The rich KEPT most of their money and it wasn’t distributed through out the economy.
What happens here is a smaller pool of people are HOLDING a larger share of the wealth.
This essentially puts a strain on DEMAND for products. The wealthiest can only consume so much and we all know it is CONSUMPTION that drives our economy. In fact it is 2/3rds of our economy.
In 1926 and now in 2010 we are at the same crossroads. The top 2% are holding a majority of the wealth and the pool of consumers has shrunk to pre-depression numbers.
(HOW MANY CARS IS PARIS HILTON GOING TO BUY?)
Essentially the majority of the wealth is sitting in banks or stocks and even in the Cayman Islands. It is not creating demand, which puts people to work.
Raising the income tax on the top 2% enables greater tax credits,breaks and a lower income tax rate for working middle class people.
This puts more money in the hands of MORE people.
Spurring demand to a greater amount than a handful of millionaires
seascraper says
You are making the mistake of viewing the economy as a closed transaction between a producer and a consumer. In fact you will profit more by viewing it as an exchange between two producers. You specialize in baking bread and I make wine. We each produce a surplus and exchange that surplus with each other.
<
p>If you think about it this way, there really is no consumer. If there is too much bread and not enough wine to exchange it with, then you have to look at what is stopping the vitners from making wine.
ray-m says
in your story is the employee. The employee produces labor. The breadmaker has a surplus of profits(bread). I exchange my labor for your profits (wine for bread).
<
p>Why dont the people have money?
<
p>I believe the economic pie is only so big at any given time, although it grows over time, and if 60% of the pie is going to 2% of the people, that leaves 40% for 98% of the people.
<
p>This is not sustainable.
<
p>The USA economic pie is only so big. Although we all strive to increase it’s size, we must under stand that simple principle.
seascraper says
The pie is only limited by the amount we can create from natural resources, called physical capital, and intellectual capital.
<
p>Say the baker starts out working in the Wonder Bread factory for minimum wage, and the wine guy is just stamping the grapes. They learn and collect knowledge, and get money to start a new business. Then the baker opens a shop to sell artisan breads for $5/loaf and the wine maker makes wine that goes for $50/bottle. Nobody NEEDS a $5 loaf of bread, but for some reason they pay for it.
<
p>The whole economy is really this kind of exchange, whether in goods or services, multiplied a thousand times and replacing the barter with exchanges of money.
petr says
<
p>A producer of bread is a consumer of (at the very least) flour, water, salt and yeast. A vintner is a consumer of real estate, a reusable commodity. If they exchange surpluses then they each consume.
<
p>The necessity of consumption is paramount in the lives of most people, the alternative to which is called ‘starvation’. And most people produce something in the hopes of being able to continue consumption. The very very wealthy however, aren’t operating under this exigency. They pay the same amounts as everyone else for basic necessities and have the remainder left over for whatever purpose they choose. Economists call this ‘margin’. Keynes defined the ‘marginal propensity to consume’, which was a measure of how much extra a given spender will consume if their margin of disposable income increases. My personal marginal propensity to consume is, at present 100%. That is to say, I spend every last dollar I get because I’m making enough money to live comfortably and little else. I could save that extra money (and I probably should) and economize better, but I don’t. If I did save every last extra dollar that I make, I still wouldn’t have that much extra money. And, any money I do save would be for a decided future purchase like a home or a nice car.
<
p>For the rich it is quite different. Saving (that is to say, not spending) is the default behaviour because the margin is many many orders of magnitude large than what is needed to live comfortably. There is no possible way that Warren Buffet could have a marginal propensity to consume greater than one tenth of one percent of his income. It simply isn’t possible to spend that much money. And one tenth of one percent of his disposable income is orders of magnitude larger than my entire income, never mind my marginal propensity to consume.
<
p>You can say “but he’s not spending money on himself, he’s re-investing it in the economy”. Very well then, you said it. What does that mean? How can he take the time to carefully evaluate the spending of all his billions? He can’t. So, again, only a small portion of his wealth gets re-invested in other companies and not all of that re-investment returns a profit. The bulk of his fortune gets turned over to the banks who do some autonomic re-investing, the proceeds of which accrue to Buffet, and the deleterious effects of which, if any, accrue to the bank.
<
p>
<
p>You picked a pretty rank example to make your point: We have a rather thriving market in aged wines, the bottles selling for thousands of dollars apiece. Most of the wine bought at the higher prices is purchased with the intent that it not be imbibed, but held in the hopes of increasing in value for future resale. This is neither production nor consumption. The same thing happened once with tulips to an even greater degree. And so wine, rather than part of the exchange loop with bread, as in your example, instead becomes a closed loop of purchase and resale unavailable to those looking for their daily bread.
<
p>
seascraper says
I have never been in favor of massive accumulation of wealth at the expense of the middle class. Under your proposed system however, the heaviest tax rates would fall on the bakers and the vitners and not on Warren Buffett. $250K is a long way from Warren Buffett! Did you know that Mark Zukerberg of Facebook makes $1 in income each year? How much does Warren Buffett actually make in taxable income. How much of his estate is going to be subject to the estate tax?
<
p>
christopher says
…that the Facebook founder only makes a dollar a year. I thought I just heard he is the youngest billionaire or something. Even so, I think plenty of us would be fine if we added tax brackets for threshholds over 250K, and taxing other wealth generators besides standard income.
centralmassdad says
And could take his $1 annual salary without changing his lifestyle at all. As it happens, I don’t think that the Facebook guy does this. I do think that the Google guys do.
<
p>He owns most, or all, of a company that has increased in value, a lot. If he were to sell some or all of that company, he might generate some capital gains income.
<
p>If he borrowed against the portfolio, there wouldn’t even be capital gains (I think). He could, I think, use the proceeds of the loan to buy a truckload of tax free muni bonds, and use the untaxed income stream to live and pay back the loan.
<
p>At that level of wealth, it isn’t that hard to structure one’s life so that you don’t have a lot of taxable income. If one is merely well-off, as, say, a lawyer or doctor or other professional or owner of a small plumbing company, you can’t use existing wealth to generate the income needed to live, but must rely on salary. Those are the folks– not the super-duper rich– who get hit by raising upper bracket income taxes.
<
p>That is why the controversy of the last week has seemed bizarre to me: Democrats seem to have made it their Number One Priority to raise taxes on the upper middle class and the slightly wealthy.
johnd says
but you did it much better.
peter-porcupine says
They can, however, give it away.
<
p>Rockefeller. Carnaigie. Mellon. Getty. Here in MA, Lilly. Different causes, like libraries, arts, medicine – but this was a generation raised under the principle tht when much is given, much is expected.
<
p>We now have Gates and Buffett, and from what I’ve read, Zuckerberg plans on joining their ranks, but we have not continued to inculcate the principles of generosity, or give respect to those who do give. The unrelenting demonization of wealth even extends to refusal to honor those who choose to contribute. It’s ‘demeaning’. They shouldn’t have had anythign to give in the first place, they have too much. And so on.
<
p>The rich you always will have with you. If you have two rocks and I have only one, you’re rich (never mind disparities in intelligence and effort).
petr says
<
p>Why is that principle not extended to the government? When much is given, by the government, much is expected… If they’ll give it to a private charity, why not to a public endeavor?
<
p>
<
p>I see no fundamental difference in those who refuse to show largesse in charity and those who so refuse taxation… and so I find a curious inconsistency with largesse in private while miserly in public.
peter-porcupine says
Government has no assets. Government has no wealth.
<
p>Government is a subcontractor for required services.
<
p>You act as if government has money to ‘give’, when all it really has is taxes to pay for and administer public services.
<
p>However, you never spoke truer words –
<
p>
<
p>This is the crux of why government should NOT be able to give.
christopher says
It has tons of property, not to mention all that gold at Fort Knox. Plus there’s the literal notion of a commonwealth where we collectively by our government own these things. We pay for services through our taxes. To say the government has no wealth is like saying businesses have no wealth, just that which they get from consumers, which they are then able to give back to community programs, invest in themselves, etc.
peter-porcupine says
christopher says
That’s the fundamental difference – I don’t see government as “them”; I see it as “us”.
peter-porcupine says
christopher says
Too many people down on the idea of professional politics or civil service.
somervilletom says
I don’t know about Mr. Buffet or Mr. Zuckerberg, but you should look more closely at what share of his personal fortune Mr. Gates is actually giving away. You should also take another look at what strings are attached to all those grants he is making.
<
p>A leopard does not change its spots.
<
p>Meanwhile, you should also take another look at the estate tax rates in effect at the time that Mssrs. Rockefeller, Carnegie, Mellon, Getty, and Lilly made their donations, and compare them with today’s.
<
p>You write: “but this was a generation raised under the principle tht when much is given, much is expected.”
<
p>This was also a generation that lived in an era where the federal government reinforced that noble principle with very pragmatic tax law.
<
p>My view is that today’s wealthy elite are no more selfish or greedy than the very wealthy have ever been. The difference is that they have, today, learned how to use their wealth to cause the federal government to do their every bidding.
peter-porcupine says
They use up too much oxygen, too, by all that huffing and puffing after working.
sue-kennedy says
I know you’re tempted to send this year’s charity donation to those needy individuals, but before you do..
Remember, the top 1% also owns 42.7% of the total privately held financial wealth in the US.
<
p>
http://sociology.ucsc.edu/whor…
<
p>It may appear unreasonable on its face to force those with 43% of the wealth to shoulder 40% if the income tax burden in order to protect the way of life that has made it possible for them to accumulate that wealth.
A possible solution might be to actually create well paying jobs here in the US. This would create a class of tax payers able to help shoulder their suffering.
somervilletom says
With all the empty posturing about “middle class” this and than, does anybody else appreciate the message here?
<
p>If by “middle class” we mean “in the middle of the distribution”, then surely “middle class” means the second through fourth quintile.
<
p>Let me rewrite Sue’s data, by quintile:
<
p>
<
p>The top 20% hold an astounding and nauseating NINETY THREE PERCENT of non-home wealth.
<
p>Is it any surprise that our economy is in chaos?
<
p>This is the cold hard evidence of the damage done by the class warfare waged by the wealthy against the rest of us.
centralmassdad says
First, how is it that the share of “non-home” wealth held by a particular segment of the population put “or economy in chaos”? I was under the impression that the economy is in chaos due to the bursting of a debt-fueled asset bubble.
<
p>Second, assuming that wealth concentration is indeed the problem, then why the huge fuss over income taxes, which doesn’t necessarily correlate to the concentration of wealth that is so distressing?
ray-m says
concentrated wealth, is the reason we need an estate tax
centralmassdad says
I would add a simple caveat that I would like to structure it so that it catches what it is targeting rather than zapping a small-medium family business every time the generations turn over.
nopolitician says
I can understand the emotional draw of protecting “small-medium family businesses”, but long-established businesses have similar economic advantages to long-established wealthy families.
<
p>Picture a family-owned pizza parlor on Martha’s Vineyard. The owner’s family bought the land long before the place got popular. A similar property would cost a million bucks now — so the family-owner pizza shop can offer better pizza at cheaper prices because they have handed down their land from generation to generation whereas any competitor would have to buy their land to get their start.
roarkarchitect says
The family has to sell it to pay the taxes, the employees most likely lose their jobs and Starbucks leases the space and we all say – what ever happened to that great pizza place around the corner?
<
p>It really is the operating businesses that have the most to fear from higher estate taxes. They have non-liquid assets that typically have to be sold to generate income to pay for estate taxes.
<
p>Of course you can buy Mr. Buffet’s life insurance polices to pay for the taxes, but they are expensive and if the owner is ill or older it may not be possible to purchase one.
<
p>
somervilletom says
The family structures the business as an LLC. The members of the LLC include progeny, long before anybody dies, and the problem is solved.
<
p>The only way this happens is if a business owner insists on holding ALL ownership until his or her death.
roarkarchitect says
I understand how trusts and other legal structures can be used to avoid estate tax. Properly creating and maintaining these structures can be expensive, why do this it? Create a reasonable exemption and have the lawyers find other work.
<
p>The lower the estate tax exemptions the more fish you catch on the lower end of the asset scale. The 50M estate is always going to have a plan. The 1M pizza place probably not.
centralmassdad says
and wants a new boat
somervilletom says
No, I am not a T&E lawyer.
<
p>Instead, I am high-tech executive and entrepreneur who is out of patience with lies and distortions promulgated by those who should know better.
<
p>The tax advice about LLC’s and S corporations cost me a few hundred dollars about twenty years ago. Every business should use a CPA to do annual filings, and every CPA can correct the flagrant distortions offered here.
<
p>This claim:
<
p>fails even the most cursory smell-test.
<
p>Dad, I think you know better. Roark, you are — like virtually ALL of the current GOP elected officials — putting your political agenda well ahead of facts and truth.
roarkarchitect says
Just yearly filing fees in the state of Massachusetts are $500.00 per entity.
<
p>Maybe an estate attorney can comment, but I think a good estate plan for a small firm would cost 5K to 15K to setup.
<
p>I pay a couple thousand for GOOD trademark filing.
<
p>My question is why do this at all if the estates with good legal advice can avoid the tax. We spend billions in our society on tax compliance, this is just a waste of resources.
<
p>Of course Massachusetts has an estate tax rate of 16%, and it looks like it’s not a marginal tax but with a 1M threshold. So if the pizza place is worth 1M + a dollar they would owe 160K with bad tax planing.
<
p>
petr says
… your issue is with lawyers and their fees and not with the government.
centralmassdad says
But.
<
p>He is right that a business with a lot of capital investment that is not liquid will have to borrow to cover the estate tax unless mom and dad had a good estate tax plan.
<
p>But this simply makes the tax system one of booby traps, in which money is made from mistakes by the unwary or unwitting.
somervilletom says
Anybody with sufficient personal wealth to have a concern about the estate tax can readily afford to buy or learn the steps needed to handle such wealth responsibly.
<
p>Even a modestly-talented asset manager can return about 5% per year on a $1M portfolio. A 5% return on similarly-sized family business is achievable by most professional business managers.
<
p>That $50,000 is ten or one hundred times larger than the fees causing all this whining. Either pay somebody or learn how to do it yourself. Jeesh, I pay $500 a year to keep my car on the road because the mechanic down the street is better at it than me and likes doing the work to boot. I pay my business accountant about $1,200 a year to do my annual filings and keep me out of trouble. Big deal.
<
p>The modern world is “one of booby traps, in which money is made from mistakes by the unwary or unwitting.” Welcome to being a grown-up.
<
p>This whining and complaining, especially from the very wealthiest among us (or their wannabes) is simply obnoxious.
nickp says
than your tax advice.
<
p>
<
p>The gift tax and the estate tax is very nearly the same tax. Gift it away, over a minimual 10K-15K, and it’s subject to gift tax. Die, and it’s subject to estate tax. Hire expensive appraisers and lawyers to argue that it’s a gift, but a really, really small one, and it’s legal tax evasion.
<
p>It’s not very hard to imagine a small business worth $5 million: small apartment building in downtown Boston, NY. Successful restaurant, sizeable farm in western mass….owner dies and wham, tax time.
<
p>And the argument can’t possibly be that we need estate tax because the government has a deficit. The tax just isn’t that material to the whole budget.
<
p>No, at the heart of the argument it’s this: Those darn kids just not should receive a big hunk of money.
<
p>And, to some degree, I agree. But if it’s a choice of i) liberty to give money, or not, as you damn well please versus ii) give it to the government where it’s a rounding error on the Federal income state, I’ll opt for liberty.
somervilletom says
It doesn’t sound like you speak from much first-hand experience.
<
p>The value of shares in an LLC is hard to assess, especially when none have been sold. Sometimes you want them low, sometimes high. There are a multitude of ways to make them whatever you want.
<
p>I understand how the gift tax works. I also understand that it is entirely possible to transfer shares in an LLC among family members without triggering gift tax provisions. The world of the wealthy is very good at providing a rich variety of perfectly legal ways to manage that wealth.
<
p>That’s why this whining is so unseemly.
<
p>I’ll duck the opportunity to respond to your utterly spurious “tax or liberty” comment.
nickp says
And you appear to know little about the estate/gift tax, yet you keeping typing.
<
p>
<
p>So when an owner dies, your idea of tax planning is to make the value what you want, and if you want zero, then no tax owed. Great tax planning! Whether you’re dead or alive, and making an inter vivos gift or a testamentary one, your property will have to be valued.
<
p>Gift tax is estate tax. That’s what the Unified in Unified Gift/Estate tax means.
<
p>
<
p>You understand how it works, but that that were true, you’d understand that a gift to anyone in the family or out, other the spouse, results in a taxable gift. Which means, in fact, you don’t know how it works. But keeping typing. Monkeys, typewriters, shakespeare and all that….
<
p>
somervilletom says
The founder can transfer shares to family members long prior to his or death, without forcing a valuation of the LLC (given competent legal advice in the Operating Agreement of the LLC and such).
<
p>If the founder has transferred, say, 80% of the LLC in that fashion then any estate/gift tax is applied to the remaining 20%. The business has, effectively, been transferred to the family members without paying an estate/gift tax.
<
p>
<
p>I already have a money guy, a legal guy, and a business guy. If any of them suggest that I’m utterly confused about all this, I’ll pay careful attention.
<
p>You are none of the above.
nickp says
<
p>Bullshit.
<
p>Here’s my cite:
<
p>IRC Section 2501. Imposition of tax
(a) Taxable transfers
(1) General rule
A tax, computed as provided in section 2502, is hereby imposed for each calendar year on the transfer of property by gift during such calendar year by any individual resident or nonresident.
<
p>Do tell, how to give property away, sans valuation, of the gifted shares and avoiding the gift tax imposed by Section 2501 which is a tax imposed on gifted value.
<
p>Shovel rule: when in a hole, first stop digging
somervilletom says
<
p>These are excerpts from the Operating Agreement of a currently-active Massachusetts LLC of which I am the manager.
<
p>I can transfer my shares to my “spouse, children, siblings, parents or trust created for their benefit” without changing any “Gross Asset Values” of the company.
<
p>If you disagree, take it up with my attorney.
demolisher says
That Toms main point seems to be we should have a big estate tax because everyone should know how to dodge it?
somervilletom says
A larger estate/gift tax should target personal wealth.
<
p>The false claim being made is that this harms small businesses. It does not.
nickp says
<
p>In fact, it helps them! By potentially burdening the heirs with debt, the estate tax makes them work harder and more hours to pay off the debt. Estate tax is all about jobs!
roarkarchitect says
Probably not a legit tax document but;
<
p>
Read more: Estate Planning LLC Limited Liability | eHow.com http://www.ehow.com/way_554904…
<
p>The way I understand this document, is if you are running the business it will bounce into your estate – if you sit back and have someone else run it – you can skip the tax.
<
p>I hate legally gaming of the system, keep it simple.
<
p>
nickp says
Great. Your operating agreement says you can transfer shares. Think the IRS cares?
<
p>What if your operating agreement gave you permission to kill your partner. That means murder is legal for you.
<
p>Think man!
somervilletom says
The operating agreement spells out how shares may be sold to outsiders. That, in turn, sets the valuation of the company. That, in turn, is how the IRS determines the value of shares in the company.
<
p>The facts remain factual whether or not you admit them.
demolisher says
Smart people like Tom know the dodges, no wonder liberals are so carefree about jacking rates.
<
p>Too bad estate planning techniques like putting property into trusts can’t also be used to dodge… oh wait, they can.
<
p>I suggest a new slogan to replace tax and spend: “Tax and Dodge”
ray-m says
from the estate tax. The Tax Policy Center estimated that about 99.7 percent of estates were exempt from the estate tax in 2009 when the first $3.5 million of an estate was exempt. Even fewer people would be subject to the tax if the threshold is increased to $5 million, as proposed in the compromise tax plan.
<
p>Under the compromise plan, less than 2/10 of 1 percent of estates would be subject to the estate tax next year, said Bob Williams of the Tax Policy Center. That means more than 99.8 percent would be completely exempt
<
p>http://www.politifact.com/trut…
demolisher says
5% surcharge on incomes of all dtc and rtc chairs. These powerful folks are pulling the strings and should pay their fair share.
<
p>Its only a tiny percent of the population, and it’s not you so who cares?
peter-porcupine says
nopolitician says
Let’s assume the estate tax is what it was in 2000 — $1m threshold, 50% tax. Let’s assume that the pizza shop is worth $2 million and a man leaves it to his children.
<
p>The children get a $2 million asset for free. The will need to pay $500,000 in estate taxes though. But they have a $2 million asset. They can take out a loan on it.
<
p>I admit, I don’t know how debt affects the value of the estate, but common sense says that if the pizza shop owner had a $750,000 mortgage on his shop, then the value of the estate should take that into account and it is really worth just $250,000 free and clear.
<
p>So I don’t understand why a family would need to sell a valuable asset to pay estate taxes. They can just take out a loan against the asset.
centralmassdad says
Bad idea for any lender, because the business handles too much cash, and cash disappears too easily. Good luck to that pizza shop. It takes quite a bit of cash flow to cover a $500,000 loan, even if you can get the loan.
nopolitician says
If the business is worth $2 million — meaning it has $2 million in assets to both tax and attach — a $500,000 loan shouldn’t be too hard to get, should it?
centralmassdad says
Is the business valued at $2 million at liquidation of the capital assets or as a going concern? The lender doesn’t give a hoot if there is $20 million of capital assets, it won’t make a loan unless there is cash flow to support it.
<
p>Over the last year or two, it might not make the loan even then, which is the primary reason that the economy continues to drag. Restaurants make particularly risky borrowers because their cash flow is extremely volatile, and because the cash that comes in tends to evaporate before the tax man (and the lender)even get to see that it exists.
<
p>The pizza shop may have been a bad example for this discussion because restaurants are an extremely risky investment; nearly all new ones fail.
somervilletom says
The point is that MOST small businesses are likely to fail. The pizza shop example is representative of this. That’s why most small businesses will not be affected by an increase in the estate/gift tax. The ones that will be affected are the ones that can easily restructure their operations to pass assets to subsequent generations.
<
p>The claim that increasing the estate/gift tax somehow harms small businesses is utter rubbish.
centralmassdad says
Sorry about the bullet to the back of the head, but hey, you were going to die anyway.
<
p>And then people here wonder why businesses are so pro-Republican, because gee, we Democrats are friendly to small business.
<
p>The last few weeks have revealed a lot about the priorities of the two parties. Liberal dems were perfectly willing to sacrafice an AMT fix, repeal of DADT, and even the START treaty in order to make sure that rich people pay more taxes, and Republicans were willing to sacrifice everything, even their concern about the ever-increasing national debt, to make sure they didn’t.
<
p>I am growing increasingly convinced that the division of the tax system into brackets is simply divisive and unhealthy. I have been reminded of the unhealthy pattern that sometimes emerges in our local politics when a town adopts dual-rate taxation: services, or at least their cost, increases, but the residential rate stays at its minimum.
peter-porcupine says
christopher says
…but presumably they also pay annual property tax that WOULD reflect the appreciated value of the land.
roarkarchitect says
christopher says
I’m pretty sure businesses also pay such taxes, which is why so many towns want to attract business to expand their property tax base. I know non-farm residences do.
somervilletom says
There are lots of ways to transfer a family business to others, including succeeding generations, without getting into estate tax trouble. That’s why God gave us attorneys, tax advisers, and all the rest.
<
p>This is a red herring.
peter-porcupine says
I’ve said this many times – attempts to confiscate and redistribute inherited wealth are always aimed between the eyes of the weaalthy, but always hit the gut of the middle class, who cannot afford the lawyering and scheming that the wealthy have routinely.
<
p>With lower taxes, it become too much TROUBLE to hide the money in the Caymans, and some of it stays here.
christopher says
It also can’t hurt the middle class if written correctly to exempt the first x amount generated by the means to be taxed.
sue-kennedy says
those numbers may suggest the debt fueled asset bubble would have collapsed earlier without easy credit?
Loosening credit rules was an artificial means of keeping the economy growing to larger bubble after concentration of wealth caused the average consumer to lack the funds required to spend and fuel the economy.
The economy can’t recover until consumers start spending again. Giving large tax breaks to the wealthy will not solve the problem of middle class ability to fuel the economy.
centralmassdad says
Of course easy credit fueled the asset bubble, but I’m not sure that I follow your chain of causation.
<
p>Credit eased because there was a huge amount of capital–resulting from large trade deficits (and, to a smaller extent, the lowered federal funds rate set by the Fed in 2000-2002)– from and after 2000. The trade deficit meant that someone– say, a Chinese or German company, bank, or government– had a lot of US dollars to invest, and because they are there and dollars are the currency here, they bought financial assets. When someone with cash is desperate to lend it, credit review goes out the window.
<
p>The net result is that individuals and businesses across the country now have much more debt than they should. To the extent that they can, they will pay it down. Which means that there really isn’t very much that a government can do to “get consumers spending again” other than wait. Bad luck for Obama.
<
p>In any event, my question was in response to what I think was the suggestion that a concentration of wealth caused the present recession, and how, if this be so, taxing the somewhat wealthy is supposed to help.
<
p>
nopolitician says
I think there are two economies — the capital-based economy and the consumer-based economy. When the rich have a larger share of the economy, they shift dollars from the consumer economy to the capital economy.
<
p>There are times when that may be a good thing — if there is a lot of demand for things but little capacity, the availability of capital to build those things would expand the economy.
<
p>Right now, however, there is too little demand. So shifting more money to the rich isn’t the right thing to do because it isn’t expanding capacity (not here, anyway). It is being used to expand capacity elsewhere, and is also being used for speculation which creates bubbles.
<
p>I think that shifting money from the capital-based economy to the consumer-based economy is the right thing for the economy. I think that this would create consumer-based demand, which would be good for everyone, rich and poor alike.
<
p>If, at some point, there isn’t enough capital to satisfy consumer demand, then it would make sense to shift the balance once again.
<
p>I think that raising the tax rate on upper incomes gives people different incentives. I think that a high tax rate would encourage more investment in research & development, it would encourage hiring more people even if that wasn’t the most efficient thing to do if taxes were 0%. I think it would translate into higher wages for the consumer class, and this would spur demand even more.
somervilletom says
The problem is the disparate treatment of the kind of “income” that the wealthy realize. When a portfolio increases in value, for example, that effective income isn’t taxed unless the assets are sold. Even then, capital gains are taxed at a significantly lower rate — the right wing squawks about even that.
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p>One immediate step is to tax capital gains at the same rate as personal income.
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p>The upshot is that the estate/gift tax does a better job of capturing this (as we’ve discussed before).
centralmassdad says
and that would be a great idea.
somervilletom says
Most small businesses are or should be LLCs, LLPs, or S-corporations.
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p>NONE of those entities pay corporate income taxes.
nickp says
LLCs often pay corporate income tax.
nopolitician says
LLCs do not pay corporate income taxes. Their income passes through to the owners of the LLC.
nickp says
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p>LLCs are taxed like corporations or flow-throughs. Their choice.
somervilletom says
What part of “their choice” is hard to understand?
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p>Sometimes an LLC member saves money by having the entity taxed as a corporation (for example, while the corporation is losing money during launch and can accumulate and carry forward more losses than an LLC). More often, the personal rate is lower.
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p>The ability to tax business earnings at personal rates is why LLC’s exist.
nickp says
Once again, I’m simply correcting you. You’re ignorant of certain aspects of tax law. You said:
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p>
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p>Which is, fundamently and absolutely untrue: Many, many LLCs are taxes as corporations.
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p>
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p>And, this too is false. LLCs exist because there was a practical need for a type of entity with legal aspects of a corporation married with legal aspects of a partnership.
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p>
somervilletom says
Ok, I grant you that “none” is the wrong word.
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p>LLCs are taxed as corporations when their members determine that they benefit from that choice.
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p>
Are you certain you’re not confusing LLC with LLP?
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p>In any case, let me rephrase my original comment:
“NO LLC is required to pay corporate income taxes”
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p>Here is a typical explanation of the two forms (emphasis mine):
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p>Look, you can blow as much smoke as you want; it doesn’t change the facts of how small business taxation already works.
nickp says
Roll your eyes all you want, but if you’re going to start correcting people’s comment, derisively at that, you should at least, you know, not incorrect them. Common courtesy.
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p>
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p>As certain as I know that you know enough about taxes to be a danger to yourself.
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p>History of LLC:
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p>Note that from the source, at the time, they were not used extensively. But they caught on because of the legal flexibility of the beast, not because they were flowthrough entities.
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p>
demolisher says
Because they limit the liability of the owners / partners from most consequences of things going awry with the business itself…
peter-porcupine says
roarkarchitect says
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p>A couple of reasons (excluding hedge funds) to have the capital gains rates lower.
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p>a.) inflation isn’t taken into account – you buy something at 10K sell it at 40K and inflation adjusted value is really 10K.
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p>b.) people are taking risks with their capital – they typically have already paid income taxes on this money.
sue-kennedy says
to concentration of wealth. The 2 main sources of revenue are labor and investments. Investments generally pay better than hard work and taxed less. This leads to an even further concentration of wealth.
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p>
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p>Figure 5: Share of wealth held by the Bottom 99% and Top 1% in the United States, 1922-2007 – appears to indicate that a wealth concentration in the top 1% of between 25% – 35% is optimum for a healthy economy.
http://sociology.ucsc.edu/whor…
mizjones says
doesn’t make sense. Fig. 5 shows the top 1% as holding between 12.8% and 21.3% of the wealth in the years listed. The comment below it then say the figure shows how it is good for the top 1% to hold between 25%-35% of the wealth. How can that be? What logic is missing?
sue-kennedy says
is on this page: http://sociology.ucsc.edu/whor…
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p>To clarify, it measures Financial Wealth.
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p>Lots of interesting data. Take a look and see what you think.
johnd says
but these numbers seem to say that the “rich” held even more wealth during Clinton’s presidency… correct?
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p>It also looks like these numbers haven’t really changed in almost 30 years so why all the complaining now?
christopher says
…but I don’t think the gap was quite as big. Then again, some liberals object to Clinton on the grounds that the gap continued to grow.
demolisher says
That people are fixed into their quintiles for life
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p>Let me tell you, young people coming out of school are rarely in posession of much net worth. Even doctors come out at what – 30 years old? – with massive debt and no assets. Then they work really hard for years and pay your taxes on the rich and their giant insurance premiums and their loan payments and if they keep it up for long enough they can break even and start gaining some wealth.
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p>And if they do really well after all this then you want to take half their savings when they die. Nice.
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p>Never mind that they are the only people who can save us from e.g. Brain cancer… Then again, I guess you think you are entitled to that too
christopher says
It would be great if just working hard and playing by the rules guaranteed success, but alas experience shows it does not. Doctors make comfortably in the 6-figures, but I don’t think many of them are superrich. Plus we know from postwar history that we can have high tax brackets and more prosperity for everyone.
nopolitician says
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p>Not to sound cold, but they’re dead. They don’t need any savings when they’re dead.
sue-kennedy says
they can’t own anything. They’re dead.
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p>It’s the estate that collects and makes distributions.
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p>Interesting to see families jumping up and down shouting about their rights to the money of the wealthy relative, but not standing in line to pay off the debts of that loser in the family.
demolisher says
You want them to start over again after you die? You work your whole life and despite progressives picking at your wealth in every conceivable way, you are finally successful enough to pass something meaningful on to your children and grandchildren – but guess what? You don’t need it. You’re dead.
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p>What do we work so hard our whole lives for? Just so we don’t go hungry in retirement?
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p>Your view seems selfish, to me.
sue-kennedy says
if these are honest questions.
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p>My children grew out of those ideas a long time ago and became successful adults. Maybe it was the trip to Disney World, where you can go any day and find hindreds of crying unhappy children, to realize happiness has something else.
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p>If you want to give your children something meaningful love, security, stability, good health, and a good education might give them the opportunity to realize success of their own making.
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p>Isn’t that the American ideal? Equal opportunity?
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p>As to the meaning of life…its not money.
demolisher says
and just give them money.
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p>Give me a break.
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p>At least I don’t teach them that its OK to steal the wealth of others.
ray-m says
I hear alot about the rich create the jobs, so they shouldn’t be taxed high.
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p>The CEOs tax bracket has nothing to do with the success or failure of a company.
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p>In fact the CEO is seperate from the Corporation in regards to liability, if a braking system fails, is the CEO held personally liable? No of course not.
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p>Also I am tired of the success of a company being credited to the CEO and the workers never get mentioned.
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p>But when a company goes under, like GM the union employees get most of the blame, not so much with the CEO
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p>Whenever I hear a GOP calling for you to KEEP more of your money, they speak of taxes.
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p> I have never heard them speaking of wages…and that is the main problem. Wages for middle income families.
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p>They DEFEND the wages of CEOs, but NEVER middle America
peter-porcupine says
As you can read in your own thread, the LLC’s, LLP’s, and S corps are also wealthy and a source of jobs.
christopher says
Politifact has given the idea that small businesses face a tax increase a Pants on Fire ruling.
ray-m says
a CEO is not going to effect the growth of a business.