The Flawed Concept of "Wealth Redistribution"

[Toro]

And BTW.... what you have accumulated before is of no concern to anyone, including the government... I don't care if you have $5BIL sitting in a safe... you get taxed on the income, not on what you have amassed

I agree with this completely.

The absolute worst taxes from an economic standpoint are taxes that are taxes on capital, which differs from taxes on income from capital.

There should be no taxes on capital, at least from an economic perspective.

 

[Wry Catcher]

The Flawed Concept of "Wealth Redistribution"
M40 - Thursday February 26th, 2009, 6:29pm

Anyone who believes in "wealth redistribution" shows a complete and utter ignorance of how economics work. This applies at both the micro and macroeconomic scale. The fact that our president is a firm believer in “wealth redistribution” is a scary fact indeed. If you doubt this, listen to him talk about it here: YouTube - Obama Bombshell Redistribution of Wealth Audio Uncovered

The premise of "wealth redistribution" is that it is unfair when one person has more wealth than another. However, this whole assessment of fairness is based on a faulty principle. That principle is called "zero sum economics", and it is a flawed assumption. Zero sum economics assumes that there is a fixed amount of wealth in the world, and that we all have to share it. If someone takes more than their share, then someone else has less as a result. If that were the case, then "wealth redistribution" might be a means to remedy that inequity. However, nothing could be further from the truth. There is NOT a fixed pile of "wealth" from which we all must share. Wealth is created, not taken from others.

In the zero sum mindset, if I take an extra slice of pizza, then some unlucky asshole is left to gnaw on the box. There is no consideration for the fact that we can simply make another pizza, and have thus created "wealth". The pizza is worth 10 times what the raw ingredients were worth, and thus wealth is created from nothing. If you know someone who supports "wealth redistribution", ask them the following. Should artists be forced to sell paintings for the exact sum of the cost of the paint and canvas? The answer is (of course), no way! Well... where did that extra cost come from? It came from the artist’s skill, time and workmanship. The artist created a large amount of wealth from a couple dollars worth of materials.

But some folks might argue that there's a fixed amount of dollars, pounds, (pick any currency) out there and that is what we are forced to share. Again, a FLAWED perception of reality, and an ignorance of how economics and currencies work. What is a dollar worth? It's worth a dollar of course... but what the fuck does that mean? Here's the secret... it means whatever you want it to mean.

The dollar is a piece of paper that is sometimes worth a lot, and at other times isn't worth the paper it's printed on. The value of any currency is worth whatever people perceive it to be worth at that exact moment. It is only a "bearer instrument" used for trade and is based ENTIRELY on your trust in it’s value. If I'm selling bread, I might decide that my bread is worth a dollar per loaf. But the next day, I may decide it's worth two dollars a loaf. It's up to me what I charge, but it's also up to the BUYERS. If people decide that my bread tastes like ass, then suddenly my bread is worth precisely ZERO DOLLARS to me or anyone else. Therefore, the value of ANYTHING is... exactly what people are willing to spend on that thing!

If I have a Snickers bar and someone offers me a dollar for it… SOLD. However, if I happen to be starving and the Snickers bar is the only food available, then that Snickers bar may be worth a hundred dollars… it may be worth a thousand dollars… or a million. The Snickers bar is the ‘wealth’, NOT the dollars. The dollars are only instruments used for trade, and like any trade, you as a buyer or seller need to weigh your perceived value of the item you’re trading and that which you’re trading it for.

Paper money and coinage were invented to make trade easier for people. Let’s go back a few thousand years in history… before money. The tribal toolmaker shows up at the butcher’s place. He offers the butcher a nice stone knife for a choice cut of mutton. Well, the butcher may already have all the stone knives he needs, so… no deal. The toolmaker now needs to find out what the butcher needs, then find a person who has that and is willing to trade for stone tools! Why? No “currency” as a means of trade. But again, the currency is only valued based on what people are willing to pay. If there was starvation among the tribe’s people, then all the stone tools in the world aren’t worth a bite of mutton. Likewise, if the tribe has 27 butchers, but only one toolmaker, then decent stone blades are worth a LOT of meat.

Because there's a fixed amount of DOLLARS out there, the value of a dollar therefore rises and falls based entirely on public perceptions. If we as a nation are busy little bees and produce lots of goods and services that the world actually wants, then the value of the dollar skyrockets. If we sit back and get fat and lazy, the value of the dollar plummets like a stone.

So what if we simply make more dollars? Would we create wealth? HELL NO. Again... dollars do not equal wealth, they are merely the instruments used to trade wealth between people. Therefore, if Obama decides he'll print dollars like crazy to pay off the incredible debt he's saddled us with, then all he's doing is doubling the amount of dollars out there... but cutting their VALUE in half… or worse. The actual amount of wealth hasn't changed just because he directs the mint to make more trade instruments.

Because of this, when governments don't understand basic economics, they make huge mistakes (like printing more money). Let's pretend you are a foolish little imbecile, and have your life savings (let's say $50,000) sitting in the bank. Obama decides tomorrow that it would be cool to simply print 10 trillion dollars in new bills and pay off all our debts. Your life savings would still amount to exactly $50,000. However, you might then need that $50,000 to buy a Big Mac combo meal.

At about this point, you might think I'm exaggerating. However, history is rife with economies that collapsed into rampant inflation because they were run by idiots who knew nothing about economics. As soon as people begin to lose confidence in a currency, that currency loses all it’s value. It may as well be a pile of paper.

Only our confidence keeps the system going. It’s the confidence that if we trade something for dollars, that we can then trade those dollars for something else of value. As soon as we lose that confidence, we end up with $10,000 Snickers bars

This OP is the biggest pile of trollistic rhetoric mixed with ignorance I've ever read. I doubt very much those who 'thanked' the OP listened to the audio link or read the text which followed.

 

[DiamondDave]

flat taxes are pies in the sky for idiots to eat. name a country that subscribes to such a garbage system... then explain how such a backwards marginal economy stands to compare to the US and other developed economies among which NONE have adopted a retarded flat tax scheme.

Yeah... because equal treatment and equality are garbage systems

Flat tax takes power away from government.. and government's don't readily give that up... THAT is why you have not really seen it happen... easier to get votes when you vilify and promote class warfare

your paranoid perspective takes no account for the possibility that good codes only aim to tax excesses of income?

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.

what is so fair about a flat tax? such a tax would burden small businesses and middle class significantly more than wealthy, large firms and their owners.

think...
lets assume that the over-all tax burden is a constant.

with 2,000,000 units at 20% tax, entity A pays 400k.

with 20,000 units at 20% tax, entity B pays 4k.

if basic subsistence costs 15k, the flat tax rate accounts for 400% of entity B's retained earnings.
in consideration for entity A, the flat tax rate accounts for virtually the same 20% of his retained earnings.

thats a nicely paid exec and a broke-ass barely getting by, but these extremes indicate the nature of the situation.

where the exec makes substantially greater use of society, his burden doesent reflect as much, while the broke-ass is enslaved by taxation.

note that the 20% rate is rather conservative considering our original presumption the overall burden is constant. to affect the constant with a flat rate, im sure it would be higher yet.

And of course.. ones like you and the ones you vote for get to decide how much is enough for someone.... I mean, how DARE they earn more

Everyone has equal access to what government is supposed to provide... and the government can take into account all earnings or GDP or whatever else you wish to use and derive that (hypothetically) 18% is required of that amount to run the government.. and no matter who earns how much, each DOLLAR earned is taxed...

You can use the same roads as the rich guy.. the same national defense protects you both.. the same courts are there for when you break the law or need the legal system to resolve a dispute


So easy to vilify the 'evil rich'... the class warfare and entitlement junkies have made an art of it

 

[The Rabbi]

We favor capital formation in this country in part because labor has gotten so expensive. Thus we are substituting.
In any case, who said the tax code had to be fair? Why do we not tax primary home sales, even though it is an asset and often results in a sizable taxable gain?
And again, if you are feeling guilty about it, write an extra check to the IRS.

Labor has become no more expensive than capital. In fact, it is probably the other way around.
.

Any basis for this statement at all?
I can support my statement by pointing out that Colt no longer makes its Python revolver but Smith and Wesson stil makes the 686. They are comparable in many ways bu the Colt was all hand fitted and the Smith is not. When they came out they were comparably priced (Colt slight premium). When Colt ended production they were about 60% more.
Labor costs are an enormous factor, which is why labor intensive production has gone overseas.

 

[Toro]

They are not the same thing. Labor is paid a guaranteed rate that is mutually negotiated. The only risk is if the company goes bankrupt without sufficient assets to cover payroll (a Highly Unlikely Scenario). Labor which does take risks, i.e. sales reps who work on commissions are paid more the more they produce.

Capital is merely the physical or financial embodiment of labor. That's all it is.

Nobody is saying that capital should be taxed more than labor. They should be taxed at the same rate. You are arguing that capital should be taxed less than labor.

Again, this isn't about the return to capital and labor. If someone invests and becomes a billionaire because of his investment, good for him. He took the chance and he should renumerated for it. But that doesn't mean his compensation should be taxed a lower rate than the person who opted not to take the risk and not to get the big reward. If some makes $1,000,000,000 from capital gains, he should not be taxed at a lower rate than someone who makes $100,000.

 

[Toro]

We favor capital formation in this country in part because labor has gotten so expensive. Thus we are substituting.
In any case, who said the tax code had to be fair? Why do we not tax primary home sales, even though it is an asset and often results in a sizable taxable gain?
And again, if you are feeling guilty about it, write an extra check to the IRS.

Labor has become no more expensive than capital. In fact, it is probably the other way around.
.

Any basis for this statement at all?
I can support my statement by pointing out that Colt no longer makes its Python revolver but Smith and Wesson stil makes the 686. They are comparable in many ways bu the Colt was all hand fitted and the Smith is not. When they came out they were comparably priced (Colt slight premium). When Colt ended production they were about 60% more.
Labor costs are an enormous factor, which is why labor intensive production has gone overseas.

Yes, returns on equity are, or at least were, at all time highs. The returns from capital have been rising over the past 20 years whereas the returns on labor have been stagnating or rising slightly. The share of labor relative to GDP were at all time lows a few years ago and aren't much higher.

Return on assets should equate to the nominal rate of economic growth over time. Since 1900, the ROA has averaged about 6%, which is the long-term nominal rate of growth in the economy. Leverage accounts for about 50% of corporate balance sheets, so ROE has averaged about 12%. However, ROE was pushing 20% this decade.

This can be seen in the profit margin for corporate America. Also coincidentally, the average net profit margin in America has been 6%. Well, 5.5%. This decade, margins went to all-time highs, over 9%.

Margins and ROE have been trending higher and corporations' share of profits relative to GDP was at all-time highs. Even though margins have collapsed, the trend is still up, and analysts' are forecasting that profit margins will approach all-time highs again in 2011, though I'm skeptical of that.

There has been this huge arbitrage as returns to those who are good with technological applications and those offshoring have soared while after-tax income from labor has stagnated over the past decade. That is one big reason why Democrats were elected in 2006 and 2008. If people think they aren't getting a fair shake in the economic arena, they'll take it out of the political arena.

 

[rightwinger]

Ok... so how does the govt pay for those programs?

Simple..

Remove previously granted tax breaks on the wealthy and "trickle them down" to the working class

OK. Maybe third time's a charm.
What programs and policies that "the rich" have instituted have contributed to draining money away from "working Americans"?
The fact that you are avoiding answering this tells me you have no answer. But the very fact that some people are very wealthy and others very poor suggests to you that there must be something diabolical in the system to account for it.

The tax code consists of thousands of pages of exemptions, very few which are written to benefit the working class.
The current tax rate on the wealthy has been reduced over the last 30 years with a promise that this decrease in taxation will "trickle down" in the form of more jobs and a higher standard of living for the working class. As is clearly evident, jobs have disappeared and the standard of living for basics of life (housing, healthcare, energy, education) have decreased

 

[boedicca]

there's some gross inaccuracies here.

total federal revenues were 14.4% of the GDP in the 50s. tax is not nearly all of the governments revenue. since reagan, id say its less than half of the fed's receipts, what with the voodoo and all.

The vast majority of government revenues come from income taxes (and now SS and Medicare). The share from corporate tax revenue is lower. The point of showing the graph was to illustrate that although the marginal tax rate in the 1950s was higher, it did not result in a higher level of tax collections relative to GDP - exemptions and loop holes excludes a great deal from taxation.

 

[rdean]

No group of people understand "wealth redistribution" better than Republicans.

In spite of two wars, Republicans, using the process of "reconciliation" passed a 1.8 TRILLION DOLLAR tax cut package to the American people. On the surface, it doesn't look like "redistribution" until it's clear how the "wealth" was divided up.

More than half of those "tax cuts" went to the top 5%. But that's the top 5% of people who actually pay taxes. The number of people actually receiving the money might be as little as 3 or 2% of the population or even less. Imagine, 2% of the tax paying part of the American population receiving nearly a TRILLION DOLLARS.

This is called, "Republicans managing the economy using the process of reconciliation".

Now, to those Republicans on this board, if this isn't what happened, please explain what did. Try to show some self control, leave aside the name calling, just explain the facts. It would be greatly appreciated.

Oh, and who pays for those two wars?

No one answered. No surprise there.

In the 50s and 60s, the tax rate for the wealthiest Americans was 75 to 90% and I don't remember the country in a depression. I don't remember the wealthy complaining of "starving". They still lived in mansions. Still drove Rolls. Why does the Republican base, not rich, most not even educated, fight so hard for the rich?

Your question was answered with the fable that boedicca posted. You're right; the top 5% control most of the wealth in the country and thus pay the majority of the nation's taxes. If you're going to issue a straight refund to tax payers, naturally the ones who have paid more will get a bigger refund.

Let's see if you can understand this analogy. Let's say that through some act, all cars, no matter the make or model, are 10% off.

Someone with the money to buy a $1,000,000 Bugatti Veyron will thus get $100,000 off their purchase, while someone else buying a $30,000 Nissan Maxima will only get $3,000 off.

Would you complain about how unfair it is that the guy buying the Veyron is getting a $100,000 discount while the guy buying the Maxima is only getting a $3,000 discount?

I would rather the government keep my hundred dollar "tax break" so my kids don't have to pay for Iraq/Afghanistan. 1.8 TRILLION in tax breaks. For that much money, we could have paid for both wars and the public option. Instead, people with 100 million dollars got another few million they are never going to spend. That tax break was just another way to "loot" America.

 

[boedicca]

Capital didn't build the internet, the government did it with tax dollars. And capital didn't expand the internet. It was expanded by labor, paid for wth that capital we're talking about. Capital can't do anything w/o labor. But labor can surely do things w/o capital. BTW, labor built the computer I'm typing on along with the software that's running it. Capital only paid for the labor.

B'loney.

The government funded the early DarpaNet. The commercialization that resulted in the widespread insfrastructure (and performance improvements) that we enjoy to do was done by the private sector. Or do you still use some intsy bitsy dial up into a government facility with an ASCII terminal?

 

[SpidermanTuba]

Do you blame the rich man who took greater risks and worked smarter and invested more wisely and now pretty much affords what he wants for the plight of the one who was lazy or played it safer, made some unwise choices, and invested less wisely and now struggles to make ends meet?

Its hard to comprehend how a question premised on such black and white extremes could have any value whatsoever.

If you look at our history, wealth is controlled by those who control it today, not because they worked harder or took greater risks. It's because someone gave their ancestors something that they had taken from someone else and that ancestor was able to get the ball rolling on intergenerational wealth and they passed it down. And the same thing repeated itself over and over again.

Now, there is new money, like Bill Gates, but he got his from stealing the idea of a graphic interface unit from a friend of his and conning IBM into buying something that didn't exist.

Bill Gates got rich from putting an idea into action. Having an idea is worthless.

His bit of luck came when he was the only 13 year old in the world with access to a computer. OK, well not the only one, but one of only a small handful. He got the jump, technologically, on others in his generation.

 

[boedicca]

And it probably would have worked if Uganda and Zimbabwe were run by rational people and that was what they were doing. And rational people would not decided to expel the most educated and technically proficient in their nations who were not rich but just happened to be white. The Ibo were not expelled from Nigeria, they, unfortunately, were the targets in Nigeria's attempt at doing a Rwanda. It's a good thing someone came to their senses in Nigeria before the Ibo were exterminated. BTW, not all Ibo were rich, but they were the leading ethnic group in Nigeria because they where chosen by the British to be that.

Insanity.

Driving out the productive and experienced wealth/income generating people from a society just destroys that society's economy.

 

[boedicca]

Capital is merely the physical or financial embodiment of labor. That's all it is.

Bromide. Pure Bromide.

Here's the rub...whose labor? An engineer who designs a new computer chip may put in the same amount of labor (hours) on the design as a custodian who sweeps up the floor in the manufacturing plant over a few month period. The value of that labor is hardly equivalent.

You also completely neglect the value of An Idea.

Nobody is saying that capital should be taxed more than labor. They should be taxed at the same rate. You are arguing that capital should be taxed less than labor.

Again, this isn't about the return to capital and labor. If someone invests and becomes a billionaire because of his investment, good for him. He took the chance and he should renumerated for it. But that doesn't mean his compensation should be taxed a lower rate than the person who opted not to take the risk and not to get the big reward. If some makes $1,000,000,000 from capital gains, he should not be taxed at a lower rate than someone who makes $100,000.

The billionaire's compensation that is ordinary income (salary, bonus) is taxed the same as the laborer.

As you have no appreciation of the role of capital in spurring growth and productivity - And JOBS! - for the labor force, there is no rationale anyone can provide to you to justify not punishing the hell out of those who put their capital to risk.

Why do you think we should have high taxes on capital? What social good do you achieve with that policy?

 

[boedicca]

Bill Gates got rich from putting an idea into action. Having an idea is worthless.

His bit of luck came when he was the only 13 year old in the world with access to a computer. OK, well not the only one, but one of only a small handful. He got the jump, technologically, on others in his generation.

He also was lucky to have a father who was an attorney and helped him with his licensing agreement for IBM.

 

[Toro]

Capital is merely the physical or financial embodiment of labor. That's all it is.

Bromide. Pure Bromide.

Here's the rub...whose labor? An engineer who designs a new computer chip may put in the same amount of labor (hours) on the design as a custodian who sweeps up the floor in the manufacturing plant over a few month period. The value of that labor is hardly equivalent.

You also completely neglect the value of An Idea.

The creator of a new semiconductor is building on the ideas and labor of others who preceded him.

All capital accumulated since the dawn of time is merely an embodiment of labor. All capital comes from ideas and created through the use of labor. You cannot have one without the other. That is why you should not discriminate when taxing the two.

You also confuse market value with rates of taxation. I am not arguing that someone who comes up with a new idea and gets rich off it should make the same wage as a janitor. He should get rich. However, he should not be taxed at a preferential rate compared to the janitor. The semiconductor engineer can have as many good ideas as he wants, but he will have zero benefit if he cannot implement those ideas in a fab, which was built and is staffed by labor.

Nobody is saying that capital should be taxed more than labor. They should be taxed at the same rate. You are arguing that capital should be taxed less than labor.

Again, this isn't about the return to capital and labor. If someone invests and becomes a billionaire because of his investment, good for him. He took the chance and he should renumerated for it. But that doesn't mean his compensation should be taxed a lower rate than the person who opted not to take the risk and not to get the big reward. If some makes $1,000,000,000 from capital gains, he should not be taxed at a lower rate than someone who makes $100,000.

The billionaire's compensation that is ordinary income (salary, bonus) is taxed the same as the laborer.

I highlighted the important part that you missed or neglected.

As you have no appreciation of the role of capital in spurring growth and productivity - And JOBS! - for the labor force, there is no rationale anyone can provide to you to justify not punishing the hell out of those who put their capital to risk.

Why do you think we should have high taxes on capital? What social good do you achieve with that policy?

I work with an amount of capital that has more zeroes than you have fingers, so I am acutely aware of the role capital plays.

Nor am I arguing the level of taxes. I am arguing for equivalence of taxation. If you want to argue that we should all have lower taxes, that is a different argument. But I see no reason to discriminate against labor in the tax code.

 

[boedicca]

I work with an amount of capital that has more zeroes than you have fingers, so I am acutely aware of the role capital plays.

Nor am I arguing the level of taxes. I am arguing for equivalence of taxation. If you want to argue that we should all have lower taxes, that is a different argument. But I see no reason to discriminate against labor in the tax code.

It's sad that you don't appreciate what you are working with.

You must be like a monkey with a typewriter.

 

[logical4u]

We have been having a redistribution of wealth for the last 30 years as the top 5% of the population has benefited from relaxed tax and business regulations and the standard of living for the remaining 95% of the population has diminished

I agree that the redistribution of wealth has been bad for the country

Could it be that the gov is directly responsible for taking from that 95% and reducing the standard of living for the same (people that believe in re-distribution do not realize that the wealthy have established tax shelters and protected wealth; they do not pay taxes on their total wealth)?

 

[PatekPhilippe]

He took the chance and he should renumerated for it. But that doesn't mean his compensation should be taxed a lower rate than the person who opted not to take the risk and not to get the big reward. If some makes $1,000,000,000 from capital gains, he should not be taxed at a lower rate than someone who makes $100,000.

Baloney...with risk comes reward....why should a guy who's got the balls to put his money on the line be taxed at the same rate as someone who just plays it safe? Someone who's taxed at 15 to 25% of a million dollars pays more in taxes than someone who has a SALARY of $100k and is in the 30% tax bracket.

 

[The Rabbi]

Labor has become no more expensive than capital. In fact, it is probably the other way around.
.

Any basis for this statement at all?
I can support my statement by pointing out that Colt no longer makes its Python revolver but Smith and Wesson stil makes the 686. They are comparable in many ways bu the Colt was all hand fitted and the Smith is not. When they came out they were comparably priced (Colt slight premium). When Colt ended production they were about 60% more.
Labor costs are an enormous factor, which is why labor intensive production has gone overseas.

Yes, returns on equity are, or at least were, at all time highs. The returns from capital have been rising over the past 20 years whereas the returns on labor have been stagnating or rising slightly. The share of labor relative to GDP were at all time lows a few years ago and aren't much higher.

Return on assets should equate to the nominal rate of economic growth over time. Since 1900, the ROA has averaged about 6%, which is the long-term nominal rate of growth in the economy. Leverage accounts for about 50% of corporate balance sheets, so ROE has averaged about 12%. However, ROE was pushing 20% this decade.

This can be seen in the profit margin for corporate America. Also coincidentally, the average net profit margin in America has been 6%. Well, 5.5%. This decade, margins went to all-time highs, over 9%.


Margins and ROE have been trending higher and corporations' share of profits relative to GDP was at all-time highs. Even though margins have collapsed, the trend is still up, and analysts' are forecasting that profit margins will approach all-time highs again in 2011, though I'm skeptical of that.

There has been this huge arbitrage as returns to those who are good with technological applications and those offshoring have soared while after-tax income from labor has stagnated over the past decade. That is one big reason why Democrats were elected in 2006 and 2008. If people think they aren't getting a fair shake in the economic arena, they'll take it out of the political arena.

You realize none of that proves what you contend. Right?

 

[boedicca]

This argument for increasing taxes on others is a Misery Loves Company thing.

Why not argue for LOWERING taxes on labor?