When you have an economic system where most of the economic growth goes to a small percentage each year the system will keep compressing the wealth to one side till the system breaks. With the advancement in AI I think the problem is likely to be exacerbated as more of the economic growth is captured by corporations from the workforce.
I think it’s a natural property of the interaction between capital and technology.
Let’s say in a hypothetical society, the richest person has 10 capital and the poorest have 0. The gap between richest and poorest is 10 capital, and we can assume some nonlinear distribution of population between the extreme.
Let’s say technology 10xes your capital. Now the rich person is 100 capitals ahead of the bottom and the population wealth curve has been stretched.
Let’s say technology e^xes your capital, now your wealth curve is even more complicated and the rich person (after successive iterations of technology) is far ahead.
Raising tax rates beyond that point is guaranteed to be suboptimal, though. Most of the weird distortions being discussed in this thread are due to the postwar 92% tax rates.
It's useful to know where the ceiling is.
There are many people today that argue we should bring back Eisenhower level tax rates on the wealthy, and there are many others that argue we have to keep taxes on billionaires at the extremely low levels they're at today or they'll quit participating in our economy. Neither of these is true.
I know of an airport, a bunch of hunting and fishing lodges, teams of housekeepers, etc. that basically allowed the executives of a fortune 500 company to live a pretty amazing life as if they owned an estate without actually paying for any of it.
As soon as marginal tax rates came down, these things got eliminated -- it was far more efficient to just pay people.
Likewise, smart people tend to marry other smart people. If one does well, the other got taxed at 90%. Guess what actually happened? She didn't work. Huge huge loss for the economy.
If your husband works and hits the 50+% bracket, and you are younger and make less... You either have to make 3x what your nanny does before you even keep a dollar- any less and you are paying to work.
This is incredibly disheartening friends have complained about being involuntary housewives bc it would cost them too much to go to work
The net might be less than the cost of a nanny at first, but kids do not need nannies, generally, when they go to school. If the spouse choosing to stay at home would prefer not to set their career back the 5-8 years (depending on how many kids) then that would still be worth it in the long run, salary wise.
These offerings have a very obvious catch: They give you all these nice perks and take care of your family so you have more time for the company. They effectively buy you and your time.
This was summer camp and hunting camp for the executives. If you read the man in the gray flannel suit, you'll be surprised by how a lot of white collar execs didn't work that hard. Things moved a lot slower
That's a million per year, not the usual definition of "net worth over a million" which is a rather lower bar considering plenty of quite normally-salaried or even retired people are sitting on a million in property value.
That itself is an ahistorical take. Tax as a percent of the economy has gone through the roof, both as a percent of GDP, and as inflation adjusted dollars.
If you compare to a benchmark like the 1940s, tax% of GDP has more than doubled, and GDP has increased ~4x. This means someone today taxes are about 10X the taxes (controlling for for inflation!)
Consider that 40% of US GDP now is collected in some form of taxation (city, state, and federal).[1] 40 cents of every dollar earned is taxed and spent as the government chooses. This is more than between FDR and Regan, and much more than the 20s (~15% of GDP).
which in turn seems to be based on IRS aggregate taxpayer data. Based on a quick of the IRS data referenced, the "effective rates" does seem to be actual effective rates (ie. calculated based on how much the IRS is getting, rather than calculating based on what the brackets are). That said, I can think of multiple reasons why they don't correspond to the graph above:
1. At least in the early data, millionaires don't make up that much of overall tax take. For instance in 1945 they only made up of 0.1% of overall tax receipts. That means the effective rate of 64% makes a negligible contribution to the effective tax rate of the entire economy as a whole.
2. The threshold for millionaires is also not adjusted for inflation, so you'd expect the effective tax rate to drop as the brackets are moved up to account for inflation.
Indeed. This whole article hinges upon a poor understanding of data, or worse, an intentional deception using data. A million dollars now is very different from a million dollars 70 years back. Even after adjusting for broad inflation, there are far more citizens have assets worth a million dollars due to home ownership and asset price increase.
"percentage of income taxes born" =/= "Effective Tax Rate"
For instance, if the top 1%/millionaires earned more income (as a proportion), you'd expect the "percentage of income taxes born" figure to go up, even if the effective tax rates remained constant or dipped slightly.
If you’re rich you can be fine almost anywhere in the world, barring a dictatorship or some war torn region. But if you’re not rich but have just a little bit, life outside of the US has the potential to be way better these days. Unless you work like a mule and don’t mind hustling your way into retirement or death.
Congratulations! You have ignored the point OP wanted to make by pointing out the original definition of a term that is used with another meaning nowadays.
Is there something you believe this adds to the conversation? (Genuinely asking, because I fail to see it, and I don't want to accuse you of anything based on that.)
It's, to me, an amusing juxtaposition of the OP claiming to be "literally unable" and the actually literal meaning of the adjacent term being incompatible. And maybe someone would learn that third-world doesn't specifically mean "poor"; they may be in today's 10000 or whatever. Chill.
There is no accountability for the ruling class including political actors in the US. I enjoy the freedoms this country provides but I see risk across the very fabric of society. We are drowning as a country and it's to allow certain sectors or companies to rise indefinitely to the top of the capital market. What solutions can we deploy?
I think we’re heading for the no solution territory. At least I don’t see politicians miraculously coming to their senses, everything is corrupted beyond repair.
Politicians 'come to their senses' when they interact with normal people and are accountable to them. Public funding of elections and bans on large private donations remove the incentive to only talk to rich people. Getting money out of politics needs to be a top priority. If money isn't a factor then all voices become equal and democracy can rear its head once more.
I feel like modern presidential campaigns are just two team captains assembling as many billionaires as they can on their team. Biggest net worth team wins
Ok then and who bans large private donations? Who can take money out of politics? Politicians won’t do it as it isn’t in their interest. It’s catch 22 all the way down. In theory you’re going in the right direction but the reality is stuck somewhere else…
Eh... There's some definite risk. The US is dealing with increasing corruption and nepotism, aging infrastructure, sliding standard of living for lower income americans, a shrinking middle class, unsustainable federal debt/spending, and all of those problems are going to be greatly exacerbated by the impending demographics pinch. The question is not so much if we turn into a full 3rd world country, but to what degree our standard of living slips.
>>The US is dealing with increasing corruption and nepotism, aging infrastructure, sliding standard of living for lower income americans, a shrinking middle class, unsustainable federal debt/spending, and all of those problems are going to be greatly exacerbated by the impending demographics pinch.
>What advanced nation isn’t suffering from most of those?
Japan. The infrastructure is generally fantastic, and well-maintained (new trains are being built, bridges aren't falling down randomly). Corruption and nepotism isn't increasing from wherever it was before, and is generally low to begin with. The standard of living for lower income people is quite good (everyone has health insurance, healthcare is inexpensive, medical costs for children are all free, living costs are generally low). The middle class isn't shrinking, it's very strong. Government debt is high, but it's all internal (owed to the people), not external. There's a demographics pinch, but every developed nation (plus the US and Russia) has this right now, frequently even worse than here (just look at China and South Korea).
There are issues, like any place, (esp. the weak Yen currently) but not like the ones the US faces, nor on the same scale.
Looking at the quality of life, infrastructure, physical safety, proliferation of firearms, etc., the US already looks like a 3rd-world country to me. It's why I moved out.
Although I've looked at the original report, it isn't clear if this $1M in annual income that they're comparing to the 1950's is inflation adjusted. The only comment I can find on this point appears to say that it isn't which makes it an unfair comparison because that's the equivalent of more than $13M today.
The article avoids a bigger concern which is the size of government spending. In 1960 (I couldn't find older data) federal government spending was $144B. If we adjust for inflation, today's spending would be $1.6T. It's $9.7T.
Perhaps the rich are paying less, but a government that increases spending by 6x is certainly contributing to the problem.
Population has doubled size 1950 explaining some of the spending increases and spreading out some of the costs, but not all. It would be interesting to see if the number of "millionaires" has rise proportionally.
> Although I've looked at the original report, it isn't clear if this $1M in annual income that they're comparing to the 1950's is inflation adjusted. The only comment I can find on this point appears to say that it isn't which makes it an unfair comparison because that's the equivalent of more than $13M today.
For instance for the 1945 figures you can clearly see that they pulled the figures they pulled were for millionaires ("1,000 [in thousands] and over").
I see this claimed all the time, but I don't understand why this is assumed to be the case.
GDP rises and falls with economic progress and innovation. If new LLM startups make a bunch of money, GDP goes up accordingly.
But government spending is primarily geared towards defense, infrastructure, and benefits/entitlements. What makes those costs go up proportionally to GDP? A fighter jet doesn't directly cost more because Amazon rolls out a new Alexa device, does it? America doesn't suddenly grow thousands of miles of new coastline because Google opens a data center in Iowa, right? If Rivian builds 10,000 new EV trucks, how much more interstate highway must be built?
I would expect government spending to ebb and flow as market prices fluctuate, and I get that they might be loosely correlated, but why is spending assumed to be so closely linked that we should expect it to be a function of GDP?
* Managing a large economy is more expensive than a small one: for example creating legislation and managing a justice system for 100 companies is cheaper than doing the same for 10000 companies.
* Tax revenue is typically more or less fixed percentage of GDP.
The first point is something you can't really avoid without impairing the government. The second one you probably could with political decisions.
Do one thing, make dividents you receive from companies as taxable at 30% instead of 0 or 10% and see how taxes get generated.
All the bs about "marginal rate" and yet people will find ways. If you force companies to deduct and pay taxes and then remit balance to the shareholder, the taxes collection will happen.
Also, increase capital gains tax.
In India its 15 or 20%, short or long term which is too little. Make it 30%
High capital gains and dividend taxes mean that the only way for poor to accumulate capital is through employment which is already brutally taxed, and then capital will be funneled as soon as possible into real estate. See real estate markets in Ireland, Canada, UK which have high both capital gains and dividend taxes. The rich will trivially evade these two taxes anyway.
poor don't accumulate capital. why do you think that? the majority of human population lives hand to mouth their entire lives.
>then capital will be funneled into real estate as soon as possible. See real estate markets in Ireland, Canada, UK which have high both capital gains and dividend taxes. The rich will trivially evade these two taxes anyway.
i dont get this. i am saying increase taxes on capital gains, that includes gains made from sale of real estate. let people hoard as much cash in a house, when they have to "sell", that is when capital gains get triggered on the profit. higher profit means higher taxes.
what problem are you talking about these countries?
also, how can rich evade divident and capital gains? i genuinely want to know
There is too much lobbying involved every time any government touches capital gains tax. Usually they end up changing capital gains tax only for stocks and bonds as they are rather virtual, while capital gains on gold, currencies, and especially real estate remain unchanged or even zero.
> what problem are you talking about these countries?
Check real estate prices in Toronto, Dublin, or London.
> how can rich evade divident and capital gains?
Charities, trusts, family foundations, own army of lawyers and accountants.
I could be missing something but aren't millionaires taxed on qualified dividends at 23.8%, rather than 0-10%? And nonqualified dividends taxed at income rates?
> billionaires have benefited massively from the Trump tax cuts, with the U.S.’s 806 billionaires’ collective wealth hitting an all-time high this month of $5.8 trillion. This is double the amount of wealth they controlled in 2017, the year the bill was passed
The S&P 500 was at 2300 at the start of 2017, and 4800 at the start of 2024. If billionaires' wealth doubled, it was mostly due to equities (and other assets like real estate) doubling, not due to tax cuts, as this passage implies.
It’s comparing the effective tax rate of someone who made $1m 1945 dollars against someone who made $1m 1980 dollars, and implying that the same should apply to someone who makes $1m 2024 dollars.
$1m in 1945 had the same purchasing power as $4.6m in 1980 - or $17.4m in 2024.
Those are not at all the same socioeconomic classes.
The premise is that the tax rate of millionaires is of interest as distinct from the tax rate of the typical person because millionaires are considered as having an above average amount of wealth, i.e. the topic at hand is how the wealthy are taxes relative to the less wealthy. If inflation moves typical amounts of wealth closer to millionaire levels, the analysis no longer provides the same level of insight into that topic.
