Wealth and Income Inequality

Discussion in 'The Water Cooler' started by Boosted87, Nov 7, 2019.

  1. Boosted87

    Boosted87 Bronze Knight
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    OK so I think many of my conservative friends don't understand the legitimate concerns with income and wealth inequality. The issue isn't "rich people are bad" or "everyone should have the same amount of money." The issue comes from the compounded effects of different growth rates.

    We all know the power of compounding growth. So I'm going to use some generic data to exaggerate the long term impacts of different growth rates. This is an EXAGGERATED example to highlight the reason why you should care.

    Let's assume household wealth share is distributed something like this. This is what percentage of total wealth each band has.
    • (1) Bottom 20%: 0% (zero net worth)
    • (2) Second 20%: 5%
    • (3) Middle 20%: 10%
    • (4) Third 20%: 25%
    • (5) Top 20%: 60%
    Now - Let's assume that wealth grows at different rates among each group on an annualized basis over 40 years and see what the new wealth share breakdown looks like.

    Growth Rates:
    • (1) = 0%
    • (2) = 1%
    • (3) = 2%
    • (4) = 4%
    • (5) = 8%
    New Wealth Share / Distribution after 40 years:
    • (1) - 0%
    • (2) - 0.5%
    • (3) - 1.5%
    • (4) - 8.3%
    • (5) - 89.7%
    At 100 years, group (5) owns 99% of all wealth.

    Why us free-market capitalists should care: As the imbalances worsen over time, the proposed solutions will get more and more extreme. There's no self-correcting mechanism in the free-market for this problem. The fix will be political. If you think Warren and Bernie are bad, let these trends run for another 20+ years unchecked (or amplified by worse tax policy).

    It's my personal belief that the rise in income and wealth inequality over the last 40 years is the primary reason you have populism on the rise on both right and left. People on all ends recognize that the trends are bad, they just don't know what they're seeing. The right might vilify immigrants while the left may vilify corporations and billionaires.

    Personally, I believe this part of the economy should be "managed" in the same way the Fed manages interests rates. I'd love if tax policy was variable and in the hands of a governing body like the Fed, who was responsible for adjusting rates yearly to drive towards certain quantifiable targets. Otherwise, you'll always end up in a situation where this drives super far in one direction until a massive political sea change over-corrects in the other direction. Rinse and repeat.

    BTW - I think this makes a me free-market capitalist with foresight, not a liberal socialist who wants to steal Jeff Bezos hard earned billions.
     
  2. Crazyhole

    Crazyhole Golden Knight
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    I've posted this same thing several times over the years. We do have a problem with wealth consolidation and it's gotten much worse over the last 40 years. Of course, this same problem exists in any economic system and free market capitalism is probably much slower to getting there, but we need to figure out how to address it before it's too late.
     
  3. Crazyhole

    Crazyhole Golden Knight
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    I should also add that QE has exacerbated the problem by decreasing the value of the dollar while putting more money in the coffers of the wealthy. You could make the argument that the bottom 40% are actually in negative territory relative to where they were in 1980.
     
  4. firm_bizzle

    firm_bizzle Diamond Knight
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    Wrong. Once I make enough money, it will trickle down all over those poors like a summer rain in Orlando. I just gotta keep making more money and the pols need to keep my taxes low so that I can spend. Problem solved.
     
  5. Boosted87

    Boosted87 Bronze Knight
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    Agree. It's a slow-creep problem, so it's easy to blame other things incrementally as their negative consequences show themselves. I'm appreciative that Bernie showed up in 2016 because his campaign laid the ground work for this slowly becoming a national conversation.

    Yup. I believe real wealth growth is negative for the bottom 40% over that timeframe. It's painfully obvious to any reasonable person this can't go on forever. I see 3 possible outcomes: (1) Oligarchy. (2) Continue to ignore it until there's a massive sweeping change with large scale wealth confiscation. Or preferably (3) Some reasonable effort at tackling it soon.
     
  6. Crazyhole

    Crazyhole Golden Knight
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    I know that was tongue-in-cheek, but it actually should be the goal. If we could find a way to incentivize spending from the rich through tax breaks it would increase money velocity. The optics would look bad but it would be a better long-game than a wealth tax.
     
  7. Crazyhole

    Crazyhole Golden Knight
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    Capital gains should be taxed at the same rate as earnings and there should be tax credits for consumer spending and increased breaks for charitable donations. If I could get a 1.25 tax break on every dollar I donate, it would increase donations for fiscal reasons and it would get dollars moving. Capital gains is a little bit tougher because you don't necessarily want to tax investments prior to cashing out, but at the same time we can't act like ignoring capital gains on appreciable assets can just go on indefinitely.
     
  8. Boosted87

    Boosted87 Bronze Knight
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    How do you do that with a tax break? Wouldn't you do that by raising taxes on investment/saving relative to consumption?

    I think the problem has to be addressed on the corporate side. The economy grows over time, and how that growth is distributed is the question. Let's say technology/automation makes a particular worker 100% more efficient. The company doubles output without laying anyone off, while doubling profits.

    If the CEO's compensation doubles. The stock price doubles. Dividends double. But wage growth for non-skilled workers is barely beating inflation, then we've got a huge problem. That's essentially how I see it.
     
  9. Boosted87

    Boosted87 Bronze Knight
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    Cheers to that.
     
  10. Crazyhole

    Crazyhole Golden Knight
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    This is where the waters get muddy. Any tax or tax break has two sides of the coin. A consumption tax break encourages spending on non-appreciable assets, which increases MV. Our current tax system encourages investment in appreciable assets by giving deferments on the tax, which is the biggest driver of wealth consolidation. Having a lower capital gains tax encourages investment that leads to passive income, which in and of itself is a good thing but it also perpetuates itself.

    One of Friedmans more interesting theories was using helicopter money to speed up MV. We actually did essentially that same thing in 2001 and it proved to work. The more recent versions of QE have gone directly into the investment banks and the stock market, which not only made the wealthy even more wealthy, but made it harder for lower income earners to buy into appreciable assets like the stock market or housing.
     
  11. Crazyhole

    Crazyhole Golden Knight
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    The initial post referenced your conservative friends. I would say that both sides have basic arguments for their economic positions. The right always throws out "make the pie bigger", which is an absolute joke. The pie has gotten WAY bigger, but the guy with the small piece of the pie hasn't gotten a bigger slice, and for the lower end it's actually gotten smaller. The left always throws out tax proposals that look good at face value but don't take into account the flip side of the coin. It drives me up a wall when liberals propose a value added tax. Yes, let's tax the very basis of what makes an economy grow.
     
  12. Boosted87

    Boosted87 Bronze Knight
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    Thought this was interesting. If you go to the Tweet you'll see Bill Gates replying directly. When seeing people on this board argue and call each other names, it's nice to be reminded what civil and open minded discussion look like. I'd love to see Warren and Bill gates hold a public discussion on these issues. I think we'd learn a lot from that. You learn the most from people you disagree with.
     
  13. Sir Galahad

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    Sorry but the only thing I’m going to learn from Warren is she is short on facts and long on dreams.
     
  14. Crazyhole

    Crazyhole Golden Knight
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    Actually I think she's pretty good on facts, it's her proposals that are short sighted and intended to divide people even more.
     
  15. Crazyhole

    Crazyhole Golden Knight
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    Its amazing when you get into the numbers when you look at what a wealth tax "could" do.

    The 25 richest people in america are worth enough money that they could take 10% of their wealth and give every person under the poverty line (40 million) almost 4000 dollars.
     
  16. Boosted87

    Boosted87 Bronze Knight
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    Wow. I never would have thought that I'd be philosophically open to the type of wealth taxes Warren is proposing until I educated myself on the inequality situation. To me, whether her solutions (or Bernie's) are the "right" way to approach it is irrelevant when there is no alternative being discussed. We could really use credible, conservative recognition and proposals on these challenges, but I don't see that happening any time soon. All I see from the right are crap efforts at trying to polish turds.
     
  17. Crazyhole

    Crazyhole Golden Knight
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    They aren't proposing solutions that will help the poor, they are proposing solutions that will hurt the rich and grow government. It's always under the guise of wealth redistribution but in reality it's about wealth confiscation. Just using the numbers I posted above, how about this as a proposal:

    Have a government certified group of charities that billionaires and millionaires can donate to which redirects money to people who qualify as living in poverty. Give a 100% tax break to the wealthy and consider it non-taxable income for the recipients. I know this is pie in the sky thinking, but it would help address the issue of wealth consolidation and increase MV, which increases the tax base.

    In fairness, both CATO and the Heritage Foundation have spent time exploring possible solutions to wealth consolidation so it isn't like the right is entirely ignoring the problem. The problem is that the politics involved are almost impossible to navigate.
     
  18. Sir Galahad

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    Didn’t we do this back towards the end of Bush’s term? It’s a waste of mi ey, I’d be willing to bet those that are extremely poor are that for a reason and $4,000 isn’t going to change that.
     
  19. Crazyhole

    Crazyhole Golden Knight
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    No, we've never done a wealth tax. At the beginning of Bush's first term we did the first round of QE, which was just printed money. As far as the 4,000 bucks, that is not a suggestion. It's just a picture of how much wealth has been consolidated. 25 people can give 40 million people that much money and still be multi-billionaires. I'm not suggesting that we force something like that, but if there is a way to encourage it we could probably maintain a free market economy for much longer.
     
  20. goodknightfl

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    This is likely the only thing stated in this thread I agree with. Those with lesser means have Savings or CD's and have to pay regular earning taxes on those gains while the rich pay less on capital gains. I also think Tax free government bonds should be eliminated.
     
  21. UCFKnight85

    UCFKnight85 GOL's Inner Circle
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    So you're in the "do something!" crowd no matter how stupid or likely unconstitutional it is? Warren wants a "wealth tax" that taxes unrealized gains, intangible property, physical property, real estate, future value of said possessions, etc etc etc

    It's been tried in Europe on a smaller scale and crumbled since it's impossible to actually implement. Please tell me how someone can fairly issue a tax on unrealized gains over a 1 year period? Everyone's portfolio goes up and down every single day and all of those unrealized gains (or losses) change every single day.

    Even if some bozo Warren Admin "wealth appraiser" issued a number, it'd be challenged and legally fought in the courts for months or years since it'd be subjective and probably bullshit. So all of the revenue that Saint Warren promised with this "wealth tax" would be punted and deferred and the programs she passed with these revenues assumed would put us into more debt. Hooray!

    This entire idea is horrible; what's even more horrible is that she doubled this assumed tax to 6% to lie to everyone and make people believe that she really can make MFA for all happen without a dime in tax increases on the middle class.

    Maybe that'll be her jobs program - hire thousands of new appraisers to run around the world to count the possessions and assets of those stinking rich people.
     
  22. Boosted87

    Boosted87 Bronze Knight
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    @Crazyhole - Just saw this from hedge fund billionaire Ray Dalio - just a couple days old. He doesn't assign cause or solution, but he identifies the problem in a much more technical way than I ever could. This is a good read.

    The World has Gone Mad and The System is Broken

    Basically the thesis is what you'e been getting at - too much money consolidated. It's inflating assets and making debt to cheap. Not enough capital is in the hands of people who would spend it.
     
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  23. Boosted87

    Boosted87 Bronze Knight
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    My point is this - however bozo you think Warren's ideas are, they're going to seem pedestrian in 20 years without some kind of significant change. I fully agree with you that a wealth tax is hard to administer, easy to game, and will create all kinds of perverse incentives to hide money. That's irrelevant against the larger point of identifying the problem and preferring we address it sooner rather than later.

    It's just math. Each year it continues it's going to be harder and harder to unwind and the change required is going to be more significant.
     
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  24. Crazyhole

    Crazyhole Golden Knight
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    You make a lot of valid points, but yes we need to do something unless we are ok with the idea of total collapse. The point of the thread isn't to provide bandaid solutions, it's to start the discussion. I alluded to the issue of taxing capital gains on a year-to-year basis and it is impossible IMO. That's why we need to try to figure out a solution that avoids the incentive to invest in appreciable assets and get dollars moving. While it's pretty frigging awesome for me that my retirement fund has gone up 18% this year, that makes me less likely to spend money on things that actually circulate money and generate actual economic growth. We can only do that for so long until all of the real wealth is consolidated, and then we end up with a populist socialist revolution.
     
  25. Crazyhole

    Crazyhole Golden Knight
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    A frigging men to your last statement. How ridiculous is it that we are actually incentivizing people to loan money to the government that goes beyond what a typical investment would be? This whole charade goes back to Keynesian theory except we have taken it 10 fold beyond what even he suggested was a good idea. Keynes' last resort was monetary manipulation in the event of a crisis, we have gone from asking individuals to partake in it by buying 100$ t-bills that made 2% interest over 20 years to literally having the treasury print money, give it to the federal reserve, and then borrow it back for 3-5 times that return! Its absolute insanity. The most frustrating part to me, and the biggest reason why I don't support any political party, is the fact that the people who have been sounding the warning bells over the last 30 years have been categorically drummed out of the parties. It started with pat Buchanan, then Ross Perot, then Dennis Kucinich and Ron paul. This isn't anything new, we just seem to have a death wish where it has to get beyond the point of no return before anybody cares.
     
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  26. Boosted87

    Boosted87 Bronze Knight
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    That's my concern as well. If not dealt with proactively, you end up either in Oligarchy or eventually, a socialist revolt against the oligarchs. If the Oligarchs manage it well, you can keep the people just happy enough to avoid revolution though, and I suspect that could go on a good long while.
     
  27. fried-chicken

    fried-chicken Golden Knight
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    Crazyhole you poor bastard. You've identified an issue correctly but your commitment to your entire identity as a conservative won't let you solve it because maintaining that identity is more important to you than an actual solution.

    This is not a difficult problem. You tax it. The economy worked fine when people only had 10 billion and not 100 billion. People will still innovate, invent, work hard for a chance to be a billionaire even if they can't be a hundred-billionaire.
     
  28. Crazyhole

    Crazyhole Golden Knight
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    Go sit at the little kids table. Your suggesting of "you tax it" is a simpletons answer. Explain to me how to tax it, what level to tax it, the side effects of taxing it, and how those tax dollars will benefit the economy. Of course, your response will be "it's not my job to figure those things out", which immediately makes your position meaningless and on the same level as knightclasses posts which are almost impossible to decipher.
     
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  29. fried-chicken

    fried-chicken Golden Knight
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    You just tax it. Warrens plan is 2% on every dollar over 50 million. That seems like a reasonable amount.

    Anything greater than a 0% increase and a permanent tax cut for the companies they own is a step in the correct direction. I'm tired of the working class arguing so aggressively for their owner's interests when their owner is arguing just as aggressively against their worker's interest.

    Man up and take the money back that should have gone to you in wage increases over the last 20 years. Stop being a boot licker.
     
  30. Crazyhole

    Crazyhole Golden Knight
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    "Tax it" is a lazy answer. What should we do with those tax dollars specifically? Describe how this taxation should work where it doesn't just go into the govt coffers and enable them to borrow more based on increased cashflow just for the sake of growing the bureaucracy.

    Your bias as a liberal blinds you to the fact that government is the most inefficient middle-man in the world. Show me an Avenue where we can get closer to equalization of wealth without growing DCs overhead and I would be all for it.
     
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  31. fried-chicken

    fried-chicken Golden Knight
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    Give it directly to people. - Yang

    Use it to fund services middle class will benefit from - Warren

    Don't take it at all just keep things the same - Biden

    Give the elite more money - Trump

    Pick your poison youre arguing minutia to make it seem to difficult to attempt but we're smart enough with enough resources to solve easily solvable problems unless you're just too afraid to admit that tax is the only solution. Wealth has only flowed downward when we force it to. It always consolidates.

    The period of the smallest income inequality in american history was a direct result of massive government programs, regulations, and a 70% marginal tax rate.
     
  32. Crazyhole

    Crazyhole Golden Knight
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    When has wealth ever moved downward?
     
  33. UCFKnight85

    UCFKnight85 GOL's Inner Circle
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    At least FC is admitting that he has no interest in growing the total pie, which we've been doing, but purely wants to elect people to obsess over whether Jeff Bezos has $100B or $50B since somehow that will make people feel better about themselves.

    Also, he's leaving out the fact that we had 70-90% tax rates when the entire world was in post WW2 ruin and America was the only remaining economic power left standing. These absurd, immoral tax rates were eventually slashed downward by both Democrats and Republicans when it became clear that they were stagnating the economy and hurting America's competitiveness in the world.

    Since Shook Chicken loves Warren all of a sudden (LOL), here's an exit question: what awesome programs does he think she'll fund with her unconstitutional and unrealistic wealth tax that actually make it to a single person, knowing that her "tax only the wealthy" plan has already been scored by economists as covering 1/3 or less of MFA?
     
  34. UCFKnight85

    UCFKnight85 GOL's Inner Circle
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    Please, stop using this tired and rehashed faux talking point from the left about "Oligarchs"! It's time to drop this once and for all.

    An Oligarch is some idiot who is handed fortune and the reigns to an entire industry under a centrally planned economy whereby no one else can even compete. We don't have that. The super wealthy in this country all built the great companies of our time who innovated, brought groundbreaking products to the market, and changed how the world works. They're billionaires because they created companies that are insanely valuable.

    Calling them Oligarchs only insists that they didn't really earn or deserve their money which is a lazy, dumb talking point that the far left uses when they want to insist that wealthy people only exist by ripping off everyone else.
     
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  35. fried-chicken

    fried-chicken Golden Knight
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    When we created the middle class
     
  36. beelit47

    beelit47 Bronze Knight
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    Like any democrat when it comes to taking people’s money for redistribution?
     
  37. Boosted87

    Boosted87 Bronze Knight
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    I didn't call anyone an Oligarch so read better next time. Crazyhole said if you don't reign this end, you end up with a socialist revolution. I said an alternative conclusion is an oligarchy that is able to keep people just happy enough not to revolt. These are both end-game, worst case scenarios for continued wealth consolidation.

    What do you think the end-game is if current trends continue? If you think the trend will change, what do you think will cause it to change?
     
  38. Boosted87

    Boosted87 Bronze Knight
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    At the end of the day, I tend to believe this is cyclical. The sample size in the modern era is too small to back that up, but that seems logical to me. You go through a period of consolidation until you reach a tipping point. That could be a major event that catalyzes change (market crash, war, etc), or simply a populist progressive economic policy takes the reigns for a while.

    Of course, the last time we had this level of inequality was right before the market crash in the '20's. That was followed up with New Deal policies and WWII, then very high marginal tax rates.

    It's really hard to look at a chart of 0.1% wealth share next to a top marginal tax rate chart, and not correlate them.

    [​IMG]
    [​IMG]
     
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  39. UCFKnight85

    UCFKnight85 GOL's Inner Circle
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    Answer me this - if Amazon reports blowout earnings and Jeff Bezos becomes $1B richer by way of his shares appreciating (as UNREALIZED gains), does that take wealth away from any single person in America? Are there people sitting at their table in America watching their savings disappear so it can go to Bezos' stock?

    I ask because while yes, I think the income gap has some reason for concern, it's also been greatly overblown. Wealth is not finite. These billionaires are making their fortunes because they are inherently creating HUGE amounts of new wealth and productivity with their products.

    There are many other economic indicators that I worry much more about than income "inequality" simply because what Jeff Bezos or Bill Gates do or don't have in their account is irrelevant to what the majority of America needs economically.
     
  40. fried-chicken

    fried-chicken Golden Knight
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    Cyclical? Its been trending up for 50 years and its accelerating. The only reason it was low in the 1940s and 1950s is because of the new deal. Massive government programs, taxing the rich, implementing worker protections, and a focused effort to create a middle class. Before all these things (which would be called socialism today) your child could come home from working 6 days a week at a mill with a missing hand and he would have been fired for it and you might not have been able to afford meat for dinner. That damn pesky socialism of worker protections, child labor laws and social programs built the best time in american history for wealth equality.
     
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