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Never mind the 1 percent Let's talk about the 0.01 percent (2017) (chicagobooth.edu)
148 points by nabla9 7 days ago | hide | past | web | favorite | 188 comments





>Smith, Yagan, Zidar, and Zwick find that the 1 percent’s income is being driven by owner-managers, mostly of small and medium-sized companies—specifically S corporations, partnerships, and limited liability companies. These are talented managers: the researchers find that profits of companies run by these 1 percent-ers are far higher than those of businesses owned by people in the top 5-–10 percent

>“The demand for top skill has outpaced its supply, with the returns to top skill increasingly taking the form of business income.”

This really doesn't come off as a problem that needs solving and instead sounds like a purely political war cry. These aren't lords abusing powerless peasants, they're contributing members of society being disproportionately rewarded for their disproportionate contributions. Wealth inequality needs to be considered in the context of overall prosperity and despite the fearmongering you see online, most Americans are doing well. Even our poor have modern conveniences, access to emergency healthcare, generally safe food and infrastructure - eating the evil rich and redistributing their wealth is unlikely to solve any of the major issues in the country, as we're already throwing tons of money at schooling and healthcare and the like.


I agree that the aggregate standards and quality of life are much improved over 20, 40, or 60 years ago, but I don't share your satisfaction with the status quo. I would prefer we made some changes that enabled the poor to be housed and receive more than emergency room reactive access to health care. No man is an island, and a devotion to meritocracy can blind you to the reality that the accomplishments attributed to merit and hard work are often simply correlated to the ZIP code where you spent your childhood.

In a nation with as much wealth as we enjoy, it is shameful how we relegate our neighbors to defecating on sidewalks, living in tents with no heat or plumbing, and raving in the streets due to lack of mental health care.


>I agree that the aggregate standards and quality of life are much improved over 20, 40, or 60 years ago

Over 100 years ago sure. Over 40 or 60 has it really? People usually consider more stuff (access to cheaper and more gadgets, the internet, etc) as an improved standard of living or quality of life. In other words they conflate technology making some products cheaper for a better standard of living.

But even more important factors, for a large part of society is access to healthcare, education, house, etc -- all of which have gotten more expensive. There was a time when a single earner could buy a house at 25 or 35 and get their kids to college. Now two earner families often struggle.

Middle class jobs have also become more stressful and pressing, while many middle and working class wages, inflation adjusted, have stagnated for decades, despite the increased stress, working hours, and productivity gains.


> disproportionate contributions

Do you really argue that the people in the top 0.01% are contributing to society at a rate hundreds or thousands of times higher than the rest of the people?

And in the case of heirs, such as the Walton family, are they contributing so vastly more than the guy who mows people's lawns during the day and cooks their dinners in a restaurant at night?

Or how about the Renaissance folks. They (whether fully legally or secretly illegally) reap huge rewards yearly, certainly using some advantages and situations most people do not have access to. Are they likewise contributing to society so much more than the average person?

Oh wait, let's talk nurses and schoolteachers. They pretty clearly contribute very heavily to society, and they get paid pretty poorly. Are they really contributing less, by factors of tens or hundreds, than Larry Ellison?


>Oh wait, let's talk nurses and schoolteachers. They pretty clearly contribute very heavily to society, and they get paid pretty poorly. Are they really contributing less, by factors of tens or hundreds, than Larry Ellison?

I've been thinking about this lately. A schoolteacher generates huge value for dozens of people per year. A CEO of a big firm may generate tiny value for millions or billions of people per year. If the schoolteacher is generating a thousand times more value for each of their students than the CEO does for each of their customers, then the CEO still generated a ton more value to humanity.

My napkin math is that teachers make about $200B/year in the U.S. (3.2M teachers * $60k/year). The top 0.01% seems to make about $100B/year (16k families * $7M/year). So we're in a situation where yes teachers make more value than the 0.01%, but they also earn almost twice as much. (To be fair, it seem reasonable that teachers should earn more than 2x more, but that's a separate conversation).

The scale factor is a weird one for fairness. If someone's value to others is the value per person (X) times the number of people (Y), it seems like our society or technology or something is set up so that it's much easier to maximize X*Y by making Y huge and lowering X than it is to make X huge and lower Y. You can make your firm serve a million times more people, but you can't teach a million times better. Framed this way, no wonder a "value" maximizing world is getting less personal and more corporate as people lower X wherever they can to explode Y.


You are giving the CEO credit for everything positive that the company does. Shouldn't some of the credit go to the workers?

Not to mention, many companies are a net negative to society.


No I'm not giving the CEO credit for everything positive that the company does. I said the CEO may generate tiny value for millions or billions of people.

As a thought experiment, imagine a CEO of company making $5B/year of nebulous undefined "value" with 250M customers (roughly Spotify-ish?). That company's "value" per customer is about $20/year. Compared to a teacher, I think this company's impact per "customer" rounds basically to zero. Suppose the CEO is able to raise that "value" by 0.14%. Compared to the workers, it's still basically zero. Being less than three cents per customer per year, it's truly absurd compared to any teacher's impact per student per year. But it increases the company's $5B/yr by about $7M/yr.

This is a CEO who creates (relatively speaking) practically none of the value of the firm, which in turn creates (relatively speaking) practically no value per customer, and yet because they just have so many customers the CEO has created $7M/year of value in this thought experiment. That's the average 0.01% household income.

Small value over many people just seems to have more range than large value over few people.


Left to their own devices even the most talented of workers will not be able to make forward progress. Leadership structures must emerge, and compensation structures will emerge with them. It's up for debate whether CEOs deserve $100M/yr, but it's not up for debate that they can make or break a company.

One problem with using Oracle as an example is that they are well known for using lock-in tactics and even intentionally overcharging governmental customers (because they got away with it for some time until they got caught). I find it hard to believe that Ellison didn't know this was all happening. I find it more likely to believe that he, like Gates, orchestrated those tactics.

So does it count as generating tiny value for millions or billions if you're actually forcing a customer to stay with your overpriced product when there are actually plenty of equal or better cheaper solutions?

I get what you're saying, but I think it would be a struggle to find many corporations whose actions are enough net-positive to society to justify their CEOs' compensations.


The top 0.1% make an infinite amount of money... in the sense that above a certain level, more income makes no difference because there's only so much you can really spend, so x+1=x, ie. x is infinite.

But is that a problem, really? Is it a problem if 0.1% of society have absolutely no lack of money whatsoever?

It sounds rather small to me, particularly since most of the money is a valuation of someone's job (or some other productive resource). Taking away the money is also taking away that someone's job.


Why should it be a linear relationship? If talent is normally distributed then supply should decrease exponentially. Assuming that a company can afford it, wouldn't this make a linear demand produce an exponential forcing on salary?

I think the main point of contention here is how everything is divvied up at the end of the day. What you are discussing (supply & demand, and the specific outcomes that occur) I think can be fairly described as the result of pure nature itself, whereas the article is also taking into consideration ~"society's opinion" on how the fruits of what people produce should be distributed.

The comment was referring to 1%ers, not 0.01%ers.

> Oh wait, let's talk nurses and schoolteachers. They pretty clearly contribute very heavily to society, and they get paid pretty poorly. Are they really contributing less, by factors of tens or hundreds, than Larry Ellison?

On an individual basis, leveraged through his organization - I think that it is objectively clear that the answer is: yes.


> Do you really argue that the people in the top 0.01% are contributing to society at a rate hundreds or thousands of times higher than the rest of the people?

Yes. That is because of of the impact of their actions.

Let's take the example of a CEO of a major company. The difference between a good CEO, and a great CEO might only change the value of a company by 1%. But 1% of a 100 billion dollar company, is 1 billion dollars.

So if you are effecting a large enough company or area, then only being a little bit better than everyone else, turns out to be massively valuable, and therefore this value needs to be incentivized.


The executives of the big banks that caused the 2007/8 financial crisis... and cost American taxpayers hundreds of billions (in additional federal debt)... were they really contributing to society in line with their compensation?

There are lots of examples of consistently bad or self-serving behavior of banks - banks which get special benefits from the people, including quantitative easing (essentially the ability to print money). I find it incredibly difficult to believe that they are contributing to society in line with their compensation. In fact, I believe in some cases it's the opposite.


Think of it more in terms of expected value.

For example, it is possible that a worse executive would have had a higher chance of causing an even worse outcome than what happened.

The point is that executive compensation is a drop in the bucket, compared to the value of a company as a whole. A CEO only has to have a slighter higher chance of getting a slightly better outcome, for the math to work out and the compensation to be worth it.


> Yes. That is because of of the impact of their actions.

If you consider a measurement of their financial compensation to be proportional to their contribution to society. In reality, the actual impact of their actions is unknown - such things are beyond our ability to measure, we can only speculate.

> therefore this value needs to be incentivized

Technically, it doesn't need to be incentivized. Life would carry on if it wasn't, perhaps even with a better outcome. It is not possible to know what the outcome would be.


> such things are beyond our ability to measure, we can only speculate.

Ok then. But that doesn't support the argument that compensation is too high. Maybe it isn't high enough, and should be even higher!

I can use your unknown argument to support even higher compensation, just as much.


> Ok then. But that doesn't support the argument that compensation is too high

That is true, but I made no argument. You on the other hand, seemed to be explaining that such arguments are wrong, at least as I understood you.

> I can use your unknown argument to support even higher compensation, just as much.

Just as much, which is precisely zero.

You seem to be claiming that they are producing value, that needs to be compensated. You have no evidence, yet you speak as if you do.


No, everyone else in the thread was making a bunch of arguements about how CEOs are overpaid. That is the argument that requires justification.

And the only claims that I make, are in response to other claims. I don't need to make any claims, if you aren't going to make any, because I can just stick with the status quo, merely because it is the status quo.

The burden of proof is on the people who claim that the current status quo, of CEO compensation is for some reason, out of line.

Because unless there is some good reason, it probably isn't, for the sole reason that it is the status quo.

Other people are the ones making the claim here, that the current state of the world is for some reason wrong.

It is perfectly fine, and normal, to assume that the status quo, for an arbitrary issue, is ok, in the absence of evidence that it is bad.

The burden of proof is on the people who are claiming that the status quo is wrong, and needs to be changed.

Why? Because in the vast majority of situations, the status quo is the status quo for a reason. Because if the status quo was wrong, then people would probably find a reason to change it, regarding any arbitrary issue.

So I maintain that the burden of proof is on the people who want to change the status quo, not on the people who want to maintain it.

There are a million different ways that we could change the world, and you have to make an argument for why we should make the change.

And I cannot prove a negative here, as for why there are zero bad things about the status quo.


>> You seem to be claiming that they are producing value, that needs to be compensated. You have no evidence, yet you speak as if you do.

> No, everyone else in the thread was making a bunch of arguements about how CEOs are overpaid. That is the argument that requires justification.

I'm confused.

https://news.ycombinator.com/item?id=21671403

>> Do you really argue that the people in the top 0.01% are contributing to society at a rate hundreds or thousands of times higher than the rest of the people?

> (you) Yes. That is because of of the impact of their actions.

Any chance you could clear up my confusion?

You answered "yes" to the question "Do you really argue that the people in the top 0.01% are contributing to society at a rate hundreds or thousands of times higher than the rest of the people?", and yet now you seem to be claiming that you have not asserted that they are producing disproportionate value.

> And the only claims that I make, are in response to other claims.

They are still claims.

> I don't need to make any claims

But you did.

> ... because I can just stick with the status quo, merely because it is the status quo.

Then you should have done that, rather than falsely claiming you did it after the fact.

> The burden of proof is on the people who claim that the current status quo, of CEO compensation is for some reason, out of line.

True. It is also true that you have a burden of claim, because you also made an assertion.

And so on and so forth.


>

"> The burden of proof is on the people who claim that the current status quo, of CEO compensation is for some reason, out of line.

True."

Awesome! So you agree with me that the people who were claiming that CEO compensation too high have not shown this to be true, and therefore they have not proven that we should be worrying about this. (And that apparently you are an ultimate skeptic, who does not believe that we can show any evidence, on anything, or something?)

That is the main point that I am trying to make and is the only claim that I really care about. The people who said this, have not proven their statements, and you seem to agree that they have not established their claims, great!

And I am glad that we were able to come to an agreement on the main thing I was trying to explain which is that the people saying this have not proven their statements to be true. :)


> So you agree with me that the people who were claiming that CEO compensation too high have not shown this to be true, and therefore they have not proven that we should be worrying about this.

Well, not really.

As I said before: "If you consider a measurement of their financial compensation to be proportional to their contribution to society. In reality, the actual impact of their actions is unknown - such things are beyond our ability to measure, we can only speculate."

There is no proof either way that we should or should not be "worrying about this". Whether we should be worrying about this is for voters to decide. Well, assuming Democracy wasn't a complete facade that is. In lieu of Democracy, about all individuals can do is bitch and moan, and hope the conversation makes it into mainstream discourse, and perhaps something might be done out of shame or fear.

> And that apparently you are an ultimate skeptic, who does not believe that we can show any evidence, on anything, or something?

It can rarely be demonstrated with any sort of accuracy what any one individual contributes to society.

> That is the main point that I am trying to make and is the only claim that I really care about.

This is dishonest revisionism - you made several specific points. If you'd like, you can admit that outright, or you can continue to write in a disingenuous manner. Up to you.


> There is no proof either way

Cool. So you agree that it has not been established, with any substantiated facts, that CEOs are overpaid. So we agree on this point. Awesome!

I am glad that we were able to come to an agreement on this point! Thank you for the good conversation, and have a nice day!


Shall I take this as a withdrawal of your earlier assertions?

You cannot use someone's output to justify their compensation at all since you cannot measure it.

The questions you ask are effectively asking that the markets use the Labor Theory of Value [1] to price labor (and this goods) rather than the way labor is priced currently which is a form of Supply and Demand [2].

The current form of global capitalism doesn't really have a direct corollary to the LTV pricing mechanism.

[1] https://en.wikipedia.org/wiki/Labor_theory_of_value

[2] https://en.wikipedia.org/wiki/Supply_and_demand


Here’s a counter-argument I’d like to try out. I don’t know how good this one is, but…

The value that you add depends on what you do.

First example: someone who manufactures useful widgets is useful to society roughly in proportion to the number of widgets they make — this is probably non-linear diminishing return of usefulness with more production, but I think in practice we can ignore that most of the time for simple manufacturing jobs.

The range here is small, perhaps only a factor of 2-10.

Second example: an inventor who makes a machine that makes it easier to make those widgets. Their value to society could be as much as “difference in number of widgets produced by everyone combined, totalled over a period which is hard to even estimate”, unless that number is so large that diminishing returns is relevant. Unlike the people who actually make the widget, it’s reasonably likely for the person who invents a widget-making-machine to reqch this point. You might even get some extra problems from technological unemployment - short term or long term, it’s still a problem - or the waste of overproduction.

It isn’t as simple as saying “Tim Berners-Lee is as valuable as the entire internet”, because of all the work of other people that built on his, but even a single invention can benefit society to the tune of billions.

Third example: an entrepreneur who recognises a problem in the world and creates a solution. A new type of widget, or whatever. In an optimistic case, they might hire people that would otherwise be unemployed.

I’m not saying this always happens - and “wealth creator” as a term seems to be used to describe people that get rich by moving money around rather than just those who get rich by doing what I describe here - but that it could happen means it’s worth keeping track of.

I would argue that creating a thousand new jobs is at least as valuable to society as the cost of a thousand unemployed people, though almost certainly not as valuable as the wages those thousand earn in the new jobs, because that would be double-counting.

This could still easily be worth millions per year.

Fourth example: Management. Most work is done by teams, and a manager who can make their team 10% more productive is worth as much to society as that productivity boost, summed over the entire team.

I will acknowledge that management can be bad as well as good, so the sort of manager which makes everyone in the team resign (a friend mine recently left such a team because of such a manager) is worth negative their combined productivity.

I can easily believe that Bezos has been an enormous force multiplier because of all the other retailers that have not grown like Amazon. I can believe that Musk is great for SpaceX and entirely average for Tesla, because of how well SpaceX is doing and how averagely Tesla is doing.

How much is SpaceX worth? How much is reducing launch costs by a factor of three worth? I’m not sure, but it’s a lot, and SpaceX succeeded where all the other launch providers — and their, I assume, equally smart engineers — failed.

As a separate point, I totally agree with your implicit claim that productivity != income.


“Wealth inequality needs to be considered in the context of overall prosperity and despite the fearmongering you see online, most Americans are doing well. Even our poor have modern conveniences, access to emergency healthcare, generally safe food and infrastructure - eating the evil rich and redistributing their wealth is unlikely to solve any of the major issues in the country, as we're already throwing tons of money at schooling and healthcare and the like.”

This line is extremely condescending. Why don’t we tell the top 0.1% who seem to always need more to do their valuable service to society that they have it much better than any king had it a hundred years ago? So why they need more every year? why is this line only used against the little guy? Fact is that more and more wealth goes to a small group of people. In my view this is extremely damaging to a society in the long run. some level of inequality is probably helpful to motivate people but it shouldn’t be growing constantly.


I also have a big problem with the reasoning of the quoted argument, at least from a United States point of view.

Our poor do have modern conveniences, because that’s what the world does; it evolves with current technology. They have access to emergency healthcare, which will almost inevitably bankrupt them when they need treatment. “Generally safe food” is not good enough in what is supposed to be one of the top first world countries. Infrastructure? Sure. Depending on how poor you are you’ll have varying access to infrastructure.

This hasn’t happened out of concern for our poor. The poor are getting society’s leftovers.

I don’t particularly care if we’ve “thrown tons of money at schooling and healthcare and the like” when we spend exponentially more money on the US military. Teachers across our country are still underpaid, and our education system is still not taken seriously enough. The US is not in the top 10 most educated countries (K-12), despite being a top first world country. Admittedly, money wouldn’t fix all the problems with our education system, but it would make a big difference.

It sounds like this was written by someone with a limited frame of reference.


They dont "need" more nor even look for it so much in fact.

What makes inequality increase is actually the mindset of poor people that their poverty is "someone else's fault" like this kind of comment ( and also that "the state should do something" like it is their mother ).

The hard truth is that inequality increases because poor people dont fight against and do nothing about it except complaining. Its always the fighting that has brought any of the social improvements, not the goodwill of politicians or anykind of "fair invisible hand".


> Even our poor have modern conveniences, access to emergency healthcare

It'd be far nicer if even the poor had access to non-emergency medicine, too, though.

Ironically, the poor tend to contribute a disproportionate amount of their income to things like taxes and infrastructure, being without the ability to shield their "wealth".


As a poor I certainly didn't have access to many modern conveniences. Especially when I had to deal with rotting teeth and dental abscesses without a way of affording the fix.

I guess I'd have to disagree with your assessment. But I respect your opinion.

> they're contributing members of society being disproportionately rewarded for their disproportionate contributions

Are they contributing for their level of wealth being rewarded? Are they contributing 5,400+ times the average American is?

Our schools need funding (teachers are buying their own supplies), infrastructure needs funding (bridges are collapsing), and our healthcare is extremely expensive for the average person.


Encouraging people to believe that their contributions are as disproportionate as their rewards is absurd, even dangerous.

1. Outsized rewards don't imply outsized contributions, rent-seeking exists. The contributions don't even have to be positive, see Facebook.

2. Outsized contributions shouldn't result in outsized rewards. The marginal utility of additional wealth is much higher if you're poor. Inequality is inefficient. Also, if you are rewarded as much as you contribute, your net contributions are zero.

> Even our poor have modern conveniences, access to emergency healthcare, generally safe food and infrastructure.

Dude. Emergency healthcare and generally safe food isn't something to be proud of unless you're a developing country.


> This really doesn't come off as a problem

It doesn't "come off as" a problem, because that is how you have personally interpreted the situation.

> that needs solving

It doesn't in fact "need" solving - life will go on, one way or another, regardless of whether policies are changed or not.

> and instead sounds like a purely political war cry.

In may in fact be "a political war cry", but is it purely that, or might there actually be something here that deserves attention?

> These aren't lords abusing powerless peasants

This is true, but colorful, rhetorical characterizations like this are an excellent way to persuade people without sticking to cold hard facts.

> they're contributing members of society being disproportionately rewarded for their disproportionate contributions

This rhetorical device is effective in that it persuades readers to logically think of the issue as a binary rather than a continuum.

The proper question is: is their disproportionate reward proportional to their disproportionate contribution? And even this improved statement of the situation is flawed in that is kind of implicitly assumes that the relationship between contribution and reward should be linear, which is inconsistent with the general societal decision that taxes should be progressive (the tax rate(!) increases as the taxable amount increases).

And to be clear, I'm making no absolute claim that progressive taxes are "right", I am only stating that this is what society generally deems "proper". This aspect of the situation seems absent from your analysis, so it seems appropriate to point it out.

> despite the fearmongering you see online

This style of rhetoric is persuasive, and it may even have some truth to it, but it is orthogonal to a proper logical analysis of the actual issue and should therefore be avoided.

> ...most Americans are doing well. Even our poor have modern conveniences, access to emergency healthcare, generally safe food and infrastructure

This style of rhetoric is persuasive in that it frames the issue according to one specific perspective (a subset of dimensions) on the overall (the entire subset of dimensions) issue.

A loose (and uncharitable) restatement of this might go something like: "Because most people are "doing well", then therefore there is nothing to see here." I will note that this isn't actually what you are saying, I'm just pointing out the beauty of rhetoric - when done well, it invokes a style of thinking, which results in real-time generation of certain "facts", without actually having to explicitly say certain things (ex: dog whistling). It can cause the reader to change the way they conceptualize the situation, and therefore change their conclusion from that which it would be if they were to engage in a purely factual analysis of the situation in its entirety.

This isn't to say that you are doing any of the above consciously and with intent to deceive, I'm simply pointing out some of the flaws that are ever-present in the way modern society, politicians, advocates, etc engage in communication. It's no wonder we've made such a mess of things.

People believe they think logically, based on facts, because this is how it seems to each of us. Bu in such matters what people actually do is think in narratives, that are very loosely (and often incorrectly) based on "facts" (most of which are also narratives), and then only a subset of the entirety. This is by necessity, because outside of the hard sciences, systems are far too complex and interconnected to think about using pure logic and facts. However, it's not a necessity to think we think in facts - this we are capable of realizing, and many philosophers and psychologists have amply demonstrated this, but the realization of the importance of this has not made it's way into widespread knowledge, and certainly not into behavior in discourse, even that between highly intelligent people.

I wonder if awareness of such complexities in communication was widespread throughout society, if we could improve the outcomes of our political process. I suspect we'll never know.


This post reminds me of my leadership at a former employer who were insisting on releasing a game console that requires customers to download all content and games, regardless of the fact that unlike gigabit internet offered in our city, many Americans don’t have access to or cannot afford broadband. That leadership team only hanged course because the negative perception spread like wildfire and made them look extremely incompetent. They didn’t care about the customer - they only even changed course to manage their own careers but I digress.

In some cases, these people are lords abusing powerless peasants. Most of America isn’t Seattle, Austin, NYC, or the Silicon Valley. People can work for WalMart in the town I grew up in or go unemployed because WalMart swallowed competition. They’re literally at the mercy of whatever WalMart wants to pay them.

Our poor have emergency healthcare but will get bankrupted in the process.

They have safe food insofar as they won’t die of typhoid or hepatitis like in the developing world, but they don’t have healthy food. They have access to various forms of packaged, refined sugars. A diet based on cheap access to these goods will only lead to longer term health problems - there’s scientific data backing that claim.

Interesting how you frame your argument - that the poor aren’t as horribly off as perhaps in another century or in the developing world, and so it’s good enough. The same argument can and should be used to call out the endless greed, especially of the 0.1%. Don’t have they have enough? Are they they some of the richest folks in human history?


As the article notes, an increasingly common path to the 1% is through skilled labor. I think this type of earner would have more in common with a 50%er than a 0.1%er.

My family has been in the 1% for a few years and we’re just bottom-rung individual contributors at FAANGs. 50% of our net worth is in our house. We don’t run or have stakes in any private businesses. No investment properties. The only thing that sets us apart is while an upper middle class family might do a European vacation one year, buy a car the next, and redo their bathroom the next, we do in the same year. Otherwise, I imagine our lives and aspirations are similar.


The origin of the 1% meme came from occupy movement "We are the 99%" and meant net wealth, not income. I think that's what the left still means with the 1%.

>Mankiw noted that the 1 percent’s share of total income, excluding capital gains,...

I'm not completely sure how the discussion turned into top 1% of income earners and specially exuding capital gains. I think it's possible that there is intentional attempt to change the discussion.

If you are in the top 1% of wealth, your net wealth is roughly $7 million. If you get just 3 percent real return for you can get $210,000 a year income without working.


That may be true now, but if you are saving/investing any appreciable amount of money (say, $100k/yr) then in 30 years you will also likely have generational wealth, which is another big difference.

I was skeptical, then I checked [1] and apparently even if you separate by state you only need a household income of $512k to be in the top 1%. High, but certainly not unfathomably so to HN readers.

1 - https://www.cnbc.com/2018/07/27/how-much-you-have-to-earn-to...


Many people end up in the 1% for a single year via sale of business, stock, etc.

There's a huge difference between that type of 1% for a year and age 30-40 dual (or very high single) annual income earners.

The former may retire with a $1-5M net worth, the latter is either spending heavily or retiring with a $10M+ (and likely $20M+ with reasonableiinvestment returns) nest egg.


There is also a difference between a $150k/y family with two wage earners and one with a single wage earner. The former is likely paying for day care, etc and have higher family expenses. And a lower quality of life in general.

Gets worse as you go down in income. Try two wage earners at $60k/year.


Important to note it's household income. If a family has 2 software devs at a FAANG (not the OP specifically), quite likely to get to 1% with work experience. If they are doing a european vacation, bathroom and a car one 1 year, definitely top 5%.

There is an interesting podcast about this on the Ezra Klein show: https://www.stitcher.com/podcast/the-ezra-klein-show/e/64086...

Roughly the point is that while "the working elite" is much harder to be repelled by; it is still a problem that many tasks in society that could before be done by a medium educated middle class, is now done by a few highly educated people plus a swath of people with no education.

This causes the second group to have less part and prestige in their work, while the first group gets alienated from their own work, by being forced into the few fields that allow one to reach the 1%.


The purpose of these exercises is always to push the perceived issue on to some other. So if you are union tradesman in NYC pulling down $90k/year you don't want to hear about the top quintile, you'd rather talk about the top 5%. If you are software engineer making $250k you don't want to talk about the top 5% but instead point to the 1%. If you are a specialist physician making $600k/year (or the subsidized journalist child of specialist physician) then it's not really about the 1% but instead about the .1%.

And so forth and so on. This is far more about resentments and insecurities than policy.

The fact of the matter is if you want to re-adjust the economic landscape towards the poor in a meaningful way it is going to realistically require harming the economic interest of all the current winners -- from the $90k/year tradesman all the way up to Jeff Bezos. In all likelihood it will probably also mean higher prices for goods and services as well as higher unemployment. Maybe those trade-offs are totally worth it, but we should be adults about these things and not pretend there's some magic policy that's going to make everything great for everyone except some tiny cabal of not-us that's probably evil anyway.


Wasn’t that always the case. Nobody cares about the guy earning 250k/y.

It’s the handful of people who control 90% of all wealth. “1%” was a catchy soundbite but it was always the 0.0001%


Unfortunately that's not always the case. Living in Germany, I've heard and read (good example /de/ subreddit) loads of hate against middle and upper-middle class people. People who are nowhere near close to being rich. This is also a group that's being taxed as much as the actual rich, or in practice even more, because the rich can afford to "optimise" their taxes.

There's a sizeable group of people that just cannot stand someone working hard and reaping the fruits. Again I'm not talking about Lambo-driving, yacht owners but an average doctor, small business owner or an engineer for that matter.

Per the old meme, success breeds jealousy, but unfortunately recently it breeds hate and violence.


Doctors' trade group actively lobbies to keep the supply of physicians below demand so as to inflate their guilds' average salary.

Critiques of the merely well-off can sometimes be more indicative of the major problems facing America, since there are so many more in this category. For example, by critiquing this 1% class you also get into very interesting questions about land use in California.


Not in Europe, where education is basically free (few thousands euros/year)

Lots of people "work hard", and almost none of them are rich. So obviously it's not "working hard" that gives you that money.

At some point very early on, your money starts making money and you cease to do "work" to make that number grow. It seems inappropriate to equivocate capital gains with gainful employment.


Indeed, and for many of us, it's not just our money that makes money, but our education, which is largely a form of wealth passed from one generation to the next. I would be nowhere without the education that my parents paid for, out of the money that they made from their education.

The answer I think depends on where their allegiances lie. The reason why the reactionary “PMC” [0] has become something of a meme is because you’ll often encounter people at this level of affluence who defend the ultrawealthy and their predation of the poor through things like the private healthcare system in the US.

From a material perspective, it makes sense that they behave this way (the ultrawealthy are more likely to sign their paychecks and they’re less exposed to many of the harms present further down the income chain), but does allow for a politics of resentment to develop around the position they occupy in society. Most working class people are unlikely to encounter a billionaire in their lifetimes, but will come across many upper income individuals who will tell them (either directly or indirectly) that they deserve their low station or that nothing can really be done to improve their material standing.

[0] https://www.dissentmagazine.org/online_articles/on-the-origi...


Friend of mine has no particular family wealth. But with 20 years under his belt is a mid level manager. Sends his kid to a private school. Says the other parents at his private school are all upper class. And assume he is too. The things they casually say makes him hate them.

On the contrary: you always target exactly "the guy earning 250k/y". Because people earning a lot of money but still earning through work are the easiest to target, since they can not just move somewhere else easily.

This. I'd love to see a histogram of tax revenue by income bracket.

In germany it is even worse. The tax rate is highly progressive, topping off at 50,5%. But the additional social security and penson payments are capped, so above a certain wage you actually pay less in total for social security, pension and taxes. There is a big hump which you need to overcome to become really wealthy.

Of course once you are so wealthy that the majority of your income is passive income from e.g. stock market gains, the capital gains tax is at 25%.

The situation is so bad that in relation to what your employer pays for you (Arbeitgeberbrutto), you get much less than 50%.


No, because it’s easier to go after and strong-arm or pass legislation against a guy earning 250k than a guy earning 250mm.

That's not really the issue. The thing is, taxing people making 250k year amounts to a lot more revenue than taxing only people making 250m+.

The wealthiest make a lot of money, but it's nothing compared to the aggregate of millions of Americans making upper middle class wages.


Yeah, unfortunately this is a sad truth.

Yeah, I really don’t understand why the bracket of “extreme wealth” is $250k? I’d be all for adding some bracket for earners over $1MM or over a certain amount of capital gains tax. However, a lot of people rely on capital gains for their retirement, so a tax on that money would negatively affect anyone who puts money in the stock market for retirement...

Taxing the super rich is a great idea, but at the end of the day the govt just needs to spend less money on programs that don’t work or aren’t needed.


>Taxing the super rich is a great idea, but at the end of the day the govt just needs to spend less money on programs that don’t work or aren’t needed.

Translation:

>You could recover some of the wealth that is systemically siphoned (by inflation)/withheld (via wage suppression) from everyone, but you really should look at that whole wealth redistribution mechanism working against centralization of capital in private hands. That's the problem.

Not really buying it. The fact you're pushing these systems off as not working leads me to conclude you've not met the level of understanding to safely do away with Chesterton's fence. There is tons of room for improvement in the execution of these safety nets; but the Market doesn't want people feeling safe. Risk aversion from guaranteed stability makes exploitative employment/compensation schemes more difficult to sustain.


> However, a lot of people rely on capital gains for their retirement, so a tax on that money would negatively affect anyone who puts money in the stock market for retirement...

That's pretty much already solved with 401ks and IRAs which are retirement investment accounts with tax advantages.


Unfortunately there is little agreement on which programs aren't working or aren't needed.

   It’s the handful of people who control 90% of all wealth.
In reality you have a power law distribution where ~20% have 80-90% of the wealth.

Seems like there were plenty of people in the 1% cohort that would have taken up the movement if they had found an even catchier soundbite.

Yes. Call it "The Millionth", which would include the 300ish wealthiest Americans. Everyone in the Forbes 400 has a net worth of over two billion. Even though within that group there is a wide gap between the top and bottom of the list, it's nothing compared to be difference between the top and bottom of the 1%.

The real issue should be the multiplier on CEO pay and boards. 300x or more is pretty obviously ridiculous. Hard work should be rewarding, but is anyone really working 300 times harder than the delivery guy? I could believe 10x I guess.

It's not about how hard you work, but how hard it is to find someone else to do that job. Anyone can deliver packages.

You're just describing our psuedo free market society. Why stop there? It's who you know, it's luck, it's timing, it's who you're paying off, it's who you're lobbying, it's how much money you already have, etc.

I don't see how any of that refutes my claim.

What's the value of the delivery guy's network? The CEO's presumably lets him achieve results that others can't. He can broker better deals, hire better talent, push for more favorable laws. That's value to the firm, to shareholders, hence better pay.


The difference between a good and a bad CEO might only change the value of a company by 1%. But it turns out that 1% of 100 billion dollars, is 1 billion dollars.

The reason why CEOs get paid so much is not because of how hard they work, it is because the effect of their actions is massive, and eaking out that extra 1% is worth it.


> Nobody cares about the guy earning 250k/y.

Is anyone else getting bored with this kind of “analysis”? Yes—people in the 99.9th percentile are significantly more <anything> than people in the 99th percentile.

“Never mind the 0.01 percent. Let’s talk about the 0.0001%!” would be even more crazy, considering the exponential distribution of wealth.


"...considering the exponential distribution of wealth."

_That_ is the point


What is the point exactly? No policy is going to change the fact that the natural equilibrium for such systems is a Pareto distribution, AKA it follows a power law. We can definitely hope to change the constants of the distribution, but to fundamentally change such a distribution would really be a fool's errand.

As someone who holds a master's degree in economics, and is getting a PhD in genetics, I can tell you virtually everyone studying the "soft" sciences conflates observations with natural laws. There is nothing stating that a Pareto distribution is optimal. It's only a distribution based on observation, and it just happens. The underlying mechanisms are not immutable.

Eh, what are you saying is mutable here, exactly?

The only way of getting a 0.5 Gini ("absolute equality") is if everyone is earning the same, which is ridiculous. As soon as you throw any randomness in there, well, all of a sudden you get inequality.

Next, there are the (totally reasonable) winner-take-all mechanics of skilled labor. Are you a better CEO (where "better" here could just mean better at pitching/selling/hiring/picking a market)? Then you can end up capturing all of the market share vs your competitors. That ends up paying nicely.

You still could have rent-seekers and people who cheat, but from the article itself, the top driver is differentiation based on skills.

Don't like winner-take-all mechanics? Introduce income pooling. But I wouldn't expect that to be the revolutionary change people are looking for, just a way to guarantee people on the same skill ladder end up in roughly the same outcome bracket. I don't think "guarantee top ivy leaguers make >$400k/yr" is what you're looking for.


No, you're mistaken. There's a computer simulation that's been posted here, where you run a population and each element gives 'a dollar' to a randomly chosen other element every step, if possible. For no reason: no merit, no purpose, no meaning.

This produces not just 'inequality', but the power-law distribution. The only thing you can't know is which element will be the '0.01%' master of the universe, because nothing distinguishes it from the 'poor' elements as it's only a simulation.

The point this establishes experimentally is that through simple value exchange you get the same distribution people associate with meritocracy and market dynamics, without any elements of choice or distinctions of merit being applied.

Skill and value have nothing to do with it: the problem is purely mechanical, the system will substantially punish and reward elements in the system quite outside of any consideration of merit. Once you introduce merit, skill etc. you're only exacerbating the problem.

Wealth tax, even in very tiny amounts, is quite good at turning the power-law distribution into a more random-looking distribution as one might expect it should be. And usually people aren't talking about Gini 0.5, nor does anyone aspire to that unless it's as a form of rebellion against the extreme opposite. People will tolerate an enormous amount of inequality if their own lives aren't too acutely threatened.


Hang on, let me try to understand your point:

1. A computer simulation where wealth is exchanged by chance has power-law behavior

2. Wealth IRL has power-law behavior

3. Therefore, wealth IRL was exchanged by chance (as opposed to skill)

Is this what you were saying? If not, mind breaking down what you are saying?

Needless to say, the above is affirming the consequent. The exchange mechanism random simulation is modelling need not be the actual mechanism in real life (though it may very well be a good model, viewing skill as randomly assigned to members of the population).


'Therefore' is the only part of that which is unjustified. I'll break it down:

1. The computer simulation demonstrates that simple exchange produces power-law wealth in the absence of value or meaning.

2. Wealth IRL is considerably in excess of this power-law behavior, to the point where it's a real impediment, because…

3. Wealth IRL owes more to capital protecting itself and rewriting the market's or government's rules to cheat. Skill has next to nothing to do with it: wealth derives from crime, manipulation and abuse, and there isn't a fortune anywhere that doesn't have blood on it. So, far from being a simple claim that 'wealth IRL does not correlate with merit/skill', I am rather claiming that wealth IRL correlates with evil, abuse, and criminality. Admittedly worse than your 'how dare you say wealth isn't correlated with merit', but there it is. Sorries :)

The fact that random chance also helps some of these criminals get their start is just a sort of bonus for the criminals, and a handicap to any free market system that might otherwise be a mechanism serving to assert a sort of crude meritocracy. Skill means absolutely nothing. It's about the ability to act criminally and to exploit existing resources and personal relationships, and always has been, all the way on back into dim prehistory.

When it gets too extreme, the guillotines come out or there's some sort of typically very destructive revolution that serves as a great setback to civilization in general. This, too, has happened over and over. It happens not when evil grows too great in its abuse of the peasantry (because nobody ever cares about them), but when the 10 percent or the 1 percent start to get beat up too much by that 0.01 percent, just as the original article highlights. When the 'upper middle class' starts to suffer, that's when things get dicey, because those are the people who can afford to fight their rulers and who have the time, attention and resources to do so.

How's that, does that help? :)


It seems that you can simplify what you're saying to "wealth IRL is acquired mostly by crime, manipulation, or abuse, rather than skill".

The simulation doesn't seem to add to your point. Instead, you're making an empirical, falsifiable claim about the nature of wealth acquisition.

At this point, you're disagreeing less with me and more with the economists in the original article, Piketty and Saez, who found skill to be the top driver, not "next to nothing."


The point is that extreme wealth distributions push towards non-democratic societies. You like democracy, you like policies that promote it.

Also, “you can never change how it is!” is a nirvana fallacy; you certainly can make things better. It’s been done before.


I'm fine with changing the alpha value, and finding an optimal alpha value is actually what we should be doing IMO. But we can't act like it's not gonna still be close to some type of power law distribution at the end of the day.

The wealth distributions we see have a mathematical flavour to them but are the result of a system created and governed by humans.

In fact vast disparities in wealth can only be created and sustained through significant social effort.

It takes an incredible degree of social co-ordination for multi billionaires to exist. Outside of a strong rule of law you have be to a strongman or warlord to keep your hands on all that stuff.

As a society we could choose to cap wealth. For example we could say "it's illegal for an individual to own more than a billion dollars worth of assets". The excess would effectively be tax.

I can immediately think of a huge number of problems with this (oh no, all the multi billionaires leave!, offshoring, transfers between family members, "schemes" in general) but it's obviously possible to pass this kind of law, were there the social will to do it.

It is not possible to amass huge assets without deep support from society at large. Police, judges, guards and the goodwill of the public are ensuring the safety of the billionaire's property.


Indeed, the very concept of asset ownership exists only by virtue of social recognition. We make up the rules that define ownership/property/wealth/etc, they are not handed down by God, and we could just as well define/design them differently (as your example of a wealth cap astutely illustrates).

It is not a universal principle that wealth must follow a power law, and even if it was, the coefficient need not be so extreme.

The wealth inequality in America is higher than it has ever been. This did not come about naturally.


It actually does come about ”naturally”. You just need compound interest and bit of randomness. See https://journals.plos.org/plosone/article?id=10.1371/journal...

This does not mean it’s good. The source even presents some methods of avoiding it.

But the key point is that it doesn’t need some sort of conspiracy of the rich to happen. It will happen inevitably without being anyones fault if steps are not taken to address it.


So get rid of indefinite compound interest.

Generational wealth has always struck me as fundamentally unjust, for the basic reason that you don't get to pick your parents. I see the argument that a man is entitled to the sweat of his brow; we can debate just how to define what is his sweat vs. infrastructural sweat, but the underlying point seems fair enough. I do not see the argument that a man is entitled to the sweat of his father's brow.

The principle that you are entitled to what your parents or grandparents earned is behind all sorts of injustice in the world, from hereditary monarchies and wars of succession to wealth gaps between majority and minority ethnic groups long after formal discrimination has been outlawed. Even when the inheritance doesn't happen, you still have evils like abusive rich parents having leverage over their closeted college-age children because the financial aid system (in the US, at least) assumes that children have access to their parents' money.

There's a lot of possible ways to implement the system, but it is not inevitable that wealth, once concentrated, does not dissolve, and even leaving wealth inequality aside, there are good reasons to get rid of it.

I hadn't even read the abstract of the article you posted when I clicked "reply," but in fact, that article advocates for the same thing:

> We show that a tax on large inherited fortunes, applied to a small portion of the most fortunate in the population, can efficiently arrest the concentration of wealth at intermediate levels.


> I do not see the argument that a man is entitled to the sweat of his father's brow.

I expect most people would agree.

However, views change drastically when you turn it around.

A great many people feel entitled to use the sweat of their own brow to provide for their own children. This includes providing an inheritance, especially a house.

Few people are happy to provide from their own work equally for everyone's children without any special benefit to their own.


Nobody's saying you have to benefit other people's children. You can work for your own benefit. As soon as you start providing for your children, you start breaking the fundamental premise of a pre-scarcity society; they now get to live off of something they didn't work for. (This isn't merely a capitalist principle - everyone from St. Paul to the Jamestown colonists to Vladimir Lenin said, "He who does not work, neither shall he eat.")

That said, if you just care about wealth inequality, it's totally fine to buy your child a modest house, or even buy them an expensive house at a large marginal tax rate. As the paper points out, you don't need to stop all intergenerational wealth transfers, you only need to stop a portion of the wealth transfers of the richest people at the far end of the RNG.

The trick about "a house," in particular, is it means two things - a place to live and an investment vehicle. I agree that many people will be sympathetic to the argument that you should be able to provide your kids with a place to live. (I am myself somewhat sympathetic to it.) But as long as there are people on the streets with not even a bed, it's immoral to twist this sympathy into a right to transfer millions of dollars in wealth to your kids in the form of an expensive house on expensive land. So, put a cap on the inheritable amount that makes it quite sufficient for reasonable living quarters, and heavily tax transfers beyond that.


What you also need is self-multiplying investments and a lack of wealth, income, and capital gains taxes.

The current financial system didn't happen by accident. It was intentionally built in the 1980s by the Reagan administration, at the behest of rich Republican donors. It was not inevitable, it was engineered.


It will just slow it a bit. A non progressive capital gains tax even at 99.999% will still lead to power law distribution. And I don’t think anyone would say a tax that high is exactly done at behest of the rich. (EDIT: compound interest literally is self multiplying investment)

One has to rather specifically design a progressive taxation system to avoid a power law.

Read the paper. The conditions for power law are very simple.

I live in Finland. A place one hardly can say is friendly to the rich. Yet we too have a power law, just with different constants than what US has.


Nobody cares that its a power law, its the particular constants that lead to the incredible disparity no?

Which is why taxation needs to get higher for higher incomes (no matter what kind), which would flatten that curve. Otherwise societies always end up with only token upward mobility and de-facto aristocracy.

Often taxation gets to its highest point at the basically high average household level though. In Germany for example top income tax is ~41% and already starts at about 4500EUR / month.

But actually rich people pay a maximum of 25% on interest/shares etc because they don't actually have a salary.

Basically politicians and common people are being played. The 'richer' middle level incomes are played against the lowest income levels while the really top levels in Enterprises and the Ultra-rich are never mentioned. On the contrary, companies especially play the 'jobs' card to get to pay even less taxes.


Is there any theoretical reasoning for expecting a Pareto distribution to result? Would a distribution closer to normal not be equally valid?

Write a simulation where you have n entities with an equal amount of resources. Now choose two entities at random and let them "trade", where the outcome is random but fair. You will get a "wealth distribution" that is not a gaussian normal around the average but more like a poisson distribution. And this is even with no difference in competence of the market participants.

You can add various corrective terms to make get "equality of outcome", but to get to a gaussian distribution around the average you need really drastic/totalitarian measures.

The best system from a pure math POV would be a flat tax combined with universal basic income. But unfortunately it is naive to assume that this is politically viable.

Politics largely is selling a particular group an advantage over the general population in exchange for votes. And a flat tax / basic income system is just too simple for that.


The distribution looks like it does because you often can't substitute quality with quantity, so the money gets dis-proportionally funneled to the top few. So for example if we in the future figure out good ways to collaborate so ten average people can replace a top CEO then you'd see CEO pay go down the drain.

Depends on the kind of system obviously.

Power law is reasonably easy to get. Even with identical starting wealth just having chance + compound interest is enough to produce it. No need for anything more complex than that.


Well for starters, such a curve would be fundamentally impossible. You draw such a curve by sorting the data points from wealthiest to least.

But I suppose, adding no additional logic you could have one half of a normal distribution, normalized by multiplying everything by 2 to account for that.

However, that doesn't strike me as a very natural distribution for a self-organized system with some randomness, and exponential growth. Power and wealth always seems to find its way to some type of power law distribution. You could only enforce such a distribution by concentrating power to the most extreme limit of a power distribution to exert control over the rest. And it's likely that for any definition of wealth you could come up with, people would just find a proxy for wealth that isn't counted by which they could start to exert more control.


It kinda reminds me of this visualisation from some survey of Americans in 2011. https://www.businessinsider.com/inequality-is-worse-than-you...

The respondents weren't opposed to an exponential distribution as such; but the images of the disparities between what they thought was ideal, what they thought the reality is, and what the surveyors say the distribution is is still striking.


> Is anyone else getting bored with this kind of

People who write don't earn a great deal of money. Nor (typically) do they have the potential to do so. Other professions can at least dream that they will hit it big or earn a good steady income if that is not the case. People at the bottom can't even dream but 'they know their place'. News articles with head lines like that draw readers sure but I think it's more than that ('people who write...'). This is human nature. Very generally the middle class that are employed and not taking on credit card debt and spending over their means (which they do) don't care that there are super wealthy people.

What is to stop people in some dirt poor foreign country from talking about how it's not fair that people in the US, even our poorest, very likely have it better than they do? (Well nobody other than the writers in our country will say anything and quite frankly nobody in our country would care enough to give them anything that we have so it doesn't matter). When was the last time you heard of a tax specifically to help people in dirt poor countries? (Not talking about aid but actual 'we will take your income', well never).

You know what has changed more than anything? What we know about what others are earning and what they have that is what material goods.

As many older HN readers will probably agree when I was growing up their were the Rockefellers, Howard Hughes and maybe a few other people. There were movie stars and the Beverly Hillbillies. You didn't really care that they were wealthy it was just the way it was. There was no revolt of the masses. Sure there are more people will money today but what there is grossly more of is attention and that it's in everyone's face (and of course the people who write and broadcast about it).


I agree with you. These blogs seem to be full of resentment and insecurity, leading to whining and finger pointing. It seems they’re always interested in other people’s money and their success. It’s tiresome. Let’s maybe focus on how we can do good to the world, instead plotting how we can bring other people down.

The tax code enables and reinforces outlier wealth using tired arguments like "encouraging investment" and "double taxation." United States centric observations:

For example, charging lower tax rates on capital gains than ordinary income promotes a concentration of wealth to people with wealth. Suggesting this is purposeful policy for society to encourage investment is comical -- what else would wealthy people do with the wealth? Store it under the mattress? Or spend it (in which case that would accelerate the velocity of money, also good for society). Capital gains taxes are only on the gains -- income that had not yet been taxed. Actual double taxation is a wealth tax.

Similar tax policy that results in concentration of wealth are: 1) 1031 transfers (where income on sale of real property isn't taxed so long as the proceeds are used to purchase real property), 2) Qualified Small Business Stock (where federal tax isn't paid on gains of sale of small business stock) 3) Economic Opportunity Zones (where tax is deferred on gains so long as the gains are invested in an Opportunity Zone, and all additional gains aren't taxed).


> charging lower tax rates on capital gains than ordinary income

I don't have a problem with the idea. It recognizes that income derived from investments is riskier than income from a paycheck, and applies a discount.

The problem is with the execution. Why is the top rate for cap gains only 20% - even if you earn $10b, but 37% for a mere $510k in ordinary income? Surely there should be some amount of cap gains that can be taxed at 37%. Maybe it's $5m instead of $510k (to recognize the riskiness of the income stream) but it shouldn't cap out at 20%. Simply put, why aren't there more tax brackets for cap gains and other investment income?


> It recognizes that income derived from investments is riskier and applies a discount.

It's unclear why as a matter of tax policy we want to discount taxes because risk is taken. If an investment results in a loss, that loss is permitted to offset gains elsewhere.


Because the policy doesn't just cover a diversified investment portfolio where a loss on one transaction offsets other gains. Small business owners put a significant chunk of savings and all their time into their business. What gains are they going to write down if their business goes under?

Is there a reason we can't classify a wholly-owned business differently from shares of stock, for tax purposes?

== Simply put, why aren't there more tax brackets for cap gains and other investment income?==

Because the people who make large capital gains are the ones funding political campaigns and helping to write the laws.


Working for someone, even at a FAANG, inherently also has risks. You don’t know the manager, the org, the team, etc when you first join. You have some ideas about the culture perhaps, but we take risks in our careers all the time.

The argument that one is riskier than the other and therefore entitled to lower tax rates doesn’t make sense to me.

Sure, investing in an asset might be riskier if you’re randomly throwing darts, but I thought these folks were all about personal responsibility.

To be clear, I work at a FAANG. My total comp was is near half a million, a significant chunk of which is equity. The only risk I take is not cashing out immediately and waiting a year for the long term capital gains tax. I don’t necessarily provide more output or value than someone like a teacher. The equity I sold this year was in the hundreds of thousands and I paid less taxes on it than what most teachers probably pay. It doesn’t make any sense, and this system in my opinion isn’t sustainable. The inequality is going to lead to conflict.


Off-topic: Why would you wait a year to sell your RSUs?

You already pay income tax on the RSUs when they vest. If you sell them immediately, you’ll have a de minimis capital gain or loss.

Unless you actually would have turned around and bought your company’s stock with a bonus, you should really just sell immediately and ignore the trivial capital gain (or loss).

For ESPP it can make sense to hold, but even then, only if there was a huge increase in value since the beginning of the holding period, so perhaps that’s what you meant (but ESPP is capped at a very low amount, so that would be a tiny portion of your hundreds of thousands in RSUs).


My issue with all of these discussions is that they invariably present ideas that are just too complicated, and our tax code is just too complicated as it is.

Create a system that can be applied evenly, and fairly, from the top to the bottom and then I think you’ve got a great and novel idea.


When it comes to taxes, "evenly" and "fairly" are not the same thing. That's the whole reason we have tax brackets in the first place.

Why is it impossible to be both even and fair?

Taking 30% of a yearly income of $14,000 has a much greater negative effect on standard of living than taking 30% of a yearly income of $14,000,000.

The Fair Tax plan was a neat idea. Tax everyone at X percent, while giving everyone back Y dollars per month as a form of UBI. The values of X and Y are chosen so those below the poverty line gain more money than they are taxed.

https://en.wikipedia.org/wiki/FairTax


I was a huge fan of this concept. It has been invented independently by people on the right (Milton Friedman) and the left. But unfortunately that is not how politics works. Politics is selling a particular group an advantage over the majority in exchange for votes. That is true both for the left and the right, the only difference is which groups they target.

And a fair tax is just too simple. Politicians wouldn't have anything to sell anymore...


> And a fair tax is just too simple. Politicians wouldn't have anything to sell anymore.

You’re right! Without the ability to carve out exceptions, why would a powerful lobby need to come with a proverbial suitcase a cash?


The sad thing that just the two parameters basic income and flat tax rate are flexible enough for a wide variety of policies.

Want scandinavian style socialism: set the basic income very high and have a high flat tax rate of maybe 50%. Want a more individualist approach: set basic income to the bare necessities and set the flat tax rate to 25%.

Want to borrow to fight against a recession, keynesian style: increase basic income without raising flat tax rate. Want to save for bad times: increase flat tax rate without raising basic income...

I guess this kind of system can only emerge due to some drastic change or historical accident. E.g. the eastern european countries have a flat tax system because after the collapse of the soviet union there was no complex incumbent system in place.

I would love to know if there is a way to get to such a system using the normal democratic process. But if it exists, I don't see it.


Although these tax systems likely poll well, all tax systems are just transfer functions. Any tax system which results in significantly reduced taxes for the >1% raises my suspicions. If you couples this system with an inheritance tax of 100% for greater than $10M, I’m interested.

"evenly" is not the same as "fairly".

If you take 10% from someone making $1000/month, they can't pay their electric bills.

If you take 10% from someone making 1,000,000/month, they have to wait a little longer to buy their third superyacht.


Tax brackets are not what make doing taxes difficult. The tricky thing about doing taxes is figuring out what counts as taxable income, what can be deducted from income, what credits one qualifies for, and other details.

That's why the idea that taxes could be made easier by getting rid of brackets never made any sense. That argument is just a cover for undoing the progressive nature of the tax system (as in, the more you make, the larger the percentage you pay in taxes).


The parent comment never mentioned tax brackets. I think you're actually agreeing with each other.

1. somehow the hate against the 0.01% always turns into policies that tax the upper 20%, or 10%, or 5%. why is that? Is there a way to formulate the arguments / policies so that it doesn't do this?

2. the wealth of the 0.01% are numbers stored in computers. They are claims on future production, yes, but the whole system only works because 99.99% of these claims never gets cashed out, because there are physical limits to what a handful of billionaires can consume, no matter how opulent their lifestyles. If you try to distribute this virtual wealth, people will try to turn it into physical consumables, only to find there really isn't enough for everybody, and the whole system will go to shit.

3. at some point, a guy I know made the observation that revolutions don't really redistribute much, mostly they just take the wealth from the wealthy and burn it. Well maybe how it works is the most important and expensive physical good - land - gets redistributed, most other physical goods are destroyed, and the virtual wealth is zeroed in a very expensive accounting exercise.


Is there a way to formulate the arguments / policies so that it doesn't do this?

No. The upper .01 percent have tax lawyers and accountants and many other staff members (not to mention lobbyists) working full-time to reduce their taxes. In theory, anyone could do the same. In practice, the tax code is so enormously complex that only people who can afford to hire multiple college grads full time can pull it off.


I’m not convinced that markets don’t work when high pay is involved. If this was true, there is a fortune to be made by creating a mutual fund that invests in companies that avoid superstar pay tiers. Does anyone know of such a fund? How is its performance?

I think we evolved the emotion of envy in a time when being rich meant hoarding. Markets break that evolutionary intuition.


Having a guaranteed basic income, free money, or whatever you want to call it, would assuage a lot of the resentment surrounding the perceptions of effort, luck, opportunity, merit, worth, earnings, taxes, parentage, connections etcetera that inevitably come up in these discussions, as they have on this post.

I also find this idea appealing. Reading the end of Gehttoside was an eye opener where the author describes how getting on SSDI (argued as being a limited form of basic income) for being unemployable (disabled) due to their history gang banging gave some former gangsters enough financial breathing room that they could break the cycle of relying on crime to get by. Sounds a little Polyanna-ish but it does have the ring of truth.

What are your thoughts on the counter-arguments that basic income will lead to a dystopian future where an underclass just sullenly gets by as dependents of the state. Plenty of scifi speculative descriptions of this future are a bit scary, but are they just scare-mongering?


An old and fitting Soviet joke about this:

An old man is relaxing on the couch in his apartment in 1917 Saint Petersburg. His grandson runs excitedly into the room and proclaims: "Grandfather, the revolution has begun, we're killing the rich, and nobody will be rich anymore." To which the old man wearily replies: "My generation fought so that nobody would be poor."

Simple arithmetic shows that if you were to completely strip the 0.01% of their wealth (which just isn't going to happen, since they own the Congress) and "give it all to the poor", the poor would still be pretty poor: 6T between 350M people is $17K per person, or about 3 years worth of Obamacare. And that's pre-tax.

The way you prop up the poor is by creating opportunity and competition for lower skilled labor and trades, by rejecting some parts of globalism, which forces "the rich" to pay more for their labor supply. That propping up seems to be happening as we speak: unemployment is at a 50 year low (https://www.wsj.com/articles/u-s-september-nonfarm-payrolls-...)

Historical reference: https://en.wikipedia.org/wiki/Decembrist_revolt


I'm not sure wtf they were expecting when they did QE, and kept it running for so long. It's literally cause and effect.

I’d love to see an analysis of who the top 0.01% are, in terms of income.

My guess is the people who make the list this year, drop off the next and never end up on it again.

The top people (again income) are the folks that sell their company or equity stake. It’s a huge windfall, but they never make that much again.


My guess is the opposite. The top people are the owners of very large, very often inherited, fortunes. Few people leave that group and few people enter it.

> very large, very often inherited, fortunes

The article addresses inherited wealth:

> On the 2016 rich list, two-thirds were self-made and one-third had inherited at least part of their fortune. More than 10 percent were immigrants to the US.


>More than 10 percent were immigrants to the US.

I wonder what portion of that 10% fits into the inherited wealth bracket also. Anecdotally I've met a lot of rich Indian and Chinese immigrants in tech, however they came over with family money, with strong family power networks, attended top schools and then parlayed their wealth + connections into something even greater.

It feels as though we throw "immigrants" out there to be synonymous with "broke" and "powerless".


That’s wealth, not income.

And if you own a large company, you have no income (beyond a salary) unless you sell equity.

There are probably people worth $1B+ who aren’t in the top 0.01% because they’re money stays invested and they don’t pull income from selling.


No, I’m talking about income. I’m certain you have heard of things like interests and dividends. Capital do in general pay better than work.

This is exactly why this discussion should be about the top x% wealth and not income.

My guess is that such a list is probably mostly the same as the wealthiest people due to the nature of capital gains. If you have a billion dollars, you get probably 10 million a year with the most conservative investments (in reality it's probably closer to a 5-15% rate of return). On top of that, the favorable tax treatment of long term capital gains means you pay way less in taxes than the schmuck who gets paid 10 million a year as salary.

You only have income if you sell. The rest is unrealized gains not reported as income.

And this is exactly why the 99% campaign was stupid and destructive. The world isn't being screwed over by the professional class. It's being screwed over by the population of a midsized town with more money then sense.

Never mind the 1 percent, let's talk about the 10 percent.

The richest 10% own 70-80% of the wealth in the U.S.

My point is that the entire wealth distribution curve should be looked at, and any serious discussion needs to go back to first principles and determine what the curve would look like in a fair society.

Of course there are wide philosophical-moral chasms between different notions of fairness, with HN readers, by nature of the hand that feeds them, skewed heavily toward the belief that market forces are the best arbiters of worth and fairness.


being ultra-wealthy gives a person tremendous amounts of political power.

the ultra-wealthy are literally an unelected shadow ruling class.


There is definitely some truth in this. However, what would you proposed to either prevent people from becoming ultra-wealthy or prevent them from having political power?

I'm getting mildly amused at the spate of articles that zoom in on exponentially-distributed phenomena and find some kind of scale invariance.

Every time you talk about the top 1% or even the top 0.01%, you eliminate an opportunity to talk about how you can really help the bottom 50%.

By constantly painting things as hopeless and unfair, all you do is stimulate rage.


You can talk about both.

Also, if it's not just painting, but actually unfair, then it's up to the reader to have an emotional reaction or not.


That rage needs to be there so that we can change the system that produces and perpetuates the unfairness. Rage is a tool for electoral mobilization.

No, it’s not. Rage removes the ability to discuss anything and fuels the “us vs them” mentality which has been proven time and time again to be unhealthy and NOT productive.

Proven when? Proven how?

You think that the ultra-rich don't have an "us-vs-them" mentality? You think that they aren't lobbying and fighting and advertising and campaigning to keep their unearned wealth and power for themselves?


I’m not super rich but I wouldn’t call their wealth “unearned”. Why are you privy to their money?

The rich have an us vs them mentality because the media demonizes them for working hard. I dislike rich people as much as anyone but the productive response isn’t rage. Rage gives the rich even more power and reason to look for more reasons to hide their wealth and exploit.

If you’re so convinced the rich have “harmed” you why not try to move somewhere where you believe your ideals are more aligned?


Nobody earns a billion dollars.

People who take your view that billionaires deserve their money because they "work hard" -- and I'm sure some of them do work hard -- usually don't realize how much money a billion dollars really is. An individual could never work hard enough or long enough or smart enough to deserve that amount of money.

- A million seconds ago was 12 days ago. A billion seconds ago was the 80s.

- With a 5% return on their wealth -- most billionaires actually make closer to 10% returns -- you make $137,000 a day if you have a billion dollars. So the poorest billionaires make more money in a day than 99% of Americans make in an entire year.

- https://medium.com/datadriveninvestor/you-have-no-idea-how-m...

Nobody should have that much money. Nobody.


Bill Gates hasn't worked in 15 years, but his wealth has more than doubled.

He has literally sat around doing nothing, occasionally traveling to Africa to boost his PR, and got more money than the median American could make in a million years. How did he "earn" that?


Well didn't he have his money invested in Microsoft, providing them the capital to grow significantly in those 15 years? That's providing a lot of value in my opinion.

Please explain to me how having money means that you should be entitled to other people's money.

Right after you explain why it’s fair for an investor to take on all the risk and get no reward.

What "risk" did bill gates take when he retired with a 40 billion dollar fortune?

Most revolutions that fundamentally changed society required a lot of rage to get going. The French Revolution caused a reorganization European society along much more rational and liberal principles, but the Revolution required a great deal of rage to break out and sustain itself.

Rage is a tool for the destruction of polity and the elimination of power to help /anyone /, much less those who need it most. Rage deals more long-lasting damage in its application than it does mobilization. The bitterness and wrath remain kindled long after the desired short-term outcomes have been achieved.

Please explain to me how rage against wealth hoarders will "eliminate the power to help those who need it most"

Rage about what?

Appropriate Inheritance tax can cure it;

Surprisingly tiny Wealth Tax is even more effective at curing it. The part that's interesting is not where it's transferred from one entity to another, it's the extremity of the phenomenon in the first place.

The distributions we currently see have no excuse or purpose. It's fine talking about the value of exceptional individuals, but if a Jeff Bezos is even ten thousand times better than your average schmoe, never mind 'millions of times better', then he would be able to have his influence without the aggregated power given him through accumulation of capital.

Never mind whether his dumb kid deserves to have the accumulated power of entire countries abstracted into the form of capital: HE himself has no business possessing that kind of power on top of his functional exceptionalness. He can damned well fend for himself, and will likely still be a big winner and have all he could wish. He has no right to the accumulated power our system awards him, on top of what he can do with his own intelligence and efforts. It's a magnifying effect, fully exploited by just the sort of person Bezos is.

Concerns of inheritance only highlight the problem. The parent is not that much superior to the dumb kid, and humans do not merit so much importance (as 'exceptional individuals') as our system claims they do. The BEST you can hope for is a crazy person like Elon Musk, aiming for some quixotic goal while they blunder around causing damage… and that's a best case scenario.


If you provide a service people want/need, you are going to end up with more money.. It's not rocket science. This is how the capitalist cogs turn.

What "Service" does Bill Gates provide? He hasn't worked in 15 years, but his net worth has more than doubled.

Is that a serious question? Bill Gates provided a very valuable service that runs most personal computers to this day along with productivity tools that have improved almost every business in the world. He also built one of the largest companies in the world that now employs over 100 thousand people. If there is anyone who should be disproportionately rewarded it would be Bill Gates. He now has a large fortune, which after paying the highest tax rates possible he can invest in other companies further adding to the economy or give away to improve the world altruistically.

Yeah, and he stopped doing all that in 2004. Why does he deserve the profits from the hard work done by thousands of engineers to make Vista, 7, 8, and 10, which he had absolutely nothing to do with?

What is your alternative? That when a founder retires, should they be stripped of all ownership of the company they founded, because they are no longer working? Or should the owners of a company receive zero of the profits of the company? Either of those will have rather large consequences, at least some of them rather negative.

So... what's your plan?


How about we start with: the people who actually work in the company get the profits. Corporations are supposed to exist to fill a public need and employ people, not to make their owners richer than kings.

That has consequences, namely, that nobody invests in the company. Because why would they, if they aren't going to make money by doing so? But that means that the company can't get outside money to buy tools that will improve productivity.

That is, your approach, writ large, harms the economy as a whole. Don't think of that just as money. Think of it as stuff being produced. If there's less stuff produced, that's not good for the workers either.


It harms the individuals who currently control the economy. It does not harm the economy as a whole. In fact, it greatly benefits most people, since, as workers, they get a fairer share of their work product and control over their own workplaces, and as consumers, the corporations that they rely on are no longer incentivized to fuck them over to make a quick buck. I think that's worth the cost to the bankers and barons.

How does "produce less stuff" not harm the economy as a whole? What is the economy as a whole, if not the sum of the stuff that's produced?

You seem to have completely ignored the point of the comment you replied to, which is: If the investor doesn't get part of the profits of the company, then nobody will invest in a company. Any company that needs outside investment to buy tools to increase efficiency therefore will not be able to do so. That loss of efficiency impacts the economy as a whole, not just the "bankers and barons".

Is there any step of that logic which you can actually refute?


Why do companies need outside investment? You present this as if it is self-evident.

The reason companies need investors today is that all of the wealth is hoarded by a select few that need to be entreated like feudal lords to get any land, machinery, IP, tools, etc. If the wealth were fairly distributed, a group of regular people would be enough to pool the necessary resources.


> Why do companies need outside investment?

They don't always need it. Microsoft, for instance, didn't need much in the way of investment to start and grow.

But some companies take more investment. Say it's the 1800s, and you want to build a railroad. You have to acquire a bunch of land, buy and lay rails, and buy engines and railroad cars - all before your first dollar of revenue. Where are you going to get that kind of money? You sell stock, so that anybody who has a few dollars can buy a small piece of the railroad. And why should they do so? Because they're going to get paid back, out of the profits the railroad earns (if it actually makes money).

If those people don't have the chance of getting paid back from the profits, most of them won't buy stock. If they don't buy stock, then we wind up not having any railroads. That wouldn't have been good for the economy in the 1800s.

Now, you could argue that investors could get paid back some of the profits for a limited amount, and then no further, and they would still invest. That's true, and it's the bond market rather than the stock market. But big new capital-intensive businesses typically financed themselves by stocks rather than bonds. There may be cultural reasons for that, but I think there are also solid financial reasons. Many new businesses fail. If I'm going to invest money, and there's a realistic chance that I'm going to lose all of my investment, then I need a reward that's enough to motivate me to take the risk. Bonds typically don't yield enough to compensate for that kind of risk - not even junk bonds.


The reason is because the future value of a company was a part of his compensation, for creating the company in the first place.

There is nothing wrong with selling away the future value of your contributions, or for other people buying the future value of your contributions.


But they aren't Gates' contributions. He doesn't have anything to do with modern Windows operations. Windows 10 was built by people that he never met. Why does he deserve the proceeds of their work?

Why does he deserve it virtually tax free?

Why does he deserve more than the average MS worker can make in a million years while doing no work himself, just because he owns some pieces of paper?

Seriously, you could have worked at Microsoft as a full time engineer from the time before the genus Homo evolved to the present, through 100 ice ages, and still not have been paid as much as Bill Gates has in his retirement. How can you possibly justify this?


> Why does he deserve it virtually tax free?

Because as a part of someone's compensation, you can be paid for with future value.

> How can you possibly justify this?

If I want to sell off my future value of my future work, in exchange for someone else's past work, that is my right to do so, that's why.


So your ownership of a company should be taken away if you don't actively manage it? Would you advocate against me being able to own my 10 shares of Microsoft stock and profiting from the hard work of the engineers? People of all levels of wealth offer their capital to companies in exchange for some return on their investment. Bill Gates provided disproportionate value to the economy and was rewarded as such. He then has large amounts of capital to invest in companies that need it, which he is compensated for. I don't understand what's wrong with this. Bill Gates is one of the best examples of the 0.01% benefiting society.

I don't think you understand. Bill gates isn't doing anything. He's been retired for 15 years. He doesn't work anymore. None of the profit that Microsoft has made since then can be in any way attributed to his effort.

Nonetheless, he has increased his hoard of wealth by 60 billion dollars, 120% of what he retired with.

That money was made by the hard work of Microsoft's current engineers, devs, testers, managers, salespeople, call center workers, the whole bunch. THEY are the ones benefitting society, and they would be doing the same job whether Bill Gates existed or not. THEY should be the ones reaping the rewards.


He is on the board of directors: https://news.microsoft.com/leadership/

You are right. What some people want is to punish your success by arbitrarily deciding how much money is “too much” and using taxes to take away what they think you should not have.

This essay presents interesting comparisons and data, but then it goes on to try to explain that the top 0.01% are getting richer faster because they have special skills and technologies (such as being able to scale a business up using foreign workers, or manage 20bn assets because of computers).

What is not mentioned but certainly plays a key role in one's ability to perform so well financially is the special opportunities the top 0.01% have and circumstances they operate within compared to the lessers. If we were to review each person in the top 0.01%, I expect most of them would be making their huge gains not by exercise of special skills but rather by exercise of special circumstances.

RISK - As we have seen with the 2007/8 financial crisis, there is a small group of very wealthy, very powerful finance people who can take enormous risks with other people's money, profiting whether they win or lose. The 07/08 crisis cost the general public (in bailout using public funds (debt)) hundreds of billions of dollars. But the stratospheric executive bonuses paid to fund managers and bank executives during the lead up years was not retracted. So the people that took unreasonable risks profited greatly, and the public paid for their profit and then some. Even during the following years, the executives and fund managers received significant bonuses. And thanks to golden parachutes, the exit/firing of some of them resulted in even bigger profits for that group.

OPPORTUNITY - The wealthier one is, the easier it is for them to get credit. Even in cases such as Trump where he has a long history of running businesses into the ground and leaving debtors unpaid, he was famously able to secure very large loans to take even bigger actions (which similarly often resulted in underperforming businesses which would later seek forgiveness or reductions of debts). The point is, once you're rich enough, you need never risk your own money. You can borrow huge sums to seize opportunities. When you win, you win big. When you lose, you can probably get away with no personal loss.

LAWS - With wealth and power comes influence. You can afford to lobby (sometimes a polite term for bribe) to get special laws or loopholes that have direct financial benefits for you. Perhaps it relates to a defense contract, and you hold a lot of Boeing stock. Or perhaps it relates to an FAA regulation and you hold a lot of Boeing stock. Or it's a special rule that lets you write off the purchase of a piece of luxury property as a business expense.

TAXES - This is a huge space for gaining an advantage over the normal people. Not only do you have the means to play the offshore/shell-company game (reducing your tax burden, perhaps to zero), but you also can do strange things like deferring your taxes indefinitely if you're a hedge manager.

I could go on with plenty more examples of special advantages that the top 0.01% have compared to everyone else. These advantages, even if modest, represent an exponential benefit in terms of financial growth over time.


Here in Denmark the highest tax bracket applies to almost 10% of the Danish population. The Top 1%, Top 0.01% and billionaires are not taxed more than the Top 10%.

I belong to the Top 10% and I'm fine with that.

Why do Americans focus so much on the "ultra-rich" and the billionaires when you can build a successful welfare state by just taxing the Top 10% a little more?


> Here in Denmark the highest tax bracket applies to almost 10% of the Danish population. The Top 1%, Top 0.01% and billionaires are not taxed more than the Top 10%.

Because in America, the top 0.01% makes their wealth through investment income, which is taxed at a lower rate. So, the top 0.1% pay a considerably lower rate than the balance of the top 1%.


It could be because income inequality is much higher in the US.

Its because those that control the majority of the money also control the majority of the power. Us plebs don't have the power to fix the tax code. The US tax code is a mess and its very unbalanced, where the folks in the upper middle pay all of the taxes with the outliers on either side paying very little (on a percentage basis).

I know a few folks in the top percentiles that feel like they pay the same number of dollars or more than everyone else - they see this as fair. They seem to miss the fact that they get to keep a larger percentage of their money every year. If you get to keep more of your money every year than everyone else then its easier to build your wealth at the expense of everyone else.


In America the top 1% control about 40% of the money, with most of that, as this article shows going to the wealthiest. In Denmark its roughly 20% of the money to the top 1% - the lowest inequality of any of the OECD nations. At the same time we have political movements dedicated to wrecking our social safety nets in an attempt to get us back to "The Jungle" style nastiness - often funded by that same fraction of a percent at the top.

So, some bitterness there. :D

Or, more simply, your country doesn't have anywhere near the same systemic and cultural issues the US does currently.




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