
Wealth and Taxes - deafcalculus
https://johnhcochrane.blogspot.com/2020/01/wealth-and-taxes-part-iii.html
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rayiner
This criticism of Saez and Zucman is extremely important. The media has
latched onto their studies because it fits certain talking points. But their
conclusions are far from universally accepted among economists.

More importantly, regardless of what side of the aisle you are on, you have to
appreciate that these measurements are not simple, and are based on choices
that are not obvious. Saez and Zucman, for example, exclude transfer income
like the earned income tax credit from income. Under their methodology, even a
very redistributionist economy, such as one with a high guaranteed minimum
income, would look unequal because those transfer payments aren’t included in
income.

How you measure things changes the results. Measuring pre-tax income shows
inequality growing. Measuring income after taxes and transfers shows it
growing slower. Measuring consumption shows it more or less stable since the
1960s: [https://voxeu.org/article/consumption-and-income-
inequality-...](https://voxeu.org/article/consumption-and-income-inequality-
us-1960s). There are good reasons to consider each of these measures. (Though
I’d argue that measuring consumption is the most relevant to every day well
being.)

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Retric
This completely misses the political angle. Someone with 1 billion in liquid
assets can affect the political landscape more than 1,000 people with
1,000,000$ in assets. Similarly to how someone making 50 million per year has
more than 1000x the disposable income of someone making 50k/year.

That’s what’s corrosive about wealth inequality. It’s why the marginal tax
rate declines at very high incomes. It’s not about doctors vs landscapers
because doctors don’t have political power relating to wealth.

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rayiner
> That’s what’s corrosive about wealth inequality. It’s why the marginal tax
> rate declines at very high incomes. It’s not about doctors vs landscapers
> because doctors don’t have political power relating to wealth.

Tax rates decrease at the very top of the income spectrum because our tax
codes make a deliberate choice to preferentially tax investments and capital
gains.

You’re assuming that choice is the result of “corrosive” factors, namely the
wealthy having more political power. But that’s a loaded assumption. Most
economists agree that preferential tax rates on capital gains is better for
the economy. That’s why almost every tax code in the developed world has that
feature. I don’t think you can just assume the only reason for that is the
super wealthy having disproportionate political power.

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MuffinFlavored
> Tax rates decrease at the very top of the income spectrum because our tax
> codes make a deliberate choice to preferentially tax investments and capital
> gains.

Why don't we make some more tax brackets up top and tax dividend + capital
gain income more like income?

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rayiner
Three reasons.

1) Economists generally believe that it is inefficient to tax capital gains.
(Dividend income is already mostly treated as ordinary income.) That is to
say, raising the same amount of money through capital gains reduces economic
activity more than doing so via say consumption taxes.

2) We are already on the high side of the OECD when you combine capital gains
rates + corporate tax rates. (Corporate profits are taxed at both steps.) Here
in Maryland, the combined state and federal capital gains rate is 28.25%, a
hair below Sweden’s 30%. Sweden’s corporate tax rate is also about the same as
the current post-Trump tax law. Personally, I’m uncomfortable being to the
left of Sweden on anything.

3) As to adding more tax brackets, it just doesn’t raise enough money. Our tax
brackets already go well into the top 1%. So you’re talking about targeting
the top 0.1%. The total income of that group is about $1 trillion, or 10% of
all income: [https://inequality.org/facts/income-
inequality](https://inequality.org/facts/income-inequality). Even confiscatory
taxes in that group aren’t going to raise very much money. According to 2014
data, those people paid an average of 27% in federal income taxes alone.
(Excluding state income or other taxes). Doubling that, which would take their
total taxes to levels far beyond what is typical in Western Europe, would
raise maybe $250-300 billion. That’s assuming those people don’t head to
Sweden to lower their taxes.

At all levels, the United States spends $7 trillion+ annually. Another $250
billion is a drop in the bucket. It’s a fraction of the $3 trillion per year
or so that Medicare for All will cost, for example.

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MuffinFlavored
Quality post + discussion, thank you.

Unbiased question: What’s your advice for the 50% of Americans who make less
than $30k/yr? How are they supposed to afford health care + housing +
transportation (let alone preparing for retirement)?

~~~
rayiner
Get married, have kids, and move to a low cost state. The median married
couple with children in Iowa makes $79,000 a year, and in Minnesota it’s
$91,000. As to health care, the large majority of Americans who aren’t
eligible for Medicare get their health care through their employer. Median out
of pocket costs for a family with employer provided insurance are around
$7,700, which is affordable on those salaries, especially since it’s pre-tax.
Also, on average, Americans’ social security and 401ks cover 70% of pre-
retirement income, one of the higher figures in the OECD.

The real issue are the 15% or so of Americans who make much less than the
median, don’t have employer provided health insurance, etc. I think there
should be a strong safety net for those people, particularly subsidized or
free health insurance. But we should pay for that safety net the same way
every other OECD country does: through consumption taxes and income taxes
where the top rates kick in around $70,000.

The whole “tax the rich” thing is a distraction. The rich don’t actually make
enough money to pay for all the things people want to pay for. If you want
European style welfare, you have to tax the 80% of income earned by the bottom
99% more heavily. Note that even under Warren’s Medicare for All Plan, the
vast majority of the cost will be paid for with middle class taxes. The wealth
tax will pay for less than 10% of the extra spending. But the amount of time
spent talking about wealth taxes and 70% rates on super millionaires is much
more than the time spent in talking about the new payroll taxes that will
actually pay for the bulk of Medicare for All.

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MuffinFlavored
the 1% only earns 20% of the US taxable income yearly? I didn’t know that.

When you say consumption tax, do you mean a VAT? What else? What percentage
VAT do you see working in America? 10%? 15%?

Somebody making $200k/yr pays ~$41k/yr in federal income taxes. To be more in
line with European rates, how much more should they pay? Another $20k/yr?
Double?

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lend000
There are definitely problems with most wealth tax proposals, but I think the
author understates the generational differences in opportunity that emerge
from massive wealth inequality. As I stated in another thread, perhaps the
best solution would be to combine the two for a wealth-based income tax. If
you're already worth 20M, should you be paying a higher rate on your 500k in
interest than if you just sold your first company for 500k and previously had
nothing? I think that's a reasonable way to address income inequality in the
long run without forcing people to liquidate assets, especially those like
Elon Musk who have most of their wealth tied into companies they actively
manage or people whose entire net worth is tied up in historical family
properties.

The current system is broken, but mostly because the income/capital gains
tax/AMT need to be graduated on a far different system than today. Right now,
making 510k places a single person in the top federal tax bracket, while there
are people making 10,000 times that some years. If there isn't a high bracket
that is rarely achieved in practice (10B+/year for example), then the brackets
are probably broken. Right now we have a sharp cliff where it is very
difficult to become a millionaire, but once you get a few million it becomes
far easier to multiply wealth.

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vearwhershuh
Until we address the monetary system I don't see how much else matters in
restraining the elites. Generational wealth will just move even more so into
non-taxable things like art, favors, interlocking directorships, foundations
and so forth.

I'd like to see a georgist tax regime[1] and monetary expansion managed via a
citizens dividend. But the current monetary system will only be pried from the
cold-dead hands of our elites, so I'm not optimistic.

[1] -
[https://en.wikipedia.org/wiki/Georgism](https://en.wikipedia.org/wiki/Georgism)

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lend000
Georgism is an interesting approach to what could be handled by externality
taxes in capitalism, but it seems like it would have challenges attaining
accurate price discovery of naturally derived resources.

Regardless, I think the obvious flaws in our current system make a very big
difference and should be addressed, rather than holding out for a utopian pipe
dream.

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yonran
John Cochrane makes some very good points on measurement errors by Saez and
Zucman and how much of what they're measuring is actually reduced interest
rates.

I wish that progressives used a similar framework that they did 100 years ago
--to tax unearned income (land rents, monopolies, windfalls) while encouraging
earned income. If you care about unearned vs earned income, then it does make
sense to try to tax the asset holders whose assets ballooned in value due to
reduced interest rates over the past decade.

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forrestthewoods
Question for the group.

Working backwards, what percent of GDP do you think should be taxed by the
local+state+federal government? Relatedly, what % of GDP should be spent by
the government each year?

Right now the US spends 36% and taxes 32%. That.. seems pretty reasonable to
me? Maybe a little high tbh. I definitely don't think the government should be
spending more than 50%.

I'm curious what other folks think. Working backwards, what should total
spending/taxes look like? Then how do you get there?

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whiddershins
Tax income over a longer time window, and you get closer to a wealth tax
without all the problems.

The longer the time window, the more it is a wealth tax.

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zozbot234
If you're going to do that, why not tax consumption instead? And do note, you
can have a progressive consumption tax. It doesn't have to be a burden on the
worst off.

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crazygringo
Is there a tl;dr or any context whatsoever?

There's absolutely no introduction or conclusion to this article that tells me
what the author is trying to explain, or what angle he's taking or why.

Also this is "part II" of a 3-part article... I'm curious if there's a reason
I'm missing as to why this is being submitted instead of parts I or III?

I'm just 100% lost here... :S If anyone could help explain the context for
this submission, it would be much appreciated.

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whiteeyedwolf
Option one. $400,000 retirement. Purchase BTC, claim a loss after it moves
down even 0.03% in most places of the world, move to bermuda, convert BTC to
Bermudian dollar, pay 0% income and 0% federal tax. Purchase property, enjoy
golf courses and beaches all day.

Option two. $350,000 retirement. Go to Thailand, get a beach house, and live
off the currency conversion rate, enjoy the beach.

Option three. Personal favorite. $900,000 Leverage XAU/USD based on
fundumentals alone at 70x leverage in week long swing trades, averages per
trend about $10k a week per $100k on 70x leverage. (PrimeXBT is a great low
fee place)

Other fantastic investments are buying vending machines and putting them in
laundromats, cost $3,200 for one and to stock it and they average $600 a
month. Buy a functional AirBNB with a loan.

Sources to look at, Robert Kiyosaki's 4 business quadrants.

Remember, wealth does not have to be a number, its not all about money, its
about freedom. Best of luck from a BTC millionaire, ~wolf

