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July 14, 2010 – Comments (18)

This one from Yves is significant, and is about the distribution of wealth.

I can't agree more with Yves comment, "It isn’t merely stunning, it’s destructive," with respect to this study that found since 1978 58% of wealth creation went to only 1% of households.

This past month or so I posted on what I called consumer liquidity and basically about the declining buying power and the lack of ability of the consumer to be out there circulating money into other businesses, which in turn keeps the economy humming.  When the masses don't have money to spend, well, the economy isn't going to do all that well and guaranteed, that top 1% isn't spending their money.  They are trying to extract more investment income out of the masses with it.  Probably the bottom 60% of household income families spend most of their income and if they had more, they would spend more.

My understanding of history is the only other time in the last 100 years where you had this kind of gross inequity in the distribution of wealth was during the build up to the Great Depression.

I haven't gone into what the article was about, just that this kind of gross inequitable distribution of wealth is a huge problem.  The very wealth have become like parasites that are killing their host --> the population at large is getting very sick and weak now.

18 Comments – Post Your Own

#1) On July 14, 2010 at 11:21 AM, outoffocus (23.49) wrote:

http://caps.fool.com/Blogs/the-people-with-money-arent/150232

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#2) On July 14, 2010 at 12:22 PM, Starfirenv (< 20) wrote:

Here's 15 Mind-Blowing Charts About Wealth And Inequality In America >This "... gross inequitable distribution of wealth" is by design and a result of inequitable fiscal burden on the "vanishing" middle class over the last few decades.

Read more: http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#ixzz0tfmQ9kyr

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#3) On July 14, 2010 at 12:58 PM, FleaBagger (28.14) wrote:

Wealth shouldn't be distributed at all. If it is being distributed, it's being distributed to those to whom the distributors want it to go - in this case, to bankers. That is exactly why no one should have the power to distribute the wealth of other people, let alone the wealth of a whole nation.

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#4) On July 14, 2010 at 1:32 PM, SkepticalOx (99.53) wrote:

So this is what we have now. How do we go to something more, "equitable"?

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#5) On July 14, 2010 at 4:43 PM, dwot (45.74) wrote:

FleaBagger, there are lots of ways to distribute wealth.  Tax system favortism is a perfect example.  Look how low the tax rate is on investment income.  That is a form of redistribution of wealth.

Excellent question SkepticalOx.

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#6) On July 14, 2010 at 4:43 PM, dwot (45.74) wrote:

I read your link outoffocus.  Very well thought out and written.

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#7) On July 14, 2010 at 4:57 PM, dwot (45.74) wrote:

Excellent link Starfirenv. 

My impression of Bush right from the start is I'd never seen a worse line-my-pocket and the h-ll with social responsibility President.  Looking at those charts, policy went a long way towards gross wealth inequity.

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#8) On July 14, 2010 at 5:16 PM, outoffocus (23.49) wrote:

dwot

Looking at those charts one could argue lower interests rates played a part as well.

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#9) On July 14, 2010 at 5:27 PM, ragedmaximus (< 20) wrote:

Well we think it's bad this year ,wait till next year.The 2011 death tax 55% = alot less wealth for the rich when silver spoon da da dies! 2010 will be known as the year to die for rich folk.2011 death tax 55%,Banks are on the hook for higher taxes and unable to pay for it because they are not lending 2010 co earnings numbers are bs in 2010  with stimulus money and tax breaks,wait till 2011 when the real sales figures are tallied.15-20% actual and real unemployment numbers whether the usa govt counts it or not it's real folks 2011! uncle sam can count a penny off a flies ass from a million miles away but counting the unemployed that's a different story!2011 usa will admit depression

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#10) On July 14, 2010 at 5:29 PM, FreeMortal (29.41) wrote:

Would there be an optimum (or minimum) degree of equality?  How would one go about determining that level? Is social mobility as important as equality?

Inflation also redistributes wealth: from lenders to borrowers.

 

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#11) On July 14, 2010 at 5:39 PM, outoffocus (23.49) wrote:

Inflation also redistributes wealth: from lenders to borrowers

More like from savers to banks and the rich through a weaker dollar and higher asset prices.

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#12) On July 14, 2010 at 6:33 PM, Starfirenv (< 20) wrote:

Dwot- Glad you found it usefull.
@#4- A good start would be a flat tax of, say 10% of all income- earned, passive, short/long term inv, cap gains, etc. with NO loopholes. That would be a start and "level the field". Only problem is an entire industry has been built around our archaic tax system. If you think about all the tax lawyers, CPA's, Tax preparers, IRS agents and examiners who would be out on the street, my guess is it's not going to happen. I think the aggregate political clout of their respective Unions and Lobbies would guarantee it never happen.
@#11- Yup
Regards.

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#13) On July 14, 2010 at 6:46 PM, devoish (96.28) wrote:

WASHINGTON, June 24 – Sen. Bernie Sanders (I-Vt.) today introduced legislation (S.3533) to restore the estate tax on the wealthiest Americans.  The proposal would bring in at least $319 billion over a decade to help lower the national debt.

“This legislation would ensure that the wealthiest Americans in our country, millionaires and billionaires, pay their fair share while exempting 99.7 percent of Americans from paying any estate tax whatsoever,” Sanders said.

The estate tax was abolished this year as a result of tax law changes signed into law by President George W. Bush in 2001. For the first time since 1916, heirs to multi-million and billion dollar fortunes may receive their entire inheritance free of any federal taxes, a giveaway that will cost the U.S. treasury at least $14.8 billion in lost revenue this year alone.

“At a time when we have a record-breaking $13 trillion national debt and a growing gap between the very rich and everyone else, people who inherit multi-million and billion dollar estates must not be allowed to avoid paying their fair share in estate taxes,” Sanders said.

Sanders has made deficit reduction a priority, proposing legislation in the last month alone to repeal more than $35 billion in oil company tax breaks and  commissioning Government Accountability Office studies spotlighting more than $20 billion in Pentagon waste on unneeded spare parts. 

“I get a little bit tired of being lectured by Republicans for the deficit we are in,” Sanders said, noting that Bush-era Republicans funded but failed to pay for wars in Iraq and Afghanistan; tax breaks for the wealthy; a prescription drug bill written by the pharmaceutical industry; and a $700 billion Wall Street bailout.

Sanders estate tax legislation is cosponsored by Sens. Tom Harkin (D-Iowa), Sheldon Whitehouse (D-R.I.), and Sherrod Brown (D-Ohio). The bill would:

•     Exempt the first $3.5 million of an estate from federal taxation ($7 million for couples), the same exemption that existed in 2009.  That would leave 99.75 percent of all estates exempt from the federal estate tax next year.

•     Create a progressive rate so the super wealthy pay more.  The tax rate for estates valued between $3.5 million and $10 million would be 45 percent, the same as the 2009 level.  The rate on estates worth more than $10 million and below $50 million would be 50 percent, and the rate on estates worth more than $50 million would be 55 percent.

•     Include a billionaire's surtax of 10 percent.  According to Forbes Magazine, there are only 403 billionaires in the United States with a collective net worth of $1.3 trillion.  Clearly, the heirs to these multi-billion fortunes should be paying a higher estate tax rate than others.

•    Close estate and gift tax loopholes as President Obama proposed in his budget for next year. The White House estimated that closing the loopholes would generate at least $23.7 billion in revenue over 10 years.

•     Protect family farmers by allowing them to lower the value of their farmland by up to $3 million for estate tax purposes. The bill also would increase the maximum exclusion for conservation easements to $2 million.  The non-partisan Tax Policy Center has estimated that only 80 small businesses and farm estates throughout the country paid an estate tax in 2009, affecting only three out of every 100,000 people who passed away. 


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#14) On July 14, 2010 at 6:55 PM, dwot (45.74) wrote:

Outoffocus, I think lower rates played a big role.

I am sure people have seen concerns about social unrest, it goes along the line of stock up and make sure you can use a fire arm.

If rates had not been so low and people could not borrow to maintain spending, well, I suspect they'd have fought for wage increases a long time ago.  

ragemaximus, I suspect the very rich will figure out how to transfer wealth to avoid taxes.

FreeMortal, I saw something that was showing the opportunity to move socially is poor these days.  The opportunity to be socially mobile was still there for my generation.  My sister and I did much better then our roots would suggest we ought to have done.  Can't say the same for my brother.  Heck, when I think back, me 17, her 15 and my brother 12 and me in charge because my father moved to Portland.  My father was a moron. 

About inflation, one thing I was told over and over in my youth was buying a home is only hard at first but then it gets easier because your wages go up and the amount of debt is fixed and even declining because you are paying it down.  I was told it was only hard for the first 5 years.  Well, my truth was wages were stagnant and even up and down, jobs insecure and income never rose to the point that the debt seems small or manageable, and I never borrowed even close to what lenders would have given.

Seriously, you just made me realise that lending policy also has built into it that wages must go up as it isn't manageable without it, it really isn't.

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#15) On July 14, 2010 at 7:26 PM, FreeMortal (29.41) wrote:

You mean lending policy factors in that a particular borrower will have more income over the course of the loan, or that wages in general will rise?

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#16) On July 14, 2010 at 7:50 PM, dwot (45.74) wrote:

No, with lower rates you can borrow money cheaper and hide the declining income, until you get to the point we have reached...

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#17) On July 14, 2010 at 8:30 PM, ChrisGraley (29.74) wrote:

I'm not against a redistribution of wealth if it was done anything close to responsibly, but even after redistribution you'll see the same 1% controlling all of the wealth.

You stated the heart of the problem yourself dwot.

Probably the bottom 60% of household income families spend most of their income and if they had more, they would spend more.

The bottom 60% will always be the bottom 60% if they don't spend below their means. 

You will create nothing more than inflation and bottom 60% winds up with more money that's worth less. 

 

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#18) On July 14, 2010 at 10:52 PM, AbstractMotion (53.32) wrote:

As sad as it makes me to say it, I don't think this is a problem that's simply going to go away by tweaking the estate tax or redistributing money.  We've simply seen wages stagnate and savings continually go down across the board.  There's a lot of reasons for it.  I think low interest rates are a big player in all of it, low interest rates discourage 'safe' savings and encourages speculation.  Persistent inflation and the massive expansion of credit we've seen encourages people to take on debt.  Interest eats away at future income and the wage side of inflation hasn't kept pace.  Since the late 70's we've seen the growth of the 'benefits' side of pay i.e non-wage compensation.  The payroll tax has risen some and is highly regressive in nature.  The US tax code is horribly constructed with far too many deductions that lower the effective tax rates for just about every income bracket.

 

Globalization has greatly lowered the bargaining power of wage earners in general, at this point I don't think there's going to be any quick solution to it either.  Being in the WTO limits the options our country has and there's no one in D.C with the grit to institute policies that will cause some short term pain for some long term gain.  Interest rates are probably the easiest fix, but banks profits have been expanded largely through non traditional means in the bubble era: securitization, fees, credit cards, etc.  The current reform bill will do next to nothing to really address this, so I suspect the bias towards low interest rates and easy credit will remain even if consumer demand for it falls.  I can guarantee the treasury doesn't want to see higher interest rates any time soon either given it's debt growth over the past 10 years.

 

That leaves the growth of benefits and payroll taxes.  I suspect we will see a bit of a push back when it comes to benefits due to how poorly constructed some of the investment schemes for them are and the lower ROI a lot of workers will be seeing from such plans going forward.  Budgetary constraints, years of under contribution and growing public scrutiny will bring about some realization that it's good to have a retirement/rainy day cushion under one's own control.  People will want to have something to their name and that should put some upward pressure on wages and help even things out again.  I suspect payroll taxes will rise until we hit a full blown crisis maybe in 10 years or so, the next significant recession we get post boomer retirement will end the current game of musical chairs.

One thing I have to disagree on though is the capital gains tax.  It does favor the wealthy more currently because they own most of the equity and debt out there, but I'd be very hesitant to hike it much as it would discourage investment and cause more harm than good over the long term.

 

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