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Old 08-15-2013, 07:38 PM   #161
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Khufu, you're not getting my point (and it was a minor one). When someone says "income went to" instead of "income was earned by" it's a window into their world view.

I thought it interesting to hear people talk about their grades.
"Ms Jones gave me an "F" in English Lit"
"I got a "C" in Trig."
"I earned an "A" in Algebra"

I never heard "I earned an "F"". It's all about how we see the world, who we see as responsible for how things turn out--"them", "fate," "me" ?

I don't dispute that the share of total income represented by the top 1% of tax returns has increased from 2009 to 2010. But I also do not grant that these are the same individuals year to year ("the 1%") and that they didn't "earn" the money (through labor or putting their capital at risk in productive ways).
So that's your opinion: it's a just world after all. Let's listen to what Warren B. has to say on this:

"Through the tax code, there has been class warfare waged, and my class has won," Buffett told Business Wire CEO Cathy Baron Tamraz at a luncheon in honor of the company's 50th anniversary. "It's been a rout."

The sequestration of income growth to the upper 1% or the upper 0.01% was the result of such hard work, for instance, as paying Congress to set the income tax rates for hedge fund managers at the capital gains rate. John Galt indeed.

Here are some graphs to show the growth of income inequality:

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Old 08-15-2013, 10:22 PM   #162
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was the result of such hard work, for instance, as paying Congress to set the income tax rates for hedge fund managers at the capital gains rate.
You won't find me defending the US tax code. But, there's something for almost everyone there. I even heard that there are a lot of people who pay zero federal income tax (FIT). These people do pay some other taxes, but your comment was about the great deal the rich get regarding income taxes. Hey, the cap gains rate is still a lot higher than zero.

Income inequality: Not news. It changes over time, broaden out your time window and you'll see it. Right now the top 1% is earning about the same share of the US total as when we entered WWII. After the war, we had a labor shortage and an unprecedented positive export environment--it was great for wages (and equity returns!). And it was an historic fluke. We're done with that now. It's a global labor market, and US real wages are declining as those in less developed countries rise (a huge win for humanity, though it hurts here at home). But capital--there's a need for that, and people who have some and who do a good job of putting it to work will be rewarded with rising incomes. Nuthin wrong with that.


Share of pre-tax household income received by the top 1 percent, top 0.1 percent and top 0.01 percent, between 1917 and 2005.(Wikipedia--US Income inequality, see sources 22 and 23)

When talent, intelligence, effort, and (maybe) luck are equally spread among us, I'll expect incomes to be equal. Until then, I'll expect there to be an unequal distribution of income.
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Old 08-16-2013, 01:03 PM   #163
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Productivity increase means that we can produce more with less labor and capital. That often means workers getting shunted if there are no other growth areas that can use the labor that is now made surplus.

The other day, I read about a large newspaper in Ohio laying off 50 editorial staff. This is of course just the latest in the decline of the printed media that has been going on for years. And just yesterday, there's an article, on the Web of course, about how craiglist free ads have royally hurt the income of newspapers. To that, one can add autotrader-dot-com, rvtrader-dot-com, etc...

It is obvious that the ability for an individual to publish his own ads on the Web and with color photos to boot is great productivity enhancement, but that makes redundant so many workers in the printed media. And then, online commerce sites such as eBay also cut out many middleman merchants. What do these people now do? Not all of them can be put to work as plumbers, electricians, or automechanics, who we still need of course.

About the concentration of wealth to the top, Taleb, the author of The Black Swan, elaborated on the phenomenon of "winner takes all" in his book. In the old days, there were jobs for bandwagon entertaining tropes who visited remote places. Now, with cables, TV, and the Web, people only watch the most well-known entertainers. The top actors, actresses, singers, sport players take all.

The advent of technology has made so many modern devices accessible to the masses. A smartphone is a truly wonderful appliance. Everybody uses it (though not I), and it somehow is affordable to even welfare recipients as I have seen. Yet, few people know how its software and internal circuits work, and even fewer take an active role in developing and designing it. The rest enjoys using it, but so few want to participate in the tedious manufacturing job of assembling it, and those jobs have all gone overseas.

I do not know how the above problems can be resolved. Even in Greece where the unemployment rate is high, and young people often take jobs like waiting table for merely 500EUR/month, there are jobs in agriculture such as picking fruits or produce in the field. Same as in the US, all those hard backbreaking jobs go to 3rd-class immigrants, as the natives shun away from these jobs.

What to do?
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Old 08-16-2013, 05:08 PM   #164
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We'll probably start SS next year at ages 66 and 67.

If we "don't need" it, we'll send our children monthly checks. They're paying taxes so I can get a benefit, maybe we'll decide that they can use the money more than we can.

I'd rather give it to them now than let accumulate and have them inherit it.
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Old 08-16-2013, 06:27 PM   #165
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Productivity increase means that we can produce more with less labor and capital. That often means workers getting shunted if there are no other growth areas that can use the labor that is now made surplus.

The other day, I read about a large newspaper in Ohio laying off 50 editorial staff. This is of course just the latest in the decline of the printed media that has been going on for years. And just yesterday, there's an article, on the Web of course, about how craiglist free ads have royally hurt the income of newspapers. To that, one can add autotrader-dot-com, rvtrader-dot-com, etc...

It is obvious that the ability for an individual to publish his own ads on the Web and with color photos to boot is great productivity enhancement, but that makes redundant so many workers in the printed media. And then, online commerce sites such as eBay also cut out many middleman merchants. What do these people now do? Not all of them can be put to work as plumbers, electricians, or automechanics, who we still need of course.

About the concentration of wealth to the top, Taleb, the author of The Black Swan, elaborated on the phenomenon of "winner takes all" in his book. In the old days, there were jobs for bandwagon entertaining tropes who visited remote places. Now, with cables, TV, and the Web, people only watch the most well-known entertainers. The top actors, actresses, singers, sport players take all.

The advent of technology has made so many modern devices accessible to the masses. A smartphone is a truly wonderful appliance. Everybody uses it (though not I), and it somehow is affordable to even welfare recipients as I have seen. Yet, few people know how its software and internal circuits work, and even fewer take an active role in developing and designing it. The rest enjoys using it, but so few want to participate in the tedious manufacturing job of assembling it, and those jobs have all gone overseas.

I do not know how the above problems can be resolved. Even in Greece where the unemployment rate is high, and young people often take jobs like waiting table for merely 500EUR/month, there are jobs in agriculture such as picking fruits or produce in the field. Same as in the US, all those hard backbreaking jobs go to 3rd-class immigrants, as the natives shun away from these jobs.

What to do?
But there are millions of people employed by companies and industries that didn't exist 20 years ago. Companies like Amazon, Google, and any wireless phone company. Think of all the jobs involving the internet. The problem is not a lack of jobs. It's the pace of change. When farm jobs became factory jobs, the pace of change was somewhat slower, and there was time to adapt. And the difference in skills needed between a farm worker and a factory worker was not nearly as great as the difference in skills between a lumberjack and a programmer who writes software to digitize books. The "haves" in the next generation will be those who have the skills to learn quickly and adapt to change.
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Old 08-16-2013, 06:36 PM   #166
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Still, the new jobs will not employ the same number of workers as the old jobs. That's how we have productivity increase. Machines and technologies allow fewer workers to do more.

When I traveled down I-5 in California recently, I saw fruit orchards being trimmed by big clippers. They harvest fruits with tree shakers now, and even migrant workers will have problems finding work.
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Old 08-16-2013, 07:08 PM   #167
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Still, the new jobs will not employ the same number of workers as the old jobs. That's how we have productivity increase. Machines and technologies allow fewer workers to do more.
Increased productivity: It could mean fewer labor hours to produce a given amount of product, or it might just as well mean the same number of labor hours to produce more product.

Higher productivity doesn't necessarily mean fewer labor hours.

Higher productivity is, however, the only sustainable means to have growing per-capita GDP, and the only means for a country to have increasing wealth. Redistributing wealth between individuals or groups doesn't do it, "rationing jobs" (mandatory limits on work weeks, forcing oldsters out of the work force, etc) doesn't do it, increasing minimum wages and mandatory OT pay, etc doesn't do it. Only increased productivity increases national wealth.
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Old 08-16-2013, 07:21 PM   #168
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Exactly!

We definitely have higher living standards than yesteryear. Flat-screen TVs, wireless phones, computers, etc... are so affordable, so that even the working class can afford things that were not even available to rich people 20 years ago. Fifty years ago, the average home did not have air conditioning, nor space to park 2 cars, let alone 3.

The problem is in finding meaningful work for displaced workers. Some will always feel that they are underemployed. Even among the college educated, only the best get to work at the like of Google, Apple, to design cool things. The lesser may have problems finding work. And as described in my earlier post, the people at the bottom like fruit pickers do not even get to do that anymore.

There will always be some resentment. It can develop into larger social problems, but I am not a student of social or political sciences to know what to do about it.

PS. Talk about productivity increase, is there a limit as to how far we can go, or even if we want to? We already grow more food than we should eat, build and sell more gadgets that we just throw them away before they are worn out, construct larger McMansions than we really need. Do we keep on exhausting our natural resources?

Do not get me wrong. I am an investor in equities, and for my sake, I like to see growth so that I can retire comfortably with my stash. I like to see "meaningful" growth though, so that it is more sustainable. Even the Chinese have built so many apartments that they have ghost towns. Growth like that only leads to troubles. It seems the world does not know what to do with its excess capital, both material and human.
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Old 08-16-2013, 08:21 PM   #169
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Higher productivity is, however, the [U
only[/U] sustainable means to have growing per-capita GDP, and the only means for a country to have increasing wealth. Redistributing wealth between individuals or groups doesn't do it, "rationing jobs" (mandatory limits on work weeks, forcing oldsters out of the work force, etc) doesn't do it, increasing minimum wages and mandatory OT pay, etc doesn't do it. Only increased productivity increases national wealth.
It's true that higher productivity is the only means to increasing wealth in a country, but whether the general standard of living increases depends on whether the increased wealth is distributed fairly in the society or not. In the US the average worker has received no benefit from the productivity increases since 1973



Between 1948 and 1973 the average worker's standard of living went up along with productivity gains. But not after 1973. Where did the productivity gains go? Who got the benefit at the expense of the workers?



It was the 1% who managed to sequester the gains. This happened through the lowering of taxes on the wealthy, the decline of the unions, globaliztion of trade that exposed manufacturing workers to competition from cheap labor countries like China, but not doctors or lawyers, for example, and other reasons.

To take one example: How does it come about that doctors are able to protect themselves from foreign competition unlike factory workers? There are several ways. Doctors trained abroad in medical education systems that are more efficient than the American system, could be imported into the US and given green cards if they pass a reasonable test and go through a probation period during which their performance is evaluated against American standards. Instead, the current system constricts the number of foreign-trained doctors who get licensed in the US as described in this NY Times article:

For years the United States has been training too few doctors to meet its own needs, in part because of industry-set limits on the number of medical school slots available.

The biggest challenge is that an immigrant physician must win one of the coveted slots in America’s medical residency system, the step that seems to be the tightest bottleneck.

Dr. Sombredero was helped through the process by the Welcome Back Initiative, an organization started 12 years ago as a partnership between San Francisco State University and City College of San Francisco. The organization has worked with about 4,600 physicians in its centers around the country, according to its founder, José Ramón Fernández-Peña.

Only 118 of those doctors, he said, have successfully made it to residency.


http://www.nytimes.com/2013/08/12/bu...pagewanted=all

Limiting the number of working doctors is one way that health care costs have grown to 18% of US GDP, higher than any other country by far. Meanwhile those doctors protected from foreign competition can buy cheap flat screen TVs from Asia benefiting from low Asian labor costs that have decimated the American manufacturing work force.

So, it is very naive to think that the current distribution of productivity gains is "natural" and that trying to make it more equitable is some kind of artificial intervention that is doomed to fail.

Restricting free trade in medical skills is just one way the 1% have sequestered productivity gains. The most important method has been changes in the tax system:



So, I would call for an end to artificial restribution policies that benefit the rich at the cost of the average workers and a halt to America's slide into becoming Brazil.
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Old 08-16-2013, 09:24 PM   #170
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[...]



So, I would call for an end to artificial restribution policies that benefit the rich at the cost of the average workers and a halt to America's slide into becoming Brazil.
If I am interpreting these numbers correctly, it means that the taxes paid by the top 400 earners went up 210%. I believe this is significantly more than inflation during the 15 year period. So if the government wants to maximize its revenue and get more dollars out of the rich, it suggests that it should keep doing whatever it is doing above.
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Old 08-16-2013, 09:39 PM   #171
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whether the general standard of living increases depends on whether the increased wealth is distributed fairly in the society or not.
(Emphasis added). "Fairly" is another one of those bellwether words. "Fair income" is determined by the market. As you point out, US workers have faced a lot of global competition. Those workers overseas, earning a small amount by US standards, are earning much, much more than their parents ever did and each dollar/peso/yuan they bring home buys, on a marginal basis, much more "good" than a similar amount would if paid in the US ($100 in Honduras: A family of 6 can eat for two months. $100 in US: The family of 6 goes to dinner one night) . This globalization has been a >boon< to workers and their families worldwide. But tough on US workers.

Doctor shortage--yes, we have one. Congress has a part in that, as well as the trade union/guild known as the AMA. This is the type of anti-free-market activity that is favored by some people as a means to increase pay. I'm surprised but heartened to learn that you object.

Did US workers benefit from productivity improvements? Absolutely. What would their pay have been if the productivity hadn't improved? And what would this (lower) pay have bought if every product had the higher labor costs (more hours per product) included in it? How high would US unemployment have been if our factories hadn't kept up with foreign competitors?

Does our tax system favor "the rich": A picture is worth a thousand words. The bottom graph is for >all federal taxes< (including payroll taxes).
Source: CBO



So, to "fairness":
The top quintile of households paid an effective tax rate (all Federal taxes) of 25.1%
The bottom quintile of earners paid 4% (and had a FIT rate of -6.8%: They gained money thanks to the tax system)
The middle quintile (40-59%) paid 14.3%
(all numbers from 2007. Source: CBO)

Federal taxed pay for things that benefit everyone: scientific research, pollution controls, defense, a functional court system. Is everyone paying their "fair" share for this common expense? What does the chart indicate?

The idea that the tax code somehow favors the wealthy at the expense of the poor doesn't match reality. It clearly redistributes wealth from high earners to low earners. Again, I'm no defender of our present tax system, but there's no disputing who is paying the bill here.
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Old 08-16-2013, 11:01 PM   #172
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Even among the college educated, only the best get to work at the like of Google, Apple, to design cool things. The lesser may have problems finding work. And as described in my earlier post, the people at the bottom like fruit pickers do not even get to do that anymore.
Are you Mayor Bloomberg in disguise? This is exactly what he said about 3 months ago. He feels a lot of college students shouldn't be going to college, maybe try trade school because only the best in class will get jobs.

A lot of software businesses think like Gates, they don't want to hire U.S. employees because they can get people from other countries to work for less. Zuckerberg wants to increase immigration now because he said we don't have enough qualified engineers....yeah right

Anyhow, hubby and I both are receiving SS and are saving it in case we need it for health reasons. Who knew everyones healthcare premiums would go up and costs for visits, tests, etc. also go up. Never know what will be next, so we are saving it for dear life.
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Old 08-17-2013, 01:17 AM   #173
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Oh, hi! Michael here, glad to make your acquaintance.

Yeah, I wish I had his money. I did not know he said that. I think we are both just stating the obvious. There are so many college graduates still looking for work, and nowadays that includes engineering graduates too, not just liberal art majors.

My brother who worked at Google said that there were so many applicants with 4.0 GPA, so only those who showed original extracurricular work got a chance.

My daughter had no problem finding work after her accounting degree, but I think it was because she was already working full-time doing payroll when she was still in school. As her employer paid for her graduate degree, she thought about law school, but a law professor talked her out of it, saying only graduates from top law schools could get anywhere. So, she went for an master program in business, and just finished it.

My son, a mechanical engineer graduating last year, just got his full-time job after spending a few months as a job shopper at his employer. Many of his friends were still looking for jobs, and some had very good grades.

I did not in any company that had H1B visa workers, but that seems more common in software fields. Most US companies are now multinational, so they can just easily hire workers in offices abroad. When I was in Haifa, a high-tech town of Israel, the engineers I was visiting proudly claimed that one of their neighbors in that industrial complex was a branch of Google. And my brother also visited many Google offices in Europe.
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Old 08-17-2013, 09:10 AM   #174
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Here's my take on the growing income/wealth gap: We are paid for what we produce, not for how hard we work. 100 years ago, when most workers performed manual labor, productivity and effort were highly correlated. By working harder, you could be somewhat more productive, but I doubt that there was every a farm laborer or assembly line worker who was an order of magnitude more productive than average.

These days, productivity is highly correlated with (specialized) knowledge. The way to get ahead is to be paid for what you know, not for how hard you work. It's not unusual for a top-notch professional to be an order of magnitude or more productive than an average worker in that profession.

As a rather extreme example, I think of the scene in the Facebook movie where a lightbulb goes off in Zuckerberg's head so he runs to his computer and, with a few clicks of a mouse, adds "relationship status" to facebook. In an instant, he added millions of dollars of value to the company.
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Old 08-17-2013, 02:17 PM   #175
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Well, not a communist but perhaps a socialist??
You hit the nail on the head.
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Old 08-17-2013, 03:42 PM   #176
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Here's my take on the growing income/wealth gap: We are paid for what we produce, not for how hard we work. .
That is how it is supposed to be. However, the argument on the other side is that people are more productive now, but the benefit of that increased productivity is not going to them. It going to others. And when people get sick of not getting a decent cut of the benefits of their productivity, that is when civil unrest will greatly increase...or so the theory goes.

One could make the supposition that the whole middle class construct was to keep a lid on class unrest like what occurred in the late 19th and early 20th Century. Letting the middle income group slip away by not including them in the benefits of the increased productivity is a recipe for future trouble, if one looks at history.

It's not that painful to throw people a bone now and then, is it?
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Old 08-17-2013, 04:01 PM   #177
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There's not some sort of ruling cabal that determines what people get paid. "Labor" is like any commodity, and it is subject to supply and demand. If there are a lot of people who can dig ditches, and the demand for hand-dug ditches is fairly low, then that particular activity won't generate a high hourly rate. But if there are very few people who can hit .400 against major league pitching, and a lot of people want to pay to see a hitter do that, then the person who can hit .400 can expect to get paid well.

There's nobody to throw anybody a bone. A heart surgeon is worth a high hourly rate because he has skills that are in demand and there aren't a lot of heart surgeons.

A person's labor, like anything else, is worth exactly what the highest bidder is willing to pay. Not more, not less.
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Old 08-17-2013, 04:55 PM   #178
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I'll try to get into this before Porky shows up.

Yes, US surgeons make more than US ditch diggers because the supply/demand ratios favor surgeons.

At the same time, US surgeons make more than European surgeons because US gov't policies allow the surgeons to restrict the number of new entrants. And, because the US health financing system (driven by gov't tax policies) insulates most patients from the actual cost of surgery.

It's not all about supply/demand, it's also about gov't policies.

Yes, a successful movie can make more money because there's a bigger worldwide market. But, 70 year copyrights shift money from ordinary people to heirs of creative people. And those copyrights are gov't laws.

I could say similar stuff about strong dollar policies, immigration laws, and regulatory apathy as well.

So gov't policy puts a thumb on "market" income.

Then, once the market income has been earned, the gov't taxes it. Yes, average tax rates are higher in the upper quintile. If you look at the top 400 taxpayers, rates go back down. That's the effect of lower rates for capital income. That's an obvious place where we seem to be compounding the market effect by favorable deals for the wealthy.

How about step-up on basis at death? That's something else I would change.

(BTW, the CBO statistics on distribution of total taxes assume that capital bears all (or most) of the cost of corporate income tax. That doesn't seem true to me in a world where capital can jump international boundaries at the click of a mouse.)

To me, even though some real technological changes lead to more extremes in supply/demand results than in the past, we're compounding that effect with gov't policies.
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Old 08-17-2013, 05:05 PM   #179
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More of same ...

I think much of this is cultural. In the Depression, some people at the top of the economic heap were truly concerned that the US could go socialist. It was better to support gov't policies that shared the wealth than to lose it all in revolution.

In WWII, we all had to be in this together. In the Cold War, we needed to show that Capitalism wasn't just good for the capitalists, but also for the workers. Influential people who felt that way influenced gov't policies to even out the results.

Those days are over. Now it's glorious to be rich. The people at the top appear to believe that all their success is solely the result of their extraordinary efforts, and they deserve more than they're getting now (the Ayn Rand attitude). That shows up in how hard they push on gov't policies.
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Old 08-17-2013, 05:19 PM   #180
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At the same time, US surgeons make more than European surgeons because US gov't policies allow the surgeons to restrict the number of new entrants. And, because the US health financing system (driven by gov't tax policies) insulates most patients from the actual cost of surgery.

It's not all about supply/demand, it's also about gov't policies.
Right. Well, as you say, it is government policies that are modifying both the supply of surgeons (govt restrictions responding to AMA pressure) and demand for services (through government structuring of health insurance and tax policies, which effectively insulate patients from cost considerations and drive up demand by injection of money to purchase this particular service). It's still supply and demand, but skewed by deliberate government policy.

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So gov't policy puts a thumb on "market" income.
Yes, that happens. We are apparently unwilling to let the market set prices in all things.

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If you look at the top 400 taxpayers, rates go back down. That's the effect of lower rates for capital income. That's an obvious place where we seem to be compounding the market effect by favorable deals for the wealthy.

How about step-up on basis at death? That's something else I would change.
Or, tax cap gains at the "earned income" rate. But the CG would have to be indexed for inflation. Some believe this would be a paperwork nightmare, but with the tools easily available today I don't think so.

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To me, even though some changes lead to more extremes in supply/demand results than in the past, we aren't doing obvious stuff with taxes.
Like zero-deductions, everyone pays the same % of all earnings? The rate for everyone would be small, there'd be no government thumb on the scale, and the true burden of government (and the things it distributes) would rest on everyone equally, in direct and constant relationship to their earnings. And, in response to the OP, no earner, no matter their income, will again be cheated out of the opportunity to help others through their taxes.
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