Topic: Tax the super-rich

[scottws]

So, as most of you know, I lived in Cincinnati.  This is generally a haven of the conservative to ultra-conservative.  People vs. Larry Flynt?  Yeah, that's us.  And I've been around you all for long enough to flash my conservative roots from time to time, especially during the early George W. Bush era.

But that has all changed.  It is now obvious to me that the U.S. government is just a bunch of rich people coddling their rich cronies.  "We the People"?  Please.  More like "They the 0.1% of People" or "They the Corporation".  At best I'm moderate these days and more and more I'm starting to see myself taking the leftist viewpoint on things especially when it comes to social policy and economics.

Not long ago on Facebook, a Cincinnati acquaintance of mine commented on the U.S. debt crisis.  I said the real problem is that the richest people in the U.S. are taxed far less than the poor or middle class.  Not in terms of dollars paid, of course, but in terms of proportion of income.  I also said that the debt needs to be tackled from both ends by reducing spending and increasing revenue (taxes), primarily by reducing or eliminating all the tax breaks and loopholes for the rich and super-rich.

I never expected the attacks that came.  If I could have seen the follow-up commenters in person, I am sure they would have been brandishing pitchforks and torches.  The first response was the most appalling.  Unfortunately, I am unable to find the posts, but the gist of it was that if we increase taxes for the super rich, then unemployment will rise as they hire less people.  Many of the other posts were along the same lines.  I think they must have thought I was saying that taxes on corporations should be higher, but I was talking about individuals.  But I didn't argue because it was clear the people were blind, legless sheep and there was no leading them back to reality.

Anyway, I was reminded about this again when I came across an op-ed piece by none other than Warren Buffet himself, calling on the U.S. government to raise taxes for the rich and super-rich.  Keep in mind the guy is a multi-billionaire, so a higher tax burden would greatly affect himself.

Enjoy:  http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html?_r=1&src=me&ref=general

[Cobra951]

Warren Buffett, eh?  Good article.

I agree completely with you, Scott, and with him.  The wealth distribution in this country has become a lot more lopsided in the past 50 years.  While I don't advocate some socialist redistribution, I do think taxation should be both progressive and undodgeable.  "Income from whatever source derived" is what the IRS is supposed to tax, and that certainly isn't happening to the top earners in the country.

The line about hurting job creation if taxes go up for the wealthy is a load of horseshit.  In fact, taxation can be used quite effectively to bring jobs back into the country, as in tax breaks for domestic production and tax penalties for production abroad.  (This is something else the super-rich will cry "heresy!" about, but that's another subject; and fuck their self-serving drivel in any case.)  They keep saying that higher taxes on the rich would hurt small-business investment, as if it were impossible to separate truly personal income from American-job-creating investment.  (It's not!)

People invest to make money, and potential taxes have never scared them off. And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

Just like you, I get a lot of resistance to these ideas.  Both Sandy and my mother have swallowed whole the line about sparing the rich any pain in the pocketbook.  I've had some heated discussions about it with both.  It's a brick wall.  We can't unconvert the faithful.  The dogma is strong.  Look what that fucker Boehner and his cronies just did to the country in Congress.  They'd rather see us go belly up in short order than to budge an inch on taxation.  The consequences were quick and painful.

I have no faith at all left in our government.  It's unfair to blame it all on them, though.  They're only as schizo as the country who keeps electing them.

[scottws]

The government will continue on in its ways until there is 60's-like social unrest.  U.S. citizens are too afraid about upsetting the economy and their wealth (whatever they have left of it, anyway) to get involved in unrest and turmoil.  But with the economy sputtering anyway, it seems inevitable that unrest is sure to come in the next ten or twenty years unless something changes.

And yeah, Boehner.  Fuck that guy.  Go figure he's from Cincy.  Actually from what I read the biggest problem in Congress related to the debt crisis were the "tea-party" elected Republicans.  They are very laissez-faire, apparently.  Well, they will all get theirs in the next round of elections I'm sure.

And speaking of the redistribution of wealth, ever see The Other Guys?  It had some really interesting statistical info in the end credits about this very topic.

[Cobra951]

Oh, ha!  I started to watch that movie, but I couldn't stomach more than 5 minutes of it.  (Will Ferrell in particular I can't stand.)  What's most depressing is that everyone knows who the biggest crooks are, but no one does a thing about it.

[Cobra951]

I sent my brother these links, and he replied with these:

http://www.thedailyshow.com/watch/thu-august-18-2011/world-of-class-warfare---warren-buffett-vs--wealthy-conservatives
http://www.thedailyshow.com/watch/thu-august-18-2011/world-of-class-warfare---the-poor-s-free-ride-is-over

 

Watch them in that order.

[shock]

I can barely watch Jon Stewart's clips any more because of the footage he shows of Republicans/conservatives/Fox New.  They literally make me cringe.  I'm still shocked that Republicans actually believe that nonsense.  And it is sadder that they can be so persuasive as to create an army of people that are unwilling to see the reality: we have a horrible wealth distribution problem.

Buffet's article is great.  How can anyone reasonably justify a system where a BILLIONAIRE is taxed 17% due to loopholes and tax breaks while your average Joe is taxed 25-35% for making $45,000 a year?

And then to blame it on the poor is revolting.  Like Stewart said, they have a truly abhorrent percentage of wealth in the country.  And the poor need to make a bigger contribution to society?  THEY CAN'T GIVE ANYTHING ELSE.

It's a shame that ideas like economic freedom and opportunity are now basically used as tools to keep the rich rich and the poor poor.  And the "American dream" perpetuates it by giving some the idea that they can work themselves out of it.  Poverty begets poverty, and it is extremely unlikely that one can break the cycle.  Meanwhile, the rich keep getting richer and the poor keep getting poorer.

I hate thinking about things like this because it makes me get upset.  But mostly just embarrassed in us as a nation.  We can't help those in need or control those who have money.

[scottws]

Thought on the "occupy" protests?  I'd post my thoughts but I only have access to my phone right now.  I'll post something later.

[gpw11]

High school student Kayonne Christy came to the Occupy Toronto demonstration on her own from Brampton. She said she thinks it's unfair that Canada's government has as much money as it does, while her mom lives from one paycheck to the next.

The protests don't amount to much.  They do show that there is quite a bit of civil unrest out there, but there are too many messages and they're too diluted by all the noise.  I read a comic on the dailyKOS which was making fun of how the media is asking what the message is.  In the comic the interviewee was screaming "economic juuuustice!!" and the interviewers just didn't get it.  Perhaps because they're so out touch.  But the thing is that economic justice can mean a million different things to a million different people and be broken down further. What do you want?  Banking reform?  Further regulations on the stock market?  No stock market? Abolishment of lobbying and  campaign sponsorships? Free education?  A reworked tax bracket?  All of it?

The thing is that in order for it to inspire change, the change makers have to actually have something to pick out.  If the protests were about, say, American jobs being shipped over seas, that'd give them something tangible to work with:  Are you a company incorporated in America?  70% of your workforce has to be employed there. You know, something like that.  This is a bunch of people angry, a bunch of people chilling, and a whole lot of white noise.
 

 

[shock]

I'm very intrigued by this movement.  I think, as always, it's the crazies that jump into something like this first.  I went to one of the anti-war protests a few years ago and you see them there too.  (by crazies I just mean socialists/communists/whatever - not making a value judgment).

However, I am heartened by the fact that many people seem to be realizing and attacking the gross economic inequality.  Do I think a lot of it is misguided?  Certainly.  Letting banks fail is a categorically horrible idea for growth.  Stimulus spending is absolutely necessary to prop up demand.  Wall street itself really isn't the cause of most of these problems, as they are just acting in self-preservation.  The real culprit is a broken political system that has allowed itself to be overrun by money and its influences.  This has caused most of the problems relating to the recession (see: deregulation).

Alan Grayson had a pretty good way of putting it on this random conservative show.  He said that "one party is a wholly owned subsidiary [of Wall Street] and the other party caters to them as well."

Note: the beginning of this is painful.  And the guy with the green tie needs to get punched in the dick.  http://youtu.be/yhrwmJcsfT0

Anyway, if I had to sum up my opinion on the movement, I would say that I'm thrilled about it.  It gives me a lot of faith that not everyone is willing to let such horrible economic inequality continue to get worse and worse.  Republican/tea party rhetoric is dead wrong, and I feel like many people are starting to see that (point to polls showing that most people support increasing taxation on the wealthy).

I sincerely hope this movement can bring the economic inequality issue to the foreground of the political discussion. If so, it will be a major success. I think we need to give it time to materialize, though.  What's certainly clear is that they have struck a vein.

[gpw11]

See, the mortgage thing gets me.  From what I understand, the approval process for mortgages there was pretty similar to here, with a few small differences (that inevitably make a big difference in the long run).  When the fact that people owe more on their mortgages than their house is worth is brought up as a symbol of corporate greed or government corruption it really concerns me regarding the lack of personal accountability in the collective mentality.

[Cobra951]

Steps to going upside down:

(1) You buy a house at the current market price, financed 10% by your down payment and 90% by a bank loan.
(2) The government brings politics into banking, pushing banks to loan to riskier applicants.
(3) Financial institutions, in their inexorable drive to create money out of nothing, slice and dice good and bad loans into collateralized debt obligations (CDOs) and sell them as commodities.
(4) Reality comes knocking: bad loans are bad, mortgage defaults snowball.
(5) The financial system tanks.
(6) Real estate values plummet.
(7) You owe more money than your house is now worth.

Now you (a) play the good egg and remain saddled for life with a very bad deal, or (b) walk away from the whole thing; let the bank have the house and have everyone eat their losses.

[gpw11]

That's an overly simplified explanation of a pretty complex clusterfuck. Chicken or the egg?  US house prices peaked in 2006 and slowly began to fall thereafter. At the time, the vast majority of mortgages were sub-prime, thus adjustable rate mortgages. These were made viable due to the massive amounts of foreign capital being injected into the American housing market as well as speculative analysis. As soon as house prices plateaued and then started to decline interest rates went up due to a.) lowered equity in the prospective purchase and, b.) the first wave of mortgage defaults when people realized that they owed more they had in equity. Variable rate mortgages reset to the higher rates and defaults snowballed from there. Financial institutions had a ton of capital tied up in mortgage backed securities at the time, which are a great bet...on paper.  The process of slicing and dicing good and bad loans, while somewhat controversial, really isn't immoral or unethical at all.  It's merely hedging the bad against the good. But, when shit went south, it went south hard and all of a sudden the liability of the bad loans outweighs the profitability of the good loans. Financial institutions and bonding companies all of a sudden find themselves in a situation where cash flows dry up, massive debt burdens, and they could no longer afford to absorb the losses from bad loans and the decreased value of mortgage backed security packages. That's when the shitstorm got noticed.

I have no problem with anyone realizing that they're never going to recoup their losses and walking away from the whole thing.  A lot of financially responsible people got caught up in a very bad thing.  BUT, for the most part, they got caught up in that because a lot of retards decided they wanted and needed to own a house when they had no business doing so.  No one put a gun to anybody's head and told them they needed to go out and buy real estate with a 5% or even 10% down payment.  Sure, they COULD, but that doesn't mean it's a great idea. Especially when 10% usually still puts you in a high risk interest bracket. And not a single person out there should have been thinking it was a great idea to get approved for a mortgage higher than the value of the property.  Sure, it was possible, but that doesn't mean you have to do it. Banks and financial institutions may have been encouraging certain practices and signing off on risky loans, but, much like every other player in the game, they're just looking out for their own best interest just as those defaulting on their mortgages are. None of this was really a secret at the time.

Like I said, I have no problem with anyone walking away from a losing deal.  That's the nature of the game and a very common exercise in logic that every first year philosophy or economics student learns.  But, apart from some rare cases of predatory lending, most of these people aren't victims in any way. They got involved in the real estate game on a speculative analysis of the situation which was based upon the assumption that prices would continue to rise.  In doing so, they accepted that there was risks involved, and if they want to claim that they didn't, well then, that's what worries me.

[ren]

For the most parts I don't think the banks did anything unethical per se but a lot of what happened is their fault. I'd put most of the blame on the ratings agencies for not calling the banks out on the sheer extent securitization was fluffing their balance sheet and allowing them to take on ridiculous levels of risk.

From a banking/finance perspective, fixed-rate mortgages suck. When interest rates increased, they would be stuck with low interest payments from mortgages while having to pay out high interest loans. The difference they took on as risk and consumers ended up paying for it through increased rates to compensate. Variable rate mortgages fixed that problem by removing interest rate fluctuation risks from the bank side and shifting it to the consumer side.

That's all perfectly fine but the problem was that banks did not properly communicate to consumers that they were taking on extra levels of risk and if they did, they didn't explain the implications of the risk. So while technically homeowners are just seeing the negative end of taking on a lot of risk, it's not very hard to blame the banks. People don't understand finance so they trusted their banks - it's a perfectly logical thing to do, use a financial institution to make sure that you're not doing anything financially stupid. Banks took advantage of that and should absolutely be blamed.

Second of all, CDOs aren't inherently a bad thing either. You slice and dice good and bad loans and package them together. Investors create a hedge to lower overall risk and increase return, it's very similar to what people have been doing with their stock portfolios for decades. The problem occurred when ratings agencies didn't properly assess the risk of the bad loans making what's inherently a very risky investment look much more attractive by implying that the bad loans really aren't that bad. Ratings agencies are essentially an oligopoly funded by the financial institutions who want everything to be AAA to attract more investors.

I'm 100% behind Occupy Wall Street and hope that it actually leads to some change. While it's easy to disregard their lack of message, that's mainly a result of finance getting so ridiculously complicated in the last few years that they have no idea what they should be protesting. All anybody really knows is that somebody has been pulling a fast one on them, they just have no idea who it really is and what they're technically doing. And if they don't cause an uproar, this crap is just going to happen again. Right now, banks are securitizing student loans. Student loans have skyrocketed in the last ten years while the youth unemployment rate is something like 25%. It all sounds somewhat familiar.

[Quemaqua]

I don't think it's doing much good, especially because you have so many people wanting to turn it into something else. Half of what I've seen has seemed to devolve into some sort of LGBT pep rally. I'd love to support them, but I really don't think they're doing a good job of anything they're trying to do. The energy is there, the direction is not.

[Cobra951]

I'm 100% behind Occupy Wall Street and hope that it actually leads to some change. While it's easy to disregard their lack of message, that's mainly a result of finance getting so ridiculously complicated in the last few years that they have no idea what they should be protesting. All anybody really knows is that somebody has been pulling a fast one on them, they just have no idea who it really is and what they're technically doing. And if they don't cause an uproar, this crap is just going to happen again. Right now, banks are securitizing student loans. Student loans have skyrocketed in the last ten years while the youth unemployment rate is something like 25%. It all sounds somewhat familiar.

I was in unison with you until that jarred me.  Happen again?  When did this crap stop happening.  We're in the midst of it.

If we don't cause an uproar, this crap is going to continue.  The movement needs better information and better unity.  Otherwise, yes, I'm behind it 100% as well.

[ren]

Poor phrasing. I just meant again to mean expanding their sketchy risk models in housing to other industries.

I don't think it's doing much good, especially because you have so many people wanting to turn it into something else. Half of what I've seen has seemed to devolve into some sort of LGBT pep rally. I'd love to support them, but I really don't think they're doing a good job of anything they're trying to do. The energy is there, the direction is not.

I agree with you but I don't think it necessarily matters. In some ways the lack of direction has actually been good because it's forced everybody to stop and think why these people are angry and reach their own conclusion instead of automatically dismissing an argument handed to them. The internet has been covered with people coming out with different reports and infographics on possible reasons for this and the media has been hypothesizing in a way that wouldn't have happened if they were too focused.

In Canada, in recent years our government has been breaking new ground in their willingness to go against both facts and public opinion but just a couple of days ago the Finance Minister and the head of The Bank of Canada (Our version of the Federal Reserve) both publicly sided with the protesters saying that the protests are constructive and with merit. That my end up meaning nothing but it could also mean everything. Later this month the head of the BoC is going to be a speaker at a banking conference on the changing state of the banking world with many top politicians and banking members present and you can guarantee these protests are going to come up.

[scottws]

Wow, good response here.  I didn't expect that in so short a time.  Thanks everyone for sharing.

As I'm sure you can all imagine by previous posts of mine in this thread, I am 100% behind the "Occupy" protests.  Deregulation and massive tax breaks/loopholes for rich individuals playing in capital markets have destroyed the strong underpinnings of the U.S. in an amazingly short amount of time.

American corporate loyalty to the individual has been poor well before the economic crisis, but now it is at an all-time low.  Companies are not only reducing headcount, but those remaining are generally stuck working 50-60 hours a week to make up for the shortage in manpower with no increase in salary to show for it.  In fact, these people probably haven't seen a raise in a couple of years if they've been working in the same position.  Yet as the executives look to cut costs, they never seem to pay attention to themselves.

In a way, it's almost like the American professional sports market with athletes.  Everyone is making too much money yet paycuts are simply out of the question for most of them.  Why would they want to go from making a few million to a million or less?  Of course they wouldn't and it is basically the same as the executives.  They are expecting massive salaries, signing bonuses, and options packages as well as ridiculous severance packages.  It doesn't even matter if they do a good job; they get paid millions to be fired.  It is ridiculous.

The only way that we are going to get politicians in office that actually care at all about common Joe is to have these tea-party like grassroots movements.  Otherwise it's just lip service as they cozy up to large corporate donors.

[shock]

Spent 30 minute typing up a response and my browser window closed randomly.  FML

I'll retype later.

[Cobra951]

The only way that we are going to get politicians in office that actually care at all about common Joe is to have these tea-party like grassroots movements.  Otherwise it's just lip service as they cozy up to large corporate donors.

Unfortunately, the tea-party movement is behind even more hands off with business and if they could get away with it, the elimination of taxes.  I'm of the opinion that the tax system could be brought to bear on our problems effectively (bleeding of jobs to foreign countries, wealth vampirism).  That will only happen with a united effective government, something we're not likely to see for years to come (if ever).

I know you meant a movement like the tea party, but with a much more populist agenda.  I agree.

[scottws]

Yeah I meant grassroots like the tea party, not the same agenda as them.  I hate the tea party.  Some of the Republicans are bad enough, but the tea party elected jokers are the worst.  They were mostly responsible for the Congressional deadlock over the debt ceiling issue and the subsequent second downturn in the economy.  I don't understand how the ridiculously low taxes on the rich are even defensible.

I'm not a communist, but there is something to be said for investing in your citizens.

[Cobra951]

The two periods of great prosperity in this country were spurred by government investment--40's war time and the space program.

[gpw11]

In a way, it's almost like the American professional sports market with athletes.  Everyone is making too much money yet paycuts are simply out of the question for most of them.  Why would they want to go from making a few million to a million or less?  Of course they wouldn't and it is basically the same as the executives.  They are expecting massive salaries, signing bonuses, and options packages as well as ridiculous severance packages.  It doesn't even matter if they do a good job; they get paid millions to be fired.  It is ridiculous.

Except with athletes it makes a lot more sense.  I mean, they're the main draw and they have a very very short professional lifespan.  Corporate executives, on the other hand....

I think the disparity in pay is a huge, huge problem.  I have no idea how that could really be fixed though.