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Tax 'Em High

by afew Fri Feb 27th, 2009 at 06:30:19 AM EST

Bring back the 90% marginal tax rate, says economist Thomas Piketty in a recent article in Alternatives Economiques. Crazily high earnings for top executives in business and finance are a danger for the economy and democracy, he argues, and the return to a strongly progressive income tax would discourage them more efficiently than proposed caps on executive pay.

Piketty links the current crisis clearly to the economic cycle of the last thirty years (though he doesn't comment on the neoliberal political decisions that determined it), that has seen a massive reduction in tax progressivity in the US, then in Europe, followed by an explosion in super-high remuneration and in wage inequality. This high remuneration is, he says, one of the motors of the crisis because the system favours high-risk behaviour by managers and traders. The higher the risk, the higher the potential gains: if you win, you win big, if you lose, the hit is taken by the company and the mass of its employees, or, if need be, the taxpayer is called in to make good your losses. (In other words, privatize gains, socialize losses).

Thomas Piketty : "Il faut taxer fortement les très hauts revenus"Thomas Piketty : "We need a heavy tax on very high incomes"
on ne peut pas faire l'impasse sur la crise actuelle: c'est tout de même la preuve patente que ces rémunérations astronomiques ont suscité des choix qui nous contraignent d'injecter des centaines de milliards d'argent public pour sauver le capitalisme. C'est une démonstration grandeur nature du caractère inefficace des bonus en tout genre et du fait que cette explosion des hautes rémunérations relève tout bêtement d'une captation pure et simple de la richesse par le groupe dirigeant....we can not pass over the current crisis in silence: it's all the same evident proof that these astronomical earnings led to choices that now force us to inject hundreds of billions of public money to save capitalism. This is a life-size demonstration of the inefficient nature of bonuses of all kinds, and of the fact that this explosion of high remuneration is a matter of pure and simple wealth capture by the ruling group.

When public money saves companies in this way, it can come with strings attached, such as a cap on salaries and bonuses. Piketty thinks measures of this kind can be got round fairly easily by using payments from subsidiaries, consultancy fees, etc. A punitive marginal rate on the income tax would be more efficient:

On affirmerait aux yeux de tous qu'au-delà d'une certaine limite, si vous prenez un euro de plus, il y aura 90 centimes qui iront directement dans les caisses de l'Etat. De quoi diminuer automatiquement l'intérêt individuel à obtenir une rémunération extravagante.It would be publicly stated that beyond a certain limit, if you take one more euro, 90 cents will go directly into the coffers of the state. Enough to automatically reduce an individual's interest in obtaining excessive remuneration.


Piketty points out that a high marginal rate was brought in by Roosevelt (after a similar period of weak tax progressiveness, an explosion of high earnings, and a crisis...), who hiked the top rate up, in three steps, from the 25% it stood at when he became president to 91% in 1941.

quand Ronald Reagan est élu président, en 1980, le taux marginal d'imposition est encore de 70%. C'est ainsi qu'entre 1932 et 1980, le taux marginal d'imposition applicable aux plus hauts revenus a été supérieur à 80%, en moyenne. Pendant un demi-siècle. Et cela ne se passe pas en Union soviétique, mais aux Etats-Unis d'Amérique!...when Ronald Reagan was elected president in 1980, the marginal tax rate was still 70%. So, between 1932 and 1980, the marginal tax rate applicable to the highest incomes was over 80% on average. For half a century. Not in the Soviet Union, but in the United States of America!

During that time, top executives had very comfortable pay, but the progressive nature of the income tax placed a cap on their demands.

La leçon de cette histoire est que ce niveau d'imposition marginale n'a pas tué le capitalisme, ni mis au pas les droits de l'homme. Une leçon bonne à rappeler dans un moment où l'on nous explique, pour justifier le bouclier fiscal, que c'est un droit de l'homme fondamental de ne pas payer plus de 50% d'impôts quand on perçoit des bonus de plusieurs millions d'euros. Eh bien, on a fait tout autrement durant un demi-siècle sans que le capitalisme et la démocratie s'en soient moins bien portés pour autant. Bien au contraire.The lesson this story gives is that this level of marginal taxation did not destroy capitalism, neither did it constrain human rights. A good lesson to remember at a moment when we are told, by way of justification for the "tax shield" (1) , that it's a fundamental human right not to pay more than 50% tax when getting paid a bonus of several million euros. Well, things were organised very differently for half a century without capitalism and democracy suffering for it. Quite the contrary.
(1) tax shield: Sarkozy-inspired law that no one need pay more than 50% of their income in total taxes.

Piketty also dispenses with the objection that talented, hard-working individuals must be highly rewarded for their contribution to economic efficiency. No study demonstrates that; on the contrary, several studies show that, above a certain level, top executive pay is no longer correlated to the results obtained. Studies also show higher remuneration where company equity is dispersed: the less powerful the shareholders, the more pay top management votes itself. Finally, all the available studies cast doubt on the idea that higher pay leads to higher performance.

And economic theory seems little able to explain what has been happening:

De toute évidence, le marché n'a pas empêché cette dérive. Le marché remplit de multiples fonctions économiques avec une grande efficacité. Il permet de définir un point de référence autour duquel gravite la plupart des rémunérations. Au-delà des multiples facteurs conventionnels qui influent sur le niveau et la structure des rémunérations, les salaires perçus par la masse des salariés peuvent être mis en rapport avec leur productivité marginale - qu'il est possible d'évaluer, ne serait-ce qu'approximativement (on sait à peu près de combien varie la production d'une entreprise avec un ouvrier ou un serveur en plus).Evidently, the market did not prevent this drift. The market efficiently performs many economic functions. It helps define a point of reference around which most earnings gravitate. Beyond the many conventional factors that influence the level and structure of remuneration, salaries paid to a broad majority of wage-earners can be seen in relation to their marginal productivity - which it is possible to evaluate, if only approximately (we know roughly how much the output of a company varies with one extra worker or waiter).
En revanche, pour les quelques centaines de cadres dirigeants des grands groupes, dont les fonctions ne peuvent être dupliquées, les lois du marché ne nous permettent pas d'évaluer la contribution de chacun aux résultats de l'entreprise. Elles ne nous disent rien sur le bon niveau de rémunération au-delà d'un certain seuil. Et si on les laisse faire, les dirigeants se nourrissent de cette incertitude fondamentale pour se servir dans la caisse.In contrast, for the few hundred top executives of major groups, whose functions cannot be duplicated, market laws do not allow us to evaluate the contribution of each to the results of the company. They tell us nothing about the right level of remuneration beyond a certain threshold. And if it's allowed to, top management takes advantage of this fundamental uncertainty to help itself out of the cash register.

On tax, see also Two great tastes that taste crappy together by Jake S

Display:
A fairly obvious objection to Piketty's historical parallel is that freedom of movement for capital, also one of the powerful motors of the crisis, makes it much easier for wealthy indiviuals to get round paying tax, as Dubya elegantly pointed out on one occasion. So one would have to suppose a clean-up of tax havens around the globe, concomitantly with income-capping by means of tax.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Feb 27th, 2009 at 06:35:28 AM EST
A global economy requires global laws and global government.
by Colman (colman at eurotrib.com) on Fri Feb 27th, 2009 at 06:43:09 AM EST
[ Parent ]
Global governance yes. God preserve us from a global government.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 06:48:24 AM EST
[ Parent ]
afew:
one would have to suppose a clean-up of tax havens around the globe
That is being discussed.

Brown targets Switzerland in global tax haven crackdown | Business | The Guardian

The prime minister, who will meet the Italian prime minister, Silvio Berlusconi, today in Rome before a mini-summit of the four EU leaders in the G20 in Berlin on Sunday, declined to be drawn on the specifics of his plan. But the Guardian understands that he is taking a particular interest in Switzerland, while Barack Obama singled out the Cayman Islands during the US presidential election campaign.

...

The prime minister believes that significant progress will be made at the G20 summit, which he will chair, because world leaders have recognised that the downturn provides a strong opportunity to crack down on tax havens.

...

One senior British figure said that a lengthy EU campaign to rein in savers who attempt to avoid tax had eventually identified a trail leading to Switzerland. The source said: "If you take the EU we had this long campaign to stop tax avoidance on savings. Basically you had Germans putting their money into Luxembourg or Austria to prevent them being taxed in Germany. So the EU decided to clamp down on it. But actually people went to Switzerland and to Lichtenstein. So unless you can start dealing with the tax havens themselves then there's always a route which people can take. So we are trying to get international agreement."

...

Obama memorably said: "There's a building in the Cayman Islands that houses supposedly 12,000 US-based corporations. That's either the biggest building in the world or the biggest tax scam in the world, and we know which one it is."

This was in the Salon recently.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 06:53:47 AM EST
[ Parent ]
Yes, there is a trend. UBS forced to breach banking secrecy rules; Lichtenstein apparently making noises about being more cooperative; Sarko attacking Andorra, Monaco, and Luxembourg:

Paradis fiscaux: Sarkozy vise Andorre, Monaco et le Luxembourg , Economie - NouvelObs.com Tax: Sarkozy takes aim at Andorra, Monaco and Luxembourg Economy - NouvelObs.com
Très sévère sur la question des paradis fiscaux, Nicolas Sarkozy a annoncé jeudi son intention de "poser des questions" à Andorre, Monaco et au Luxembourg.Very severe on the issue of tax havens, Nicolas Sarkozy announced Thursday his intention to "ask some questions" in Andorra, Monaco and Luxembourg.
La France exigera la moralisation des paradis fiscaux et "ça m'amènera à revoir nos relations avec Andorre", "à poser la question de nos relations avec Monaco (et) à poser un certain nombre de questions à nos voisins luxembourgeois", a-t-il déclaré lors d'une émission radiotélévisée.France will demand the moralisation of tax havens and "that will lead me to review our relations with Andorra", "to examine the question of our relations with Monaco (and) to pose a few questions to our Luxembourg neighbours," he declared in a radio/TV broadcast.

The French president is co-prince of Andorra (along with the bishop of Lleida), so Sarko's threats bear more weight there; see declaration by Andorran head of government (in French).

by afew (afew(a in a circle)eurotrib_dot_com) on Fri Feb 27th, 2009 at 07:49:19 AM EST
[ Parent ]
Tax 'Em High
When public money saves companies in this way, it can come with strings attached, such as a cap on salaries and bonuses. Piketty thinks measures of this kind can be got round fairly easily by using payments from subsidiaries, consultancy fees, etc. A punitive marginal rate on the income tax would be more efficient
Haven't we been banging on this drum here on ET for a while, now?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 06:39:46 AM EST
Of course.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Feb 27th, 2009 at 07:51:12 AM EST
[ Parent ]
Nope.

We should get rid of virtually all taxes on earned income, and tax unearned privileges instead.

Location Benefit Levy - tax on land rental values and hence on the privilege of exclusive rights of the Commons of land;

Carbon Levy - tax on the privilege of exclusive use of the Commons of non-renewable energy;

Limited Liability Levy - a tax on gross corporate revenues and the privilege investors have of limitation of liability.

All of these may be collected - unavoidably, at the clearing level. And huge swathes of deadweight costs and complexity may be swept away.

If you assume that all value comes from Labour then you tend to ignore taxing the privileges of property rights over Commons that underpin most Capital. Which is exactly why this is the one of the daft assumptions underpinning conventional economics, the other big one being that Money is necessarily interest-bearing Credit.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 06:45:38 AM EST
What about unearned income?

I take it that you're assuming that no value comes from labour? (In which case, to hell with this, I'm taking the rest of the day off.)

by Colman (colman at eurotrib.com) on Fri Feb 27th, 2009 at 06:49:20 AM EST
[ Parent ]
Unearned income, i.e., gifts and inheritance, was one of the things that, for instance, John Stuart Mill thought were not protected by the principle of private property.

But we have had debates here where Martin has argued that property is not of the individual but of the family or clan and so inheritance (and, presumably, gifts and other transfers within a clan) shouldn't be taxed.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 06:55:50 AM EST
[ Parent ]
Actually, I was snarking on the idea that the hugh incomes aren't legitimately earned.
by Colman (colman at eurotrib.com) on Fri Feb 27th, 2009 at 06:58:03 AM EST
[ Parent ]
Even if it's the property of the clan or family, it wasn't once, so I'm not sure how that makes a difference.

But I'm not sure how it makes a difference anyway. Why shouldn't clans and families pay tax? In the end it's always individuals who benefit.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 27th, 2009 at 07:00:54 AM EST
[ Parent ]
It's fairly simple to me: Higher taxes on the incomes of people with bills to pay doesn't make sense when you have the option to tax dead rich people.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 27th, 2009 at 07:54:29 AM EST
[ Parent ]
How can property be of the family and clan?  I don't follow the logic, at least not in the typical case.  The family isn't waiting tables and building cars.  Individuals are doing those things.

Be nice to America. Or we'll bring democracy to your country.
by Drew J Jones (pedobear@pennstatefootball.com) on Fri Feb 27th, 2009 at 08:03:41 AM EST
[ Parent ]
Colman:
What about unearned income?

Privilege is what gives rise to unearned income.

Colman:

I take it that you're assuming that no value comes from labour?

Nope.

I said get rid of virtually all taxes on earned income.

In that context, I think there is a distinction to be made between what Keynes called unqualified labour and the accumulated knowledge, expertise and experience we gather both through education and subsequently.

So a tax (eg x% of income) levied on the "Intellectual Capital" we have gained over the years - funded by society - is reasonable, since this is one of the reasons why we are able to earn a premium over the "unqualified labour" rate.

So if society invests £250k in making me a hospital consultant, then maybe they should be entitled to a return on that investment from my earnings as a consultant?

From my earnings as an artist, they get bugger all, other than a levy on sales in respect of my intellectual property (which is the property right privilege conferred on me enabling me to get income from licensing etc).


"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 06:59:54 AM EST
[ Parent ]
Piketty rapidly reviews the literature on these very high managerial incomes to conclude that, above a certain level, they are not "earned" by productive output or a contribution to the company's results. They might be seen as a form of rent proceeding from the executive's position.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Feb 27th, 2009 at 08:00:51 AM EST
[ Parent ]
In other words, he proposes to tax what you call "unearned privilege".
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Feb 27th, 2009 at 08:14:12 AM EST
[ Parent ]
I agree with taxation of privilege, as i said.

But the fact CEO's are able to extract excessive compensation is a structural failing inherent in the legal and financial model known as the Corporation, and of the system in which it is an integral part.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 08:28:55 AM EST
[ Parent ]
I think there is a distinction to be made between what Keynes called unqualified labour and the accumulated knowledge, expertise and experience we gather both through education and subsequently.

I disagree with your reasoning. First, you conflate the meaning of intellectual capital and intellectual property; the latter being related, exercisable GAAP and legal terms of an asset class. The former being non-transferable economic stock, or an externality (i.e. a cost or a profit of productive activities not captured by property rights, conferred). Thus, the remedy proposed is ill-conceived.

Quoting myself to elaborate a distinction to which you allude ("'Intellectual Capital' we have gained over the years - funded by society"), irrespective of concommitant ignorance "funded by society":

.23  Knowledge stocks
Educational attainment is often the only measurement of economy's knowledge stock and is expressed as the number of university graduates per annum. A university degree is a construct, the basis of entry but neither guarantee of nor comparable to professional activity. It is a systemic value. Researchers, society's professional "knowledge workers," are members of the set of total graduates in the labor force.  Figure 9 shows sectoral distribution of researchers (bottom up) in industry, government, and higher education. Each class of researcher can be characterized by a set of systemic, extrinsic, and intrinsic values that compound the conceptual value of knowledge stock. To simplify, the value of industry knowledge (RKp) is extrinsic; their productivity and process are compared to ouput. The value of research in higher education is intrinsic; the value of academic research is largely defined in a closed system, incomparable. The value of research prepared by government agencies and NGOs is systemic; their product is largely descriptive or prescriptive public policy.

2.24  EdEx
Expenditure on education (EdEx) is a measure of the public investment in a singular type of knowledge production, a person. The expected return is a stream of social benefits in the form of marketable (extrinsic value) and non-transferable (intrinsic value) goods and services. A sample of marketable benefits could include professional and technical training, employment, patents, taxes, and information. A collection of non-transferable benefits includes personal properties such as moral and political privileges, authority, experience, and cognitive ability which bear directly on creativity in the workplace and the public sphere. Because these benefits are not immediately realizable, the conceptual value of EdEx is fundamentally systemic. How businesses recognize and manage the spillover benefits of education is indicator of knowledge transfer within the organization.

2.25  Intellectual capital
Some countries are evidentally better investors than others. Figure 10 plots returns on higher education. The Y-axis expresses total expenditure on higher education as a percentage of GDP. The X-axis is the sample of univeristy graduates in the population. The intersection is OECD mean, 1.8% to 22%, expenditure to graduates. For example, US total expenditure was 2.6%, twice the OECD average; its graduate ratio is 35%. Canada's total expenditure is 1.6%, slightly below average; its graduate ratio was 39%, a considerable achievement considering its demography and GDP relative to the US. Australia's performance reads as 1.5 to 0.27, and Germany's  2.3 to 0.23. The data suggest at least that Canada and Australia had more efficient educational systems than the US or Germany, which actually spent less per capita on education than any in the group. Note that Australia and Canada share several structural attributes with the US and Germany, except an above-average ratio of researchers in the institutional sector and deep EAI penetration. Situational factors reinforce distinctions between education and training and their relationship to innovation activity [Foote, 2001; Arvanitis and Hollenstein, 1998; Symeonidis, 1996].

Second, "unqualified labor" is merely an objection to indiscriminate valuations of factors of production by prominent economists at the time Keynes theorized; investment (cost) and output (quantity and price) attributable to manual, mechanical, training factors, categorically.

Finally, artists are not licensed, not in the US at any rate. So this oblique example of a distinction between intellectual capital and (intellectual) property right does not explain either the transaction price of or the rate of sales tax applied to a work of art.

Diversity is the key to economic and political evolution.

by Cat on Fri Feb 27th, 2009 at 08:05:21 AM EST
[ Parent ]
MarketTrustee:
First, you conflate the meaning of intellectual capital and intellectual property; the latter being related, exercisable GAAP and legal terms of an asset class. The former being non-transferable economic stock, or an externality (i.e. a cost or a profit of productive activities not captured by property rights, conferred). Thus, the remedy proposed is ill-conceived.

This is a Diary on its own, of course.

I think there is a big distinction between intellectual capital associated with and which dies with the individual, and intellectual property that lives on.

Don't take a sketch too literally. Just policy riffing here. Chucking ideas around.

Please don't reify me! ;-)

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 08:12:54 AM EST
[ Parent ]
Please don't reify me! ;-)

I have not, do not, and will not. Not for Mr Obama or anyone else.

There are several exchanges between you and I on the subject of unitising "knowledge." I've done the quantitative and qualitative research into organizational practices and aggregate data. You presumably are drafting a book. This comment is intended to focus your inquiry on facts.

The first principle of any argument about intellect, intellectual things (objects and processes), and intellectual production differentiates intangible and tangible characteristics of that enterprise.

I intend to be helpful, not to write your book.


Diversity is the key to economic and political evolution.

by Cat on Fri Feb 27th, 2009 at 09:38:34 AM EST
[ Parent ]
MarketTrustee:
I intend to be helpful, not to write your book.

Which I recognise and appreciate greatly. You are a great deal more rigorous than I can ever be.

You're not a Virgo are you?

<hides>

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 10:00:44 AM EST
[ Parent ]
Artists don't really produce things. Successful artists - which most artists aren't - are the most obvious nodes in a network of social and cultural relationships.

Most of what they do isn't really individual, and it's hard to compare it to industrial manufacture because what's being produced and cultivated isn't widgets, or even experiences, but social attitudes and values.

So I'm not sure how you can tax cultural capital. You can certainly tax training and education, but if you want to tax intellectual property or estate rights you have to accept that those property and estate rights are inherently valuable.

At the moment that's not how it works. When an original Van Gogh sells for hundreds of millions, none of that goes to the artist's estate.

Arguably what the buyer is paying for is the right to display and - they hope - increase their wealth, and the art is an indirect signifier of that.

In a capitalist culture it's really a display of the ability to appropriate creative work, rather than of art itself.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 27th, 2009 at 08:27:40 AM EST
[ Parent ]
Artists don't really produce things.

Whaaa?

...because what's being produced [interesting use of passive voice --MT] and cultivated isn't widgets, or even experiences, but social attitudes and values [emphasis added]

Aha. Yes, well. Works of art --artifices-- always reproduce "social attitudes and values". This objective, historically and irrespective of a level of "development" attributable to a society, is the function of the art work, which is indeed tangible, a thing.

May I suggest that you elaborate the suggestion which art "isn't widgets" and which is? I'd rather not retrieve that thread re: Obama ephemera.

Most of what they do isn't really individual

Whaaa? Please elaborate. For example, in what ways does the enterprise of our informant In Wales differ from that of, say, Louise Bourgeois or clients of the various Gemini Studios?

So I'm not sure how you can tax cultural capital.

"Cultural capital": Is that a new asset class? I haven't checked the wiki capital article lately. In any event, may I suggest that you elaborate the suggestion, culture (pl) is a marketable commodity. I've noted elsewhere a serviceable definition of culture, intangible and tangible.

At the moment that's not how it works. When an original Van Gogh sells for hundreds of millions, none of that goes to the artist's estate.

Whaaa?

When a security (equity or bond) outstanding sells, none of the transaction proceeds convey to the company which either represents. Van Gogh died insane and penniless, intestate; no estate exists. And even if it did, its trustees today would understand, estate beneficiaries cannot realize a penny of capital gain in excess of the first transaction. Which explains the timeless rationales for holding and renting. See for example instead capital strategy of the Picasso estate.

And let us recall, once again, the profound aphorism: possession is 9/10 the law.

Diversity is the key to economic and political evolution.

by Cat on Fri Feb 27th, 2009 at 09:15:53 AM EST
[ Parent ]
No, I'll say again - artists don't produce objects.

Or rather - artists do produce objects, but beyond the 'That would look nice in my living room' decorative proletarian level, the objects are a peg for the art industry which is a cabal of political, financial and cultural insiders who work together to create the illusion of value and significance, and to manage trends and define social commentary.

This isn't done formally - there are no meetings with minutes in smoke-filled rooms - but there are very tight links between art schools, collectors, curators, museums, private and public patrons and auction houses.

So any art object is the visible form of this extended process. There's a mythology of social transgression and criticism fuelled by individual talent, but it's a lot less relevant than it pretends to be. And at the top of it all are the collectors, not the artists. They're the ones who are pampered at end of degree shows, whose tastes are deferred to, and who define the trends.

Note I'm talking about the art industry here. I'm not talking about individuals outside of this network, because as far as the industry is concerned they don't count - at least not unless the industry decides they do.

MarketTrustee:

And even if it did, its trustees today would understand, estate beneficiaries cannot realize a penny of capital gain in excess of the first transaction.

This is no longer true. One of the most significant changes in the art world recently has been a semi-succesful push by artists to levy a percentage on any and all future sales of work, no matter how distant from the original sale.

Van Gogh today would likely have an account and a lawyer ready to manage this for him. At the very least his brother would maintain the estate rights after his death.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 27th, 2009 at 10:50:35 AM EST
[ Parent ]
This is no longer true. One of the most significant changes in the art world recently has been a semi-succesful push by artists to levy a percentage on any and all future sales of work, no matter how distant from the original sale.

Actually, no.

But thank you for exposing my provincial point of view toward the moderne salon circuit, art market, or art industry, if you prefer. (F. Jameson was always on about "art production" and its pathology) I was unaware of droit de suite enactments within the EU. Now I am. I'd be interested to know, however, which artist(s) have successfully negotiated private covenants at point of sale. I do not know of any, though I do know of living artists who disintermediate dealers, shows or, "fairs," auctions --public trading platforms.

There is also the vexing question: How do EU members levy installations --temporary, commissioned interior, environmental media ensembles-- which represent a significant portion of spectacularly expensive, contemporary exhibition? I know now that legislators attempted, ostensibly, to fund further droit de suite in digital reproducible media (e.g. photography, music) by VAT on PC unit sales (i.e. indirect DRM).

I located a couple of articles which, predictably, doomed the EU tax rationale, suggesting it is an impediment to free flowing capital (of the artists' patrons and their dealers' premia, of course.)

Forbes, 2001: "Ironically, the very artists intended to benefit from the droits de suite directive have come out against it. Personalities as famous as Karol Appel, Anthony Caro, Georg Baselitz, David Hockney and Markus Lupertz have protested against a measure that, by imposing inalienable rights on them, will actually interfere with their ability to negotiate prices."

Apollo, 2005
NB. "This new [TEFAF, Maastricht*] report is of particular topical interest because of its detailed discussion of the likely impact on the art market of the introduction throughout the European Union in 2006 of droit de suite, or the levy charged for the benefit of an artist or an artist's heirs on the resale of a work of art up to seventy years after the artist's death." In effect, the statute imposes a copyright license ("royalty") on transaction itself in lieu of adjudicating individually negotiated covenants. Though the number of jurisdictions has since expanded, Van Gogh's (not)estate is still shit out of luck.

text

I find your other remarks puzzling. I can't put my finger on the source of your distress. Besides disparaging proletarian taste for art "objects" or adulation of "individual talent", you claim: "There's a mythology of social transgression and criticism fuelled by individual talent, but it's a lot less relevant than it pretends to be." Though clearly such "mythology" is manufactured by art marketers --as often professional dealers and credentialed curators, experts!-- as MSM celebrity "opinion makers." I just don't understand in what ways this commercial dynamic detracts (is "less relevant") from the social and historical function of art. In Westworld, commodification of praxis is entirely consistent with the development of the industrial state. And that realization has been made by  so many "cultural historians" so often over so many centuries, to say so again is trite.

But here we are, studying financial capitalism.

--------
* 2009:  "The report, Globalisation and the Art Market, Emerging Economies and the Art Trade in 2008, has been prepared by Dr Clare McAndrew, a cultural economist specialising in the fine and decorative art market. It is the latest in a series of important annual studies commissioned by TEFAF.

The report takes a detailed look at the growing importance of China, Russia, India and the Middle East in the art market in recent years. It also examines the past and possible future effects of the current world economic climate on international art buying.

Copies of the report can be ordered at €20 each excl. postage."

LOL

Diversity is the key to economic and political evolution.

by Cat on Wed Mar 4th, 2009 at 02:38:15 AM EST
[ Parent ]
I think that the concept of deadweight costs is one of the more daft ideas in the religion of economics.

Notwithstanding that, I like the concept of a limited liability levy and a carbon levy (could better be called a resources or hotelling levy, because we don't want to limit that to fossil fuels; in addition there should be pollution charges).

The location benefit levy seems more questionable as the value of the land is quite variable and this might set off the wrong kind of motives on the side of the government (drive property values into speculative bubbles).

Who defines what is a commons?

by nanne (zwaerdenmaecker@gmail.com) on Fri Feb 27th, 2009 at 07:06:25 AM EST
[ Parent ]
nanne:
I think that the concept of deadweight costs is one of the more daft ideas in the religion of economics.

You are undoubtedly right. I often use terms without realising the baggage that goes with them. Let's just say unnecessary costs.

nanne:

The location benefit levy seems more questionable as the value of the land is quite variable and this might set off the wrong kind of motives on the side of the government (drive property values into speculative bubbles).

The value of land as location is for the most part conferred by public investment.

What is invested in the land itself eg buildings, fertiliser, tending the land is another matter.

Land is a Commons: many cultures cannot even conceive how anyone can "own" it at all, while others hold that absolute ownership is God's alone.

Those who have exclusive rights of occupation or use of such a Commons should IMHO compensate those they exclude.

I think that this is a principle few can argue against, other than the privileged themselves.

In fact such a tax/levy makes bubbles less likely, rather than more likely, as it reduces the value of the land to a pure rentier.

nanne:

Who defines what is a commons?

This is a matter for all of us: a matter of public policy.

Islam, for instance, holds that Pasture, Fire and Water are Commons.  One could argue that Pasture = Land and Fire = Energy, so that's not a bad fit. No one would argue with water, either, but tell that to the neolibs.

If it had even been conceived of in the Seventh Century that Knowledge could be "enclosed" then I have no doubt the Prophet would have extended the Commons to Knowledge as well.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 07:21:41 AM EST
[ Parent ]
Why isn't corporation tax your "limited liabilty levy"?
by Colman (colman at eurotrib.com) on Fri Feb 27th, 2009 at 07:08:58 AM EST
[ Parent ]
Because it's a tax on profits, and these, as we see, may be manipulated til the cows come home, transferred all over the globe, yada yada.

We can lay a handle on gross revenues very easily.

We can probably get rid of VAT as well.

The fact that a lot of lawyers, accountants and tax specialists would lose lucrative earnings is the price we have to pay, I guess.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 07:45:09 AM EST
[ Parent ]
guardian.co.uk: Vincent Cable responds to your comments

I am certainly not in favour of more power for the European Union for the sake of it, and I am not in favour of the harmonisation of taxation.

Nonetheless, there is a simple, practical reason for trying to reconcile the different accounting conventions used in different countries: to reduce the extent of tax arbitrage between the different tax jurisdictions.

In this way, we can minimise the difficulties correctly identified by reallyanavatar concerning the trickiness of taxing profits rather than revenue.

This is in the Guardian's "Tax Gap" series on tax evasion.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 08:40:27 AM EST
[ Parent ]
I don't have time to look it up again, but there's an idea that sounds very good to me in that respect: repeal all taxes (except sin taxes), and replace it by a ~1.5% tax IIRC on both sides of any electronic transaction.
It might sound un-progressive at first, but in reality it's the complete opposite. Minimum wage earners will typically only pay it twice: once when they cash their salary, and once more when they buy goods. On the other hand, people with more money will pay it several times, when they invest the money and take it back. Speculators will pay it on every transaction, and it will add up quite quickly.
The result is that labour will be taxed very lightly, and another positive side effect is that taxation becomes a very simple problem, the tax code is simplified, there is less room for cheating, and companies to have to spend an ungodly amount of money on accounting.
To discourage tax havens and cash-based transaction, you just need to put a bigger tax on transactions that involve such things. Wanna move your money to the caribbeans? Sure, go ahead, it's just gonna cost you 15% of the amount.

A 'centrist' is someone who's neither on the left, nor on the left.
by nicta (nico&#65312;altiva&#8228;fr) on Fri Feb 27th, 2009 at 07:35:27 AM EST
nicta:
I don't have time to look it up again, but there's an idea that sounds very good to me in that respect: repeal all taxes (except sin taxes), and replace it by a ~1.5% tax IIRC on both sides of any electronic transaction.

That ignores the fact that much of the wealth may never be the subject of such transactions.  

Collection of levies at the clearing level is necessary,but not sufficient.

Moreover, the centralised architecture (and wholesale/retail distinctions) of current clearing systems makes such a tax pretty impracticable as things stand.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 07:48:42 AM EST
[ Parent ]
ChrisCook:
That ignores the fact that much of the wealth may never be the subject of such transactions.

Won't much of that wealth still be earning interest/rent/dividends/other?

Moreover, the centralised architecture (and wholesale/retail distinctions) of current clearing systems makes such a tax pretty impracticable as things stand.

But if you're proposing a new clearing system anyway...

by ThatBritGuy (thatbritguy (at) googlemail.com) on Fri Feb 27th, 2009 at 08:31:15 AM EST
[ Parent ]
I fail to see how this is more impractical than what's currently practiced. Banks have to disclose transactions to the authorities, even if the clearing is done in Luxembourg.

A 'centrist' is someone who's neither on the left, nor on the left.
by nicta (nico&#65312;altiva&#8228;fr) on Fri Feb 27th, 2009 at 08:19:05 PM EST
[ Parent ]
Henry George explained business cycles already in 1879. This is how it works according to Henry George:

When economy and productivity grows, population grows and tax payers invest to the infrastructure of society, the value of the land rises. During economic growth, sooner or later, the increased incomes start to go to better housing and increased production and exchange needs to use more land. The price of land starts to rise.

As a result of improved capital gains land speculation starts. Banks finance both speculators (supply) and buyers (demand). However speculators don't start to sell land (they limit the supply), because the longer they can delay the sell the better are the profits. So financing speculators limits the supply. This goes on until the prices reach a level, that the economy cannot buy and the trading stops.

First to suffer are the construction industry and other businesses that are vulnerable to high land costs (rents). This leads to unemployment and a as a result the aggregate demand declines. This spreads the recession to the whole economy and depression follows. Businesses and private individuals can try to escape the land costs by seeking land further away, but this does not help, because this makes productivity to drop and the result is the same.

According to George, the way to get rid of the destructive business cycles is to eliminate the effect rising land values cause to the economy (and which happen (and should happen) inevitably as society progresses). This is achieved by taxing the land values. Taxing incomes or limiting credit flows will not stop the cycle. The bubbles will happen anyway. By taxing land values, speculations stops, because there is no profits to make. The actual buildings and other investments made on the land do not increase in value during rising economic trend anymore than other produced commodities do.

by kjr63 on Fri Feb 27th, 2009 at 08:57:40 AM EST
George was writing during the "Long Depression" of 1873-1896, and responding to the "Bank Panic of 1873" which, like most 19th century crises, followed a bubble in the construction and financing of railroads.

The issue really is that Capitalism doesn't know how to "grow" other than through bubbles. Some bubbles are based on land values, but not all of them are (see the .com bubble).

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 09:09:17 AM EST
[ Parent ]
Migeru:
Some bubbles are based on land values, but not all of them are (see the .com bubble).

The Dot Com bubble was - possibly uniquely? - a bubble which was not inflated by leverage (deficit finance), and possibly, actually I'll stick my neck out and say probably that is why the system did not miss a beat in the collapse of the Dot Com bubble?

Discuss?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 09:14:40 AM EST
[ Parent ]
So, what was the .com bubble inflated with? Cash that people happened to have lying around?

The (US) economy was going into recession as a result of the .com bubble bursting and then 9/11 happened and then Greenspan set real interest rates negative for 18 months "to avert a nasty recession", as well as encouraging domestic mortgage equity withdrawals. So a debt and land value bubble was created as a way to avert a recession.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 09:18:01 AM EST
[ Parent ]
Migeru:
So, what was the .com bubble inflated with? Cash that people happened to have lying around?

There are restrictions on buying stock on margin, of course. So yes, lots of people - including a lot of very shrewd business people allowed common sense to be temporarily overtaken by the Madness of Crowds.

Migeru:

The (US) economy was going into recession as a result of the .com bubble bursting

Can you back up that statement? I just saw the bubble as a major pimple on the arse of the economy. It didn't really affect the real economy at all IMHO....

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 09:23:15 AM EST
[ Parent ]
ChrisCook:

Migeru:

The (US) economy was going into recession as a result of the .com bubble bursting

Can you back up that statement?

It appears that Martin Wolf, Ben Bernanke, and ETers Jerome and Martin all agree on that point in the discussion to my Musings on the savings-glut theory diary of October 17th, 2008.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 09:29:49 AM EST
[ Parent ]
How can I argue against such a consensus? :-)

Still worth kicking the point around though.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 09:37:03 AM EST
[ Parent ]
ChrisCook:
How can I argue against such a consensus?
Like you did already, presumably...

ChrisCook:

But to come back to the point of the Diary, Wolf's assumption is that in some way the "Savings Glut" is pre-existing money which has been lent to unwise property purchasers/ investors.

The chain of causality is the other way around.

Secured loans were made to by credit institutions to assist in property purchases, and due to the deficit nature of the money supply these interest-bearing loans created new money which inflated the bubble still further.

The direct cause of asset price inflation is the deficit basis of money created as debt

A very large part of this new money which was instantaneously deposited back into the system was thereupon used by American consumers to buy Chinese etc goods, and this was then saved, by being deposited in the banking system somewhere in the world.

The Bubble caused the Savings Glut: the Savings Glut did not cause the Bubble.

But there you were addressing the claim that the Chinese "savings glut" had a deflationary impact on the US economy.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 09:44:21 AM EST
[ Parent ]
Migeru:
Like you did already, presumably...

LOL

You know a rhetorical question when you see one, then...

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 10:04:50 AM EST
[ Parent ]
Musings on the savings-glut theory

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 09:40:48 AM EST
[ Parent ]
I thought the collapse of the dotcom bubble was turned into the housing bubble by Greenspan?
by nanne (zwaerdenmaecker@gmail.com) on Fri Feb 27th, 2009 at 09:20:44 AM EST
[ Parent ]
I think that is probably the reason why Greenspan did what he did.

But my question is. Did he actually need to?

Thank goodness Greenspan did, though. He fucked up the system at least ten years before time as a result.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 09:28:15 AM EST
[ Parent ]
Wikipedia: Dot-com bubble
The venture capitalists saw record-setting rises in stock valuations of dot-com companies, and therefore moved faster and with less caution than usual, choosing to mitigate the risk by starting many contenders and letting the market decide which would succeed. The low interest rates in 1998-99 helped increase the start-up capital amounts. Although a number of these new entrepreneurs had realistic plans and administrative ability, many more of them lacked these characteristics but were able to sell their ideas to investors because of the novelty of the dot-com concept.
The .com bubble was funded by venture capital and IPOs, and helped by low interest rates. How do low interest rates "help increase start-up capital" if not because of deficit finance?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 09:24:32 AM EST
[ Parent ]
Migeru:
The low interest rates in 1998-99 helped increase the start-up capital amounts.

Low interest rates and easy credit would have helped start the Dot Com businesses for sure, but I don't think these would have had any effect on share prices (ie the bubble).

There's a big difference between creating new (apparently, in this case) productive assets with start up capital (of whatever type) and buying existing ones with borrowed money.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 09:34:10 AM EST
[ Parent ]
ChrisCook:
There's a big difference between creating new (apparently, in this case) productive assets with start up capital (of whatever type) and buying existing ones with borrowed money.
How about using borrowed money to provide the startup capital? If the "new productive assets" turn out to be nothing of the sort, you still have inflated asset values using borrowed money.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 09:37:01 AM EST
[ Parent ]
Migeru:
How about using borrowed money to provide the startup capital? If the "new productive assets" turn out to be nothing of the sort, you still have inflated asset values using borrowed money.

Insofar as borrowed money went into what became valueless assets, then the result would be a bubble. When the relevant loans defaulted, then the result could be recessionary.

I have no idea if and to what extent this happened. I'd be interested to know

But it certainly wasn't leverage that inflated the share prices to insane levels on the back of insane valuations.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 09:44:36 AM EST
[ Parent ]
Stocks in listed dot-coms where inflated by marginal transactions. It didn't require that all those trillions be spent, only some billions.

And these where spent by bluechip companies acquiring select start-ups so as to look "trendy"

And the acquisitions were funded by debt, provided by banks, on terms that couldn't be repaid by the incremental cash flows brought to the acquirer by the startup (as they were all losing money actually).

Investment banks propped up the bubble on the idea that tech prices would always inflate (remember house prices ?)

VC capital is a small part of the scheme by amount. It became easy to come by as soon as it appeared there was infinite demand on listed markets for the shares of pets.com etc

When the bubble burst, we had the bankruptcy of mci worldcom, global crossing, near-bankruptcy of vivendi, state rescue of france telecom, etc, etc...

rates where set a real-zero to enable corporations to make money (on credit took by their customers) so as to amortize their loans sitting in the balance sheet of the big IB.

Does this cynical explanation suit you ??


Pierre

by Pierre on Fri Feb 27th, 2009 at 10:05:49 AM EST
[ Parent ]
Nice one, Pierre.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 11:51:34 AM EST
[ Parent ]
George's logic was pretty much spot on, and that is why he was airbrushed from History.

The Corruption of Economics

I think that new Commons (energy, knowledge) require the same treatment, which I believe is well described as a tax on privilege.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 09:10:40 AM EST
[ Parent ]
Veblen (contemporarily with George) has a similar description of the business cycle, but doesn't make it dependent on land values. Bubbles are credit bubbles and the business cycle is a leverage/deleverage cycle.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 09:13:13 AM EST
[ Parent ]
Migeru:
Bubbles are credit bubbles and the business cycle is a leverage/deleverage cycle.

As above, I think the Dot Com boom might be a unique exception. ie Equity is different

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 09:18:51 AM EST
[ Parent ]
Do you have data on leverage ratios in the stock market during the .com bubble?

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 09:19:33 AM EST
[ Parent ]
It just happens that Sudden Debt has this data in the latest post.

suddendebt.blogspot.com

Pierre

by Pierre on Fri Feb 27th, 2009 at 09:56:01 AM EST
[ Parent ]
That's spooky.

I thought there were restrictions on buying stock on margin?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 10:03:19 AM EST
[ Parent ]
That chart is not of leverage ratios, but of absolute amount of margin debt.

One would have to divide that value into the market capitalization to find margin ratios.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith

by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 10:05:31 AM EST
[ Parent ]
A nice leverage bubble peaking in early 2000, when the .com bubble peaked.

Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 10:03:58 AM EST
[ Parent ]
Yup.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 10:06:45 AM EST
[ Parent ]
Wikipedia: Dot-com bubble
Historically, the dot-com boom can be seen as similar to a number of other technology-inspired booms of the past including railroads in the 1840s, automobiles and radio in the 1920s, transistor electronics in the 1950s, computer time-sharing in the 1960s, and home computers and biotechnology in the early 1980s in accordance with the Japanese economic meltdown.


Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
by Carrie (migeru at eurotrib dot com) on Fri Feb 27th, 2009 at 09:21:51 AM EST
[ Parent ]
Plus canal mania before the railways...

These were all equity bubbles though eg daft canal schemes and railway schemes form nowhere to nowhere.

No leverage there, I think, and therefore no recession as a result of the ending of the bubble?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 09:48:09 AM EST
[ Parent ]
Sensible stuff from Europe's best Econ magazine.

The Hun is always either at your throat or at your feet. Winston Churchill
by r------ on Fri Feb 27th, 2009 at 10:08:38 AM EST
So what's your view on taxing privilege?

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 10:20:38 AM EST
[ Parent ]
I'm not sure what you mean. My general ideology is a fundamental belief in freedom, not privilege. And, unless something is reasonably able to be enjoyed by one and whomever chooses to do so, it's not a freedom, but a privilege, and is for me illegitimate.

In most places, this means marriage is a privilege, not a freedom, because some loving couples do not have the freedom to marry and have said marriage respected.

In many places, healthcare is a privilege, because many people cannot reasonably hope to have equal access, in terms of affordablity and quality, to care.

In many places, housing is a privilege, because many people can reasonably expect that common circumstances can find them driven from their homes, even in peacetime.

And, I hold all these privileges to be illegitimate.

Now, if you tax those who enjoy to inordinate level the fruits of society at a proper level (and by the way, why stop at 90% marginal rates?), I am convinced you replace privilege for the few or the "some" with freedom for all. And, that's where we want to be.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Fri Feb 27th, 2009 at 12:19:19 PM EST
[ Parent ]
One of the richest families in the US is the Waltons (owners of Walmart).

The family is worth in excess of $100 billion and takes in over $1 billion a year just from dividends on their Walmart stock. This is taxed at a 15% rate the same as someone earning under $32,000.

The CEO's of the banks and the hotshot traders get chickenfeed by comparison. So what will happen is that all the populist outrage will be directed at this group and there will be some modest adjustment to the way they are compensated, but the plutocrats will come out as wealthy as they went in.

Changing the marginal income tax rate does nothing to break up the generational concentration of wealth that has occurred in the US in the past half century. The only way to do this is via a wealth or estate tax.

This worked fairly well in the UK when it was decided to break up the wealth of the landed gentry, but it took 50+ years to accomplish.

Now with the ability of firms to incorporate elsewhere, set up dummy subsidiaries and allocate profits to them getting at the money will be much harder.

This can only be solved on an international basis. This means eliminating tax havens like the Channel Islands and those in the Caribbean as well as putting restrictions on multi-national tax gaming.

There is almost no possibility of this happening. It is all but impossible to even raise the top tax rate in a single country like the US, now imagine trying to get some sort of international agreement.

The problem in the US is not the wealth per se, but the power that comes with it. This is because elections are so expensive that only the wealthy and their firms can afford to finance them. So they buy politicians who then support their interests.

One would need to change campaign funding to see any real change in the power of the wealthy and that's not on the agenda either.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Fri Feb 27th, 2009 at 11:31:55 AM EST
rdf:

The family is worth in excess of $100 billion and takes in over $1 billion a year just from dividends on their Walmart stock. This is taxed at a 15% rate the same as someone earning under $32,000.

The CEO's of the banks and the hotshot traders get chickenfeed by comparison. So what will happen is that all the populist outrage will be directed at this group and there will be some modest adjustment to the way they are compensated, but the plutocrats will come out as wealthy as they went in.

Changing the marginal income tax rate does nothing to break up the generational concentration of wealth that has occurred in the US in the past half century. The only way to do this is via a wealth or estate tax.

Thought experiment.

Imagine we dispensed with all corporate tax on Walmart, and also with all taxes on Walmart dividends.

Instead, we apply a Limited Liability Levy on Walmart's gross revenues.

What %age rate would we need to charge to equal the current Walmart tax take, I wonder?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Fri Feb 27th, 2009 at 12:04:08 PM EST
[ Parent ]
I don't have the links right now (it was a NYT article which I posted here not long ago), but the top 5 officers of the top 5 banks each earned, on average, something like $40M per year over 2003-2007 - so you get that same billion per year or so, for just 25 people.

And that's before all the capital markets people get their bonuses.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Feb 27th, 2009 at 12:50:08 PM EST
[ Parent ]
I'm trying to dig up the article, and my first hit is already my own comment...

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Fri Feb 27th, 2009 at 01:29:50 PM EST
[ Parent ]
Chickenfeed, chickenshit is what the rest of us are getting (wink!).

I have no problem with limiting the compensation for the highest paid. I've said it many times that the competence of managers in Japan or Europe doesn't seem to differ much from those in the US even though they earn much less.

Much of the compensation in the US is via options and other deferred compensation. This makes the earnings look higher than it really is, since it is credited in the first year, but not taken until some time later. I think Dick Cheney is still getting payments from his old job at Halliburton.

I've no direct proof, but the CEO class that is the focus these days does not constitute a persistent social class the way the Walton's, Rockefeller's, and their cohorts do.

The nouveau riche build their mansions, fly their planes and, perhaps, contribute to conservative causes. The plutocrats buy politicians, fund "think tanks" and influence political thought for decades.

Generational wealth has different interests that the recently rich. The degree of evil that it represents can be seen in the rich lore mined by British authors from the 18th Century onward. That's why it was such a big deal when the reformers finally did something about it in the 20th Century.

The power of the plutocrats still persists in much of Latin America and we see the results to this day. Continual under development, civil wars to overthrow socialist-leaning leaders and persistent poverty.

I'm trying to point out that the US is on the road to become a banana republic itself if wealth accumulation is not dealt with.

One encouraging sign is that this topic is now the most read on my web site, replacing the essays about immigration which were the most popular during the campaign. ( http://robertdfeinman.com/society/wealth_distribution.html )

All I'm saying is that going after the managerial class and thinking that the fundamental issues have been dealt with is not sufficient. John Thain may make a good pinata, but that's just political theater.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Fri Feb 27th, 2009 at 01:38:51 PM EST
[ Parent ]
Recently acquired wealth becomes generational wealth within a couple of decades. So inasmuch as the CEOs don't burn most of their wealth, they will found persistent dynasties unless that wealth is taken away from them.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Fri Feb 27th, 2009 at 01:46:45 PM EST
[ Parent ]
Piketty in this article was not aiming "to break up the generational concentration of wealth", but to discourage excessively high pay and bonuses by applying a punitive marginal tax rate. And he gives the example of half a century of high income tax rates in the US keeping executive pay within reasonable bounds.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri Feb 27th, 2009 at 12:59:01 PM EST
[ Parent ]


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