patrick.net

Two seemingly contradictory facts drive a lot of this debate:

1. Most wealth in inherited, not earned.
2. Most millionaires did not inherit their money.

They are both true, but how can they both be true?

Both are not facts. NO research supports that most wealth are inherited. All research find that modern wealth are earned, not inherited.

No, not necessarily. The money could have been gained purely by non-productive rent-seeking. And it usually is, for the vast fortunes of the elite.

Who's the judge of non-productive income? Tax patent-income more? Patent royalties sky-rocket. Tax rent-income more? rent increases.

Would you still be for private property rights if ONE person owned 100% of everything, and everyone has to be their slave, forever, because that one person owned all the land and extorted maximum rent from everyone?

Who owns everything? Mathematically, that can't happen. There are laws to prevent biz monopoly; are you suggesting a law to prevent private wealth monopoly? A cap on how rich you can be?

Patrick, what would you think of moving this thread to the Politics forum?

Just floating a suggestion. This topic doesn't seem to be related to investing at all.

OK Swebb,
The infastructure you mention is funded by 1. special taxes on gasoline, etc. 2. money raised by selling Bonds. You may even see them around from time to time, they are like the bonds to build a bridge, etc. Often the revenue bonds are paid by the bridge tolls, etc.
Airports are paid this way. The users of airplanes pay for the airport in the ticket.
Is it necessary to have a military and a space program. Sure. This of course should not grow huge however.
Evidently you weren't even aware that the target of the Democrats IS your retirement investments. There is so much money there they find it almost irresistible.
RE: Wealth inherited v made.
The richest people today didn't inherit their wealth. The richest people however also may seek ways to prevent the grave robbers in Washington from taking it after they are dead.
Both Bill Gates and Warren Buffet are not charitable people. They are getting their money out of the hands of Uncle Sam in their favorite way, rather than letting it be taken after they are dead.
It is true that robber barons existed and still exist. A good example is Carlos Slim, the richest man on earth. Telephones of all kinds are super expensive to use in Mexico and the people are gouged to the benefit of Telmex.
The answer to this problem is not within this discussion. I am talking about not stealing money from Dunross because Pelosi and Reid want to give it to someone in the slums who gets sec 8, food stamps, etc.
The guy bumming from me this afternoon at mcdonalds ($1 smoothies, I'm lovin it) told me about how he gets SSI but the meanie wants him to "narc out some people". The conclusion is this bum is getting SSI but they withhold it when he misses his meetings with the parole guys. So it goes.
Since "baby carries no cash" I had to let him bump off.

rockyroad says

NO research supports that most wealth are inherited. All research find that modern wealth are earned, not inherited.

Really? You don't seem to have researched the subject very well.

Look up the paper by Kotlikoff and Summers "The Role of lntergenerational Transfers in Aggregate Capital". Most wealth is in fact inherited and they proved it.

rockyroad says

Who owns everything? Mathematically, that can't happen

Actually, it's mathematically inevitable. Whoever has the most just has to get interest and rent from everyone else without any inheritance taxes. Game over.

msilenus says

Patrick, what would you think of moving this thread to the Politics forum?

OK.

zzyzzx says

Why do we have to pay cap gain taxes at all?

Because millions on welfare/food stamps/section 8 housing/etc. depend on you!

honest question: do you vote democrat, republican, either/or, or neither?

I'm not judging either way-- just curious.

Look up the paper by Kotlikoff and Summers "The Role of lntergenerational Transfers in Aggregate Capital". Most wealth is in fact inherited and they proved it.

Next time, you give a dollar to your son or daugher ..
I want the Govt to be there to take half of it !

Look up the paper by Kotlikoff and Summers "The Role of lntergenerational Transfers in Aggregate Capital". Most wealth is in fact inherited and they proved it.

We live in 2012. The paper you reference is dated 1981. The WSJ article I dated is 2008 (using 2001 data, latest available). WSJ asserted since 1989 inherited wealth has declined from 23%+ to less than 10% in 2001. Since we like extrapolations on this site, it's not a stretch to see inherited wealth dropping to well below 5% in 2012.

So yes, if we lived back in 1981, you'd be right. But we are discussing "modern" wealth correct?

----------------------------------------------------------------------------
Ideology aside, isn't the definition of rich/wealth to own significantly more than the average? So, as long as wealth is distributed unevenly, there will be rich and poor. Unless you want even distribution of wealth... but that's a different topic, and I hope none of us want that?

What about "fair" distribution of wealth? Unless you are Midas, I don't think anyone can be "fair". Which is what I began arguing... that fairness is a pipe dream, especially a fair tax. Heavily officiated activities, such as the Olympics, with enormous emphasis and motivation to enforce "fairness" see some of the most unfair results. Why do Russians and Chinese dominate gymnastics? Can't be economics... as Africans dominate marathon events. Can it be race? But that can't be; we are all equal; one human race right?

Fairness-anything is a misguided lesson to teach your kids. Asian Americans weren't treated fairly at anytime in US history. Jews certainly weren't treat fairly throughout world history. Yet, as a group, they are performing exceedingly well in modern America. I rarely hear about these groups marching on Washington, or occupying the Man. They simply study, work, emphasis on the family and respect the elderly.

America is still the most upwardly mobile society in history. You only need the drive, work ethic, and a little luck to be extremely successful. Family wealth is not a requirement, and has never been in America.

All this talk of the "rich" is relative. If you make $45k annually in America, that puts you in lower middle class in fly-over states, and barely surviving on the East/West coast. Yet the same salary puts you in the TOP 1.72%
richest people in the world! Maybe we should tax you more? Kids in Africa are starving, and that's not fair!

http://www.globalrichlist.com/

How you be "fair"? Do something with your talents/ideas, accumulate wealth and share the wealth with projects that seek to preserve culture and save lives. It's a never ending effort, as this is the human condition. BUT, seeking fairness by taking (too kind of wording) wealth from others based on perceived "justice" is dangerous.

rockyroad says

BUT, seeking fairness by taking (too kind of wording) wealth from others based on perceived "justice" is dangerous.

Sure. Also, what may be "perceived justice" by the voting public, is actually a bought politician demagoguering for the aristocracy to buy more votes/power.

Obama presents himself as robin hood. This might be accurate if Robin Hood were stealing from his fellow countrymen, giving half to the sheriff of nottingham, using the rest to buy loaves of bread at an inflated price from his brother's bakery, then tossing the bread into the ghetto for the poor to fight over.

The government is not a proper charity, and most here seem to agree.

Wealth disparity, or specifically limiting the political power resulting therof, is thus far the only valid argument for Obama's tax hikes on capital gains.

Is tax policy a valid tool to limit the political influence of the extreme rich? The government itself is owned by these very same extreme rich people. A few hundred or so in the government/aristocracy have convinced the masses that we need to take extra wealth away from the estimated 500k american millionaire tax filers last year. Taking money from the mini-rich, and giving this power to the super rich isn't going to remove private money-fluence from politics.

clambo says

s it necessary to have a military and a space program. Sure. This of course should not grow huge however.

And it's that question of where to draw the line (what should/shouldn't the government do) that most of the argument (generally) is really about. We probably don't agree on what services the government should provide. I understand why the government taxing you and spending it on things you don't agree with would boil your blood...but we are never all going to agree on where that line should be drawn, so we have to all get comfortable with being uncomfortable. At the end of the day the whole is greater than the sum of the parts, and I believe most of us benefit from the big society (along with the government) that we have built. No, it's not perfect, yes we should strive to improve things, but capital gains taxes and inheritance taxes aren't the battles I'm going to choose -- after all the wealthy have benefited from our great society more than anyone else (notwithstanding their hard work, risk, etc).

clambo says

Evidently you weren't even aware that the target of the Democrats IS your retirement investments. There is so much money there they find it almost irresistible.

I'm still not aware of it. You have asserted it a few times -- it's something I will have to look into.

rockyroad says

Unless you want even distribution of wealth... but that's a different topic, and I hope none of us want that?

Even, as in everyone has the same amount? No, of course not. More even? Flatter? Yes! I think it's better for the country. Scary things happen when the wealth disparity grows too severe.

rockyroad says

America is still the most upwardly mobile society in history.

I don't believe this is true, or at least not generally accepted as such.

http://moneyland.time.com/2012/01/05/the-loss-of-upward-mobility-in-the-u-s/

"Both pieces cite numbers from the Pew Charitable Trusts’ Economic Mobility Project and other studies that found that 42% of American men with fathers who were in the bottom fifth of the earning curve stay there. Meanwhile, only a quarter of Danes and Swedes and 30% of Britons born into the lower-income bracket will die in that same bracket."

Vicente says

Whatever bracket I'm in, it torques me that capital gains is taxed at 15%. It should be higher. I hold dividend-paying and some long equities I would not be unaffected myself.

Anything to prevent people for saving for their retirement, right?

Just trying to understand your line of thinking.

Left out from this conversation is not only income tax, but the de facto regressive tax on wages and salaries paid by workers:

Social Security and Medi- care/caid withholding.

Someone working and being paid ~$100k is paying a marginal rate of ~40%.

I think it bizarre that somebody could make ten times more by NOT working, but rather off dividends, and pay far lower tax rate.

Our tax code seems to say:
"Productive endeavors bad, laying on beach collecting dividends good."

thomas.wong1986 says

Look up the paper by Kotlikoff and Summers "The Role of lntergenerational Transfers in Aggregate Capital". Most wealth is in fact inherited and they proved it.

Next time, you give a dollar to your son or daugher ..

I want the Govt to be there to take half of it !

Wow, are you determined to misunderstand or what?

Not talking about a dollar. We're talking about VAST UNEARNED HEREDITARY wealth. Meaning permanent ruling class whose ownership of all resources (especially land) makes everyone else into a permanent servant class with no escape no matter how hard they work.

Can't happen? Hmmm....

French revolution
Russian revolution
Chinese revolution
and 1,000 other examples

Why did those people revolt?

Vicente says

clambo says

Go get hired by Goldman and join the squids. Go work for stupid B of A or their other ilk.

No thanks, I just want to see these vermin taxed at LEAST the same rate I am. Why should I have to pay anything north of 30% when they pay 15%?

One founding principle is that "all men are created equal" and thus they should be treated equally before the law. Giving special tax privileges to "squids" should be a no-brainer even for no-brainers.

“Eagles are dandified vultures” - Teddy Roosevelt

How is % they pay even relative? You're saying your tax situations are identical?

zzyzzx says

Anything to prevent people for saving for their retirement, right?

Well the line we've been sold the last few decades, is that your HOUSE is your retirement nest egg. Because pensions all had to be kicked to the curb in the name of cost-savings. Oh right, or your 401K and Roth are going to take care of you. How is that corporate/banking promise working out? Me I mostly see people praying that their Fidelity fund will return to what it was a few years ago otherwise they'll be eating cat food.

If we extended copyright and enhanced IP laws back 5000 years, the airs to the English language could own the copyright on it and license it to us. Of course there would be hefty fines and prison sentences for using it without a license. We could all pay royalties to them.

At the same time you could write a check to some dudes in Persia every time you fire up your car, to pay your royalties on Algebra. Just think how Newton's airs would be making out right around now.

Why should you get to use language and math for free, for without these, it would be near impossible to acquire tremendous wealth.

rockyroad says

Kids in Africa are starving, and that's not fair!

Of course it's fair! It's the only form of birth control they have there!

Vicente says

Well the line we've been sold the last few decades, is that your HOUSE is your retirement nest egg

The haven't seen my rather low end house. Houses don't generate dividends like stocks do, which is why I buy stocks.

Vicente says

Because pensions all had to be kicked to the curb in the name of cost-savings. Oh right, or your 401K and Roth are going to take care of you. How is that corporate/banking promise working out? Me I mostly see people praying that their Fidelity fund will return to what it was a few years ago otherwise they'll be eating cat food.

God Bless America.

Vicente says

I'm sure Richie Rich likes best the state of affairs where they get to enjoy all the trappings of a first-world country, no bloody street riots, National Parks, first-class military, etc. they just don't want to pay for any of it. And it has to be paid for, so in a sensible tax policy we don't leave them an out. Worst of all, it really messes with the American sense of fair play when Mittens is paying a lower tax rate than you and I.

I don't disagree with your concept.

The maybe 1000 super rich and well connected that control our government are the problem. It isn't your neighborhood millionaire (think Nomo), who is the problem.

I simply don't see how taking wealth and power from the 500k or so upstarters earning over a million per year helps anyone but those same powerful 1000 that control our government.

CBOEtrader says

I simply don't see how taking wealth and power from the 500k or so upstarters earning over a million per year helps anyone but those same powerful 1000 that control our government.

The problem is many of these 500K are not providing as much value to society as they think they are. For example, many are "small" businessmen. They scream bloody murder about providing health insurance for their employees. But someone pays for their health care. They are just shifting this cost onto other people. So much of their profit is illusory.

While this will get Thomas Wong (our local proclaimed tax expert) worked into a frenzy, people who are busy creating real jobs typically have low taxable income. Hence a tax hike doesn't really affect their behavior. People pulling out $1 million a year are usually living the good life and less focused on creating jobs.

CBOEtrader says

I simply don't see how taking wealth and power from the 500k or so upstarters earning over a million per year helps anyone but those same powerful 1000 that control our government.

You've heard my argument before.

I think the over 1million group is just a start. It has to be more progressive down to 250 or 300K. We're not talking anything huge. Maybe someone who makes 400k per year would pay 6 to 10K more than they do now.

Or maybe raise it even a bit higher. We aren't talking about forced equality or anything remotely close to that. A big part of it is just the principal of paying for our government. Even if a lot of it is what you call charity. I assume that's what you call it when a lot of what a high income person pays is going toward social programs that benefit the poor.

My bigger issue is that only when we actually pay for what we spend will be get spending under control. And if this is done with progressive taxes, I believe that the high income decision makers will have a much harder time getting backing from their pals for corrupt policies.

marcus says

I think the over 1million group is just a start. It has to be more progressive down to 250 or 300K. We're not talking anything huge. Maybe someone who makes 400k per year would pay 6 to 10K more than they do now.

In Maryland you only have to make 100K to get hit with "rich people" state income taxes.

zzyzzx says

In Maryland you only have to make 100K to get hit with "rich people" state income taxes.

That's why I don't live in Maryland. Not that New York is any better.

interesting..

Patrick is mentioning all the places where people LEFT to come have the ability to create their OWN wealth, the USA.
Of course those miserable places in Europe and Asia who had hereditary rulers and serfdom ingrained for centuries had a giant poor class which supported the wealth of a privileged few.
The notion of their revolutions having any relation to the situation of taxes confiscating wealth in the USA is completely wrong.
Ted Turner is a nutcase but he made his money and he BOUGHT his land, he did not inherit it.
The cases abound.
Not to worry, I know of a few cases where the rich entrust their businesses to their adult children to avoid eventual death taxes. So, as the adult child mismanages the business they end up losing plenty of money and assets are sold to pay to keep the business alive.
The reason that Europe is having difficulties is that the place has essentially tried to raise the standard of living beyond their actual production and wealth of natural resources.
The exeptions are of course the smart, productive, or resource rich among them.

clambo says

death taxes

The use of that term immediate identifies you as a brainwashed supporter of hereditary aristocracy in America. It's OK if you want your descendants to be the permanent slaves of the artistocracy, but it's not OK for my descendents. I want them to have a real chance to succeed based on their own merits in spite of your efforts to prevent that.

If you spend even ten minutes looking it up, you'll see that social mobility in Europe is far higher than in America.

You personally embody everything that is wrong with this country.

Of course they are death taxes, they are paid upon someone's death.
There is no aristocracy here, you must not have lived outside the USA. Go and report back to us.
The proof of my point is the millions of Europeans and others who have come here to improve their lives. No one stopped them.
You must be unaware of the caste system in India, the feudal serfs in Japan before McArthur reformed it, and why people from Europe came to the New World in the first place.
If social mobility today is worse than Europe the reason could be that millions of children of illiterates choose to drop out of high school. They of course do not go to college either.
These will of course not be very upwardly mobile, but I have nothing to do wit hit.
Attacking me personally is just the liberal in you venting frustration. I want to leave you alone and I want to let you give your money to your own children or biafrans or whomever you choose to.
I believe that there is nothing wrong with me because I want Uncle Sams hand out of my wallet and yours also.
Unlike all posters here, I was instrumental in developing a clean renewable industry in a third world country, so I feel not a smidgen of guilt over being American and keeping what I have SAVED over my lifetime of work.
The actual aristocracy here is the political class, the Clintons, the Bidens, the Obamas, the Reids, those who were POOR before they become involved in politics and magically got rich. Hillary making more in cattle futures options trading in a couple days than most guys make working in years is one example.
I am not brainwashed nor ignorant.
"When you have no basis for argument, abuse the plaintiff". Cicero.

swebb says

I find it hard to maintain faith in the idea that everyone has a fair shot if money is being passed down from one generation to the next.

Lol ! clearly you hate kids... just kidding around.

As part of our tax laws, the tax payer can simply donate their estate to some worthy cause of their choice. If you hate the idea of your greedy little rug rats getting all of your hard earned money... donate it..

Why are you concerned about other peoples wealth ?

thomas.wong1986 says

Why are you concerned about other peoples wealth ?

Indeed, we should never concern ourselves with the opinions of peasants.

Vicente says

Indeed, we should never concern ourselves with the opinions of peasants.

and somehow you expect the govt to do what with this already taxed wealth.. 35% the first time wasnt good enough .. so lets take the other 70% what is left ?

They are not aristocrats.. they are the merchant class you seem to hate so much. Why ? because they came from nothing and did something with their life... while you wasted your life reading poetry and debating politics. Some here had a wasted life...

People are forced to pay capital gains tax because the government fails and refuses to live within its means. Government has, is and will be constantly seeking new ways of fleecing its loyal subjects and capital gains is just another of a long list of ways to raise more money to continue to pacify the army of indentured voters it, government, has created.

Government always needs more just like a junkie always needs more. Enough is never enough. When they run out of other peoples money, they need to find new ways to get more. Its really that simple.

Honest Abe says

Its really that simple.

No, not that simple.

The main problem is that the rich are forcing middle classes to pay their taxes for them. And they are succeeding, thanks to people like Honest Abe, who somehow don't notice that billionaires pay only 15% on capital gains for doing NOTHING while the upper middle class productive people pay 28% and more.

Why don't you tell the truth about how we being screwed by the 1% Abe?

I agree. Get rid of capital gains & inheritance tax. Tax it all as income.

It is not double taxation just because someone had to pay taxes to earn money before you 'earned' it.

It is not considered double taxation if I pay taxes on money I earn and then pay a carpenter who pays taxes on what he earns. It is fair game, b/c we are two separate entities.

Capital gains on stocks happen if I loan money to someone else, and they make money with it and pay me a fee. We are two separate entities. I made money by loaning it. If you don't like this, there are pass through structures for businesses that are less obviously separate.

thomas.wong1986 says

Why are you concerned about other peoples wealth ?

The first answer to this is obvious. The value of my money is directly tied to the amount of money that other people have.

The second answer is more up for debate. The country needs a mix of savers and borrowers. Too little, and people with drive and good ideas cannot get hands on capital. Too much, and we have what we have now. We have huge gov't and personal debts balanced by vast fortunes controlled by a few people and mini-fortunes controlled by many people sitting on excessive nest eggs. Of course this requires a complicated financial structure and a bunch of wizards in the middle convincing the rich that their money is safe and convincing the debtors that they are on their way to becoming rich.

We need to find ways for the rich to spend some of their money or to tax some of it away from them. Either way would be fine, but I would prefer taxes to space flights.

Patrick, YesNot , Comrades - why not just go to the end result and be done with it? Punish all successful people and businesses, take it all and get to the real goal - a dreary, misreable combination of progressive, creeping socialism and communism.

Are you happy now?

^ The end goals are to reward successful people and businesses and to encourage economic growth.

However, you cannot reward income earners while taxing the crap out of them and giving huge tax cuts to inheritors and financial hoarders.

Honest Abe says

why not just go to the end result and be done with it?

We are on the road to the end result already, and it looks far more like the Monopoly endgame than your USSR fantasies.

Even with a flat tax..

Why should I be taxed x2 if I work x2 than somebody else and I obtain the same services from the government...

Isn't this an inefficient/unfair government? What stops me to migrate to the first country that promises me x1 tax only?

For good or for bad, in the era of globalization, governments loose their monopoly power. It's just a question of time till they start treating us as a corporation would do.. competing to obtain our labor and to offer their services.