Joey’s Blog

So, on my post about why taxing the rich is wrong, someone by the name of “da”, whose email address is da@da.com (which I don’t think is a valid email address anyways) posted a long comment on why what I said was wrong…  I used to immediately get defensive and reply with flames when people did this.  But, Da raised some great points that I would like to thank him for and respond to.

You have quite a bit of wrong information on your hands.

First, the tax is not on income. The tax is on capital gains. These millionaires are millionaires not because they take home a million dollars a year in salary, but because of investments made on the market, or through hedge funds. These are called capital gains.

Good point, I wasn’t aware that it was an increased tax on capital gains, I thought it was an income tax.  I also thought you still paid income tax on capital gains.  I wasn’t aware that you didn’t.  Thanks for educating me on this.

Warren Buffet explained it perfectly here; he pays less in taxes because most of his income comes from capital gains. His effective tax rate is %17.4 compared to those that work in his office (ranging between %33 and %41, averaging out to around %36).

Historically, taxes on the super-rich were very high as can be seen here:

Interesting, However you left off the link, and I don’t see any relevance, but I suspect you do, can you comment and tell me?

They have fallen drastically over the past few decades. Consider also that the boom years of this nation, that is the years with most productivity (the space race, building freeways, etc. etc.) happened during the 50′s, 60′s, and 70′s when the tax on capital gains was much higher. This is how the government paid for the infrastructure that you use and enjoy today.

As far as saying millionaires are crooks or not, that is largely irrelevant to the conversation. This bill isn’t based on any sort of moral foundation; it’s a matter of numbers.

Sorry about that, I wasn’t clear.  What I meant to say was “Even if a millionaire did obtain his money in ways that may seem unfair (and I don’t believe that most are crooks) I don’t feel it is fair to tax them more than the rest of us.

Now your second point about “forcefully taking money from those who create jobs”. How exactly have these people created jobs? The top 1% are corporate lawyers, investment bankers and hedge-fund managers. Not even CEO’s. These people are involved in what is known as speculation (the latter two anyway; the first set works for the latter two). They don’t create anything of value. They bet on the market (essentially gambling) and make money off that. Hence they create absolutely nothing of value to society and they most certainly don’t create any jobs.

When a company “goes public” they can use the stock market to raise huge amounts of funds that are then used to expand the business and create new jobs.  Without all those rich people speculating on the stock market this wouldn’t be the case.  This is why they are called investors.  They are investing money in the stock market and some of that money finds it’s way back to the company who’s stock they are purchasing in some way.  Perhaps not as actual cash, but as equity, non-liquid assets, etc…  In the case of an IPO, almost all of the invested money comes back to the company as cash.

I definitely agree that playing the stock market can be gambling.  I know I’ve made un-informed investments that were made purely out of hope.   With education however investments can be a reliable way to produce income (IMO).

This talk about job creation is in of itself paradoxical. You’re claiming that taxing these people will stop creating jobs. Well, we have been hovering around a 9% unemployment rate for quite a while for these past 3 years. The jobs picture is not looking so good, so how exactly are these rich folks creating jobs? If, as the Republicans say, these bills will stop creating jobs, then shouldn’t there be jobs being created right now?

Great point.  Jobs are always rotating…  Many of the jobs we have today didn’t exist 100 years ago.  And many of the jobs from 100 years ago don’t exist today.  i.e a blacksmith.  There was huge demand for them 150 years ago, but not today.  This job title expired and was replaced with welders, automated production lines, etc…  All new technologies.  IPO’s are frequently a source of these new jobs.  Companies also can take out loans to finance new jobs, and the stock that a company still owns in itself is considered collateral (or equity, I don’t know the right term) upon which these companies can borrow against.  An IPO (as mentioned) can be HUGE boost to a companies capital and allow them to invest in new technology and new jobs.  So are they creating new jobs?  I think so.  Is the total number of jobs available going up?  Nope, at-least not very fast.  But if corporations have fewer resources to work with (because their stock price is low) we can’t expect new jobs.

Also your statement that “temporary government jobs where red tape keeps things from happening” is not based on any strong foundation. While it is true that government has efficiencies, investment in infrastructure is what has historically helped this country get out of a depression. Many have said that the United States took longer to get out of the depression; this is true. But what they do not mention is that far more people died in Europe and other countries even though they got out of it quicker. The United States got out of it slowly, but with the benefit that most of the population was employed and not starving.

Very true, people can state things that sound good when they aren’t.  Like us recovering faster than Europe but failing to mention the death tolls.  A true statement that leaves out important facts.   However I don’t believe that their is as much value in the improvements that are being made as people think, and I think putting that money to use as tax breaks for new jobs, or very very low interest small business loans may be more effective. I don’t know, but I believe it to be the case.  Also, there are cases where companies have made big bucks by building their own infrastructure.  In the book “The Dream Manager” they talk about how a custodial company in Ohio created a free shuttle service for their employees and through that and other solutions they were able to significantly reduce employee turnover and significantly improve profits.

The standard approach for a recession has been a government stimulus since the private sector cannot be always relied upon to create jobs (especially in a recession when they are strapped for capital). It is interesting to note that in the last 3 years corporations have made a large amount of profit and have largely recovered from the recession and yet they still haven’t made a dent in the unemployment because they simply haven’t hired. Infrastructure projects will employ a large part of the population even if temporarily. This will get money flowing as those who were unemployed start being employed again. This means that they will have money to spend which will increase consumer demand. Another reason for the recession is extremely low consumer demand because people are hanging on to what they have and saving because so many are unemployed.

All true.  the tough times caused companies to trim the fat.  Eleminating positions that aren’t important. I believe this is an important practice.  And a good outcome of a depression.  However, what if after they trimmed the fat, the government gave loans, grants, etc… Directly to the business, or un-employed to improve their skills?  I guess the root question here is what is the best way to spend stimulus money?

In conclusion this isn’t theft because in that case everything would be theft. While I am not a fan of government involvement in every facet what you have to realize is that the government does serve an important function. The freeways you use to go to work, the police force you depend on for safety, the firemen you depend on if your house caught on fire, the dams that provide you electricity: all of those are paid for by tax dollars and many of those were created by government funded projects.

Good point, not disagreeing, I am not an anarchist.  But I think all of these things could be provided in a more efficient manner then they now are.  Perhaps theft is a little strong, but I believe it can be viewed that way.  When it gets abusive, excessive, and wasteful it is theft in my opinion.

To use a blanket statement that “taxing the rich is wrong” is disingenuous; it requires a hard look at the actual facts on the matter.

Very true.  Perhaps a better title may have been “Putting a larger tax burden on the rich then the middle class or poor is not fair.”  But as you have shown capital gains taxes are substantially less then middle class taxes.

Thanks Da!  You have enlightened me to many things, and helped focus the core debate.  If you want to comment with your real email address I would love to discuss some of the points such as what the best way to spend stimulus money is, etc…  I’ll admit I am ignorant in many things, but I am pretty sure there are better uses of the money, and I am curious to hear what you have to say.

Joey