I worked for some very rich oil dudes in my early career, and each December they were forced with a choice: “Do I want to put my money in the ground, or turn it over to the government.” Without fail, they put it in the ground. It may have impacted their freedom, but it also served a greater good. The privileges of wealth should not override the health of our economy, especially when wealth results from mere rent-seeking.
The following is from economist Michael Hudson, who seems to have figured out the game:
Democracy involves subordinating financial dynamics to serve economic balance and growth – taxing rentier* income or keeping basic monopolies in the public domain. Untaxing or privatizing property income “frees” it to be pledged to the banks, to be capitalized into larger loans. Financed by debt leveraging, asset-price inflation increases rentier wealth while indebting the economy at large. The economy shrinks, falling into negative equity. …
…The private bank debts taken onto government balance sheets in Ireland and Greece have been turned into taxpayer obligations. The same is true for America’s $13 trillion added since September of 2008 …
…To put matters bluntly, the result has been junk economics. Its aim is to disable public checks and balances, shifting power into the hands of high finance on the claim that this is more efficient than public regulation. Government planning an taxation is accusers of being the “road to serfdom,” as if “free markets” controlled by bankers given leeway to act recklessly is not planned by special interests in ways that are oligarchic, not democratic.”
In other words, “free markets” are the real “road to serfdom,” as can be seen all around us. The science of economics has it all backwards.
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*A “rentier” is an entity, such as Bain Capital, engaged in “rent seeking,” or skimming off of income-producing activities rather than creating new wealth. The ultimate lie of economics is that mere wealth accumulation is a societal good. Wealth created from a newly created activity, as investing in a new invention, is not the same as merely buying stock in an existing enterprise and collecting dividends and capital gains. This is the economic basis for high marginal tax rates** – not to confiscate wealth, but to direct investment towards its highest and best use. Investors should always be given the choice – invest or pay tax.
**Two other benefits of high marginal tax rates: Charitable giving is encouraged by a high-tax environment. Given a choice between turning it over to the government or charity, investors most often choose charities. Secondly, municipal bonds flourish. A tax-free bond in a high tax environment is a powerful investment, so that cities, countries, states, neighborhoods have access to low-cost financing.
Piece of Mindful 
Charitable giving is not always what’s it’s cracked up to be. In the environmental arena, most of the big money flooding the offices of “Gang Green” stream from trusts invested in high-return equities and bonds that finance many of the biggest multi-national names in the history of banking, mining, logging, grazing, chemicals, biotech, weapons, surveilance, real estate development and other notorious “rapers, scrapers and polluters.” Maybe it’s time for IRS overhaul.
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I was thinking more like opera houses and orphanages than green groups.
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Ran across this great quote the other day.
“Capitalism is not an ideology. It is what people do when the government leaves them alone.”
Are municipal bonds in Detroit flourishing? How ’bout in those bankrupt CA towns?
How ’bout a challenge? I’ll purchase “monster box” (1000 0z. of silver coins) valued around $37,000 and you purchase the same in munis.
When we go to meet our maker which of our descendants will be happier with our purchase?
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You’re right about capitalism. You just don’t know why.
And you don’t get that munis are attractive in a high tax environment. We’re not in that. But look at it this way – say top marginal rate is 70%, and Detroit offers a 3% muni – an investor would have to get a 10% yield to compare with that in taxable bonds. That’s why they worked so well, and don’t anymore.
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It’s all ’bout risk Mark.
Munis, while historically safe are not the safe haven they used to be.
http://www.zerohedge.com/news/untold-muni-story-default-frequency-far-greater-reported
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Have you ever considered the repercussions of a 70% rate?
Who in their right mind would ever work when the feds took seventy % and state and locals took even more?
Can you say Black Market? Can you say move to another more friendly haven? England and France are now taxing millionaires and they’re leaving. States and countries who punish high earners with confiscatory taxes soon discover they lose more revenue in the long run.
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The 70% rate does not kick in until over $3 million, and, if you are paying attention, you will note that it only affects disinvestment (dividends and capital gains), aka rent-seeking. By lowering our rates as we have done, we have in effect encouraged the wealthy to disinvest, creating surplus funds, bubbles, a paper economy, lower charitable contributions and hardly any money available to communities via munis.
We had a 70% rate on passive income. It did none of the things you say it would do. And anyway, if we have millionaires but cannot tax them, why have them? It’s not like they create jobs. If they threaten to leave due to higher tax on disinvested income, let them go.
And further, this goes back to the first line of the post – economics as you present it here is wrong about everything. Go back and read it again.
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Let me tell you where you’re wrong.
You think we’re stupid.
http://www.telegraph.co.uk/news/politics/9707029/Two-thirds-of-millionaires-left-Britain-to-avoid-50p-tax-rate.html
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Don’t care. By the way, the article doesn’t know where they went, or whether they just didn’t report as much income. You’re not much for paying attention but I’ll try one more time: The top tax rate would apply only to disinvestment – capital gains and dividends, and would not kick in until $3 million, just as under JFK.
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Did you mention dividends?
http://online.wsj.com/article/SB10001424127887324705104578149012514177372.html
Avoidance from Obama 1%ers.
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Hilarious! You just made my point! Higher tax rates would give him incentive to leave the money in the company. That was why we had a 70% rate.
People did not invest $1 billion in Obama just so he could raise their taxes. Get real. He’s a con man.
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