I cannot see how someone can believe America is a meritocracy while at the same time pushing to almost completely remove estate taxes, as was done during the 2018 tax cuts.
You can either allow inter-generational wealth to build, or claim to be a meritocracy; not both.
The Wealthiest 1% Inherited An Average Of $4.8 Million:
Meritocracy: A system in which advancement is based on individual ability or achievement.
If you think the most able individuals are creating and running the largest organizations, and know whats best for those organizations, why would you want the state to allocate those resources upon death of the individual?
Also, most people have a time span much greater than their own life. I know I do. If I knew I wasn't able to leave a better life for my decedents, I wouldn't work as hard. If you have a wealth creation mindset (wealth is created) then this would be devastating to productive individuals
You may have a vision for your children, they may not follow-through. Most family businesses fail upon generational transfer. Most children I know who believe they are inheriting money don't bother to work, the children of wealthy children are usually far enough removed from wealth creation as to believe utterly irrational things about money.
If wealth is large enough, then useful incomes can be maintained in perpetuity - meaning the great, great grandchildren are still living off of the wealth created centuries ago.
The latter case was common in Europe, but relatively rare in the US due to the estate tax. Historically, landed gentry were rarely bastions of wealth creation and innovation - and are usually more focused on fending off threats to their inherited wealth than creating more wealth.
"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel."
Wealth dissipates very quickly especially with the nature of dilution as a bloodline grows exponentially. If you notice most inherited wealth that's more than a few generations is in authoritative states. I don't think its due to the estate tax as there are always ways to get around it.
An alternate way of viewing this is that large productive resources are channeled into providing consumption for an exponentially growing bloodline rather than re-invested for general profit.
There was a general practice that samurai funded positions for the children of their servants. By the time of the meiji restoration the number of servants a Samurai supported had grown by nearly an order of magnitude. Meanwhile the productive land remained fixed.
Unfortunately this lead to the productive assets of Japan being directed to support an increasingly capital inefficient consumption system. There is no natural reason to assume that an estate would be obliterated with time.
Wouldn't the problem be self correcting, then? Incompetent inheritors waste their ancestors hard earned wealth on Lamborghinis, bad investments, casinos etc. The money returns to the wider economy (Lamborghini engineers, real estate taxes, tips for cocktail waitresses). After 3 generations the problem solves itself. Those families who remain rich may be the most intelligent ones.
Unless you're doing management-by-seance, dead people - no matter how exceptional - don't run organisations.
And besides, only private wealth is subject to inheritance tax. Public corporations don't die with their founders, and private businesses are assessed for value, usually with significant tax breaks.
None of this changes the fact that inheritance is the opposite of true meritocracy. It gives the mediocre an unearned safety net and starves, stresses, and distracts talent from a modest background.
Why is meritocracy always viewed as a single generation concept? Memes, especially effective ones, transcend generations and are quite effectively passed down from parent to progeny. I certainly am more effective because of ideas my forefathers taught my father who, in turn, taught me.
Because while people may be rational about their business, they are not rational about their children.
As for not working as hard, plenty of rich people have recently declared the majority of their wealth won't go to their children. So certainly won't have a 'devastating' effect as you claim!
> As for not working as hard, plenty of rich people have recently declared the majority of their wealth won't go to their children.
A lot of them are actually putting the wealth into foundations that their children will end up controlling. I believe Warren Buffet has done that.
So even though their children might not have all that wealth outright, they still have the influence and wealth that comes from control of that wealth through the foundations.
Perhaps they know what's best for their companies which is why they're not giving their entire wealth to their children.
And if they do, if you believe in meritocracy, it won't matter as that wealth will be squandered away with each subsequent generational transfer, as is often the case.
It's not about punishing the foolish, it's about maximizing the utilization of societies resources. If you hand ten million dollars to a fool and he squanders it, he's not the only one that loses.
The best reason for a meritocracy isn't fairness or justice, it's the benefits it creates for everyone. When someone smart is given control over resources, they create more resources, for themselves and others.
When that someone smart creates more resources, isn't is likely that they're in a better than average position to plan for its distribution, specifically including placing those resources under the control of smart people to utilize them?
I trust the creator of wealth (small, medium, or great) to allocate it intelligently far more than I trust a bureaucracy to do so.
There is a huge difference between voluntarily giving one's wealth away to one's choice of entities than the government forcibly taking that wealth from one's estate. Giving one's wealth away is a choice. A freedom. So should be the option of leaving that wealth to one's descendants or successors (biological or otherwise).
When you say forcibly, they've been protected by the government their whole lives. They're protected from crime, protected from armies, protected from assassins, thugs, and warlords.
They've taken advantage of the schools, infrastructure, courts, laws, etc.
It's a social contract, it's two ways, and part of the price of all that stuff they've been using is to pay inheritance tax.
If they don't want to pay, they could go to a country without all those benefits. But they shouldn't expect to be able to take everything with them, it's not just theirs.
> why would you want the state to allocate those resources
You're making this about "big government". A red herring straw man.
That's not the point. The point is that it does not go to your children or whomever you choose as inheritors (aka your dynasty). There are many ways this could be handled. For example, when you die, the resources/wealth reverts back to the commons. A simple way to do that would be to it distribute equally over the whole population.
Or perhaps distribute it equally to everyone under the age of, say, 30.
Regardless, that's a whole other topic. It's separate from the point being made.
> If you think the most able individuals are creating and running the largest organizations, and know whats best for those organizations, why would you want the state to allocate those resources upon death of the individual?
To prevent the formation of feudalistic aristocracies. There's no difference between empowering bloodlines drawn from wealth or monarchy. You're still going to end up with incredibly corrupt and incompetent people running the show because they didn't earn their position -- they were born into it.
If you actually believe in meritocracy, why do you want to pass on your wealth to your children? If you do that, they won't be able to demonstrate their "individual ability or achievement."
> There's no difference between empowering bloodlines drawn from wealth or monarchy
The Walton family can't throw my in prison. In fact, they can't do much of anything to me besides perhaps denying me a Sam's Club membership.
Monarchy and wealthy families are not the same. Hyperboles like this don't serve your case.
If you believe in meritocracy and you pass your company on to your children who are not suited for the role, then they'll fail and lose it all, as is often the case.
I think you need to put a yet on the Walton's throwing you in prison. Extreme wealth inequality tends to distort surrounding institutions as all individuals paychecks become beholden to the wealthy individual.
In company towns the boss could absolutely have you thrown in jail if they felt like it. If Carnegie didn't like someone then the Pinkerton's would happily take care of them.
The only reason we haven't seen modern equivalents to the above scenarios is that the information age has increased competition. But if you already don't feel like you could sue any of the Walton's for any reason and win... then just wait for when their wealth is 10x larger.
Meritocracy leads to inequality without effort to counter it, because people who accumulates advantages tend to accumulates even more, allowing them to access resources, experience, and wisdom that poorer people simply cannot access.
I don't know a single parent that doesn't want to have their children accumulate advantages, giving them access to resources experience and wisdom. I think this is very natural and desire to pass on a better life to children is what keeps society functioning.
That's not an argument for what is better or worse for us as a whole. I don't know a single person who wouldn't want to instantly receive a billion dollars in exchange for nothing, doesn't mean we should make that happen.
Society ceases to function if you cannot convey any advantage to your children. My parents sacrificed a lot for their children. They moved to a far away land, worked a lot of hours so that we can live in a neighborhood with a decent school. They saved a lot to try to send me to a decent school. They always obeyed laws and were model citizens. If there were no way to transfer such advantages, they wouldn't have bothered doing any of this stuff. I think society was served by their sacrifices.
I can't quote a study, but I think crime rates go down considerably when married and with children. You have a lot more to lose. You want to make sure you're their for your children and they have the advantage of being in a stable loving home
You can convey many advantages to children in the way you raise them. Million dollar + inheritances are not needed.
As far as being there for your children, again, I don't see the connection with estate taxes, your children will definitely need you even if you can't pass down 5 million dollars worth of assets to them.
The original post I commented to said nothing about million dollar inheritances. It only spoke about inequality. If you accept the premise that we must make everything as equitable as possible, you don't clearly stop and million dollar + inheritances. You eventually lead to banning gifted classes in public high schools.
No one is asking their parents not to teach their children how to be good people. And yes, the context you commented on was about million dollar inheritances.
As someone who went through gifted classes in public high schools, as they exist, I have no issues with them being removed. They have very, very serious issues with socioeconomic discrimination and discrimination against people with mental health issues, from first hand experience. So unless we can figure out better ways to select people for them, and so far it looks like we can, I agree that they do more harm than good compared to the alternatives.
As a person who came from a poor family and is now at least moderately successful due to participating in gifted programs, I completely disagree with you. The people I went to school with ranged from first generation immigrants to children of relative wealth, and the latter would have absolutely gone to private school had the program I attended not existed. Because of that program I was able to see that it can be totally normal to have two parent households and that it is achievable to be a doctor or lawyer. Without that I would have been stuck in my neighborhood with my heroin addicted neighbor and the prostitutes who worked the end of my block.
See, that's exactly the reason why these programs are an issue. If you had behavioral issues or if you were twice exceptional, you'd be fucked, like many of my friends did. These programs end up increasing segregation, exactly for those that need it the most. The solution is desegregation of schools relative to SES, not further segregation.
Sincerely, a former gifted student that's also a first generation immigrant that didn't end up addicted to any drugs or getting beat up for the sole reason that I was able to hide my ADHD until I got into college. Three of my gifted friends, two of which got into gangs and one of which was struck to depression to the level of suicide attempts, weren't so lucky.
Either we find a way of selecting gifted students without rejecting the most vulnerable ones that need the most help, which apparently we can't right now, or we desegregate schools.
The truth is that I suffered for depression for all of high school too.
But either way, I credit the program I was in with saving my life essentially. Also, very few people were willing to put in the work needed for this program. My high school was significantly harder than my college, with the exception of a few classes.
>Society ceases to function if you cannot convey any advantage to your children.
This is stated as fact, but what exactly is the assumption based upon? If it were true, wouldn’t you expect people without children to stop being contributors to society?
>I think crime rates go down when married and with children. You have a lot more to lose
Even if this correlation is true, it doesn’t mean the correct choice is to turn into that. Immigrants also commit less crime because they have much more to lose, it doesn’t imply citizenship should be on the chopping block
Do whatever you want while you're alive. Give them all the bitcoins, if that floats your boat.
We're talking about one single type of inter-generational transfer, the one that happens at your death. America has historically been against inter-generational transfer at this point, because it helps to create an oligarchy.
Culture can evolve. We have a very selfist culture. It is possible to evolve a culture that values the common good for more than our society does.
There are many parents who don't pass on anything to their children beyond what they did to get them to adulthood, believing the best thing to bequeath your child is a solid upbringing and strong sense of responsibility, independence rather than entitlement and dependence. And there are many children, like myself, who want no inheritance, who even think it immoral to take any.
If they help their kids become great doctors or engineers why is that a problem? The problem isn't meritocracy but nepotism, when rich kids gets jobs or positions they wouldn't normally get with their merits.
There is the bell-curve problem to take into account as well. For any sizable population, some percentage will have aptitudes and abilities which prevent them from becoming a member of some of the wealth accumulating professions.
If they accumulate too much at the expense of other - eventually they'll self destruct.
I honestly think that natural evolution of this process is better than government-managed.
Because the smart people who accumulate more advantages tends to share it with other more and this helps them to maintain wealth.
Dumb wealthy - will self-destruct faster via natual evolution of events.
Whenever government decides that they can do it better - disaster results typically follow for all.
Is this a philosophical question? I'm sure we can imagine a scenario that a son's contribution to family wealth is greater than his father's. We can also imagine a scenario that the son squanders the whole lot.
Capital management is not a trivial task. Successful management of great sums requires great skill and attention. The world is fraught with dangers when handling a fortune.
As an aside: America is not a meritocracy. It's a dynamic, imperfect system, often described as a presidential republic, and we're constantly rewriting the rules of the game.
What a great person should yearn for is opportunity - access to capital need not be inherited. I think we should strive to empower our best people with capital resources appropriate to their level of skill and experience. I don't think the government is the best mechanism for choosing who those managers should be, but I think it should definitely have a role in making sure the game is fair.
What about stay at home parents? If the right to enjoy the fruit of your labor only extends as far as the individual, then we should be equally worried about the spouse who gets to live in a nice house, eat nice meals, buy nice things, etc. while doing no more work (possibly less, with staff) than her lower class counterpart.
I’m in favor of inheritance tax. But I can see an argument that things just stop making sense when you start slicing into smaller units than the family. I think we’d have to say it’s a meritocracy of families. If families want to support some of the individuals within them out of proportion to their economic contribution, maybe that’s their business.
While it rubs me the wrong way to know that people are out there coasting on the backs of more productive family members, I think the bigger story is some people are out there equipped to be knowledge workers in superstar cities, and others aren’t. This advantage is definitely related to family but isn’t literally inheritance. High earners become high earners well before their parents die. That’s just extra.
I think that you've got to take American culture's Calvinist roots into account. In many pockets of American culture, especially historically but even now, the distinction between wealth and merit is fuzzy at best.
> while at the same time pushing to almost completely remove estate taxes, as was done during the 2018 tax cuts
Just to stop fake news: The tax cuts increased the exception for estate tax from $5.6M to $11.2M ($22.4M for married couples.) After that amount, the estate is taxed at 40%.
OP may feel that's the same as removing it. Or they may have been misinformed & actually thought it was removed. Either way it's incorrect.
(And this is not to defend or condemn the tax bill. I just think it's important to get accurate facts on the table. I have my own opinions on how we should reform estate taxes, but my focus would be on cost basis, not exemptions.)
Ambition is a river everyone wants to swim in. Some go to prestigious schools that tell them precisely where the fastest currents and bridges are, while others have to fight tooth and nail to figure it out. Meritocracy comes from strong education for everyone about the flow points and quick feedback on what is well paid and well needed for society, with instant access to that data. What you’re asking for instead is for government to fence in the and deciding how much you can pull out when you’re done swimming, piping whatever government wants to its own politically favored pet projects that create a political aristocracy instead. I grew up in Eastern Europe - even to this day politics is about channeling projects and money to your buddies, and restrictions to your competitors. Jibing on the wealthiest is envy - you assume and enforce wealth as a zero sum game. It’s not. When those spoiled rich kids blow 6 digits on a purse, that 6 digits goes into a company owned by many retirees via stocks. You want the rich to be spending. Wealth is created with ambition, which you want more of. If you choke people’s ability to pass their earnings to loved ones, they will leave this country and build their life elsewhere. Making information about where wealth is to be made more public and available is meritocracy. Ivy league schools teach the personal preferences of supreme court judges and the pathways to success in Private Equity and other fields - make that public!
Meh, +%80 of the wealthy are first generation people who made it themselves. In the recent past it was a lower number. I would say it's getting better in that one aspect.
Inequality has more causes than inter-generational wealth and a lack of an estate tax. Canada for example is a more economically equal society and does not have an estate tax AFAIK.
Honestly, I would expect the average to be higher, but maybe the truly large inheritances are shielded as trusts or hidden off-shore.
But now I'm curious what the median inheritance is for the 1%? Lower than that (mathematically) but is it $0? I might take that bet. But the SCF doesn't seem to go finer than the 1% bucket. Anyone know?
People mostly inherit when their parents die. By that time, they are probably themselves retired or near retirement, so it won't really be a factor for how well they do during most of their lives.
Of the top 10 wealthiest people in the world this year, all 8 Americans are completely self-made. Outstanding evidence of America being a meritocracy if you ask me.
How do you define self made? Is having parents and friends/family with sufficient resources such that you can experiment and try and fail and fail and fail until you succeed without worrying about ending up homeless "self made"? Or even parents who are fluent in the happenings of the world and can direct you to the right direction to minimize the chances you are wasting your time?
U.S. Centric Comment: I like to think about a system where major monetary and land inheritances are taxed 100%, put into a fund that is given out equally to all citizens, i.e. The American Inheritance.
Pros: Meritocracy which emphasizes personal responsibility and makes it clear that the whole ship rises or sinks together. Would diminish disparities.
Cons: Lot's of nitty gritty complications, loopholes, etc. attachment to places and things. Longevity, medicine, and wealth.
Anyone with sense knows what will happen. Parents will pay exorbitant amounts for their children to receive accolades, and use up the inheritance before they die. The accolades will serve as signals to other rich as to whom to hire, put in charge, shower with large salaries funded by the sale of said accolades, etc.
Your argument falls into the typical "We might as well do nothing because the rich will just game the X" category, which is not only defeatist, but lacks nuance. When you tighten rules, there will be more effort to circumvent them, but that does not mean it would be nearly as ineffective as maintaining the status quo.
> You can either allow inter-generational wealth to build, or claim to be a meritocracy; not both.
What has happened in America is a major (and I mean major) shift towards individualism. The 'pull yourself up by the bootstraps' mentality was never applied to people independent of their family. For most history, people were indivisible from their family, except perhaps in law.
If dad rises through the ranks, people would have viewed that as dad pulling his family up in status. The meritocracy would have been applied to what was then seen as the fundamental building block of society -- the family.
Today, we view individuals as the fundamental building block of society.
I don't recall the objections to inherited wealth as being about "they kept it all in the family" as opposed to "it was only the first born son".
The US has long had profound objections to inter-generational wealth transfer, entirely independent of our conceptions of the relative importance of family vs. individual.
> The US has long had profound objections to inter-generational wealth transfer, entirely independent of our conceptions of the relative importance of family vs. individual.
No it hasn't. If that were true, we would expect strict inheritance laws discouraging wealth transfer. But we've never seen that in the United States.
By and large, people saw individuals as inseparable from their family. Even the most individualistic thinkers of the 18th century would be considered practically Confucians today.
The United States has long embraced the inheritance of wealth. What we reject is the inheritance of title that gives some man authority or primacy over another independent of his own contribution to society as measured by his wealth. In the UK that we left, a commoner could have been richer than an old-money aristocrat, but not be considered his equal due to nepotistic aristocracies.
> If that were true, we would expect strict inheritance laws discouraging wealth transfer. But we've never seen that in the United States.
The legal mechanism for this has been the inheritance tax, which has existed more or less since the founding of the republic. Historically, it served as a substantial reducer of inter-generational wealth transfer. However, over the last 5 or 6 decades, objections by the rich to moving the thresholds to keep up with inflation and/or typical wealth levels among the top quintile etc. and/or rates for this tax have made it much less effective in this role.
But inheritance taxes have existed pretty much everywhere, so that's hardly some unique characteristic that can be used to indicate a supposed American disdain for intergenerational wealth.
Toqueville considered America fundamentally structured to prevent the emergence of aristocratic families, not because of anything to do with taxes, but because fortunes are distributed among all the children and thus naturally dissipate. As opposed to old world system of giving all to the first-born son.
And he's mostly right. Americans are uniquely unable to stay rich for many generations. Most generational wealth in america disappears after a few generations.
In my comment history, you'll find a few comments about the issue of couples having fewer and fewer children.
Toqueville's points work so long as people have on average, more than two kids. With the decline in birth rate, we risk descending into primogeniture by attrition, which is terrible.
Where does this end? What if someone is born with good looks and thin genes and becomes a supermodel, or someone that has genes that makes then 7 feet tall and becomes a successful basketball player? Is that less meritocratic because of god-given talents? What about people that are naturally good at math and have an economic advantage as a result? If you keep moving the line further and further over, eventually you will hit communism.
The problem is the strong desire (requirement?) to accrue wealth is the foundation stone of all capitalism - if you remove reasons to pursue wealth such as desire to support your offspring, you undermine the incentive to build bigger and better things.
It seems to me that inheritance should be taxed at a rate that it dwindles to zero after a few generations to balance equal opportunity and distribution of wealth with the incentive to build things to provide a better existence for our offspring.
No estate tax system that I'm aware of confiscates all of the deceased's assets. They may take enough to be problematic for people in high-capital, low-cash flow businesses like farming, but that is not worth long-term inequality.
I'm not sure about the numbers, but many of the great, inter-generational fortunes may have been built on businesses (consider the oil business) that are problematic for future generations (although great for the inheriting offspring).
The "shirtsleeves to shirtsleeves in three generations"-* is already a well-established pattern (if it was newer, we'd call it a meme, but this concept is older than that word).
* - The general inability of grandchildren to effectively manage the wealth passed down to them from their grandparents and parents. This is made even worse when it's an operating business.
Along these lines, what's fun is to look at property sale records.
A shocking number of large properties in the US have not been sold in multiple generations. A lot of old money "just" owns land and extracts rents for that ownership. Many of those people have jobs, so they do not necessarily look like the idle rich. But they have a somewhat easier time because they receive some portion of the ongoing value of land (this could be rents, timber sales, mining rights, etc.).
If you can take a relatively small amount of money (e.g, $40,000-- the price of a new car, which is something the middle class does buy), and invest it for say, 70 years, earning a 7% annual return, you could leave your heirs $4.5 million:
40000 * (1.07 ^ 70) = $4,559,575
If you can buy a car, you can make your beneficiaries multi-millionaires, if you want to.
The chance that you live for 70 years after you have an extra $40,000 to invest is highly unlikely unless you started out wealthy. Also, you will not get 7% annual interest on $40K.
Edit: Let me expand. You won't get 7% real returns on $40K. Yes, the S&P500 can return that much, but that's before inflation.
OP was comparing the cost of a car now to the average wealthy person's inheritance now, which isn't a fair comparison. You have to account for inflation over 70 years.
If I'm old enough to buy a car, then I likely am having kids soon - so a 70 year time horizon means that my kids will be multi-millionaires when they are around 70, which doesn't do much for them. Maybe it'll do something for their children, who probably are in their 40's with kids of their own, but by then you are splitting things maybe three to six ways, so it's just a nice inheritance, not quick riches.
The average life expectancy in the US is 78 years, so this plan is fantastic for all the 8 year olds with $40k just sitting around waiting to be invested.
It's less than the median household income. If you save 15% of the median income for a few years, you could come up with $40k. It's also small relative to $4.5m (0.88%).
In 70 years that 4.5 million won't be nearly as impressive. If you had $40,000 in 1951 that was a pretty serious chunk of change. For reference, that new car in 1951 was around $1,500.
Are you saying that someone being given an economic advantage by their parents means that their accomplishments have less merit? I'm not trying to straw man you, I'm just having trouble parsing your argument.
I think there's clearly a spectrum. Giving your kid $100K while my kid gets only $25K doesn't make the society not a meritocracy, even though your kid got 4x as much. If your kids gets $100K and mine gets $100M and then we see what happens, I agree that that's not a meritocracy with respect to those two families.
Personally, I came from a family of public schoolteachers. Even though many families had many millions more than we did, I think our society, as experienced by the median and mode citizens, is far more a meritocracy than a plutocracy.
Does everyone get a full reset and the exact same starting point as everyone else, as if life were a board game? No, of course not. Would the world be better if it worked that way? It would undeniably be more "fair", but I think less desirable.
> Are you saying that someone being given an economic advantage by their parents means that their accomplishments have less merit?
The fact that accomplishments are contributed to by material advantages supplied by parents (and more generally the network people are born and raised into and in) means that those accomplishments are less due to individual merit. The total contribution is 100%, so more of one contribution is less of the other.
>Are you saying that someone being given an economic advantage by their parents means that their accomplishments have less merit?
Yes. Being raised in a world where your physical needs are never even remotely considered is without question the single most important factor that leads to radically different outcomes in life.
As I sit here reading this, I'm trying to fill out the two sides of the argument in my head and I find the pro-estate tax position is a little less than clear to me. Estate tax goes to various levels of government. What about governmental tax revenue is meritocratic? Surely it's the same thing? And what makes its expenditures meritocratic?
Intergenerational wealth and meritocracy are not incompatible. People can spend thier money how they want, if they want to give it to thier kids they still earned it.
What we consider "welfare" is typically not handed out based on merit, but based on need (and, from a global perspective, also based on privilege). The idea of a welfare state is not meritocratic. Many societies strive to be meritocratic with egalitarian constraints: anyone should be able to have a decent life (egalitarian), but to have a great life, one needs to contribute (meritocratic). Interestingly, inheritance neither fits the egalitarian nor the meritocratic perspective.
1. Good education hard to come by in the US, and immense wealth allows some people almost automatic access to the best education while others are outbid (either via property/school districts or via private school "donations" for entrance or via access to best prep services or via influence which is used to navigate "leadership" based entrance applications for k-12 schooling )
2. See item 1 -- this should not happen in the US, but it does. Our population has grown, but we've underinvested in schooling and all the foundational systems. The number of great schools has not necessarily grown with population. I see it myself in my hometown as skyscrapers rise, but schools are not built in proportion.
Allowing intergenerational wealth to bypass Problem 2 allows the plutocracy to avoid the problem with money (Problem 2) since it isnt their own problem anymore.
You're arguing against the American system as it is. Proponents of meritocracy wouldn't say that America has achieved it.
I agree with the other comments that meritocracy and inheritance are not at odds, especially if the meritocracy component is referring to positions of power & responsibility.
But your point is valid wrt America as it is. Education is a lynchpin of meritocracy. So, America's solution may need to include some reshaping of inheritance as a means to reshape the mechanisms of meritocracy. But the facile leftist take of (more or less) "ban inheritance" would be an overstep and create far more problems than its simplicity solves.
It is incorrect to think of meritocracy as necessarily egalitarian. If all we care about is merit, then the rich are going to be selected more often than the poor, simply on the basis of ability alone.
Sure they are. Individualistic meritocracy and intergenerational wealth are not compatible. But familial meritocracy and intergenerational wealth are self-requiring.
Yeah and? In a meritocracy, they wouldn't be given positions of responsibility and power without earning them. So the unearned economic advantage will dwindle within a couple generations unless they can produce something of value.
In no scheme can you regulate away all forms of unearned advantage. The skills, capacities and potential we are born with vary.
People are tremendously motivated by providing for their children. Taking that motivation off the table will drive people to places where they can achieve it.
The long-term, highest-net-value producing system of distributing power / responsibility will be a meritocracy.
First off, merely having money is a position of responsibility and power.
Second, money doesn't "dwindle" on its own. Unless you are actively gambling it away (literally or metaphorically), a large amount of money by itself produces more money of value at a certain baseline rate (by the ability to make broader and individually-riskier investments while managing aggregate risk - tl;dr, "why banks are profitable"), entirely independent of the merit of the person with the money. And even if you were to bury it in the ground like the dude in the parable of the talents, it would only lose out on inflation. It wouldn't rot or evaporate.
Finally, a couple of generations is a long time! Nations rise and fall in less time than that. My grandparents grew up under the British Raj. The whole of the Soviet Union lasted a couple of generations. If your "meritocracy" recognizes merit with latency on the order of a couple of generations, I'm not sure it's an effective meritocracy. If the US Senate had free and fair elections once every generation, replacing one-third of the participants each generation and allowing senators to hand-pick their successors whenever they wanted to retire, would you call that government a democracy?
My comment followed from the claim about whether meritocracy and inheritance are compatible. I'm addressing the notions in theory rather than in present situational terms in any given country. From that perspective:
1. Disagree. Yes, money can be used to buy power. But it's not power in itself. A strong meritocracy would focus on giving positions of responsibility (auditing/regulating/decision-making type powers) to people who show the merit to perform them well. Money is an advantage, but it is not the power to shape social systems.
2. Rich heirs who put all their wealth into safe investments and sit on it also aren't really getting much out of it. And that money isn't sitting away in a vault, it's a part of the economy.
Rich heirs who buy yachts and mansions and hang with celebrities, but lack the merit to contribute anything useful, will burn through (most of) the wealth. It's not just common... it's the default outcome within a few generations.
3. Yes, generations are a long time. But that latency would apply to personal/family wealth rather than decision-making authority.
I'm not a pro-inheritance maximalist. I agree with various forms of taxation on inheritance. But there is value is allowing people to be motivated by their family's future. Inheritance is not inherently at odds with meritocratic assignment of political power.
1. I'm not sure I follow your distinction between "can be used to buy power" and "power in itself." Does a general who can order a thousand fighter jets to bomb a target, but who does not fly any planes himself, have no power? Does a high court justice who can order that people be imprisoned or freed, but who does not have any handcuffs or jail keys herself, have no power? Why do you count auditing and regulating (telling people what to do, but not doing it) as power, but not buying and contracting? And why is the ability to decide what the market wants (e.g., whether the market prefers goods "Made in the USA" or "Made in China," or whether the market wants to boycott and divest from Israel, or whether the market wants to open business and have sporting events in North Carolina) not a form of decision-making authority?
2. When you put your money in safe investments and sit on it, you get the interest out of it, which is hardly "not really getting much out of it!" Let's say you can get a 2% annual return by just not being actively bad with your money. If you have, say, a million dollars, then you can get $20K/year, forever, doing nothing - which is higher than the US minimum wage. It's not a lot of money to a rich person, but it's the difference between working and not working. And a net worth of a million dollars is hardly yachts-and-mansions levels of rich - it appears to be roughly the 90th percentile for net worth in the US, i.e,. one in ten people have access to this level of wealth. (Yes, I'm looking at real data from a real country, because if your system only works in theory, it doesn't work.)
And, of course, it's the difference between being motivated to work and not being motivated to work. You are correct that there's value in allowing people to be motivated to work - inheritance destroys that!
1. My use of "power" was about political power. The political can regulate the economic. If you have competent governance, you can regulate attempts to use raw purchasing power as a tool to shape politics.
2. It's not about the unfair value that heirs get. It's about whether that would significantly distort the function of meritocracy.
Yes, it's unfair that someone might get a 20k annual dividend, just like it's unfair that some people are born stunningly gorgeous or incredibly genius.
As long as wealth tends to dwindle, these marginal inequities would not disrupt a functioning meritocracy.
On the final bit, the question becomes whether the motivation to provide for one's kids is greater than the demotivation of inheritance. I think the former is greater. Especially in people who might have a shot in creating a fortune.
Which raises another point -- one focused on real data rather than theory. Do you think it'd be a good move for a country to significantly clamp down on inheritance on its own? What impact would that have on the country's ability to attract and retain top talent?
"Yes, money can be used to buy power. But it's not power in itself."
Try convincing someone who has to work multiple jobs to support themselves and their family of that.
"A strong meritocracy would focus on giving positions of responsibility (auditing/regulating/decision-making type powers) to people who show the merit to perform them well. Money is an advantage, but it is not the power to shape social systems."
A "strong meritocracy" has about as much chance of existing as a non-corrupt totalitarian or communist system.
This argument ultimately goes down to a belief that all children should be owned and raised by the state - parents should not have any involvement, as that gives their children an unfair advantage.
Let's pretend money had nothing to do with it. Simply by virtue of being my child, I am able to train them and pass knowledge in such a way that they have an inherent advantage to other children. Would this be unfair? Ultimately, it's the same thing! They now have an advantage over others.
Now, should we seize 100% of all wealth upon death? Otherwise, my children will get something more than others, and over time this compounds to be a significant advantage.
The average person does not want zero control over raising their children. This comes from a belief in the family unit - a private, self-organized entity that is separate from the state. Families are biologically predisposed to help their own members and exclude outsiders. This manifests itself in innumerable ways such as gifting money to family members, taking vacations with family, investing in each other's businesses, and on and on.
You will never be able to prevent people from giving their children wealth. It is biologically predisposed. Also, no one likes paying taxes - nobody! When given the opportunity, even middle class people alter their behavior to avoid even small taxes, like when people drive from one state with sales taxes over the border to another (Massachusetts residents driving to New Hampshire - extremely common) to avoid a 6.25% sales tax.
What you have is incentives - we all want to help our children, and pay the fewest taxes. The state can pass whatever laws they want, but everyone is incentivized to avoid them, and will find new and clever ways to do so.
Meritocracy is a myth. The government cannot create meritocracy. The government can only steal resources from some people & give back less resources to other people. This process of wealth redistribution is not 100% efficient. There is significant waste. The government will have to take away public freedom by increasing regulations to enforce this redistribution of wealth. The people bear the brunt of compliance in time, freedom, wealth, etc.
We are allowing the government to build inter-generational wealth by reducing the inter-generational wealth of the citizens & their families via taxes & printing fiat. The tax revenue & money printing benefits the people who control the aspects of the economy (aka the wealthy). Estate taxes only gives more power the largest, most entrenched power, which is the government, corporations, & it's beneficiaries. The ultra-rich families who would have to pay these taxes also benefit from the consolidation of wealth via government & corporate control even more aspects of life. This leaves out middle-class families, where parents can longer pass along a house & land to their children/grandchildren without being heavily taxed. Instead, the house & land go to "the people", aka under the control of the government, corporations, politically powerful, & the ultra-wealthy. Independent families lose, the well-connected utra-wealthy win.
In agreement. Meritocracy seeks to purposefully confuse the idea that anyone can succeed with the idea that everyone can succeed. It's an individualizing ideology which short-circuits systems-level thinking. I'm immediately suspicious of ideas which entangle concepts and shut down systems-level thinking. I expect that anyone who calls themselves a critical thinker to do the same.
“We find that major reforms reducing taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment.”
This has been the consensus within academic econometrics for ~15-20 years, FYI, going back to the Laffer Curve argument. Econometrics != economics; you will still find economics people, especially at think tanks, who will hawk the 'tax cuts solve all problems' theory (typically associated with think tanks funded by wealth people).
“In statistics it’s enough for our results to be cool. In psychology they’re supposed to be correct. In economics they’re supposed to be correct and consistent with your ideology.”
Possibly the most fundamental distinction between economics and other fields is that, in economics, it seems to still be permissible to start with your conclusions and then work back from there.
>"Possibly the most fundamental distinction between economics and other fields is that, in economics, it seems to still be permissible to start with your conclusions and then work back from there. "
This is only really true in the most contentious subjects studied in economics, and even then, I don't think economics is unique or even unusual in this respect. Unpalatable results go unpublished in many of the social sciences.
> start with your conclusions and then work back from there
Sadly this doesn't make it distinct from other fields at all, at least within the social sciences. Much of sociology is built on explicit anti-positivism and anti-empiricism.
>We find that major reforms reducing taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income.
This isn't surprising; a tautology almost. But it doesn't really give us any answers. The real question is: is that a bad thing, and if so how bad is it?. Wealth inequality has been a constant of the human condition since the first farmers learned to aggregate more grain than others. But what, if any, deleterious effect does this actually have on society? And does the concentration of wealth lead to innovations only possible with such an ability to deploy capital in a highly targeted manner?
My understanding is that wealth inequality is suboptimal because it leads to political and economic power being concentrated in a few people, which makes the system fragile and leads to instability, thus causing less investment, and then it becomes a fallout.
Michael Bloomberg threw his fortune at becoming president and lost miserably. Jeff Bezos is the most hated person in Washington. I don't see any evidence or a correlation that wealth is buying people political power, at least in my country.
"The Endless Frontier Act, a bill to beef up resources for science and technology research is being debated on the Senate floor this week. An amendment was added to that legislation by Democrat Sen. Maria Cantwell, to hand over $10 billion to NASA. Cantwell’s amendment is no sure bet though."
This doesn't sound like money for Jeff Bezos. It's money for NASA. What it sounds like is some tortured analysis of a bill that probably isn't going to pass by a journalist who also hates rich guys.
But I can't even remember the name of the other billionaire who ran in the Democratic primary this year, so I don't think it's a sufficient condition. Nobody will be concerned with Bloomberg's 2020 run in a decade, heck, nobody was concerned with it a month after he joined the race :)
Every time someone dares to suggest that a policy designed to benefit elites will hurt others, a clown car full of economists drives up. They pile out, tripping over each other to explain to us how we just aren't smart enough to understand economics and how actually cutting taxes for the rich (for the Nth time) will create such extraordinary economic growth that everyone's boat will float upwards as a result.
Of course, they are wrong, but next time this topic comes around I guarantee the clown car will be there and in the meantime it behooves us to stockpile ammunition.
See also: shipping all the manufacturing to China.
Yeah, but the American middle class got absolutely wrecked. Cheap sneakers don't make up for a lost job.
Also, the numbers you cite seem pretty dubious. Yes, if you want to do onshore manufacturing today, it's twice as expensive, but propagating that all the way into the cost of the goods assumes 100% of the cost is in manufacturing, that there would be zero economy-of-scale benefit from retaining our manufacturing base, and it assumes no benefit to your income from the increased economic re-circulation. Those... aren't neutral assumptions.
This is a separate matter from the one in TFA but the players and strategies are similar.
The American middle class didn't get wrecked though. People had more capital on hand due to cheaper goods that they were able to spend on other industries and services.
If manufacturing didn't go to China it would've went to Vietnam or another country with cheaper low skilled labor. Long term automation will eat those jobs anyways
Oh? The American middle class didn't get wrecked? I'm sure all the opiate addicts on disability roll will love to hear about all the capital they have on hand due to cheaper goods.
Many actions could have been taken to prevent people from struggling to adapt to a changing economy such as:
* Subsidies for relocation
* Subsidies for retraining
* Subsidies for drug rehabilitation
All of which could have been funded by the greater economic growth generated by trade. If you want Americans to pay more for goods to subsidize the cost of living of groups of Americans, make it a transparent tax. Don't hide the cost in greater coats for goods.
Also where was this concern when these same issues were hitting poor urban regions throughout the 80s and 90s?
The hypothetical $2000 cellphone doesn't exist in a vacuum. It's entirely conceivable that income difference from the increased purchasing power of domestic labour would more than offset the potentially increased prices.
You'd never have to pay $500 for sneakers made in the us, other than fancy designer shoes, prices unrelated to costs. You can already pay 2k for a cell phone.
A little. The thesis behind 'trickle down' sorta makes sense if you think about it. Less taxes = more money to invest = more investment = more economic activity. I did kind of expect to see SOME impact, though have felt for a while that the financial markets have become so disconnected from actual investment behavior that the impact would be marginal...and looks like this study concludes its even less then that.
That's exactly the problem: arguing that taxing the rich less will lead to trickle down / more economic activity / jobs etc sounds like it should work.
As the linked study (and many others like it) shows, it doesn't actually work in practice.
That might be obvious to you but history has shown it to be inaccurate. Of course rich people, who have lots of influence will be in favor of things that lower their own personal taxes. But in the us it has been show this does not lift others up. The thing that helps lift the overall economy is more money to less wealthy people, especially poorer, because they spend any extra income they receive on necessities.
This is one of many dangers of "common sense" style policy and legislation. It's very easy to make misleading or outright false statements and dress it up as "common sense" and sell it to millions of people over and over again decade after decade despite all evidence building up refuting it.
Sure, giving anyone a tax break will enable them to spend more and generate economic activity. However, generally reducing taxes also requires reducing government spending, which means less investment in things like infrastructure (which tends to create lots of middle class jobs). Basically the two end up cancelling each other out, so the result is just worse income inequality like the study showed.
Wealthy people invest in things that wealthy people want to invest it.
(Democratic-ish) governments, for all their many issues, tend to invest in things that can be justified to much broader populations (yes, I know, lots of exceptions to prove the rule)
Increasing private investment and decreasing public investment isn't a "cancel each other out" situation.
"A little. The thesis behind 'trickle down' sorta makes sense if you think about it."
Only if you only think about it. This is the danger of theoretical predictions without empirical backup: the path of the Laffer curve is dependent on more than just the tax rate, and is likely also historically dependent.
“Such reforms do not have any significant effect on economic growth and unemployment” is in direct contradiction of a central tenet in center-right politics in the West for the past 40 years. It bears repeating.
To reinforce that the concept that tax cuts for the wealthy creates growth and jobs is patently false. Some are still uninformed, or in disbelief, despite the data and scientific consensus.
> Some are still uninformed, or in disbelief, despite the data and scientific consensus.
I think calling this a "scientific consensus" is a bit inaccurate. There's very little consensus in economics (and one can argue about the level of science as well).
in the short term perhaps. In the long term, countries with less regulated markets have better economic outcomes. Nearly the entire first-world has adopted the US model of economics. People forget that at one time it was radical.
Considerably more radical than it has been at the peak of US economic productivity. Remember laissez faire and the Gilded Age? People forget that radically less regulation produces bad results, too.
> in the short term perhaps. In the long term, countries with less regulated markets have better economic outcomes
This is just a laffer-curve-style argument. Draw a graph. Point to one end, and mumble. Point to the other end and mumble something else. Say "We want to be here" while pointing somewhere on the curve.
While it remains unhappily true that lots of people are taken in by this sort of argument, it also remains true that it's an astonishingly weak sort of argument.
I think that's fair, it just depends on what frame we are arguing in.
Because the motivation of a lot of the people arguing for "raising taxes on the rich" is to indeed leave the curve altogether.
Will small increases or decreases in tax rates fundamentally alter GDP? I think obviously not.
But those attempting to make a data-based argument for introducing MMT or a UBI with significantly nationalized elements of the economy (healthcare, energy, etc.) are laughable, when the evidence is so overwhelming that these ideas lead to adverse outcomes in the long-term.
I'm not attempting to straw-man, just to cut the meat to what people are actually arguing about (which isn't a couple percentage points in a tax rate). And it's important to flip it and be honest...and say, no, the data does indeed show without question that freer societies are way better -- and it's just that simple.
> the data does indeed show without question that freer societies are way better -- and it's just that simple.
This is just absurd. "Better" is not a metric.
By the metrics most widely used worldwide, the Scandavian countries are "better" than the US, while also being "less free".
You may disagree with the metrics for "better", and/or you might disagree with the metrics for "less free", but the core point is that these things are not simple.
I think this misses the fundamental issue, isn't necessarily absolute growth, but the right to force people to pay taxes. There are lots of things that are morally correct, but in the short/medium term are inneficient.
I think one could make a case that the disconnect is even more fundamental than that. It's a conflict between people who (for the most part, I presume) prefer consequentialist ethics, and people who prefer deontological ethics.
If we take, for the sake of argument, (edit: what I'm guessing is) your unstated major premise of a deontological approach to ethics, then yes, you're absolutely right, no amount of positive economic outcome could possibly justify forcibly depriving people of their rightful property, because the ends never justify the means.
However, for the sake of keeping the discussion sane, I'd argue it's important to come out and say that this is where you're coming from, rather than just saying that "this misses the fundamental issue." Because, to someone who prefers almost any other general approach to ethics, it is absolutely central to the fundamental issue. And you can't really just dismiss all those other ways of thinking by just ignoring them.
This is moving the goalposts. I’ve absolutely heard countless people state, with total conviction, that huge tax cuts for the rich will definitely boost growth, and even be revenue-positive because of all that additional growth. You’re backpedaling now that that clearly isn’t true.
I'm not rich and not a proponent of tax cuts for the rich, but there's one bit of insight that ideologically flavored reviews of tax reforms often seem to miss: almost any imaginable (income) tax cut will disproportionally favor the rich in absolute terms, even if proportionally they pay more. For example, even if the only change you make is to drop the rate on the very lowest tax bracket from 10% to 0%, the rich will benefit more than the very poorest because the rich will max out that tax bracket but the poor won't. Therefore, if someone proposes a tax cut and it turns out that it benefits the rich, that doesn't mean they have some nefarious scheme in mind, more likely they genuinely believe that lower taxes help the economy or that a smaller government works better. I'm a bit of a leftie myself, but this is one area where I think it'd be nice to have some mutual understanding between different ideologies.
The lowest tax bracket in the USA is $9k. That is below the poverty line in the USA at $12k for one person. Most people max out $9k. Even poor people. The rich will never benefit more from a tax cut there than the poor.
Where they do benefit is when you, say, lower every bracket by 2%. But that is fundamentally different from your proposition.
This seems like a lot of words to obfuscate the fact that not only do the rich receive the largest benefit of tax breaks, they pay a lower effective tax rate than the middle class. It's not just word games.
Well, but that's a very different issue: the rich have an incredible amount of options to optimize their taxes that us mere mortals don't, and can shift their income so that it doesn't incur income taxes. You don't fight that with income tax hikes or by refusing to countenance any and all tax cuts.
a 95% top marginal rate (say, on income over $1M/yr) would certainly discourage "shifting their income so that it doesn't incur income taxes". Why? Because they'd have less money that they could afford to shift around in that way.
Not sure if you're joking, but... the taxes on your salary are subtracted at source in most countries so there's no way to avoid them no matter how highly you're taxed, but things are quite different when you can decide what to pay yourself in salary vs. what ends up at a company you control vs. what ends up in some kind of trust, and so on and so on.
I'm not joking at all. We used to have tax rates just like that.
Let's say that you've got a nice little setup for yourself. $1.5M/yr in personal income, with another US$8M or so flowing into things you indirectly (in time or space) will benefit from.
Now let's bump up the top marginal rate to 95% on amounts over $1M. You're personal income is reduced by an amount on the order of $400-500k per year. You're not likely to just accept that, and live on less. Instead, you're going to rearrange things so that you're back to the same "take home" personal income, while the "diversions that benefit you" drop a corresponding amount.
It did? The paper under discussion doesn't really give an answer and first paper I can find that does, about the 1986 tax reform (admittedly it's not about the 1964 reform when top rates were even higher), states that "The estimated sensitivity implies that a change in income tax rates has substantially less impact on tax revenue than would be true if there were no behavioral response to marginal tax rates. This sensitivity of taxable income also implies that high marginal tax rates create significant deadweight losses by inducing taxpayers to act differently than they otherwise would.'" But I have no skin in this game and I'm not being obtuse, happy to learn more.
yea. they media knows exactly what they are doing when they zero on those metrics. It's part of a larger ideological push. It's extremely disingenuous.
I don't necessarily find it disingenuous because at the end of the day the result is that the rich do in fact benefit most, and there's nothing wrong with reporting this. But I agree that it is rather silly that this is sometimes seen as a shocking revelation when it's really just how tax cuts work.
I'm still working through the paper, but this is actually an interesting one to me - The common response to this paper will likely fall along the lines of 'Tax cuts bad because it clearly doesn't stimulate growth'.
However, the counterfactual is more interesting here - it suggests that, from a purely macro perspective, that the spending enabled by higher taxes...does nothing for economic growth. (Note: this does not detract from the humane/ethical argument of redistribution, which I leave for others to cover)
I don't think you can assume this from the conclusions or data of this study for a couple reasons:
- The effects of increased spending are not necessarily the same as the inverse of the effects of decreased spending. I think you'd need to do a lot of work to get that relationship clear, or do a study specifically on raised spending vs. gdp. And historically the period in the US with the greatest growth in tax rate (the post-WW2 period) was also a period of tremendous gdp growth, but obviously there are a lot of confounding factors there.
- Government spending is largely decoupled from revenue these days anyways. Tax cuts rarely come with proportional spending cuts and no matter what the US is still dumping ~a trillion a year into defense and related industries.
As the sibling comment points out, this study was done on taxes not spending. The government has more sources than taxes for its money supply.
I agree for the most part - I don't think that there's any strong conclusions w.r.t. spending here, but an interesting direction for future research.
What I'm struggling with, however, given the assumption above (spending is decoupled from tax revenues), is that while the paper suggests a lack of incentive to cut taxes, it equally suggests a lack of disincentive to cut taxes.
Actually this does NOT hint at an answer the counterfactual. Because spending is unchanged as a result of lower taxes from the government. Government spends as much as it did before cutting taxes (this is because the federal government doesn't spend taxes, but spends regardless of tax income. This is what is called the deficit).
If a study was done to answer the counterfactual, my bet is that the result of higher taxes would actually increase GDP because the rich will do everything possible not to pay for those taxes. So they will do things like spend more on R&D, or increase wages, or buy equipment. In other words reduce their tax burden. If given the choice between the government burning profits via taxes, or spending more on wages and investment, they will choose the latter.
Excess capital leads to asset bubbles. Non productive. Maybe even anti productive.
Some how we've simultaneously got both surplus capital and huge a decline of new business formation. Coincidence?
My pet theory (hunch) is that transaction costs discourage large funds from making medium and smaller sized investments. The uniqueness of Y Combinator kinda supports this hunch.
Could you point to the part of the paper that you're drawing these conclusions? It's been a while since I've done serious econ work, but I'm not seeing a spending variable when I scan through the paper.
That's my point, the paper doesn't answer the counterfactual or even hint at what the answer would be. You implied higher taxes allow the government to spend more, but this is not true since the government doesn't need taxes to spend. In other words, taxes are not necessary for spending.
I looked up Mahalanobis matching and am now down a rabbit hole of learning more about statistics / data. I was surprised the first result on google was a stack exchange post, but it turned out to be one of the best stack exchange answers I've ever seen.
The problem with this paper is that it's just not measuring anything interesting. Seeking to prove that cutting taxes for the rich increases income inequality and doesn't impact GDP growth isn't cutting-edge research, it's borderline tautology.
There are three massive problems with this paper:
1. Their dependent variable for measuring the impact on economic growth is GDP, which includes government spending. By their methodology, if you cut taxes (and government spending) by 50%, you will see a 10% drop in GDP (since government spending is ~20% of GDP).
2. Who cares about income inequality (or even GDP growth in the first place)? What you really want to understand is: how well off are people in society? What is the distribution of life outcomes? GDP is a famously flawed metric for quality of life[0].
3. They are failing to account for a key confounder: spending. Ceteris paribus, we should expect GDP to decline with tax cuts not met with spending cuts (even after accounting for #1) since debt servicing load will increase.
Not only does this paper say nothing about what we actually care about: how well off is society when cutting taxes on the rich, but it comes off as a pseudo-rationale for confiscatory policy justified by nothing other than envy.
> Seeking to prove that cutting taxes for the rich increases income inequality and doesn't impact GDP growth isn't cutting-edge research, it's borderline tautology.
People said this after Reagan was elected and that idiot Laffer got to shape tax policy. They were laughed out of the room with the "grown-ups" in it, and was certainly not seen as a tautology back then. Nor has it been seen that way by a couple of generations of Republican tax cut boosters, including (notably) Grover Norquist.
> Who cares about income inequality (or even GDP growth in the first place)? What you really want to understand is: how well off are people in society? What is the distribution of life outcomes? GDP is a famously flawed metric for quality of life[0].
Caring about income inequality is quite different than caring about GDP. And it is precisely caring about income inequality that become a visible point of difference between the left and right, particularly since Piketty's book.
> Caring about income inequality is quite different than caring about GDP. And it is precisely caring about income inequality that become a visible point of difference between the left and right, particularly since Piketty's book.
Right: my thesis is that unless you are simply envy-stricken, income inequality is a red herring distracting us from interesting metrics like "How well-off is the median person? 10th percentile earner? 1st percentile earner?" and that GDP is a flawed proxy for this.
It's not red herring at all if you have a certain moral take on the world. There are long-lived, well justified moral positions that would say that it makes no difference if 99% of the population is entirely comfortable, the fact that 1% makes (say) 10x what the other 99% make is just indefensible.
That's completely fair, for a certain assignment of moral values it becomes a burning concern that dwarfs my utilitarian plea.
In my defense, I had assumed I was taking a neutral position when focusing on the question "What is the marginal impact on societal welfare of taxing less progressively?" And my argument is that this paper does nothing to further our understanding towards that inquiry (despite ostensibly purporting to).
I am deliberately attempting to avoid discussing topics such as "the morality of wealth redistribution" or "the proper role of government in society" in the framing of my objection. I find that letting one's values show on internet message boards is treacherous for one's karma.
Taxes should exist to fund the needs of the government, not to punish people. Confiscating incomes and gains as described in this thread (punitively) would destroy working capital and investment capital which would would lead to lower incomes for everyone, higher unemployment, and in essence make everyone poorer.
> Confiscating incomes and gains as described in this thread ...
It's not punitive confiscation. It's taxes to fund the decided needs of society, where the needs are established using the mechanisms of government (as flawed or otherwise as they might be).
> ... (punitively) would destroy working capital and investment capital which would would lead to lower incomes for everyone
This seems like the reciprocal of the now completely debunked claim "reducing taxes would increas working capital and investment capital which will lead to higher incomes for everyone".
There are so many bundled assumptions in your claim here, most notably that higher incomes require private investment. There's no particular evidence that this is true (although there is a lot of hand-waving "common sense" pronouncements from certain parts of the political landscape designed to us think that it is obvious).
Can somebody here, in concrete terms, explain what makes income inequality such a negative or evil thing? I see a lot of people obsessing over it for its own sake, confusing a metric over actual results as a point of focus, but if a society allows a large number of its people to rise above their station at any given moment through effort and some degree of social support, why does the existence of certain billioniares or a 1% have any detrimental effect on overall economic well-being? Given how generally wealthy and well ordered some of the countries with low or moderate gini coefficients are, I'd say that most arguments against income inequality are based much more on emotional dislike and ideological considerations than sound reasoning. Before anyone simply downvotes like an angry monkey pressing buttons, consider the issue, and hopefully, reply with a measured counterargument.
Also, amusingly, many of those commenting negatively here about tax cuts for the rich, the 1% or income inequality are themselves part of a very lucky global 1%.
Just because someone is part of the 1% doesn’t mean they cannot be critical of the way others in the 1% act. What kind of logic is that? “Hey man, you drive too - you can’t critique other drivers!”
The point isn’t about wealth inequality inherently being a terrible thing - it’s that wealth inequality without any checks or balances has lead to a lot of terrible things like the gutting of the middle class in the US. We are supposed to be freer than we’ve ever been yet we live in a new age of serfdom. The gains of our economy go to the top 1% (or even less). It is not being shared to all and thus why people are pissed because they’re paying more in taxes to support these guys than some of the 1% when it comes to proportion of their income.
People just want equality. They don’t give a shit if you have billions. They want billionaires to pay the fair amount the rest of us W2 slaves have to deal with and not use pledged asset lines and stepped up basis to avoid ever paying taxes.
I think most people get to a common ground on these sort of things if the question stops being "The republicans/democrats want to steal your money / something else" and are just asked to consider the veil of ignorance
You get to design / vote on the tax system that you will live under, but then you are born, and you don't know where or to whom. Will you be Jeff Bezo's littlest kid? Or a crack baby? Who knows, but choose wisely.
(frankly the veil of ignorance works really well for most politics, and is really easy to understand)
I've read that CEO pay started increasing much faster once it became public; the number itself became a status symbol. Well, what if the amount of taxes that rich people pay were public as well? I wonder how this whole debate might change if paying a lot of taxes were rewarded by public recognition.
It's all about velocity of money. I'm not sure taxes help, any more than the central bank's monetary policy tries to help. They both are ineffective and both exacerbate the inequality.
More incentives for spending and investing - the creation of transactions - will accomplish velocity better.
It's more interesting to me to contemplate why inequality is a bad for a society. The greatest wealth is typically built by creating the largest businesses. If we look at the wealthiest people in the world, their wealth is derived from business, rather than sports and entertainment, state-owned operations, confiscation via war, illegal activities, etc. Creating business at the scale of these companies, and the economic activity that yields is the core of a capitalist system. It's better for everyone in it's purest form.
Problems start with the super-wealthy apply their wealth outside of business and industry and use it to influence political outcomes. In this manner, they are acting as un-elected politicians and undermine democratic policies and governance.
The question to contemplate is how to maintain the system that yields the most benefit in its pure form, and yet keep its vulnerability of concentrating influence in the hands of people who are not granted that influence democratically?
> Creating business at the scale of these companies, and the economic activity that yields is the core of a capitalist system. It's better for everyone in it's purest form.
Asserted without evidence. There's no inherent reason that a world in which ubiquitous e-commerce was the name of the game, but there was no Amazon, and in which all of the employees in this sector made middle-class income, should be impossible. Would that be a better world than ours, even though it could still be entirely capitalist? I would say so.
If I literally stole 1 trillion dollars from the richest Americans and gave it to the poorest 20 million Americans, I'd have substantial impact on the standard of living (both for them, and for the country on average).
Ignoring the fact that there isn't just $1 trillion cash sitting in a vault somewhere, after your 20 million American's burned through their $50k, they'd be back to square one.
Think this through; is Somalia poor because their government doesn't give poor people enough money to consume?
No. Somalia is poor because they produce very little right now (for a variety of reasons). If you look at countries that have recently increased their standard of living on a massive scale, such as China, they have done so not because they consumed their way there. A huge amount of investment into productivity was undertaken.
> Ignoring the fact that there isn't just $1 trillion cash sitting in a vault somewhere,
When my team of 100 crack assassins/financial shenanigan wizards target the richest 100 Americans individually in their own homes, I don't think this will matter too much. We'll get the money.
>after your 20 million American's burned through their $50k, they'd be back to square one.
Sure, but their standard of living would meanwhile have increased.
Obviously, it's a reductio ad absurdum, but I'm using it to prove a point.
Your use of Somalia merely proves that a certain level of productivity (shall we call it GDP?) is required for this thought experiment to even make sense. Yes, a certain level of society-wide wealth is necessary for redistribution to even be possible. And indeed, one could try to improve productivity instead of or in addition to redistribution.
But none of that means that in a society with as much productivity (a high GDP, if you like) as the USA, redistribution could not also be used to increase the standard of living.
The definitionally-poor in the US generally pay minimal if any net income taxes (the earned income tax credit will be greater than any due taxes), so there's not a lot of room for improvement here.
I am not excited about having a vote on how to spend anybody's money, particularly if they spend it researching vaccines for malaria, like Gates did. Our system of government strictly limits which decisions are subject to democractic choices, for good reasons
Just because you've successfully created a wildly successful business, does that imply that you should now also be the person to decide how all that money is spent? Why would society agree to this? We can acknowledge that you might be a brilliant business person without simultaneously and implicitly agreeing that you're just the smartest person around and should clearly get to control where all that revenue flows to.
Hence, the 1950s & 1960s idea of taxation: you can earn boatloads of cash, but we'll tax a lot of it away from you. You'll still have enough to be crazy rich and lead a life everybody else can only dream of, but you're not going to control the disposition of (say) US$20B.
Wealthy people have taken disproportionately from society, so their taxes should reflect that by being disproportionately higher. I'm glad to see additional evidence, like this study, showing that there is no reason to give tax breaks to the wealthy.
> Wealthy people have taken disproportionately from society
This seems like an uncharitable statement. In many cases (although maybe not the majority), the wealth generated is additive to society and and not "taken" because it might never have existed otherwise.
Consider PayPal. Did the development of PayPal take or give to society? It seems to me that it increased the wealth of everyone both in a direct sense and also indirectly through the enablement of large scale secondary and long-tail economies in Ebay.
This statement isn't to suggest a reason for "tax breaks to the wealthy," only to offer an alternative theory to "taken disproportionately."
That's not really true in most cases. Most people gain wealth from their innovations and their innovations generally create considerably more wealth for society than it does for themselves. They appear to have gained everything but you need to account for the extra wealth they created for the many millions of people.
Amazon for example - how much wealth has Amazon created for everyone else? A lot and many, many factors more than Bezos' net worth.
Granted not every wealthy person creates wealth this way - some influence politics to get unethical things done that put them there. But we shouldn't clobber the idea of wealthy people because some people cheat.
The fact that many people may agree that Amazon has in some way made their lives better does not inherently mean that Bezos should now get to decide on the disposition of all the revenue that flows towards the company. The point of taxation is to keep pulling some chunk of the overall money flow back into the pool where we have some collective, political control over its disposition.
How big that chunk should be, and what the process(es) should be used to decide on its disposition are open for debate, certainly. But the idea that because $X flowed towards Amazon, and everyone did that voluntarily and feels good about it, now Bezos gets to decide how the accumulated sum should be spent - I don't consider that a sensible view in any way.
I was mainly replying to this part of the comment (and I should have referenced it):
> Wealthy people have taken disproportionately from society
And I just don't think that's true at all. Yeah, we can figure out how to better tax extreme wealth, but this wave of sentiment I see more and more of that wealthy people are evil, or parasitic, is just wrong in my opinion.
Let's say I do a really hard physical labor job, and I work at it 40 hours a week for 50 weeks a year. As a result, I make $45k (or $60k, or $80k or $100k - at this scale, the numbers don't really matter)
Is there any possible rationale for how any amount of succesful "business-ing" could ever justify why a person doing that for a year should end up with an income in the tens or hundreds of millions?
We could concede that perhaps the business-ing has results that affect far more people in a positive way than the manual labor ever will. But the notion of people "taking disproportionately from society" could really be stated as "I don't care what you did last year, there's no possible activity you could have carried out that justifies you earning US$200M". That's a position that could continue to be held even if every cent of that US$200M arose from conscious, voluntarily, beneficial transactions. You don't have to agree, but there are people (I suspect I am one of them) who just don't believe there can ever be a justification for incomes at this level.
> Is there any possible rationale for how any amount of succesful "business-ing" could ever justify why a person doing that for a year should end up with an income in the tens or hundreds of millions?
Yes - imagine that job was cutting down trees and the amount of hard labor it took to cut down a tree was very high. You decided to invent chainsaws. Now each person doing this labor (which is now less hard) can cut down more trees and you need fewer people overall to cut down more trees and you can pass the savings on to your customers who now get lumber more cheaply. This gets passed onto people who build things with wood so now there are more people "business-ing" across these larger industries and fewer people doing the tough work. People have more options now. And more people can build things out of wood opening it up to a larger and larger number of people creating more happiness than before.
So this 1 invention not only created great wealth for the person who invented it but also created much wealth for society as a whole. the guy cutting down trees before the chainsaw couldn't afford much but now because his productivity is increased he too can afford lumber to build things because the price of it has diminished.
The whole game is to find inefficiencies in things, make them more efficient so you can lower the price of it and make it available to more people. This has happened in consumer goods, food, travel, and just about every other industry. So as income inequality has grown, access to life enhancing things has grown. And we've more or less eliminated poverty along the way.
> Yes - imagine that job was cutting down trees and the amount of hard labor it took to cut down a tree was very high. You decided to invent chainsaws. Now each person doing this labor (which is now less hard) can cut down more trees and you need fewer people overall to cut down more trees and you can pass the savings on to your customers who now get lumber more cheaply.
That's a viable argument if the domain of the argument is only economics.
Some people want the domain to be restricted to economics only, of course. Some of us think that morality / philosophy plays a role too.
So we can recast your example in more general terms. Suppose that what society "said" about invention was along the following lines:
"We want to see productivity increase, and so we value and cherish invention, particularly invention that enhances the efficient use of human labor. People who manage to invent tools and processes that increase efficiency can expect to see some part of economic value of their inventions accrue to them. So, if you want to be richer and improve the wealth of our society, please go ahead and do so with your creativity and imagination and organizational skills. But if you imagine it as a pathway to unimaginable wealth, understand that this will not happen. To be blunt, just because your invention creates US$200M of value to society, you will not be US$200M richer under any circumstances."
In the end, it depends on what you think really motivates people.If you think that chainsaws get invented because people dream of being unimaginably richer than their neighbors, you will likely think that any limitations on how wealthy someone can be will cause us to miss out on possible improvements. But I don't believe that (and I could cite lots of evidence that money is almost the worst possible human motivator for most Americans), and I think that we can cap income and wealth without destroying innovation and productivity gains, while still leaving room for some people to be substantially richer than others.
They don't contribute to society because their wealth is formed by taking from society (the cumulative surplus value of the thousands of workers below them). That is why I believe their taxes should be significantly higher. Billionaires owe society, not the other way around.
I am amazed that we actually need a study to determine this. The whole trickle down economy felt like a farce from the get go. “If we let the rich have just a little more money surely they will give it back to us!”. Well I wonder what the breaking point is. Inequality can only last for so long before people have nothing else to lose.
*if we let the rich keep a little more of their own money, instead of making them give it to the government, maybe they will invest it
For the record, we’re no where near a breaking point in America. For as much complaining you see on HN and reddit and twitter, people in real life are happy.
The parent comment didn't mention Bezos. Since the majority of individual wealth created by Amazon is reflected in the price of Amazon stock, then taxing executive salary would have the likely effect of shifting more compensation to stock grants, etc.
Lol where do you think the vast majority of the money went to? American aerospace engineers' paychecks.
Although I think they should probably be taxed more, those hyper billionaires tend to give huge amounts to charity too. And it's not always for shamefully self-serving/partisan purposes such as Bezos propping up the Washington Post.
You can either allow inter-generational wealth to build, or claim to be a meritocracy; not both.
The Wealthiest 1% Inherited An Average Of $4.8 Million:
https://www.peoplespolicyproject.org/2017/10/10/the-wealthie...