Author Topic: Causes of wealth inequality?  (Read 6102 times)

Schwab711

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Re: Causes of wealth inequality?
« Reply #20 on: January 23, 2019, 06:50:29 AM »
I'm going to suggest that ONE of the biggest causes of wealth inequality in the USA is due to:

It's stock compensation being favored by the US tax code.


Ross812

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Re: Causes of wealth inequality?
« Reply #21 on: January 23, 2019, 11:27:44 AM »
In my experience, the answer is choice.  Life is the sum of all your choices said Albert Camus.

I personally know at least 4 households who have heard me preach about the importance of saving money, underspending income grossly for many many years (9+), but they continue to carry massive amount of debt while living paycheck to paycheck.  1 household have additional refrigerator for all their beers, all 4 lease cars, etc. 

If we can legislate away dumb choices, we can reduce wealth inequality immensely without robbing Peter to pay Paul. 

some people decided to have babies early, even after being told how tough it's gonna be.  some people decided to be waiter/waitresses or bartender/bartenders instead of going to college...

knowing the right thing to do vs actually doing it...

I know quite a few households where the kids are doing well not because of any bright choices but because the parents have significant wealth.  I'm not even talking about better health care, better education and the *choice* to take risks, the freedom to take risks, because they have nothing to fear if they fail.  I'm talking about having easy and ready access to supply chains because the dad has leverage or how they get large chains to hold their products because they make money off the dad's products and so on. Significant wealth brings competitive advantages that can pass through the generations.  This can be easily seen in Europe, where some families maintain their wealth over several centuries.  A rich kid can make plenty of dumb choices but still end up on top because of their family's wealth.

And how does that make you feel? Envious?  Like you deserve to take what they have?   How is any of what someone does for their children your business?

I am fine with rich children getting advantages from their parents. A successful parent should be able to do whatever they want with their money, including giving their children a safety net, sending them to the best schools etc.

I would like to see the playing field leveled though. Let's just ignore all the lower tax brackets and look at the top 2 and look at marginal tax rates for families:

200k: 15%
400k: 21% (+40%)
600k: 26% (+24%)
1.2M: 32% (+23%)
2.4M: 35% (+9%)
4.8M: 36% (+3%)
6.5M+: 37% (+3%)

The numbers above are for wage earners, and some posters would say they are fair (definitely not RK though!). I mean, by the time the government is taking more than a third of my paycheck they can leave the rest alone regardless of how much I make right?

This breaks down though when you consider most individuals earning 1M+ are taking advantage of the favorable treatment of capital gains and/or dividends where those making 425k+ are taxed max rate of 20% effectively pegging them at the same marginal tax rate as a family bringing in 350K a year.

What you end up with is a marginal tax rate curve starting at 0 and peaking around 30% for successful professionals, sole proprietors etc. then heading back down to level off around 22% for executives who can use the tax code to their advantage. The system exists in its current form, because the individuals at the top of the income scale can write (tax deductible) checks to politicians to make sure a favorable tax code is implemented/maintained.

I would imagine this example captures a lot of the members on this forum; many members are probably paying a higher effective tax rate than someone earning 2-3x their income.






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rkbabang

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Re: Causes of wealth inequality?
« Reply #22 on: January 23, 2019, 12:33:53 PM »
What you end up with is a marginal tax rate curve starting at 0 and peaking around 30% for successful professionals, sole proprietors etc. then heading back down to level off around 22% for executives who can use the tax code to their advantage. The system exists in its current form, because the individuals at the top of the income scale can write (tax deductible) checks to politicians to make sure a favorable tax code is implemented/maintained.

I agree with you there.
One group shouldn't be paying 22% while others pay 30% it is confiscatory to the extreme, we should be advocating bringing those who pay more than 22% down to the levels the rich pay.  Then focus on bringing everyone down to <10%.
No individual, family, or business of any type should ever pay more than 10%.  Preferably 5%.  In a perfect world 0%.  And by that I mean all taxes to Fed+state+local governments combined should be <= 10%.

A 10% tithe is more than enough, even god never asked for more than that.

Ross812

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Re: Causes of wealth inequality?
« Reply #23 on: January 23, 2019, 12:53:58 PM »
What you end up with is a marginal tax rate curve starting at 0 and peaking around 30% for successful professionals, sole proprietors etc. then heading back down to level off around 22% for executives who can use the tax code to their advantage. The system exists in its current form, because the individuals at the top of the income scale can write (tax deductible) checks to politicians to make sure a favorable tax code is implemented/maintained.

I agree with you there.
One group shouldn't be paying 22% while others pay 30% it is confiscatory to the extreme, we should be advocating bringing those who pay more than 22% down to the levels the rich pay.  Then focus on bringing everyone down to <10%.
No individual, family, or business of any type should ever pay more than 10%.  Preferably 5%.  In a perfect world 0%.  And by that I mean all taxes to Fed+state+local governments combined should be <= 10%.

A 10% tithe is more than enough, even god never asked for more than that.

I have read your opinion about pure anarcho capitalism. I would be a little worried that capitalism in its purest form results in serfdom at best and slavery at worst. I don't want nuclear power plants dumping waste in rivers etc, so there has to be some sort of central authority right? Paying for a professional military is probably still a good idea right? I'd hate to see Buffett buy a dozen F22s and take over the central midwest, let alone an invasion by the Canadians ;-) 
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rkbabang

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Re: Causes of wealth inequality?
« Reply #24 on: January 23, 2019, 01:04:36 PM »
What you end up with is a marginal tax rate curve starting at 0 and peaking around 30% for successful professionals, sole proprietors etc. then heading back down to level off around 22% for executives who can use the tax code to their advantage. The system exists in its current form, because the individuals at the top of the income scale can write (tax deductible) checks to politicians to make sure a favorable tax code is implemented/maintained.

I agree with you there.
One group shouldn't be paying 22% while others pay 30% it is confiscatory to the extreme, we should be advocating bringing those who pay more than 22% down to the levels the rich pay.  Then focus on bringing everyone down to <10%.
No individual, family, or business of any type should ever pay more than 10%.  Preferably 5%.  In a perfect world 0%.  And by that I mean all taxes to Fed+state+local governments combined should be <= 10%.

A 10% tithe is more than enough, even god never asked for more than that.

I have read your opinion about pure anarcho capitalism. I would be a little worried that capitalism in its purest form results in serfdom at best and slavery at worst. I don't want nuclear power plants dumping waste in rivers etc, so there has to be some sort of central authority right? Paying for a professional military is probably still a good idea right? I'd hate to see Buffett buy a dozen F22s and take over the central midwest, let alone an invasion by the Canadians ;-) 

I can see the arguments for some government, especially at the local/city level.  I think there are good arguments against it, but I'd be willing to admit I could be wrong.  But there is no question in my mind that 95+% of what the federal government does is unnecessary/harmful.  Spending should be cut 95% and taxes of all types cut 80% until the debt is paid off, along with selling all federal lands/buildings outside of D.C. to help pay off the debt, then taxes cut to allow for a balanced budget.  We have nuclear weapons, there is no need for 900 military bases in 153 countries.  I don't know how many military bases is sufficient, but they should all be in 1 country.  If the Canadian military crosses the border on horseback or whatever it is they do, I think many Americans would be happy to grab their rifles and help stop them.

rb

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Re: Causes of wealth inequality?
« Reply #25 on: January 23, 2019, 01:26:29 PM »
We have nuclear weapons, there is no need for 900 military bases in 153 countries.

Then when something like 9/11 happens what do you do? Drop a nuke on Afganistan?

SHDL

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Re: Causes of wealth inequality?
« Reply #26 on: January 23, 2019, 03:48:04 PM »
If the question is why wealth inequality has been increasing over time (as opposed to, say, why it exists in the first place, or what the government can/should do about it), there’s an extremely dry answer: it is just the way the math works.

Here's why, for those who are interested:

Let W(i, t) denote the wealth of family i in generation t, and let r(i, t) denote the net return on wealth, after taxes and spending, that family i obtains between generation t and t+1.  Then for each i and t:

W(i, t+1) = (1 + r(i, t)) * W(i, t).

Suppose also that r(i, t) is independently and identically distributed across families i and generations t (and that the distribution from which it is drawn has positive variance).

Then it follows mathematically that the variance of log wealth W across families i increases linearly with generation t and therefore does not converge as t goes to infinity.  In other words, wealth inequality keeps increasing forever without ever reaching a limit.
« Last Edit: January 23, 2019, 07:51:41 PM by SHDL »

Cigarbutt

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Re: Causes of wealth inequality?
« Reply #27 on: January 23, 2019, 05:39:01 PM »
If the question is why wealth inequality has been increasing over time (as opposed to, say, why it exists in the first place, or what the government can/should do about it), there’s an extremely dry answer: it is just the way the math works.

Here's why, for those who are interested:

Let W(i, t) denote the wealth of family i in generation t, and let r(i, t) denote the net return on wealth, after taxes and spending, that family i obtains between generation t and t+1.  Then for each i and t:

W(i, t+1) = (1 + r(i, t)) * W(i, t).

Suppose also that r(i, t) is independently and identically distributed across families i and generations t (and that the distribution from which it is drawn has positive variance).

Then it follows mathematically that the log variance of wealth W across families i increases linearly with generation t and therefore does not converge as t goes to infinity.  In other words, wealth inequality keeps increasing forever without ever reaching a limit.
Is this a Fed model? :)
Is there an option for reversion to the mean because, in centuries past, driving inequality used to result in chopped heads, but maybe we've learned how to manage and moderate the economy?
https://www.bourbonfm.com/blog/top-decile-income-share-1917-2012


rukawa

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Re: Causes of wealth inequality?
« Reply #28 on: January 23, 2019, 05:44:51 PM »
If the question is why wealth inequality has been increasing over time (as opposed to, say, why it exists in the first place, or what the government can/should do about it), there’s an extremely dry answer: it is just the way the math works.

Here's why, for those who are interested:

Let W(i, t) denote the wealth of family i in generation t, and let r(i, t) denote the net return on wealth, after taxes and spending, that family i obtains between generation t and t+1.  Then for each i and t:

W(i, t+1) = (1 + r(i, t)) * W(i, t).

Suppose also that r(i, t) is independently and identically distributed across families i and generations t (and that the distribution from which it is drawn has positive variance).

Then it follows mathematically that the log variance of wealth W across families i increases linearly with generation t and therefore does not converge as t goes to infinity.  In other words, wealth inequality keeps increasing forever without ever reaching a limit.

Then we would expect the richest people to come from very old money but that isn't what we see....the four richest people are all new money:
1) Bill Gates
2) Warren Buffet
3) Jeff Bezos
4) Amancio Ortega

And this is consistent with history...think of renown rich people:

Rockefeller...born to penniless single mother
Carnegie....poor immigrant
Vanderbilt....fourth of nine children born to relatively poor family
John Jacob Astor...son of a butcher

How many rich Astors or Vanderbilts or Carnegies do you know of today? Only the Rockefellers maintained their fortune to the present day. General aphorism is shirt sleaves to shirt sleaves in 3 generations. First generation builds wealth. Second preserves and even expands it. Third squanders it. So although its possible in theory for your equation to hold...in practice that isn't how human beings or the world works. You can understand why this is difficult...if you were the son of a billionaire would you really want your whole life to be devoted to maintaining the empire someone else built?


SHDL

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Re: Causes of wealth inequality?
« Reply #29 on: January 23, 2019, 05:50:24 PM »
If the question is why wealth inequality has been increasing over time (as opposed to, say, why it exists in the first place, or what the government can/should do about it), there’s an extremely dry answer: it is just the way the math works.

Here's why, for those who are interested:

Let W(i, t) denote the wealth of family i in generation t, and let r(i, t) denote the net return on wealth, after taxes and spending, that family i obtains between generation t and t+1.  Then for each i and t:

W(i, t+1) = (1 + r(i, t)) * W(i, t).

Suppose also that r(i, t) is independently and identically distributed across families i and generations t (and that the distribution from which it is drawn has positive variance).

Then it follows mathematically that the log variance of wealth W across families i increases linearly with generation t and therefore does not converge as t goes to infinity.  In other words, wealth inequality keeps increasing forever without ever reaching a limit.
Is this a Fed model? :)
Is there an option for reversion to the mean because, in centuries past, driving inequality used to result in chopped heads, but maybe we've learned how to manage and moderate the economy?
https://www.bourbonfm.com/blog/top-decile-income-share-1917-2012

Probably too elementary to impress the folks who work there... ;)

Speaking of mean reversion, what the above shows is that there’s basically no obvious reason to expect it to happen “naturally” — so if you want it you probably need to introduce it artificially via taxation or something.