Spreading the Wealth Around
If I were a multimillionaire who owned eight houses and thirteen cars, with over $200,000 in annual servant expenditures I, too, would be strongly opposed to spreading the wealth around. But I’m not! So it seems to me that spreading the wealth around might not be such a bad idea. At a minimum, watching a guy stand around in $520 shoes lecturing me about the evils of spreading the wealth around isn’t all that persuasive.
Here’s some of the old social science research from Piketty and Saez:
I kind of feel like spreading some of that wealth around. The 1960s were a period of a lot of social upheaval, but I’ve never heard it claimed that people were running around saying “our major corporations aren’t well-managed enough — we need to start paying CEOs 25 times more than what they’re currently making to attract some top-notch talent!”
34 Responses to “Spreading the Wealth Around”
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October 20th, 2008 at 11:53 am
“If I were a multimillionaire who owned eight houses and thirteen cars, with over $200,000 in annual servant expenditures I, too, would be strongly opposed to spreading the wealth around.”
Actually, the richer you get, the more rational it is to want to spread the wealth around.
If you are Warren Buffet or Bill Gates, you can be taxed at an astronomical rate, still be astronomically rich, and benefit from the more pleasant and stable society one gets by spreading the wealth around.
It’s the folks with two houses, not eight, who most strongly object to spreading the wealth around, since higher taxes can actually impinge on their quality of life.
October 20th, 2008 at 11:54 am
that graph *really* underplays what has happened.
i realize that log-norming is sometimes helpful, sometimes even necessary for showing long-term trends.
but in this case, the effect is more like log-damping: it reduces a *huge* rise to (the visual impact of) a very modest rise.
and instead of putting average wage on a separate scale, why not put it on the left-hand scale, lower down?
this whole damned graph would be about eight-feet tall, is why. but that’s part of what you need to show to convey the outrage.
this is like, a graphical depiction of pipe-smoking, sagely nodding moderation–the rubinomic democratic party. fuck that noise.
October 20th, 2008 at 11:58 am
Can I weigh in as someone who feels he would likely continue in his DFH socialism rulz!!1! tendencies no matter his income?
I’m fairly confident that my view that contributing to the common good serves my self-interest would not change, but I am willing to undergo rapid net-worth growth in order to test the hypothesis.
October 20th, 2008 at 12:02 pm
Progressive non-professionals are making some key omissions when they discuss income inequality. Remember 2008 is not the 1960s and any unilateral attempt to return to that level of income inequality would come at a much steeper cost (according to Summers). The problem is global economic integration is destroying states abilities to enforce social programs. You can’t tax investors high enough to address income inequality since capital mobility would make any taxes irrelevant. And now it is becoming even more difficult to tax rich workers (CEOs and hedge fund managers) because those jobs can easily go overseas and still earn the same return for investors.
The only way to stop this is to either propose Obama style attacks on economic integration while increasing tax (i.e. restrict capital mobility and multinational corporations) or give up state autonomy to international regulators. Both options have their problems but it would help if left-wing bloggers actually acknowledged the true costs of less income inequality. It is definitely not as simple as being either for or against redistributing wealth.
October 20th, 2008 at 12:08 pm
“The problem is global economic integration is destroying states abilities to enforce social programs. You can’t tax investors high enough to address income inequality since capital mobility would make any taxes irrelevant. And now it is becoming even more difficult to tax rich workers (CEOs and hedge fund managers) because those jobs can easily go overseas and still earn the same return for investors.”
At the extremes, sure. In reality, no.
If you increase income tax rates to 70% and capital gains taxes to 50%, there will indeed be capital flight and job loss. But…
- You can tax CEO’s at 40% instead of 33%, and they will stay in America.
- You can tax hedge fund managers at 40% instead of 15%, and they will stay in America.
- You can tax capital gains at 25% instead of 15% and capital will stay in America.
There are significant advantages to doing business here instead of basing yourself in the Cayman Islands, which shouldn’t be ignored. There is a sweet spot for tax rates, and it’s higher than current rates.
October 20th, 2008 at 12:18 pm
I’m still struck my the number of middle (and low) income McCain supporters who criticize this so-called “share the wealth” thing. Talk about voting against self-interest.
I wish we could find some way to allow them to “opt out” since they apparently feel so strongly about it. More for the rest of us….
October 20th, 2008 at 12:33 pm
Petey,
I agree but people like Matt should be addressing these concerns that very liberal economists bring up. And no it is not supply side economics it is more the question of how will global markets effect domestic policy initiatives. It is true that increasing the marginal tax rate or capital gains a few percent may increase revenues more than it costs the economy but past models (based on as far back as the 1960s) ignore the recent trend of rapid global integration. I also feel people need to ask why these multi-millionaires will stay in America if they could earn more in Hong Kong, London or other low tax developed areas. There are obvious reasons why they would but it’s also valid to wonder why a few million more wouldn’t change their mind (as it has in many instances already).
October 20th, 2008 at 12:45 pm
“I also feel people need to ask why these multi-millionaires will stay in America if they could earn more in Hong Kong, London or other low tax developed areas.”
The reason why they wouldn’t move to Hong Kong is pretty fucking obvious.
October 20th, 2008 at 12:45 pm
Correction: he wears a pair of $500 LUCKY shoes. It’s one of McCain’s superstitious practices that he wears his lucky shoes while campaigning. Too bad those lucky shoes are filled with feet of clay…
October 20th, 2008 at 12:46 pm
Petey,
It’s not the Cayman Islands that I’m worried about, it’s London.
One thing that I think isn’t discussed enough, is that marginal tax rates in much of Europe really are only a couple of points higher than ours. This puts very strong bounds on how high we can jack up tax rates.
So how do these countries afford such generous social programs? By leveraging a very large VAT. And if we want to implement Euro-Scale programs, we’re going to need one too.
October 20th, 2008 at 12:48 pm
Even McCain’s wealth is based on the ability of Joe-sixpack to continue buying those sixpacks of Bud. My far right wing, small business owning brother-in-law says that Republicans give him tax cuts and Democrats give him customers and that the tax cuts are useless without the customers (he holds his nose and votes Democratic for president and congress and Republican in state and local elections). It gets back to the argument over whether rich people create jobs or rising demand creates jobs.
October 20th, 2008 at 12:59 pm
David Shor,
Not only the VAT but also a higher tax on professionals like doctors, lawyers and others who have less flexibility about where they live. I am sure if Americans know about the UK’s non-dom status they would be shocked and thankful for how relatively effective American taxation is in comparison. Of course they Cayman’s are less of a problem because the US can influence its domestic policy. The same cannot be said about other “tax havens” that are creating increased tax competition.
October 20th, 2008 at 1:05 pm
“I kind of feel like spreading some of that wealth around.”
Big surprise there. Thank God its not your decision to make. It’d be nice if it were no one’s decision to make.
October 20th, 2008 at 1:21 pm
“Thank God its not your decision to make. It’d be nice if it were no one’s decision to make.”
Yeah, it’d be nice if we uh…had no taxes? Had Huckabee’s flat tax? Picked a random number instead of having someone setting marginal tax rates? I’m a little confused as to what you think would be nice exactly, since progressive taxation is inherently “spreading the wealth around”, and it’s very clear that progressive taxation is vastly preferable to alternatives. Presumably then someone does actually have to make such decisions.
October 20th, 2008 at 1:34 pm
More economic illiteracy from Matthew.
If economic inequality in industrialized nations is growing, it is because of broad socioeconomic changes like globalization and skill-biased technological change, not tax policy. Any politically feasible changes in the tax code amount to farting around at the margins and have no meaningful effect on the basic trend.
Clinton raised taxes on the rich and their share of income increased. Bush cut taxes on the rich and their share of income declined. Under Clinton, the share of income going to the middle quintile of households fell from 15.1% to 14.6%. Under Bush, it has increased to 14.8%.
October 20th, 2008 at 1:38 pm
“It’s not the Cayman Islands that I’m worried about, it’s London.”
No doubt. But again, the kind of tax rates Obama is proposing are still lower than what would be required to likely have a meaningfully deleterious effect.
Also, and not unimportantly, being the biggest dog in the kennel means we can have a ripple effect on other financial centers.
If our cap gains rate is 15%, it puts pressure on other financial centers to keep their cap gains rates at similar or lower levels. But if we go up to 25%, it lets Westminster and other governments raise their cap gains rates as well without losing competitive advantage.
October 20th, 2008 at 1:40 pm
At the University of Kansas, earlier this decade, they decided to raise tuition (doubled in four years). The first thing they did was raise administrator salaries because the call was “we need to attract better quality management”. Of course the administration didn’t change much. Now maybe this isn’t at a big corporation, but the excuse is readily used.
October 20th, 2008 at 1:51 pm
“No doubt. But again, the kind of tax rates Obama is proposing are still lower than what would be required to likely have a meaningfully deleterious effect.”
I don’t know if that is the case. Capital moves much faster now then it has in the past. And unfortunately, once we manage to push a firm away, it’s hard to get them back(For the very same reason they were hard to push away).
Moreover, the next couple of years are going to be very formative in the financial markets(since so many companies are going bust and reorganising). Low corporate taxes now could lock in companies that we could tax more later. On the other end of things, higher corporate taxes now might be catostrophic.
On the other hand, I don’t see too much damage from Obama’s income tax proposals.
October 20th, 2008 at 1:52 pm
Sorry, I meant *Capital Gains Taxes*. I don’t have any problems with raising the corporate tax.
October 20th, 2008 at 4:10 pm
Man, I’m glad to see that Petey has resigned himself to the inevitability of his dreaded General Electric Presidency and has started to bring his game back to this blog.
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