
How Washington Really Redistributes Income - fjk
http://online.wsj.com/news/articles/SB10001424052702303680404579141790296396688
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cylinder
I'm not sure that Social Security and the like for older people is such a bad
thing, it seems logical. You can't expect people to work in old age and nobody
would want to insure their healthcare without government support. Young people
have their youth, energy and the ability and time to work for themselves and
save money. Old people do not. I see nothing extravagant about the size of SS
payments. Medicare does need to be reigned in, of course. I would say add
asset tests to SS, but those are so easily skirted that they'd be
unenforceable.

The real ripoffs of the young generation:

* The cost of education caused by free-flowing credit to students

* Housing price inflation by foreign and domestic cash investors, mortgage tax deductions, 30-year mortgages, federal reserve actions creating asset bubbles (not US exclusive, in fact the problem is worse in commonwealth countries like Australia thanks to negative gearing and lack of property taxes)

* Obscenely low taxes on wealth and capital gains

* Absurd amount of defense spending

Young people also bear responsibility to: * Manage money better

* Live within means

* Encourage discussion of serious issues like those above on social media without being labeled as "crazy" for doing so; stop sharing useless BuzzFeed garbage and burying yourselves in Instagram all the time.

* Stop going so far in debt for clearly useless degrees and then wondering why the world is so unfair when you can't make money with it

* Don't glorify urban living to a fault, blowing money at bars for binge drinking well after college, spending too much on rent to be in a "trendy" area. You shouldn't have an iPhone, iPad, and MacBook and spend $1500/mo to live with 4 roommates, latte for breakfast ($4), buy all your lunches ($10), get dinner at the Whole Foods hot bar ($15) when you make $40k, then complain when you're 30 with a negative net worth!

~~~
mangala
> Don't glorify urban living to a fault, blowing money at bars for binge
> drinking well after college, spending too much on rent to be in a "trendy"
> area. You shouldn't have an iPhone, iPad, and MacBook and spend $1500/mo to
> live with 4 roommates, latte for breakfast ($4), buy all your lunches ($10),
> get dinner at the Whole Foods hot bar ($15) when you make $40k, then
> complain when you're 30 with a negative net worth!

No one making $40k a year is spending $1500 on rent. This is such a yuppie
NYC/SF perspective. Try sitting in actual $40k shoes for a second.

~~~
cylinder
Plenty of young people here (NY) do. Probably getting some supplementation
with their parents' credit cards. I'm not sure how "yuppie" is supposed to be
derogatory here considering we are talking about _young urban professionals._

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rayiner
I think the phenomenon he mentions will have an important political
ramification. The current Democratic Party, with its awkward alliance of
socially liberal young people with teachers and union workers is going to
fragment. Right now, young people are getting a bad shake, between
skyrocketing tuition and bad job prospects. Yet, in a few years when they
finally have jobs, their taxes will skyrocket to support rising healthcare
costs and underfunded pensions. I bet you will see a resurgence of
republicanism among young people, though it'll look very different from what
the party looks like today.

~~~
redthrowaway
Socially liberal young people are an even worse fit with the rich and white or
white, old, and socially conservative Republican coalition than they are with
the Democrat's immigrant, urban, and public sector coalition. The phenomenon
described in the article is one of the interests of the elderly being in
direct opposition to those of the young, and the GOP has only further
entrenched itself in favour of the former and against the latter.

The only large demographic shift I can see happening in American politics is
if the GOP sheds its anti-immigrant elements and embraces a browner base than
it currently enjoys. Immigrants tend to be more entrepreneurial, more
distrustful of government, and more socially conservative than the average
American, and so it would be a good fit if the GOP can shake the veiled racism
expressed by many of its louder members.

~~~
AnthonyMouse
What I find interesting is that people who are, essentially, libertarian-
leaning are consistently found attempting to make the Republicans more
socially liberal and almost never found attempting to make the Democrats more
fiscally responsible.

The Republican demographic skews older than the Democrats. I would have
thought the younger demographic would be more inclined to support sensible
reforms of social security, like converting it to a basic income for everyone
eligible to vote.

~~~
redthrowaway
It's not young Democrats blocking social security reform, it's old
Republicans. When Republicans talk entitlement reform, they mean reform of
welfare and medicaid, not social security and medicare. Or, if they do intend
to reform the latter, it's not for current or near-future beneficiaries: it's
for young people.

The Republican platform is heavily tilted towards their core demographics: the
old, white, and rich. Until that changes, their demographics will remain as
they are.

~~~
twoodfin
I'm not sure how you arrived at this perspective. Certainly as a matter of
political expediency in the last presidential election, the Republican ticket
had to emphasize again and again that their Medicare reforms would have no
effect on benefits for current and near-seniors. But that's an allergic
reaction to what happened the last time a Republican tried to reform old-age
entitlements. That was all of 10 years ago, when George W. Bush came out of
the re-election gate with a plan to allow young people to redirect a portion
of their Social Security taxation into personal accounts. It was, of course,
demogogued into oblivion by the then-"Party of No".

~~~
redthrowaway
Unless I'm misunderstanding what you're asking, I think you answered your own
question. Social Security is not unsustainable because of young people, it's
unsustainable because of the glut of baby boomers who are coming into
retirement age. Offering to let young people choose their own retirement plans
doesn't absolve them of the need to pay for those of their parents. It's the
worst of both worlds: the old still enjoy their unpaid-for benefits, while the
young are forced to pay for them _and_ denied the "get more than you put in"
scheme their parents enjoy.

Making noises about helping the young is meaningless when you turn around and
pass Medicare Part D, another entitlement enjoyed by the old and paid for by
the young. Oh and, while we're at it, let's slash tax rates for the rich,
because they really haven't gotten a fair shake in America.

The combination of Bush' tax cuts and entitlements simply burdened the young
even more direly than they already had been. The Ryan budget that Romney was
forced to adopt was worse still: the apotheosis of "more subsidies for the old
and rich and fuck the young and poor".

As I said, until the GOP abandons their crusade against the young and poor
(who are essentially synonymous), they will continue to be the party of the
old and rich. The reason Democrats enjoy such overwhelming popularity with the
young is not because the young are married to Democratic policies, but because
the alternative is even less palatable.

~~~
twoodfin
I don't understand your logic. The Democrats were for a _more_ expansive Part
D, not a cheaper one. Do you think they're _more_ enthusiastic about reforming
Social Security to make it a better deal for the young? They're certainly not
for reducing cost-of-living increases through adoption of something like
chained CPI. The most common Democratic policy prescription I've heard for
Social Security is lifting the payroll tax cap, which certainly doesn't hurt
current seniors or Boomers about to retire, but rather young people who have
some peak earnings years in their future over the current cap.

As to "privatization"-style reform, I think the theory was that the sorts of
instruments available would have better long term yields than Treasuries (I'm
actually rather skeptical of this). Higher yields would mean less future
budgetary obligation, and you have to start somewhere, no? At the same time,
the government could skim some of that excess off the top and use it to
replace some of the redirected SS revenue. Yes, you would certainly also have
to take money out of general revenue for a generation or two to cover the
transition and/or any market swings, but money from general revenue is
provided by our still (post-Bush tax cuts) highly progressive income tax,
rather than a regressive payroll tax.

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chrismealy
Social Security is simple: we take 4% of GDP and cut checks to old people.
Whatever the economy's like 40 years from now, you can always take 4% and cut
checks to old people. Nobody ever worries about paying for the military 40
years from now.

As for health care costs, all America has to do is copy literally any other
rich country's health care system. They all cost half as much or less per
capita.

~~~
sp332
>all America has to do is copy literally any other rich country's health care
system

This sounds incredibly smug, and it's not helpful.

~~~
mangala
Plain truth shouldn't be interpreted as smug.

~~~
fjk
It's not an apples to apples comparison though. The US can't "just implement"
the same health care systems that are up and running in other nations because
we differ from a those nations in a lot of ways. PBS NewsHour sums up a few
reasons here[1].

That being said, our current health care system is broken and needs to be
addressed. I'm not convinced ObamaCare is a good solution, but at least the
issue is being tackled.

[1] [http://www.pbs.org/newshour/rundown/2012/10/seven-factors-
dr...](http://www.pbs.org/newshour/rundown/2012/10/seven-factors-driving-your-
health-care-costs.html)

------
al2o3cr
Shorter hedge fund toolbag: "HEY KIDS - look at those old crabs over there,
climbing towards the top of the bucket! PULL THEM DOWN! Pay no attention to
me, sitting on top of a pile of money I stole from you via the tax code!"

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Nutella4
Druckenmiller is lumping Social Security and Medicare together, which is
obviously wrong.

Medicare is definitely a problem that needs to be fixed with more health care
reform so we're no longer paying double what every other first world country
pays for health care per capita. Social Security is fine for current and
future generations. Means testing for either of them is idiotic, unless your
goal is to kill them slowly by converting benefits for everyone to a welfare
program.

He is trying to distract people from worsening income distribution that
benefits 1%-ers like himself with sleight of hand to make a class war look
like a generational war.

If he really gave a shit about the economic plight of young people he'd be
talking about solving the student loan clusterfuck.

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RandyH
The Republican Party needs to kick out these guys who lie about how bad things
would be if the U.S. were late on its sovereign debt payments. They are in the
same category as the birthers. You can't have crazies in your party. They just
cause the sane people to leave, then one day you wake up and the crazies are
the majority of your party, and then you are in real trouble.

~~~
anonymoushn
Why would the U.S. choose to default? Its debt service costs much less than it
collects in tax revenue.

~~~
cpleppert
Because the treasury probably doesn't have the statutory authority to withhold
payments to appropriated programs. Even if it did, that would mean cutting
social security or medicare payments while waiting for an interest payment. So
you are certainly hurting people who are depending on those programs(a
political nightmare) in the expectation that there will be no debt limit
raise. If you think that missing an interest payment will be a catastrophe you
paradoxically have no incentive to order these social programs cut to make an
interest payment because no one would be so irresponsible as to allow that to
happen.

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yetanotherphd
Here's my take on the two main issues:

Social Security: he is probably right. The most obvious social security system
(ignoring welfare) is that you save money yourself, or the government saves it
for you, and you get it back when you retire (this is Australia's system).
Some clever economists figured out that since the total value of everything
produced for the rest of time is infinite, you can make _every_ generation
better off by having each generation "borrow" from the next one. This results
in the US PAYG (pay as you go) system where our generation is taxed to pay the
last generation. PAYG allows people to receive a higher rate of returns on
their "savings" than the market would provide. However, because demographics
aren't growing at constant rate like in mathematical models used to justify
PAYG, this is extremely expensive. This is how I interpret his statements
about boomers who expect our generation to pay a higher tax rate than they
did.

In short: demographics broke the PAYG model and so it's reasonable that
current retirees get less than they might have expected under the original
promises of the social security system.

On capital gains tax: he is wrong. If all capital gains were people investing
in the stock market at arms length, then capital gains should be 0% because
they are just a way to shift money forwards in time. A person who invests has
more money in the future, but it is worth less to them because it is in the
future. The reason we tax capital gains is that some kinds of capital gains
are really income in disguise, like people who own 90% of a company and do a
lot of work to increase its value. This should be taxed at the income tax
rate.

So the current system is a hack, putting the capital gains tax between 0% and
the income tax rate. But it is not a subsidy for people who have more wealth,
it is a subsidy for people who can disguise income as capital gains.

~~~
dragonwriter
Capital gains are income, pure and simple; insofar as there is a justification
for taxing _long-term_ capital gains less than other income, its because it is
income earned over period of greater than one year, which would thus be over-
taxed in a progressive tax system if it were simply taxed as income in the
year it is realized.

Of course, a flat lower rate for long-term capital gains results in them being
under taxed compared to other income; a simpler and fairer solution is to tax
capital gains as normal income in the year realized, but to allow taxpayers to
optionally recognize gains (or, really, any income) for tax purposes in
advance of realizing it.

~~~
yetanotherphd
Consider the following thought experiment: Person A earns $100 and spends it
in year 1, then earns $100 in year 2 and spends it in year 2. Person B earns
the same, but invests the $100 earned in year 1 at 10% interest, and spends
$210 in year 2. I claim that that $10 interest earned by person B should not
be treated as income, and should not be taxed.

The reason is that all person B did, was exchange consumption in year 1 at the
market rate, for consumption in year 2. The fact that they got to consume more
in year 2 wasn't because they were particularly advantaged in being able to
save more than person A, but rather because they preferred to spend more later
than earlier.

Economically speaking, interest earned is not income.

Now for other kinds of capital gain, it is generally considered that people
earn some compensation for risk (again, not income) plus some small premium
(the "equity premium") that might possibly be considered income.

~~~
gbhn
One motivation for such taxation would be precisely to encourage people to
spend money closer to the time it is earned.

~~~
yetanotherphd
I don't doubt that this counts as a plus in some people's books. However in my
opinion it is a very bad motivation. Even Keynes never advocated permanently
stimulating consumption (vs saving), he only wanted to do this during
recessions. I've never heard an economically sound reason for wanting to shift
people's preferences from saving to consumption in ordinary times.

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unclebucknasty
This guy is independent, maybe, but definitely right-leaning. And, I don't
know that I have heard anyone on the right put forward the ideas of taxing
capital gains as normal income and doing away with corporate taxes. They
normally want to do the latter, without the former. In other words, they want
a no-holds barred tax holiday for the wealthiest (which will eventually
trickle down, of course).

But, what he is saying might be workable. I am curious to know how much
additional revenue the government would raise by taxing capital gains at
normal income rates vs. how much they'd lose by not taxing corporations.

Anybody have a reliable source on that?

Because, in some respects, C-corps would then become more like S-corps, in
that a significant amount of untaxed income would flow through as dividends to
shareholders where it would now be taxed at the normal income rate.

~~~
jandrewrogers
Short-term capital gains _are_ taxed at income rates. And long-term capital
gains are taxed at lower rates to compensate for the fact that they have
substantial losses due to inflation that are not deductible. You are taxed on
the inflation in addition to the gains and can incur a substantial tax bill
even if you lost money on your investment in real terms.

The net effect of greatly increasing tax rates on long-term capital gains is
that risky long-term capital investments that may take a long time to pay off,
such as tech startups, become much less attractive. Expected returns matter a
lot to investors, and factors like taxation rates, inflation, risk, and
liquidity factor into that calculus.

Eliminating corporate income taxes would actually encourage companies to
realize and distribute profits to shareholders in ways that would generate
substantial tax revenue from the individual shareholders, so I don't see it as
much of a loss. At a minimum it would eliminate a lot of the incentive to
engage in complex financial structuring games to minimize the amount of double
taxation shareholders are faced with.

~~~
Guvante
> Eliminating corporate income taxes would actually encourage companies to
> realize and distribute profits to shareholders in ways that would generate
> substantial tax revenue from the individual shareholders

Only problem with this is the growth stocks, how long was Microsoft making a
profit before it started paying dividends?

I believe the US government would be fine playing the long game by dropping
capital gains tax, but I don't believe they have the stomach for the short
term loss of revenue.

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adventured
There have been all sorts of unusual and immense wealth redistributions to
boomers recently.

For example: the Fed stealing purchasing power - by devaluing the dollar -
from the poor who can least afford to lose it, and giving it to middle and
upper class home owners in the form of trillions worth of housing bailouts (by
buying up toxic mortgages and dramatically reducing inventory; bailing out
Fannie, Freddie etc; using QE to hold down interest rates and thus keeping
mortgage rates artificially hyper low - all of which have massively and
completely artificially increased the value of housing assets).

And that doesn't even touch on the trillions in stock market value that has
been re-inflated by the Fed's policy of intentionally creating asset bubbles
to fake a wealth effect (again). Most of the people benefiting from all this
money chasing risk are the middle class and the rich, and they're
disproportionately boomers.

Of course, then comes the (at least) equal but opposite reaction.

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jellicle
Right-wing billionaire advocates for elimination of social security and lower
taxes on the rich. Color me surprised.

Only interesting thing about it is that he's trying a message he hopes will
resonate with young people.

