4 ms·

- There is plenty of free capital in the economy. More than ever really. To the point that the "capital glut" is a regular topic of discussion in economic news.

by harryh 9y ago

- There is plenty of free capital in the economy. More than ever really. To the point that the "capital glut" is a regular topic of discussion in economic news. - I don't know how old you are but both Clinton and Obama significantly increased taxes on the rich. Federal tax receipts as a % of GDP are fairly constant going back to WW2. https://fred.stlouisfed.org/series/FYFRGDA188S https://fred.stlouisfed.org/series/FYFRGDA188S

Retric 9y ago
First that graph shows a huge range of rates. Just 2000 vs 2004 is a 22% drop, but even that's just federal rates. Total government spending is the only meaningful metric when state, local, and federal funds are all taken out of your paycheck. Further, not being static does not mean it was ever meaningfully increased. The rate from 1982 was higher than either Clinton or Obama rates. And 1982 was below the rate from 1932 to 1981. Compare US GDP growth and a high top marginal rate seems to promote growth, though there are many ways to slice and dice these numbers.
- harryh 9y ago
  1) I expect that if we included state and local taxes the story would be much the same, though I don't have a graph handy. You could be right I suppose. 2) I think we mostly agree here. There have definitely been meaningful changes both up and down (on the order of 20%) over the years depending on both economic and political changes. However, when you look over a 50 year timespan (everything post WW2 basically), you don't really see a meaningful longitudinal change. To me this refutes the OPs point about taxation being meaningfully different in the "olden days."
  - Retric 9y ago
    2) He was not talking about total recites. And the top tax rates are a very different story: https://www.cch.com/WBOT2013/029IncomeTaxRates.asp https://www.cch.com/WBOT2013/029IncomeTaxRates.asp PS: IMO, a ~1 to 2% AMT on all wealth per year would be incredibly beneficial. But, there is currently about zero chances of that ever happening.
    - harryh 9y ago
      My understanding is that those top marginal rates didn't matter as much as you might think because they mostly shifted forms of compensation. The data we'd really want to investigate this question is what % of taxes were paid by various income groups (top .1%, 1%, 5%, 10%) over time. See how much that share has changed with various policy changes. I can't seem to find a relevant graph on fred.stlouisfed.org though. :(
      - opo 9y ago
        ntu.org has some recent data. In general, federal income tax has gotten more progressive since the 50s. For example, the top 10% paid 49% of taxes in 1980 and paid 70% in 2014. http://www.ntu.org/foundation/page/who-pays-income-taxes http://www.ntu.org/foundation/page/who-pays-income-taxes
- opo 9y ago
  >...Further, not being static does not mean it was ever meaningfully increased. The tax burden has basically gone opposite of what you imply. For example, the top 10% paid 49% of taxes in 1980 and paid 70% in 2014. (http://www.ntu.org/foundation/page/who-pays-income-taxes http://www.ntu.org/foundation/page/who-pays-income-taxes) The "top marginal rate" means very little by itself. What matters is the effective rate which takes into account the credits/deductions that are allowed, the other lower tax rates, etc. >...Compare US GDP growth and a high top marginal rate seems to promote growth, Those high marginal rates of the 1950's did not bring in some giant windfall to the government or somehow promote growth of GDP. Most economists are opposed to very high marginal tax rates due to the inefficiencies they introduce - compensation being moved to non-salary, money wasted on CPAs, lawyers and lobbying congress for special deductions, dead weight losses for economic activity that isn't done, etc.
  - Retric 9y ago
    Top 10% made 20% of all income in 1980, they now make 50% of all income. So, going up to 70% is actually a drop in their tax rates. Further, the top marginal tax rate has little to do with the top 10% of all incomes. PS: Yes, in theory they where a bad idea. However, in practice they seem to have been a net benefit. Either though reducing the rent seeking behavior of capital, or alternatively because the middle class's spending is mass producible. (You can scale iPhones, you can't scale 50,000+$ watches because they are not intended to be scaled.)
    - opo 9y ago
      What is the source of your data? According to the world bank and the OECD, from 1986 to now the income share held by the top 10% has been in a range from 27 - 31%. http://data.worldbank.org/indicator/SI.DST.10TH.10?locations=US http://data.worldbank.org/indicator/SI.DST.10TH.10?locations... http://www.oecd.org/els/soc/growingunequalincomedistributionandpovertyinoecdcountries.htm http://www.oecd.org/els/soc/growingunequalincomedistribution... >...Further, the top marginal tax rate has little to do with the top 10% of all incomes. As I have tried to explain in the previous comment, the top marginal rate means very little. >...Yes, in theory they where a bad idea. However, in practice they seem to have been a net benefit. In reality, they were a bad idea. It should be a hint that you don't see mainstream economists suggesting we return to them. Politicians find them a good talking point since everyone likes the idea of someone else paying more taxes, but you don't see economists suggesting it. >...Either though reducing the rent seeking behavior of capital, or alternatively because the middle class's spending is mass producible. (You can scale iPhones, you can't scale 50,000+$ watches because they are not intended to be scaled.) How exactly does a confiscatory rate reduce the rent seeking behavior of capital - that seems like a different issue. In reality, high rates encourage money to be spent in non-productive ways to influence congress to carve out special tax deductions/credits. Enough loopholes were in the old tax code that some politically well connected wealthy people sometimes paid no taxes - this is why the AMT was created.
dv_dt 9y ago
Tax receipts are largely on income flows, but capital (wealth) itself is much more imbalanced than even the gilded age. Economic inequality has collected a huge amount of capital into very few hands that ultimately don't seem to know how to apply it productively over the whole system.
- harryh 9y ago
  While wealth is more concentrated in the US, access to capital is probably at an all time high. Interest rates on loans are tiny and equity markets have never been deeper.
  - dv_dt 9y ago
    And why isn't productivity increasing if capital required to develop enhancements is available? And a related question if capital and access to it is at an all time high, then why do we have stagnant economic growth?
    - harryh 9y ago
      That is definitely one of the big mysteries of the modern era. Personally I subscribe to the hypothesis that we're just running out of low-hanging fruit. As humans developed better knowledge of biology, chemistry & physics there were a whole host of relatively easy to invent items from the steam engine, to antibiotics to air travel to the transistor and modern electronics. These were world changing. But now we're mostly done doing that and are now in the refinement stage on most technologies where we spend an enormous amount of effort to get, for example, 5% more fuel efficient airplanes. Physics is tough. Maybe we'll have some sort of revolutionary breakthroughs in the future that lead to another era of rapid invention but until that happens we'll continue plodding along building a slightly more efficient world instead of a transformative one. This is really just one hypothesis though. The real answer is that no one really knows for sure.
      - dv_dt 9y ago
        Agreed, it's quite believable that the threshold of capital required to develop a given improvement is increasing. That's one reason that individual entrepreneurs are likely making fewer impacts on starting of new companies. Well that and there is a double whammy of labor being paid less of a margin of productivity so individuals and even small businesses are more squeezed of their own capital accumulation. In other words, the Wright brothers today would have a hard time not only because it's harder to develop a competitive aircraft, but because their bicycle business isn't going to yield a sufficient margin to even invest in the development in wind tunnels, motors, etc that they did originally. The thing is, it's individuals that would make the 'crazy' investment without a cut-and-dry ROI, without a calculable guaranteed result - and I think we suffer from their absence in terms of end growth overall. But I also somewhat discount that the rising difficulty level is really why more breakthroughs aren't happening, if that were the case one would see larger and larger accumulations of ventures committing capital and failing (or at least operating). I think the real reason is that not enough capital even tries to attack these problems because they're longer term and difficult to quantify the return. The irony is that I suspect that we get a smaller overall growth by routing capital to mostly knowable investment returns over a larger proportion going to "crazy" non-calculable investments. So, we end up waiting for the die-rolls to match up people like Elon Musk with sufficient fortunes for truly big advancements, and an economic system that mucks around with financial engineering instead of relentlessly and systematically advancing a wide range of real-world applied engineering on big problems.
i386 9y ago
Increasing taxes does very little without closing loopholes for minimization.
- candiodari 9y ago
  Unfortunately the big loophole that matters is essentially "allow international trade". I doubt even you want to give that one up.
xbmcuser 9y ago
As long as you don't have high capital gains tax or at least at the same level as income tax the wealth will keep flowing to the very rich. As richer you are the lesser tax you pay percentage wise on your wealth gain every year.

by harryh 9y ago

Retric 9y ago

First that graph shows a huge range of rates. Just 2000 vs 2004 is a 22% drop, but even that's just federal rates. Total government spending is the only meaningful metric when state, local, and federal funds are all taken out of your paycheck. Further, not being static does not mean it was ever meaningfully increased. The rate from 1982 was higher than either Clinton or Obama rates. And 1982 was below the rate from 1932 to 1981. Compare US GDP growth and a high top marginal rate seems to promote growth, though there are many ways to slice and dice these numbers.

harryh 9y ago
1) I expect that if we included state and local taxes the story would be much the same, though I don't have a graph handy. You could be right I suppose. 2) I think we mostly agree here. There have definitely been meaningful changes both up and down (on the order of 20%) over the years depending on both economic and political changes. However, when you look over a 50 year timespan (everything post WW2 basically), you don't really see a meaningful longitudinal change. To me this refutes the OPs point about taxation being meaningfully different in the "olden days."
- Retric 9y ago
  2) He was not talking about total recites. And the top tax rates are a very different story: https://www.cch.com/WBOT2013/029IncomeTaxRates.asp https://www.cch.com/WBOT2013/029IncomeTaxRates.asp PS: IMO, a ~1 to 2% AMT on all wealth per year would be incredibly beneficial. But, there is currently about zero chances of that ever happening.
  - harryh 9y ago
    My understanding is that those top marginal rates didn't matter as much as you might think because they mostly shifted forms of compensation. The data we'd really want to investigate this question is what % of taxes were paid by various income groups (top .1%, 1%, 5%, 10%) over time. See how much that share has changed with various policy changes. I can't seem to find a relevant graph on fred.stlouisfed.org though. :(
    - opo 9y ago
      ntu.org has some recent data. In general, federal income tax has gotten more progressive since the 50s. For example, the top 10% paid 49% of taxes in 1980 and paid 70% in 2014. http://www.ntu.org/foundation/page/who-pays-income-taxes http://www.ntu.org/foundation/page/who-pays-income-taxes
opo 9y ago
>...Further, not being static does not mean it was ever meaningfully increased. The tax burden has basically gone opposite of what you imply. For example, the top 10% paid 49% of taxes in 1980 and paid 70% in 2014. (http://www.ntu.org/foundation/page/who-pays-income-taxes http://www.ntu.org/foundation/page/who-pays-income-taxes) The "top marginal rate" means very little by itself. What matters is the effective rate which takes into account the credits/deductions that are allowed, the other lower tax rates, etc. >...Compare US GDP growth and a high top marginal rate seems to promote growth, Those high marginal rates of the 1950's did not bring in some giant windfall to the government or somehow promote growth of GDP. Most economists are opposed to very high marginal tax rates due to the inefficiencies they introduce - compensation being moved to non-salary, money wasted on CPAs, lawyers and lobbying congress for special deductions, dead weight losses for economic activity that isn't done, etc.
- Retric 9y ago
  Top 10% made 20% of all income in 1980, they now make 50% of all income. So, going up to 70% is actually a drop in their tax rates. Further, the top marginal tax rate has little to do with the top 10% of all incomes. PS: Yes, in theory they where a bad idea. However, in practice they seem to have been a net benefit. Either though reducing the rent seeking behavior of capital, or alternatively because the middle class's spending is mass producible. (You can scale iPhones, you can't scale 50,000+$ watches because they are not intended to be scaled.)
  - opo 9y ago
    What is the source of your data? According to the world bank and the OECD, from 1986 to now the income share held by the top 10% has been in a range from 27 - 31%. http://data.worldbank.org/indicator/SI.DST.10TH.10?locations=US http://data.worldbank.org/indicator/SI.DST.10TH.10?locations... http://www.oecd.org/els/soc/growingunequalincomedistributionandpovertyinoecdcountries.htm http://www.oecd.org/els/soc/growingunequalincomedistribution... >...Further, the top marginal tax rate has little to do with the top 10% of all incomes. As I have tried to explain in the previous comment, the top marginal rate means very little. >...Yes, in theory they where a bad idea. However, in practice they seem to have been a net benefit. In reality, they were a bad idea. It should be a hint that you don't see mainstream economists suggesting we return to them. Politicians find them a good talking point since everyone likes the idea of someone else paying more taxes, but you don't see economists suggesting it. >...Either though reducing the rent seeking behavior of capital, or alternatively because the middle class's spending is mass producible. (You can scale iPhones, you can't scale 50,000+$ watches because they are not intended to be scaled.) How exactly does a confiscatory rate reduce the rent seeking behavior of capital - that seems like a different issue. In reality, high rates encourage money to be spent in non-productive ways to influence congress to carve out special tax deductions/credits. Enough loopholes were in the old tax code that some politically well connected wealthy people sometimes paid no taxes - this is why the AMT was created.

dv_dt 9y ago

Tax receipts are largely on income flows, but capital (wealth) itself is much more imbalanced than even the gilded age. Economic inequality has collected a huge amount of capital into very few hands that ultimately don't seem to know how to apply it productively over the whole system.

harryh 9y ago
While wealth is more concentrated in the US, access to capital is probably at an all time high. Interest rates on loans are tiny and equity markets have never been deeper.
- dv_dt 9y ago
  And why isn't productivity increasing if capital required to develop enhancements is available? And a related question if capital and access to it is at an all time high, then why do we have stagnant economic growth?
  - harryh 9y ago
    That is definitely one of the big mysteries of the modern era. Personally I subscribe to the hypothesis that we're just running out of low-hanging fruit. As humans developed better knowledge of biology, chemistry & physics there were a whole host of relatively easy to invent items from the steam engine, to antibiotics to air travel to the transistor and modern electronics. These were world changing. But now we're mostly done doing that and are now in the refinement stage on most technologies where we spend an enormous amount of effort to get, for example, 5% more fuel efficient airplanes. Physics is tough. Maybe we'll have some sort of revolutionary breakthroughs in the future that lead to another era of rapid invention but until that happens we'll continue plodding along building a slightly more efficient world instead of a transformative one. This is really just one hypothesis though. The real answer is that no one really knows for sure.
    - dv_dt 9y ago
      Agreed, it's quite believable that the threshold of capital required to develop a given improvement is increasing. That's one reason that individual entrepreneurs are likely making fewer impacts on starting of new companies. Well that and there is a double whammy of labor being paid less of a margin of productivity so individuals and even small businesses are more squeezed of their own capital accumulation. In other words, the Wright brothers today would have a hard time not only because it's harder to develop a competitive aircraft, but because their bicycle business isn't going to yield a sufficient margin to even invest in the development in wind tunnels, motors, etc that they did originally. The thing is, it's individuals that would make the 'crazy' investment without a cut-and-dry ROI, without a calculable guaranteed result - and I think we suffer from their absence in terms of end growth overall. But I also somewhat discount that the rising difficulty level is really why more breakthroughs aren't happening, if that were the case one would see larger and larger accumulations of ventures committing capital and failing (or at least operating). I think the real reason is that not enough capital even tries to attack these problems because they're longer term and difficult to quantify the return. The irony is that I suspect that we get a smaller overall growth by routing capital to mostly knowable investment returns over a larger proportion going to "crazy" non-calculable investments. So, we end up waiting for the die-rolls to match up people like Elon Musk with sufficient fortunes for truly big advancements, and an economic system that mucks around with financial engineering instead of relentlessly and systematically advancing a wide range of real-world applied engineering on big problems.

i386 9y ago

Increasing taxes does very little without closing loopholes for minimization.

candiodari 9y ago
Unfortunately the big loophole that matters is essentially "allow international trade". I doubt even you want to give that one up.

xbmcuser 9y ago

As long as you don't have high capital gains tax or at least at the same level as income tax the wealth will keep flowing to the very rich. As richer you are the lesser tax you pay percentage wise on your wealth gain every year.