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Post Forceful Income Redistribution? It Doesn't Work
Created by John Eipper on 12/31/18 3:07 PM

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Forceful Income Redistribution? It Doesn't Work (David Duggan, USA, 12/31/18 3:07 pm)

The idea of "forceful[] reduc[tion]" of income (wealth?) disparity sounds positively Jacobin in origin and undoubtedly will be in effect. (See Tor Guimaraes, December 31st.)

In the United States we already have a "progressive" federal individual income tax with a top rate of 37% of taxable income over $500,000. Income in this country includes realized capital gains, and already taxed dividends (at the corporate level). Depending on what state you live in, you could be paying 13.3% (California on amounts greater than $1 million). Rich Uncle Pennybags therefore gives up more than 50 cents on every dollar he makes above $1 million. We also have sales taxes, property taxes, which largely fund local public schools, which, if working properly would be the greatest contributor to income redistribution by educating people to better their condition, and an estate tax. This "wealth-accumulation tax" hits at 40% of the taxable estate above $11 million (and change). Of course, unless the decedent's name is Rockefeller, this overage has likely already been through the tax mill (i.e., the decedent earned the money and paid taxes on it as it came in). Then various states have "inheritance taxes," hitting the heirs for the privilege of receiving their benefactors' largesse.

Forty years ago, my tax professor, who had been the Treasury Department's chief legislative counsel (i.e., the guy who went up to the Hill and argued for changes in the tax code) in the 1950s, said that the IRS collected more money for less expense (including investigation and prosecution of tax cheats) than any other taxing system on earth. I don't imagine that anything has changed in that respect in the last 40 years. Meanwhile in Europe everyone's clamoring to secrete their assets in a handful of countries or territories which cater to flight capital (Switzerland, Liechtenstein, Channel Islands, Luxembourg). We have access to these places, too, but unless your name is Pritzker (or Romney), we tend not to take advantage of them: the penalty is too high and the reward too remote. When the fit hits the shan do you want to get to Curacao to get your money? Good luck getting on the Titanic.

And a prosperous 2019 to all my fellow WAISers.

JE comments:  Prosperous, indeed!  The eagle-eyed David Duggan gets the honor of this year's penultimate post.  As a finale, the definitive 2018 Honor Roll (next).

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  • Income Distribution and Redistribution: Piketty's "Capital in the 21st Century" (Paul Pitlick, USA 01/05/19 4:54 AM)
    While reading David Duggan's post of December 31st, 2018, I almost began to feel sorry for all those millionaires suffering from "'forceful reduc[tion]' of income (wealth?) disparity," until I remembered Sutton's law.

    I'm not an economist, but it seems to me that tax codes were probably written with the idea that the money is in the hands of rich people, in their banks. I've spent the better part of the year wading through Piketty's Capital in the 21st Century. There are lots of data, including that in many countries the upper 10% own about half (or more) of the resources, the middle group (50-90th percentiles) own most of the rest, and the lower 50% own almost nothing. There are lots of graphs in the book, plus a lot of raw data online (http://piketty.pse.ens.fr/en/capital21c2 ). In particular, this graph shows the trend of income inequality in the US over the past 100+ years:

    I don't think that taxation was initially thought of as a way to redistribute income, but rather just as a way to get some income for government to operate. From the upward trend of the graph, however, redistribution seems to be going in the opposite direction--"them that has gets," as my grandfather would have said.

    JE comments:  Your grandfather was very wise, Paul!  I had to refresh my memory on Sutton's law:  it's the idea that the obvious explanation is usually the best.  Willy Sutton, a bank robber, explained why he focused on banks:  "that's where the money is."

    Wading through Piketty is a noble goal for 2019.  A question for the WAISitudes:  what are your reading plans for the New Year?  Mine are auditory:  I'm going to listen to the some of the Great Operas on my daily commute.

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    • A Reading List for 2019 (Henry Levin, USA 01/06/19 3:56 AM)
      A great 2019 to WAISers. John E asked about our reading plans for the New Year.

      I am far behind in my reading, but have four books ready to go.  Frederick Douglass by David Blight; and Sapiens by Y N Hariri, as well as 21 Lessons for the 21st Century and Homo Deus by the same author.

      In addition I have a huge backlog of Atlantic, Harpers, American Prospect, etc...that I need to catch up on.

      During the summer when we are in Barcelona, we get these periodicals as well as weekly Economist and New Yorker, and I am just catching up on these. We also get the New York Times (7 days) and Wall Street Journal (6 days), so there is a lot of fodder for discussion.

      JE comments:  Hank, all the best to you and Pilar for 2019.  I am going to seek out the Frederick Douglass biography--thanks for the recommendation!  Douglass's autobiography is not only a compelling narrative of injustice (obviously).  It's also a brilliant work of literature, with a style that can only be described as poetic.  They don't write 'em like that any more.

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