Comment by tfehring | Hacker News Reader

Comment by tfehring | Hacker News Reader

As a partial rebuttal to the article’s points about income inequality, it seems worthwhile to quote one of PG’s better-known essays [0]:

>Variation in wealth can be a sign of variation in productivity. (In a society of one, they're identical.) And that is almost certainly a good thing: if your society has no variation in productivity, it's probably not because everyone is Thomas Edison. It's probably because you have no Thomas Edisons.

>In a low-tech society you don't see much variation in productivity. If you have a tribe of nomads collecting sticks for a fire, how much more productive is the best stick gatherer going to be than the worst? A factor of two? Whereas when you hand people a complex tool like a computer, the variation in what they can do with it is enormous.

Now, the middle-class and upper-middle-class do subsidize the wealthiest Americans as a result of the US’s tax structure, and that’s a problem. But aside from that, the fact that the top quantiles in the US are wealthier than their equivalents elsewhere is not fundamentally a bad thing.

[0] http://www.paulgraham.com/gh.html

I am surprised by how infrequently I see the arbitrary progressive tax bracket levels being brought up in these debates. The fact that you are considered ultra wealthy and paying at about the top bracket at ~200k per year is absurd. Meanwhile there is no progressive taxation for capital gains. The highest brackets should be stretched into the tens of millions (or even in the hundreds), and taxes should be significantly lower for the upper middle class (for whom it is increasingly difficult to become upper class through hard, good work and a somewhat standard career directory).

> there is no progressive taxation for capital gains

(I know this is not your main point, but) short-term capital gains are taxed at the same rate as ordinary income, and long-term gains have three brackets (0%, 15%, and 20%).

Goes up to 23.8% federal due to ACA, along with 13.3% CA state tax for long term capital gains.

Just about the highest in the developed world IIRC.

Better yet, tax wealth instead of income. The value derived from government services is more closely proportional to wealth than to income, and income-based taxation is inherently regressive compared to wealth-based taxation. The only significant wealth-based tax in the US is property tax, and even that is somewhat regressive because the share of income and wealth spent on housing decrease as income and wealth increase.

That wouldn't work have you not heard of splits :-) ie trusts / funds designed with separate classes of share one gives income one gives capital gain.

Inflation is the tax on wealth, and much easier to administer and harder to avoid than a wealth tax program would.

Inflation is more a tax on wage income than existing wealth, because investments will inflate in addition to their productive growth returns.

buy property, rent it out, raise rents above the inflation rate. simple.

Inflation is a tax on cash, not wealth

I disagree with wealth taxation -- wealth can be tied up in illiquid assets (longtime family home, grandma's jewels, etc.) and even more importantly, a tax on wealth kind of makes it like you don't really own property, you are just leasing property rights from the government. Not a hallmark of a free society in my opinion (land taxes are questionable for the same reason), whereas a tax on economic activity made possible by a government that enforces a market structure / the rule of law seems far more amenable.

However, I will add that I could maybe get behind minor wealth adjustments for income taxation, if the incentives could be figured out. For example, a lower bracket person / new college grad with no wealth who had a really good year financially by consulting or something might pay a slightly lower amount than a longtime VP who has accumulated significant wealth, but had the same income for the year. This encourages people to spend, not save, though, and it still is indirectly taxing property rights. Perhaps a better way would be to adjust based on the moving average of previous incomes.

The lower brackets need work too. If the poor are doing what the wealthy say they should be doing and picking themselves up by the bootstraps, they eventually hit that tax cliff from 12 to 22% where a raise can actually penalize them.

"Hi poor people! Welcome to making money, here let me take 10% more of it away from you. Can't let ya catch up too fast, now can I!?"

That's not how tax brackets work. The new bracket applies only to income in that bracket, entering the 22% bracket means that income above that threshold is taxed at 22%, your income below that is still taxed at 12%.

The higher tax bracket only applies to the additional dollars earned, so mathematically it can't penalize you when you make more money (I'm assuming you are using "penalize" to mean "you take home less overall pay"). And you have to make about 50K (factoring in the 12K standard deduction) for that to happen. At that point, you should be using some of the extra money to dump into a 401(k) plan, which comes "off the top" for tax purposes. So 10% in 401(k) means you have to hit 55K before the additional funds start to diminish returns.

Nobody disputes that more productive people should get more reward. But with inequality increasing I have my doubts that the top x % are increasingly more productive than the rest. Or are today's CEOs who make for example 200 times the average workers salary 10 times better than the CEOs in the 50s who made 20 times as much as their workers?

I'd like to see us address the magnitude of wealth & income inequality, but it isn't necessary for us to end up at a uniform distribution, some inequality in income distribution helps to spur growth in under-served or high risk vocations... but we've reached a rather ridiculous extreme at this point and for some reason we're still retaining strongly regressive taxes (i.e. payroll, and various complex loop holes that allow percentage savings while having mostly fixed costs to exploit)

I completely agree - my point is that the posted article’s metrics aren’t effective at illustrating these points. It would be more meaningful to look at, say, the share of productivity gains that has flowed to capital as opposed to labor (~100% in the US) or at the volume and distribution of various transfers and cross-subsidies over time.

The broader truth is that inequality as such is not an indication of injustice or, as it seems to be presented, an injustice itself. There's a huge difference in wealthy between Bill Gates and a member of the upper middle class, but few people worry about that, expect the envious.

Poverty is a problem, and corrupt uses of enormous wealth to hijack politics and exert power in unjust and immoral ways are problems, but not the wealth as such.

I think of it this way.

Say we are CEO and our enterprise makes 60 billion a year. Bankable.

Now, if we fund better lives, we make 58 billion a year.

(Just randomish numbers)

What is the priority and why?

> Variation in wealth can be a sign of variation in productivity

Yes, Jeff Bezos is 2 million times more productive than the average person.

Maybe we shouldn't listen to the guy worth, at least, hundreds of millions when it comes to wealth inequality.

> Yes, Jeff Bezos is 2 million times more productive than the average person.

That is true to some extent. I think the average person could live out 2 million lifetimes and not once achieve the success he's gotten.

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