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View Diary: Socialism — what it isn’t (117 comments)

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  •  I don't think that's a failure of (1+ / 0-)
    Recommended by:
    Sparhawk

    capitalism as much as it is the ebb and flow of changes to our economy.

    Right now, I think that the increasing difference in income is a result of the fact that we are becoming more of an information/education economy and less of a labor economy.  For the most part, if you have specialized knowledge or skill, you do well; unskilled labor is becoming far less valued and far less rewarded.  The good jobs that one could do, and earn a good living, without specialized training or advanced education (like manufacturing jobs) are being replaced by cheaper labor overseas (a result of the globalization, better transportation, etc.) or are being replaced by automation (a result of better technology). I think the gap between the earning capacity of those who are highly skilled and/or highly educated, and those who are not, is growing and will continue to grow, because that is where globalization and technology are leading us.

    The solution is not to replace capitalism.  That simply brings down the top end of the economic scale, stifles innovation, invention, and hard work, and "shrinks the pie." Rather than focus on bringing down the top end of the economic scale, the solution, it seems to me, is to focus on bringing up the bottom end of the economic scale:  do  more to provide everyone with the opportunity to get the skills necessary to improve their own lives.

    •  again with the "all or nothing" (5+ / 0-)

      Firstly, no one is calling for the "replacement" of capitalism, just for the restraint of its worst tendencies.

      Right now, I think that the increasing difference in income is a result of the fact that we are becoming more of an information/education economy and less of a labor economy.

      It has more to do with the gutting of labor's power beginning with Reagan, the free trade selling out of American labor, the cutting of the top marginal tax rate by two thirds, the steady weakening of the web of programs that support the poor (the goal being a workforce that is frightened and servile) and much else.

      For the most part, if you have specialized knowledge or skill, you do well; unskilled labor is becoming far less valued and far less rewarded.  The good jobs that one could do, and earn a good living, without specialized training or advanced education (like manufacturing jobs) are being replaced by cheaper labor overseas (a result of the globalization, better transportation, etc.) or are being replaced by automation (a result of better technology). I think the gap between the earning capacity of those who are highly skilled and/or highly educated, and those who are not, is growing and will continue to grow, because that is where globalization and technology are leading us.

      See above - and if you think those high-skill jobs can't be outsourced, think again - increasing, the better-paid jobs are being offshored too - computer programming and engineering, product design, the more grunt-work-for-lowly-associates kind of lawyer work, and so on.

      It is also worth mentioning that European countries have greater social mobility, higher tax rates, stronger labor, and far less poverty than the US.

      The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts. -Bertrand Russell

      by mftalbot on Thu Apr 04, 2013 at 02:35:35 PM PDT

      [ Parent ]

      •  You are wrong about (1+ / 0-)
        Recommended by:
        Sparhawk

        several things, but I'll start with the easiest to refute.  The "reducing of top marginal rates by 2/3" DIDN'T substantially reduce the taxes paid by the top 1%.  That's because those high marginal rates were coupled with so many exemptions and loopholes that nobody paid them on very much income.  

        The CBO, which began keeping track of such data in 1979, backs that up.  It tracks EFFECTIVE tax rates (which is much closer to what people actually pay in taxes).  Look at the SECOND chart here, which tracks effective individual federal income tax rates.  What the top 1% pay in federal income taxes does not track "top marginal rates" because what they pay is based on far more than just "top marginal rates."  The top 1% paid MORE under Clinton's top marginal rate of 39.6% than they did under the 70% pre-Reagan, largely because of the Tax Reform Act of 1986, which eliminated many of the deductions/exemptions/shelters available under those 70% rates.  

        After the fiscal cliff deal, the top 1% likely will be paying the highest EFFECTIVE tax rate since the CBO began keeping score in 1979. They are going back to the Clinton rates, but some deductions that were available back then are now being phased out at higher income levels. Federal income taxes are very progressive now -- compare the amount of income for the top households with the amount of income taxes that they pay.  The IRS keeps those statistics, and you can see that IRS data summarized here .  The top 1%, for example, has 17% of the income and pays 36% of the income taxes.  

        The top 1% did pay less under Bush than they had under Clinton.  But the fiscal cliff deal, along with the other tax measures passed since Obama took office, means that, beginning this year, the top 1% will be back to paying the highest EFFECTIVE rate they've paid since the CBO began keeping score.  

        •  You're right about effective rates... (4+ / 0-)

          ...but you need to consider the nature of the deductions with which top earners lower their effective tax rate.

          Deductions for things like mortgage interest on the 10,000 square foot Aspen vacation house, or for various kinds of rent-seeking behavior, ought to be limited; deductions for things like building a factory that employs American workers ought to be encouraged.

          Structure the economy so that gains are widely shared, and everyone is better off; structure the economy (as now) so that gains go to the top, and you get unsustainable booms financed by credit, followed (when everyone's credit cards are maxed) by periodic crashes where the brunt of the suffering is done by the those at the bottom.

          The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts. -Bertrand Russell

          by mftalbot on Thu Apr 04, 2013 at 03:28:21 PM PDT

          [ Parent ]

          •  You are looking at it incorrectly, in my view. (1+ / 0-)
            Recommended by:
            Sparhawk

            The question is this:  let's say you have a 55 year old CPA in a CPA firm making $200,000 married to a 55 year old architect making $200,000, living in Los Angeles, where the cost of living is pretty high.

            How many dollars should they pay to the federal government in federal income taxes?  

            Marginal rates, deductions, etc. are only a means to an end.  And deductions are a way to reduce the dollars you pay in a way that encourages some behavior that the federal government wants to encourage.  Deductions are what make the tax code such a mess and distort decision-making -- people make decisions based on tax consequences.  

            Right now, people at the upper end of earned income -- working professional couples --  often pay an EFFECTIVE federal income tax rate of 26% due to the Alternative Minimum Tax.  The couple above might pay, under the AMT, maybe $100,000 or more, in federal income taxes.  (You can see estimators at places like this.) That means from the first day they go to work in January, to the last day they work in December, 2 hours of every eight hour work day goes to pay federal income taxes -- not medicare, not social security, not state taxes.  Looking at that historical chart, do you think their effective federal income tax rates should be higher? Do you think someone should have to work more than 1/4 of their day to pay federal income taxes?  How many hours a day are you willing to work to pay federal income taxes?  

            In my view, you need to decide how much - how many dollars -- a household at various income levels should be paying in federal income taxes.  Then you write the tax code to reach that goal.

            •  Those "distortions" you mention... (2+ / 0-)
              Recommended by:
              84thProblem, DarthMeow504

              ...are a necessity, to encourage behavior that has as its object to lessen the (currently yawningly wide) chasm between rich and poor.

              You seem to think, like a lot of economic libertarians, that efficiency is the highest good. What I'm saying is that other factors (economic fairness, the destabilizing effects of wealth concentration at the top) ought to be considered too.

              If effective rates are your big thing, why not give the rich higher nominal rates, in order to direct the deductions toward making life better for their fellow citizens?

              The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts. -Bertrand Russell

              by mftalbot on Thu Apr 04, 2013 at 04:40:04 PM PDT

              [ Parent ]

              •  Actually, what I'd do (1+ / 0-)
                Recommended by:
                ozsea1

                perhaps is simplify the tax code dramatically so that marginal rates are much closer to effective rates.  You'd lower marginal rates, and eliminate deductions, so that the top 1% all pay around an effective rate of 25%, instead of on household making $500,000 paying an effective rate of 15%, and one household making $500,000 paying an effective rate of 30%.  

                You can have progressive stair-step rates -- exempt the first $50,000, then 5% up to $x, 10% on income from $x - $y, 20% on income from $y to $z, etc..  

                There are ways of figuring out what the effective rate would be at each income level -- and it would be far more accurate with fewer (or no) deductions/exemptions/shelters. You could structure it so you'd know how much, as a percentage of GDP, it would bring in, and keep that at around 18-19% of GDP.  You'd want to structure it so that each level of income is paying about the same percent of the overall tax burden as they are paying now, i.e., where the top 1% pays maybe 35-36% of the income taxes.  The difference is that it would be spread out more evenly among the 1%.  And their decision making -- especially those small businesses that file as individuals -- would not be distorted by tax policy.  I'd do something similar for the corporate tax rates.  The goal is for  businesses to make decisions based on what's best for business as opposed to what gets the best tax break.  

                I'd say perhaps because that's the direction I'd go.  I'd want to see the numbers before making a final decision.  

                •  asdf (3+ / 0-)
                  Recommended by:
                  84thProblem, DarthMeow504, unfangus

                  My premise is that it is a good thing for the government to do things that restrain capitalism's tendency to concentrate wealth at the top.

                  And their decision making -- especially those small businesses that file as individuals -- would not be distorted by tax policy.

                  That's one of those things that sounds great, but the net effect of making efficiency the highest good is that you eventually end up sacrificing justice on efficiency's altar.

                  I reject your apparent premise that introducing "distortions" into the economic system is always and everywhere bad.

                  Bringing things back to Ike's era: if high marginal tax rates are bad, why were the 1950s and 1960s remembered as a sort of golden age for American workers?

                  The unvarnished truth is this: your average American worker has been running in place for 30 years. During that time, productivity per worker has increased by over 40%, and those workers' pay has barely budged.

                  Almost 25 percent of American children are on food stamps. The combined number of un- and underemployment, even after four plus years of “recovery,” is still almost 16 percent. Half of all Americans struggle to feed themselves. People whose collars are blue and whose hands are callused are staring every day into a continuing economic abyss that is killing their friends and making their neighbors homeless.

                  The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts. -Bertrand Russell

                  by mftalbot on Thu Apr 04, 2013 at 05:23:00 PM PDT

                  [ Parent ]

            •  I agree that that is the best way to write a (0+ / 0-)

              progressive tax code, to use effective tax rates. But my point is, are you not conceding to the right their most basic premise - specifically that a progressive tax rate discourages motivation and innovation? We exist on a left/right continuum, we all agree on that, but if we moved left with a progressive effective tax rate that would bring all of our income levels to near parity, aren't you saying that our gross output would fall? That motivation would be lost? Isn't that their argument?

              •  Huh? (1+ / 0-)
                Recommended by:
                unfangus

                if we moved left with a progressive effective tax rate that would bring all of our income levels to near parity...

                No one's proposing that. In the 1950s, the top of the income scale still made way more than the bottom.

                The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts. -Bertrand Russell

                by mftalbot on Thu Apr 04, 2013 at 05:09:15 PM PDT

                [ Parent ]

              •  This is not a "yes or no" issue (1+ / 0-)
                Recommended by:
                Sparhawk
                specifically that a progressive tax rate discourages motivation and innovation
                Obviously, "a progressive tax code" does not discourage motivation and innovation if it's reasonable.  We have a very progressive federal income tax system, as demonstrated by the IRS data.  I've linked it in other comments, but as I said elsewhere, it's summarized here.  We can have a progressive tax code without dampening productivity.  

                It depends on what you mean by "a progressive tax code."  I do believe that if you get to a point where the tax burden is TOO high, people will stop producing.  Laffer is right on the extremes -- a 100% tax on incomes over $1 million will garner nothing, or very little, because then almost nobody will earn over $1 million.  No CEO would have his pay set over $1 million, no athlete would sign a contract for more than $1 million, no movie star would make more movies than it takes to garner $1 million a year.  

                That principle applies even more at lower levels, I think.  Say you have a doctor who works 2000 hours seeing patients, has 2 nurses, and makes $1 million a year.  Say you tell him, everything over $500,000 is taxed at 75%.  That means for the second 1000 hours, he takes home maybe 10% (after state taxes, Medicare taxes, etc.) of what he works for every day. At that point, that additional income is not going to make a difference in his life or in the life of his family.  So, he'd rather work 1000 hours, fire one nurse, make his $500,000, and take the 1000 hours off to spend with his family.

                I know that if someone capped -- or almost capped --  my income, I'd work as much I needed to to get to the cap, and then take the time to spend with my children and family rather than work a large number of hours for the small marginal increase in my take-home pay.  My life is a trade off of my time for money (I work by the hour).  At some point, based on a number of things including what I take home in pay for an hour's work, the time becomes more valuable to me than the money.

                So the simple fact that an income tax code is progressive does not discourage motivation, innovation, and hard work.  If it gets TOO onerous at some income level, it can do that.  The question is where to find the "sweet spot" -- high enough to raise the most revenue, without decreasing productivity, which decreases your tax revenue overall.  

                •  Here are some specific proposals (3+ / 0-)
                  Recommended by:
                  84thProblem, DarthMeow504, unfangus

                  Here are some proven, sensible liberal ideas.

                  1. Give workers a bigger voice in how profits are distributed. A great way to do that is by encouraging union membership. Let me put this bluntly: The government ought to do everything it can to encourage unionization across all economic sectors. A good start would be repealing the Taft-Hartley act, and passing the Employee Free Choice Act.

                  2. Use the tax system to discourage out-sized payouts for corporate executives and banksters. This will, all by itself, discourage the obscene paychecks the One Percenters currently award themselves, and would encourage them (through deductions) to do economically beneficial things with the money.

                  3. Re-regulate the financial sector. Restore and strengthen the Glass-Steagall Act. Break up the big banks to the point that the insolvency of one won’t threaten the economy. (While I’m at it: impose a retroactive tax of 100 percent on all non-salary compensation of every executive of every financial institution that received federal bailout money. It might not prevail in the ensuing litigation, but it would be amusing to watch them squirm.)

                  4. Raise the minimum wage to a living wage, and tie future increases to the rate of productivity growth. This will put subtle upward pressure from below on the wages of other workers.

                  The whole problem with the world is that fools and fanatics are always so certain of themselves, but wiser people so full of doubts. -Bertrand Russell

                  by mftalbot on Thu Apr 04, 2013 at 05:59:35 PM PDT

                  [ Parent ]

                •  How is this a bad thing? (1+ / 0-)
                  Recommended by:
                  DarthMeow504
                  That principle applies even more at lower levels, I think.  Say you have a doctor who works 2000 hours seeing patients, has 2 nurses, and makes $1 million a year.  Say you tell him, everything over $500,000 is taxed at 75%.  That means for the second 1000 hours, he takes home maybe 10% (after state taxes, Medicare taxes, etc.) of what he works for every day. At that point, that additional income is not going to make a difference in his life or in the life of his family.  So, he'd rather work 1000 hours, fire one nurse, make his $500,000, and take the 1000 hours off to spend with his family.
                  Presumably there is a demand for someone to do that second 1000 hours of work.  So a second doctor comes along, hires the newly unemployed nurse, does their 1000 hours of work and takes home half a million bucks.  At least one more person is employed and richly rewarded, there is more choice in the market and less concentration of wealth at the top.  Two wealthy families get to spend more time with their talented bread winner.

                  It's a win-win!

                  -7.38, -5.38 (that's a surprise)

                  Why must we struggle to protect the accomplishments of Democrats of the past from Democrats of the present? -- cal2010

                  by 84thProblem on Thu Apr 04, 2013 at 09:09:44 PM PDT

                  [ Parent ]

                  •  In the real world the prices rise (0+ / 0-)

                    In the short term if the demand is the same and the supply is reduced the prices rise and that would surely be the case in this example because there are no unemployed physicians who would step in to fill the supply side. Your point could certainly be the case in professions where there is an oversupply, like lawyers.

                    "let's talk about that"

                    by VClib on Sat Apr 06, 2013 at 06:38:51 AM PDT

                    [ Parent ]

              •  Not if it can still get them on top. (2+ / 0-)
                Recommended by:
                84thProblem, DarthMeow504

                What the laissez-faire crowd doesn't understand is that the prospect of being on top will be enough to motivate most people, at least if "on top" is high enough.  "On top" could be a tenth as high as it is now and it'd still be a big motivator.  Would you really be less motivated to make half a billion bucks than you'd be to make five billion?  Either one is more than you could ever spend.

                The '60s were simply an attempt to get the 21st Century started early; don't mistake an unfulfilled dream for a lost one. A dream has no deadline!

                by Panurge on Thu Apr 04, 2013 at 06:19:08 PM PDT

                [ Parent ]

            •  I have read a number of your comments here and (0+ / 0-)

              you seem to be a well informed and conscientious commenter....I'll give you an answer for how much someone should pay in taxes.
              It depends
              What is the unemployment rate?
              If we have a high unemployment rate...this is evidence that we are taxed way too much given our current sized Govt (as a % of GDP).
              If we have full employment and start to see some higher and rising levels of general inflation.....this is evidence that our taxes are too low given our current sized Govt (as a % of GDP)
              Taxes don't pay for anything anymore....this is the nature of fiat, non-convertible currencies.  I know, I know, we were on a gold standard that ended the first time in 1934 and then again in 1971 (after the beginning of Bretton Woods in 1946).
              Taxes are a way of imbuing a currency with value and stimulating economic activity as the State imposes a tax liability that can only be extinguished with its own Fiat currency.
              Taxes serve to limit aggregate demand in order to make room for Govt spending so as to not out compete the private sector for goods and services driving up prices.
              Taxes serve to further social causes...for example, don't like carbon emissions = tax it
              want to offer incentives to encourage homeownership = give a tax credit.
              With that said....
              1.  No taxes on anyone's first $50,000
              2.  Maybe 20% tax rate on all other income (no special treatment of capital gains etc)...but it all depends on the unemployment rate + Govt spending contribution to GDP
              3.  75% tax on all yearly income over $20 millionyear
              4.  75% tax on all inheritance over $50 million
              Neither 3 or 4 are for the purposes of raising revenue....aristocracy is bad
              MMT = Reality
              neweconomicperspectives.org

              "The Earth is my country and Science my religion" Christiaan Huygens

              by Auburn Parks on Thu Apr 04, 2013 at 05:15:17 PM PDT

              [ Parent ]

        •  Wrong. They paid roughly 55% effectively. (4+ / 0-)

          When the top rate was 91%, the richest Americans paid effective rates in the 55% realm.

          Today, you have your Romney's who make tens of millions and pay less than 14%.

          That never happened in the 30s, 40s, 50s and 60s. There were actually fewer loopholes and the capital gains tax was double or triple what it is now.

          More money was spent on production than pure speculation, too, as the financial markets were far more regulated. They were opened waaay up in the early 70s with neoliberalism and the Empire Strikes Back.

          It's a right-wing myth that the rich paid the same effectively then as now. They pay far, far less today. It's not even close.

          •  Please provide your source for this (1+ / 0-)
            Recommended by:
            Sparhawk
            When the top rate was 91%, the richest Americans paid effective rates in the 55% realm.
            The CBO data, which is based on IRS information, dates back only to 1979, when the top marginal rate was 70%.  (See, for example, PDF here).

            As far as I know, there is no similar analysis based on IRS data (which would be the only accurate way to do it) prior to 1979.  

            If you have that kind of data, please direct me to it.  

            Otherwise, I have to completely discount what you are saying.  

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