Sunday, October 13, 2013

Punishing the Unsuccessful / Unlucky?

I am going to break out a couple of interesting conversations from the MinnPost Warren piece.

"Quick question. Why is the 50% figure the danger line?" RB Holbrook

"I don't know. It depends on what type of government you want. Slowly we are moving from capitalistic towards socialistic. Personally I think Capitalism is better. (ie Atlas Shrugged fan) G2A Continuum" G2A

"So nothing. You just don't like government. The "fifty percent!!!" alarm has no particular significance." RB Holbrook

I love government. I dislike arbitrary wealth transfer from the lucky/successful to the unlucky/unsuccessful... It tends to reward the questionable behaviors of the unlucky/unsuccessful and punish the positive behaviors of the lucky/successful. Definitely no way to promote good choices, continuous learning, hard work, saving/investment, etc."

"First of all, it is silly to consider taxation of income as "punishment." That is the attitude of a four-year old who is being denied a cookie, because his parents are so mean. Is anyone out here not getting rich because of income taxes (why does the chairman of Ikea keep at it, living as he does in Sweden?). I also don't see what's so arbitrary about it. Capitalist icon Adam Smith regarded a progressive income tax as a no-brainer. If one of the purposes of a civil society is to protect individual wealth and property, why should the financial burden of that protection not fall heavier on those who have more to protect?

Second, why do we want to reward the questionable behaviors of the lucky/successful? Definitely no way to promote ethical behavior. Letting the architects of the great recession walk sends the message that ethics and the rule of law don't matter if you're rich enough. That hack b-movie screenwriter you profess to admire would disagree, but basing a society on greed is a terrible idea.

Third, the idea that people are unlucky/unsuccessful by some economic metric solely due to questionable behaviors is completely divorced from reality. There are millions of people who work hard yet who don't get rich or even middle class. You give this away when you talk about "lucky." Why should we trivialize or punish the unlucky?" RB Holbrook
 I did reply to this, however it disappeared into the ether...  It went something like this.

  1. Even with a flat tax situation, the high income folks carry much more of the financial burden than most.  I would say that most high income folks would see progressive policies that cause ~30% effective tax rates as a punishment which  forces them to bear more than their fair share of the burden.
  2. I believe that bankers, investors, government, regulators, mortgagees and others caused the great recession. The "greedy" bankers could not have done this on their own. Crisis of Credit
  3. How exactly are we punishing the unsuccessful/unlucky?  If they file their Fed Income taxes, they will likely receive a credit that offsets many of their local taxes.  Or at least they will pay no Federal income tax.  Then many will receive free stuff from charities, local, state and/or federal organizations. (reminder: free to them, paid for by successful/lucky) On top of this in many situations reverse discrimination policies give them funding and benefits that are not available to others.  Now they be unsuccessful/unlucky, but where again is the "punishment" you are referring to? Wiki Effective Rates 2011
The most interesting thing about the effective tax rate chart is that we should be subtracting ~7% off of everyone for up to their first ~$105K. I mean if they are entitled to benefits, these FICA payments are actually just mandatory premiums. (ie not real taxes)  This would show the Top 1% are actually paying the highest rate, and it would show the true effective tax rate for the lowest 20% would only be 10%.

Then we should probably add back any cash benefits that each class is getting from government in order to determine a real net effective rate.  I am guessing that would put the lowest 40% into a 0% or negative rate. (ie making money each year)

Now where again is that punishment of the unsuccessful/unlucky?  Thoughts?


jerrye92002 said...

Again, the solution to the tax code is to abolish the IRS and go to a straight flat tax or, far better, the FAIR tax, WITH an exemption for the poverty level. That makes the tax perfectly progressive above the poverty level (i.e. the tax is only on "disposable income" and those struggling in poverty are held harmless. That's generous compared to the ideal of "everybody contributes something" and in fact MORE generous than the current tax code!

The other approach I am OK with is eliminating all welfare and instituting a "negative" flat tax that is progressive up to the poverty level, with those BELOW that level getting a progressively larger percentage, though NOT 100% of the difference. This would be MUCH cheaper than the current welfare system, would restore the incentive for work and undo the growing and dangerous sense of "entitlement."

John said...

I guess my question is how does anyone consider the current system as "punishing" the unsuccessful or unlucky?

And how do they not see the Progressive tax system as "not punishing" the successful/lucky?

In the first, the government is giving people additonal money due to their personal circumstance and choices. In the second, the government is taking away additional money due to their personal circumstance and choices.

Maybe I should test this at home and see what the girls think. I'll see who has the most saved up. I'll take $20 from her and distribute it to her 2 sisters, maybe $7 to the next "richest" and $13 to the "poorest"...

I wonder if the "Richest" would see this as "fair" or "not punishment"... I wonder if the other 2 would strive to be the "richest" given they saw what happened to their sister...

jerrye92002 said...

Of course the current system penalizes success. It is one thing to say that the rich guy, who makes ten times what you do (or let us even allow has ten times the disposable income) pays ten times as much in taxes, but that isn't the current tax code. Under the current code, it is more likely that the guy with ten times the disposable income pays 100 times the tax that you do! Not even remotely fair! By the same token, those who are struggling by near the poverty level finally got a big break from the Bush tax cuts, but you still have poverty-level people paying income tax and FICA taxes, and now Obamacare taxes, plus state sales tax, cigarette tax, and etc.

The biggest problem as I see it is that the tax system, taken all together, is so goshawful complicated that it cannot possibly be fair to ANYBODY. A dollar is a dollar is a dollar, and it shouldn't be taxed differently depending on where you get it or where you spend it. And of course if the government were at all responsible with your money, you would only be paying about half what you do now, or less.

Laurie said...

Maybe you should try another test at home. Tell your daughters that you have been thinking about your will and are considering leaving your eldest daughter 99% of your estate, your middle daughter .9% of your estate and your youngest daughter .1%. The math for this analogy was tricky as you don't have 100 kids I think my numbers capture the extreme inequality,

John said...

It seems you just fell into that Liberal "their wealth is our wealth" mindset again... Please try to remember this is America where we have personal property rights.

No benevolent Father willed 82% of the USA's wealth to these folks, that is unless you want to argue that it was the will of God. Which would be odd given your religious leanings. And then, do you really want to go against the will of God?

Now the reality is that this is wealth that folks have amassed through their efforts, the efforts of their families and/or some luck. It is THEIRS, it is not OURS or the GOVERNMENTS... WE can FORCEFULLY TAKE it from THEM through taxation and GIVE it to someone else. But it is TAKING it FROM THEM... Just like the example with my daughters.

Or do you really imagine the all these people were just given this wealth by some imaginary benevolent Father?

And let's say that you were able to Rob Peter to give to Paul, and you had it so everyone had the exact same amount of wealth. (ie perfect fairness) Then over the next 100 years the successful/lucky worked, saved and invested their share into a big pile. While the unsuccessful/ unlucky wasted it like the prodigal son. Would you insist on redistributing it all again to keep wealth equal because it is only fair???

What behaviors would that promote?
What behaviors would that inhibit?

John said...

For quick reference.
WonkBlog Income / Wealth Distribution

Laurie said...

I think the most of the 1% were given the vast majority of their wealth by a real life benevolent father.

So at what point would you think capitalism has gone awry and is in need of some democratic correction for the good of society. Are you OK with the 1% controlling 60% of the wealth? 80%? 90%?

Maybe a strong safety net is in the best interest of the extremely wealthy so the serfs are content and acquiesce to a state of extreme inequality.

John said...

Right now Ezra shows them only controlling ~35%... Where are you getting these 60+% numbers?

John said...

Was it their Father? Then it is THEIR family's wealth?

Or are you talking about our benevolant father in heaven?

If the Patriarchs and Matriarchs work save and invest so they can pass along wealth to their children, does that give society the right to pounce on it when they die?

As compared to those Patriarchs and Matriarchs who squandered it and leave nothing to their children.

John said...

By the way, back to the topic.

Are we/government actually punishing the unsuccessful / unlucky in some way today?

If so, how?

jerrye92002 said...

I think you are all missing a little historical perspective. America is the first of the European nations (most of us came from there) in which estates were left EQUALLY to the children, rather than to the first-born son as Europe did for hundreds of years. That means that most "family fortunes" were dissipated in the space of one or two generations, with absolutely no government thumb on the scale. The estate tax only made matters proceed more quickly, often forcing family businesses or family farms to close rather than struggle forward under divided ownership. That's just stupid policy, as well as grossly unfair. It may be a bit more moral to take it from Dad when he is still living, but that's like saying we're going to execute you by injection rather than hanging, because we think it's better for you. But it's what socialists do.

jerrye92002 said...

Here's another angle: If you are on welfare (a generic term, I know) and would like to work, you're going to lose your welfare benefits. Studies show that, depending on the benefits you are getting, a person would need to make nearly $30/hour before they could "afford" to take a job versus staying on welfare. Now, is that not "punishing" the person who would like to reclaim their human dignity and work to provide for themselves and their family? WHY would we mistreat them in such heartless fashion?