8 ms·

The real problem though isn't wealth inequality, it's income inequality. If someone has a billion dollars that's invested in various stocks, and never tries to

by whack 9y ago

The real problem though isn't wealth inequality, it's income inequality. If someone has a billion dollars that's invested in various stocks, and never tries to withdraw that money, leave him alone. The day he decides to sell his investments and start buying private jets, that's the time to tax him on his income. The argument against a wealth tax, is that it penalizes savers, and rewards spenders. Which is not what we want as a society. It's better for both the individual and for society if people invested their money into productive enterprises, instead of spending it on luxury goods. If the goal is to provide a more egalitarian quality of life across society, this can be perfectly achieved through an income tax alone. Specifically, by treating capital gains the same way as salaries, and by increasing the marginal tax rates for high earners.

albinofrenchy 9y ago
The argument against income tax is that it penalizes earners, and rewards not working. Sure, that is a reductionist argument but so was yours. The real argument against taxing wealth is that it isn't really feasible; you'd just encourage banking in other countries or buying up a lot of land. I also agree that capital gains being taxed at a lower rate is insane and makes sense only when you realize that's how politicians tend to get wealth.
- banned1 9y ago
  Assuming wealth is earned, why would you want to tax it? It already was taxed when the individual was working. Inherited wealth is another matter.
  - dredmorbius 9y ago
    Check your assuption.
  - barrkel 9y ago
    Are returns to capital earned? Certainly it's not easy getting outsize returns reliably, but the idea that the return is earned in a way that scales with the amount invested sounds very dubious to me.
    - banned1 9y ago
      The original capital was. The returns are already taxed. Are you proposing that returns are taxed at some other different rate? At some point the market won't be attractive enough.
      - barrkel 9y ago
        The returns to capital (capital gains specifically) are taxed at a much lower rate than income, and they're not taxed at all until they're realized, which means they can be timed to offset losses. Then the government is effectively handing out a subsidy to people with lots of capital, even more so than the lower tax rate. "The market" not attractive enough - there's nowhere to put your money other than "the market" (including bonds, commodities, real estate etc.) unless you keep it in currency, and that's even more susceptible to government takings.
        banned1 9y ago
        https://taxfoundation.org/why-capital-gains-are-taxed-lower-rate/ https://taxfoundation.org/why-capital-gains-are-taxed-lower-... Is there a limit you see in taxes? Do you have investments yourself? Maybe you donated all of your investments to the government after realizing how little you were being taxed?
        barrkel 9y ago
        I most recently converted my investments into a house deposit. In effect, I propped up inflated house prices. It'll take a while before I have a significant investment position again. Your last question is silly. The reason why I can simultaneously support higher taxes, yet not voluntarily donate money to the government, is because advocacy of higher taxes can raise far more money for government than my personal donations. Raising money to fund government is a collective action problem; if government relied on donations to run, it would fail because of freeloaders - in essence, a tragedy of the commons. But by collectively enforcing mandatory taxes we can make government work.
  - albinofrenchy 9y ago
    You can have a tax system by applying it to earned, applying it to accumulated, or by doing a little bit of both. Inherited wealth was already taxed at one point too. All money is taxed multiple times as it moves throughout the economy. That by itself isn't a good reason to dismiss any tax plan. Theoretically there are good economic arguments to back up a 'wealth' tax as a replacement of income tax or an adjustment to it. In theory, it could discourage keeping enormous reserves and keep money flowing through the economy -- it'd essentially incentive corporations hiring and building out operations rather than sitting on a rainy day fund or paying dividends. As I said though, in practice it just isn't entirely feasible even if you decided it was a policy worth pursuing.
alansammarone 9y ago
Could you please expand on why its necessarily better for the average Joe to invest money (without knowing beforehand whats gonna be a "productive enterprise" of course) instead of fuelling the economy directly by buying goods? (honest question)
- roenxi 9y ago
  This doesn't quite go to the substance of your question; but it is relevant. At this point the US debt is pretty staggering at both a personal and national level. The 'average Joe' is, by the numbers, consuming more than they are producing. There are two ways this can be sustainable: 1) Transfer from economically productive to economically unproductive individuals 2) Net economic consumers become net economic producers. In practice, this would almost certainly look like spending less and investing more. The argument of my grandparent seems to be that incentivising the _reverse_ of (2), ie net producers to become net consumers, is a terrible idea that will make the fundamentals of the problem worse. That argument is good as a matter of principle. It is particularly relevant in the current context of America.
- conanbatt 9y ago
  Investment is what produces more wealth in the long run, and all investment is foregone consumption. If you buy less coffee but invest in a coffee maker, eventually, more coffee will be made in total, which is the real riches of a society. Saving is paramount to growth in the classic economic model.
- wonder_er 9y ago
  Not OP, but I have an idea of what they're getting at. Another word for savings is "deferred consumption". If I earned 1000 dollars this month, and spent 700, I have 300 in savings, or, put another way, I deferred consuming 300 of those dollars. Now, 300 in a checking account doesn't do anyone any good but me, but if I took half of that money and invested it w/the bank at a 7%/year interest rate, I'd be investing $150/month, and once I started getting that return back, I'd be getting $160.50 back. What that does for the bank is gives it capitol to loan out to businesses. If someone went to the bank and got a loan of $150, with a promise of paying it back at 9% in a year, they'd borrow that $150, pay the bank back $163.50 in a year, and the bank would pay me, the original creator of those funds, $160.50. They'd get a profit of $3.00, which is the difference between loaning that money out at 9%, and paying me back at 7%. If the bank couldn't create money out of thin air, and doesn't fraudulently loan out customer's deposits, the only way to obtain a loan would be if someone else deferred consumption. Obviously, banks can create money out of thin air (by loaning out funds on deposit), and when they do so, they don't have to give the money back with any interest, so they do. They can loan out $150 at 5% (cheaper than anyone else, perhaps!) and they can keep all of the profit, or $7.50. (more than twice the earlier profit of a non-fraudulent loan.) I suspect OP subscribes to a more "savings-based economic growth" theory, in contrast to a "consumption-based economic growth" theory. I obviously am an advocate of the savings-based approach vs. consumption-based approach. That said, the banks + federal oversight encourage money to be created out of thin air, which makes it easy to spend money, and makes it impossible to incentivize deferred consumption. So, everyone spends money, no limits on it, and we all get to ride the waves between economic booms and economic crashes. The crash is an inevitable response to the boom, and any policy that wants to have booms without crashes is a logical fallacy. I hope this helps a bit! I can gather some more sources if you're curious, but the basic gist is in accordance to the Austrian school of economics. Read more on that, and you'll encounter much better explanations than mine! :wave:
dredmorbius 9y ago
I disagree, strongly, with your premise. First: wealth inequality is the result of persistent and pervasive income inequality. Second: there are frequently individuals with very-highly-fluctuating incomes. Performing or creative individuals in particular -- actors, writers, filmmakers, musicians, athletes -- may have a few good, and many lean years. Taxing their good periods excessively would actually be counterproductive. Taxing nonproductive wealth -- withheld or idle capital -- would put it to productive use. That's the fundamental principle of a land tax, as advocated by David Ricardo and Henry George. That concept fails to properly account for the withdrawal or degradation of natural capital, often at tremendous rates relative to the financial profit booked, and a case where natural capital is simply an off-books aspect of activities. Ensuring that all citizens can meet the fundamental needs of life is crucial -- something Adam Smith, David Ricardo, Robert Malthus, Karl Marx, and John Stuart Mill each advocated for. "A man must live by his work" -- Smith.
- loco5niner 9y ago
  > First: wealth inequality is the result of persistent and pervasive income inequality. "it's not what you earn it's what you keep" - someone on the internet
weirdstuff 9y ago
Small nit, but I'm not sure I'd prefer one (or a few) investor(s) over a larger, decentralized group of investors. Those are two very different power dynamics. A world with a few super-heavy investors may not be as effective as a world with a more distributed (democratic) investor base. Fewer investing eyeballs, more tunnel vision.
sokoloff 9y ago
> The real problem though isn't wealth inequality, it's income inequality. I disagree. Wealth provides financial security to an even greater degree than high current income. Wealth provides the means to move your family to a place where they will be safe and thrive. Wealth provides a means to start the next generation with a leg up, financially, socially, and academically. High current income can go away next year for most people and is often not portable to a new city or country. High current wealth is far more durable. I don't think it's the billionaires that are the only "problem". Those with 50+ million USD also live a life essentially devoid of the concerns of financial catastrophe. I see an incredible amount of logistical challenges in implementing an annual wealth tax (though some countries already do so), but far fewer philosophical problems, even though I am overwhelmingly likely to be one of those targeted by a wealth tax (low single digit millionaire household from 25 years of working, saving, and investing). I think it good social policy to institute an additional amount of drag on wealth accumulation, preferably by directly taxing it (annually or upon transfer), rather than further penalizing productive income-generating activities that are already taxed at nearly 50%.
- whack 9y ago
  > Wealth provides financial security to an even greater degree than high current income. Yes, but unless you're talking about a wealth tax in excess of 10%, this is not going to change. Someone with multiple millions of dollars in diversified investments will always be financially secure, unless we're considering drastic measures like a communist revolution. Regarding all the benefits of wealth you mentioned, note how these benefits only arise when the investor liquidates his investment. Hence my point that instead of taxing wealth when it is being productively invested, tax the wealth at the point of liquidation instead. I'm also in favor of high estate taxes, but that's an entirely different tangent.
  - sokoloff 9y ago
    I don't seek to eliminate wealth; that's a terrible policy IMO. Moderating its growth and concentration only slightly is far less disruptive or fraught with unintended/unknowable consequences. An annual wealth tax of 10% would wipe out most wealth concentrations within 50 years. I think such a level is absurdly too high, though. Looking at Switzerland as an example, I think 0.25% to maybe as much as 1% range is far more reasonable (roughly in range with their wealth taxation today) with a per-household exemption of $1MM or thereabouts [to prevent nuisance calculations over $10 in taxes]. > note how these benefits only arise when the investor liquidates his investment "essentially devoid of the concerns of financial catastrophe" is a tremendous benefit that confers to the wealth holder without need of spending the wealth.
gremlinsinc 9y ago
Am I understanding -- you're saying it's better for money to sit in an investment account, than spend it on goods/services locally -- thus applying it to local economies? Money doesn't do anyone but the holder any good sitting in an offshore account and even then it's really not doing them any good... do they really need it if it's not being used for something important/worthwhile..literally just collecting dust (and dividends?).... The real fuel of the economy is money being spent on Apple products, walmart, amazon, --hell even yachts/airplanes (somebody has to build those).. To fight income inequality, I think we need to tax at the point of investment.. --if you buy anything you're taxed on it..this includes investments/stocks/bonds/etc... just flat consumption taxes... give a UBI to offset the poorer folks... But have a mandatory flat tax...do away w/ the IRS/income tax. If you're not a U.S. citizen and not getting UBI sorry--but you're sales tax will not be subsidized by UBI--and if you're here illegally/unpapered -- you're now a tax payer congrats we can stop trying to deport everyone since now we make more tax money off of them!
- jaredklewis 9y ago
  Chicken or the egg? It seems equally intuitive that investment drives the economy. Investment gives companies capital, capital to spend on employees and services or products from other companies (which in turn spend it on employees or other companies). In this way, money makes it way into the pockets of consumers who then spend it on products and services, and the endless cycle of economic activity continues. But I'm not an economist and am somewhat skeptical of macro-economics in general, which seems a bit like reading tea leaves. Even if you if you don't buy into supply side economics, I think "Money doesn't do anyone but the holder any good sitting in an offshore account" is somewhat misleading. Savers and investors, through loans and capital, certainly help someone.
  - chromatic 9y ago
    It seems equally intuitive that investment drives the economy. The economic principle you're looking for is "velocity of money". If you think of a GDP in terms of a multiplier in how often/fast money circulates, then you can analyze whether investment or spending is more important. The second economic principle to look into after that is "marginal propensity to consume".

by whack 9y ago

albinofrenchy 9y ago

The argument against income tax is that it penalizes earners, and rewards not working. Sure, that is a reductionist argument but so was yours. The real argument against taxing wealth is that it isn't really feasible; you'd just encourage banking in other countries or buying up a lot of land. I also agree that capital gains being taxed at a lower rate is insane and makes sense only when you realize that's how politicians tend to get wealth.

banned1 9y ago
Assuming wealth is earned, why would you want to tax it? It already was taxed when the individual was working. Inherited wealth is another matter.
- dredmorbius 9y ago
  Check your assuption.
- barrkel 9y ago
  Are returns to capital earned? Certainly it's not easy getting outsize returns reliably, but the idea that the return is earned in a way that scales with the amount invested sounds very dubious to me.
  - banned1 9y ago
    The original capital was. The returns are already taxed. Are you proposing that returns are taxed at some other different rate? At some point the market won't be attractive enough.
    - barrkel 9y ago
      The returns to capital (capital gains specifically) are taxed at a much lower rate than income, and they're not taxed at all until they're realized, which means they can be timed to offset losses. Then the government is effectively handing out a subsidy to people with lots of capital, even more so than the lower tax rate. "The market" not attractive enough - there's nowhere to put your money other than "the market" (including bonds, commodities, real estate etc.) unless you keep it in currency, and that's even more susceptible to government takings.
      - banned1 9y ago
        https://taxfoundation.org/why-capital-gains-are-taxed-lower-rate/ https://taxfoundation.org/why-capital-gains-are-taxed-lower-... Is there a limit you see in taxes? Do you have investments yourself? Maybe you donated all of your investments to the government after realizing how little you were being taxed?
        barrkel 9y ago
        I most recently converted my investments into a house deposit. In effect, I propped up inflated house prices. It'll take a while before I have a significant investment position again. Your last question is silly. The reason why I can simultaneously support higher taxes, yet not voluntarily donate money to the government, is because advocacy of higher taxes can raise far more money for government than my personal donations. Raising money to fund government is a collective action problem; if government relied on donations to run, it would fail because of freeloaders - in essence, a tragedy of the commons. But by collectively enforcing mandatory taxes we can make government work.
- albinofrenchy 9y ago
  You can have a tax system by applying it to earned, applying it to accumulated, or by doing a little bit of both. Inherited wealth was already taxed at one point too. All money is taxed multiple times as it moves throughout the economy. That by itself isn't a good reason to dismiss any tax plan. Theoretically there are good economic arguments to back up a 'wealth' tax as a replacement of income tax or an adjustment to it. In theory, it could discourage keeping enormous reserves and keep money flowing through the economy -- it'd essentially incentive corporations hiring and building out operations rather than sitting on a rainy day fund or paying dividends. As I said though, in practice it just isn't entirely feasible even if you decided it was a policy worth pursuing.

alansammarone 9y ago

Could you please expand on why its necessarily better for the average Joe to invest money (without knowing beforehand whats gonna be a "productive enterprise" of course) instead of fuelling the economy directly by buying goods? (honest question)

roenxi 9y ago
This doesn't quite go to the substance of your question; but it is relevant. At this point the US debt is pretty staggering at both a personal and national level. The 'average Joe' is, by the numbers, consuming more than they are producing. There are two ways this can be sustainable: 1) Transfer from economically productive to economically unproductive individuals 2) Net economic consumers become net economic producers. In practice, this would almost certainly look like spending less and investing more. The argument of my grandparent seems to be that incentivising the _reverse_ of (2), ie net producers to become net consumers, is a terrible idea that will make the fundamentals of the problem worse. That argument is good as a matter of principle. It is particularly relevant in the current context of America.
conanbatt 9y ago
Investment is what produces more wealth in the long run, and all investment is foregone consumption. If you buy less coffee but invest in a coffee maker, eventually, more coffee will be made in total, which is the real riches of a society. Saving is paramount to growth in the classic economic model.
wonder_er 9y ago
Not OP, but I have an idea of what they're getting at. Another word for savings is "deferred consumption". If I earned 1000 dollars this month, and spent 700, I have 300 in savings, or, put another way, I deferred consuming 300 of those dollars. Now, 300 in a checking account doesn't do anyone any good but me, but if I took half of that money and invested it w/the bank at a 7%/year interest rate, I'd be investing $150/month, and once I started getting that return back, I'd be getting $160.50 back. What that does for the bank is gives it capitol to loan out to businesses. If someone went to the bank and got a loan of $150, with a promise of paying it back at 9% in a year, they'd borrow that $150, pay the bank back $163.50 in a year, and the bank would pay me, the original creator of those funds, $160.50. They'd get a profit of $3.00, which is the difference between loaning that money out at 9%, and paying me back at 7%. If the bank couldn't create money out of thin air, and doesn't fraudulently loan out customer's deposits, the only way to obtain a loan would be if someone else deferred consumption. Obviously, banks can create money out of thin air (by loaning out funds on deposit), and when they do so, they don't have to give the money back with any interest, so they do. They can loan out $150 at 5% (cheaper than anyone else, perhaps!) and they can keep all of the profit, or $7.50. (more than twice the earlier profit of a non-fraudulent loan.) I suspect OP subscribes to a more "savings-based economic growth" theory, in contrast to a "consumption-based economic growth" theory. I obviously am an advocate of the savings-based approach vs. consumption-based approach. That said, the banks + federal oversight encourage money to be created out of thin air, which makes it easy to spend money, and makes it impossible to incentivize deferred consumption. So, everyone spends money, no limits on it, and we all get to ride the waves between economic booms and economic crashes. The crash is an inevitable response to the boom, and any policy that wants to have booms without crashes is a logical fallacy. I hope this helps a bit! I can gather some more sources if you're curious, but the basic gist is in accordance to the Austrian school of economics. Read more on that, and you'll encounter much better explanations than mine! :wave:

dredmorbius 9y ago

I disagree, strongly, with your premise. First: wealth inequality is the result of persistent and pervasive income inequality. Second: there are frequently individuals with very-highly-fluctuating incomes. Performing or creative individuals in particular -- actors, writers, filmmakers, musicians, athletes -- may have a few good, and many lean years. Taxing their good periods excessively would actually be counterproductive. Taxing nonproductive wealth -- withheld or idle capital -- would put it to productive use. That's the fundamental principle of a land tax, as advocated by David Ricardo and Henry George. That concept fails to properly account for the withdrawal or degradation of natural capital, often at tremendous rates relative to the financial profit booked, and a case where natural capital is simply an off-books aspect of activities. Ensuring that all citizens can meet the fundamental needs of life is crucial -- something Adam Smith, David Ricardo, Robert Malthus, Karl Marx, and John Stuart Mill each advocated for. "A man must live by his work" -- Smith.

loco5niner 9y ago
> First: wealth inequality is the result of persistent and pervasive income inequality. "it's not what you earn it's what you keep" - someone on the internet

weirdstuff 9y ago

Small nit, but I'm not sure I'd prefer one (or a few) investor(s) over a larger, decentralized group of investors. Those are two very different power dynamics. A world with a few super-heavy investors may not be as effective as a world with a more distributed (democratic) investor base. Fewer investing eyeballs, more tunnel vision.

sokoloff 9y ago

> The real problem though isn't wealth inequality, it's income inequality. I disagree. Wealth provides financial security to an even greater degree than high current income. Wealth provides the means to move your family to a place where they will be safe and thrive. Wealth provides a means to start the next generation with a leg up, financially, socially, and academically. High current income can go away next year for most people and is often not portable to a new city or country. High current wealth is far more durable. I don't think it's the billionaires that are the only "problem". Those with 50+ million USD also live a life essentially devoid of the concerns of financial catastrophe. I see an incredible amount of logistical challenges in implementing an annual wealth tax (though some countries already do so), but far fewer philosophical problems, even though I am overwhelmingly likely to be one of those targeted by a wealth tax (low single digit millionaire household from 25 years of working, saving, and investing). I think it good social policy to institute an additional amount of drag on wealth accumulation, preferably by directly taxing it (annually or upon transfer), rather than further penalizing productive income-generating activities that are already taxed at nearly 50%.

whack 9y ago
> Wealth provides financial security to an even greater degree than high current income. Yes, but unless you're talking about a wealth tax in excess of 10%, this is not going to change. Someone with multiple millions of dollars in diversified investments will always be financially secure, unless we're considering drastic measures like a communist revolution. Regarding all the benefits of wealth you mentioned, note how these benefits only arise when the investor liquidates his investment. Hence my point that instead of taxing wealth when it is being productively invested, tax the wealth at the point of liquidation instead. I'm also in favor of high estate taxes, but that's an entirely different tangent.
- sokoloff 9y ago
  I don't seek to eliminate wealth; that's a terrible policy IMO. Moderating its growth and concentration only slightly is far less disruptive or fraught with unintended/unknowable consequences. An annual wealth tax of 10% would wipe out most wealth concentrations within 50 years. I think such a level is absurdly too high, though. Looking at Switzerland as an example, I think 0.25% to maybe as much as 1% range is far more reasonable (roughly in range with their wealth taxation today) with a per-household exemption of $1MM or thereabouts [to prevent nuisance calculations over $10 in taxes]. > note how these benefits only arise when the investor liquidates his investment "essentially devoid of the concerns of financial catastrophe" is a tremendous benefit that confers to the wealth holder without need of spending the wealth.

gremlinsinc 9y ago

Am I understanding -- you're saying it's better for money to sit in an investment account, than spend it on goods/services locally -- thus applying it to local economies? Money doesn't do anyone but the holder any good sitting in an offshore account and even then it's really not doing them any good... do they really need it if it's not being used for something important/worthwhile..literally just collecting dust (and dividends?).... The real fuel of the economy is money being spent on Apple products, walmart, amazon, --hell even yachts/airplanes (somebody has to build those).. To fight income inequality, I think we need to tax at the point of investment.. --if you buy anything you're taxed on it..this includes investments/stocks/bonds/etc... just flat consumption taxes... give a UBI to offset the poorer folks... But have a mandatory flat tax...do away w/ the IRS/income tax. If you're not a U.S. citizen and not getting UBI sorry--but you're sales tax will not be subsidized by UBI--and if you're here illegally/unpapered -- you're now a tax payer congrats we can stop trying to deport everyone since now we make more tax money off of them!

jaredklewis 9y ago
Chicken or the egg? It seems equally intuitive that investment drives the economy. Investment gives companies capital, capital to spend on employees and services or products from other companies (which in turn spend it on employees or other companies). In this way, money makes it way into the pockets of consumers who then spend it on products and services, and the endless cycle of economic activity continues. But I'm not an economist and am somewhat skeptical of macro-economics in general, which seems a bit like reading tea leaves. Even if you if you don't buy into supply side economics, I think "Money doesn't do anyone but the holder any good sitting in an offshore account" is somewhat misleading. Savers and investors, through loans and capital, certainly help someone.
- chromatic 9y ago
  It seems equally intuitive that investment drives the economy. The economic principle you're looking for is "velocity of money". If you think of a GDP in terms of a multiplier in how often/fast money circulates, then you can analyze whether investment or spending is more important. The second economic principle to look into after that is "marginal propensity to consume".