[extropy-chat] Tax Burden Gap

Matthew Gingell gingell at gnat.com
Fri Aug 20 10:35:29 UTC 2004

J. Andrew Rogers writes:

 > I would define any person who can command vast quantities of capital, 
 > whether from a few wealthy sources or millions of middle-class folks, 
 > as "wealthy".  

 This definition does not match what is is normally meant by "wealthy"
 in a market economy. A bank loan officer might control millions of
 dollars of capital but he isn't necessarily a wealthy person, any
 more than the navigator of a hundred million dollar cruise ship is
 necessarily a wealthy person.

 Think of venture capital and mutual fund managers, arbitrage brokers,
 currency traders, executives of corporations or pension funds, and so
 on. They all control big pools of other peoples money and they all
 try to make the pool bigger by finding interesting things to do with
 it, and none of them are necessarily super-rich people.

 > My original point was more that you can't have vast quantities of 
 > capital under the control of a small number of people without also 
 > having a de facto "wealthy" class.  There are a dozen different 
 > creative ways to dress it up, but the result is roughly equivalent.  

 One of the miracles of capitalism is that this isn't true. Billion
 dollar decisions can be made without anyone actually having to
 possess a billion dollars.

 Your 401K, my savings account, somebody else's stock portfolio, and
 millions of other independent economically rational investments can
 be pooled together to accomplish things none of us could accomplish

 It isn't dressing anything up to distinguish the magnificently
 egalitarian possibilities of markets from Soviet central planning or
 from a world in which nothing happens unless some preposterously
 wealthy aristocrat wants it to, and I don't think it's sophistry to
 point out one of modern capitalism's greatest strengths.

 > All that happens when everyone is nominally in the middle-class is that 
 > the pool of the wealthy (no matter what its guise) becomes very, very 
 > small which is not a fertile economic ecology.
 It seems, and perhaps I am misreading you, that you are advocating an
 essentially command economy as an ideal growth environment: You seem
 to envision a system where a small elite controls vast portions of a
 nations capital, where growth is achieved by their centralized
 stewardship of the nation's wealth. Your arguement seems to be that
 it is only by the wise and judicious calculations of a tiny monied
 class, by their analysis of what ventures are to be pursued, that
 growth is possible.

 > And yes, progressive income taxes destroy class mobility by making it 
 > difficult to escape the middle class.  There were a few economics 
 > papers published several years ago that showed a lovely mathematical 
 > correlation between effective income tax rates as a function of income 
 > and the distribution of wealth in a population.  Steeply progressive 
 > rates concentrate control of capital in the hands of a few.  How making 
 > it progressively difficult to convert income into wealth is supposed to 
 > help class mobility is beyond me.  If the tax structure aggressively 
 > limits the conversion of income into wealth, exactly how is that 
 > supposed to help people in the lower economic strata that have income 
 > but little or no wealth?

 Any tax, progressive or otherwise, looks like a bad thing when the
 consequences of its cost are analysied in isolation from the benefits
 of the spending it funds. In reality, progressive taxation pays for
 wealth transfer programs and - whether you or I believe it is a good
 thing - transferring money from the wealthy to the poor manifestly
 increases their social mobility.

 For instance public funding of education, public sector careers in
 the military, subsidized small business loans, employment and
 relocation assistance, a public safety net which socializes some of
 the downside of necessary risk taking, all increase mobility. That
 the people who (in an well implemented system) benefit from such
 programs are not those who pay for them makes the net effect a
 clearly upward contribution to their mobility, and this is true
 regardless of whether it's the way you or I think a country ought to
 be run.

 This is not to mention an entire range of other legitimate state
 functions that have to be funded somehow - national defense, law
 enforcement and the courts, whatever else you might agree is in the
 domain of appropriate public expenditures - the burden of which must
 be distributed on the shoulders of people who have already made it
 and people who are still trying to. It seems obvious to me which way
 you weight it if your goal is to make it easier for more people to
 escape poverty and enter the middle class.


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