Wealth Inequality in America

[HuskerShark]

In a capitalist economy, there are going to be people who have great amounts of wealth, those who don't have much of anything, and those who fall somewhere in the middle. There is not a solution because there does not need to be.

I find it amazing, and somehow completely unsurprising that you are championing unfettered greed after debates in other threads. Kinda proves my point though

 

Who's championing greed, and what point would that prove? The reason that the wealthy people are so wealthy is because they are the SOURCE of the money. They either came up with something revolutionary and made a killing off of it (Bill Gates), they run HUGE, multi-national companies (Warren Buffet), or a combination of both. OR they inherited the money/assets from their father, grandfather, great grandfather who fit the other categories. That's all I'm saying. Wealthy people create jobs, middle-class citizens work those jobs, and middle-class citizens go to the store and buy products that were produced by the wealthy people. That's how the world works. Welcome to life.

Maybe you need to go open your book again and re-read for all the anti-greed messages. You sure missed that message.

 

You also need to lean how economics work. You are trumpeting supply side, or as its also know, trickle down, economics. Consumer demand creates jobs. Not money, shop being a Fox Shill. Companies are sitting on massive stockpiles of capital, and they arn't sitting around going "Damn, we have all this money, lets go hire people, or give raises to the workers" They are stuffing the lettered jobs pockets, and kicking back eating cake.

 

Thank you for imparting your infinite wisdom upon me.

[Conga3]

Conga, money isn't necessarily wealth, but it often times can be wealth, and more importantly is the means to acquire wealth. When you can manipulate money like the rich can (guess where all the interest us common folk pay goes to? That's right, the 1%) and manipulate political policy, and even take measures to try to steer the markets in whatever direction, you have the power to accumulate even more wealth. And it will always be at the expense of the 99%.

 

I'm not trying to complain about what the 1% does, it's only human nature to try to get richer, but it's just a dumb system that government currently does nothing to solve. You can make $1 billion in capital gains and still pay just 15% on it. There are teachers and bank tellers and construction workers that pay more taxes than that. I love capitalism and there will always be rich folks, but it's government's job to protect and serve its citizens - all of its citizens, and there are a lot of middle and lower class people out there

 

First off, let me address this Capital Gains tax thing.

 

It's true, the very wealthy are often times earning a large amount of their income through 'Capital Gains' type income. This is income from long term (1+ years) investments.

 

So what is happening here?

 

Well, at some point a person has a surplus of cash from earning more than you can spend. (Spoiler Alert! - You don't have to be rich)

 

If you're not going to spend it, your options are :

 

- bury it in the backyard

- leave it in your bank account

- invest it

 

Investing your surplus money is the best way to increase your income and grow your wealth.

 

You can invest it in yourself - but you've already got a job and no time to do more, so you invest it in your neighbor.

 

By investing in someone else, you are essentially saying ---

 

'You can be more productive using my money than I can be burying it in my backyard'.

 

'Take my money, produce something with it and grow your own wealth. All I ask is a percentage of that growth.'

 

Whoever gets your investment, goes about their business and hopefully generates profit.

 

The government comes by and says, nice job pay your taxes - and they take about 25% of the company's profit.

 

What is left over is either reinvested in the company to finance growth or is paid to the investors.

 

Some of the profit that was generated from a company efficiently providing society with desirable goods and services and jobs, will be taxed a second time when that income is distributed to the investors - Capital Gains Tax of 15%.

 

That's why capital gains is considered double taxation. While the amount of tax applied to the income of the investor on his tax return is 15%, in reality the rate is closer to 40% and as high as 55%.

 

So, complaining about a 15% capital gains tax is misguided. Being outraged that rich folks pay ONLY 15% tax is simply expressing your ignorance of the situation.

 

While the actual tax rate varies year to year due to fluctuations of profits/loses and the various tax breaks, before the recession started in 2008 the effective corporate tax rate was about 26%

 

So at 15% capital gains tax, and an typical effective Corp tax rate of 25% - that means those evil rich folks are really paying 40% tax (up to 55%)- which also just happens to be the top Income tax bracket (39.6%) from regular income.

 

----

 

Much is made about whether you can lower the Capital Gains tax to spur investment and create jobs. (Some have even mocked that idea in this thread)

 

It is true that lowering the Capital Gains tax will encourage investment - but it's only true to a point and many other factors are involved that must be considered - but I won't get into all that here.

 

When you have incredibly low interest rates, money just sitting around doesn't earn you much income - so you are willing to take moderate risks with it to generate moderately more income.

 

For example, a rich dude has 1M cash sitting around not doing anything in his bank account.

 

1 - He can buy a municipal bond and get historically a 4% return and pay no tax with almost no risk ( unless you are buying Detroit bonds.)

 

2 - Or he can invest it in a preferred stock that returns 8% after they pay their taxes (25-35%)... and less the 15% capital gains tax the return is 6.8%. ---This investment also has a 60% chance of returning less than 5% (4.25% after CG tax) and a 20% chance at 0 return or a moderate loss.

 

3 - Or he can invest in a startup company that returns 0% the first two years, and hopefully 20% (17% after CG tax) each year after that.

-- Obviously, there is substantial risk with this investment. Unlike the other investments, all your investment could be lost. It also however offers the best return potential.

 

The above simple examples are to illustrate how the risk/reward calculation might be considered by someone looking to invest. Adjusting the CG tax down from 15% to 0 or up from 15% to 30% can really change the 'market' of investments as the potential ROI changes a few points either way. Demand would drop considerably for the riskier investments because the reward would be less if you raise the CG tax.

 

Believe it or not, the US Government and Obama are not responsible for all the jobs being created... it's those damn rich people trying to get richer by investing their own money in the efforts of others in hopes of success and shared growth of wealth. Encouraging those greedy bastards to part with their money isn't easy, and reducing the potential income from risky investments by increasing taxes on income from investments - as well as increasing regulations or even threatening increased regulations (another thread topic) - will keep the wealthy from wanting to risk their money on others.

 

There is nothing wrong with working hard and accumulating wealth - and then wanting to hold on it and grow it by investing in others.

 

It's not greed, it's not evil.

[sd'sker]

There is one thing that is common in the thread. If you say anything about personal accountability or capitalism, you are one of the following:

1. A know nothing about economics.
   
2. A raging right winger.
   
3. A Fox News DVR freak.
   
4. All together ignorant.
   

Go back and read some of your responses to items you don't agree with. Some people aren't victims. Some people still believe that they have some control over their destiny. My favorite is the college kids that think they are Ernie Goss.

 

i do not think anyone has said anything against capitalism or personal responsibility. capitalism works best when there is upward mobility. i see this issue as a threat to capitalism. capitalism works best when people have money and moneyed institutions are not allowed to overshadow democracy and free markets. if a small group controls all the wealth, where is the competition or spending?

 

people should work hard. the disagreement is over whether or not they should be adequately compensated for that hard work.

 

capitalism works best when the middle class is thriving, not under threat.

 

ultimately, this conversation has nothing to do with capitalism or personal responsibility. we are all in agreement that people should have to work and the more you work the more you deserve.

 

this is about power structures and control. i find it funny that anyone who thinks that wealth inequality is an issue must be a pinko-commie whose simple-mindedness simply can not comprehend such complex economic concepts as working more or spending less means you have more money in your pocket. what i can not understand is how someone could think such a complex issue as this could be so simple and without large-scale, disastrous consequences on the continuation of the economic system we know and love.

[JJ Husker]

If you really want to understand what is wrong with our economy, why the top 1% seem to be the only ones really getting ahead, and why our government is so f'd up, review post #118 listing of our representatives net worth. And then think about that for awhile. We tend to get so caught up in left-right, dem-repub, liberal-conservative thinking and that is really not the problem. It is in their best interest to keep us arguing about these ideological, but actually fairly insignificant differences. It keeps us from rebelling against the real problem. It's much easier to accuse Obama of being a socialist or Bush of being a self absorbed, money grubbing warmonger than it is to actually kick these a$$hole$ out of our capital and return things to of the people, by the people, and for the people. If you think all these multi millionaires are your type of people or really acting in our best interest, well you're not getting it.

 

Of course they don't know how to fix things. Hell, in their world nothing is wrong.

[carlfense]

That's a nice write up about capital gains . . . but you ignored the carried interest loophole.

[carlfense]

If you really want to understand what is wrong with our economy, why the top 1% seem to be the only ones really getting ahead, and why our government is so f'd up, review post #118 listing of our representatives net worth. And then think about that for awhile. We tend to get so caught up in left-right, dem-repub, liberal-conservative thinking and that is really not the problem. It is in their best interest to keep us arguing about these ideological, but actually fairly insignificant differences. It keeps us from rebelling against the real problem. It's much easier to accuse Obama of being a socialist or Bush of being a self absorbed, money grubbing warmonger than it is to actually kick these a$$hole$ out of our capital and return things to of the people, by the people, and for the people. If you think all these multi millionaires are your type of people or really acting in our best interest, well you're not getting it.

 

Of course they don't know how to fix things. Hell, in their world nothing is wrong.

I +1'ed but I wish that I could +10.

[Conga3]

That's a nice write up about capital gains . . . but you ignored the carried interest loophole.

 

Thanks for the compliment, even if tongue was in cheek.

 

The loophole you mention is really a topic in and of itself - there are dozens of parallel topics surrounding this... but my post was to illustrate what I believe many are unaware of (or choose to ignore) the fact that investment income like this is already taxed at the corporate level before being distributed to investors where it's taxed again at the CG tax rate.

 

Debating whether hedge/private equity fund managers should be able to 'pay' themselves with capital gains (15% tax) their firms generate instead of taking a salary/wage (which would be considered regular income and taxed at up to 40%) is more a spin-off discussion, one I'm happy to entertain.

----

So, when an individual or corporate entity generates income from the sale of an investment it's considered a capital gain - and is taxed at 15%. If you're an individual, you're done- no more taxes, but if you're a corporation, the income will be taxed again when you pay your employees or distribute it out to investors (depending of the corp type/ownership structure)

 

Hedge/private equity fund executives and firms are under scrutiny for not paying regular income taxes (or less than what they maybe should) because they are transferring the capital gain made from activities their firm performed through to them - instead of letting the firm record the income, and then pay themselves a salary/wage/commission.

 

While technically correct to do this (not pay the government one cent more than you have to) - with the way corporation ownership and tax laws are setup - their entire business model is based on the buying/restructuring and selling of capital investments while the majority of corporations only have a fraction of their income come from capital gains.

 

Calling it a 'loophole' applies to a nefarious undertone... which is likely because these guys make big time $$$ and for many this represents evilness.

 

You can make the argument we should adjust the tax code to somehow tax these firms/investors/owners/executives more - possibly with a progressive capital gains tax - I don't know - but that starts to get murky because it would overflow beyond hedge/private equity funds - unless you specifically target them, and I don't think that is right.

 

Share with us your thoughts, just bring something else to the table in your argument besides hedge fund firms are evil and make too much $$ and pay too little taxes.

[sd'sker]

Just bring something else to the table in your argument besides hedge fund firms are evil and make too much $$ and pay too little taxes.

how about this. how do hedge funds help society? what benefit do they have to the markets or economy? what purpose do they serve?

[carlfense]

Thanks for the compliment, even if tongue was in cheek.

It wasn't meant to be tongue in cheek.

 

Calling it a 'loophole' applies to a nefarious undertone... which is likely because these guys make big time $$$ and for many this represents evilness.

A tax loophole is a tax loophole . . . I don't know that it indicates nefariousness.

 

You can make the argument we should adjust the tax code to somehow tax these firms/investors/owners/executives more - possibly with a progressive capital gains tax - I don't know - but that starts to get murky because it would overflow beyond hedge funds - unless you specifically target them, and I don't think that is right.

Income is income . . . from whatever source derived. Why should $1 million in profits from passive investments be taxed at 15% when a neurologist who earns $1 million has the majority of his income taxed at almost 40%?

 

I'd do away with the capital gains rate entirely. Income is income. What could be simpler than that?

 

Just bring something else to the table in your argument besides hedge fund firms are evil and make too much $$ and pay too little taxes.

They do pay too little in taxes. The US needs tax revenue (and spending cuts!) to reduce the deficit and I fail to see why hedge fund managers need a gigantic tax break through a special loophole. I'm not sure why you're trying to assign morality . . .

[Conga3]

Thanks for the compliment, even if tongue was in cheek.

It wasn't meant to be tongue in cheek.

Wow. Mind. Blown.

 

Calling it a 'loophole' applies to a nefarious undertone... which is likely because these guys make big time $$$ and for many this represents evilness.

A tax loophole is a tax loophole . . . I don't know that it indicates nefariousness.

 

Again, it's not really a 'loophole' unless you look at it in terms of scale/percentage.

 

Someone making 100K/yr uses the same 'loophole' to flip houses they buy and fix up and sell after 1+ years. There are many contractors who make this their primary income this way - just like equity fund managers - just on an extremely smaller scale, but benefit from the same tax rates.

It's only a 'loophole' if you feel they are exploiting the tax structure in a method it wasn't intended - and I admit that's debatable - but not certain.

 

You can make the argument we should adjust the tax code to somehow tax these firms/investors/owners/executives more - possibly with a progressive capital gains tax - I don't know - but that starts to get murky because it would overflow beyond hedge funds - unless you specifically target them, and I don't think that is right.

Income is income . . . from whatever source derived. Why should $1 million in profits from passive investments be taxed at 15% when a neurologist who earns $1 million has the majority of his income taxed at almost 40%?

 

I'd do away with the capital gains rate entirely. Income is income. What could be simpler than that?

 

Well, because most capital gains is income that's already been taxed at the corporate tax rate, so the 15% is a double tax and the total tax is close to 40% anyway. It's meant to be a 'fair' tax on atypical activities.

 

It's debatable whether you want to encourage investment by lowering investing income taxes - or whether you want to increase tax to increase revenue. - these things are up for discussion....

 

Just bring something else to the table in your argument besides hedge fund firms are evil and make too much $$ and pay too little taxes.

They do pay too little in taxes. The US needs tax revenue (and spending cuts!) to reduce the deficit and I fail to see why hedge fund managers need a gigantic tax break through a special loophole. I'm not sure why you're trying to assign morality . . .

 

I'm not necessarily saying they can't be taxed more.... I just want to be sure the discussion is explained better that what I've seen in these forum threads.

 

I could be convinced a progressive capital gains tax might be a good alternative...but I'm always hesitant to increase tax - as it typically decreases private investment in the economy - but that's not always the case based on other investment alternatives.

[Conga3]

Just bring something else to the table in your argument besides hedge fund firms are evil and make too much $$ and pay too little taxes.

how about this. how do hedge funds help society? what benefit do they have to the markets or economy? what purpose do they serve?

What you are really asking is, 'Why is private investment good for society/markets/economy?'

 

A hedge fund is simply a private version of a managed investment fund...aka mutual fund.

 

So, instead of setting up a corporation to operate as an investment bank and sell your investment services publicly as mutual funds and be regulated by the government - a hedge fund avoids the burdens of regulation by remaining private.

 

A regulated public investment fund has to fully disclose the investment strategies/holdings so investors can be informed of the risks.

 

A hedge fund doesn't disclose publicly their investment strategies/holdings - and some specifics are not even disclosed to the clients I believe .. so in theory they can obtain and hold onto a competitive advantage should they develop an investment strategy or find an opportunity that generates a return on the investments. (Buy Low/Sell High...etc..)

 

Also being private makes the participation more exclusive - but it also means your investments are less liquid. If you want to sell a mutual fund today, you call your broker and bam - you've got cash. Investing in a hedge fund might mean you have to wait much longer to withdraw your investment.

 

There are lots of pros/cons to hedge fund vs. mutual funds.

 

---

 

So, let's assume you think I'm a smart investor and I get a good return on my portfolio. You give me 25% of your retirement money to invest and manage for you. In return for my efforts, I take a % of the portfolio/gains. I just started a private/unregulated managed investment fund ...or hedge fund - kinda sorta.

 

What sets hedge funds apart is there access to opportunities that normal Billy Bobs don't necessarily have. It's not that they are investing differently than what anyone else can do, it's that the size of their portfolio and access to private business opportunities gives them more ways of generating a return.

 

So a company decides to go public and issue publicly traded shares (IPO). Any Billy Bob can buy the shares once they hit the market.

 

Alternately, a company might want to stay private - but they need to raise capital - so they issue shares of their company privately. While in theory, they could sell shares to Billy Bob - it's more likely they contact a hedge fund manager with their private investment offering. You'd have to find 100,000 Billy Bobs with 5K each to invest or just a handful of hedge funds to raise 500M.

 

It simply comes down to public/private investing - opportunities - and scale.

 

----

 

Now much is made about the secrecy of hedge funds, their fees and the incomes their managers make. To that I say, bully for them. They are providing a service to their clients who know the fees the manager is going to collect and should know about the risks involved. What they are doing is not illegal - it's just unregulated - and it's providing our economy a financial tool public funds wouldn't be able to provide due to those regulations.

 

It is rather bizarre a fund manager at investment bank X will also be running a hedge fund on the side...but mutual funds typically are risk adverse - so I would imagine a fund manager would come across good investments- yet risky - that don't fit into any public mutual fund the investment bank offers, so he incorporates it into the hedge fund portfolio instead.

 

But do they also cherry pick the good stuff that should be put into the public mutual funds?

[carlfense]

Again, it's not really a 'loophole' unless you look at it in terms of scale/percentage.

 

Someone making 100K/yr uses the same 'loophole' to flip houses they buy and fix up and sell after 1+ years. There are many contractors who make this their primary income this way - just like equity fund managers - just on an extremely smaller scale, but benefit from the same tax rates.

It's only a 'loophole' if you feel they are exploiting the tax structure in a method it wasn't intended - and I admit that's debatable - but not certain.

No . . . in general tax loopholes are used exactly as intended.

 

Well, because most capital gains is income that's already been taxed at the corporate tax rate, so the 15% is a double tax and the total tax is close to 40% anyway. It's meant to be a 'fair' tax on atypical activities.

The capital gains recipient hasn't necessarily been taxed twice.

 

Again, it's income. The tax code specifically states "from whatever source derived." The exemptions carved out through successful lobbying efforts have chipped away at that broad standard much to the benefit of the wealthiest Americans.

 

It's debatable whether you want to encourage investment by lowering investing income taxes - or whether you want to increase tax to increase revenue. - these things are up for discussion....

Where else are people going to put their money? Earning 1% interest in a bank? Not likely. I see little reason to believe that taxing capital gains as ordinary income would drastically change investing habits.

 

I could be convinced a progressive capital gains tax might be a good alternative...but I'm always hesitant to increase tax - as it typically decreases private investment in the economy - but that's not always the case based on other investment alternatives.

See above. Could you send me a link for some evidence that increasing the capital gains rate (or eliminating the loophole) has been proven to decrease private investment?

[BigRedBuster]

Good video. As usual, these videos do a good job of fear mongering.

My previous comments still apply. You claimed:

The banks ensure that we are always fighting to pay them back more money than actually exists at any one time.

 

This is only true if you walk into the bank and sign on the bottom line. If you have no debt, you are not obligated to pay anything back to the bank. And, like I implied in a previous post, there is a huge difference between personal debt and business debt as it pertains to being "good" or "bad".

 

Now, I'm not saying I am perfectly fine with everything about our money system. But, pardon me if I'm not one who cowers in fear of this horrible system we have in place.

[carlfense]

"We have to blow the whistle at corporate malfeasance and attack corporate welfare. We should speak out when a company liquidates itself and its executives receive bonuses but rank-and-file workers are left unemployed. We should speak out when CEOs receive tens of millions of dollars in retirement packages but middle-class workers have not had a meaningful raise in years."

Who said this?

 

Reince Priebus and the GOP Growth and Opportunity Project.

http://growthopp.gop.com/default.aspx

 

 

 

 

 

 

 

 

Sometimes socialistic class warfare shows up in the surprising places.

[sd'sker]

"We have to blow the whistle at corporate malfeasance and attack corporate welfare. We should speak out when a company liquidates itself and its executives receive bonuses but rank-and-file workers are left unemployed. We should speak out when CEOs receive tens of millions of dollars in retirement packages but middle-class workers have not had a meaningful raise in years."

Who said this?

 

Reince Priebus and the GOP Growth and Opportunity Project.

http://growthopp.gop.com/default.aspx

 

 

 

 

 

 

 

 

Sometimes socialistic class warfare shows up in the surprising places.

or they are just considered common sense principles until it becomes politically and financially beneficial to label them as socialistic class warfare.