Constructive gadfly
Published on October 29, 2008 By stevendedalus In Politics

 

The much talked about Redistributor in Chief took place in 1981 when Reagan took the progressive tax structure on the wealthy from 70% down to 28%, the inevitable consequence of which simply brought into reality the adage the rich got richer and the poor got poorer. The additional bonus was the rise in numerous tax shelters to the point that true earnings were distorted. and to rub it in, investors looked to cheap foreign labor to enrich themselves further. Meanwhile in Washington union busting prevailed and living wages began to tank, roiling redistribution even more .    


Comments (Page 4)
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on Oct 31, 2008

It would be a lot less disturbing if they didn't juggle words but instead tried to explain why they support such a notion.

Simple enough - it's our patriotic duty.  Just like it was the serfs' patriotic duty to farm for the Czar.  Just like it was the patriotic duty of every Chinese to carry a Little Red Book during Mao's dictatorship.  Nothing wrong with it, after all, it's just our duty.

on Oct 31, 2008

Or maybe they're motivated to find a way to make that 40 hrs worth a $110 an hr.

Motivated perhaps.... but I found it extremely difficult to make my hours worth more to other people. Working more hours is the easiest method of making more money. But each additional hour of mine I sell should bring in more rather than less money.

A regressive tax system might do the trick, but then people would be encouraged to work more hours, which cannot be good for their health either.

I would leave it up to the individual. A flat income tax or no income tax at all would remove all government encouragement to destroy either one's health or the economy and a balance would result from market forces.

 

on Oct 31, 2008

It is irrelevant whether or not I can spend it, if someone pays for anything that I need that means I don't have to pay for it. Money saved is money gained.

You guys seem to be hung up on only including direct transfers of cash as a means of redistribution. You act like Obama is going to enact this new policy instead of just an increase in an existing one.

First, it would be true if someone else is footing your bill instead of you.  However services are not all structured that way, and most are not.  You cant get out of paying for your drivers license, and you cant use it for buying food.

Second, no, most of us are well aware that what Obama is doing is not new.  But like a little bit of thiamin is good for you, too much is fatal.  Obama wants us to OD on it.

on Oct 31, 2008

A regressive tax system might do the trick, but then people would be encouraged to work more hours, which cannot be good for their health either.
I would leave it up to the individual. A flat income tax or no income tax at all would remove all government encouragement to destroy either one's health or the economy and a balance would result from market forces.

Leauki,

In theory this is good, a flat income tax is one of the main sticking points that Milton Friedman always advocated.

However...

In just about every case where a flat income tax has been implemented, across the board, the effects have been pretty disastrous for most and advantageous for a few.

This hasn't been implemented in many G8 countries but it has in many south/central american and a few asian countries as well.

Just about any nation that got suckered by the IMF had one of their pre-conditions for loans that they abolish their current taxation system and go to a minimal, flat tax across the board (with almost no taxes for business, which theoretically is a very good thing too!)

So, what hapenned in all of these cases?

Government revenue fell so much that just about all social spending had to be cut. This meant that these countries went entirely to a 'pay as you go' system.

In short, since the government had no money to provide adequate public education, road construction, food subsidies and healthcare, everything got taken over by the private sector.

For those who had lots of money, which was less than 20% of the average population, life was good as they could afford it.

What about the 'average joe'?

In Chile in the 70's, the cost of bread and cooking oil for one month for one adult ended up costing more than 25 % of their monthly income. Previously those two items had been protected by government price controls so average folks could afford to eat.

Healthcare became nonexistent unless you could afford the gold-plated treatment of privatized for profit clinics. When one quarter of your entire income is going just to pay for bread for yourself (not counting your kids or other dependents) that goes out the window.

Many people who didn't have cars and depended on public transit saw a massive amount of their income go just to pay for their daily commute to work as the transit system was privatized and the prices jacked up massively.

In fact, the only government institution in these countries that WASN'T reduced and actually increased was military spending, almost all of which went to 'counter-terrorism' which is a mask for quashing the massive domestic unrest that resulted from the fact that more than half the population went from a livable quality of life to squallor almost overnight.

Again, this goes back to the king of the hill system.

Instituting minimal flat taxes helps create this system as you end up getting a small number of very well off at the top saying "I am king!! All hail me!!!" who then trickle down a few crumbs to those at the bottom.

on Oct 31, 2008

In just about every case where a flat income tax has been implemented, across the board, the effects have been pretty disastrous for most and advantageous for a few.

This hasn't been implemented in many G8 countries but it has in many south/central american and a few asian countries as well.

We must have read different newspapers again, because the only countries that I know that have implemented a flat tax are in eastern Europe (with very few exceptions). No countries in south America (except Guyana and one other I believe) and no countries in Asia (except those of of the former Soviet Union) have implemented a flat tax.

The east-European countries that implemented flat tax are experiencing massive economic growth. Lithuania and Estonia come to mind. Unemployment went down and tax revenue actually went up. Hungary, Poland, and Greece are considering introducing a flat tax system.

Russia is the only G8 country with a flat tax.

 

on Oct 31, 2008

Currently, yes there are not too many countries running a flat tax, and yes it is mostly eastern europe and Russia.

That is today, however, and if you go back and study the IMF and world bank they've agressively pushed the flat tax to most of their client nations in the past. Not all of them adopted it, and many went the 'hybird' approach.

Chile did indeed adopt a flat tax under pinochet, and this was disastrous for the country!

on Oct 31, 2008

Chile did indeed adopt a flat tax under pinochet, and this was disastrous for the country!

"While the 1980s have been described as the "lost decade" in terms of economic development for the rest of Latin America, since global recession in the early 1980s Chile's economy under Pinochet has enjoyed a sustained strong expansion. His government implemented an economic model that had three main objectives: economic liberalization, privatization of state owned companies, and stabilization of inflation. However, these reforms came with high transitional cost and in the mid-1980s 45 percent of population was still living under poverty level. In 1985, the government started with a second round of privatization, it revised previously introduced tariff increases and gave a greater supervisory role for the Central Bank. By 1992 the unemployment had declined to below 5 percent and the growth of GDP averaged 6.2 percent a year. Pinochet's market-oriented economic policies were continued and strengthened after he stepped down."

http://en.wikipedia.org/wiki/Pinochet#Economic_policy

Are you not tired of being right all the time?

 

on Oct 31, 2008

since global recession in the early 1980s Chile's economy under Pinochet has enjoyed a sustained strong expansion.

Very good! However, if you knew anything about what I was talking about you would know that I was referring to Chile in 1973 (12 years prior to 1985), when Pinochet killed the democratically elected leader (Allende) and took power. You would know that before Pinochet made these free market changes the standard of living and quality of life for the average Chilean was much, much higher.

Yes, after a dozen years things started to get a little better but were still overall worse off than before, and most importantly, much of the economic progress and growth didn't 'trickle down' to raise everyone's standards of living. The GDP may have increased but since businesses were taxed minimally and had no legislation controlling how much of their profits had to remain in country, it succeeded in doing little more than further enriching an already rich crowd while the average joe mostly continue to live in squalor on a pay as you go system.

And, in order for Pinochet to pass much of these free market reforms?

He ended up committing crimes against humanity, imprisoning, torturing and killing anyone who went against his edicts, because his policies were so unpopular the only way to pass them was to keep people in fear for their lives.

This, I guarantee you, is not a made up lie.

again, going from wikipedia-

The worst of the military's violent purging from society of thousands of Chilean Leftists and suspected Leftists — by killing or forced disappearance — occurred in the first months after the U.S.-sponsored coup d’état. The military imprisoned 40,000 of their political enemies in the National Stadium of Chile; among the tortured and killed desaparecidos was U.S. citizen Charles Horman and song-writer Víctor Jara, and the 70 political killings by the death squad, Caravan of Death (Caravana de la Muerte) in October 1973.

Some 130,000 people were arrested in a three-year period; the dead and disappeared numbered thousands in the first months of military dictatorship. Those include the British physician Sheila Cassidy, who later brought awareness to the UK public of human rights violations in Chile. Among those detained was Alberto Bachelet (father of incumbent Chilean President Michelle Bachelet), an air force official; he was tortured and died on 12 March 1974, [11][12][13][14][15]. The right-wing newspaper, El Mercurio (The Mercury), [16] reported that Mr Bachelet died after a basketball game, citing his poor cardiac health. Michelle Bachelet and her mother were imprisoned and tortured in the Villa Grimaldi detention and torture centre on 10 January 1975

on Oct 31, 2008

Very good! However, if you knew anything about what I was talking about

At this point no one knows what the hell you talking about Artysim.

on Oct 31, 2008

Artysim lives in his own private world where american soldiers hide behind civilians and there is nothing wrong with it, while terrorist organizations don't because they are enlightened peace loving people.

also video and picture evidence as well as scientific analysis is not as strong as hearsay and opinion.

on Oct 31, 2008

Artysim lives in his own private world where american soldiers hide behind civilians and there is nothing wrong with it, while terrorist organizations don't because they are enlightened peace loving people.

also video and picture evidence as well as scientific analysis is not as strong as hearsay and opinion.

Naw, Artysim is just one of those people who would rather take a circular object and turn it slighty sideways and call it an oval.

on Oct 31, 2008

You would know that before Pinochet made these free market changes the standard of living and quality of life for the average Chilean was much, much higher.

Says who?

This graph here

http://en.wikipedia.org/wiki/Image:Chile_GDP.jpg

says that Chile's GDP was going down under Allende and then went up dramatically two years after Pinochet took power, went downwards again in the early 80s and then skyrocketed ever since 1984. (When did Pinochet introduce the flat tax that you claimed destroyed the economy?)

This graph

http://en.wikipedia.org/wiki/Image:Chile_GDP_growth.png

shows that the GDP growth was negative under Allende and very positive after Pinochet took power. It reflects the setback in 1980 and has been positive every year since 1984.

Arty, it is obvious that you don't know what you are talking about. Everything you claim (and you never give sources) is so easily found out to be untrue, it's ridiculous. You keep saying things like "if you did some research you would know" and make other arrogant statements like that, despite the fact that everyone you are talking to knows more than you and has all the numbers, stats, and evidence at hand.

When I said that you and I are reading different newspapers, what I meant was that _I_ know my facts, read a lot, and visit the places I am talking about, while you make up whatever "facts" you need. And I know you are making them up as you go along because your "facts" change when you run into obstacles with them.

You are probably not used to talking to people who are well-informed and knowledgeable. You can probably convince a lot of people by saying things like "flat tax destroys economies" without giving an explanation of why that happens or a source for when it did happen. It seems that for you these subjects are academic, and by that I mean "can be discussed without researching".

But for me they are not.

I am a EU citizen who has lived in more than one EU country. Flat tax is a current policy or under discussion in many EU member states. It is not a purely academic exercise. We actually implement flat tax systems. And it's working spectacularly well! Estonia and Lithuania did not actually destroy their economies. Quite in contrast they are developing very well indeed.

Simiarly when we discuss the 2006 Lebanon war and you tell me all sorts of things about it, you forget that _I_ was actually there when it happened. Well, actually you do not forget that, but you forget what that actually means. It's not an academic exercise for me. It's my life.

Same with Iraq and the non-existent poison gas. Just last month I was actually inside a former secret police headquarters in Iraq at the Iranian border and saw with my own eyes the results of poison gas being used in civilians and was told the stories by the victims. It's not academic. It's fecking real. (Similarly, despite the well-known "fact" that Iraq didn't harbour terrorists, I was just a few miles from a place where Al-Qaeda used to be based in Iraq before 2003.)

Honestly, at least do some research before you make your arrogant short statements.

 

 

on Nov 01, 2008

Heavier taxation of business makes the rich poorer and the poor poorer.

Lower taxation of business makes the rich richer and the poor richer

Not necessarily. It would be expected to increase the aggregate income for the country in question, but whether that translates to the poor getting richer depends on where it falls, while the same is true for the reverse. If you're raising taxes on the rich and giving that money to the poor, then the poor are likely to see an increase in their incomes; it would take a severe decrease in total income for it's effect to outweigh that of the redistributive effect on individuals, because you have the two competing impacts - the change in total income, and an opposite (for the poor) change in their own income. For the rich they're both negative, but for the poor your statement is at best highly misleading.

 

I see that none of you conservatives,  are actually dealing with the problem of lower taxes as Larry pointed out, as I have pointed out in far too many posts.  When you reduce your income you cannot pay your bills. Its not rocket science.

So, how do you Mr. Conservative, plan to reduce the trillion dollar deficit?

Well part of a tax cut would pay for itself typically (it'd only be in very extreme cases where a tax cut would increase income sufficiently for tax revenues to actually increase). As for the rest of it, it'd need to be funded by cuts in government spending (since borrowing, the 'third way' that is so favoured by conservative and liberal politicians alike, simply isn't sustainable). So you have to weigh up just how much any government spending is worth - are the beneficial effects of that spending so great as to outweigh the negative effects of the tax imposed to pay for them? (i.e. increase taxes = lower income overall. You can then try to equate this monetarily in terms of a ratio - is $1 of spending on say healthcare worth $2 lower total income? Or is it $3? Or maybe just $1.5? This will in turn affect how large a government you have. Some government services could well have a beneficial impact on total income that outweighs the decrease in total income caused by taxes (such as correcting market failure), and of course some taxes can themselves correct market failure and therefore be beneficial. As a result regardless of your beliefs as to the right size of government, these should be present anyway, so the focus can be on the more 'optional' spending programmes that don't have such 'win-win' benefits.

 

That's bull, more money is more money a better job is a better job, the only way this would have any truth is if you put a 100% tax on what you earned after a point. If you add a 5% tax to someone's income they still have the same choice, work less = less money

Incorrect, their choice changes, depending on how the tax is done.

For example, if you will tax profits only, and not provide a tax rebate for losses, you have an obvious effect: Say I can undertake a project for $40k that will either be successful (50% chance) and make $100k, or be a failure (50%) and make nothing, and this will happen fairly quickly (i.e. ignore time value of money). On normal grounds, this sounds like a great project - it'd expect to return $10k on average. Now let's introduce taxes though, and say I'll be taxed on any profits at a rate of 50%. Suddenly my expected return has fallen from $10k to -$5k. In other words on average I'd lose money by undertaking this (profitable) project.

Even if you introduce such a rebate, you still have the impact on risk - in the above case, I was using a risk neutral evaluation for simplicity. In other words, I was assuming that you'd be indifferent between a guaranteed return of $10, and the equal chance of making either $60k, or losing $40k. For most people (habitual gamblers excepted) you'd prefer the safe return of $10k, and this is borne out in the economy - the result is that if you take on more risk, you should expect a greater reward to compensate you for that risk. Thus you can lend to the government (deemed super-safe in most cases) at a rate of say 3% a year, or alternatively lend to a bank (slightly riskier) for 4%, or lend to a new startup company at a rate of 15% (numbers plucked out of the air since I can't be bothered to check the specific rates at the moment). Taxes don't take into account risk or (usually) inflation though, meaning that an increase in taxes can negatively affect investment decisions.

To give a few more numbers to illustrate this, lets say you're considering investing $100 in company A. You reckon it's fairly risky, and require an expected return of $115 to be indifferent between investing and not investing. Without taxes, it works out as being $120. With taxes at 50% of the 'profit', this falls to just $110. That means you wouldn't invest, because you'd effectively be 'losing' money. Alternatively, think of it in terms of inflation (which is a similar concept) - say that prices are increasing at 15% each year, then $115 in a years time can buy you the same things on average as $100 today. Thus if you invest in something that after taxes is only giving you $110 (but before taxes would give you $120), you're losing money.

Now the magnitude of these effects is debatable, but they do exist.

Now onto individuals working - you have a choice whether to work an extra hour, or take it as leisure, and will likely pick the option that benefits you the most. If you impose taxes, then that decreases the value of working that extra hour, since you're receiving less money from it. Meanwhile the value of that hour of leisure will be unchanged to you. Thus you would expect such an increase in taxes to decrease the amount of hours worked. There are some exceptions to this (e.g. people on low incomes will typically want to work up to a subsistence level, and it is also proposed that in some situations you can have a backwards sloping individual supply of labour curve which is based on the idea that once you hit a certain level of income you don't really care much about more income and instead prefer leisure, meaning that if you get a pay rise you'd actually decrease the hours you worked, therefore meaning a tax cut could for such a person increase the amount of hours worked), but the general rule here is also that an increase in taxes will decrease hours worked.

on Nov 01, 2008

Heavier taxation of business makes the rich poorer and the poor poorer.

Lower taxation of business makes the rich richer and the poor richer

 

Not necessarily. It would be expected to increase the aggregate income for the country in question, but whether that translates to the poor getting richer depends on where it falls, while the same is true for the reverse. If you're raising taxes on the rich and giving that money to the poor, then the poor are likely to see an increase in their incomes; it would take a severe decrease in total income for it's effect to outweigh that of the redistributive effect on individuals, because you have the two competing impacts - the change in total income, and an opposite (for the poor) change in their own income. For the rich they're both negative, but for the poor your statement is at best highly misleading.

Well, the graphes and figures from every case we viewed show me to be correct.

But even if you are talking abstractly, no matter where the money "falls" to if there is more money it cannot possibly make the poor poorer. It can only make them richer. If business make more money, then they can pay more and thus they can hire more people / pay people more (higher competition between business for workers increasaes their wage). There is no conceiveable way that it could make them poorer.

Actually because the two are related it is impossible for the money to fall ANYWHERE. It will always be split between the rich and the poor, the rich would get an overall larger share, but both will be richer then before if the economy improves.

on Nov 01, 2008

no matter where the money "falls" to if there is more money it cannot possibly make the poor poorer. It can only make them richer. If business make more money, then they can pay more and thus they can hire more people / pay people more (higher competition between business for workers increasaes their wage). There is no conceiveable way that it could make them poorer

Quite possible (at least in theory, I can't be bothered to gather together all the various statistics and relate them to specific taxation policies to try and determine whether certain situations can happen), because of the redistributive part of the taxes. To give an (abstract) example, lets say you have two scenarios, A and B. A is a low tax scenario, and results in $100mil in the particular area (total income). Scenario B is a high tax scenario, and only results in $50mil. In both cases, the distribution of wealth/income pre-taxes is the same, with the 'rich' having 90%, and the 'poor' 10%. Now in the low tax case, this doesn't really change, so you have the poor sharing $10m, and the rich $90m. In the high tax state, we're taking lots of money from the rich and giving it to the poor, so let's say we're taking 40% of the rich's wealth and handing it over to the poor. Prior to this, the rich would have $45, and the poor $5 (with that level of total income). With redistribution, the rich now have $27m to share, and the poor have $23m. Total income has fallen, but the amount of money for the poor is higher than before (it's an extreme example btw, I'm not suggesting in real life the figures+changes would be like this, it's more to illustrate you can have falling total income yet have one group benefiting from increased income, or similarly, increasing income with one group having reduced income).

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