Delayed gratification and wealth redistribution

[Bill Glasheen]

And this whole diatribe is utterly retarded because there isn't a single person on this website that knows what real wealth or power is.

The middle class is played off the lower class, and the upper class just doesn't really exist.

So you've got someone like Bill, defending something he doesn't even know anything about, by demonizing the masses who are below him in economic status.

As long as we can look at things in a binary sense, and fight over the scraps, the master is happy.

God help you if your master doesn't have your best interests at heart.

Wow! I mean... WOW!!!

Obviously you don't know me.

demonizing the masses who are below him in economic status.

I wonder if George remembers the time when I was in graduate school, where I drove him back to the airport in my tiny Plymouth Champ without a shotgun seat. You see... My driver's seat broke, and I couldn't afford to go to the junk yard and get a new one. So I took the shotgun seat out and made it the new driver's seat. And that made a ride in the back seat something like days of old where you had REAL leg room.

I wonder if you know what a 1963 Rambler American is. It was my first car, handed down to me by my dad. He upgraded to another Rambler.

I wonder if you know what it's like to grow up never to have had "new" clothes. I wore hand-me-downs from my brother who was 2 years older than me. High school was when I first got to wear "new" clothes. You know... my mom going into a clothing store and asking the guy what was on sale. It was always the stupid-looking stuff that nobody wanted to buy. Between that and my dad not being able to afford insurance for a 16-year-old driver, it was actually kind of good for me to transfer to a school that (at the time) was almost all male.

I wonder if you know that I drive 2 mommy vans. The wife drives a small Subaru. There isn't a vehicle in the house with less that 100K miles. I need the third one to drive when one of the other 2 break down or need routine maintenance. And I take REALLY good care of my vehicles, because I drive them until they are ready for a Kidney Foundation donation.

Did I have great opportunities when I grew up? Absolutely. Why? Because my dad and mom put education ahead of country clubs, a house in the "nice" part of town (my dad built the brick home that we grew up in), nice cars, nice clothes, and other things that we THINK we need.

Did I have the benefit of a good education after leaving home? Yes. But that happened because I worked while going through school. In grad school, I got 3 hours of sleep a night for the first 3 years while going to classes, teaching PE classes at the University (for chump change), and then doing research as payback for my NIH trainingship grant. I lived a decade on $400 a month. I lived off of eggs, canned tuna (when it went on sale) and 3-pound boxes of elbow macaroni (the cheapest way to get pasta). I'd buy meat on sale, break it up into dinner-size portions, and freeze it for future use. I walked to classes, and often to the gym to teach karate.

When I graduated, I started off as a post doc. I could barely live on that income plus pay back my student loans. But I found a way to make it.

I was 10 years out of my PhD program before I didn't have negative net worth. Needless to say, it was a long, long time before I could start taking full advantage of the time value of money. But you know what? I saved anyway.

My father saved for the future too. Through all those years of raising 8 kids, he did nothing for himself. But he managed to see all 8 kids through at least a college degree. Five of the eight have advanced degrees. I paid for most of my education via work and loans.

I'm now saving for my retirement, because I know that social security won't be there for me. Do the math. There aren't going to be enough young folk working to support a generation of retired baby boomers. So I don't drive a nice BMW like my son's friends' parents drive. My son wants me to drop him off in a place other than where most of the kids get dropped off. It's the mommy van with 100K miles, you know...

But I'm saving for my retirement. And I'm saving to help pay for my sons' educations.

Ever read Daniel Goleman's book Emotional Intelligence? Very interesting read. I recommend it for all martial artists. He has quite a bit to say about the subject of being "emotionally hijacked." No self-defense course should be taught without an understanding of the concept being communicated.

In Goleman's book, he talks about an experiment they did with kids. They give each kid in a classroom a cookie. Then they tell them that if they hold onto the cookie for a day, they'll give them a second cookie. Most of the kids eat their cookies. A few hold on, and get their second cookie the next day. There's a bit of jealousy as the reward is given. The researcher who did this cookie experiment followed the kids by choice (save or eat the cookie on the first day) throughout their adult lives. Guess who rose to the high end of the socioeconomic spectrum by adulthood?

Ever heard of the concept of delayed gratification?

Centries ago, Vilfredo Pareto observed that 20 percent of Italians owned 80 percent of the wealth. Today that exact phenomenon holds - no matter where you go. Only "wealth redistribution" through unequal taxation changes that natural phenomenon. Check your tax code. The more money you make, the higher the PERCENTAGE of income that Uncle Sam takes away. The more liberal the government, the greater that taxation penalty.

THAT is redistribution of wealth.

The fact that some folks know how to save their cookie for another day - and most don't - is a phenomenon associated with variable emotional intelligence. I happen to be one of those folks who thinks that people who don't pi$$ every dollar away that they make - no matter how much or how little they make (ask MC Hammer) - are people to be respected and emulated. I happen to admire a Joe the Plumber who wants to go out on his own and be an independent business owner.

If you think that my lack of respect for people who pi$$ their hard-earned money away rather than save for the future is a bad thing, well then fine. If you think that I'm going to help pay for those folks' retirement when I didn't ride around in a BMW while in my bread winning years, well... Good luck getting it!

That's what I mean, fivedragons. No silver spoon here. Sorry to burst your strawman bubble.

More later. I want to communicate a similar phenomenon with respect to leavers vs. stayers in a martial arts class.

- Bill

[TSDguy]

I posted this in the other thread, but it got deleted, I assume because it should go here and Bill took offense at me saying his opinion was wrong.

Five dragons, great rant. I whole heartedly disagree with the fact that Bill said the top .1% of the wealthy (Paris Hilton) are hard working and the poor that work 3 jobs are not hard working. (Better, Bill?)

However, the reason I disagree with so called "wealth redistribution" is because if you overtax the wealthy, they simply leave. For example, West Virginia, before Bush redefined republican values from a economic perspective to "white evangelical born again christians", was a solidly democratic and union state. They overtaxed their businesses and guess what happened? The businesses moved to the surrounding states and WV had no jobs of any kind. That gave them a double whammy of not being able to tax business/the wealthy, but also not being able to tax the average workers because they had no jobs. This applies to countries as well.

[Bill Glasheen]

I posted this in the other thread, but it got deleted

No you didn't. You cleaned up the original post.

(Busted!)

Thank you for your understanding, and your participation.

- Bill

[TSDguy]

I know, I acknowledged that in my last sentence of the first paragraph, the only one I changed.

For what it's worth, I don't think what I said was bad; I think your opinion DID came off... abrasively. Look at fivedragon's epic rant in response.

[Bill Glasheen]

I think your opinion DID came off... abrasively.

Moi??

Yea, you can bust me on that.

- Bill

[Valkenar]

The more money you make, the higher the PERCENTAGE of income that Uncle Sam takes away. The more liberal the government, the greater that taxation penalty.

THAT is redistribution of wealth.

There's no more reason to consider bracketted taxes unfair than there is to consider a percentage unfair. The only thing that is really fair is an absolutely flat tax. As in, each person owes $X in taxes regardless of income. And I've never heard anyone suggest that.

Look at it this way, a flat (linear) tax gives you TaxOwed = TaxRate * Wealth. But what if the tax formula were TaxOwed = TaxRate * (Wealth ^ 2) . Why is tax times wealth fair but tax times wealth squared unfair? Both of them are functions that increase with wealth. How about TaxOwed = TaxRate * log(wealth)? Is that more or less fair than the linear equation?

What is magic about a linear correlation between taxation and wealth? Or about an exponent of 1 vs an exponent of 2? Why is a greater-than-linear correlation unfair but linear correlation fair? Either way you pay more taxes the more money you make. If it's fair to take more money from someone just because they make more money, why can't it be fair to adjust the exponent as well as the constant multiplier?

Edit:
Screw that edit I'll make another post.

[Bill Glasheen]

However, the reason I disagree with so called "wealth redistribution" is because if you overtax the wealthy, they simply leave. For example, West Virginia...

How about "Taxachusetts"? Case in point... I work for a Boston-based company. They offered to move me up there.

• And get taxed higher?
• And have to get less home for the dollar?
• And have to deal with obscenely long commutes just to be about to buy a reasonable home?

Thanks, but no thanks. I work out of my home. They fly me up once a month, and put me up in a hotel for a few days. I pay Virginia taxes, and have a higher standard of living. And it is cheaper for my Boston-based company to do that.

Not very smart for Massachusetts, is it? While I don't consider myself "wealthy", I AM a tax-paying citizen.

- Bill

P.S. I'm still a member of Red Sox Nation!

[Bill Glasheen]

There's no more reason to consider bracketted taxes unfair than there is to consider a percentage unfair. The only thing that is really fair is an absolutely flat tax. As in, each person owes $X in taxes regardless of income. And I've never heard anyone suggest that.

A flat tax (short for flat rate tax) is a tax system with a constant tax rate. *

Do you do your own taxes, Justin? Just curious...

Do you have any idea what percentage of income historically was taken from the highest income earners before the tax rate was flattened more than it was? You might be shocked...

Ever wonder why John Lennon left the UK in their most socialist era? Was that good for Liverpool?

- Bill

* James, Simon (1998) A Dictionary of Taxation, Edgar Elgar Publishing Limited: Northampton, MA

[Valkenar]

A flat tax (short for flat rate tax) is a tax system with a constant tax

Yes, I know. And that fact is explicit in my post. I'm not sure why you're pointing this out. I tried to use the phrase "absolutely flat" to describe the same-regardless-of-wealth model. Maybe that's what confused you.

Anyway, look again at what I wrote. I know that with bracketed taxes we change the rate at which we tax, but we could accomplish the same general effect by putting an exponent > 1 on the income variable. We do bracketed taxes because it's easier for most people to understand. I think a lot of people would be baffled by a parabolic tax, but I expect that you'd be someone who understands what I'm saying.

Basically a variable rate based on wealth is the same as an exponent on wealth. e.g.

TaxOwed = Rate * Wealth (This is the basic tax model)
Rate = .05 + .01 * wealth (This is how rate varies with wealth)
This is the result
TaxOwed = .05 * Wealth + .01 * Wealth ^2

See what I'm saying now? The only difference is that I turned the tax rate into a smooth function of wealth rather than a bracketed function of wealth.

So why is a constant rate fair but a variable rate unfair? What's the fundamental change that occurs when that exponent goes over 1? Remember, even with a constant rate, those who have a higher income have to pay a higher amount. To put it another way, isn't it unfair to have to pay a tax rate at all? If we all have equal opportunity why should those who succeed have to pay higher taxes than those who fail? Do you think having a tax rate instead of a tax quantity is fair? Why?

I understand what you're saying about a place with tax rates higher or lower than neighboring zones. That's not the point. You're talking about the actual rate of taxes on the wealthy. A place with a flat, but high tax rate can still tax the wealthy more than a place with a curved, but low tax rate.


As for respect for people who don't know how to save, I think you're overlooking the fact that you didn't come up with this on your own. You learned it from your father. Sure, you grew up poor, but you still learned valuable financial lessons. What makes you so sure you'd be so smart about money if you had grown up in a family of spendthrifts?

Now I don't think you can excuse everything a person does wrong just because they were brought up in a bad environment. There does have to be a line beyond which we expect to hold people responsible for their choices. What you wrote is a testament to the continued viability of the American dream. And that's great. In many ways it's the classic immigrant story. But I think it is a bit short-sighted to write everyone off who didn't have the advantages you had.

You may not have had a lot of material wealth, but you received a windfall of financial wisdom that many people aren't fortunate enough to get. Sure, you can say that they should go to the library and learn to act contrary to the culture in which they're raised. And you're not totally wrong, but I personally think we should at least recognize how hard it can be to go against your cultural mores, even when they're fairly obviously self-destructive.

[mhosea]

A progressive tax system per se has just never bothered me. Thinking of it in "brackets" that people sit in for the whole year just puts a bad spin on it. Conceptually, after deductions and exemptions, everybody pays the same rate on the n-th dollar that they earn. The IRS structures it like this for convenience

(Single)
# 10% on income between $0 and $8,025
# 15% on the income between $8,025 and $32,550; plus $802.50
# 25% on the income between $32,550 and $78,850; plus $4,481.25
# 28% on the income between $78,850 and $164,550; plus $16,056.25
# 33% on the income between $164,550 and $357,700; plus $40,052.25
# 35% on the income over $357,700; plus $103,791.75

But all those "plus" figures are computed from applying the stated percentages to the previous bracket maximums and adding. So, in practice it works like this: I don't pay any taxes on the first several thousand dollars I earn because of deductions (or the standard deduction) and exemptions. Then I pay 10% on my first 8025 taxable dollars earned. My 8026-th through 32550-th taxable dollars earned are taxed at 15%. My 32551-th thorugh 78850-th taxable dollars earned are taxed at 25%, and so forth. Rich people burn through these categories much faster, but conceptually everybody's n-th taxable dollar is taxed at the same rate for a given n. This way, people who make more do indeed pay more, but only because they earn dollars with higher n.

The problem I have with the federal system is that it takes no account of different costs of living in different parts of the countries, so you standard deduction and exemptions are the same whether you're living in Cleveland or Boston. In the GS pay scale, for example, there are COLA adjustments for various locales. I don't think you can get away with using the same principle for income taxes, and I don't have a politically viable solution, but the point is that there are elements of unfairness, I admit. Other points of unfairness would be situations that the government is trying to encourage or discourage. The mortgage interest deduction is unfair, for example. You're rewarding people for renting money to own property instead of renting the property itself. Why? What does that do to home prices? There can be only one answer. Also, many tax credits and deductions are phased out for higher AGI's. These things are not fair. But the basic structure of the progressive tax code is fair. People who earn more pay more not because, for example, their 8,000-th taxable dollar is taxed at a higher rate, it wasn't, rather because they earned a 360,000th dollar at all, and it was taxed at a higher rate.

[Bill Glasheen]

Thanks for the background, Mike.

Now for the history. What isn't presented by Mike is that the top tax brackets have varied over time. Today's top bracket of 35% didn't used to be that low. It's been all over the map, depending on the need, the wisdom, and the party in power.

You can find how this varied over time at the following link. (Source: TruthAndPolitics.org)

Top US Marginal Income Tax Rates, 1913--2003

As I stated above, you'd be shocked at the top tax rates - particularly in the 1940s through the 1960s. John F Kennedy (the good Kennedy... ) offered some relief by lowering the capital gains tax. It made the economy boom, and increased overall federal revenue. Go figure... Similarly my dad tells me that when Bush lowered the tax rates in 2003, he made more money and consequently paid more total taxes.

When you're taxing at a 90% rate, there's no (none, zero, nada) incentive to earn more money. In the 1960s, a Bill Gates or Warren Buffet would have said "screw it!"

Another thing that was happening - especially during the Carter "stagflation" era - was a default tax INCREASE because inflation was causing normal people to be bumped up into "rich" tax brackets. Indexing wasn't in the best interest of the greedy tax man. Or so he thought.

Sometimes when you grab for more, you get less in the end. Ideally you want to create a tax structure where EVERYBODY wins.

- Bill

[mhosea]

Bill, I agree with you. The current tax rates seem sort of reasonable to me, but anything approaching 50% (let alone over 90%!) is hard to explain as anything but wealth redistribution.

[Gene DeMambro]

A lot of bitching about Massachuetts, Bill. Funny, considering that's the state where your company is located..which keeps you employed.

Sorry, Charlie. According to The Tax Foundation, Massachusetts ranks 23rd highest in individual tax burdens in the country. And, from the same website:

Massachusetts has dropped 17 places in the rankings since 1977 by imposing a property tax limitation and keeping a lid on its personal income tax rate, living down its "Taxachusetts" nickname.

But, by all means continue to use obsolete information as you like.

And Virginia? Well, The Old Dominion State checks in at the 18th highest. Not quite Taxachusetts anymore, is it?

High cost of living? Sure, which means our standard of living is higher? Less home for the money? Probably means our communities are so desirable. Long commutes? Sure, which means money spent on the Big Dig and the new commuter rails and subways are monies well spent.

Plus, the sailing is better!

Gene

[cxt]

Flat Tax anyone?

[Valkenar]

Flat Tax anyone?

Read my post about flat tax and then explain why flat tax is better than any other tax, other than that it's easier to understand.