Income Gap Continues to Widen

Check the uptick in 2002 for the bottom 90 percent. Is that what we need to be doing?
Just asking
Mark

According to the IRS, in 1994 the top 1% of incomes paid 29% of all income taxes..

Hey Nova Law… put me in that group of top 1% and I would be happy to pay 29% of all income taxes…

SCsurfer

How can consumer spending – which accounts for 70% of GDP – be maintained with this increasing concentration of wealth?

The Ferrari collector ain’t going to be keeping the Ford factories rolling or the airlines in business.

I don’t understand why the sock-puppets don’t recognize that Joe6 needs a piece of the economic pie to keep business profits going… Circuit City is gonna be on my $hit list for a long time to come.

Nova Law,

“According to the IRS, in 1994 the top 1% of incomes paid 29% of all income taxes. In 2004, the most recent year available, the top 1% paid 37% of all income taxes.”

You have provided the proof (without even realizing it) that the income gap between the middle class and the top 1% has widened. (Second grade math — more money made means more taxes paid)

The difference of income taxes paid between 1994 vs. 2004 is because the middle class was doing much better in 1994 than in 2004 (in relative terms); therefore, the middle class paid more taxes in 1994 than in 2004.

The best story never told (at least never told on Larry Kudlow’s Show): the top 1% (like Bush family and Larry Kudlow) have been compounding their wealth at record levels at the same time as the middle class has been struggling to make ends meet.

For the Bush haters commenting, take a close look at the chart. What do you see?

I see a huge acceleration for the entire 8 years of the Clinton administration.

My larger point is that this phenomenon is politically indifferent. Simply put, the returns to capital since the bull market started in 1982 have massively dwarfed the returns to labor. Between union decline, lower inflation, less regulation, the rise of mutual funds, increased trade, and technology advances that enable outsourcing and offshoring of almost everything, investors of capital [logically the rich] have had the winds at their backs for 25 years.

I don’t offer these as bad things, merely trends that have prevailed regardless of which party controlled the U.S. Government.

Has the pendulum swung too far? Will it swing back? I have no answers to that …

Jay,

You might be referring to me. I mentioned the Bush administration because the WSJ Op/Ed piece (from which Nova seems to be quoting) credited Bush for increasing tax collections.

Yes, Bush/neocon critics like myself can read the chart. The top earners’ income percentage was stable from 45 to 75 and has now risen and risen and risen. During the 8-year period you cite, an incrementally conservative population voted in a centrist Clinton administration + a GOP Congress. Certainly, that political combination wasn’t going to change the trend. No surprises there.

Jay is on to something but, given weakening productivity and increasing dependence upon debt in the US over the past couple decades, the key distinction (and conflict) is probably between labor and rent seekers rather than between labor and capital. The latter tends to be productive, the former often is not or may even be counterproductive (and highly prone to moral hazard to boot).

Wikipedia’s overview of classical theories of economic rent (http://tinyurl.com/32do7j
) and neoclasical theories of rent seeking (http://tinyurl.com/njhet) are reasonably good IMO and worth perusing by those who want to understand why this distinction is important.

Personally I think the distinction is crucial because if there is more rent seeking than real capital formation going on then a country could, in principal, fail even if average incomes were rising.

The income tax structure is a progressive tax, so it would make perfect sense that as wealth is polarized there would be a growing gap between total amounts paid by the rich verses the poor.

The evidence is not only that the rich are growing richer while the poor are growing poorer – the evidence suggests that the middle class is vanishing.

Thomas Piketty and Emmanuel Saez, who first researched income inequality in the United States, examine how the progressivity of the federal tax system has changed over time (see http://tinyurl.com/22hk8j). Essentially US tax progressivity has declined for some decades, accentuating the increasing income gap viz:

“…the share of the nation’s total income going to the top 1 percent of households jumped from 8.4 percent in 1970 to 19.3 percent in 2005, an increase of 10.8 percentage points. In 2005 terms, that increase works out to about $550,000 more in income per household for those in the top 1 percent. In other words, households in this income group received an average of about $550,000 more in income in 2005 than they would have if the group’s share of national had remained constant since 1970.

Over the same period in which high-income households benefited the most from changes in the distribution of pre-tax income, they also benefited the most from changes in effective federal tax rates. In 1970, the top 1 percent of households paid an average of 47 percent of their income in federal taxes; under 2004 law, Piketty and Saez estimate they faced an average tax rate of just 30 percent, a difference of 17 percentage points.”

A most interesting chart and one that means more, and is scarier, than the recent short-term concerns about things like tech stock bubbles and housing bubbles.
There has been a large, meaningful long-term change and it will eventually only be undone by very painful things. Last time it took a crash, a major depression, a sea-change of government philosophy, a world war and decades of labor strife to wring out the concentrated wealth.

Last time it took a crash, a major depression, a sea-change of government philosophy, a world war and decades of labor strife to wring out the concentrated wealth.

See above. This time, it only takes removing illegal workers from the economy. Whether it is 6 million or 13 million, the remaining folks at the lower end of the wage scale will see nice income gains – in part driven by the increased productivity that will occur as we deal with chronic low -wage labor shortages.

Since marginal, top-bracket tax rates averaged around 92%* from the mid 1940’s to the mid 1960’s, a time of enormous economic expansion and productivity (leading eventually to global hegemony), it is probably safe to assume that (a) citizens did not refuse to work above a 50% rate and (b) level of tax rates can not by itself account for much of anything.

*narrow tax breaks/exemptions were the rule rather than the exception back then of course; unfortunately we seem to be sliding into that way of doing business again now — it would be nice if political memory in the US was better than it is.

“I just filled nine positions, and I could have filled another nine immediately,” says Christopher Baker, who runs Christopher Baker Staffing in West Hollywood.

“The wealthy are living larger than ever. Forget about second homes. Now you have a third home, a fourth home. And these aren’t little shacks. They need staffs.”

The number of private household workers jumped 67% in Southern California over the last five years to nearly 150,000, according to the U.S. Bureau of Labor Statistics. This total doesn’t include illegal-immigrant nannies and gardeners or anyone paid off the books.

Dennis Meyers, principal economist at the California Department of Finance, says such strong growth isn’t surprising. “We have so many new millionaires,” he says.

More than a quarter-million households in the Southland have incomes exceeding $200,000 a year, according to census data, up 45% since 1999. There are multiple reasons for the rise, including a robust stock market, President Bush’s 2001 tax cuts, the recent real estate boom and an entrepreneurial economy good at creating wealth.

“They were careless people, Tom and Daisy — they smashed up things and creatures and then retreated back into their money or their vast carelessness, or whatever it was that kept them together, and let other people clean up the mess they had made…”-the Great Gatsby

Robert,

RW’s point is valid. Also, a progressive tax rate up to 90% from ’45 thru 70-something wasn’t levied on anyone working for hourly wages. Do you know the hundred million dollar stock option bonuses some execs get? And the multi-million dollar *retirement* packages? These folks aren’t going to start slacking just because they keep $30m after taxes instead of $50m. If they do, someone else will take their place.

“What else is growing? The percentage of federal income taxes paid by top earners.

According to the IRS, in 1994 the top 1% of incomes paid 29% of all income taxes. In 2004, the most recent year available, the top 1% paid 37% of all income taxes.

The top 10% of incomes in 1994 paid 60% of all income taxes, but in 2004 they paid 68% of the freight.

From an objective analysis of the facts, it appears the current administration has been soaking the rich.”

Poor poor Rich… They pay a little more taxes but their net worth has ballooned!!!

Ooops! I forgot. Rich means large cash flow, forget about net worth.

Some points about those charts:

I notice the war years were very good for the bottom 90%. Is that because the men were earning soldier pay in Europe and the women were earning money working the munitions factories? Two incomes and no families can sure boost the bottom line even in a time of relative scarcity apparently.

With job competition increasing after the war I guess people were willing to settle for less money and the wealthy business owners were able to play the abundant workers against each other. You also had people building families at that time

In the ’70’s another factor that hit the marketplace was the closing of the gold window giving the fed the ability to print currency with no consequence. Since the wealthy have a greater ability to beat inflation and move to inflation proof or at least inflation mitigating investments than the bottom 90% do I suggest this factored into the long term decline of income for the bottom 90% and the long term increase of the top 1%.

Moving to 2000: We had the market crash and Greenspan’s slaughtering of interest rates shortly thereafter. Given that the bottom 90% are more likely to have more debt(especially non-productive consumer type debt) it stands to reason that this group would get a pop in income even as the most wealthy suffered from stock market losses.

As you can see though this quickly turned around as those low interest rates fed into the housing boom. Considering the bottom 90% are more likely to borrow to buy a home and considering more of them are likely to be first time RE buyers as the price for real estate went up so did the bottom 90%’s cost for housing and well as their cost for servicing.

Because the rich tend to own their houses outright or own cash flow producing real estate the rise in RE only helped their bottom lines as they were either able to create more cash flow or sell their 20% per year appreciating debt free assets and use the proceeds in other less costly areas for more cash flow

That chart IMO is a great example of how the rich can get richer in any market. They are more nimble than the common man and can adjust better to changing circumstances whereas the common man is his own worst enemy most of the time. Especially when it comes to debt

wunsacon suggests the source of my tax info was the Wall Street Journal. I know Barry hates its editorial page, but I tend to have respect for that paper and its reporting.

Nevertheless, as I said in my post, my source is the IRS. wunsacon suggests that I go back 20 years to see what the trends are – unfortunately the IRS data goes back only to 1986. But if we look at 1986, we see that the top 1% of incomes paid 26% of all taxes, compared to 29% in 1994, compared to 37% in 2004.

The numbers for the top 10% of incomes were 55% in 1986, 59% in 1994, and 68% in 2004.

The trend is unmistakable – wealthier taxpayers are paying a much greater proportion of taxes now than in the past.

Here’s the XLS spreadsheet from the IRS with the raw data:

http://www.irs.gov/pub/irs-soi/04in06tr.xls

There is lots of raw data there. You can review it and draw your own conclusions. As I can see with posters such as Spencer or VL there will surely be something hateful to be said about the President, about me, or about anybody who doesn’t believe that the economy is going to hell in a handbasket. As Barry says, “ad hominem” usually stands in where facts are absent.

Hey Brion,
My ansestors used to hang disgruntled peasants. With all this democracy tripe the best I can do now is harangue you. It’s just a cycle folks. Freedom breeds indicipline. Get back to work!

Mr. Mauldin has an excellent piece in his latest writings of his “Thoughts from the Frontline,” articles, this one entitled: “Draw the Curve, Then Plot the Data” – March 30, 2007

You can find it here:

http://tinyurl.com/yknslb

I’m going to reproduce significant portions of it, because it looks to the heart of this topic of discussion about why the income gap is worsening. I’ll reproduce his exact remarks, followed by ***my own comments that I wish to make. We’ll begin:
—-

The Fed is on Hold for a Long Time

***I’m not sure I’d bet the farm on that… or that is, I wouldn’t bet the corn raised on the farm this year… on that.

The core PCE deflator numbers that came out today were not Fed rate cut friendly. Core PCE has risen by 0.1% each month for the last three months, from a flat 0 in November to 0.3% for February. This puts core CPE at 2.4% over the last year, and the trend suggests that inflation pressures have not gone away.

The full PCE including food and energy came in at an even high 0.4% for the month of February, and will likely be higher in March, as oil and energy prices have risen. And food staples of all kinds have risen on the back of the rise in corn prices based upon the demand for ethanol. That means fewer acres of soybeans and thus higher soybean prices. High grain and bean prices means the cost of feeding cattle, hogs and chicken goes up and thus the price of meat. In short, inflation is still a concern.

Today’s Chicago PMI came in at a surprisingly strong 61.7, up from below 50 just the month before. I do not recall ever seeing such a large jump. Given the weak reports from around the country, it is even the more surprising. For instance, US core capital goods orders failed to rebound in February, after having been weak for several months.

***The Chi-Town survey is a puzzlement and it may truly reflect a substantial and dramatic increase in optimism of the Chi-Town respondents, but my guess is that they have spring fever or it’s because something about the spring is making their “corns” feel good in the City of Big Shoulders. Let’s take a look at Rex Nutting’s piece on the subject of the Chicago PMI, over at Marketwatch:

http://tinyurl.com/yrw75s

***I think Rex’s piece is more than adequate at casting both sides of the argument, and so I’ll say the jury is still out on just how meaningful this C-PMI will prove to be. If it turns out to be meaningful, I’ll be just as quick to accept that it was.

Unemployment is low. The parts of the economy that are not related to housing or automobile manufacturing are doing well. There seems to be little that is going to drive a stake in the heart of inflation over the next few quarters. As I have stated since the Fed stopped raising rates, I expect them to be on hold for a lot longer than most market analysts think. I think this late summer is the earliest they could begin cutting rates, and that is only if they see an economy visibly slowing.

***I am somewhat grateful that my closest associates; friends, family, neighborhood buddies and such – are not predisposed to chat up the economy and markets with me, since I’d rather play with my grandson and ignore the economy and markets while doing so. As such I generally view them as being barometers of significant changes in any local economic perspective regarding markets, and they’re beginning to evidence an opinion that the housing situation is worsening, and that the poor saving policies among the citizenry of our local version of Americana are bringing them to worsening grief.

The reasons for a cut in rates will not be ones that the market is going to like. If the Fed is cutting rates in June it will be because there are visible problems.

***It’s the basis for this whole grand debate of logical people applying their own unique opinions to the same facts before us all. Let’s hope that if and when they cut, that it won’t be because of a financial incident or other tumultuous event that forces their hand. I’d rather hope that they would only need to make a slight adjustment to prevent any future worsening of the housing situation that might bleed over into what I call the “walking-around” economy, and that’s the one that we live in and that sustains us, regardless of the relative level of equity markets, and somewhat independent of debt markets as well… unless those debt markets are really rattled.

Trading Away

There is only one thing which really gives me reason for concern that the US will not continue on a reasonable growth trajectory, with a few bumps here and there. That is the growing mood in Congress for passing trade protection legislation that could start a series of retaliatory actions around the world that could result in a trade war, a la Smoot Hawley in the 1930s.

Stephen Roach, Chief Economist at Morgan Stanley, writes a rather chilling description of his recent testimony before the Senate Finance committee. He noted that as he entered the room, he looked up and saw a picture of Senator Reed Smoot on the walls, as Smoot was a former chair of the committee and the co-sponsor of the Smoot-Hawley Tariff Act of 1930, largely responsible for the Great Depression.

At the hearing, it was clear that a bi-partisan effort is getting ready to pass legislation that would punish China for the large trade deficit we have with that nation.

***I generally don’t have an reason to disagree with these comments about Smoot Hawley, but let’s look at some facts and later I’ll draw a metaphorical picture of the reality of this. Smoot Hawley arose during a time in which the U.S. was beginning to dominate the world with its newly industrialized power. But, it wasn’t enough to just have that dominance. The U.S. also wanted to dominate the markets for agricultural products as well, in a similar way to how we’ll want to sell all the knee-deep corn we’ll produce by this fall.

Democratic Senators Schumer and Baucus and Republican Senators Graham and Schumer are looking for ways to try and force China to allow the dollar to fall against their currency. They think this would decrease the trade deficit and keep more jobs in the US. They are economic idiots of the first order. But they are smart politicians, which is dangerous.

They know that passing a tariff increase would not be compliant with World Trade Organization rules that the Senate agreed to, so they are working on a way to create a WTO compliant back door.

First, does anyone really think that by increasing dollar costs for labor in China that manufacturing would not go elsewhere? My socks were made in Turkey (which surprised me) and not in Asia. Are we going to pass legislation that would drop the dollar against all currencies? Does Congress really think they can control the price of a currency for any length of time?

The problem is not just in China. The US plays its part by not saving enough and running deficits. As long as the US does not save, we are going to run trade deficits. It is a basic law of economics. If it is not with China, then it will be with someone else.

You have to be careful what you wish for. If (and when) the US consumer saves more, it will naturally be at the cost of increased consumer spending. That would mean a slower US economy.

Roach also accurately notes:

“America’s middle-class angst – which is driving the politics of China bashing – reflects a US economy that failed to prepare its workforce for the pressures of an IT-enabled globalization.”

Yes, China does need to balance their economy, and float their currency, and they are working on it. The Chinese Yuan is moving from the upper right to the lower left at a very steady pace (see chart below.)[***Chart is only reproduced in Mr. Mauldin’s core piece already referenced.] This is not fast enough for the Senators, though. They want a much faster pace. Roach thinks that Congress will pass legislation this year that will try and force China to raise the value of the Yuan. Let’s examine what might happen if they get their way.

First, let’s assume the Yuan drops another 20% in less than a year. That means a 25% increase in the price of goods the American consumer pays on a considerable amount of goods. Can you say inflation, gentle reader?

And it will hit those who make the least the hardest, lower income workers.

“Income inequality grew significantly in 2005, with the top 1 percent of Americans — those with incomes that year of more than $348,000 — receiving their largest share of national income since 1928, analysis of newly released tax data shows.

“The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression. While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent…” (NY Times)

Second, what message does that send to the world? Protectionism is ok? Free trade does not work? Let’s see if we can start a round of protectionist trade wars, with each country responding tit for tat. Let’s kill the engine for global economic growth.

Do the Senators deliberately want to create problems in China by a precipitous change in our trade relations which will have a major affect on world commerce?

I am well aware that global free trade is not a one way ticket to prosperity for all. If it is your job that goes to another country, that affects you deeply. But the US as a whole has benefited tremendously from globalization, as has the world. And yes, some benefit more than others, but that is the nature of free market economics combined with technological change.

The one thing that worries me more than anything else, from an economic point of view, is the drive on the part of politicians to pander to those who want to be protected from change. We should help them, certainly. Education, reform and transitional help should be encouraged.

And then today, the Bush administration announces that it will pursue action against certain Chinese paper producers that the paper industry maintains is subsidized by the Chinese government, reversing a 20 year policy. I can see a case for this, in that it is unfair competition on one level. But it now means that every industry is going to come to Washington crying for protection from competition not just from Chinese companies, but any company that has a government connected with it. That is a potential trend that concerns me.

President Bush would probably veto a bash-China currency bill that would pass the House and Senate, but it is not clear that there would be enough votes to uphold his veto. Two-thirds of Senators voted for a tariff bill that they knew was viable. Maybe cooler heads will prevail. Let us hope so.

But the worrisome prospect is that the economy starts to slow and unemployment starts to rise just as the legislation gets to the floor and up for debate. It will give politicians the appearance of “doing” something, when in fact it will make things worse.

***Maybe it will make things worse, but it is probably unavoidable for several reasons: The American economy has long since become one of complacent entitlement. We have such a rich privileged society that it’s become weak on education and the importance of saving. Much of the middle-class squeeze is coming from a demographic shift that will last probably another at least 10-15 years and possibly much longer. This will conclude my specific comments concerning Mr. Mauldin’s piece and my reproducing his verbatim remarks.

Now, I’ll finish this with two things, my essay about Communist China that I have titled “Musings on Communist China,” followed by a metaphorical thought experiment that may help illustrate our demographic dilemma with China.

Musings on Communist China:

In the 1920s and 1930s Japan was a totalitarian and rapidly industrializing nation and threatened Manchuria, Korea, Southeast Asia, the Philippines and Indonesia. They later invaded and occupied all of them. Why?

Japan was hungry for raw materials like oil, copper, tin, coal, rubber and iron ore to sustain their industrial development, and for sugar, timber, wheat and all the other commodities and food stuffs to support their rapidly growing population, one no longer capable of being sustained completely on their small island. They had awakened in the prior century from a deep sleep of centuries of feudalism. See, when a US battleship cruises into your harbor, drops anchor and aims 4-inch canon at you and says “Howdy,” it makes you a little weak in the knees when all you’ve got to reach for is a 30-inch sword, more-or-less. The Puccini opera ‘Madame Butterfly’ was inspired by a story regarding this period of Sino-American history.

Japan’s expansion efforts early last century, after whipping Russia in a sea war, were both an economic and a military threat to the already-industrialized West, primarily Great Britain, France and the United States, which all had interests in Southeast Asia and were expanding them rapidly. Remember that France later lost their foothold for colonization in Indo-China when they failed to stop the communist insurgency in Vietnam and abandoned the country to US efforts that also failed.

Great Britain and the US each had a navy capable of backing up enforcement actions, and they wanted those resources just as badly as Japan did. They put pressure on Japan by restricting trade and putting embargoes on Japan for the above mentioned industrial commodities. One of the key complaints the Japanese expressed at the time was about the restrictions placed on them regarding oil and rubber which they’d begun to obtain by purchasing them in Indonesia, and without these commodities they’d have just been back to a Shogun experience. “No can do,” said the West, and promptly shut down Japan’s importation of these key items… and well, then… we got Pearl Harbor and that’s all in the history books now.
—
Today:

Communist China is a totalitarian and rapidly industrializing nation. They are threatening both Koreas (North and South), Taiwan, Japan, all of Southeast Asia and Indonesia, the Philippines, Australia and New Zealand. It’s because they need the raw material resources just like Japan did for industrial development, and they need them in a much bigger way than Japan did in its day. Their aggressive posturing regarding Taiwan recently is easily understood by examining the strategic and tactical significance of having, in effect, a potential enemy’s giant aircraft carrier anchored just off your mainland, as Taiwan must represent to them a similar threat.

They’d awakened in the mid-1900s after centuries of self-imposed isolationism, even since the Communist Revolution in mainland China, and realized that their lack of technological advancements was making their military, once rivaling super-power status, quite obsolete. They realized they must have both economic and military strength to get what they need and at the same time protect it. Military strength derives from economic strength, not the reverse which is the current failing experience in darkened North Korea, also an example they’ve probably keenly observed. In fact, they threaten the whole world now, because they’ve learned lessons from Japan and from both the Soviet Union’s economic experience and their own. These lessons have made them successful strategists.

They’d watched the Soviet Union fall apart and lose its [Russia’s] insulating boundary of satellite states (probably more losses to come, too), not because of a lack of military power or the technological expertise to fuel it, but because of a failed economic system, like the one that was failing in China. And, from Japan they learned that in order to take advantage of the economic power of the West and use it against them, all you have to do is partner with the free-market purists within their society. If you are able to do that, they must figure, and enhance the economic interests of your partners in the West, then you can ignore most or all of the trade laws, copyright traditions, humanitarian interests and any of the other principles of economics, human rights or law, because your most ardent supporters and justifiers will be those partners themselves that you’ve made in the West.

They will be your best advocates because they will import and sell your manufactured goods at high profit margins under the guise of free-market trade, while ignoring the conditions that make the trade if not illegal, at least immoral. Make the imported goods from China bear the full costs of their production and the profit margins that attract their ‘free-market’ partners in the West would not be so appealing. True free markets do work to properly allocate resources and stimulate world-wide economic growth. Economic shams, on the other hand, may enrich some participants temporarily, but ultimately they create imbalances that distort costs and hamper true economic growth.

It’s no different really than were China to have stumbled into a feast at a party that a Western family of strangers were having, and yet be invited in to enjoy the bounty coming from a developed culture and economy it had not participated in making. Particularly so when invited by a member of the family who does so regardless of the approval of his other family members, because of some particular advantage he gains from the invitation that his family doesn’t share… or because he paternalistically assumes they do.

So, what is it that Communist China wants today?… They want a modified system in which they maintain totalitarian control over their people, and yet provide the economic expansion needed to fuel the military strength that will allow them to maintain their totalitarian rule. Keeping control is their objective, not the economic expansion that is only a necessary byproduct for keeping control.

These elements can not long coexist, and because they can’t it will ultimately result in a conflict between China and the West, because our economic success derives from the freedom from totalitarianism which would have prevented it, just as that true economic success was prevented in the former Soviet Union that failed. We made the feast in an environment of both personal and economic freedom. The Communist Chinese leadership has no intentions of giving up control of either of these freedoms and therefore their economic system is destined to fail for the same reason the Soviet Union’s economy failed; it failed to efficiently allocate resources.

Regarding Communist China, we are only fooling ourselves to believe that our two disparate economic and governance systems can be mixed under any real claim of it being accomplished in an environment of true free trade. It may seem so, now, only because the Communist Chinese are masters of the art of feint and parry, learned on their own people, and are therefore experienced at telling the West what it wants to hear… and because they are cooperating with their economic partners in the West who shield them and benefit from it by capitalizing on the most massive boom of unmatched consumerism and economic disequilibrium in at least the last 100 years.

A thought experiment:

Imagine the U.S. to be the only country in the world, and that the U.S. were to be organized as one giant valley with streams, fields, schools, factories and all the attributes of the industrialized society we know so well, with all the laws, rights, rules and common practices that go along with it.

Suppose that right in the middle of it there was a small zone demarcated with a boundary line, and upon that line citizens both within the zone and outside the zone could come and place their feet along the line just facing each other, with their shoes so close that they could each feel their opposite citizen’s breath on their face, but with neither side’s citizens actually touching the line. The point is that the line makes them both infinitely near and infinitely far apart, all at the same time.

Now, suppose there’s a village outside the zone so that its citizens, with their toes lined up on the line, have rules about wages, pollution, human rights and intellectual rights that they must follow, and that following them is the required status of being a part of that village. Suppose they have to generally respect all these mentioned rules.

Well now, what if toe-to-toe with them are the citizens of another village across the boundary line and within the zone so close they can feel their breaths as well as having their toes toe-to-toe with them.

I suggest it would be pure insanity for any person to believe that these two societies can coexist in harmony, should the village within the zone be permitted to ignore all the rules that govern the citizens outside the zone.

And, the boundary lines that makes these two villages both infinitely near and infinitely far apart are the stacks of containerized shipping units found at all our ports that, because of the simplistic view they create regarding assumptions about free-trade, make it ever so easy to ignore the true costs of what’s in them.

Eclectic,

You might be interested in reading it:

How the U.S. is getting ripped off
http://articles.moneycentral.msn.com/Commentary/Experts/Jubak/Jim_Jubak.aspx?msn=1

Robert: “What I’ll do at the point my marginal tax rate (federal, state, Medicare) goes from 38.3% to anything north of 50% is not work.”

Be careful; I don’t know how you get your business but “not working” probably means turning business down, not responding to calls, or reducing your number of clients — and then your business may dry up quicker than you think.

That’s similar to employees — try to go part time or reject overtime, and you may find yourself out the door quickly. Employers don’t particularly like the idea of “not working”.

An extreme example I am providing however what the graph shows is that our society is well on the road towards what has happened in mexico. It may not happen in out lifetime but for those of you having children right about now, they will realize the gap in that graph get only larger.

Ciao
MS

Leisa-

Also it does’nt really go into that said coporate tax payments have been shifted onto us by our “lovely” policy of tax subsidies by both corrupt political party’s.

Where can I set up a business and have all of my water and power needs paid for? In Silicon Valley that is. Santa Clara County is notorious for providing free of charge water, power, garbage service to “attract” business. Witness the sweet deals that Intel, Cisco, Nat. Semi., Apple and too many others to list get by not paying for alot of the city services it uses. This is a tax benefit that is made up by your average tax payer (you and me-and we all wonder why the streets are full of potholes etc. It’s just not classified as such because nothing is on the books of the corporation to show it. But look at all those jobs……

Ciao
MS

VL,

Two excellent articles you referenced… thanks.

Re-read my reporting of the largely unacknowledged opinion of Adam Smith found in “Wealth of Nations,” that the “dealers” more or less described in these two worthy articles have interests that are opposite that of the general population.

Their interests are disguised as being the free-market interests of the American public. They are anything but. Just go back and see my comments under the recent topic: “Globalization & Inflation.”

While the wealthy pay a higher percentage of total income in federal income tax, the percentage of total income they pay on most other taxes, the most significant of which is payroll taxes, is vastly smaller. Remember wage earners making $90k or less pay 7.2% on every cent they make on FICA/Medicare (14.4% for self employed). Someone making $1m per year is paying 1/10th
the rate proportionate to total income and the more one makes, the smaller that percentage.
http://www.taxfoundation.org/publications/show/22287.html

Irving,

There is nothing wrong with being rich.

God bless you if you are rich. There is nothing wrong with your daily bathtubs filled with Dom Perignon and spending 3 million dollars for your birthday parties.

The problem comes when the rich get unfair advantages and do not pay their fair share of taxes.
The middle class is overtaxed and the rich folks are under taxed in this country.

This problem needs to be fixed.

P.S. Enjoy your bath filled with Dom Perignon. You are much better than the rest of us and truly deserve a special treatment and not paying your share of taxes.

Irving-

Glad you’re rich…..so the what the hell are you doing posting on a financial blog???

Spreading the wealth??? hardly…..

“rich” is a state of mind but I guess you knew that.

Pahleeze…

Ciao
MS

Damn, Eclectic Thompson! You can go from Uncle Remus to Sophocles in a Hong Kong minute…

well said.

I don’t think it’s a question of whether or not the taxes are “fair”– that’s such an irrational, moralizing word, and impossible to define “objectively”. Neither is it a question of whether it is “fair” to make and spend money in the manner of the uber-rich or whether it is “fair” to live off other people’s money without working (welfare). For that matter, all such questions as to how the government should redistribute its tax income, often framed in terms of “fairness”, seem to me to be terribly ill-posed.

In my opinion, we ought to combine the best of conservative and liberal values, the seemingly opposite values of self-reliance and social awareness, and come up with a way to help people become independent. But at least in the worst cases, conservatives conflate self-reliance with selfishness, with the excuse that handouts create dependency; while liberals engage in social awareness as a way of enjoying a false moral superiority, which would become impossible if the poor were actually to come out of poverty. And each side points only to these worst aspects of the other side.

If you want to discuss tax policy, the real question is, what sort of a society do we want to create for ourselves to live in?–which in the end seems a matter of personal taste or inherited ethic. Leaving aside the obvious issues like that of poverty alongside extravagance, or that of uber-consumption of non-renewables and the lost opportunities of future generations, and whether such things offend the mind, the picture painted by Barry is that we are creating a society which is economically unstable. (Is that good or bad?)

Viewed in this light, it seems to me that any discussion of “who is paying more than whom”, and even of how that ought to be measured, is really missing the point. In the meantime, caveat investor!

Eric said- “Neither is it a question of …whether it is “fair” to live off other people’s money without working (welfare).
We ought to come up with a way to help people become independent.”

But dependency on government has NEVER been bad for the rich Eric. The pretense of you laissez-faire people is that it is the poor who are dependent upon the government, while the rich take care of themselves. This argument manages to ignore all of modern history, which shows a consistent record of “laissez-faire” for the poor, but Enormous government intervention for the rich. There are more “made” men than “self-made” men in American Capitalism posing as virtuous self-reliant uber beings.
B.S.

‘Bob A’,

“Do the poor really get poorer?”

Indeed.

The ‘Poverty Rate’ has increased every year of the past six years (after declining every year of the previous eight years).
.

brion,

I only post as “Eclectic.” This I pledge to you, so please don’t make the assumption that I am writing under any other moniker than as Eclectic.

When you do so, and your target for the communication doesn’t respond in the negative, it tends to influence others that you may have ventured a guess and guessed correctly that someone is posting under two pseudonyms.

I agree with you that Thompson may exhibit writing somewhat similar to mine in style, but I’m not Thompson.

I’m not surprised that Thompson didn’t respond to your confusing remarks regarding his “robot” comments. He probably didn’t know you were addressing those comments toward him.

Best, Eclectic (“R.S.” in the real flesh)

sorry to make you wade through that…..
I could have sworn it was you being silly.
I have to say, i enjoy your schizo postings quite a bit…

C’mon… if you’re so concerned about it… cut your salary and raise every single one of your employees below the 5% line [$110k for married couples and about 90k for individuals]. And if you get a windfall… hand it out in bonuses to the lowest ones. We love to complain in this nation… but we hate to do.

Hey Eric-yea, i mistook your position a bit…I’m used to the entitled golfers that swarm BP from time to time spouting bedtime stories for real.

Self-reliance IS, of course, an awesome thing.

It’s just that the vision of a society of leeches, suckled by Congress, even invited to write legislation, together with regressive
taxation, is a frightening one for those inclined to work for a living.