I am struggling with an even deep[er] anti-Reaganian ideal – that beyond a certain natural limit, it is impossible to “earn” money. It’s an invitation to totalitarianism, I know. But the primary means of earning large sums of money are due to inheritance, scaling, and mere proximity.
Scaling is the ability to take a product sold one-on-one, and repeat the act of selling that product without additional effort. Effort is involved in writing a computer program, scaling comes about when you have the ability to market it by merely putting up a web site . If you are a writer you can read your writing to someone and charge a fee, read it to a large group and collect a number of fees at once, or get it published, like Dan Brown, and watch the public engage in a crap-feast.
Hard to quantify, but pure luck has a lot to do with rewards in that type of activity. How many authors better than Dan Brown never get published?
And then there is proximity – this includes inheritance, but also banking, real estate – any type of transaction where you can place yourself at a bottleneck and charge for passage of that money from one set of hands to another. There’s a lot of calculating in that, but not what I would call socially useful skill. As a banker you are managing other people’s money, and charging a fee for taking from one group and lending to another. Whoopti-doo. That ‘skill’ would not amount to a dime’s worth of income were it not for the fact that the banker is close to the money.
There’s a whole class of people who are merely in the hunt for bottlenecks. We call them “entrepreneurs”, but that is something else entirely. These people don’t invent, they merely fence off goods or services and charge for use – wireless Internet or cell phones are a good example – the “skill” involved in those activities comes from lawyers who rope us into complex contracts of little benefit to us, but huge benefit to the people who stand at the bottleneck.
It’s a part of my justification for high tax rates on high incomes – the idea that for the most part, high income is due to clever calculating without much societal benefit in the outcome, or mere luck. From a moral standpoint, I can justify high taxes on high incomes if we allow people to avoid those taxes by doing socially useful things with their money, like investing in plants and equipment and people, or giving it to charity. You [know], like in the 1950′s, when we had a better system of shared prosperity than now.
There was a concept in play up until Reagan took office, a distinction between “earned” income (wages, self-employment) and “passive” income (interest, dividends, royalties, etc). Passive income was taxed at higher rates than earned income.
Republicans, tools that they are, are now promoting the idea that passive income ought to be exempt in total from taxation. It’s perverse, but a natural product of the idea that mere proximity is the same as earning, and therefore ought to enjoy privilege. Indeed there should be a reward for saving and setting aside for one’s future, but this should not be confounded with inheritance, luck, and proximity. God what weird times we live in.
Piece of Mindful 
I know a few wealthy people. So I can say without reservation that most of them, if not all, fit into your criteria.
“I can justify high taxes on high incomes if we allow people to avoid those taxes by doing socially useful things with their money, like investing in plants and equipment and people, or giving it to charity.”
They all own stocks or bonds, they all invest in companies that employ thousands.
That being said what would happen if passive income taxes were eliminated? Would the savings these people collect get stuck in a mattress? Would the Red Cross go on a hiring spree?
And what about the not so rich? What about the factory line worker whose pension is tied to company stock? Judging by your post he deserves tax free status even more.
Mark, you’re a numbers guy. What percentage of the US pop does Forbes and Trump represent? O thinks the upper 2% @ $250K+ is rich, seems to me they’re miles away.
These non-earners, who monopolize your angst, give me a number.
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My first reaction to your comment was “Oh shit, Swede wants me to go get income and wealth distribution numbers for him, and it’s Saturday and I want to do other stuff.” My second thought was “Wait, Swede is the king of Googlethinkers, so he could probably find the numbers faster than me.” And my third thought was “Whether I get the numbers or Swede gets the numbers, the numbers will not affect Swede’s outlook, as he is set in his mind.”
So you do it. Get your own goddamned numbers, and stay away from right wing think tanks. Go to a raw statistical abstract.,
Here’s what I beleive to be the dynamics: Income distribution is out of whack in this country. We have not seen numbers like this since before the great depression. Income from financial products does not represent wealth if the financial products are merely speculative. Buying stock after plant and equipment are built is not the equivalent of investing in plant and equipment. The country is awash in capital, and those who hold it do not have enough of what they consider worthy investments, and this causes speculative bubbles. Household income has gone down since Reagan took office, and consumption has been kept at higher levels by two-income households, then by credit card debt, then by cashing in home equity, and those things are mostly used up now, so that only higher income will produce more demand. Taxes affect behavior, and we as a society are free to affect behavior for our benefit for those who want to live here – they can always leave, and good riddance. Low tax rates do not stimulate investment. Mere ownership of wealth does not make one an investor. The economy is driven by demand more than supply.
All these things interact. It’s complicated. But putting the Steve Forbes class in a higher tax bracket will not hurt us (or him) in the least, other than he will have more angst than he does now.
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By the way, this is not unknown to most everyone who thinks hard about it, but the bottom line is this: The belief is that our economy can succeed as a two-tiered one, where the lower classes subsist doing menial work at low wages while our products are built overseas by near slave labor. They believe that the demand by the upper quintile is enough to drive us, and that the lower 80% should not expect more than they have. That’s why they keep saying that more tax cuts leads to more prosperity. They mean for them. They don’t give a shit about anyone else.
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What countries are doing it better? Pick your metrics. Currency stability? Education? Employment? Median income? Bottom line, we’re not #1. Not by a long shot. Look around, pick one, copy where you cannot create. We’re being played and too stupid to quit the game. This carnival will never leave town, it’s too lucrative for the carnival owners.
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Since you always avoid my questions here’s a couple more to blow off.
How are you supporting yourself? Living off your investments perhaps? Do you plan to leave any thing for the kids?
Did your move to Colorado have anything to do with there low state income tax or corporate tax rates?
I ‘m think both those rates are a mere percentage of Montana rates.
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I haven’t avoided anything. I merely told you to do your own research. You think you know the answer, but you don’t, and you’re the worst kind of don’t-knower. You don’t know that you don’t know.
How do I support myself? I’m an accountant working for myself. I’ll leave to my kids whatever is left over, which will be my collection of argyle socks and my Ed Abbey collection. Oh yeah – Playboy’s 50th anniversary hardcover book – full of literature.
My move to Colorado had nothing to do with money or taxes. And in case you don’t know this too, we pay both income, sales and property tax down here, perhaps morse than Montana. I don’t know you should google that.
In case you also don’t know, Americans are not over-taxed, and our corporate rate is window dressing, and corporations are not looking for lower tax rates. They are looking for cheap labor. Since slavery is illegal, they do the next best thing: sweatshops.
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Had to google Ed. Did recognize, Money Wrench Gang. Some of the friends of the hired man at our Big Timber Ranch belonged at one time to Earth First.
Here’s what’s always bugged me. For the work that you provide and the clientele you represent surely you must have prepared yourself for retirement. I doubt if it’s a store of gold bullion.
I’m thinking that you have retirement/investment accounts. And most likely tax free munies.
Tell you what, with out mentioning amounts or locations publicly confirm that you have prepared yourself with some type of fund.
If I deem the answer honest I’ll declare something about my self that will forever change the progressive’s image of me and will open myself to abundant scorn.
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Abbey’s non-fiction essays were far more interesting to me than his fiction, which I never much cared for.
Of course I save. You don’t read to the end of things. Most people used to think of their homes as a retirement fund too. That’s gone now. Thanks Ronnie. If only he’d lived to see the destruction he wrought.
Don’t confuse that with the subject of this piece, the top 1%. Somehow they have managed to convince you that their fortunes represent your freedom.
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TFB.
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Idiot.
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A very good post, Mark. You pretty much summed up a lot of my thoughts on the modern economy. But I’m not sure I’d call banking socially useless; banks can do a lot of good. The crisis was caused not only be greedy bankers, but by bad ones. Bankers who make good choices can direct money to efficient projects. They can give us very convenient services, like debit cards and checking accounts.
This isn’t to justify their high salaries; indeed I think the high incomes of bankers are a large part of the problem. Banking attracts smart people who place a great deal of importance on money; people who are concerned primarily with money tend to make bad stewards of the economy.
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