained, funds have been cut and they just won’t get cut much more. Our roads need fixing, we have radicals like ISIS creating new conflicts, and the country isn’t getting any smaller any time soon. Pay the bills. The country can afford it. The rich can afford it. PAY. THE. BILLS.

If you are upset about wasteful spending for political gain, then advocate to reverse the People’s United ruling with legislation. If you are upset about the lining of corporate pockets, then advocate for higher taxes on the bloated corporate management teams, and for stronger financial regulation, and the funds to enforce them.

Meanwhile, let’s PAY THE BILLS.

Peter June 26, 2015 at 7:09 am

When I spoke at the inner city church (story above) the attendees all told me the same thing – they couldn’t PAY THEIR BILLS. Yet their bills included extravagances – things they could do without or wasteful spending. Just because you have something on the “BILLS” side of your balance sheet doesn’t justify it. No individual, corporation, or government has ever gotten ahead financially without seriously examining (with a fine-tooth comb) the spending side of their balance sheet. It’s like trying to lose weight without changing your diet.

For example you can cite ISIS or other international threats but that doesn’t mean we need 19 aircraft carriers – more than the rest of the world combined.

It is hard to imagine there being MORE regulation on the financial institutions than there is now. It is mind-boggling and an overreaction to the far too lackadaisical rules and enforcement of the 90’s and 00’s. Simple things like not allowing corporate donations to political campaigns a good place to start.

Steven H July 6, 2015 at 8:29 pm

Regulations do little good when the organizations who must enforce them get their budgets cut. The 2008 crash, was among other multiple causes, a massive regulatory failure.

Peter July 8, 2015 at 5:25 pm

Total cop out.

Peter June 24, 2015 at 10:19 am

Was just contemplating the irony of my own reality as I was reading some of the recent comments (and learning an awful lot of about Thomas Jefferson in the process LOL).

I am obviously one of the “1%”. For 2008 when Obama took office, I was making 20% of what I’m making now but still a good living – somewhere in the top 5-10% of all incomes I would imagine. Now, just 7 years later my income puts me in the top 1/3 of the 1%. What happened?

Well, I already had whatever “talent” I possessed in 2008 – nothing fundamental changed there. No magic pill or good luck came my way. Sure, I developed my skills further and gained experience. Just the power of time is a factor as well.

But the interesting thing is what was the true wind behind my sails. I advise people on their personal finances in the DC area. Over the last 7 years, spending – particularly in the intelligence/defense/security sector – has skyrocketed. This is not only evident in the public sector but with contractors as well. The government actually pays me to fly around the country and educate their employees about finances. This is a good thing for them, but never before has the money been there to fund such a service. Agencies have budgets for training and many are “use or lose”, so they have to spend this money on something. And there is a lot of it. As I’ve mentioned before, the DC area missed the recession since corporate America and the public cut spending when the economy slows. The government just keeps printing money.

Secondly, the stock market has tripled since 2008. This is another huge factor of course – buoyed by bailouts, Federal support of banks, artificially low interest rates, and the Fed printing more money and incurring more and more debt. Of course, some of this is just due to the recovery from a ridiculously overreacting market in 2008 as well.

My point is this – the Federal government launched me from a solid earner to one of the “elite” and “wealthy” people that is constantly vilified and dismissed by the likes of Steven H. And I am far from alone in the DC metro area – now one of the top 3-4 wealthiest places in America.

Yet I am the one suggesting the government cut their spending! This would cut my income significantly, hurt my clients (many would lose their jobs or be forced to retire), slow the local economy, depress the value of my home and possibly cause a local recession.

Why do I suggest this then? Because as much as it may hurt it must be done. Politicians say YES to everything – to get elected. Now we have a bloated Federal budget and the only solution that both anyone seems to suggest is bringing in more revenue by raising taxes on the rich. Raising my taxes 5, 10 or even 15% would PALE in comparison to the personal impact of cutting Federal spending. Plus, I would bet very heavily that if we increased the revenue side of the budget, that politicians would just increase the spending to match. Those proposing increased taxes on this comment thread have already mentioned dozens of ways to spend this new money.

If anyone is reading this, I sincerely hope that we all vote for politicians that want to cut spending. It will hurt – programs will be cut, benefits will be lost – but SOMEONE must do this soon. We are approaching the witching hour. And if it hurts a 1%’er like me, all the better, right?

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Allisonfaye June 24, 2015 at 12:48 pm

We are talking a lot about taxes and big government but there are other issues with the huge size of the federal government involving loss of freedom. I don’t think I have talked to one single European person (and we have a lot of them here in Illinois) who has said the big govt is a good thing. I was in Italy last year and talked to some business owners about all the ridiculous rules they have in doing business. Also, the compliance rates for paying taxes in those high tax countries are very low. Compliance in northern Europe (Denmark, Sweden, etc) was much the highest of the European countries. I read an article that said people were carrying suitcases full of Euros into other countries to avoid taxation and 1 in every 3 cars inspected had them while crossing boarders. I hear all the time about the great benefits, maternity leave, free healthcare, blah, blah, blah in Europe but you rarely hear about this stuff.

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Peter N June 25, 2015 at 8:56 pm

And corporate taxes are higher here.
Have you heard about the conflict minerals law?
Do a search for conflict minerals. We buy electrical components for all over the world. How are we supposed to know of conflict minerals are used it making the parts we buy? So far we have just ignored the requirement to make this report because we have no clue.

The government is corrupt and full of idiots.

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Steven H June 25, 2015 at 9:20 pm

1) Actual average corporate tax rate PAID is only about 1/3 of the statutory 35% rate.
2) Small businesses pay more than big corporations because most are S-corp, which pay at the individual rates.
3) We should fix this by (a) allowing a special lowered rate for S-corps, (b) boosting individual rates for the high paid CEOs and management desk-jockeys, thus encouraging them to lower their tax rates by starting small businesses, (c) closing the loopholes on the big corporations, (d) while simultaneously lowering the statutory rate to something like 28% that they actually have to pay.
4) I agree that conflict minerals law is a well-meaning poorly implemented law that should be completely rewritten or scrapped.

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Peter June 26, 2015 at 7:17 am

Once again you are talking from idealism rather than business sense. How would having a higher individual tax rate for a successful CEO (I’ll ignore the insulting slur you added) motivate them to start a small business?

Say I spent my whole career working my way up in management at, say FedEx, and now I am the CEO. The company is successful and growing each year and in addition to my base salary of $5m I get about $5-6m in restricted stock, options and bonuses. I already pay around 40-50% of my income in taxes. How is increasing my tax rate 10-20% (I don’t think you’re proposing a 90% rate, but maybe you are) going to motivate me to walk away from this job and start my own company? All I know is how to run a mail delivery service company effectively. What am I going to do, go start my own FedEx? I’ll work my butt off, make nothing for years and take enormous risk in the process. Or I can just stay at FedEx and pay a little more in tax.

Plus, the reality is THIS (which you aren’t thinking of). Say I do decide to leave my CEO post and go start my own business. FedEx isn’t going to want to lose me. Shareholders will be unhappy if I leave if I have led the company to success. So they will vote to approve higher compensation for me, wouldn’t they? Sure, I could leave and a new person could come in – but who knows where they lead the company? Look at how Starbucks did for the 8 years Schultz was gone …..

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Peter June 26, 2015 at 7:19 am

Of course why did I type all this. The fundamental problem with your point of view is that you have little respect for a corporate CEO. Not that I don’t agree that there are stupid, unnecessary layers of management in big companies. I’m for smart spending both at a corporate level, on a personal level and at the government level.

Steven H July 6, 2015 at 8:23 pm

First of all the MILDY insulting slur of desk jockey was meant less for the CEO than for the often endless tiers of VPs, managers, department heads, and armies of accountants and lawyers that clutter the modern mega-corporation.

These people are often smart and capable folks doing well-paid busywork. If these upper earners had a tax rate kick in the pants they might just get out and start their own companies.

Meanwhile, I see no reason why CEO to average worker compensation ratio should have gone from 20:1 in the 70’s to over 200:1 today. It only makes sense that higher taxes on that bloated upper income would discourage companies from ever offering it in the first place. That is a simple return on investment calculation. Choice: Double the CEO salary, which also jacks up the entire management team salaries (because everyone thinks they deserve almost as much as the next guy up the ladder), and then 70% of it is taxed away anyway, so they won’t really appreciate it OR use that composite amount to reinvest in the company, benefits, and employee compensation. Plus there is the PR benefit with respect to employees and stockholders when they see how responsibly the company is managing CEO compensation. But will the CEO get hired away? Not when every other company is making the same calculations.

This is the real reason to have 70, 80, or 90% marginal rates: not to raise govt revenue, but to limit greed, and keep the economy efficient.

Ken July 7, 2015 at 5:22 am

“…Double the CEO salary, which also jacks up the entire management team salaries (because everyone thinks they deserve almost as much as the next guy up the ladder),…”

How do people anywhere on the corporate ladder ever know what the guy above or below them makes? I have never known what my co-workers make. Human Resources goes to great lengths to keep that information private.

Ken July 7, 2015 at 5:26 am

I would say 70, 80 or 90 percent tax rates are a pretty clear indication of government greed. I have never seen an instance where government at any level has voluntarily limited its own size.

Ken July 7, 2015 at 6:07 am

Also have never seen a government entity with efficiency as one of its goals. It’s been the opposite — where the governmental entity intentionally spent beyond what it needed in the current year, in order to justify having at least that much money in next year’s budget.

Allisonfaye July 7, 2015 at 4:31 pm

“This is the real reason to have 70, 80, or 90% marginal rates: not to raise govt revenue, but to limit greed, and keep the economy efficient.”

This comment astounds me. HOW is it the govts job to ‘limit greed’ and what is the end purpose of that? You are obviously an advocate of punitive taxation and big govt. “Limiting greed”? What’s the point exactly?

Peter July 8, 2015 at 3:21 pm

The government should raise taxes on the top tax brackets to “limit greed”. That is truly ridiculous. Government controlling people. Steve Jobs, Elon Musk, Bill Gates, Warren Buffett – true greedy jerks. They need to be taught a lesson.

And again Ken thanks for the replies which I completely agree with again. I have NO clue how much people in management make. And most in the business world with any modicum of success don’t spend their time comparing their income to others with envy.

And I can tell your first hand that you are apot on about government budgets.

Steven H July 12, 2015 at 9:48 pm

I will grant that governments cannot “limit greed”. Greed is a human frailty that cannot be constrained by mere regulation. So I will confess that I misspoke.

However, governments can certainly limit the REWARDS of greed and prevent ostentatious hoards of wealth and income from being accumulated by a wily few. And THAT is a worthy exercise of government. For it is inarguably the nature of mankind that those bestowed with power and wealth with will, with some exception, and yet with greater likelihood than not, use their power and wealth to further usurp the power and wealth of others. This natural impulse must be suppressed and repelled, and democratic government of the kind established in the US was designed partly (and perhaps largely) inspired for that purpose: to limit the extent by which the few can dominate the many.

Steven H July 14, 2015 at 5:39 pm

Tying up a few replies to above questions (but no reply button).

Ken=====
How do people anywhere on the corporate ladder ever know what the guy above or below them makes? I have never known what my co-workers make.
========
It’s not really that hard.
– When people see each other’s houses and cars and lifestyle, they can readily tell when the next guy’s salary is a lot higher.
– If you work in accounting, you know.
– If you are friends with the folks in accounting, you know.
– If you are on the grapevine to friends of accounting, you know.
– If you see job postings for vacant positions, you learn what they pay.
– Etc

Ken ====
I have never seen an instance where government at any level has voluntarily limited its own size.
=======
Tea Party members of House and Senate are actively trying to limit government size. They are part of government. That’s just one example.

Ken ====
I would say 70, 80 or 90 percent tax rates are a pretty clear indication of government greed.
=======
That is not greed. Those tax rates are not primarily meant to bring in revenue, but only to limit extraordinary rewards of private greed.

Peter ====
And most in the business world with any modicum of success don’t spend their time comparing their income to others with envy.
=======
Nonsense. Public company CEOs all know how much the CEOs of other companies make, and lobbies for higher salary to boost ego and prestige of their position.

Peter July 15, 2015 at 5:59 am

This last reply just illustrates your ignorance to how the corporate world works. “If you see their cars, you know”. Huh? I can tell from someone’s possessions that they make more than me? All that tells me is that they SPEND more than me.

Also they don’t post CEO and COO job postings online with salaries included. And I have never seen a rank and file employee in accounting gossiping about CEO pay. And the whole idea that CEOs monitor what others make and lobby for more for prestige and ego is insanity too. Your perspective is really, really askew.

But again I’m sure you won’t believe me or respect my opinions (which come from experience rather than articles online). I would LOVE to see if just ONE person on here can corroborate your last post or your idiotic reply to Ken’s post. So far, you are on an island…..

L July 2, 2015 at 11:27 pm

I just happened to read this article and viewed a few comments. Then I scrolled down and realized this “discussion” has been occurring for months. Perhaps if you redirected the time and energy you’ve spent on talking points over these last few months on something worthwhile you could be the 1%. Or your could spend the same time and energy volunteering. Use your Internet research abilities to help people in your community. Or just keep doing this… Very strange and extraordinarily unproductive.

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Peter July 3, 2015 at 9:49 am

I disagree. While I think most internet chats are “extraordinary unproductive” there have been some moments and exchanges in here that have been enlightening (at least for me personally). With the exception of a few posters, most people are offering interesting perspectives.

I always love when people say “do something more productive with your time”. Even 1%’ers who work long hours, raise families and volunteer do waste a lot of time in leisure activities or just surfing the internet. This is one of those….. If you spend 100% of your time helping other people then kudos to you – I admit, I waste a @&*!-load of time myself.

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Man-of-Reason July 6, 2015 at 7:05 pm

Agreed. Even though other commitments take me away, there is nothing more stimulating than the civil discourse here. Keep it going, all of you.

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Ken July 6, 2015 at 9:06 am

I found this article not too long ago re: income inequality. Basic conclusion is that changes in individual incomes were not the major variable affecting household income disparity. What had greater effect on household income inequality were social factors, such as the increased propensity for two high earners to marry.

http://politicalcalculations.blogspot.com/2011/10/real-story-behind-rising-us-income.html#.VZqf1C_bL-d

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Steven H July 6, 2015 at 8:05 pm

Thanks Ken.
Interesting article, and i am surprised I have not seen a side-by-side analysis of this perspective vs Piketty. Kitov published this basic idea in 2007 so it’s not like there hasn’t been time to analyze it.

Meanwhile, here is another article from last year that you might find interesting:
“Increasing inequality is a purely political (taxation) problem”
http://mechonomic.blogspot.ru/2014/02/increasing-inequality-is-purely.html

The gist of it is that rising income inequality, and the resulting meteoric rise of incomes of the rich, has not arisen from economic principles but from changes in taxation since around 1979.

You might be interested to know the author of this article: the very same Ivan Kitov referenced in your article.

I don’t yet fully understand how the same man seems to be saying that there is no change in income inequality (in your link), and then say that there actually is, and that it is due to taxation (in my link). Perhaps it will make sense after a bit more personal research.

After all, I am always searching for the truth of the matter.

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Ken July 9, 2015 at 8:54 am
Normal Joe July 9, 2015 at 3:22 pm

I have a real difficult time trusting anything from any of the Koch brothers’ propaganda arm including the Heritage Foundation. These are paid pseudo experts with one mission, to shape public opinion by saying something often and loudly regardless of its veracity. They’ve created a whole network of paid shills so that the illusion is created that there are multiple sources saying the same thing when in fact they all dine at the same Kool Aide pitcher. It’s a propaganda echo chamber that would make even a former KGB Colonel proud.

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Ken July 9, 2015 at 3:41 pm

And so your rebuttal of the message in this article is to indict the messenger rather than to offer evidence disproving the message?

Steven H July 12, 2015 at 9:19 pm

Ken, the primary difficulty I have with this article is that the mathematical analysis focusses on quintiles, which inherently minimizes the degree of income inequality. The premise of most comprehensive studies of income inequality show how the upper 1% have benefitted at the expense of everyone below the 90 percentile. Averaging the income curve into 5 discrete points (quintiles) gives an incomplete picture. Just in the upper quintile, the curve is such that vast gains in share go to the 1% and 0.1% and the lower half of that quintile have actually lost shares. But then when you average it all together, it muddies the math and diminishes the problem.

Perhaps the points they make in the article about adjusting incomes of quintiles by compensating for variations in population, taxation, and benefits are mathematically correct, but so what? All of that manipulation of quintile statistics does not counter the fact that most all of the gains in economic share of the last 30 years have gone to the upper 1%: which is just 1/20th of that upper quintile.

Any analysis that focusses solely on quintiles and completely neglects the finer grain statistics of income inequality is woefully incomplete, and in my opinion, intentionally deceptive.

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Peter July 17, 2015 at 8:14 am

Of course it is. “Any analysis that focuses on statistics that do not back up my already-drawn conclusions and completely neglects the statistics that prove my theory is incomplete and intentionally deceptive” Do you hear yourself?

Aren’t all of the articles you guys post “propaganda”? Don’t they all show the statistics they want to show? All of the numbers I have posted on here have been from the raw data. I prefer to look at this rather than slanted articles on either side.

Steven H July 18, 2015 at 3:47 pm

Peter, as for your logic twisting of my arguments: “Any analysis that focuses on statistics that do not back up my already-drawn conclusions and completely neglects the statistics that prove my theory is incomplete and intentionally deceptive”.

No, this is not blind battle of opinion. I’m talking math. You should understand math. It’s part of finance.

If you take a mathematical curve and want to discuss arguments and claims of how it has high biases and historical variations that primarily begin at the 90th percentile and show greatest anomalies in the fractions of the 99 percentile (the upper 1%), then you cannot make any meaningful proof or disproof of those aforementioned arguments and claims by discussing only quintiles that average the curve into 5 discrete points.

That is not a biased statement. It is not an opinionated statement. It is a mathematical certainty that you cannot make meaningful statements about the upper 1% by discussing quintiles.

So why do all the conservative arguments go back to quintiles. It must be intent to deceive, as far as I can figure.

Peter July 19, 2015 at 7:40 am

No point to this. I’ll pass….

Peter N July 12, 2015 at 11:17 pm

“The premise of most comprehensive studies of income inequality show how the upper 1% have benefitted at the expense of everyone below the 90 percentile. ”

There you go again. You assume it is a zero sum game and that some how the rich people are causing the poor people to be poor.

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Steven H July 13, 2015 at 3:53 pm

There you go again – misusing the concept of zero-sum game. Just because some wealth is created does not mean rich people do not appropriate some of their wealth and income from somebody else who created it.

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Peter July 14, 2015 at 7:28 am

Again…this makes no real world sense. And all he did was quote you. “At the benefit of the expense of everyone below….” sure does sound like the rich are taking money from the poor. Whether it comes from existing money or “shares of income” like you prefer to call it, it is still the same thing – and it is patently wrong.

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Peter July 14, 2015 at 7:38 am

Incorrect that is…..

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Steven H July 14, 2015 at 4:09 pm

I strongly disagree. (No surprise there.)
1) He did not just quote me. He asserted that I am claiming a zero-sum game, where wealth is not created. That is not my point at all. Wealth IS created. The problem is that the wealth creators are not always the people receiving the reward. He is misusing the concept of zero-sum game and he is wrong.
2) I don’t know how you can claim that the shift of 10% to 15% of all US income from the lower 90% to the upper 1% is NOT an example of the rich benefitting at the expense of everyone below. I don’t know what “real-world” you are imagining where this is morally sound and financially stable. I don’t know how it is even possible for 1% of the population to be fully responsible for 98% of all wealth creation in this country, with almost nothing of that “new” money going to anybody else. My real world makes sense. Yours is magical.

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Peter N July 16, 2015 at 4:41 pm

but you are still saying that the upper 1% are taking wealth from everyone else below 90% so they have less.

Steven H July 14, 2015 at 4:24 pm

Let me restate a bit more politely.
When I state that the rich benefit at the expense of everyone else, I mean the following:
– Large corporations increasingly suppress wages of workers and pass the savings in expense and most profits to shareholders and increasing compensation to upper management, increasing income disparity.
– Rich and powerful interests increasingly seek and achieve political control which suppresses power of labor unions and suppresses wages, increasing income disparity.
– The slackening of enforcement of monopoly restrictions allows the domination of large companies in society, where individuals then have fewer choices of workplaces to market their skills, and less leverage to ask for increases in pay, thus increasing income disparity.
– Smaller companies match the low pay of larger companies, to maintain competition.
– Rich and powerful interests use their political control to reduce taxation on the highest earners, thus giving those earners higher after-tax income (increasing income disparity) and increasing national debt, which in turn increases political pressure to cut federal programs which primarily benefit the middle class and poor, thus increasing income disparity even further.

Doesn’t this sound like the real world?
Doesn’t this sound like the rich benefitting at the expense of everyone else?

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Peter July 14, 2015 at 5:42 pm

You know….I’ll bang my head against the wall one more time. But nicely….

Let me take your points from the prior post in order.

1. Yes, companies do try to increase value to shareholders.
2. Totally agree (and abhor) with your comments about political influence but that is not necessarily synonymous with money. Again, I have lots of money and ZERO political influence.
3. Monopoly restrictions are definitely important. Gonna just leave this one alone as if I reply you’ll get sidetracked from the larger agreement and point I am making.
4. Hugely generic and generalized statement. Actually it is very common in many industries for small companies to pay more than large ones. Frankly, they have to often to remain competitive.

My point continues to be that if you want to target these things, then tax CORPORATIONS – not me or any other small business owner to whom NONE of the above applies to. You should give me a tax CUT for paying my employees higher than industry average wages, employing many people both personally and professionally, returning much of my income right back into the economy and contributing heavily to charity and literally ZERO to political causes or influence. I am not your enemy here. Your president and government that are in bed with corporate America so they can get elected and spend, spend, spend are the ones to blame. …..not the 1%.

Peter N July 16, 2015 at 4:45 pm

“Rich and powerful interests use their political control to reduce taxation on the highest earners, thus giving those earners higher after-tax income (increasing income disparity) and increasing national debt, which in turn increases political pressure to cut federal programs which primarily benefit the middle class and poor, thus increasing income disparity even further.”
This is definitely wrong. There is a new ObamaCare 3.8% tax and the capital gains tax went up to 20%.

Steven H July 18, 2015 at 9:15 pm

Thank you for the response. Let me also reply, politely.

1. Yes they do. And the ultimate value to shareholders is an enslaved impoverished workforce minimizing the cost of labor and a wealthy upper class to use as a customer base. However, this is not good for society, and thus society, through it’s government must limit the “value to shareholders” and optimize the value to society.
2. We agree about the problem of moneyed influence on politics. You are not entirely correct that you have no political influence. The moneyed interests that control politics work hard for your support and seek to help you so that you will help them. Your publicly stated opposition to raising taxes on the most highly paid upper class in history enables the moneyed interests to continue to resist those tax increases and increase the nation’s debt.
3. Glad we agree on the generality of this one, if not the specifics.
4. I will take your statement as true from your experience. And yet paying a bit more than the big corps may still be paying less overall than if the big corps had not driven down wages in the first place.

Steven H July 18, 2015 at 9:19 pm

previous reply was to Peter (not Peter N)

Steven H July 18, 2015 at 9:34 pm

Peter,

Corporate America has driven up the compensation for the wealthy class, including the 1%, including you. We cannot cut taxes on anyone except perhaps those in the lower 90%, whose compensation has been cut more than any piddling tax breaks they may have received. The government bills need to be paid. The people with the money, the 1%, who receive, as a class, compensation beyond any class in any other country or decade, need to pay these debts that were accrued for their benefit.

The lower half of the 1% are getting a lesser deal than the upper half, and yet they also happily protect the upper half of 1% from progressive taxation rates on upper incomes that worked in this country in the past to limit excessive income slopes, and maintain prosperity for the larger population.

I don’t understand it. The math is not that hard. The bills need to be paid. They are piling up. The country can afford to pay them. But the people most able to pay them have persuaded everyone else that THEY are being overtaxed and oppressed and are the slaves to society.

And some say MY reality makes no sense.

Peter July 19, 2015 at 7:39 am

A few thoughts…

– Government spending drove up my compensation. It has NOTHING to do with Corporate America.

– I still maintain that I have almost no political influence. And I’m not fundamentally against raising taxes on the .01% – I just don’t think it will have the desired impact.

– The big “fact” that is missing in your argument is your continued mentioning of the “government paying their bills” as if their expenses are finite and worthy like your personal utility bill and basic food/shelter. I don’t view it that way. Government spending in general is completely bloated, has a great deal of waste, and much of it exists simply to help people win elections. Eliminating or reforming large portions of our spending will do far more than raising taxes on the .01%. I have illustrated this over and over with actual numbers if you want to look back a few pages. In order to have a significant tax impact to offset the spending levels we are at now, we would have to raise taxes on at least the top 5% in earners, which I am against.

Peter July 19, 2015 at 7:43 am

And I have never said that I was a “slave” or “oppressed” or whatever other lightning rod political buzzwords you threw in the last post. I’ll just ignore that stuff and try to get to the heart of your point. This is what I mean about how hard it is to get anything meaningful from a debate like this (or TV, print, internet articles on the topic). It’s so tainted with emotion and political platforms. This is what makes you (and Peter N) somewhat difficult to talk to in this debate – while others in here have been more interesting and productive to discuss things with. You have an emotional and political agenda – evidenced by your inability to think outside the box or avoid throwing political buzzwords and rhetorical nonsense into your argument.

Steven H July 13, 2015 at 4:53 pm

There is an amusing exchange in the movie “O Brother, Where Art Thou” (an excellent movie by the way, for those who may have missed it) wherein the character Ulysses initially attributes great wisdom to the blind seer they have just encountered, only to denigrate him when the seer’s words seem suddenly inconvenient:

=============
Ulysses Everett McGill: The treasure is still there boys, believe me.
Delmar O’Donnell: But how’d he [the seer] know about the treasure?
Ulysses Everett McGill: I don’t know Delmar. The blind are reputed to possess sensitivities compensating for their lack of sight, even to the point of developing paranormal psychic powers. Now, clearly seeing into the future would fall into neatly into that category; its not so surprising then that an organism deprived of its earthly vision…
Pete: He said we wouldn’t get it. He said we wouldn’t get the treasure we seek on account of our ob-stac-les.
Ulysses Everett McGill: Well what the hell does he know, he’s just an ignorant old man.
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In the discussions further up about our nation’s founders (yes, I’m bringing that up again, as the discussion was sidetracked before conclusion), Ken heaped great praise on “The Founding Fathers…. Those would be the people who understood human nature well enough to limit (enumerate) the federal government’s powers, separate powers among different branches of government, predicate the entire system on the notion that citizens have inalienable rights endowed by their Creator (not by government), and so on. Hugely radical ideas at the time, and still radical today…. for some. […]
Kind of smart people, those Founding Fathers, I would say. And I would say they are still relevant now, largely due their understanding of human nature, their understanding of governments, and why we should resist centralized government control of our lives, by and large.” [end Ken-quote]

And yet when I list the actual quotes of our founding fathers, and their various and consistent views on taxation, and how they actually distrust the rich (despite BEING rich) and that multiple founders advocate for constraint of excess wealth and income and compensation to prevent excess poverty, and for taxes to primarily be paid by the rich, … then suddenly Ken sees fit to abandon the ACTUAL words of our founders, supply a set of misquotes, and complain that I am unfairly and “legalistically calling people out when they unintentionally misquote key political figures, as though that disproves the larger point of the quotes”. And Peter chimes in to say “[Jefferson] was what I wish more people were like today – he was a thinker.”… but then … “If you look over his whole lifetime, he said many things that contradict each other depending on what phase of his life he was in and conclusions he was drawing.”

In other words … “what the hell does he know, he’s just an ignorant old man.”

Yes, the founders disagreed with each other and at times made observations that may have seemed, on the surface, to violate earlier statements. But taken as a whole, I think that Ken’s and Peter’s initial assessments were correct: these men were thinkers who made many valid observations and had many insights into humanity and governing that are worth examining and investigating. You should not just pick and choose the phrases you like (you may think that is what I do, but it is not), and you should especially not insert other people’s quotes into their legacy, and assume them to then be treated as equally profound. The founders were neither gods to be enshrined, nor relics to be forgotten, but wise men to be studied. While the appropriateness of specific policy positions may have diminished over time, their general observations on human nature and the art of governing still hold much relevance.

If you truly respect the writings of the founders, you should consider it remarkable and worth some serious reflection that Jefferson should write that the rich prey upon the poor, and that Hamilton and Franklin should each write such resounding advocacy for taxing the rich and for limiting the wealth of the rich to help support the poor. Of course, you can find other quotes (especially from Franklin) that preach against sloth and laziness, but those are not contradictory to the above. Excesses and deficiencies of ambition are both to be avoided in a wise and balanced society.

I devoted a significant effort to dismissing Ken’s misquotes, not to get on a high-horse, nor to embarrass Ken, but because these quotes are all over the internet, in e-mails, on conservative blogs, headlining Tea Party sites, etc. It is offensive to me to have such deceptions professed as the words of our founders, and I would hope that the folks here would also prefer to be enlightened, so as not to sound foolish or to weaken their arguments with misinformation.

I know the economic conservatives here tend to take great umbrage at my every post and are prepared to disagree vigorously with anything written under my byline. I hope they will reflect on this post just a bit, before preparing any rebuttal.

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Peter July 17, 2015 at 8:09 am

I agree….the founding fathers by and large were thinkers who had some interesting insights. Ken will have to reply to the rest of this – you haven’t heard me use the founding father’s philosophies or specific quotes in my points of view. Like them and many others on here, I think for myself and I don’t post quotes or articles to back up my own thought process. To me, their quotes (real or imagined) are just more interesting input into the conversation – nothing more. I tend to think adding quotes or articles that support your point of view has minimal impact – as the internet is a giant database of opinions all over the spectrum. Long story short, I’ll let you and Ken debate the validity of quotes.

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Steven H July 18, 2015 at 9:04 pm

“I think for myself and I don’t post quotes or articles to back up my own thought process.”

That is not as profound a statement as you think it is. You are saying you don’t require facts or reinforcement from anyone else to justify your independent thoughts based on a single perspective, and observations from a necessarily limited life experience (as any individual’s life experience is limited).

My use of quotes, studies, articles, and facts of all kinds from other people is used to QUESTION my own limited perspective and search for reinforcement from a body of knowledge that extends to the wisdom of other people, past and present. THAT is thinking: observing, questioning, and searching for reinforcement AND for objections to one’s own predispositions. What you describe as “thinking for yourself”, with no articles or outside reinforcement, is simply 100% confidence in your own observations and biases without any outside consultation beyond those who agree with you, and is not thinking in a meaningful sense. It is arrogance.

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Peter July 19, 2015 at 7:32 am

And it is hilarious that you think that what you are doing is questioning your limited perspective. Nothing I have said to you has made you question anything. Arguing with you is an utter waste of time. Moving on….

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Peter July 19, 2015 at 7:31 am

I don’t mean it to be profound. And it may be a little arrogant – I’ll give you that. Because honestly it is hard to maintain with all the nonsense that is thrown out on the internet, TV, and other sources of media.

But once again you missed the point. I didn’t mean that I listen to nobody, read nothing, research nothing. Far from it. I just mean that I don’t need to post articles and quotes to back up my worldview. I can back it up myself. Once again though you are missing the point.

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Henry July 20, 2015 at 10:34 am

The underlying problem with this debate is the people that think that raising taxes on the wealthiest (1%, .01%, etc.) is the solution to income disparity in our country. If they actually ran the math – even without including the potential negative impacts to hiring and our country’s economic growth – they would see that this doesn’t help the low-wage earner they want to help.

It is a ridiculously over-simplified solution to a complex economic problem. And it isn’t even a solution.

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Peter N July 26, 2015 at 11:17 pm

What people like Steven H can’t figure out is that they are unproductive. They can’t exist without other people’s money and have no right to it. Look at Greece for an example of this version of economics.

I have challenged Steven H and all other others to start their own businesses on this forum so they can carry out their socialistic ideals. So far I have heard of none being started.

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