Monday, August 24, 2009

a link: class and taxes

Why Warren Buffett Must Take Aim on Our Obscene Distribution of Wealth:
This is the perfect time to call for a new progressive tax schemes on the super-rich. In fact, if we had in place a fair system, there would be no deficit problem at all. Consider the fact that by 2008, the top 400 billionaires in the U.S. averaged $3.4 billion in assets each! Their total net worth was a whopping $1.56 trillion. That capital accumulated because, as a matter of policy, we encouraged income and wealth to concentrate at the very top of the income ladder. If we had kept in place the Eisenhower era tax system, the deficit Buffett worries so much about would nearly vanish.

9 comments:

  1. Except, of course, that if we had those tax rates, we wouldn't have the level of economy we have today, or the number of super rich to tax- remember that it was JFK who came up with the lower-tax-rates-to-spur-the-economy, and it worked for him as well.

    The problem is depending upon an income tax to do the job. No income tax- not even a 100% tax- would redistribute those mega-fortunes, because we don't tax existing wealth, only the newly-earned wealth. You would do much better to eliminate the income tax and impose a net worth tax, if you want to redistribute the wealth. Why confiscate hard-won earnings, but give inherited wealth a pass?

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  2. Okay, not quite 100%. I think the goal should be to adjust the wealth gap to something fair for everyone, but getting there may call for income taxes as well.

    Though as I was writing that sentence, I began to see an argument for only having a wealth tax: If people wanted to avoid the wealth tax by spending their income on frivolous things as quickly as money came in....

    Hmmm. Should think about this.

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  3. Or, for example, instead of leaving their kids honking wads of cash, they could set up a trust that actually DOES something, with the kid involved in it. Or start a new business that actually employs people for the kid to run. Lots of ways to leave your kid cared for that are also good for society.

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  4. Joel, more agreement. I'm always amazed by the kids of famous parents who want to live on copyright: that connection to fame is a huge advantage in life that their parents have given them.

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  5. Taxing those super-rich at 100% would handle what, this year's deficit? (Well, almost: current prediction is $1.56 trillion.) Then what?

    It's often the case that doing something now, once, looks like a good idea; however, if doing it becomes policy, people's behavior is affected by that, and the overall longer-term results are bad. When tax rates were 70% and up, people put a lot of effort into sheltering income. This didn't help the economy (except for lawyers and accountants), and didn't produce anything. When tax rates were half that, people put a lot more effort into creating stuff, which provide benefits to other people.

    And an income tax wouldn't necessarily have hit the super-rich: many of them are worth huge amounts because they own stock whose value has increased. That isn't income until they sell it.

    I favor a strongly progressive inheritance tax, based on the amount inherited by an individual (rather than the amount left by the deceased). Inheriting comfort (I think someone can be quite comfortable on the income from, say, $20 million) seems fine; inheriting power (around $100 million and up can give power over too many people) should be a lot harder. So something about the first $20 million inherited is tax free, after that the rate rises to 90% at $100 million and up. This is per person inheriting, lifetime.

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  6. Will, you may have noticed that what I proposed was a huge increase in inheritance taxes.

    Again, if you make taxes too harsh (as determined by the people paying them), those people spend more effort avoiding taxes and less effort doing stuff that benefits other people (which is how money is earned)?

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  7. And what about food, medicine, etc.? It's pretty hard to buy those items used. (Well, technically you can, but I wouldn't recommend it.)

    The problem is that people at the poverty level and below usually have to spend all their income on rent, food, utilities, and so on. They can't just sock it away in some overseas account to collect interest, like the wealthy can. If you create more credits for the poor (like the EITC), then they'll spend it on the things society needs to produce. If you give tax credits to someone like Paris Hilton, on the other hand, the only jobs you're creating are paparazzi and chihuahua groomers.

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  8. Jeff, I should learn more about the VAT before I say anything much about it, but...

    Blue Jean, yep, that's my concern. If the VAT excludes a reasonable list of basic needs of modern life, I might be content with it. Say, food, medicine, books and magazines (including the electronic forms)... Or, better yet, if every adult got a check from the government every month that was something like a thousand dollars....

    The problem with both income tax and VAT systems is they don't get at the fundamental source of inequality, wealth. Now, if there was something like a 99% inheritance tax on estates worth more than $100,000 US....

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