Growing Divide Between Rich and Poor

[Alceste]

Source?

Warren Buffett.

 

[ninerbuff]

A lawyer friend of mine mentioned that "hedge funds" are another way the rich are rich. Can anyone explain how this works? Finance and investment isn't something I'm well versed in.

 

[Darkness]

So when investors make money, they pay taxes, but when they lose money, the losses aren't deductable?
Say you buy $100K of Acme & $100K of Gozer. 1 year later you sell one at $10K profit, & the other at $20K loss.
You would have a taxable profit of $10K?
This would have the net effect of making the cost of capital higher, since it would almost double the risk.
Certainly, the government would take in more money initially, but what effect would this have on the ability of
companies to raise capital in the stock market? What of new firms looking for venture capital? They have a
hard time as it is, but it would be even worse. Have you ever worked for a hi-tech start-up?

I think we need to make a distinction between productive investments in the financial markets that lead to capital expansion and mere monetary manipulation. I propose a financial transaction tax, which will encourage long-term investment in productive capital. And, we should lower the corporate tax rate which is high by European socialist standards.

 

[Revoltingest]

Warren Buffett.

Tis true that he is a source.
But where is a source showing that poor people pay a higher effective tax rate than the rich?

 

[TJ73]

I wish poor people really had the time and access to learn all the tings being discussed here. It is so beyond the scope of relevance to the poor and how they can get out of the hamster wheel. All you need is one emergency without a contingency plan (which would require dough) and you're screwed.

 

[Penumbra]

So when investors make money, they pay taxes, but when they lose money, the losses aren't deductable?
Say you buy $100K of Acme & $100K of Gozer. 1 year later you sell one at $30K profit, & the other at $50K loss.
You would have a taxable profit of $30K, even though you're $20K in the hole?
This would have the net effect of making the cost of capital higher, since it would almost double the risk.
Certainly, the government would take in more money initially, but what effect would this have on the ability of
companies to raise capital in the stock market? What of new firms looking for venture capital? They have a
hard time as it is, but it would be even worse. Have you ever worked for a hi-tech start-up?

All tax structures create incentives for business. Different policies can yield the same income, yet have different
long term effects on the economy. We should be sure that we encourage business to stick around, & not make
foreign firms relatively more competitive.

First off, remember I said reduced corporate taxation. So we're largely talking individuals here.

Secondly, investing involves risk. If people are unloading vast amounts of their portfolio at market bottoms, they're doing it wrong anyway. Either they weren't appropriately diversified, or they didn't have a reasonable cash cushion and emergency fund, or they're panicky bad investors.

Thirdly, it should depend on the size of the venture capitalists I think. Billionaire venture capitalists should indeed pay high taxes. I could see appropriate reason for allowing committed venture capitalists of certain sizes to receive lower tax structures, since they're actively promoting business rather than just owning.

 

[Penumbra]

Medical debt. I had my business for a month and got hurt. I was in the hospital for 5 days. I didn't have ins. I'm still paying for that "mistake"

:sorry1:

I know people in similar situations. People have literally paid thousands for a bad fever, which ends up being a years worth of disposable income that could have gone to something productive.

I wish poor people really had the time and access to learn all the tings being discussed here. It is so beyond the scope of relevance to the poor and how they can get out of the hamster wheel. All you need is one emergency without a contingency plan (which would require dough) and you're screwed.

True.

But the thing is, it's not just the rich and the poor. That's only part of it. It's about the top 10% or 1% and everyone else. The working class and middle class are on "the poor" side of the big gap.

 

[Penumbra]

I think we need to make a distinction between productive investments in the financial markets that lead to capital expansion and mere monetary manipulation. I propose a financial transaction tax, which will encourage long-term investment in productive capital. And, we should lower the corporate tax rate which is high by European socialist standards.

I think this hits the nail on the head.

Things like real estate developers and venture capitalists are productive investors. They deserve reduced tax structures for market efficiency.

Wall street gamers, immensely wealthy private investors, and multi-millionaires in general do not.

 

[Revoltingest]

First off, remember I said reduced corporate taxation. So we're largely talking individuals here.

I'm OK with reducing or eliminating corporate taxes, since the stockholders pay tax on the income.

Secondly, investing involves risk. If people are unloading vast amounts of their portfolio at market bottoms, they're doing it wrong anyway. Either they weren't appropriately diversified, or they didn't have a reasonable cash cushion and emergency fund, or they're panicky bad investors.

So if one loses money on an investment, then one is unworthy to deduct the loss?
Asymmetric tax-vs-income, however noble or punitive your intentions, will still increase investor risk, & consequently increase
the cost of capital. This will be a damper on the economy, more so than a symmetric tax structure. This is because your plan
would increase the risk of catastrophic loss because the tax due could exceed cash flow.

Thirdly, it should depend on the size of the venture capitalists I think. Billionaire venture capitalists should indeed pay high taxes. I could see appropriate reason for allowing committed venture capitalists of certain sizes to receive lower tax structures, since they're actively promoting business rather than just owning.

Should venture capital be more attractive for small start-ups than for large ones?
Are you proposing that venture capitalists pay a lower tax rate than business owners, the ones who actually employ workers?

 

[TJ73]

:sorry1:

I know people in similar situations. People have literally paid thousands for a bad fever, which ends up being a years worth of disposable income that could have gone to something productive.


True.

But the thing is, it's not just the rich and the poor. That's only part of it. It's about the top 10% or 1% and everyone else. The working class and middle class are on "the poor" side of the big gap.

I know what you mean. And everybody wants what the person above them has. I know there are vast amounts of people that wish they had it as good as a dirt poor American on welfare. But I think working on getting the very poorest people to a level of basic understanding of the American financial system is paramount. But then again if more people new that our government does not have any money of it's own and simply borrows from the privately owned Federal Reserve bank, that may be a change the VERY wealthiest would not want or allow.

But if you can get to a doctor when you're sick, have daily transportation to the places you need to go, a place to live with basic modern facilities and not have a need to accrue debt, anything else is gravy. So I say start with those people, if the process has to start with a particular group.

They should also have a warning on all credit cards and lending products like they do on cigarettes!

 

[Revoltingest]

I think we need to make a distinction between productive investments in the financial markets that lead to capital expansion and mere monetary manipulation. I propose a financial transaction tax, which will encourage long-term investment in productive capital. And, we should lower the corporate tax rate which is high by European socialist standards.

That's not what I'd do, but it seems much more reasonable than what Washington is bandying about these days.
You're thinking of incentives created by tax policy. There oughta be more of that.

 

[Penumbra]

Tis true that he is a source.
But where is a source showing that poor people pay a higher effective tax rate than the rich?

It's not just the poor. It's a catchy thread title.

It's everyone. It's the working and middle classes, and even the lower subset of the upper middle class probably, on one side of the gap, and the rich on the other side of the gap.

Wealth And Inequality In America
Top 1% has 33.8% of the wealth
The 90-99% have 37.7% of the wealth
The 50-90% have 26.0% of the wealth
The Bottom 50% have 2.5%, basically nothing because much of them have negative net worth.

The working and middle classes aren't getting extensive tax help to compete with the rich that are paying, say, under 20%.

 

[Revoltingest]

It's not just the poor. It's a catchy thread title.

It's everyone. It's the working and middle classes, and even the lower subset of the upper middle class probably, on one side of the gap, and the rich on the other side of the gap.

Wealth And Inequality In America
Top 1% has 33.8% of the wealth
The 90-99% have 37.7% of the wealth
The 50-90% have 26.0% of the wealth
The Bottom 50% have 2.5%, basically nothing because much of them have negative net worth.

The working and middle classes aren't getting extensive tax help to compete with the rich that are paying, say, under 20%.

Me get it now!

One thing I discovered is that a lot of the poor are useless. At minimum wage plus overhead costs, many of them
can't do anything to provide value in excess of what they cost. And the government erects hurdles to their working
as an independent contractor, eg, requiring that they buy worker compensation insurance to protect their employer,
requiring expensive licenses to do simple things like braid hair or massage horses.
It seems that the gov't hates poor folk, but loves their votes.

 

[Penumbra]

I'm OK with reducing or eliminating corporate taxes, since the stockholders pay tax on the income.

So if one loses money on an investment, then one is unworthy to deduct the loss?
Asymmetric tax-vs-income, however noble or punitive your intentions, will still increase investor risk, & consequently increase
the cost of capital. This will be a damper on the economy, more so than a symmetric tax structure. This is because your plan
would increase the risk of catastrophic loss because the tax due could exceed cash flow.

Cost of capital increase is not the end of the world. An exponentially increasing gap is far more dangerous.

Should venture capital be more attractive for small start-ups than for large ones?
Are you proposing that venture capitalists pay a lower tax rate than business owners, the ones who actually employ workers?

Depends on the size of the business owners.

Basically, my approach is this: Start out by streamlining everything. Align more investments along the general progressive taxation bracket and cut out the max social security tax. Reduce double taxation in the form of corporate taxation. Then, in a few areas, make exceptions. For small business owners, they get breaks on capital gains/losses, since they're not rich and it's risky for them. For venture capitalists and real estate developers that play an important role in developing the economy, they get a break on capital gains/losses.

For people getting many millions of dollars from capital gains on stock or partnerships, or living off of millions in passive dividend income; they get no break. They get appropriate progressive taxation.

 

[Revoltingest]

Cost of capital increase is not the end of the world. An exponentially increasing gap is far more dangerous.

I don't see it as an either/or situation.

Depends on the size of the business owners.
Basically, my approach is this: Start out by streamlining everything. Align more investments along the general progressive taxation bracket and cut out the max social security tax. Reduce double taxation in the form of corporate taxation. Then, in a few areas, make exceptions. For small business owners, they get breaks, since they're not rich and it's risky for them. For venture capitalists and real estate developers that play an important role in developing the economy, they get a break.
For people getting many millions of dollars from capital gains on stock or partnerships, or living off of millions in passive dividend income; they get no break. They get appropriate progressive taxation.

That doesn't sound much different from what we have now. Stockholders would get more income from corporate dividends, but
pay a higher tax on the income. What's the difference in the stockholders after tax rate of return? As for venture capitalists &
real estate developers, you're proposing lower taxes on income, but with no deductability of losses. This would mean greatly
higher taxation in a weak economy, but relatively great rewards in a booming economy. This strikes me as the opposite of
stabilizing feedback, ie, when things get bad, taxation makes things even worse.
Have you ever done real estate development? It's a risky business. You can plot & plan carefully, but you cannot anticipate things
such as economic downturns, election of anti-development politicians, changes in zoning, changes in subdivision control, colliding
with crooked politicians with "needs", etc, etc.
You might think your changes punish excessive risk takers, but they really punish anyone who depends upon financing.

 

[Alceste]

A lawyer friend of mine mentioned that "hedge funds" are another way the rich are rich. Can anyone explain how this works? Finance and investment isn't something I'm well versed in.

It's like gambling, except that when you lose you get to replenish your losses from the treasury.

 

[Revoltingest]

It's like gambling, except that when you lose you get to replenish your losses from the treasury.

You should give him a real answer. In fact, it's the opposite of gambling.
Hedge funds are a way of investing which minimizes risk due to general market fluctuations.
You combine ordinary (long) investments with contracts to return a borrowed investment which you sell, & & then repurchase later at a lower price to return to the lender.
No matter what the market does, such an investment strategy tends to neutralize market fluctuations. At least this is my lame arsed understanding of it.
Hedge fund - Wikipedia, the free encyclopedia
Of course, risk is still there.

 

[Alceste]

Tis true that he is a source.
But where is a source showing that poor people pay a higher effective tax rate than the rich?

Your real tax rate: 40% - MSN Money

Well there's a reference to a study that finds it is more or less flat, but a flat tax is regressive by nature. It places a disproportionate burden on the poor, who have greater need of their modest means to acquire basic necessities.

 

[Alceste]

You should give him a real answer.
Hedge funds are a way of investing which minimizes risk due to general market fluctuations.
Hedge fund - Wikipedia, the free encyclopedia
Of course, risk is still there.

Don't sugar coat it. It's gambling, except that when you lose the government brings bags and bags of taxpayer money to your door in a big truck. The bigger you lose, the more you can cash in.

 

[Revoltingest]

Your real tax rate: 40% - MSN Money

Well there's a reference to a study that finds it is more or less flat, but a flat tax is regressive by nature. It places a disproportionate burden on the poor, who have greater need of their modest means to acquire basic necessities.

I have some problems with your link.
- It talks about marginal tax rates, which are the tax rates on that extra dollar over & above one's total income.
But there is no mention of the average tax rates, which are determined by the total tax actually paid.
- It gives no data on taxes actually paid, nor on offsetting benefits received (eg, earned income tax credits).
- It doesn't address the poor...although it's clear that this thread never really was about them, despite the OP.