Rich people and taxes

[Inquartata]

Originally Posted by jeff

This, btw, shows the fictional nature of the claim that shareholders are somehow 'owners' of the companies we have shares in, whether directly or by mutual funds. Even someone with thousands of shares of AOL/Time Warner can't prevent the assets he "owns" from being used to ferry the CEO to his vacation villa in Italy.

The literature on "the separation of ownership from control" is copious, yes.

This bears directly on the "double taxation" argument. The idea of "ownership via stock participation" is so diluted, especially with mutual funds, options and other derivatives, and people getting in and out of a position, as to make the whole concept irrelevant and obsolete.

Irrelevant; double-taxation is an issue of income, not control. At least, I have never heard it cast as the latter.

I own shares in a publicly-owned corporation. It's performance, and therefore my potential gain, is attenuated by taxation of its income. My potential compensation is then attenuated yet again when the income is paid out to me. AFAIK this is the whole of the argument against the practice.

[Inquartata]

Originally Posted by jeff

I understand the distinction; I just don't think it a valid basis of tax policy. GE got taxed the first go-round, I didn't. When the money came to me, I got taxed on it. Your analogy is better suited for me being paid a dollar, and being taxed once when I get it, and once more when I spend it. GE and me are not the same person.

Why did I buy GE? To profit; to gain; to enhance my income. That goal is harmed when GE's income is taxed, because it reduces its profitability. I am then harmed again when the same income is taxed a second time, this time to me personally. In both cases the damage is ultimately to the investor.

You mean I get to just take the goods out of the store without paying for them, and not paying the tax either? Gee, I wish I knew that years ago - I could have saved a fortune.

No. You are not required to buy any given good or service. You may simply refrain, and thereby not be subject to sales tax. If you do not buy, you are not taxed. This is the whole macroeconomic idea behind consumption taxes: consumption is taxed, and this motivates reduced consumption and therefore increased investment. You do not have the choice of refusing dividend income, however. You MUST receive it, and you must pay tax on it. The government insists. There is no way to eschew it, as there is to eschew consumption.

Missing the point here. Society has legitemate needs for funding, which comes out of taxation, so it's not an innate right to "keep your money", when one lives in that society.

I simply disagree. The ONLY entity which has any vestige of a right to earnings is he who earned them, and secondarily those to who he has contracted to owe them. The state no more has a right to them than does the robber on the corner.

However, as I have said before, my main objection is rather to the bloated degree of the confiscation of income than to the mere fact of confiscation. As you say, certain functions of the state must be carried out, and they must be financed. We are far beyond the functions which the state must carry out, though. And once a state has passed that point, any tenuous claim it has to rectitude in confiscating the assets of its citizens evaporates.

The issue here is that a tax that applies primarily to the rich is taxed at a lower rate than to the rest of us. As Soros says, the marginal rate paid on his last dollar of income is lower than the rate paid by his secretary.

I still say "So what?" It's still cutting off your nose to spite your face if you reject a gift on no better grounds than someone else gets a better one. If many benefit and none lose, Pareto optimality is satisfied. That some benefit more than others is immaterial. Should we stop doing cancer research because cancer patients get the bulk of the benefits from it while we healthy people---the majority---benefit little if at all?

It's not even a question of paying more when it comes to unearned income - that income is taxed at a lower rate. That's fundamentally unfair.

I don't see it. How is it unjust?

The books don't quite balance, but by and large the burden shifted from one group has to be paid by the others.

I still disagree. There is still growth to consider, even if spending cannot for some reason be restrained.

Straw man here - nobody claims the govt has such an inherent right.

No...only every member of Congress and most bureaucrats. Only those whose opinions in this regard matter, in other words.

Society (acting through government) does have the right to levy taxes to fund the programs it has collectively decided to provide, however you or I may disagree with this one or that one.

And we could fly a whole wing of C4 Galaxies theough that "collectively decided" hole. In fact government decides what is in its best interests and ours. But it doesn't matter, because that is NOT the relevant standard by which the justness of taxation is judged.

As far as budget cutting, a nice idea - if it doesn't cause cutting things that are of sufficient value to our shared society to justify their cost - but since it's in the realm of fantasy...

"Sufficient value", nothing. This is where economic conservatives part ways with liberals. We do not agree that a state has the right to finance by coercion whatever its citizenry wants. It has a right to finance only what it needs, and cannot finance privately.

If you want to claim economic opportunities come from the other side of the house, I'll probably still dispute you, but if you're claiming that "equality of opportunity" (in jobs, mortgages, sports, property ownership, eating at the same restaurants....) eg: to women and minorities) is not due to liberals, then we're quite in disagreement.

Oh, yes! The first major American institution to be completely integrated, and on a voluntary basis, was of course that bastion of liberalism, the military. How could I have forgotten how far left the Army leaned at the time?

You think the state of the deficit is not a cause for concern? Please elaborate.

Deleterious effects observed so far in the real world: None.

Meanwhile, China, one of the fastest-growing economies on earth, consistently runs budget deficits of around 300%. ( Have we really not argued about this before? I could have sworn I remembered posting on the subject somewhere. )

And these homely analogies prove what?

In themselves, nothing. They are however illustrative of an underlying principle: That disparate benefits are not inherently wrong, harmful or unjust, and that whether all benefit substantially equally from any given policy is not a legitimate guide to the propriety or usefulness of the policy.

Uh-oh, this looks familiar - maybe I already did answer this post before, dammit. That's what happens when you get off schedule.

I think you did. But then, even I had forgotten...

Compliance was shifted from tax evasion for the rich to EITC compliance. Let's nail the paupers and get blood out of a rock, rather than the rich making off with the swag...

Yes, but how can I confirm this? Is there an IRS policy statement or something else documenting a deliberate change?

[Inquartata]

Originally Posted by jeff

Is that what you call 'em? "emoticon" is the term I've used, but that's for the text form rather than the graphic. But, I digress...

Smilies, gremlins. "Emoticons" sounds so robotic, so...non-emotive...

I would broaden that to say "the state of itself doesn't have rights at all, without respect to We The People". But, We The People (WTP) have decided collectively to have a form of government that does certain things, and therefore WTP's agent (the govt) has the right to collect it on WTP's behalf.

Straying into the quicksand of philosophy, where I prefer to stand on the solid earth of economics.

Economically speaking, the state's legitimate purposes are restricted to the provision of public goods and perhaps the remedy of certain narrow market failutres and externalities. It is not economically justified in going beyond that to provide its people with whatever they say they "want". Or rather whatever its politicians claim to hear the people saying they want. Or what the politicians convince themselves the people would want if only they were as "in the know" as they, the politicians...

So, suppose we have a little math experiment: we lower the rate on income tax, and increase the tax on unearned income (15%, IIRC) till they meet in the middle - preferably in a revenue-neutral way. Is that unfair?

I see it as neither the one nor the other. However, the economic effect will definitely differ from those brought about by the public mix. Most likely, it would increase the average propensity to consume and decrease commensurately the average propensity to save/invest. Whether this would be a good thing or not I cannot say, but I'd speculate "not". Our savings rate is already very low, forcing us to rely on foreign investment instead.

Well yes, of course. Since you've been doing the special pleading for the Paris Hilton's of the world,

And here I've been at such pains to mention "the most productive members of society"...making this one a straw man, maybe?

There will always be a few free riders on an otherwise good policy.

And just as you profess to not being jealous of the rich making money, I'm not offended by those who manage to net more than they put in. My interaction with my country is not so transactional in nature.

OK.

I'm not exactly "offended" by them, myself, so much as I am unhappy with the deleterious effects on the economy of funneling society's resources to other than its most productive uses. That runs counter to all market theory. Redistribution may be justifiable on moral grounds, but it has no economic leg upon which to stand.

And as you know, I'm all about the economics.

But society does nothing of the sort, nor has anyone suggested that it should.

By implication, they have. What other aim can such policies possibly serve, but to ameliorate the supposedly immoral effects of disparities in income and/or wealth among citizens? What else is it but redistribution, to take proportionally more from the exceptional than from the unexceptional?

What you seem to be saying is that the tax levies (and other financial paraphanalia) be structured to the benefit of the most exceptional individuals - who by definition are the exceptions.

Nope. I say they should be structured to attain, or at least aim at, proportional equality. NOT to take 33% from one and none from another. Progressive taxation is about redistribution and nothing more.

Well, if it were such a meritocracy, then how did we have two Ivy League dullards running for President?

Your basic mistake is in classifying politicians as "productive".

Paste that the the estate tax debate: the guy who had the initiative, brains, risk-taking, etc, is the one in the box, not the grandchildren with trust funds...

Again, often the trust itself is the productive entity. Or can you think of no trust which does more good work than any number of individuals could do, merely by virtue of its size and continuity?

I can think of several, myself. Heck, all I have to do is watch PBS during pledge drives to hear about them. ( Hey, I know how you feel about Ben Franklin; he set up some of these which are still exercising good economic effects! )

The very nature of a trust fund is that its heirs do NOT get to spend all of its proceeds.

For many, but not all that may be true. Would you care to quantify that with data?

Not sure how I could do that in a way you'd accept.

Example:

There's a theory in labor economics which explains the bulk of the observed disparities between the salaries of equally qualified men and women by simple biology: Women take time out of their careers to have and care for children. That such choices by women on average could explain ANY of the disparity is however usually taken as offensive and the theory gets no examination beyond the initial outrage at its premise.

That choice is at the base of success is however pretty attractive purely on logical grounds. Choose to save your money, and ceteris paribus you will end up with more of it than the fellow who spends his. Choose to study biogenetics and you will be more successful than the fellow who studies auto mechanics. Choose to marry a Heinz heiress and you will be more successful than the fellow who marries the high-school drop-out single mother with the crack habit. Etc.

OK, that last one was terribly unfair. Sorry. ( insert grievously injurious fifth grem--er, emoticon here )

Also: it runs against the sad fact that the leading (well, it may be #2) cause of bankruptcy (for people who previously WERE solvent) is lack of healthcare coverage.

I can only cite personal experience: I don't know anyone who has gone into bankruptcy for this reason. But it may be so.

In proportion to the increased income, did I hear you imply?

As you wish. ( insert feloniously prohibitive SIXTH smily here )

I disagree with the last sentence: it is not supportive of policy choice to screw those individuals to the benefit of the upper classes. Didn't we see that in some of the countries our ancestors came from?

I still do not see refraining from taking more money from the rich as "screwing" anyone.

That's why it's seductive as a metaphor. Water seeks its own level - but tax policies that favor one group and disadvantage another do not

Lucky, then, that I was talking about the economic growth that tax policies either aid or hinder, rather than the tax policies themselves.

And I work in and around financial services, so perhaps you should cede all those points to me, eh?

When we pass from the realm of economics to that of finance, I shall gladly do so. ( and yet another forbidden smily makes its nonappearance )

[Dr. Pfleschbach]

Here is a link to an opinion piece by Jonathan Chait which cites Cato Institute chairman William Niskanen as claiming that from a historical perspective, since 1981 lowering taxes has actually resulted in increased government spending while raising taxes has resulted in lower government spending. What happened to the "Starve the Beast" theory? Has Niskanen neglected to read the script?

http://www.latimes.com/news/opinion/...ck=1&cset=true

[jeff]

Posting out of order again (evil emoticon goes here) because this can be done quickly...

Originally Posted by Dr. Pfleschbach

What happened to the "Starve the Beast" theory? Has Niskanen neglected to read the script?

Or is it simply that 'Starve the Beast' has never been more than wishful thinking... This is the report I referred to earlier that Feltan and I discussed.

My personal opinion is that the "don't tax me" Grover Norquist crowd ultimately doesn't care about the well being of the Union. All they care about is themselves and that they be able to hold on to every dime they get - notwithstanding that it's that very same Union that makes it possible for them to get it. Civic spirit, hah!

[Dr. Pfleschbach]

Originally Posted by jeff

Posting out of order again (evil emoticon goes here) because this can be done quickly...



Or is it simply that 'Starve the Beast' has never been more than wishful thinking... This is the report I referred to earlier that Feltan and I discussed.

My personal opinion is that the "don't tax me" Grover Norquist crowd ultimately doesn't care about the well being of the Union. All they care about is themselves and that they be able to hold on to every dime they get - notwithstanding that it's that very same Union that makes it possible for them to get it. Civic spirit, hah!

What? Selfish motives, you say? I'm shocked, shocked I tell you!

[Feltan]

Originally Posted by jeff

Or is it simply that 'Starve the Beast' has never been more than wishful thinking... This is the report I referred to earlier that Feltan and I discussed.

My personal opinion is that the "don't tax me" Grover Norquist crowd ultimately doesn't care about the well being of the Union. All they care about is themselves and that they be able to hold on to every dime they get - notwithstanding that it's that very same Union that makes it possible for them to get it. Civic spirit, hah!

Phooey! Who is being selfish; the group that wants tax dollars to spend on largely inefficient social programs, or the group that wants people to keep their own money? Now, keep in mind, we are only talking orders-of-magnitude, not tax itself -- everyone agrees some level of taxation is needed for vital services. However, the role of the (Federal) Government should not be recalculated every fiscal year and constrained only by what largess they can acquire; rather, the role should be well-defined and the Government should only take what they need to fullfil that well-defined Constitutional role.

Regards,
Feltan

[jeff]

You mean selfish things like the Defense Department, Medicare, Medicaid, and the VA? I think those are the big ticket items. Then there's all the other alphabet soup: NTSB, EEOC, FEMA, BLM, CDC, NSA, CIA, TSB, DOJ, DOE, and those nice fellas that build the federal highway system and federal reserve. We can argue about each and any of them, and I expect we will, but it's neither fair nor accurate to describe federal expenditures as "largely inefficient social programs". Just a cliche. Hm, the DoD isn't efficient, but we can't deny the necessity of its existence and absence of an alternative proven to do the same more effeciently.

Darn, posting out of order again. I can resist anything but temptation.

[gojujay]

Originally Posted by jeff

"One person, one vote" is the best model, but if we want to deviate from it, we can suggest all kinds of alternatives that might be equally suitable for proposition, for example, Heinlein's argument that citizenship should be based on national service. In no case is it a commodity to be bought

Would we get to dress in togas if we took this path?

[Feltan]

Originally Posted by jeff

You mean selfish things like the Defense Department, Medicare, Medicaid, and the VA? I think those are the big ticket items. Then there's all the other alphabet soup: NTSB, EEOC, FEMA, BLM, CDC, NSA, CIA, TSB, DOJ, DOE, and those nice fellas that build the federal highway system and federal reserve. We can argue about each and any of them, and I expect we will, but it's neither fair nor accurate to describe federal expenditures as "largely inefficient social programs". Just a cliche. Hm, the DoD isn't efficient, but we can't deny the necessity of its existence and absence of an alternative proven to do the same more effeciently.

Darn, posting out of order again. I can resist anything but temptation.

I do not think it is a cliche to talk about inefficient Government programs -- I rather think it is naive not to discuss them in that light. The fact that a given program may be necessary does not grant it absolution from the auditors green visor. The best way to spend forty cents on the dollar is to let the Government run your company; the overhead alone would cause financial analysts to cringe.

Regards,
Feltan

[Inquartata]

Originally Posted by jeff

Or is it simply that 'Starve the Beast' has never been more than wishful thinking...

Or is it rather that it has never been tried seriously? ( That's the way I'm voting. )

By it's nature, our government cannot pursue a consistent, long-term, stable policy. It's the reason foreign nations cannot trust in either our friendship or our word, and it is the reason we can get little accomplished in the way of economic policy. Every time the nation's leadership changes Party, the brakes get set onto a large number of policy initiatives of the previous leadership, and some of them get reversed altogether. This includes policies intended to reduce government revenue to the point where it is forced to reduce spending. ( In fact, sometimes successive leadership groups of the SAME Party indulge in this sort of thing with regard to the programs of their predecessors. ) Then 4 or 8 years later it all gets turned around yet again.

This is all on top of the mechanical economic problems in trying to effect change. ( For instance, the vagaries of the business cycle may "bring in some ships that are not steered", and may capsize others. An Adminstration may cut taxes only to find that an upswing in the economy brings in increased revenue and supports continued profligate spending in spite of its intentions to the contrary. )

[jeff]

Originally Posted by Inquartata

The literature on "the separation of ownership from control" is copious, yes.

Making it not "ownership" in the standard sense of the word. I don't mind a discipline having specialized uses for commonly used words, but I object to attempts to attach sentiments for the common use when in the specialized case. I know you're about to go there in next paragraph, but I think this crucial, as the argument is "I (the owner) am double taxed!"

Recall our brouhaha over healthcare as a "public good" - econ. textbooks might define it for their nefarious purposes as otherwise, but in countries that have national healthcare systems, it is self evidently a "good" provided to the public.

Originally Posted by Inquartata

Irrelevant; double-taxation is an issue of income, not control. At least, I have never heard it cast as the latter.

I own shares in a publicly-owned corporation. It's performance, and therefore my potential gain, is attenuated by taxation of its income. My potential compensation is then attenuated yet again when the income is paid out to me. AFAIK this is the whole of the argument against the practice.

Interesting reading:
http://papers.ssrn.com/sol3/papers.c...ract_id=368125
"The double taxation of corporate income actually emerged between World War I and II in response to a shift in corporate dividend policies, rather than vice versa. Over that period, managers agreed to a higher rate of tax at the corporate level, and, eventually, to the repeal of the dividend exemption at the shareholder level in exchange for Congress' tacit agreement not to interfere with managerial discretion over undistributed profits."

Also, since I've gone on about the estate tax: http://www.cbpp.org/6-17-05tax.htm "WHY THE ESTATE TAX IS NOT "DOUBLE TAXATION" is a good summary.

I also own shares in publicly-owned corporations. I also own bonds. I also have a job. In all cases "performance, and therefore my potential gain, is attenuated by taxation of income" (of either the companies I invest in, or my employer). I've elected to buy stocks, assuming a higher risk in expectation of a higher return, or bonds under the opposite assumption, or a job, since that's what really pays the mortgage. Why does the tax system need to subsidize my bets?

In any case: the tax paid by the corporation before paying the dividend or coupon is not tax to me. Every dollar in circulation has passed through filtering at multiple times, whether as income, capital gains, or sales tax. I don't get worked up about it. It's like thinking about where the water molecules in your ice cube might have been a month ago - yuk!

My objection, specifically, is changing the tax structure in a way to the advantage of those in the top 1%, which is to the disadvantage of the rest. Get rid of the sales tax on the same basis, as that is also, very clearly a double tax.

[jeff]

Originally Posted by gojujay

Would we get to dress in togas if we took this path?

Which book was that - I don't recall? Did I mention that RAH was a foilist?

[jeff]

Originally Posted by Feltan

I do not think it is a cliche to talk about inefficient Government programs -- I rather think it is naive not to discuss them in that light. The fact that a given program may be necessary does not grant it absolution from the auditors green visor. The best way to spend forty cents on the dollar is to let the Government run your company; the overhead alone would cause financial analysts to cringe.

Regards,
Feltan

In particular I agree "the fact that a given program may be necessary does not grant it absolution from the auditors green visor". Financial accountability is necessary in all sectors.

What I object to is the cliche that the government in particular is inefficient, and that this is not a property of the private sector. Ah, the money I've seen p1ssed away... Consider that Social Security administration is far more efficient than the corresponding private sector institutions, and that Medicare is far, far more efficient in deliverying funding for healthcare than any of the private HMOs.

[jeff]

Originally Posted by Inquartata

Or is it rather that it has never been tried seriously? ( That's the way I'm voting. )

By it's nature, our government cannot pursue a consistent, long-term, stable policy. It's the reason foreign nations cannot trust in either our friendship or our word, and it is the reason we can get little accomplished in the way of economic policy. Every time the nation's leadership changes Party, the brakes get set onto a large number of policy initiatives of the previous leadership, and some of them get reversed altogether. This includes policies intended to reduce government revenue to the point where it is forced to reduce spending. ( In fact, sometimes successive leadership groups of the SAME Party indulge in this sort of thing with regard to the programs of their predecessors. ) Then 4 or 8 years later it all gets turned around yet again.

This is all on top of the mechanical economic problems in trying to effect change. ( For instance, the vagaries of the business cycle may "bring in some ships that are not steered", and may capsize others. An Adminstration may cut taxes only to find that an upswing in the economy brings in increased revenue and supports continued profligate spending in spite of its intentions to the contrary. )

Just be glad you're not in Italy....

Seriously - if a Republican House, Senate, and Presidency can't do it, maybe it should be consigned to the category of "unworkable ideas". I don't think we're all that more inconstant than the other countries, I just think "Starve The Beast" is one of those horrid ideas spawned by the far reaches of political thought, which never survives the reality that people don't want the beast to be starved.