Nicholas Kristoff points out that “the richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976” and that “from 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent.”
My observation of political discourse in this country suggests that it’s class warfare to notice and point out this sort of thing. The actual fact of growing income and wealth disparity is, far from being class warfare, simply the natural way of things; the free market at work, unfailingly rewarding the hard working and clever, punishing the indolent and stupid.
It would, obviously, be grossly unjust to extend the Bush era tax cuts only for that portion of a person’s income that is under $250,000 per year. You can’t increase a portion of the taxes on the very wealthy, especially during times of economic hardship. That’s class warfare too.
Is it necessarily a bad thing when a system rewards hard working and clever people? Shouldn’t there be some sort of disincentive to being stupid?
That’s just it – I think the amounts of the rewards have very little to do with the relative amounts of work or ingenuity. Financially, our system seems to reward having money in the first place as much or more than anything else.
Here, “clever” includes the likes of Tim Durham. Is taking advantage of loopholes and ruining others financially supposed to be “rewarded”? So far, the legal answer seems to be “yes” in this country. Carl Icahn flourishes, while those whose pensions he raped so long ago likely struggle to make ends meet. Why? Because it made him super-rich and because he could. Eff off you stupid little people who trusted the system and your company with your retirement.
There should be a balance. Government must step in when the “market” doesn’t “regulate” itself.
Personal responsibility to share some of their bounty with the less fortunate seems to have fallen into the same pit as what traditionally used to be known as “ethics” around here.
Now, perhaps, some might truly lament the downfall of the “classical education”, where those might have learned what being the lords of the realm entailed.
Sad part is, those who don’t know “educated” from “edumacated” are in charge of determining what the future of education will be in these here parts.
A somewhat difficult subject to be objective and be realistic at the same time. A free enterprise system rewards the innovative, the risk taker, and sometimes the not too legal endeavors. It is the latter (the out side the boundaries of normal ethical behavior) that the system of law should restraint and punish. The several examples of the “barons” of capitalism of bygone days is still alive and well in some areas. Have a problem accepting that any “soak the rich” tax plan (or other means) is really justifiable. Just because someone can afford to pay does not in an of itself justify a plan of action–in that line then it would be acceptable to have different prices at the grocery store for each item. The figures above as to % of income of the higher income also might include the % of total taxes paid by that same group yet they take no more from the system. Do not pretend to have the answers just have a problem with any system that punishes incentive, hard work, or even luck.
Guess I will have to ask my local tea party representative who advocate that they have the answers to all things government.
The end game of capitalism and the free market system is to eventually negate any and all competition and to own the means of production to maximize your personal profit. Some win, most lose. Ultimately, without regulation (socialistic ideas of sharing or taking care of the downtrodden) there can be only one!!
In the USA, we have sometimes managed to achieve a balance between allowing profit maximization and setting a floor under the losers so they do not fall to far below the rest of those at the top. What kept the two connected was a thriving middle class, but that is threatened now. So much of the pie is owned and controlled by so very few in the USA and the upward movement is no longer possible for most. Instead, the latest manipulation of the stock market by the super well off has destroyed the hopes and dreams and livelyhood of millions of middle class people. The govt solutions so far have been to prop up the wealthy and the stock brokers who caused the mess, and profited from it, instead of helping middle class people to remain solvent.
Had we just devalued the dollar to about 70 percent of the current worth, and at the same time devalued all property, wages and prices by the same amount, we would be super competitive in the world, we could afford to produce and sell products worldwide instead of sending our jobs overseas, and people could afford to stay in their homes. Oh well, I am still waiting to be pissed on by the wealthy based on reagans promises that they would trickle down on me some of their prosperity.
http://www.economics.harvard.edu/files/faculty/40_npc.pdf
Akla, you’re all wet. Capitalism most certainly does not require the negation of competition. Only government protection- the formation of monopolies or cartels- can do that. Regulation, that thing you sing the praise of, very often has the effect of eliminating or staving off competition. Anyhow, you’re getting your wish on inflation. The Fed just monetized a portion of the debt. Your reward so that we can become ‘super competitive’? Gas is now at $3/gallon, and food prices are beginning to soar, all in one week. Let’s see who that hurts more, the lower classes or the upper classes.
For my money, I believe the class divide begins and ends with education, and the failure/refusal of the lower classes to embrace it.
I’m not sure education has a heck of a lot to do with the extreme wealth of these folks. Making hundreds of thousands of dollars per year may be rational compensation for value created through your efforts; and you may have been able to create that value because of your education. But, I have serious doubts that compensation of tens of millions of dollars per year is ordinarily anything much more than a jackpot either from our winner-takes-all system or from our system of rewarding people for being born to the right parents. And it’s these families who have really been making out like bandits over the last 30 years.
And the typical response to noticing these things is that it’s “class warfare” or, more simply, “you’re jealous.” Well, no, I’m not. I’m not craving a perfectly egalitarian society. A certain amount of economic disparity is what makes the system go. It gives you incentive to work hard and take risk which helps the system overall. But there are diminishing returns, and I think the system could yield comparable levels of creativity and labor even if it compensated the top 0.1% far, far less than it does. I think our system is leaking energy to these families, and they are providing feedback in the form of using their additional wealth to game the system to direct more resources to them; rinse, repeat. It’s a vicious cycle.
Personally, I think the problem is fairly obvious, and should transcend the left v. right paradigm: CEOs simply get paid too much. Around the middle of the century and into the 1970s, CEOs made 30-40 times what the average worker did. Now, they make 300-400 times what the average worker makes. That is why the middle class gets squeezed — and when the middle class is screwed, so is the economy.
I just think businesses should enact smarter compensation policies, so workers make more. According to the Tax Foundation, American tax policy is already more progressive than much of Europe, so I don’t know that just going after the rich even more is the answer. And I don’t really want Congress in there forcing businesses to pay CEOs a certain %. We all know they would find loopholes around it anyhow. Businesses just need to operate smarter, in my opinion.
Mike, I know $3 a gallon gas is the latest Libertarian talking point (I’m a fan of their page on Facebook, too), but it has been that high and higher before when the Fed didn’t take the same action.
Gas goes up because we’re buying a limited resource from a cartel. Food gets delivered on trucks that burn that same limited resource.
The free market is still ready to replace oil with electric once oil is high enough.
As for the CEOs get paid to much, I agree, but I place fault at the way we buy stocks now.
Instead of buying a stake in the company and expecting dividends, we are gambling with stocks, just wanting to see the price of the stock go up since our retirement depends on it.
If people were investing in a stock and actually wanted a share of the profits, I have a feeling they would elect a board of directors that could find a CEO that is 90% as effective as the current one at 5% of the price.
BTW – I probably should’ve read the Kristoff piece before commenting. I guess I just repeated some of his points on CEO pay. The question remains, how is it best resolved? That, I don’t know.
There are places where govt. intevention is probably needed (C-Class executive compensation), and places where it isn’t (making the tax code more complex or raising rates signficantly on dividends or creating a 1970’s style 70% tax bracket). Hopefully, our legislators will recognize the difference.
I do wonder about the actual numbers though. In the 1970’s, tax professionals seemed to focus more on tax evasion than occurs today. With marginal tax rates at 70% and capital gains at 40%, the cost/benefit analysis of trying to hide income in the 1970’s was very different, and encouraged such behavior.
For most people, poverty and the plight of the working poor is a larger issue than income inequality per se. There will be income disparities in any economic system– from the entrepreneurial successes of capitalism to the elites in socialism to the dog’s breakfast we have in our country (capitalism, crony capitalism, socialism).
The original article points to K-12 education; to note, you can’t low-ball education and expect to improve income inequality or poverty. (And no, more spending is not the answer.) You can’t have the dissolution of families over the last 40 years– and avoid huge direct and indirect hits on the statistics of income and inequality. And all of this is in the context of globalization and increased competition, so the labor market cartel (union) option is not nearly as viable as it once was– for some of those who used to comfortably occupy the middle class.
The tendency is to blame presidents, but this goes far beyond presidential policy preferences or the federal government. Education, family, competition. How do we improve inequality or at least income? It’s not all that complicated to see the primary causes. Finding viable policy options is another matter.
Probably the best predictor of wealth is your grandparents wealth. Very few parents, even if they are very successful, can pass on enough wealth early enough in a child’s life to make them a high net-worth person.
Some economicsts and experts that I read believe that high concentrations of wealth and gross inequality is the natural (historical) economic order. Possessed capital compounds, labor only earns income with little ability to accumulate wealth. And with a general oversupply of labor that can demand high wages, many people are consigned to low value economic opportunities. Subsistence living, or only somewhat better.
The post World War II era may be an historical anomaly. The US was in a favored position to rebuild Europe and sell to growing developing markets. Technological leaps created a technical and large professional class. The once develped markets are now selling to the post-war economies.
Below is an expert from my economics blog made on 1.11.06. In it, I saw a darker economic picture on the horizon. I apologize for the HTML tags.
ON A MUCH DARKER NOTE …
Empire of Debt, by Bill Bonner and Addison Wiggin[ii] sees not a glass half empty, but American coffers nearly empty. The Authors, libertarians, classical economic liberals, and old-style isolationists, first demonstrate, very convincingly, that America IS an imperial power, operating in the interventionist spirit of prior empires. The US, according to the authors, began its first steps toward empire with the taking of Cuba, Puerto Rico and the Philippines in the Spanish-American War of 1898[iii]. The next step, according to the Authors, was the US intervention in World War I, a war that did not threaten the vital interests of the US. The American empire grew between the wars, expanded greatly after World War II, and has found its latest expansion in the forcible occupation of Iraq. With these facts, the Author finds no argument, and objective observers can find little credible argument with this position.
WHAT KIND OF AN IDIOT EMPIRE STARTS OUT TO LOSE MONEY ON ITS COLONIES?
The Empire of Debt authors then make the point that unlike “rational” empires that extract tribute (wealth) from their imperial possessions, the US employs its vast military might to divest itself of its assets. It buys beads and trinkets from the rest of the world and sells off its capital assets in the form of treasury debt. It is a stark picture of an irrational nation doing irrational things to maintain its profligate consumer ways.
NOT A GARDEN OF SAND. AN EMPIRE OF SAND.
The Empire of Debt cannot long survive, argue the Authors. A nation cannot borrow its way to prosperity, nor consume without producing. It must use its capital account (here, in the form of debt), to balance its current account (trade deficit). Like sand though the hourglass, so are the slipping days of US prosperity. It is a view hard to reject, but it is a reality that the US must reject if it seeks to maintain itself as a dominant economic power.
IS THERE A THIRD WAY?
The Empire of Debt may presage the future of the American economy. American debt cannot finance indefinite consumption. Americans must create value and export it in rough balance with what it imports. The US traditional manufacturing base will inexorably shrink as lower cost producers come into the market. But there are other things to make, other services to provide. Americans must think better and not sweat harder. Save more and consume less. And bring government spending in line with revenues.
And, in the Author’s opinion, the US must slash military spending and pursue multilateral solutions through established world bodies. Signal the end of the Neocon death machine, the ad hoc international gangs of the “willing”, and the delusions of empire building. Become a great, generous and humble nation again. Have and show faith in the future and in our fellow humans to do the right thing.
THERE IS ALWAYS ANOTHER WAY IN THE DESERT OF THE REAL!
AND WE WILL ALWAYS WORK TO FIND IT!
[i] http://www.gavekal.com
[ii] http://www.invest-store.com/dailyreckoning/
[iii] The American empire began much earlier, of course. First with the genocide of the Native Americans and later with the Mexican War of 1848 where the US took by force of arms from Mexico the states of California, Arizona, and New Mexico.
I’m always interested in how quickly such arguments turn into epistemological discussions without the epistemology, or metaphysical discussions with the metaphysics disguised as common sense. For example, Jack, I’d say that Capitalism has both attributes, and clearly, historically, always has: it rewards people who innovate, and it shelters brigands, particularly brigands who begin with or amass enough capital to begin really gaming the system. Saying “oh, these people should be punished!” does nothing; at best it merely excuses the system itself for a prominent feature.
And Mike, of course, isn’t going to argue with you, since the sort of regulations which prevent the anarchic heart of his schemes from being viewed clearly get passed without comment, until such time as he, or his brother in the Governor’s Mansion (oh, sorry, I mean Geist) comes face to face with undeniable rapine that can’t be explained away. (My God! The IURC was playing footsie with Duke Energy! Where’s my smellin’ salts?) When he sues IBM over the failure of his FSSA scam, it’s the pursuit of rights; when an 80-year-old woman sues McDonald’s for repeatedly and callously ignoring the dangers of keeping its coffee at a ridiculously high holding temperature, it’s a nuisance suit.
In this, as everything else, it is the fault of the lower orders for not accepting their rightful place, and being insufficiently grateful to the corporate heroes who ship their jobs overseas, thereby saving a living wage, and demonstrating the metaphysical superiority of basic arithmetic.
Hey Doghouse, to steal a skit, “I think the time has come to complain about blog responses that have too many complaints- especially the kind of complaints that do exactly what the complainer is complaining about.”
BALPA cuff links!
Heh- if you think Mitch Daniels is my ideal governor, you have no tiny idea whatsoever. His reading list is commendable, but actions mean a lot more to me. I was no fan of the suit of IBM, nor of his bogus privatization. And as for regulated monopolies playing footsie with regulators? Where’s the smelling salts indeed! That’s about the ONLY outcome I would have predicted. That’s not capitalism. That’s corporatism!
You can turn a phrase real purty, but you really don’t know jack shit.
I think that I could come to some accommodation with Doug on this issue. I really don’t care about inequality as an issue in and of itself, but I do see trends on Wall Street that account for some of that extreme inequality at the top 0.1% or so of income.
And I could live with that if I didn’t think that Wall Street was wagging the economic dog for its own benefit.
First of all, as every single Tea Partier has been screaming since day one, TARP was BAAAAAAD. You know, we have a system for letting banks fail, and it has been shown to work. And it punishes the wrongdooers, both legally and financially. TARP was an end run around that process, and at the end of the day, it allowed the wrongdoers to avoid responsibility for the mess that they made.
The same can be said of both Freddie and Fannie. The whole system of securitization of mortgages has to go. When banks have to hold the mortgages that they make, megaprofits will be gone, and less inequality will be a result. And the jury is still out as to whether this will result in less home ownership. Countries without securitization sometimes have similar home ownership rates to the US.
I could go on and on. But I won’t. If guys like Doug are prepared to really look at why there is such inequality at the upper reaches of Wall Street, an industry that STILL gives WAAAAY more money to Democrats and has more influence in the Obama administration than any other in history, then I think that we can do something about inequality.
But I suspect that “Class Warfare” is more about “soaking the rich” with higher marginal tax rates as a way to “show that we care”, not actually fix any problems.
Buzz, I think you & I could probably come to an accommodation. I can’t speak for others who are skeptical about the nature of how the ultra-wealthy come by their money or what to do about it; but I’m not known for being unduly sensitive about the plight of the poor.
I am concerned that the incentives in today’s economy seem geared toward rewarding playing financial games and against working hard and doing something useful. (And, yes, as a lawyer, I’m aware that I talk about “doing something useful” at my own peril.)
Doug, I think I agree with that (the incentives for playing financial games are too high). My difference with you is that I think the Federal Government has rigged the rules that way.
FYI, an interesting blog on this issue is http://www.halfsigma.com This dude comes at the issue from the right, skewering wall street. I don’t agree with a lot of what he says, but it’s an interesting perspective that one doesn’t often hear (his theory of “value transference”).
I think another area of agreement might be tax reform. I don’t want rates raised, but I do want an end to deductions for home mortgage interest, state and local taxes, and all the other crazy deductions and credits that are clogging up our tax system. This would raise taxes on “the rich” a little bit.
I’m pretty sure the order of events is something like this:
-Evil CEO/company does something most everyone agrees is bad
-Good lawmaker introduces law to regulate this issue
-High-powered Republican AND Democrats in leadership & on evil CEO payroll “tweak” the bill so it looks like it punishes evil companies, but actually allows for new, improved evil plot while unfairly limiting good companies/CEOs
-More profit for evil company, which they can use to keep the step 3 lawmakers on payroll
-Good lawmaker quits office after seeing how the sausage is made
I had a U.S. history teacher who taught us that today’s reforms are almost always tomorrow’s corruption. That doesn’t mean you stop trying to reform. You just have to live with the fact that you’re never going to be finished. Thesis + antithesis = synthesis. Circle of Life.
Mr. Kole: Capitalism does not require the negation of competition–that is right, I did not say it did not. But capitalism will result in the negation of competition–that is the goal of capitalism in any market–overcome and squeeze out your competitors until you have 100 percent market share. If you do not understand this, I suggest you take some economics courses or go back and read Das Kapital by Marx.
Jason has it right. All the incentives for regulation are for the regulated to capture the entire regulation process for his or her own gain. The regulated have too much skin in the game for it to be any other way.
Rather than be naive, like Doug is with his “circle of life” BS, my instinct is to look to something other than government led regulation to “fix” the system. Otherwise, you are just in an absurdist, Rube Goldberg contraption that gets more and more complicated the longer it runs.
The best example of this is professional regulation. Why does the government need to “protect” me from bad haircuts? The market is pretty darn effective at doing that all by itself. Professional regulation is rent seeking (in the sense that economists use the word) of the worst kind.
Doug, I agree, but the part that gets lost is that when we reform, we should consider stripping away the previous reforms first.
It reminds me of how the meat processing industry has evolved. They have done all of this work to make chickens a certian size, then they find out that because of all the changes they have made to the chicken, their immune system is screwed up. Instead of changing their processes to make it so the chicken doesn’t get sick, they pump antibiotics into the chicken. Then they become resistant, and so we change the antibiotics.
No one seems to be interested in going back and thinking about if we are better off the old way, we just keep piling on more and more layers to the system we have.
For further proof, see the medical system or the tax code. We all agree both systems need fixing, but all everyone does is make it more complex rather than look at the system as a whole and see if there is a better way.
Buzzcut: have you looked at Jason’s profile pic? It appears from Jason’s profile picture that Jason likes bad haircuts (and tiny hats). Thus, it is our government’s paternalistic duty to save Jason from bad haircuts.
Obviously, it is also our government’s duty to save us from buying a meal and a toy at the same time.
http://www.reuters.com/article/idUSTRE6A16PR20101102
Thanks for looking out for me, Paul.
I saw this article on Slate. It deals with rising income inequality.
http://www.slate.com/id/2266025/
You know, if you are going to talk about inequality, you need to talk about some “Bell Curve” stuff. Associative mating, especially.
How does a household get into the top 1%? Two married working professionals is all that it takes, especially when they graduated from top schools. When Doug and others whine about family connections, are they taking into account associative mating? Top graduates (and very high IQ folks) marrying other top graduates?
It is because of issues like that that, even if inequality is an issue, it is not one that can be addressed by the government. If nothing else, our squeemishness about IQ (perhaps justified) prevents effective policies from being enacted (again, perhaps justified based on history and ethics).
Buzzcut, to address a comment you made earlier, I agree wholeheartedly that securitization of mortgages has to go. But we need to find some way to deal with those already packaged in that manner. As Doug knows, I am a foreclosure lawyer, and I saw the mortgage crisis coming before it hit. And not because of the conservative mantra that people were being given mortgages they couldn’t pay for (which is partly true in a limited sense, but not because of Democratic legislation), but because the lenders were GREEDY and wanted to make money out of thin air. THAT was a similar problem, with different immediate issues, with the cause of the Great Depression.
I am not sure that Fannie and Freddie have to go, but they DO need to address the huge securitized loan portfolios that they have. In more normal times, they serve a perfectly legitimate function.
Buzzcut,
I tried “associative mating” twice. For a couple of years in Minnesota, my second mate and probably hit the top 1%. But I would not recommend it. I am 0 for 2 in the associative mating category and do not plan another at bat.
Gordon Gecko said in Wall Street that if you want a friend, buy a dog. If you want a good marriage, find a female friend first. 1550 SAT scores should not be dating criteria.
Wow, lots of responses that I can’t read right now, so I’ll boil down my thoughts to a couple bullet points:
1. If you don’t like corporations or wealthy families, don’t support their activities. Research WHERE your money goes when you buy something and don’t spend money there. This will force you to save more and live more simply, but frankly, you’ll be better off anyway. It kills me when people bitch and moan about how China is taking over, then go shop at WalMart the next minute.
2. All things balance out one way or another. I’m sure the poor in France thought for a long time that they were stuck in a corrupt system under their monarchy and that nothing would ever change that. Viva la Revolucion! Things, eventually, always balance. I’d prefer we, as Americans, got our collective crap together the easy way, but I can guarantee you that if the balance isn’t fixed at some point, the pendulum WILL swing back. Probably violently.
3. America and its current problems are a direct reflection of it’s citizens. If any majority were REALLY serious about fixing things, we would have them fixed. If we were personally REALLY hurting, we would solve the problems. But instead of a sharp pain of a leg being amputated, we live with the dull headache and cold. The system may be severely screwed up, but it CAN produce results if enough pressure is applied.
4. It’s ALWAYS been like this. Sure, you can pull out single facts here and make comparisons there, but humans have always had inequality in societies since two of us got together to hunt in Africa. Every generation has its problems. Nostalgia for the good old days is a false feeling.
Dave,
Good points to bring the discussion back to earth.
I recall a line from the movie Hud where Melvyn Douglas’ charecter says “little by little, the look of the country changes because of the men we admire.”
We end up with the policies we choose, by promotion, or abstention, or through ignorance.
Regarding Freddie and Fannie, evidently this new book goes into great detail about how they gamed the system:
http://www.amazon.com/All-Devils-Are-Here-Financial/dp/1591843634/marginalrevol-20
I look forward to getting it from the library.
Freddie and Fannie are the Enrons of our generation. Except that Enron was also of our generation! ;)
Todd, whether you recommend it or not, associative mating is a reality. Here in the Chicagoland area, we have the “knockdown” phenomenon where developers in the near suburbs with easy commutes buy a crappy fifties ranch, knock it down, and build a McMansion in its place. I always wonder who buys these homes, since they generally start at $900k and go up from there. It’s two income professional couples.
That’s inequality, in a nutshell. And who is Doug (or Obama) to say that these folks, who busted their asses to get their advanced degrees, who sacrifice family time (or even families!) for work, who WORK, should be penalized?
Buzzcut,
I did all that work and sacrificedand got what I “wanted.” The high Minnesota taxes were more than offset by the greater work opportunities and salaries, and excellent goverment infrastructure. I never felt punished. I felt freakin’ lucky as hell to be making lots of jack, money I could not make in Indiana.
I don’t consider a modestly progressive income tax system “punishment” for success. People in the top 1% are rich, or just about to be.
The tax code should not be confiscatory at the top rates, but should reflect mildly progessive rates. Flat rates often have the effect of regressivity. Effective tax rates are what I always look at. Warren Buffet noted that his secretary pays a higher effective tax rate than he does.
Todd, Warren Buffet was wrong. He was comparing capital gains taxes to income taxes. They are completely different things.
I can handle “mildly progressive” income taxes. However, I think the current tax structure is MORE than progressive enough. In fact, I preferred it when the top rate was 28%.
I can also handle higher taxes, as long as we do it by eliminating credits and deductions (thus simplifying the tax code) and by broadening the definition of income (by taxing now untaxed health benefits). Both things would raise taxes on “the rich”.
Buzzcut,
I do agree that many deductions should be eliminated, just as you do. I like to see economic decisions based upon rational decisions, not tax promoted transactions.
We are likely not talking about the same thing when we are looking at Buffet’s comments. Capital gains and dividends are capped at 15%, so they are favored over earned income. He was also considering her entire tax load, property taxes, sales taxed, transactions in computing her effective tax rate.
Since rich people pay a much smaller percentage of their income for sales tax, transaction taxes, likely property taxes, and likely earn much of their income in cap gains, dividends, and perhaps muni bond interest, the taxes they pay as a percentage of their income is lower.
Buzzcut, talking about gaming the system in the real estate debacle, try this one: http://www.amazon.com/Big-Short-Inside-Doomsday-Machine/dp/0393072231/ref=sr_1_1?s=books&ie=UTF8&qid=1289331285&sr=1-1
Creeped me out how this happened with no one watching. The foxes were literally guarding the henhouse.
Todd: Most of the regressive tax inequities you describe (property taxes, sales taxes) are at the state level. Shouldn’t the state be the one to resolve those inequities, not the federal tax code?
Regarding the taxation of capital gains, let’s not forget that the inflation factor is virtually ignored in determining capital gains. If I bought an asset 30 years ago for $1000, and it is now worth $10,000, I will be taxed on the entire $9000 gain, even though most/all of the difference in value might have been due to inflation. This is a problem, yes?
Not for the vast majority of the population.
You guys keep talking about “the rich” in theoretical terms, and seem to mean the super-duper rich, maybe the top 0.1%.
But the people that Obama is talking about, HOUSEHOLDS with income of $250k per year, are not who you are talking about.
Those households are who I was talking about: two career working couples. They are not people who have lower expenses or taxes than the poor or middle class.
As for capital gains, keep in mind that investment income is money that was already taxed when it was earned. Capital gains are nothing more than deferred consumption. I see no reason that it should be taxed whatsoever.
Finally, remember the statistics about who actually pays taxes. Even when you factor in sales, payroll, and property taxes, the top 1% pays the majority of all taxes (not just income taxes).
Doug: Not CURRENTLY for the vast majority of the population. If we return to the interest rates of the 1970’s/early 80’s, this would be an issue, no?
My understanding is that there are special exceptions for appreciation on one’s house that makes this mostly a non-issue for that kind of asset. Beyond their house, I believe it is a very small percentage of the population that faces much liability on capital gains taxes.
For the lower 90% of the population, how much in capital gains taxes are they really looking at even if we’re facing 70s/80s era inflation?
Maybe my perception of the world is skewed from asking debtors about their assets week after week, year after year; but I get the distinct impression that ownership of significant non-house, non-car assets is an awfully rare thing.
Paul,
You are correct that the taxes referred to are mainly state and local. They cannot be well addressed at the Federal Level. I just make the observation when considering effective tax rates. And I additionally note that Indiana has a 7% sales tax, the 2nd highest in the nation (I have read). It seems to me that this is a policy choice for a tax that operates regressively. The choice may be intended, as I believe it was. But even if not, the effect is the same.
Inflation boosts value in assets and usually in wages. It is true that assets long held will have an inflation component. But you are paying taxes on the gains with dollars that are inflated similarly.
With regard to sales tax and higher earners, the poor and lower middle class pay a greater percentage of their income in sales tax, even when exemptions for food are factored in. It is true that many higher earners spend much of what they earn. But some of these expenditures go for services that the poor do not purchase and are often not subject to sales tax. In New Mexico, sales taxes are owed on both goods and services, a more equitable system, I believe.
Doug: I don’t understand why you seem to be arguing that unfair capital gains taxation is ok because it only affects a small percentage of the population. The equity concept of taxation is to tax perople fairly, regardless of population size. If I buy a business for $100,000, and sell it 5 years later (in a 10% inflation environment) for $150,000, I have a $50k paper gain that is taxed at 20% (starting 1/1/11), but I really lost money. That’s unfair to me.
Todd: Stating that we are 2nd (actually tied for 2nd) makes it sound worse than it really is. In reality, Indiana’s taxation isn’t much different from when we were at 6%, and were in the middle of the pack. Just out of curiosity, do you impune evil intent onto California, which is #1 on the list? While our state sales taxes are technically higher than Illinois sales taxes, in reality Illinois’ is much worse. Hopefully, you recognize that the one benefit of sales taxes (for Indianans) is that they are a tax which is paid by out-of-state visitors, thus lowering the burden for the residents.
Look at my example above to Doug. Inflation means you are paying taxes on gains that are sometimes non-existent. Even if they are “lesser dollars” because of inflation, this is wrong and unfair!
I disagree with taxing services, as many double income couples rely on services to have a 2nd wage-earner, thus expanding the economy. Start to tax day-cares, monthly cleanings, tax preparers, and so on and it becomes much more attractive to reduce the economy, reduce savings rates, and have one spouse stay at home.
Then it seems to me that instead of making a screwy rate for capital gains, we just put the known inflation amount in as a deduction. The IRS can publish the inflation rates for all previous years.
Problem solved. Gains are gains, regardless if I gain money by cutting lawns or gain money by buying things, holding them for a few seconds or a few years and then selling them.
A real estate investor does not deserve a lower tax rate than a bus driver.
Mom told me that life wasn’t fair; the larger point being that there are plenty of more broadly experienced inequities to remedy before we get to the plight of the capital gains tax payers bruised by inflation.
Paul, I don’t think your business example is unfair – looks to me like you either overpaid or undersold. Happens all the time.
Your comparison to California is scary – Cali is on the verge of absolute implosion and Indiana’s tax structure more closely resembles Cali’s every time Mitch makes a change.
And if sales tax is such a nice way to collect money why does Indiana essentially never make their projected income (the projections Mitch uses for this “Balanced” budget)?
Buzzcut, posted a nice comparison of Indiana to Illinois taxes recently on his blog on Oct 24 so you might need to go back a couple pages to see it…http://bluecountyredstate.blogspot.com/search?updated-max=2010-10-25T13%3A41%3A00-07%3A00&max-results=20
Jason: That would solve the problem. There still is a question regarding whether capital gains should be taxed at all, but that is an issue even I don’t completely buy.
Doug: We agree that inequities exist. IMHO, inequities presently caused by govt., such as unfair taxation, should be a much higher priority than inequities not presently caused by govt., such as affirmative action.
Reuben: I was not suggesting we follow California’s plan. We are (thankfully) nowhere near the absurdity of their taxation structure (nor do we pay our state employees the ridiculous wages they collect in California). I was merely trying to illustrate to Todd that sales taxes are not some nefarious plot to tax people regressively.