"The Psychology of Progressive Hostility"

[Rob C]

Looking forward to hearing how the tax man reacts when Rob tells him he has no tax to pay due to his "expectations" and "obligations in life". I suspect that the conversation won't go very well.

Cute; sadly, the problem of "superfluous" millions is not mine. I had pointed that out, so you are free to consider my perspective as truly altruistic.

Rob

[Ray]

That's quite absurd.

Those expensive cars are bought from a company that gives employment and prosperity to however many workers and exists only because some people are able to afford their products.  That plane, and the maintenance, and the pilot(s) and crew and so on, the same.

Absurd? You appear not to understand the concept of 'efficient use of resources', Phil.

Whatever we buy, whether expensive cars or cheap products from China, provides employment and at least some degree of prosperity for those employed during the manufacture of such products.

The efficiency aspect not only relates to the methods of manufacture but also to the use of such products after they've been manufactured.

Which scenario do you think is more productive and of greater benefit to others?

To spend a million dollars on 4 or 5 luxury cars which sit in a garage most of the time and require regular maintenance despite the fact they are hardly ever used, or to spend a million dollars on 2 or 3 buses for public transport, and/or to transport underprivileged children to and from school?

[Robert Roaldi]

This is veering away from the thread topic, but here goes anyway. This recent discussion about rates of taxation and merit-based income/wealth is interesting. One small aspect of this was examined in a recent Planet Money podcast: https://www.npr.org/podcasts/510289/planet-money. You will need to scroll down to the March 9 edition titled Rigging the Economy. I found one discussion point in the podcast very intriguing. Some others have vilified "regulations" as stifling marketplace innovation, and in a sense that may be true, but not in the way it's usually presented, that is, as something that lefty regulators are imposing on an unfettered marketplace. It's not always that simple. Best to examine all the aspects before pronouncing.

When it comes to merit-based compensation, about all I can tell from personal experience is that sometimes it's valid and sometimes it isn't. A real estate agent in the Toronto area in the last 4-5 years might have earned a very healthy income. The industry has an almost-monopoly and commissions are more or less fixed at 5% of sale price. It's not clear why an agent should earn 5% on the sale of a $2 million home, the same percentage he would have earned on the sale of a $400,000 home. Was one more work than the other? Hard to say, and there seem to be emerging disruptions to that industry. Time will tell what happens. I can easily see how real estate agent A can earn more than agent B by working harder or smarter. I completely understand how merit plays a role there. What is less easy to understand is why agent A should earn lots more than a welder (or anything else). A large part of the agent's personal success is determined by luck, it seems to me. He happens to be lucky enough to be working in a business that's booming in that market at this time. But is he really more important than a welder (or plumber or auto technician or a really hard to find talented carpenter)? "Supply and demand" sometimes reflects reality and sometimes it doesn't, I'd say.

Does the 1% deserve all the wealth it has accumulated in the last 30-40 years? Is it truly fair that middle-class income has stagnated? Did the middle class do something to deserve that wage freeze?

[Rob C]

The philosophy is, that all our resources should be used for the betterment of mankind as a whole.

1. All the poverty and malnutrition in the world is due to an inefficient and wasteful use of resources.

2. A billionaire who builds a mansion in the countryside, which is empty for most of the year, and/or who owns six of the most expensive cars that money can buy, just for the pleasure of occasionally riding in one, driven by a chauffeur who's on standby most of the time, and/or who owns  a private plane which is used very infrequently, is simply wasting resources which could be spent far more sensibly for the benefit of others.

3. On the other hand, an individual from an average background, who's given a good education and has a dream to become a successful entrepreneur, and who succeeds in creating billion dollar industries which give employment and prosperity to thousands of workers, is in a different category, and is to be applauded.

1.  Really? How about geography, weather, over-population and lack of birth control for either religious, educational or economic reasons, or because the man just likes doing it whenever and however he can, and without anything coming between him and his pleasures? Even free condoms have a hard time getting used (no pun etc.).

2.  No, he is providing employment for the people who make the stuff as well as for those who service it. Those cars are built with their specific use in mind; they also provide incentive to other people perhaps as much as they do, apparently, create envy and class hatred. What is "for the benefit of others"? That the feckless should be enabled to spend as much time on the couch as those too old or infirm to get off one? That the health services be compelled to issue drugs to those who don't need them, but kick up hell if they don't get out of a doctor's room without the slip of paper for the chemist? That the obese, the smokers and junkies should be entitled to health care even though they are wantonly killing themselves?

3. Yet, the same, self-made rich guy must worry and plan against crazy death duties that will be levied against his family? Sure he may, on some subjective moral level, be in a different category, but his estate will be posthumously crippled just the same as that of any other rich guy, accountants notwithstanding.

[Rob C]

This is veering away from the thread topic, but here goes anyway. This recent discussion about rates of taxation and merit-based income/wealth is interesting. One small aspect of this was examined in a recent Planet Money podcast: https://www.npr.org/podcasts/510289/planet-money. You will need to scroll down to the March 9 edition titled Rigging the Economy. I found one discussion point in the podcast very intriguing. Some others have vilified "regulations" as stifling marketplace innovation, and in a sense that may be true, but not in the way it's usually presented, that is, as something that lefty regulators are imposing on an unfettered marketplace. It's not always that simple. Best to examine all the aspects before pronouncing.

When it comes to merit-based compensation, about all I can tell from personal experience is that sometimes it's valid and sometimes it isn't. A real estate agent in the Toronto area in the last 4-5 years might have earned a very healthy income. The industry has an almost-monopoly and commissions are more or less fixed at 5% of sale price. It's not clear why an agent should earn 5% on the sale of a $2 million home, the same percentage he would have earned on the sale of a $400,000 home. Was one more work than the other? Hard to say, and there seem to be emerging disruptions to that industry. Time will tell what happens. I can easily see how real estate agent A can earn more than agent B by working harder or smarter. I completely understand how merit plays a role there. What is less easy to understand is why agent A should earn lots more than a welder (or anything else). A large part of the agent's personal success is determined by luck, it seems to me. He happens to be lucky enough to be working in a business that's booming in that market at this time. But is he really more important than a welder (or plumber or auto technician or a really hard to find talented carpenter)? "Supply and demand" sometimes reflects reality and sometimes it doesn't, I'd say.

Does the 1% deserve all the wealth it has accumulated in the last 30-40 years? Is it truly fair that middle-class income has stagnated? Did the middle class do something to deserve that wage freeze?

Robert, I'm trying to drag myself out for my obligatory hour's walk, but today, Lula is making it increasingly difficult!

Estate agents: in the UK the normal rate is around 1%, with, I believe one or two in London on 3%. The agencies here that have my pad on their books are looking at 6%, should a buyer materialise. In the 80s, it was around 15% on new builds. I know this, because one such developer and my bro' in law were discussing a tie-up between Mallorca and Scotland; I was going to be involved at this end. Regarding the current 6% the agent charges: to this, you have to add IVA, a tax at 20% or so on top of the agent's fee, and then face your own lawyer's fee too. In other words, that house selling for 325 g. will net the seller only just about 300 g. Think what that means when the buyer has to pay for all that, plus a tax on the purchase price, and his own lawyer, too. No wonder only the very expensive stuff moves.

Indeed, why any agent selling a house should get such a rake-off is inexplicable. They mostly do nothing but float a website; the display windows of the better ones show little other than multi-million euro villas, with the apartments usually an afterthought. I did point out that anyone looking for an apartment in the 300 - 400 grand region will think twice about entering an agency where, before he opens the door, all he sees are villas beyond his budget. But they don't care: it's about agency prestige. Many have closed shop since the late 2004 era, but the remaining ones don't learn the lesson - perhaps because many don't really need the business, operating much as do some art gallery owners.

I'm afraid one has to come to the final conclusion that reward, value and expectations are all over the place, and that not much makes sense out there. So much is perception, so much is true value (whatever that is).

Rob

[Robert Roaldi]

2.  No, he is providing employment for the people who make the stuff as well as for those who service it.

Just to dot the 'i's, I think we should probably avoid stating it only this way. As if jobs were something that rich people permit us to have. It is their employees, in part, who generate the wealth that they enjoy. This should not be forgotten, and it is easily forgotten when we phrase things this way. Of course, the folks at the top supplies something important to the enterprise for which they deserve rewards, no one contests this. (Well, some might contest this, I guess.)

[Robert Roaldi]

Robert, I'm trying to drag myself out for my obligatory hour's walk, but today, Lula is making it increasingly difficult!

My advice: Go for that walk.

[RSL]

As if jobs were something that rich people permit us to have.

Usually rich people become rich because they CREATE the jobs people are "permitted" to have. I'll confess that's not true for rich people who inherited their wealth, but often it's those inheritors who are bright enough to preserve the jobs people are "permitted" to have.

[Slobodan Blagojevic]

Why any?  Taxes were already paid in the first instance.  Why again?...

A liberal against more taxes!?

Who are you and what have you done to our good, reliably liberal friend Farmer!?

[Slobodan Blagojevic]

... But it still misses the point.  The money being passed on has already been taxed.  Why should it be taxed again due to death?...

Simple.

We tax people, not "money." We tax people's income, to be precise. Inheritance is just a new income for a new taxpayer (or an additional income for an existing taxpayer).

Besides, many mega billionaires (Warren Buffett, Bill Gates, etc.) already declared that they are leaving only a modest (by the overall size of their wealth) inheritance to their children, giving the rest to charity. All the 99% inheritance tax proponents are suggesting is that the government should decide instead how to spend that money on charities (or wars). Most of us would agree that governments are notoriously lousy when it comes to spending (other people's) money.

[Rob C]

Does the 1% deserve all the wealth it has accumulated in the last 30-40 years? Is it truly fair that middle-class income has stagnated? Did the middle class do something to deserve that wage freeze?

I overlooked this part of the earlier post to which I responded, prior to going for that much-needed walk.

What does the wealth of that theoretical 1% represent? To me, it is far from a simple measure of what their bank accounts hold. As I said before, the money in the bank is still working, albeit via the bank doing the investing as it sees fit. However, as a wealthy man told me: "Rob, money in the bank is a stinking fish,". Clearly, his meaning was to have it out there, working directly for you, financing more business adventures. And I think that's something easily missed: business often is seen as an adventure, not just a way of earning a basic crust. Trouble is, as with the stock market or gambling, you have to be careful that you can afford to lose what you employ or otherwise risk. That is one very good reason for keeping it in the bank. Or it was, until the last few years.

Those zillionaires, do they all own 100% of the companies where their money lives? Can they instantly remove it without loss? I doubt that's always the case; I think it more likely that it consists of ownership investments that can be there for the long term, and not just fun money for the blowing on women and yachts and Lears.

So, that 1% does enjoy a higher possible standard of living than most of us so busily cracking our balls in this discussion, but so what? It made the money; we did not.

Regarding the middle-classes: who or what are they? Am I middle-class because I ran a business in what some perceived a gamorous industry? Is a guy who runs a large plumbing company working-class because the money comes from fixing toilets and unblocking sewers and drains? Is an airline pilot middle-class because he makes a lot of money? If so, where do you place a celebrity hairdresser making even more?

If there really is a middle-class, and if it is being frozen in its tracks, perhaps all that that may represent is this: when inflation slows, when people no longer feel confident enough to demand higher salaries, all that has happened is that they have found themselves in a rare moment of natural equilibrium, where true worth to society has been reached.

It's hardly a matter of any class deserving any particular position, more is it a matter of how things stand and are.

Taking Slobodan's point: as for how some billionaires chose to leave their wealth, that's up to them. That they may love or hate their children and bequeath as they do is a personal relationship that only they can or need understand. Charity donations usually bring tax advantages, do they not? Also, when money means very little because you don't need to count it anymore, what's wrong with giving it to those you'd like to help? Even the cynic must admit there's a feelgood factor involved, over and beyond the tax advantage, when you fund a new wing to a cancer hospital.

[Peter McLennan]

Besides, many mega billionaires (Warren Buffett, Bill Gates, etc.) already declared that they are leaving only a modest (by the overall size of their wealth) inheritance to their children...

I believe Warren Buffett has on several occasions stated that he doesn't pay enough taxes.

[AnthonyM]

And the EU may have an answer to this, for the EU, as long as they are allowed to continue pretending that a totalitarian, aggressive, imperialist Russia doesn't exist. They've been allowed to pretend this because they lived under the US military umbrella. That umbrella has cost the US dearly -- it's one reason that we don't have cradle-to-grave medical care, like the EU, why our infrastructure is so poor, unlike the EU,

I don't think the numbers bear out that the US has sacrificed healthcare for military spending.  The US spends far more per capita on healthcare than any other country, more than twice what the UK spends. https://en.wikipedia.org/wiki/List_of_countries_by_total_health_expenditure_per_capita

The US spends a greater proportion of its gdp on healthcare than any other country except the Marshall Islands (which is at the same level).  It spends nearly twice as much as the UK.  It spends way more than the EU average.  https://data.worldbank.org/indicator/SH.XPD.TOTL.ZS

The reason the US does not have cradle to grave healthcare is because of the political choices it has made.  These have resulted in a very expensive system.  On the other hand, there are many disadvantages in the UK system, and there are good reasons why no other country has adopted that model as its means of providing healthcare to those who cannot afford it.

I am, personally, grateful for the US military umbrella, but I do not believe it is altruistic.  It greatly enhances the power and prestige of the US, much to US advantage.  The US tried to stay out of the last two world wars and could not do so, and it has been wise to try to prevent another from occurring.  But I also agree that the EU countries should spend more on defence.

[John Camp]

What's the philosophy involved?  "Don't excel"?  Fix the basic taxation system and laws (and I'm Australian and this applies here, the US, pretty much everywhere) to remove special interest groups and then continue to tax profits and income and having done that, once, the balance is free for the owner to do with as they please (including leaving it to family).  You put a cap of $25m (or whatever figure you like), but what if someone has 1 child and someone else has 10?  Is it per person?  What if they want to donate it to other people, entities, etc.?  All you're really doing is introducing a zillion special cases for people to claim exemptions and you have the same problem as you do now.

The philosophy is that we need to create a stable democratic government which, whatever small currents and eddies may disturb it from time to time, basically stays that way. You may disagree that that's not what *you* want, but I think many people do. And I argue that massive multi-generational concentration of wealth in a tiny percentage of the population ALWAYS leads to non-democratic outcome, as those people use a portion of their money to perpetuate their status. The cure is the removal of the excessive amounts of that money. I don't really think that the amount that you allow to remain as inheritance matters too much, except for the "optics" of the situation, but my suggestion of $25 million is purely arbitrary, and there may be better ideas about that. But the fundamental idea is the breakup of the huge excessive inheritances. And even a 99% levy wouldn't always do that -- the last time I saw it, I believe I read that Bill Gates was worth $80 billion. If he were only allowed to leave 1% to his children, they'd get $800 million. Is $800 unearned million enough? Understand, I'm not talking about breaking up the wealth of "small millionaires" -- history suggests that their heirs will lose it quickly enough. It's those with many, many billions whose estates I'd assess. My basic view is that the ability to accumulate wealth is a great driver of innovation and job-creation and so on, and should be protected...for those who actually do the innovation and job creation, but not for those who essentially sit on a huge inherited nest egg and only bestir themselves to engage with the world when they see a threat to their unearned money.

I will also say that I'm seriously offended when I see that the US economic system is so rigged that some people may accumulate huge, low-tax fortunes of many, many billions of dollars -- taxed at 22% -- while major cities swarm with beggars. We clean up the idea by calling them "street people" which sort of subliminally attaches a measure of romance to their status, but they're beggars, no less than if they lived in 19th Century India.   

[Rob C]

Simple.

We tax people, not "money." We tax people's income, to be precise. Inheritance is just a new income for a new taxpayer (or an additional income for an existing taxpayer).

Besides, many mega billionaires (Warren Buffett, Bill Gates, etc.) already declared that they are leaving only a modest (by the overall size of their wealth) inheritance to their children, giving the rest to charity. All the 99% inheritance tax proponents are suggesting is that the government should decide instead how to spend that money on charities (or wars). Most of us would agree that governments are notoriously lousy when it comes to spending (other people's) money.

But inheritance, of whatever, is a gift.

[Slobodan Blagojevic]

But inheritance, of whatever, is a gift.

And gifts are taxed just the same.

[Slobodan Blagojevic]

Let's put things in perspective. Let's start with the assumption that John Camp seems to share (bold mine):

“One might be forgiven for thinking that around the world, the richest of the rich were all born into their money," Amoros wrote. “After all, a self-made person would have to accumulate wealth so quickly that within one generation they surpass a family that’s been accumulating it for several. “

Count Thomas Picketty among those that might make such an assumption. The French economist, in his best-selling book on the topic, wrote that “it is almost inevitable that inherited wealth will dominate wealth amassed from a lifetime’s labor.”

However,

Not yet, apparently. At least at the very top. Forbes claims that some 70% of America’s richest created their wealth. What’s more, the magazine pointed out that wealth is actually becoming more meritocratic in the U.S., seeing as less than half of the Forbes 400 in 1984 were self-made.

Of note, the self-made riches tend to have more, with an average wealth that’s 58% greater than those who inherited their money. Three of the richest men in the world — Bill Gates, Spain’s Amancio Ortega and Mexico’s Carlos Slim — all fall on the “self-made” side and are far wealthier than the biggest beneficiary of family riches — L’Oréal heiress Liliane Bettencourt of France.

Source: https://www.marketwatch.com/story/inherited-vs-self-made-a-map-of-how-the-worlds-richest-built-their-fortunes-2015-10-26

[jeremyrh]

Cute; sadly, the problem of "superfluous" millions is not mine. I had pointed that out, so you are free to consider my perspective as truly altruistic.

Rob

Don't be so hard on yourself Rob, I'm sure you're just as good a man as all those rich folk that you want to stay in charge of the world.

[Slobodan Blagojevic]

... those rich folk... in charge of the world.

If that would be true, then Barack Obama would have never won the election (or any other Democrat). Koch brothers contribution to political causes are not only matched, but surpassed by unions' contributions. Among the Republican candidates last election, Bush Jr. outspent DT 10:1... and lost miserably.

[Robert Roaldi]

Let's put things in perspective. Let's start with the assumption that John Camp seems to share (bold mine):

Specific cases may not reflect trends properly. There are indices that show that some economies are more successful at creating social mobility than others, for example, and that there is something in general more positive about living in one of those. I listened to a podcast recently about that (sorry, cannot remember where but I will try to track it down) that showed that although social mobility on average is worse in the US than in many other western economies, that there is great geographic distribution in this ability. There are some places in the country that are almost guaranteed to thwart "picking yourself up by your own bootstraps" for the people living there. That is, someone born in those places is screwed, if you'll forgive the loose language.  You can't get it right in every single case, but tweaks in social policy can help alleviate this.

A question arises about whether one should try to do something about this. However, if a country doesn't try to improve the chances of its citizens to improve their lives, then why bother living in a society.

I thought this TED talk presented an interesting view of the situation: https://www.ted.com/talks/nick_hanauer_beware_fellow_plutocrats_the_pitchforks_are_coming.