This will only become a more pressing issue once automation (esp. of the transport industry) gets into full-swing. Eventually we won't have a choice in the matter.
There are a whole host of current issues that are culminating in wealth and income distribution problems: the anglosphere's property frenzy and inevitable bust; quantitive easing pumping up asset prices while doing nothing for the real economy; global corporate tax avoidance; the rise of the low-paid 'gig' economy and under-employment; fewer high paid jobs all demanding workers with ever higher levels of education (unattainable-for-many); capitalism's tendency to concentrate wealth as demonstrated by Picketty.
A crisis is brewing. People know it. Trump and Sander's - though ostensibly very different - appeal to people who recognise that for them, the current path does not lead to a great place. Crises can be good of course. They leave us no option but to make changes.
> We should be taxing wealth and not income (or roughly speaking, unearned instead of earned income).
> quantitive easing pumping up asset prices while doing nothing for the real economy
> global corporate tax avoidance
Corporations aren't people; they don't ever actually pay taxes. People pay taxes. Yes, I know corporations are legal entities, but they're owned and managed by people, somewhere down the line. Those are the people the corporate tax is intended to target.
Presumably, the "goal" here is to get the corporations with scale economies, negotiation power, etc. to be taxed and use this to redistribute economic gains.
But what happens is that instead the burden of these taxes fall onto the shoulders of non-management workers in the firms and the people who buy what the firm produces. Because the incidence of a tax is indirectly distributed by a mechanism which depends itself on the negotiation power of the actors in the system.
That is the exact opposite group of the original intention (you'd want the burden to be as much as possible on managerial staff and shareholders -- eg. the people running the corporations). Also, the tax is distortionary and incentivizes all sorts of unproductive practices.
Of course, the tax would have to be replaced with something. That something should target the people owning and running the companies to make sure the tax burden is actually bore by them.
Consumption taxes can do that.
> the rise of the low-paid 'gig' economy and under-employment; fewer high paid jobs all demanding workers with ever higher levels of education (unattainable-for-many)
> A crisis is brewing. They leave us no option but to make changes.
I don't think we should make any sweeping revolution, but smart, targeted changes. Of course, not all of those are pollitically feasible (imagine politically advocating for a 0% corporate tax replaced by a consumption tax and targeted taxes on shareholders and CEOs/board members).
The problem with that is that it affects the poor more than the wealthy. Buying the same thing will hurt one person much more than another and will do little to ease inequality, it may exacerbate it. Additionally, it puts us in the position of making judgments about what should and should not be taxed and how much.
> Corporations aren't people; they don't ever actually pay taxes. People pay taxes.
I would buy this if we didn't give corporations so many rights. Indeed, their purpose is tools to shield individuals. Sometimes this is good; if I create a corporation and my business fails, they cannot come after my personal assets and that encourages economic investment. But it can also be bad when the corporation becomes a place to hide my assets from taxation or even to avoid personal responsibility. They can engage in speech, litigate in court, and even get government benefits such as grants or funding. Because of this, we should tax them.
Only people have mouths. A corporation is not a person, it is a group of people. And those people are the ones who pay taxes and engage in speech. Corporations do not exist, outside of them being a representation for the owner behind them.
However, one argument against lowering corporate taxes I've seen is that it would incentivize people to skirt around their personal taxes by "using" corporations. Instead of buying your own car, let a corporation (maybe your employer, maybe your own 1-person corporation that everybody would set up in a system like this?) own the car and you just use it. So somehow you'd need to prevent that kind of behavior. Perhaps shifting the tax burden from income to consumption would do that, IDK and I'm too tired to think about it now.
Another tax that economists generally seem to think well of, is land value taxes (originally by Henry George, IIRC). But these seem more or less impossible politically, as the politicians are generally better of than the average Joe and tend to own more land/property..
http://www.ird.govt.nz/business-income-tax/expenses/vehicle-...
I just want to say I disagree with this. I'm going to claim that the only difference between the armchair-economists and the PhDs who set the policy is that the policy-wonks actually get to implement their bullshit, while the armchair-economist is powerless to affect anyone.
Also, how is your claim that a consumption tax and 0% corporate tax not the very pomposity your object to?
I was under the impression that a land value tax was the most widely supported amongst economists (due to its efficiency, lack of distorting effects, and difficulty in avoiding).
> Both the "pumping up asset prices" and "while doing nothing for the real economy" is extremely disputable. It's kind of pompous of you to think you know better than the team of PhDs at the Fed, too.
See Richard Koo regarding balance sheet recessions for a less pompous assertion that QE does little to help. There are plenty of other eminent economists such as Mr Koo who also disagree with the FED's 'team of PhD's'.
You'll see most economists advocating a consumption tax, instead.
The corporate tax should be 0%. No, I'm not kidding; hear me out.
Corporations aren't people; they don't ever actually pay taxes. People pay taxes. Yes, I know corporations are legal entities, but they're owned and managed by people, somewhere down the line. Those are the people the corporate tax is intended to target.
Presumably, the "goal" here is to get the corporations with scale economies, negotiation power, etc. to be taxed and use this to redistribute economic gains.
But what happens is that instead the burden of these taxes fall onto the shoulders of non-management workers in the firms and the people who buy what the firm produces. Because the incidence of a tax is indirectly distributed by a mechanism which depends itself on the negotiation power of the actors in the system.
This seems tautological to me. Of course increases in corporate tax are born by non-management employees and consumers. Take Management + Non-management + Customers as a group, then Management represent approximately 0% of this group. Also, Non-management + Customers aren't in a position to change the flow of money through the corporation to shield themselves from changes to taxation.
For the majority of corporations their income comes from consumer spending. In those cases it's always the consumer who pays.
Sure but that isn't how human psychology works. Especially in rich countries, where basic needs are met, inequality start playing a much greater role with respect to happiness.
Inequality has always been an important factor. The poor in France probably had it better than people in the stone age or medieval times when they made their revolution. Some can be said for the Russians. But they all made revolutions due to the high level of inequality.
If you look at countries experiencing big revolutions it seems to me to have not been about how poor or rich the countries were in absolute terms but rather how unequal they were. In fact in exceptionally poor countries you don't get any revolutions at all because people are to busy just surviving, and there is no intellectual class to advocate it and fuel the flames.
Also "better" is a tricky term. Every society place different expectations on people's lifestyles. One interesting thing I observed about America e.g. is that if you look at things purely statistically in terms on material goods you'll find that the Americans has more TVs, bigger house, more and bigger cars, more of all sorts of stuff, go out eating more frequently etc than say your average Scandinavian or Dutch person. Yet interestingly when you talk to these Americans life seems much harder. They worry about having enough money to repair their car if it breaks down. They need to go to work or whatever. They worry about not being properly covered on medical insurance, not having enough money for their kids college. They seem terrified of losing their job, or getting one will less good health insurance or whatever because they have a particular condition which requires this or that particular insurance which only the particular job they have now provides. So many seem overworked and stressed out.
In comparison, I don't even have a car, and it isn't a big deal. I go to work on a subway. My dutch friends would often just have biked. College education, no worries already taken care of by government. Health insurance. Same deal. Worried about losing job. Not a big deal, my work doesn't have any special perks I need and unemployment benefits are quite good so I will manage fine until I find a new job.
It seems American society has manage to create this system where the only acceptable lifestyle for a normal person is simply far more expensive than most can afford and they borrow money to keep up appearances. While in most of Europe you can be happy with a lot less. The really important things in life are taken care of like health, school, work etc.
Having smaller houses, cars and fewer huge flatscreen TVs seem like a small disadvantage in comparison.
I am not saying one thing is better. If American truly just want lots of stuff, maybe that is the best approach, but it just doesn't seem to make people that happy or calm to me.
This is the ginormously over-sized glowing fluorescent pink elephant in the room.
"Fix the economy" isn't going to work because the economy isn't a thing you can take in for repair. The Economy is a confusing thing because we talk about it like it's a noun, but it's really a verb: The Economy is something humans do, like sport or recreation.
The US needs to do some deep re-thinking about what it values. I'm in Australia and we seem to be doing a fairly good job of adopting the US model, despite there being some, in my opinion, better models to choose from.
1. Strong NIMBY anti-development policies.
2. Low property taxes.
3. Foreign money using housing as a bank account.
You see it in vancouver, london, SF, NYC and you'll probably find those ingredients in other places too.
To counteract it you need:
Federal legislation that prevents any city or province from restricting dense multi-family development of up to 20 stories. By right development, minimal parking requirements and so on. It's in the interest of the federal government to make housing affordable, but not so much in the interest of local governments. Something like Japan's federal inclusive zoning laws are ideal.
Property tax is a wealth tax, and it happens to be pretty low in places like Vancouver or London. I would increase it to something around %1 in stages. People are more accepting of a property tax than a straight wealth tax because it already exists and doesn't directly penalize saving behavior.
Also adding high taxes on unoccupied units in dense areas. And an other housing tax on non-residents of a city to make using housing as a bank account a really bad idea.
https://homefreesociology.wordpress.com/2016/06/08/quickest-...
Notice how Vancouver is in the bottom of the middle of the pack in rent to income ratios.
Property taxes and foreign money don't affect rental rates. Ony NIMBYism does.
But yes, that was the only thing saving BC from being a place where nobody could afford to live in it, since the rental market reflected the local supply & demand only.
If your a typical professional making $4000/month after taxes, you will be paying something around $1500+ for a 1 bedroom apartment in Vancouver, which isn't %25, but %37+ of income.
But the claims of Vancouver having unaffordable housing predate the recent decline in the vacancy rates. They stem from the high price of a Single Family House, which for a densely populated metropolitan area like Vancouver is an inappropriate standard for housing affordability IMO.
Looking at wealth by age bracket. It is strongly correlated, which shouldn't surprise anyone. The longer you work the more you save. A 20 year old is going to have a lot less wealth than a 60 year old. I'm not sure that will ever change.
Housing is a great example. Instead of getting into the initial mortgage, we're paying rent for longer, and have a harder time coming up with the money for the down payment... In part because the rent is, to borrow a phrase, too damn high.
"Millennials are delaying all kinds of major life decisions, like getting married and having kids, so it makes sense that they would also delay buying a home," said Zillow Chief Economist Dr. Svenja Gudell. "We know Millennials value homeownership and want to buy. The next challenge will be figuring out how they can save for a downpayment and qualify for a mortgage, especially while the rental market is so unaffordable all over the country. The last hurdle will be finding a home they like amidst very tight inventory, especially among starter homes."
And then there's education. The low-cost public universities have turned into massive debt generators.
The entry points to the wealth curve are more and more beset by the vampires of finance and their rent-seeking necromancers, summoning up undying debt to prey on unsuspecting youth. Inequality is growing wider as a result.
Why? Not because of the free market, but because the fed keeps goosing the interest rate downward to stimulate growth. Will I be able to do such a thing? No.
In any case, I do believe the current interest rate environment has distributional consequences that haven't been well-studied. It seems the biggest beneficiaries of this environment will be people with lots of debt-financed assets who manage to sell for high nominal prices. On the other hand, a lot of people think rates aren't coming down any time soon (check the yield curve on US treasuries, the 30-year rate is like 3.4%) so maybe this will be a one-time shock where people who took on a ton of debt ca. 2008 will reap big one-time profits as cheaply-acquired assets realize big capital gains.
In any case, I think it's naive to assume holding rates so low, for so long, doesn't have major wealth transfer effects.
As a data point, condos in Toronto (condos in Toronto are generally tiny and not the most desirable place to raise 2 kids) appreciated by 9-10% this year despite continuous bubble talk by various levels of govt. You and I both know this will not stop until rates rise; and they won't - at least in canada - because of a significant problems in the oil sector of our economy. Is the right thing to do to buy into this "ponzi" scheme and try to time the exit? Or continue to hold the course of staying out of it and waiting for rates to rise. I have rented since 2008 when I graduated and I'm tired of shoveling my money into the fire :'(
Mortgage rates do not cause it as much, a percentage point increase in a typical bay area mortgage will only add ~$300/mo to a 560k house mortgage. The mortgage interest deduction reduces it by your tax rate.
SF is an area where people rather have an economic recession vs growth because the system can't handle growth.
A better national economy also probably has fewer people chasing the wealth in the valley.
Crack the whip! The best way to motivate those slaves is by making their cost of living higher! That'll force then to get better jobs!
You know, the stagnant wages that we have seen for the last 30 years of low inflation.
" The average income for the richest 1 percent of Americans, excluding capital gains, rose from $871,100 in 2009 to $968,000 from 2012-13, he wrote. The 99 percent, on the other hand, experienced a drop in average incomes from $44,000 to $43,900, Wolfers said. The calculation excludes government benefits in the form of Social Security, welfare, tax credits, food stamps and so on. "
From http://www.politifact.com/truth-o-meter/statements/2015/apr/...
However, the research in Piketty's book also shows this up through 2010, and I remember the figures he was drafting showing 50% of new income going to the top decile going through 2010 - so Bernie might be a bit aggressive in his numbers, but even 50% of new income going to 10% of the population is just bad. I remember in the book he outlined how only places like Colombia or otherwise Fascist regime countries are worse than the US.
I can dig up the numbers from the book - I read it on ebook so it's always a hassle waiting for the pages to refresh looking for info :/
They're supporting Trump because they've been failed by the status quo, and Trump has, at the very least, recognised that, versus the establishment who just pretend everything is OK.
His 'fixes' for the economy aren't the typical progressive economic fixes, but rather populist ideas like strong-arming corporations into keeping American jobs or keeping money in the US which, while not necessarily drastically reducing inequality, will have the result of at least giving some of the working class a boost. Globalism absolutely has allowed many working class jobs to be outsourced to areas of cheaper labour.
Whatever you think Trump is, he's a result of the sentiment of his supporters. He's the least-ideological Republican candidate in recent history (which is why Ted Cruz campaigned on the idea that Trump isn't a 'conservative').
> if he loses I fear things may get violent.
Things are already violent. Look at the news, riots in multiple US cities. Violent protests everywhere. Mass swaths of unemployed people who resort to crime. These are all the result of failed economic policies.
You're right though - if the status quo continues, the violence that's occurring today likely will escalate.
doesn't targeting a higher level of inflation and issuing government bonds basically accomplish this?
They would be if they were actually progressive in a meaningful way. The problem is that they're only progressive between the poor and the middle class, then taxation on capital returns is low again, taxation on wealth is non-existent, and the rich have all sorts of mechanisms to avoid taxation.
If paired with fiscal stimulus, there might not even be any negative GDP consequences.
In any event, over the last few years wealth effect has shown to have very little effect on GDP.
We didn't have as much inequality for education (i.e. lots of decent Universities, not terribly expensive). The problem is wealth in the form of housing has exploded for a large fraction of the population (typically older people) and has left young people (well, anybody without a house) in the dust. In major cities like Toronto and Vancouver, average detached houses cost well over a million bucks. This is also happening because of bone-headed environmental policies (I'm all for the environment, I just don't understand why people without homes are punished for having a green belt while people with homes are rewarded). Our current PM (I'm a fan) has done many good things but he doesn't get this. We had something called the child tax credit, which families with children would get unconditionally - this became something you'd get based on income. Now, young people who are desperately saving for downpayments are hampered even more ... buying a home is just out of reach. In my humble opinion, a wealth tax is the way to go and young people should make their voices heard to our representatives.
In summary, people need to understand the difference between income inequality and wealth inequality. I argue the problem is NOT income inequality - it is wealth differences.