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Keith Wilson
02-20-2017, 07:42 PM
https://upload.wikimedia.org/wikipedia/en/0/07/Capital_in_the_Twenty-First_Century_(front_cover).jpg

I'm well into it, not done yet. You really, really should read it. Yes, it's long, dense and complicated. It's also probably the most significant book on public affairs I've ever read. Some discussion: a New Yorker article (http://www.newyorker.com/magazine/2014/03/31/forces-of-divergence) , and another, Pikkety in six charts. (http://www.newyorker.com/news/john-cassidy/pikettys-inequality-story-in-six-charts)

Ian McColgin
02-20-2017, 07:49 PM
Indeed. Piketty has been breaking out to more general attention, even on these pages, over the last five years or so.

C. Ross
02-20-2017, 09:12 PM
Nooooooo!!!!!!!
Well, OK. If you like cherry picked data and polemicism.

Keith Wilson
02-20-2017, 09:43 PM
Cherry-picked data? Do tell. How? It seems pretty comprehensive, very far from cherry-picked, although I could be wrong. Polemicism, possibly, although that probably comes later, and I can just let it go by.

C. Ross
02-20-2017, 10:32 PM
Dudes. Really?

Keith and I tussled this st length before. My views:

1. Income inequality is a problem, particularly if the bottom quintile is flat or declining.

2. The problem is pre-tax income. Not tax policy. Unless you're going to impose wage controls or tax specifically to transfer wealth, government can't fix this with tax policy.

3. The problem is largely extreme wage inflation at the top (see #2) and technological changes.

4. Piketty's description of inequality is accurate. His diagnosis and prescription of the solutions are lacking. (See #2 and #3)

5. We need to improve the education of our kids, address systemic reasons why poor and minority people can't advance, and create new classes of employment to replace the areas where jobs are disappearing due to technology. I don't know how to do this. Neither does Piketty.

6. The rest is re-heated soft Marxism (using the old-fashioned definition).

Bob (oh, THAT Bob)
02-20-2017, 10:57 PM
I haven't read it but saw good reviews and analysis of it a while back. I'm not buying more books until I have a place to put'em.

Keith Wilson
02-20-2017, 11:03 PM
Re 2: Piketty argues that one major factor is the rate of return on capital vs rate of growth, which will tend to concentrate wealth when growth is relatively low. He makes a pretty good case, or at least I can't see the fallacy.

I'd still be interested in what you think is 'cherry-picked data'.

Better to hold off on discussing his policy ideas until I finish the book.

Ian McColgin
02-20-2017, 11:09 PM
Being of a classical mind - I still call it "moral philosophy" rather than pretend that normative science can be separated from political and moral questions - if find that Piketty and Amartya Sen are the two I'm inclined to read.

C. Ross
02-20-2017, 11:35 PM
How about we set the tax on dividends at 72%?

That could reduce dividend returns to pension funds, other institutional investors, rich people. They will seek investment returns in forms other than dividend income. Most straightforward would be investment in tax-free bonds with returns than become attractive if commercial dividends are highly taxed. Could be other more exotic investments.

And it wouldn't do anything to increase wages for the bottom quintile. A government could transfer wealth in other ways.

I am unaware of any industrialized country that directly transfers wealth or income from top to bottom this way. In some ways the Europeans do so indirectly, particularly the Scandinavians.

C. Ross
02-20-2017, 11:43 PM
Re 2: Piketty argues that one major factor is the rate of return on capital vs rate of growth, which will tend to concentrate wealth when growth is relatively low. He makes a pretty good case, or at least I can't see the fallacy.

I'd still be interested in what you think is 'cherry-picked data'.

Better to hold off on discussing his policy ideas until I finish the book.

Here's NYT coverage of his data problems, from 2014. I am more persuaded by The Financial Times' critique than Piketty's reply. https://mobile.nytimes.com/2014/05/30/upshot/thomas-piketty-responds-to-criticism-of-his-data.html

This conceptual critique of Piketty made a splash two yeas ago: http://origin-www.bloombergview.com/articles/2015-03-27/piketty-s-three-big-mistakes-in-inequality-analysis

Nicholas Carey
02-21-2017, 12:19 AM
How about we set the tax on dividends at 72%?


Warren Buffet suggests a sliding scale on capital gains. Where the capital gains tax is inversely proportionate to the length of time the asset is held. Hold the asset for a short time? Try a confiscatory capital gains tax rate. Hold it for 20 years? Very, very low tax rate.

The rationale is that short term investment and market arbitrage does nothing but distort the market. The "investor" has no interest in the health or prospects for the business, just in what the stock price ... or house price ... does in the very short term.

The long-term investor cares quite a bit about what he's invested in: his fortunes are tied to the business.

Short term investment Is nothing more than legalized gambling. And given the inequality of information in the market, the investor is gambling In a house where every table is rigged. And unless you are a member of the club, you will lose.

David G
02-21-2017, 12:35 AM
My study was Economic History, not Tax Policy. Economic Development, not Macro. I'm not a policy geek, by any stretch of the imagination.

But I know that the current inequality was created with tax policy, so I strongly suspect that tax policy will be part of any correction we manage to cobble together.

I know that Acton saw the pattern, and that history never precisely repeats itself, but that there are lessons to be garnered there.

I know that the imbalance Acton speaks of is radiating outward, and accelerating. I no longer see it simply as a short term threat to the economy, but as a long term threat to our form of government.

So I guess the geeks better get busy and design some corrective measures - because they are long overdue.

Too Little Time
02-21-2017, 09:31 AM
I'm well into it, not done yet. You really, really should read it. Yes, it's long, dense and complicated. It's also probably the most significant book on public affairs I've ever read.
A person who reads just one book on a subject like this gets a one sided view. Without a broad education in the field he will make a lot of mistakes.

Much of what Piketty comments on had been commented on for a long time prior to his book. Some of his comments I believed 40-50 years ago. Some I did not believe 40-50 years ago. Over time my beliefs have changed some, but like a lot of people I disagree with some if not much of what Piketty believes.

I am sure you will find much to agree with. If you don't find much to disagree with, you need to read more.

Paul Pless
02-21-2017, 09:35 AM
2. The problem is pre-tax income. Not tax policy. Unless you're going to impose wage controls or tax specifically to transfer wealth, government can't fix this with tax policy.

maybe not, but they can certainly exacerbate the problem. . .

Norman Bernstein
02-21-2017, 09:43 AM
Warren Buffet suggests a sliding scale on capital gains. Where the capital gains tax is inversely proportionate to the length of time the asset is held. Hold the asset for a short time? Try a confiscatory capital gains tax rate. Hold it for 20 years? Very, very low tax rate.

The rationale is that short term investment and market arbitrage does nothing but distort the market. The "investor" has no interest in the health or prospects for the business, just in what the stock price ... or house price ... does in the very short term.

The long-term investor cares quite a bit about what he's invested in: his fortunes are tied to the business.

Short term investment Is nothing more than legalized gambling. And given the inequality of information in the market, the investor is gambling In a house where every table is rigged. And unless you are a member of the club, you will lose.

I am highly sympathetic to this point of view.

The reason we have tax breaks for investors, in the first place, is to encourage investment and savings.... a noble motive, if there ever was one.

However, like pretty much anything, it can go too far. One piece of cake is a delicious way to end a meal.... 3 pieces isn't good for you.

I am going to disagree with Cris Ross, on one of his points: the problem isn't wage inflation at the top... it's the effect of tax breaks on investments, for those at the top. When one's income vastly exceeds what even the most profligate spender need to support even a gaudy, extreme lifestyle, the nation needs to be able to recoup via taxation.... or else, we slide inexorably into increasing inequality, and as should be obvious, money = power in this country. When that excess money is taxed at a far lower rate than the taxation of earned income, we have a system which is unfair to the ordinary working man.

My 'triple ramp' fantasy tax proposal, dating back to 2004, addressed this problem directly.

Warren Buffet is right: if tax breaks on investment income serves any purpose, it is to encourage 'investment', not 'speculation'.... and the tax on investment income ought to be linearly proportional to the length of time the investment is held. I don't object to investment speculation, per se... it's one way that relatively wealthy people create income... but it should be treated no differently than the income generated and reported on a person's W2... and taxed at standard rates, unless it clearly is a long term investment.

C. Ross
02-21-2017, 09:53 AM
I'm busy today and can't respond much.

This data is old but I don't have time to look for better.

The problem is change in pre-tax income by income group.

If you have evidence that tax policy is the cause of the rich getting richer, and larger than the effect of changes in pre-tax income, I'd like to see it.

http://www.econdataus.com/inccha05.jpg

TomF
02-21-2017, 09:55 AM
Cris, I sauntered over to one of your links to see what it suggested as a way to address the inequality; the key recommendation is one I hadn't stumbled into before. Very interesting idea.
Rognlie’s results, and the theory of agglomeration economies, suggest that to fight wealth inequality, what we really need to do isn't to redistribute income from corporations, but to redistribute income from land. How do we do that? Well, allowing more development in urban areas is a good start. But the real weapon here is the Henry George tax, or land value tax (LVT). This is like a property tax, but it taxes only the value of land, not the value of the structures built on the land. It encourages efficient use of land, while providing the most efficient method of wealth redistribution. Milton Friedman called it (http://www.economist.com/blogs/economist-explains/2014/11/economist-explains-0) the “least bad tax.” Now, I'm not economically savvy enough to know what to think of the argument that the degree of wealth inequality that's sinking our economies is due mostly to increases in the value of land, rather than profits derived otherwise from corporate activity. I'd appreciate it if someone could unpack it a bit for me. What I got from my quick scan is that in increasingly urbanized social environments, it's the value of the land which tends to be skyrocketing ... kinda like playing Monopoly. Sure, a couple of hotels on Park Avenue will bring in a lot of money ... but the kicker isn't the hotels, it's location location location. Tax the value of the dirt asset, and everything else follows. Did I get it roughly right?

I can immediately hear concerns rising up in chorus: "job killer". "Socialist". And perhaps "myopic analyst" ... who sees neo-Feudalism where it doesn't really exist.

Norman Bernstein
02-21-2017, 10:05 AM
The problem is change in pre-tax income by income group.
If you have evidence that tax policy is the cause of the rich getting richer, and larger than the effect of changes in pre-tax income, I'd like to see it.


Why do you hate the rich? :d

I frankly don't care about pre-tax income inequality... while I would agree that compensation to CEO's and other executives has reached absurd levels, via complacent (and, to some degree, conspiratory) boards of directors, that's an issue for the stockholders, even if those stockholders are institutions... they can decide whether executive compensation is unreasonable, relative to the profitability and returns of the corporation.

"The discussion ought to be about after-tax income, which is where the rich become ever more wealthy.... because the tax system disproportionately hands out tax advantages based on wealth. The fact that Donald Trump sits on gilded chairs in his museum of an apartment in NYC is not my concern.... but to the extent that he escapes taxation, THAT is definitely my concern.

Keith Wilson
02-21-2017, 10:13 AM
A couple of points: The Financial Times critique is a mainly a methodological dispute about wealth statistics from Great Britain in the late 20th and early 21st centuries, whether to use estate tax data or survey data. It's not a quibble, since the difference is pretty large, but it's only one country, and in my inexpert opinion Piketty makes a pretty good case for his choice.

Rognlie starts off his 'Piketty's three big mistakes' with a whopper of his own, the claim that Piketty ignores depreciation of capital equipment. He does not. He talks about it pretty extensively in the introduction, and uses a standard figure of 10%/year. This may be too low or too high, but it doesn't seem unreasonable, and Rognlie is just dead wrong. I don't know enough yet to say anything about his second point. The third, about land costs in dense cities, is quite interesting, but I'd have to look at the numbers.

About 'soft Marxism': Piketty's major contribution was to bring distributional issues front and center after a long time when most economists didn't pay much attention to them. He's supplied a vast amount of data showing the increasing concentration of income and wealth in developed countries since about 1980. You may or may not agree with what he proposes to do about it, but I don't think anyone with any sense can disagree that it has really happened, is continuing, and that it's a real problem. I think it's one of the major factors behind our current political mess. The white working class may be vastly mistaken about the cause of their troubles, but not about their existence. If this is 'soft Marxism', then I think we need more of it. Ignoring the problem will not end well.

B_B
02-21-2017, 10:13 AM
...
2. The problem is ... Not tax policy. Unless you're going to impose wage controls or tax specifically to transfer wealth, government can't fix this with tax policy.

3. The problem is largely extreme wage inflation at the top (see #2) and technological changes.

5. We need to improve the education of our kids...
You say the problem isn't tax policy, but then demonstrate in 3 and 5, that tax policy is exactly the problem, or at least a significant component of it.

Too Little Time
02-21-2017, 10:21 AM
I'm busy today and can't respond much.

This data is old but I don't have time to look for better.

The problem is change in pre-tax income by income group.

If you have evidence that tax policy is the cause of the rich getting richer, and larger than the effect of changes in pre-tax income, I'd like to see it.

http://www.econdataus.com/inccha05.jpg

I cannot do your research for you, but it is clear that much income from wealth does not show up as pretax income. It is only when that income is realized that it shows up. And often it is taxed at a preferred rate.

As an example: the largest income number on our tax return was $156K. Out of our investment income of $186K only $5K showed up on the tax return. A rational person might think our income was over $300K rather than only half of that.

The richer one is the less his tax return shows about his true income.

TomF
02-21-2017, 01:58 PM
How about everybody gets 40 acres and a mule?Do I get to choose either for myself? :D

Too Little Time
02-21-2017, 07:16 PM
Income: ...
If one uses a number on a tax return, one needs to accept that prior to the income tax there was no income.

But I do agree that economists have many definitions of income. I was pointing out why tax numbers were not an accurate representation of income. But you are free to use the definition you want.

Keith Wilson
02-21-2017, 07:32 PM
If one uses a number on a tax return, one needs to accept that prior to the income tax there was no income.http://www.picgifs.com/graphics/f/flashing-light/graphics-flashing-light-309183.gif Ding Ding Ding Ding Ding Ding Ding Ding!!!!! http://www.picgifs.com/graphics/f/flashing-light/graphics-flashing-light-309183.gif
Ladies and gentlemen, we have a winner; the silliest statement on the WBF for the month of February! Congratulations, TLT!!

Yes indeed; before tax returns, there was no income, before microscopes were invented bacteria did not exist, and before the telescope, there were no other planets or galaxies. That's logic!

johnw
02-21-2017, 08:55 PM
I am highly sympathetic to this point of view.

The reason we have tax breaks for investors, in the first place, is to encourage investment and savings.... a noble motive, if there ever was one.



I have never seen evidence that lower taxes on investment income lead to faster economic growth. I suspect that taxing it at a lower rate than wages has more to do with the power structure of our country than any empirical evidence that it's beneficial.

johnw
02-21-2017, 09:02 PM
I'm busy today and can't respond much.

This data is old but I don't have time to look for better.

The problem is change in pre-tax income by income group.

If you have evidence that tax policy is the cause of the rich getting richer, and larger than the effect of changes in pre-tax income, I'd like to see it.

http://www.econdataus.com/inccha05.jpg
.

It seems to me that the higher your income, the more likely very little of it comes from wages. And if it's investment income, the amount you have to invest would be rather critical. Therefore, the more you have left after taxes, the more you have to invest and the more income you can make.

If that's the case, lower taxes on investment income would lead to a compounding effect on the income of investors. Granted, some of that is in pension funds, but among individuals, I would guess that those in the bottom quintile are more dependent on wages, those in the top 1% are more dependent on investment income.