5 ms·

> This is almost a natural law of wealth. The article is about how the post-1975 period differs from the pre-1975 period. So it's demonstrably not a natural la

by _qulr 6y ago

> This is almost a natural law of wealth. The article is about how the post-1975 period differs from the pre-1975 period. So it's demonstrably not a natural law. Natural laws don't change over time.

koboll 6y ago
From 1960 to 1985 the top marginal tax rate crashed from 90% to 30%. And then of course there's the demise of private sector unions, the effects of computerization, etc. Arguably, it was always a natural law, but the 1970s were an inflection point after which capital was allowed to accrue advantages at a much faster rate.
- JumpCrisscross 6y ago
  > From 1960 to 1985 the top marginal tax rate crashed from 90% to 30% Nobody paid 90%. The tax rate reduction was countered with the closing of loopholes. (There are still a lot.) Evidence for this is the nearly constant fraction of GDP collected in taxes. The other points are correct. Also, real incomes have both increased at the top end and shifted up for the population.
- ChrisLomont 6y ago
  Marginal rate is not effective rate. In fact, when Reagan cut the top marginal rate multiple times while also changing loopholes the effective tax rate on the top increased after some of those changes [1]. [1] https://www.cbo.gov/sites/default/files/110th-congress-2007-2008/reports/12-23-effectivetaxratesletter.pdf https://www.cbo.gov/sites/default/files/110th-congress-2007-...
- readams 6y ago
  It's mostly a myth that there was a 90% marginal tax rate. It's technically true, but when the top tax rate was removed they also removed all the loopholes and deductions that were being used to reduce the effect tax rate on top earners to below 45%. All the while the proportion of tax receipts as a percentage of GDP has remained constant. Meanwhile, the proportion of taxes paid by the top quintile earners has increased from 55% in 1980 to 70% by 2013. In 2017 the top 1% of income earners paid 38.5% of all taxes, vs the bottom 90% who paid 29.9% of all taxes. The top 50% of taxpayers paid 97% of all taxes in 2017. But all this ignores the main fact, which is that actual rich people make most of their money not as income, but as unrealized capital gains. High marginal rates on income taxes affects high-earning professionals. Not the private jet crowd.
  - randomdata 6y ago
    > actual rich people make most of their money not as income, but as unrealized capital gains. Technically, they make most of their wealth as as unrealized capital gains. It doesn't become money until they realize the gains, at which point it is taxable income.
    - SigmundA 6y ago
      Then typically only taxed long term cap gains rates of 20% or less...
      - jandrewrogers 6y ago
        That is just the base Federal rate. After NIIT, State, etc it can be >35%, which is actually quite high for a country where the cost basis is not inflation-adjusted. That is higher than most countries in Europe.
    - chris11 6y ago
      What's the average effective tax rate for high-net-worth+ individuals if unrealized capital gains are included as income? It seems like people get an increasing level of control over their taxes as their networth increases. Choosing when to exercise options means you have some control over AMT. If you invest in indices, it looks like direct indexing has a lot of tax benefits over an index fund. You can get variable and fixed rate loans against your investment accounts. It's not a good idea for tax minimization to be the main goal of your investment strategy, but it seems like people can get access to a large portion of their investments without actually realizing capital gains.
      - thelean12 6y ago
        > What's the average effective tax rate for high-net-worth+ individuals if unrealized capital gains are included as income? That's a completely pointless question. If I own 50% of GameStop, my net worth will have gone from $650 million to $12.2 billion to $1.8 billion in like 45 days. Sure, this is an extreme example, but it happens over longer stretches of time to a ton of the richest people. How exactly do you expect to tax that movement of those unrealized gains? > You can get variable and fixed rate loans against your investment accounts. That you eventually have to pay off. The money you pay it off with will be taxed.
- samstave 6y ago
  Don't forget things like the Panama Papers and how companies/super-rich figured out how to create thousands of shell companies to hide wealth, and that the journalist who revealed all of this was then murdered.
Pfhreak 6y ago
The law might be the same, but the environment can change around the law. From tax rates and economic conditions to the power of labor can all shift how we respond to that natural law. Wealth can continue to generate wealth, which we can then tax and redistribute. The natural law hasn't changed, but how we work around it has.
dan_quixote 6y ago
I interpret Pfhreak's comment to mean un-checked capitalism will naturally result in wealth consolidation. The article describes how we loosened our management of this natural law and witnessed a more rapid wealth shift as a result.
jandrese 6y ago
The natural law is there, but there was counterbalance from the government taxation and unions. That balance has been lost so the natural law is taking over. You wouldn't say that gravity doesn't exist because someone is holding up a ball and that it suddenly appears when the person lets go of the ball. This is what happened to monetary policy in the 20th century. The government abdicated its role in the name of unfettered corporate growth and now we have billionaires.

by _qulr 6y ago

> This is almost a natural law of wealth. The article is about how the post-1975 period differs from the pre-1975 period. So it's demonstrably not a natural law. Natural laws don't change over time.

koboll 6y ago

From 1960 to 1985 the top marginal tax rate crashed from 90% to 30%. And then of course there's the demise of private sector unions, the effects of computerization, etc. Arguably, it was always a natural law, but the 1970s were an inflection point after which capital was allowed to accrue advantages at a much faster rate.

JumpCrisscross 6y ago
> From 1960 to 1985 the top marginal tax rate crashed from 90% to 30% Nobody paid 90%. The tax rate reduction was countered with the closing of loopholes. (There are still a lot.) Evidence for this is the nearly constant fraction of GDP collected in taxes. The other points are correct. Also, real incomes have both increased at the top end and shifted up for the population.
ChrisLomont 6y ago
Marginal rate is not effective rate. In fact, when Reagan cut the top marginal rate multiple times while also changing loopholes the effective tax rate on the top increased after some of those changes [1]. [1] https://www.cbo.gov/sites/default/files/110th-congress-2007-2008/reports/12-23-effectivetaxratesletter.pdf https://www.cbo.gov/sites/default/files/110th-congress-2007-...
readams 6y ago
It's mostly a myth that there was a 90% marginal tax rate. It's technically true, but when the top tax rate was removed they also removed all the loopholes and deductions that were being used to reduce the effect tax rate on top earners to below 45%. All the while the proportion of tax receipts as a percentage of GDP has remained constant. Meanwhile, the proportion of taxes paid by the top quintile earners has increased from 55% in 1980 to 70% by 2013. In 2017 the top 1% of income earners paid 38.5% of all taxes, vs the bottom 90% who paid 29.9% of all taxes. The top 50% of taxpayers paid 97% of all taxes in 2017. But all this ignores the main fact, which is that actual rich people make most of their money not as income, but as unrealized capital gains. High marginal rates on income taxes affects high-earning professionals. Not the private jet crowd.
- randomdata 6y ago
  > actual rich people make most of their money not as income, but as unrealized capital gains. Technically, they make most of their wealth as as unrealized capital gains. It doesn't become money until they realize the gains, at which point it is taxable income.
  - SigmundA 6y ago
    Then typically only taxed long term cap gains rates of 20% or less...
    - jandrewrogers 6y ago
      That is just the base Federal rate. After NIIT, State, etc it can be >35%, which is actually quite high for a country where the cost basis is not inflation-adjusted. That is higher than most countries in Europe.
  - chris11 6y ago
    What's the average effective tax rate for high-net-worth+ individuals if unrealized capital gains are included as income? It seems like people get an increasing level of control over their taxes as their networth increases. Choosing when to exercise options means you have some control over AMT. If you invest in indices, it looks like direct indexing has a lot of tax benefits over an index fund. You can get variable and fixed rate loans against your investment accounts. It's not a good idea for tax minimization to be the main goal of your investment strategy, but it seems like people can get access to a large portion of their investments without actually realizing capital gains.
    - thelean12 6y ago
      > What's the average effective tax rate for high-net-worth+ individuals if unrealized capital gains are included as income? That's a completely pointless question. If I own 50% of GameStop, my net worth will have gone from $650 million to $12.2 billion to $1.8 billion in like 45 days. Sure, this is an extreme example, but it happens over longer stretches of time to a ton of the richest people. How exactly do you expect to tax that movement of those unrealized gains? > You can get variable and fixed rate loans against your investment accounts. That you eventually have to pay off. The money you pay it off with will be taxed.
samstave 6y ago
Don't forget things like the Panama Papers and how companies/super-rich figured out how to create thousands of shell companies to hide wealth, and that the journalist who revealed all of this was then murdered.

Pfhreak 6y ago

The law might be the same, but the environment can change around the law. From tax rates and economic conditions to the power of labor can all shift how we respond to that natural law. Wealth can continue to generate wealth, which we can then tax and redistribute. The natural law hasn't changed, but how we work around it has.

dan_quixote 6y ago

I interpret Pfhreak's comment to mean un-checked capitalism will naturally result in wealth consolidation. The article describes how we loosened our management of this natural law and witnessed a more rapid wealth shift as a result.

jandrese 6y ago

The natural law is there, but there was counterbalance from the government taxation and unions. That balance has been lost so the natural law is taking over. You wouldn't say that gravity doesn't exist because someone is holding up a ball and that it suddenly appears when the person lets go of the ball. This is what happened to monetary policy in the 20th century. The government abdicated its role in the name of unfettered corporate growth and now we have billionaires.