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October 20, 2008

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909

nice

Guest

I couldn't agree with you more. Wealth redistribution is state sponsored theft. Check out Frederic Bastiat's The Law.

I firmly believe that without a government safety net, person to person charity will see a resurgence.

reader

This is an excellent post, and a thoughtful argument against Obama's populist socialist policies.

Now, realistically speaking, you are virtually shouting in the wind. In fact, in a gale force storm.

This is not a time for reasoned issue-driven debate, the campaign is run like a high school cheerleading contest. Populist rhetoric reigns supreme. People just want to punish Republicans for failing to represent their most basic principles (smal, principled governance). Most people don't put nearly enough thought into their voting decision, and treat it more like an America Has Talent show.

Thoth

Anal_st - While I couldn't agree more with your belief that the sense of entitlement in the US needs to go, I think this a rare occasion where I disagree with your premise.

The entire tax system in the US is based on redistribution - that's why we have marginal rates. Obama is simply verbalizing how the system works and advocating some (fairly minor) adjustments. Also, your comparison of the $300K analyst and the $30K waitress ignores the fact that the analyst still has a significantly higher net income than the waitress, probably in the range of 5-6X. So the incentives remain.

Plus,what I've heard about Obama's plan would be to raise the marginal rate above $250K from 36% to 39%. For your $300K analyst, that means an extra $1,500 in taxes a year. That will hardly be a disincentive to future analysts.

Anal_yst

@ 909, guest, etc -

Thanks, glad you enjoyed.

@reader

Couldn't agree with you more - the Presidential election is spectacle and mostly-empty BS rhetoric(and forgive me if I steal borrow that allusion, fantastic, ha!).

@ Thoth

You make a very good point which I should have been more clear about. However, there is a reason why you'll notice that not once in the post did I mention the argument that increasing marginal tax rates (which for most won't be nearly as substantial as some fear) will remove incentives to achieve financial success. Somewhere up there though, I did point out that because of the relatively small (key word: relatively) marginal increase for many I doubt there will be much, if any real job attrition to other locales, which indirectly agrees with your sentiment that the incentives technically still remain.

What I wanted to highlight is the principle(s) of the matter, I guess you could say. Quite on purpose, I avoided several issues (namely the ones which I explicitly stated were beyond the scope of this article), or going down certain roads which would detract from the basic point of this post.

Just for shits & giggles though, consider this: Obama's plan is, as far as I can tell, age-agnostic. That is, ceteris paribus, a single 20-something making $60k per year would receive the same (or very similar) benefits as a single 40 or 50-year old earning the same amount, according to the tax savings calculator on Obama's website.

Lastly, I want to reiterate a promise I was very obvious about making throughout the post: We are not singling out Obama. Don't worry, McCain has just as many flaws, and will (eventually) get what's coming to him, too.

Matt

Thank you for the very thoughtful and measured post. I couldn't agree with you any more and I would never be able to put it in as measured a form because some powerful emotions overtake trying to apply an even hand.

I am currently a lower-mid level employee in the most hated industry and I supposedly suck on the poor folks' blood. However, I come from a really destitute background with my own father having gone without food at times for want of money. Today I am where I am and I have become an automatic object of hatred for the masses.

Yet, no one will look back an see how my parents spent almost all their income on my education, while their peers in their socio-economic strata spent on a new tv or a new bbq grill. Today, they will say that everything is unfair and I need to pay my 'fair share.' But why should I pay any more than those who came from the same socio-economic background as I did? Because they never put in their 'fair share'?

Calls for higher marginal rates by the rich mavens of the liberal party makes my blood boil. If they really cared about equality, they would not tax income - they would tax wealth. Today Warren Buffet or George Soros can pay 95% marginal tax without it it impacting their lifetstyle even one tiny bit. However, a high marginal tax rate will simple freeze the society into its current economic stratas - with those with the wealth maintaining it and those without it never being able to acquire it.

I think that is what they want. The Kennedy's and their clan obviously dont like riff-raff vying with them for the goods. The biggest wonder of the growth of the 'wealthy' folks over the past couple of decades or so is that most of them are self made people, that is - none of them were born with the wealth. They created it. This is in direct defiance of all of human history where those born with the means maintained their control over the assets.

If anything, people should probably appreciate this miracle of the American system where 2 smart guys who come up with a brillian search engine get to become billionaires many time over. Instead, we curse the system.

Sorry if this came off as a rant. I havent slept for 36 hours because of work. Of course, Obama does not care much about that. However, his heart absolutely bleeds for the worthless hipster who spent his weekend smoking pot, getting piss drunk and pretty much doing nothing of any use. As a future welfare recipient - he is of course the apple of Obama's eye while the evil villanous me probably should work more so that I can pay my 'fair share' in supporting that hipster, failing which I will probably be shipped off to some camp.

David

Why not pursue a flat tax? Or would that be too fair and equitable?

I'm in favor of neither candidate; however, in this election I find myself having to cutoff my nose to spite my face. Not a position I like to find myself in, especially given the recent economic meltdown we are in the midst of.

Anal_yst given your thoughts on the redistribution of wealth and taxes, I am genuinely curious to know your thoughts on the current government bailout. Is this not considered a redistribution of wealth at the corporate level, where only a select few partake in the proverbial pot of gold?

I grudgingly admit that we are in a position where the markets require government intervention, but for the life of me it appears the Movers have finally left for Galt's Gulch. Hopefully I'm wrong, and the economic destruction currently taking place will merely be the fire for the phoenix of capitalism to rise again. There's always a regression to the mean, right? But what is that mean....?

thoth

Anal_yst - Don't worry, I didn't think you were singling out Obama too much. I just wanted to point out that Obama was the one brave enough to call the system what it is. Like it or not, our system is based on redistribution. If anybody really wanted to do away with that concept, then why aren't they supporting the flat tax, like David suggests above (though I think you can argue that a marginal rate system is equitable, but not equal)?

I suspect the reality is that, because of the structure of income in the US, you'd need to have the flat tax set too high (maybe around 33%), so while you probably wouldn't get the tax reduction that Republicans want, the lower-income folks will have to pay more and the Democrats wouldn't like that. It becomes bad politics all around.

Sensible Person

The New Deal says hi. You imbecile.

Kid Dynamite

unfortunately, it's impossible to campaign on a platform of Social Darwinism. You hit it in the beginning: we have the right to the PURSUIT of happiness, not the right to hapiness...

and this is what all the politicians need to understand :we have the right to the PURSUIT of homeownership (although that's not explicitly stated) - we do NOT have the right to homeownership. there are tens of thousands, maybe hundreds of thousands of Americans who were erroneously given the opportunity to own homes they could not afford. the key flaw in most of the discussions about what to do now fiscally is that everyone is focusing on how to save these people's homes!!! NO! by maintaining inflated home prices that were never affordable, we just postpone the crashing of the house of cards (in addition to providing significant positive reinforcement to the poor decision making you discuss). these people need to return to their prior housing situations - they should not be subsidized in homes they cannot afford.

Billy Ray Human

"[T]he reality of the situation is that greed on Main Street was just as much to blame."

True. We just witnessed a SYSTEMIC failure... bailed out by massive wealth redistribution. Anal, your pure and earnest discussion of basic economic truths is spot on. I'm just not sure it matters anymore. Human biases and omnipresent moral hazard, not to mention regulatory distortions, condemn markets to inefficiency.

Whether one "believes" in markets or not is irrelevant as we live in a (mostly? usually?) capitalist world. So I am not going to preface this comment by saying I am a fan of competitive markets - anyone who accepts cash in exchange for providing service or goods is. Free market economics is unexciting to me now as a Philosophy simply because it doesn't reflect reality. It's a theory. In practice, because of apparently unavoidable distortions and human error, markets become inefficient and must be bailed out/socialized or our economy dies. Is that not what just happened?

And, yeah, as has been mentioned above, Obama is saying things he thinks will get him elected. Just like Goolsbee said in Canada, Obama is not going to do anything too crazy if he is elected.

Anal_yst

@ Matt

Glad to see you pulled yourself up (with love and help from your determined parents it sounds) from your bootstraps. That should be commended, not denegrated, regardless of your chosen profession.

@David

I purposely didn't address the foil between the "Bailout" (or whatever its called now) and Obama's proposed policies. This post ran somewhere around 2,500 words. If I were to give all the related discussions their due, it would be at least 10x that, more than I was willing to write at the time and far more than most people would be willing to read.

@ "Sensible Human"

Huh? Care to enlighten the rest of us?

@ Dynamite

Great points (as always), unfortunately as we've discussed the voice of reason is not nearly the loudest one here. To address the specific point of 'keeping people in "their" homes', its very similar to drugs. If never promises that they could own (er, "own") their homes, many people would likely have gone on content, however, once they've had a taste, its nearly impossible to give it up. Many people now feel entitled to home ownership (and financial comfort) because someone told them they deserved it.

Admittedly, there is a similar (although not as prevalent, despite what some liberals might claim) entitlement mentality in Corporate America, and on Wall Street as well. The days of crazy profits due to immense leverage are, for the most part, behind us, as are the attendent bonuses they afforded.

Naturally, there will eventually be the next 'big thing' and the cycle will unfortunately repeat itself no doubt, but until then, we're running alot leaner than many have grown accustomed.

@ Billy Ray

With a Dem president and congress I'm less-and-less sure that'd be the case, although I'm sure at least 50% of the talk will never come remotely close to fruition.

Imagine, then, the dissapointment from all of the Obama crazies whose vote he won with promises of CHANGE CHANGE CHANGE, only to fail to deliver on most of it...

Ed

How about a consumption tax completely replacing any kind of income tax, with waivers (or reduced tax) for necessities (anything you can buy with foodstamps) and *maybe* higher rates for certain "luxury" goods?

Also, I'm sure you've probably seen this, but I think it's funny/worth reading again. Why the "tax the rich guy and give it to the poor guy" is a bad idea:

Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100.
If they paid their bill the way we pay our taxes, it would go something like this:
* The first four men (the poorest) would pay nothing.
* The fifth would pay $1.
* The sixth would pay $3.
* The seventh $7.
* The eighth $12.
* The ninth $18.
* The tenth man (the richest) would pay $59.

So, that's what they decided to do. The ten men ate dinner in the restaurant every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily meal by $20."

So, now dinner for the ten only cost $80. The group still wanted to pay their bill the way we pay our taxes.

So, the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20 windfall so that everyone would get his 'fair share'?

The six men realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being 'PAID' to eat their meal.

So, the restaurant owner suggested that it would be fair to reduce
each man's bill by roughly the same amount, and he proceeded to work
out the amounts each should pay.

And so:

* The fifth man, like the first four, now paid nothing (100% savings).
* The sixth now paid $2 instead of $3 (33% savings).
* The seventh now paid $5 instead of $7 (28% savings).
* The eighth now paid $9 instead of $12 (25% savings).
* The ninth now paid $14 instead of $18 (22% savings).
* The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings. "I only got a dollar out of the $20," declared the sixth man. He pointed to the tenth man "but he got $10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a dollar, too. It's unfair that he got ten times more than me!"

"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only $2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison. "We didn't get anything at all.. The system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

Kid Dynamite

this NY Times feature article put me into a deep depression:

https://www.nytimes.com/2008/10/22/business/22target.html

just reading the tone of the article, and the accompanying comments... people give no thought to the fact that maybe the credit card companies are not the ones to blame... the people who can't pay the credit card debt ARE...

Anal_yst

@ ED

funny, saw that from about 10 different people/places this week, of course the Obama fans will no doubt attack that in any number of fronts, the "smarter" ones the idea of capital mobility (the rich guy being able to/actually just up and moving).

@ Dynamite

HERESY! It's not the debtor's fault they needed to use their credit cards and the issuers kept increasing their credit limit, nooo! How dare you?!?!

Ass_ociate

Unfortunately sir I am going to have to disagree with you to an extent. I, by no means, am a socialist or anything of the sort, but I think to an extent the redistribution of wealth is a necessary evil that we all have to deal with, even for the good of the wealthy. The reason I say this is that many/most great empires in history have seen civil war, and some, their undoing because of the unequal distribution of wealth. It creates class warfare that pits many non-wealthy against a few wealthy, which eventually ends up poorly for the wealthy. I'd say a strong middle class is something that is in everyone's best interests, and we have been losing it slowly of the past decade.

In theory I hate the fact that I am sitting here at work while someone else is chilling at home eating 'their' McDonalds and watching 'their' TV, which they have because I am paying my taxes and our gov't is writing them a check with it.

Now in fairness to Obama, he is recommending that we raise the income tax on the top bracket. He is not proposing this distribution of wealth idea, we already have it built into our system, he just wants to do it a little bit more. Perhaps this is not fair, but something that is fair is taxing hedge fund and PE managers a full earned income tax. I think it's ridiculous that these guys pay a lower percent of their income than I do...do I think they should pay more than me??....probably not, but they should pay as much at least.

Bloomberg / Romney '12

Ass_ociate

Unfortunately sir I am going to have to disagree with you to an extent. I, by no means, am a socialist or anything of the sort, but I think to an extent the redistribution of wealth is a necessary evil that we all have to deal with, even for the good of the wealthy. The reason I say this is that many/most great empires in history have seen civil war, and some, their undoing because of the unequal distribution of wealth. It creates class warfare that pits many non-wealthy against a few wealthy, which eventually ends up poorly for the wealthy. I'd say a strong middle class is something that is in everyone's best interests, and we have been losing it slowly of the past decade.

In theory I hate the fact that I am sitting here at work while someone else is chilling at home eating 'their' McDonalds and watching 'their' TV, which they have because I am paying my taxes and our gov't is writing them a check with it.

Now in fairness to Obama, he is recommending that we raise the income tax on the top bracket. He is not proposing this distribution of wealth idea, we already have it built into our system, he just wants to do it a little bit more. Perhaps this is not fair, but something that is fair is taxing hedge fund and PE managers a full earned income tax. I think it's ridiculous that these guys pay a lower percent of their income than I do...do I think they should pay more than me??....probably not, but they should pay as much at least.

Bloomberg / Romney '12

morgan

I see your point, it's a fear of mine too about Obama; Socialism that will cripple our GDP and American way.

BUT at the same time: There are possibly thousands of jobs where the pay and income structure has an inequality relative to its value. (Take nursing for instance).

The Tax hike is very simple, our government needs money, and the inequality between rich and poor has never been greater (ie. the value system is not working according to the basic supply/demand economic theory.) So TAX the richer parties and set it arbitarily at 250k...

In any event, we are in trouble no matter what they do. Good bye ridiculous bonuses for using others' monies. I think I'll start looking at setting up an African Hedge Fund, who's' with me?

alex

Has everyone forgotten that we are already effectively socialist? Social Security for the baby boomers is going to criple us anyway. Redistribution from the young and working to the old and useless has been going on for decades. I am not making a judgement as to whether or not this is right or wrong in this statement; I am just stating that this is an extension of a policy already in place.
As someone who lives in the third world, I would argue that this small increase in our taxes (from 36 to 39 percent) is fair price versus the stability we get for it. The police essentially function to protect the rich from the poor, and without some stream of cash to sustain them, the utterly destitute poor will defeat the police and take all the stuff rich people have worked for. Think about that New Yorkers the next time you want lower taxes but no handguns. This money we pay is essentially put protection against our "skip to zero risk". As our wealth goes up, we have more to lose and should be willing to pay a higher amount of notional to protect that. As the gap between rich and poor has widened, we have to pay more because we have more to lose.

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