Bank Profits and Social Justice
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Jim Henley makes a good point in response to Kevin Drum:
It isn’t possible to get the banksters “off the federal teat immediately” or otherwise. There is simply no guarantee we make today that can bind the politicians of tomorrow. That’s not even necessarily a nebulous “tomorrow” either. Nor can we guarantee that, when the time comes, it would even make sense for tomorrow’s politicians to honor today’s future refusal. We have to figure out how to organize a political economy predicated on massive if implicit subsidies to the finance industry and its owners and executives so as to minimize the harm they can do and so it works tolerably for the rest of us. Am I optimistic that we can do this? Not so much. But since we can’t cut ‘em off, all we can hope to do is keep ‘em in line.
Right. Banks are profiting massively from ultra-low interest rates, but making such rates available serves the general interest. Banks are also profiting massively from implicit federal government guarantees. But you can’t “take away” those guarantees—they’re basically intangible—and it’s not at all clear that doing so would be wise. So you’re left with the difficult task of prudential regulation and trying to shrink the largest players over time with special fees and higher capital requirements.
That said, I think this is primarily an issue of social justice rather than an issue of technocratic regulation. And the answer is higher taxes on extremely high-earning individuals. The evidence suggests that big shot financiers make up a huge proportion of the highest-earning Americans, leaving CEOs of non-financial firms in the dust. You need to tax these guys and use the money to finance more and better social services and jobs for the people who provide the social services.
Having administration officials go whine to Wall Street honchos isn’t going to achieve anything.
75 Responses to “Bank Profits and Social Justice”
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October 19th, 2009 at 11:44 am
The regulated banking system finances its own bailouts of failed members via the FDIC by paying into the system, doesn’t it? The problem with the recent crisis came from non-regulated actors who built up large liabilities without the ability to pay for them in a downturn. This isn’t necessary to the health of the American or world economy. Some of these investment devices didn’t even exist 20 years ago. Get rid of them, and stop allowing/encouraging a shadow banking system to flourish, and maybe we can have a more stable system.
October 19th, 2009 at 11:45 am
Unfortunately, what’s going on now was entirely predictable at the most acute point in the crisis. Preserving the existence of the largest financial institutions became the economic policy of the US government. And their existence was preserved, so the implementation was a success. Thus, the architects of the policy are not now going to decide that in fact, dismantling or onerously regulating those institutions ought to be the policy in order to remove the “too big to fail” phenomenon, because to do so would bring their prior “success” into question. So we have re-capitalization through profits and yet greater market power in finance.
Rather than preserving the existence of large incumbent Wall Street banks, an expansionary monetary policy could have taken the form of temporary bank nationalization or any number of other things. If that had been the approach, then today a series of IPOs of the treasury’s new baby banks would look like a master policy success. But it would have involved large capital losses by the citizens of Greenwich, Connecticut and some Saudi prince, so no dice.
October 19th, 2009 at 11:45 am
Amen.
October 19th, 2009 at 11:51 am
A crucial point that is avoided in posts like this is: Banks lend OUR money!
The Fed is a central bank, i.e. a national bank. Despite the complicating factors, the Fed loans OUR money to member banks to disburse.
Currently, the Fed is lending OUR money to banks like Goldman-Sachs to drive up prices on stocks and commodities. An alternate course would be to form a National home loan bank to mitigate the housing crisis and an Industrial Restructuring Bank to restart manufacturing.
OUR money could go to those banks instead of to Wall Street and the money could be used for beneficial purposes instead of making plutocrats richer.
The reason this doesn’t happen is because Wall Street has enough clout to prevent it. Instead, the politicians keep giving OUR money to the bankers.
October 19th, 2009 at 11:55 am
You need to tax these guys and use the money to finance more and better social services and jobs for the people who provide the social services.
So, are you proposing different tax rates based on occupation?
If you make $10,000,000 as the owner of a successful machine tool company your rate will be 38% but if you make $10,000,000 as a “banker” your rate will be 68%?
October 19th, 2009 at 11:57 am
So what was the argument against nationalization again? Matt is now saying that it is fine to have all the drawbacks of nationalized banks with none of the benefits, and there is nothing to do about it except incrementalist bullshit.
And what about all those toxic assets still hidden by “creative” accounting? Banksters are making bets with taxpayer money, the lucky ones will get giant bonuses while the unlucky banks will have to be bailed out again and again.
It seems the Bush and Obama administrations read the definition of ‘moral hazard’ and decided it sounded great as a rescue plan for the financial system.
October 19th, 2009 at 12:02 pm
He’s talking about corporate taxes, jmo, not personal income tax.
October 19th, 2009 at 12:03 pm
Incentives matter.
Tie their compensation to longer term profitability (as DeLong and others recommend).
A surtax on executive pay over $100K for those in finance of about 50% (to pay for the bailout) would be a social justice hit.
October 19th, 2009 at 12:06 pm
Joe,
He’s talking about corporate taxes, jmo, not personal income tax.
Then why did he say:
And the answer is higher taxes on extremely high-earning individuals.
October 19th, 2009 at 12:06 pm
The evidence suggests that big shot financiers make up a huge proportion of the highest-earning Americans, leaving CEOs of non-financial firms in the dust.
As has been pointed out before, there’s no reason why someone making $250,000/yr and someone making $25,000,000/yr should be paying the same tax rate.
October 19th, 2009 at 12:09 pm
A surtax on executive pay over $100K
But, a trader at Goldman getting a 7 figure bonus isn’t an executive he’s just a rank and file employee. The highest earning broker (with no management responsibilities) at Merrill makes upwards of $50 million a year, twice as much as the CEO.
October 19th, 2009 at 12:09 pm
If you make $10,000,000 as the owner of a successful machine tool company your rate will be 38% but if you make $10,000,000 as a “banker” your rate will be 68%?
There aren’t a lot of machine tool company owners who make $10mm/year. There are, on the other hand, lots and lots of bankers and other financiers who make that and more. You don’t have to classify by occupation — simply increase the tax on those making $10mm/year, period, and you’ll catch 1,000 bankers for every one machine tool company owner.
October 19th, 2009 at 12:14 pm
I agree whining won’t work, but we need more than just higher taxes on CEOs.
We also need to strengthen unions. Part of what got us into this crisis was stagnant wages for the middle and working class. They’ve got to have some ability to demand a fair share of their productivity contributions back from the banksters. And unions have proven that for all their imperfections, they are the absolute best way for working people to get a fair share of the wealth they’ve produced.
As it is right now, the banksters are splitting revenues with the company executives. It’s no shock we’ve had bubble after bubble after bubble–these guys can’t spend this much freaking money! Of COURSE they’re plowing it all into crazy investments. That’s all that’s left!
This is NOT primarily an issue of social justice. It is not a freaking coincidence that 1929 and 2008 both saw unprecedented divisions of income/wealth between the top .01% and everyone else!
What saved us wasn’t just the bailouts–it was also things like unemployment insurance, Medicare, Medicaid, social security. Those were created for “social justice” purposes, but they also provide a guaranteed economic engine when we’re stupid enough to let rich guys hoover up all the wealth and then blow it on whatever crazy financial tool they’ve invented this time to convince themselves they can risk it all without any risk.
Liberals need to understand that these outrageous payouts are not just a side-feature of a broken market. They are, in fact, inextricably tied to the reason the market is broken.
October 19th, 2009 at 12:15 pm
There aren’t a lot of machine tool company owners who make $10mm/year.
Do you have any data to back that up? As I understand it most (as in more than 50%) of top earners have income from their ownership of privately held companies.
October 19th, 2009 at 12:23 pm
Do you have any data to back that up? As I understand it most (as in more than 50%) of top earners have income from their ownership of privately held companies.
You should read the post Matt linked to.
October 19th, 2009 at 12:27 pm
Non-financial public company CEOs and top executives do not represent more than 6.5% of any of the top AGI brackets (the top 0.1%, 0.01%, 0.001%, and 0.0001%). Individuals in the Wall Street category comprise at least as high a percentage of the top AGI brackets as non-financial executives of public companies.
So, according to that if we add all executives from both financial and non-financal companies we get a number somewhere north of 13%. Who is the other 87%?
October 19th, 2009 at 12:34 pm
Well, this statement:
…the top 25 hedge fund managers combined appear to have earned more than all 500 S&P 500 CEOs combined (both realized and estimated).
. . . implies that a big chunk is hedge fund managers.
October 19th, 2009 at 12:38 pm
Wall Street is back at it:
FROM: http://robertreich.blogspot.com/2009/09/continuing-disaster-of-wall-street-one.html?ref=patrick.net
“Let’s be clear: The Street today is up to the same tricks it was playing before its near-death experience. Derivatives, derivatives of derivatives, fancy-dance trading schemes, high-risk bets. “Our model really never changed, we’ve said very consistently that our business model remained the same,” says Goldman Sach’s chief financial officer.”
I fucking told you this was going to happen last year when whores like Schumer, Dodd, and Frank got together with their pals Bush and Paulson and goatfucked us with TARP.
October 19th, 2009 at 12:39 pm
Dave Speer, the CEO of Illinois Tool Works, usually makes $4 million a year. Herb Henkel, CEO of Ingersoll-Rand, makes $3 million. Tim Solso at Cummins made $7 million. Perhaps $10 million those aren’t, but those are all hefty pay packages.
October 19th, 2009 at 12:43 pm
“. . implies that a big chunk is hedge fund managers.”
Who didn’t get the explicit backing that the banks themselves did get during the bailouts. (Implicitly, of course, making AIG whole meant that hedge funds in the CDS market got their counterparty risk reduced to 0).
October 19th, 2009 at 12:49 pm
burritoboy,
That is true but those companies also have privately held competitors. They are companies you’ve never heard of unless you’re in the industry. Companies like Hypertherm, a 1000 employee plasma cutting device manufacturer based in New Hampshire.
You can read though any obscure trade magazine and find numerous privately held companies that are very successful if extremely obscure. The owners of these privately held firms do very well for themselves.
As an example:
http://www.valvemagazine.com/
October 19th, 2009 at 12:52 pm
Re anon at 13: “We need to strengthen unions”, what
We NEED is Clyde Shelton. heh heh
http://movies.yahoo.com/movie/1810029276/trailer
October 19th, 2009 at 1:02 pm
So let’s see. The Big Banks engaged in irresponsible behavior that buttfucked the common citizen (Great Recession, 9 percent unemployment). The Democratic Caucus took $Trillions of the common citizens tax dollars and saved the Big Banks. Plus are allowing the Big Banks to recover their losses by buttfucking the common citizens with 20 percent interest rates on credit cards, high penalties and fines, foreclosures on homes,etc.
But at this point, instead of being grateful, the Big Banks are resuming the same behavior that fucked us to begin with.
And our Democratic President, Democratic controlled Senate and Democratic controlled House do nothing but make mewling sounds and token gestures of protest?
So explain to me again: WHY should we vote Democratic next fall?
October 19th, 2009 at 1:09 pm
Dave Speer, the CEO of Illinois Tool Works, usually makes $4 million a year. Herb Henkel, CEO of Ingersoll-Rand, makes $3 million. Tim Solso at Cummins made $7 million. Perhaps $10 million those aren’t, but those are all hefty pay packages.
Not in the hedge fund world, they’re not. On average the top 25 fund managers earned $11.6 billion in total last year, averaging $464 million each. Here’s what some of the top earners took in (and remember, this was in 2008, a down year):
Jim Simons (Renaissance) — $2.5 billion
John Paulson (Paulson & Co.) –$2 billion.
John Arnold (Centaurus Energy) — $1.5 billion
George Soros — $1.1 billion
Raymond Dalio (Bridgewater) –$780 million
Bruce Kovner (Caxton)– $640 million
Dave Shaw ( D.E. Shaw)– $275 million
Stanley (Druckenmiller Duquesne)– $260 million
October 19th, 2009 at 1:22 pm
Stefan,
Then I’d be interested in seeing a breakdown between the earnings of the top hedgies and the earnings of those who control the largest privately held companies in the US.
http://www.forbes.com/lists/2006/21/biz_06privates_The-Largest-Private-Companies_land.html
October 19th, 2009 at 1:27 pm
What is hilarious is that sometimes it is the villains who force two-faced Democrats into doing the right thing.
From http://news.yahoo.com/s/ap/20091019/ap_on_go_co/us_health_care_burris__relevancy
“WASHINGTON – For Democrats determined to get a health care bill, Sen. Roland Burris is like the house guest who couldn’t be refused, won’t soon be leaving and poses a plausible threat of ruining holiday dinner.
Suddenly, he can no longer be ignored.
The Illinois Democrat, appointed by disgraced former Gov. Rod Blagojevich, says he’ll only vote for a bill to provide health care to millions more Americans as long as it allows the government to sell insurance in competition with private insurers.
And he says he won’t compromise.
“I would not support a bill that does not have a public option,” Burris, 72, said in a recent interview with The Associated Press. “That position will not change.”
Those words caught the attention of the very Democratic leaders who tried to keep Burris out of the Senate, suggested he resign and have shunned him in unprecedented fashion. Burris is not the only Democrat to insist on creation of a government-run health plan. But he is the one who has the least to lose by defying President Barack Obama and the Democrats who once turned him out in the cold rain.”
————
ha ha ha
Gee, maybe that Governor Ray Blagojevich ain’t so bad after all.
October 19th, 2009 at 1:27 pm
Then I’d be interested in seeing a breakdown between the earnings of the top hedgies and the earnings of those who control the largest privately held companies in the US.
Yes, you should go find that and then come back and tell us what you found.
October 19th, 2009 at 1:31 pm
Stefan,
Assuming that hedge fund managers are classified as financial services executives, as I believe they are, then they, along with non-financial executives, account for little more than 13% of high earners.
You’re theory that hedgies make up anything more than a small percentage of high earners doesn’t seem to be based in fact.
October 19th, 2009 at 1:43 pm
@JMO #5,
NO! You do this all the time: set up a straw man that we’re proposing taxing different occupations differentially.
Matt’s point was that “big-shot financiers make up a huge proportion of the highest earning Americans”. That’s correct, and the exceptions are usually entertainers or sports super-stars. In fact, the largest earners in financial “services” are hedge fund managers in a good year. They operate business which by design take advantage of other investors’ technological and information disadvantages. In other words, they trade on inside information twenty-four seven, three sixty five. They provide absolutely no social or economic good, but instead rob everyone else of jillions of dollars fractions of pennies at a time.
We are proposing that anyone who makes these a hyper-income from whatever source — “capital gains” specifically included — be taxed at a progressively higher rate. The rate doesn’t have to be as high as it was in the pre-Reagan era. A marginal rate of 50% would be fine with me.
October 19th, 2009 at 1:46 pm
“big-shot financiers make up a huge proportion of the highest earning Americans”.
13% is a huge proportion?
and the exceptions are usually entertainers or sports super-stars.
And that is also incorrect – the vast majority of high earners earn their income from ownership stakes in privately held companies.
October 19th, 2009 at 1:48 pm
@JMO #28
I was composing my first post when you made this reply. Of course hedgies don’t make up a significant percentage of the number of high-earners. There aren’t that many hedge-fund companies. But they make up the creme de la creme of the highest earners.
This is the standard right-wing trick of substituting the median for the mean of earnings statistics to make it seem that the few thousand plutocrats earning hundreds of millions to billions per year are somehow just poor dentists struggling to get by on $500K.
October 19th, 2009 at 1:51 pm
And who are those owners of these sainted “private companies” you tout? By and large they are private equity fund managers who have ripped off the originators of a winning idea. Managers who, like the hedgies, set up the rules so that they win regardless of the funds’ results.
October 19th, 2009 at 1:53 pm
This is the standard right-wing trick of substituting the median for the mean of earnings
And you substitute the group you don’t like for the real group in an effort to hide the true impact of your policies.
October 19th, 2009 at 1:55 pm
y and large they are private equity fund managers who have ripped off the originators of a winning idea.
That’s a pretty bold assertion – do you have any data to back it up?
October 19th, 2009 at 2:01 pm
Total global private equity totaled $2.5 trillion dollars. The total value of global equities is $51 trillion. So, your theory that private equity makes up anything more than 5% of the total is dubious at best.
October 19th, 2009 at 2:04 pm
13% is a huge proportion?
Yes, it can be.
You’re [sic] theory that hedgies make up anything more than a small percentage of high earners doesn’t seem to be based in fact.
Please point to the post where I supposedly theorized that, because I don’t recall saying so (I’d hate to think you were misunderstanding or, worse, misrepresenting what I wrote).
I do, however, believe that hedge fund managers represent a significant proportion of the highest earning executives.
October 19th, 2009 at 2:05 pm
#33,
I don’t hide the impact of my policy preferences. I can’t shout any louder than this: ADJUSTED GROSS INCOME FROM ANY SOURCE ABOVE $500,000 SHOULD FACE AN ADDITIONAL 2% STEP; ABOVE $5 MILLION AN ADDITIONAL 3% STEP ON TOP OF THE FIRST; ABOVE $50 MILLION YET AN ADDITIONAL 5% STEP!!!!!”.
I don’t give a tinker’s damn how they got it. But I will be glad to speculate that by far the largest number in the fifty million plus cohort will be in financial “services”.
By the way, isn’t “service” what the bull does to the cow?
October 19th, 2009 at 2:06 pm
And that is also incorrect – the vast majority of high earners earn their income from ownership stakes in privately held companies.
Cite?
But so what, anyway. Tax them too.
October 19th, 2009 at 2:06 pm
whining WILL work if it helps to build a political consensus and dilutes the effects of finances lobbying and political financing.
It is time to bring about an end to “too big to fail” by passing specific legislation providing the kind of bailout “insurance” in the future to only businesses below a certain size threshold, thus removing the implied federal safety of the big banks investments. Let the banks choose between selling parts off to bring themselves under the umbrella, or staying big with all parties involved knowing of their lack of federal securitization.
October 19th, 2009 at 2:06 pm
There is no chance of higher rates. None. Besides, if we put really high rates on the top then they would leave. I hate to upset any delicate people here but the corporate elites are citizens of the world, not the US. C and GS are as American as the Yellow River and the Swiss Alps. These people don’t need no stinking countries and soon enough they won’t need any stinking governments.
October 19th, 2009 at 2:07 pm
by far the largest number in the fifty million plus cohort will be in financial “services”.
Do you have any data to back up your assertions?
October 19th, 2009 at 2:09 pm
ADJUSTED GROSS INCOME FROM ANY SOURCE ABOVE $500,000 SHOULD FACE AN ADDITIONAL 2% STEP; ABOVE $5 MILLION AN ADDITIONAL 3% STEP ON TOP OF THE FIRST; ABOVE $50 MILLION YET AN ADDITIONAL 5% STEP!!!!!”.
And why not add an additional 5% step for each $50mm increment above that, up to a total of 90%.
October 19th, 2009 at 2:10 pm
the vast majority of high earners earn their income from ownership stakes in privately held companies.
Do you have any data to back up your assertions?
October 19th, 2009 at 2:12 pm
Besides, if we put really high rates on the top then they would leave.
So let them leave. Boo hoo hoo. Plenty of young and hungry up and comers eager and willing to take their place.
October 19th, 2009 at 2:12 pm
And why not add an additional 5% step for each $50mm increment above that, up to a total of 90%.
Totally impractical given our current political setup. If Denmark can’t do it we can be pretty sure we can’t either. And if you site the 50s be aware no one ever paid the 90% rate due to the massive number of loopholes.
The other issue would be a top rate of 90% would direct a huge amount of activity into dubious tax avoidance schemes.
October 19th, 2009 at 2:14 pm
Plenty of young and hungry up and comers eager and willing to take their place.
What kind of work do you do? In my business he number of people willing to give up a cushy corporate gig to work for themselves is practically nil.
October 19th, 2009 at 2:18 pm
What kind of work do you do?
Hedge fund finance. There’s lots of guys who want to start their own shops.
October 19th, 2009 at 2:18 pm
Treasury offered another gift to the big money boys:
http://stateofthedivision.blogspot.com/2009/10/congress-rides-to-rescue-with-treasury.html
Corporafornication remains alive and well.
October 19th, 2009 at 2:20 pm
In my business he number of people willing to give up a cushy corporate gig to work for themselves is practically nil.
Well, wingnut welfare is a notoriously soft gig. I’m not suprised you guys don’t want to go out into the real world and earn a living.
October 19th, 2009 at 2:21 pm
As for the whine, it’s part of the plan:
Obama: Populist rhetoric, corporatist implementation
October 19th, 2009 at 2:25 pm
rapier on the cosmopolitan elite:
These people don’t need no stinking countries and soon enough they won’t need any stinking governments.
Well they needed the Bernanke’s Federal Reserve Bank to bail them out. Which I felt was necessary by the way, but didn’t really past democratic muster. The Congress was pissed and I doubt it would happen again. Which it might.
If they’re going to gamble so recklessly than we need to raise their capital requirements, etc.
October 19th, 2009 at 2:30 pm
#35,
More statistical damned lies. I have no doubt that private equity represents only 5% of total equity ownership around the globe. But it’s just another straw-man, red-herring, median not the mean argument. Who cares what percentage of total equity ownership they represent? What matters is who those owners are.
It’s absolutely true that some of those privately owned companies have never been public and are still headed by the founding entrepreneur or family members who have succeeded the founder. But more and more such American mittelstand were formerly publicly traded and have been “taken private” by the manipulators of private equity.
Many of them function more efficiently for a period with the “patient capital” that private equity often provides. Sometimes such a period saves the enterprise from liquidation, so there’s certainly nothing inherently wrong with a non-publicly traded equity ownership. But no one should be fooled that the managers of such equity firms are genuinely interested in the long-term health the companies they buy.
They are in it for the capital gains potential during the next public equity boom, not operating the company for the cash flow it returns. In fact, in extracting their profit they often leave the newly publicly traded company hobbled with excessive debt, just waiting for them to buy it back in the next downturn for pennies on the dollar they got in the IPO.
October 19th, 2009 at 2:35 pm
Anandakos,
Then show me your data – if you’re right it should be easy enough to find.
October 19th, 2009 at 2:39 pm
#49,
I said “from any source”. No deductions; no credits. Only the personal exemption. A “flat tax” — at least in terms of how income is treated.
And I don’t agree with Stefan that the process should continue above $50M. Fifty percent is high enough as an ultimate rate so long as all income is subject to it.
October 19th, 2009 at 2:54 pm
Anandakos
So, if I work 1099 I can’t deduct any of my business expenses? Or do you only mean deductions after you’ve figured out Schedule C.
As you know only idiots make money W-2.
October 19th, 2009 at 2:55 pm
the vast majority of high earners earn their income from ownership stakes in privately held companies.
Please show this data. If you’re right it should be easy enough to find.
October 19th, 2009 at 3:02 pm
And I don’t agree with Stefan that the process should continue above $50M. Fifty percent is high enough as an ultimate rate so long as all income is subject to it.
I don’t know, once we get into the realm of $1bn plus a year incomes I think there’s room to go higher.
As it stands now, someone making $250,000/yr pays a higher marginal tax rate than someone making $25,000/yr, which is good and proper and as it should be — he makes ten times as much, he can contribute more.
But someone making $2,500,000/yr, someone making $25,000,000/yr and someone making $250,000,000/yr only pay the same rate as the $250,000/yr guy, which seems a bit perverse to me. There’s a stratospheric leap in income, yet no corresponding leap in taxation burden. I don’t especially care if the top rate is 90%, 80%, 70% or 60%, but I think we need to open up some daylight between the different pay scales at the highest end.
October 19th, 2009 at 3:05 pm
Stefan,
http://www.federalreserve.gov/pubs/feds/2009/200913/200913pap.pdf
Key point – “For income, the clearest change was a general decline in the relative importance of capital income other than that from businesses.”
October 19th, 2009 at 3:20 pm
JMO,
AGI takes net profits from the C. Of course you should be able to take legitimate business expenses. A new 100K Hummer every year? Not for you to drive. No more often than every three years or 100,000 miles whichever comes first.
But if you add an employee who uses it for a new genuine revenue creating activity, sure. That’s a business expense.
October 19th, 2009 at 3:22 pm
Dave Speer, the CEO of Illinois Tool Works, usually makes $4 million a year. Herb Henkel, CEO of Ingersoll-Rand, makes $3 million. Tim Solso at Cummins made $7 million. Perhaps $10 million those aren’t, but those are all hefty pay packages.
Yes, but those guys and their companies actually make something useful, not make more money for parasites who already have way too much. It wouldn’t break my heart to see a totally different tax system for companies that make products and put people to work and companies that are pure parasites on the system.
October 19th, 2009 at 3:27 pm
I agree with the higher taxes. However, we could make a plan for implicit federal government guarantees that exist for the greater good and not for the current decision makers. We could do this by placing future failures into receivership instead of just giving away cash. I think this might also make even more sense if executives felt compelled to invest in their own business. I wouldn’t make it a requirement. I might just attempt to use executive ownership as an indicator of financial health and propriety
October 19th, 2009 at 4:26 pm
jmo,
October 19th, 2009 at 4:28 pm
the vast majority of high earners earn their income from ownership stakes in privately held companies.
This is again the famous “Bill Gates in a bar” fallacy: if Bill Gates walks into a dockside bar with nine fishermen already there, the vast majority of high earners in that bar will earn their money from fishing — and yet, one man alone will have made $1bn/yr from a software monopoly, while the others will each only have made $50,000/yr each from fishing. To say “don’t tax the software developers because the vast majority of people in that bar have made their money from fishing” is nonsense — you tax where the money is.
October 19th, 2009 at 4:34 pm
Stefan,
You’d be a whole lot more convincing if you could provide some data rather than just conjecture.
October 19th, 2009 at 5:06 pm
To put this in perspective, consider John Simon’s compensation of $2.5 billion last year. If the average American family makes roughly $50,000 year, that means that Simon, by himself, made as much as 50,000 American families, (or as many people as live in Spokane, Washington, if that helps to visualize). That’s an incredible amount of wealth to allow to be accumulated in one individual.
October 19th, 2009 at 5:27 pm
“In 1976, Simons won the American Mathematical Society’s Oswald Veblen Prize in Geometry, for work that involved a recasting of the subject of area minimizing multi-dimensional surfaces and characteristic forms. This resulted in his proof of the Bernstein conjecture up to real dimension 8, and an improvement of a certain “regularity” result of Wendell H. Fleming on a generalized Plateau’s problem.
Simons’ most influential research involved the discovery and application of certain geometric measurements, and resulted in the Chern-Simons form (also known as Chern-Simons invariants, or Chern-Simons theory). In 1974, his theory was published in Characteristic Forms and Geometric Invariants, co-authored with the differential geometer Shiing-Shen Chern. The theory is used in theoretical physics, particularly string theory.
In 1978, he left academia to run an investment fund that traded in commodities and financial instruments on a discretionary basis.”
So, he’s a smart guy who figured out a way to make a lot of money. I don’t really have a problem with it.
Do I think the money would be better spent by the nation’s legions of willfully ignorant morons – no, I certainly do not.
October 19th, 2009 at 5:40 pm
Do I think the money would be better spent by the nation’s legions of willfully ignorant morons – no, I certainly do not.
And the mask slips — as it always does.
October 19th, 2009 at 5:47 pm
[...] Matt Yglesias: Higher taxes for the highest earners. [...]
October 19th, 2009 at 5:49 pm
Stefan,
Why do you have so much sympathy for the ignorant and foolish? Or do you think they’re all just unlucky?
October 19th, 2009 at 6:39 pm
It’s very odd that someone persists in believing that a global banking crisis was caused by Americans buying houses they couldn’t afford. Even stranger when someone doesn’t believe the banks making the loans were the foolish ones.
October 19th, 2009 at 7:22 pm
I think it is worth unpacking the phrase “big shot financiers.” There are two types. One type are top officers of invesement banks. They are extremely powerful, benefit from implicit federal guarantees and can destroy the economy if they are reckless. Another group of financiers with huge incomes are not so powerful protected or dangerous. That would include hedge fund managers.
They don’t benefit much from implicit guarantees. There was a public intervention to deal with the collapse of Long Term Capital Management (LTCM) but the partners ended up with roughly nothing. LTCM was too big to be allowed to fail suddenly, but small enough to be devoured. The intervention was an orderly liquidation not a bailout.
LTCM’s positions were huge (their equity was small their leverage was amazing). I tend to guess that currently existing hedge funds can’t do anything like as much damage no matter how reckless they are.
I’m still all in favor of heavily taxing hedge fund managers. I mean they don’t need all that money and other people do. However, the cited research (via Brad) isn’t really about the total income of the dangerously coddled super rich who almost destroyed the world economy. They were tossed in with the not so coddled or dangerous super rich.
October 19th, 2009 at 10:54 pm
Hmmm….let’s see. What is this thread all about. Looking around. Looking around. Ah ha. The idea is to fight a fully armored tank division with toothpicks.
Not for me. See ya!
October 20th, 2009 at 1:27 am
I agree with you, but I do think there’s something to the “income hiding” objection in this context. That is to say, when you’re talking about high marginal tax rates on very high income individuals, you also are talking about the people with the motivation and resources to shelter that income somehow…just as they already do with what is really work income sheltered as capgains.
Put another way, I think that high marginal income rates on very high incomes would end up showing the same sort of distorting effects that luxury tax rates often show.
I don’t know what the answer is, other than adding a few new brackets with moderately higher rates coupled with regulations that close loopholes and increase enforcement. I suspect that the kind of taxation that seems “morally” right to you and me is not realistic.
Speaking as one among many people who suddenly found themselves with mid six-figure incomes in the late 90s and early 00s, I’ll say yes, there’s a large element of luck involved.
I find it fascinating that often conservatives will accuse liberals of necessarily having little experience in business when it’s my own experience in business that leads me to believe that only someone who is stupid, or has little experience in business, would believe that there’s not a large element of chance in business success or failure.
Indeed, my observation is that the overwhelming majority of entrepreneurs and executives continually make really dumb mistakes and it’s only luck—and that their competitor is equally dumb-that keeps them in business.
Executive compensation is a very poor metric of merit in contemporary corporate culture because of the incestuous nature of BoD executive compensation committees and executives. That and the rise of the auteur theory of corporate executive management.
October 20th, 2009 at 3:34 am
Quite. My slight concern is the difficulty in taking the bone away from a dog once they have it. If we could point to banking and change the way people think about taxation then fine. Short of that consensus it seems we will be left with a serious structural problem.
October 20th, 2009 at 4:56 pm
[...] there was Matt Yglesias making another appeal to “social justice,” this time with regard to pay for banking executives he deems to be unfair: Banks are [...]