Re: [MLUG - DISCUSSION] Despite Tough Times, Ultrarich Keep Spending

[Mike Miller <EMAIL:PROTECTED>]

Holy crap, that's a long message, but it has a lot of reasonable ideas in 
it so I should try to respond to all of it.  I'll at least get to some of 
it now...

On Tue, 15 Apr 2008, Jack Smith wrote:

> On Tue, 2008-04-15 at 17:33 -0500, Mike Miller wrote:
>
> > The people profiting the most by feeding at the government trough are 
> > not the poor.  They are the large corporations that squeeze massive 
> > contracts out of the government and give back very little in return. 
> > Bechtel, Halliburton and subsidiaries are best known but there are many 
> > others.
>
> It's not Halliburton's fault, Bechtel's fault, or the fault of any other 
> defense contractor that you despise if government is leaving a bunch on 
> the table and negotaiting sweetheart terms. It's the government's fault 
> and they can and should be trying to get the most out of their money, 
> just like any other person entity that negotiates a deal.

There are very sick and deranged interactions of these companies with teh 
government.  People move back and forth between jobs at the companies and 
jobs at the government.  I'm not sure why you think they are OK.  What is 
motivating you?  Is it a conservative political ideology or are you just 
unaware of the facts?  These companies pose a massive threat to our 
security because they profit from wars.

Why did Bechtel



> > Regarding tax rates:  Rich people have always paid more taxes than they 
> > are paying now.  What was wrong with that?  We were doing fine.  The 
> > economy has done better when they pay more tax.
>
> No, they have not, and in many times they have paid far, far less. I'll 
> run you through the federal tax history:

OK, so starting in 1917 they paid more until 1925 when their tax burden 
was shifted downward and we plummetted into the deepest depression in the 
history of our country.  The rate increased again in 1932 and stayed high 
during a lengthy period of economic growth until the Reagan cuts in 1982 
and 1987.  Those cuts led to an astronomically rapid increase in the 
national debt.  So the tax rate at the highest incomes is now the lowest 
it has been since 1932 with the exception of 1988-1991.  But my point 
really is this:  We had many decades where the rate was above 80% 
(1940-1963, continuously) or above 70% (1936-1981, continuously) or above 
50% (1932-1986, continuously), and it is therefore not a cruel or perverse 
idea that the rate should be higher than the current 35%.  In fact, don't 
we usually look back on the post-war years and the 1950s as a period of 
massive economic expansion for our country?  The rate was 91%-92% from 
1951 to 1963.  Isn't the increasing national debt a concern?  Look at this 
graph:

http://taxa.epi.umn.edu/~mbmiller/national_debt.png

The low tax rate (coupled with high spending, of course) is plunging us 
into a very deep debt.  Also note that the drop in rates in 1925 was 
followed by a massive depression which was treated by increasing the rates 
and using the money to fund public works programs.


> Year   		| Bottom/top marginal rates (* = top lower than present)
> ----------------|------------------
> 1776-1860	| No income tax levied*
> 1861-72		| 3% (single rate) on income >$800*
> 1873-93		| No income tax levied*
> 1894		| 2% (single rate) on income >$4k, rescinded.*
> 1895-1912	| No income tax levied*
> 1913-15		| 1%/7%*
> 1916		| 2%/15%
> 1917		| 2%/67%
> 1918		| 6%/73%
> 1919-20		| 4%/73%
> 1922		| 4%/56%
> 1923		| 3%/56%
> 1924		| 1.5%/46%
> 1925-28		| 1.5%/25%*
> 1929		| 0.375%/24%*
> 1930-31		| 1.125%/25%*
> 1932-35		| 4%/63%
> 1936-39		| 4%/79%
> 1940		| 4.4%/81.1%
> 1941		| 10%/81%
> 1942-43		| 19%/88%
> 1944-45		| 23%/94% (highest marginal tax rates ever)
> 1946-47		| 19%/86.45%
> 1948-49		| 16.6%/82.13%
> 1950		| 17.4%/84.36%
> 1951		| 20.4%/91%
> 1952-53		| 22.2%/92%
> 1954-63		| 20%/91%
> 1964		| 16%/77%
> 1965-67		| 14%/70%
> 1968		| 14%/75.25%
> 1969		| 14%/77%
> 1970		| 14%/71.75%
> 1971-81		| 14%/70%
> 1982-86		| 12%/50%
> 1987		| 11%/38.5%
> 1988-90		| 15%/33%*
> 1991		| 15%/31%*
> 1993-2000	| 15%/39.6%
> 2001		| 15%/39.1%
> 2002		| 10%/38.6%
> 2003-2007	| 10%/35%
>
>
> Sources:
> http://www2.census.gov/prod2/statcomp/documents/CT1970p2-01.pdf, IRS.gov
> (1971-present)
>
> So, if my math is correct, there were 150 years that the top marginal 
> rate has been less than the current 35% and 81 that it's been above 35%. 
> So not only have people earning enough money to put them in the top tax 
> bracket paid less before, they have been paying lower taxes for many 
> more years than they have been paying higher taxes.

But nearly all of those years were in the 18th and 19th centuries, and the 
few years just before the Great Depression.  You were quite right to point 
this out though and I gratefully accept your correction and the historical 
tax data, which I am trusting to be accurate.


> > Another really funny idea is that if you tax rich people less, then 
> > they'll be motivated to make more money -- promised reward causes 
> > motivation.  Supposedly poor people are different and they are 
> > motivated to work by their poverty -- deprivation causes motivation. 
> > I think the rich and poor really work by the same principles and if we 
> > want to get more out of the rich, we should tax them at a higher rate. 
> > Maybe 90% tax on everything over $1 million will cause them to work 10 
> > times as hard!
>
> Promised reward does cause motivation and it does so in almost 
> everybody. But there is also the "low-hanging fruit principle" regarding 
> marginal cost and marginal benefit that is taught in Econ 101 at play. 
> An income tax of 90% on anything over $1M would result in a greatly 
> reduced incentive to put in any work or take any risk to earn more than 
> that a year as the marginal benefit is small.

It depends on how badly you want more money.  If I make a rate press a bar 
to get a meal, the rat will press the bar once to get a meal.  If I make 
the rat press the bar 10 times to get 1/100 of a meal, the rat will press 
the bar about 1000 times per meal.  Paying less can increase the amount of 
work you get in return.  If someone craves to make $1,000 per week and 
strongly values his free time, and I pay him $200 per hour, he might work 
5 hours and go home, but if I pay him $20 per hour, maybe he'll work for 
50 hours per week to get his $1,000.  Why not?

I think this is more psychology than economics and I do have a PhD in 
psychology though I was not doing motivation research.


> If you want to deal an absolutely crippling shot to the economy, put in 
> that high income tax.

But it has been done.  Your table shows the results -- high tax on the 
rich means high productivity and rapid economic growth.


> You'll see far fewer businesses start up as the risk of starting up a 
> business would be much harder to offset if the government is taking all 
> but 10% of returns over $1M. It doesn't take a very large business to 
> pull in a million dollars a year in revenue. Of course, you could 
> incorporate, but that brings on a whole new set of costs, such as 
> corporate income tax (35%) in addition to capital gains (15%) and SEC 
> compliance costs in addition to your personal income tax.

What does the historical record show us about your theory?


> > Imagine my disappointment if I were to make $2 million in one year and 
> > only take home a lousy $800,000.  I mean, what's the point of living if 
> > that's all I can make?
>
> That would all depend on the structure of the tax brackets. Did you pay 
> 35% effective taxes on the first million for $700,000 net and then 90% 
> on the next million, for $800,000 total? Or is it a uniform 60% rate 
> starting at $0 and going up or somewhere in between?

I was thinking 30% for the first million, then 90% for the second million.


> If it were the first situation, I'd work hard to earn that $1M a year 
> and then not work nearly as hard at growing my business or whatever to 
> earn past that. It would only be profitable to do so if I could spend 
> less than $100,000 in funds or effort to gross that second million as 
> I'd only get to keep $100,000 (of course, neglecting state income taxes 
> and such as well.)

That's because you are happy with the $700,000 annual takehome salary, but 
someone who wanted to take home $1 million would have to earn $4 million 
before taxes.


> You also have to look at the effect of such behavior. If it's not very 
> profitable to earn more than $1M/year, businesses won't be very apt to 
> expand and as such, there will be fewer jobs available. Investment in 
> anything that could pay more than $1M a year would dry up significantly 
> as the risk had better be darn small to justify only being able to keep 
> 10% of earnings over $1M/year. That results in fewer loans to people, 
> which means fewer people can buy houses and such. Is that really what 
> you want?

I think the only way to know what happens is to do it and watch.  This is 
why I don't find your arguments convincing.


> > There are two groups that deserves special treatment:  Black 
> > descendents of American slaves and Native Americans.  The former 
> > because of the way they were treated for the century following 
> > abolition, and the latter for the way they were cheated out of their 
> > land and homes in one lie after another.  The reason these historical 
> > problems should lead to special treatment is that it was the actions of 
> > our government that caused their problems.
>
> The proper way to have closure on an issue like this would be to have 
> the parties directly responsible for the actions make redress to the 
> parties directly impacted.

What is "direct impact"?  For example, if you are living in the desert 
because your father's lush farm was taken from him by the government 
merely because he was a Cherokee and this happened a month before you were 
born, is the impact of this loss on you an indirect impact or a direct 
impact?


> The problem is that anybody directly involved in slavery and the 
> treatment of the American Indians are long since dead.

But one of the parties involved was the US government or some state 
government.  Are you saying, for example, that if a president does some 
heinous thing, then leaves office, the next president should feel no 
obligation to compensate the damaged party because he wasn't the one who 
harmed them?  So the party is not a government but some person or group of 
people who are in office at a particular time?


> Slavery has been illegal for 143 years and the American Indian issues 
> were more or less ended before 1900. Somebody who is three or four or 
> more generations removed from the actual happenings had nothing to do 
> with what went on, either causing the problem or being hurt by it. So 
> there's really nothing substantive that can be done any more- everything 
> is symbolic.

You could find the descendents of the Indians who were thrown off of their 
land, find the descendents of the people who took their land, and give the 
land back to the Indians.  Wouldn't that be fair?  Sounds fair to me. 
Unfortunately, such pure fairness is almost unknown in this world. 
Usually if someone has the power to steal land from another person, he 
also has the power to keep it, and the power to persuade others that he is 
right to do so.


> Now as far as the people involved in the civil rights movement- some of 
> them are still alive and some things *are* being done (as should 
> happen.) In fact, there was a case in the news not very long ago of some 
> Klansmen that were finally put on trial for a church bombing in 1964. As 
> far as things that were not crimes are concerned, you cannot directly 
> punish people because ex post facto laws are illegal. I suppose you 
> could have things like an 80-year-old shopkeeper that didn't let blacks 
> into his store apologize to the 80-year-old black people they didn't let 
> into their stores. That obviously wouldn't be much, but it is something 
> and it involves people that were directly affected, so it is more than 
> the symbolic efforts re: slavery and American Indians.

I'm sure that a lot of that kind of apologizing has happened.  I'm more 
concerned about laws that were put in place intentionally to harm certain 
against groups of people.  Those laws were enforced and they were very 
damaging.  That's what people should be compensated for.


> > Anyway, I have no problem with affirmative action to correct for past 
> > wrongs.  If not affirmative action, what?  Nothing?  That would be even 
> > more wrong.
>
> The current policies with affirmative action and such are a non-symbolic 
> method that benefits people who never actually had to deal with the 
> original issue and punishes people who also never derived any benefit 
> from the original issue. In fact, discrimination like affirmitive action 
> hurts race relations as there is the whole "you only are here because 
> you're $NON_WHITE,_NON_ASIAN_RACE" bit. Two wrongs do not make a right, 
> they only leave race relations sore when they should be more healthy by 
> now.

That's a reasonable argument.  I see both sides on this issue.  I think 
another 20 years or so would be appropriate.  The amount of help these 
policies can give to black students is great compared to the supposed harm 
caused to white students.  In fact, if we simply increased college 
enrollment by 5% and made all 5% be black students, that would not be 
harming any white students because they'd still get in at the same rate. 
We might never really agree on the principles, but at some point I will 
concede that it is time to move and we'll be on the same side.


> > Their maltreatment was sanctioned by law.  That doesn't apply to the 
> > kinds of prejudice that have adversely affected Jewish, Irish, Italian, 
> > Hispanic and other groups.  One other group was badly treated under the 
> > law:  Japanese during WWII, but that seems to have been resolved now. 
> > There might be some others but they are smaller groups with lesser 
> > grievances.
>
> The reason the Japanese internment issue is a non-issue today is that 
> the government settled it when most everybody was still alive. The 
> directly wronged got compensation from the actual wrongdoers and that 
> largely served as closure.

The internment was in 1942 and the reparations came in 1990.  Apparently, 
money was given to the families of people who had been interned when those 
people had died.  That is the right approach, in my book:  Compensate the 
descendents.

Mike

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