[kbutler]

I'd like to mention SpaceX, Blue Origin, and Tesla.

Regarding the policy choices:

Joe and I have equal income. Joe spends his full income every year. I invest 50% of my income. After 40 years of average stock market returns, I have accumulated 1000 times my annual income as wealth.

What policy choices created this wealth disparity?

Joe and I both retire. How much of my wealth do I need to give to Joe?

[notacoward]

> After 40 years of average stock market returns, I have accumulated 1000

Your math is as far off as your reasoning. The long-term average return is 7%, so after 40 years your first years' investments would only have multiplied by only 15x - subsequent years' even less, and that's not adjusting for inflation. If your income exactly kept pace with inflation, you'd end up with 151x your income in original dollars or 43x in inflation-adjusted ones. I'm sure you think you'd get bigger raises than that, and you're probably right, but then again 50% savings (especially after tax) is pretty unsustainable, so you're off by between one and two orders of magnitude.

> What policy choices created this wealth disparity?

That's almost a non sequitur, since even if policy choices didn't create that wealth disparity they could well have created others. But, as it turns out, they even contribute to that one. How is it that those investments of yours return 7% on average, year after year after year. How is it that capital grows at ~2x the rate of wages? The answer has a lot to do with property (especially intellectual property) law, liability law, tax law, subsidies, tariffs, free infrastructure, etc. That's a lot of policy choices favoring your choices over Joe's. Maybe those are even the right policy choices, but to pretend that they didn't have any effect at all is ridiculous.

> How much of my wealth do I need to give to Joe?

None, but that's the (deliberately) wrong question. The real question is how much you should give to the society that sustains both of you, or how much you should never have had at all. There's a lot of room for debate on that, but first we have to get the facts and figures right - something you have so far seemed loth to do. Care to join a real debate?

[kbutler]

Sorry, switched calculators partway through and got monthly contributions. Originally had it 100x and edited it to 1000x (blush).

Capital returns more than labor growth rate because of many factors. The most obvious is that capital is a productivity multiplier, so it adds value and should be compensated, and the growth rate is naturally a multiple of the labor growth rate. (Capital investment allowed Model T production to go from 12 man hours to 3 man hours - 4X productivity.)

Time value of money/discount rate: Would you pay more for $1000 today, or for $1000 inflation-adjusted in 30 years? If capital doesn't grow at least as fast as inflation, may as well just spend it on consumption now, leaving no money for those capital investments and that 4X productivity gain.

You'd expect labor growth rate to only match inflation (you make one Model T, you get one Model T). Wage growth has also been depressed for the last several decades by additional workers entering the market (e.g., rise of two-income households) and supply vs demand - 50% more people willing to make Model T's at wage X.

Let's start the debate with real numbers at a lower bound: Assume 0 capital gains (I stick it in a mattress and only get out what I put in), saving 25% of my income for 40 years, I'd still end up w/ 10 years of my average income as wealth.

Joe has 0.

> how much you should give to the society that sustains both of you, or how much you should never have had at all.

Should I give Joe or society any of that money? Is any of it money I should never have had at all? That money was already taxed, so society already took what it considered its fair piece of that pie (and the hidden tax of inflation took its share, too!)

The fact of wealth disparity does not imply unfairness.

How about if instead of sticking it in a mattress, I let Henry Ford use that money to build a factory, and it lets him build 4X the cars so that people who want cars can buy them, should I not get some of that added value as well?

Now, maybe Henry should get a part of that money, for his great ideas (say, 33% of the increase). And maybe we should make sure that the workers get a bigger piece than they would have (if labor costs were 50% of the cost of the car, say they get a 50% wage increase?) and we should drop the price to the customer as well (25% discount?) and assume lots of other costs are fixed per car. 4X cars, 25% discount gives 3X revenue. Labor costs went to .75X. Henry gets 1X. Return on capital is 1.25X. Uncle Sam gets his piece in various ways - sales tax on the cars, income tax on the company, on the workers, on Henry, on the capital gains.

And everybody in the picture is better off - customers, labor, company, capital investor, and unrelated parties that benefit from tax revenue, all because I chose not to "spend" that money.

Now, society has taken its piece of the pie in all the ways above (and society chose to set the size of its piece in advance), and you're coming back and saying society needs another piece, just because I didn't spend my money like Joe?

[notacoward]

> If capital doesn't grow at least as fast as inflation, may as well just spend it on consumption now

Nobody said anything about capital returning less than inflation. The question is why should it - no, why does it - return more than labor? You're spinning all over the place trying not to address that.

> That money was already taxed

The principal was taxed, not the appreciation. Or, to put it in even clearer perspective, the labor was taxed but not the capital gains. Why? No matter how you slice it, that's a pretty serious policy decision. Why shouldn't capital gains be taxed at least as much as labor? If capital is so amazingly effective, it would still be advantageous to accumulate it.

> The fact of wealth disparity does not imply unfairness.

It implies fairness even less.

[kbutler]

> You're spinning all over the place trying not to address that.

Except where I addressed it above:

"capital is a productivity multiplier, so...the growth rate is naturally a multiple of the labor growth rate...at least as fast as inflation...You'd expect labor growth rate to only match inflation..."

So labor only grows as fast as inflation (unless it's getting a larger piece of the pie) and capital investment is a multiple of that, and returns at least as much as inflation, or it doesn't exist. Sorry if that wasn't clear.

The "already taxed" comment followed a "savings in a mattress" example, so no appreciation, no capital gains. I saved 10 years of income over 40 years. I have wealth. It's already been taxed. Do I owe society another part of my unequal wealth?

> Why shouldn't capital gains be taxed at least as much as labor?

Maybe they should not be taxed as much as labor. Maybe more. Maybe less. It's not immediately obvious that either should be taxed more. Thus the reason for the wealth inequality even with zero capital gains example (capital loss after inflation).

Reasons to tax capital gains less would be to promote investing, because we want to encourage people to save for and invest in the future, and because that is the mechanism to create wealth & jobs for the country.

Reasons to tax capital gains more are mostly that the rich can afford it more (taxing luxury spending rather than necessities). Also if seeking tax revenue, it's like Willie Sutton's career choice of robbing banks - that's where the money is.

What I'd like to know is, what's the best tax strategy to increase the overall standard of living in, say, 100 years?

Unfortunately, economists differ strongly in answering that questions - but most people just say "more! less!" but have no "the ideal is X".

> > The fact of wealth disparity does not imply unfairness.

> It implies fairness even less

I can agree with that - wealth disparity implies neither fairness nor unfairness.

[notacoward]

> the growth rate is naturally a multiple of the labor growth rate

There's nothing natural about it. It's the result of policy choices. The whole idea that exactly the system we have is "natural" and that anything else must be "artificial" is infuriatingly dishonest. Having been created by humans, the system we have is very much shaped by ideology and self-interest. It's an evolved system, and evolution does not favor morality.

> I saved 10 years of income over 40 years. I have wealth. It's already been taxed. Do I owe society another part of my unequal wealth?

In that very particular and thoroughly unrealistic case, I would say no. OTOH, that ten years' worth of income is a pittance once inflation has been factored in. It's not creating the kind of massive inequality that the superyacht owners - remember the original topic? - personify.

[ardy42]

> There's nothing natural about it. It's the result of policy choices. The whole idea that exactly the system we have is "natural" and that anything else must be "artificial" is infuriatingly dishonest.

It can be infuriatingly dishonest, but usually it's just infuriatingly ignorant.

[kbutler]

>> the growth rate is naturally a multiple of the labor growth rate > There's nothing natural about it

How to say it differently? We've previously agreed that capital must have positive returns (discount rate/time value of money). Labor gains do not compound (each year, I can only provide 1 year of labor. Gains from labor not consumed become capital for future investment). Capital gains do compound (next year, I have original capital plus capital gains plus labor gains minus consumption to invest). Compounding naturally leads to higher rates of growth for capital than for labor, because compounding multiplies productivity and inflation gains of labor, and surplus gains from labor also become capital.

Propose a different system, please, preferably one that has a demonstrated history of raising hundreds of millions of people out of poverty.

> In that very particular and thoroughly unrealistic case, I would say no.

Good, now we have a starting point. We have established that some inequality is allowable and natural, and is caused by saving funds rather than spending on current consumption.

Now how about if we allow capital gains that just offset inflation? (Still good, right? no need for more taxes?)

How about capital gains that just match the time-value-of-money/discount rate? (I'd still say Society has claimed its predefined share, but you may differ - fine, introduce capital gains taxes)

How about if I let Henry Ford use the money for 40 years to make his factories more productive (4X), double his workers wages (2X one year, voluntarily), give his customers discounts (model N was $3000, Model T dropped from $850 to $300), largely create the American middle class, and pay lots of taxes to the government as a company, as workers, as the owner of the company, and as capital gains?

Ford paid 100% of initial capital as dividends in the first year (https://www.quora.com/How-did-Henry-Ford-start-Ford-Motor-Co...). That's the kind of return that generates great wealth for investors and society (or obscene wealth, if you prefer).

And if it turns out that left me with, say, 200 billion dollars (Henry Ford net worth adjusted for inflation), what did I do wrong?

How did it become immoral or unfair that Henry Ford paid all the taxes society required (up-front and as capital gains) while making every party better off (customers, workers, even non-parties to the transactions who benefit from the tax revenue or make money off all those worker wages)?

Please identify at what point that turned against the welfare of society? Why would having 100 or 10,000 Henry Fords that provide similar benefits to hundreds of thousands of people (and reap similar $200 billion rewards) be a bad thing, even if they could each individually buy a mega yacht or two?

Is it by crossing some arbitrary wealth threshold?

Or just when spending some of that accumulated wealth - maybe it was when Ford bought a yacht in 1917 https://www.thehenryford.org/collections-and-research/digita... It was at least partly for business purposes, so maybe he got a tax deduction. Can't find length or cost on it, so I can't tell if it crossed that 250'/$275M immoral line. Sorry.

[alephx]

Oooh, those companies will build the superyachts of the future!

Or alternatively we create a policy that:

1) no superspacecrafts are allowed. Not one

2) no individual owners are allowed? Oh no what if the Walton's bought their own? Now that would be UNFAIR

3) No fun is allowed aboard the spacecraft, it must only be used for the common good in a strictly utilitarian sense.

4) Joe gets half

Cheers,

[gamblor956]

For starters, the policy of favorably taxing rent-seeking capital gains rather than actual valuable labor or resource generation. Joe's spending was valuable to the economy. Your rent seeking behavior was not.

[kbutler]

Rent-seeking has a specific meaning, and that's not it. https://www.investopedia.com/terms/r/rentseeking.asp

Capital gains represent increase in wealth in the economy, whether taxed preferentially or not.

The example remains the same even with 0 capital gains: After 40 years, at 0 gain, I've saved 20 times my annual income to support my family through retirement. Joe has saved 0.

How much of of my wealth do I need to give him?

Equal opportunity + freedom of choice = unequal outcomes