"The Pitchforks Are Coming For Us Plutocrats" op-ed

[FerrelGeek]

When Joe middle class sells his 401k, he's going to pay whatever the marginal rates on it as 401k (regular) is treated 100% as income, whatever the amount may be with no care about capital gains, either short or long. Of course, Roth varieties are already taxed when putting the money in and there are no taxes on the gains (well, except those states that have only sales taxes and then you pay on your Roth indirectly).

Ah, correct. Good point. Let's convert that to Joe investing in some generic stock fund outside of his 401k. But I think you get where I was coming from.

 

[glenn1]

When Joe middle class sells his investment at retirement, he's still in a far different class that Warren Buffet. When Joe retires, he's not going to (most likely) cash in his entire 401k in one shot. He'll cash in what he needs at a given time, which will keep him at normal tax levels for someone making a modest income. When Warren cashes in $20 mil, you're getting into the realm that eskimo is talking about for the higher tax rate.

Even if we limited it to just the Warren Buffet set, not adjusting capital gains for inflation is S.T.U.P.I.D. Why would you base someone's tax bill on what the inflation rate was during the time period they held it? Why would you not index the gain to inflation and then tax it at a higher rate you determine, rather than allow the consumer price index to determine what effective tax someone would pay? Besides, Eskimospy is one of the biggest advocates on this forum for saying the current inflation rate is too low, if your objective is to raise rates on the wealthy why would you use a method where the low inflation rate works to the advantage of the same people he wants to tax more?

 

[FerrelGeek]

I'm ok with indexing to inflation.

 

[fskimospy]

I'm ok with indexing to inflation.

Indexing to inflation is probably a bad idea, as it makes the future tax rates you will pay highly uncertain when you make an investment.

 

[Thebobo]

You show me a highly unequal society, and I will show you a police state. Or an uprising. There are no counterexamples. None. It’s not if, it’s when.
​

Hmm police state you say.. ​

 

[Zaap]

the apologia of someone who knows the pitchforks aren't coming from the poor but rather middle class populist progressives who want to "stick it to the rich."

This.

Just another guy smart enough to go for the Warren Buffet effect. He realizes eventually the tax-and-spenders and the progressive thugs will target and scapegoat him to foot the bill for their failed nanny states and the throngs of angry people they've promised the sky and the stars to, so he simply co-opts them with a bunch of populist drivel that costs him nothing. So rather than a target, he becomes one of their little darlings. The usual suspects will even use his tale of super-wealth to beat over the heads of his far less rich neighbors.

Warren Buffet laughs himself sleep every night at how well the ruse works. Prog thugs actually worship rich people -in kind of the same strange way impoverished people worship "bling" on gross display from those who exploit them the most- pimps, dealers, gangsters. They just worship the rich that give them populist fairy tales they can use to beat up on easier targets- the upper middle class.

Look for this guy to get trotted out to the white house in due time to give a song and dance and complain that everyone else's taxes aren't high enough. Prog idiots will fall to their knees swooning.

 

[Engineer]

Ah, correct. Good point. Let's convert that to Joe investing in some generic stock fund outside of his 401k. But I think you get where I was coming from.

Yes, I do. Out of curiosity, how much does Joe MiddleClass have in stock investments that aren't in the 401k/IRA type?

80% of all stocks are owned the top 1% so that leaves 20% for the remaining 99% and much of that is in 401k/retirement type investments. Of course, those are taxed at regular rates (except Roth)?

(General question to anyone, not FerrelGeek necessarily).

 

[glenn1]

Indexing to inflation is probably a bad idea, as it makes the future tax rates you will pay highly uncertain when you make an investment.

How do you figure? It's more like the exact opposite. Although tax rates may get changed, you'd know in advance exactly what rate you'd pay if you hold an investment until it qualifies for long-term treatment and the tax would be exclusively on the inflation adjusted (i.e. actual) gain.

 

[fskimospy]

How do you figure? It's more like the exact opposite. Although tax rates may get changed, you'd know in advance exactly what rate you'd pay if you hold an investment until it qualifies for long-term treatment and the tax would be exclusively on the inflation adjusted (i.e. actual) gain.

Because how much you would be considered to have 'gained' would vary.

 

[glenn1]

Because how much you would be considered to have 'gained' would vary.

Yes, and so what? Even in the current state, how much you've "gained" varies according to what the inflation rate is, unless you're presuming that the asset in question is somehow immune to inflation effects. Even if you presume an effective zero inflation rate, you still have to account for discounting. Why do you want middle class people (or anyone really) to pay CG taxes on an investment unless it made an actual profit on an inflation adjusted basis?

 

[piasabird]

Wealth people can move to areas with lower taxation.

 

[fskimospy]

Yes, and so what? Even in the current state, how much you've "gained" varies according to what the inflation rate is, unless you're presuming that the asset in question is somehow immune to inflation effects. Even if you presume an effective zero inflation rate, you still have to account for discounting. Why do you want middle class people (or anyone really) to pay CG taxes on an investment unless it made an actual profit on an inflation adjusted basis?

You're probably right, although such a change would be pretty complex to implement. Another plus would be that this would probably remove some of the ultra-wealthy's opposition to higher inflation.

 

[Phokus]

Why is there such wealth inequality?

He's wrong here:



No, we were literally taught that price floors create shortages.

Actually, you're wrong (a consevative being wrong, shocking i know) and he's right:

http://en.wikipedia.org/wiki/Efficiency_wage

The shirking model begins with the fact that complete contracts rarely (or never) exist in the real world. This implies that both parties to the contract have some discretion, but frequently, due to monitoring problems, it is the employee’s side of the bargain which is subject to the most discretion. (Methods such as piece rates are often impracticable because monitoring is too costly or inaccurate; or they may be based on measures too imperfectly verifiable by workers, creating a moral hazard problem on the employer’s side.) Thus the payment of a wage in excess of market-clearing may provide employees with cost-effective incentives to work rather than shirk.[3][4] In the Shapiro and Stiglitz model, workers either work or shirk, and if they shirk they have a certain probability of being caught, with the penalty of being fired.[5] Equilibrium then entails unemployment, because in order to create an opportunity cost to shirking, firms try to raise their wages above the market average (so that sacked workers face a probabilistic loss). But since all firms do this the market wage itself is pushed up, and the result is that wages are raised above market-clearing, creating involuntary unemployment. This creates a low, or no income alternative which makes job loss costly, and serves as a worker discipline device.

 

[glenn1]

You're probably right, although such a change would be pretty complex to implement. Another plus would be that this would probably remove some of the ultra-wealthy's opposition to higher inflation.

Cool, glad we agree then. And this is not a trick or "gotcha" question; if we did index for inflation what would you feel appropriate LTCG rates should be? I think if we moved to inflation indexing the rates certainly could and probably should be raised although I don't have a certain number in mind. Also, my goal is the best balance of tax revenues vs. encouraging long term investment, and I admittedly have little interest in trying to address income inequality via this part of the tax code as I sincerely doubt its effectiveness.

 

[FerrelGeek]

Yes, I do. Out of curiosity, how much does Joe MiddleClass have in stock investments that aren't in the 401k/IRA type?

80% of all stocks are owned the top 1% so that leaves 20% for the remaining 99% and much of that is in 401k/retirement type investments. Of course, those are taxed at regular rates (except Roth)?

(General question to anyone, not FerrelGeek necessarily).

That's a good question. In general, probably not much, though I have no ready way to quantify it. Heck, most middle classers don't even have that much in their 401ks. I freely admit my scenario was more hypothetical, to make my point - which you kindly helped me clarify.

 

[Jaskalas]

You're all busy posting tit for tat on Capital Gains Taxes. I fear you're missing the point of the topic - minimum wage. Not striking down the rich, but lifting up the poor. Of upending the need for such extensive social services and welfare as we currently "enjoy".

The scale of how many people are dependent on government is tipping wildly into government's favor. Helping reduce that dependence with a higher wage, helping tip the scales back towards a healthier sort of Capitalism sounds like a good idea. Sounds like just the place to start.

OTOH, Capital Gains Taxes should probably more closely resemble income taxes - but that could be another subject entirely.

 

[fskimospy]

Cool, glad we agree then. And this is not a trick or "gotcha" question; if we did index for inflation what would you feel appropriate LTCG rates should be? I think if we moved to inflation indexing the rates certainly could and probably should be raised although I don't have a certain number in mind. Also, my goal is the best balance of tax revenues vs. encouraging long term investment, and I admittedly have little interest in trying to address income inequality via this part of the tax code as I sincerely doubt its effectiveness.

I don't really know, I'd have to look into it to come up with a number. Clearly there would need to be some increase in rates to keep the tax revenue neutral.

 

[Oldgamer]

Everyone is missing this guys point...lol

 

[First]

The Politico article is very much common sense to anyone who has been intimately involved in owning a private business and/or been in any sort of managerial position when employed by a corp, but who also has an understanding of public policy and how consumer spending drives both business hiring and inspires innovation by those entrepreneurs looking to fill a need (i.e. demand). It's why aggregate demand proponents generally show better results in their models than supply-siders citing, say, the Laffer curve.

 

[First]

You're all busy posting tit for tat on Capital Gains Taxes. I fear you're missing the point of the topic - minimum wage. Not striking down the rich, but lifting up the poor. Of upending the need for such extensive social services and welfare as we currently "enjoy".

The scale of how many people are dependent on government is tipping wildly into government's favor. Helping reduce that dependence with a higher wage, helping tip the scales back towards a healthier sort of Capitalism sounds like a good idea. Sounds like just the place to start.

OTOH, Capital Gains Taxes should probably more closely resemble income taxes - but that could be another subject entirely.

Very true, minimum wage is a good place to start. Hanauer makes a very salient point that's difficult to refute; the two highest minimum wage cities in the country are Seattle and San Francisco, liberal bastions that also happen to be the fastest growing and booming city economies in the country. It's not just tech startups, those cities are quite diverse (though, granted, it's hard to live there and not bump into people in tech pretty consistently).

Also, Hanauer, the author of the Politico piece, is well known from being featured in Inequality for All, the documentary based around Robert Reich's worldview of wage earners and the economy at large.

 

[theeedude]

Even if we limited it to just the Warren Buffet set, not adjusting capital gains for inflation is S.T.U.P.I.D. Why would you base someone's tax bill on what the inflation rate was during the time period they held it? Why would you not index the gain to inflation and then tax it at a higher rate you determine, rather than allow the consumer price index to determine what effective tax someone would pay? Besides, Eskimospy is one of the biggest advocates on this forum for saying the current inflation rate is too low, if your objective is to raise rates on the wealthy why would you use a method where the low inflation rate works to the advantage of the same people he wants to tax more?

I am OK with adjusting cap gains to exclude inflation, if the rate is increased to income tax rate to offset lost revenue, and minimum wage is also permanently linked to inflation.

 

[glenn1]

Very true, minimum wage is a good place to start. Hanauer makes a very salient point that's difficult to refute; the two highest minimum wage cities in the country are Seattle and San Francisco, liberal bastions that also happen to be the fastest growing and booming city economies in the country. It's not just tech startups, those cities are quite diverse (though, granted, it's hard to live there and not bump into people in tech pretty consistently).

Also, Hanauer, the author of the Politico piece, is well known from being featured in Inequality for All, the documentary based around Robert Reich's worldview of wage earners and the economy at large.

I'm fine with raising the minimum wage as long as it's acknowledged that doing so may make some jobs no longer economical, and thus hurt the people who hold them (or would in the future). Some jobs don't have much "customer value add" and are thus increasingly subject to being replaced by automation or self-service under a higher minimum wage regime. Those who maintain jobs at the higher wage are better off, while the least skilled who lose their jobs will need a lot more help to maintain self-sufficiency.

 

[glenn1]

I am OK with adjusting cap gains to exclude inflation, if the rate is increased to income tax rate to offset lost revenue, and minimum wage is also permanently linked to inflation.

Fine with the first, don't care for the second much since I think min wage should be set locally so that the relevant cost of living can be factored in. I continue to say also that minimum wage should be dual tracked (teenagers vs. adults) and time-stepped for service time to allow the least skilled a better chance to "get their foot in the door." To illustrate with made-up numbers, the minimum wage for someone just starting would be $5, go up to $7 after time period X, raise to full minimum wage after time period Y, and maybe even minimum wage-plus after time period Z. Think of it almost as a minimum wage "probationary period."

 

[MrPickins]

Which is why the fundamental law of capitalism must be: If workers have more money, businesses have more customers. Which makes middle-class consumers, not rich businesspeople like us, the true job creators. Which means a thriving middle class is the source of American prosperity, not a consequence of it. The middle class creates us rich people, not the other way around.

I'm not done with the article, but this makes a ton of sense.

 

[First]

I'm fine with raising the minimum wage as long as it's acknowledged that doing so may make some jobs no longer economical, and thus hurt the people who hold them (or would in the future). Some jobs don't have much "customer value add" and are thus increasingly subject to being replaced by automation or self-service under a higher minimum wage regime. Those who maintain jobs at the higher wage are better off, while the least skilled who lose their jobs will need a lot more help to maintain self-sufficiency.

I think it's tough to implement any public policy, liberal Dem or conservative Repub, that doesn't hurt some people. This is the responsibility of power, and it requires hard decisions. We can either make a political football of minimum wage or we can realize that it pretty clearly does more good than harm, as millions will be lifted out of poverty, far far more than will lose their jobs, allowing those people to spend more and indirectly create jobs and wealth for themselves as a result. That's good for everyone, top to bottom, and is badly needed at the bottom.

EDIT: haha, reversed that.