Who Actually Earns $400,000 Per Year?

by Emily Guy Birken · 3,910 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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{ 3910 comments… read them below or add one }

Steven H September 28, 2014 at 3:00 pm

James,

Discussion of this list may be useful.

How do you disagree with 2 if you agree with 1? Are you saying that high income disparity is undesirable, but that it is still not something we should try to change? It is a problem that lessens the efficiency of the economy but we are powerless to stop it? Please explain. I truly don’t understand how you agree with 1 but not 2.

And then, regarding 3, which do you agree with, as a cause of high income disparity?
a) It is a business cycle thing that will solve itself.
b) It is due to poor and middle class not working hard enough.
c) It is due to poor and middle class not getting the proper skills.
d) Other. (Please specify.)

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James September 29, 2014 at 10:23 am

80% of it is A
c plays a partial role – unskilled labor job market has shrunk considerably and isn’t coming back

b may play a partial role but none of us can truly judge whether that is true and to what extent So I would dismiss B unless were are talking political rhetoric.

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Peter N September 30, 2014 at 12:51 pm

Steven H is ignoring other better options like foreign competition and competition with machines.

The business cycle will not fix anything. It always competition and where can a business own make the most profit.

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James September 30, 2014 at 2:51 pm

Good point. Foreign competition and the technology age are two huge factors here.

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Steven H September 30, 2014 at 6:16 pm

Peter N., I’m not ignoring reasons nor trying to make a complete list. Hence: d) other (please specify).

I take it from these and your previous comments that you would choose foreign competition and automation as primary reasons, but also a, b, and c to varying degrees.

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Steven H September 30, 2014 at 6:19 pm

No, sorry, my mistake, you excluded a) Business cycle, and I have to agree with you there. Competition and capitalization always push wages down and are unlikely to self-correct the increasing wage disparity. This is why forces external to the business cycle and capitalism have always been necessary to reverse high income disparity in the past.

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Steven H September 30, 2014 at 6:29 pm

Peter N has discarded business cycle, and I agree. There is nothing I can see in the business cycle that would reverse high wage disparities. History has always had to introduce something outside the business cycle to correct the problem. Even the 1929 crash and 1930’s bank failures did not automatically reverse wage disparity. It took a combination of political changes of the new deal along with impacts of the war to change the income and wealth balance to the more stable post WW2 equation.

I agree that b is rhetoric. I discard the idea of slothful poor and middle class.

We can agree that C (education and skills gap) plays a partial role though we may disagree on how much. Would you agree then, that since the poor and unemployed clearly do not have the resources themselves to close this gap, that society needs to invest more in education, new skill development, and apprenticeship programs?

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Steven H September 30, 2014 at 9:03 pm

By “this list” I mean the 1 through 8 list from the previous page, also repeated a couple posts down on this page in the main thread.

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Steven H September 28, 2014 at 3:04 pm

James, I don’t understand how 4 and 5 are contradictory. To me they seem complementary, and I truly don’t understand how partisan blame has anything to do with 4 or 5.

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Steven H September 28, 2014 at 3:06 pm

New page. Better put the list from previous post here for handy reference:
===========
The path to solving the problem of high income disparity is slow.
1. You have to get people to admit the high income slope actually exists, and that about 10 to 15% of US income share has actually shifted from the lower 90% to the upper 1% since 1980.
2. You have to get people to admit that this a problem worth solving, and that it is damaging to the economy not to solve it.
3. You have to get people to admit that it is not just a business cycle thing that will solve itself, and that it is not primarily an issue with lazy poor people not working hard enough.
4. You have to get people to admit that government policies have significantly contributed to the problem.
5. You have to get people to agree that changes in government policy can fix the problem without creating worse problems.
6. You have to identify the specific changes that will fix the problem.
7. You have to get people to agree in principle to the changes and the timeline of changes.
8. You have to make the policy changes.

Several business people here got past number 1, and most are waffling on number 2 and arguing vigorously against number 3. I think some are still arguing against number 1. There is a long way to go.

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Peter N September 30, 2014 at 10:39 pm

“. You have to get people to admit the high income slope actually exists, and that about 10 to 15% of US income share has actually shifted from the lower 90% to the upper 1% since 1980.”
Yes, I have admitted it before but so what? Those lower 15% have not adapted to the new economy.

“2. You have to get people to admit that this a problem worth solving, and that it is damaging to the economy not to solve it.”
It would be good to solve this problem but how? Taking from those that can is not the answer. How do you back the bottom 15% better? In reality this is stupid. There will always be a lower 15%.

“3. You have to get people to admit that it is not just a business cycle thing that will solve itself, and that it is not primarily an issue with lazy poor people not working hard enough.”
Although we agree that the business cycle will not solve the problem I don’t agree with the latter part. Lazy may not be the right term in most cases but poor choices and priorities result in less than optimum outcomes.

“4. You have to get people to admit that government policies have significantly contributed to the problem.”
Yes, if you cut welfare there would be fewer people on welfare. If you subsidize sub mediocre people you will get more sub mediocre people.

“5. You have to get people to agree that changes in government policy can fix the problem without creating worse problems.”
It can’t. Politicians do what is politically correct or die. They won’t make the right decisions. Politicians are opposed to optimal outcomes.

“6. You have to identify the specific changes that will fix the problem.”
Make everyone better. Force everyone to be better but that is against my libertarian principles. People have the right to make bad choices. They don’t have the right to force others to pay for their bad choices.

No matter what. There will always be a lower 15%. There is absolutely nothing you can do about that.

“7. You have to get people to agree in principle to the changes and the timeline of changes.”
This will never happen.

“8. You have to make the policy changes.”
What changes?

The changes I would like to see are:
1. Stop high frequency trading or put a tax on ultra short term trades.
2. The top management and board of directors must buy significant amount of stock in the companies they manage. This way managers of big corporations suffer when they fail just like those that that own small companies.
3. Those that caused the pain of the great recession are held accountable. Holder didn’t put any of the crooks in jail.

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James October 1, 2014 at 1:39 pm

Or another way to put what you said in #5 is – Politicians will always choose what is best in the short term – rather than choose what is best long term.

And yes there will always be a bottom 15%. Sorry. Best we can do for those people is educate, train and motivate. Give them a base to work off of and opportunities. Give them skills that can aid society.

Attacking the rich as greedy hoarders that are ruining the lives of the bottom 15% is just silliness. And expecting the government to fix this is even sillier.

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Steven H October 1, 2014 at 5:59 pm

Read reply to Peter. “Bottom 15%” is not the correct stat.

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Steven H October 1, 2014 at 6:47 pm

Peter N and James,

Bottom 15%? You didn’t read the stat correctly.

15% of all INCOME has been taken away from the bottom 90% [Ninety, not Fifteen Pertcent] of the population. Almost everyone in the lower 90% has had their wages stagnate or decline. This includes new college graduates, most middle class, beginning professionals, blue collar workers, as well as fast food workers and “the lower 15%”.

How do you use the skills gap of un-skilled workers to explain declining middle class and college graduate income and income share?

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Steven H October 1, 2014 at 6:50 pm
Steven H October 1, 2014 at 7:06 pm

Peter N, Thanks for the response.

I agree with the 3 changes you place at the bottom of your post. Good suggestions.

A critical error in the middle of the post is addressing “the lower 15%” as if they are the problem. I am much more concerned with the 15 to 90 percentile group, i.e. the 3/4 of the population who are skilled and working but not receiving the benefits of a growing economy.

I am all for improving education and skills in this country. But none of that will be worth a hill of beans if the wealthy elite — not you but your much richer economic superiors — are allowed to continue to control and extract most of the country’s economic growth into their own hands. And I know you don’t think the country works that way, but before you start quoting Econ 101 at me again, consider that most economics research today indicates that the wealth and income increases of the very rich are produced more by wealth accumulation than by wealth creation; i.e. we all create the wealth but the most wealthy and powerful gather it up for themselves. This is the thesis of Piketti’s extensive and detailed research as well as research of others, so don’t just discard their findings as “a liberal book”.

To me this is just part of “Those that caused the pain of the great recession are [to be] held accountable. ” Glass-Steagall should be re-established, banks should be partitioned to become “small enough to fail”, and the most extraordinary incomes should be taxed more, because that is what achieves economic balance.

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Peter N October 4, 2014 at 8:16 pm

” And I know you don’t think the country works that way, but before you start quoting Econ 101 at me again, consider that most economics research today indicates that the wealth and income increases of the very rich are produced more by wealth accumulation than by wealth creation; i.e. we all create the wealth but the most wealthy and powerful gather it up for themselves.”
Not everyone produces wealth.

If you keep people from getting a return on their investment they will invest else where or not at all. You keep ignoring this fact.

This accumulation of wealth you talk about, most of it is through investments. There must be rewards for taking a risk. These same people will lose a lot if the stock market goes down.

You keep avoiding a few points.
1. Deals are negotiated. Both parties agree the deal is mutually beneficial.
2. A minimum wage will not work if the pay is more than what the employees are worth.
3. Those that are unemployed are unemployed because every potential employer thinks they are not worth what the wannabee employee is asking.

You have no refutation so far because you can’t.

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Steven H September 28, 2014 at 3:22 pm

=== James
If you agree with 4 then why would you think 5 is possible.[?]
=== end

James, If someone thinks that government policy changes created high income slopes (#4), then doesn’t it follow naturally that reversing those policies would also reverse the income slopes back to earlier levels (#5)? How could you possibly see these as contradictory?

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James September 29, 2014 at 10:27 am

I see why you would think that – to clarify….

If you agree with 4 – that government policies contributed to the problem, how can you have confidence that the same people that put in these policies will/can put in policies to reverse it? It’s like saying – our favorite NFL team has had a losing record for years and it is largely due to the coaching. If the coaches just coach differently they can fix it. Ideally this is true, but an odd place to look for a solution.

Of course, I don’t agree with this in the first place – I think it plays a small role but nowhere near as big as you do. But the last thing I EVER have as a major part of any solution is government policy. You rely on that, you will be disappointed.

Anyway, as I said above – your list isn’t anything for us to really debate off of as it is politically loaded. i.e. ‘get people to admit that….’. But that is my 2 cents

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Steven H September 30, 2014 at 7:47 pm

OK, you point out a clear difference in approach that helps define our positions.

It’s no surprise to me that we disagree about whether or how much government policy contributes to the problem of income disparity. I think it is a major cause, and you apparently do not.

But what surprises me a bit is the degree to which you are willing to suppose, and proclaim, that government cannot possibly be part of the solution, even if it means correcting government policy that may be shown to be a cause of the problem. It as if (and there will be some slight exaggeration that follows here) you believe that our nation and society just naturally exist as long as good businessmen and capitalists are allowed to do as they will and the market forces and self-interest will compel social and economic balance. Government, by such proclamation, is just some bumbling monster that gets in the way and messes things up.

Not the best analogy. But your bumbling coach description (which is a pretty good analogy to describe your perspective, by the way) says much the same thing. If bad coaching is the problem, it is not at all “odd” to correct the coaching. Your approach says to me: “Who needs a coach, just let the players run the team.” Believe me, we need a coach. And if we have a bad coach, we get a new one. We shouldn’t just dispose of coaches, or governments, altogether. Then, completely by definition, anarchy reigns.

Here’s the problem. Government is not a single-minded beast. And it is not a lumbering bumbling creature outside of the goals of society. It is society. It is us. It is the voice of the people. That is how it was designed, and that is how it supposed to work. It is not supposed to be taken over by a single “faction” whether that be the very poor, the very rich, or any other minority interest. This nation is built on the idea that government, whether local, state or federal, is part of the solution, because WE are part of the solution, and in fact, the entire solution. We are entrusted to look after ourselves.

Leaving the control of the country in the hands of the business cycle and market forces alone does not bring balance or prosperity. Good men have been corrupted by power and money and influence across the entire history of mankind. The only thing that counters those forces in this country has been the will of the people as expressed through elected government. Capitalism is a fantastic tool to harness the ambitions of men to pull society to greater heights, while rewarding the most creative and ambitious at the same time. But when those most ambitious and creative begin to think that they are the only people that matter, and that they have every right to exploit the labor of others without fairly distributing the profits of such labors, then capitalism has broken it’s reigns and abandoned its harness, and also broken the bonds and conventions of society that ultimately create the prosperity they enjoy.

Alan Greenspan, former Fed chairman, was a member of Ayn Rand’s inner circle, a high priest of the temple of laissez-faire, an advocate and promoter of the benefits of capitalism and self-interest, and yet even he had to publicly confess that the 2008 crash left him disillusioned as to the capability of monied self-interest to even look after itself, much less the good of the country.

So I propose to you that you should reconsider. If government policy can be shown to be part of the problem, then reversing that policy is of course the most direct and credible approach to achieve a solution. I’m not saying it is simple. There are legislative nuances and loopholes, conflicting political interests, and hidden or even unintended consequences.

But to suggest that we should leave bad policy in place just because we distrust any government action whatsoever seems to me foolish, and even deceptive. There are many (and I am not accusing any on this blog) who claim distrust of government action, but who want to leave bad policy in place because they profit from it. They preach the evils of government while simultaneously controlling it to meet their own ends. This is why we need to keep big money out of politics. The US government is designed to be of, by, and, for the people, not of, by, and for business.

It is bad policy to weaken and bankrupt government (economically, politically and ethically) and lessen the democratic control of government, merely so that business can manipulate the system for its own maximum profit. That has never been what our nation is all about.

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Peter N October 4, 2014 at 8:35 pm

Get this. The government is incompetent and corrupt. The gov doesn’t give a hoot about you or me. The politicians just want to get re-elected.

The politicians have no solutions. They are fools elected by fools that don’t want to face reality. If they did all the problems you mention would be fixed. I am more realistic. There are no solutions to all the problems you mention. There will always be winners and losers and there is nothing you and I can do about that. It is the survival of the fittest or more adaptable at work. You can’t change this. You can’t refute this.

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Steven H September 30, 2014 at 9:12 pm

As for the list being politically loaded, yes it is. It is basically my list of steps to get you to agree with me. I know that you and others will not follow me to the end of the list, but it is still useful discussion (I think) to understand at which specific points we agree or disagree.

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Random Poll Poster September 30, 2014 at 8:34 am

http://www.pewresearch.org/fact-tank/2014/04/28/americans-agree-inequality-has-grown-but-dont-agree-on-why/

Steven H – this poll doesn’t back up your view of what “most people think”.

– 65% of all people think the gap has widened while only 8% say it decreased.
– As far as the “reason” for the gap widening, the work ethic of the poor was rarely cited as a cause. Even among Republicans (who you clearly have disdain for) only 9% cited this as a reason.

The telling thing here is that there are a myriad of factors people cited as the reason. Not that these people know anything about the economy, but I’m posting this as a reminder that it is wise to not rail against an invisible enemy but rather stick to the facts in a debate. You might be fighting against yourself.

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Peter N September 30, 2014 at 12:46 pm

I think the first comment in your link is right. The fact the the poll didn’t provide these options shows it is flawed. Pollsters can get any answers they want by asking leading questions or by not providing right choices for an answer.

I agree with James about relying on government policy. It has none. It won’t face up to the real problems.

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Steven H September 30, 2014 at 8:56 pm

Government policy doesn’t face up to the real problems because there is too much partisanship and infighting. And there is a significant faction (the GOP/wealthy) who profit economically by legislative stagnation.

You, Peter N, recognize at least that the economy would be better off with less income disparity. Congress admits no such claim. Your far wealthier economic superiors, who pull the strings of Congress, like the system as it is, with high deficits serving as an excuse to suppress the safety nets of the poor, and with taxes and wages as low as they can be forced. You may at least partiallyhave the good of the country at heart. The upper economic tiers have little such sentiment and are dominated almost exclusively (with some noble exceptions) by self-interest and greed.

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James October 1, 2014 at 6:35 am

Conjecture. Just when you have some good points you undermine it with this. Again, as someone who is not in the 1% but works in that world, I can say I have seen nothing like what you speak of.

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Steven H October 1, 2014 at 8:01 pm

OK my characterization of the rich is harsh. And perhaps it dampens the conversation. There are good people with a lot of money — no doubt. But so many of the really wealthy in the upper tiers are so disconnected from the common trials and travails of most of the populations that disparaging many of them as wrapped in greed and self-interest may be more accurate than you think — despite their simultaneous status as good people who would be entertaining and congenial at dinner or a party.

When the upper 0.1% have simultaneously tripled their income share and halved their tax rate and yet still complain they are over-taxed and under-appreciated, it is difficult not to despise them for their greed and self-centered attitude.

James October 1, 2014 at 9:42 pm

You just don’t get it. You think my opinion of the wealthy is as shallow as “they are congenial at a dinner party”???? I’m talking about generosity, sympathy, community, consideration – important qualities. And I am just saying I have literally never seen this complaining, greed or self centered attitude. In fact, I have seen it more at the upper middle class level. This is no different than your offense taken when people say the poor are lazy.

Steven H October 2, 2014 at 8:27 am

James, Maybe you and I have a different idea about what comprises greed and a self-centered attitude. What I am saying is that people can be greedy and self-centered without being comic book villains.

Perhaps this line of conversation is even less productive and more polarizing than I realized. Let me try expressing it another way. People, all people, sympathize best with people they know. They empathize with social and economic classes they are most familiar with and that are like them. The rich don’t associate much with the poor so they disparage them in political speech. This is prevalent and you must have heard it. I don’t personally know any multi-millionaires or million-earners. I disparage them based on what they say politically and what the people they vote for say politically. I only know them by this political speech. And the thrust of that political expression is that the safety nets are too expensive and should be drastically cut or eliminated, the poor are unworthy and lazy, corporations are more worthy of legal protection than actual people, 47% of Americans are being pushed around in the wheelbarrow by the hard-working rich, and that the rich create all the jobs, take all the risks, create all the wealth and are over-taxed. This has been the GOP message created by and for the rich for at least 5 years now. I don’t know the rich except by this political message which is trumpeted all through the GOP and especially the TEA Party (which was originally created and funded by the rich Koch Brothers and promoted as the FNC Tea Party by Fox News Corporation.) From this political messaging, how could anyone think that the rich are NOT only interested in themselves?

Steven H October 2, 2014 at 8:48 am

Ultimately it doesn’t matter what poor opinion I have of the rich. The critical point is that the richest 0.1% have tripled their income share and halved their effective tax rate. There is 9% of all income that they receive and control and about 6% out of that 9% is beyond what they used to receive, and the 1.5% of all income in after-tax income they used to keep has become over 7%. All indications are that the boosted income to the very rich has not helped the economy and has not been created by the people who are receiving it; it has only been redirected to them. When a company sees that it’s corporate profits are invested in unprofitable ventures, it redirects its resources to more profitable sectors. The upper 0.1% have used their boosted capital of 6% of all income in unproductive and dangerous ways, and are largely responsible for the economic crash that devastated most Americans. The country needs to redirect that capital elsewhere. Paying off the country’s debts would be a good start.

James October 2, 2014 at 12:00 pm

You still don’t get it. Let me try expressing it another way. People, all people, sympathize best with people they know. They empathize with social and economic classes they are most familiar with and that are like them. The poor don’t associate much with the rich so they disparage them in political speech. This is prevalent and you must have heard it. I don’t personally know any people living below the poverty line. I disparage them based on what they say politically and what the people they vote for say politically. I only know them by this political speech. And the thrust of that political expression is that the rich are greedy and unsympathetic to their plight, they make way too much money and must be taxed far, far more than they are, and that they do not pay the wages that would be “fair”, only seeking to fatten their pockets and improve their own personal bottom line. This has been the liberal message created by and for the poor and middle class for the entire Obama administration. I don’t know the poor except by this political message which is trumpeted by Obama and all of his constituents who got him elected in the first place (the working class, poor, minorities, etc.) From this political messaging, how could anyone think that the poor are NOT only interested in themselves?

James October 2, 2014 at 12:03 pm

I literally disagree with almost every word of your last two posts. Your whole ideology is down one path – and frankly somewhat offensive, misguided and painfully narrow minded. Moving on…..

Steven H October 3, 2014 at 2:43 pm

LOL, you did a nice turnaround on my post. I should not have let my animosities loose. Let’s get back to data, facts and causes, and dispose of the factional slamming. You are correct in that it distracts from the more productive discussions.

I am more interested in how you defend the idea that government should not do anything when you simultaneously advocate trade policy changes (a government function).

Steven H October 3, 2014 at 2:48 pm

And I am curious what points came across as good. It helps me to know when I have made a point well. Most posters here just slam me when I get off course (or occasionally when I hit too close to home, LOL).

Peter N October 4, 2014 at 8:41 pm

“You, Peter N, recognize at least that the economy would be better off with less income disparity.”
Yes but only if the bottom could be made better. Not if you want to “tax the rich, feed the poor, until there are no rich not more”. People must be allow to act in their own best interest as long as it doesn’t harm any body else and you haven’t made that case yet.

The difference between you and me is that I realize that there will always be those at the bottom that can’t or won’t adapt.

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Normal Joe October 5, 2014 at 7:50 am

@Peter N – I don’t think that our differences of opinion are as polarized as some try to portray. When you say “The difference between you and me is that I realize that there will always be those at the bottom that can’t or won’t adapt,” you are incorrect. Only a fool would disagree with that statement. I think the difference is in the perception as to how many there are. And to paint all with the same brush is just as foolish.

One of the significant differences is how some people choose to speak in absolutes. Such as:

“1. Deals are negotiated. Both parties agree the deal is mutually beneficial.”

History has shown that there are a few bad apples, or some who believe that their primary goal in life is to take more than they give. This is true at all levels of society. From the Carneys and the Rubes, to the Pimps and the Prostitutes, to the pharmaceutical companies and which market pays the most profit, to the landscaper and the illegal immigrants. Your statement taken at face value is more than often not accurate.

“2. A minimum wage will not work if the pay is more than what the employees are worth.”

The only reason this country adopted a minimum wage is because there are those who so undervalue a person’s worth that they would pay less if it wasn’t illegal. From all accounts in our dialogue you are not one of those unscrupulous business owners. The point of the matter is that it is not focused on your business, but for those who stink up the marketplace.

“3. Those that are unemployed are unemployed because every potential employer thinks they are not worth what the wannabee employee is asking.”

I can’t seem to comprehend how you can make such an unequivocal statement. When you shop for any goods and services, don’t you try to find the lowest price available? I would hope that quality comes into that thought process, but I know many a person who is only interested in getting the cheapest they can regardless of how many times they may need to replace it.

The same applies to labor. Some will seek out quality, which you obviously do, but there are also many more who don’t care and will just churn through the talent (or lack thereof) because they refuse to pay anything but the bottom dollar. The minimum wage attempts to set the floor for that bottom dollar, not because of your behavior, but because of those who don’t give a damn.

Steven H September 30, 2014 at 8:42 pm

RPP,

I’m a little puzzled by your post. You may have misinterpreted something I posted earlier. Or I am misinterpreting your post. But I’m not sure what you reference as to my view of what most people think.

So to clarify: I don’t think my “a through d” list at the top of this page describes the reasons that most people would give as reasons for income disparity. That post, in context, was specifically asking this question: If you don’t believe that government policy was a cause, then what do you think causes income disparity?

As to the poll, thanks for posting it. It is interesting. It makes sense that most people think the gap between rich and poor is widening, because research also shows that it actually is. As for low work ethic of the poor, I clearly don’t think that is a valid primary reason, but it is rather telling that 9% of Republicans think this not just A reason but the PRIMARY reason. (Less than 1% of Democrats answered similarly.) No telling from this poll how many Repubs think it is the number 2 or 3 reason.

Yes there are myriad factors described as the primary reason. Look how many of these reasons are related however, and tie into the following coherent scenarios:

Liberal view: The gap between rich and poor is defined as both a wealth gap and income gap, with incomes and wealth of the executives, bankers, and other rich folks being greatly boosted by favorable business and tax policy passed by government, and wages being suppressed and minimized by both business and government policy, due largely to outsized political influence of greedy and influential wealthy political donors.

Conservative view: The gap between the rich and poor, if it is getting larger, which some of us doubt, is primarily due to globalization, loss of unskilled jobs, and mechanization of jobs, requiring that people acquire new and different skills to compete, which takes time to accomplish and results in high unemployment during this retraining, and which too many do not accomplish due to laziness and poor ethics.

Add up the scores from the poll:
First note that 71% of Dems cited these top 9 reasons, while 65% of GOP cited these same top 9

Liberal view causes of gap:
Tax System/Loopholes
Congress/ government policies
Corporation/Executives
Greed
Wages/ Gaps in wages
Rich have power/opportunity

62% of Dems cited one of these 6 liberal reasons for the gap
43% of GOP also cited one of these liberal reasons

Conservative Causes of gap:
Recession/General Economy
Jobs/Unemployment
Work Ethic of Poor

Only 23% of Republicans and 12% of Dems cited these 3 conservative reasons.

More GOP actually supported the 6 Liberal reasons (43%) than the Con reasons (23%).

Now, there were actually MORE GOP that cited “government policy” (14%) than Dems did (9%), and certainly the Dems and GOP would likely disagree on which policies to change. But note that tax policy is inherently a government policy, so that when you add up tax and government policy scores in the poll, more than 1/3 of Dems and more than 1/4 of GOP think these are the primary drivers of rich-poor gaps.

Clearly this differs from the opinions of the businessmen on this blog, who not only argue that tax and government policy is not a main driver but is not even a significant driver.

All very interesting. Thanks for the post.

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James October 1, 2014 at 1:42 pm

LOL – I don’t see any point in your post above, or the part of the poll that divides us even further. I abhor polls that ask “liberals” and “conservatives” or Dems/Reps what they think. Just more division.

What is wrong with someone who uses their own mind? In the diatribe you posted above, I agreed with some of the things you put on the “liberal” list and some on the “conservative” list. I vehemently disagree with some things on both lists. Most people feel this way but are constantly bombarded with “camps” that they should belong to. So frustrating. And so tired…..

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Steven H October 1, 2014 at 5:49 pm

OK, I respect that you align yourself independent of typical partisan positions. To be fair, I would list everything on the list of 9 except work ethic of the poor (no indication that has changed recently or contributed significantly) and greed (too vague and no indication that has changed recently). And I would also add globalization/trade policy and automation and education systems as contributors.

My primary observation from the poll is that the items most consistently blamed as a PRIMARY cause by BOTH Dems and GOP are taxes and other government policy. This is also consistent with much of the current research: that tax and business policy is instrumental in keeping economic balance and that bad policy is what creates the imbalance.

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Ken October 2, 2014 at 9:20 am

OK, I unsubscribed from this thread a couple of weeks ago, but am still getting notifications. It’s like Hotel California — “You can check out any time you like, but you can never leave”. Anyway, I thought I would jump back in here on this latest discussion about the causes of income disparity.

Way, way back, probably hundreds of posts ago now, I told my personal story of how I came to be part of the 2%. In short, after my divorce where I lost more than $1 million to an ex who made a lot of promises to work, but never did any actual work, I vowed to only ever date women who were (roughly) my financial equal. Ones who had actual, real jobs comparable to mine. My thought was that if it was going to be 50/50 going out, then it sure as heck from now on was going to be 50/50 coming in. After more than a decade of being single, I found such a woman who was compatible in that as well as many other ways. We combined incomes into our new household, and we are now in the top 2% of all household incomes in the country.

To me, this and many other behavior-based explanations, such as a rise in divorce itself, account for much of the rise in income disparity. Here’s an article from the national Center for Policy Analysis which supports this view. It says that two primary causes of increased disparity are 1) education and 2) family structure. It also talks about specifics, such as how those at the lowest end of the income spectrum often are either single parents, or are unemployed, and those at the higher end tend to have two professional incomes, as my household now does.

http://www.ncpa.org/sub/dpd/index.php?Article_ID=13578

Rather than government policy, I think a more plausible explanation for why some have moved ahead while others have fallen behind is because of behaviors and life choices that invidividuals have made. Notably, behaviors and choices specifically related to education, and to family structure. I would also add the Information Age and globalization as major factors that have influenced household incomes over the past 30-40 years.

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Ken October 2, 2014 at 9:49 am

And here is a much more recent, and much more lengthy, article from the same gang at the Center for Policy Analysis which goes into a lot more detail about the causes, effects, and analysis of the income inequality debate.

http://www.ncpa.org/pub/st358

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Peter October 2, 2014 at 12:31 pm

Ken – I get those notifications too even though I was long gone from the discussion. Just wanted to pop back in to thank you for posting that article (the more lengthy second one). It was the best logical, objective, thorough, non-partisan article I have ever seen on the topic.

Frankly, I think it is such a good article about the overall situation that anyone who happens upon this site should just read it rather than the divisive and partisan arguments of the past month.

It continues to amaze me how the psyche workes when reading an article such as the one you posted vs reading the ongoing debate between Peter N and Steven H (sorry to call you out guys) . Listening to their debate makes me frustrated and increases my disdain for politics. It makes me want to just give up – as in “what’s the point?”. Unfortunately, most of what I see on TV is like this – hence why I try to watch as little as possible. People talking in stereotypes and generalities – and largely just talking at each other rather than genuinely trying to think the situation through.

By contrast, the article that you sent left me feeling inspired – in fact, so much that I read about 10 other articles on this site (which I had never seen before). It offered real discussion and real solutions and as a 1%’er, it encouraged me to continue to get involved and do what I can in my local community. Why isn’t there more of this?

I saw a filmmaker on Bill Maher’s show this week that made a great point about this. We all say “get involved!” but the reality is we are not. Our society has moved towards the easy way out – just sitting on our couches whining and railing but not doing anything. Even if it is small, we can all help our communities. This is what I try to do every day (for example, overpaying my workers and employees that take all of the manual labor and unwanted jobs out of my life). Of course, I’m not claiming to be perfect – but this is how we impact people’s lives and effect real change.

Thanks again Ken…..

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Ken October 2, 2014 at 2:02 pm

Thanks for your note, Peter. I appreciate it.

Yeah, for a long time I had thought that the income disparity issue, and our economy in general, were far more complex than the problem statements and solutions I was seeing here.

I agree that the longer of the two articles was excellent. It acknowledged points made by many in this thread on both sides of the political spectrum, while offering the best detailed discussion of income disparity that I have seen so far.

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Peter N October 9, 2014 at 11:21 am

Ken’s link is a good article. It says a lot that I have said and more, even the example of using grades to explain the injustice of socialism or communism. This is exactly how my mother explained these concepts to me when I was a 3rd grader.

What isn’t covered is the effect of automation. Fewer people are required to do more. Those that make and maintain the machines will do well. The machines are getting smarter, more precise and more reliable all the time.

One industry I am very familiar with is the sawmill industry. It is much more advanced that what most people realize. It is so automated now. Only a fraction of the people are required compared to what was required 30 years ago. The machines can make decisions about how to cut the wood much faster, with less waste and yielding more value from the wood than a person ever can.

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Peter October 10, 2014 at 10:42 am

Best part about the article is that it quieted the racket that was going on in here. I mean, what more can be said? The long article is so thorough that it is ultimately spin-proof. If we had seen this weeks ago, we would have all felt silly with our nickel-and-dime analyses.

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Normal Joe October 10, 2014 at 2:11 pm

Don’t jump so fast to think it quieting. There are some pretty big assumptions being made in that article that don’t stand up to scrutiny. The most obvious is the assumption that the quintiles are not representative of numbers of people. It’s just not the truth. The quintiles most used are numbers of household tax returns, so the assertion that there are more people in the upper fifth than the lowest fifth is wrong. There is also no relationship conveyed to the changes in public policies that accompany the changes in family behaviors where there is an arguable cause and effect relationship.

So, hang on to your braggadocio for just a little bit longer. The silence is that of thoughtful reflection to provide a scholarly response. Unless, of course, you only expect knee jerk reactions.

Peter October 10, 2014 at 2:34 pm

Not really bragging or gloating…. I didn’t write the article.

Steven H October 13, 2014 at 5:00 pm

Thanks for the article Ken. Unfortunately, it undermines its factual content with blatant partisanship and deceptive assertions.

1) “This paper, however, will focus on reasons for the wealth and income gaps that have gone largely, if not completely, unrecognized.” Actually, it spends a lot of time describing principles and concepts that are thoroughly understood by all but the most casual investigator into income inequality. Nothing in the article is “largely, if not completely, unrecognized” to professional economic researchers or even the well-informed amateur investigator. Mobility of individuals across quintiles during career advancement, variation of household size with income, temporary membership in the upper 1%, are not new or unexamined statistical truths, and they do not diminish the unsettling and dangerous realities of rising income disparities.

2) The repeated partisan labeling of main-line economic researchers as “left-leaning pundits” says much about the imbalanced perspective of this article and its authors.

3) Income growth rates – The article disputes some stated income growth rates for the median income or for different quintiles, by using different inflation measures. However, this is just a minor distraction. It never disputes (because it cannot truthfully do so) that the income growth rates of the upper 1% still far outstrip the income growth rates of any other economic group.

4) Fringe Benefits – This is a difficult area to analyze, and the article takes a limited view that tries to inflate income growth unfairly. Among other flaws, it fails to point out that dollar increases in medical benefits from companies do not feel like an improved benefit if the net result is constant or declining: paying to go to the doctor. In fact, employee medical costs are increasing just as employee costs are. on one hand the article says inflation is overstated but ignores the medical costs which rise much faster than inflation.

5) Surplus Value – The article tries to claim that the improved standard of living, improved quality of goods, etc somehow diminish the importance or measure of income inequality. Yes washers and TVs are cheaper as a percentage of income. And the internet and computers in the home allow convenience and entertainment unknown in past generations. But all of these advancements are enjoyed by rich and poor, and even more so by the rich. The underlying implication that average Americans should be grateful that the rich even allow them to participate at all in the technical and internet revolutions of the last few decades is offensive and demeaning. Of course technology is better than the last generation. But that does not diminish the fact that increasing prosperity in America is no longer shared fairly, and it does not eliminate the truth that debt and despair and declining fortunes have increased among many many Americans while 70 to 95% of national income increases have gone to a very fortunate few.

6) Morality – “Is it moral to take away the wealth of such people after they have earned it, after they have played the game fairly?” The middle class and poor have also played fairly, putting their lives and careers and children’s educations at risk. It is always moral to adjust the rules of the game to improve the overall economy. The rules were changed to benefit the wealthy at the expense of the poor and to the detriment to the treasury, and they did not complain then. How is it then immoral to tap the immense income growth of the fortunate few to restore the treasury and impart a more just income and society to most Americans?

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Steven H October 13, 2014 at 9:49 pm

Ken, I should also (in all fairness) point out some things that I can agree with in the article. It has a decent list of reasons for income disparity. I add some comments in [brackets].

=================== Start quote
Numerous social and economic factors explain why the income and wealth gaps have grown:

— Family structures have broken down, limiting the economic progress of many children due to lack of support from both parents.
— Executives have gained control of their own compensation packages, allowing them to push their incomes into the stratosphere.
— Schools, especially those in impoverished neighborhoods, have deteriorated, handicapping low-income children at a time when the value of education in the workplace has risen. [Rising costs of college also block poorer students from higher education.]
— Government welfare programs have provided many low-income Americans with disincentives to move out of poverty. [Personally, I think this is overstated, but I must confess there is some impact. What is left out is the economic policies that push families into poverty in the first place.]
— The political system has grown progressively rigged in favor of the economic interests of the already rich.
— The globalization of the economy, along with the downfall of communism in China, has worsened the position of American assembly-line workers, who now have to compete on wages with the lowest-paid workers around the world.
====== End quote

The most surprising (and somewhat disparate) point made in the article is that income inequality arises partly because the rich have a wealth advantage that allows their capital to grow faster than wages of lower income folks who depend primarily on wages and have less opportunity and capital for investment. This is precisely the point made by Piketti in his acclaimed and best-selling economic study and yet the article inexplicably claims this cause is “unheralded”, as if there could be anything less “unheralded” than an economic best-seller’s primary thesis.

It is remarkable and welcome that this article, whose primary arguments seem calculated to diminish and undermine the existence and extent of income disparity and generally attempt to absolve the wealthy of responsibility for the problem, should then confess and proclaim that the rich have distinct economic advantage that multiplies upon itself simply from being rich.

====== Start quote

An analysis of portfolio investment over time reveals another unheralded reason the “rich” have become richer absolutely and relative to the “poor.” Because the “rich” are rich, they necessarily have a substantial amount of wealth to invest (from past performance, luck, station in life and/or inheritance). The top 1 percent of households hold over a third of the country’s total wealth, while the bottom two quintiles hold a fraction of that wealth.26 The wealth of the rich enables them to develop and maintain highly diversified portfolios of investments, including stocks, bonds, derivatives, insurance, precious metals, degrees, multiple homes and other real estate holdings. They have the financial means to acquire new businesses and social networks, to explore new and untried ventures.

====== End quote

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James October 14, 2014 at 9:38 am

So what did you learn from the article, Steven H?

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Steven H October 14, 2014 at 4:39 pm

james, it is difficult to learn anything of substance from such a poorly written, rambling article. It takes well-known principles of statistical analysis of income distribution, such as mobility within quintiles or deciles and variations of family size by income, presents a cursory explanation as if they are new and game-changing facts, and performs some hand-waving to claim they diminish the existence or importance of income disparity measurements. It does the same with its discussion of different inflation measures. At one point it claims, with no real explanation that [Pundits rarely recognize that the success rate of people at the bottom of the income distribution can increase the growth in inequality, leading to an incorrect deduction that "only the rich are getting richer" in the country.] I would counter that pundits rarely recognize this because the sentence is complete rubbish. It is not defended or explained but simply proclaimed as fact with no substantiation whatsoever. Success at the bottom does not increase inequality; in fact it will tend to decrease it. And as I already mentioned, the article takes the prime thesis of Piketti’s book and claims it as an “unheralded” revelation that the authors reveal in this article.

At first read, the article’s mish-mash of fact and reference and assertions sound convincing, but after re-reading it multiple times, I am of the opinion that it is one of the least coherent and most poorly written articles on income disparity that I have seen. It takes no coherent position [claiming neither left, right, nor central ground], does a poor job of explanation of basic principles, claims what is well-known as hidden, and claims the absurd as obvious.

The Koch Brothers should get their money back from this particular think tank.

The following article is much better, providing no political position, but at least presenting a compendium of current thought on the subject.

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

Meanwhile, I will endeavor to find some better-written position articles that present either the left, right or center perspectives in a more coherent and honest fashion than this particular NCPA article.

Man-of-Reason October 14, 2014 at 8:21 pm

“I really started PAYING ATTENTION when things were crashing down in 2008. Then I realized I had been lied to all this time by the media.”

You claim that you became a stay at home mom in 2004 and studied politics until 2008 when you realized that the “liberal media” was lying to you about all things GOP, so you had this great conversion from voting Democratic to voting Republican.

If that’s true Allison, why ever did you vote for Obama in November of 2008? Something smells bad here.

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Man-of-Reason October 14, 2014 at 8:29 pm

We really must follow the money to understand the spin.

As of November 2013, the NCPA web site reported that for 2011 its funding breakdown was 52% from foundations, 21% from individuals and 22% from corporations.

According to an article in The Guardian newspaper, in 2008 the NCPA received USD 75,000 from ExxonMobil. ExxonMobil’s public policy giving report for 2012 shows no donations to the NCPA.

According to Greenpeace, the NCPA received at least USD 570,000 from Koch Industries in the eleven-year period ending in 2008.

In 1992, the New York Times reported that the NCPA was partially funded by the insurance industry.

You may assume what you want from such facts.

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Ken October 15, 2014 at 8:07 am

So maybe we should evaluate all links and references based on where the money supporting them is coming from, rather than on the merits of what they are saying?

If so, then maybe we should follow the money of the country’s #1 contributor to political campaigns, ActBlue.

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Peter October 15, 2014 at 9:25 am

There is no open mindedness here. The telling comment is that the article doesn’t “take a position”. That’s personally what I liked about it.

Peter N October 18, 2014 at 7:33 am

I always check to see who supplies the money for the information.

I have been gone for a week or more. I can see Steven H is still complaining about income inequality without any solutions as to how he would make the poor more productive.

Steven H October 18, 2014 at 7:54 am

Peter, for someone who repeatedly trumpets the merits of open-mindedness and respect, you seem remarkably closed-minded and disrespectful of my posts.

My problem with the article is NOT that it takes a neutral position, but that it takes no consistent or coherent position. That is what I meant when i said “It takes no coherent position [claiming neither left, right, nor central ground]“. It seems partisan in tone, chastising “left-leaning pundits”, yet also presents causes (natural accumulation of capital that increases disparity) that those same left leaning “pundits” proclaim. It then takes such causes and, rather than indicating that a solution is implied, it summarizes that, based on the items on the article, increasing income disparity is simply “inevitable”.

Yes, many things about the article irritate me. And yet, I have presented further below, in an answer to Ken, a calm and coherent point by point discussion of it. I would be interested in your response to the points i am trying to make. If you want to go the way of Peter N and simply discount me as a closed-minded partisan with a political agenda, I suppose that is your right. But, in fact, I am trying to promote some legitimate discussion and understanding here, and your snide comments are not helping.

Steven H October 18, 2014 at 12:10 pm

I think the arguments should be analyzed on their own merit. Yet when arguments start to appear partisan, imbalanced, or non-sensical, it is useful to look at the funding source as potential motivation for the partisan intent.

Steven H October 18, 2014 at 12:18 pm

Peter N, the poor would be more productive if grade school education was better funded, and if our higher education was better coordinated with business needs, more affordable, and restored to higher subsidization by states. All of this requires more government intervention and higher taxes.

Of course, you have produced no statistical evidence that indicates that productivity of the poor has any significant impact on high income disparity. So maybe we need to consider other solutions, like restoring all of the other policies that kept high income disparity in check.

allisonfaye October 10, 2014 at 12:00 pm

I also have ‘checked out’ of this thread but I wanted to comment on GOP policies. I want to start by saying that I was a longtime Democrat. Although I mostly voted Democrat, I was always registered independent. I thought all of the things mentioned above: GOP hated women, GOP only cared about the rich, yada, yada. I voted for Obama the first time. For years, my husband had been telling me I was snowed (in his nice husbandly sort of way) and that the media was biased toward the left. I didn’t believe him. I laughed at his ignorance. All the things the media told me were facts, right? Then when Obama came in and all he talked about from day 1 was taxing the evil, rich people, I started really paying attention. I started watching ALL news sources and yes, Fox as well. I became a stay at home mom back in 2004 and my brain was starved (I guess) for sustenance. I really started PAYING ATTENTION when things were crashing down in 2008. Then I realized I had been lied to all this time by the media. I started digging deeper. The GOP, it turned out, wasn’t about rich people. It was about free markets and keeping what you rightfully earn. It was about personal responsibility as opposed to looking to the govt to provide everything for you. Once my eyes were opened, I realized all the things I believed about the GOP had been fed to me by the media (aka the Democrats). And as long as I lived, I can’t see myself ever voting for a Democrat again.

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JTM October 10, 2014 at 4:07 pm

So you prefer to go from one extreme to the other? That is what is wrong today! We need politicians who are willing to take a more central ground and work together, but the noisy extremists won’t allow it. Any time someone goes near the center, the noisy ones pull support.

Why not be truly independent? Why not take your own stances on individual policies and candidates? Neither party is all bad or all good. Would you really choose a Rep candidate you didn’t like just to not choose a Dem?

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allisonfaye October 10, 2014 at 4:57 pm

Yes, because the Democrat’s policy of wealth redistribution is something I can no longer support.

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Peter October 11, 2014 at 9:00 am

I agree. But I also don’t support many things the Republicans stand for. Do you agree with their entire platform?

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Man-of-Reason October 14, 2014 at 7:39 pm

It has always been the perview of government to redistribute wealth. That’s reality so get real here. Anytime people are taxed or revenue flows to the government, it comes from our pockets directly or indirectly. Anytime legislation is passed, costly services flow to one group or another and it benefits some people more than others. Raise taxes or lower taxes, increase or lower services, and some people win while others lose because it redistributes wealth. Hopefully, in the end, we all benefit. But something sinister has occured, starting with the election of President Reagan.

However, don’t give me the BS that such redistribution only flows from rich to poor and middle class. During the last 43 years, quite the opposite is true. The redistribution has flowed from the poor and middle class to the top 1% as the increases in productivity and tax relief in this great nation have only benefitted that top demographic at the expense of the middle class and especially the poor who’ve seen their tax burdens rise while their standards of livings have decreased. Nothing can change that fact

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Peter October 15, 2014 at 9:28 am

Taxing the wealthy a higher amount and increasing public programs for the bottom 10-20% is a direct redistribution. That actually is a zero-sum game. What you claim has happened in the past 43 years was not a zero-sum game. The rich didn’t ‘take from the poor’. What is more accurate is that we saw a giant growth period in our country that the rich profited more from than the poor. Of course there is an element of this that is self-evident. If the poor had profited equally they wouldn’t be poor. But nonetheless it doesn’t diminish the disparity. But I would hardly call that systemic wealth distribution.

Steven H October 15, 2014 at 9:50 am

Peter,
You and I disagree on the full range and proportional impact of causes of income disparity. However, the following items are widely cited as substantial causes, and each of them are systemic policy issues established by government and those in political and control of government. To this degree that these items have contributed to diminished negotiation power of wage-earners and to income disparity, they are representative of systemic wealth redistribution by policy makers to benefit the most wealthy.
– Tax cut policy that reduces tax code progressivity and heavily favors high incomes
– Decline of real minimum wage (allowing inflation to diminish value)
– Anti-union policies
– Anti-labor policies
– Diminished enforcement of anti-monopoly laws and rules
– Starve the beast economic policy that tends to suppress funding to social and safety net policies
– Voter restrictions that suppress minority and lower income impact on elections
– Tort law changes that make it more difficult to sue large companies for egregious behavior
– Bank and financial deregulation

Peter N October 18, 2014 at 7:43 am

MOR is still misleading people.
“It has always been the perview of government to redistribute wealth. ”
There is nothing in the Constitution about this.

“But something sinister has occured, starting with the election of President Reagan.”
It started with FDR.

“However, don’t give me the BS that such redistribution only flows from rich to poor and middle class. During the last 43 years, quite the opposite is true. The redistribution has flowed from the poor and middle class to the top 1%”
BS. Provide an example.

“the poor who’ve seen their tax burdens rise while their standards of livings have decreased. Nothing can change that fact”
Again, where is the proof? The poor get paid for not working by our tax system.

You are as full of it as Steven H.

Steven H October 18, 2014 at 8:12 am

Oh, Peter N, we have been down this road before.

The Constitution does indeed the taxation and general welfare clauses which do indeed allow for collection of federal revenue from either the entire population or only the wealthiest, and then spending of those funds to sustain the country as a whole, but potentially benefitting one group more directly than others.

15% of all income has indeed flowed from the lower 90% to the upper 1% for various systemic reasons which we have been discussing these many months. That is redistribution of income. You have even agreed in previous posts that this shift has occurred. Don’t feign ignorance of past discussions.

And your mischaracterization of the poor greatly exaggerates their burden on society and inaccurately glorifies their economic position.

I don’t understand your unending resentment of the poor who have been victims of poverty arising from high income disparity, and your casual acceptance of and respect for the barons of wealth in the financial sector and multi-national management who usurp the nation’s wealth, destabilize our economy, suppress and over-tax small business to the benefit of BIG business, and purchase and corrupt our politicians. It seems they would be more deserving of your ire.

Steven H October 18, 2014 at 12:20 pm

Correction in first sentence of my last post
“The Constitution does indeed INCLUDE the taxation and general welfare clauses …”

Peter October 20, 2014 at 12:37 pm

From the Constitution directly:

“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and General Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.”

Then, in 1913 – the 16th Amendment….

“The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

Steven H October 13, 2014 at 4:01 pm

I think it is unfair to characterize Dems as wanting to redistribute wealth. It is more correct to characterize Dems as working for economic opportunity and just reward for the common working American. 2/3 of income gains from 2002 to 2007 and 95% of income gains from 2009 to the present went to just the upper 1% of households. Is that fair?

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James October 14, 2014 at 9:41 am

Isn’t your entire position based on generalizations and characterizations? If you can characterize the wealthy as greedy and only voting for things that benefit them, then it is completely reasonable to paint Dems with this brush too. Spin it however you like, but a part of the Democratic platform is to do what she is describing. If you don’t like it, you call it redistributing wealth. If you do, you call it “working for economic opportunity and rewarding hard working Americans”. Same thing – different spin.

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Steven H October 14, 2014 at 1:10 pm

Both sides of the argument often rely too much on generalizations and characterizations and mischaracterizations. Arguments using volatile terms such as redistribution of wealth and class warfare can be applied to both sides against the other. The irony is that GOP are most prone to use these terms when in fact all of the redistribution over last 30 years has gone from poor to rich and if there is class warfare going on, the rich have been winning. People always think it is immoral to be taken from but they have little problem in taking from others.

But that is not to say that everyone is equally right and that both sides are morally balanced against each other. Look at how wealth and income have shifted over the last 30 years. Look at the measures of income and wealth disparity as they exist now and across our country’s history. Where do we stand relative to stable and unstable time periods, and relative to times of prosperity and decline? If you answer these questions honestly I think you will find that the current imbalances cannot continue on the path they have been on, nor can they stay at the precarious levels they have been hovering at for some time now. The pendulum swings and it takes tremendous political and economic pressure to keep it at it’s current apex. It must swing back to a more balanced position. The question will be whether equilibrium is achieved in a controlled and managed process or whether the pendulum crashes pell-mell through it’s artificial restraints.

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Steven H October 15, 2014 at 6:37 am

James, I should answer your question more directly. No my entire position is NOT based on generalizations and characterizations. My position is based on measurement, macro-economics, history, and statistics. What is your position based on?

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Ken October 15, 2014 at 6:55 am

Steven,

Without wanting to get into a sparring match, I would say that your position (and everyone’s position) is based on selected measurements, selected macro-economics, selected history, and selected statistics. What we choose to emphasize depends on what we think is important, or want to emphasize, and upon our assumption and beliefs. Selective attention and retention, that sort of thing.

As an example, Piketty (with a “y”) and Saenz are the latest (French) iteration of Marxian macro-economic theory, which emphasizes certain economic theories while de-emphasizing others, positing certain solutions (taking from the rich, centralized government control) while being silent about others (how to improve the economy as a whole, how to improve job prospects for the poor), and so on.

Let’s just say everyone comes at these issues from certain vantage points, and nobody has a corner on the market on truth.

Peter October 15, 2014 at 9:33 am

Totally agree. Which is why is disengaged with any debate with Steven H. The last reply to James is a good example. Saying “everyone talks in generalizations but the GOP does it more” is the equivalent of a child saying “he hit me first!”. Both Steven H and Peter N’s whole debate was a battle of generalizations and stereotypes. We all talk from a different vantage point but some appear to have open minds rather than political agendas. Our society as a whole needs more of that.

None of us know the inherent reasons, magnitude or solution for income disparity. The point of spirited discussion is to talk it through with open minds. Everyone has a point of view – and a point to make – and most all of it is valid. We need to learn from each other rather than talk in divisive politics.

Peter N October 18, 2014 at 7:48 am

The democratic mantra is
“make the rich pay their fair share”
when they already pay most of the taxes.
Again I ask the Democrats, what is your fair share of other people’s money?

Steven H October 18, 2014 at 11:51 am

Peter N, The upper 0.1% have more than double the share of income and half the effective tax rate than pre-Reagan. The share of taxes they pay, if it has increased, is only due to them having much more money. Effective tax rate is a better measure than share of taxes.

How is doubling their money and halving their effective tax rate anything close to fair? Whatever they are not paying, that they formerly paid, is either made up by taxes on everyone else or increased federal debt. What is the wealthies’s fair share of the nation’s treasury?

Peter October 18, 2014 at 1:25 pm

Love all this talk about the past. With this logic, we should pay all black people 1/2 the wage of other races – since it is better than what they had in 1850. My advice to the rich – just keep working and helping the economy along both nationally and locally. No time to be bogged down worried about what everyone else is doing and what is “fair” in the eyes of the entitled.

Steven H October 18, 2014 at 8:25 pm

So, Peter, we are to learn nothing from history?

I am sorry to see your decline from a poster of intelligent insightful posts to poster of sniping closed-minded drivel.

I would be happy to see the return of posts that indicate your obvious intelligence.

Peter October 20, 2014 at 7:59 am

My error…. replying to drivel with drivel isn’t helping anyone.

Man-of-Reason October 14, 2014 at 7:49 pm

“I really started PAYING ATTENTION when things were crashing down in 2008. Then I realized I had been lied to all this time by the media.”

You claim that you became a stay at home mom in 2004 and studied politics until 2008 when you realized that the “liberal media” was lying to you about all things GOP, so you had this great conversion from voting Democratic to voting Republican.

If that’s true Allison, why ever did you vote for Obama in November of 2008? Something smells bad here.

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lalollie October 12, 2014 at 11:16 am

A profession left off of this list is small business owners, the lifeblood of this country. Raising taxes on LLC businesses, which are privately owned, not REIT or publicly traded companies will put great strain on us. Unlike people who make vastly more $$$ declaring dividends and are taxed at 15%, small business owners are taxed at the full value of anything left over after expenses. This includes monies which are reinvested into the company. In my case, I am taxed on $800,000 a year, but after reinvesting in the company to keep it afloat, and paying taxes on this at not 39.5%, but 45%, I end up with $250,000 a year at the most. For a 16% ownership in a company which employs over 200 people (and we paid full medical and benefits 30 years before the Affordable Health Care Act) this is my compensation for a lot more than 40 hours a week.

The ceiling should be raised and privately owned LLC small businesses should be taken into account. The result will be all REIT and large corporations otherwise. We already are becoming a rare species. Don’t let envy destroy small businesses.

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Peter N October 12, 2014 at 11:30 am

I am a small business owner too. If you go back through the thread you can see that small business owners have been represented.

“(and we paid full medical and benefits 30 years before the Affordable Health Care Act) this is my compensation for a lot more than 40 hours a week.”
Yes, I have complained about this a few times earlier in this thread.

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JTM October 13, 2014 at 12:15 pm

Curious, if you reinvested the money, wasn’t the money spent an expense deduction?

I think many on here would agree that it is unfair individuals in your situation are lumped in with those earning much more. It is also unfair that businesses such as yours are taxed at 3Xs the rate of those earning dividends and stock investments which don’t directly create jobs and top of that whom don’t pay employments taxes on these earnings either. They use the argument that the companies already paid taxes, unfortunately we all know that’s not necessarily true with all of the high paid tax accountants finding loopholes provided in the tax code (some real and others later found illegal). I would rather we allowed these companies to pay minimal taxes, but then tax the earners at regular rates, possibly allowing for some lower rates for the first X amount of dividend income.

I would also like to see something where a tax break is given based on actual creation of jobs, jobs with a livable wage where the workers don’t qualify for government assistance, but rather actually pay income taxes. I know some on here would rather allow companies to pay workers peanuts to get us to full employment, but what good is full employment when the wages being paid allow the workers to qualify for as much or more in government assistance than what they earn from the job? Yes, we have to compete with workers in other countries, but there is no getting around the fact that it costs more for basic necessities to live here than many other countries, our workers need to be paid more because of this. Why try to bring our standard of living down to meet those in a 3rd world country?

Problem is, many employers would like to pay their workers more, but they are afraid to lose out to another company willing to exploit workers. That is what necessitates the need for minimum wages, unions, and government oversight, there are some employers who are more than happy to exploit workers and the environment and the rest of the employers have to compete against these bad employers.

Yes, I also agree some workers are bad and workers need to take some responsibility, but they can’t all be expected to adapt as fast as the employment environment or to know where it is going. Employers need to also take some responsibility to make sure their are qualified workers to work for them, if that means working with technical colleges, training workers themselves, or something else. Either way, as of now, these are jobs that need to be done, and any job worth paying someone to do is worth paying a reasonable wage, otherwise take it elsewhere or automate so we can continue growing our economy. Junk jobs do little to help our economy.

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Steven H October 20, 2014 at 6:27 pm

Those are all excellent points and well-stated, JTM. One of the things i have learned from this blog is the degree to which small business is taxed at HIGHER rates than larger business. Your idea of tax incentives for the small businesses that create jobs and/or added tax disincentives for the large businesses that pay only minimum wage or provide only exploitive jobs, seems like something politicians should strongly consider.

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Steven H October 13, 2014 at 3:45 pm

It would be interesting to know what percentage of 1% are small business owners and what percentage of SBO are in 1%. I think many SBO make less than $400K pre-tax, and certainly (as in your case) make less than that post-tax.

I agree that small business is essential to the economy and is likely getting a raw deal. Big business and banking industry control the politicians and get the tax breaks while providing less overall benefit to the economy — and hurting small business as well. I was just recently in another small town (less than 10,000 pop) where a resident described how the encroaching Wal-Mart decimated their small businesses.

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Peter N October 18, 2014 at 8:30 am

“Curious, if you reinvested the money, wasn’t the money spent an expense deduction?”…
JTM, I/we can expense a lot of the equipment we buy. However, when it comes to buying my share of my company and financing the building I paid for that out of my own pocket with after tax money. I/we had to get a loan for the rest of the building. We can deduct interest and depreciation. There is nothing magic.

“It would be interesting to know what percentage of 1% are small business owners and what percentage of SBO are in 1%. I think many SBO make less than $400K pre-tax, and certainly (as in your case) make less than that post-tax.”
It depends. My company is a regular c-corp. I can pay myself less and retain earnings in the company. A s-corp or partnership or individual is different. They can make higher incomes but they can’t retain their earnings in their company.

….

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Steven H October 18, 2014 at 11:45 am

Peter N, Your explanation of C-corp vs S-corp is very helpful. Thank you. Do you suppose that business owners behave differently depending on the type of corporation? Certainly, it seems that a C-corp owner would be more likely to re-invest profits in the business research, capital or employee salary if there is tax advantage to do so, whereas it seems that S-corp owners may be more motivated to extract money in owner salary. Is this correct?

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Ken October 15, 2014 at 7:50 am

I feel like stirring things up today, just because…..

The recovery since 2009 has gone dispoportionately to the investor class. Of course, those are the people who lost approximately half of their investment wealth during the 2008 financial crisis, when the Dow lost half its value, going from 14,000 to about 7000. Since bottoming out at 7000, however, the Dow and related indices have recovered all of that ground, and the Dow is now up to about 17,000 (notwithstanding the last week or so).

Question — Senior citizens own a disporportionate share of investments, and of wealth in general. Is it fair that the recovery goes to seniors, who already have more than their fair share of the country’s wealth? Should we stage a “War on Grandma”?

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Peter October 15, 2014 at 9:36 am

I used this same argument earlier with white / black people. The wealth gap has grown disproportionally in favor of white people. Is this fair?

Nothing will “equalize the wealth gap” like the stock market falling 50%. I just hope when that happens that I get subsidized by the government. :)

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Steven H October 15, 2014 at 1:32 pm

” I just hope when that happens that I get subsidized by the government.”
You already are, via the Reagan/Bush tax cuts. :-)

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Peter N October 18, 2014 at 8:34 am

“” I just hope when that happens that I get subsidized by the government.”
You already are, via the Reagan/Bush tax cuts. :-)”
More distortions. How is a tax cut a subsidy?
Why didn’t the democrats “correct” the Reagan tax cuts when they had the chance?

I can see i must watch Steven H all the time to counter his distortions.

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Peter October 18, 2014 at 1:21 pm

Ignoring is a better strategy.

Steven H October 18, 2014 at 12:29 pm

Peter N,
‘Why didn’t the democrats “correct” the Reagan tax cuts when they had the chance?’
They did.
Clinton increased taxes (despite the doom and disaster that GOP claimed that would cause), helping to slash deficits and then Bush cut them again, producing huge deficits that still exist to this day.

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Peter N October 19, 2014 at 8:25 pm

So why are you still blaming Reagan for all the ills?

Steven H October 17, 2014 at 3:40 pm

Hi Ken,
Responding to earlier post that had no reply button …

===== Start Ken quote
Without wanting to get into a sparring match, I would say that your position (and everyone’s position) is based on selected measurements, selected macro-economics, selected history, and selected statistics. What we choose to emphasize depends on what we think is important, or want to emphasize, and upon our assumption and beliefs. Selective attention and retention, that sort of thing.
====== End Ken quote

Ken, that’s a reasonable position, but I do have some questions. What then is your view, and what are the selected measurements, macro-economics, history, and statistics that support that view? I think we all have come to agree that there are multiple causes of income disparity and you and I might agree on some of those causes but might rank them differently. I have put studies and stats that support my view. If I am ignoring facts and statistics that contradict my view I would like to know what they are.

====== start Ken
As an example, Piketty (with a “y”) and Saenz are the latest (French) iteration of Marxian macro-economic theory, …
====== Interrupting Ken …

Three things.
Thanks for correcting my misspelling of Piketty. I prefer to get names correct.
Saez is spelled without the ‘n’ between e and z.
If we are going to respect everyone’s opinion, and use non-offensive language, we could start by not labeling Piketty’s work as Marxist, because Piketty’s book (despite a seemingly referential title) really is not based on Marx or his work or his philosophy. It is just an insult to label it that way.

======Start Ken
… which emphasizes certain economic theories while de-emphasizing others, positing certain solutions (taking from the rich, centralized government control) while being silent about others (how to improve the economy as a whole, how to improve job prospects for the poor), and so on.
====== End Ken

I don’t believe centralized government control is a big part of Piketty’s philosophy. And the whole premise of such an economic book is indeed about improving the economy as a whole. The premise of studying and attempting to solve the income disparity problem is that doing so will improve the economy, and failing to do so will damage it.

===== start Ken
Let’s just say everyone comes at these issues from certain vantage points, and nobody has a corner on the market on truth.
==== End Ken Quote

Agreed.

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Steven H October 18, 2014 at 7:29 am

After re-reading posts, it occurs to me that you may find it peculiar for me to ask for statistics supporting your views when you have just posted linked to an article that seems to do so. My difficulty with that article, as already stated, is that its arguments are weak and incomplete.

I have already posted my irritation with that article with regard to “presentation”, and the unfounded assertions placed throughout. However, it does also have some factual information which can be discussed. It would be helpful to me to know what specifics in this article you consider most convincing, in order to focus the conversation. However, I will attempt here to briefly summarize the reasons why I think this article does not adequately address causes of the the income disparity issue.

First, a problem description. The income disparity issue can be described many ways, but the one I would like to focus on is “The Income Shift”. By this I mean the significant change in share of national income that has moved from the lower 90% to the upper 1% since 1980 or so. The middle 9% (90 to 99 percentile) have benefitted only slightly, and in fact, within the 1%, the upper realms (0.1% and 0.01%) benefit from this shift vastly more than the lower realms of that group.

The longer NCPA article you linked addresses the following “unrecognized” or “unheralded” causes of income disparity that make income disparity “inevitable”. (These are taken from the Executive Summary).
1) Exaggerated income disparity statistics due to distorted statistics that exclude impacts of family size and government transfers.
2) Income mobility across quintiles during lifetime
3) Intergenerational income mobility
4) Temporary membership in top 1% or Forbes 400 (non-static income groups)
5) Statistics that 2/3 of Forbes 400 are “self-made” (wealth-not primarily inherited).
6) Financial advantages of holdings of wealth or capital, as held by many with high income, in producing additional wealth and income.
7) Federal Reserve Policy
8) Family “breakdown”, aka changes in marriage and single parent households in lower quintiles.
9) Distorted statistics because “success at the bottom can increase inequality”

Item 1 has some relevance, but by the articles’ own statistics, it only changes the median income growth from 18% to 37%, while income growth of upper 1% was 275%. [And I would argue that there are reasons for excluding transfers from the measure, as income disparity measures should reflect actual income measures not anti-poverty mitigation.] So Item 1 does not explain much of income disparity, and is not a “cause”, so much as it is a dispute of its measurement.

Items 2-5 all have to do with income mobility. While interesting to understand, this has almost nothing to do with the Income Shift issue. You can have high or low income mobility with no Income Shift, and you can have high or low mobility with even greater income disparity and Income Shift than we are now experiencing. Also, the mobility of income within the lower 90% has no relevance to the major Income Shift from the lower 90% to the upper 1%. While income mobility is also an important social issue, it is neither a cause nor a significant mitigating factor of general income disparity, and certainly not of the Income Shift.

This leaves items 6-8, which I think are the only “causes” of income disparity presented in the article.

Items 6 is interesting because it basically describes the reason why income and wealth disparity is destabilizing. The existence of high proportions of national wealth among a small population makes it much easier to increase and accumulate even more income and wealth within that population. This is the primary thesis of Piketty’s book on capital. Item 6 is not only a very good “cause” of income disparity, it is a good explanation of why it is unstable, why it will not fix itself, and why only external factors (like government intervention) are necessary to correct the problem.

Item 7 is legitimate and is another good reason and justification to increase taxation on the high incomes. If government policy has given wealth and income at the upper tiers, as a side-effect of economy stabilization efforts, it can hardly be deemed unfair or immoral for the same government to tax that windfall to similarly stabilize the economy and restore the treasury.

Item 8 may have some legitimacy, but there is no statistical argument presented here (or elsewhere that I can find) to quantify the effect on disparity. It seems unlikely to me that this is a primary contributor, as families t the bottom of the income ladder have always been unstable. You could even argue that instability of poor families is increased by high income disparity, making it an impact as much as a cause. Blaming income disparity on the actions of those most impacted sounds very much to be the human tendency of “blaming the victim”.

Item 9 is just silly, has no merit, and displays a basic misunderstanding of the relationship of income mobility and income disparity.

So the article basically presents 9 items, only 3 of which can be said to be causes of income disparity, and only 2 of which can be proved to be a cause and not an impact. These two causes, taken together, improve the argument that income disparity tends to accelerate, and should be controlled by government intervention, especially taxation. Increasing income disparity is indeed “inevitable” without such intervention.

I’m sure you disagree, but (a) do you understand my reasoning and (b) can you find a flaw in my logic? I am interested in your perspective.

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Ken October 21, 2014 at 9:55 am

Steven,

Article by the Tax Foundation analyzing the economic impacts of Piketty’s recommendations.

http://taxfoundation.org/article/what-would-piketty-s-80-percent-tax-rate-do-us-economy

Here are a some other things, some of them statistical in nature, others not, but which are my thoughts based on what I know of Piketty and his proposals. This list got pretty long, so I’ll probably have to separate it into several posts.

1) Capitalism has created more wealth for more people in the history of civilization than any other system. Piketty offers no alternative system that can do a better job of harnessing the human spirit and making it work for the betterment of humanity. In fact, at one point I think he even admits that to this. Accordingly, his prescriptions are limited to taxing the system after the fact. The question then becomes whether his prescriptions will work or not.

2) In his home country of France the top tax rate is 75%. It is not surprising to me, then, that he thinks an 80% global wealth tax is a good idea. People like Gerard Depardieu, the French actor, are leaving France due to its punitive tax rate. Not sure why Depardieu chose to live in Russia instead. Sounds like kind of an idito to me. Anyway, Piketty omits mentioning his country’s 75% tax rate, and the France’s economic problems in general, in his book. Likewise, I don’t believe he ever mentions the economic malaise of Euro-socialist countries similar to France, such as Spain, Italy, Greece, Portugal, and Ireland, who have tried similar high levels of taxation, and high levels government control and intervention.

3) Interestingly, Piketty and Saez (thanks for the corrected spelling of Saez’ name, btw) have not received nearly as much attention in France for their work as they have received in the US. I suspect this is because France is used to extremely high (I would say “punitive”) tax rates. Also, anything coming from Europe, especially socialist-democratic Europe, is almost universally hailed by the American Left as worthy of consideration… because the American Left typically gets their ideas from these Euro-socialists. And it is really only the American Left who think that Piketty ‘s ideas are a good prescription for what ails us. Thus the use of the term left wing “pundits” in the NCPA article. I guess you found the term derogatory. I found it merely descriptive.

4) Sorry, but when your main solution to world income disparity is to propose an 80% global wealth tax, and you want to put that money in the hands of government to redistribute to the poor, then you are a Marxist. If you don’t like the term “Marxist”, call it “Socialist”. Whatever you call it, the principles are the same: group identity politics, economic class warfare, taking from the wealth creators to redistribute to non-wealth creators, state or collective ownership and administration of the distribution of wealth, and so on.

to be continued

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Peter October 21, 2014 at 11:57 am

I for one am not interested in labels (as you all know) – such as “left” or “marxist” or even the clever “libtard”. But I completely agree with the above post (Ken) and have a few additional observations.

I have said on here multiple times – we ALREADY have a system that takes from the rich and gives to the poor.

– The higher earners pay higher marginal income tax rates. Period. Despite random anectodal evidence of a few multi-millionaires with accounts in the Caymans.

– This is aided with things like AMT and elimination of deductions over certain income threshholds

– The poor have a multitude of Federal assistance programs such as welfare, unemployment, medicaid, etc. to name a few.

– The poor also have very minimal income tax liability and multiple credits for things like education and child care.

We already take more from the rich’s pot than the poor and the poor receive these funds through assistance and other means. I’m not saying this is wrong. Let me say that again…. I AM NOT saying this is wrong.

What I am saying is – we already have this system.

Yet the problem with this is that there will continue to be those who think it isn’t enough. We need to “up” the assistance to our poor. We need to tax the “rich” even more. There is no stopping to this – no matter how high it is as long as we have poor people and a national deficit, there are those that will say the “system is flawed” and we need to tap into the rich’s pockets even more.

An 80% global wealth tax – or a 75% income tax bracket – is insanity. Any reasonable entrepreneur or hard working person – regardless of what bracket they are in – wouldn’t want to live in such a country. Plus, the assumption is that this “solves all of our problems”. Months ago, I detailed what an increase like this to our ‘rich people tax’ would do to the bottom line – and it is surprisingly minimal. And it operates under the assumption that the Federal government would appropriate these funds properly – rather than simply increase spending even further. It also assumes similar economic growth and currency stability. France has seen none of these assumptions come to fruition. Why should we?

Again, we already have this system in place. I pay close to 40% in Federal income tax, while my mother pays 0% on her earnings. This has already been increased several times in just the last two years. Enough. Time to address the moronic MANAGEMENT of the funds for once and quit coming to the rich with palms out.

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Steven H October 21, 2014 at 8:01 pm

Wow. A lot of good discussion here, Ken. Thanks. I’m going to try to reply to your posts individually, but probably not always point by point in the same order, because I’m afraid that would sound too petty and tedious.

So this response covers Capitalism replacement (or not), global wealth tax, Saez and Piketty background and their Marxism/Socialism.

First of all, it is my perspective, and as far as I can discern from the posts of the other liberals (if I may call them that) on this blog, and for that matter, most of the liberals and Democrats that I speak with, that Capitalism is just great as an economic system for the U.S. I don’t know of anyone in that group that wants to create something even close to the true definition of a Socialist country here, or even a Democratic-Socialist country. So for my part, there is not much cause to discuss “replacing Capitalism”. The goals and remedies that have been proposed and discussed here have pretty much stayed within the bounds of historically effective policies previously enacted here in the U.S.

The work of Piketty seems to me quite a bit less Marxist and more respected overseas than you infer, especially after reading the following WSJ article. You are correct that his book created more controversy here and thus achieved best-seller status. In France, his ideas are old news, and he is considered a bit on the conservative side (having opposed socialist policies like the 35 hour work week). But that does not mean he is not respected. The following short article is balanced and is unlikely to change your general opinion of Piketty, but may give you some perspective. http://online.wsj.com/news/articles/SB10001424052702303480304579575890128783848

Saez is indeed a French citizen still (as far as I know) but also an MIT graduate and a teaching professor at Berkeley in California, so he has a bit of US history and background. In fact, according to Wikipedia, ‘he was the recipient of the 2009 John Bates Clark Medal, awarded to “that American economist under the age of forty who is judged to have made the most significant contribution to economic thought and knowledge.”‘ So at least the judges apparently considered him American enough to also be eligible. And so he is seemingly well respected in centrist economic circles, not just leftist ones.

But all this talk about labels is tiring, and I see why Peter avoids it. I just think it soils an otherwise vigorous conversation to attach unsavory labels to every thinker who has an opposing idea. It would be helpful to the conversation, I think, and respectful to the other side, for all parties to exclude the gratuitous use of partisan or unsavory labels unless those labels somehow advance the argument. Just a suggestion.

As for the wealth tax proposal … I must say I am more interested in Piketty’s work (and Saez’ for that matter) with regard to their research on past and present than their speculative proposals for the future. Where their research is useful though, is in attempting to measure what tax rates are in fact sustainable and effective. This can guide policy. I can see where Piketty is going with the wealth tax idea. You don’t want to raise taxes in just the US, or just a few of the leading Democracies, only to have some country volunteer as a tax haven for the ultra-wealthy. But I don’t think a global wealth tax is practical, myself.

My opinion: If taxes are to be increased in the US, the purpose should be to pay down debt already accrued and to pay for policies already established. Should waste also be ferreted out and eliminated? Certainly. But we have to be realistic. A certain level of social programs “to promote the general welfare” of the US are widely supported in the US, and rather than trying to starve the beast (and getting eaten in the process), we ought to consider just feeding the beast in accordance with laws and policies already in place.

One more item: the phrase you used of “taking from the wealth creators to redistribute to non-wealth creators” has always seemed to me a peculiar and inappropriate way to describe the policies that I and most Democrats advocate. This gets back to that whole “you didn’t create all that wealth by yourself” argument that is so fraught with emotion and politic. But there is an important point that needs to be acknowledged in any important argument: it is POSSIBLE for people to get rich by appropriating not only the wealth that they create, but also the wealth that others have created. Perhaps one example is enough. Consider when companies raid retirement plans to funnel the money back into the business or into management salaries.
http://finance.yahoo.com/blogs/daily-ticker/retirement-heist-u-pensions-plundered-corporate-greed-author-131151510.html
This is not creating wealth. This is reallocating (aka redistributing) wealth from employees to management. Of course wealth creation exists, and especially in the small innovative companies that truly create jobs. But it really irks people on my side to continually hear the pretense that every dollar of income of the very rich is earned by them and them alone, and that the company employees (or stockholders, or small investors) whose negotiating power has been systematically suppressed earn (deserve) only what the managers reluctantly allocate to them.

Enough for this response. Onward …

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Ken October 21, 2014 at 10:00 am

5) I personally do not think government is more trustworthy than private industry. Most of history agrees with me. To then to put money from the 80% global wealth tax in the hands of government, thinking that government will “do the right thing” is, I think, to put it mildly, very optimistic. Nevermind the political lack of feasibility for getting agreement on Piketty’s global wealth tax in the first place. But let’s say we get that agreement. Who would then administer it? The U.N.? Their record on global events is, to say the least, spotty. Ok, so let’s forget looking at the rest of the world. Let’s look at the U.S. alone. We have $17.5 trillion in national US debt; economic disasters in many US states such as my home state of Illinois, the state of CA, the fiscal condition of nearly every other US state; we have bankrupt cities such as Detroit and San Bernardino, among others. Add to that the many state and federal programs which are in economic straits (Amtrak, Social Security, Medicaid, Medicare, US Post Office, more), and it is not a pretty picture. To then think that we should place an 80% wealth tax on individuals and give that money to government as a solution to income disparity is, well, not supported by actual results.

6) Piketty never quite says it this way to my knowledge, but one of his primary drivers is that he doesn’t like inherited wealth. My perception of his point of view is that, to him, inherited wealth distorts what would otherwise be an even playing field, giving unfair advantage to children of “the rich”. I actually think there is a more sinister motive in play: he wants to find reasons for centralized government control of wealth, which is his solution to income disparity. Government intervention and control is almost always the solution insocialist, left-leaning politics. But getting back to inheritance, creating better lives for our children is a central driver is all parents’ minds. Why is it not OK to want your children to live better lives than you lived? Because some people succeed at doing that, while others don’t? Is it OK for the poor to leave money to their children, or not?

7) To my knowledge, Piketty never admits that the way in which people acquire capital is by earning it with labor. Listening to him, you would think that money just appears in the wallets of the rich, who then selfishly don’t share it with others. But the reason people have capital to invest is because they earned it. Additionally, it is their money, not the government’s money. Earning money to invest does give people who own capital an advantage. It is also what gives them an incentive to achieve. But they earned this money with their labor… at least initially. How, then, is this a bad thing? Piketty never explains or addresses this.

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Steven H October 21, 2014 at 8:27 pm

“I personally do not think government is more trustworthy than private industry. Most of history agrees with me.”
=====
This is a highly debatable point. If big business was so trustworthy, we would not need antitrust laws. We broke up big companies in the late 1800s and early 1900s for a reason. More recently, it was private industry in the financial realm that is largely responsible (among other players) for the 2008 economic crash. Greenspan’s quote is particularly memorable.
“Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself especially, are in a state of shocked disbelief. “—Alan Greenspan, October 23, 2008
The whole exchange is quoted here:
http://duanegraham.wordpress.com/2010/10/01/remembering-the-confession-of-alan-greenspan/

I will be the first to admit that governments can be flawed (witness our dysfunctional Congress), but at least government is ultimately answerable to voters. I don’t really think that most people would be comfortable with unregulated businesses, with no minimum wage laws, no antitrust laws, no labor laws, no safety regulations, no health regulations. I really think people only trust most businesses about as far as they can lift and throw their corporate headquarters. Figuratively, of course. Well, mostly figuratively. IMHO, only government oversight makes business trustworthy.

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Peter October 22, 2014 at 7:00 am

Think you misunderstood what Ken was saying. He wasn’t saying big business was trustworthy. Think he was implying that the assumption that government is MORE trustworthy than businesses is not one he agrees with. An indictment of both, if you will….. Not a case that corporate America is particularly trustworthy.

I don’t believe government is any more “answerable” to voters than businesses are to shareholders. If that was the case, we would have voted out almost every elected official multiple times in the last 20 years.

Ken October 22, 2014 at 9:45 am

That’s it exactly, Peter. I was saying that there is no evidence that government is more trustworthy than private business. I would say both have bell-shaped curves of trustworthiness. I could cite numerous examples where the weight of the evidence actually tips in the opposite direction, where governemnt has proven to be less trustworthy. Actually, I did cite numerous examples. Here are some more, with a few repeats.

Watergate, and all the other “-gates” that have followed. IRS scandal. Fast and Furious. No WMDs in Iraq. Iran Contra. Whitewater. 2008 financial crisis. Savings and Loan crisis. Monica. $17.5 trillion in debt. VA scandal. Newt. Benghazi. Chappaquiddock. In fact there are so many federal government scandals, there is actually a “Scandal Tour” in DC where you can ride on a bus and the driver takes you to the places where different government scandals took place. No kidding. Here’s a more complete list of federal government scandals.

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

I look at state governments and it is more of the same. Here in Illinois we have two ex-governors in jail, although I think George Ryan may have served his time and be free now. Blagojevich is still in the pen, though. The Chicago political machine and its ties to organized crime are legend. Think Al Capone. The Illinois state workers’ pension fund is currently $100 billion in the hole because state government officials stole the money and didn’t fund pensions as required by law. Nobody knows where the money went. It’s just gone. Poof. When Illinois passed the law to allow a state lottery, government officials swore up and down that the money was going to go to education. Needless to say, it hasn’t. In 2011, state lawmakers increased the state’s flat income tax from 3% to 5%, a 67% increase. They promised that it was just a “temporary” increase. Now of ocurse they’re talking about making it permanent. There’s still no talk of cutting spending, though.

California’s state budget is hundreds of billions in the hole. Forty-six of fifty state budgets are currently in the red. Detroit is bankrupt. So are San Bernardino, and Stockton, Calif. And Jefferson County, Ala. And Central Falls, R.I. Look at what happened with government officials in Louisiana, and how they diverted funds that should have been used to enhance/repair levees, the result being that Katrina destruction was far worse than it should have been. The list goes on and on.

I would also note that while government oversees business, virtually nobody oversees government. I know you would say we the people, oversee government via elections. And while that’s true, my response is that government oversight of private business is immediate and ongoing (audits, mandatory compliance with numerous laws, government in control of whether or not you get a license for whatever it is you want to do, such as a driver’s license, etc). By comparison, general public oversight of government is vague, not immediate in any sense since elections are often years in the future compared to when the offense was committed, there are no compliance mandates for government, no penalties for non-compliance, no fines they have to pay if they screw up. Government lack of accountability is also fogged by goverment being in control of the evidence, thus the ability to deny, obfuscate, claim executive priviliege, redact or lose documents (or entire hard drives, or a collection of hard drives/servers), and so on. Add to this the fact that in any election there are numerous issues on the table, and there’s a good chance that the government official will never be held accountable in the election(or ever) for his/her “mistake”. Government also has the ability to prosecute prviate individuals for lack of compliance, whereas the reverse is not true.

And yes, there are a long list of atrocities in private business, and government intervention and oversight in that regard has provided benefit. But my point was that there is ample evidence that government is no more trustworthy than private enterprise as far as “doing the right thing”. There are bad players in roughly equal numbers in both places.

In short, and on balance, however, I trust private industry more than government. And the basic reasons are that private industry is directly accountable not only to government, but to shareholders, and to customers. Government is accountable only to the public, and that accountability is delayed, is much more fuzzy, much more subject to obfuscation, and much easier to dodge, in general.

Steven H October 21, 2014 at 9:24 pm

Regarding capital and inherited wealth:

There is probably some really good economic theory terms for what I am about to describe, but I’m not actually an economist, so I’ll just wing it with words and terms at my disposal.

Dollar/Labor Inequality – Every dollar earned does not represent the same amount of labor to earn it. There are many valid reasons for this, and I am not trying to assert that there should be Dollar/Labor Equality. I’m just defining a term and an idea.

First Dollar is Hard, Next Dollar Is Easier – In many situations, earning the first dollar is hard, and earning subsequent dollars gets progressively easier. Often this is because some investment and planning is necessary to get that first dollar. Acquiring education, getting a job, getting a business idea, researching, building prototypes, etc.

Dollar Accumulation Is Not Creation – There are many situations where wealth and income is accumulated by the wealthy beyond any pretense or measure of wealth creation. I don’t think I need to provide examples.

So: The reasons that folks on my side of the fence distrust large capital and large inheritance are (a) frankly, we ain’t got it, and (b) large inheritance violates the First Dollar Is Hard principle, and (c) capital accumulation from investment seemingly takes unfair advantage of the Next Dollar Is Easier principle. Sure the next dollar should be easier, but living off accumulating investments takes virtually no effort.

Also, Dollar/Labor Inequality is acceptable to the average worker, but only up to certain ratios. Sure, a business owner may work 2 to 3 times as many hours in a week as a salaried worker. And the business risks and ideas are his. The SBO should indeed get well-rewarded if his business takes off. But what should the ratio be between CEO and average employee salaries? Whatever the market will bear, up to any maximum? 12:1, 20:1, 46:1, 200:1, 1000:1 ?? (Those are the respective ratios at Microsoft, General Motors, FedEx, Home Depot, and Wal-Mart, by the way, according to this table:
http://www.payscale.com/data-packages/ceo-income-2013/fortune-100 ).

At some point of wealth and income disparity, the non-wealthy begin to feel they are being scammed. There is constant downward pressure on wages, benefits, federal safety nets, all from the same corporate leaders whose next dollar is extraordinarily easy and whose kids will benefit from increasingly lenient inheritance laws, and who purchase good favor of politicians with their large donations.

So Ken, I actually agree that it makes sense that earned capital should be allowed to earn investment income, and that kids should be able to have a life that is cushioned by the hard-work of the parents — up until the point that such accumulating benefit to the most wealthy becomes an undue burden on the non-wealthy. And of course, there will always be disagreement as to where that point exists. But I think it is important to at least acknowledge that it exists, and that accelerating and unchecked income disparity from easy capital accumulation and lenient inheritance laws can ultimately reach an unsustainable imbalance.

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Peter October 22, 2014 at 7:10 am

“At some point of wealth and income disparity, the non-wealthy begin to feel they are being scammed.”

So? Feeling that they are being scammed doesn’t make it a reality. There is no circumstance where leaving my children millions becomes an “undue burden” on the non-wealthy. Frankly, I think estate taxes are among the most disgusting and indefensible laws that we have. Fortunately Obama supported increasing the exemption so that it doesn’t affect as many people.

Plus it is all relative. If I raise my family in North Dakota and leave them $100k, this would be quite an inheritance that could last a long time. However, if I raise my family in SoCal or NYC and leave them $100k, this might not get them through the year. How can you think that a) anyone else has a right to take some of these funds or b) that my children’s inheritance somehow burdens the public? Again, it’s not a zero-sum game.

Ken October 21, 2014 at 10:03 am

8) Piketty apparently believes that the economic pie is a fixed size, and that how we divvy up the pie is the important issue. I would say the pie is as big as the wealth creators make it, and everyone can be a wealth creator if they choose to invest the time, skill, risk taking, and education. This notion seems to escape Piketty, or at least he considers it unimportant enough to not make it into the central part of his thesis. Rather than divvying up a fixed pie, the much more important issue, in my view, is how to help people become pie creators, and thus how to make the pie bigger. Again, this viewpoint is notably absent in Piketty’s analysis. I suspect it’s because you can’t teach what you don’t know. Piketty has never run a small business and therefore doesn’t know how to create wealth. Thus his thesis is restricted to prescriptions for what to do after the wealth has been created….by others.

9) The inference in his approach is that if other people’s money isn’t being used the way he wants it to be used, the government is entitled to confiscate it, as per his 80% global wealth tax proposal. If it isn’t being used to create jobs, but rather to increase personal wealth, then it is “wrong”. Really? Exactly why? Because he says so? Why can’t others who want more wealth become wealth creators and create their own capital? Why is that not the solution Piketty offers?

10) As mentioned earlier, Piketty has never created or run a successful business. He would have much more credibility with me if he did. Because he has never run or created a successful business, his prescriptions for how to manage the economic and business environment ring hollow. They strike me as academic theory at best. I give much more weight to the opinions of people like small business owners, who have had actually made things work in the real world.

11) One of Piketty’s underlying assumptions is that all labor is of equal value, thus the notion that the worker bees are being cheated when large profits are had and owners/management get more of thoe profits than the worker bees get. However, there are huge difference between worker bee labor and owner-opearator labor. Non-owner labor isn’t risking their own money to make a business an ongoing entity. They will not lose money if the business folds. They play it safe by offering only their labor as an input. They also escape responsibility for keeping the business afloat, making a profit for shareholders, being responsible for their livelihoods, and making payroll, among a long list of other things. The absence of these differentiating factors means (to me) that Piketty considers them trivial. i think they are not. Keeping an ongoing business afloat, making a profit for shareholders, being responsible for their livelihoods, all of these are far different set of risks, expectations, stress and therefore, compensation, than merely showing up 9 to 5 and taking home a paycheck.

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Peter October 21, 2014 at 11:59 am

This point needs highlighting:
“Piketty apparently believes that the economic pie is a fixed size, and that how we divvy up the pie is the important issue. I would say the pie is as big as the wealth creators make it, and everyone can be a wealth creator if they choose to invest the time, skill, risk taking, and education.”

A key point. This is not a zero-sum game. Fundamental to the disagreement on here.

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Steven H October 21, 2014 at 9:57 pm

Ken and Peter, You have both provided some really good discussion material today. I can’t answer it all today, but will get back to it soon. You are making me think through the problems and i want to take some time to formulate an adequate reply. And there is one of my replies already posted that you can’t see yet because it awaits moderation. Don’t worry. I’m being nice. But the post has more than one link and I think that alerts some sort of sp@m-alarm.

By the way, I hope MOR and JTM are following this discussion and will get their thoughts in as well. And of course, for anyone else listening, new players may join in at any time.

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Steven H October 22, 2014 at 8:35 pm

Let’s start with the easy stuff.
====
“Non-owner labor isn’t risking their own money to make a business an ongoing entity. They will not lose money if the business folds. They play it safe by offering only their labor as an input.”
====
I agree .. partly. While i respect and admire the effort and risk of the business owner, it is too often forgotten that every employee represents about a 20 year production effort of two to three people (individual plus parents) in time and economic investment. Being an employee may also involve moving expenses and purchase of a house near the business. Loss of a job is one of the three most traumatic events a person encounters in life, comparable to death of a close family member or divorce. If the business folds, there may be a period of unemployment, search for a new job, possibly requiring sale of house and uprooting of family and children from a familiar environment. To say that employees have no personal investment in the success of the business and no economic impact if it folds is simply not correct.

Now the hard part. And please be patient with me while I rant a bit, just for one paragraph.

Wealth Creators. The term makes (at least some) liberals cringe with disgust. You think “You Didn’t Build That” is offensive. At least most liberals have the sense not to toss that phrase into casual conversation with a conservative. But Wealth Creator is the title not so humbly proclaimed by businessmen, as if (it seems to the liberal) to proclaim themselves Lord and Creator of all that is Good and Prosperous. All Hail to the Wealth Creators. Lay Down Your Offerings Of Tax Cuts Upon Their Altar.

OK. Done now. Out of the system. (Deep breaths. Ahhhhhhh.) Back to the discussion.

If a businessman starts a small business and it grows to hire 99 other people and makes a decent profit year after year, how many wealth creators are there in the company?

Are there 100, because all of those employees are necessary to achieve the profit?

Is there only one, because the owner gets all the credit, and the employees are just cogs in the machine?

Or might there be none at all? Wait, what? The company makes a profit, so it is creating wealth, right? Depends … It may be creating wealth for itself, but is it creating net wealth for the community or the country? There are some pretty good arguments on the web that (excluding impacts of dividends) the stock market is a zero-sum game, meaning: Every dollar received for stocks is a dollar spent by some other investor for those stocks. Every winner has a loser, with sums of wins and losses (buys and sells) zeroing out, which is the definition of a zero-sum game. If you include the costs of transaction fees subtracted by investment houses, the market is a negative sum game. So, back to our business. Is it a stock investment house? Then it is creating no wealth because it is simply moving paper around and extracting wealth from an otherwise zero-sum game.

Another example of successful company that creates no wealth: A single company that merges two companies that formerly made widgets and wodgets, and now continue to make widgets and wodgets, at the same quantity and price, but now the lack of employee competition between companies allows (a) downsizing, (b) wage cuts, (c) higher wages to management, and (d) larger profits. So it is making more profit and thus creating more wealth right? Not really. It has just reallocated wealth and a corporate income stream that already existed, from workers to management and investors. No ADDITIONAL wealth created whatsoever. And in fact the impact to the local economy is negative, because employees have less money to spend, there is more unemployment, and the spending of the executives won’t make up the difference.

In fact, the determination of wealth creation is difficult. Economists are widely split (as far as I can tell from my quick research) on what the term even means. It happens, generally through innovation, labor-saving ideas and devices, more efficient processes, etc. But not every profitable company is so easily designated as a wealth creator.

I find that idealism distorts arguments. Sometimes we all have to simplify arguments to explain and make a point. But the general designation of business owners (and ONLY business owners) as wealth creators both offends people and distorts the bigger picture. Everybody who is providing a needed or desired service or product, private and public sector, manager or wage earner, might be considered a wealth creator. We all need (most of) each other to survive. Maybe we even need the investment house business.

So let’s be realistic about (a) who makes a company successful and profitable (everyone involved, not just the owner) and (b) where and when wealth is actually created for the wider community. Does that make sense?

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Peter October 23, 2014 at 7:37 am

“There are some pretty good arguments on the web that (excluding impacts of dividends) the stock market is a zero-sum game”

Patently false. The stock market has been a wealth “creator” for over a century. If it were a zero-sum game the market wouldn’t rise in value. Same with any other market (real estate, commodities, bonds, etc.). I honestly can’t believe you wrote this…. This entire email shows a total lack of understanding of corporate America, Steven H.

First of all, not all of corporate America makes widgets. There are service companies and other industries as well. But let’s take your widget example. Company A makes widgets and sells them for a profit. They pass a portion of their profits on to shareholders via dividends and reinvest the remainder into the company to expand into new markets/products/etc. Let’s just say everyone at the company makes a salary. As the company becomes more profitable, they can expand (i.e. hire more people) or pay their own employees more. Just as I described with my job, this pay is not distributed equally throughout the company as the owners have FULL discrection. Nonetheless, this is an addition to the salary base across the board. The success of the company indirectly causes the stock price to rise. Anyone who owns a share in the stock profits and is richer than they were the day before. If the company merges with company B, they create efficiencies. This might cause layoffs in the near term, but over the long-term should mean more profit for the company, higher pay for employees, higher dividends for shareholders, and an increase in stock price. Therefore, Company A is a wealth creator – not just for the original starters of the company, but for employees, new hires, and shareholders. Companies don’t merge just to make the same amount of money but reallocate it to fewer. They merge to streamline their business and make more profit.

Of course, this is a success story. As with anything else, there are winners and losers. Some companies go completely under and all of the owners and shareholders lose wealth. Employees lose their jobs.

I do have a new perspective on your ideology now – the biggest incorrect assumption in your philosophy is detailed in your last post. At the end of the day, you believe that a business or corporation is a zero-sum game. When management takes more, employees get less. This is not the case. Your more valid angle you could take is this…. when companies make more, management/ownership/the rich take more of the profits and employees get less. This may (and probably is) true.

Peter October 23, 2014 at 7:43 am

Steven H said:

Let’s start with the easy stuff.
====
“Non-owner labor isn’t risking their own money to make a business an ongoing entity. They will not lose money if the business folds. They play it safe by offering only their labor as an input.”
====
I agree .. partly. While i respect and admire the effort and risk of the business owner, it is too often forgotten that every employee represents about a 20 year production effort of two to three people (individual plus parents) in time and economic investment. Being an employee may also involve moving expenses and purchase of a house near the business. Loss of a job is one of the three most traumatic events a person encounters in life, comparable to death of a close family member or divorce. If the business folds, there may be a period of unemployment, search for a new job, possibly requiring sale of house and uprooting of family and children from a familiar environment. To say that employees have no personal investment in the success of the business and no economic impact if it folds is simply not correct.
—-

This is also horribly misguided. An employee having to move and look for a new job is hardly what Ken means when he says that the owners are taking more risk. There is a VAST difference in putting everything you have accumulated into a company and possibly coming out of the other side not only having lost it all – but possibly even in debt or having to file bankruptcy. This is common among failed small business owners. An employee – say a “file clerk” – can then just go take their skills – a commodity by the way – and go find another job. Sure this is a short-term hardship, but to compare this to putting all of your chips on the table and ‘betting’ on the success of a company is foolish. If I lose my job as a file clerk because a business failed, I still have my 401k, savings, house, etc. Hopefully I have planned properly to have reserve assets to sustain me while I look for another job as a file clerk. And I can even collect unemployment while I am looking. The business owner is often penniless and even unable to purchase a house or start a new endeavor due to debt and/or bankruptcy.

Ken October 21, 2014 at 10:06 am

12) Generally, Piketty like most socialists, appears to think that labor is more “honest” than capital. He speaks of labor in glowing terms, but denigrates capital as simply a means of enslaving others (my words, not his). Nevermind that invested capital is the means by which businesses, and jobs, are created. Capital is still evil, labor is good. I think this is utter nonsense.

13) Another of Piketty’s underlying assumptions, perhaps the central underlying assumption, is that disparities in income are inherently bad. Income equality is good, income inequality is bad. But no proof is ever offered as to why. It is just assumed equality is good, and inequality is bad. He then goes on to paint the picture of the altruistic, perpetually virtuous victim low wage worker, versus the narcissistic, greedy, high wage “wealth baron”. I do not accept this theory or viewpoint. It is based on belief, distortion and hyperbole. One way to make everyone equal is to make everyone equally poor. Is that a better solution? This has happened in numerous socialistic societies, including current examples like Venezuela and Cuba. How’s that working out for them?

14) Hours worked per week is never mentioned as a cause of income disparity. I recall reading a book about Bill Gates, and in particular I remember the story about Gates sleeping under his desk at night during the fledgling days of Microsoft. Does Piketty ever do any analysis of hours worked, compared to income disparity? The average small business owner works, I would say, 80 hours a week. Their employees work perhaps half of that, as a rule, give or take a few hours here or there. Setting all of the management, ownership and risk taking elements of business leadership aside for the moment, and looking only at hours worked, should the business owner who is working 80 hours a week be paid the same as the employee who only works 40? This would make their incomes equal, right, which according to Piketty would be the “fair” thing to do, right, since income inequality is by definition bad?

15) Does Piketty ever talk about the benefits that world society has derived from innovation in private industry? Or how even the lowest classes of American society have cell phones, flat screen TVs, and cars? Does he ever say that in any competitive environment, some people are going to compete better than others? These would be interesting to take into account in his analysis, to say the least.

16) Other organic causes of income disparity are not mentioned by Piketty, either, especially factors in the US such as the rise in divorce, the rise in two-earner professional households, the rise in illegal aliens in the US, the decline in pay for industrial age job skills and unskilled labor, and many others. All income disparity is inferred to come from nefarious causes, such as the greed of the rich. Needless to say, I disagree. I think all of the afrorementioned causes, and more, are factors, and they do not all emanate from nefarious causes.

I guess I’ll quit there. All in all, I think that if Socialists-Democrats-Marxists would spend more time trying to create wealth, rather than trying to find reasons to take wealth from others, we would all be a lot better off.

Having said all of this, I do appreciate your point of view, Steven, although I rarely agree with it. You frequently have made me think.

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Peter October 21, 2014 at 12:20 pm

“Other organic causes of income disparity are not mentioned by Piketty, either, especially factors in the US such as the rise in divorce, the rise in two-earner professional households, the rise in illegal aliens in the US, the decline in pay for industrial age job skills and unskilled labor, and many others. All income disparity is inferred to come from nefarious causes, such as the greed of the rich. Needless to say, I disagree. I think all of the afrorementioned causes, and more, are factors, and they do not all emanate from nefarious causes.”

Another great quote. This is where the “offensive” part of the point of view of some irks me – and what has been the biggest turnoff for me to some people’s otherwise interesting points of view in this thread.

This is much like racism, or discrimination against homosexuals, or stereotyping any other group of people with a commonality. It is just simply too convenient and easy for those who are mad at the system to stereotype the 1% as:

– Greedy, hoarders of $$$
– Wealth barons who will bend and twist the system to their advantage any chance they get
– People who vote only in what is in their own personal best interest
– Selfish, uncaring types who think the poor just need to ‘man up’ and work harder
– Unsympathetic to others in less fortunate situations

I had others listed – but these are the main 5. I just know that even though I am likely in the top quartile of the top 1% myself, I don’t exhibit these traits at all – nor do most of those in my social circles and peer groups.

Our country has a serious problem of overcharacterizing people as caricatures. Reality TV is a prime example of this. We have a hard time accepting people as individuals it seems, but would rather group everyone as liberal or conservative, rich or poor, white or black, gay or straight so we can figure out who they are and how to treat them. In important political debates like the one on this thread, it is poison.

I’m not completely immune from this myself, but try really hard to avoid liberal/conservative talk (because I am neither) or labeling anyone’s opinions. Every time I see a word that classifies a group of people it rings in my brain like seeing the “N” word. That may seem dramatic to you, but as someone in the 1% – having to endure the assumption that I am nefarious, greedy, unsympathetic or flat-out heartless is infuriating and tiresome.

More importantly, it undermines what would otherwise be a good discussion of our economy and our society and what tweaks need to occur to make it a better one for ALL.

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Peter October 21, 2014 at 12:31 pm

Oh and I’ll drop this point from now on….. I realize I’ve made it many times now but it continues to frustrate me in this dialogue. Maybe I need to not be so sensitive…. :)

Steven H October 22, 2014 at 9:06 pm

I am handicapped by not actually owning (yet) a copy of Piketty’s book, but I have not gotten the impression from the summaries that i read that Piketty actually caricatures the rich as evil or greedy. The summaries and excerpts i have read are drier than that. What I HAVE read is conservative blogs taking offense at the book AS IF he made those accusations.

Here is a summary from a liberal reviewer:

“Piketty’s main point is that wealth disparity inevitably grows when the income from capital investments exceeds the income from work and a nation’s productivity growth. As wealthy family dynasties become richer and more powerful, their money increasingly takes a larger share of a society’s resources and productivity. High progressive taxes, especially on corporations and the wealthy, reduce this disparity, and helps fund programs that reduce the initial maldistribution of wealth.”

There is no offensive accusation against the rich here, just impacts of various economic factors. Until you actually read such accusations against the rich in his own words, i suggest you assume they do not exist.

Here is an article I just ran across that may be useful. Bill Gates discusses Piketty’s book and while I don’t necessarily agree with everything Bill says, I don’t agree with everything Piketty says either. But it is interesting to see on what points they agree and disagree.

http://www.gatesnotes.com/Books/Why-Inequality-Matters-Capital-in-21st-Century-Review

Ken October 23, 2014 at 5:30 am

Here is a review of Piketty’s book by Lawrence Summers, President of Harvard, Secretary of the Treasury under Clinton and the Director of the National Economic Council under Obama. It is the most balanced review of Piketty I’ve seen so far. I will attempt to respond to other posts today as time permits, but have a heavy meeting schedule.

http://larrysummers.com/2014/05/14/piketty-book-review-the-inequality-puzzle/

Steven H October 22, 2014 at 9:38 pm

Ken, here is the best brief sum may i have seen of Piketty’s book (without the specific wealth tax policy recommendations).:
“Piketty’s main point is that wealth disparity inevitably grows when the income from capital investments exceeds the income from work and a nation’s productivity growth. As wealthy family dynasties become richer and more powerful, their money increasingly takes a larger share of a society’s resources and productivity. High progressive taxes, especially on corporations and the wealthy, reduce this disparity, and helps fund programs that reduce the initial maldistribution of wealth.”

From this, (and other more extensive summaries I have read) I think perhaps you are taking too much offense at the assertions he makes and extending them into something they are not. Now I have not read the book yet and perhaps you have seen more of his writing than I (my apologies if that is the case and if I am misinformed). My perception of his writings is just this: based on extensive data and research, that owners of large amounts of capital have an inherent advantage over the rest of the population in acquiring more income and capital, and that this is unstable for the larger economy. The Next Dollar is so much easier to earn for the rich with Capital than anyone else, that increasingly more of the nation’s wealth flows up the ladder. It is not a matter of evil rich, or of the rest of the country not working hard enough, not striving hard enough for the goalpost. It is a matter of the tilted field continuously increasing it’s tilt until the lower income players can no longer make any reasonable progress up the field. This in not a matter of evil, but of economic instability, threatening a collapse that is bad for everyone.

As for Piketty describing “Income equality is good, income inequality is bad.”; nothing could be farther from the truth as a portrayal of his, or any American liberals’ philosophy. This is why i really hate the term “Income Inequality”. The problem is the DEGREE of Income Inequality, or High Income Disparity (a term I prefer). NOBODY in this argument is arguing for Income Equality. The problem is the INCREASING level of Disparity causing us to approach a second gilded age. You agree the Gilded Age was bad, right? That is what we are trying to avoid.

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Ken October 21, 2014 at 6:09 pm

I agree that item #1 does not deny that income disparity has increased. It just says that it has increased less than previous calculations. Even if you accept the revised figures, it was a weak argument, and not compelling. Merely notable.

I disagree about the relative impacts of the others. I still feel the economy is much more complex, and therefore solutions need to be much more complex, than by yet again increasing taxes on the rich.

I would like to see more discussion about potential solutions that do not involve taking money from one group in order to subsidize another. We’ve been doing that for years, and it isn’t working.

I’d like to see proposals for how to create more high quality jobs, how to enable (and ultimately require) the able poor to eventually fend for themselves more successfully, teaching them how to fish rather than just continually giving them a fish year after year.

I’d like to see proposals for making government-run state institutions of higher learning more affordable, and how to make government entities more accountable for keeping tuition costs in line.

I’d like to see proposals for how government can better utilize existing funds, rather than asking for more funds.

And in all of these, I would prefer that government overall be less of a player, not more of a player. I think government adds a lot of cost and inefficiency, relative to the value it provides.

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Ken October 21, 2014 at 6:12 pm

Crap, the post immediately preceding this one got shoved WAY too far down. It was in response to Steven H’s post dated October 18, 2014 at 7:29 am.

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Steven H October 21, 2014 at 9:38 pm

I knew what you meant. But here is the link back to my original comment (if this works), for those who need it.
http://moneyning.com/career/who-actually-earns-400000-per-year/comment-page-10/#comment-1005470

Steven H October 22, 2014 at 9:49 pm

I agree the economy is complex and the combined problems of High Income Disparity, slow economic growth, loss of higher paying jobs, and high public debt don’t have a single solution.

I agree completely abut the need for high quality job creation and helping poor to move out of poverty and up the ladder.

I enthusiastically agree that higher education needs to be more affordable, and making it so will help solve the previous issues.

Where we may have to disagree is in the role of taxation and government. Solving all of these problems will cost money. If entrepreneurs and businesses can be persuaded to take on these problems with no government intervention, then God bless ‘em. Otherwise, government is the institution that is responsible for the “general welfare” of the country and is the only player likely to take charge. And the money will have to come from somewhere. Somewhere where money in the economy actually exists. Where would that be?

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Steven H October 19, 2014 at 8:06 am

Open note to Peter and any others I have offended: I apologize for any insults I have tossed your way. I am sometimes hurt if you provoke and insult me but I shall seek not to return such provocation in the future. Except to such as Peter N who knows, I think, that my pokes are all in good fun. I would be distrustful and concerned, I think, if he ceased to call me a Marxist libtard. I wish everyone who posts here well, and welcome any insights you may choose to provide. Even the now-absent stevendad. Know that I am seeking truth and that the accusations of any other motive attributed to me are ill-informed. The posters here have strong opinions and get rancorous, myself included. That should not result in anyone fearing to post their honest opinions and contributions. It certainly will not stop me.

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Peter October 20, 2014 at 7:12 am

Appreciate the sentiment but my problem wasn’t with the smarmy word use or the “provocation” you describe. My problem is that you are truly not ‘seeking solutions’ or ‘seeking truth’. The lack of ability to listen or be open-minded that your philosophy may not be 100% perfectly correct has left me and many others frustrated with the debate with you.

There truly is no point- it’s like arguing the existence of God with a devout Christian. They just “believe” and you aren’t going to open their minds to the possibility that the whole thing might be a lie.

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Peter October 20, 2014 at 7:57 am

I honestly have gained quite a bit of perspective on here from both sides of the argument – from people like Ken, JTM and Man-of-Reason. And these people aren’t coming from the same angles or perspectives. I miss those debates and even though I disengaged a few weeks ago – I find myself checking in now and then hoping that sort of productive discussion will start back up again.

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Steven H October 20, 2014 at 4:54 pm

Peter, I also get frustrated with the stubbornness I see on the other side. Don’t you see that you and Ken and James, et. al, appear just as stubborn and inflexible from this side of the fence?

I truly am struggling to find the common language that bridges the partisan intellectual gap. Facts, studies, logic … nothing seems to work. I am trying, really. For instance, you may see my critique of the article of Ken’s as closed-mindedness, but I spent a lot of time to offer some very specific critiques of both substance and style that are honestly put forward, legitimate, and could be discussed. Maybe I am off base and am missing some point in the article. But rather than discuss the article, everyone is getting off base about who funded it and whether that is a valid issue. It is somewhat valid. But it is a side issue. Can we discuss the points of substance, like how income mobility is a separate issue from income disparity (or how it may be related), or what statistics may or may not exist defending the idea that behavior of the poor are a bigger cause than government policy?

If so many people are hungry for substantive conversation, then why do I get no response to a substantive post?

What I primarily find is that the conversation is heavily biased by the differences in faith and trust on both sides. I understand that but am surprised by the extent. In broadest, most general terms: Cons trust business and wealthy people, and distrust government and poor people. Libs: vice versa, on all counts. The intelligent people posting here recognize, I think, that both aforementioned institutions are imperfect and that all classes of people are only human and are prone to the same flaws and virtues. And yet, the partisan biases persist. But I have to believe that intelligent discourse can find some common ground, if not in common conclusion, than at least a fair assessment of the postulates of disagreement.

My perspectives have been changed by this blog on several points as well. Really. But I have seen absolutely no movement from the business owners here on even the remotest POSIBILITY of my primary assertions:
– that lessening the high income disparity levels in the US COULD possibly improve the overall economy
– that the nation’s wage and income structure is PARTIALLY controlled and impacted by government policy as well as the idealism of market forces
– that government policies MIGHT be responsible for significant proportions of the increase in income disparity
– that the increased share of incomes at the very top of the economic ladders MIGHT be better allocated as disposable income of the working class
– and that government policy changes, including taxation changes that increase government revenue from the most wealthy, COULD have net positive effects on the economy while not over-burdening the wealthy.

Of course, you could argue that I have not moved on accepting the negative of each of these statements. The difference, as I see it, is that I have offered statistical and historical and logical evidence for my above statements, whereas, I have not seen such strong data or arguments for the negatives. Primarily, it seems, that people “just don’t believe that”. Why? What are the reasons? Where is the data? Or did I miss something?

Where are the articles that prove that government policy has no impact on income disparity? Where are the articles that prove high income disparity such as we have today is good for the economy? Where are the articles and studies that show that adding back the higher tax brackets on the most wealthy would be bad thing?

I am formulating my thoughts for a post about why I think income mobility is irrelevant to the income disparity problem (although it can be a separate concern if mobility is too low), and why income disparity is a problem even with high mobility. I am not doing this to be hard-headed and stubborn. I am striving for truth, exploring and refining my own thoughts on the issues, and seeking the perspectives of others. I would appreciate your continued commentary and the contributions of any others toward forthright intelligent debate.

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Peter October 21, 2014 at 12:41 pm

I would simply say this …. if I were coming into a society as a young person wanting to build wealth for myself and my family, I would be primarily concerned with income mobility. Income disparity wouldn’t bother me as long as I have the ability and opportunity to move up the ladder.

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Steven H October 21, 2014 at 1:13 pm

I agree … as an individual, income mobility is very important, and is probably more important when thinking on an individual level about pursuing and advancing in a career or as an entrepreneur.

Income disparity is a macro-economic characteristic that comes into importance when a country is making big decisions about how to improve the economy. It is important when considering issues of taxation and costs of health, education, and housing. High income disparity has very little to do with the EXISTENCE of income mobility, except that it can actually LIMIT income mobility by making services like higher education too expensive for the lower incomes.

This is why I said some pages back that discussions about how to achieve individual success should not be presented as an answer to the income disparity issue. Solutions that primarily focus on increasing or improving income mobility are likely to have almost no direct impact on income disparity.

Peter October 21, 2014 at 2:01 pm

Fair enough….makes sense. So I suppose that brings us to the question – if income mobility is there, then why should we worry about income disparity?

Is your case simply that it is bad for general economic growth?

Steven H October 21, 2014 at 9:44 pm

“Is your case simply that it [income disparity] is bad for general economic growth?”

Yes, and that’s a perfect segue to my post below
[at: http://moneyning.com/career/who-actually-earns-400000-per-year/comment-page-10/#comment-1009403 ]
which discusses income disparity and also links to a good TED talk on the subject that explains it much better than i can.

Peter N October 19, 2014 at 8:22 pm

“Open note to Peter and any others I have offended: I apologize for any insults I have tossed your way…..”
There can be no forgiveness. Not until the money you and your fellow marxist/libtards have stolen from me using the gov to back you up has been returned. You have voted for a fool that has forced me to pay for other peoples health care even though I already provide it for the people in my company.

You and other marxist/libtards are stealing from me.

You have no solution. You don’t create wealth or jobs. You have not walked a mile in my shoes. You can not know how much “You didn’t build that” pisses off those that have created small businesses. Especially when it comes from our Marxist in chief that has done none of the above but live off the gov ( other people’s money). You are a Marxist the rest of the democratic party.
The fact you still haven’t answered “what is your, or anybody else’s, fair share of other people’s money” makes you a libtard. A libertarian or tea party member could answer that.

You may think you are only against the few 0.01% but your libtard polices actually penalize those that in the top 2 or 3% that are hard working small business owners that actually create wealth and jobs.

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Steven H October 20, 2014 at 3:47 pm

Peter N, I’ll not be lured into name-calling. I’m fond of your affectionate pet names for me, but you are getting yourself all into a dither and you need to step back and look at reality.

By all likelihood, you have benefitted significantly from the decades of GOP policies that have simultaneously and systematically drained the treasury and shifted income from those much poorer than you to those much richer than you. Nothing, NOTHING has been stolen from you or your economic superiors. The rich are richer and the poor are poorer. And blaming the victims just does not cut it.

It makes no sense to describe yourself as a victim if you are in the 1%.

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Peter October 22, 2014 at 7:59 am

“It makes no sense to describe yourself as a victim if you are in the 1%.”

From my earlier diatribe…. this is the kind of thing that bugs me. Do the 1% have any right to complain? Could they possibly be being taken advantage of? It this is an impossibility or taken off the table of the discussion, then there is no discussion.

He didn’t even describe himself as the victim – just saying that policies (slur omitted) penalize the wealth and job creators who are making more money.

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Steven H October 22, 2014 at 6:42 pm

Peter (original),

Peter N said “You and other [blankety-blank] are stealing from me.”
and
“… money you and your fellow [blankety-blank] have stolen from me …”

That certainly seems like victim-talk to me. Doesn’t it sound like it to you?

As for whether “the 1%” have right to complain: it completely depends on the individual and the complaint. Do small businessmen have the right to complain that they are being unfairly taxed relative to big business? I think so. Do small businessmen get a larger share of the tax burden because we don’t have higher marginal rates on the inflated incomes of multi-national CEOs and financial industry leaders? Yes that would be a legitimate complaint. Does Peter N have a point when he claims that the poor are stealing from him and he is getting a raw deal, when, on average, people at his income level are doing much better than previous generations, and the people he complains about are not? No I don’t think he has that right.

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Peter October 23, 2014 at 7:22 am

I disagree. Everyone’s reality is their own. I, for one, get no solace in the fact that “I’m doing better than previous generations”. If all 4 of my grandparents died in their 50’s, yet at age 65 I get a horrible cancer, it offers me no solace that I outlived my grandparents.

This is the flimsiest argument you have. That somehow it is justified to take more of Peter N’s earnings and that he has no right to complain because he makes more (relatively) than prior generations. Horrible argument….

Also understand – he isn’t complaining about the poor (best I can tell). Hard to blame anyone for wanting money handed to them. He just poses a valid question – how much of his money must you take to be satisfied? You haven’t answered this. You are already taking almost half of my income – how much more would you like? Valid question.

Man-of-Reason October 23, 2014 at 8:26 am

Enough from each so that the pain of such investment is offset by the opportunities provided to every citizen and opportunities increase for all. Not so much that any citizen is greatly deprived of his incentive to merit as much as that opportunity allows.

Peter October 23, 2014 at 8:58 am

Which is how much?

Steven H October 23, 2014 at 4:39 pm

As I’ve said before, I think small business owners may be over-taxed and should probably get a break for their significant contribution to the economy. But Peter N didn’t ask how much more he should pay. He demanded to be given money back because it has been “stolen” from him. That is different.

Even though he is likely (by statistics certainly I do not know his precise finances) historically better off on income and likely pays a lower effective tax rate than a generation back, or even less than tax rates just 20 years ago, he complains that he is worse off because taxes went up a few percent in the last 5 years.

You say history does not matter and that it is a flimsy argument but I adamantly disagree. History teaches us and is the absolute best argument. We don’t copy history just for tradition, but must learn from successes and mistakes of the past. Failure to learn is disastrous.How much better off does he have to be than the rest of society before he is satisfied? He is in the upper half percent of the richest country in the richest generation in history. His taxes are lower than historical and the share of the country’s wealth to his income bracket is phenomenally high. By some measures more than 100% of all new wealth in the US has gone to the 1% that he is a member of, and yet he gripes that he has to pay taxes.

And for the record, I advocate higher tax brackets ABOVE his income level, where people are making many times historical incomes for comparable positions and yet paying about half the historical effective tax rate.

How much money should the citizenry pay to the government? Enough to pay the bills and debts duly acquired by government through our elected representatives. No more and no less.

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Peter October 24, 2014 at 9:37 am

Which is how much? Again…. no answer for this.

JTM October 24, 2014 at 1:02 pm

Peter – Enough to pay the bills created by our “leaders”. Maybe if the very wealthy put more of their resources into pushing for reduced spending instead of concentrating on reduced taxes, we would get somewhere. Of course, it also has to be realized that reduction of spending cannot only come from entitlements and “welfare queens”, it has to also come from defense and other areas they would prefer to protect and some of them would become much less wealthy with these reductions in spending. Government spending has created many very wealthy individuals.

Peter October 25, 2014 at 6:42 am

Couldn’t agree more JTM. I am one of those as I live in the DC area and have benefitted from the local economy greatly. What I am hoping for (severe reduction in spending and shrinking of government) would significantly reduce my income – but it is what the larger economy and our country needs. Defense is one of the main places I would start, although it certainly isn’t the only solution.

Steven H October 23, 2014 at 5:47 pm

I suppose the simplest answer is that US citizens are, as Ben Franklin alluded, members of a Club, and club members must pay their dues, which are the taxes. The question “What is my share of other people’s money?” is a fallacious one that has no relevance to taxation. Citizens are obliged to pay taxes as part of the condition of being citizens.

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Steven H October 20, 2014 at 9:01 pm

Some thoughts on income disparity vs. income mobility.

Income disparity is the difference between the incomes of the richer and poorer parts of society. The more unequal the distribution of wealth in an economy, the greater the income disparity. There are various measures of income disparity, including the Gini index (a complicated integral across all incomes), 20/20 ratio (income ratio of upper and lower quintiles), Palma Ratio (income ratio of upper 10% to lower 40%), and others. The income share of the upper 10%, or 1% or 0.1% is also sometimes used as a measure.

Economic mobility is the ability of an individual, family or some other group to improve (or lower) their economic status—usually measured in income. Economic mobility is often measured by movement between income quintiles.

Mathematically, these two characteristics CAN be completely independent. An example thought-experiment may be helpful.

Imagine a simple situation with a stable zer0-growth population, no inflation and no changes in income disparity over time; i.e average income in each quintile (or other division) is constant. We can imagine further a condition where there is zero income mobility. This is a completely static society, and kind of a caste system. The poor always stay poor and the rich always stay rich.

Now imagine the same situation, but give the society high and predictable income mobility. Imagine that everyone starts their career in the lowest quintile at age 20, spends 10 decades in each quintile, and dies at 70. Their children follow the same path. What is the income disparity in this society vs the static society. Precisely the same. Is it high or low? It can be anything we set. Income mobility is mathematically independent of income disparity.

Another question is whether income disparity even matters if you have high income mobility. If everyone, or everyone who makes a concerted effort, can climb the ladder and achieve economic advancement in their lifetime, who cares how far apart the rungs are? Certainly, high income disparity in a static mobility society seems more dismal than societies with either low income disparity, or high mobility (or both). But there are more reasons to worry about high income disparity, even with good mobility. High income disparity accelerates itself, as shown in Piketty’s research, and the earlier article here linked by Ken. It raises the price of commodities that everyone needs, such as housing, education and medical care, because the producers of these commodities can make more money by catering to the wealthy, even if it means unaffordability for the less wealthy. We see this in the US health, education, and housing markets. It decreases longevity and increases social ills, as measured and excellently described and presented in in this TED talk which I highly recommend:
http://www.ted.com/talks/richard_wilkinson?language=en#t-787673 .
You owe it to yourself to see this talk if you think high income disparity should be ignored.

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Steven H October 20, 2014 at 9:05 pm

Correction: I copied some definitions from elsewhere into my first paragraph of the above post. It said “The more unequal the distribution of wealth in an economy, the greater the income disparity.” It should have said: “The more unequal the distribution of INCOME in an economy, the greater the income disparity.”

Wealth and income disparity are separate, if often related, measures and should not be confused with each other. I apologize for quoting a poorly stated definition.

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Steven H October 20, 2014 at 9:08 pm

Another correction: In an example, I stated that people spent ten decades in each quintile. They must be long-lived. I obviously meant 10 years, or one decade, in each quintile.

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Peter October 22, 2014 at 8:41 am

I honestly found this talk to be very “fluffy”…. surprised you found the article Ken posted to be biased and lacking substance while you liked this TED talk so much. Making a loosely-built case that higher income disparity causes more ill-will, mental illness and unrest isn’t exactly a compelling reason to take money from the rich. And any article that continually draws parallels to Sweden (or even Japan) always concerns me. Apples and oranges…..

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Steven H October 22, 2014 at 6:28 pm

I guess I should have liked Ken’s article, as two of the three “causes” of income disparity it supplied supported my arguments. I just didn’t like how it threw in a bunch of extra irrelevant information on income mobility and claimed incorrectly that mobility either causes or mitigates income disparity.

As for the Ted talk, I liked it because it is data based, not just some random opinion, and proves multiple real impacts of income disparity on society, including life-span and health and well-being. And after all, the original meaning of wealth is “health” or “well-being”, not “little green pieces of paper”.

I also don’t understand the argument, which i have heard from you and others, that the US is somehow so special and unique that we cannot learn anything from the positive aspects of other economies. Economics is a social science, which means it is all about human behavior and, last time I checked, there are humans in those other countries too. ;-)

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Peter October 23, 2014 at 8:19 am

Steven H –

Just so you know….my last two replies above (both on October 23) were meant to be helpful to you – not to be smarmy or condescending. Your comments about wealth creation and how businesses work really took me aback and caused me to engage with you again. My reason for re-engaging is to attempt to help you understand how the reality of the business world works. You have some decent points of view on income inequality and express a lot of the frustration of the working class – which I appreciate – but if you are operating under the assumption that business owners and employees are all assuming risk and/or the stock market is a zero-sum game, then your arguments will fall short due to misinformation.

I don’t claim to understand everything (this is why I never get in a debate about our foreign policy for instance), but how the business world works is my life’s work. When I disengaged with you in the past and said that you were closed-minded – this is what I meant…..

You lack some understanding of the business world and many others on here have either been business owners or have spent their careers studying it. PLEASE – I beg you – take this opportunity to learn from those on the board with this experience and then apply this knowledge to your larger argument. Instead of working from the endgame of vilifying the rich and raising their taxes, open your minds to the minutae of the business world and work towards a solution.

That’s all I ask – I love your passion for your point of view and that you take the time to post in such detail on here. But there are many others on here with fascinating perspectives – which is why I continue to be unable to quit coming here.

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Steven H October 23, 2014 at 12:40 pm

Thanks for your comments. I am always ready to learn something new.

The bit about stock market (or at least stock market trading) being a zero sum game was pulled from a web article, and was mentioned partly to provoke discussion. There is apparently a lot of discussion online about the question. As far as I can tell, you can define stock trading as a zero sum game as long as you neglect (a) dividends, and (b) unrealized stock value. All that the proponents of a zero-sum stock market are expressing is the mathematical fact that every buyer has a seller, and the buying and selling price cancel (except for trading fees which are a small percentage). I think most people agree that the unrealized value of most stock is real unless our economy totally collapses (in which case money also has no value) and as long as the stock market continues to grow, it is not a zero sum game.

You could probably explain it better than I. I really don’t pretend to be a business expert.

What I really DON’T understand (and would therefore appreciate some clarification on) is what wealth creation really means. I can’t find a clear and simple explanation. I can think of simple examples:

Primitive community lives on an island and gets most of nourishment from fruit that falls to ground. Inventor creates a ladder allowing access to more fruit on the tree before it spoils. His invention “creates wealth” because it allows more access to needed resources.

Another explanation is that the human mind has potential energy that can be turned into better utilization of resources through ideas, inventions, and directed labor.

But in the real world, how does profit relate to wealth creation? If one company fails and a new company arises to replace its production to meet market demand, no new wealth is created in the community but new wealth is created for the new business owners and employees (assuming the new employees are not just the employees from the old business. If a new manager takes charge and cuts salaries to increase profits, is that wealth creation? Or just redistribution?

My gut feel is that profits are not equal to wealth creation, that every profitable business is not necessarily a wealth creator, and that wealth creation is actually difficult to measure. Can you clarify?

With regard to the sum of wealth and income creation in this country, here is the reason many people give no credence or honor to the wealth creator mantra: almost all of the new income and wealth in the last 30 years or so have gone to the upper 1%. So if the 1% are the wealth creators and all of that newly created wealth just goes back into their own pockets, the rest of us are not impressed. It is our shared resources, sons and daughters, and labor that go into making that wealth and we think we deserve a significant share. Doesn’t that make sense?

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Peter October 24, 2014 at 7:31 am

Wealth creation, at least on the personal level, is a snowball-effect. Whether you are an individual, a small business, a corporation or a government in order to create wealth you must RETAIN some of your profits. A bricklayer making $15 an hour who saves $1 an hour is creating wealth. At first, it won’t amount to much – but over time the wealth will accumulate. The article Ken posted illustrated this. As you attain more wealth, it becomes easier to accumulate more – it is almost exponential.

The reality is most people don’t make the sacrifice early. I made almost nothing for 4 years starting my career and chose to live in a tiny apartment, eat at home every day and didn’t go on any sort of trip the entire time. Never took a day off, never took a vacation and certainly denied myself of quite a bit. When I finished those 4 years I had a nice 5-figure savings accumulated. As my lot in life improved, I ended up not needing this money. This was 20 years ago. As my income rose, I had developed good budgeting habits so I was able to save much more money each year, which earns more money on itself.

Wealth accumulates exponentially. But it must start somewhere. Like it or not, most people don’t want to make the sacrifice. More than ever, we want everything now – instant gratification. Read the book called “The Richest Man in Babylon” – great parable about this very thing.

Of course the wealthy will increase their wealth at a faster rate. This makes total sense. Particularly in a rising stock/bond/real estate market enviroment.

The poor can choose to participate – yet they don’t. I do talks in lower income areas about contributing to your 401k at work. Some enormous percentage of people don’t take advantage of this even though many companies MATCH your contributions! Sure, you could say “I can’t afford to contribute” – but if your company gave you a 5% pay cut, would you quit? NO – so put 5% in your 401k – which is often matched at 100%. I have one company of laborers – bricklayers making 3 to 4 times minimum wage (about 150 employees) where I manage their 401k. 10 of the employees are ‘office employees’. They ALL participate in the 401k – 7 of them to the max. Out of the 140 laborers, only SIX participate in the 401k.

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Steven H October 23, 2014 at 12:46 pm

Oops just found the actual Oct 23 responses you referenced. (There were more than two.) Now reading. My post above was not yet informed by the earlier posts. Just so you know.

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Steven H October 23, 2014 at 1:05 pm

OK. Read your two posts.

I know that business owners are taking tremendous risk. I was just pointing out that many employees put more than just their labor into a job. This varies with profession. It’s a matter of respect, I think, to simply recognize that employees are often more than commodities, and thus deserve recognition as partners (not equal partners, but partners nonetheless) in any wealth creation that occurs. Yes the business owner has more at stake. But the employees also have a stake.

I’m still unclear on wealth creation. Wealth creation for an individual company may be its profit and payroll in some cases. And I understand that a company merges to create efficiency. But in that merge, it may create more profits for itself and simultaneously cause a net loss of wealth for the community. So how do you measure wealth creation in a macro-economic sense?

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Steven H October 23, 2014 at 1:05 pm

Previous response was to Peter.

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Steven H October 23, 2014 at 7:12 pm

Peter, I am continuing conversation down here from up above. I’ve said some of this before, but I’ll try expressing it a bit differently now that I am learning to be a kinder, gentler liberal. :-)

You said:
====
I do have a new perspective on your ideology now – the biggest incorrect assumption in your philosophy is detailed in your last post. At the end of the day, you believe that a business or corporation is a zero-sum game. When management takes more, employees get less. This is not the case.
====

First, I do understand your points that successful corporations as a whole are not zero-sum, and that realistic situations are usually much more complicated than a shift of money between employees and management. And yet, I think you are dodging a valid point by denying that such shifts could ever occur. I want to explore this here (a) to make a point and (b) establish the basis for an argument that may be central to our different perspectives.

Most large companies and many small businesses have an annual ritual called the pay raise. In companies where I have worked, the accountants report the previous years profits and earnings and assess the business climate in a report that comes out early in the calendar year. Sometime after that, employees start to hear (probably leaked from accounting) about the “target” annual percentage of pay raise that year. Employees can expect to get something just above or below that percentage based on pay grade, performance and some other factors.

So this pay raise number is very important, both to employees and the company bottom line. Too small and employees may leave, but there is a frequently little danger there. Staying just above inflation often is enough to retain the workforce, with an extra % or 2 for the really superior performers. But too high and it eats into the bottom line, not just for this year but all future years as the percent increases multiply together.

Some people suggest that pay is a negotiated contract, but at most companies, it is more fairly describes as a distribution system. Management has complete control over what the mean pay increase will be and who gets more or less. A few employees may object to the particular performance review and get an adjustment but it won’t make much difference to the overall payroll expense.

So, in this system, a conscious decision is made between accounting and management on how to divvy up the year’s corporate income (after expenses) between management salaries, other payroll, and profit on the balance sheet.

This decision is a zero-sum game.

There may be subtleties I have left out (forecasts for the current year, plans for hiring, etc) but at some point management gets to decide if they get more of the pie and it must be balanced against payroll and reported profit. So generally, when management (and investors) get more, employees get less. It’s hard to see how this is not the case.

Now let’s talk about negotiation strength. What i described above is a situation where employees are just passive, or where they have little negotiation strength. Conditions that improve negotiation strength may cause management to increase pay raises (or entry salaries) either on their own or as a result of active negotiation:
– high local employment, resulting in general employee shortage and hiring competition
– shortage of employees with specific skills
– generous management (Hey, it happens. More so at small companies than large ones.)
– unions
– need to retain longer-term employees for various reasons (skills, domain knowledge, known leadership)
– any tax policy that makes it more favorable to reward employees than to reward management or declare profits
– etc.

I probably left something out but you get the idea. Stronger negotiation position of employees results in bigger employee salaries, and by some degree (since pay raises are a zero-sum corporate game) smaller management salaries. Everything is bounded by actual business income and expenses, but there is quite a bit of wiggle room.

So, now, consider the change in the shape of income distribution that occurred around 1980, where national income increases used to be distributed evenly as percentage income increases across the spectrum, and the situation since then where almost all real national income increase goes only to the upper 1% or so.

Why has this happened? One reason is almost certainly the changes in negotiating power. Why did negotiating power of employees decrease?
– Decline of unions (including suppression via politics and laws)
– Larger companies (resulting in less generous management and less employee competition; caused by changes in antitrust enforcement))
– High unemployment (since 2008)
– Globalization (increase in potential employee pool or outsourcing of labor; impacted by trade policy)
– Tax law changes that encourage high management salaries over reinvestment in company or in general payroll.

The point is that, among all of the factors that impact employee negotiating power, and hence their pay, several are impacted by government policy (labor laws impacting unions, tax laws, trade policy, antitrust enforcement) and some are not, at least not directly (world and national economic conditions, global competition, unemployment rates).

The difference in income disparity might therefore be significantly reversed by any national policy that improves employee negotiating position (tax incentives against high management pay, changes in trade policy, increased antitrust enforcement, pro-union policies).

And if reduction in income disparity truly will help economic growth, as some suggest, then we could all win with such policies.

Comments?

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Peter October 24, 2014 at 7:19 am

Add “lack of employee loyalty” to the list too. One of the key reasons that some of the labor laws changed – as well as the almost total absence of pension plans these days – is due to employees jumping from job to job. We live in a vastly different world than the industrial age. This must be acknolwedged. Many of your ‘hypothetical’ theories about labor sound about 50 years old. The current business world is very, very different and we must have 21st century solutions for them. And yes, this is impacted by government policy which has by and large simply fattened the pockets of corporate America (and your Democrats are just as guilty of this as Republicans).

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JTM October 24, 2014 at 12:54 pm

To be fair, for most, “lack of employee loyalty” was preceded by “lack of employer loyalty”.

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Steven H October 24, 2014 at 3:40 pm

Good point about employee loyalty and pensions. And even i have to admit that the old model of unions striking for more pay is unappealing. But it seems that there must be a system to restore some strong negotiating position to employees. One approach used in Germany is to have a representative of labor interests on the board of directors. Do you have any opinion on this?

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Peter October 24, 2014 at 3:50 pm

Still think it is largely antiquated in our economy. Many of these “laborers” today are employed by small businesses. Or they are skilled workers.

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Steven H October 23, 2014 at 11:45 pm

Pardon me. I got distracted with my discussion of negotiating power, and did not complete an earlier thread of thought. And please also excuse me because it is late and i am feeling more philosophical than statistical and so the following will either strike you as profound, poetic, or rubbish. But here it goes.

I believe the real crux of our differences, Peter, is that you seem to believe that all of the resources you see about you – employees for your business, a marketplace for your wares and services, the country in which you do business with its stable government, courts, roads, health inspectors and various crucial civil servants – are either unimportant, free, or just unworthy of any extraordinary payment. You seem to believe that you have paid full price for all of these resources with your established business, salary to your employees, and the taxes which, by the way, have been insufficient to pay government bills. Even as your business prospers, the country that allows that prosperity sinks into governmental debt, and the vast majority of people who ultimately finance your success by making up the larger community sink in debt themselves, and unemployment, and shrinking shares of this nation’s wealth. What more should you pay? Not money. You have probably paid enough of that. How about your intellectual support for policies and ideas that can actually make a difference. This country’s wealth, and wealth per capita have grown, and yet you see no injustice that 90% see a lesser share and only about 1% see an increase of that growing bounty. You seem to proclaim that only the few who have managed to build and negotiate their way into control of the worlds of business and finance have any right to grow in prosperity, and those who have lost or fallen behind in this competition are unworthy of aid. You join with those who proclaim that the the laggards should just work harder or start their own businesses even when the resources and capital to accomplish that task are increasingly rare except in the upper echelons of the economic ladder. You object that you are portrayed as heartless and cruel and greedy, but you still act the part you deplore by refusing to support the very simplest answers to many the nation’s troubles: supporting a tax system that actually pays the bills, paid for by the increased national bounty and out of the vaults of those wealthier than you who have retained it; and working to lessen crippling income disparity through reasonable means such as a small increase in minimum wage, and increased government payment for higher education, and pro-labor policies that will restore negotiating power to the people who need it. Other policies and ideas are possible and welcome, but those such as systematic education changes will take time, and some of these very basic straightforward ideas that can be implemented quickly are needed right away.

I say you seem to believe some of the above because i cannot tell what you truly believe. At times you seem to be the fairest minded and most even-handed, cogent voice on this thread. At other times you seem to share the more raw resentment and vulnerabilities of Peter N, with his strong distrust of government and disrespect of those of lesser means. I don’t mean to insult you or disrespect you. I am just trying to understand your contradictions. And I am trying to portray my passions in a way that you may understand. You will either see this as the foolish rant of a socialist liberal or the heartfelt plea of a concerned citizen. But we need answers and solutions and i think you are clever enough to at least understand my perspective and you seem compassionate enough to embrace at least some part of it.

I’ll return to a more statistical and logical discussion this weekend, if you still agree to participate.

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Peter October 24, 2014 at 7:13 am

Let me address for clarification:

“you seem to believe that all of the resources are either unimportant, free, or just unworthy of any extraordinary payment.” No – I am paying for these with my taxes and they are vital to success. Plus a lot of the things you listed are funded from the state level anyhow.

“You seem to believe that you have paid full price for all of these resources with your established business, salary to your employees, and the taxes which, by the way, have been insufficient to pay government bills.”

I pay more than enough in taxes to pay government bills. The government has been very poor in spending the money with the right priorities – whether it is foolish overseas endeavors, corruption, catering to special interest groups, or just simply foolhardy spending. When 50% of the country pays almost no income tax and I pay 50%, the last thing I will accept is that I’m not paying enough to pay government bills.

“Even as your business prospers, the country that allows that prosperity sinks into governmental debt, and the vast majority of people who ultimately finance your success by making up the larger community sink in debt themselves, and unemployment, and shrinking shares of this nation’s wealth.” Who is financing my success exactly? Not that I look at this way, but when I pay several hundred thousand dollars in Federal tax every year I am certainly paying more into the “infrastructure” than I am getting out of it. I can sleep at night knowing I’m not being financed by the masses.

“How about your intellectual support for policies and ideas that can actually make a difference. ” This is why I am on this site and in this discussion.

“You seem to proclaim that only the few who have managed to build and negotiate their way into control of the worlds of business and finance have any right to grow in prosperity, and those who have lost or fallen behind in this competition are unworthy of aid.” Wrong. Never said anything about unworthiness.

“You join with those who proclaim that the the laggards should just work harder or start their own businesses even when the resources and capital to accomplish that task are increasingly rare except in the upper echelons of the economic ladder.” Not entirely true either. Never said anything about starting your own business. Income mobility is still alive and well though – so there is much that individuals can do to improve their situation. Trying to get our inept government to fix (or help) your personal situation is a much more painstaking (and I think, futile) endeavor.

“You object that you are portrayed as heartless and cruel and greedy, but you still act the part you deplore by refusing to support the very simplest answers to many the nation’s troubles” I resent this. Show me where I have been heartless, cruel or greedy. I just don’t support YOUR ideas, which mainly revolve around raising my taxes. We all agree on certain things – tax credits for not shipping jobs overseas, funding for education and training, etc. What I don’t support is the single-minded answer that the people who are paying the majority of the taxes need to pay more. This does not make me heartless or cruel. You may want to look closer at your beloved government and how much of their spending is structured to actually BENEFIT big business. This is the problem – not policies making me richer at the expense of the poor, but policies keeping big business in the catbird seat to keep politicians elected.

“At other times you seem to share the more raw resentment and vulnerabilities of Peter N, with his strong distrust of government and disrespect of those of lesser means.” I think you view disagreement this way and unfairly lump me in with Peter N. If I thought that raising my taxes would go directly to those in need I would happily vote for this. I have extra money – I can help people with it – I just don’t want the government as my middle man. That is a totally defensible and respectable opinion. So instead I give money directly to people in my community. I have paid for other people’s children to go to school. I have hired people both in business and in my personal life and been very generous. I have supported charity VERY significantly. To say I’m heartless and disrespectful of people with lesser means is an outright insult and just foolish. To say I do not trust the government to appropriate my funds in a smart way would be very, very accurate.

“You will either see this as the foolish rant of a socialist liberal or the heartfelt plea of a concerned citizen.” It’s neither. It’s emotional, not logical. You have to be able to open your mind that maybe your solution is incorrect – or at the very least, quite incomplete. You are the one that has to learn to be respectful and sympathetic to others (the 1%), not me. You have repeatedly lacked any sympathy for people in my situation, not the other way around. In order for progress to be made on this there must be a mutual respect and understanding. I’ve been in every one of the income tiers in our country at some point in my life – I know what it is like to struggle and I know what it’s like to have more money than you can spend. I have family members and close friends in financial situations across the spectrum. The last thing that I am is heartless and unsympathetic- and certainly not close minded. You should reflect on whether you can say the same.

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Steven H October 24, 2014 at 3:34 pm

Thanks for your responses. Many times i spend hours crafting a post, but sometimes (as above) i am compelled to let the more clumsy stream of consciousness flow out even as you and others have done on occasion. I appreciate your patient responses to both types of post.

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