I unfortunately do not have time to put a lot into this post, but I feel that a lot of folks here would be interested in this front page story from the Sunday Globe.
I often read and hear from conservative sources how all we need to do is lower taxes on the “job creators” and the economy will prosper for all. So since there are quite a few companies prospering right now, how is that going?
Since the early 1980s, the nation’s top publicly traded companies have gone from having 70 percent of their profits available to reinvest in their business to just 2 percent in 2014.
The rest is being plowed into dividends and stock buybacks that mostly enrich a select group of investors and executives, according to William Lazonick, a University of Massachusetts Lowell professor whose research was published last fall by Harvard Business Review.
So, does this mean that we’re getting some “trickle down”?
Buybacks are booming because US companies have earned record profits and are hoarding a vast amount of cash. The companies use buybacks to share some of that wealth with their executives and shareholders. Many CEOs were given record compensation, and shareholders may have benefited from higher stock prices.
But most stock is owned by the nation’s wealthiest 10 percent; about half of Americans don’t own a single share, directly or indirectly. And buybacks can squeeze the economy in another way: Dollars not reinvested by a company in expanding their business can also mean fewer jobs in construction and other fields.
I see. Not so much. But they must be creating some new jobs, right?
The Boxborough workers learned that at the same time they were being laid off the company was continuing to spend billions of dollars to buy back its own stock, a move designed to reduce the number of shares on the open market and perhaps boost its relatively stagnant share price.
So if we just provide more tax cuts to these corporations, how exactly does this translate to a better situation for those not in the top 10%?
Reading of the entire article is recommended.
for the top 10% wealthiest millionaires and billionaires
and the national debt can be ELIMINATED in 10 years.
When I was campaigning in New Hampshire for ‘Clean Gene McCarthy’ back in 1968 – before many of you were born – I remember this proposal from a liberal think tank that McCarthy endorsed. I remember it being said that the last time we had been debt free was in 1832 during the administration of the ‘communist’ Democrat Andy Jackson.
anyone to pay, regardless of their income or wealth, but whenever we hear complaining about how much we are taxed, and how we can’t afford another nickle, people must be reminded what rates were and how much they have been cut over the years.
The top marginal tax rate was 90% all through the 1950s, and the wealthy somehow managed to survive. The top rate did not go down as low as 70% until the Kennedy Administration, and stayed there until Reagan initiated government Of, By, and For the Wealthy.
Please remember that even the extremely wealthy are not paying the top rate on all of their income. The first amounts they earn are taxed at lower rates. Those rates increase as their earnings reach higher threshholds.
Happened in two phases. The second phase, in 1986, dramatically reduced rates and the number of tax brackets (as well as eliminating many deductions/loopholes to make it revenue neutral). Rates and brackets expanded in 1993 to where they are today, more or less (after rates were nudged down for a while during Bush II), but the 1986 act was the transformative legislation.
The 1986 tax bill was sponsored by democrats (Gephardt and Bradley) and passed in an overwhelmingly bipartisan fashion. The entire Massachusetts congressional delegation voted for it. Dick Cheney voted against it. I don’t think it was viewed as a giveaway to the rich at the time.
Calling any number too much or too little is making the mistake of clinging to an ideology rather than logic and reason.
I don’t know about 90%, but America had decades of prosperity for the middle class with a 70% top marginal income tax rate.
However, income is a small part of the pie for this elite group. Much more significant is the capital gains tax, and even more than that is the gift/estate tax.
When the rate was 90%, people didn’t even consider earning more than the cap – which was about $2m to $3m per year. When the rate was lowered to 70%, with a lower ceiling (dropped from $3m to $1.5m in inflation-adjusted dollars), that put some blood in the water. The dollar value was closer to where they were sitting, and the rate wasn’t obviously confiscatory.
The big problem that set the Reagan revolution into motion was the fact that the dollar values were never adjusted for inflation. What started at $1.5m slowly dropped down to $1m in 1973, and then $770k in 1977, and then down to $544k in 1981. The other brackets weren’t very kind either – in 1981, any dollars over $151k were taxed at 54%, and anything over $216k was taxed at 59%. Those are household incomes and inflation-adjusted dollard, by the way. It’s obvious that in 1981, taxes were too high for the average person.
Look back at the 1963 rates (I’ll abridge the brackets a bit). $3m was taxed at 91%. $660k was taxed at 72%. $480k was taxed at $65%. $300k was taxed at 56%. $150k was taxed at 38%. $120k was taxed at 34%. $60k was taxed at 26%. $30k was taxed at 22%. All in inflation-adjusted dollars.
The message there is that if you’re sitting at a $150k salary, you’re paying a reasonable tax rate, and if you work really hard and double your salary, yes, you’re going to pay more taxes, but at 56% it’s probably worth it. But it’s not worth it to become mercenary and try and earn $1m per year because now you’re in the 81% bracket.
During this period capital gains were taxed at 25%. Well below the salary cap. However corporate taxes were steeper – in nominal dollars (not inflation-adjusted), the rate was 52% for profits over $25k. That means that dividends were a bit more scarce.
Finally, don’t forget about the estate tax, which meant that rich people couldn’t leave a fortune to their kids. They had to give them the finest education money could buy, but then set them free. No empire transfers.
I know we can’t go back to the 1963 rates since the world is a different place, but they should be a starting point for the discussion, and we should strive to use the tax code to shape the distribution of income in this country.
If you debate the 90% tax rate in the frame of debt elimination, you will never win. Laffer’s premise should be obvious there, you’re not going to collect many dollars at the 90% threshold.
The key to understanding what happened is that when the 90% rate went away, that made people behave differently. They got greedier. They chased every dollar a lot harder. They became more mercenary via things like efficiency. When you had a choice to pay 90 cents to Uncle Sam or to hire your wife’s nephew’s cousin to push a broom all day, the broom-pushing is a more attractive option for you. When you figure out that you can make $1m more per year by shifting your production facility to Mexico and you get to keep $600k of that $1m versus $100k, that option looks better than employing all those Americans.
When you can buy a piece of equipment to replace people and the payback is favorable they will do it.
When the need is for low-skills, and the choice is an American worker replete with high benefit costs, or someone abroad who costs very little and you just have to deal with overseas production and then shipping (if it’s a good), then they’ll go that route.
Not sure changing the tax rates would adjust that calculus.
Changing the tax rate the way I described basically puts a cap on the amount of money someone can earn. In other words, you can rearrange the deck chairs all you want, but your earnings are capped.
That means you will have to focus your energy in different ways. Instead of trying to manage things so that you cash out in 5 years, maybe you’ll start focusing on the actual goal of your corporation? Like if you’re a drug manufacturer, maybe instead of trying to solve the problem of “what drug is going to make the most money”, you’ll solve the problem of “what drug is going to help people the most”?
Because really, does someone need to earn over a billion dollars per year? Yes, we may fantasize about having that much wealth, but it is a sum that is incomprehensible, so large that you couldn’t even spend it on yourself. You could spend $10m per year for the rest of your life and still have most of that money left over. Yet there are people who earn that in a single year, and there are many more who control that much wealth. Why?
But business work the numbers and then proceed forward.
Let’s say a CEO makes $5M to run a company that makes $1B in revenue and $100M in profits. How does raising his personal tax rate change what decisions he makes to keep those numbers? If costs increase in the US so that profits are now only $95M, and moving one plant to Mexico keeps them at $100M he’ll do it.
Using 1963 rates, first, the CEO isn’t going to make $5m. He’s going to take a salary closer to maybe $1m. He’s may not even want to make more than $1m because no one is making more than that, there is no peer envy.
The company makes $100m in profits, so they have a 52% tax rate on those, and they don’t want to pay that, so instead of taking $100m in profits and distributing them to their shareholders, they plow $80m of those profits back into the company, maybe by creating a R&D division, or maybe even by building a sparkling new headquarters (and thus employing a lot of construction workers). They take the $20m in profit, pay $10m to Uncle Sam, and they pay the other $10m to their shareholders in the form of dividends or stock buybacks. In general, the pool of passive income will not rise as much as active income because there are too many opportunities for the money to be sent to the government in the form of taxes.
George Romney released 12 years of tax returns in 1967 when he ran for president. From 1955 to 1966, he made $3 million ($23m today), and gave $561,000 to the Mormon Church ($4.4m today). His income was $661,427 when he was the president of AMC in 1960 ($5.2m today). It said he “became a millionaire on stock options” when AMC introduced its compact car, and that he “refused to let the AMC board raise his pay to the going scale for the blue-chip chiefs, and never above the $200,000 line ($1.5m today). Any time his total salary and bonus ran to unseemly heights, or, if on the other hand, the company needed to hold down costs, he turned the cash back to the till”.
The article said he “paid $1,099,555 in taxes on an income of $2,972,823”. That is an effective rate of 36.9%.
Presumably Romney was taxed at the 89% bracket on his $200,000th dollar, and he made most of his money in 1960 by selling the stock of AMC at which he would have been taxed around 25%. The full data was apparently published in Look Magazine in late November/Early December 1967, but I don’t have access to that.
AMC was focused on building the best cars out there, and was not even thinking about making those cars in another country or obsessing on how to cut every possible cost. Yes, the car manufacturers struggled with labor, but they were also paying wages that allowed a single earner to support a middle class family, and were paying them to workers who did not even complete high school.
and that is a different subject. You suggested that changing the rates on the CEO would influence their corporations behavior. I still don’t think so.
You need to look at the proxies (Def 14A in SEC filings) to get a better grip on CEO pay. I was conservative. There are CEO’s at smaller companies than I described making $5M.
I think you’ve reinforced my point about effective rates.
Not sure what point you’re making with Romney’s salary in the 60’s. The US car industry was almost entirely American and wages were controlled by a UAW contract industry wide. The ratio of CEO to worker pay took off about 1980.
Also note AMC made the shittiest US cars, ending (along with the company) with the Pacer and Gremlin in the early 70’s. The only thing they really had was Jeep, and most of it’s success was after Chrysler bought them.
Well, in fairness, I did reference the corporate taxes above. If we’re going to work the numbers, we really do need to focus on the capital gains rate and the corporate rate, since if you leave those low, executives and owners will just shift their compensation to those categories.
The other complicating factor, unfortunately, is that global corporations are very adept at shifting their profits elsewhere or otherwise obscuring them. That makes it hard to bring back a 52% corporate rate. That makes me wonder if we should just eliminate the corporate tax rate completely and tax dividends and capital gains as regular income. I don’t know enough about how that would affect things, though – I suspect that companies would just use their non-taxed profits to purchase back shares or do something even less above board, such as loaning their executives/owners money interest-free. I think there is probably some work needed on differentiating between a “global” corporation and a “national” corporation, perhaps giving national corporations more rights/benefits than global corporations.
Regarding Romney’s salary, I was pointing out that he took a relatively low salary compared to CEOs today, and that was when AMC was doing really well. He made his money by cashing in options. I think that he was a trailblazer in this area – now, that is how all the CEOs get their fat compensation packages, they are mostly stock options – and this makes the executives focus on things that boost the share prices – like laying off thousands of workers even when you’re profitable.
AMC closed up in the late-80s, not the early 70s.
In the 1950s the top CEO eaned $400,000 or about $3-4 million today. The ratio between worker and owner was 20-1, which is far more palatable than the obscenities in CEO pay today. He lived a far more spartan life than his contemporaries today (some of whom are now women, but not enough). A 90% tax rate at the top brackets would serve as a significant disincentive to lowering CEO pay and restoring the balance in that ratio, coupled with tax incentives to corporations to pay living wages and the existing law mandating health insurance benefits and we can start to make inroads into reducing income inequality.
Relatively little of today’s obscene CEO compensation is received as W2 income taxable even at today’s top bracket, never mind 90% or 70%.
We need to dramatically increase the capital gains tax rate (above an inflation-adjusted threshold in order to target the very wealthy) and the gift/estate tax rate (again, above an inflation-adjusted threshold).
The article points to a Clinton era law as a big part of the problem.
Talk about unintended consequences…
Michael Eisner was making big money ($40M see link) in 1989 and was up to $200M in 1997. I think the process got underway in the 80’s.
http://articles.latimes.com/1989-04-21/business/fi-2256_1_eisner-has-top-salary-rjr-nabisco-stock-options
that’s how Silicon Valley execs make their money, and they tilt heavily towards the Democrats. Republicans are happy to go along.
Remember when your parents got taxed on capital gains on their house? No one liked that so they changed the tax code and I don’t think anyone pays it now.
1. I agree with you about Silicon Valley execs. This is an example where the interests of the 1% trump “petty” distinctions between “Democratic” and “Republican”.
2. Please note my proviso regarding an increased capital gains rate (“above an inflation-adjusted threshold in order to target the very wealthy”). The 99% should not be forced to pay capital gains on their principal residence. The 1% should be forced to pay a significantly increased capital gains tax rate on their multi-million dollar stock compensation packages. The same is true for the gift/estate tax. I’m proposing to levy a significantly increased gift/estate tax on generational transfers that exceed something like $5M or $10M in non-home net worth. The point, in my view, is to tax gifts like Mitt Romney made to his son (tax free!), as opposed to mom and dad passing along the family home to their sons and daughters.
I’m only suggesting that when you start going after a big enough pool (the $250K to $500K crowd) to make a difference, you get resistance. Upper middle income Americans in general aren’t about taxing the rich because they figure they’re next. I got whacked with the Alternative Minimum Tax this year (extra $2500 on top what I already owed) and that was never intended to reach down to my income levels.
By all means take more from the rich and super rich. It’s just not a big enough bucket to make a dent in the deficit, let alone fund infrastructure improvements or increase other spending.
It also doesn’t solve the problem of companies spending on stock buy backs instead of investing.
When you say the “rich and super rich” don’t provide a “big enough bucket”, I fear you (1) refer to income, rather than wealth, and (2) assume a normal, rather than scale-free, distribution of wealth. Multiple sources have demonstrated, in the last decade, that wealth distribution is scale-free — it is linear on a log-log scale. That means that it is a straight line on a scale where each horizontal and vertical division is a power of ten. This is dramatically different from a normal distribution.
According to this wikipedia article and the sources cited by it, in 2010 the top 1% of the US wealth distribution controlled 35.4% of the nation’s wealth. THIRTY FIVE PERCENT. This source (the first I found on google that reports an actual number) says (emphasis mine):
That means, I think, that the 2013 total household wealth in the US was $9.8 trillion/0.14 — $70 trillion.
The source I cited above says that the top 1% control 35.4% of that … a breath-taking $24.78 trillion.
That’s nearly TWENTY FIVE TRILLION dollars.
I grant you that there may be some noise in these numbers. Maybe it’s 25%, maybe it’s 45%. Maybe the total is $60 T, maybe its $90 T. It doesn’t matter — the pool is HUGE.
A pool of $25 trillion is certainly large enough to be interesting in the context of this discussion. Finding a way to increase taxes on that wealth (held by the 1%) by just 1% generates $248 billion.
There most certainly is a way to make a huge dent in our deficit and in our consumer economy. By taxing an additional 2% of the net household wealth held by the top 1%, we can erase our federal deficit ($474 B) and allow our strangling consumer economy to breath again.
I just don’t see proposing changing the entire way we think of taxation gets us anywhere any time soon. Here’s a quicker plan. Nationalize a number of companies, maybe starting with Apple. All shareholders are wiped out. Immediately reissue the shares and sell them on the open market. Pocket the proceeds. Apple alone gets you close to a trillion.
I’m disappointed that we can’t seem to have a reasonable discussion about this.
You wrote “By all means take more from the rich and super rich. It’s just not a big enough bucket to make a dent in the deficit, let alone fund infrastructure improvements or increase other spending.”
You put the question of the bucket size of the “rich and super rich” on the table. I’m disappointed that you get so apparently prickly when I present some actual data about the size of that bucket.
We already have a gift/estate tax. It’s been around for a very long time.
It seems to me that it doesn’t require “changing the entire way we think of taxation”. It, instead, requires increasing the marginal rate on estates in excess of some reasonably large number.
Is even a 2% hike in that top marginal rate so drastic that we can’t even discuss it?
Income
Dividends
Capital gains
We happen to count death as one of these.
Real estate taxes are sort of a hybrid and even in some states (like CA) appreciation is not factored into taxes until sale.
We’ve never just taken wealth that is sitting around. I don’t see how discussing that sort of solution makes for good debate.
It would solve the problem that you have highlighted. He is right that the bucket is there, and big. Unfortunately, you are right that a national excise tax is pie in the sky.
Let me attempt to clarify my perspective. I don’t propose to tax wealth that is sitting around.
We agree that we count death as an economic transaction for tax purposes. Our government examines and taxes gifts because so many of those subject to the estate tax historically use variations on gifts to avoid the estate tax.
I propose to increase the effective gift/estate tax above some threshold (non-home wealth greater than $5M, for example). We’ve discussed, on this thread, the social aspects of taxing generational wealth transfers. The desire to avoid creating an English-style “landed gentry” class is as old — and American — as America itself.
If the gift/estate tax rate on non-home wealth above $5M were raised to 70-90%, I suggest that this issue would be solved. Enough people die each year, or make gifts as part of their estate planning, that the needed 2% of that very large bucket could be collected annually.
I know that your $5m/$10m threshold is probably to cover things like “the family business”, but take a step back for a minute, why should “the family business” be something that can be passed down to the next generation? Or why should someone be able to leave $5m/$10m to their kids tax-free? Or even a really nice house? Those are pretty big sums of money, and are the antithesis of the supposed “meritocracy” that we want to live in.
I guess if you don’t carve out that exemption there can be a really good emotional argument made to eliminate the estate tax altogether, but remember, the exclusion was just $675,000 prior to 2001, and this wasn’t a national crisis – plus the rate was 55%. So if you inherited a business that was valued at $5m, then yes, you have to either take out a loan (against said business) to pay the taxes (just as someone starting a company would have to take out a loan), or you’d have to sell the business. Cry me a river, you just got $5m for having hit the genetic lottery.
I’m not so interested in being able to pass down the family business for the reasons you describe.
I bought my first house in Massachusetts in 1969, and paid $43,500. That same property today (in Billerica), according to Zillow (which is generally low) is worth $476,000. That property is not, by any means, an extravagant home. In my view, most parents with young children should be able to buy a home today with a reasonable expectation that should they choose to stay there permanently, their children will not have to pay estate taxes on the property when the parents pass on. At least in MA, today’s threshold should be closer to $5M than $1M — neighborhoods that have been “middle class” and “working class” for generations are filled with $1M+ homes today.
I think that most children should not be forced to sell the property they grew up in order to pay the estate taxes on it when their parents die.
n/m
Well, I hear what you’re saying, but I’m not really sure I agree, and in any regards, I think your threshold is too high.
The reason I don’t think I agree is that the estate tax is supposed to, at the very least, tamper the generational transfer of wealth. I know that in Eastern MA, a $500k house is not extravagant. Let’s pretend the exclusion was below that – it would be a bad situation if a person, living with his/her mother, was suddenly forced to sell that house because the mother died and they couldn’t afford the taxes. How real is that situation though? The child could get a mortgage on the house and pay for it like everyone else has to do. Maybe they can’t afford it the mortgage,
So if you want to fix that kind of situation, then you can tailor an exclusion. Primary residence, exceptions for the income of the children, something along those lines. What’s that? Now we’re also worried about the family vacation home on the Cape too? Now I’m starting to feel less sympathy.
Think about how much house a $5m exclusion would buy. We’re talking about an exceptional house on Martha’s Vineyard. Even a $1m exclusion would be high in Massachusetts, in fact, even a $650k exclusion would be high because remember, the tax applies only on amounts over the threshold. So if your $750k house is passed down to your heirs, they would have to come up with tax on $100k. Even at the old 55% rate, that is $55k. So you get a $750k house *almost* free and clear – you need to take out a $55k mortgage. Or maybe you sell some of the stocks that you also got (with a stepped-up basis, no less).
The bottom line is that I know that people like the idea of inheritances, but when we’re talking about millions of dollars, that is a huge generational transfer of wealth, and it does a few things; first, it encourages hoarding of wealth simply to transfer to your heirs; second, it cements the wealth of families that are already wealthy. Third, it encourages retirement programs that are less social in nature, more stock-based. Think about how everyone is accumulating 401ks right now. Everyone hates pensions and social security because you can’t pass the money to your heirs. But you can with a 401k, so keep shoveling money into it, build it higher than it needs to be (because no one really knows how much they need), and there’s no downside – if you die early, transfer a few million to your kids.
It all just seems like a very un-progressive way to do things. I realize that the popular reality is that most people inherently dislike the idea of having *their* children’s inheritance taxed, but I think that there still need to be some practical limits to stop generational fortunes from accumulating. A little boost is fine, but people shouldn’t be able to transfer lifestyles.
I’m not stuck on the dollar amount or even terms of the threshold.
When I examine wealth distribution statistics, I’m struck by just how large the largest fortunes are. Laszlo Barabasi demonstrated that wealth distribution is a “scale-free” distribution on a log-log scale. That means, among other things, that if there are 1,000 individuals with a net worth of, say $1 M, then there are 100 individuals with a net worth of $10 M, ten individuals with a net worth of $100M, and one individual with a net worth of $1 B.
We know from sources like this that there are on the order of 500 billionaires in the US, 8 in Massachusetts.
Sources like this suggest that there more than 10M households in the US whose net worth is in excess of $1 M, and about 1.24 M households with a household net worth in excess of $5M. According to other sites like this, there about 123 M households in the US. I observe that, taken together, these sources support the scale-free model described by Mr. Barabasi.
Thus, the $5 M threshold seems about right for the top 1%. Of course, those figures include the value of the principle residence. It’s harder to get data on the non-household wealth distribution.
I’m most concerned about the way that the concentration of wealth in the top 1% of this scale-free distribution sucks wealth from the fat tail of those whose net worth is, for example, less than $100,000 — the 90%, or the 99% of the rest of us.
I’m not sure I share your aversion to transferring a lifestyle. Sadly, the lifestyle most commonly transferred is abject poverty or something very close to it. I’m deeply averse to the ability to transfer something akin to the “landed gentry” class model of Europe, and the UK in particular.
My bottom line is that I think we should be taxing the top 1% of generational transfers SIGNIFICANTLY more than we do now, in my view at something approaching confiscatory levels (70%? 90%?) for the portion of wealth above the threshold we are discussing. I’m very receptive to the variations you offer.
That, if the figure is so low that it hits a family’s 3-bedroom split-level ranch sitting on 1800 square feet of land, or a family bakery business, the entire idea is politically dead.
The entire political problem with these ideas is that they start out talking about the 1% as the “rich” and then very rapidly spin into “why is that limit so high” such that the 1% is quickly re-defined to be 40%– and those 40% just happen to be 90% of the people who actually vote. In the end, the proposal, even if it can gain some little bit of traction at first, quickly flames out.
I think it’s unlikely that we’ll ever reach a state where an individual with non-home inflation-adjusted net worth in excess of $5 million is not wealthy.
Since the progeny pay the estate tax, then even if the marginal tax rate is 90%, the progeny are still receiving the first $5 M with no change, and additional $100K for each $1M over $5 M.
Nobody is going to be driven to a life of squalor by these tax rates. No children or grandchildren will be denied access to the college of their choice. The progeny of a wealthy dowager who dies with a $500M estate (based on the data upthread, probably about 12,000 of them nationwide in 2015) will receive $54.5 M ($5 M + 0.10 * $495 M) after the estate taxes contemplated above.
I suspect that a factor in the process you describe is that the men and women of all political persuasions who make these tax policies are generally in or beholden to the top 1% that we’re discussing. The media that communicates these ideas is owned by that same top 1%. There is a very strong vested self-interest in insuring that actually taxing actual non-home wealth of the top 1% by wealth is seldom even discussed, never mind put into practice.
One of the great lies of the current “austerity” debate, from both Democratic and Republican parties alike, is that our “economic malaise” and our “national deficit problem” requires “shared sacrifice”.
Horse manure. It instead requires that those at the very very top who created the issue by plundering the economy give back, upon their death, the booty they have acquired during their life.
It is the estate which pays the federal estate tax, not the progeny (or inheritors). Inheritors pay an inheritance tax to the state, if the state has such a tax.
n/m
The national debt is held almost entirely by the very wealthy, in one form or another.
Paying off the national debt, especially by “austerity” narratives in government policy, is effectively taxing the 99% (through reduced government goods and services) in order to transfer even more of their wealth to the top 1% who hold the national debt.
A different strategy is to, for example, allow a moderate increase in inflation, coupled with intentional, explicit, and broad-based inflation adjustments for wages of the 99%, tax thresholds, and so on.
Moderate inflation benefits debtors at the expense of debt holders. That’s one very good reason why our government has so vigorously kept inflation as low as possible.
Though his biggest enemy in his campaign will be the clueless media. Jumping all over that ‘radical socialist’ for a 90% rate that was proudly and loudly supported by Republican Eisenhower in the 1950s, and was even supported by many business owners.
Tax rates per the IRS tables are not the effective tax rates.
When the rates we higher there were numerous shelters/loopholes for those at the top to take advantage of.
Today’s tax code, while still complex in places, is much simpler than pre-1986.
That just blows me away. Doing taxes without computers — to acquire the forms, to do the calculations, to cross check, to refer to last year’s results, etc etc etc.
That they were more complex in 1986 just seems insane.
The current system is bad for the economy. IBM is a slowly dying and most people don’t even notice because of this.
Almost all companies buy back stock. If they are not generating the cash, they borrow it at absurdly low rates. Some do both. Buy back stocks with cash and borrow even more money. BTW this is how company mask the effects of stock options- they buy back stock equivalent to options exercised, keeping the overall share count the same.
In the 1980’s people complained about CEO’s making money when their companies were doing poorly. Stock-based compensation became the norm, just in time for a stock market boom. Naturally CEO salaries took off. Not sure what the answer is there. Sometimes it’s not the CEO that makes a difference, it’s just a booming economy. Note that that’s everywhere- bonuses, commissions, etc. sometimes go to people in the right place at the right time.
In this example, Chambers took a small company and made it a big one. Should he be rewarded? How much? Who’s supposed to make the money when a company booms? Just the stockholders? The employees?
The bigger issue in my opinion has been after the stock market crash of 2001. After that point low interest rates have produced numerous distortions in the markets, and the stock buyback is one of them. One of the cures would be higher rates, but of course that’s not popular, and would have to be much much higher to stop buybacks altogether.
Another would be to present better opportunities for companies to invest that money in creating new operations. It appears right now that most companies don’t see the wisdom in that. Another post perhaps.
Apparently individuals have little influence on stocks (half own no stocks?) but there are some very large left-leaning organizations which own quite a bit. CalPERS (Calif pension system) owns quite a bit of stock and through their ownership they should have a bit of influence when it comes to voting for the companies board of directors. The board of directors sets executive compensation and buy back strategies. I assume they are left leaning because they represent unionized state employees. These unions should be looking long term right?
Fidelity, which when you combine all the mutual funds owns big chunks of many companies, has been criticized for this.
People get really loose with the equivalences when they talk about stock ownership. Yes, there is a lot of institutional ownership of stocks, and yes, things like pension funds own a lot of stocks, but the percentage of stocks that the pension funds own is not at the same scale as the percentage of stocks that the wealthy own.
The quote says “But most stock is owned by the nation’s wealthiest 10 percent; about half of Americans don’t own a single share, directly or indirectly”, and indirectly means that they do not own a mutual fund or participate in a pension plan that has stock ownership.
If the stock market crashed tomorrow it would directly hurt a lot of people, but it not directly hurt 50% of the population. That means pursuing an economy which focuses on the stock market is leaving behind 50% of the nation, and is very likely only marginally improving the fortunes of the majority of the remaining 50% while incredibly improving the fortunes of the top 10%.
A quick search of the internet said 70% of stock ownership is held by institutions. Now the top 10% may also own quite a bit of that 70% held by institutions, but it seems to me a concerted effort by left leaning groups could create pressure on corporations and organizations to become better stewards of long term growth to help this country. The pressure on corporations from various groups, including more aware stock owners helped to change attitudes about apartheid.
What percent of stocks are really controlled by the 10% or even the 1%? When the stock market crashes it hurts way more than just the ones who own stocks, we saw that in the last few recessions.
Another quick search shows an article by Salon that states:
* The richest 20% of Americans own 91.6% of the stock.
* The richest 10% of Americans own 81% of the stock.
* The richest 5% of households owned 70% of all stock.
* The richest 1% of all Americans own 35% of the stock.
* 47% of Americans own some stock, either directly or via pension funds, however…
* Only 20% of Americans have a stock portfolio valued at more than $25k, and only 33% have a portfolio valued at more than $5k.
* Half of all stock is owned by people who earn more than $250k/year, and 75% is owned by people who earn more than $100k per year.
Though this must include stocks owned via mutual funds.
Company I worked for (1500+ employees) had 401k’s. New employees are automatically enrolled. Great choice of plans.
We need to encourage participation and since contributions come off the top before taxes people’s take home pay is the same if they are in a 401k, Roth or not.
At the same time funds could be created which adhere to guidelines for long term economic growth in the US. They would invest in responsible companies. There currently are funds which invest in only envirmentally friendly “green” companies. The same could be done for any cause. Then get pension funds, Harvard’s endowment, etc to move money into these funds and you can be sure Wall St. will notice.
there’s a hidden reason that the law was passed to have 401k as an “opt-out” vs. an “opt-in.” It’s so that executives can continue to contribute up to the maximum. Note that 401k is one of the major ways to avoid income taxes in the tax code. See details here. PS. This is not something I’ve read, but have been involved in. Everyone can talk a good line about encouraging employees to save (and it’s true) but there’s little advantage to the company to have more people in the plan.
http://www.401khelpcenter.com/mpower/feature_030702.html#.VW8YiNJVhBc
Few people know that the “K” in 401 K stood for Kodak and was never designed as a retirement tool for the masses.
http://www.bloomberg.com/news/articles/2014-02-03/you-can-thank-or-blame-richard-stanger-for-writing-401-k-
It is the best tool available to the average blue collar worker to help save for retirement. However it may have been designed and for whoever, it has helped for many years to provide for long term investment for the very people this group is concerned about. In my 38 years working I knew hundreds who used this tool and for guys who never made more than $50,000 to retire with 100,000+ plus was a big deal. My company routinely encouraged and explained the program not because they would get any advantage but out of genuine concern for their workers.
More like a raw deal. $100k in retirement last you maybe 2 years. Then you have social security which, annualized, will come to around $25k per year if you used to earn $50k.
Compare that to the pensioners of old and it’s not even close.
1). Management buys into 401(k) programs for their workers because they can’t have it for themselves unless they do — that’s the way the law was written. If it had not been written that way, you can bet that 401(k)s would be a management perk, and others would be shut out.
2). The sector that has benefited the most from 401(k)s replacing traditional retirement programs is not blue-collar workers, it’s Wall Street.
…but I just wanted to say that I’m impressed by the solid discussion on this thread among BMGers who are generally on different points of the political spectrum.
All property except that needed by individuals for survival is the Property of the Publick, who, by their Laws, have created it, and who may therefore by other Laws dispose of it, whenever the Welfare of the Publick shall demand such Disposition.
And Tea Party loons would call Ben a commie socialist for saying it.
This is great example of the dramatic shifts in cultural norms that happen over time, and therefore the dangers of assuming current norms when interpreting historical documents or their authors.
It is particularly pernicious when attempting to understand ancient documents, such as early philosophy and “the classics”. Attempts to assert the literal inerrancy of the Bible are acutely vulnerable to this.