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Old 02-27-2010, 10:45 AM   #141
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You are correct, it has drifted from the OP. But not entirely unrelated - it is mostly those high income earners that are going to have significant dividends, so it is a further limit on what they can earn with the money they have saved and invested from their hard work. I'm not saying it is a huge disincentive, but all these marginal disincentives add up.
Any tax has some disincentive on someone, somewhere. I think that 999 out of 1,000 HS kids thinking about pursuing productive careers aren't going to worry (most won't even know) about a tax a dividends and cap gains that they might pay in some distant time when they've built up lots more savings then most people. So it looks like a non-issue to me.

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Really? I'm not so sure - is it really so unexpected that the top 5% of earners would be making an average of $540,000? Or 1.6M for the top 1%? And those numbers will be high because some of those are no doubt through luck. I'd like to see the median number.

I'm not sure what you would consider 'good' numbers. Let's say half of that. Would you really want to tell a 21 YO that even if they work hard and are the most successful (or even luckiest) person in a group of 20 others, that they are unlikely to make more than $270,000 a year? Because we just don't think it's right for some to make much more than others, no matter what the reason? I dunno, but I don't think I want to do that.

Another thing is, I've read that those top 1% and 5% rotate around. Might be a business that had a good year after barely breaking even for the past 5 years. You want to 'punish' that person for their success after so much hard work? It is different than someone making $540,000 5 years in a row.
I'll agree that single year snapshots tend to overstate differences. Unfortunately, I don't know where to get multiple year sums.

My comment was that some differences in income are too big to be explained by hard work. We can all think of cases where one person earns $30k and another $50k, and we can imagine a 5:3 ratio in work effort. But when the numbers are $30k vs. $600k, I can't get close to to visualizing a 20:1 work effort. I've had the experience of working on the same day with people at both ends of that spectrum. I find it plausible that the higher paid person worked twice as hard, but nothing close to 20x as hard. Most of that differential is dumb luck - genes, parents, being in the right spot when the merger happened, ....

TP seemed to think that high income people already pay "too much" tax. Do you agree? and if so, how do you arrive at that result? Maybe I was too flippant in just accepting his judgement without writing a much longer discussion. Here it is:

In my "fair" economic world, we'd have equivalent (but not identical) luck. The only difference in incomes would be effort. If I earn 50% more than you, it's because I'm working 50% harder. We'd probably see that lifetime incomes top out at about twice the median, because that's about the limit of human capacity. In such a world, the "fairest" tax might be regressive - most gov't would be supported by a fixed dollar (head) tax. Why should someone who chose more leisure pay less tax than someone who chose more work?

In our real world, there is a tremendous disparity in luck, and therefore income. It's so big, that the only reasonable tax for an expensive gov't is progressive, so high income/wealth people are going to pick up a big chunk of the bill because they'll pay a higher rate on their high incomes. We may not "like" that, but it's the best we can do in an imperfect world.

I'm not promoting that idea that we should put a cap on earned income. I can't imagine how the gov't could possibly do that. I do think graduated tax rates make sense, and it makes sense to tax capital income at the same rates as labor income, which we're not doing today. Sure, both of these reduce the incentive to work for some people, but note that those people still have after tax hourly earnings above (or very far above) median hourly earnings, and so they still have plenty of incentive.

I've got a confusing sidenote: In a small number of cases, some very profitable economic activities hurt the greater good (think monopolies, pollution) and we should limit or tax these activities. The fact that something is profitable for some private interest doesn't guarantee that it's enhancing our society. People who want to keep making the money often claim that others are merely jealous and looking to "punishing success". In some cases that's true, in some it isn't, we need to look hard to see which is which.


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Well, this gets to my often-stated dislike of the complexity of our tax code. It would be tough to make 'fair' under the best of circumstances, and our twisted, illogical, counter-productive tax code just makes it worse. It makes almost any discussion of overall 'fairness' pointless. A sales tax in place of an income tax makes much more sense to me. But that's another story.

-ERD50
I think we've agreed on this point before. I saw this tax on dividends/cap gains as a small step in making the result more rational, but I'd much rather have a dramatic change. (However, I'd definitely prefer a dramatically simplified income tax instead of a NST.)
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Old 02-27-2010, 10:50 AM   #142
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Any tax has some disincentive on someone, somewhere. I think that 999 out of 1,000 HS kids thinking about pursuing productive careers aren't going to worry (most won't even know) about a tax a dividends and cap gains that they might pay in some distant time when they've built up lots more savings then most people. So it looks like a non-issue to me.
Heck, I'm more financially savvy than most and was in my teens and early 20s, and I (unfortunately) didn't even consider the value of pensions and retiree health insurance when choosing careers and employers. So certainly nuances of possible tax changes decades from now didn't even appear on the radar.
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Old 02-27-2010, 10:58 AM   #143
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Probably not. In underdeveloped countries great income inequality has been shown to facilitate social unrest. In developed countries, that is less clear. But whether income inequality encourages growth or discord largely depends on income mobility, or at least the perception of mobility. The US has high income mobility so inequality probably facilitates growth.
I've seen some research on this that says European mobility is actually higher (sons have a greater chance of being in a different income quintile than their fathers). But, the perception of mobility is higher in the US, and that's what matters for social stability.

I think, but I don't have any facts to support it, that this perception is eroding in the US.
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Old 02-27-2010, 11:57 AM   #144
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Independent - I don't understand what you mean by "work." It seems you are equating work to physical effort - if you carry one ton of hod and make $100, then you should earn $200 for two tons. Or if you work X hours, you should get that much more for X + 5 hours. Not sure what country you are referring to, but it's not the US. Most people who do well in this country don't perform truly measurable work. That's why it's not a function of luck, with the simple exception of being born here in the first place. I may (and probably am) wrong, but I've had the impression that most people who are able to retire early (whenever that is) are not blue collar workers - whose output can be easily measured.

Those of us who are decision makers, analysts, in short, people who work with their minds and not their hands, can't be judged by the same standards of productivity. I can make one decision in 5 minutes that saves my company $1M. I many have nothing to do for the rest of the day - does that mean I should get paid for 5 minutes? The concept of "working harder" is generally irrelevent to many knowledge workers. What concerns me is that you appear to be linking compensation and tax burdens to the following statement: "From each according to his ability, to each according to his need." I think we all know where this comes from. No hints now.
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Old 02-27-2010, 12:25 PM   #145
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With regard to cutting spending - I am 100% in favor of eliminating all earmarks, all federal preferences for social programs that have costs associated with them, a 10% across the board cut of ALL programs, regardless of effect, elimination of 20% of the federal workforce (which will have no effect at all), cut of 50% (to start) in ALL foreign aid across the board (actually, I'd go for 100%, but you have to work yourself up - it's insane to borrow money from one country (China) to give it to another), all programs that result in expenditures of funds that benefit illegal aliens, deportation of all llegal aliens, elimination of federal programs that have not produced the intended result or have outlived their usefulness (why are the Rural Development Electric Programs still operational when 99% of the US is electrified?), and many more.

I would also raise import duties on goods that could be produced in the US, but are not as we have let our industrial capacity die. I'm not stuck on a flat tax - a VAT (with elimination of our current tax code and a rebate for those under certain income levels) could work well also.

But, as has been stated, this is all idle speculation. None of it will happen. Guaranteed.
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Old 02-27-2010, 01:23 PM   #146
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Heck, I'm more financially savvy than most and was in my teens and early 20s, and I (unfortunately) didn't even consider the value of pensions and retiree health insurance when choosing careers and employers. So certainly nuances of possible tax changes decades from now didn't even appear on the radar.
Absolutely. But it's not just high school kids. Most decisions ordinary people make aren't based on any tax rate considerations whatsoever. Certainly there are exceptions, but as a general rule people don't turn down promotions, or job opportunities, or fail to pursue entrepreneurial ambitions because they may have to pay 35% of each incremental dollar to the federal government. Naturally as that rate increases the number of people factoring tax burden into decisions will grow. But the strange notion that any marginal rate increase from any starting position, no matter how small or from how low a rate, is always extremely destructive is simplistic at best. I'd categorize that view as more an element of political faith than reasoned economic thought.

In fact, members of an Early Retirement Forum might consider the possibility that an Anti-Laffer Curve exists in very rich countries like the U.S. In other words, workers who are productive enough to generate sufficient wealth to retire early can drop out of the work force sooner the lower the tax rate is. Conversely, the higher the tax rate the longer they have to work before they can retire.

Lets hear it . . . Higher Taxes for Growth!!
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Old 02-27-2010, 09:13 PM   #147
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Independent, lots of topics there - let me respond to a bite-size chunk or two. I'll try to answer another chunk later, but first...

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My comment was that some differences in income are too big to be explained by hard work. We can all think of cases where one person earns $30k and another $50k, and we can imagine a 5:3 ratio in work effort. But when the numbers are $30k vs. $600k, I can't get close to to visualizing a 20:1 work effort.
Allow this sports agnostic person to make an Olympics analogy - Does the winner in a race work 20x harder than the 4th place person? Probably not, but the winner gets the gold and the 4th place gets zero.

If two companies are competing to get a new product out into the market place, one company may be marginally more efficient or effective, or work marginally harder, but being first to market can easily make a 20:1 difference in reward. But it wasn't a 20:1 difference in 'effort'.

As beowulf mentioned, it's tough to say what 20:1 "effort" is when it comes to these things. But yes, I can visualize it this way: It is unlikely that a group of twenty workers at the $30,000 level could co-ordinate a business plan that brings a new product to the market that creates new jobs. But some people earning $600,000 do exactly that. Yes, they rely on some of those $30,000 wage earners to get the job done, but those $30,000 people didn't create the product or the jobs. They just don't have the skill sets or experience or motivation, even if they put in the same 'effort'. Maybe substitute 'capability' for 'effort'? I think I could say that many entrepreneurs have 20x the 'capability' of many $30,000 'wage slaves'.

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TP seemed to think that high income people already pay "too much" tax. Do you agree?
I actually have no opinion on this - since our tax code is so convoluted, we really don't know what anyone pays in taxes based on their 'income' (we can't even agree on what 'income' is), so I can't say. I do have a problem with the numbers that say ~ 50% pay no Fed Income tax at all. But I don't know what to make of *that* number either, since some of those are getting credits, and it only accounts for people who actually filed taxes.

I'll add some numbers to demonstrate that a NST with pre-bate *is* a progressive tax. For demonstration, let's say the NST was 30% and the pre-bate offset the first $30,000 in spending. Then we have:

$30,000 spent = 0% effective tax rate.
$50,0000 spent = .3(50K-30K) = $6K tax = 12% eff tax rate.
$100,000 spent = .3(100K-30K) = $21K tax = 21% eff tax rate.

Going from $50K to $100K results in a 3.5x tax payment, on 2X the spend. Maybe you think it should be steeper, but I like the fact that I know it would actually be collected (and collected from people who pay zero income tax now from illegal/unreported activities).

And yes, I think a measure of what one spends would be a far simpler and far more accurate (on average) measure of their ability to pay taxes than some complex convoluted measure of their 'income'. And if some wealthy person wants to save/invest it instead of spend it, fine - I thought we wanted to encourage savings and investing, and make money available for credit for others?

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Old 02-27-2010, 09:29 PM   #148
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TP seemed to think that high income people already pay "too much" tax. Do you agree? and if so, how do you arrive at that result? Maybe I was too flippant in just accepting his judgement without writing a much longer discussion. Here it is:

I don't think I said anywhere where the high income people pay "too much" tax... maybe I will have to look back and see... I think that I pointed out that the high income people pay the vast majority of the revenue of the country...

One of the things that I have been thinking.... money if fungible.... if we can tax the heck out of people to pay for the trillions of dollars for health care... then we can scrap this health care stuff and only do the taxes... this will pay for everything that we currently spend money on and then some.... it will take care of the deficit... so why not enact the tax, and get a balanced budget...

THEN... once we have gotten our debt lower... we decide what we want to spend that money on... you can move it around, but not tax any more...

But... I do agree that the tax level of all taxing authorities are to high.... many years ago in a Reader's Digest article they said the very big vast majority of the country thought that the amount of 'government' should be 20% (maybe 25%... but I think it was the lower number).... this was not just federal, but ALL government... we are a lot higher than that....
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Old 02-28-2010, 10:27 AM   #149
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OK, let me touch on this one now...

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Originally Posted by ziggy29 View Post
Heck, I'm more financially savvy than most and was in my teens and early 20s, and I (unfortunately) didn't even consider the value of pensions and retiree health insurance when choosing careers and employers. So certainly nuances of possible tax changes decades from now didn't even appear on the radar.
Agreed. However, that is based on past and present rates. Independent is saying that the $540K and $1.6M is "too high". So what is "just right"? I threw out cutting them in half.

If we cut them in half, that might start getting it on the radar screen of some young people.

I'll go back to the Olympics. If we gave three Gold Medals to the top three in each event, with no distinction between the three, and four Silver Medals and 5 Bronze medals - don't you think that would change the dynamics of the event? Would people really work so hard to be "the best", when all they could hope for it to be lumped in with two other competitors, and no acknowledgment for actually being better than the other two?

No, it doesn't mean people would stop competing. But I do think it could affect how much top talent is attracted, and it could marginally affect just how hard they are going to work towards a diluted goal.

This seems to be the kind of redistribution of risk/reward that Independent is in favor of. I think there are negative consequences to it. Do those outweigh any positives? Hard to say. There are some examples from history that didn't work out to well.

One more sports analogy - how many kids work really hard at some of the high-profile sports? If the top athletes were not making millions, I bet it would be far fewer. That might be a good or a bad thing, but you'd be hard pressed to convince me that it isn't a motivational factor.

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Old 02-28-2010, 02:01 PM   #150
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Independent - I don't understand what you mean by "work." It seems you are equating work to physical effort - if you carry one ton of hod and make $100, then you should earn $200 for two tons. Or if you work X hours, you should get that much more for X + 5 hours. Not sure what country you are referring to, but it's not the US. Most people who do well in this country don't perform truly measurable work. That's why it's not a function of luck, with the simple exception of being born here in the first place. I may (and probably am) wrong, but I've had the impression that most people who are able to retire early (whenever that is) are not blue collar workers - whose output can be easily measured.

Those of us who are decision makers, analysts, in short, people who work with their minds and not their hands, can't be judged by the same standards of productivity. I can make one decision in 5 minutes that saves my company $1M. I many have nothing to do for the rest of the day - does that mean I should get paid for 5 minutes? The concept of "working harder" is generally irrelevent to many knowledge workers. What concerns me is that you appear to be linking compensation and tax burdens to the following statement: "From each according to his ability, to each according to his need." I think we all know where this comes from. No hints now.
I'm calling "work" time and energy. I know that some times I'm more "intense" at work than other times, so I can't just look at hours. I'm calling genes, parents, mentors, being in the right place at the right time, good health, ... "luck". The person making $400k isn't putting in 20x the time/effort of someone making $20k, so much of the difference in income is "luck".

If you can save $1 million with 5 minutes of attention, then your company should pay you accordingly - you're going to have a very high "hourly" rate (assuming there are very few people who can do what you do). I've got no problem with that. In the days of muscle work, the big healthy guy could lay twice as much rail in a day as the smaller weaker guy. I'm not suggesting they should be paid equally. I am saying that the difference in their day's output and wage (assuming that both made the same effort) is due to luck.

I see the same thing with brain work. I am (was) a financial analyst. I made 3 or 4 times the median wage. But I could look at median wage earners I knew and say I didn't work a lot more hours or with a lot more intensity - I was born with a gift and had the opportunity to develop it. Given the investment I made in my skills, I could "work justify" an income of maybe 2x the median. But I was delivering economic value that was 3-4 times the median. My employer didn't care why, they paid me based on what I did for them. For this discussion, I think the extra resulted from "winning the birth lottery".

If you're opposed to the "from each according to his ability" part of that quote, how do you think we should pay taxes? I said that in an ideal world I'd be okay with everyone paying the same dollar amount, is that your preference for the world that we live in?
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Old 02-28-2010, 02:09 PM   #151
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In fact, members of an Early Retirement Forum might consider the possibility that an Anti-Laffer Curve exists in very rich countries like the U.S. In other words, workers who are productive enough to generate sufficient wealth to retire early can drop out of the work force sooner the lower the tax rate is. Conversely, the higher the tax rate the longer they have to work before they can retire.
Yep. Since the biggest work/don't work decision is often when to retire, there is a real catch-22 in thinking that we can encourage more work by cutting taxes. I don't know what policy I'd recommend based on that observation, but it seems silly to just ignore it.
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Old 02-28-2010, 02:26 PM   #152
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But I was delivering economic value that was 3-4 times the median. My employer didn't care why, they paid me based on what I did for them. For this discussion, I think the extra resulted from "winning the birth lottery".
OK. And your employer probably doesn't care much if you deliver 4x the median output due to it coming 'naturally' to you, or through exceptionally hard work. And you can keep asking for raises based on your output, and if your boss is smart (and has the authority), he/she will pay you what you are truly worth to them. Or you can find someone else who values your output.

Are you saying that people who create a certain output and find it easy should be paid less than people with the same output but find it hard? How would one distinguish this in the real world? It seems very subjective and arbitrary, and that situation almost always leads to unfairness.

Conversely, if you had a group of people all working equally 'hard' (however you determine that), and some had 10x the output of others, you would pay them all the same because they all worked hard? If I trained side-by-side with Michael Jordon, and trained just as hard as him, I assure you no one would want to watch me on the court, and I'd get no endorsements. And I think that is exactly how it should be. You gotta perform. What other measurement is there?

The free market system of setting income might seem harsh to some at times, but overall I think it is the only workable system, and the most fair of all in the long run. I just don't 'get' whatever it is you are proposing as an alternate?

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Old 02-28-2010, 02:31 PM   #153
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If you can save $1 million with 5 minutes of attention, then your company should pay you accordingly
Actually, if he can save $1 million with 5 minutes of attention, then his company should pay him just enough to retain him, or, if there are others with similar or better talents who will do the job for a penny less, fire his sorry butt and hire the other person.

Your pay should relate to your job accomplishments only to the extent of what others who can do the job as well are willing to work for. Non-competitive salary determiners (union contracts, legislated salary levels, political clout such as patronage, "old boy networks" and the like) are a huge problem working against efficiency in our economy today. Another is taxes meant to be facilitators of "social engineering."
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Old 02-28-2010, 02:33 PM   #154
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Independent, lots of topics there - let me respond to a bite-size chunk or two. I'll try to answer another chunk later, but first...

Allow this sports agnostic person to make an Olympics analogy - Does the winner in a race work 20x harder than the 4th place person? Probably not, but the winner gets the gold and the 4th place gets zero.

If two companies are competing to get a new product out into the market place, one company may be marginally more efficient or effective, or work marginally harder, but being first to market can easily make a 20:1 difference in reward. But it wasn't a 20:1 difference in 'effort'.

As beowulf mentioned, it's tough to say what 20:1 "effort" is when it comes to these things. But yes, I can visualize it this way: It is unlikely that a group of twenty workers at the $30,000 level could co-ordinate a business plan that brings a new product to the market that creates new jobs. But some people earning $600,000 do exactly that. Yes, they rely on some of those $30,000 wage earners to get the job done, but those $30,000 people didn't create the product or the jobs. They just don't have the skill sets or experience or motivation, even if they put in the same 'effort'. Maybe substitute 'capability' for 'effort'? I think I could say that many entrepreneurs have 20x the 'capability' of many $30,000 'wage slaves'.
"Capability" may be a good word. The key is to recognize that some people can create more economic output with a given commitment of time/energy than others. In some cases, the extra capability comes from prior work (an MD worked hard to fill that brain with knowlege), sometimes it comes from luck. See may response to Beowulf. The market should reward people based on their economic output.

But how should we tax? And, should we tax capital income, or just labor income? For the highest income families, almost all their income comes from capital - and it's not the kind that individual wage earners can accumulate by LBYM.

Quote:
I actually have no opinion on this - since our tax code is so convoluted, we really don't know what anyone pays in taxes based on their 'income' (we can't even agree on what 'income' is), so I can't say. I do have a problem with the numbers that say ~ 50% pay no Fed Income tax at all. But I don't know what to make of *that* number either, since some of those are getting credits, and it only accounts for people who actually filed taxes.

I'll add some numbers to demonstrate that a NST with pre-bate *is* a progressive tax. For demonstration, let's say the NST was 30% and the pre-bate offset the first $30,000 in spending. Then we have:

$30,000 spent = 0% effective tax rate.
$50,0000 spent = .3(50K-30K) = $6K tax = 12% eff tax rate.
$100,000 spent = .3(100K-30K) = $21K tax = 21% eff tax rate.

Going from $50K to $100K results in a 3.5x tax payment, on 2X the spend. Maybe you think it should be steeper, but I like the fact that I know it would actually be collected (and collected from people who pay zero income tax now from illegal/unreported activities).

And yes, I think a measure of what one spends would be a far simpler and far more accurate (on average) measure of their ability to pay taxes than some complex convoluted measure of their 'income'. And if some wealthy person wants to save/invest it instead of spend it, fine - I thought we wanted to encourage savings and investing, and make money available for credit for others?

-ERD50
I'll agree that it's impossible to get a perfect difinition of "income". It's also impossible to get a perfect definition of "consumption" (does that include tuition? health care? government services?). I'll agree that an NST could be progressive at the low end, but at the top end where people don't spend money (or can arrange to spend outside the US) I think it becomes regressive.

The market provides incentives for people to work and for people to save/invest. Any taxes on either will reduce those incentives at least a little (and a tax on consumption is a tax on work for 95% of Americans). I'm at a loss as to why we should be so afraid to tax investing but so quick to tax work. I don't see elasticities that would justify that.
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Old 02-28-2010, 02:46 PM   #155
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OK. And your employer probably doesn't care much if you deliver 4x the median output due to it coming 'naturally' to you, or through exceptionally hard work. And you can keep asking for raises based on your output, and if your boss is smart (and has the authority), he/she will pay you what you are truly worth to them. Or you can find someone else who values your output.

Are you saying that people who create a certain output and find it easy should be paid less than people with the same output but find it hard? How would one distinguish this in the real world? It seems very subjective and arbitrary, and that situation almost always leads to unfairness.

Conversely, if you had a group of people all working equally 'hard' (however you determine that), and some had 10x the output of others, you would pay them all the same because they all worked hard? If I trained side-by-side with Michael Jordon, and trained just as hard as him, I assure you no one would want to watch me on the court, and I'd get no endorsements. And I think that is exactly how it should be. You gotta perform. What other measurement is there?

The free market system of setting income might seem harsh to some at times, but overall I think it is the only workable system, and the most fair of all in the long run. I just don't 'get' whatever it is you are proposing as an alternate?

-ERD50
I think we cross-posting here, but I'll respond even though I'm probably repeating another post.

Wages should be determined by competitive markets. But taxes are set by law. It's impossible for the gov't to know exactly how much of which wage came from luck and how much from hard work. That would be a waste of effort.

However, we can say as a general rule that the further you are above the median, the more likely it is that you benefit from an unusual level of good luck. Given my definitions of "work/luck", it's obvious that someone at $200k isn't working 5x as hard as the median worker. He may be producing 5x as much, but that extra production comes from a "capability" that is likely to have a large luck component. If you get up to $10 million per year, the necessary luck component is even greater.

It would be ridiculous for MJ to say that the only reason he outperforms you is that he "works" harder. He may have a good work ethic, but so do some ball players who never made the pros. Much of his output is a gift.
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Old 02-28-2010, 02:48 PM   #156
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If you're opposed to the "from each according to his ability" part of that quote, how do you think we should pay taxes? I said that in an ideal world I'd be okay with everyone paying the same dollar amount, is that your preference for the world that we live in?
The $1M in five minutes was an extreme example. But it's indicative of what "thinking," rather than manual labor can achieve. Sure, there is a "birth lottery" - intelligence, family, country, etc., are all part of that. And yes, it's luck, but so what? Until we become like the genetically engineered folks in "Gattica," it will alwyas be that way.

I've already said how I think we should pay taxes. I don't advocate the same dollar amount for everyone at all - just the same percentage with lots of room at the bottom before the taxes start for low income workers. A progressive system is fine, but as more and more people become exempt from any taxation, the burden falls on a smaller and smaller group. Our current system is clearly not working well. I've seen recent proposals by our legislators to tax fringe benefits - as you said - the devil is in the details.

The real problem, as YTG says, is that we have to figure out what to cut spending on, as I have absolute confidence that our legislators will spend every penny available and then some (a lot some).
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Old 02-28-2010, 02:59 PM   #157
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Actually, if he can save $1 million with 5 minutes of attention, then his company should pay him just enough to retain him, or, if there are others with similar or better talents who will do the job for a penny less, fire his sorry butt and hire the other person.

Your pay should relate to your job accomplishments only to the extent of what others who can do the job as well are willing to work for.
I agree. That's why I put this in the next sentence: "(assuming there are very few people who can do what you do)." The intent was to indicate I was assuming a "typical" situation where the market rate for someone who can save $1 million in 5 minutes is probably pretty high.


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Non-competitive salary determiners (union contracts, legislated salary levels, political clout such as patronage, "old boy networks" and the like) are a huge problem working against efficiency in our economy today. Another is taxes meant to be facilitators of "social engineering."
I agree that all of these can get in the way. With only 8% of private workers in unions, I don't see union contracts as a "huge" problem for our economy. Political rent-seeking is certainly a problem, but I see it going to capital (stockholders), and very high income individuals, more often than typical workers. And, if the "old boy network" is CEOs and boards, or gov't/private revolving door, I'll agree.

In most of these posts we're assuming that people actually provide value in exchange for their income, you're pointing out that it isn't always that clean - I agree.
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Old 02-28-2010, 04:44 PM   #158
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I agree that all of these can get in the way.
Good, cuz dats da fact......

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In most of these posts we're assuming that people actually provide value in exchange for their income, you're pointing out that it isn't always that clean - I agree.
No need to paraphrase me. I said what I wanted to say in my post and it stands as said.
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Old 02-28-2010, 06:24 PM   #159
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I've already said how I think we should pay taxes. I don't advocate the same dollar amount for everyone at all - just the same percentage with lots of room at the bottom before the taxes start for low income workers. A progressive system is fine, but as more and more people become exempt from any taxation, the burden falls on a smaller and smaller group. Our current system is clearly not working well. I've seen recent proposals by our legislators to tax fringe benefits - as you said - the devil is in the details.

.
There aren't many people in this country who don't pay any federal taxes. There is a large number who don't Federal income taxes, but they for the most part pay Social Security, and Medicare which are quite large. Since I've been retired I think there has only been a couple of years where my income tax , would have exceeded the amount I would have owed for FICA and Medicare if my passive income had been treated as wages.

So when people complain about "1/2 the country doesn't pay taxes", there are conveniently forgetting about folks like me and the other early retirees on the board who are benefiting from COLA increases of social security,and the increased coverage of medicare without paying into the system.
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Old 02-28-2010, 07:50 PM   #160
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Originally Posted by Independent View Post

Wages should be determined by competitive markets.

...

It's impossible for the gov't to know exactly how much of which wage came from luck and how much from hard work. That would be a waste of effort.

...

However, we can say as a general rule that the further you are above the median, the more likely it is that you benefit from an unusual level of good luck.


It would be ridiculous for MJ to say that the only reason he outperforms you is that he "works" harder. He may have a good work ethic, but so do some ball players who never made the pros. Much of his output is a gift.
Well, I am just really not following where you are trying to go with this.

As I said, if I work as hard as MJ, he will still outperform me (an understatement!). He gets paid for performance, whether it comes easy for him or hard for him. And you said that yourself, that the govt cannot distinguish.

I think what I'm objecting where you go with your idea that as income increases, the more it can be attributed to 'luck'. Probably so (not sure I'd agree with 'most'), but I just don't like the idea of lumping those that worked hard and earned it with those that fell into it. I don't want to limit the hard workers, because of some lucky ones. So I don't think that should be the basis to justify higher taxes on the 'rich'. I'm in favor of progressive taxes, but for a different reason. As was pointed out, the marginal dollars for a wealthy person are not as painful to give up as they are for a lower income person.

So I guess you are saying high income is alright, if they 'earned' it in a free market, but you want to tax them to effectively lower their income, because you don't think the 'really earned' it, they were mostly lucky? Well, we can agree to disagree then. But I'll add one more thing:

w/o a straightforward tax code, many of the wealthy find ways around the big taxes taxes (ergo the 'Alternative Minimum Tax' - think there aren't loopholes in that?). So it's a big game. Like the discussions that the Estate Tax is supposed to keep silver spoon kids from inheriting billions, but they just find ways around it. Like make your kids the head of your Charitable Foundations? Why couldn't they land that gig on their own?

Another thing that really warps the discussion is that those tax % are based on AGI - so what is that anyhow? It's already distorted the number.

Sorry, one more rambling thought - so Lottery tickets should be taxed at 99% then? It was *all* luck? Think that would do anything to lottery ticket sales? Be careful with your answer

-ERD50
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