this post was submitted on 17 Nov 2024
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"Abolish inheritance"
*sigh*
Inheritance isn't the root problem. The problem is that the only people with any money are people who were able to save it decades ago. And that problem is because labor has been devalued, wages stagnated, and cost of living soared.
And all of that is because for the past 40 years or so, there has been more benefit to taking profits out of business than spending money within the business.
When you reach the top-tier income tax bracket, and the IRS starts taking 91% of your income beyond that level, $10,000 of business income is only worth $900 to you.
When your best employee wants a $10,000 raise, that money comes straight out of your "excess" earnings. It is $10,000 of your earnings that are not subject to taxation. Paying that $10,000 raise only costs you $900 once you reach that tax bracket.
But we don't have a 91% top-tier income tax bracket anymore. We had a punitively high top tier rate for most of the 20th century, but it got cut down in the 70's and slashed in the early 80's. Now, the top tier income tax bracket is just 37%. When you reach that bracket, giving your best employee a $10,000 raise takes $6700 out of your pocket, instead of just $900.
Reagan's views on the Laffer curve were correct: raising the tax rate beyond a certain point will actually reduce tax revenue. But tax revenue is not why we need the high rates. The benefit of high marginal tax rates comes from what business does to avoid them. We need to restore the business incentives that come with a punitively high top-tier income tax rate. We need businesses to increase their labor expenses to avoid that tier. Businesses should benefit the whole economy, not just the ownership class.
For similar reasons, we need taxes on registered securities, payable in shares of those securities. The shares collected as taxes will be liquidated in small lots over time, comprising no more than 1% of total traded volume, to limit their effect on the market. Exempt the first $10 million held by a natural person; tax everything above.
I mean, it's not that clear-cut. There's still people who have a nice job and save a lot of money, it's just a somewhat smaller group than there used to be, and at the same time the gap with non-nice jobs is larger. Furthermore, $900 is still $900, I question if some random shareholder really cares about a stranger's raise that much.
More redistribution would help the inequality problem, for obvious reasons, though. You're right about that. I also don't buy that nobody will do anything without a small chance of becoming a billionaire, or that billionaires are really hundreds of thousands of times smarter than the average person and we need them to be happy.
I'll rephrase. The shareholder in question has the option of spending $10,000 on their business, or giving Uncle Sam $9,100 and pocketing $900.
The shareholder in question gets a lot more bang for their buck by figuring out how to spend it than paying the tax and trying to keep it.
Well, they have to pay the tax just the same on the 10,000 - or whatever it grows into - in the future. I don't see how it changes their tendency to invest rather than spend.
Looking at the empirical data, propensity to save was maybe double what it is now back then. It's an imperfect metric because it includes instruments other than stocks and all social classes, but that seems like less of a difference to me than you'd expect if this was driving it.
Like, again, the general concept isn't bad here, but I have to take issue with this specific argument.
If you pay a worker $10,000 to make a widget and sell it for $15,000, you pay taxes on $5,000, not $15,000.
If you give that worker a $5000 raise, you don't actually earn anything, and you don't pay taxes on that $15,000.
So what happens is that the billionaire starts counting everything he spends as an operating expense. Which is fine. Because he is spending the money, rather than taking it as profit and buying shares. Every cent he spends is a cent in the pocket of a worker, somewhere. Maybe he doesn't pay his own workers more. Maybe he hires an advertising firm, and they make some money. Maybe he buys a car "for business purposes", and the car manufacturer (and their workers) makes some money. Maybe he buys a private jet, or a yacht, and those manufacturers make some money. Maybe he throws a giant party, and the caterers, the DJ, the venue, and everyone else in the hospitality industry makes some money.
With a 37% top tier marginal tax rate, he can put $10,000 into the economy on products and services that he claims are business expenses, or he can take $6300 out of the economy and put it into stocks.
Wih a 91% top tier marginal tax rate, he can spend $10,000 on products and services that he says is related to business, or he can buy $900 worth of stock. Even his fraud now benefits the economy. His claim of personal expenses as business expenses still puts money into worker pockets. The victim of his fraud is the IRS, not the American public.
Yeah, but like, the value of the stock (for a billionaire) itself drops if you can't get dividends out of it as easily, so he's actually choosing between investing an effective $900 or getting $900 after tax.
Taxing billionares is the same as subsidising all non-billionares, from an investment viewpoint. Money isn't real, you can't make "the fundamentals" work better than optimally by moving it around like that.
No. You forget what he is acquiring as "business" expenses. He's either spending $10,000 on "business" or $900 in personal investments.
That's sure not how I think about my own investing. I don't really care what happens inside an index fund, all I care about is how much money I can get out when I reach my horizon.
I feel pretty safe in assuming you are not a multi-billionaire. I also kinda doubt that you are the principal owner of a business that would come anywhere close to the top tier income tax bracket.
If those are reasonable assumptions, there is no reason why you should be thinking this way at all about your own investing.
I do know that I use 20% of my home exclusively for business purposes, and I count 20% of my housing costs as a business expense. That part of my home is paid out of my revenue (pre-tax) because it is a business expense, and the rest of it is paid out of my income (post-tax) because it is a personal expense.
I also know I have a fairly strong incentive to increase the area of my home dedicated to business purposes, and shrink the area I use personally. It's the same dollar payment on the same mortgage, the same real estate taxes, but now it's being made with pre-tax dollars, reducing my taxable income, and therefore my tax bill.
If my income tax rate was 91%, you can safely bet that I'd have no net income after my tax deductible business expenses. That's the entire purpose of a 91% top tier tax: Force them to actually spend their money, rather than hoarding it, and using it to hoard more.
I suppose that means capital gains tax is lower in your jurisdiction than normal income tax?
For what it's worth, I'm poor as shit, and my investment account is there but pretty empty, haha.
They could be smart about it. No taxation on inheritance under 2 million (I'm pulling these #s from the sky). Anything over gets taxed progressively; if if these billionaires won't pay up during life we can grab it on the way out.
That's already a thing. The estate tax only kicks in over 5mil. It's typically dodged by putting all assets in trusts so that ownership never legally transfers it's the trust that owns them. Trusts being a legal vehicle don't die, and can have beneficiaries added and removed.
So tax trusts..
That only accounts for a small portion of parental contribution and is easily avoidable by an early inheritance.
Nobody bats an eye when you say, "early inheritance," but everyone gets sooo upset when I murder my parents