Aside from the major hiccup the economy faced during the COVID-19 pandemic, the economy has been on a steady upward trajectory ever since years ago when we were talking about extending the Bush-era tax cuts. In case you don’t remember, we did end up keeping those cuts in place permanently for any individual making less than $400,000 per year, and for couples earning less than $450,000. Nowadays, those fortunate few who make more than that amount are paying a marginal rate of 35%.
But like I said, it’s been years since we passed the extension into law and I still don’t personally know anyone bringing home $400,000 per year. So who is actually paying that top tax rate these days? 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 the 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.
On the other hand, most presidents end up receiving so many requests for speaking engagements after they hold office that he or she will be set for life. They also get a pension equal to the salary of the head of an executive department (Executive Level I) would be paid. In 2020, that is $219,200.
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 careers. Plastic surgeons can make up to twice that amount.
Most people are completely okay with that though. After all, these people do a very, very important job.
3. CEOs and Founders
The median salary of a Chief Executive Officer (CEO) of a public company is over $700,000. These individuals are in charge of both short- and long-term profitability for their companies. CEOs generally have to know the industry inside and out (although there are certainly plenty of counter-examples), and need to have worked their way up over many years.
There are also plenty of CEOs from private companies who make quite a bit of money. The job can be stressful, but when you are the top dog, you reap the reward whenever your company does well.
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 few years.
5. Mortgage Loan Officers
This may be surprising to you because not many people think of this group of individuals as ones who can earn the big bucks. However, there are some loan officers, riding the wave of historic low rates, who are raking in the dough right now. After all, their salary is directly tied to commissions they earn as a percentage of the total loan amount they get approved for their clients. They work hard, often seven days a week in many cases due to unprecedented loan volume these days, but they are definitely getting rewarded for their hard work.
6. Speakers in Public Events
Before the pandemic, the good speakers were booking speaking engagements left and right. Not only do they speak at conferences, but they also have opportunities to speak to employees in their offices as well. Some people even write books that tie into their brand. They travel all over the country (and some all over the world), so clients are plentiful.
The pandemic has slowed business to a trickle, but these people will bounce back because everything will eventually go back to normal.
7. YouTubers
Can you see why your son or daughter would want to be a YouTuber yet? The popular video creators not only make $400,000 a year, but they can have earnings in the millions every year. The vast majority of people who try to make it big fail to amass a following, but many dream of the life of recording themselves play video games and earning the big bucks all the time. What they don’t realize is that those who earn millions not only have talent, but they also work extremely hard. If not, then they have a team of people who are behind all the videos that get produced. An entertaining video takes hours and hours of editing, but most people just see someone talk, have fun, and collect cash.
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 in between, the government estimates that raising the tax rate on this small group raise about $600 billion in new revenues a decade.
Not bad for a group that small.
What other professions that earn annual incomes of $400,000?
{ read the comments below or add one }
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Nobody is forced to bank with the big 6. There are credit unions and other online banks. Gas is tough to not get at the big 4 oil, but I can buy biodiesel from a guy down the street. Food is easily bought from someone other than the food monopoly, but it might cost more. I haven’t bought store bought peanut butter in 4 years. I make my own now, but I might be buying industrial peanuts. Cable/TV is impossible to find a non monopoly as is the phone systems. There are a ton of choices on cars, not so much if you travel by airplane. Some things are easy to avoid, some aren’t. I can avoid WM like the plague, but I can’t always avoid the industrial food system. I rarely go to starbucks, we have a local roaster down the street, I buy craft beer, not the shit from InBev/mlosoncoor/SABmiller. We try to avoid large chain fast food, but some stuff is pretty good. If you are in a small town, you have limited choices. WM will being a greater variety of food/products than a mom and pop can. That is life. They can compete on customer service and having stuff WM won’t carry.
JB, It sounds like you are an active supporter of smaller and local business. Good for you.
Would you also favor reversing the policies and laws that have benefitted the big monopolies? It seems like actively encouraging small business with favorable tax policy and discouraging monopoly with more aggressive anti-trust enforcement would be better for the country.
A related article about how the modern monopoly is hurting America. Really good article for discussion.
http://www.salon.com/2014/06/29/free_markets_killed_capitalism_ayn_rand_ronald_reagan_wal_mart_amazon_and_the_1_percents_sick_triumph_over_us_all/
Regarding Wal-Mart and Small Towns:
This only one of of many similar articles.
http://www.wupr.org/2009/12/17/why-walmart-is-ruining-america/
fyi, the new CEO of Costco has a salary twice the size. I may have said this before, but you can’t compare Costco and WM. Costco has a membership base that pays to belong to Costco. They get $71M in membership fees. That goes a long way to giving employees a better salary. Overhead costs are low. That also keeps expenses low. I never hear of WM doing anything but squeezing the vendors to make their products cheaper so they can be on WM shelves. There are 10x as many Sam’s Clubs as Costcos and Sams don’t pay as well. it is all about upper management, but at some point, the CEO has a minimum affect on employee salary.
If it was possible to know Sam’s Club finances separate from Wal-Mart, it would be a better comparison to Costco. Both Costco and Sam’s Club have membership fees. My point in comparing the two was that someone on this thread (Peter N?) claimed that no one would reasonably pay a low level worker a few dollars more than some other company pays them … and yet Costco and Sam’s Club wage structure and raises and benefits are considerably different. And yet Costco still competes well, even if they are not as big as even Sam’s Club which is only part of the Wal-Mart empire.
So businesses don’t have to Scrooge their employees to be successful. They choose to do so at direction from the top.
Peter, or anyone else interested, one more hypothetical situation, and then I’ll explain what I’m doing.
Imagine that you are retired and have returned to the small town of Prosper where you grew up, so you could spend some time with family and old friends. The town has persuaded you to run for one of the five city council positions, a position easily obtained. One of the first questions to come up to council is whether to allow a Super Wal-Mart to come into town. They want to buy a prime piece of land where the abandoned Super 8 hotel was, but they need permission from the town. One councilwoman is firmly against the deal, as she claims that most of the businesses in her cousin’s town 250 miles away were destroyed by the Wal-Mart. The barber-shop, local grocery, pharmacy, clothing shops, hardware store, and toy shop all shut down once Wal-Mart came in. Another councilman is lobbying for the deal, probably because he owned the old Super 8. The two other councilmen are easy-going and look to your opinion as the retired successful businessman. The mayor is leaving the decision to council. The people in the town are of varying opinions, but many of the small businessmen are clearly worried including your Aunt’s family who run the grocery, and your other cousins who have the hardware store. The plus side is that the Wal-Mart would probably bring in business from neighboring towns. The downside is that a lot of long-time businesses owned by friends and family would probably go bankrupt. Based on this information, what would be your vote? To allow or deny Wal-Mart the chance to build in your town?
The barbershop isn’t affected by WM. I don’t seem to recall hair cutting services in a Wal-Mart. 🙂 People only care about the lowest price or the small mom and pop shops wouldn’t go out of business. Butchers and bakers are making a comeback due to WM and the large grocery stores being part of the industrial food chain. A few people like Whole Foods due to the meat being organic and anti-biotic free. Yes, it costs more and people are willing to pay for better quality meat. Those that can’t afford it have Wal-Mart to go to. If you put the same item on the shelf and one is made in China and is $1.00 cheaper than the item made in America, people will go to the cheaper product,
I have seen Super-Wal-Marts with hair cut salons.
Yes people will go to the cheaper product.
And yes this kills small town businesses. It’s a race to the bottom. Wal-Mart comes in, people making a decent living with their own business lose their businesses, and have to work for Wal-mart at lower wages or move out of tow. Wal-mart serves as a drain to the area economy, where the money spent there goes to the Wal-mart and does not get reinvested in the community. Town declines. Then Wal-Mart business declines, and it leaves. Then town has no business infrastructure at all. Most people leave. Town is dead. It happens a lot.
My initial reaction to this ….. I think that rather than having a small group of government officials decide everyone’s fate, I would propose a public referendum, Proposition 123, which could be voted on at the next election.
Agreed. I would hope that a five member council (of which membership was apparently easy to obtain) wouldn’t decide the free enterprise of my community. Consumers have a choice. Bring in the Wal-Mart.
If the WM is going to bring in 10X the tax base than the other mom and pops, you are irresponsible as a public official to not vote on the WM.
Plus the WalMart will make merchandise more affordable to the majority of people in my community who are living paycheck to paycheck. I’d be irresponsible voting against it.
Are you smart or dumb for going to a gas station that has gas .20 cents a gallon more? It makes a difference to some if the station is owned by a family that fixes cars at the station and provides excellent service or just go to Costco and get your gas cheaper. Who are you helping? Some people don’t care. There is a reason why grocery stores got into the gas game. there is a reason why there are McD and Subways attached to gas stations and not all gas stations have a place to fix a car. Most of the small guys don’t have the staff to drive you to work while your car is being worked on. I take my car to the dealer mainly A) they are open early, B) they have a shuttle to bring me to work and pick me up. For routine stuff if I can carpool with the wife, we leave it at the family owned garage and they do provide great service, but my car is never washed after but the prices are a bit cheaper.
JB – So, your vote, is to most likely kill off the mom and pops so everyone can save a few pennies here and there? Of course, this also often means killing off many other businesses downtown as there is less and less traffic and those workers that were cherished by the mom and pops go to work at WM for minimum wage instead of a livable wage.
All to save a little here and there, the local economy is gutted and becomes wholly dependent on WM. I’ve seen it happen in my hometown and many other places. Cities too small to attract Whole Foods and the like to offer the better quality and service. In the end, the community suffers.
People have choices on where to shop. If WM kills all the other businesses in town, they weren’t that strong if saving $5 means that much. If WM prices are 25% cheaper, then why should I pay that premium on the same box of cereal at the General Store? Who wants to pay more for the same product? If the General Store offered better products for a premium, maybe others would shop there, but small towns are limited in what they can do. small populations, smaller incomes etc….
The community suffers by not having goods at lower prices? The mom and pop businesses suffer – that’s for sure. But does the community? The community can reject shopping at WalMart if they want. But everywhere seems to have giant crowds going in and out of the superchains.
What’s interesting is in Northern Virginia outside Washington DC – we only have two WalMarts that I know of – in an area with 5-6 million people. Mom and pop businesses still thrive, as do boutique places like Whole Foods. But that is largely a function of the fact that people have more discretionary income so they can spend .20 more on gas (to use JB’s example) to support local businesses and avoid the superchains like WalMart.
But regardless of all this idealistic talk, does anyone really think that the government should stop WalMart from building a store wherever they please? It really is amazing to me how many of the people in here want the government all up in their lives. That part I will never understand.
I don’t shop at WM. We pay more for eggs from the Farmers Market. But I can afford to. Most people want it as cheap as possible and don’t care where the food or product comes from. There is a happy medium, but the consumer dictates what business survives, not the gov’t. There are stores that can compete with WM and Home Depot, but you can’t have a hardware store on every corner.
You don’t have the amount of land needed in NoVa to put in Walmarts. Smaller shops survive because those towns have been around for a hundred years. Land is very expensive and towns are laid out a bit different up there. You have more town squares than most of the rest of America.
Whole Foods needs a certain demographic to build that is WAY different than a WM. Whole Foods isn’t cheap. You won’t find someone working paycheck to paycheck paying $10.00 a pound for the organic chicken. There aren’t a ton of WFs in Houston, but where there are WFs, they are near the affluent parts of the city. And there is a guy putting in a grocery store in the “food deserts”, but guess what, you can bring fresh food to the poor masses, it doesn’t mean they are going to buy the fruits and vegetables you sell. So it is chicken and egg. Why should a grocery store build in a part of town where those people won’t buy fresh food when they can buy a box of macaroni and cheese for .89 cents.
Peter – Yes, the community suffers, especially if they don’t have the incomes or population to fight back. They are often better off without the lower prices because the jobs lost that are replaced by WM will pay less and often have less benefits. So, the community suffers. Other employers try to compete and they cannot pay higher wages to do so, the community suffers. WM brings down the wage structure in small communities.
A community has a right to choose the types of businesses they want in their community through zoning and such. I don’t want government in my life any more than they are, there are enough fools out there trying to tell us how to live our personal lives according to their religious beliefs while advocating freedom for businesses at the same time. It’s a bit sickening that they can’t see the hypocrisy of wanting to give businesses more freedom than people.
I don’t want governments picking and choosing here and there, but if laws are in place and followed it’s what the community is choosing. The communities have the right to limit types of businesses in their community to maintain its character. This is not government all up in their lives, it is government working to maintain what the people want. If the community wants WM, then they can vote to bring them in or not create laws to keep them out in the first place.
OK, but that was not the question.
That was a response to Ken: ” I would propose a public referendum”
Great point about religious ideological freedom vs business freedom. I want freedom and liberty for – and from – both.
Wow, this provoked a wider and different response than I expected. I actually thought I had fashioned the question such that any reasonable person would have voted down the Wal-Mart. After all, a person retiring to their own home town to be close to family and friends would be unlikely to vote in such a way to kill the businesses of those same families and friends. Or so I thought.
JB seems to assume Wal-mart will improve the tax base and it should come in. Peter thinks the low prices supercede any downside, and is leary of “government”, even the elected town council, from deciding the town’s own fate. Ken wants a referendum, which is good Democracy, but risky when the viability of the town is being left to a referendum that may bring out a minority of voters and which may be heavily influenced by Wal-Mart marketing flyers. Only JTM saw the situation as I did, as a likely death-knell for the town if Wal-Mart came in.
Interesting.
I was going to use this as an example to answer the question “Why should American workers get paid more than foreign workers in distant factories who will work for much less?” I was going to use the example of the councilman’s vote to uphold the strength of the community and the jobs of his friends and family and neighbors as an example of the reason. We vote to defend our own communities, our own home, our own people, our own way of life, and prevent our own economic collapse. We pay a little more to keep our own country strong and our own economy strong so that it will be here when we need it, and so there will be jobs for our friends, our children, and our children’s children.
But it seems my argument will not sway several of the businessmen here, because they would fire their own families and doom their own community if it improves a bottom line in the short term, even when it is a bottom line that is not their own. That’s what I got out of this conversation. Pretty depressing.
Perhaps the others could explain their reasoning a bit more than they have. The same has played out time and again in the small communities. It is devastating to the local economies. Maybe they haven’t experienced this happening to their hometown? Maybe they grew up in a larger city? Maybe to them only business rights matter?
When WM is the major employer and pays so little most of their employees are now on government assistance, is that fair just so some can get slightly lower prices? I’ve seen studies of WM giving livable wages, it causes prices to rise almost unnoticeably as there are really very few employees in the stores.
It was one thing when WM first came to town, they were just an alternative to KMart. It hurt some businesses (mostly KMart), but the quality and service were so poor that the the locals could survive at first. With time the locals mostly gave up or retired and few places opened as they didn’t want to try their hand against WM. When the supercenter came along, it shifted things more greatly in WM favor since it was one stop shopping. Many small communities would be better off without WM in their front yard.
JTM, Thanks for the backup.
I’m sure that Peter, JB, and Ken don’t see themselves as I portrayed them in the last paragraph of my last post. But where I provided every indication of likely doom (via councilwoman with story of failed town in similar position), and where they even indicated they believed that friends and family would lose their small businesses, the above trio were so inclined to favor big business that they would have the councilman vote against any hope of a happy retirement for what? A bigger tax base (when there was no indication the town required it or would benefit long term) and some vague benefit from lower Wal-Mart prices. And lots of angry relatives.
I don’t see how I could have made the situation more clear. It really seems that worship of the almighty dollar is supreme among the wealthy class, and that there is no interest whatsoever in the prosperity of average Americans or of the nation. It’s an “I got mine and I’m after yours, you’re on your own, one dollar, one vote” society. Not at all what our founding fathers envisioned I’m afraid.
Sorry to sound so depressing. I’m feeling a bit down. I’m waiting for the next REAL tea party. The one which, like the original, rejects monopoly and plutocracy and the rule of the wealthy elite, and which promotes economic liberty for all, not just for the fortunate. Not like the corporate funded astroturf tee potty that has been the rage in GOP.
As an elected official, you can ‘t always worry about the relatives. Shit will happen to them if you have to vote on it or not. Not every WM has to have town council approval.
Casinos promise the same shit and they never deliver on the promises. I am OK if Texas never passes Casino gambling.
First….. Characterizations and assumptions about me aside, who is to say that if you force WalMart out that the mom and pop business would succeed? It depends on the community and the consumers will speak out. Certainly monopolies are not what anyone is advocating and WalMart is hardly a monopoly. Communities are a powerful force and can reject the walmart if they want to. I know I sure do.
Peter, The community likely would decide against the Wal-Mart if they had full info. As I stated earlier, I was really trying to make the point that sometimes we have to make decisions that are good for the community and not just for short-term benefits, whether they be low prices on goods, quarterly bottom lines, or convenience, or even personal gain. Because ultimately we all rise and fall with the community and world around us.
Nobody has a gun put to their head to work at WM. What if the Mom and Pop stores are barely breaking even? They are living in poverty if they can’t clear $45,000 as a couple. If the Mom and Pops were so successful, then they should have good customer loyalty. I think the Pharmacy is the ones that get really screwed, but if they don’t have family to pass the business onto, it will die anyway.
If you are driven out by competition like WM and you need to feed your family … that is as much a gun to the head as anything.
Re: worrying about the relatives.
Dinging the relatives to benefit the town would make some sense (though it make the retirement awkward). Dinging the realatives AND dooming the town makes no sense at all.
My point is that I set up the scenario so that the upsides were generic and uncertain, (maybe some traffic from other towns, but not clear that the town itself would benefit; you also mentioned tax base improvement) and the downsides were concrete (similar town was hurt by Wal-mart; friends and relatives and other local businesses would lose jobs). Yet both you and Peter favored the Wal-mart coming in. It baffles me.
Perhaps you have not been to a small town of 6000 or less population. There are not that many businesses in town and one Wal-mart can decimate almost half of them. That is a big impact. It truly can destroy the town.
Well said JB. Similar to what I just posted before I read your reply. Totally understand Steven’s points about the impact on small towns. But under no circumstances do I want some panel of people outside that community telling WalMart what they can and can’t do. If the community doesn’t want it they will say so and either not support it or elect local officials who attempt to re-zone or hinder WalMart’s arrival. No problem with that at all. Just like casino gambling. Let the local community decide with their votes and their wallets.
Rereading – Ken did not actually reveal how he would vote so it was not fair of me to claim that he favored Wal-Mart coming in. Sorry, Ken. My mistake.
Peter, you responded quite reasonably to my previous hypothetical about a CEO being approached with a pay cut. I was wondering if you would consider a couple more hypotheticals. Perhaps these will help to communicate my perspective better than the formulas and macro-economic arguments I have been using.
Imagine that you are a high-level manager of a multi-national company and there are 3 opportunities for new business in other countries that you need to address. In each case, you must send someone to set up and oversee a small manufacturing operation in the country using local labor. The three situations are slightly different.
In Absynthia, recently concluded negotiations were difficult, and the local government was skeptical of the company’s intent and wary of being taken advantage of. They want their people to be rewarded well and have good working conditions. Initial hopes by the company were for labor costs of $1/hour but the officials are hinting they expect something more like $5/hour and strict limits of no more than 60 hour work weeks. No hard limits on pay have been negotiated, but there are additional opportunities in this country, and it will be useful to keep the officials happy.
In Barterdom, the officials were also wary, but in this case, the officials negotiated strict minimums on pay rates, but no real details on hours or working conditions. Like Abynthia, Barterdom has many future business opportunities if the officials are happy with the initial factory.
In Carefrei, poverty is rampant, and the officials were just delighted that you even considered their country. There are additional opportunities, but the officials don’t seem to care about the workers or conditions, so long as they get an agreed percentage of profits from the operation.
You have several capable project managers who could take on each task. three of them are hard-nosed capitalists who like to squeeze every possible penny of quarterly profit out of an operation. They will likely push the workers in the factories to work maximum allowed hours at least possible pay. Three other managers are fully capable at their jobs, but less aggressive in style, and are more likely to compromise with local authorities to keep them happy.
Who do you think are the right type (more or less aggressive) of managers for each of the three countries?
(Please be patient with this game. I will explain later. New players may join at any time.)
There is no point to this. You dismissed my basketball player analogy and never answered the question. You think the wealthy make too much money and should give some of it back – and/or that they are to blame for the struggles of the bottom 20%. I think at this point we have to just agree to disagree.
No one played this round of the game, so I’ll reveal where i was going, in case anyone is interested. Of course Absynthia and Barterdon should get the less aggressive managers, and Carefrei should get the more aggressive manager. No other business decision would make sense. The question here is to consider which workers and which country will prosper most from the arrangements. Absynthia and barterdom will have the happier workers and the more prosperous economy because they defended (if imperfectly) the rights of their workers whereas Carefrei did not.
Moral: Governments who defend the rights of workers against overly aggressive capitalism have happier workers and more prosperous economies.
Here is why SS is not “solvent” although there are plenty of other factors. Currently, I am sending about $4,800 a year to DC. I am looking at my current estimated benefit, (yes, it isn’t exact), and it is projected to be $1,500 a month or $18,000 a year. Now that is a pretty good spread. Now, I realize I have been sending money, not on a full time basis, since I was 16 and I have been working full time in my chosen career since 1996, starting out at $23K a year. Does this seem way out of whack? I have no idea what it would be if my income was half as much, but if so, $9,000 a year for someone that averaged $40,000 is like 22% of their pay. Are my numbers out of whack? If I wait until 70, I would get $2798, which is probably what my take home pay is now.
Thanks Ken for looking into all of this. I have posted (many entries back) links to simple charts of data for people to draw their own conclusions as well. And when you just let the numbers speak to you rather than trying to manipulate the numbers for a certain point of view (both conservative and liberal), it is painfully obvious that what you are saying is true.
GDP has rose at unprecedented levels in the last 30 years and while this has been occurring, spending has gone completely out of control as well. There is just no denying this absolute fact when you look at the numbers.
Since there are many, in this country and in other countries, who believe that spending/GDP is a perfectly reasonable way to evaluate spending, and since spending now, at 21% GDP is within our historical norm of 18 to 22 percent GDP, it is actually quite reasonable to deny that “spending has gone way out of control” is an absolute fact. I see your point, but it is still just an opinion, not an absolute fact.
Consider that revenue and spending/GDP of the US is considerably below virtually ALL of our major European allies and trading partners, so it is difficult to say that we, the thriftiest of all of our national friends are way out of control with our spending.
I don’t consider European economies and style of government to be the model for which we should be striving. Nor do I think that because other people/countries think it a good idea to use %GDP as a measure, that this is enough of a reason that I/we should, too. As I pointed out in a previous post, using %GDP masks what is really going on, perhaps intentionally. I think a much better measure is per capita spending in constant dollars.
Even then, it is a judgment call as to how much government is “needed”, or is “good”. And I think that’s what this discussion all boils down to — different belief systems about the role and size of government. I think it’s pretty clear from these last few comments that your model is a European model. Mine isn’t.
Excellent point Ken. The European model is generally one with a much more progressive tax rate as well, which I’m sure Steven H supports. Yet many these countries are in similar debt situations as the US. (Or they have much more homogenous populations) I couldn’t agree more – I definitely don’t think we should model ourselves after the European model.
European countries are much smaller and let’s face it, have less diversity and have immigrant problems, but not the amount America has. Germany and France and Denmark don’t have 20M illegals living in the country. They have stricter boarder controls than we do. It is much harder to get a job in those countries if you have no right to be there. Don’t believe me, go move there and try to get a job.
(continued from previous two entties — this is the third of three entries on this post)
To be fair, the chart from the link i just posted stops at year 2000, so take that into account. If there are more recennt numbers on GDP, then perhaps the conclusions I am about to draw are less valid. But what I saw in this chart up through year 2000 were pretty clear.
GDP has gone up substantially in the thirty years preceding the year 2000. Through the roof, actually. So, assuming this trend has continued from year 2000 to the present day, 16% of GDP today is a MUCH larger number in constant dollar terms than 16% of GDP was thirty, or forty of sixty years ago. And I think this is the crux of the argument from us conservatives, and why they say that the government is getting more than enough revenue, and that the deficit and the debt are largely spending problems.
Government is getting a very very large amount of money these days. Huge amounts. Why? Because GDP has gone through the roof, and tax revenues are pegged (albeit non-uniformly) to GDP. That’s why. And despite this massive influx of revenue, we still have a national debt that is approaching $18 trillion.
But there’s more. If you look at these revenue charts closely, you can see that they are in nominal dollars, not constant dollars. But the cool thing about this webiste is that you can customize and create your own charts. So I did.
So to cut to the chase, I did a couple of things….I customized a chart that looked at years 1900-2015 per capita spending in 2009 constant dollars. To me that was a much more accurate reflection of government spending than percent of GDP. And what I found is that not only has GDP has gone through the roof, so has per capita government spending in constant 2009 dollars, but at an even faster pace, as is evidenced by the fact that we now have $17.5 trillion in national debt.
I’ll stop now. This is getting really long. I’ll leave the posters in this thread to draw their own conclusions. One last thing, though…. At the bottom of this latter website link, it gives you the data sources it is using. So if you have a mind to do so, you can verify its accuracy to those other sources. I didn’t.
Ken, I have been using the usgovernmentspending.com and usgovernmentrevenue.com sites for s few years now. When I have compared them to official sites, they have sometimes been less than a fraction of a percent off, been are generally very close. Occasionally their projected numbers for future years are a little out of date, but that’s all.
And the ease with which you can modify the charts to reflect nominal dollars or constant 2009 dollars or real per capita dollars, or %GDP is really helpful to explore the data and see what is going on.
My guess at what is happening with the increase in real per capita spending over time is that there are always new things the government wants to do to improve the country, and as new money becomes available, new uses are found for the money. And there at least some of these projects we all probably support when you think about it: the Interstate Highway system, federal food standards and inspection, a standard organization for approving and regulating new medicines. Other organizations and programs are less universally loved but have their supporters, like OSHA, Dept. of Education, Consumer Protection Bureau, etc.
Enough with the lists. The point is, as the world gets more complicated the legitimate regulatory functions not only grow with population, but grow in complexity as well. I don’t think it is practical to expect government to grow only at the rate of increase of population and inflation. A long-term plan to get it down to a lower % of GDP is certainly reasonable. But over the next ten years or so, I think there is going to have to be significant movement in both revenue increase and spending constraints just to meet even that modest goal and also get the budget balanced.
OK, so it appears the moderators deleted my last post due to its length, so I will split it up into two or more posts, and do some creative editing.
Anyway….Ever since Steven H posted his stats on federal taxes as a percent of GDP a couple of weeks ago, something about those stats bothered me. I couldn’t put my finger on it exactly, and I did not have hard facts to which I could point to refute his claims. It was more a gut feeling. I think I said something like “I’ve seen this movie before…a lot”, and that I think key facts are being left out in order to lead to a particular conclusion (revenues need to be increased) and a particular action (raise taxes on the rich). Intuitively, it all just struck me as wrong, but I had no links or proof I could point to in order to counter the claims being made. So I did some Google searches on the subject myself, and here’s what I found…..
First, Steven H made the claim that federal taxes as a percent of GDP have been hovering around 16%% for the last 60 years or so. I found that to be true, as can be seen in the link below, in chart 3.22. The blue shaded area in chart 3.22 represents federal tax revenue since 1900. It definitely hovers around 16% of GDP, more or less.
http://w w w . usgovernmentrevenue.com/revenue_history
Steven H also made the claim a couple of times that the total tax burden from all sources (fed, state, local, et) has historically been around 22-25% of GDP. I am paraphrasing here as I have not gone back to get Steven H’s exact wording, but that’s how I remember it being stated, so I’m going to go with that. 22-25% of GDP is the total average tax burden from all sources.
So with that in mind, take a look at chart 3.22 again, or the one above it, chart 3.21. Both show that total revenue (total tax burden) from all sources has been approximately 28%-35% of GDP for the last 70 years, not 22-25%. Sorry if I have misrepresented you on this Steven H. I imagine, and expect, you will correct me if I have.
(continued in next post)
But what bothered me most about Steven H’s stats on revenue as a percent of GDP were that…. well…..the numbers were being expressed in percentages, not actuals. Stated another way, tax burden as a percent 0f GDP is a derived number. As such, it is “squishy”, because both actual GDP and the actual tax percentages levied are variables. You don’t know what the actual taxes were, nor what GDP actually was. At best this makes comparisons between years difficult. At worst, it makes them disingenuous.
A better indicator would be per capita spending using constant dollars. I (sort of) expressed this idea in a previous post, but not very well. So here’s a better explanation of what I mean, backed up with facts and links.
If you look at either charts 3.21 or 3.22 in the link I provided in the previuos post you can see that the total tax burden as a percent of GDP over the last 70 years has been is in the 30%-35% range. But what that doesn’t tell you is….” 30%-35% …. of what”? And it’s the “of what” part that is critical. When GDP is down, 35% of GDP is a much smaller number. Conversely, when GDP is up, 35% of GDP is a much larger number.
So then the question is…. “OK, so what is GDP in actual dollar terms?” That’s what would tell us what is really going on, right? To get to the actual numbers, not percentages, we would need to know what GDP actually is, in dollars, not percentages. And it just so happens I found a link to that. Here it is.
w w w.usgovernmentspending.com/downchart_gs.php?year=1900_2000&view=1&expand=&units=b&fy=fy11&chart=&bar=0&stack=1&size=m&title=US%20Gross%20Domestic%20Product%20GDP%20History&state=US&color=c&local=s
(continued in next post)
Thanks, Ken for discussions based on facts and numbers. Just for the record, though I did not discuss anything about tax burden from ALL sources, nor anything about 22-25% of GDP. I have been sticking to the federal tax burden, just to keep the discussion simpler.
What I did discuss, and what you may be remembering, is that FEDERAL SPENDING has been mostly between 18 and 22% of GDP for last 60 years, with brief forays above and below that range.
I think federal revenue and spending have both tracked GDP pretty closely for 60 years. Whether it ought to or not is probably a matter of opinion. Certainly, there are some federal programs that have grown in absolute terms which makes the Democrats happy and the Republicans unhappy. Real per capita spending is another useful tool for evaluating federal spending. Note that it has actually gone down under Obama, stayed constant under Clinton, and gone way up under Reagan, and each Bush. Lots of complex reasons for this but it is interesting none-the-less. Note that it also went up all through the 50’s to 70’s. It is a difficult number to constrain.
We can argue the appropriateness of scaling to GDP, but it seems like a good scale to evaluate at what rate we can AFFORD government, though maybe not for evaluating what is the smallest government we can get.
My biggest argument is that the gap between revenue and spending has gotten quite large, and when you compare to GDP, the revenue is a lot farther off the norm than is the spending.
OK…. so back to me. That’s what this thread is all about, isn’t it? Me? lol
Anyway….Ever since Steven H posted his stats on federal taxes as a percent of GDP a couple of weeks ago, something about those stats bothered me. I couldn’t put my finger on it exactly, as I did not have hard facts to which I could point. It was more a gut feeling, based onmore than five and a half decades of living. I think I said something like “I’ve seen this movie before…a lot”, and that I thought key facts were being left out in order to lead to a particular conclusion (revenues need to be increased) and a particular action (raise taxes on the rich). Intuitively, it all just struck me as wrong, but I had no definitive proof I could point to in order to counter the claims being made. So I did some Google searches on the subject myself, and here’s what I found…..
First, Steven H made the claim that federal taxes as a percent of GDP have been hovering around 16%% for the last 60 years or so. I found that to be an accurate statement, as can be seen in the link below, in chart 3.22. The blue shaded area in chart 3.22 represents federal tax revenue from 1900-2015 (projected). It definitely hovers around 16% of GDP, more or less.
http://www.usgovernmentrevenue.com/revenue_history
Steven H also made the claim a couple of times that the total tax burden from all sources (fed, state, local, et) has historically been around 22-25% of GDP. I am paraphrasing here as I have not gone back to get Steven H’s exact wording, but that’s how I remember it being stated, so I’m going to go with that. 22-25% of GDP is the total average tax burden from all sources.
So with that in mind, take a look at chart 3.22 again, or the one above it, chart 3.21. Both show that total revenue (total tax burden) from all sources has been approximately 28%-35% of GDP for the last 70 years, not 22-25%. Sorry if I have misrepresented you on this Steven H. I imagine, and expect, you will correct me if I have.
But what bothered me most about Steven H’s stats on revenue as a percent of GDP were that…. well…..the numbers were being expressed in percentages, not actuals. Stated another way, tax burden as a percent 0f GDP is a derived number. That’s how I would phrase it now. Tax burden as a percent of GDP is a derived number. As such, it is “squishy”, because both actual GDP and the actual tax percentages levied are variables. You don’t know what the actual taxes were, nor what GDP actually was. At best this makes comparisons between difficult. At worst, it makes them disingenuous.
A better indicator would be per capita spending using constant dollars. I (sort of) expressed this idea in a previous post, but not very well. So here’s a better explanation of what I mean, backed up with facts and links.
If you look at either charts 3.21 or 3.22 in the link I provided you can see that the total tax burden as a percent of GDP over the last 70 years has been is in the 30%-35% range. But what that dosen’t tell you is….” 30%-35% …. of what”? And it’s the “of what” part that is critical. When GDP is down, 35% of GDP is a much smaller number. Conversely, when GDP is up, 35% of GDP is a much larger number.
So then the question is…. “OK, so what does actual GDP look like?” That’s what would tell us what is really going on, right? To get to the actual numbers, not percentages, we would need to know what GDP actually is. And it just so happens I found a link to that. Here it is.
http://www.usgovernmentspending.com/downchart_gs.php?year=1900_2000&view=1&expand=&units=b&fy=fy11&chart=&bar=0&stack=1&size=m&title=US%20Gross%20Domestic%20Product%20GDP%20History&state=US&color=c&local=s
To be fair, this chart stops at year 2000, so take that into account. If there are more recennt numbers on GDP, then perhaps the conclusions I am about to draw are less valid. But what I saw in this chart up through year 2000 were pretty clear.
GDP has gone up substantially in the thirty years preceding the year 2000. Through the roof, actually. So, assuming this trend continued to the present day, 16% of GDP today is a MUCH larger number in constant dollar terms than 16% of GDP was thirty or thirty-five years ago. And I think this is the crux of the argument from us conservatives, and why we say that the government is getting more than enough revenue, and that the deficit and the debt are largely spending problems.
Government is getting a very very large amount of money these days. Huge amounts. Why? Because GDP has gone through the roof, and tax revenues are pegged (albeit non-uniformly) to GDP, that’s why. And despite this massive influx of revenue, we still have a deficit that is approaching $18 trillion.
But there’s more. If you look at these revenue charts closely, you can see that they are in nominal dollars, not constant dollars. But the cool thing about this webiste is that you can customize and create your own charts. So I did.
So to cut to the chase, I did a couple of things….I customized a chart that looked at years 1900-2015 per capita spending in 2009 constant dollars. To me that was a much more accurate reflection of government spending than percent of GDP. And what I found is that thecustomized chart I created looked substantially similar to the very first uncustomized chart on this link. In other words, as GDP has gone through the roof, so has per capita government spending in constant 2009 dollars, but at an even faster pace, as we now have $17.5 trillion in national debt.
I’ll stop now. This is getting really long. I’ll leave the posters in this thread to draw their own conclusions. One last thing, though…. At the botto of this latter website link, it gives you the data sources it is using. So if you have a mind to do so, you can verify its accuracy to those other sources. I didn’t.
GDP is a poor measure of the economy. I prefer to see absolute numbers.
Here are transfer payments in dollars.
http://united-states.reaproject.org/data-tables/transfer-payments-ca35/
taxes
http://www.usgovernmentrevenue.com/federal_revenue_chart
absolute numbers are always deceptive. Real per capita dollars or relative to GDP are the only reasonable ways to assess income or spending.
Raw dollar debt increased from WW2 to 1980 even as Debt/GDP went down from 100% to 32%. If you don’t account for inflation and population growth you are just fooling yourself with big numbers.
LOL @ Absolute numbers being deceptive. Third party websites that post the data is what is deceptive.
Steven H – Just wanted to repost something you posted earlier which is at the heart of where I believe you are misguided:
“Your implied assertion is that CEOs and top management deserve whatever they are paid because their job is hard. Here is where I disagree.
It is possible for corporate leaders to be paid either too much or too little. How can you tell what is too much? On an individual basis, it can be quite difficult. On a macroeconomic basis, we can tell when a high proportion of money has vacated the middle class to be redistributed into the incomes of the elite. When that happens, the elite are obviously being overpaid.”
“The follow-on question is: How does society adjust the pay of those who are overpaid? We are a regulated free-market society, and so we adjust the rules of the marketplace. High marginal tax rates on extraordinary incomes discourages the existence of those incomes.”
If we follow this logic to some of the highest paid people in our society – entertainers and athletes – then re-read what you wrote in that context. The NBA has annual revenue of over $5 billion, of which the players make 50%. The “rank and file” (if you will) and the management gets the rest. Even the lowest paid NBA player makes 15 times what the hard working laborers that work for the league make. Do you really think this is unfair? Do you really think higher tax rates on NBA salaries would discourage them? Or do you think they would simply go play in other leagues where they could make more money net of taxation? Just last week a player (Trevor Ariza) signed with a Houston team because of the lack of state taxes. STATE TAXES! Tax the high earners more and they will go elsewhere, not ask for pay cuts…..
I fully expect that taxes in almost all civilized nations will have to be higher on the highest earners, as many countries are suffering from debts after the downturn. I suppose people could always take their chances in China …
“Do you really think higher tax rates on NBA salaries would discourage them?”
Actually I think NBA players’ salaries, and most Hollywood entertainers as well, are pretty well shocked by the mount of money they are paid. If the average salaries of those very high earners slowly got reduced to one quarter of current pay, OR even if their tax went up on current pay to 75% rate, I think they would still be grateful for their outrageous good fortunes.
Since most athletes are broke within 10 years of retiring, all that money was funneled into the economy via cars, jewelry, strippers, video games and the entourage. If they had kept more, then more would have been circulated into the economy.
I’m so tired of this argument. They make so much, why not reduce it – they’d still be rich! Athletes in particular have a very short window to make their entire life’s earnings – and tomorrow isn’t guaranteed. Who in the world do you think you are to judge someone’s worth? And just because I have a lot doesn’t mean that I have a moral obligation to share it with you.
Excuse me while I go ask for my pay cut…..
Peter, I have to agree that talking about individual high earners is not that useful. And no, I don’t think that raising taxes on high earners like basketball players will encourage them to ask for a pay cut. Far from it. I do think it would suppress extraordinary wages overall, or at least encourage “burst” earners like athletes who have a short career to put money aside in a retirement fund to be used later. That would shield the funds from the high taxes and be good for their own career.
And, once again, I feel like my actual point is getting lost in this perpetual accusation that “I” am “judging” someone’s worth. I am not. I am judging an earning curve which indicates economic stability across an entire economy. That is not the same thing as evaluating you or any other individual and what you get paid. Yes, generalizations are made about “the 1%”, and they may not be valid for every member. Yet it is indisputable that a huge percentage of income moved from middle class to 1%. You agreed it happened. Peter N. agreed it happened. All kinds of reasons have been given as to why it happened, including bad parenting, stagnant educations, inflexible workers, lazy populace.
But nobody has been able to claim that that movement of cash away from the disposable incomes of the middle class (who would spend it and keep it circulating through the economy) and into the hands of the wealthy and investor class (who do NOT generally put it back into general circulation where it might trickle down) is actually a good and positive and productive thing for the economy. There is, however a lot of evidence that this redistribution has been a BAD thing for the economy.
Stop defending some individual tree and start looking at the forest. It’s in sad shape.
So make sure your 4 year old is left handed and teach him to be a relief pitcher in MLB. They are rare and paid well. never mind they are part of the .001% that make it to the major leagues.
First I’d like to say it is nice to see so much disagreement and so little name calling, belittling or (much) condescension. If only the government could have such reasonable discourse.
JB. Agree mark to market was not intended for these arcane financial instruments.
Interestingly, the Tea Party was born out of the bail out if nonpaying homeowners. I was watching live in CNBC (a bit of an addict, I admit) when the Rick Santelli rant wanting a Chicago Tea Party, first mention if this. (YouTube it).
Re: buying. Consider yourself a lamb to be fleeced in any purchase of any substantial property. Arm with information. Clearly, this group is in the 1% of the informed. The vast majority are not.
I agree that buying property is a dangerous proposition. Thrice I have come close to getting fleeced by lenders or sellers.
When looking to buy my first house, we put a deposit on a home in a new neighborhood in 1982. The salesman quoted a special deal that their finance company was offering of fixed rate at about half percent below other market rates. Our appointment was in 2 weeks. When we talked to the finance company, they started describing a negative amortized ARM. (I think ARMs were relatively new then and were all the rage among banks.) When we asked about the fixed rate we had been quoted we were told “You can’t really expect the salesman to know the finance terms.” I answered “I certainly expect him to tell me the proper information if he claims to know the terms.” It was only through extensive letter-writing and complaining that we got our deposit back. We bought a different house.
When looking for our second house, the seller tried to claim square footage that included a back porch conversion that had been removed. Only through measuring the house myself with a tape measure did I discover the fraud and only through stubborness did I escape the deal.
We are living in our 2nd house. During a second equity refinance to cover renovations (100 year old house), the major bank ended up structuring the loans such that some money was left in the 1st equity loan as well as the new second one. When we recently sought to refi the balance of both loans at lower rates, no one would refi because it is not actually legal to have 2 such “first position” loans on a home in Texas. My bank was the only one that could fix this. They initially offered a refi at 9% (above my old rate and way above market of < 4%) and claimed the dual loan was my fault. I had to look up the law, explain to them that I had no obligation to know such law details, that Texas considers the lender to be at fault in such a case, and that the lender has specific obligations to correct the situation including fees and penalties on the lender if the borrower insists. Suddenly the bank got nicer and got me a single market-rate refi.
This is why consumer protection agencies and bank and economic regulations are essential. I'm a moderately smart guy and only just barely got out of these 3 situations intact. I have great sympathy for those with less information and less stubbornness. And the lenders in the late 2000's were MUCH more aggressive in their fraud than I encountered.
Your mantissa and exponent example is flawed. As N gets bigger the result will get smaller.
What is with this mantissa stuff anyway?
It is no wonder I finances are so screwed up. No one can do simple math. When I mean no one I mean why didn’t others point this out before me?
I have been following the posts. For the most part the other Peter states my position well so I don’t feel the need to waste my time posting.
Steven H, why don’t you start a company? Your view point will change. Before you do you should take a math class or two or three.
Thanks. It is starting to feel like there is no point to this though. Good point about the mantissa…. Steven H’s argument feels like he is upset about the income disparity situation (and he has every right to be) and has been trying to work backwards to figure out how it could be different. Hopefully our discussion enlightens people…… and there are some that are reading this that see both sides of the argument and draw informed conclusions.
“Steven H’s argument feels like he is upset about the income disparity situation (and he has every right to be) ”
No he doesn’t unless he can prove that the there isn’t a equal disparity in skill and value to the economy.
These overpaid people are not forcing people to pay them that much. It is all negotiated by a contract. Someone else must think these overpaid sport stars and CEO are worth what they are being paid. This money doesn’t come out of the pockets of those that don’t own stock in the company paying these outrageous salaries.
I can see that Steven H has no feel for math. I can see how he can easily be led astray buy feeble marxist arguments.
Peter ( original ) keep up the good work.
Meanwhile, I have asked all sorts of question that Steven H and othe liberals haven’t answered.
The first is why does someone in the US deserve to be better compensated than someone outside the US?
The second is why do you think you should be better composted if you can be replaced by a machine.
The third. Do you really think that the increase in productivity is due to labor or better machines?
The fourth. Don’t you think the world economy is constantly changing and requires that people adapt, evolve or become extinct? I don’t see where average joe is making the effort.
Peter (original), I have been ill for a few days, and don’t have a lot of time to discuss, but please read my explanation of the mantissa, below. I think you may be able to understand the explanation, though I’m not sure that I have communicated the significance of such a dramatic change in the formula and resulting curve.
As for the reasons for investigating this at all, I wanted to understand what the actual disparity curves look like, in good economic times and bad. I had no idea when i started looking at these numbers how dramatically certain disparity curves corresponded to prosperous vs less prosperous times, nor did I expect a simple number like the share of income going to a particular percentage of the population to have predictive properties for economic crashes. But that is what the numbers seem to say. Furthermore, it makes sense with what the numbers MEAN.
1) Zero-sum game – No, but neither is it an infinite sum game. The GDP and the total incomes of Americans will grow by a small finite amount next year. The rich will claim most or all of that gain, claiming they and they alone created it. They would be wrong, but they will take it none the less. And yes that means the rest of us will have less. That is not a zero-sum game. It is a plus 2% annual real GDP increase game. Not much difference.
2) Dishonesty would mean breaking the rules. I think the rich, by and large are following the rules, and where necessary, changing the rules to suit themselves. The worst I can say about the very rich are that they are sociopaths, believing no one matters but themselves.
The above was a reply to Peter’s post further down that had no reply button. For clarity, it was:
[Peter]: “There is no getting through to you on this. You are incorrect on several things – (which I don’t think we will see eye to eye on)
1. That it is a zero-sum game. You assume that if a CEO makes more money that the workers make less.
2. That corporate executives are somehow by and large dishonest and manipulative in getting these high incomes.”
OK, I’ll correct one point. I should not generalize. Not all of the very rich are sociopaths. Only the ones that think 47% of Americans are freeloaders.
Peter N,
My math is fine. I have been trying to make my explanation concise, and perhaps some of the meaning was lost in the explanation, which is partly my fault for not being clear, and partly your fault for being too quick to dismiss what you do not yet understand.
My statement was:
” the Nth group in the series (upper 10%, 1%, 0.1%, 0.01% ) used to get (1/3)^N of all income, and now they get (1/2)^N of all income, such that the upper 0.01% went from about 1.2% to 6.2% of all income, a 5X increase.”
This is a mathematically concise way of saying: that in 1980, the four groups, of the upper 10%, 1%, 0.1%, and 0.01% each got 1/3 of the next larger group. The upper 10% got 1/3 of the total 100%. The upper 1% got 1/3 of what the upper 10% got, or 1/3 * 1/3 of the total, or 1/9. The upper 0.1% got 1/3 of what the 1% got, or 1/3 * 1/3 *1/3 of the total, or 1/27 of the total. Does that make more sense? If I designate those 4 groups in order, as N = 1,2,3,4, N=1 means the upper 10%, and N=2 means the upper 1%, then I can say that the Nth group gets (1/3)^N of all income. So yes as N gets larger, the Nth group of (10%, 1% 0.1%, 0.01%) gets smaller, as does their share. When N=4, the 0.01% got, in 1980, and for the previous 3 decades, about (1/3)^4 , or 1/81 of all income which is about 1.23%.
Jump to 2012, where the formula is approximately (1/2)^N, and the upper 0.01% gets (1/2)^4, or 1/16 or about 6.25% of all income.
If I go to the Saez tables and calculate the actual mantissa for 2012, it is not precisely 1/2, but instead about 0.4683 (i.e. the 4th root of the actual fraction of income of the upper 0.01% that year which was 0.0481, or 4.81%. By that formula, and that mantissa, the predicted percentage shares of income for the 10%, 1% and 0.1% are:
46.8%, 21.9%, and 10.3%.
The actual values from Saez tables (including capital gains) were 49.6%, 21.5%, and 10.3%, so the formula served well to represent the curve. If the above now makes sense, then we are on the same page. If not, let me know, and I will break it down to simpler terms.
So Peter N,
The reason why no one else pointed out my “flawed math” is because it was not flawed at all. My question is: why were you so certain the math was flawed, when it turns out it was your understanding of the situation that was flawed? Perhaps a little more auto-critique would be in order, before declaring every opposing idea wrong before you have even evaluated it properly.
And by the way, if I started a company, it is unlikely my view point would change. I suspect I would end up like the CEO of CostCo, if I were to get that far – someone who respects his employees and sees they are paid fairly rather than someone who sees them as resources to be consumed and discarded, as too many businessmen (not all) seem to do.
Lastly, your 4 questions are worthy of answers, but I don’t have time to address them all right now. Let me take #3:
“Do you really think that the increase in productivity is due to labor or better machines?”
Of course it varies by industry and situation.
– Some companies have improved “productivity per dollar” or economic productivity, by exporting jobs to cheap labor countries.
– Some countries have improved productivity by replacing workers with machines.
– But many companies also use skilled domestic labor of engineers, programmers, tradesmen, etc. These laborers have adapted to a more complex world, and while the machines (computers mostly, but others as well) of their trade have improved, so have they had to improve to use those machines. I would like to see some stats of how salaries of beginning engineers and programmers have or have not kept pace with that of CEOs at their companies. For surely they are just as important at contributing to the success of their companies, wouldn’t you agree?
And then also, let me turn your question around? If a company becomes more successful and profitable, largely due to automation and faster computers, and improved shipping, but also due to the work of employees and management, why is it that you feel employees have earned none of the benefits of ew profits, but managers have earned all of it? Are the managers working harder or smarter or better or are they just benefitting from automation? Why should they get any benefit of that automation, any more than the employees?
Steven H, what you are trying to show is a the Pareto distribution.
http://misunderstoodfinance.blogspot.com/2011/11/us-income-inequality-and-pareto.html
Your ranges for exponents are arbitrary. So is your “mantissa” ( really a base) data.
Do a search for “personal income distribution Pareto”. Although it is used you will find many instances where it isn’t that accurate.
Peter N, Thanks for the article. It reinforces my observation of the power-law distribution of income
But some guy claiming that no one understands why the distribution has changed does not actually mean that no one understands why the distribution has changed.
And the values of the exponents and mantissas in my formulas are far from arbitrary. The N exponent in my formula is actually N= log10(1/X) where X is the upper income fraction, i.e. the fraction o.10 for the upper 10%. It’s a mathematical relationship to calculate the exponent and is not arbitrary.
The mantissas are calculated from the actual income distribution. Because if the square law formula noted in the article, my mantissa is the fraction of income to the upper 10% (N=1) or approximately the square root of the income share of the 1%, or the cube root of the income share of the 0.1% or the 4th root of the income share of the 0.01%.
The formula is a curve fit, not arbitrary.
And the recurrence of dangerous disparities as around 1929, 2000, 2008, and 2012 is not due to some mysterious unknowable cycle like sunspots or Comet Kahoutek. It occurs due to business and tax policies that explicitly redistribute income from the poor to the rich.
Peter Original: [“Steven H’s argument feels like he is upset about the income disparity situation (and he has every right to be) ”]
Peter N: [No he doesn’t unless he can prove that the there isn’t a equal disparity in skill and value to the economy.]
I am pretty sure that the CEOs, bankers, upper managers, investors, are not working 2x, 3x, 4x, or 5x harder or smarter or better than their fathers or grandfathers at similar careers, professions, and positions. And yet they are likely getting rewarded at those (inflation adjusted) salary multiples if they are making more than 600K or so. Isn’t that a pretty significant disparity between skill and reward?
Oh but you say that that “someone else” thinks they are valuable to the economy and that is why they make their high incomes. I don’t buy it. The highest earners, in general, (and I don’t mean the exceptional laborers like sports figures and Hollywood actors) lobby HARD for their incomes, by affecting their company pay practices (selecting the board who will approve their pay), influencing tax and business policy, and slicing through investment regulations. The highest of highest earners are not given anything. They take. All they can. By bending the rules or changing or breaking them if necessary. I don’t think anyone really aggressive in business would deny this.
There is no getting through to you on this. You are incorrect on several things – (which I don’t think we will see eye to eye on)
1. That it is a zero-sum game. You assume that if a CEO makes more money that the workers make less.
2. That corporate executives are somehow by and large dishonest and manipulative in getting these high incomes.
Steven H – Should LeBron James give back all that “bonus” income that he is making? He will make about $21 million from playing basketball next season. For “historical” perspective, at the same age and point in his career Magic Johnson made about $2 milion. Clearly, in your philosophy LeBron is being overpaid.
To play out your CEO hypothetical…. What if the Cleveland Cavaliers came to LeBron and said that they have decided to pay the “underpaid” vendors, ticket takers, and various other laborers that clean the arena a higher wage. They will be cutting a portion of his excess salary which he clearly doesn’t need to remain ‘rich’ and paying the workers a wage that reflects a more equal increase in pay to the days of Magic Johnson. What do you think LeBron would do? Wouldn’t he just go play for the Lakers where he can make $21 million? If the whole league adopted this philosophy, wouldn’t all the great players leave?
Would all the great players leave if they were making $2M instead of $21M? No, not if the rest of the league was paying about the same. Unless they thought there was more money in some other business.
There are plenty of players that play in china and Greece because either they can’t latch onto a team or they get paid pretty well to play over there. The reason for the increase in salaries is the TV contracts. Bigger contracts mean the sports teams have more money to throw at players. Every team wants the great player like corporations want the next great CEO. It doesn’t always work out. Until people quit watching on TV and not buying the products, salaries will increase. There is usually only 1 or 2 players on an NBA making huge dollars and the rest make decent money. Some teams have figured out how to pay the stars more, but not break the bank. Baseball has no salary cap, but same deal. A few players take the headlines and the vast majority make less. If your boss came to you and offered to double your salary, you would take the money in a heartbeat and not think twice.
Again I don’t care about individual salaries. Is a player worth $1M, $20M, $100M, $1B, $10T? Who is to say? But if NBA tries to pay all of their players $10T, it will quickly run out of money, as will the country. So obviously a player is not wort $10T. How can I say what a player should make? Am I Marxist for saying a player is not worth $10T? No. I am being practical.
The point I am trying to make with income disparities is a bit more subtle, but of the same type. I don’t know what some individual should make. I don’t care, generally about the individuals. I see that the mantissa in my equation (earlier post) of 0.33 worked early well for decades., and that 0.5 does not. Approaching a 0.5 mantissa has a 100% batting average of predicting a significant economic crash in 3 years.
Arguments about working hard to get paid well, sports salaries, etc are irrelevant. Statements about envying the rich or hating the rich are off the mark. Explanations of Capitalism 101, global economies, and automation are irrelevant to me.
Income disparities at a mantissa of 0.5 are bad for the economy. All of the evidence supports this.
This argument is hardly irrelevant. It is exactly at the heart of your point. You want to talk idealistically about how the current “mantissa” doesn’t work for our economy going forward and how it should be changed. Well, the problem is real people with real jobs running real companies are involved. You can not like the 0.5 mantissa all you want – I have no issue with that really. But all of your suggestions have revolved around taking “bonus income” (your words) from the rich and increasing the middle and lower class wages.
Obviously a player isn’t worth $10 trillion as the income of the team (or company in the CEO’s case) couldn’t cover it. But if a company or team can be profitable, continue to grow and pay a key employee $20 million, then so be it. You can’t mandate that they share this money with the employees.
I’m sorry – dismiss it if you want – but the line of thinking you were walking down is perfectly analogous to the basketball player example and you simply have no answer for it. I think your statement that you “don’t care about the individuals” speaks volumes. You can’t solve any world problem without some thought going to the individuals involved.
Another new topic.
The GOP House is passing a lot of Crony Tax Cut bills lately — unpaid for tax cuts and extensions that are weak in terms of stimulus and expensive in terms of adding to debt.
Isn’t House of Rep being hypocritical, refusing to pay for VA bill (cost of war) and immigration bill (cost of 2008 bill plus reinforce border) but giving away hundreds of billions in tax cuts with no offsets?
$287B in Business tax cuts with no offsets
http://www.cnn.com/2014/07/11/politics/gop-business-tax-cut/
http://www.huffingtonpost.com/2014/07/11/tax-breaks_n_5577957.html
Do we care? Do we think that ANYTHING is going to pass both the GOP House, the Senate and Obama? Both sides are so childish, hypocritical, etc. etc. – whatever word you want to use. The last two administrations have been as divisive in nature as any we have ever seen – and Obama/Boehner have taken it to a new level of disconnect of late. Nothing is going to happen of any merit until we get rid of this inexperienced, incompetent President and the Republicans quit listening to the extreme portions of their party that want total gridlock and prefer to oppose anything Obama suggests regardless of merit. The system is #*&^@!. It takes great negotiatiors to bring change like Reagan and Clinton, not childish amateurs like Obama/Boehner.
I appreciate that you are bipartisan in your criticisms.
Our fundamental disagreement is this: you think that because a certain group of people’s incomes have risen substantially faster than the masses that they are being paid “more than they are worth” and that something must be done to return this excess to others to “even the playing field”. I couldn’t disagree with you more on this and don’t think we will ever find common ground here.
I wonder how you would feel if you had worked really hard, taken risks, worked long hours and built up a nice career making $750k-$1m a year and someone in an online blog threw this idea at you…. Saying you ‘aren’t worth’ what you make and that you should feel some sense of guilt or obligation to return these funds to someone else. Offensive is an understatement…..
And if you made your millions on one great deal, or a lottery ticket, or inherited it, or whatever….. GOOD FOR YOU! I don’t think there are any of us that would pass on those opportunities were they handed to us. Please – quit cheapening the success of people with excuses, undermining remarks, name-calling and judgment. Go out into the world and do YOUR best to succeed. Constantly worrying about what others are doing and feeling victimized will get you nowhere both financially and in your general pursuit of happiness.
The above is to Steven H….
You are close to describing the essence of the disagreement, but let me refine it. I don’t object to people making a lot of money for hard work, or even a fortunate windfall. What I object to are unsustainable systems. If our national economy is inefficient and prone to instability because there is too much money in the investment class and too little in the middle class, shouldn’t this problem be corrected to spur a more robust and growing economy?
Or should we just accept the status quo because the wealthiest, most powerful players have grown accustomed to an income that is historically excessive?
Let me also counter with another hypothetical. What if you ran a business that was successful and the BOD decided to pay you 1.5M/yr for 5 years … and then the CFO and BOD come back and tell you that the corporate strategy has changed. There is unrest in the ranks of workers and a problem with getting people with the right skills. There is a decision to increase worker pay and decrease CEO and management team pay, and it has been decided that a new CEO pay scale of $750K is more in line with the pay of previous, equally successful CEOs, anyway.
Should you, as the CEO, be grateful for the extraordinary salary you received for 5 years, or resentful that the BOD is “punishing” you for your success?
Let me break this down line by line….
“If our national economy is inefficient and prone to instability because there is too much money in the investment class and too little in the middle class”
– I categorically disagree with this assumption. The last thing I think our economy is is inefficient and prone to instability, let alone for the reasons you state.
“Or should we just accept the status quo because the wealthiest, most powerful players have grown accustomed to an income that is historically excessive?”
– This is a totally biased loaded question. Seriously? Is that what I am saying? Keep things the same because the rich are accustomed to a lifestyle? And I’ve already told you – I don’t buy the phrase “historically” nor do I care about how things today compare to the past. The past is the past. What we are all worried about on here is where this goes next. I also continue to be offended by the word “excessive” as it is by definition a judgment call. I do not claim to make that call and certainly don’t think you or the Fed should either.
In your hypothetical…. I would probably look for another job running another company unless I felt that the shift in pay scales would help the company be more profitable long-term. If they were basing my pay on what previous CEO’s had made I would think my BOD was a bunch of middle schoolers who didn’t understand how the business world works. So that would concern me as well.
And finally, of course as CEO I would be grateful. I am always grateful for any success I have and patient with my failures as well. I wouldn’t feel punished for my success at all – I would just realize that my company was going in a different direction and consider whether I wanted to remain a part of this sea change or find a new pathway.
All of this emotion you keep adding to it wouldn’t apply in the CEO example – I would go to the place with the most fulfilling job and the most chance for success both personally and financially. It really isn’t quite as dramatic as you make it appear to be.
Having a tax code that shifts the money from the middle class to the rich is not necessarily inefficient in all circumstances. For some countries at some points in time in may have been optimal. However, for the USA in 2014 it is definitely suboptimal. Unless you think the marginal propensity to consume for the rich is greater than that of the middle class.
“..If the economy was suffering from accumulated chronic underinvestment, shifting income from the non-rich to the rich would make sense. Underinvestment would mean there was a shortage of shopping centers, hotels, housing and factories were operating at 100% of capacity but still not able to produce as many cars and other goods as people needed. It might not seem fair, but the quickest way to build up capital is to take income away from the middle class who have a high propensity to consume and give to the rich who have a propensity to save (and invest). Except for periods in the 1950s and 1960s and possibly the 1990s when tax rates on the rich just happened to be high enough to prevent overinvestment, the economy has generally suffered from periodic overinvestment cycles.
It is not just a coincidence that tax cuts for the rich have preceded both the 1929 and 2007 depressions. The Revenue acts of 1926 and 1928 worked exactly as the Republican Congresses that pushed them through promised. The dramatic reductions in taxes on the upper income brackets and estates of the wealthy did indeed result in increased savings and investment. However, overinvestment (by 1929 there were over 600 automobile manufacturing companies in the USA) caused the depression that made the rich, and most everyone else, ultimately much poorer.
Since 1969 there has been a tremendous shift in the tax burdens away from the rich and onto the middle class. Corporate income tax receipts, whose incidence falls entirely on the owners of corporations, were 4% of GDP then and are now less than 1%. During that same period, payroll tax rates as percent of GDP have increased dramatically. The overinvestment problem caused by the reduction in taxes on the wealthy is exacerbated by the increased tax burden on the middle class. While overinvestment creates more factories, housing and shopping centers; higher payroll taxes reduces the purchasing power of middle-class consumers…”
http://seekingalpha.com/article/1543642
“..Today, the wealthiest 3% of the people pay 50% of the federal taxes and the other 97% pay the other 50%. The marginal propensity to consume of the top 3% is around 0.4 while for the other 97% it is probably about 0.98. If taxes on the top 3% were increased by 50% and those on the bottom 97% were reduced by 50%, it would initially be revenue neutral. However, it would ultimately increase GDP by about 3% and reduce the unemployment rate to around 5%. That change in relative tax burdens would bring the degree of progressivity in the tax structure back to where it was in 1969….”
http://seekingalpha.com/article/1543642
Lance – Please stop cluttering up our discussion with links to your article…. Hopefully the mods realize what is happening here and delete these posts.
Peter, whether or not Lance is just linking to his own article is irrelevant. He is making salient points that ought to be discussed here. Agree or disagree, but don’t just dismiss a legitimate argument.
I’m dismissing that this is the 50th time he has posted the same quotes and link.
Couple of new topics for the business-savvy crowd here.
Just read an article about tax inversion tricks of big US Corporations.
Looks like a problem that needs to be stopped pronto.
Any insights or comments?
http://america.aljazeera.com/opinions/2014/7/tax-inversions-freeridingwalgreenspfizercorporations.html
Taxes are an expense and all expenses get passed down to the consumer. The IRS/Congress make the rules and lawyers find the cracks in the rules. There will never be a simple tax code. The global economy is too complex.
Just because they will trickle down expense increase does not mean that if their income tax expense goes down they will trickle down the savings to the consumer or low level workers. It is much more likely to go to increased benefits at the very top and to increase overall profit and therefor stock price.
As JTM says, Tax Cuts are unlikely to trickle down to consumer.
This a little facetious, but I’ve heard it said that as soon as Reagan revealed there could be a trickle down economy, the GOP went around shutting off the spigots.
Aren’t these companies trying to get a “free ride” on the backs of other companies who pay their full share?
So back to the carrot and stick argument. Should people that walked away from their homes leaving the bank with the debt without doing any kind of workout be allowed to buy another house within 5 years or 10 years? Is bankruptcy still an atom bomb on your credit or just no big deal anymore. Should you just be able to stop paying on your credit cards without any repercussions? The same can be done for not finishing HS. There are choices to make to help. Not all will graduate, but not getting pregnant is one way to make sure you make it through. Not joining a gang will help to not get arrested. All of our life choices have consequences and those consequences have a cost. Who should be bearing those costs? I would rather have my tax money to making some of those high school dropouts get an education, but THEY have to WANT to improve their situation. Have daycare at the alternative schools. That helps “society” in general. Not just passing out welfare checks. If you get a check just for breathing, you have no incentive to improve your situation. If you can’t afford two kids, why are you having 3 more?
Walking away fro homes and buying a new home. It depends. There are so many MANY cases (seemingly the norm rather than the exception) where the biggest banks have “lost” refi paperwork, often multiple times, or otherwise used fraudulent methods to avoid working out a deal, and then foreclose instead, often skirting laws and procedure there as well (the robo-signing scandal). So my sympathies are with the homeowners on this one. That said, every case is unique.
Pregnancy has a built in cost – possible humiliation, trauma of either abortion or childbirth, change of lifestyle, difficulty completing school. There are reasons people join gangs – safety, prestige, group-think, friendships. The immediacy of both “choices” vs. the long term consequences is not exactly taught in school. Perhaps it should be. I have no problem with that. In either case, these juvenile decisions do not need to be amplified in their harm by punitive measures later. Same with drug use. As a nation, we have decided that marijuana use is not so terrible as we used to believe, but we still forbid young people from getting scholarships to improve their lives if they got caught smoking a joint.
We need to teach responsibility but also forgiveness and second chances. The richest in society have their money and lawyers and influence to smooth over mistakes and errors in judgment. We do not need to punish the poor just for being poor and being human.
Daycare in alternative schools — Yes!
There was a very successful high school (I forget the city) which catered to young pregnant HS students. It was closed for funding cuts.
More money does not guarantee better schools or education. But less money almost assuredly marks a loss of programs and quality. Whatever solution is applied for schools, we need to make a commitment to pay for it AND see that the money is spent wisely.
Not the exact story i was looking for, but here is some info on HS with daycare. It seems to work when funded.
ezebel.com/5962883/thanks-to-state-budget-cuts-pregnant-teens-arent-getting-enough-educational-support
Steven H
Re: Obamacare.
Re: Romneycare Medicaid expansion will continue to consume more of state budget, reducing other expenditures. See Mass budget in 2001 to 2014. This is despite Fed subsidy. Of course, this subsidy is paid in higher taxes and increased debt. Those who could afford it gave a little more to paraphrase BO. Six hospital systems in Boston had to be bailed out by state (including Harvard Med School complex) after Romneycare was started. There was better access to insurance, but doctors fled the state / retired due to low reimbursement. So waiting times went up.
Re: Canada. A fundamental issue never mentioned is the ethnic homogenity of the US. Canada is ~90% Northern European. US is closer to 60%. Thus, in a common cultural background, it is easier for all to move in the same direction. Also true in Europe. Germany is 88% German and so on. Furthermore, our country has much more freedom to succeed (and to fail) than others. This leads to, in effect, a Third world country folded into our borders. This drags down our numbers in every category including health, education, etc. I’m neither supporting or critcizing this, just observing what is. North central US leads in health, education testing, better habits but are more homogeneous in their populations. I’m curious if you’ve met expatriated Europeans? It is very difficult in most countries to break into the work force without cronyism. The creation of new wealth is even much more difficult. Thus they come here.
So, back to health care. The Canadian Medical Society truly represents all doctors. You must be in it. The AMA, in contradistinction, represents about 1 in 6 physicians. The CMS nearly went on strike 10 years ago due to low pay. There was extensive emigration in the 90’s of Canadian doctors ( as above in Mass as well) to the US. Drugs are cheaper in Canada because there are price controls, also true in Europe, but more so in 3rd world. Thus the US pays for a huge percentage of research in new drugs. Canadians pay, as in all socialist systems, for their healthcare in time, not money. 9 months for a gall bladder their, 9 days (or less) in US. So to extrapolate a different system with a different population on us is a stretch. The fundamental fear of doctors re: Obamacare is not that all will get covered or cost. It is the take over that will inevtably happen. Broad rules will be passed to cover very specific instances. This will erode the decision making ability of your very highly trained expert, your doctor. Assumably, all health care workers will become salaried employees, like in other countries and like our VA. How’s that little government project working for our heroes. Most doctors trained some in VAs and they were hellholes. A wonderful population of nice (nearly all in my time) guys that were very appreciative. This was carried out in adequate facilities with Federal union employees who by and large didn’t give a damn. I have had an antibiotic thrown at me after I pointed out it had not been given SIXTEEN hours after I ordered it. “Hang it youself”. This was in a patient with life threatening sepsis. True story. A nurse in the private system might as well clean out his/her locker. In the VA, they essentially cannot be fired.
The physicians are also salaried, so there is zero incentive to work harder and work people in. So wait times go up…. Are you aware of recent VA wait scandal? A cousin of a colleague of mine works as MD in Canada and will just cancel his procedure schedule to go sailing when weather permits.
I have a better plan IMO, but it’s too late now. I sent it to John McCain by the way. He was far from perfect as a candidate, but has a very long record as a fiscal conservative, just waht we needed. It was based on universal catastrophic coverage paid for by money that was already in system, tort reform and targeted funding for disease management. Much less take over and mandate.
So, like all in all areas, there needs to be a balance of control, rewarding good actions and greed. Again, I think the Tea Party AND Occupy Wall Street are BOTH right for the most part.
It’s very helpful to get insights on ObamaCare from a medical professional. I actually don’t see single payer happening soon; instead I still have hopes that ObamaCare will be a financial and social success. It’s actually starting out OK (despite those first 3 months of roll-out). Cost info will come later. The worst thing that can happen now is that GOP sabotages with continued repeal attempts and we end up left with no system at all. — which would pretty much end GOP reign in Congress or White House for about a Decade.
… Not that the end of GOP reign in Congress would be bad, but I don’t want them destroying our health system just to prove their incompetence.
“So, like all in all areas, there needs to be a balance of control, rewarding good actions and greed.”
I’m absolutely with you on that statement.
part of the expense is the ER rooms need to be able to tell people to leave and go to an urgent care or other type facility. The flu or a hangnail is not a reason to go to the ER. Once people know that the E in ER means EMERGENCY, the clinics will have more people at them.
That would be great if they could have another place for non emergency patients to go. Problem is, poor, uninsured people go to the ER with minor problems because that is the only place they know they will get care without having to pay first. They also end up in the ER because that hangnail that could have been taken care of easily if they could afford a doctor visit has now become gangrenous. On top of that is the liability of sending away someone who is truly in an emergency situation and they get worse or die.
Obama Care is a fraud.
Sorry for the typos, it’s late / early depending on your perspective.
Steven H.
I abridged my explanation of GreatbRecession, but mentioned with less detail all of those elements. People buying houses they couldn’t afford snd banks “gredeily” doing what Congress DIRECTED them to do in lending them money. Barney Frank and Dems drove this as a social agenda, starting in Clinton admin. The lack of good investable bond equivalents is cited. The lack of oversight by the SEC and Congress (remember Dem Cogress with banking committee chaired by Barney Frank) were brifely mentioned. They just didn’t get it as these rolled out faster than laws and regs could be drafted. The repeal of Glass-Steagel played a part, but not all of the parties were combined bank and brokerage units, the thrust of the repeal. Oh, and thebfree flow of money (by the Fed) is also mentioned. It’s all there, more wrapped in fact than emotion.
“Banks” bought the loans that mortgage originators set up. There were very few actual Mortgage Bankers in a bank. That has all been outsourced. The banks bought the loans to be repackaged to FNMA.
Elimination of Glass Stegal allowed the banks to do their own investments in house. We all see how well that worked. Risk meters were broken and they got too highly leveraged at 33:1. Everyone thought the ride would last forever.
JB, you and I are in rare agreement on this one.
Leveraged Debt will always end in a crash
and every time somebody thinks “This time it’s different”.
But it never is.
Part of the financial chaos is nobody knew who was holding what. Too many MBS being backed up by Credit default Swaps being insured by AIG resold again and again. The banks found out they were responsible when they were the ones that had to foreclose and there were so many they couldn’t keep up. WAMUs position was they just figured the house would be worth more if they had to foreclose. The Risk manager told the CEO that wasn’t a great strategy. CEO just saw $$$. So corporations do go away due to bad decisions. Hank Greenburg saw his stock in AIG go from $90 a share to $1. I still have my 1 share of AIG. it used to be 21 shares, but they did a 20:1 reverse swap and it will cost me more to sell it than to keep it.
Steven H: We don’t know what will precipitate the next crash (I’m guessing bond market collapse) so I’m not sure how to prevent it.
The last crash was due to George Bush, right? So he can’t cause another. Of course this is the gross oversimplification of what really happened. Please stay with me through this, there is a point at the end.
What really happened was a perfect storm of events:
1) a political left idea to try to make home ownership available to all Americans (started in Clinton years, championed by Barney Frank who had the stones to point fingers during the collapse he helped cause)
2) an unquenchable thirst world wide for income bearing assets (bond like) by the Baby Boomers. (Amazingly not met by freely borrowing countries.)
3) an obscure accounting rule called “mark to market”, requiring daily valuation of an investment firm’s assets.
4) cheap money made available by the Fed.
The response to these was to pass out mortgages like water to any one with a pulse. I remember soon after a craps dealer telling me how much he had made originating mortgages. No training, a craps dealer! The next step was to bundle mortgages (in many ways like a bond, you give someone money and it trickles back over time as well as backed up by a physical asset). These were then sold, leveraged up 10 fold or so. ( say $1 million in mortgages created $10 million in mortgage backed securities (MBS)). Then they were insured (credit default swaps) (CDS). Any of this alphabet soup ssound familiar? This created securities that were marketable as bond equivalents. The SEC ( I guess this is where Bush is felt to have complicity) had no clue how to regulate these.
Then the Fed kicked over the punch bowl, too rapidly and too late increasing interest rates (20/20 hind sight applies here). Mortgages ground to a halt. Supply / demand / price economics kicked in. There was a stable to inflated supply, demand went way down and thus prices plummeted. Remember, these mortgages were backing securities. Thus, the securities plummeted. As they were an illiquid commodity (hard to sell without really highly discounting) AND were highly leveraged, their values plummeted. This was about the time of the famous “they know nothing” Jim Cramer rant (Youtube it). Those who held the most MBS (Bear Stearns and Lehman in US) or most CDS (AIG) folded up shop. With mark to market, there was immediate demand to value these and no way to more slowly unwind them so the companies were now technically worthless, i.e. a negative book value. Incidentally, these securities regained a huge proportion of their original value over time.
Now it was hitting the fan! There was a very real chance of total collapse of the banking system. Money markets would lose value ( no longer $1 per share), ATMs stop spitting out cash, NO lending. Fortunately, and necessarily, the US Gov bailed out AIG and other insurers as well as the next set of vulnerable banks / investment houses. We would have had the Second Great Depression. Of course, fear stopped investment, spending and lending and the economy had all it’s issues we have yet to fully recover from, the Great Recession. I don’t think 1 in 100 people understand what happened in retrospect. It was not “the failed policies of the previous administartion”. This is a truly idiotic statement made only for political gain.
My (extremely convoluted) point is it is so complex to figure out what caused the last recession in retrospect, how on Earth can you predict what will cause the next? Of course, again, the wealthy profit the most from recession, less money chasing a fairly constant amount of real goods leading to their buying at fire sale prices.
Stevendad,
Not a bad summary. You are an astute observer. But you seem to have left out some bad guys on your list: the deregulation of financial markets advocated and pushed by Gramm-Leach-Bliley including the destruction of Glass-Steagall. The knowing fraud and deception of banks who anxiously and willingly (not forced as some claim) pushed low quality mortgages both on those who should not have had mortgages and on those who could have qualified for better. Not to mention the excess capital at the top of the pyramid that was available for all of this rampant lending because banks and investors had a shortage of sound investments to make. Yes it was very complex and yet, driven by many of the same villains as burst bubble economies over the last several hundred years: primarily leveraged debt as the star player. Our financial institutions and leaders should know better. Also note that the market for leveraged debt increases with high income disparity, when the rich have too much and the rest have too little, thus leading the rest to want to borrow from those at the top.
We are setting the stage once again.
Oh, yes, I agree that blaming this all on Bush, or even all on the CRA, or (as some claim) the Democrat Congress of 2007-2008 is gross simplification and way off the mark. Many factors came in to play as you described. And yet, too many of the same players are on the scene, so when conditions like high income disparity start rising like a barometer, we should start looking for the next storm.
Not to mention the always greedy public who (major generalization here) will typically spend $1.10 for every $1.00 earned. The public was enamored with being able to afford McMansions when earning 5 figures and they helped drive up the real estate market as well with foolish purchases and more people entering the marketplace.
Who benefitted the most from this? The wealthy who owned real estate they could afford and saw it appreciate at unprecedented rates? Or the foolish consumer that bought more house than they could afford with interest only or negative amortization loans and eventually had to be foreclosed upon?
Peter, I don’t to over-defend people who took out bigger loans than they should, but it has amazed me how aggressive some the lenders had gotten. Some were filling out forms (including salary) for the borrower and putting false information, and reassuring the borrowers the loans were safe because of the rapidly rising market. People were being given sub-prime loans at higher rates when they qualified for better (but didn’t know). There is a certain amount of trust that people had in bankers/lenders in order to at least look after their own interests, if not the borrowers. This trust was completely abused by bankers/lenders.
I don’t have stats and I don’t know if they exist, but my gut feel is that the greed of the bankers who should absolutely have known better, was a much bigger driver of the crash than the greed of people, who were ill-informed of the risks, for too big a house.
It was a house of cards and the Realator and the Mortgage Originator and the appraiser only have to care about the sale. They are off the hook no matter what happens down the road. You are buying your most expensive asset ever and you are listening to a person that was not in the business six months ago and not in the business now. When the janitor is giving you stock tip and living in a $600K, something is wrong. But again, nobody was forced to buy a house or to buy a house 10X your income. Yes, there was fraud on many levels, but if a bank gets a fraudulent application, are they the last line of defense? Everyone was pushing the home sales no matter what.
Once again the people were victims and have no personal accountability. This is tiresome. I work in this industry and see it first hand everyday. Don’t underestimate the greed of the public and the desire to live as though they make more money than they do. Sure there was some deceit and immorality on the lenders part. But there is deceit and immorality to infomercials, travel clubs, time shares, TV evangelists, pawn shops, check cashing places, etc. and they all still make a tremendous amount of money and have a great deal of ill-informed customers. The whole thing was a mess and ultimately the individual is responsible for themselves.
I mean – who goes in to talk to a lender about a mortgage and thinks that the lender has your best interests at heart? How stupid do you have to be to think that? Do you think that when you buy a car?
Of course there are ethical Realtors and Mortgage lenders. They are the ones that tell people, maybe you should look at a house in this price range, instead of just selling anything they can. Those that forged bank documents should go to jail and be kicked out of the business. There are a ton of people that do what their stockbroker tell them without doing any research and then wonder why they are losing money when others are making money. If your portfolio is still down after the last 4 years, you either aren’t paying attention or are sitting on cash. It all comes down to personal responsibility.
Peter – Many people do trust the “professionals”. It is a bit better today, with the internet we can all do research ourselves. But there is a lot of bad information out there. People trust the professionals because they are supposed to know. People trust professionals because people want to trust others. How else would we have con men?
Many people do trust car dealers, especially once they get to the financing. Why? I don’t know, other than lack of experience or maybe they feel the hard part is over. Most people go many years without buying a car and even longer between house purchases.
When I purchased my last car, the dealer first offered more than double what my bank was offering, I told them this and they kept pushing that the payment difference was not that much. That was their argument for everything. They know that with pressure and telling people the difference is meaningless, that they can often get what they want since most people don’t deal with this type of situation regularly and don’t like the stress.
Most people only car about the monthly payment of a car. they really don’t realize they will pay more either way. If you have to put a car on a 72 month note, you should be buying a used car for $5,000, not $50,000. $500 car payments are killing the poor and middle class. Nobody “NEEDS” a new car. There are plenty of 10 year old cars that will last another 5 years. In five years, sell the car for almost what you paid for it and if you have more money now, move up. If you are poor, then keep buying the $5,000 car. It will cost you less. and buy a quality used car. At some point, all cars have some problems. but why start out owing $40,000 when you can start at $5,000.
Yes – very true JB – I didn’t mean to imply that all are unethical. Far from it. But you have to go into any situation with someone selling something in a “one-time” setting with the mindset that their motivation is to sell you something. Period.
This is why the financial planning and advisory business has morphed away from the transactional stockbroker and more to the ongoing relationship. The advisor’s motivation then becomes keeping you a happy client for years and years rather than selling you something you don’t need for maximum commissions.
My wife does the taxes on all the bundled CDO, MBSs. She lost a ton of clients after the meltdown. She had a few sub prime lenders and WAMU and Countrywide.
I know for a fact that the issues with the MBS and CDOs were that forever, the tranches were very defined. A+ tranches were less risky than the B tranches and so on. The subprime mortgages started to get mixed in to some of the safer tranches. Those should not (IMO) been valued at mark to market. There were tons of mortgages that were getting paid even as the values of the houses, thus the tranches were being devalued. I don’t care if you have 100 houses that are underwater, if they are all making the payments, nobody is hurt.
Myself, I prefer the mountains in southern CO and NE NM. Beautiful pines and aspens. Cool, dry and pretty isolated. Isn’t that the point?
I want to be around like minded beer drinkers and cyclists with major sports teams even though summer is only baseball. Portland is liberal enough for the wife and the weather is good enough to be outside most of the time. I have no problem living in Downtown Portland so we don’t have to have the car.
And soccer. The Portland Timbers and the women’s soccer team but I forget the name.
The are also comedy clubs.
Have you seen the program Portlandia?
Seattle also has a soccer team call the Sounders.
Seattle has better sailing but it costs to have a hole in the water.
Portlandia is what my wife aspires to. Knowing exactly where her chicken was raised before she eats it. We were in Portland and Seattle for the first time last year in August. Portland has a great farmer’s market downtown and lot of bike trails around the city. And lots of beer. I will occasionally go to soccer games here, but it is too hot to deal with most of the time so a Timbers game would be fun.
Steven H.
Obama and Dems were equally complicit in shut down. Obamacare was passed with 100% ignored Repub input, a lie to doctors (SGR fix guaranteed and never happened (see AMA website)), uncertain effects, questionable mandates for people to buy a service (5-4 SCOTUS hardly overwhelming) and even uncertain content. Obama created law (please quote section of Constitution that allows that) in giving broad exemption to business for purely political reasons. Whe Repubs defunded ONLY that portion of funding, Obama CHOSE to defund everything else. Both were equally stubborn and pig headed, unwilling to listen to compromise.
On Medicaid expansion: states pick up increasing percentages as Feds back out and will DOUBLE expenditures for states who participated. May not be much left for schools and prisons. Of course, many Progressives are clearly deaf to anything that does not fit their narrative. Increasing insurance rates are running rampant in those who previously had it. This is likely to happen on a much larger scale when employer, passed to employee rates go up as well.
It would have been far cheaper to pay for prexisting illness and giving vouchers directly to the uninsured than to create an enormous beaurocracy that will slowly swallow the system whole and lead to single payor system. It is about central control. Pelosi, Sebelius, Reid, Obama all on record as what we have is an incremental step to single payor. Medicare is NOT what they envision and is still mostly fee for service. They want a VA like system of total control. How’s thaat working for our heroes?
You clearly expound socialism, but look what effect that had before and after it was imposed on Europe by the Soviets. The rich got poorer and the poor got poorer yet. The middle must be rewarded for hard work, good choices and planning, investment of time and money, even luck. The high and low ends must be limited in their greed. Besides, who is so smart that they can make so many decisions for hundreds of millions?
BTW, I did build it. Not every bit, but most of it. I went to school with 712 people in my high school class. If infrastructure and opportunity was all that mattered, we would all have by and large equal income and wealth. We do not. A few are dead, largely from poor decsions, a few are in the .5% or better (not me). All had same schools, same class offerings. It is appalling to me that my income deferral and time investment (as well as tuition) of 11 post high school years is brushed away so flippantly by a man who never held a real job. It is equally appalling that the emphasis on education I was given (and have given to my children) is also minimized.
I still feel Obama was a guy who one day was asked to run and woke up in the White House without a clue on how to govern and lead. Now he is dangerously expanding the power of the Presidency by fiat. Remember, he began this grab when the next Repub President is writing laws you don’t like. Hopefully, SCOTUS will rescue us from the increasing Imperialism of the Presidency, no matter who is President.
Too many topics to fully address, but thanks for expressing your perspective so clearly.
A few comments: Imperial Presidency. This accusation was also made against GWB for all of his signing statements, e.g. from 2006:
“A panel of legal scholars and lawyers assembled by the American Bar Association is sharply criticizing the use of “signing statements” by President Bush that assert his right to ignore or not enforce laws passed by Congress.
In a report to be issued today, the ABA task force said that Bush has lodged more challenges to provisions of laws than all previous presidents combined.”
Obama has had very few signing statements or executive orders. And the obscure delay of a technical provision of ObamaCare, a delay that was actually desired by business and by GOP, hardly seems like the basis of lawsuit, impeachment, or accusations of imperialism. Previous Presidents have all done much worse for more political reasons as far as questionable use of power.
There is so much political posturing around ObamaCare, it is hard to ferret out truth from the fictions. Will Medicaid really bankrupt states, or save them money in more efficient healthcare distribution? Is ObamaCare headed for single payer, or a system like Canada’s … which is much beloved by the population there and which has save them lots of money? Why is RomneyCare hailed as a success but ObamaCare (same ideas)expected by its detractors to fail? And no matter what is cheaper, it certainly seems more just for cancer patients to be able to keep insurance after they lose their job, and not to have lost insurance permanently when they are re-employed after remission and a break in coverage (as happened before). Ultimately, we only know that the uninsured rate is dropping, medical cost increases are slowing, and that ER costs in some states with new Medicaid are gong down. I think it will be a few years before we understand all the cost implications of the ACA.
I think we can all agree that the last two presidents have easily been among history’s worst.
I agree. I didn’t vote for either. I have never voted for a Bush. The last person I voted for that won was Reagan.
I must admit that Clinton was probably the smartest of all the recent presidents but I didn’t like his policies. Clinton also benefited from a time where there was no attacks on us or need to fight a war. Also, the prosperity that we enjoyed was really inflated and fell apart during the 2001 tech bubble burst recession.
I didn’t like Nixon but the alternative was worse.
Why can’t we get some good choices?
Because of the party system….. They keep everyone who might be worth something out of the discussion. Did you know that you have to have something like 20% of the popular vote in polls to be invited to the presidential debates? It used to be only 5%. When did they raise it? The year after Ross Perot crashed the party. Right or wrong, good or bad, we need more Ross Perots in the debate.
Lots to learn on those posts. Still feel the government punishes wise decisions to a great extent. My plan is to have no debt in 10-12 years and live frugally to avoid Soc Sec income taxes (remember already taxed once) and what will likely be crushing income taxes. Plan mountains summer, beach winter and home in between. Will work here and there, but my job is more portable than most. BTW, I love my job except for how the government and 3 piece suits have ruined it.
We won’t be living in the South during the summers. Portland, Seattle, Upper Michigan, maybe two months in Europe. Rents might be $2,500 a month, but that is why we save a ton now so we can have fun later.
JB, I live across the Columbia river from Portland. I wouldn’t live IN Portland or IN Seattle but in a suburb of either of these two cities. Traffic can be bad during rush hours. Oregon doesn’t have a sales tax. Summers from about mid June to September are nice.
If you really want a get away live on the north side of the the Olympic peninsula like Port Angles or Port Townsend and learn to sail.
I need to be able to walk to a brewpub. 🙂
The the Pearl district north of downtown Portland is the cool place to be.
It is an easy bus ride to downtown. There are also condos east of the lloyd center that are in the ride for free zone to downtown. You would avoid the need to use your car and the hassles with parking and traffic.
I have $2.4M saved and I am not even 50. We should be able to do whatever we want in 12 years barring any major medical issues.
JB – That’s great for you. No one begrudges it for you.
For most of us, that type of savings is not possible, it is more than what most earn in a lifetime. It would be plenty enough for most to live on the interest and have savings from the interest(if we ever get back to a reasonable rate).
You must have very good earnings. Of course, for those who earn $1mil or more a year, your savings would seem quite low.
We make a little less than $400K a year. Wife make 4x what I make. She is a specialized accountant at a big 4 firm. She has been there 24 years. We save about 40% of our income. No mortgage, no car payments. We max out her 401K and she has a profit share. I have 6% taken out as my pension and I save 12K on top of that. Plus we save another $9K after tax since we can’t put money into IRA. Wife has 75 people under her and has more stress than most. I am just a County worker in the 3rd largest county in America doing Banking Admin. She got there by being smart and working hard. She went to HS in a small east texas town and went to University of Houston and graduated with honors. At some point she could have gone into the corporate world but she would have probably topped out in private sector. She has one last promotion to achieve in her career. She would have been a partner in the firm, but the DOJ decided to kill the firm in 2001 after Enron went away. Her department was bought. Many partners lost everything in the debacle. They had too many expenses to keep up. Lost their retirement pensions and profit sharing. They kept their 401K, but still many lost a lot of money. They were too old to go to the new company. A few had just retired.
It does come down to education and work ethic. She worked 65-90 hours during tax season when she had to for 10 years. She is one of maybe 20-25 people in the country doing the kind of work she does.
We travel and “could” buy almost whatever we want, but we don’t fly first class and she drives a 13 year old Lexus. We under bought our house by $300K. We could have bought a $500,000 house, but knew we would rather travel than put that kind of money in a house.
Many people make less than we do and I get it. Many people make more than we do and have less to show for it. But I don’t care that the head of the accounting firm makes 10x what she makes. He won’t ever make $20M because the firm is a private company and a partnership so there is more accountability from the other partners than a CEO has from shareholders or the BOD that are his buddies. Her next raise could garner a raise that is almost what I make.
She sure paid more in FIT than I made last year. We ended up paying $600 in Obamacare taxes last year. I only have about 5 years left of this since she is going to retire at 50. Then we will live off my salary and then I will have to try and live off one salary and still save money. I might not be able to max out my 457 at $23,500 once I hit 50, but I will be able to fund our Roth accounts. I am hoping our portfolio doubles in 10 years so when I retire, I am hoping to have around $6M. There will be cycles in the stock market, but it appears will be have about $100K coming in once we stop working.
We could have blown most of this money on many things, but we are making the choice to not work forever. I think we will accomplish our goal.
Trying to keep it real. Soc Sec not going any where.
Is there any place for accountability and self responsibility in all this. I interface a lot with the poor and a great deal of their issues relate to various poor choices. Our government system punishes the responsible (always) and rewards the irresponsible (frequently). The business system by and large does the opposite. Which one should we invest in?
I have a family story related to this point. I will try to be brief.
My dad and my uncle both were raised in poverty in the inner city. Both had extremely challenging childhoods. When they turned 18, each served in the armed forces in WWII, and each had GI bill benefits when they left the services in the mid 1940s.
My late dad used his GI bill benefits to get his undergraduate degree. He then went on (on his own) to get a master’s degree while working full time, and held a white collar job for the rest of his life. He and my mom never bought a new car until after they were retired. When I was a child we only ever went out to eat at a restaurant once a year. In general my mom and dad made choices with their time and money that were more geared towards long-term success rather than short-term indulgence. My mom worked outside the home after I, the youngest of two, was able to be home alone. My dad and my mom ended up enjoying a relatively financially worry free retirement.
My uncle, by contrast, though a bright and articulate man, did not use his GI bill benefits, did not go to college, and as a consequnce held a series of lower paying blue collar jobs his entire life. He and my aunt insisted on living in larger houses for the time period (by today’s standards most people would describee them as average, but at the time they were “upscale”). My aunt never worked outside the home, they chose to have five cihldren, they went on trips, and bought new cars every 3-4 years. In general they made choices geard more towards short term indulgence rather than long term success. When it came time to retire, he couldn’t. He continued working until the day he passed away.
So my question for the posters in this thread is this: Should our system have rewarded my dad and mom, and my uncle and aunt, equally or differently? If differnetly, then in which direction, and why? Should a lifelong series of self-sacrificing, “good” choices geared towards long term success be rewarded, or punished? Same question for a lifelong series of self-indulgent, “poor” choices.
Their choices were made for them. I plan on quitting at 60 and we are going to live in different cities during the summers and get out of this hot/humid city.
“Their choices were made for them.”
WHAT? One decided to go to college and live frugally and the other did not. They made their own and different choices.
The one that did not live frugally had to work his whole life. His choice to spend money was his choice, therefore he had to work his whole life. Saving the money gave the choices to have vacations and not work until they died. It wasn’t the best wording I have had. Choices were made for them. Choose to work, choose to save. Choose to work until you die, choose to retire.
It sounds like their choices had appropriate consequences. The “system” should not invoke any additional reward or punishment beyond what they actually received, apparently.
Ken – What is your position? Personally, it seems they both got what they wanted. Though your uncle made choices that didn’t allow him to retire, why does everyone need to retire? On the other hand, your parents went above and beyond to have a solid retirement, giving up many pleasures they could have enjoyed.
Many pass away before retirement or shortly thereafter. What good is living frugally your whole life only to pass on all your savings to someone else? Like most things, there needs to be balance. Seems to me your uncle could have learned a few things from your father to make his life better, and vice-versa.
JTM – Interesting question. After he died, my mom told me that as he was sick and dying he said to her that he wished he’d enjoyed his money more. I said to my mom….”Yeah but he did enjoy his money. He enjoyed the peace of mind it gave to him knowing that you two would always be financially OK.”
But of course I took his comment to mean that he wished he hadn’t been quite as frugal, and had been a little freer with spending it during his lifetime. I agree with your point that what makes saving and spending difficult is finding a balance betwen enjoying the present, versus planning for the future.
Part of why I told this story was to see how the posters here would respond…. which was “well”, I might add….but I thought someone might latch onto the idea of means tested SS benefits. Nobody went there, though. So I’ll add a bit more, and target my question.
If you have more than a certain amount in husband-wife annual retirement income, somewhere in the mid $30,000s I think it is, as much as 85% of your SS benefits are taxed. Is that” fair”, considering these two life stories — my uncle the grasshopper, and my dad the ant?
Specifically, if you were frugal your whole life, sacrificed the present for the future, etc., and now have means as a result, is it “fair” that should you have more of your SS benefits taxed, particularly when someone who made a lifelong series of financially lesser choice now doesn’t have as high a retirement income as you, and so their SS benefits aren’t taxed as highly?
I do feel, most likely, there will be some sort of means testing for benefits at some point. I’m not going to say it’s fair and it will likely hit me as we are savers, but I think solvency of the program will necessitate it especially since they keep kicking the can down the road. I would consider taxing SS income as a bit like means testing. But it also has to do with having a progressive tax system. Is it necessarily fair, no, but those with the extra earnings have the ability to pay and the security of the extra income, they are still better off. Those like your uncle, who continue to work, end up receiving nothing.
If we assume not everyone can pay an equal share, as in everyone pays $10k/person/year, for living in the US, we have to accept a somewhat progressive tax system. Is it fair that those with greater earned incomes pay a much higher rate than those whose income comes from interest and stock investment? Is it fair that there are loopholes for carried interest (which I believe most would consider earned income) and the like? Is it fair that most in the .5-2% shoulder a much greater burden than the .1% just because much of their income is earned and not from investments?
JTM — Good points. N0t everything in life is fair, and pretty much asny system you develop will have flaws which can be exploited. But I think you have to wonder at least a little bit about a system that is more beneficial to a person who has made a lifelong series of poor choices than to a person who has made a lifelong series of better choices.
Interestingly, I think my uncle probably did receive SS benefits, even though he continued working, although to be honest I am not sure. My guess is that received benefits while working, as SS benefits would have been available to him beginning at age 62 whether e worked or not. And I know for sure that he worked until he passed away at age 77. So in my previous example, if he had begun receiving benefits at age 62 and his income from his job from age 62 until age 77 had been less than the mid $30Ks, which I’m thinking it probably was, then his SS benefits would not have been taxed as highly as my dad’s.
Our government teaches irresponsibility, they are the poster child. It seems, regardless of political affiliation, many on here can agree to that. Both parties have put us in this mess and neither is willing to do what it takes to get us out until they are forced to.
I fail to see what this has to do with SS. SS payments are based on income and years of earnings and have minimum requirements to receive. One has to work and earn and income to eventually receive it. Other welfare programs, not so much.
Re: SNAP. So 1 in 7 people are going to riot if reduced? To some extent, all social welfare programs are a bribe to the poor. To vote for progressives, steal less, not riot, etc. Soc sec is what the poor will live on in their old age. The poor clearly don’t save. Won’t / can’t is up to the observer.
Gen X is getting screwed 4 ways: national debt comes due, Soc Sec and Medicare run out and Obamacare runs up deficits. In one way or another, these are all programs gen X is paying in and will get less or no benefit. All Xers should be in Tea Party or other Libertarian parties if they care about their future. I don’t think they are stupid, just unaware. They will be crushed economically.
If the young are smart, they will save more and not depend on SS. All of our retirement calculations don’t even have SS as an option. That money will be bonus beer/travel money. I plan on taking it when I hit 62 since I know I will die before the wife. Why waste those 8 years when you don’t know how long you will live. There should be a means test to take SS, but then the rich are paying 7.5% extra tax. Also, you can make a ton of money while working and lose most of it in bad investments, so then you will need that money again. As long as the young are prepared on what the benefits will be, they will be fine. If not, get better jobs, or save money. Don’t have kids and you should be just fine.
Some interesting “gee whiz” things about SS…. maybe you all know this already…..
When first conceived and promoted to the public, SS was advertised as though the money taken from your paycheck would go into an account designated for you. In other words, forced retirement savings.
Well, as we all now know, part of this promise was true. You do have a Social Security account designated especially for you that has been created by the Social Security Administration.
The part was a deception was that the federal government never intended your money to go into your account. Your money was intended to go elsewhere, and instead of money in your account, you got credits. This is a huge difference, of course, as credits can be manipulated much more easily than actual dollars. I’m thinking that if people in the 1930s had known the full truth about what the government intended to do with their money via SS, they wouldn’t have bought into the program quite so readily. Of course, it was the middle of the Great Depression so the general public probably would have bought into just about any kind of program that they believed would ensure financial stability for themselves. And overall they trusted government far more than our current generation does.
Here’s another tidbit…. Back in the 1930s when SS was first introduced, life expectancy was approximately 64 years. Knowing this, the federal government set full retirement age at 65, one year more than life expectancy. Now, you can say that the federal government set the full retirement age at 65 to benevolently ensure the solvency of the program. Or you might say the federal government set the age at 65 cynically knowing half of the people to have a retirement nest egg would never collect. It depends on whether you think government is a necessary good, or a necessary evil.
Not sure where part of my previous post went, but here’s how the final paragaph shoudl have read….
“…cynically knowing that half of the people expecting to have a retirement next egg in Social Security would never collect. ….”
Cutting Federal spending hurts GDP and creates recessions. The USA cannot go bankrupt, even the Federal Reserve acknowledges this fact on their website.
The National debt is mostly rolled over interest. If you truly care about the debt, then the focus should be on the way federal spending is financed by the banks, creating guaranteed streams of income to the banks and primary dealers of US debt that only compounds the size of the debt.
The USA is monetarily sovereign, owns all rights to the dollar and could very well spend debt free money into the economy and yet, we allow the banks to lend to the USA what the USA already owns…with interest.
The FIRST thing to be done…repeal the social security tax. This tax only hurts the lower wage groups. The SECOND…drastically reduce taxes on wage earners and producing companies. THIRD, increase taxes on individuals and companies that only make money from moving money.
Here’s what SNAP does for you, it maintains order because hungry people will do what they need to do for survival. Want rioting and civil unrest? Simply cut benefits to the lower classes,a sum totaling a mere fraction of the welfare we provide the banks.
The national debt is not mostly rolled over interest. The interest is an enormous part of our federal budget, which consistently lies in deficit. And that is with low interest rates…..what happens when they rise?
You are right about the dollar, but by constantly printing money to keep feeding our spending habits we are devaluing it. It isn’t that crazy of an idea that in the next big economic downturn we might not be able to just print money to solve our problems.
How can you repeal the SS tax? Who pays for SS then? Just close down the whole system? Your #2 and #3 ideas have some merit though…..
Agree with Stevendad’s reply below about GenX. But also agree with JB that the young are saving more money than ever. GenX is a “cynical” generation that largely doesn’t believe that the government is going to take care of them.
Earnings can be manipulated, best to follow cash flow in most instances.
No reply button on my crappy phone. Regardless, any investment company that ran an annuity like Soc Security would be shut down and it’s officers imprisoned. Hey, now that’s an idea…
Great point. Politicians at it again…. on both sides.
JTM
So any annuity is not an investment? That is exactly what soc security is. Although any one else who ran annuity like the Fed government does would be in jail. It lets you pay in and you get income, even death benefits based on what you paid in. No, there is no defined contribution lump sum, but there is an annuity with the account number that is the soc security number.
STEVENDAD – Sure, an annuity that holds no value to borrow against or survivor value that the payer can unilaterally change terms of (including not pay) at any time. Proceeds also go to people that paid in very little if any in their lifetime. Today s money goes to pay expenses today, it’s not sitting around waiting for me to retire or become disabled. The money paid in has little to do with the benefit paid out.
On a side note. Why don’t we try to keep it all together and use the reply button to the post replied to?
JTM. See above. I don’t think employment taxes are taxes. They are enforced savings and old age medical insurance. Again, you DIRECTLY benefit from this. I’m not sure how I benefit from someone getting SNAP. Regardless, a long way from a monthly check. So including employment taxes is a bit silly. BTW, I can’t imagine many poor are self employed.
Then we agree to disagree. To me it’s the same and I don’t have any conception of it being forced savings, there is no balance to follow as in a 401k, there is no guarantee the government will ever pay it out to me. So, yes, I may benefit some day, but I’m not holding my breath and have always planned as if the system will become bankrupt.
I know it’s hard for some to believe, but many business owners are not wealthy. Not sure what you are trying to imply there. Like the rest of us, most small business owners have income under the cap for employment taxes and pay those on all of our income in addition to federal income taxes. In fact, many businesses don’t have gross receipts higher than the cap.
Yes, there is a guarantee. SS isn’t going away. You can log on and see your estimated payments. Obviously if you only made $20,000 a year it will be less than someone making $200,000 a year, but it isn’t going away. Benefits might get reduced by someone in their 30’s right now, but it will keep getting funded.
Yes, SS most likely isn’t going away, but since I’m in the group that you admit will likely see reduced benefits, I’m not counting on what they estimate now. There is no cash balance sitting somewhere and assigned to me to pay it, it is just a promise to pay that can change at anytime.
I feel benefits will be drastically reduced and wouldn’t doubt some means testing became part of the calculation. Many in my generation and younger will likely not receive anywhere near what we put in even if we live to 100.
The ENTIRE national debt is just a “promise to pay”.
Medicare, SS, Veterans benefits, Fed employee retirement, military retirement, treasuries …. what else is in the national debt but “promises to pay”.
Problem is our entire nation’s international integrity lies on us keeping these promises. It’s shame that something like SS has just become a big Ponzi scheme.
JTM. I know that, I’ve paid it. Have you? It is not taxable under income tax law and is NOT income.
This whole debt thing is not about today. It’s about ten to 20 years from now when the 2 workers per retiree happens due to demographics. Of course we should be saving for that, but have instead squandered several trillion of the trust funds on Congress’ programs / cronyism wars / whatever. Agree or disagree if it was well spent it is gone regardless. That’s when the whole thing explodes.
BTW, I don’t consider employment taxes the same as income taxes as you should DIRECTLY benefit from what you payed in. The fact Congress has stolen it does not change that this is enforced savings, nothing else. Of course, it came about because far too many were not responsible enough to have their own savings.
Again, a well intentioned law that Congress screwed up.
If it was forced savings, we would all get back out what we put in. There is no balance in some account we can pull from or borrow against. There is no guarantee we will receive anything from it. Many will get little if any of what they put in and many have already received multiples of what they put in. Plain and simple, it is a federal tax that is collected on job income which makes it very similar to an income tax. The expenses covered and taxes collected are routinely used as part of overall government budgets.
Agreed though, we should have been saving for the future. Our leaders have shown us how to spend instead of save and then try to tell us to do as they say not as they do.
Many people get more than they put in. Retire, take at 62 and live to be 96. You can live longer and take money longer than you worked. In the future the SS tax will be increased. I don’t know why there is still an income cap but I like it once my wife hits it and we get the extra money.
There is no balance sitting somewhere to pay out. If you die before you retire, you get nothing and your heirs get nothing. And, who knows what they will move the retirement age to, it’s already moving back from 62.
Yes, many people in the past and currently retired have received multiples of what they put in, but those of us who have decades before retirement cannot expect that to continue, our payments will go to those already retired.
The rich typically get back far less than what they put in. The math works better for those with lower incomes – which makes sense since it is meant to be a “floor” or a safety net – not one’s full retirement income.
So the poor pay what Romney paid in Fed taxes by percent? In what universe? Employment taxes are 7.8% for employee. Romney paid way more than that. Do not follow an accusation of bad facts with bad facts.
Sorry, but you need to double that 7.8%. The employers portion is effectively part of overall employee compensation, also if one is self-employed they pay the whole amount.
Of course if someone is “self employed” and “poor” at the same time they may want to get a regular job. 🙂 I digress…..
Quit their business and work for who? And why, to make even less?
And what’s poor? A family can make over twice minimum wage and pay little if any income taxes, while still paying employment taxes equal to the investment tax rate.
I was kidding…. I have several friends who are “self-employed” which means they watch TV and smoke pot all day.
But in all seriousness – what is poor? And what is rich? There are definitions based on statistics but so many more factors come into play. Bottom line is we have relatively low unemployment, an equal opportunity workforce, strong public welfare programs and some of the “richest poor” in the entire world.
Keep in mind too that the employment taxes are paying for the SS and Medicare they will receive in their elder years. They will receive these funds back. Income taxes go up in smoke….
Another view:
In 2013, most Americans will contribute nearly the same proportion of their total income toward major taxes: around 20%. The only outliers are the bottom and top groups: the bottom fifth of earners will pay 11% in taxes while the top 1% pays 31%, after we account for all major federal, state and local taxes.
http://www.nerdwallet.com/blog/finance/money-nerd/tax/study-major-taxes-nationwide/
The “poor people as freeloader” or the “40%/47% of Americans as freeloader because they pay no federal income tax” memes are anti-intellectual talking points and deserve no place in an intelligent conversation such as this one.
As I have said before, the INCOMES of the lower 90% of Americans have dropped 30% while the INCOMES of the top 1% have gone up by 2.5x as total shares of income (neglecting the fact that average real per-capita income has gone up IN ADDITION to the share increase).
If anything, the richest 1% are freeloaders much more than the rest of Americans, who are working just as hard as ever for less of the pie.
Calling the wealthy freeloaders is also an anti-intellectual talking point that deserves no place in an intelligent conversation such as this one. This is what I was referring to in the earlier posts. Don’t protect the poor from slanderous generalized labels and then throw the same thing at the wealthy.
Steven H just doesn’t get it. The worlds problems are always somebody else’s fault.
“As I have said before, the INCOMES of the lower 90% of Americans have dropped 30% while the INCOMES of the top 1% have gone up by 2.5x as total shares of income (neglecting the fact that average real per-capita income has gone up IN ADDITION to the share increase).”
Show me the link.
Why can’t you understand the people must compete with machines and cheaper labor over seas? What makes you think the workers deserve all the increases in productivity when most of it is due to machines ( capital )?
The trick is to be the ones making the machines or maintaining them.
I wonder how the Amish do it. They live a simple life but some how manage to acquire land for new families. I know there is a lot of pressure to conform, be frugal, and self reliant.
I don’t see the quality in those that depend on big government.
http://www.huffingtonpost.com/2012/08/07/amish-growth-staggering-in-midwest_n_1749546.html
Peter N, I am almost giving up on communicating with you, because you are fully convinced I am not listening to you, and I am rather certain you are not listening to me. And no one wants to just read posts where you call me names. But I will try to make just a couple of points.
Regarding your insistence that I show you the link that income shares of lower 90 has dropped and upper 1% has increased, we already had this conversation. I gave you the link, read you the stats, asked you if you believed it and you said “Yes”. We don’t need to go back over old ground.
I understand about cheap labor and automation. I also understand you believe parents are at fault and kids are at fault, and poor people are at fault and rich people only get the appropriate reward that the markets rightfully and perfectly allocate to them. I disagree and you and I probably will never agree on this major point.
I think parents and most Americans are as hard-working and anxious to learn the right skills as ever. But I also understand tax policy has made a major shift to give advantages to the rich, and that researchers like Piketti have pretty well proved that investment capital has an inherent advantage over labor unless it is countered with other policy. We probably won’t agree on this either.
But lastly, what you really don’t understand about my position is that I don’t really care WHY the income disparity exists. I believe that its very existence is foretelling a big cliff just a little ways down the highway, ready to swallow our little economy in a chasm as deep and dangerous as the last recession we are barely crawling out of. And I don’t really care WHY we are heading for the cliff. I just want to change direction.
Interesting reply – I don’t agree that we are “barely crawling out of a recession” at all. This has been a very healthy recovery by whatever measure you choose to use. Appreciate your point about not looking back however, but looking forward.
And for the record, I don’t see what name Steven H called you. But I did take offense at the insinuation that the wealthy are freeloaders.
The big differentiation in our debate – and one that we can never answer for sure – is whether your assessment that MOST of America are hard-working people anxious to learn the right skills. I tend to fall in the middle here – not as cynical and dismissive as the conservatives, but nowhere near as hopeful and idealistic as the liberals. But this is a point we cannot argue as any evidence to this is simply anecdotal.
We are so not the government.
government IS FORCING US TO PAY THEM MONEY. Ultimately at gun point.
We are the government.
Steven H.
The pro Len with the super rich and corps expatriating is they take their capital with them. Be careful what you wish for.
GDP grows when everyone is out spending money. You can build up savings and not help the GDP. Don’t buy a new car, buy used clothing, used appliances, grow your own veggies. All of that skews the numbers.
There’s another thing that bothered me few the past few days, a point which several posters have raised regarding the mapping of revenues to GDP.
What I noticed in (nearly) all of these posts was the embedded assumption that when GDP grows, the size of government revenue “should” grow as well. Perhaps this is because the money is there to be taxed, and because that’s the way the system works today. If you earn a profit then it gets taxed. End of story. But then I started thinking….
Does the government really deserve to grow because GDP rises? I mean, what additional service is the goverment providing when someone creates wealth? Anything? I mean, if this were the private sector, there would be a (roughly) equal exchange of goods / services / money when a transaction takes place.
But with taxation that linkage is much more blurred. Or to say the least, much more abstract. The government isn’t going to go out and provide you the entrepeneur with more services because it just collected more in taxes. Why is it that government couldn’t stay the same size (relatively) it was prior to the business creating new wealth?
Well, anyway. That’s it. I’m having a hard time accepting the idea that revenue as a percentage of GDP is a useful gauge of what revenue “ought” to be.
The gov’t does nothing and get more money based on the economy growing. As my previous example. You have X brewery that is taxed on how much beer it makes. The more beer they make and sold, the more taxes that the gov’t gets for doing nothing. The consumer has more disposable income to buy the beer and that beer is taxed 9 ways to Sunday. Breweries have to charge more per beer to cover increases in taxes, which just goes to the consumer. The money is spent by the taxpayer so the gov’t is still indirectly getting twice the taxes. In the tax return by the consumer and by the beer they are buying indirectly as the brewery sends in the booze taxes. Why should beer and cigarettes be taxed just for those that use it? It is the same as toll roads. Nobody is forcing you to take a toll road, but it is there for someone’s convenience. But as we have seen with gas taxes, the more efficient you make cars, the less gas taxes that will come in, so then the gov’t has to raise taxes, eliminating the savings of the more efficient car.
Even if every person in America could read, do math and have a HS education, there still aren’t enough jobs for everyone. There will never be 100% employment. Not everyone want to be a machinist, or an accountant or whatever there might be not enough people to fill positions. There need to be severe penalties for dropping out of high school. Math tests to apply for welfare. If you are able to work, you should be working. Even cities and counties need labor to do a ton of stuff, but those people have to be willing to work. Most of the homeless I see around our building aren’t capable of having a job 5 days a week. I really don’t know what to do with those people.
I’m disturbed by the punishment mentality in your post. I hear it in other blogs by less educated people, but the people posting here have seemed to be of a higher caliber, and so such an attitude surprises me.
Punish people for dropping out of high school? I think the loss of ability to get a job is punishment enough. And maybe you should consider WHY they dropped out of high school. Poverty is rough. It’s hard to study when you have no food.
Math tests to apply for welfare? That’s ridiculous. There are a lot of jobs that require little or no math. I scarcely think an unemployed fireman should have to take a math test to get unemployment benefits.
I’m all for personal responsibility. But to hear wealthy businessmen trying to punish poor people for being poor is a little crazy.
No food? The poor get free breakfast and free lunch. Parents need to stop having kids after the first if they are on welfare. it is ALL about choices. You choose to have kids. you choose to drop out of school. you choose to do drugs and you chose to be lazy. As I said. you will never have 100% of people graduated, but you make sure they know in Junior High that there are real consequences for not finishing HS. Yes, it sounds harsh. Let the school district determine hardships. There are plenty of ways to get your education while at home.
Your theory is that HS dropouts and welfare recipients are there in a bad situation ONLY due to their own bad choices. I can’t even begin here to address the plethora of examples where that does not hold true nor is there space here to begin to convey the difficulties in being poor or in difficult situations that are beyond individual control. I’ll just say that we all, at some point, make bad choices. In ideal circumstances we have opportunities to learn from our mistakes and recover. What you are proposing is to amplify the consequences of bad choices and make recovery and learning even harder. Not only is the punishment you propose unnecessary, but it is counterproductive. Like throwing someone off a cliff because they fell off the horse. That’ll teach ’em!
There are plenty of stats showing the income of dropouts vs HS graduates vs College graduates. Having kids at 15 is a choice. Having multiple kids under the age of 18 is a choice. There are plenty of ways to get the GED. There should be INCENTIVES to get the education. instead, the gov’t just continues to give welfare money to people that would rather take the money than improve their situation. Bonus money for getting more education. Less money for having more kids once you have a few and are already on welfare. It won’t take many years for the cycle to end.
What is your solution to get them a better education?
Most would agree that convincing someone to change behavior is better accomplished with a carrot, or carrot plus stick approach, rather than all stick.
The primary reasons someone may drop out of high school, from the Colorado DEA website:
Life Events-Students who dropout because of something that happens outside of school—they become pregnant, get arrested or have to work to support members of their family.
Fade Outs-Students who have generally been promoted on time from grade to grade and may even have above grade level skills but at some point become frustrated or bored and stop seeing a reason for coming to school. Once they reach the legal dropout age they leave, convinced that they can find their way without a high school diploma or that a GED will serve them just as well.
Push Outs-Students who are or who are perceived to be difficult, dangerous or detrimental to the success of the school and are subtly or not so subtly encouraged to withdrawal from the school, transfer to another school, or are simply dropped from the rolls if they fail too many courses or miss too many days of school and are past (or in some cases not even past) the legal dropout age.
Failing to Succeed-Students who fail to succeed in school and attend schools that fail to provide them with the environments and supports they need to succeed. For some, initial failure is the result of poor academic preparation, for others, it is rooted in unmet social-emotional needs. Few students drop out after their initial experience with failure. In fact, most persist for years, only dropping out after they fall so far behind that success seems impossible or they are worn down by repeated failure. In the meantime, they are literally waving their hands saying “help” through poor attendance, acting out and/or course failure.
None of the above problems would be addressed by further punishment of parents or student. There are problems inherent in the above list with the student taking personal responsibility AND actually learning to make good life choices along with three Rs AND solving or dealing with the external problems that are inducing failure in the first place.
Solutions: Not easy or it would be done. Possibilities:
— “Reform school”, based on combination of strict regimen like boot camp, but also with psychological counseling and life skills training. Carrot AND stick.
— Apprenticeship programs during high school providing part-time work with businesses — shows benefit of completing education.
Students need to see a benefit to jumping the hurdles. Too many HS and even College graduates are unemployed and too many jobs “require” higher education degrees when the job skills themselves do not need it. HS and College is being used as an employment filter by HR. If businesses really want to fill positions, and if schools are not filing the bill, start a training/apprenticeship program for those problem students. The company will get hard-working employees who are the most loyal that could be imagined.
People want to succeed. But no one wants to be beaten with a stick.
I am reminded of Monty Python in a Happy Valley skit, where offender was acting sad, because his wife had died, and was whimpering, in violation of the Charitable Noises Act: “You are hereby sentenced to be hung by the neck until you cheer up”
If the fireman got laid off, he is already capable of passing a math test. He wouldn’t have been hired in the first place.
They are already being punished by not being able to be hired since they don’t have a HS education. What incentive do they have to finish? None…
JB
Of course bonds pay you equal dollars. But what is the buying power? If there is no inflation, you are good to go. That can be a dangerous assumption. Bubbles are created when intervention by government, manias, demographics perturbed the natural course if things. To some extent all are true. I’m old enough to remember double digit inflation brought on by excessive borrowing due to excessive spending. Any of that sound familiar?
when CDs paid 15% your mortgage was 18%. The same 3% spread is in the system. Inflation isn’t that bad. Even with food, you can eat less food or not buy as much. People can make their own bread if they don’t like paying $3.00 for a loaf. Anything bought in the store is cheaper than buying it in a fast food restaurant. If milk costs too much, don’t buy it. We seem to have all adapted to $3.50 gas. Traffic is just as bad. A few more people are on public transportation. Bubbles are created by greed and stupidity. No gov’t forces you to buy stock or homes. You choose to get into a market.
Well said JB. The public just wants no accountability in this. We are all (rich, poor, young, old) susceptible to these bubbles whether it may be in housing, stocks, or any other category.
Athletes are making more than most CEOs. They don’t complain about paying their taxes, they just choose to live in states with no state income tax. The Feds should look into that. It is deliberate tax evasion. 🙂
JB – Back in the ’90s the states (and cities) recognized the type of tax revenue professional sports mean to their coffers. Just like any consultant or international businessperson, they are taxed in the jurisdiction that they earn their wages. Obviously they earn their money in the sports venues in the cities where they play. And most do not have that choice available to them. Not in the state where they may live. Inaccurate glib answers does nothing to support your arguments.
The reason the states started to pay attention is the large salaries the athletes were starting to earn. You obviously don’t understand sarcasm. A great majority of their earnings are still free from state taxes.
So which earnings do you refer to? The investments that most other well off people have? The reimbursements from their endorsements? All of this is highly publicized and such high profile people usually have armies of accountants on retainer just to keep their public image squeaky clean. I’m usually very good at sarcasm and satire, but I still don’t see it in your post. And most of the highly compensated athletes are far outnumbered by well off corporate CEOs.
Interestingly, pro athletes pay applicable state income taxes in each state in which they play. I know that my son had to file state income taxes in multiple states. As I recall, the percentage amount taxed was equal to the number of games played in a given state divided by the total games the team played. I believe that it was all based on games with no allowance made for practice time etc.
Debt is a spending problem. At some point there isn’t enough money to keep up with the spending. You can’t just decide you want to make $100,000 more at your job because you want to spend $200,000 on a Lamborghini. The gov’t is hoping the tax increase closes the gap, but they keep spending. The “cuts” don’t amount to a hill of beans. There must be major sacrifices in all sectors. Military, Parks, VA, Welfare, Education, Research etc.
Amen…. The self-serving political system feeds this beast.
Yes and No. Debt is created by spending more than you take in, plain and simple. To fix the deficit, you can either decrease spending, increase your income, or both. To be realistic, it needs to be both, no rock unturned. Both parties have put us in this position because has been willing to make sure to generate enough revenue to cover their expenses (yes, even Republicans have their expenses and pork barrel projects they will fight tooth and nail for).
The wealthy will necessarily be hit the hardest on the revenue front, but the lower classes will be hardest by the reduction in benefits and both groups need to recognize the sacrifices of the other instead of complaining “whoa is me!”.
The largest parts of the spending gap (social security and medicare/medicaid) should have been dealt with decades ago. It would have taken much less to fix back in the 80s, but neither party had the fortitude to do what was needed at that time and likely still don’t.
As for the income side of the equation, unfortunately, Republicans have long taken the stance to continue spending and increase debt instead of actually fighting spending, the theory being to “starve the beast”. Democrats meanwhile, have been unable to increase tax collections to cover expenses.
This is a problem we all (rich/poor, Dem/Rep, conservative/liberal) need to take responsibility for and work together to fix. The parties continue to fight over silly, unbending ideologies instead of compromising and making viable solutions. This is the problem, no matter which party is in power. This is what keeps us stuck and businesses cautious to invest as they fear taxes or are instead waiting for a golden ticket.
The reality is – despite the media and political spin – both parties are on the same side here. Short-term over long-term always wins. Cutting programs is unpopular for either side. Raising taxes is unpopular for either side. They both sing from the same sheet of music but just tint it enough to make you believe they are different.
No matter who we elect – as long as they are part of the Democratic or Republican party – we will keep on kicking the can down the road.
Real per capita spending has already gone down 10% in 4 years, the first time that has happened post-1950. And it is happening at exactly the wrong time. Stimulus, not austerity, is needed during an economic downturn. Federal Revenue has averaged 16% GDP since 2002, a historic low. With spending down and revenues way down, it does not really make any sense to proclaim a spending problem. That’s the political thing to say, but the numbers don’t defend it.
What we have, almost anyway you measure it, is a really significant revenue problem.
I wish that were true. Federal spending numbers:
2008 – $2.98 trillion
2009 – $3.52 trillion
2010 – $3.46 trillion
2011 – $3.60 trillion
2012 – $3.54 trillion
2013 – $3.45 trillion
2014 estimated – $3.65 trillion
For comparison –
1980 – $591 billion
1985 – $946 trillion
1990 – $1.25 trillion
1995 – $1.52 trillion
2000 – $1.79 trillion
2005 – $2.47 trillion
Furthermore, on an inflation-adjusted, per capita basis spending hasn’t dropped 10% in the last 4 years either. This is even more severe:
2000 – $8,000 per capita
2005 – $9,500 per capita
2009 was the peak at almost $12,000 per capita
now it is estimated we are around $11,350 per capita
And just wait until the Affordable Health Care Act kicks in fully…..
You are also wrong about revenues being down.
2009 – $2.10 trillion
2010 – $2.16 trillion
2011 – $2.30 trillion
2012 – $2.45 trillion
2013 – $2.78 trillion
2014 estimated – $3 trillion
Please research the actual numbers and you may change your opinion.
Real per capita spending in 2009 dollars
2009 … $11467
2010 … $11042
2011 … $11205
2012 … $10732
2013 … $10252 … 89.4% of 2009 amount … down 10.6%
reference: http://www.usgovernmentspending.com/spending_chart_1950_2015USd_15s2li011mcn_F0f
Federal revenues from 2002 to 2013 averaged 16.0% of GDP … a historic low compared to any other period of 2 decades or more since 1952 (when spending and revenue stabilized after WW2.
I never said raw revenues were down since 2009. I said revenues over the last 2 decades or so have been historically low relative to both GDP and to spending. Revenues have been recovering since 2009, more so since the sensible tax increase, but it does not look like current tax rates will be sufficient to pay the bills.
I have researched the numbers. 😉
Another typo, I said 2 decades, but 2002 through 2013 is obviously only 12 years. I’m getting too rushed in posting. Sorry.
In my opinion, federal spending and revenue all GENERALLY needs to be compared to GDP over time, with an eye toward also recognizing that GDP wobbles a bit. When spending/GDP went way up in 2009, part of that was because real per capita GDP went down 3.5% , not SOLELY because spending went up.
There are some debating here whether this is the appropriate measure, but I can only observe that spending and revenue per GDP has been relatively constant over the last 60 years, and so it makes sense to use that measure as a reference.
My numbers came from the Federal govt’s own website not a third party. But nonetheless in your chart they estimate the 10% decline (off the astronomical post recession levels by the way) to be temporary and we got right back up in 2015 – largely due to this colossal health care plan. Hardly a trend of spending reduction.
Peter,
Regarding the 10% spending decline:
I’ll have to check my site reference numbers then. I use them because they have been reliable but the charts and tables have been easier to use. I will be disappointed if they have lost accuracy.
[Hust checked — The spending in 2009 dollars of the usgovernmentspending site matches very close to Government OMB tables and their population tables seem to match, so per capita numbers should be good. What government site did you reference? Was it current to 2013, or perhaps an old table that was projecting 2013 numbers?]
Regardless, I never intended to say I thought the real per capita spending would continue to decline, just that it had in the last 10 years, and that it is no higher in % GDP than the average during Reagan/Bush1. Generally it goes up with GDP. If it stays at current levels of 20 to 21% GDP, we should be able to get revenue in line with spending. If we can get middle class incomes up as well, the safety net costs may decline and we may be able to get spending below 20% GDP, but that is a long-term goal, not short-term, in my opinion.
The real point, I guess, is that for people to say “it’s just a spending problem” indicates they think we can get spending down to 17% GDP (near current revenue) by cutting safety nets, which means cutting spending on a sector of the economy that is already suffering; and this seems much less practical or likely than raising taxes on a sector of the economy that is booming.
Typo — declined 10% in 4 years, not declined over 10 years. Sorry.
http://www.whitehouse.gov/omb/budget/historicals
This is where you are misunderstanding me…. I don’t think we cut spending by reducing safety nets immediately. But the math of these programs (social security and medicare primarily) just don’t add up over time.
One of the biggest parts of the debt for instance is Federal employee and military retirement benefits. Yet over the last 30 years these benefits have been reformed tremendously. If you started working for the government in 1987 for instance, your retirement benefit was twice what it would have been if you started work in 1988 and beyond.
We don’t need to take little old lady’s social security checks from them. But we need to get serious with starting to pare back the benefits of SS and Medicare for future generations or these programs will go bankrupt more abruptly.
There are many other places to cut spending too – defense, foreign aid and other international endeavors for starters. And while it is noble to start a national health care plan – the mechanics of it are also foolish considering our financial situation.
We can’t just continue to kick the “spending can” down the road.
Peter – regarding “This is where you are misunderstanding me….”.
Your points sound reasonable, and yes the long term situation needs to be addressed. It will be easier to do so once we address our short term crises, though.
Forcing austerity and government shutdowns, and absurd debt ceiling fights in the middle of this economic slowdown, in the name of these long term goals was a reprehensible political tactic of GOP, however. It has made us that much worse off, in the short and long term.
As for “ObamaCare”, I think it may be a little early to assess the long-term impact. CBO has indicated we are better off with the plan than without it, and I tend to trust their math. Financial impacts of the plan thus far are difficult to assess in the middle of an economic slowdown, but the rate of increase of medical costs has slowed (for whatever reason), and so we are better off now than the projections from a few years back. Also, the social impacts are beginning to show, with dramatic decreases in the uninsured, and cuts to ER costs in states where the Medicaid plan was accepted. I still have hopes the plan will be a net financial improvement as well as a social one.
I don’t think the National Debt has anything to do with CEO or worker pay. The gov’t is spending taxpayer money. Corporations can’t spend money they don’t have. If consumers decide to stop going to Burger King, they will be out of business pretty soon. The gov’t will always be in business and will just figure out how to pay the bills. Excessive programs will get cut once interest rates rise and the cost of borrowing takes a bigger and bigger chunk. The gov’t is hoping higher taxes are going to help pay down the deficit.
JB, Perhaps I was not clear. I was not tying National Debt to worker pay. I was stating that an increase to taxes on the very rich would help to solve two separate but pressing problems. The excessive income of investors, bankers, and CEOs, AND the National Debt. My last post on taxes is simply pointing out how debt is primarily a revenue problem that ultimately will be solved by taxes on those who can pay.
The super rich would simply move to Singapore or Monaco. Then they wouldn’t pay any US taxes at all.
Debt is a spending problem. The gov is spending money on too many things that aren’t listed as the responsibility of the fed gov.
Why should person A pay for person B?
Not true. Unless you give up your US citizenship, you pay taxes on your income no matter where you live. Choosing to live in a foreign country doesn’t exempt you from paying taxes.
I know.
Giving up US citizenship must be part of the plan if you move out of the country.
“The super rich would simply move to Singapore or Monaco. Then they wouldn’t pay any US taxes at all.” – Maybe we would all be better off. They are currently just sponging off of the rest of us.
“Debt is a spending problem. The gov is spending money on too many things that aren’t listed as the responsibility of the fed gov. ” Always has. Won’t change. The “public welfare” spending debate has been going on since our founders. But Debt is spending minus revenue, and you cannot ignore half of the equation just because you are politically opposed to taxes.
“Why should person A pay for person B?” – I don’t know. Why should all the hard work of 90% of Americans pay for a rich CEO’s salary? I think it should stop. Seriously, this is a meaningless GOP talking point question. You are smarter than that.
““The super rich would simply move to Singapore or Monaco. Then they wouldn’t pay any US taxes at all.” – Maybe we would all be better off. They are currently just sponging off of the rest of us.”
That is crazy. Now I know you are a wild eye marxist revolutionary.
No one is holding a gun to your head to so you must Bill Gates or Warren Buffet money. However, the opposite is true. There are way over 40% that pay no federal income taxes and get subsidies to the point they are sponging off the rest of us and the government IS FORCING US TO PAY THEM MONEY.
Peter N – Hold on now, your passing off the same lies that lost Romney the election! 40% may pay little if any federal income tax, but that is a far cry from not paying any taxes! Yes, some do end up paying no taxes and a few others collect more than they pay in, but it’s not 40%! Those who pay no federal income tax still pay employment taxes equal to the effective rate that people like Romney pay.
If you are going to use “facts”, get them right. I get so tired of people using these “facts” that they hear off talk radio. Just because someone says it on radio/tv/internet doesn’t make it true. So many lies have been passed around by politicos over the last decade it has become something they feel they have to do to counteract the other side and get their point across, in today’s politics it seems great exaggerations have become a must if not totally fabricated lies.
“Peter N – Hold on now, your passing off the same lies that lost Romney the election! 40% may pay little if any federal income tax, but that is a far cry from not paying any taxes!”
They aren’t lies.
They are still sponging of the rest of us. They don’t help in keeping the country going.
SS taxes don’t pay for essential government functions.
They also pay local state income, property and sales taxes. How can you say they don’t contribute and only sponge off the rest of us? They could contribute more if employers paid fair wages instead of using the dearth of jobs as a reason to pay even less and put ever more into their own pockets.
Steven H – it’s just not as much money as you think it is though – relative to the Federal budget deficit and the national debt. In order to be impactful you are going to have to raise taxes on more than the 0.01% and CEOs. It will have to be on everyone – at least everyone over about $200k – and it will have to be significant.
Peter,
If the economy can be improved and debt can be lowered and the wealthiest are contributing a big chunk, I think people would accept higher taxes. The most resistance would come from the super wealthy of course, because they have the most political power and the most to lose.
The upper 1% have a bonus of about 15% of all income that they did not used to have (beyond the 10% they already had in 1980). Obviously we won’t get all that back, but if we did put it all back in the government, it would easily pay off the annual deficit. There are more moderate tax levels that would actually be practical and would eventually balance the budget.
And, as JTM says, spending has to be addressed and restrained. You have to work both sides of the equation or it will not get done.
But the reality is it wouldn’t! My example was doing just that – increasing their tax rate from 26 to 40. And it reduced the DEFICIT by 7.5%. Arithmetic. It would be awesome if we could just tax the select few in the .01% and solve our budget crisis but despite what you are told the numbers don’t add up.
And I even think in this idealistic example you are giving that the wealthy would even be on board if they thought it would go right to the national debt. It’s the wasteful spending that frustrates my peers in the 1% ….
Steven H
Again, Fed buying and US government spending are causing a flood of money into “safe” bonds and away from small to medium businesses, the “engine of the economt”.
The qoutes on aafe are on purpose. The world’s recognized best bond trader, Bill Gross of PIMCO, said there is a bubble in bonds. It will be the next to burst. Then interest rates will rapidly rise, the economy will further stagnate and the deficit will explode. I’m sure George Bush will somehow take the blame.
Any way, the competiton against bonds as well as extremely strict lending requirements are what is keeping money held close to the vest by the wealthy and banks. For banks, it’s a great game, borrow at zero from the Fed, buy US treasuries at 2.5% (10 yr yield, a bit less if shorter and more if longer maturities) and make $billions on other people’s (our) money. They are borrowing on your credit card for nothing and making $billions is another way to put it. The intent is to push money out to support the exonomy. The effect is to compete with us for money, which achieves the opposite.
The wealthy are a also somewhat frozen in investing by the constant attack and vitriol by the Left and Obama. Obamacare, increased regulation, threats of punitive taxes have all frozen investment. Again, $2 trillion is overseas and would be very expensive to repatriate due to taxes. Local national taxes have been paid, then profits have to be REtaxed. Obama/Reid/Pelosi, based on politcal reasons, shot down a reduced tax rate to repatriate this money. So there it sits, supporting other countries who DO NOT OPPOSE BUSINESS.
So our workers are losing competetiveness and now “our” companies are losing their edge. Of course, the new trend is for companies to move headqurters to less taxed countries and pay their ( lower) taxes. Again, corporations are not loyal to countries, only their shareholders. It is the DUTY of officers to maximize profits.
Corporate america is also frozen in investing and expanding as well, which has caused them to sit on piles of cash – more than ever before. Great post.
Interest rates won’t rise until the Fed decides to start raising rates. Bond interest isn’t just going to skyrocket. Gross isn’t the best anymore, made huge mistakes. But as interest rates go up, bond values go down. Which doesn’t matter if you hold a bond to maturity.
Most investors now believe three things about the Federal Reserve, money and interest rates. They think that the Federal Reserve is artificially depressing rates below what would be a “normal” level. They believe that in the process of doing so the Federal Reserve has enormously increased the supply of money and they believe that the USA is on a fiat money system.
All three of those beliefs are incorrect. One benchmark rate that the Federal Reserve has absolute control of is the rate paid on reserves deposited at the Federal Reserve. That rate is now 25 basis points, after being zero since the inception of the Federal Reserve in 1913 until recently. If the Federal Reserve had left that rate at zero t-bill rates would now be even lower than they are now. The shortest t-bills rates would now be probably negative.
Paying interest on reserves combined with the subsidy to the banks of providing free unlimited deposit insurance on non-interest bearing demand deposits is keeping t-bill rates positive. Absent those policies the rate on t-bills would be actually negative. The Chinese and others all over the world are willing to pay anything for the safety of depositing funds in the USA. Already, Bank of New York Mellon Corp. has imposed a 0.13% charge on large deposits.
An investor who believes that interest rates are headed up may respond that the rate paid on reserves is a special case and that the vast increase in the money supply resulting from the quantitative easing must result in higher rates when the Federal Reserve reverses its course. The problem with that view is that the true effective money supply is still far below its 2007 level.
Money is what can be used to buy things. Historically money has first been specie (gold and silver coins), then fiat money which is paper currency and checking accounts (M1) and more recently credit money. The credit money supply is what in aggregate can be bought on credit. Two hundred years ago your ability to take your friends out to dinner depended on whether or not you had enough coins (specie) in your pocket. One hundred years ago it depended on the quantity of currency in your pocket and possibly the balance in your checking account if the restaurant would take checks.
Today it is mostly your credit card that allows you to spend. We no longer have a fiat money system. Today we have a credit money system. Just because there is still some fiat money does not negate the fact that we are on a credit money system. When we were on a basically fiat money system there was still a small amount of specie in circulation. Even today a five cent piece contains about 5 cents worth of metal, but no one would claim we are still on a specie money system.
Fiat money is easy to measure; M1 was $1.376 trillion in 2007 and was $2.535 trillion in May 2013. The effective money supply is the sum of fiat money and credit money. Credit money cannot be precisely measured. However, When the person in California whose occupation was strawberry picker and who had made $14,000 in his best year was able to get a mortgage of $740,000 with no money down and private equity could buy a company like Clear Channel in a $20 billion leveraged buyout, also with essentially no money down, the credit money supply was clearly much higher than today. A reasonable ballpark estimate of the credit money supply is that it was $70 trillion in 2007 compared to $50 trillion today.
The effective money supply is the sum of the traditional fiat money aggregates plus the credit money supply. Thus, despite the claims of Ron Paul and Rick Perry to the contrary, the effective or true money supply has fallen drastically over the last few years….”
http://seekingalpha.com/article/1514632
Much of the discussion here has been on the causes, impacts and solutions for the excessive income slope problem (aka excessive income disparity, or “income inequality”). One of the potential solutions which has (unsurprisingly) met with a lot of resistance is an increase on income taxes on higher earners. But there is another, more basic reason, completely separate from solving the income slope problem, for why more tax on high incomes is necessary.
The National Debt.
I know, I know, I’ve heard all the rhetoric about it being a spending problem, not a revenue problem. But the numbers don’t back that up. Spending per GDP has been between 17 and 22% for most of post WW2 history. Spending averaged 18.5% GDP from 1952-1981 (pre-Reagan). Reagan/Bush1 upped the ante and took spending to 21.2% GDP for next 12 years. It went down under Clinton to 8 years at 18.5% GDP, which helped pay down the debt/GDP ratio. Yes Clinton also used the rarely used political tool of arithmetic to justify a tax increase which ultimately balanced the equation. but there were also several non-repeatable conditions that impacted spending: rising tech bubble economy, and temporary peace dividend from the end of the Cold War. Clinton spending levels are probably more of an anomaly in the post-Reagan world than a goal we can ever achieve again.
So, while spending has mostly increased in Reagan and post-Reagan years, federal revenue has not. Clinton is again the exception. Federal revenue during Clinton, at 18.4% GDP was just 0.1% shy of equalling spending. (You apparently only have to be within one year’s GDP growth rate to balance out, allowing the debt/GDP drop during Clinton). Before Reagan, revenue was about 1% off from spending. It was 17.2%. During Reagan/Bush1, when economy was growing and spending went up about 3 points, revenue actually went down o.1% to 17.1% GDP. Under Bush Tax Cuts and Bush Recession which both dropped revenue to historic lows, Federal revenue has averaged only 16.0%, a full 4.5 points below average spending. And even with spending increased from the wars and the recession, spending/GDP in 2013 is almost spot on the post-Clinton average of 20.5%.
The point of all the numbers. Our spending is at the new normal of 20.5%. Our revenue is still at a low in 2013 of 16.5%, … rising as the economy recovers and new tax increases restore the balance sheet, but still low. Meanwhile the House GOP has quietly voted for another Trillion dollars in Crony Tax Cuts, just in the last year.
We must raise revenue, probably to 19.5% GDP or so. This will mean tax increases to those who can actually afford it. And those people are not the folks relying on safety nets due to oppressively low wages and job outsourcing. The folks that MUST pay some more in taxes to restore the Federal balance sheet are the ONLY people who can afford to do so: those whose incomes have doubled, tripled and even quintupled due to the Great Income Redistribution.
Do the simple “arithmetic” and balance the budget by raising taxes. I’m curious to see what rate you take the top brackets to in order for it to balance. This is “pie in the sky” as much as people who say that if we cut “this and that” we can easily balance the budget.
There isn’t 17T in taxes to be raised.
Actually the deficit is around 1 trillion. (The debt is 17 trillion) Of course we can’t even talk about paying down the 17 trillion until we stop adding to it.
And you’re right – there isn’t even 1 trillion to be raised.
Annual deficit is $680B for 2013. (4% GDP)
Projected annual deficit is $650B for 2014. (3.7% GDP)
Projected GDP for 2014 is $17.3T. I don’t have total income number in front of me, but that is approx. 55% of GDP, for about $9.5T. Upper 1% gets about 25% of that for $2.4T income, They pay about 30% effective tax rate or $720B. If you double just the taxes of this most fortunate 1%, you pay off the 2014 deficit and have an additional $70B to put toward the debt. And the richest still have 10% of all income as POST-tax income, when pre-1980 the upper 1% had only 10% of PRE-tax income and after a 35% effective tax rate at that time, they only had 6.5% of all income.
So even after such an “exorbitant” tax increase, the annual deficit would be paid off and the richest 1% would remain 54% RICHER than their grandparents generation of rich folks.
I didn’t say the above was practical. But don’t say for a minute that it is not POSSIBLE to tax the rich and get meaningful revenue.
This is so ridiculous. I love the remark “if you just double the taxes of the 1%”. OUCH! That is a giant hit…. Plus in the 1% you include people who aren’t overly wealthy – people who make $400k a year in place like SoCal, DC and NYC. People who employ quite a few people and funnel quite a bit into the economy. Not someone making $20mill a year. You are right. It isn’t even slightly practical.
And why should the rich get penalized just for making more money than they did years ago or generations ago. What did they do wrong to deserve this vitriol?
“And why should the rich get penalized just for making more money than they did years ago or generations ago. What did they do wrong to deserve this vitriol?”
The rich did nothing “wrong”. They played by the rules but the rules were bad. The bad rules allowed a dangerously unbalanced amount of income to build in investor class rather than remain in the middle class. Don’t think of it as being punished. Think of it as a period of outsized reward that must finally end.
I’ll try explaining this once more. Perhaps I was not clear in making my point, or perhaps you and the other folks here don’t care about the point.
It is economically possible (though not politically possible) to tax the upper 1%, at each sub level of the 1%, just a portion of their “bonus” income (which is their share derived from the 15% of all income that has moved to the 1% sector from the lower 90% since 1980), such that two things occur:
1) The 2014 is completely paid off with some left over.
2) Each individual has more after tax income, and a larger share of after tax income, than their 1980 counterpart even AFTER adjusting for inflation and overall average increases in real per capita wage income from 1980 to 2014.
Or more simply, the very rich do have enough bonus income to pay off the entire 2014 deficit and still be rich.
I think this is remarkable. I’m sure others disagree.
I’m not proposing an actual drastic one year tax increase plan, so don’t bother to tell me how politically impractical this is. I know. But if you ever hear anyone tell you it is just absolutely impossible to tax the rich and get enough money to pay off the annual deficit (not DEBT, but DEFICIT), they are wrong.
That’s all.
I understand your point and simply can’t disagree with you more on several levels. Here are my problems with what you are suggesting.
1. I completely resent the “judgment” you are making in referring to “bonus income”. Did LeBron James make “bonus income”? What about Steve Jobs? Who are we to judge that these people make too much money. They make what the market has paid them – they didn’t steal or cheat or milk the system. They have no obligation to ‘pay this back’.
2. The defense that the rich could pay more money and still be rich is preposterous. Again, this is not an ethical, practical or economical position to take. I could donate a kidney and still be healthy, while saving someone else’s life. But I have no moral or societal obligation to do so. Nor do I want my government telling me to.
3. How about we just run our programs and Federal budget correctly so we don’t keep running up debt? Why should the rich have to swoop in and bail out flawed programs like SS and Medicare?
This all said, I do think that if you told the wealthy that their contributions would go directly to debt service, many would gladly donate or be willing to take on higher taxes. It’s the lack of confidence in the ineptitude of our government – and this bumbling administration in particular – that has so many reluctant to subscribe to higher taxation.
Steven H
I don’t really envision one group traveling here and there, but, like occupy X, movements all over the country. You don’t understand a corporate meeting. They have to give you the mike and have to vote up or down your idea regardless. It would take hours and hours (?days?) and make the running if the business very difficult. Hopefully, you could get some compromise.
You also have completely neglected the largest absorber of capital in the country, your champion, the US government! The creation of debt dwarfs the equity market (last I heard was 9 times) with the US gov taking a huge chunk of investable funds and competing with small business for capital. If you are a bank or wealthy person why lend to high risk when u can get a “safe” return of 2.5% or so. To make things worse, the Fed is competing with you by buying binds as well. I disagree with you, I think the gov is inefficient and does well to return 85% into the economy with no ability to grow but the private market is much more efficient in allocation and furthermore grows it 10 to 20% yearly (ROI). A lot of the $2 trillion on corp books is also offshore and will not be reinvested here due to taxes. Make no mistake, corporate boards, AS THEY SHOULD BE, are loyal to shareholders, not government entities.
Good information, stevendad, and I always enjoy your analysis. Yes, a CEO pay protest could work. You have convinced me.
But as for capital, I see little evidence that there is a shortage in the private sector. If anything, there is excess, with no good avenues for investment. That is why banks and investors could and did loan to any and everybody who wanted a loan in 2000-2008. Lance’s article link above explains the process better than I can. Matt Taibbi’s book “Griftopia” also goes in depth explaining the precursors to the Crash.
The income windfall to investors remains a dangerous bubble of income in the hands of those who have no idea what to do with it. It needs to go back to middle class.
After seeing weeks of nealy all good posts, I still am not much moved from my original position that a significant part of disparity in pay we see these days is due to two factors: 1) a shift from the Industrial Age to the Information Age, with those who haven’t adjusted to the shift being left in the technological and economic dust, and 2) globalization. I am certain there are other causes as well, and if I thought about them long enough I could probably point to some…maybe.
What I can say with certainty is that the U.S. economy is the most complex, most diverse, most resilient in the world, bar none, and therefore I think it is highly unlikely that there are one or two all encompassing simple explanations for this income disparity. If the problem exists, it is much more likely is that there are many causes. Even so, I have not seen any poster adequately address or explain the effects of my original two thoughts: 1) indequate preparation/response to a shift from Industrial to Information Age, and 2) globalization.
And partly as a result of this complexity and diversity of our economy I then am also not convinced (yet) that the problem is accurately stated, or even exists in the form that its advocates say it does. It could be just as its proponents say it is. But in my five plus decades on this planet it just strikes me as too simple. Too much designed to foment an emotional reaction in one particular direction, with the intended result being one particular set of actions to “solve” the “problem”. I’ve seen this movie before, in a sense. A lot. If there are problems, and if there are solutions, in our most advanced and most complex economy in the world, in my view effective solutions are not likely to be simplistic, such as taxing the uber rich, or having government intervene and cap executive salaries, or similar.
VW just announced it is expanding it’s factory in Tennessee and adding 2,000 workers. Sounds like manufacturing jobs aren’t all going overseas, maybe just the ones that were low skilled like fabrics? When is costs more and take more time to transport goods from China, jobs will come back to the US.
“Even so, I have not seen any poster adequately address or explain the effects of my original two thoughts: 1) indequate preparation/response to a shift from Industrial to Information Age, and 2) globalization.”
The effects are simple.
1. There are lots of job openings but people aren’t prepared to fill them.
2. One can find unskilled labor overseas for much less money.
I have made these points before.
Basically, people are not adapting to the new global economy. Many did just what they needed to do to get by in high school and now they are so far behind that their learning skills are close to none. I have even seen this in plant engineers that look at the same old equipment day after day for years.
I am over 60 and I am still learning. Learning is a use it or lose it type of thing like physical fitness. Those that stop learning will be left behind.
1) You describe the mythical “skills gap”. The problem is NOT that there are not willing and capable employees. The problem is that employers:
– demand ready-made fully trained employees complete with years of applicable experience
– want to spend no money on in-house training or apprenticeship programs
– are not willing to pay employees a salary commensurate with the job requirements
Employers who look for trainable employees (rather than fully trained at the doorstep) and are willing to pay a reasonable wage have no problem filling positions.
2) There is a reason that countries have historically had industry projections to defend their communities. If “free trade” is not working for the US, perhaps we need some trade protections.
There is no good reason why we should subsidize shoddy workmanship AND slave labor conditions in foreign countries and then tell our own people that is the new marketplace and the new wage scale.
Mythical Skills Gap
http://www.inc.com/magazine/201404/cait-murphy/skills-gap-in-the-labor-force.html
Ken, you are correct that the US economy is very complex and that economic factors worldwide and within the country have changed over time. But the economy also has many knobs that can be used to adjust the economic system; to tune the engine, as it were, to run better on today’s economic highway. Some people don’t want to adjust the knobs on the engine, because they benefit extraordinarily from the status quo, and would prefer to believe that their phenomenal success and the failure of others is due to their own cleverness and others’ stupidity or laziness … even though there is no evidence that today’s investor and CEO is any more clever than those of 2 generations back, or that today’s worker is more lazy or stupid. There have always been mismatches between education and career, and yes fixing that will help a little. But there is absolutely no evidence that that is the predominant factor in the declining incomes of 90% of Americans.
This much is indisputable: America is making a profit. Real per capita wages are increasing. But the distribution of those incomes has changed, with the rich getting richer and most folks getting poorer. The world has also changed. If we want to maintain a community where kids in America can aspire to live better than their parents, we have to adjust the knobs on the economy to adapt to changing times, and allow EVERYONE to benefit from their own hard work.
One of the biggest and simplest knobs is the progressivity of the income tax rate, but there are many others. We need to fix this. And blaming the victims only works for so long, until the victims, who are the voting majority, start to object to the repeated false accusations.
Awesome post Ken. Completely agree with everything you said here.
Steven H – your reply to what you call the “mythical skills gap” reads like some serious victimization diatribe. Why aren’t the people themselves culpable in this?
I’m getting so tired of the rhetoric that INCREASING the progressivity of our income tax rates (they are already progressive, so we aren’t debating that – just the slope) is the magic pill that solves the problem. Let me illustrate again – with 2011 numbers.
Federal deficit 2011 – $1.3 trillion – revenues were 2.3 trillion and expenses were 3.6 trillion.
Top 0.01% paid 17.88% of Federal income tax receipts received. Total of $197 billion paid by this group. Average effective tax rate – 26%.
Let’s say you raise their effective tax rates to 40%. This is a 50% increase in this group’s taxes. I think we all would say that this is a significant increase and probably unlikely – but let’s just play along. 🙂 This would increase the revenue number by about $100 billion – reducing the budget deficit by 7.5%.
First of all, this tax increase has already begun on this group. It is estimated that the effective personal income tax rate of the 0.01% will be around 31% for 2014. Secondly, you are not going to push this all the way up to 40-50% anyhow since these are the very people that influence our elections with Super PACs, donations, etc.
The only way to have the revenue side seriously close the budget gap without significant spending cuts is to include the entire 1% in this discussion. This impacts people making $350k or more. This group paid 37% of the income tax revenue in 2011. However, even giving these people a 50% bump in their tax rate (which would certainly impact their lives) – you would only increase revenues by $411 billion which would reduce the budget deficit by 30%. There is still 70% to go…..
The reality is nothing closes the budget as immediately and swiftly as reduced spending and a thriving economy. Play with the numbers if you like…. but the solution is not taxing the wealthy. Don’t be fooled – this rhetoric is simply for political gain.
You don’t have to net raise taxes initially. Just bring the rate of progressivity back to where it was in 1969 and the increase in GDP will reduce the primary defict to zero. This would involve raising the effective tax rate on the rich back to 34% and cutting taxes on the middle class in half.
“..One way to do it would be to make the Federal tax structure as progressive as it was in 1969. Today, the wealthiest 3% of the people pay 50% of the federal taxes and the other 97% pay the other 50%. The marginal propensity to consume of the top 3% is around 0.4 while for the other 97% it is probably about 0.98. If taxes on the top 3% were increased by 50% and those on the bottom 97% were reduced by 50%, it would initially be revenue neutral. However, it would ultimately increase GDP by about 3% and reduce the unemployment rate to around 5%. That change in relative tax burdens would bring the degree of progressivity in the tax structure back to where it was in 1969…”
http://seekingalpha.com/article/1543642
OK, just found this post. Sometimes the non-linearity of these blogs drives me crazy …
I really appreciate you using actual numbers, but 2011 is a lousy example year. 2014 deficit is already projected at $650B, no wait, now it’s down to $583B, as of yesterday’s news reports. The $1T+ deficits of 2009-2011 were an anomaly from the crash.
You “proved” that increased taxes would hardly dent the deficit, and yet the combination of only slightly reduced spending, a modest tax increase and a barely growing economy has already dropped the deficit to less than half what it was in just 3 years. There are feedback effects I don’t have the models to predict. However, additional tax increases almost certainly have to be part of the equation. Something modest like 3 additional marginal rates of 45, 50 and 55% at breakpoints of 800K, 2 mill and 10 mill, along with incentives to avoid taxes by hiring or increasing salaries to employees.
“Steven H – your reply to what you call the “mythical skills gap” reads like some serious victimization diatribe. Why aren’t the people themselves culpable in this?”
— Did you read the link? It was from Inc. magazine. I simply summarized. People are culpable. Their lives and careers are at stake and they care. If employers really want employees with skills, why don’t they train them, or increase the wage offering to attract the skilled person? Why aren’t the companies culpable in this?
The polarization on all of these issues is almost comical if it weren’t so tragic. Call the sides rich and poor, just for shorthand.
— The rich say they are being unfairly demonized, for being rich and successful, but by God have you seen those lazy uneducated poor people? They are so pathetic!
— The poor say they are being unfairly demonized for being poor when they are working as hard as ever, but have you seen those pampered overpaid stupid rich people? They are so pathetic!
— The rich say you can’t tax them because it won’t make any difference. Cut all those safety nets because it just makes those lazy poor people weak.
— The poor say they have no money and need the safety nets. Cut the salaries of those lazy rich people who receive a hundred times what they need.
— The poor say they are the essential engine that provides labor to make the economy run, so they ought to be paid more.
— The rich say they are the essential engine of the economy that creates all the wealth “all by themselves” so they should get all or most of the benefits.
— The rich say “why should American workers get more money than in other countries?”
— The poor say “why should American CEOs and bankers get more than in other countries?”
— The rich say “Why punish success?”
— The poor say “Why punish poverty? Why not set up some ladders?”
— And then the poor say “How is it a punishment to get paid only 2 times what you are worth instead of 3 times what you are worth?”
I was with you for a while on this…. you are right in summarizing the polarization of the two sides. But I would make a few clarifying remarks….
1. Who do you define as “the rich”? This is a key point. If it is the 1% then it means anyone making more than about $350k.
2. I’m not sure anyone on the “side” of the poor is calling rich people lazy.
3. Who can define what someone is worth? I, for one, don’t want the government making that call. Just don’t know how you can say that someone is paid 2 or 3 times what they are worth.
4. I also don’t think anyone on the “side” of the rich is saying they create the wealth “all by themselves”.
5. Not sure I understand what it means to “punish poverty”. How is that happening and who is suggesting we do so?
6. I don’t find it relevant comparing what happens to the rich or poor here to other countries. If you want to go that angle, then we can applaud some of the lowest tax rates (across the board) in the entire world and a poverty level that is well above the poverty standard of living in many other developed nations.
And very true about the narrowing deficit in the past few years due to the economic growth. That’s really what drives all of this at the end of the day, isn’t it? Economic growth. The problem we have as a nation now is that we must get our budget under control during the “good years” and not make more giant long-term obligations (like the ACA) – or the next time we go through a recession we will not be able to survive without severely weakening the dollar.
I second many of Peter’s points here, in particular #3. A person’s salary is determined by an agreement between that person and the company for whom they work. To say that someone is “paid twice as much as what they are worth”, or similar, is a judgment call from afar with no real basis in fact, and is a fundamental violation of contract law.
In the case of corporate CEO’s, for example, the Board of Directors or their assigns, acting on behalf of stockholders, offers a compensation package based on their assessment of the CEO’s and the company’s performance. They don’t just hand out money like it’s candy. If the CEO agrees, they sign and the contract is done. If the CEO doesn’t agree, then the BOD and CEO negotiate until they do agree. In the end the compensation reflects the value that the BOD thinks the CEO brings to the organization, based on first hand knowledge, experience, actual business results achieved, and so on.
To then have government (or anyone else) come in after the fact and declare that the CEO’s compensation is “twice what the CEO is worth” not only is an uniformed judgment call from afar, it also violates a basic principle of contract law, which is to say that people can freely enter into and negotiate contracts, and those contracts will have force and effect.
There is a “good old boy” network going on with the CEOs and the Board of Directors. But no CEO is going to get such an outrageous package that it would come back to the BOD. Salaries are generally pretty reasonable compared to the revenues and number of employees. The compensation most complain about is the stock options. From what I have seen, options are given at a pretty low price and since these days, managing the earnings is all about coming within a penny of what “Wall Street” says a company should be worth. Amazing how few companies overshoot what WS says. But you can’t hide the numbers when revenues go to crap, like the auto industry back in 2008-2009. If nobody is buying cars, there is only so much you can do. The BODs need to be more independent and in reality, the BODs don’t have to be ex-CEOs or CFOs, but competent business people, but it really ends up being the buddies of each other.
Thanks for the detailed response. This is why I am here, to listen to the different perspectives, because what I hear often surprises me. Things I think are obvious and even non-controversial are sometimes met with shock and incredulity by others on this thread. And vice versa.
1) “The rich”, like “the middle class” is a bit amorphous. I suppose I would start with the rich at upper 0.5%, which are currently $600K and up.
2) Poor people calling rich people lazy – Yes but usually directed at the upper upper classes, not most small business owners. This would be directed at bubble millionaires who happened to make one great deal, hedge fund managers and upper investors who get multi-million dollar bonuses, (working hard at producing nothing and bilking the country is perhaps a stretch to be considered lazy, but it is overpaid), upper managers at MegaCorp who get signing bonuses and platinum parachutes, irrespective of their performance, or even the Wal-mart or other MegaCorp executives and their ilk who so aggressively suppress worker wages in order to keep managements’ share so high. Lazy and greedy sort of merge here. But poor people certrainly have a dim view of the rich and think they are lazy, greedy, and overpaid.
3) Who can define what someone is worth? – Good question. My theories on using historical trends don’t seem to have converted many folks here to my side of the argument. It doesn’t seem to bother most of the business people here that the exponential income curve has not just multiplied but changed the mantissa — meaning the Nth group in the series (upper 10%, 1%, 0.1%, 0.01% ) used to get (1/3)^N of all income, and now they get (1/2)^N of all income, such that the upper 0.01% went from about 1.2% to 6.2% of all income, a 5X increase. I would say that that group is getting 5x what they deserve. Businessmen here seem to think it is just the market working and it is no big deal. My question is: How big does the mantissa (the 1/3 that has grown to 1/2) have to get before the system is completely unstable? Will the markets protect themselves or just collapse? My recollection is that the mantissa only approached 1/2 once in the 20th century (around 1929) and we have hit it thrice since 2000 (2000, 2008, and now). Will we crash again? Or will it spark unrest bigger than the Occupy movement? We’ll soon find out.
4) You haven’t heard a businessman proclaim they built their business all by themselves? Recall the backlash from Obama’s “You didn’t build that”. They all seemed to be saying that. People were so offended that Obama tried to point out that the government and community are essential partners in a successful business. Elsewhere on this blog I quoted Ben Franklin saying almost the same thing as Obama (but more elegantly).
5) Punish Poverty – JB wants to fine parents if their kids drop out of high school. Many conservatives want people in poverty to pay income taxes out of funds they do not have. Conservatives want to cut safety net funding and school lunch programs that the poor need just to survive. Conservatives are requiring drug tests to get welfare. These tests have occasional false positives, forcing innocent people to pay for a test they cannot afford and also not receive money they should, by law, receive. In California, they charge you a fine if you didn’t make it to court. If you can’t pay the fine, they put you in jail. While you are in jail for not being able to pay a fine, they charge you hundreds of dollars per day. If you can’t pay that, then it’s more fines and more jail. A woman gets raped, cannot easily get to the last abortion clinic all the way across the state, has to get a hotel for 2 or 3 days to meet the waiting period requirement, and then may not even get the abortion because of the oppressive rules conservatives have placed to block a legal procedure. There are lots of conservatives trying to punish the poor. And succeeding.
6) I believe it was Peter N who asked why workers here should be better off than in other countries. It’s a difficult question to answer, but I have the notion that we are a national community and should protect our own and look after our own. Peter N has more of the view that workers and neighbors are disposable cogs in his business, I suppose.
Yes, we should strive for economic growth. That will be our biggest economic “savior”. I may not have expressed it well, but that is what I am arguing for when I protest about the shift of 15% of income from lower 90% to upper 1% (and mostly to the upper regions of the 1%)., and keep looking for ways to shift it back. Peter N thinks I don’t understand the market forces that brought the income disparity about, and he keeps trying to explain what I already understand. He completely misses the point. I think the income disparity is really really really bad for the country and is a drag on the economy. I don’t really believe that the fundamental nature of the American worker has changed such that they are a bunch of lazy slobs and uncaring parents. It’s not what I see. I see people working hard and struggling and trying to make the right choices but getting knocked back at every turn. I see that a few people who are fortunate enough, through a combination of work, luck, and opportunity, to achieve a certain level of income have their opportunities magnified by the economic system. It’s as if the only escalators for 90% of Americans go slowly down, while the escalators for the upper 1% go up at a nice clip. Everyone still has to climb to get up the escalator, but the system has given a few people a big advantage.
We are kind of going round and round here Steven H and I don’t see how you are ever going to see the points of view of Ken or myself (and others). But a few very obvious points to make….
1. The backlash to Obama’s “you didn’t build that” is like most backlashes – something in the media. I have yet to find one of my peers who would be considered wealthy even react to the nonsense coming out of Obama’s mouth. Plus the “you didn’t build that” statement was more than just saying that the community infrastructure helped their success – it was cheapening and somewhat dismissing the success of the individual wealthy business owner.
2. Our fundamental disagreement is this (and I may repost this below): you think that because a certain group of people’s incomes have risen substantially faster than the masses that they are being paid “more than they are worth” and that something must be done to return this excess to others to “even the playing field”. I couldn’t disagree with you more on this and don’t think we will ever find common ground here. I wonder how you would feel if you had worked really hard, taken risks, worked long hours and built up a nice career making $750k-$1m a year and someone in an online blog threw this idea at you…. Saying you ‘aren’t worth’ what you make and that you should feel some sense of guilt or obligation to return these funds to someone else. Offensive is an understatement…..
And if you made your millions on one great deal, or a lottery ticket, or inherited it, or whatever….. GOOD FOR YOU! I don’t think there are any of us that would pass on those opportunities were they handed to us. Please – quit cheapening the success of people with excuses, undermining remarks, name-calling and judgment. Go out into the world and do YOUR best to succeed. Constantly worrying about what others are doing and feeling victimized will get you nowhere both financially and in your general pursuit of happiness.
Wal Mart CEO makes 1.2M salary plus like $17M in stock compensation based on 473B in revenues. 12B going back to shareholders.
Costco CEO make about $4M with a salary of $625K and the rest in stock.
WM has 2.2 million employees, Costco about 175K employees.
Costco has 71 million people that pay $55+ and up for membership. The cost structure is cheaper in the wareshouse. There are many ways for Costco to pay more per employee and the CEO salary isn’t a big or small enough number to move the needle. Its not like his salary is $20M. His based is only half as much as WM.
http://www.bloombergview.com/articles/2013-08-27/why-walmart-will-never-pay-like-costco
Stene H
No, like a mass cyber attack blocks a web site, a hundred dissident shareholders could block an annual meeting. The only way around is to subordinate odd lot holders. This might actually get the attention of mutual funds / retirement funds or even Congress to act for all shareholders. You are full of complaints and often devoid of suggestions or solutions. Let’s hear yours. Or is “The Darh Knight Rises” style revolution the only answer for you. In that tome, just like Orwell’s animal farm, “some pigs are more equal than others”.
I didn’t say the suggestion was bad. But a group of dissidents buying shares in every company in America and traveling around to stockholder meetings to stage protests and lower individual CEO salaries just strikes me as an inefficient way to get the whole job done. It would get publicity at a dozen companies. That’s good. What next? Use the publicity to pressure Congress to apply the actual solution which I have repeatedly advocated and which these conversations and continued facts and research are making more and more clear as the proper approach: Apply higher progressive taxation to restore economic balance and move 15% of all income out of the investment sector where it is doing little good, and back to the middle class where it will restore the economy and create new opportunities and customers for businesses.
Ok all. Lots of griping about CEO salaries. Here’s how younstop it. Buy a share (many would have to), send in a resolution and got annual meeting as well to speak on the floor. Truly “Occupy Wall Street” and clog up their annual meeting the way that internet sites are closed with mass attacks. A hundred or so vocal people would do the trick. All but a few corp shares would be under $100, and they HAVE to recognize you to speak.
Not a bad plan for publicity, but I’m afraid that would cause a little temporary irritation at most meetings, nothing more. Too many blind proxy votes get submitted that let the crony board do whatever it wants. Though, as part of a larger plan to force or at least threaten tax actions, and to compel concessions to labor, I like it.
Steven H
I ran our office of 5 MDs and 11 other employees. My philosophy was completely different than what Walmart did. We’d hire at about market, rates run off those who weren’t going to fit by 6 to 8 weeks (usually they did it themselves by not showing up, coming in wasted, etc.), then giving a 20% raise. Then they could not leave without taking a pay cut. We kept most for over a decade. This brought our training budget way down and allowed for less management staff, which saved all the extra salary. We and the patients knew them and all were happier for the most part. They felt valued ( they were) and we gave them autonomy and empowerment. Too many corps nickel and dime their way to much higher turnover and thus higher management costs. My experience was work quality was worse amd accompanied by more consternation as well.
It sounds like your philosophy worked well for you. It reminds me of the stories of Henry Ford creation a stir 100 years ago by paying his employees at higher than market rates in order to get the best employees, and turn his employees into potential Ford customers. Other employers were not happy because the prevailing attitude was like JB’s comment above: “How do you have a more talented stocker or cashier to justify paying $3 an hour more.” Well, Costco is doing it, Ford did it, and you did it … with different industries, but all with success. We need more businesses to follow your example.
And costco’s CEO is happy making 350k a year so that his employees get more. But that utopia isn’t how everyone wants it to be
I can only state that any “Utopia” exists in the eye of the beholder. Insane CEO compensation rates has been a “CEO Utopia.” There has to be a place in the middle that puts more of the wealth back into the economy so it can start growing across the board thereby putting more individuals back to work expanding the tax base. While not eliminating the need, it could diminish the need for increasing tax rates.
JB, I agree that most CEOs are not of the mindset as Costco’s CEO. But please note the connection you just made. The CEO is making less so the employees can make more. Contrast this with your earlier statement:
“A reduction in the CEO salary will NEVER trickle down to the employees in a large corporation.”
So are CEO and employee salaries inversely connected? I think you just agreed that they are.
How could you not expect vast inequality to occur when you make the tax rate on income received by the rich such as: dividends, capital gains and corporate profits much less than the tax rate on wages and eliminate the tax on inheritance tax for 99.9% of all estates.
“..Equally unhelpful in terms of addressing the income and wealth inequality which results in the overinvestment cycle that caused the depression are those who emphasize various non-tax factors. Issues such as globalization, minimum wage laws, outsourcing, free trade, unionization, the increase in single-parent families, problems with our education system and infrastructure can increase the income and wealth inequality. However, these are extremely minor when compared to the shift of the tax burden from the rich to the middle class. It is the compounding year after year of the effect of the shift away from taxes on capital income such as dividends over time as the rich get proverbially richer which is the prime generator of inequality…”
http://seekingalpha.com/article/1543642
I am presuming that the Lance who is posting this article link is also the Lance who wrote it. If so, congratulations and thanks for an insightful and sensible article, with the complexities well explained. I skipped over the parts aimed at investment particulars, but I found the macro-economic explanations spot on as far as aligning with reality. I hope others here read it, as well.
Steven H
Just to clarify, not abandon solar and wind, but postpone. Best plan I’ve seen is arrays in space with electricity microwaved to Earth. Not now, but in a decade or two. Maybe cold fusion in the interim?
Here in OK, have had lots of small earthquakes (a century’s worth) in past few years. Geological survey thinks from storing salted water deep in wells, but not clear yet. Fracking is thousands of feet below water table, so really no different than any other deep well’s risk of spills. Properly executed, risk is low. And I’m all about responsibilty. BP should pay all it’s costs as should any one else who spills in or spoils the environment. I’m all about accountabilty and self responsibility for all, including corporations. Remember, I think Wal Mart, et al should pay the government (us) for benefits paid to their employees.
“[e.g. upper 1% in US has gone from 10% of all income to about 25% of all income from 1980 to 2012, and lower 90% of all Americans share of all income has dropped from about 67% of all income to only 50%.]
1) Do you believe this shift has occurred?”
Yes.
“2) Is it an economic problem?”
I think it is more of a social or educational problem. The parents do care and nothing will replace that.
3) Does government need to do something to fix it?
No. The gov screws things up. Why are newly arrived asian students so successful? It is because their parents care.
4) What should be done?”
Tie social security income to the success or income of their kids. That would make the parents care.
The internationalization of business has made inequalities in pay to performance more obvious. The internet has made it possible to do business anywhere. So now the average must compete not only with his neighbor but also those around the world.
Automation has also displaced to skill laborers but added high tech jobs required to build and maintain the machines. The maintenance jobs cannot be off shored. In most cases the machines can do the job faster and better than a human.
The problem is that the work force is not adapting. It is not getting smarter. Sure there are more computer literate but they are users and not designers or creators. I can see all sorts of adds for engineering jobs around my area that go unfilled.
Thanks, Peter N, for the responses. I disagree with some points, but that is less important to me right now than understanding your perspective. So let me summarize to see if I’ve got it straight.
You are saying:
– 10 to 15% of share of all US income has actually shifted from working and middle class to upper 1%.
– This shift is primarily caused by factors that are controllable by the working and middle class, e.g. a solid education to get a good job.
– Government should not intervene, at least not economically, because it is a social and education problem.
– People are not acquiring the skills needed for a good job.
– Parents are largely at fault for not making sure that kids get the right skills.
– Parents could and should be motivated economically (e.g. potential loss of gov’t benefits) to have highly and appropriately educated kids
– External factors that are largely uncontrollable or unchangeable have contributed,secondarily, to the income shift. These factors include:
— globalization and international competition for cheap labor
— automation reducing number of unskilled labor positions
Is this a fair restatement of your position?
Basically you have got it. I wouldn’t be that specific about the numbers but basically capital is being rewarded more than labor because the educated can make use of it.
No one has refuted my points.
I agree with Peter N here almost entirely although I’ll have to think about #4 and don’t quite see it as a parental problem (although that is interesting food for thought)
I do think the majority of the shift has been due to the fact that the middle and lower class jobs are now becoming a) more scarce, b) overseas for cheaper labor and c) more “skilled”. Gone are the factory assembly line jobs of yesteryear, replaced by technology. I would also add the fact that we are now an information-age society and not a manufacturing one, which further reduces the unskilled labor jobs available to the masses.
I certainly believe that this shift has very little to do with tax rates, Federal policy or Democrats or Republicans. I also don’t believe the solution lies in raising taxes.
Catch up freddy, Steven H and I “solved” that 3 weeks ago. I still feel that a lot of this is globalization and trnasfer of middle class jobs elsewhere. So what do we have going for us that few, if any do…
Natural gas for OUR market. It’s difficult, dangerous and expensive to transport, though that is on the way. $LNG by the way for you investors. So push production and utilization to the max. The advantages are overwhelming: greener as far as CO2, boosts our economy and creates jobs and quits sending as much money to people who hate us (Venezeula, Saudi Arabia (money for 9/11 came from there as did Osama bin Laden and others)).
Nanotechnology and biotech. Increasing investment in these will produce a wave of benefits in gadgets that increase efficiency and new jobs. The nanotech controbution will be as silicone revolution was from the 60’s on.
Music, movies, books, theme parks and anything else in that genre. Seen a Chinese movie lately? They’ve seen a bunch of ours. Get tougher with pirating and enforce intellectual property rights.
American brands: McDonald’s, Coach, Levi’s etc. Again, protect intellectual property.
Hard work: yes, hard work. Despite all the rhetoric, Americans work harder than anyone except Mexicans.
Infrastructure: Our “crumbling” infrastructure is still in many ways the envy of the world.
So, put money in these and not in nonstarters like solar and wind. For renewables, hydroelectric and geothermal are much moree efficient, but for some reason not as sexy with the Greens. Solar power is a poor idea for the major grid ( nice for isoalted power needs though). The solar flux stinks this far north, especially in the winter. Wind and solar both take many years to recoup the energy burned up in production of equipment. Oh, and electric cars? A Tesla takes 115k miles even with 100% green sources just to break even on CO2 created by mining Li (250k for typical sources). Of course, that’s likely when batteries are no longer working. It’s a 100% green scam IMO. We burn up many millions of scarce dollars on these largely nonproductive avenues.
We need to think with our brains and not with our (political) hearts more.
Many good comments there stevendad. I agree in investing in NG, but am seriously worried about the tracking and disposal wells. It is not right for industry to cause earthquakes and ruin water supplies (and both have provably happened from this industry) without the industry taking responsibility.
The other investment opportunities are a nicely assembled list. We certainly need to fix our roads and bridges. Seems like a no-brainer while interest rates are low, and people are unemployed to get moving on this now. Gas taxes could go up a bit to pay for it.
I would have to do more research before agreeing about abandoning wind and solar. Down here in TX we have lots of each and the technology keeps getting better. Seems like a good long-term investment to me. Eventually, even the NG will be tapped out and we’ll need more energy sources.
“tracking” should say “fracking”. Danged autocorrect issue.
By the way, my request to Peter (the original) for an opinion on Saez’ work is open to anyone else here as well. I am particularly curious about the opinions of the business owners and folks in the upper incomes on this thread, but it is really an open set of questions for anyone:
Given that research of Emmanuel Saez and Thomas Piketti, et. al. have claimed that a large shift of income shares in the US (as well as other parts of the world) has occurred, moving from poor and middle class to the wealthy CEOs, upper management, investors, and banking industry.
[e.g. upper 1% in US has gone from 10% of all income to about 25% of all income from 1980 to 2012, and lower 90% of all Americans share of all income has dropped from about 67% of all income to only 50%.]
1) Do you believe this shift has occurred?
2) Is it an economic problem?
3) Does government need to do something to fix it?
4) What should be done?
Link to some of Saez research is in reply to Peter above, and his spreadsheets are also on the web. Google Saez income inequality spreadsheet and you will likely find it.
Great information. A few observations:
1. I don’t think anyone is arguing the point that the top 0.01% share of income has risen dramatically in recent years. My beef in this entire discussion is the difference in the 0.01% and the 1%. You can even see in some of the charts in your attachment how the rise in income for the 1-5% is much more gradual and it can be inferred from the various charts that the 0.99% of the top 1% line would look similar.
2. It is not unusual for the income inequality gap to widen in a recovery. This is pretty typical and can be seen throughout the charts. Nothing covert or intentional by Washington – just part of the normal economic ebb and flow.
3. Much of the reason this recovery has been so concentrated – in my opinion – is the lack of hiring by major corporations. While the companies themselves have recovered and are back to making record profits, they are hoarding the cash and not expanding (see: Apple). Why is this happening? Some of it is the economic uncertainty, some of it is possibly the gridlock in Washington…
Accelerated hiring something that could be incentivized tremendously by legislation and seems to make much more sense than raising taxes on the 0.01%. As I posted quite some time ago in this thread (and backed up with figures), raising taxes on the 0.01% doesn’t make as significant dent in the math equation as people want to believe. But offering credits to corporations who hire Americans would directly result in improving the lives of the 99% and start the process of “building from the bottom up”.
“My beef in this entire discussion is the difference in the 0.01% and the 1%.”
— Yes the bottom of the 1% is not very rich, and the “rule of halves” for the current distribution says that half of the income of the 1% is in the 0.1% and half of that is in the 0.01%. So it is definitely a curve, and not a cliff, as you observed. A very steep curve, but a relatively smooth one.
“It is not unusual for the income inequality gap to widen in a recovery.”
Perhaps, but note that this gap started in late 70’s early 80’s and keeps bumping up against a ceiling. When the 1% hits over 22% of income, it’s almost like the ager temperature on your car hitting the red. Something should be done or something bad will happen. The problem is that the gap needs to go down, but only economic crashes seem to change it in that direction, and then only temporarily.
“offering credits to corporations who hire Americans would directly result in improving the lives of the 99%”
I agree with that, and I see that tax incentives can be part of that. Perhaps a carrot and stick approach. We cannot afford to just offer tax breaks with revenue already low, but we could raise marginal rates on incomes and then offer loopholes to avoid those taxes by hiring, starting small businesses, or increasing worker salaries. Employee salaries are already deductible so part of the incentive is in place. If you are just an investor or a megaCorp CEO and not a small business owner, you may be out of luck on loopholes on your income and you just have to pay a high rate. But if you are actually doing something to help the economy, and not just sponging off of it, you get a break.
Argh … water temperature … not ager (?) temperature. Gremlins are alive on my computer.
Can SteveH and Stevedad take their conversation elsewhere? that’s why phones were invented. Or at least show us the relevance of the subject to the article.
thank you
Freddy, if you are commenting on the climate discussion (which began as an offshoot of economics) that discussion thread stopped two weeks ago. We have moved on. Run along and catch up, things move fast here.
FYI, there are over 2,900 breweries in America now. jobs, jobs, jobs. There will probably be a shake out, but the numbers keep going up. What other industry is creating this many jobs that almost anyone can work at. FYI, Brock Wagner hires more engineers at a brewery than most.
http://www.houstonchronicle.com/business/retail/article/Saint-Arnold-s-emphasis-on-tradition-and-5538076.php#/0
There are plenty of “workers” that make a good salary that aren’t “job creators”. To me, salaries are based on revenue and profits.
For those of you that are unaware, America is in a beer Renaissance and it is the perfect industry for an example. A) Produce a product people like. B) They all start small and there is usually one person that is the driving force. I will use Brock Wagner of St. Arnold’s as an example since he is here in my town and I am familiar with the company.
If he makes an average product, he might be able to survive and make a small profit. If he makes a great product he will have to expand in order to meet demand. As he gets bigger he hires more employees. Now, he has to borrow money in order to buy newer equipment. Well guess what, the AP clerk isn’t on the hook for the financing, Brock is. He has the risk for the brewery to grow revenues. The AP clerk will lose a job if the brewery fails, Brock will lose financially. It could cause him to go bankrupt and lose everything. He can’t grow too fast and he doesn’t want to.
So, as a small brewery he needs to finally hire out the accounting audit. He has two choices, the 2 man shop or a big 4 accounting firm. the 2 man shop charges $200 an hour and the big for charges $800 an hour. Assuming both firms are equally competent, why would Brock choose the Big 4 at $800 an hour? he wouldn’t if the small guy can provide the same service. now once Brock gets bigger and has increased business substantially, he might have to consider the big 4 because they have more resources and expertise to help.
My rambling point is there is a cost to labor and not every can be paid hundreds of thousands of dollars no matter how much money the company is making. Every department has a budget. Now, you can charge $10 per beer to cover the costs of paying the AP clerk $100,000 to pay bills, but there is competition in other breweries. If Jester King brewery can hire someone doing the same job at $50,000, they have saved that money and could charge less for the beer.
Everyone is bashing the mega-corporation and the WM makes billions of dollars and that they could afford to pay workers more, but the billions come from the thousands of stores making a few hundred thousand in profits. If Target starts paying $3.00 an hour more, people will move from WM to Target, but there are only so many positions each Target store can hire. How do you have a more talented stocker or cashier to justify paying $3 an hour more.
Now, back to the CEO. There are CEO’s of small companies and larges companies, Captain Obvious I know. The CEO of Ford has to have more skills than the CEO of St. Arnold’s Brewery. He has more employee, more manufacturing issue etc. Nothing new here. Yes, a guy digging a ditch might physically work harder, but this country doesn’t pay for blue collar work, it pays for white collar work. I don’t think the 1% control the world, the 99% do. Guess what, if people quit buying Iphones, Apple stock will plummet. People will get laid off if they aren’t making 100 Million phones.
As companies get bigger, the pay goes up. I agree it is probably higher than it needs to be, but as long as the company can support the salary, only the stockholders should care. The public can decide with their choices and dollars.
rant over. nothing solved. I feel better. we should all be paid to our contributions. FYI, stock options are taxed and the company pay the taxes on them. rich people can’t deduct unlimited amounts of charity on their taxes.
A worker at Sam’s Club start’s at $10/hr and after 4.5 years makes 12.50/hr. A worker at Costco starts at $11/hr and after 4.5 years makes $19.50/hr. And at Costco the benefits are better. The business case for Costco is good as its market share is increasing.
The biggest difference? Corporate philosophy from the top. Costco’s CEO fights even with his own CFO not to cut employee benefits. A Wal-Mart leadership leaked mail indicates that they think their own employee turnover rate, at 50% (2.5 times that of Costco) is too LOW, because long-term employees cost money.
http://www.slate.com/articles/business/moneybox/2008/06/wage_against_the_machine.html
With this kind of Corporate example, is it any wonder that people think business is out to screw the average American? Because that is exactly what some of them are doing. Fortunately, Sam’s club sells vaseline cheap and by the 55 gallon drum.
JB,
Your observations and explanations all sound perfectly reasonable as the perspective of a guy running a business. You pay low or common skill employees the minimum that the market will allow (to keep costs down) and pay a premium to the rare skills (e.g. top management). It all makes sense. Except for one thing. It is destroying the country. And the typical responses from businesses are that “that is just how the market works. Don’t saddle me with unions or minimum wage increases or more taxes because that makes my costs go up, and I need costs to go down or I will be destroyed.” That’s all very reasonable to say from your perspective, but businessmen seem to have difficulty grasping the other perspective. which is this:
Employees are customers.
Yes YOU have customers that are not YOUR employees, but they are SOMEbody’s employees or they would not have money to buy your stuff. And the customers need more money to buy more of your stuff and they have to get it from their employers. The current markets are a race to the bottom where workers at Wal-Mart can’t even afford to pay Wal-Mart’s low low prices with their low, low wages. The madness must end.
If the current markets with the current rules are failing, and they are, then the rules must be changed. If part of the problem is that the middle class is starved for disposable income, and they are, and that the investor class has a windfall of extra money that can no longer be profitably invested in new businesses (because customers are starved for disposable income), then the answer seems pretty obvious. The shift of income from middle class to investors must be reversed. It MUST be. It does not matter WHY it happened. It helps to know why. But WHYEVER it happened, it must be reversed. Not because businessmen are bad or criminal but because the economy must be balanced into a system that actually works. Rich people are not evil and poor people are not lazy IN GENERAL. (There are always exceptions.) It is just that too much money is there and too little is here, so we must move some from there to here, in a way that is not too disruptive. If we can figure out how to do that, the economy will be better for everybody. And yes, Warren Buffet will either have a lot less income before taxes or after. But he’ll probably be OK with that.
“1) If the salaries were so independent, then the income shares of working and middle classes and most upper incomes as well would tend to rise or fall together with the economy and there would just be a few volatile incomes in the economic stratosphere that would stand out as extraordinary, such as the Steve Jobs and Bill Gates of the world, along with a few CEOs, sports figures, and movie stars.
This is not how it works.”
That is right. There are some employees that are much more valuable than others.
Are you aware that companies can have key employee insurance
http://en.wikipedia.org/wiki/Key_person_insurance
It should be clear by now that companies don’t consider all employees to be equal. If a company has key employee insurance on a person you can bet they will treat him well during an recession whereas others must watch out.
What makes you think that an American worker deserves to live better than other workers all over the world?
BTW, my company exports a lot. Perhaps 40% of our business. That is wealth and jobs being brought home to the US. The government can’t afford to piss off me of or too many like me but it is doing its best. The GDP essentially measures how many burgers we flip for each other. It doesn’t measure increasing wealth.
Politicians, economists etc are stupid. It is so simple. Draw a circle around any area. If area creates more wealth than it consumes that area’s living standard will increase. Flipping burgers for people within that circle does not import wealth from outside the circle. In fact it just consumes human capital which can be just as valuable as money capital if it is trained well.
Peter N,
This is a side observation, not terribly important to the overall discussion, but I don’t think your “Circle Theory” is valid. I can easily conceive of completely closed circles, whose consumption precisely equals their production, and they can have either rising or falling standards of living. The variables that determine the difference are most likely natural resources, and level of civilization and industry, and economic distribution system. Export and import levels are not the deciding factors.
I can also conceive of an enclosed circle which has a net increase in production and in overall income, but within which the economic distribution is unbalanced so that a small number have a vastly increased standard of living and the vast majority have a diminished standard of living. That circle is around the USA and we are living in it.
“This is a side observation, not terribly important to the overall discussion, but I don’t think your “Circle Theory” is valid. ”
You are a fool. Draw the circle around just your family. If your family doesn’t earn more than it spends you will soon be in debt. If it spends what it earns there will be no accumulation of wealth unless that money is spent on something that appreciates. The same goes for counties, cities, states and nations.
“I can also conceive of an enclosed circle which has a net increase in production and in overall income, but within which the economic distribution is unbalanced so that a small number have a vastly increased standard of living and the vast majority have a diminished standard of living. That circle is around the USA and we are living in it”
Yes because the sub circles within the US are not producing what they consume.
I made this clear in an earlier post. The average laborer has to compete with people around the world now. If you are a parent the last thing you want for your kids is to grow up average because average is cheaper over seas.
No one has commented on my statement that US workers don’t deserve more just because they live in the US.
Steven H. Why can’t you get over it? Most of the productivity gains and wealth creation has been from automation. You can try to push your marxist ideas all you want but the machines have devalued a lot of common labor.
So is economics not at work here? Suppose the administration and Dems supported, not attacked most businesses in regulation and smart policy. The economy grows faster and people are hired. Thus there are fewer available hirees and you must bid for their services. Income increases, buying increases and the entire economy expands further. More tax revenue and higher wages, EXACTLY what most of the more liberal leaning bloggers on this site want? Oh, and no one is punished, belittled or villified for success.
The challenge is in managing “regulation and smart policy”.
There are good and bad regulations; you can’t just propose to cut as many regulations as you can to cull favor with an industry and call that job creation, as the GOP House has been doing with their regulation-slashing faux “jobs” bills (aka crony capitalism). While too many regulations can create confusion and unnecessary costs, cutting or defunding enforcement of other regulations can reduce safety and damage competition, and actually increase overall costs.
You also don’t want to do what Kansas has been doing in slashing taxes and hoping to balance the budget on job and business growth … and they just ballooned their debt in the process. That’s basically what Reagan started 30 years ago at the federal level, too.
So I guess I am being the party-pooper and claiming that business is not really being attacked, and the solutions are not as simple as your post seems to suggest.
That being said, I would like to see some policies that favor small business over big business. It disturbs me to hear how most small business owners are destroyed whenever Wal-Mart goes into a small town. There should be some incentives that give the small business owners an advantage, and that prevent such big companies from actually destroying the communities they pretend to serve.
Let me explain something here… about the reason why the person making 30 million a year was the most ticked off….
The problem that the wealthy have is that nobody sympathizes with their situation. I’m not saying that someone making 30 million has the same problems (or the same urgency of their problems) as someone struggling on $20k/year. But they have their problems and challenges as human beings just like anyone else. And they can’t voice their opinion with any level of consideration or sympathy. Hell, you can barely identify yourself as wealthy in our society today without a certain level of judgment that goes with it.
If a construction worker were to get a promotion to foreman and see his/her pay double, they would happily share this news with family and friends and people would be genuninely happy in this news and share in their joy. Someone making $1m a year who gets a $200k bonus wouldn’t get this same reaction. You just can’t even talk about it in today’s society.
So because of this, you feel cautious entering the debate. Which is what brings me to this website where I can – anonymously – be open about my situation and the perspective and worldview I have having been on both ends of the income spectrum in my lifetime.
So the wealthy must sit back and let our president and various other talking heads imply that we, the wealthy and successful, are responsible for the decline of the economy, the deficit, etc. without a voice in the argument. Again, I know that having a $1m/year income is certainly a better “predicament” than a $20k/year income. I’m not equating the two…. .But the wealthy are clearly in the crosshairs and have our hands tied behind our back in defending ourselves.
Peter (original),
Regarding your reply up the page explaining the wealth perspective:
“… Again, I know that having a $1m/year income is certainly a better “predicament” than a $20k/year income. I’m not equating the two…. .But the wealthy are clearly in the crosshairs and have our hands tied behind our back in defending ourselves.”
Thanks very much for taking the time to present your perspective in a calm, reasoned manner. Let me also share my perspective. I am an engineer with some background in data analysis, though not directly in financial analysis. I’m a salaried employee who has previously worked for two very large companies and am now working for a company with less than 100 people that was started by and is run by two friends of mine. I have never run a company but do at least have some observation and sympathy for the difficulties of running a small business. I estimate my pay is somewhere around the 93 percentile for U.S., so I am doing OK, and I try to have some appreciation for my advantages over many other Americans who have less than I do.
I got especially interested in the subject of pay rates and taxes when I discovered the research of Emmanuel Saez and the public availability of the Excel spreadsheets that describe his research into incomes over the past century. Detailed stats are shown for upper 10%, 5%, 1%, 0.5%, 0.1%, and 0.01%. [Saez also collaborated with Thomas Piketty, who wrote the current economic “best-seller” ‘Capital in the 21st Century’.]
These tables and stats unveil many fascinating facts about incomes across time and across the economic spectrum. Especially fascinating to me is the fact that incomes generally form a fairly smooth exponential curve that I started calling the “rule of thirds” for it’s shape in the 40’s to 70’s, and the “rule of halves” for it’s altered slope as it has become in 1929, 2000, 2008 and now. Regrettably, this data has probably been the basis for much of the criticism directed your way. In fact, they are the basis for much of the criticism I have applied against the generic “1%” and are the basis for tables I have posted on this blog.
All that said (and I apologize for rambling on), I would be very interested in your perspective on the relevance of this data, what it says about US economics (or world economics) and what should be done about it. The only responses I have gotten so far from such tables and data are (a) agreement from those who are of like mind and (b) crickets from everyone else, as if the data does not matter or is not believed.
So, some specific questions:
Data indicates a redistribution of wealth from middle class to wealthy since 1980. Upper 1% has doubled income, and higher multiplers apply up the chain.
Do you believe this data?
Is it a problem?
Should something be done about it?
What?
Correction and clarification to last post. It should say that there has been a redistribution of “income shares” not “wealth” from middle class to upper income since the 40’s to 1980’s (when income shares were steady with upper 10%, 1%, and 0.1% having 33%, 11%, and 3.7% of all income, respectively) and now, where those groups have approximately 50%, 25% and 12.5% of all income, respectively .
I will take a look at this and digest….do give me a few days to look it all over and I’ll reply. I did repost what you were replying to as I do think it is a pertinent part of this discussion.
Thanks for considering my questions. Here is a link to one of the latest papers from Saez that has current data and relevant charts. If you are a real data geek, you can also find his spreadsheets online, but this paper (which I just located and have not yet completely read for myself) seems to have the essence of the ideas and data.
And the link is:
http://eml.berkeley.edu/~saez/saez-UStopincomes-2012.pdf
BTW, I am on a diet so I am not eating out at lunch and we have curtailed back our eating out at dinner. So in effect, I am directly impacting someones personal economy by not going out and contributing to the revenue of the restaurant and the income to the server. Mabye where I was going hasn’t noticed the impact, but if many people start to bring their own food to work, restaurant will close. They have razor thin margins. So you can blame the rich for hoarding money or spending too much of it on “things”, but when they buy, they are contributing to the economy.
Hoarding money does little for the economy, when they spend it helps. That’s part of the whole issue, the wealthy already have money and are more likely to just save the extra.
The lower classes are more likely to spend and spend at small local businesses that support other lower class people who then are able to spend more also, this also translates eventually to the wealthy getting their share as they always do. Growing the middle class creates wealth for all instead of a few.
The only way to reliably broaden the tax base while growing the economy is to create more middle class jobs. But many of these were lost in the economic downturn and the replacement jobs don’t pay as well even though many companies are reporting ever greater earnings off the backs of these workers. In order for the economy to grow faster, these companies need to start trickling down these profits instead of giving lavish pay packages to the top.
The whole reason I got in this blog is because everyone gripes about how Bush tax cuts helped the 1%. Only about 1/3rd pay usual sytem. Most pay AMT. this is a flat 26% starting at dollar one with very limited deductions. The Bush tax cuts helped us zero. The other bracket is at 28% over $ 1 million. Also add on 1.9% Obamacare tax and 29.9% effective tax rate is highest. It can be higher in regular system, but takes a lot of money to get over this level on effective, not marginal rate.
I think Tea Party attacks that say they only care about rich are misguided. I have coworkers who work two jobs and then pay taxes that go to people who don’t work at all. They feel sympathy with libertarian causes and are incensed that those who won’t work (and there are many) live off their overtime.
obama tax is 3.8%.
Just a question. Is “dark pool” investor the same as qualified investor by SEC rules?
Dark Pool investors are large institutional and yes, very rich individuals. It allows entities to buy stock without tipping hands or disrupting the market. Nobody really knows what kind of deal they are getting, but I doubt they are buying apple stock at $400 when everyone else is buying at $500. But with large transactions, even $.50 cents can make a difference. I personally don’t think when I buy VTI or something else that the extra 2 cents I might be paying will make or break my retirement. Companies get breaks for buying in bulk.
You may be in the 39.6% bracket, but your effective tax rate is not 40%.
I rounded. Effective tax rate on a Federal level last year was around 37%.
The US is 53rd on the list at a $300K income. http://www.businessinsider.com/worlds-highest-effective-personal-tax-rates-2013-1
peter – does that rate reflect your deductions? was all of your income really earned, no long term investment income? The only way I could see someone near the 40% effective rate is by having few deductions and little investment income.
Also, you don’t pay employment taxes on the majority of your income. Someone middle class at the 25% marginal rate is effectively paying a 40% marginal rate.
Yes it includes my deductions which include several kids and a $1 million mortgage. But all of that is washed away as in my bracket I do not get the deductions any longer.
Germany only has 80 million people and have a far less immigration problem. From what I understand, if you don’t want to attend college, you go to tech school. You don’t see a bunch of high tech stuff coming out of germany except cars, which many are made in America. BMW in South Carolina and MB in Alabama (i think). So if Germany is outsourcing to America, why is it any different if America outsources I phones to China? There must be reason for it to happen.
Just to clarify – the recent posts as “Peter” are not me. I have not been on here in July. So anything you see in July is clearly someone else.
….until today Joining the fray again on July 9th above. Will add more tonight. Lots of good debate going again!
Steven H
Re: deductibiity of wages. If you pay any employee a wage, you expense that wage. Therefore no tax is paid ( by the corporation), thus limiting their taxes. If they are limited in deducting over X million, they will pay tax on the overage, which averages 20-25% for US corps. So if limit is $3 mill and they pay CEO $4 mill, they pay $ 4 mill + 20ish % of $ 1 mill or $ 4.2 mill total.
Re: Tariffs. Protectionism is enourmously counterproductive in most instances. However, not allowing other countries, esp the Chinese, to falsely weaken their currency would help. This has stolen American manufacturing jobs by the millions. Many are coming back due to cheaper energy and better infrastructure in US. Unleashing nat gass production would further this reimportation of jobs.
As far as how to tax, I think most agree use taxes or fees are the fairest. Otherwise, I would gradually shift to taxing wealth, not income. This by definition targets the wealthy. Income tax limits the accumualtion of wealth and the enjoyment of fruits of our labor the most directly. You can never invest OR spend money you never get. VAT taxes punish spending and not investment. It seems we have chosen the worst option to raise revenue. Of course, it was invented by the very wealthy in 1914, after they had made their (now protected) fortunes. Inheritance taxes are a form of wealth taxes, but trust loopholes and new reductions have weakened or eliminated this as a way to generate taxes from wealthy. The concept of wealth taxation is accepted in property taxation, so it is not a radical idea.
JTM wrote
“I don’t really like the idea of limiting income by setting some arbitrary limit. If a company does well, people should prosper.”
Yes.
“I would like more controls to protect the shareholders from excessive pay.”
Me too but I would make a condition of being a high officer that they spend a significant amount of their money in stock so they have a lot of skin in the game like small business owners have. That way if they screw up they can’t walk away without taking a loss. That is how it works for small business owners.
There should be some law about this for publicly traded companies.
Not really apples to apples comparison on California vs Massachusetts. One state has millions of illegal immigrants that must be educated. 85% of the Mass population is within 30 miles of Boston.
Massachusetts has illegal immigrants too, though not such a large percentage, but the biggest deterrent to a quality education is class size. Where MA had an average of 21 per class, CA had more than half again as many. Teachers in CA are also under a crushing load, demoralized, and have no time to take with individual students as they do in MA. Where my kids in CA had one or two outstanding teachers, my last one had at least a dozen extremely outstanding teachers from K through 12. On top of that, CA teachers are payed less relative to other public employees which tells them they’re under-appreciated.
In the 50’s and 60’s, CA led the nation in so many areas and then came the populist rhetoric of politicians against the Vietnam protestors on college campuses. To punish, they cut the UC system under Hiakowa (Reagan was Gov.). But the propagandizing of the anti-education crowd had later repercussions in the passage of Prop 13 and the demise of the K-12 districts. So far as I’m concerned, it destroyed the state and though I love CA, I can never return.
No one has mentioned a couple of things. One is that we no longer live in the world of the last century. Globalization has reduced the value if our low and semiskilled workers, especially in manufacturing. Also, the poor do better in family SPENDING, which is much more important than income, than in past. The squeeze is almost all in the middle. Those poor slobs are usually working too hard to lobby with money like the rich or time like the poor. A simple answer is not to increase taxes on those who make very high slaries but to reduce the deductibility of salaries more than $X million. Thus corps would have to pay 120% or so if those salaries.
Globalization is not a natural disaster, but an economic condition. While many trade protections are less practical today, isn’t there some way to counter the flow of American money going to external manufacturing at super-low wages and those products returning here? Traditional tariffs, tax incentives, etc?
Please explain the deductibility of salaries in a corporation. How are salaries treated with relation to taxes in a business? That idea (of limiting deductibility) sounds good.
Salaries are normal business expenses and should be deductible. In service related businesses, they are sometimes 90% of those expenses, while in wholesaling (warehousing), they can be less than 10%. Therefore, to make them non-deductible would affect different industries very differently. It would also cause the salary to be taxed twice, once at thew corporate level, and again as personal income tax.
There are some countries such as Germany, which are net exporters, have a budget surplus with national debt, and do very well with globalization even with a highly paid work force. We need to pay attention to what they are doing and modify our policies according to what may also work here.
Thanks for info. (FYI, for other readers, Stevendad also responded with info on deductibility of wages below.)
I agree that Germany should be a model. I don’t know their secret formula but success merits study. From what I have read, there are at least two things they do differently that we could mimic:
1) Cooperation/coordination between schools and business: This allows students to choose areas of study that are more likely to result in jobs, and allows industry to have a say in the kind of graduates they need.
2) Co-determination – Labor representatives on the boards of directors. This gives labor interests a say in the company and is less prone to the labor/management conflicts that arise with the union model.
Peter N and Peter are two different people but we both are business people. I still have my company, Peter sold his.
Thanks for the clarification.
Actually, I didn’t sell my business. Still working. But maybe the “new” Peter did…. so confusing. 🙂
One thing is for certain on here, and that is no one is going to agree with each other, or better yet, work together to find a consensus. There are people that use links to whatever supports their argument, then there are toes that use links to negate the link. People just see the world in different ways. I can totally understand if you are poor, you want to ram it to those that make a lot of money. If you are wealthy, or have high income, then you feel like the poor are lazy and dont really give a crap if they work or not. Guess what? The way I see it, not through statistics, but rather everyday living experiences, they’re both right. There are people that cheat and steal ( so to speak ) to acquire their wealth. And there are lazy bastards that would let society take care of them their entire life if it could work out that way. But most people that have wealth have earned it and done so with ethics, good planning, great employees, and hard work. And I believe that most people that are in lower income and class don’t want to be there either, and would work hard to climb out of it. That’s how I see it.
So, what I propose on here, without slinging mud, is factually lay out a plan for taxation policy, both personal and corporate that YOU believe is fair and equitable, and then let’s debate that. Help each other see and understand how the others feel not letting emotions get in the way of worthwhile debate. Not only lay out a plan, but give the reasoning behind such a plan. If I were elected to the office of President, I would hire the brightest financial minds out country has to lay this all out and tell them…”do not come to me until you have a plan that is fair, and can balance the budget. Period.”
Regarding the tax code for corporations, I don’t think there’s a question the rate has to go down to be competitive world wide. But also, there have to be loopholes closed that do encourage “cheating” or tax avoidance in lieu of lower rates. What that number is I don’t know, but I would maybe have 2-3 tax rates depending upon size and sales of the corporation. An example might be if you are a small C corporation, with sales under $1M, I’d say a rate to start this discussion would be around 15%. Companies with sales between 1-100 M would be taxed at 18%. Corps over that size would be taxed at 20%. ( I know there are many corporation options, but C is the best example of not being so close to most individuals). Also, penalties for abusing the tax code and doing things the right way would be hefty. Also, boards of directors would be held accountable for such actions. However, if the government would purposely harass a corporation they thought was dirty, and wasn’t there would be re numeration. This starts us down the trail of fairness.
On the personal side, I would say no tax on the first $12,000. Then I would tax the mount of income from 12,000-35,000 at 10%. From $35,000-50,000 I would tax at a rate of 15%. From $50,000-100,000 I would tax at a rate of 18%. From 100,000-150,000 I would tax at 22%. From 150,000-200,000 I would tax at 25%. From 200,000-250,000 be 27%. From 250,000-300,000 at 29%. From 300,000-400,000 at 32%. From 400,000-500,000 at 35%. All in one over $500,000 would be taxed at a rate of 38%. So if your income was $500,000 and you filed as married jointly, you would have paid $132,050 or 26.41% of your income. With current code, and the Obama health Care Tax included, you would pay $144,753 or 28.95%. However, I would only allow two deductions. Mortgage interest so people still chase the dream of home ownership and charitable deductions. That’s it. No more deductions…period.
Now, I would also offer this up. Much discussion has centered around what the rich pay in capital gains taxes. Today’s rates on a federal level are 20%. So if a person bought stock for 100,000 and sold it after a year for 200,000, he would pay $20,000 in taxes. This is what Buffet does, Romney, and myself included. My change in this would be that the first $500,000 of capital gains taxes be taxed at the same rate as ordinary income (rates I set above) and once they have paid $132,050 on $500,000 of capital gains in one, then their rate would drop back to a number of 25%. This still rewards investment dollars, yet doesn’t punish the “average” person. But one other add on to the new capital gains tax rate is that they would also be allowed the two deductions I proposed above…mortgage interest and charitable organizations. That isn’t allowable today.
Ok, that’s my proposal. Let’s start a healthy debate of what and why. Oh yes, one last proposal, if Congress can’t balance the budget, they automatically are not eligible for reelection. No excuses, no deals. Simply put, balance the budget, or you’re out.
There’s my plan. Shoot holes in it
I pretty much agree with your progressive income tax table, but I’d go a little further. Over $1 million I’d tax at 41%, over $2 million at 44%, over $4 million at 47%, and over $8 million at 50%. I’d also tax capital gains as ordinary income except that I’d allow it to be inflation adjusted. Therefore, if $100,000 grows to $200,000 in ten years with inflation at 25% over that time, I’d attribute $25,000 to inflation and only tax $75,000. I may think about income averaging over three years also. These tax rates are not excessive, being much lower than what we once had until the 1980’s and the start of the huge national debt, and certainly didn’t cripple the economy or make the wealthy feel they were being “punished.”
The problem is not with spending as so many want to say. The problem is an imbalance between spending and revenue. We need to raise revenue as well as spend more efficiently.
MOR, your inflation adjusted scheme is the first reasonable thing you have said here. I too think the same way on this point.
However, no one paid those ridiculous rates back.
If you raise the rates you will suddenly find there are fewer millionaires to tax.
This is what happened in Great Britain. Then who will pay for all the transfer payments?
http://www.telegraph.co.uk/news/politics/9740253/Two-thirds-of-millionaires-disappeared-from-official-statistics-to-avoid-50p-tax-rate.html
Peter N,
There should be a way to limit income, whether through taxation or some other means, that decreases the number of 100 millionaires but increases the number of (single-digit) millionaires. In my opinion we need to either motivate the very rich to declare success and quit, leaving a space for the next guy, or just make it harder to get to the really extraordinary incomes of the current upper upper crust.
As an engineer, I don’t look at an individual salary, but see the curves and trends of the larger economic data. The income slope curve has moved from a rule of thirds to a rule of halves, and this is dangerous. By this, I mean that from the 40’s to 70’s the upper 10% of any upper income group formerly got 1/3 of the group’s income. Specifically, the upper 10% got 1/3 of all income, the upper 10% of that group (the 1%) got 1/3 of that amount (1/3*1/3), and so on. Today we are perilously close to the rule of halves where 1/2 of all income goes to the upper 10%, 1/2 of that (1/2 * 1/2)to the upper 1%, and 1/2 of that amount to the upper 0.1%. We never quite get beyond the rule of halves because the economy crashes at that point. It doesn’t get this close too often: 1929, 2000, 2008, … and now. Excessive income slopes are dangerous and unstable. We need to fix this.
There should be a way to limit gov’t spending, but that isn’t going to happen. If a BOD thinks a CEO is worth X and they have the revenues to support the pay, I could care less. Paying a CEO $10M less isn’t going to trickle down to the employees. An AP clerk isn’t worth $20,000 a year more just because the CEO is getting less money. You aren’t going to start a staff accountant out a $100,000 a year. the vast majority of people are paid based on their skills. If I can find anyone to mop a floor, they won’t be highly paid. How many people can perform brain surgery? Not many, that is why they make big bucks. Same for a CEO. There are only 500 CEOs in the Fortune 500. Ask the out of work CEO of the cupcake company if his options are now worth anything.
I don’t really like the idea of limiting income by setting some arbitrary limit. If a company does well, people should prosper. I would like more controls to protect the shareholders from excessive pay. Also, if we are going to try and limit pay, how about limiting in correlation to the wages paid to their workforce? Say the limit increases as the pay increases for everyone in the company.
Truly though, I’d like CEOs and their companies to start taking a broader view when it comes to earnings. So many are laser-focused on the very near term and stock price and show little care for their workforce and the macro-economy. During the mid 1900s, this wasn’t as much the case, and we all prospered. Today, US companies pay many multiples above foreign companies for upper management. Are the upper management of our companies really any better?
JB,
Government spending, in real per capita measure, has decreased 10% in 4 years, so yes spending can and has dropped. As a measure of GDP, the drop in spending went from 24.4% (2009) to 20.6% (2013). Real per capita spending held steady under Clinton for 8 years (another historical rarity) but he actually had an advantage of the peace dividend (declining military spending) and some false rise in the economy from the internet bubble, which lessened the need for govt spending. Most of the time, yes, RCP spending goes up significantly and has done so under every other post WW2 President except Clinton and Obama (which is why the “Obama spending spree” meme is laughably false).
Spending will certainly not go down to 16.5% GDP, which is 2013 revenue or to 15% GDP which is average of revenue since 2000, so revenue does have to rise to meet spending.
And you should care what CEOs and AP clerks get paid. BOD/CEO voting is a tit for tat system where CEOs of various companies sit on each others’ boards and vote to raise each other’s salary as high as the company can pay. It has nothing to do with what they are worth, just what they can negotiate in a sort of insider trading scheme involving salaries. That is not at all the same thing as determining value.
Salaries at the top impact the whole slope of salaries between them and the rest of us, and excesses at the top suck money out of the rest of the system. You may think there is no connection, but if there wasn’t a connection, the income slope would not be a smooth curve. The meteoric rise in CEO and investor salaries are directly related to the declines in salary for 90% of Americans. The country is making a profit but it all gets funneled to the top.
The rest of your post is straw men. You are arguing that there should be an income slope. I completely agree. I am arguing that the slope is too steep and have presented a numerical argument in several posts defending my position. You have not refuted anything in my numerical argument.
JTM,
If we were to establish tax policy to discourage (not completely limit) extraordinary salaries, it would not have to be arbitrary. History has shown that the “rule of thirds” I described in a separate post to describe income slopes was stable for decades but the “rule of halves” always leads to economic calamity – halves and halve-nots, as it were (sorry …). So if we use that formula as a goal where upper tenths of an economic group get about 1/N of the group’s income, and if N=3 is stable but N=2 is not, THEN tax policy could be set to aim for N to stay in a stable range; say from 2.7 to 3.3. If N gets too small, reflecting too much disposable income moving from the middle to the investor class, then marginal rate thresholds could be adjusted, as well as other tax incentives.
So if Tom Cruise makes a movie and gets 2% of revenues and the movie makes 1,000,000,000 dollars, Tom would be limited to $1,000,000? how is that fair? Same with musicians and others. If you are good enough and people buy your work, why should your income be limited? If Tiger Woods makes all of his money in the first two tournaments of the year, he should just quit because he made “enough” money? Do you think the 125th golfer in the world would want this? well, probably, one less person he has to compete against, but at least they earn their money every week.
JB,
Regarding limited income. Taxation at high marginal rates tends to restrain extraordinary income, but not actually restrict or prevent it. For some of the examples you mention there should be (or may already be in our system) a way to average burst incomes over multiple years for tax purposes. But as for continued year over year income, yes I think there should be restraints, probably via tax code.
I think the difficulty is that people tend to think in terms of individuals working within our vast multi-trillion dollar economy and cannot conceive that the high incomes of a few or a few hundred “successful” people could possibly impact the overall income levels of other people. In this theory, everybody’s income is independent and if an entrepreneur receives a lot of money it is because he “created” that income, so why should’t he keep it?
Three problems:
1) If the salaries were so independent, then the income shares of working and middle classes and most upper incomes as well would tend to rise or fall together with the economy and there would just be a few volatile incomes in the economic stratosphere that would stand out as extraordinary, such as the Steve Jobs and Bill Gates of the world, along with a few CEOs, sports figures, and movie stars.
This is not how it works.
The entire exponential curve of incomes has shifted, rotating about the 90 percentile incomes, such that everyone below (about) 90 loses, and everyone above 90 gains. And the further above 90 you are, the more you gain, year on year, until the next crash.
Not that the crashes fully reset the curve. They have just pushed it back a little, and only temporarily. We were stable for decades after the Crash and Great Depression, and then we crashed in 2000 and then again just 8 years later, and we are back with the unstable curve shape indicating another major change in the economy.
2) Upper earners (in general) have not just been taking a portion of wealth they create. Very often they take all the wealth they create, and then most or all of the wealth their employees create. I suppose some would claim the employees don’t create the wealth; they are just mechanical cogs in the economic machine. That’s not how they used to be treated, and that view vastly denigrates the essential role that employees have in a successful company.
3) Some high earners create no wealth at all, but still command high salaries. They simply accumulate wealth, reallocate wealth, or even destroy wealth. Combining companies so you can rule at the top of the pyramid and reap its benefits is a good way to make a living without actually creating anything. Yes its risky and hard work, but the supposed efficiencies are usually over-stated. Many times, it is the loss of competition (sucking more money out of the customers) that makes such a venture profitable. And it can be argued that vulture capitalists simply reallocate wealth of dying companies to themselves, and that many of the bankers and real estate investors before the last crash destroyed billions of dollars of wealth with their complicated and deceptive financial schemes … and yet many of them (not all) came out of the fray with wealth intact.
These are the issues that many people have against the rich. It is not always a fair assessment against the class of honest, successful, and generous business owners who actually look after their employee’s interest as well as their own. But as a generalization, it certainly seems that many of the upper 0.5% (or so) are living high on the hog at the expense and downfall of the rest of the country.
Interesting article. I can see executives and business owners paying themselves less while accumulating capital and cash in their businesses until rates go back down as the conservatives in GB are advocating. But that can’t go on forever. What will happen log term? What happened in the U.S. when income taxes were raised so greatly in the 30’s and 40’s? Anyone know of studies here in the U.S?
Feeding cash and capital back into businesses would be great. It would probably stay dormant for awhile, as owners hope for a tax rate decrease, but eventually, if rates were kept high, that money would get fed into common salaries, R&D or new business investment. Much better than sitting in private wealth accounts, it would seem.
I put my suggestion down before I saw yours. Interesting that we both arrived at 50% rate for those at 8 or 10 million. I agree with your more complete table and with the inflation adjustment. I think I would still add the 70 and 90% rates at the upper upper end though.
I might be able to go with the 70/90 too, but not until we identify a pressing visible national need as before. Otherwise, it may have unintended consequences for the economy and promote more Arthur Laffers and Milton Freidmans.
Fair point.
David H, I like your approach, but without spreadsheeting the economics of the plan, it becomes difficult to assess how practical this or any other plan is. I agree with your “micro-economic” observations. I too believe that there are cheaters and honest people at all levels of income. We do not need to demonize anybody, for I think most people want to work and earn a living fairly and honestly. That said, the macro-economics clearly show a shift of about 10% of all income that has moved out of the working/middle class and into the investment class. I do not see any way to fix the problem without reversing that shift, but that means fighting the most powerful and wealthy people over their incomes. It took a Depression and World War to fix it before. Today, how do we manage to give the middle class back what is rightfully theirs?
So your Progressive individual taxation plan is a start but it really needs to go farther. We need to make it economically impractical to earn the sort of extraordinary incomes that the Forbes 400 and upper 0.01% currently receive. That was the real purpose of the 90% marginal rates in the 30’s, 40’s and 50’s. Yes it brings in more tax revenue, but more importantly it limits the excessive income slope of today to something more efficient for the country. There should be at least a 50% marginal rate on incomes of 10 million and probably a 70% rate on 100 million, and a 90% rate on $1 billion.
The taxes on small businesses need to go down and there should be healthy tax incentives for starting new businesses. One of the mistakes of the 80’s “tax simplification” was that business and personal income could be taxed at the same low rate. Fornerly, personal taxes on extraordinary income were quite high and so corporate management and high wage-earners were motivated to take their business skills out of the megaCorp and into a small business venture. Now it is more profitable for megaCorps to squash their small business competitors, suppress labor costs to the tiniest number possible, and pay their management huge sums as reward. This has even sparked wage theft at the low franchise level of fast food restaurants, because there is a corporate culture that punishes even appropriate overtime charges. Minimum wages need to go way up for megaCorps (and franchises of megaCorps) but there might be room for lower training wages for start-ups. This is another way to give small business an edge.
George Orwell:
“Some pigs are more equal than others”
I wouldn’t have used that term for the richest 1% but that does get the idea across. The rich and powerful do tend to inflate their own importance to the economy. I cringe whenever someone says that America is punishing the successful, when all we are trying to do is keep them from eating the entire pie.
“The rich and powerful do tend to inflate their own importance to the economy. ”
Some else had to think they were important too for them to earn so much money.
“I cringe whenever someone says that America is punishing the successful, ”
it does.
“when all we are trying to do is keep them from eating the entire pie.”
but the pie is usually getting bigger.
You are dangerous. You are the kind of person that would insight rebellions using a mob.
You are a marxist.
The world has had enough of people like you.
I don’t care for Marx. I quote Jefferson, Franklin, and Madison. Our founders were opposed to people who would destroy the nation in their quest for personal gain. They attempted to put protections in our Constitution that would limit the damage being done by factions like the Tea Party. The original Tea Party was largely a fight against a huge corporate behemoth. Today’s Tea Party is founded and financed by huge corporate behemoths.
The pie is getting bigger, yes, but not as fast as speed at which the rich are demanding more of it. 1% of Americans used to eat 10% of the pie. Now they eat almost a fourth of it and still complain that they are hungry.
The people getting punished in this country are the hard-working Americans who actually earn much more than they are getting paid. If you are in the upper 5%, you are not only getting paid fairly, but you are getting a bonus that has been lifted out of the pockets of others by Corporate-led income redistribution from poor to rich.
I am not Marxist or dangerous. You, however, from your posts, seem to be pampered, obnoxious, and ill-informed. And that is a dangerous combination.
I thought the original tea party was about taxation without representation. There weren’t a ton of “corporate behemoths” back in 1775.
JB, Some of the earliest Tea Party events were touted as “FNC Tea Party” events on the Fox News Channel (I’ve seen the screen captures), implying their sponsorship as well as their enthusiastic advertising support. FNC personalities attended and promoted these evnts. The Koch brothers have been strong sponsors through Americans For Prosperity. The Tea Party is a type of astroturf movement. It pretends to be grass roots, many of the “members” are sincere, but the agenda and propaganda is controlled by strong corporate sponsors.
JB, I read your post too quickly and answered the wrong question. Yes, the 1775 Tea Party was about taxation without representation, but these taxes involved reimbursements to the East India Company, a massive trade monopoly whose demands carried heavy weight with the British govt.
The original Tea Party tossed the tea of the East India Company overboard to protest the political power it had within the British Government that led to monopolistic excesses affecting Americans. In other words, the Company bought the British MP’s just like the Koch Brothers and their corporate friends do today. It was all about the accumulation of wealth by the corporations at the expense of the consumer.
I find it laughable that today’s Tea Party is not only on the side of increasing corporate political power (remember, they’re now people too), but actually sponsored and funded by the corporations. Our founders must be rolling over in their graves.
Peter – It’s people like you who are the problem. You feel entitled and put down the work of people who earn less, because they earn less not because the work they do is less needed. You’ve got yours and you want more, more, more so you can beat the Joneses, and you don’t care that your greed takes food out of the mouths of others.
America doesn’t punish the successful, there are just some who want more and will be little crybabies about it to try and get their way. A while back these complainers said teachers earn too much, more than enough to live, but then these same people who multiples of what a teacher earns start complaining that if they have to pay an extra few thousand a year in taxes it will devastate them. So which is it, do teachers earn plenty to live on, or is $250k barely surviving?
Tax rates are historically low and non-progressive. Many of the low earners that you loath actually pay taxes, lots of them compared to their earnings.
Guess what, if the lower level workers keep getting stripped of livable wages, government expenditures will continue to increase, thereby increasing the need for taxes. These are the people who support the lifestyle of the very wealthy. They use most of their disposable income to buy things that create profit for the wealthy. Giving them a bit more grows the economy as it compounds through the economy, unlike giving evermore to the wealthy. The wealthy already have enough to live on, giving them extra does not grow the economy by the same growth factor. The economy is trickle up, not trickle down, and as the trickle goes up the funnel narrows and turns into a gusher for the few at the top.
Peter, Is that really you? What happened? I leave for awhile and when I return, you’re calling people, “Marxist”. What did you do with the tolerant conservative once named “Peter”? Please say it ain’t so.
This “Peter” seems to speak like “Peter N”. Are they different?
Steven H talks like a marxist when he says what I have in excess of what I need belongs to the public. What he is saying is just a paraphrase of Marx’s “From each according to his ability, to each according to his need”
I worked and sacrificed for that extra. I won’t let let marxist take it away.
Like I said above. Marx’s time has come and gone.
They once were.
Peter, if I am a Marxist, then so were Franklin, Jefferson, and Madison. And they were not, and I am not. You just seem to be unaware of history and the wisdom that these men have passed down. Did you read the quotes I placed in the reply to Tcjenn above? These are not random cherry-picked statements. They represent the essence of the founders’ concerns about factions and special interests destroying the country. Which is exactly what is happening today. They even proposed solutions:
” … withholding unnecessary opportunities from a few, to increase the inequality of property, by an immoderate, and especially an unmerited, accumulation of riches.”
and laws which “reduce extreme wealth towards a state of mediocrity, and raise extreme indigence towards a state of comfort.”
Today we have wealthy who have an immoderate, and most would say, an unmerited accumulation of riches. Therefore we need laws that reduce the income disparity. This will reduce the public dissatisfaction arising from the disparity, and reduce the need for radical factions like the Tea Party.
Here is another reason why you should not object too strongly to a bit more taxation on the rich and higher wages for the middle: the economy will be stronger and there will be more business opportunities. It is no secret that there is a lot of idle capital about. That is because throwing money at the rich does not create jobs. A thriving economy creates jobs and business opportunities, and you cannot have a thriving economy if the middle class is starved of disposable income.
Or maybe the reply above should be to Peter N who just called me Marxist. I have now had posts labeled from both Peter and Peter N calling me Marxist, and they swear they are different people, but they are sounding a lot alike.
Let me repeat to both: Marx is wrong. But so are you. You speak like Ayn-Randians, and she is just as outrageously incorrect in practical philosophy as Marx, but in the other direction. Marx says all people are equal irrespective of personal effort. Rand says poor people are worthless irrespective of effort or challenge. Neither philosophy has any place in this country. Rather than labeling me as Marxist, over and over, perhaps you could read some historical documents from our founders and discuss those, as I have.
Steven H, you must be taking the founding fathers out of context since they all were well to do.
BTW, transfer functions are going up.
http://www.aei.org/files/2012/10/17/-have-we-become-a-nation-of-takers_170444837619.pdf
“Today we have wealthy who have an immoderate, and most would say, an unmerited accumulation of riches. ”
So say you, the marxist. You speak in generalities and never in specifics.
Some of us produce wealth and deserve to get a portion of the wealth we create. Some of us create jobs, pay salaries, provide healthcare, match 401K contributions and give good bonuses but it is all possible because of the vision of one or a few people. They deserve to be richly rewarded.
Peter N,
Why would you ever assume that I am taking the Founding Fathers out of context? Is it because you cannot conceive of clever wealthy people admitting that it is possible to be too wealthy, or that it is sometimes necessary to rebalance the economy — restraining wealth and reducing poverty — in order to allow all to prosper? Bill Clinton is also wealthy, but he raised taxes because it was good for the country. He still thinks his taxes are too low. Or am I taking him out of context?
Yes, the Founders were well to do, but they had sense enough to understand that you don’t get a stable country by having a wealthy elite lording their power and influence over the general population. The Founders fought AGAINST the philosophies you espouse.
As for the “Nation of Takers” stats — Do you not understand the instability and consequence of having the nation’s largest employer — WalMart — paying their employees so little that they have to get government subsidies just to feed their families? Of course, transfer payments have gone up. When the policies of government and business create a poverty class, that is the result. The poor are not setting their inadequate salaries, nor the outrageous tuitions of colleges that might be gateways to better incomes. Stop blaming the victims.
You say I don’t speak in specifics. Look at the tables and data I have provided. They are SPECIFIC. The wealthy 1% have a historically excessive income bonus, ranging from 55% to over 350% relative to 1980 income shares. Is that specific enough? You say I am too general and then answer with meaningless generalized drivel, already repeated ad nauseum that “Some of us produce wealth and deserve to get a portion of the wealth we create. ” OF COURSE YOU DO. I have already agreed with you. Multiple times. Stop being so general. Be SPECIFIC. How much of the income pie does the 1% deserve? 5%, 10%, 25%, 50%, 90%? SPECIFICally. And supply a justification why this is historically sound.
Why should the wealthy be rewarded with income increases that are several times the rate of increase of total incomes in this country? How is that justified?
Why should the incomes of 90% of Americans decline even as stocks increase and profits soar? Is it because 90% of Americans are lazy or stupid, or is it something structural in our economy?
Sorry to be so aggressive here but my patience, usually in abundance, has Petered out, as it were.
Dammed Randians …
It is interesting that this blog is still going.
In general, most people think they pay too much in taxes and that someone else should be paying more. The fact that government likely spends too much is often ignored at the same time. My problem is how the so called 1% get viewed by many including our President. There has to be a balance. Those in the lower 50% of incomes have very little of the tax burden. Are those at the higher end receiving more benefit from government? Maybe. There are things government does that I think provide great value. Defense, the US Department of Agriculture (what other country has such a safe food supply) are two good examples. I dont mind paying for these programs. I can also accept that all programs are not of interest to me, but I am willing to pay for some of those as well. I also think that complaining about taxes is somewhat of a nice problem to have. But at some point it is excessive what higher income people pay and offensive that this group is targeted.
It also works both ways as the previous writer pointed out. I am sending four children to top quality public schools. My property tax bill is very high, but it is lower than the cost of the education I receive. I have neighbors in the same situation who protest their bills. This is their right if they think they are overpaying, but they are getting a good deal.
When I look at all of the taxes I pay, and everything I think that I receive, I definitely overpay. I think I pay significantly more than a fair share allocation and I have a problem with the entrenched overspending in the federal government and state. The last politician to take this on was Ronald Reagan and that was 30 years ago. But, I am not moving to Canada or anyplace else.
MFM, your points are well stated. No one wants to pay more in taxes. But the discussion has to have some historical perspective. From 2000 to 2013, federal revenue has been low, averaging only about 15% of GDP. And yet spending in that time period has averaged 20% of GDP. (It is now about 21%). Spending is not extraordinarily high: Post WW2 spending has consistently been between 18% and 22% of GDP for most years. The temporary spending spike in 2009-2011 stemming from the 2008 economic crash took spending to 24% of GDP but that has come back down to 21%.
However, since Reagan cut taxes in his terms and Bush2 restored low taxes after Clinton had wisely raised them, debt has gone through the roof. As I said spending has been pretty level, but revenue is at an unsutainable low. The idea of cutting spending to 15% of GDP is just not practical, or at least not while we are suffering from an economic slowdown.
Why should most folks over 150K income pay more in taxes? Because their income has gone up while their tax rates have gone down, and because govt spending has held steady as %GDP while revenue has gone down.
If you are making more than 100K/year, you are likely be getting a “bonus” of varying degrees relative to the past few generations of workers in similar profession or income level.
The following are approximations of the inflation adjusted income increases based on data from 1980 to 2012, just for information.
Values are in 2012 dollars, as adjusted for inflation.
Average real incomes increased by 23.8% in this time period (increased productivity by society as a whole) so 23.8% is “breaking even” and anything less than that is a relative cut, so for this table, real income percentage increase is reduced by 24% to get the “Bonus”. (This is not perfect mathematically, but the numbers are rounded anyway.)
(Negative bonus is a pay cut)
90 percentile is someone at bottom edge of top 10%.
2012Income Percentile IncomeIncrease Bonus
$115K 90 22% -2%
$163K 95 38% +14%
$396K 99 79% +55%
$617K 99.5 100% +76%
$1857K 99.9 185% +161%
$9048K 99.99 376% +352%
31K Avg of 0-90 -6% -30%
So if you are making $400K, you are getting about 80% more in real income than a comparable person 34 years ago and you are getting a clear bonus of 55% (1/3 of your income). Surely someone in that group could pay up to half of that bonus back to Uncle Sam in a tax increase.
The problem is that everyone thinks they pay too much when they do not realize how well off they really are.
Sorry the spaces in my table got compressed. Hope you can read it.
Better version of table
2012Income Percentile IncomeIncrease Bonus
$115K ……….. 90 ……….. 22% ……………….-2% …. bottom edge of top 10%
$163K ……….. 95 …………38% ……………..+14%
$396K ………..99 ………….79% ……………..+55% … bottom of top 1%
$617K …………99.5 ……. 100% …………….+76%
$1857K ……….99.9 …….. 185% …………..+161% … bottom of top 0.1%
$9048K ………99.99 ….. 376% …………..+352% … bottom of top 0.01%
31K ,,,,,,,,Avg of 0-90 ,,,,,, -6% ……………. -30% … average of lower 90%
Excellent chart. It really illustrates the accelerating income inequity quite well. It’s obviously not that someone makes more that the next guy that’s a concern, but that the increase in American productivity has gone to line the pockets of those at the top at the expense of the vast majority. And it’s the wealthy who scream, “Class Warfare!!” and “Redistribution of Wealth” as if they were being robbed. Carl Rove must have invented those slogans.
Thanks
Is it fair or equal that I pay school taxes and I have ZERO kids in the system. Never have had kids yet I pay like I do. People with six kids in school pay the same if you assume our houses are the same value. I would assume someone with more kids would have a bigger house, but I can buy a 5,000 sq ft house or a 1,200 sq ft house. My choice in a bigger house means I pay more in taxes than someone with a smaller valued house. Is that fair?
Yet you benefit from the education those children receive. Without it, our society would decline.
To answer your question of fairness, yes, you have a choice of domicile and with that choice comes a price tag which includes yearly taxes. You make that choice, it’s not made for you. A millionaire can pay little in real estate taxes if they choose to live in the ghetto. This has little to do with wealth.
Our society is declining relative to others because other countries have parents that give a damn about their kids education. They don’t spend more they just care more.
One reason I live in a reasonable condo is that the taxes are lower. I can afford much more but at some point the maintenance and costs end up offsetting benefits.
An essential element to allow parents to care more is to give them disposable income and disposable time. It is difficult for parents to spend appropriate time with their children when both parents are working multiple jobs just to pay for food and shelter. Working Americans making median income work just as hard as their fathers and grandfathers but are getting rewarded 30% less and getting fewer job benefits.
We cannot continue to punish 90% of working Americans for their hard labors that generate the income for the rich, and also expect them to raise the next generation successfully.
What benefit do you get from the raising of the next generation? What calamity would you suffer if there was no next generation to continue society, to build the next great inventions and to pay the taxes that will keep the country going when you retire? Who pays the brunt of that cost of raising the next generation? The parents of the children. Your small contribution, in terms of taxes for schools and whatever other societal costs, will be repaid to you many times over. You have free time and disposable income that parents of your income will never have. Enjoy your advantage and quit complaining that those who are already over-burdened should bear even a heavier load.
What happens if people just quit having kids? Our school systems are horrible, yet teachers want more and more money. Where does it end? Paying teachers $120,000 doesn’t guarantee kids get a better education. There will always be kids that drop out and never achieve a decent job. There will always be smart kids and people that invent new technologies.
But teachers are not getting “more and more money”. They are getting less and less. If we increased pay and benefits of teachers and demanded high accreditation standards, our schools would be better. Yet we keep cutting budgets, applying meager wage increases, and putting more restrictions and demands on teachers, and then wonder why quality people leave the profession.
As for what would happen if people quit having kids: society would decline, and your costs would go up. Be thankful for parents who take the time and expense of raising children. Society needs to nurture and support such families.
At the risk of spawning a different topic, society also need to allow and support family planning, so that those who do not wish to have families or who cannot yet afford to do so have options. Those who answer in terms of abstinence are missing the point. An abundance of unwanted children is bad for society in a score of different ways. It creates poverty, crime, and unemployment. The inflamed passion of modern social conservatives to punish young women (but not the young men), for the fruits of natural human biological desires, results in damaging our society.
I raised two kids in California and then one in Massachusetts. With the stress placed on the school systems in California, and forced budget and salary cuts due to declining revenue, the post Howard Jarvis-like idiots said, “See, our education stinks so let’s cut the teachers salaries!” And then the schools sank from among the top in the country to 48th place.
The education my son received in Massachusetts was many times better because the people of the state support education to a much greater degree, plus teachers are valued and paid more with lower class sizes. It’s state and community support that also counts.
This is the land of the free and the home of the brave. Everyone should help our great country equally. When a specific group is targeted by the government, this is bias and inequality. The government should treat us all the same. Everyone should help equally. No picking on one person to pay for ten others. This is terrible journalism to suggest, with humor, that it is okay to discriminate against a person because they are more successful than another.
What is equal? Percentage, absolute dollar amount(not really possible, our spending per person is greater than what some earn), each persons ability? Shouldn’t some consideration come into play to account for how much one has benefited from the systems in place in our country? Shouldn’t some consideration be put onto ones ability to pay? Is it discrimination to expect those who have benefited most and have greater disposable income to pay more? Shouldn’t good journalism on this type of subject cause people to debate openly and share thoughts/ideas respectfully? I think that is being done here.
Fair and equal doesn’t even exist where there is socialism and communism. There will Always be people above the fray and people below. You can set a minimum housing and job standard, but those people will rarely rise out of the system.
Fair and equal also doesn’t exist in the capitalist system either. As you say, there will always be those above and below the fray for one reason or another. We don’t all have the same goals in life or even want to be a part of mainstream society.
It is hard to argue though, that those at the top financially don’t benefit greatly from the current structure. They benefit from the relative stability of our economic and political systems. They benefit greatly from keeping the status quot, more so than those at the bottom and even those in the middle class. They should be expected to pay a higher amount, absolute and percentage, for these benefits than the rest of us, as they benefit to a greater extent.
“Shouldn’t some consideration be put onto ones ability to pay?”
This sounds marxist.
“From each according to his ability…”
“Is it discrimination to expect those who have benefited most and have greater disposable income to pay more? ”
This sounds like Obummer’s “you didn’t build that”.
I don’t mind paying usage taxes like gas taxes.
No one gave me what I have earned. What I have done with my opportunities is a different matter.
Why is it that people can’t put two and two together. It isn’t a matter of paying more. It is a matter of paying much more to those that don’t deserve it. Transfer payments have gone up as a percentage of GDP. High income taxes to go to someone else is slavery.
Peter N. – You seem to be repeatedly falling for the “sound bite fire alarm words” that have bombarded the public for almost 40 years. They roll off the toungue to easily for too many people. It’s the classic ploy of redirection by the very people who want us to keep arguing about the myths that support the theives so we don’t see what is really going on. Only when we can get past the visceral replies and search for truth we are all doomed to fight over table scraps when we should be sharing in the bounty.
As I have already quoted Ben Franklin: “… all Property superfluous to such purposes [food and shelter] is the Property of the Publick, who, by their Laws, have created it …”
Mr. Franklin is trying to tell us that our reward is not only from our own labors but also arise from and are determined by the efforts that sustain the society within which you labor. So perhaps Mr. Franklin was the first to say “You didn’t build that …”
He goes on …
” … and who may therefore by other laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition.”
In other words Taxes, even high taxes, are not slavery. They are the price of membership in the Club.
“Transfer payments have gone up as a percentage of GDP. High income taxes to go to someone else is slavery.”
The quickest way to stop transfer payments like food stamps is to pay the middle class and working class what they earn, which is about 30% more than they are getting now. Then they could pay their own bills and even some taxes.
It is crazy to keep taking money away from the working poor and then complain because they don’t have enough to feed themselves and have to ask for charity.
You aren’t paying their bills. They are paying yours.
peter n – Why is it people can’t put two and two together? The same could be asked to you. There is more than one side to the story and ways to look at each side.
How is ability to pay not to be considered in income tax rates? Someone earning $10k/year cannot pay $10k/year in taxes and the same amount for some earning $1mil/year is almost a rounding error. Why shouldn’t income(ability to pay) be considered?
Make fun of the president if you will, I’m not a huge fan either, but it does little for your argument. Guess what, many before you have created the foundation that has allowed you to be where you are, to deny that is idiocy. If you want to prove me wrong, move to North Korea and become wealthy there. The building blocks provided by our country are a great benefit.
If you want to argue for a VAT or something similar, fine, but that isn’t really a possibility at the moment and therefor adds little to the discussion. You will find few backers in congress. “Transfer payments” have gone up, maybe, I haven’t seen numbers to back that up, but I have seen that the wealthy have increased their income and wealth greatly while the rest of us as a whole have had a decrease in income and wealth. Much of this is due to corporations cutting wages for the many while increasing them for the few at the top. As the income at the top increases, so will their taxes as all earnings are taxed. As the income of those at the bottom decreases, so will their tax burden. Ultimately, though, we are really supplementing the corporations like walmart who are not willing to pay a livable wage, not the workers. Talk about giving transfer payments to those who don’t deserve it!
If it makes you sleep better at night, go ahead, continue believing those who serve you food, clean your hotel room, pick up your garbage, clean your streets, etc etc, are worthless, lazy bums. It makes it no more true, but if it makes YOU feel better about yourself, go ahead.
“Shouldn’t some consideration be put onto ones ability to pay?”
No.
“Shouldn’t some consideration be put onto ones ability to pay?”
And it already is….. I make more and pay 400x as much in federal income tax as my mother. I pay close to 40% in FIT.
exactly, peter(the original), consideration IS put into ones ability to pay. some do not earn enough for food, clothing and shelter, much less paying income taxes. it’s the way it has to be, unless we are to cut virtually all government spending.
Tcjenn,
Our Founders spent a lot of time thinking and writing about governments and “factions” (aka Parties, or any group with divergent interests). The general thread of most of these writings is that factions can create dangerous “evil” divisions within a country and that the differences need to be suppressed. Note that this is the opposite of what the Tea Party would advocate. TP philosophy is to let the rich be as rich as they can be and leave the poor to suffer on their own. James Madison clearly states an opposite approach. Note Items 2 and 3 in particular.
“In every political society, parties are unavoidable. A difference of interests, real or supposed, is the most natural and fruitful source of them. The great object should be to combat the evil: 1. By establishing a political equality among all. 2. By withholding unnecessary opportunities from a few, to increase the inequality of property, by an immoderate, and especially an unmerited, accumulation of riches. 3. By the silent operation of laws, which, without violating the rights of property, reduce extreme wealth towards a state of mediocrity, and raise extreme indigence towards a state of comfort. 4. By abstaining from measures which operate differently on different interests, and particularly such as favor one interest at the expence of another. 5. By making one party a check on the other, so far as the existence of parties cannot be prevented, nor their views accommodated. If this is not the language of reason, it is that of republicanism.”
You could hardly find a clearer advocacy for wealth and income “redistribution” than this.
This in not an anomaly. Ben Franklin expressed similar sentiment:
“All the property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it.”
— Benjamin Franklin, letter to Robert Morris, December 25, 1783
And, not to leave out Jefferson:
“Experience demands that man is the only animal which devours his own kind, for I can apply no milder term to the general prey of the rich on the poor.”
I am not starting a war of quotes here. I am well aware of Franklin’s quote about a cruel government that demands 10%, and of Jefferson’s advocacy for small government. My point here is to lean on the wisdom of the Founder’s writings and their intents in concerns as they set about creating our system. They were well aware, as we should be, that wealth and power are corrupting and centralizing influences, and that an unbridled accumulation of such by many persons, rather than signifying success of an individual, may more importantly foretell destruction of a nation.
Are you then advocating a membership fee in the U.S. of A? Perhaps every man woman and child should pay the fee of say, $10,000 a year for membership, and if someone can’t afford it, leave or be jailed? That way we wouldn’t pick on anyone (except maybe the deadbeats who deserve it) and all would be equal.
Call it the American Club (members only). What a country!!!
MOR, I’m not certain of the point you are making. All B. Franklin was saying was that the laws and infrastructure of a nation have as much to do with making money as the labors of an entrepreneur, and that the entrepreneur should not chafe at being asked to pay for the government and infrastructure in which his labors are rewarded, when the nation needs to be funded. The Nation is the Club, and the Taxes are the membership fee.
Franklin was saying pretty much the same thing as Obama’s famous “You didn’t build that” but with more wit.
I’m simply trying to clarify his idea of “fair and equal”. He appeared to be saying that if anyone pays more than another, we are picking on him and that he’s subsidizing those who pay less. Being “picked on” or “punished for success” is a matter of perspective. Is what I presented his perspective? How far does it go?
Thanks for clarifying. As stevendad quoted from Animal Farm (lower on the page), everyone wants to be equal but “some are more equal than others”. And while Animal Farm was a takedown of communism, the arrogant pigs just as easily represent anyone in a society who pays lip service to equality, justice or fairness, but has an overestimation of their own importance and value to society, and has corresponding outsized demands as to how they should be rewarded.
There is a lot of good discussion on this blog, and I really enjoy the different perspectives, but I fail to understand the mentality that claims that people who receive ten times the median income and whose income rises at a faster rate than overall incomes are being “punished for success”.
There was a really good set of interviews in GQ (of all places) where the article author spoke with 6 people, each making 5 times more income than the previous. He started with a guy scraping by at 10K/year, a couple with kids struggling at $50K/yr, etc. The last subject, in the Forbes 400, made over 30 million a year and while the low earners were unhappy with their struggle, the richest guy was the only one who was really pissed off with his situation … because people criticize the rich.
The next to last subject, at 6 million plus annually, had a more generous attitude. From the article:
… he’s come to believe that the system he benefits so richly from is built on nonsense—specifically, the idea that “the markets are perfectly efficient and allocate benefits and burdens perfectly efficiently, based on talent and merit. So by that definition, the rich deserve to be rich and the poor deserve to be poor. We believe this because we have an almost insanely powerful need to self-justify.”
And the biggest nonsense of all, he says, “is the idea that because the rich are the smartest, and because we’re the job creators, the richer we get, the better it is for everyone. So taxes on the rich should be very, very low because we’re essentially the center of the economic universe, the font of productivity.” Nick pauses. “If there were a shred of truth to the claim that the rich are our nation’s job creators, then given how rich the rich have gotten, America should be drowning in jobs!”
“So if the rich don’t create the jobs,” I ask, “who does?”
“The middle classes!” Nick roars. “A huge middle class will produce an unbelievable opportunity for capitalists.”
— Not all of the rich think they are more equal than others, apparently.
Let me explain something here… about the reason why the person making 30 million a year was the most ticked off….
The problem that the wealthy have is that nobody sympathizes with their situation. I’m not saying that someone making 30 million has the same problems (or the same urgency of their problems) as someone struggling on $20k/year. But they have their problems and challenges as human beings just like anyone else. And they can’t voice their opinion with any level of consideration or sympathy. Hell, you can barely identify yourself as wealthy in our society today without a certain level of judgment that goes with it.
If a construction worker were to get a promotion to foreman and see his/her pay double, they would happily share this news with family and friends and people would be genuninely happy in this news and share in their joy. Someone making $1m a year who gets a $200k bonus wouldn’t get this same reaction. You just can’t even talk about it in today’s society.
So because of this, you feel cautious entering the debate. Which is what brings me to this website where I can – anonymously – be open about my situation and the perspective and worldview I have having been on both ends of the income spectrum in my lifetime.
So the wealthy must sit back and let our president and various other talking heads imply that we, the wealthy and successful, are responsible for the decline of the economy, the deficit, etc. without a voice in the argument. Again, I know that having a $1m/year income is certainly a better “predicament” than a $20k/year income. I’m not equating the two…. .But the wealthy are clearly in the crosshairs and have our hands tied behind our back in defending ourselves.
They also can trade stocks and bonds in different markets the rest of us don’t have access to……….please let me know where these secret markets are. I have enough money to play.
Ever hear of dark pools?
According to http://www.dailyfinance.com :
Dark pools are private exchanges that are used by institutional investors. In dark pools, brokers are typically trading large numbers of companies’ shares, shares the average investor has no access to. Private operators of dark pools include Liquidnet and Pipeline, as well as broker-run operations like Credit Suisse’s (CS) CrossFinder and Goldman Sachs’ (GS) Sigma X.
LOL – this is ridiculous. This is how the rich are getting richer? Something called “dark pools?”
pete – JB asked a question related to another post, I answered. NO, I don’t postulate that they get rich from dark pools, but they do exist and are a way the rich are able to trade outside of the market of the rest of us. This can definitely give them some advantages.
To say the rich son’t have investment opportunities that are not open to the rest of us mere mortals, is to be blind.
Again – if you are talking about the .01%, then maybe. But not the 1%. 99% of the top 1% are indeed mere mortals just like you and I.
Have to? Why? Hiring a maid or a pool guy or buying a 2nd house provides jobs to people. That is all anyone HAS to do. Those that keep all their money are more selfish than those that spend the money. There is a reason why the CEOs are making more money and the middle aren’t. It may not be a reason anyone likes, but running a company is harder than just being a “worker”. More responsibility, more spin doctoring on earnings, having one “employee’ put something stupid on social media, making sure IT isn’t having viruses attacking. Tons of responsibilities the AP clerk will never have to worry about. If the BOD think the money is appropriate, who cares. A reduction in the CEO salary will NEVER trickle down to the employees in a large corporation. In a small company, a CEO can’t demand $10M dollars if the revenues are only $5M. Most CEOs salary is less than 1% of revenues.
— I’m not sure whose post you are answering with the “Have to?” query, but I’d like to comment on the rest of your post.
You are making one assertion that I agree with along with an IMPLIED assertion that I don’t. A third point naturally flows from the first two. I’ll attempt to address all three.
1) You assert that a CEO and top management have a difficult and specially skilled job that deserves extra pay. I agree. The “income inequality” discussions are not about making every one’s pay equal. I prefer to call the issue an “excessive income slope” problem. For the problem is not the wealthy are paid more, but that they are paid so MUCH more.
2) Your implied assertion is that CEOs and top management deserve whatever they are paid because their job is hard. Here is where I disagree.
It is possible for corporate leaders to be paid either too much or too little. How can you tell what is too much? Incomes of top managers are not magically balanced by the free market to an ideal rate. They are determined by a complex economic mish-mash involving corporate boards, tax policy, and a competitive grab for power and cash. On an individual basis, it can be quite difficult. On a macroeconomic basis, we can tell when a high proportion of money has vacated the middle class to be redistributed into the incomes of the elite. When that happens, the elite are obviously being overpaid.
3) The follow-on question is: How does society adjust the pay of those who are overpaid? We are a regulated free-market society, and so we adjust the rules of the marketplace. High marginal tax rates on extraordinary incomes discourages the existence of those incomes. Some say that such high rates discourage the rich from working. Fine. Let them stop working after they have made their tens of millions. Retire already. There is no shortage of ambition and ingenuity in America. Let the next entrepreneur step up and make his ten million. High tax rates discourage excess accumulation of wealth by a few and allows more people to climb the economic ladder of success.
Nobody has the right to judge whether someone is “overpaid” or “underpaid”. The problem with these arguments is that many seem to want the government to be judge and jury on this which I think is a terrible idea. The very nature of the word “overpaid” is a total judgment call in the context you are describing.
An example….. Is Lil Wayne overpaid? He basically gets paid based on what he sells (concerts, music, etc.) so by definition you can’t call him overpaid. But should he be making $50 million a year? It seems like you want the government to deem him “overpaid” and take from him to give to others.
Peter (the original),
I think I get your point, and mostly agree, but note that “nobody has the right to judge whether someone is overpaid” is overstated, as managers make that judgment for the employees every day.
In that sense, the government (you and I) are managers over all of the businesses in the country, and as managers of the economy, we (as the government) have the right to tax extraordinary incomes at whatever rate necessary to accomplish two important purposes: (1) to fund the government, and (2) to stabilize the economy.
The last thing I want is a government review board on pay rates of individuals. However, the government does get to decide how much to tax people on their income, and a progressive tax scale simply says that those who have benefitted the most from society and who have the most disposable income also should pay the most back into the kitty via taxes. You don’t need to assess how or why someone received 10 million dollars annual income to know that they can afford to be taxed at 50%. And if taxing 100 million dollar incomes at even higher rates stabilizes and improves the economy, then government not only has the right but the responsibility to do so.
By the way, I would prefer that the government not have to give transfer payments to anyone. But the best way to cut transfer payments is to provide a thriving economy with a healthy middle class and that is the real end goal here.
Peter,
I don’t think the issue is overpaid CEO’s or anyone else. The problem is the accelerating income disparities as measured by incomes of the top earners compared to the middle class. No one cares if incomes double at the top so long as the average wage earner shares in the credit for increased productivity by having his income double also. But when per capita productivity in this country doubles and the top 10% triple their incomes while the other 90% take a 6% decrease, something’s very very wrong.
Defining the problem as jealousy of the wealthy by the other 90%, or “class warfare” simply detracts from the definition of the problem and therefore, won’t lead to a reasonable solution. Of course, there are some who understand the problem very well and would rather confuse the issue for fear that the solution will not benefit them.
“A reduction in the CEO salary will NEVER trickle down to the employees in a large corporation.”
Yes it will. If high salaries are effectively limited by high marginal rates on extraordinary income, the BOD will determine that money is better spent by reinvesting in R&D or even increasing average worker salaries to boost morale, increase productivity, and obtain higher quality workforce. Such policy would end the constant badgering of senior management for ever more exorbitant salaries to keep up with the CEO of the competing megaCorporation. The money otherwise wasted on upper management would then more appropriately go where it could do some good.
High salaries are already hit with giant tax rates….. hence the use of company stock plans and deferred comp to circumvent this somewhat. Raising it another 10% (or whatever) isn’t going to fix this. Too idealistic in this thinking I’m afraid.
How giant are the tax rates on high salaries? Certainly less than in the 1950’s to 1970’s. And many incomes have circumvented these rates with carried interest and stock compensation rules.
Perhaps there are better methods to restrain extraordinary incomes, but the higher marginal tax rate method seems the simplest method with least side effects.
Little-known stat:
If the richest 1% had increased their income since 1980 at the same rate as the 90 percentile earners, and the “bonus income” beyond that level which they have actually received was all put into paying off deficits, the entire National Debt would be paid off (including the amount that we had started with in 1980, left over from WW2).
In other words, our entire National Debt of 17 Trillion is attributable to the excesses in over-sized incomes given to (or appropriated by) the rich.
You have got to be kidding.
Your logic is flawed.
If you took away all that income from the rich who would be paying the taxes?
The debt is due to spending more than what is taken in. It is that simple.
Its the spending stupid!!!!
Your use of epithets adds nothing to your flawed logic. The problem is that we have a “BOUGHT” legislature. This bought legislature, both Republican and Democrat, has passed laws that is stealing the wealth of America for the monied interests who will “fire” them if they don’t do what they want. Money has corrupted our legislative process completely. Wall Street, the Banks, Corporations, and the big pockets own everything and until we face that, accept that, and do something about that, we are all screwed. Everything else is just dancing in the shadows pretending to be finding solutions.
peter n – yes it’s due to spending, spending by both parties, but you totally missed the point brought about by steven h!
Normal Joe has valid points also, a handful of ultra-wealthy have put themselves into a position where they have great influence over the few that are politically ultra-wealthy. These few control who we even have an option to vote for beyond small, local elections! Few in higher government office get there on their own, most are chosen by the elites who back them with such great monetary and political wealth that a free thinker has little chance.
They have also created such a divide between the rest of us, that few are in the middle, causing many of us to fight ideological arguments instead of problem solving. As long as we continue fighting among ourselves, the elites of our duopoly have won, we will have no real voice on capitol hill.
You say the rich have control but they only have one vote. There are more that aren’t rich so what is your point?
Dave Brat beat Eric Cantor with a shoe string campaign. Money didn’t have much to do with it but ideas did. That is the way it should be.
If the wealthy committed crimes to get their money then they should go to jail and forfeit their gains but this is not the normal case. Most of the wealthy have come by their money honestly and get only one vote. It is the voters that want something for nothing that cause the spending problems. The other is politician that buy votes from those same voters with tax payer’s money.
“They have also created such a divide between the rest of us”
How? Be specific.
We all can invest in the same stocks or buy the same properties. There is no class system.
The reason why so many don’t have money is they want everything now. They charge things on their credit cars that suck their wallets dry in the long run. They buy cars and trucks that are more than what they need. These optional toys reduce the amount of money that can be saved or invested.
peter n – We all have one vote when it comes to putting a ballot in the box, but there are a handful of elites who chose whose name is on the ballot and backed by the party. These elites can be greatly influenced by a few extremely wealthy that are willing to put their financial backing behind the nominee. Yes, there will be exceptions to this, but to say that many if not most of upper level politicians are not chosen in this fashion is disingenuous. How many choices do we normal people have at nominating someone for president? Realistically, we don’t, a small group of elites choose. The same is true at lower levels, but to a lesser extent.
Where has anyone said anything about wealthy committing crimes for their wealth? How does that even come into play here? You don’t get it and probably never will, just because someone is wealthy doesn’t mean they worked harder than the rest of us or were better at not spending. Many wealthy go bankrupt because they spend extravagantly. There are many poor who work extremely hard just to get enough to get by, but people like you can’t admit it. You would rather believe the majority of people who are not rich are that because they don’t work hard enough, smart enough, or spend lavishly on things they can’t afford. While for some, that is true, as is that there are wealthy who worked very hard and smart while spending less. But the opposites are also very prevalent and true.
As for investments, while we all can buy stock, bonds, and real estate, only those above a certain amount of wealth ($1mil maybe?) are allowed to invest directly in another company. They also can trade stocks and bonds in different markets the rest of us don’t have access to. And, if you’re like Donald Trump, you are too big to fail, banks will work with you instead of just foreclosing on you. During the foreclosure crisis, banks chose overwhelmingly foreclosure over modifications often because their money was not at risk and they received more fee income by doing so. So, no, by law and the amounts of our investments, the rest of us do not have the same investment opportunities.
As for division among us, both parties have worked very hard to polarize our society. Polls show us growing more polarized almost daily. The talk radio hosts and party leadership push that it’s us vs them, that negotiation means losing. How is that not creating a divide?
JTM, I was going to reply to Peter N, but your post covered the territory well. Thanks.
I agree whole-heartedly, Joe.
I did not say anything about taking away all of the income from the wealthy. I only hypothesized a situation where they are just as rich and prosperous and highly paid as the wealthy were in the late 40’s to early 70’s. What’s wrong with that? The rich still get to be rich, but they have to return their unearned bonus to the middle and working class where it can power the real engine of the economy via disposable income and consumer spending.
What good is it to give all of the nation’s disposable income to the wealthy so they can start businesses, when no Americans can actually afford to buy their wares? The economy is top-heavy with money going to the idle rich, not because they need it or can use it effectively, but because they have the power and political influence to pick the pockets of the average Americans.
The upper 1% have received a 120% pay raise (in economy adjusted terms: 10% of all income before, vs 22% of all income now) while 90% of Americans have received a 25% pay cut (from 67% of all income to only half: [(67-50)/67 = 0.254, or about 25%] ). The professionals in the middle 9% have received an increase from 24% to about 28% of all income.
“The debt is due to spending more than what is taken in.”
Yes, it is. Government revenues have been slashed in order to give money away to the rich as a political favor. Ever since Reagan, Debt/GDP has skyrocketed.
Up 20 points by Reagan, 12 points by Bush, dropped 9 points under Clinton up a whopping 29 points under Bush2, and about 20 more points from Bush’s Great Recession during Obama’s watch. Some of that was spending but mostly it was the tax cuts. Federal Spending/GDP has been between 18% and 22% for most of post WW2 history, with a brief burst of 23- 24% from 2009-2011 due to the economic crash that brought automatic spending increases and a GDP drop. Spending has averaged 20% GDP since 2000, but revenue has averaged 15%. We have never in post WW2 America had sustained spending as low as 15%, and we should not strive for that now. It is not practical. We need to put revenues back at the 20% level to sustain necessary spending. This means fighting the rich to make them give back what they did not earn and do not need and have not managed well.
To quote one wiser than I:
“All the property that is necessary to a Man, for the Conservation of the Individual and the Propagation of the Species, is his natural Right, which none can justly deprive him of: But all Property superfluous to such purposes is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition. He that does not like civil Society on these Terms, let him retire and live among Savages. He can have no right to the benefits of Society, who will not pay his Club towards the Support of it.”
Benjamin Franklin, letter to Robert Morris, December 25, 1783
If you know what you are doing, the stock market isn’t gambling. Anyone can buy a stock and lose money, but there is research and numbers backing up a stock price. You have no way to know if you are going to win at a card game. If you could, there wouldn’t be so many casinos in Vegas.
I suspect that a card-counter in Vegas could reliably do better than a good investment researcher on Wall Street. Investing is gambling, because you can only increase your odds with research; there is no certainty (unless you are cheating the system as in “flashboys” or with inside info), and the odds are always slim to get continued gains. Of course it does help when the broader market has doubled in 5 years, but the next crash is always around the corner …
However, the stock market hasnaveraged + 6 % over past 100 years whereas casinos are – 1.5% ( well managed crasp nand blackjack) to -20% (slots, keno and horse racing). Key is rebalancing periodically, low expenses and having a fixed discipline.
Stock market has averaged close to 10% over past 100 years…..
Dairy There is a farm just south of Gettysburg, PA that uses a collection system and captures cow-produced methane which then powers farm. This is the kind of thing to consider.
There are many many more cows than there were 200 years ago. Why not put filters in the cows and capture the methane. Obama would be all over spending money on that project. If the ice age went away 10,000 years ago, how did that happen? To me it is a long, long cycle in the history of the world. It will get hotter and it will get colder. We are merely a blip on the screen.
Yes, you are correct about the cattle. But you forget about all the elephants, buffalo, and other herbivores that man has slaughtered for food and skins. The number one source of methane are termites. Here long before us and will long survive past us. There are some studies that could lead one to believe that the shifts in climate were drastic, in a geological sense. Wild swings within a decade or less. What you propose is exactly why people will characterize the behavior as head in the sand. When you learn to be more sensitive to differing points of view, then, maybe, we can start to have a meaningful dialogue. Without it, we are merely just talking at each other.
Yes we are a blip on the screen, but we have an impact on how long this environment is favorable to our survival. We are not worried about climate for EARTH’s long-long term sake, but for OUR immediate sake. Eventually the sun will explode, but until then it would serve mankind well not to damage his own habitat so badly that he goes extinct early, or makes his world harder to live in.
According to the IPCC* methane is 84 times more potent over a 20 year span. *Int panel on climate change. The 20ish number is over a 100 year span. I hope you read the 8 page British article. CH4 is much cheaper and faster to reduce.
I guess the NEXT 25 years will tell…
Thanx for the input. I learned a lot on my own and from you.
You’re welcome. Reduction of methane can help. It is an important greenhouse gas. But from what I have read, we will not reduce much of man’s impact without addressing CO2 because (a) we emit more of it than methane and (b) it stays in the atmosphere a long time (longer than methane) once we put it there.
Steven H:
I can’t verify, but there are many anecdotes of denial of promotion, suppression of papers and intimidation in the academic community. Google “academic backlash for opposing CO2 model for climate change”. Lots of hits, I personally can’t verify any of it. Can you verify it’s not true?
I CAN verify Barack Obama, face it the mouth piece of climate change, said any one who raises questions “has (their) head in the sand” and is a member of the “Flat Earth Society”. Hardly an invitation for dialogue. It is a “fact” that CO2 pollution is leading to climate change. Read these quotes:
http://www.huffingtonpost.com/2013/06/26/obama-climate-change-quotes_n_3499413.html#slide=2618679
and see if there is ANY mention of other Greenhouse gases. CFCs and CH4 have dropped or levelled off Again, I just go back to the data, flat temps since 2000, coincident with level CH4 and CFCs. This is in the face of asymptotic CO2 rises.
I did see several mentions of rising ocean temps at various depths rising. OF COURSE they are, they reflect surface temps many years earlier as they slowly work they way down into the depths of the ocean.
I just do not want to see poor people suffer as I am a GOOD Democrat. Again, the complete eradication of coal as power in the US WILL raise electric rates and disproportionately hurt the poor. To my mind, to little or no effect.
I’m no scientist, but I do have tendencies towards engineering. One thing I have noticed about human behavior is our tendency to extrapolate our miniscule lifetime of observations to a climate model of tens of thousands of years. And we all know what is right. We have a significant investment in hubris to a varying degree (no pun intended). I think we all are somewhat handicapped by our lifespans to view our environment based on observable weather patterns. We even sometimes erroneously conclude that one decade is worse than a previous one from our memories. I try to remind myself that there is a significant difference between weather and climate. The one canary in a coal mine I put my faith in is the ocean temperatures. With only a few hundred years of observations, even that is insufficiently documented to perform any predictions. On the other hand, there is great promise in the study of gasses trapped in the ice caps that function much like time capsules providing a more extensive empirical data source. Now, I must ask the question, how did we make the leap from wealth to climate?
Normal Joe,
The jump to climate discussion happened via discussions of how to solve the excessive income slope problem. Stevendad (no relation) thinks that we are wasting money on green solutions and that carbon sources of energy should be deregulated and given free reign as they are cheaper. I disagree in that approach. Sorry for the topical diversion.
No problem, only curious. My two cents regarding methane and CO2, methane is naturally occurring and has been a product of grazing mammals and termites for eons. The burning of fossil fuels has a lifespan of only a few hundred years. If there has been a change in the proportion of CO2 roughly corresponding with the industrial revolution, then there is a reasonable conclusion that could be drawn that there could be a strong causal relationship. Unfortunately, because of the conservative nature of all people (yes, even liberals don’t like change) the necessary shift in priorities will be slow to adopt, and probably to our own detriment. We should be very wary if there is what can be called an environmental tipping point that could create a cascade effect putting all people in jeopardy. How foolish we would all appear then. Right now there are free market reasons to adopt certain technologies that are just plain common sense.
I agree. Thanks for the clear and well-stated post.
People reject ideas they think are foolish … no doubt about that. My point is that the scientific community is not a dictatorship, and their are plenty of avenues for discussion and contrary research. And it is all happening. The difficulty with the non-AGW positions (that man is NOT a major cause of warming, or that it does not exist at all) is not so much that no one is allowed to speak their position; instead the difficulty is that the science behind AWG has proven time and time again to be more believable and defensible.
Yes, you and I may make interesting side observations about methane or 60 year cycles and manage to state something we did not read in the headlines. But that does not mean we found anything new or that has not already been thoroughly researched.
Here is an authoritative quote on methane vs CO2:
“Methane (CH4) is the second most prevalent greenhouse gas emitted in the United States from human activities. In 2012, CH4 accounted for about 9% of all U.S. greenhouse gas emissions from human activities. Methane is emitted by natural sources such as wetlands, as well as human activities such as leakage from natural gas systems and the raising of livestock. Natural processes in soil and chemical reactions in the atmosphere help remove CH4 from the atmosphere. Methane’s lifetime in the atmosphere is much shorter than carbon dioxide (CO2), but CH4 is more efficient at trapping radiation than CO2. Pound for pound, the comparative impact of CH4 on climate change is over 20 times greater than CO2 over a 100-year period.”
http://epa.gov/climatechange/ghgemissions/gases/ch4.html
I think the science research behind the above statement trumps any casual observation that methane production in US and temperature are both leveled off (correlated) over last decade and the related assumption that methane must be more relevant than CO2.
I guess it comes down to who you trust: an entire scientific community exploring the math and science and history of the subject, with that community INCLUDING the dissonant voices that help keep the search for truth on track? Or the political and financial behemoths who make their decisions outside of the guidance of science in order to satisfy their own self-serving desires?
Steven H:
Busy week, justbgetting to my homework. More research found methane is 84 times as potent in 20 yr (seems more relevant now than 100 yr (the oft quoted 21 times)) terms than CO2. Again, strengthens argument this may be a bigger issue. Furthermore, this treatise, http://www.eci.ox.ac.uk/research/energy/downloads/methaneuk/chapter01.pdf
gives an explanation of not only CH4 importance, but how much cheaper to control.
To outsiders who keep commenting: it’s as if you never seen an argument by two people whose objective is light, not heat.
More to come on idea supression, lost all my Obama quote notes.
By the way, I was rereading the posts and absolutely love your statement: “it’s as if you never seen an argument by two people whose objective is light, not heat.” That is absolutely the best use of metaphor I have seen in quite awhile. Good show!
No, House Repubs think the whole thing is garbage, I’m just not sure we’re addressing the data with open minds. They deny there is any global warming and climate change. Clearly there is. There is a lot of capital in the science community that would be lost if CO2 is proved not to be main culprit. So they and especially Progressives are attempting to suppress any contrary thought. Very strange to me as a lifelong Democrat.
I agree that the political obstinacy over this issue is frustrating and seemingly irresolvable. But what you see as attempts to suppress contrary thought, I see as just spreading facts and science. And therein may lie the problem. Perhaps neither side sees the other as sincere in their assertions. I have had a hard time believing that the educated conservative leaders of this great nation actually believe the rhetoric they espouse: that scientists worldwide would lie and deceive and conspire in order to put forth fraudulent theories of doom and despair. I have assumed that the GOP politicians are just taking money from the benefactors, promising to suppress regulation, and saying nonsense about science to fool their constituents. But what if those leaders are sincere? Do they actually believe that science and scientists are so misguided and/or irrelevant? This is frightening to me, that our “educated” leaders could be so invested in their partisan belief systems that they ignore the scientific information in the world around them. Of course, I’m sure the GOP sees the Dems in a similar light. They may actually believe that there is a nearly equally justified scientific dissent against AGW, that scientists are solely motivated by money (because they think everyone is), that scientific inquiry moves in the same lockstep fashion as the political leaders who are guided and corralled by instructions from their small circle of benefactors. The GOP may think Dems are “suppressing” independent thought when the Dems believe they are just refuting nonsense.
As a doctor, would you yield to a serious discussion of faith-healing as an alternative to surgery if you saw a patient who clearly needed an appendectomy? I hope not. I should think you would reject such an alternative as nonsense. But the other side would claim you are just suppressing contrary thought. Sometimes the facts seem so clear, it is difficult to give any credence to an opposing argument.
Please explain why methane can’t be villain. If so, we are wasting hundreds of billions of dollars of scarce resources for no benefit. Again, leveling methane levels much better fit 13 years of leveling temps. CO2 rise at same time is going up asymptotically. Back to original thrust if this article, increased utility rates are crushingly regressive. A $100 per month rise is fairly trivial at $400k per year and devastating at $15000 a year. Let’s at least make sure that the CO2 lobby are not the “flat Earthers”. It is clear there is suppression of thought in scientific community (!!!!) for those who oppose this.
1) After criticizing the fitting of data to preconceived theories, you then ask me what is wrong with your superficial fitting of US methane levels to a few years of leveling temperatures. I answer that there is nothing wrong with observing a correlation. But as you stated, it is not good science.
2) You have omitted too many facts to focus on this correlation, such as (a) US industrial emission of methane is a small percentage of global methane emissions, (b) global air temperatures are not the only indicator of warming, (c) actual scientific analysis and calculation determines that CO2 is a larger contributor to temperature and warming and climate than the current levels of methane.
3) Methane CAN contribute to climate and temperature. But that does not mean that the correlation you have observed is a valid example of cause and effect.
4) I am not well-versed enough on all of the science regarding methane vs. CO2 impact on temperature and climate. But I’m sure that there are hundreds of papers on the subject, just a google search away. Meanwhile, the hundreds or thousands of scientists who study this for a living seem pretty convinced that CO2 is the larger contributor. I would tend to respect their well-researched conclusions.
5) “Let’s at least make sure that the CO2 lobby are not the “flat Earthers”. It is clear there is suppression of thought in scientific community (!!!!) for those who oppose this.” Suppression? Really? CO2 “lobby”? We are discussing an entire diverse worldwide scientific field of study vs. a well-funded industry that seeks to discredit them. There is plenty of vigorous scientific discussion and the only “suppression” is of ideas that are not supported by facts. The well-funded self-interested “lobbyists” are the people who attempt to spread doubts that proven science is valid.
I’m lost in this conversation, so I will just say this. If Obama is for it, I’m against it. And that goes for any subject matter.
Well that is a rather narrow and mindless perspective don’t you think? By that philosophy, if Obama wishes you to have a nice day, you ought to throw yourself out the window.
Hmmm … upon reflection, I think House Republicans generally share your philosophy. Obama needs to go wish all of them a nice day.
Courtesy is important. Thanks for noticing.
You made my point perfectly. Climate scientists are busy fitting data to their models and theory rather than the other way around. Not the best way to operate in the scientific world.
I don’t really see how a Climate Science site which explains how you should develop models that predict and explain data, and harshly critiques a Climate Science Denier for fitting data to models somehow validates your assertion that the opposite is happening.
I agree, and the site I referenced agrees that “fitting data to … models and theory rather than the other way around [is] Not the best way to operate in the scientific world.” That is precisely the point of the post. I don’t understand how you reversed the meaning.
From my reading, it has primarily been the opponents of the rather overwhelming scientific consensus on anthropogenic global warming that have made weak arguments trying to force data into preconceived motions that man cannot be the cause of latter 20th century warming and thus attempt to explain all of the warming via solar forcing, “natural cycles”, or even mysterious worldwide science conspiracies.
I think you are making an unfair assessment of climate science and the extensive work of climatologists. I was only fitting data to a curve to show how the current air temperature “pause” could be the summation of a sinusoidal cycle and a long-term rise. But I am not a climate scientist. Those guys find root causes and equations to explain the various forcings and feedbacks … much more than just fitting data to a curve. In fact you will find a belittling of such a curve fit approach here:
“… Astute readers will notice that there is a clear problem here. The widespread predisposition to believe that there must be a significant link [between solar activity and global temperature] and a lack of precise knowledge of past changes [in solar activity] are two ingredients that can prove, err…., scientifically troublesome. Unfortunately they lead to a tendency to keep looking for the correlation until one finds one. When that occurs (as it will if you look hard enough even in random data) it gets published as one more proof of the significant impact that solar change has on climate. Never do the authors describe how many records and how many different smoothing methods they went through before they found this one case where the significance is greater than 95%. Of course, if they went through more than 20, the chances of randomly stumbling onto this level of significance is quite high.
“The proof that this often happens is shown by the number of these published correlations that fall apart once another few years of data are added, cosmic rays (which are modulated by solar activity) and cloudiness for instance.”
– See more at: http://www.realclimate.org/index.php/archives/2005/07/the-lure-of-solar-forcing/#sthash.VqgNDEE8.dpuf
Steven H.
I was a chem engineer / chemist premed so not a complete novice on chemistry. My point is you and climate scientists are fitting data to model rather than visa versa. Not veryngood science I think methane concentration fits much better than CO2. Superimpose figure 4 from above EU site (part about methane) and you get a much closer correlation visually. I’d be interested in whether this has better correlation statistically ( Ken if you’re interested) with CH4 than CO2. Remember CH4 has been levelling and thus fits a lot better. Has a 19 times effect in global warming per Univ of Edinburough. Hard for me to completely ignore a 13 year trend out of a hundred year sample as “random noise”.
Another comment: You and I may try our hand at amateur analysis, but we would likely have to labor several years at the science just to get past the mistakes that all novices (like political bloggers) stumble through. If it occurs to you or I in our musings here, there are probably already a gazillion research papers on the subject. I’ve read just enough at a real science-based site like realclimate.com and even some of the more intelligent skeptic sites to know that the science is deep and extensive and quite respectable … so much more than curve-fitting.
Go ahead and try looking at real climate.com . They do a better job than most of providing reasonably deep explanations at a level that amateurs such as you and I can follow. And yet the site digs pretty deep in the discussions.
Last climate post: It appears worldwide methane is increasing, though it’s impact is believed to be less than CO2, if I read the link correctly.
http://www.realclimate.org/index.php/archives/2013/11/arctic-and-american-methane-in-context/#sthash.MnSCB2dH.dpuf
“… the one real hard fact that we know about atmospheric methane is that it’s concentration isn’t rising very quickly. Methane is a short-lived gas in the atmosphere, so to make it rise, the emission flux has to continually increase. This is in contrast to CO2, which accumulates in the atmosphere / ocean system, meaning that steady (non-rising) emissions still lead to a rising atmospheric concentration. There is enough uncertainty in the methane budget that tweaks of a few percent here and there don’t upset the apple cart. Since the methane concentration wasn’t rising all that much, its sources, uncertain as they are, have been mostly balanced by sinks, also uncertain. If anything, the paper is good news for people concerned about global warming, because it gives us something to fix.”
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