The Great Divergence

[kandrathe]

So when you wrote...

We are not starting on an even playing field, and we need to address the lumpy Himalayas as they really exist. Many have nothing, many more have a little, a few have enough, and a very few have 90% of the wealth.

... you meant what by "addressing" the inequality of wealth? If that's not a problem, why redistribute?

We shouldn't "redistribute". If government plays a role, it should be in providing services, such as defending the nation, providing a social safety net, assuring that education is fairly distributed. Our issues are in structuring these services as a redistribution, and doing that by robbing from one set of successful workers to pay for the less successful workers. This is fine with the bourgeois, as they are not impacted much (as a percentage of their wealth) by redistributing the income earned by the more successful workers. Sure, the bourgeois opt to earn an income, and some may need an income, but at some point it just becomes a convenient way to siphon off some of their wealth to pay for normal cost of living expenses. So, rather, I like to look at each service provided by the government and ask, "In whose interest is this service being provided?" The answer indicates then whom should be paying.

How about we start from the point where the workers get to keep the full exchange of their labor, which if you are a Marxist, is already heavily exploited.

I have a problem with the worker(proletariat) being saddled with the burden of government.

I do too. But thanks to the progressive income tax, the proletarians of the United States pay only a tiny fraction of the total tax burden. Those paying the lion's share are far from "proletarians".

I would argue, and have argued that they are the most successful proletarians who are attempting to escape from the bowl of workers.

I want to shift the burden of government to the capitalist (bourgeoisie) to enable more of the proletariat to become bourgeois. Think of it as a bowl with steep sides (taxes and regulations). Political forces are aligned to keep the sides of the bowl steep enough to trap the proletariat in the bowl, most never earning quite enough to escape in their lifetimes. If we flatten out the sides of the bowl, more workers become employers. The price of labor increases, and a larger portion of the society is uplifted balancing out the wealth inequality.

Analogies aside, you can't encourage saving and investment with a tax on wealth. That does precisely the opposite. It might discourage low-wealth savers less than high-wealth savers, but that's about the best I can say about it. Nobody is going to be encouraged to become "bourgeois" through a tax on net worth, just like nobody is going to become a cyclist in response to a bicycle tax.

But, I must say, I am tickled by your anti-capitalism.

Well, first, it's not anti-capitalism. I desire to shift the burden of government to capitalists, who are better able to afford paying for it and for whom the government protects (rights and property).


I still believe the engine of productivity is capitalism. I would again resort to the example of Warren Buffet. He did not really get wealthy by working hard, and saving his money, although those qualities perhaps enabled him to become wealthy. He became wealthy by using his investment skills to grow his assets, but he never drew a large salary from his employment. He escaped from the bowl when he formed Buffett-Falk & Co, right after he left college with a B.S. in Economics.

So, would taxing wealth discourage savings? Only if you buy into the argument that taxation would discourage all the mechanisms of wealth generation of which the remainder after consumption would be savings. Also, I'm in favor of some reasonable taxation on consumption (with perhaps exceptions for food, and medicine) as well.

I would only think it would if the tax rate was too high, and again I would advocate allowing a person to have "tax free" savings for certain self sufficiency purposes (health care, retirement, and college), and perhaps a little for the rainy day fund as well (~$25K). Once these protected purposes are taken care of, then the asset values of all investments and savings (less debts) contribute to the calculation of net worth. Various charts I've seen put the total wealth of American households and corporations at around $150 trillion, and so to maintain even what I would consider bloated federal and state budgets would require a tax on assets of not more than 3%. If we returned to the year 2000 spending levels, it would be 1/2 that.

Also, thanks for seeing my deeper meaning in the discussion of divergence. What I'm implying is that if the government allows the lower (working) classes to keep most of their money until they become "wealthy", then we shrink the divide. Right now, the sides of the bowl (federal) start going up steeply for earnings > 34K$ regardless of local price variations. I feel people end up spending all they earn mostly by necessity, and not by choice. I feel this keeps workers in the bowl, and producing wealth for those outside the bowl. When you get nearer the rim, you have the ability to start investing your disposable income into wealth generating assets.

The other portion of my scheme would be to establish limits on protected funds (pensions, medical savings accounts, college funds). So a pension fund delivering income beyond the local median income (~$50K adjusted by State) should be taxed for that portion that delivers the excess (e.g. assuming a 5% annual rate of return and the US median income, assets > $1M in a pension fund would be taxed at a .02 rate). Similarly, a medical savings account be tax free only for the portion below a determined threshold. I could see that exemptions or adjustments might apply after the diagnoses of certain costly diseases.

"Per capita lifetime expenditure is $316,600, a third higher for females ($361,200) than males ($268,700). Two-fifths of this difference owes to women's longer life expectancy. Nearly one-third of lifetime expenditures is incurred during middle age, and nearly half during the senior years. For survivors to age 85, more than one-third of their lifetime expenditures will accrue in their remaining years."

And, similarly for college savings, looking at the variables of public, private, and in-state versus out-state tuitions, I think setting the tax free threshold at about $80K to $100K makes sense.

Finally, for inheritance, I believe these three areas are THE places where inheritance should flow without tax penalties, and for the transfer of other asset ownership I feel that the IRS should give the beneficiaries a long term payment schedule, rather than impose windfall taxes at the time of the owners death. This would allow a family business to continue without suddenly facing a 50% hit to asset value.