Tax Hikes, Status Competitiveness, and Social Stratification

Taxes on top earners are the lowest they’ve been in nearly three generations, yet their complaints about the prospect of an increase to a level that is still awfully low by recent historical standards is remarkable. In my youth, if someone complained much about their taxes, it was taken as a sign that they either had no class or were under some financial stress.

Some of this caviling no doubt reflects the degree to which the plutocrats are firmly in control of the political process. They can openly lobby for blantanly self-serving policies, and adopt a non-negotiable posture. But something else is afoot too, and these bitter protests seem to be another side effect of social stratification.

As we’ve pointed out, highly unequal societies are unhealthy for their members, even members of the highest strata. Not only do they score worse on all sorts of indicators of social well-being, from crime rates to teenage births to average lifespan, but they exert a toll even on the rich. Not only do the rich have less fun, but a number of studies have found that income inequality lowers the life expectancy even of the rich. As Micheal Prowse explained in the Financial Times:

Those who would deny a link between health and inequality must first grapple with the following paradox. There is a strong relationship between income and health within countries. In any nation you will find that people on high incomes tend to live longer and have fewer chronic illnesses than people on low incomes.

Yet, if you look for differences between countries, the relationship between income and health largely disintegrates. Rich Americans, for instance, are healthier on average than poor Americans, as measured by life expectancy. But, although the US is a much richer country than, say, Greece, Americans on average have a lower life expectancy than Greeks. More income, it seems, gives you a health advantage with respect to your fellow citizens, but not with respect to people living in other countries….

Once a floor standard of living is attained, people tend to be healthier when three conditions hold: they are valued and respected by others; they feel ‘in control’ in their work and home lives; and they enjoy a dense network of social contacts. Economically unequal societies tend to do poorly in all three respects: they tend to be characterised by big status differences, by big differences in people’s sense of control and by low levels of civic participation….

Unequal societies, in other words, will remain unhealthy societies – and also unhappy societies – no matter how wealthy they become. Their advocates – those who see no reason whatever to curb ever-widening income differentials – have a lot of explaining to do.

It’s easy to see how the “big status differences” alone has an impact. The wider income differentials are, the less people mix across income lines, and the more opportunties there are for stratification within income groups. Thus a decline in income can easily put one in the position of suddenly not being able to participate fully or at all in one’s former social cohort (what do you give up, the country club membership? the kids’ private schools? the charities on which you give enough to be on special committees?). And lose enough of these activities that have a steep cost of entry but are part of your social life, and you lose a lot of your supposed friends. Making new friends over the age of 35 is not easy.

So a perceived threat to one’s income is much more serious business to the well-off than it might seem to those on the other side of the looking glass. Loss of social position is a fraught business indeed.

Robert Frank points out the fallacy in this reaction: if all the rich pay more taxes, the relative differential should remain the same. Of course, this is a bit simplistic, since some people will be better positioned to minimize their exposure to an increase than others. But his general premise holds. And he has proof of a sort, in that he actually made headway with a buddy who was incensed over the prospect of seeing his taxes go up by making a relative status argument. From the New York Times:

A financially prosperous friend of mine is a case in point. He watches a lot of angry talking heads on cable news, and he recently buttonholed me to ask whether I had any idea that our taxes were about to rise?…. His face grew redder as he listed each outrage.

I said I knew all about the scheduled expiration of the Bush tax cuts but hadn’t heard much about the other proposals. When he expressed shock that I hadn’t, I tried to explain why I didn’t think it made sense to fret….

But the most salient issue in taxpayers’ minds is how the changes would affect their own standard of living. Truly wealthy families wouldn’t have to alter their spending at all…

Many families with income of $250,000 and more do spend everything they earn, and, of course, would have to cut back. As psychologists have long known, individuals typically find belt-tightening painful. But recent psychological research suggests that if all in that group spent less in unison, their perceptions of their standard of living would remain essentially unchanged….

With less after-tax income, top earners also wouldn’t be able to spend as much on cars or their children’s weddings and coming-of-age parties. But why did they feel compelled to spend so much in the first place? In most cases, they simply wanted a car that felt spirited, or a celebration that seemed special. But concepts like “spirited” and “special” are inescapably relative: when others in your circle spend a lot, you must spend accordingly or else live with the disappointment that results from unmet expectations.

If the top tax rate were to rise, as scheduled, from 35 percent to 39.5 percent — its level during the Clinton era — many top earners would spend a little less on cars and parties, so the standards that define their expectations would adjust. But once the dust settled, their cars would feel no less spirited, and their celebrations no less special, than before…

I explained all of this to my friend — telling him that because the tax increases he listed would apply not only to him and me, but also to others like us, they wouldn’t much affect our ability to acquire the things we want. That seemed to calm him down a bit.

Even in the Eisenhower era, when the top marginal tax rate was 90%, I have no doubt the rich were still able to find ways to hold themselves apart from everyone else, even if it isn’t as far as they can now.

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90 comments

  1. chris

    What concerns me more than the 4.5 % tax increase on the highest earners is the fact that government sees ridiculous spending of tax payer dollars as the norm. The way the banks and the goverment have been sleeping together it would seem like a better idea for the revenue department just get their funding from the banks.

    But seriously I think there has to be more realistic allocations of tax dollars. If there is 40 % tax on income the overall tax burden on upper earners will likely be well over 50%.

    I am quite certain there is a better way to get revenue than take more than 1/2 of someone’s income. I don’t care how wealthy someone is I don’t think the government should be in their pocket for 50% or close to it.
    They shouldn’t be in the pocket of lower earners for 50% either in my opinion. I understand the government needs funding but they didn’t do very good job keeping the economy rolling with all the tax dollars they received during the expansion.
    I think it is more than just rich people wanting to keep more. There is a fundamental issue at play that has to deal with the very foundation of our country. The Boston Tea Party reminds me of the revolutionary spirit of our forefathers, who would fight for freedom from excessive taxation.
    Our country was founded by revolutionaries. The tax cuts are a smoke screen that will give politicians something to serve as a hat hanger because the critical issue to our future is whether or not we continue to be run by the big money banks or if we can again have a government by the people, for the people and less for the self serving oligarchs.

    1. RueTheDay

      “If there is 40 % tax on income the overall tax burden on upper earners will likely be well over 50%.”

      That’s simply not true, for a number of reasons.

      1. As I’m sure you know, the tax rate is a marginal rate. The top rate only currently applies to each dollar of income over $382k. The income earned up until that point is still taxed at the lower rate.

      2. Deductions and exemptions reduce taxable income, and so reduce the effective tax rate.

      3. Capital gains and dividend income, significant sources of income for the wealthy, are taxed at a lower rate. Municipal bond income is tax free. Etc.

      4. There are many tax shelters and mechanisms for deferring income available to the wealthy that are not available to everyone else.

      5. State and local taxes are themselves deductible from federal income taxes, so you can’t just add the rates together.

      No one is facing a 50% effective tax rate now, and no one will if the Bush tax cuts expire.

      1. Yearning to Learn

        No one is facing a 50% effective tax rate now, and no one will if the Bush tax cuts expire.

        I agree, although I’d change it to “almost no one”.

        IMO the primary driver of wealth inequality is that for whatever reason we as a society have decided to tax wage income more than we tax passive income (capital gains, etc). yes yes, I know the argument, it would be “taxing money twice” but that isn’t necessarily true.

        because of this (combined with marginal tax rates) the people who get hit hardest with these types of taxes are those who make most/all of their income in the form of wages. In other words, high wage earners. especially if they are young (because they haven’t had time to build up a nest egg that can be taxed at lower gains).

        I pay a pretty high tax rate if you add up federal plus state plus local taxes (sales and property)… it’s pretty near 50% but I haven’t ever calculated it all.

        however: my situation is very different from the true wealthy. I have a high income ($200k plus) but low capital gains (1ook 15 years of training and 6 figure debt to get here). The true wealthy do NOT pay anywhere near 50% because so much of their income comes from investments. (taxed at rates of 0 to 15%)

        eventually, if the tax situation stays the same, I will join “them” because I will have a larger nest egg for capital returns.

        to summarize: as long as we as a society tax LABOR more than we tax CAPITAL we will have progressive wealth inequality.

        ===
        on a side note: there is one more tax break that rue forgot… Social Security caps out around 102k. no SS taxes on income higher than that

        1. Bob Falfa

          I am in a somewhat similar situation to you. Through scholarships/fellowships, work day/school at night I earned a graduate degree from a top school in my field. My salary isn’t above the brackets they are discussing, but for the past couple of years I have been above 250k due to tax treatment of ISO’s. I am fully aware I could exercise them and hold for a year to get the capital gains rate – but with the uncertainty in the stock market the past couple years, I don’t have the intestinal fortitude to hold something that could bankrupt me if there is another fall 2008.

          I’m not smart enough economically, social engineering wise to understand all the implications of the tax rates. Whether it’s trite to say or not, it is true that I’ve never worked for a poor person. It may be selfish, but the taxes I have paid the last few years feel like highway robbery. The hollow mantra I’ve tried to accept is “you don’t pay it if you don’t earn it”. Ah well, I’m sure what Uncle Sam let me keep from the modest nest egg will hatch into an albatross when means testing is applied to SS (20 years from now when I am eligible after retirement ages are increased yet again).

          1. Dothax

            I have posted on this, with numbers to back it up, before. See my comments on this thread

            http://www.nakedcapitalism.com/2010/09/links-91110.html

            Quote:

            There is an actual propaganda behind this “250K is rich” and “top 1% should be taxed”. It is that tax rates max out at incomes of ~400K and then fall, if you earn into the millions.

            This raising taxes on 250K+ is propaganda pure and simple. It passes on the tax burden mostly to older double income families in high cost of living areas. Sure the isolated taxpayer in Podunk might make 250K and could very well be rich. But in reality, it is the multimillionaire incomes hiding under the skirt of the older workers and professionals

            Now add the payroll tax to this 22% , and it is much more regressive. Upto about 212K income (dual income, fica cap). The Top 0.1% pays even less, because of fica cap

            So this 250K earner is paying 22.5 + 8(FICA) + 9 (CA State income) = 39%. Add sales tax and property tax and it comes close to 50%.

            Show me a millionaire that pays 39% in taxes. Show me one that pays 35%. They won’t because it is all taxed at preferred rates of investment income. They have all ways to skip taxes.

            This is more of taxing wages, and letting plutocrats alone. The wage earners – like crabs in a bucket – are fighting tooth and nail while the plutocrats laugh.

            Understand that – raising tax rates on 250K does not raise taxes on millionaires. You think it would, but it does not. It disproportionately taxes older workers and professionals.

          2. RueTheDay

            “So this 250K earner is paying 22.5 + 8(FICA) + 9 (CA State income) = 39%. Add sales tax and property tax and it comes close to 50%”

            You don’t pay FICA on your entire income, it’s capped at a little over $100k (for the SS portion).

            However, your basic point is valid – the current tax system really soaks people earning $150k-$400k from wages/salaries while making it entirely too easy for people with high incomes from investments to evade/avoid/defer taxes on that income, and to pay a low rate when they do pay.

          3. Dothax

            >You don’t pay FICA on your entire income, it’s capped at a little over $100k (for the SS portion).

            (My bad in phrasing it as ‘250K earner’)

            Its capped at 212K for dual income families. If you read the whole post, you can make out that I was talking about older dual income couples taking the highest hits.

            Obama’s proposal is to raise taxes on _families_ with 250K+ income, and _singles_ with 200K income.

          4. Bob Falfa

            Dothax, I recall reading your prior post – thanks for linking it. Even though I’m in the that 100-400k range you say gets hit heavily, I hope my initial post didn’t come across as too whiny. I’ve been fortunate to be prepared when opportunities have presented themselves – but in no way do I feel like a winner in life’s lottery.

        2. readerOfTeaLeaves

          Yearning to Learn, I wholeheartedly agree with your point that the US needs to stop putting so much tax on LABOR, and put a lot more tax on ‘capital’.

          The past 30 years have made capital into some kind of glorious concept that is never, ever wrong; capital is mysteriously never spent imprudently if you listen to the blathering of people like Glenn Hubbard and a few others of his ideology.

          The worship of capital is an ideology.
          It is not working.

          If there were actual capitalists still running the US and the global system, AIG would be bankrupt and taxpayers across the globe would not be covering bad CAPITAL transactions and bets made by banksters.

          So for me, failing to tax capital is a double-injury: first, it expects labor to take all the hits for taxation; second, it expects everyone’s labor to be at the servitude of those who bet, swindle, and commit fraud with capital.

          After all, labor is a lot easier to track: a job is either performed to specifications, or it isn’t. There’s an automatic reality check — yet this form of ‘energy’ is taxed ludicrously.

          Meanwhile, ‘capital’, which can be puffed up by bogus accounting, morphed into various currencies in the blink of an eye, gambled into fortunes, and is the lucre of speculators, is paid an obeisance that makes no real economic sense — unless you recognize that those who bleat about it so extensively are blinded by an ideology that is simply not presently operating with any reasonable reality checks.

          And currently, the governments enable this inability to realistically assess the actual economic role and value of capital, by failing to tax it adequately.

          1. Rick Caird

            That is kind of a crazy idea. Capital is also known as “savings”. So, you want to put a tax of savings. Right now, the Fed, with its ZIRP, is transferring a huge amount of money from the the owners of capital (including retirees and savers) and giving that money to the banks.

          2. Indigenous Centurion

            good points, reader.

            The Bush Cuts will expire. You can bank on it. Expire for everyone.

            Finished
            !

          3. readerOfTeaLeaves

            Rick Caird, from what I see, there is a great deal of fraud involving trading, and capital markets. This aspect of the economy appears to have become incraesingly criminogenic diring Bush II. Until these problems are addressed, all the blather about retiree savings as capital are mostly window dressing on an economic system that has outlasted it’s pull date.

      2. chris

        I was referring to the addtional taxes we all pay that everyone typically does not count as a tax. I know I didn’t make that clear in my earlier comment. I was just making an estimate that seemed plausible if there is a 38% federal tax.

        All the other things that are taxed at some level
        gasoline
        electricity
        land telephone
        cell phone
        sales taxes
        satellite service
        and if they are in business they will pay
        additional license fees and taxes
        etc…..
        I don’t think counting on use of certain deductions is a justification for being taxed at a higher rate. We don’t know how everyone makes their money. They may or may not be able to get certain deductions or use so called loopholes. I don’t necessarily understand why it is so much more saleable to tax extremely high earners when the impact may be marginal.
        I can see both sides of the story and I am not in favor of the excessive bonuses paid to the TBTF banks or completely free markets but I was trying to make a point that government can get out of control.

        I don’t think the Constitution is obsolete, and I certainly don’t think it it is a radical view to expect a government that is by the people and for the people and not bloated to the point of implosion.
        Are we moving toward a new form of government that is more self serving, more interested in its own preservation under the vail of “for the good of the country”?

  2. attempter

    Hmm. My comment I posted here c. 2 hours ago is gone.

    So here it is again:

    So there’s more proof that this rich class is utterly alien to us, has nothing whatsoever in common with us, shares nothing with us. They are not our fellow citizens. They are not Americans. They are nothing but pure vandals and parasites. To them the productive people, the people who have all the ideas and do all the work, are literally nothing but a dehumanized resource mine.

    We the people, who have all the ideas and do all the work, should fully reciprocate, see this parasite as the festering lump of fungus it is, and cleanse it. Such a cleansing would redeem our society and country and restore our freedom and prosperity.

    Not only do the rich have less fun, but a number of studies have found that income inequality lowers the life expectancy even of the rich.

    That reminds me of my favorite Nietzsche criticism of Christianity: “For me to believe in their redeemer, they’d have to look more redeemed.”

    That is, they claim to believe there’s a god who loves them, and that they’ll soon be going to this wondrous heaven, for all eternity. Yet they’re always so angry and discontented. But who that actually believed that would feel anything but absolute bliss as he floated through life? So religion seems not to work even at providing psychological consolation.

    Same here – if capitalism is so wonderful, if it’s so great to have so much more money than others, that why are the rich so discontented? So angry? So predatory? Why are they so psychopathically greedy? Why wouldn’t it make them happy to be rich but also spread the wealth? That ol’ trickle-down so beloved of liberals and conservatives? They’d still be far more rich than the mass, but the mass would have enough to live good lives. Why don’t the rich want that?

    It’s because capitalism does nothing but bring out all the worst qualities. It selects for greed, violence, hate, contempt, callousness, boorishness, shallowness, loutishness, meanness. Compared to ancient and medieval ideologies of nobility, capitalism erects a kind of anti-aristocracy. It’s as if you took the most vile drunken gutter thugs and dregs of a society and gave them all the wealth and power. That’s what we have. That’s why the system’s evil is matched by its pettiness, meanness, and ugliness. That’s what it did to start with, and of course by now it selects for those “qualities”, and seeks to inculcate them among the entire populace, so that even among the non-rich, individuals often regard one another in a sociopathic “capitalist” way.

    To put it in Nietzschean terms, neoliberalism seeks the total triumph of a particularly aggressive, destructive, hateful version of slave morality.

        1. Yves Smith Post author

          To elaborate, I had a typo in the original post (stray text at end) which was pretty sloppy (of course, typos are my specialty, I am strongly oriented towards getting new material out rather than honing posts before they run, but I do try to keep the incidence of errors down, appearances to the contrary). Richard caught it.

          Normally, I just correct the bloody thing, but the error still stands in the RSS reader. I didn’t see any comments, so I deleted and reposted, something I do not normally do, but that is the only way to get a clean version in RSS. But deleting loses the comments. You must have commented between the time I looked and when I did the deed, probably only a 2-3 minute window.

          Sorry ’bout that.

    1. William C

      Attempter

      My uncle was a very holy, Christian man. Someone once said of him ‘he has brought God into the room with him’. I assume Nietsche had not met a truly holy person. They leave a permanent impression. I was blessed to have such an uncle. Was he always happy? No, not even the holiest among us are so lucky. We all of us have to live with our own (and others’) faults.

      1. attempter

        He didn’t mean literally every single person. But he meant most of them, and especially all of those with power and influence. How many Gandhis and MLKs have there been?

        1. Ming

          You posted the nietzche quote…
          ‘That reminds me of my favorite Nietzsche criticism of Christianity: “For me to believe in their redeemer, they’d have to look more redeemed.”

          That is, they claim to believe there’s a god who loves them, and that they’ll soon be going to this wondrous heaven, for all eternity. Yet they’re always so angry and discontented. But who that actually believed that would feel anything but absolute bliss as he floated through life? So religion seems not to work even at providing psychological consolation.

          As Christian I have to admit that Nietzche and you have made a very good point. But I do counter with this… It is well recorded in the bible that for even those who are ‘touched by the spirit if God’ that there will be much suffering for there lives on earth. So He never promised anyone a life of rises. Conversely, many Christian are pre-occupied with trivial things of this life.

          1. attempter

            Very trivial, I guess.

            I’m sorry, but I can’t understand the concept that if I’ll be in eternal paradise in what’s really just a few minutes, that I would care about anything happening in this ephemeral world, that I’d experience anything other than expectational bliss for the few minutes I was here.

    2. Frank

      Excellent!

      In October 2008, responding to the “financial crisis”, Alain Badiou wrote the following for Le Monde:

      “Can we sing the praises of a “democracy” whose leaders do the bidding of private financial appropriation with such impunity that they would shock Marx himself, who nevertheless already defined governments, a hundred and sixty years ago, as “the agents of capital”? The ordinary citizen must “understand” that it is impossible to make up the shortfall in social security, but that it is imperative to stuff untold billions into the banks’ financial hole? We must sombrely accept that no one imagines any longer that it’s possible to nationalise a factory hounded by competition, a factory employing thousands of workers, but that it is obvious to do so for a bank made penniless by speculation?”….

      Alain Badiou, Le Monde, 10/17/2008, translated from “De quel réel cette crise est-elle le spectacle?” (“What is the Reality to Which this Crisis is Specatacle?”)

      http://kasamaproject.org/2008/11/01/badiou-financial-crisis-spectacle-and-corresponding-realities/

      1. attempter

        The ordinary citizen must “understand” that it is impossible to make up the shortfall in social security, but that it is imperative to stuff untold billions into the banks’ financial hole?

        I’d hail whoever could explain that so I could understand it as history’s greatest genius.

        It shouldn’t be hard, since everyone in government, business, the MSM, and academia implicitly says that.

        So why won’t anyone explicitly explain it to me?

    3. PQS

      Brilliant.

      I’m currently reading “The Big Burn.” Love it – fantastic account of a harrowing incident in American history. Wish we had even 1/2 of a Teddy Roosevelt today to give the politicians on both sides and the Trusts of today what for.

      This quote from the book captures perfectly all the pettiness, meanness, shortsightedness, and outright bigoted cruelty of the Capitalists of the era (and of which you speak in your post): it’s from Speaker of the House Joe Cannon in response to TR’s desire to create National Forests owned by the people:

      “Not one cent for scenery.”

      1. attempter

        Yes, but how many millions for scenery according to “the market”, once it’s privatized and commodified?

        What infinite criminal scum. What an absolute curse on the living earth, that such scum exists…

    4. Doug Terpstra

      Great observations on American Churchianity (from a recovering Calvinist) …and on its spawn—puritanical capitalism, whose Pharisees trivialize morality to disguise their egregious greed and violence. Indeed, the massive violence America and Israel inflict worldwide is the inevitable result.

      Unfortunately, their disease is highly contagious. Their moral-spiritual bankruptcy has infected American culture and predictable, profitably escalated global conflict.

      Related to this, Nomi Prins reviews a new book by Morris Berman, “America the Material”, following up on his grim 2006 “Dark Ages America” which I read. She writes, “Berman’s lament isn’t for an America that lost its way, but for one that never had a heart, but rather a colossal ego that raids other nations with self-righteous impunity.” And, “Berman not only warns us that America must change or die, but he calls on each of us to stop and imagine the potential of living in a better way.”

      Prins notes that Berman is not at all optimistic about America’s prospects for redemption. (Perhaps on the other side of empire if there is one.)

      1. attempter

        There’s a lot of evidence that the real America isn’t that bad. For example, recent studies showed that regular Americans underestimate the extent of wealth inequality, and yet still would prefer a much more fair distribution.

        I think all we’re really up against is a handful of criminals, and the tenuous inertia of a deranged system those criminals set up, a system where the tipping point is always close to being tipped over, into a totally different dynamic.

    5. chris

      So now we to believe we are all better off if we make less money. I would guess their might be some bias on who does the study on happiness in relationship to income.
      I don’t think you can do a true scientific study that would take into account everyone’s differences in what happiness means, what money means to them, and if they have ever experience being without money.
      Being on unhappy is likely to be less due to having lots of money than it would be to other issues of psychology. I think it is actually quite comical to even attempt to make a causal relationship between a lot of money and unhappiness.
      I certainly don’t think that infinite amounts of wealth can make anyone happy. I don’t even think the pursuit of more and more and more income is even that noble once you get to a certain point but the inference that money and wealth are predictors of unhappiness is quite a stretch.
      I was just reading part of Econned that reference the happiness vs wealth etc…..It is an interesting discussion.

  3. Rodger Malcolm Mitchell

    Federal taxing of the rich provides no benefit to the poor. On the contrary, in a Monetarily Sovereign nation, the federal government does not spend tax money.

    The federal government can support the poor to any degree it wishes. It can provide food, housing and education, and none of this has anything to do with taxes. In fact, if federal taxes were reduced to $0, this would not affect by even one dollar, a monetarily sovereign nation’s ability to support its poor. Federal spending is not in any way related to federal taxing.

    Federal taxes have but one effect: They remove money from the economy, thereby impoverishing the economy to the degree money is removed. Because the poor always are hurt by economic downturns more than are the rich, taxes on the rich actually hurt the poor more than the rich.

    Rodger Malcolm Mitchell

    1. Yearning to Learn

      They remove money from the economy, thereby impoverishing the economy to the degree money is removed. Because the poor always are hurt by economic downturns more than are the rich, taxes on the rich actually hurt the poor more than the rich.

      you will need to expand on your argument, which is nonsensical IMO.

      I agree that federal spending does not necessarily need to come from federal taxes.

      however:
      your other thought is not proven. I would like you to show your thought process about why taxing the rich necessarily drains money from the economy.

      I am inclined to disagree pending further discussion, based on 2 as we have seen, Ben Bernanke can flood the market with as much money as he wants, independent of the taxation levels of the US government.

      So you really have an uphill battle to explain yourself, although I am actually (truly) ready to be persuaded otherwise.

      1. Rodger Malcolm Mitchell

        Yearning to Learn,

        You ask why taxing the rich drains money from the economy. Let’s see whether I can explain it to your satisfaction.

        1. I think you understand that a Monetarily Sovereign nation has the unlimited ability to create money. True?

        2. If you agree, then you also must agree that the federal government does not rely on taxes for spending. That is, given the unlimited ability to create money, even if taxes were $0, the government still has the power to spend unlimited amounts. True? (Actually, the only constraint on a monetarily sovereign government’s spending is inflation, not taxes).

        3. And I think you also agree that government deficit spending adds money to the economy. True?

        4. Given 1, 2 and 3 above, it becomes clear that while federal deficit spending adds money to the economy, federal taxing, which is the reverse of deficit spending, subtracts money from the economy. Did that help?

        Now your second question is in essence, “How does taking money from the rich hurt the poor?” True?

        The answer is that money seldom stops. Warren Buffet does not bury his money in the backyard. He spends or invests it. Most investing means buying something from someone. When he invests in stock he buys stock from someone. Or he buys bonds from someone. Or he puts money in the bank. Warren Buffet’s banks don’t keep much money idle in the vault. They spend, invest or lend it, so it travels to other people.

        The people who receive Warren Buffet’s purchase or investment money, then spend or invest it, so it travels to yet other people, and on and on and on. During its travels, money finds its way to businesses that hire and pay salaries to people.

        Of course, when Warren Buffet pays taxes, he cannot invest that money. So it does not travel to other people and businesses. So those businesses cannot hire people.

        At the end of the day, who suffers? Warren Buffet, who has billions, or the guy who cannot get a job because businesses aren’t hiring? Clearly, the poor suffer more when the economy loses money via taxes, than do the rich.

        I say a bit more about this at Taxing the Rich.

        I hope this helps.

        Rodger Malcolm Mitchell

        1. Paul Tioxon

          http://dealbook.nytimes.com/2008/08/13/study-tallies-corporations-not-paying-income-tax/

          2 out of 3 corporations pay not fed taxes from 1998-2005.

          Furthermore,

          Alpha Magazine reports the compensation for hedge fund managers each year. The top earner for 2006 received $1.7 billion, the second highest received $1.4 billion, and the third $1.3 billion. That adds to $4.4 billion for three people. The top 25 hedge managers received, on average, $570 million for a total of $14.25 billion.

          Not only do these rich individuals have no need of tax breaks, the hedge fund and private equity industries have demonstrated time and again that they are not exemplary economic citizens who deserve privileged tax treatment. While most fund managers are probably law-abiding investment advisors, there are innumerable examples of wrong doing. The major types of failures and illegal activities include insider trading, IPO manipulation, embezzlement, and defrauding mutual fund investors.2

          Defending this tax break are highly paid lobbyists such as Douglas Lowenstein and Grover Norquist who loudly and repeatedly make the claim that taxing hedge fund managers like everyone else will harm the average working family. They claim that taxing hedge funds like normal income will harm pension fund returns. This is wrong on two levels. First, the tax change would apply to hedge fund managers and not investors (many pension funds invest in hedge funds). Second, pension funds do not pay taxes. These lobbyists also claim that it would increase the cost of consumer goods and services because so many stores and chain restaurants are owned by private equity firms and hedge funds. This, too, is preposterous because, again, the tax does not apply to the investors or owners of those businesses but only the investment advisors who manage the funds of those investors. Moreover, the businesses owned by private pools of capital will have to compete with other similar businesses providing consumer goods and services—only now on a level playing field—and they will not be able to arbitrarily raise their prices.

          The above was lifted from this site:

          http://www.epi.org/publications/entry/pm120/

          Without attacking each every item of a poorly structured argument, please consider these small examples of taxation for the purpose of the United States of America being an ongoing enterprise that predates you and yours and will go on long after all of us are long gone. Provided of course that all of the wealth is not extracted out of the marrow of our bones and put into tax free investments by the rich in the foreign country of their choice for investment purposes that allow them to free and live in liberty while we descend into abject poverty.

    2. Yearning to Learn

      They remove money from the economy, thereby impoverishing the economy to the degree money is removed. Because the poor always are hurt by economic downturns more than are the rich, taxes on the rich actually hurt the poor more than the rich.

      you will need to expand on your argument, which is nonsensical IMO.

      I agree that federal spending does not necessarily need to come from federal taxes.

      however:
      your other thought is not proven. I would like you to show your thought process about why taxing the rich necessarily drains money from the economy.

      I am inclined to disagree pending further discussion, based on 3 quick thought processes off the top of my head:

      1)
      as we have seen, Ben Bernanke can flood the market with as much money as he wants, independent of the taxation levels of the US government.

      2)
      the tax rates were raised during the Bush II/Clinton years and I have never seen a measure anywhere that would indicate that money was “removed” from the economy

      3)
      Corporations and individuals have tons of cash on hand, yet they aren’t using it for any productive purposes whatsoever. whether or not that money “exists” hardly seems to affect the poor to me.
      How does it affect the poor if Warren Buffet has $10M or $100M in non-US stocks? Or in $50M vs $1B in German Bunds?

      So you really have an uphill battle to explain yourself, although I am actually (truly) ready to be persuaded otherwise.

        1. Cedric Regula

          It’s best to ignore MMT drivel. If you ask for an explanation, they have an arsenal that would put a Senate healthcare filibuster to shame. Then all you have in the end is a great big pile of drivel, and a lot of wasted time and effort. Stick to reading a good fiction novel. Much better plot development and a good author ties up all the subplots in a much more convincing way.

          1. Rodger Malcolm Mitchell

            Cedric Regula is a typical debt-hysteric: All sorts of intuitive complaints, but never a fact to support their case, whatever that case may be.

            The person who argues without facts cannot be convinced with facts.

            Cedric, in the very unlikely event you are open to facts, you could begin at Introduction

            Rodger Malcolm Mitcfhell

    3. RueTheDay

      I thought MMT (at least the chartalist strain) teaches that taxes are what gives money value.

      Also, you leave inflation out of the analysis. During a time like the present, where the economy is operating well below capacity and unemployment is high, the government could (and probably should) spend freely without taxing or borrowing by creating new money. During periods where the economy is operating at or near capacity and unemployment is low, such a policy would be inflationary.

      1. Rodger Malcolm Mitchell

        RuetheDay

        Though I differ from MMT in several areas, they are correct when they claim, that help taxes give money value. Americans are required to pay their taxes with dollars, so this creates a built-in demand for dollars. However, federal taxes are not necessary for this purpose. Ample state and local taxes exist, of which I now have convinced many leading MMTers.

        Federal taxes could be eliminated, and this would not reduce the government’s ability to spend by even one cent.

        You mention that inflation was left out of the analysis. It is correct that taxes help fight against inflation. Why? Because, while deficit spending adds money to the economy, taxes remove money from the economy. Increasing the supply reduces the value (inflation). Reducing the supply via taxes, increases the value.

        Where I disagree with MMT is in the actual use of taxes as an inflation-preventing device. Tax policy is too slow, too political, too damaging, and too unfair to be effective. If you believed inflation was going to be 4% next year, rather than the desired 2%, exactly which taxes would you change and by how much? How long would your proposal take to go through Congress and the President? Further, tax increases tend to damage the economy.

        By contrast, the Fed immediately could raise interest rates by 1/4 point, see what happens, raise it another 1/4 point, etc. In this way, the inflation can be managed promptly and in increments.

        Rodger Malcolm Mitchell

  4. derek

    It’s always heartwarming when the rich complain about their taxes, because I know they’re only doing it for my own good.

  5. craazyman

    He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.

    When goods increase, they are increased that eat them: and what good is there to the owners thereof, saving the beholding of them with their eyes?

    The sleep of a laboring man is sweet, whether he eat little or much: but the abundance of the rich will not suffer him to sleep.

    There is a sore evil which I have seen under the sun, namely, riches kept for the owners thereof to their hurt.

    But those riches perish by evil travail: and he begetteth a son, and there is nothing in his hand.

    As he came forth of his mother’s womb, naked shall he return to go as he came, and shall take nothing of his labor, which he may carry away in his hand.

    And this also is a sore evil, that in all points as he came, so shall he go: and what profit hath he that hath labored for the wind?

    All his days also he eateth in darkness, and he hath much sorrow and wrath with his sickness.

    -Ecclesiastes Book V

  6. Jim Haygood

    ‘Even in the Eisenhower era, when the top marginal tax rate was 90%, I have no doubt the rich were still able to find ways to hold themselves apart from everyone else, even if it isn’t as far as they can now.’

    But of course — drilling partnerships, film-making partnerships, cattle partnerships. Up-front deductions, deferred profits; rinse and repeat.

    Don’t we miss the good old days of tax shelters, tax loopholes, tax accountants for the rich, an immensely complex tax code drafted by special interests?

    By any reasonable standard, a 90% marginal tax rate is outright slavery — a prima facie violation of human rights which mocks the Declaration of Independence.

    A 90% tax rate is, plainly and simply, a mechanism of war finance. Repealing the income tax amendment would put Usgov out of the global military empire business permanently.

    It is logically inconsistent to oppose the Bush/O’Bomber wars of aggression in Iraq and Af/Pak, while seeking to feed more revenue into the maw of the monster. Starve it till it croaks!

    1. attempter

      By any reasonable standard, a 90% marginal tax rate is outright slavery — a prima facie violation of human rights which mocks the Declaration of Independence.

      I agree, because the level of income at which that 90% rate kicked in was far beyond what anyone could possibly have had that right to extract in the first place. No one who ever existed has come remotely close to earning such an income.

      So that fact that such incomes exist at all proves the Declaration and all its principles are being flouted.

      Should we only take back 90% of what a robber is stealing in broad daylight, right before our eyes?

  7. h. chimpster

    It depends on the meaning of “income”, doesn’t it? I suppose some might break a sweat clipping coupons….

  8. Ravenscroft

    Who do we see commenting on tax increases and saying that any increases are a bad idea?

    Politicians – very rich

    Portfolio managers/economists – rich

    TV Presenters/Commentators – rich

    Those speaking out against tax increases are those who will pay a lot more and you have to believe that personal interests are trumping the interests of the country.

  9. Bruce

    For those of you who don’t think the FLAT rate is +50% already, well, all I can say is you don’t live in NY.

    AMT 28%
    Medicare 2%
    State tax rate 7-9%
    Sales tax 8-9%

    That gets us to just shy of 50%, flat.

    But wait, there’s more. Add property taxes, social security (which is capped, but is still 3-4% at the 250 cutoff defined as “rich”), and ad hoc taxes on everything (tolls, airlines, hotels, liquor, soda!, you name it.)

    So we are at 50%+ flat now.

    1. Paul Repstock

      I get hammered all the time for even mentioning “Flat Tax Rate”..And I’m only thinking 10% not 50%??

      Since we don’t seem smart enough to keep government at a level that doesn’t require income taxes, the least we can do is streamline it’s collection to a point where it is actually efficient. As things stand now; between lawyers, accountants, and money managers there is a tax avoidance “Industry”.

      People really hate the KISS principal, but we would all profit from it’s application. With everyone earning more than $10,000 paying a 10% tax and nobody having exemptions the collection of tax would cost very little.

  10. Jim the Skeptic

    The starting point is that we live in a society which expects it’s government to provide all kinds of services. The founding fathers never expected the federal government to provide more than minimal services, such as the postal service.

    So who is up for removing funding for the highway system? Kill the FAA, let the airlines set up their own system? Let’s allow employers to determine what is safe, kill OSHA. Bring back fire on the rivers, kill the Environmental Protection Agency EPA.

    Actually we could kill OSHA if we were prepared to seize all the assets of the company that killed an employee, oh and executed the top level executives. The founding fathers knew how to get compliance but our idea of fines and penalties are bizarrely low. Just another price of doing business. So instead we fund OSHA and slap companies on the wrist. And the taxpayers are stuck with the bill.

  11. TG

    I see the problem of tax rates slightly differently. I come from an area where I have feet in both pools: decidedly middle class and extreme wealth. In discussions with my clients, middle class or otherwise, the concern about tax rates boils down to a matter of value for the dollar: many Americans don’t perceive that their tax dollars are being spent appropriately any longer, hence the extreme reluctance to hand over additional dollars to any governmental agency.

    In my area, where school levies are local, voters have rejected proposed increases for several years running. The reasons are not hard to understand: a school board who spends profligately, a superintendent who is now “retired” but rehired at a higher pay scale, guaranteed annual staff salary increases, etc. As these revelations have come to the fore over the last seven years, voters have turned against the schools when additional revenue is requested.

    Next, our local community has failed to pass increased property and income tax levies over the past five years. Again, not hard to understand why: the city purchased a large strip mall in 2006 under eminent domain for the purposes of redevelopment and has yet to sell the property for development, four years later. Pension benefits and guarantees that have increased 9% annually for city employees and city services that have declined commesurate with that.

    When I talk to my client base and ask them their thoughts, the universal answer is: why should I pay more for these bozos to keep spending it like they do? What I’m starting to understand is that while city leaders are building new super-playgrounds, dabbling in real estate redevelopment, handing out very generous salary and defined benefit packages and spending as much as they can, the infrastructure is crumbling. In short, we’ve written a lot of checks that we cannot cash and I think voters are starting to say: enough. Our community recently had a meeting to discuss city finances with the city council and the group of 30 of us left in dismay. The attitude of the city council members was one of entitlement and shock that citizens couldn’t understand the great things they had done for the city.

    Our recommendations to the city were simple: focus on core services such as fire, police, EMS, trash pickup, sewer repair, street repair. You don’t need to be in the real estate business, nor the entertainment business. You need to prove to us that you can provide basic necessary services as efficiently as possible, then we can come back and revisit amenities.

    This sentiment comes from the middle and upper class in our community of about 30,000. I really don’t think you’d find people rabidly opposed to a tax increase if they believed the money was being spent appropriately. At this point, however, there’s such ill will due to years of poor spending decisions that it’s going to take some time before voters are willing to open their purse strings again.

    1. readerOfTeaLeaves

      TG, it sounds as if you are are an astute ‘listener’.
      From a different perspective, I hear the same kinds of murmurs and frustration that you report.

      One of the original ‘Tea Parties’ was created quite near me, and I’m acquainted with some of the founders. They are all college educated, middle class, and quite a few are self-employed. They had an eminent domain issue in their city and went to both city and then to the higher political authority (a county). The insolence with which these really outstanding people were treated — and as you report, the sense of entitlement exhibited by local officials — made them so incensed and indignant that they organized and formed into one of the first ‘Tea Parties’.

      The other striking thing about the people that I know is that they really didn’t align by political party; some were liberals, some very politically conservative (old, Main Street GOPers). But they were all smart, they had a phenomenal talent for working out their differences, and they ended up making their local electeds look like a pack of preening clowns.

      It goes right to the heart of the issue that you state: I don’t mind paying taxes if I feel that I am getting good value for the money that I work plenty hard to earn.

      In addition, as these individuals are self-employed, or else rely on referrals for business, personal ethics and courtesy are extremely valued. The insolence with which they were treated at the local level, and then on up the political ladder, was absolutely shocking and eye-opening to them.

      Wonderful comment.

    2. kievite

      I think we should see overspending on schools in wider context of overspending in other areas of local and federal government

      As despicable as any bureaucracy is, other things equal I think a lot of people would prefer a superintendent of schools to a five star general, or mid-level department of Homeland Security manager anytime. And they all will fight for the additional allocation of resources: that comes with the territory.

      And outside the government to an intelligent hedge fund manager.

  12. dan

    To tax or not to tax– more. That is the question. I certainly agree the taxes are lower than the old 90% rates in the 1960’s. Yes they are higher today than in the Clinton era due to “other” taxes. Being a NJ resident I can assure you that local property taxes are out of sight. We go a 25% increase in our local rates this year in Chester NJ.

    What too few people are focusing on is– where the taxes come from. The bottom 50% pay a little SS tax and sales taxes. If you look at the CBO’s budget records from the 1950/1960s, you can see that corporation paid a much larger share of the tax burden. Lower income folks also paid a larger portion. Taxing the “rich” as they say at 100% before state taxes still does not close the budget gap. Raising taxes only helps. Cutting spending at the state and Federal level will be required but it only helps. Putting the 10 or 15 million people back to work helps. Having good paying jobs for them would really help.

    Having all of the above would fix our problems. Unfortunately, all is too much to expect. However, all need to be addressed and at the same time. No one thing can fix our problems. But each can and should contribute it’s part. Otherwise, we can expect a call from the IMF with their version of a bailout fix.

    1. F. Beard

      Otherwise, we can expect a call from the IMF with their version of a bailout fix. dan

      That will be the day! The US Treasury could bailout the entire country with no new taxes and no new debt and with little risk of an inflationary spiral.

      I won’t bore you again with the details.

  13. Gawain's Ghost

    My thing is that I can see no reason why half the population should pay income tax and the other half not. That is neither fair nor equitable. Also, it builds resentment among the taxpayers for the nontaxpayers.

    I favor a flat tax, say 15% across the board. No exemptions, no deductions, no exceptions. And the government, at all levels, limits its expenses to the revenue generated.

    1. F. Beard

      I favor a flat tax, say 15% across the board. No exemptions, no deductions, no exceptions. Gawain’s Ghost

      That would be fair if all income was justly earned. However, the rich and corporations benefit from their access to loans from the government backed counterfeiting cartel (the banking system) which steals purchasing power from all money holders including the poor.

      And the government, at all levels, limits its expenses to the revenue generated. Gawain’s Ghost

      There MUST be a source of new money in an economy if only to pay interest on loans. Currently that source of new money is deficit spending. The boom-bust cycle further complicates matters with unemployment that must be paid for by government.

      1. Kelly

        Mr. Terpstra post this to another comment above but since you mention the flat tax I thought I’d add it here as well.

        Doug Terpstra says:
        November 28, 2010 at 9:52 pm
        The flat tax is a plutocrat’s wet dream, the Holy Grail, nirvana, and absoutely adored in Mexico … by the dozen or so families that own the country.

        See Michael Hudson’s “Endless Thanksgiving. Next Up: a “Flat Tax” for the Rich”
        http://counterpunch.org/hudson11252010.html

    2. Still Above Water

      “My thing is that I can see no reason why half the population should pay income tax and the other half not. That is neither fair nor equitable.”

      You’re not looking very hard then. Let’s consider the case of Jane Singlemom. After working 70 hours a week to pay rent, and for food for her kids every month, she’s actually in debt. You say she should go deeper in debt to pay her 15% flat tax.

      Meanwhile, Joe Trustfund, after working 0 hours a week to pay for his New York condo and his villa in the Bahamas, his new clothes every day of the week, and regular $500 restaurant meals, still manages to stash away $10 million a year thanks to Daddy’s wise investments. He’s already paying 15% on his capital gains, so your proposal just reduces what he pays to his tax attorney.

      I fail to see the fairness in your scheme.

      “I favor a flat tax, say 15% across the board. No exemptions, no deductions, no exceptions.”

      If you don’t exempt food, shelter, clothing, and health care, then you will criminalize people for paying for life’s basic necessities before the tax man. You’ll probably even kill a few who put obeying the law ahead of common sense. This isn’t fair or equitable, it’s cruel and inhumane. You should be ashamed.

  14. randomnoise

    Perhaps if economists really understood taxation it might help. Simple accounting reveals that all taxation falls ultimately as a burden on consumers, because their purchases provide the real money input to the entire hierarchy of commerce. Only with consumers’ money are taxes forwarded to government by ‘taxpayers’. These ‘taxpayers’ include businesses and employees, but they are merely intermediaries in the taxation of consumers.

    Income taxes need to be regarded as levies on work that are to be paid by the consumers of that work. The real value of work is therefore net disposable income after all taxes, and these taxes fall entirely on the consumer and cannot be regarded as paid by businesses, their employees or shareholders.

    The inherent consumption tax on consumer purchases, that we all suffer, is the combined effect of all income taxes on businesses, employees, local taxes, and sales taxes. The more we spend our net cash in hand, the more tax we pay, rich or poor.

    For transparency, which should be a prerequisite of democracy, the government should abolish all income taxes and tax only at the point of individual consumption. That is, to replace a convoluted system, where no-one really knows how much or when they are paying tax, by an equivalent explicit rather than an implicit consumption tax. Only then will real voter pressure be brought to bring high taxation down to release economic activity from the wasteful, incompetent, dead hand of government.

    Food could be cheaper because it could be entirely exempted of tax.

    Of course, tax hikes immediately cost or benefit some parties against their long term economic worth, but consumer prices also immediately contain the net increase/decrease of implicit taxation too, which, when the affected labor and producer markets eventually settle, reveal the ultimate cost of the tax changes to every consumer. Hiking taxes on high earners is simply short term confiscation to please political interests, meanwhile the ultimate taxpayer is conned.

    1. Rodger Malcolm Mitchell

      Question: What do California, Illinois, Cook County, Chicago, Greece, Ireland, General Electric, you and I have in common?
      Answer: They are monetarily non-sovereign.

      Question: What do Japan, China, Canada, Australia and the United States have in common?
      Answer: They are monetarily sovereign.

      Question: What are the practical differences between a monetarily non-sovereign government and a monetarily sovereign government?

      Those who don’t know the answer, don’t understand today’s (post-gold standard) economics.

      Rodger Malcolm Mitchell

      1. RueTheDay

        What happens when a monetarily sovereign nation, whose debt is entirely in its own currency, has many private individuals and firms that have borrowed substantially in foreign currencies, engages in a de facto devaluation via monetary expansion?

        The real world is a lot more complicated than we like to acknowledge sometimes.

        1. Rodger Malcolm Mitchell

          RueTheDay asks what happens when the U.S. “. . . engages in a de facto devaluation via monetary expansion?” In everyday English, that means, what happens when federal spending causes inflation.

          Since 1971, the end of the gold standard, the total of federal deficits has grown an astounding 3,600%, but there has been no relationship between federal deficit spending and inflation.

          Although it is possible for an extraordinary amount of deficit spending to cause inflation, we are nowhere near that point. In any event, the Fed can prevent and cure inflation by increasing the reward for owning money (i.e. interest rates).

          Rodger Malcolm Mitchell

          1. RueTheDay

            The substantive part of my question was what happens in a monetarily sovereign nation when private individuals and firms have borrowed in a foreign currency?

          2. RueTheDay

            Rodger – If they pay it back in a foreign currency which is appreciating relative to the domestic currency, then the real value of their debt is increasing which is a big part of the problem we’re trying to solve in the first place. The situation becomes similar to a “monetarily sovereign nation” where the government has borrowed money in a foreign currency.

  15. War Forever

    Suprising, no one has mentioned the Pentagon. Even the anti tax wags who come a runnin’ each time a blog questions the perversely bad arrangement taxation in this country has wrought. The same arrangement that has allowed a relatively small oligarchy to own nearly everything, while folks can’t get housing, jobs or healthcare – nobody mentions defense spending. Ah, but if we look at Alexandria, VA the rich have their mouths firmly attached to the ATM tit of the Gub’mint.
    All of the uber wealthy do, jet fighters to turbines to MRI machines.
    The same cads will start up and fund “media” like Politico, the same way these guys buy the Government – it’s critical to control the media covering and validating your looting, but that’s nothing new. “If taxes are raised no one will be hired” all lies, and damned lies.

    Dave Johnson points out:
    (http://www.governmentcontractswon.com/department/defense/alexandria_va_22314.asp)

    1. F. Beard

      Suprising, no one has mentioned the Pentagon. War Forever

      “Trillions for offense but not one red cent for unemployment compensation!”

    2. Frank

      Has a major American news organization ever once suggested that a single-payer health care system could easily be funded by reducing military spending?

      If so, I must have missed that.

      By now everyone knows the American media is nothing more than corporate propaganda.

  16. F. Beard

    The rich steal via government backed fractional reserve banking and the poor steal via socialism.

    Perhaps we should figure out a way to run an economy without theft and then unjust wealth disparity would disappear?

  17. sergio saraceni

    Mr Smith:
    Why not allow people to volunteer to pay taxes?
    Why do you want to force people what is their property?
    You can volunteer all you want. Just thing you can move to Greece pay more taxes, and in return you will be blessed with
    a longer life. Win, win.

  18. Anonymous Jones

    It’s amazing to see the stupidity on display in this thread. It would be one thing to trot out all this ignorance about taxes in a vacuum, but to completely ignore Yves’ point about relative income and relative consumption and just keep droning on about your misconceptions of the world and its inhabitants, all I can say is Bravo.

    Everyone should read Falling Behind. It’s short. You can get through it quickly. On the other hand, given this display, I’m quite confident you won’t be able to digest it. The truth-gag reflex appears to be too strong.

    1. F. Beard

      I’m quite willing to accept reproof if I am being stupid but you have to be more specific please.

      I’ll order “Falling Behind”. I agree that large wealth disparity is generally not good but there are important exceptions (eg Job, Abraham, etc) so the question of HOW that disparity is reduced is important.

      And just from a strategic point of view, wealth redistribution via government is a non-starter for many people EXCEPT during emergencies. However, as Americans, most of US should agree that stealing is bad whether by banking or unjust taxation.

      1. Paul Repstock

        Actually FB I found your previous post…
        –The rich steal via government backed fractional reserve banking and the poor steal via socialism.
        Perhaps we should figure out a way to run an economy without theft and then unjust wealth disparity would disappear?–
        ..to be pretty much on the mark. You can get a decent synopsis of ‘Falling behind’ several places on the web, but the simplicity of your statement does it without all the words.

        The lack of civility displayed here again is just a reflection of the artificial presures which we place on ourselves with a nudge here and there from the ‘divide and conquer’ government.

        1. Thanksgiving Throwdown

          Blogs are healthy, Yves probably doesn’t think of it this way. but when a man reaches a certain age emptying the prostate is both pleasurable and healthy, with lower incidences of cancer as some studies indicate. So it is with posting on blogs, it’s cathartic, it’s pleasurable and we’ve always done it, even before BBS and usenet, and before Richard Stallman abandoned posting simply because he likened it *to* the act of masturbation.
          People are pissed off, wealth has been destroyed and the economy still sucks, much smarter people have great ideas about how this country could improve everyone’s quality of life. (Black, Stiglitz – all those guys) are saying great things to a captive Government that appears to be indifferent or worse. Sometimes, the more civil, the more likely someone is trying to pull a fast one. Look at the more vulgar wing of the ruling political party – everytime they face a camera the discussion seems to include thriftiness, morals, freedom, God, warfare, rightousness and other bizarre, flag waving virtue. It’s disgusting, but that’s what some people get off to.

  19. Bernard

    if all earnings were taxed the same, then that argument might be somewhat true.
    all the different kinds of taxes on the different kinds of income is the problem here. the poor don’t have ways of depreciating their income due to this or that program designed to encourage investment or the like for the upper classes. or the types of earnings. please!!!!

    the tax code is written and used as a tool by the Rich to avoid paying any more taxes than they can get away with. and that is the point of the tax code to shift the onus of paying taxes on those who are ignorant of and cant afford to use exemptions and what not.

    since the wealthy own Congress and Congress writes the tax codes with the wealthy in mind, to encourage tax avoidance, why oh why could anyone believe the wealthy pay their fair share, whatever that is.

    the rich have all the loopholes written into the tax so they can avoid paying taxes. that just the nature of the Congress and the wealthy and the Tax code.

    it is what it is.

    to say the rich pay the same amount of taxes as the poorer middle classes and bottom poor is hogwash and everybody knows that.

    All this is about is the wealthy not wanting to pay more taxes relative to their wealth. the poor and middle class pay a higher percentage in taxes over all.

    the cap on Social Security at $102 thousand is simple proof of that. this is a means tested program anyway. and the amount you get back, supposedly, is the amount you put in. i doubt Congress will let SS avoid the Vampire Squid anyway.

    what i do know of the tax code is the wealthy use it to avoid paying taxes, plain and simple. like Warren Buffet paying more taxes than his secretary.

    so please keep this bs to yourself.
    the real problem is the middle class and poor have no PR system telling them just how much less the wealthy pay/or how to use the tax codes to avoid taxes. you have to have money for that. lol

    the ignorant poor and middle class are such easy marks in America. they pay a lot more taxes than the Rich do. anything that raises taxes on the Rich is decried as an outrage since they have the PR to fight such things. or simply buy the Government the truth of who pays and who doesn’t pay their “fair share” is not relevant here, lol.

    oh please if you don’t want to pay taxes, i could understand. the argument that the rich pay more, well, that doesn’t really stand up to the facts. that won’t wash, the poor may be poor but they aren’t as dumb as you try to make them out to be. Course in America today, the idiocy is proving a worthy investment for the Rich

  20. rps

    The “high income” earners increased tax rate will have a negligible effect as the base salary will be “modified” to reflect less pay as more superlative compensation loopholes are erected and tax havens remain.

    Ahem, in the old days one of the outcomes of a high tax-rate was employers preferred to pay their employees a larger percentage of the profits than the alternative; pay more in federal taxes. The higher tax rates will have a nil effect without a federal clampdown on compensation loopholes and tax havens. Downward redistribution of wealth or significant higher tax collections will not be the desired outcome.

  21. Hugh

    I think there is this whole mythology about money, that it was one of the primordial constituents of the universe, that if the rich get their hands on it, it is rightfully theirs, but if any of the rest of us do, our ownership of it is highly conditional and negotiable.

    Money is nothing more than tokens that give access to resources. Most of us would have no problem with the idea that a society should be able to distribute its resources in a fair and equitable manner. But substitute the word “money” into the above phrase, and you will elicit every hackneyed argument we have all heard a million times about how money is some indissolvable part of our being and that the loss of a limb or possibly two would be preferable to any reduction in wealth, even if with such a reduction, you still would be able to live comfortably.

    This mythology of money is all political, class oriented, and class generated propaganda. You can quibble about the exact figures but roughly speaking the top 1% own 1/3 of the country and the top 10% own 2/3 of it. A democratic society and this degree of wealth inequality are antithetical to each other. The wealthy tell us that any mitigation of this inequality will be tantamount to theft and will ruin the country.

    If we turn back to the resource perspective though, we see the opposite is true. What is ruining the country is the out of whack distribution of resources, and no group in a society should be able to hoard society’s resources at the expense of society as a whole. That is what we are really talking about here.

    Now I am sure some (the corporatists, plutocrats, kleptocrats, however you wish to call them) will say that if we support a redistribution of the nation’s resources, the government is likely to take them and misspend them. Well, yes. But why is this so? It’s so because our government is bought by the those very same corporatists, plutocrats, and kleptocrats. It is like they have a sockpuppet on each hand, and the sockpuppet on the left hand is warning us that the sockpuppet on the right hand can’t be trusted.

    And that’s what this comes down to. We need both economic and political solutions that will restore the use of society’s resources to society and remove the corporatist/kleptocratic stranglehold on our political process. This is not an either/or. It is a sine qua non.

    1. kievite

      Hugh,

      I think you are missing one important dimension: the ability to use those allocated tokens for resources. That make you point of view way too simplistic and historically belonging to pre-Marx thinking about the problem. Ability to use capital productively is a skill that is unequally distributed.

      There is a huge difference between spending those tokens on girls and drinks and building a company that produces a new, useful product. So the society as a whole is interested in allocation of those tokens to “right people”.

      After all this unequal allocation has a natural limit of approximatly 80 years. That’s why I think the inheritance tax is so important, but unequal distribution of “tokens” can be tolerated in democratic societies.

      1. Hugh

        Oh come on, how many of the wealthy ever produced anything? Most of this is about bubbles and rents. As for the Gates and others, they can be compensated for their efforts but there is no reason they have to be compensated at their current rates. No one is worth a billion dollars, no one. All that represents is a harmful tying up of resources. But nice try though to equate an ideal of well functioning capitalism with our current kleptocracy.

        1. kievite

          “Oh come on, how many of the wealthy ever produced anything? Most of this is about bubbles and rents. ”

          That statement does not prove anything. The same is probably true about bottom 1% (lumpens). Can you spell “extremes meet” ?

          “But nice try though to equate an ideal of well functioning capitalism with our current kleptocracy.”

          I would agree with you that taxes in itself are insufficient to completely suppress the ingenuity of selected few. It looks like this almost instinctive behaviour in which certain people would engage even if stimulus is removed. After all innovation did existed in the USSR were profit stimulus for any innovation was almost completely removed.

          But it is in the society interest to provide such people decent life and encourage them to do rather more then less. And that problem includes the problem of taxation of successful few like Bill Gates.

          But you paint the picture with too broad brush. Current kleptocracy is concentrated in financial services which in my view should be treated differently tax-wise from Mail Street industries, more like tax code treats casino business.

          So it’s far from black and white problem like you try to present. It requires study and intelligent approach to regulation.

          1. Hugh

            You are creating a strawman. Fair and equitable does not mean the same amount for everyone. Work and productive enterprise can still be incentivized. What we see nowadays is a massively disproportionate incentivization of not only non-productive but ultimately wealth destroying enterprise. There is a huge swathe of territory between the same for everyone and the current kleptocracy, not the either/or strawman you posit.

  22. JohnnyGL

    Yves,

    I love how you just busted out a Michael Prowse article from the FT in 2007. Sometime around 2003-4, I think, they gave that spot in the Comment/Analysis section to Christopher Caldwell, who is fairly mediocre. I always enjoyed Prowse’s columns. One of my favorite was the head-to-head on inequality between Prowse and Amity Shales….actually, it looks like you wrote on it on Nakedcap several years ago…

    http://www.nakedcapitalism.com/2007/12/holiday-special-something-that-changed_31.html

    The inequality/murder thing always stuck in my head. When I read the article, I immediately thought of countries like S. Africa and Brazil.

    That’s pretty funny that you found that article as fascinating as I did.

    John

  23. Allen C

    Ultimately, a society is worse off when many folks collect handsome incomes compared to their relative contribution. The declining numbers of truly productive are unwilling and/or unable to run for public office. Societal decay is a multi-generational phenomenon requiring both recognition and process in order to prevent its otherwise certain outcome.

    Unfortunately, we are unable to bring back our Founding Fathers for a revision. It may be impossible to craft a societal governance model that inherently prevents decay.

    1. kievite

      Allen,

      That an interesting approach that reminds the approach used in the book “The collase of complex societies” by Joseph Tainter

      Political disintegration is a persistent feature of world history. The Collapse of Complex Societies, though written by an archaeologist, will therefore strike a chord throughout the social sciences. Any explanation of societal collapse carries lessons not just for the study of ancient societies, but for the members of all such societies in both the present and future.

      Tainter proposed the theory of diminishing marginal returns on investments in complexity. It might be that financiazation of the US society was the straw that broke the camel back.

      But end of cheap oil is another importnat factor to take into account. With the end of cheap oil the level of complexity of society that was acceptable can suddenly became excessive.

      From a purely Machiavellian world view we can say, for example, that the U.S. invasion of Iraq has not yielded net positive returns on investment(where’s that cheap oil, we should ask Cheney?).

      It also looks like additional investments in education and health care in industrialised countries make no significant increases in outcomes and just increase the costs. After all capable students are able to overcome even significant shortcomings of the educational system, but less gifted are not helped even by significant additional investments.

      In a way computers might have served as a Torjan horse what permitted the level of complexity to increase dramatically in the past 50-70 years. Anybody who compares the USA in 30th or even 50th and in 2010 would think about two different civilizations. Just read fiction novels from 50th and you will see the difference. The same is true about Europe.

    2. Karl

      The status quo is doing everything it can to prevent decay. That is the problem. We need social systems that mimic biological systems where decay is a healthy part of normal operations.

      No, the founding fathers cannot help you. They lived in a different time and had different problems to struggle with. The system of government they created is now obsolete and there is no shame in its passing.

  24. Rodger Malcolm Mitchell

    Virtually all the comments on this blog make the assumption that federal taxes in the United States are necessary. What evidence do you have to support that assumption? I mean actual data, not just intuition and “everyone-knows” hearsay.

    Anyone?

    Rodger Malcolm Mitchell

  25. Rodger Malcolm Mitchell

    RuetheDay says, “If they pay it (debt) back in a foreign currency which is appreciating relative to the domestic currency, then the real value of their debt is increasing which is a big part of the problem we’re trying to solve in the first place. The situation becomes similar to a “monetarily sovereign nation” where the government has borrowed money in a foreign currency.
    .
    Yes, if the value of a nation’s currency declines relative to the value of another nation’s currency, imports from tha will become more expensive and exports to that nation will be easier. I discuss this at What Do You Want?
    .
    Rodger Malcolm Mitchell

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