I tripped across an interesting perspective from across the pond that I thought worth sharing, because it aligns with my own. In short, you have a supporter of both democracy and capitalism frustrated by being surrounded on both sides by those who can’t seem to grasp why things are the way they are economically and why they are likely to get worse. Below are some videos of various lengths illustrating the issue with some brief captioning:
This first regards the fact that for the very rich wealth is exploding, as is government debt.
The second regards scapegoating economic hardships which does nothing to advance the interests of those impacted by poor conditions.
The third notes that the only real power we have to create a fair, equitable economy is through taxation.
The fourth makes the point that the post-war era of middle class prosperity is an historic anomaly, not the norm. The norm is feudalism.
The fifth underscores that growth does nothing for regular people if all of that growth goes into the hands of the few.
The final one is a bit of a longer one that ties a lot of these themes together.
Whether you agree or disagree with the redistributionist solutions, what is unavoidable is the fact that the rich ARE getting richer, governments ARE going deeper into debt and the middle and lower classes ARE feeling the squeeze.
I personally do not think that an anti-capitalism perspective is an effective path out of this. Nor do I think giving billionaires more and more economic and political power is a solution.
For me, the solution is asking those who benefit the most from our society to invest into the next generation in order that paths other than the “sperm lottery” exist to make it in life. The “if you work hard and play by the rules” you’re children will have a shot at the Dream is the American Dream line of thinking. The way we make those investments in a capitalist democracy is via progressive taxation which in a very real sense does not exist in this country any longer.
(Please keep in mind that collecting money is an entirely separate concept from spending it. That is another conversation.)
Discuss.
At first glance Danish, Belgian, Dutch, etc tax rates of 55% are outrageous. With a 2nd glance they still are…but at least you get some useful returns/services from the gubment…but no system is perfect.
To me, your last sentence is the key…if you take my money how are you (D’s or R’s) going to spend it and what « breaks » are you giving to corps?
Capitalism is good, but do C-level folks salaries really need to be ‘100x’…damn talk about eating from the trough…where have good manners and common sense gone…je ne sais pas.
What’s a progressive enough top rate that will bring in enough tax revenue while at the same time encourage capital formation and risk taking?
Life was good at Clinton’s 39.6% rate. The current top rate is 37% on joint incomes above $731,000 (that’s $337,000 in 1993 dollars). The top bracket in 1994 applied to those earning $250,000 ($529,000 in today’s dollars).
How much is enough to satisfy the politicians and bureaucrats in Washington, DC?
As we know, the super rich don’t pay anywhere near 37 percent and they don’t make their money on a salary. 25 years ago or so Buffett offered a million bucks to any CEO who could show he paid a higher effective marginal tax rate than his secretary. He still has the money. And for good reason:
https://www.americanprogress.org/article/forbes-400-pay-lower-tax-rates-many-ordinary-americans/
The folks whose net worths have exploded while regular people struggle with food and housing are not impacted by any annual income tax rate.
As discussed in an earlier episode when this experiment in cutting taxes and borrowing rather than paying the nations bills started circa 1981 the nation was in debt to the tune of about 900 billion. Now its at 36 trillion and we’re adding about 250 billion a quarter to that. In our collective wisdom, we voted to extend tax cuts for the rich and listened to laughably stupid promises of trillions in spending cuts that will not come to pass.
My personal preference would be to collect enough to pay the bills rather than continuing to go deeper and deeper in debt until the people who don’t need government look at the rest of us and say: “sorry, we’re broke and you’re fucked. And blame the migrants not us! Bye!”
Either collect enough to pay for what the voters want from government OR take it away and suffer the consequences at the ballot box.
Rich kids are not the only people with talent and smarts in the world. Give the poor kids a chance. No kid raised in a trailer or tenement is going to make it without some wealth redistribution. This sentiment is what made America great:
https://youtu.be/m5RbdReBMLE?si=jIPWKrx0hk-hFfBV
If we don’t embrace that again we’re going to revert to a feudal oligarchy and it will take millennia to correct it.
Poor and middle class folks drive demand and produce offspring who will take their seat at the table if the opportunity is available. If you close the doors to everyone but the rich kids you will lose America.
We used to understand the concept of investing in human capital. The entire point of a land grant university in Athens, Ga. was the prospect of teaching the sons of the state the best way to maximize the use of their land. That policy continued from 1785 on and without debate until a few years after the civil rights act. I wonder??? Hmm….
They could have left the taxpayers be and let the free market take over until 2 or 3 farmers owned all the state’s land, food and labor, but they didn’t because that would have been dumb. And un-American.
A lot of words not to answer my question. What rate is sufficient to encourage people to take risks and grow economic activity?
If Warren Buffett wanted to write a check to the US Treasury for what he believes he should owe, there is literally nothing that stops him from doing that.
If the federal government returned to 2019 spending levels (unadjusted for inflation) and brought in tax revenue from 2024, here’s what the budget would look like:
$5.1t in tax revenue
$4.4t in federal spending
$700b surplus
If we went back to 2012 levels of spending (inflation adjusted to 2024), we would have a $200b surplus.
Bottom line is we don’t have a tax revenue problem in this country, but we have career politicians on both sides of the aisle who never met a spending program they didn’t like.
Why should Buffet, Gates or any other billionaire have to donate money to the government?
The rate question you ask is moot because the rate isn’t applied fairly to everyone. That’s Buffet’s point and Derek’s roundabout point.
The rate only matters when the application is across the board without exceptions. If it applied to everyone, the rate could be much lower because the richer people would pay more actual dollars.
I suspect you already know all this but are somehow focused on the rate. We need a fundamental change, whether that’s income tax, wealth tax, consumption tax or what. But something needs to change.
Oh, I believe in a flat tax or the Fair Tax over the current system, but Derek is trying to make a point that the current tax system needs to be more progressive than it currently is.
The current system is practically the same between the Clinton years and the Trump years.
For those who support going back to the 91% bracket, the revenue generated from that isn’t worth chasing because people change their behavior and go to the beach rather working for the government.
Buffett pays a lower rate because at this point he lives on long-term capital gains based much of the time on investments made with already once taxed money. Want to tank the market for all of us? End the tax benefit of long-term capital gains and tax them as ordinary income at marginal rates.
Whether there is or isn’t a meaningful difference between income tax policy in 1993 and today, the facts on the ground are far different.
We are a long way from the budget surpluses of the late 1990’s.
Multiple tax cuts for the richest Americans followed. Including elimination of the so-called “death tax.” We borrowed money to fight a war based on a series of lies. We de-regulated the markets into a crash. We expanded Medicare without paying for it.
If I could go back and beat sense into the 10,000 assholes who voted for Nader in Florida in 2000, I would. But I can’t.
One could make the argument that paying a higher rate of taxes would make the wealthy incentivized to re-invest their money and expand economic growth like in the 50’s and 60’s. The sad reality is that at least one third of wealth is inherited and the only threat to generational wealth is profound stupidity. Those that have the most to lose from a foreign power should pay the bulk of the military budget, IMHO. Just focus there. The middle class will take care of the infrastructure, health and education. The wealthiest 5% can “provide for the defense.” Could make it interesting. :~)
They are only pleasing their voters which is somewhat superior to bullshitting them into oblivion, imho.
There is no shortage of billionaires in western europe and all of those nations have much higher marginal tax rates.
All I can say in retort is: what is the collection policy required to pay the bills? Your marginal income tax rate could be 0% and get to balance and it could be 95% and get to balance.
The point is that I am not married to an income tax. I know that when it was 91% in the 1950’s America wasn’t a post-apocalyptic hellscape and in fact its the time period conservatives point to as Valhalla on Earth. I guess FDR wasn’t so bad.
What I want is a tax policy that preserves prosperity, ensures national economic responsibility as well as opportunity for all who are capable and willing. The meaning, import and efficacy of any marginal income tax rate number is a distraction from the goals of a nation’s taxation policy.
The 91% bracket applied to those with taxable income (after deductions and exemptions) above $200k in 1955 ($2.3m in 2024 dollars). The deductions and exemptions at that time were much more generous at that time over now.
For me, I would pay more payroll taxes now if those funds were specific to shore up the Social Security and Medicare trust funds in exchange for allowing me to have lower taxes paid in retirement on my retirement savings and if I opt out of collecting a SS benefit. I would support a higher tax on income if and only if those additional tax receipts went to paying down existing debt only. Since Congress and the POTUS aren’t going to agree to something like that, I won’t support any tax increases.
If that means Warren Buffett pays a lower tax rate than I do, I’m ok with that.
Which is what I am trying to get at. Neither side has their finger on the pulse of the real problem, hence no agreement. One side seems to think capitalism is the problem. The other seems to want to blame migrants while turning a blind eye to the structural problems. Both are wrong. I shudder to think what will lead to a real change.
So I thought maybe I could start with explaining the truth to the very best of the best: our readership.
EE – eliminating the SS salary deduction cap will get the pool a little bit further down the road. I’m sure we could make the numbers work if it became a priority. Get sick and die or Bush’s plan to invest deductions into Wall Street aren’t solutions for Social Security solvency.
My opinion on SS is probably very different than yours. For most people 55 and over, I would support no change in benefit. For people over 55, I would support opting out of benefits or reduced benefit in exchange for tax treatment of withdrawals or employer-provided pension benefits similar to long-term capital gains rates.
Any funds raised by removing the wage cap on FICA cannot go into the US government’s general fund. It must go to pay benefits or truly be in a lockbox that career politicians and government bureaucrats cannot spend. The problem we have today is the result of spending the excess of premiums paid in over benefits paid out.
For people younger than 55, there have to be changes to keep the system from collapsing on itself or making the federal debt explode.
Any 30 year old who is making a retirement plan that includes Social Security as a portion of that income is making a dramatic financial mistake. I’ve said that to my children multiple times.
Social Security has zero to do with the debt or deficit. It is entirely self-funded. The money is there or it ain’t. Nothing is being borrowed to pay benefits.
You do realize the funds from collecting Social Security taxes go into the general fund by the government taking the excess of premiums paid in over benefits paid out into the general fund through Treasury bonds. The trust fund turns around and receives interest on the t-bills. That money is spent by politicians.
It’s an accounting gimmick. If the federal government had a set of consolidated financial statements, all of that would be eliminated in consolidation.
The equivalent would be if a company took the excess of what was paid by the company into its pension plan (remember those) over what it paid out in benefits and paid for an executive retreat in Hawaii and put unsecured company debt into the investments in the pension plan. If the company went belly up, the pension fund would be gone, and the asset put up for sale to pay other creditors.
It’s smoke and mirrors. The only difference is that in a crunch the Fed can print some Federal Reserve Notes if needed to buy the government debt.
If the SS and Medicare trust fund were in such great shape, there would be no reason for them to be tracked on this site:
https://www.usdebtclock.org
The t-bills were purchased by prior surpluses paid into the system. What people want to do is mislead people to achieve an ideological end because they know the program is popular. The right simply cannot stomach the idea that government can do things for its citizens other than send them to war. And they can’t stomach the political costs of proposing cuts or elimination of the program. So they just lie and lie about it instead. Same end I suppose but without all the messy political costs.
The left can’t stomach the political costs to tax everyone to keep the system solvent in its current structure and tells everyone that you are gambling with your retirement if only a small portion of what you pay in went into an account you own and can control the investments.
There’s plenty of blame to go around for what is a growing fiscal crisis for the trust fund.
If the trustees and the actuaries are saying the trust fund is going to be depleted in 10 years if something isn’t done in Congress, believe them.
Bush tried to do something. It was rejected, and it (along with Iraq) sank Bush’s 2nd term. Obama, Trump, Biden and Trump again appear to be whistling past the graveyard.
Yep, if Bush would have gotten his way by early 2009 everyone would have lost 2/3rds of their retirement.
That’s crap. Nothing was going to change for people nearing retirement age when he presented his reform proposal. Sorry but I’m not going to let you make a comment like that without responding. I didn’t lose 2/3 of my retirement assets in my 401k … I doubt you did either.
Those who would have been eligible to have a small part of their tax diverted into an account would have been buying cheap in 2008 just as I was.
I got out in late 2007 and bought back in on 3.8.09 so I did well.
But the markets did collapse in 2008 so if you were in your early 60’s and in the stock market you got wiped out.
Which is why trying to replace social security with stocks is a terrible idea.
That’s the point. The Bush proposal would have affected none of those individuals. The proposal wasn’t never a full replacement of the program.
Pretty weak argument:
If you were 60-ish in 2005 you were too old to get fucked by the Bush proposal. You’d have to be younger than that and then get hit by the next stock market bloodbath when you are 60-ish.
It was for a portion. It wasn’t a replacement. Anyone with a brain in their head knows to rebalance their portfolio the closer you get to needing the asset. It’s the same strategy you would use for your 401k.
Social Security may be politically popular, but it’s a lousy solution by itself for retirement planning.
Lots of people don’t have options outside of getting that social security check. People like us can play with our extra money as we like. And no matter how dumb we are there, we’ll still have a social security ck coming so we don’t have to eat cat food, die under a bridge or live with our kids.
I was in Colorado in July and a woman about 60 yo ck’ed out of a grocery store line just ahead of me with one item:
A single serving of raman noodles.
I thought about giving her my fund managers contact info but I decided against it. The real world isn’t an ideal world. We have to make pragmatic choices that meet people where they are not where we might prefer them to be.
Derek –
It’s funny that you use the phrase “sperm lottery.” I’ve always used the term “vagina lottery” to describe the phenomenon of being born into privilege and being set for life through no effort of one’s own. It’s more specific if you think about it.
If you like to watch (Chauncey Gardiner), this documentary includes a cameo by the Donald’s true love: https://en.wikipedia.org/wiki/The_One_Percent_(film).
This leads into my segue: DEI—Good or Bad? We all know that “Talent is everywhere, but opportunity is not.” How do we ameliorate the damage to society caused by the 1% “climbing the ladder and pulling it up behind them?” How do we ensure that a child of color, who might have the cure for cancer germinating in their brain, is given the opportunity to reach their full potential? Should we, as a society, be doomed to legacy admissions—like Flounder?
I’d like to think that one day everyone will be “judged not by the color of their skin but by the content of their character”—and by the intellect they possess.
My greatest fear? Going under the knife of a legacy admission who would never have been accepted into medical school if only the best and brightest were allowed to compete for the position.
Oh, taxes? I’d like to take the Republicans’ path to revert the country to life in the 1950s—and return the top tax rate to 91%, with all corporations paying a minimum tax based on earnings. https://www.fidelity.com/learning-center/personal-finance/history-us-income-tax
Reminds me of a funny line in JFK:
Chief, this is Nawlins. How do you know who your daddy is?
Cuz she told you!!
A large problem with this country is nobody wants to pay a dime more in taxes or take any less from any program that benefits them. I do not know the solution, but I know this country is at its best when we have a large and thriving middle/upper middle class that earns good money, pays their taxes, and pumps tons of money into the economy through spending. We are losing (or maybe have lost) that under the current system which seems to endlessly funnel money toward a small group while making reaching the middle class more difficult for a large portion of the country. If you were setting up an economy from scratch, I doubt this is the way most poeple would design it. Anyway, Go Dawgs!
And what the guy in the video is hopefully explaining is that the result is a scarcity of assets. So, for example, blackrock can buy and hold and sell or rent homes at a higher price because they have the money to do it. Meanwhile what regular folks have to spend on necessities items (housing, food, etc…) stays the same while costs of those items go up. It becomes a rigged game and regular people get run roughshod over. Then we point fingers, look for scapegoats, grasp at impractical and failed ideologies rather than focusing on the problem:
You can’t have a healthy economy/nation when all the wealth and power is in the hands of a few. You need some measure of economic and political egalitarianism. You need a permeable system where the poor can become rich and the rich can become at least a little less rich. Guaranteed multi-generational wealth is inefficient.
I think we need to look further back. I’m old. My father grew up during the depression. There was no safety net at the time. People literally had to depend on one another to survive. He fought in WWII. The second war to engulf huge swaths of the planet in 20 years. He flew B-17’s, was shot down and spent 16 months in a Nazi prison camp. He was lucky enough to return home, marry and start a family. Although we were never wealthy, we were solidly middle class. My Dad was keenly aware of just how fortunate we were and he reminded us of it often. He taught us that to those who had been given much, much is expected in return. We had been given much and we had a responsibility to do something with what we had to benefit others, not just ourselves. My Dad started several businesses during his lifetime. Back then you could go to a local bank and get a business loan with very little collateral as long as you could provide a business plan the bank believed in. We never possessed more than the homes we lived in over the years and I assume those were mortgaged. So, his only asset was whatever equity he had built up. His generation had a very different concept of capitalism. For them, it had to have a conscience. We’ve spent the last several decades insisting capitalism has ONE and only ONE objective. Return on investment. That return can ONLY be measured in dollars and those dollars better come quick and consistently. We’ve also become a nation of entitled narcissists. That’s not the way my father’s generation looked at life. For them, return on investment had to include human beings, They saw American democracy as a bold experiment that is community centric. Until we get back to that idea, capitalism will continue to be what our adversaries and critics have always thought it to be. An easily corruptible system that tends to exploit the average citizen.
Entitled know-it-all-because-we-watch-lots-of-tv-news narcissists.
I would argue that the idea of a shared destiny became frayed when certain other types of people showed up to play. That changed everything.
Dynamics that, until recently, didn’t really exist in European nations. And we see where that’s headed.
Which is why I posted the immigration video as well. Because at the end of the day poor and middle class people better get together and protect their own economic and political interests and stop believing that some rich dictatorial redeemer is going to fix it all for them.
Previously- My Dad served in WWII in the Navy. When I point out to folks on the internet that he was a part of the largest Antifa movement of all time, I get pilloried. The meaning of words changes over time, I guess, but not the sentiment.
You brought up a very important word, conscience. I’ve read that when the idea of a legal entity being able to exist without liability (corporations) was proposed, that the grantors added that all parties should be involved, labor, management and the community. If, and only if, the community believed that the corporation would act in an ethical way would they grant the corporate status. Of course, that went by the wayside. A name search and $55 entitles anyone to start an internet scam (LLC) in Georgia. Times change, words change meaning, but conscience, ethics and morality should always be a part of who we are.
Thanks for your post.
In 2023, the taxes paid into Social Security were $1.23t and SS benefits paid out were $1.38t. The trust fund ran a deficit of $150b, which required liquidation of T-bills in the trust fund. That doesn’t even include the $14b in administrative costs of the SSA, which is part of the federal deficit.
With no action, the trust fund will be empty in 2035 (that’s from the SSA) and has been running a deficit (ie, selling the T-bills) since 2010.
Something has to be done, and Medicare is a potentially bigger problem long-term as retirees continue to live longer. Posting Reagan clips from the 80s isn’t relevant to the financial situation facing the trust fund 40 years later.
Both parties don’t want to touch the 3rd rail of politics.