The Guardian had an article entitled World’s wealthiest people now richer than before the credit crunch. But wait; there is more good news. The USA is #1 in rich people! And, we have the highest proportion of wealthy women.
Despite the crushing tax burden I’ve read so much about, we have about 3.1 million high net worth individuals — people having more than $1 million in investable assets, not including their primary residence. Japan is second with about 1.8 million HNWIs. With the uptick in the economy, I am pleased to report, our wealthy are, thankfully, learning how to live again spending on wine, art, and luxury automobiles.
But, all is not well. We cannot afford to rest on our laurels, basking in the reflected glory of our wealthiest. We are in danger of losing our precious lead in rich people.
[I]t is Asian-Pacific countries where the ranks of the rich are swelling fastest. For the first time last year the region surpassed Europe in terms of [high net worth individuals].
I, for one, don’t know how we could enjoy frivolities such as food, jobs, and health care without our country having a secure lead in wealthy people. And so, with this pressing danger in mind, I have to thank Eric Cantor and Jon Kyl for refusing to negotiate on balancing the budget and preventing financial defaults by the U.S. government so long as the Democrats insist on jeopardizing our precious lead by even entertaining the idea of taxes on the wealthy. Those brave lawmakers understand what is truly important in our country and what makes us great.
I don’t care as much about the people with $1 mil. There are many people that worked hard for that money, I know factory workers that have $1 mil they got from just saving well.
The ones that worry me are the $100 mil plus crowd. They often seem to be either running on monopoly money from the 1800’s or getting grossly overpaid as an executive.
Again, I make my tired point about flat income tax. No exemptions, income is income, be it salary, poker night, or capital gains. Everything over $xx.xxx a year (poverty line, adjusted annually) gets taxed at the same rate if you are a US citizen or a non-US employee working within the USA.
You insinuate that taxes are too low on the wealthy. But you are taking about income taxes, which tax income (duh).
Wealthy folks are people with assets, in the case you cited people with assets over $1 million (which is not a very high bar). They could have assets such that they pay NO income taxes, no matter what the rate (such as if they have all their money invested in municipal bonds).
Even if they have their money invested in taxable assets, if they have owned those assets for awhile, they would only be paying the long term capital gains rate, which is 15% currently. Again, income tax rates are irrelevant.
Unless, of course, you are taking about a straight up wealth tax. Tax the assets directly. This is done in certain countries, Germany for example.
I’m not married to the income tax. I think the estate tax is a good idea. The arguments for a lower capital gains tax have generally struck me as specious.
Wealth taxes interest me, but I don’t know how I feel about them. Traditionally, we tax the flow of wealth in one way or another. So, in a sense, we reward stagnation of wealth — if you just leave it sitting there, usually it won’t take a hit.
Maybe take it on a trial run with something like a war surtax. Figure up the annual cost of any military conflicts in which the U.S. is embroiled. Figure up the gross wealth of the U.S. Your wealth tax is the cost of military conflicts multiplied by your pro rata share of your net worth as compared to the gross national wealth. (This will be a chapter in my upcoming book entitled “Shit That Will Never Happen.”)
Actually we are talking about people with $1M in highly liquid, investable assets. That is a much bigger deal as we are talking about cash and investments that can be converted to cash nearly instantly with no price risk.
I have no problem with any tax that is levied across the board. If the wealth tax, or estate tax, or even income tax, were levied on the first dollar, without any exemptions, I would be okay with it. That’s my definition of “fair”: we ALL pay it.
With that said, the problem with all these taxes is that they target people who work and save. People who spend frivolously or who don’t work don’t pay anything. That is a problem, it just further discourages work and saving, which ends up decreasing progress, be it economic growth, technical change, or whatever.
I think that’s probably a fundamental divide between us. Correct me if I mischaracterize your thoughts, but you believe as a general proposition that people are wealthy because they work, save, and delay gratification; poor people are generally poor because they aren’t willing to work, save, or delay gratification.
I’m no longer convinced that’s the way the world works. Sure, I know deadbeats, and I know people who have raised themselves up pretty much independently. But, I’ve seen too many hard workers or people who want to work hard beaten around by the world to think that poverty is necessarily a function of moral failings.
I’m of the opinion that good connections will beat diligence just about every time.
I’ve yet to really understand this great discomfort with the great gaps in incomes. I’ve had a whole lot of opportunity in my lifetime, including recently, to work for low wages. In the last month, I’ve been working for $10/hour in a restaurant/bar. This place is a revolving door for employment, largely because too many employees don’t understand that you have to: a) show up every day; b) show up on time every day; c) show up sober; and if they can master these three, the first instinct should not be to sit down with an unpaid for soft drink. These people are going to be poor all of their lives, unless they hit the lottery, and then probably poor again in 2-3 years.
I feel for them, especially after working elbow to elbow with them as recently as last night. But really, the skill set they bring to the table is incredibly limited, and the work ethic almost nil. I understand that this is an anecdote and not empirical research, but also happens to be real life.
The saddest thing to me is that it is possible that people go through 12 or 13 years of education, and are so wholly incapable of really performing at a level of competence commensurate with earning $10/hour, much less $50k/yr, or a $1,000,000/yr. How reasonable is it really to expect that people with so little to offer should be anywhere near the top earners? Is it not reasonable to expect large gaps in incomes when we live in a world that is technologically advanced, competes globally, and in this country there is an unemployment rate not far under 10%, where overqualified people are taking work at lower pay rates in order to make the rent? I find it entirely reasonable, and just besides.
This is not to say that all of the top earners are bringing such substantial value to the world that I can get enthusiastic about them earning tens of millions per year or more. But at the same time, I have rubbed elbows with all kinds of people, high earners, and low earners, and my experience has been that the pay is more or less commensurate with a number of factors, attitude and work ethic high among them.
It’s a fine snarky bit of writing in this post, Doug. But really, I don’t get it.
The disparities themselves don’t really bother me. I don’t think everyone should make the same. I’d feel better about the disparities if I felt like the system primarily rewarded hard work and competence and punished sloth. But, from my side of the anecdote front, I’ve met a good number of dipshits in upper management who don’t work all that hard and don’t strike me as terribly competent, pulling in pretty good money. Their primary assets seem to be that they started in at least the upper middle class and are good frat boy type schmoozers. (And I say this as a former fratboy who is no slouch at schmoozing.)
And I don’t even begrudge those guys their money. It’s no sweat to me if they’re living well. What I worry about is the sense that the system is that hard working contributors are getting less because resources are being diverted. The analogy that comes into my head is a forest where the undergrowth gets choked off when the canopy on the tall trees takes up all the sunlight.
You are 100% correct regarding our differences, Doug. And my favorite saying applies: anecdotes are not data.
You can’t ignore the income statistics that show that income is extremely well correlated to the amount you work and the amount of education you have gotten.
Now, I agree with you that at the very top of the pyramid, things like connections and whatnot are very important. Guys like investment bankers and whatnot, where playing lacrosse at Exeter academy seems to be the ticket to becoming a “Master of the Universe”.
But I would be more interested in curbing the power of folks like that by destroying Freddie Mac and Fannie Mae, and other structural financial market changes, than using the crude sledgehammer of tax changes.
Also, regarding those “dipshit” fratboy managers, how many hours are they putting in? How much education have they gotten?
Are there managers that put in less than 60 hours and don’t at least have a BS, if not an MBA? Not too likely.
I think that you are still proving my point.
You know, I have never been jealous of someone’s position relative to mine. I have never thought that someone out competed me for a position based on “schmoozing”, or anything not work related.
I’m sure that, if I ever went back to my high school reunion, that there would be guys more successful than me who I would have thought my inferior in high school. So what?
To what extent are your policy views based on your own personality? Competitive yet bitter is no way to go through life.
And who is to say that “schmoozing” is wrong, anyway? I admire the folks I deal with that have that ability. God knows that this engineer didn’t get that gift.
In an environment where working on a team is so important, maybe schmoozing is exactly what is needed?
Since 1974, the correlation between productivity growth and median wage growth is not good. Scarily so since 2000.
http://www.economicmobility.org/assets/pdfs/EMP_American_Dream_F7-9.pdf
Income growth since 1980 for the lower 90% is nearly zero.
http://www.wweek.com/portland/imgs/media.images/3909/lede_3723_(reverse).jpg
So explain to me how working hard gets the “normal” man ahead…
Those are macroeconomic trends. What do they have to do with the individual worker? You can’t determine someone’s marginal propensity to work from a trend like that.
I’ve done work with household survey data from the Census, such as this:
http://www.census.gov/hhes/www/cpstables/032010/hhinc/new01_001.htm
I’ve taken that particular table and translated some of the subtables into number of income earners, years of education and hours worked. Regressing that on income, I got some really high correlations.
Now, keep in mind that these tables top out at $100k per year. When I say that working hard and getting an education result in increasing income, it is within that bound.
I don’t quibble with your data.
However, since it doesn’t benchmark against historical values like the charts I linked, it is an incomplete picture of what has actually happened to 90% of the population since 1980.
Perhaps you could say that the returns to work and education have decreased since 1974. But that doesn’t change the fact that the way to make more money is to work more and get more education.
Show me someone in poverty, and I will show you someone who is uneducated and not working.
The estate tax is a great way to raise revenue, it just needs a PR makeover. Don’t think of it as a ‘death tax’, think of it as a ‘lifetime tax deferral plan’. Would you rather pay taxes now, or when you’re dead? Seems simple enough to me.
OK, I just recalculated that census data for 2009. They increased their data range up to $200,000. They have a sample size of 117 million households!
Taking the income ranges that the use, using the average income in that range for all the households in that range, and assigning the mean number of income earners, hours worked, and educational achievement in that range to that median income in the range, and doing a linear regression, I get an R^2 value of 0.96.
What does this mean? 96% of the variation in household income up to $200,000 can be explained by how many income earners you have in that household, how much they work, and how much education they have gotten.
I will give you guys this: over about $100000, the hours worked levels off, and there is some variation and even decline. It is similar with education and number of income earners. Perhaps if you limited the regression to incomes over $100k, there would be no correlation.
Perhaps that makes us both right, we are just talking about different income levels. I am concerned with the vast majority of people, who make less than $100k, and you are concerned with the few in the elites.
The estate tax is a great way to raise revenue, it just needs a PR makeover. Don’t think of it as a ‘death tax’, think of it as a ‘lifetime tax deferral plan’. Would you rather pay taxes now, or when you’re dead? Seems simple enough to me.
Well, if you could somehow link it to how much a person “consumed” in “excess” Social Security and Medicare “services”, I could go with that. Otherwise, it’s just a money grab. Why should the government get someone’s money just because they died?
Again, I agree that any given year, people who work harder and have more education make more money.
You hit on it in your second to last post.
Returns to hard work and education have stagnated for 90% of the population. They also work harder/are more productive over that time and most likely have more education.
You Dismiss this as not a huge deal. I believe it is.
Today, one likely incurs a mountain of debt getting a college degree to get a job working 50 hours/week, that 30 years ago didn’t require a degree, didn’t require 50 hours, and if it did paid OT.
Your reward, according to the info I can find is basically a stagnant wage.
They’re not taxing the dead, or if they are, I don’t think that is right.
All of the explanations I’ve heard are taxing the LIVING people for the income they get from someone who died.
Again, taxing on income, not for the act of dying.
Paddy, the problem with the productivity statistics is that they are skewed heavily by outsourcing and imports by multinational corporations. I don’t think productivity growth has been anywhere near what the statistics show.
The statistics for income are skewed because they do not take into account health care benefits. As health care insurance costs skyrocket, companies have responded by cutting the growth in take home pay.
Neither phenomenon changes the FACT that for you, as an individual, to increase your income, you should work more and get more education. Show me someone who is poor, and I will show you a person who isn’t working and is not educated.