7 ms·

The conflation between income and wealth in policy papers like this confuses me. Income is not the rate of change of wealth. Wealth can appreciate significantl

by rkk3 5y ago

The conflation between income and wealth in policy papers like this confuses me. Income is not the rate of change of wealth. Wealth can appreciate significantly without being reflected in taxable income.

comboy 5y ago
But how would you measure it? The most objective way of measuring value when you are exchanging it to something else i.e. transaction, if you have real estate it can appreciate in value but if you sell it, or rent it, then you pay tax based on that transaction. It would be great if consumption and not income could be taxed though (not easy).
- rkk3 5y ago
  > But how would you measure it? Calculating wealth is hard, but they already do that. If you have numbers for wealth over time, take the rate of change.
  - comboy 5y ago
    They estimate that and wealthy know all about it. There is no equation for calculating value of a piece of art.
    - dane-pgp 5y ago
      What would happen if a country decided to ban the sale of any piece of art for more than $1 million? An exception could perhaps be made for sale on the death of the registered owner, and sale to public galleries.
      - comboy 5y ago
        Some real estate is no different than art. Such arbitrary limits only create loopholes for those with most expensive lawyers.
    - rkk3 5y ago
      > They estimate that and wealthy know all about it. There is no equation for calculating value of a piece of art. They calculated "Wealth" for this article. There are many many valuation methods for assets, including art, and each has its trade offs (yes they can be gamed). Unless you want to take this to its philosophical conclusion of no observation being able to be an objective truth.
      - comboy 5y ago
        My point is that for taxation or legislation you need exact numbers and the same number should be the result for two different people in the same situation. I agree that even huge margin errors could be perfectly fine (because some value + margin error still give you lower bound) but I think we're not even close to that. Plus as much as I want it I just don't see how would you ever implement anything practical. Pure sophistication and obfuscation helps hide the wealth. Somebody rick can easily spend 10% of their wealth doing that (we're talking millions here) and tracing back these paths can turn out to be more expensive. Gov is at huge disadvantage here despite laws already helping it in a very questionable ways - like your need to prove where did you get some money from instead of gov proving that you got it illegally.
dasil003 5y ago
Usually I have the same reaction, but this article in particular actually does a good job of distinguishing and showing a lot of different cuts such as change over time and slice average versus percentile thresholds. It actually directly addresses a lot of questions I've had for years and never seen expressed as clearly. Right at the top the terminology clearly delineates the two: > These economists have been seeking to measure income inequality and wealth inequality, and to understand the nature of the 1 percent’s income and assets.
- rkk3 5y ago
  >this article in particular actually does a good job of distinguishing I read it before I posted, and I think that by presenting wealth and income together, they are conflating them. The terminology is nice, but it is not backed up by the content. For example how much of the wealth comes from income? I imagine a significant portion has not been recognized. Someone could be self-made and have billions in wealth but only a fraction of that has been recognized as income.
dkokelley 5y ago
Is there a measure of affluence that captures lifestyle, income, and assets? Something like: Change in overall net worth - consumption It seems there are so many ways to capture what "wealthy" really means. Some edge cases that challenge my understanding of wealthy: 1. I could make and spend $1m/year and have a net worth of $0. 2. I could earn $1m/year and consume $20k 2.1 I could donate the difference and have a net worth change of $0 2.2 I could save/invest the difference and grow my wealth 3. I could make $1m and have my $1m investments go to $0, leaving no change in my net worth (aside from that year's consumption) 4. I could make $0 and have my investments grow by $1m 5. I could have a net worth of $0 but earn $1m/year 6. I could make $10m/year but have my $100m investments go down to $50m, leaving me $40m poorer, but still be both a high earner and high net worth individual. Also, debt factors in to these. All of these variables move, and the definition of "rich" seems to be an ill-defined function of: - Income (from all sources) - Net worth - net worth change - Consumption/lifestyle - Debt - Other (connections, access to capital, creditworthiness)
- rkk3 5y ago
  Yes it really depends on what you are trying to explore. In this article they even excluded realized capital-gains from their income calculations which is going to change the profile considerably of who is included (wage earners I guess?). I wonder how much overlap there even is between the top .01% Wealth households and .01% income without capital gains.
  - alasdair_ 5y ago
    I completely agree here. People claiming tens of millions in regular non-capital gains income are a completely different group from the “real” 0.01% who most likely use capital gains for almost all of it. The “income” 0.01% are going to be people like lottery winners and are wholely unrepresentative.
    - rkk3 5y ago
      Yeah the cutoffs were 31M in non capital gains income (2015) vs 371M assets (2012). After income taxes they'd only get around half, ~16M, which is about 4.3% of 371M. So .01% non-cap gains income is maybe keeping pace on average with the .01% wealth's passive gains.
villasv 5y ago
> Wealth can appreciate significantly without being reflected in taxable income Not taxable income, but still income, isn’t it?

by rkk3 5y ago

comboy 5y ago

But how would you measure it? The most objective way of measuring value when you are exchanging it to something else i.e. transaction, if you have real estate it can appreciate in value but if you sell it, or rent it, then you pay tax based on that transaction. It would be great if consumption and not income could be taxed though (not easy).

rkk3 5y ago
> But how would you measure it? Calculating wealth is hard, but they already do that. If you have numbers for wealth over time, take the rate of change.
- comboy 5y ago
  They estimate that and wealthy know all about it. There is no equation for calculating value of a piece of art.
  - dane-pgp 5y ago
    What would happen if a country decided to ban the sale of any piece of art for more than $1 million? An exception could perhaps be made for sale on the death of the registered owner, and sale to public galleries.
    - comboy 5y ago
      Some real estate is no different than art. Such arbitrary limits only create loopholes for those with most expensive lawyers.
  - rkk3 5y ago
    > They estimate that and wealthy know all about it. There is no equation for calculating value of a piece of art. They calculated "Wealth" for this article. There are many many valuation methods for assets, including art, and each has its trade offs (yes they can be gamed). Unless you want to take this to its philosophical conclusion of no observation being able to be an objective truth.
    - comboy 5y ago
      My point is that for taxation or legislation you need exact numbers and the same number should be the result for two different people in the same situation. I agree that even huge margin errors could be perfectly fine (because some value + margin error still give you lower bound) but I think we're not even close to that. Plus as much as I want it I just don't see how would you ever implement anything practical. Pure sophistication and obfuscation helps hide the wealth. Somebody rick can easily spend 10% of their wealth doing that (we're talking millions here) and tracing back these paths can turn out to be more expensive. Gov is at huge disadvantage here despite laws already helping it in a very questionable ways - like your need to prove where did you get some money from instead of gov proving that you got it illegally.

dasil003 5y ago

Usually I have the same reaction, but this article in particular actually does a good job of distinguishing and showing a lot of different cuts such as change over time and slice average versus percentile thresholds. It actually directly addresses a lot of questions I've had for years and never seen expressed as clearly. Right at the top the terminology clearly delineates the two: > These economists have been seeking to measure income inequality and wealth inequality, and to understand the nature of the 1 percent’s income and assets.

rkk3 5y ago
>this article in particular actually does a good job of distinguishing I read it before I posted, and I think that by presenting wealth and income together, they are conflating them. The terminology is nice, but it is not backed up by the content. For example how much of the wealth comes from income? I imagine a significant portion has not been recognized. Someone could be self-made and have billions in wealth but only a fraction of that has been recognized as income.

dkokelley 5y ago

Is there a measure of affluence that captures lifestyle, income, and assets? Something like: Change in overall net worth - consumption It seems there are so many ways to capture what "wealthy" really means. Some edge cases that challenge my understanding of wealthy: 1. I could make and spend $1m/year and have a net worth of $0. 2. I could earn $1m/year and consume $20k 2.1 I could donate the difference and have a net worth change of $0 2.2 I could save/invest the difference and grow my wealth 3. I could make $1m and have my $1m investments go to $0, leaving no change in my net worth (aside from that year's consumption) 4. I could make $0 and have my investments grow by $1m 5. I could have a net worth of $0 but earn $1m/year 6. I could make $10m/year but have my $100m investments go down to $50m, leaving me $40m poorer, but still be both a high earner and high net worth individual. Also, debt factors in to these. All of these variables move, and the definition of "rich" seems to be an ill-defined function of: - Income (from all sources) - Net worth - net worth change - Consumption/lifestyle - Debt - Other (connections, access to capital, creditworthiness)

rkk3 5y ago
Yes it really depends on what you are trying to explore. In this article they even excluded realized capital-gains from their income calculations which is going to change the profile considerably of who is included (wage earners I guess?). I wonder how much overlap there even is between the top .01% Wealth households and .01% income without capital gains.
- alasdair_ 5y ago
  I completely agree here. People claiming tens of millions in regular non-capital gains income are a completely different group from the “real” 0.01% who most likely use capital gains for almost all of it. The “income” 0.01% are going to be people like lottery winners and are wholely unrepresentative.
  - rkk3 5y ago
    Yeah the cutoffs were 31M in non capital gains income (2015) vs 371M assets (2012). After income taxes they'd only get around half, ~16M, which is about 4.3% of 371M. So .01% non-cap gains income is maybe keeping pace on average with the .01% wealth's passive gains.

villasv 5y ago

> Wealth can appreciate significantly without being reflected in taxable income Not taxable income, but still income, isn’t it?