Income inequality "solutions"

[Jared Lash]

Yet it happens all over.

Yep, sure does. The most obvious way to gain wealth is to be born into it.

There's a line of thought that says anyone who is wealthy has earned it. But how is that the case for an "old money" family who haven't been anything but caretakers for a fortune accumulated by their great grandfather?

Part of the issue of income inequality is that we have simply become accustomed to this being "how things work" and not stopping to really look at what we take for granted as normal.

Larry Ellison recently awarded himself a compensation package of $77 million against the votes of the shareholders despite Oracle's stock being flat in a year when the NASDAQ saw a 30% gain. How many people even batted an eyelash (or for that matter even read) about that?

The closest most people come to questioning wealth inequality is complaining that LeBron James makes $60 million a year to play basketball and appear in ads & commercials or that a guy like Adam Sandler makes $15 million or so per picture despite having the lowest return on investment of any actor in Hollywood for 2013. Or how awful it is that the Kardashians are on magazine covers and have their TV shows.

But what people rarely think about is the advertising machine that fuels not only the entertainment industry but an alarmingly increasing portion of the U.S. economy. Facebook is worth around $125 billion dollars and 100% of that valuation comes from its ability to reach users with advertising.

Sometimes it's good to step back and view things we have previously simply accepted with fresh eyes. To me, income inequality is NOT a political issue. It's a fundamental matter of the direction we have passively allowed our culture to proceed in.

 

[aborgman]

Same goes for "saner healthcare". I'm not saying we don't need it. I'm asking how tha solves income inequality for the majority of people. Sure, you can point out examples of people who have gone bankrupt paying medical bills. But for the masses, I think "saner healthcare" would matter more to their health than their income.

For 2013 -

Bankruptcies resulting from unpaid medical bills will affect nearly 2 million people.

Health care debt is the No. 1 cause of bankruptcies, outpacing bankruptcies due to credit-card bills or unpaid mortgages.

Health care debt accounts for ~60% of bankruptcy filings in the USA.

 

[two fingers]

This. I know plenty of people who saved their whole life with the intent of passing most of it to their children. They paid taxes on it already, it's flat out theft to tax it again.

Bingo. My income gets taxed. I invest some of it in stocks. The corporation I invest in gets taxed BEFORE they pay me. Then I get taxed on that income. And then, when all is said and done, it gets taxed when I pass it on. How many times taxing the same money is enough?

 

[Jared Lash]

In terms of looking American health care cost issues from a non-partisan viewpoint I think this video does a very good job.

 

[Unrepresented]

OK, fine. That I totally agree with. However, that may increase quality of life (even if to only a minute degree). But it does nothing about the issue of "income inequality". Those people benefiting from social services (even increased ones under your one-sentence plan) are not getting more income. They are still beholden to people who "outrank" them (be they the rich, or simply the government organization handing out the goods and services you speak of).

I guess what I am saying (asking) is that any tax solution does nothing to change the income of those at the bottom of the income scale. So why bring it up as a solution to "income inequality". It simply is not. I'm not saying it does nothing to improve lives. Clearly, it could (if implemented correctly). But it does nothing to bring about an increase in THEIR OWN INCOME........as in, their own money that they earned and are allowed to keep.

So, I guess my view is that you are lumping "social justice" in with "income inequality". And I contend that they are two completely different subjects. Some of the results on the bottom end may be the same. But that is where to two subjects part ways. I would also argue that any improvement in the quality of life that is attained through social programs is minimal at best. Whereas if those same people were suddenly thrust into a higher tax bracket by earning and keeping more money, their quality of life would increase exponentially. (Not from an emotional standpoint. That's a separate debate. I'm strictly speaking in terms of being able to afford better "stuff" and daily necessities.) And, again, I don't think government mandated $50K salaries are coming any time soon. So how do we get there?

A) No one's income is purely their "own." It is a product of the society and increasingly the entire world. This is basic political theory. Societies debate and redebate to determine the distribution, no different than when you haggle over prices or pay. Same thing only macroscopic.

B) "Social justice" and income inequality are kinda related.

C) Income inequality didn't happen overnight. It took a lot of work to bring us to where we are now, it will not change overnight, or even in a generation or two -- see racism as an example. Implementing "social justice" now is a means of decreasing income inequality in latter generations.

 

[Unrepresented]

Bingo. My income gets taxed. I invest some of it in stocks. The corporation I invest in gets taxed BEFORE they pay me. Then I get taxed on that income. And then, when all is said and done, it gets taxed when I pass it on. How many times taxing the same money is enough?

Your living taxes could probably be lowered by increasing inheritance taxes.

 

[aborgman]

The other thing about Carnegie's essay is that he actually argues in FAVOR of a massive inheritance tax (or "death tax"). In his view, untrammeled capitalism was a great thing for society - as long as everyone began from the same starting line. Open competition would bring out the best in people, but allowing some people to start with an inherited fortune built by their parents would lead to an idle aristocracy instead (which he thought was Europe's problem). So he thought that the rich should give all their wealth away for the social good by the time they died, and if they failed to do so, the government would have to do it for them.

Adam Smith (you know... "the invisible hand of the market" Adam Smith) - was in strong agreement about inheritance.

there is no point more difficult to account for than the right we conceive men to have to dispose of their goods after death.

...and

It is the most absurd of all suppositions that every successive generation of men have not an equal right to the earth.

Of course - he also supported a progressive tax system:

The necessaries of life occasion the great expense of the poor. They find it difficult to get food, and the greater part of their little revenue is spent in getting it. The luxuries and vanities of life occasion the principal expense of the rich, and a magnificent house embellishes and sets off to the best advantage all the other luxuries and vanities which they possess. A tax upon house-rents, therefore, would in general fall heaviest upon the rich; and in this sort of inequality there would not, perhaps, be anything very unreasonable. It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion

 

[mapadofu]

I agree. This was never intended (despite accusations to the contrary) to be a conversation about who "deserves" what. I'm simply asking how we get there.

That being said, I will argue every time with anyone who says that higher taxes will solve income inequality. Again, it may (slightly) improve the quality of life of those receiving the money and/or benefits (after it has been filtered through huge wasteful bureaucracies), but it doesn't do anything about income inequality itself.

Some are unable to disconnect the two.

In an absurd limit, there is a clear connection between income tax rates and income inequality: tax at 100% all income over $1M (or whatever), then you can be assured of limiting (after tax) income inequality. There are probably a wide range of reasons why you would not want to do this, but this is a useful thought experiment.

Pulling back a bit, a 99% (effective) top level marginal rate would shurely affect people's decisions with respect to their income; probably the same for 90% or
80% or even 50% (the latter of which are historically relevant tax rates).

It's economics:
High marginal income tax rates -> lower marginal utility for additional income -> people will look for other ways to get utility/value other than by increasing their income.


The 100% limit indicates to me that these lower marginal rates should not increase income inequality. The fact that, historically, we've had higher top level marginal tax rates, while having a robust economy, indicates that increasing
the top tax rate is not necessarily a bad thing. Thus, it seems plausible that increasing the top marginal tax rates will mollify the increasing income inequality.

 

[6jase5]

Increased taxes give those at the bottom more access to public goods and services which subsidizes their lack of private goods and services.

That is a single sentence solution.

I don't know if I can agree based on the education studies.

States with the highest tax rates overall in terms of burden to the tax payer (sales, income, property, etc.) like California, New York, Maine, etc. do not consistently provide the best statistical access to better public schools and services. Some of the lowest like New Hampshire and Texas report better access to public services, lower classroom sizes, higher overall achievement scoring, etc.

Comparing states, California and Texas....Cali has 1 million more students but 80,000 less teachers, 200 less public schools and a significantly higher tax burden on the individual. In all fairness, Cali has more overall teachers in higher education, but it has to start at K-12 to even consider graduate school as an option. A lot of those teachers are teaching students from out of state (or country....don't get me started)

California leads the nation with 25.6 students per teacher while Texas is at 15.5.

It's not cut and dry by any means but certainly some states use their money wisely while others do not. Kudos to Texas, New Jersey and New York if you consider education statistics a measure of putting taxes to work.

But wait, there's more....testing scores in Texas, not so good. Uh oh, back to the drawing board.

 

[UncleFluffy]

not 100% familiar with what you mean by welfare trap. but I'm assuming you mean that it's hard to get out of welfare once you are on it. Running with that assumption I'll say I agree. I was previously on unemployment and felt reluctant to get a job because I found myself needing to work 50 hours a week to make what I was making sitting at home on my ass. add into that the fact that when I have a job now I need to pay for additional gas in my car, childcare, etc....

That's pretty much the exact definition I was using.

I'm not arguing with you. I am genuinely curious as to what you mean by this. To me, this is economics and doesn't have to swerve into politics. Numbers are numbers. And I would be interested in how a tax system (of any kind) could solve income inequality.

See DwaynieAD's excellent explanation above. It's probably not something that can be fix by tweaks to the tax code alone, but my understanding is that EITC is intended as a partial fix to this. (See aborgman's excellent post which he put up while I was writing this)

Same goes for "saner healthcare". I'm not saying we don't need it. I'm asking how tha solves income inequality for the majority of people. Sure, you can point out examples of people who have gone bankrupt paying medical bills. But for the masses, I think "saner healthcare" would matter more to their health than their income. And it would not close any major gaps in any way that I can think of (again for the masses, not just individual cases).

Well, at the big picture level, and sticking to numbers alone, the US system costs way more for worse outcomes. That's money that could be doing useful work elsewhere in the economy, benefiting everyone. At the individual level, the different costs of healthcare insurance between individual plans and employer-provided plans (ignoring recent developments) has often been something that has kept people from starting their own businesses. And, simply put, sick people aren't as productive so can't earn more whether they're working for themselves or for an employer.

Plus that whole bankruptcies thing, of course.

Increased taxes give those at the bottom more access to public goods and services which subsidizes their lack of private goods and services.

Personally, I prefer solutions that increase people's motivation and ability to contribute rather than increase the rewards for contributing less. (Yes, we can go off into discussions of the morality of unearned wealth here, and I'd probably agree with a lot of what you've got to say, but I don't think that was the OP's intent.)

In his view, untrammeled capitalism was a great thing for society - as long as everyone began from the same starting line.

Works (with a few inevitable exceptions) for me.

I, too, do not see any socioeconomic value to nepotism.

You could argue that there's some value as incentive, but even that disappears if you're thinking multi-generational.

 

[BawanaRik]

Invalid Link Removed


Tell me more about how the income gap is at record highs.

This is TB. No facts allowed.

The fact is for the vast majority of people life is good. Better than ever.

They allowed that to be clouded by people pouring poison into their ears.

 

[BawanaRik]

Your living taxes could probably be lowered by increasing inheritance taxes.

Taxes have been described as being like heroin. The more the addict gets the more she needs.

 

[spade2you]

Taxes have been described as being like heroin. The more the addict gets the more she needs.

Not when it comes to taxing the rich.

 

[fisticuffs]

This is TB. No facts allowed.

The fact is for the vast majority of people life is good. Better than ever.

They allowed that to be clouded by people pouring poison into their ears.

Well then we disagree on the facts (something that shouldn't be possible but seems to exist in every debate). What that link looks like to me is the guy who's picking your pocket telling you to look the other way.

 

[fisticuffs]

Taxes have been described as being like heroin. The more the addict gets the more she needs.

You could probably say the same thing about wealth.

You want to reduce the size of government and taxes, then start getting the private sector to do it's job and provide their employees with enough compensation that they don't need government assistance. or as I like to call it "the good old days".

 

[aborgman]

So, perhaps we should all get to choose then. Because I, for one, absolutely am working (almost solely) to provide a better life for my children, both while I am here and after I am gone. And I will hide money, cheat systems, and literally bury documentation and cash under rocks to make sure they get it and the government does not.

They won't have to pay anything, at all, unless the estate has a value over $5 million.

The federal estate-tax exclusion now is set permanently at $5 million and is indexed for inflation.

~99.8% of Estates owe $0 in estate taxes.

0.24% of estates pay an estate tax, averaging around 14%.

Even for the family farm that is always listed as the "we had to sell it to pay the taxes" inheritance -

For farms involved in estate, 2012:

97.3% filed no estate tax return
2.1% filed estate tax return but owed no tax
0.6% owed estate tax.

...and the federal government will give you subsidized, low interest, 15 year loans to pay the taxes even in those rare cases to avoid liquidation.

 

[BawanaRik]

In an absurd limit, there is a clear connection between income tax rates and income inequality: tax at 100% all income over $1M (or whatever), then you can be assured of limiting (after tax) income inequality. There are probably a wide range of reasons why you would not want to do this, but this is a useful thought experiment.



.

You be assured of impoverishing millions.

 

[Unrepresented]

Taxes have been described as being like heroin. The more the addict gets the more she needs.

Usually because people come to appreciate the expenditures the government makes. That sounds like an argument in favor of government spending.

 

[BawanaRik]

You could probably say the same thing about wealth.

You want to reduce the size of government and taxes, then start getting the private sector to do it's job and provide their employees with enough compensation that they don't need government assistance. or as I like to call it "the good old days".

I just don't see this. I would suggest firing anyone in an entry level job who isn't promoted within 2 years.

 

[BawanaRik]

Usually because people come to appreciate the expenditures the government makes. That sounds like an argument in favor of government spending.

That wouldn't be my opinion. If this aid was appreciated the appreciation would be shown.

I've never seen that.