Tuesday, July 22, 2014
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Mitt Romney’s Fair Share

NEW YORK – Mitt Romney’s income taxes have become a major issue in the American presidential campaign. Is this just petty politics, or does it really matter? In fact, it does matter – and not just for Americans.

A major theme of the underlying political debate in the United States is the role of the state and the need for collective action. The private sector, while central in a modern economy, cannot ensure its success alone. For example, the financial crisis that began in 2008 demonstrated the need for adequate regulation.

Moreover, beyond effective regulation (including ensuring a level playing field for competition), modern economies are founded on technological innovation, which in turn presupposes basic research funded by government. This is an example of a public good – things from which we all benefit, but that would be undersupplied (or not supplied at all) were we to rely on the private sector.

Conservative politicians in the US underestimate the importance of publicly provided education, technology, and infrastructure. Economies in which government provides these public goods perform far better than those in which it does not.

But public goods must be paid for, and it is imperative that everyone pays their fair share. While there may be disagreement about what that entails, those at the top of the income distribution who pay 15% of their reported income (money accruing in tax shelters in the Cayman Islands and other tax havens may not be reported to US authorities) clearly are not paying their fair share.

There is an old adage that a fish rots from the head. If presidents and those around them do not pay their fair share of taxes, how can we expect that anyone else will? And if no one does, how can we expect to finance the public goods that we need?

Democracies rely on a spirit of trust and cooperation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme. Both alternatives are unacceptable.

More broadly, a market economy could not work if every contract had to be enforced through legal action. But trust and cooperation can survive only if there is a belief that the system is fair. Recent research has shown that a belief that the economic system is unfair undermines both cooperation and effort. Yet, increasingly, Americans are coming to believe that their economic system is unfair; and the tax system is emblematic of that sense of injustice.

The billionaire investor Warren Buffett argues that he should pay only the taxes that he must, but that there is something fundamentally wrong with a system that taxes his income at a lower rate than his secretary is required to pay. He is right. Romney might be forgiven were he to take a similar position. Indeed, it might be a Nixon-in-China moment: a wealthy politician at the pinnacle of power advocating higher taxes for the rich could change the course of history.

But Romney has not chosen to do so. He evidently does not recognize that a system that taxes speculation at a lower rate than hard work distorts the economy. Indeed, much of the money that accrues to those at the top is what economists call rents, which arise not from increasing the size of the economic pie, but from grabbing a larger slice of the existing pie.

Those at the top include a disproportionate number of monopolists who increase their income by restricting production and engaging in anti-competitive practices; CEOs who exploit deficiencies in corporate-governance laws to grab a larger share of corporate revenues for themselves (leaving less for workers); and bankers who have engaged in predatory lending and abusive credit-card practices (often targeting poor and middle-class households). It is perhaps no accident that rent-seeking and inequality have increased as top tax rates have fallen, regulations have been eviscerated, and enforcement of existing rules has been weakened: the opportunity and returns from rent-seeking have increased.

Today, a deficiency of aggregate demand afflicts almost all advanced countries, leading to high unemployment, lower wages, greater inequality, and – coming full, vicious circle – constrained consumption. There is now a growing recognition of the link between inequality and economic instability and weakness.

There is another vicious circle: Economic inequality translates into political inequality, which in turn reinforces the former, including through a tax system that allows people like Romney – who insists that he has been subject to an income-tax rate of “at least 13%” for the last ten years – not to pay their fair share. The resulting economic inequality – a result of politics as much as market forces – contributes to today’s overall economic weakness.

Romney may not be a tax evader; only a thorough investigation by the US Internal Revenue Service could reach that conclusion. But, given that the top US marginal income-tax rate is 35%, he certainly is a tax avoider on a grand scale. And, of course, the problem is not just Romney; writ large, his level of tax avoidance makes it difficult to finance the public goods without which a modern economy cannot flourish.

But, even more important, tax avoidance on Romney’s scale undermines belief in the system’s fundamental fairness, and thus weakens the bonds that hold a society together.

Read more from our "Fiscal Cliff Notes" Focal Point.

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  1. CommentedVan Poppel charles

    as european I dont' understand no nothing about the USA fiscal-cliff; but in belgium socialists proclaim to take more money ( by taxing) from people who have already realized economic growth and welfare to transfer it to those who have not yet succeeded and as such to finance rising unemployment; eastern europe and russia have missed this experiment; it has led to a social drama; of course every individual should pay to the governement for the services he receives from the governement; but what is a fair share?; is it 15%,35% or even 50 % from earned income; if mr Buffet likes to pay more taxes, we cant' forbid him to do so in a free soiety!; if mr Stiglitz puts his savings in a safe savingsaccount, he should not complain about the fact that people who take/took risks to finance the economy by possessing shares, are also rewarded. thats' enterprise.

  2. CommentedDallas Weaver, Ph.D.

    Paying tax, even 15%, on mythical income is unfair? Rather than putting money in a bank, someone might have purchased an asset (say a piece of land) as a form of savings for retirement many decades earlier. If the value increased exactly with the inflation rate and he sold it for his retirement, he is subject to long term capital gains tax (+ regular income tax in California) on the increased nominal value. The true change in value was zero.

    To be truly "fair", capital gains (15%) must be adjusted for inflation. If inflation adjustments were applied to capital gains (and to depreciation when used) and the resulting adjusted income were treated as regular income, the system would not punish true long term investment, where inflation over the long term is a real factor. It would, however, make the Hedge fund managers pay a fair share on with their much shorter investments which can only be defined as "long term" if one has a very short attention span.

  3. CommentedDavid Cearley

    Capital gains taxes ate lower because the money invested is actually at risk ans can all be lost. Second dividends are paid AFTER corporate taxes have been paid. The top 5% in this country collect 26% of the income, and pay 47% of the income taxes. Lastly, people get rich here not because of infrastructure they paid for, but because we have adopted a governmental system with string private property rights. The same protections provided to all, and paid for by the few.

  4. CommentedBen Leet

    Citizens for Tax Justice (in "All Americans Pay Taxes") report that the top-earning 1% pay an over-all (federal, state and local) and effective (as a percentage of total income) tax rate of 30.8% while the average is 28.6%. The top-earning 0.8% tax-units take in about 15.1% of all income according to the Joint Committee on Taxation, all have an income over $500,000, and it averages to $1.5 million for 1.15 million tax-units. Their collective income is $1.7 trillion while the total personal income is $11.468 trillion. The lower-earning 50% of workers earn in wage income only 7% of this last figure. That is 75 million U.S. workers have a collective wage income less than $700 billion, and their average income for all 75 million is below $11,000 a year according to the Social Security Administration report on Wage Income 2010. Wage income now is at an all-time low, 49.6% of total personal income according to New York Times columnist Floyd Morris. Corporate profits are at an all time high, 14% of total income. If income were distributed at the rate of 1979, then all 80% of the lower-earning households would have over $11,000 more income each year, the top 1% would have a collective income not of $1.9 trillion (according to the CBO report "Trends in the Distribution of Income Between 1979 and 2007") but of $0.917 trillion (post-tax and post-transfer). The problem is inequality of distribution of income and wealth. The lowest saving 50% of households own only 1.1% of all net worth which comes out to an average savings of under $11,000 per household for 59 million households, according to the recent Fed SCF report, 2012. My blog: http://benL8.blogspot.com

  5. Commentedjim bridgeman

    The Cayman/offshore comment is a sheer slur. U.S. taxpayers are required to report that offshore income, and pay taxes on it, whether or not the offshore entity reports it to the U.S. Is he implying that Mr. Romney files fraudulent tax returns?

  6. Commentedjim bridgeman

    When that 13% is on returns from commercial activities already taxed at 35% the man is paying 43.5% (it compounds rather than adds) on the returns from his commercial activities. In addition, the man is devoting some 30% of his income to public goods in the form of charitable contribution. Thus 73.5% of Romney's income is going to public goods. Mr. Stiglitz's problems are (1) he thinks that he and his pals, rather than Mr. Romney, ought to decide where Mr. Romney's contribution to public goods ought to go and (2) he believes that commercial activity is so reprehensible that its returns need to be taxed twice, presumable to discourage even more commercial activity from occurring. Lately, he's been getting his wish on that latter point.

  7. CommentedLee Hubbard

    It is strange that one supposedly as Dr. Stiglitz could make the argument that the tax on capital gains is only 15% when he must know much of that money has already been taxed at the corporate level bringing the actual rate to as much as 50%.
    He may have a point about "rent" money, but his "fairness" argument falls flat on its face.

      CommentedJames Edwards

      Lee Hubbard

      What you ignore the tax code is riddled with loopholes that allows a person who can hire the best tax experts to mine through the laws just to look for the necessary tax breaks. That's known among the tax experts as aggressive tax accounting.

      The capital gains tax is what it is but the way the law is written allows a hedge fund manager to pays himself income (carried interest) that he takes home as a result of managing other people's money as a capital gain instead of ordinary income which Reagan made part of the 1986 tax reform but was changed in 2001 & 2003 law.

      It is a misnomer that the corporate tax rate is 35% when the actual marginal tax rate is far less due to the loopholes employed.
      The fairness argument comes that everyone pays their share in order to pay for education, roads, bridges and tunnels instead of using the law to demand something the public can not pay because he decided it is all for himself. It reminds me of a story I read about a wealthy businessman demanding a local airport expand the runway just to accomodate his bigger airplane when he's the only person requesting it. That's show what his ego is like.

  8. CommentedLee Hubbard

    I'd like for Dr. Stiglitz to tell us just how one calculates a "fair share." In my experience, that term is used invariably by someone who wants to take something from someone else or by a liberal who would like to take money from those who earn and distribute it according to liberal ideas of society. I also dislike his implication that tax avoidance equals tax evasion. Does Dr. Stiglitz take any deductions? And since when are hedge fund managers entitled to donate money to the government? Money managers must take into account their investors interests as well as their own. No one suggests that those who have more income should pay more taxes, but "fairness" and "share," value judgments, are not useful means for calculating tax rates. If we use "fairness" as a guide, the upper income rates should be lowered since they pay the lion's share of taxes. Why not set the rate at the level at which it generates the most income from all income levels, make sure EVERYONE pays enough that an increase is felt, and shut up about "fairness" what "share" each of us should pay?

      CommentedAndrew N Mason

      Lee Hubbard

      A fair share can be defined in many ways. But regardless of how you define it, I think the widening gap between all income levels and the declining social mobility in the US are signals that the "fair share" may be off.


      Although your argument may be right about the higher share of taxes being paid by the rich, you need to take a few things into account:

      First one is that those who have less capital will unquestionably need to spend a high proportion of that money simply to survive. Unlike the rich, a person who spends 40% of its income in food and housing has significantly less room to invest.

      Second is that even if those in the lower percentiles were able to invest, their exposure to risk is higher simply because they have less of a cushion to land in case something goes wrong. This in turn leads to their investments (if they dare to make them) to yield on average less money.

      Thirdly, the access to credit and the interest rates observed by the less privileged are much higher than those who have more money to back up their loans.

      Id like to argue that a person who can use a great amount of their income to make more money (even though every single basic human need is covered by less than 10% of what they already make) should be taxed in a manner that at the very least levels the playing field.

      A good way to calculate a "fair tax rate" may be for instance taking the opportunity that a person making $60,000/yr has of making its assets grow and comparing it to that of someone making $2,000,000/yr or more. The difference if any can and should be adjusted.

  9. Commentedjim bridgeman

    Why does this entire debate ignore the fact that a capital gains tax rate of 15% in reality produces a rate near 50% (the 15% plus 35% corporate tax rate less a small compounding adjustment) on act of deploying one's capital into productive activities? Is a near-50% rate on investing activity really encouraging of investing? Will anything other than deployment of vast pools idle capital into active investing ever pull the economy out?

    Next, what is the total rate of Romney's (or anyone else's) taxation plus charitable spending? For Romney, very likely to be at least 30%, probably more (and this before considering the double taxation of income from active investing ... with that it would be over 60%).

    This truly is a collectivist argument. The government knows better than we do how to allocate the portion of our spending that goes to help society.

  10. CommentedSteve Holloway

    Governor Romney retired from Bain Capital in 1999. He donated the income he received running the Salt Lake Olympics to charity. The income he received as the Governor of Massachusetts he donated to charity. As a result he would not find himself paying income tax the income that he donated to charity.

    As many retirees he does not receive normal W-2 income as he did when he ran Bain. The maximum optical gain tax rate is 15%. The maximum income tax rate is 35%.

    How does Dr Stiglitz miss this? Governor Romney is paying the highest rate possible as an investor. To suggest that he is in some way morally deficient is ridiculous.

    To suggest donating ones entire income to charity is somehow a devious method of avoiding paying his fair share is equally ridiculous.

    Mitt Romney fills the bill. Beyond baseless innuendo such as this article of Dr Stiglitz there has been no evidence to suggest that Governor Romney has somehow dodged his responsibility. In fact the a common criticism is that he is too good and that as such he somehow stiff and unapproachable which again is an opinion certainly not fact.

    What this article does illustrate is the fierce partisan environmental we find ourselves in. The media, writers such as Dr Stiglitz and our politicians are at such bitter odds that there can be no productive discourse. This is what is wrong in America today. Our system is not broken it has become hyper-political. It has become corrupted by big money and foreign influence.

    What we desperately need is a hardworking leader with a track record of success in government and private enterprise.

    We need someone who can work with both parties not just his own. Governor Romney was able to accomplish great things in Massachusetts with his democratic partners in congress.

    We need less hyperbole and more solutions to the epic problems that we face. We need a President that will unite the people not divide them.

      CommentedEric Treanor

      I ask this seriously: If Obama declined to share his tax returns—if he merely said, "Trust me"—would most Republicans find that acceptable? Absolutely not. Imagine the shoe on the other foot and honestly ask yourself what your position would be. You trust Mr. Romney, but that doesn't mean we should.

      Mr. Stiglitz doesn't have to provide "evidence to suggest that Governor Romney has somehow dodged his responsibility." Mr Romney is providing the evidence himself. Given the political price he's paid for his refusal, undecided voters reasonably suspect that there's something in those tax returns that would cost him the election. From which they infer that he's done something that SHOULD cost him the election. And they opt to stick with the devil they know.

      Gov. Romney needs to be forthright. Either he can defend what he did—and what he plans to do with everyone's taxes going forward—or he can't. If he can't, he shouldn't be president.

      "Trust me" won't cut it—not for voters who aren't drunk on Republican or Democratic Kool-Aid.

  11. CommentedG. A. Pakela

    It amazes me how distinguished, decorated Ph.D. economists can get away with writing opinion pieces that would get them lambasted if they were submitting them as undergraduates or graduate students in an economics program. Let me point out just a few weaknesses in Dr. Stiglitz's opinion article:

    On Mitt Romney's effective income tax rate: it is well known that Romney donates a substantial portion of his income to his church and charity. Admittedly, his income is likely coming from investment income that receives a favorable 15% rate. However, did Dr. Stiglitz raise the same objections over John Kerry whose tax returns indicated a similar rate on income from his wife's fortune? I'm pretty sure he didn't.

    Also, many in the top 1% flow their business income through their personal income taxes. The combination of a 25% corporate tax rate along with a 25% top personal rate unamiguously lowers the cost of capital regardless of what Dr. Stiglitz personally thinks about the moral deficiencies of the wealthy. All other things being equal, that will increase employment opportunities for everyone.

      CommentedChuck Koehler

      Ronald Reagan

      Personal Responsibility
      A Personal Perspective from Personal Experience

      Ever since I have been in grade school I have heard this being spewed about as if it is the root of the problems with this country. I am sick of hearing that. It makes me furious.

      Starting in 5th Grade, a History Teacher asked “does anyone know why the Spaniards defeated the Incas”? I raised my hand and answered “because they had bigger feet to stomp them out with” That prompted the teacher to saunter around the room as he explained that “when a TV is broke, sometimes you need to pound on it” as he got to that point he was in front of me and he grabbed my head in both hands and proceeded to pound my head on the desk repeatedly.

      I was terrified, and later that week my parents had a parent’s teacher’s conference with him and I was afraid that they would find out how bad I was. When they returned it was clear that he had not conveyed the incident, and although they never told me what he did say exactly they said that they could not believe it. I assume that it was something like I would never amount to anything and would end up being an irresponsible good for nothing.

      In Junior High and High school my grades deteriorated and I sort of fell out of the system. In 10th Grade we had a counselor’s session where I was given the opportunity to go to Technical School in order to prepare me for a trade instead of going the College Route. Again, my parent’s never told me the results of the meeting with the counselor, but I have since determined that they were told I had ADD. ADD was especially evil back then and I am sure my parents were incensed to be told their child had an imaginary disorder.

      I went to Technical School for Graphic Arts ½ day and High school ½ day for 11th and 12th grade. Two weeks before the last day of school I found a job and started immediately. Unfortunately I had left a text book in my locker in the school and could not return it. I was told that I could not graduate unless I returned the book. Even though I told them that I was working and that the book was in my locker, I was not allowed to graduate. My next door neighbor told me that when my name was not read off her father stated “I knew he would never amount to anything”.

      I worked my first two years living out of home commuting to the city every day. My boss at that job would torment everyone posting available jobs that were much worse than the jobs we had, and basically told us all that there weren't any other positions available because of the economy (2nd year of Reagan) so we should be grateful to work there.

      I sent resumes all across the country and got a job in Houston, Texas. Two weeks later I packed all of my possessions in my Buick Gran Sport and moved to Texas. That started a long career of taking different positions – many times at a lesser pay – to learn my trade and become one of the best at what I did. I have held 15 different jobs in 11 different cities, 5 different States, and 2 Different Countries since 1979. All of the jobs that I have had were advancements to my career and I have never lost a job for any reason, until last year.

      Before I explain about losing a job for the first time in 32 years, I will talk about my family. In 1992 I moved to Bolivia, South America where I learned Spanish and worked at several jobs in different cities. It was there that I met my wife, and there where my daughter was born. When I returned to the US I had to petition for my wife and daughter to join me here. It took years, and a lot of money. I had to purchase a visa for my wife for $500 and to get her to the country I had to prove we were married. Part of the proof was the birth of our daughter.

      When she got her visa and was about to come, she called and told me that I also needed to buy a visa for my Daughter for another $500, but that more importantly I had to prove she was my daughter. (I guess that the birth certificate that we used to prove that our Marriage was legitimate wasn’t enough?)

      When they went to pick up the Visa for my Daughter who was just three years old, they showed her pictures of me and interrogated her asking if this was her daddy. (she was only six months old when I left the country and didn't even know me) The point is that we were sent through a system that was extremely long, difficult, and expensive assuring that I was a responsible citizen.

      Since arriving in the US in 1998, my Wife and Daughter learned English, and my wife learned to drive and has had a job since her third year here. She also studied for and became a US Citizen after five years – the soonest that is possible to be granted citizenship.

      I can’t begin to tell you about the prejudice that she confronts on a regular basis from “real Americans”. Sometimes I am still shocked when she hands me the phone and I hear the person on the other end completely do an about face because I don’t have an accent.

      When my family arrived I was working at a World Renowned Association for the Graphic Arts – and I was travelling across the Hemisphere consulting and speaking about the Printing Business. I did speaking engagements and consulting in English and Spanish throughout the Americas.

      I got a job in Atlanta in 1999, and was at that job until late 2011. Even though I was told I was one of the best at what I did in the Country, I never received a merit raise. Although I asked regularly, I did not insist because I wanted to do the right thing for the Company when it was in hard times.

      In 2008 when the economy crashed violently my company began having problems like many others. Like everyone I was happy to be responsible and contribute where I could as people were losing their jobs left and right.

      In 2009 I accepted a position where I would not travel as much and in turn I would have more responsibility growing the business. During that time one boss was advanced and I was left without a superior. Then, a very conservative guy wanted me to work for him, so it was done. I had to listen to him rant and spew conservative and prejudiced crap day in and day out. One of his favorite mantras was “personal responsibility”.

      From 2009 to 2010 my salary was reduced 25% due to the reduction in travel to customers. During this same period I was instrumental in increasing the workload for at least four other people who I trained and who traveled doing the same work that I used to do. Now they were all making more than me, and some were doing bad jobs and costing more money for the company. Many times I was sent to rectify these situations making my job extremely stressful.

      After one year of reduced salary due to no overtime I was in serious trouble financially. I approached my boss for a raise to the level I made when I got overtime. He told me he was on it. I would check every other month or so and I was assured that wheels were in motion. After nine months we were in serious trouble and I approached my boss one last time for emergency help. I was told that he was working on a new job description.

      We couldn't pay our bills so we went to consumer counseling. We were behind to the tune of $1500 per month, and after collecting every tidbit of our financial data we were told that they could offer us a plan to get out of debt that would include monthly payments to creditors for five years of $1400, or $100 less than the $1500 that we didn't have.

      We then went to a lawyer to file bankruptcy which was really humiliating for us. After collecting the same data that the Credit Counseling companies did they told us that we made too much money to file for chapter 7 Bankruptcy so we would have to file Chapter 13 which amounted to five years of monthly payments of $1400 per month, or exactly the same plan as Consumer Counselling. We later found out that the Credit Counseling Companies were paid by the Credit industry and that the Bankruptcy Laws were written by them too and passed in 2005 under Bush.

      Our only option: Just don’t pay them. So we started to not pay, and received at least 50 calls every day. We didn't answer most, but one in particular I remember well. I answered the phone and the Collection agency asked when I would pay them. I stated I don’t know and that I couldn't pay them anything. Then he said it: “Why are you so irresponsible that you don’t pay your debts”?

      Wait – A Credit Card Collector calling me irresponsible. I lit into him and explained that he had a great big set of balls asking me why I was irresponsible when his bosses were the ones responsible for crashing the economy, who received 800 billion dollar bailouts paid for by my taxes, and who then paid themselves million dollar bonuses – and I was irresponsible.

      I was still waiting for work to help us out. My boss finally came back and showed me the Job Description that he made which gave me more responsibility and he also informed me that they had determined it did not justify more money! I went to HR and they said that was the way that it was.

      Meanwhile, we couldn't pay our debts for six months and then the Creditors all started to offer us settlements. In a settlement, if you owe $20,000 they may accept $10,000 as long as you pay the other $10,000 immediately. We owed $56,000 and through savings and other creative means we managed to pay $28,000 and had $28,000 forgiven. The company that forgives the debt writes it off on tax and sends you a 1099 form so that you can claim the forgiven debt as income, so our tax bill this year was $10,000.

      Back on the work front I did a review and had documentation and evidence that during the two years my salary was decreased 25% I was responsible for increasing the service product I was responsible for to $750,000 per year from an average of $250,000 per year. What is more, I had documentation that showed that I was directly responsible for roughly $9,000,000 of “peripheral” sales that would not have occurred without my involvement.

      When I presented this data I was told that they would look into it and reconsider my Job Description. On my way to the airport to service an important customer I was diverted to the office to discuss the Job Description where I was told that my position had been eliminated.

      I was then fed a boatload of shit: Bad Economy, Nobody Getting Raises, Blah, Blah. And I was also told I was irresponsible claiming I alone was responsible for creating the revenue when we had an entire team that shared responsibility equally. I was also told that I could remain on the job for three more months if I could act professionally in front of their customers – after all they were worried about their image. I laughed at them.

      I was so naive that I didn't realize that revenue isn't really valuable to a company. I mean, I was told that they would rather have several jobs to keep several employees busy that totaled $5,000 for one week and lost money, rather than one job that paid $20,000 for one person for one week at significant profit.

      So I got a new job the next day. I got a small raise and started working immediately. I had to remain uninsured for one month at the new job, or pay $1400 for Cobra for that one month.

      So there is the usual stress and adjustment starting a new job, but that goes rather well. After nine months at the new job I finally started to get adjusted and get in a groove.

      One day my wife called and said that someone from work called at our home phone number and wanted to speak with me. It was my Birthday, and it was very strange for someone to call my home number because nobody but HR had it. I thought that I missed a conference call with a customer.

      A few days later my boss called me and said well I guess you got the call on Friday? I apologized for missing the call and asked if I was fired. He said don’t worry, you didn't miss the call, but we were all fired.

      They closed the division that I worked for even though it was making a profit, even though we had a new contract worth Millions. The rest of the company was losing money and coming out of its second Bankruptcy so they tried to sell off the division that I worked for to cancel one of the debts they owed.

      Now, after 32 years of continuous work I am out of a job. Thank God we don’t have a lot of debt – other than a house that is worth $140,000 but that we owe $160,000 on thanks to the Housing Crises. We also have no savings other than our 401K, and no cash either. We will have no insurance on November 1st unless we cough up $1400 dollars for the Cobra. If we don’t pay the $1400 for the Cobra it is very possible that if and when I do get another job I won’t be eligible because of a pre-existing condition of diabetes.

      If and when I do get another job it will most likely be in another city and state and we will most likely lose our house.

      Our daughter Graduates High School next spring and I ask myself what can we do for her?

      After all of this I sit day after day and watch the Presidential Debates and I watch as one of them claims that they will create jobs. He claims again and again he is a job creator. His job creation plan is to cut taxes. He plans to cut taxes to promote business owners to invest in hiring new employees. (Corporate Profits are at the highest level since the 1930’s)

      Mitt Romney is the guy who fired me – twice. He is the asshole investor that knows nothing about the business he invested in and buys them to bankrupt them. He gets millions of dollars of profit at the expense of the workers. He pays less tax than I do – and I am unemployed.

      This is exactly the business model that has caused the crisis in this country. Maximize profits for immediate gain and strip the profits instead of reinvesting them. When the company becomes less profitable then it gets restructured and the professionals who were responsible for creating the huge profits for the company are the first to go because they make the most money.

      The same assholes who took the profits the first time collect bonuses for their cost cutting efforts. It goes like this until the company goes into bankruptcy and as the workers lose their jobs the assholes who managed to destroy the company get more bonuses. Then they claim that their taxes are too high and say that unless they are lowered they won’t be able to create new jobs.

      New Addition:

      The last job I lost gave me a for week severance which I was very glad to receive. The separation letter that I had to sign clarified each and every point of MY RESPONSIBILITY in order that the company honor the severance.

      A few days ago I received yet another very legal looking document which informed me that since the company was going into it's THIRD BANKRUPTCY since 2005 they would not be honoring their previous commitment (Responsibility) of paying my severance.

      Ronald Reagan - Take your personal responsibility and roll it up in a tight little ball and shove it up ..........

      Commenteddalai guevara

      gary

      zzzz...I have explained it. You need to go on an anger management course.

      CommentedGary Marshall

      Hello Dalai,

      No. Do explain yourself.

      How does exchanging a wealthy man for a middle or lower class wage earner brighten the nation's prospects?

      India and so many other nations are booming because of the passage of those in the lower classes into the middle and upper classes, where so few could be found before.

      But do continue believing your leftist idiocies because beliefs in your small minds are so much better than facts.

      GM

      CommentedMark Hayes-Newington

      I can think of three significant histories where a spreading middle class (at the expense of a super wealthy elite) has led to economic success. Britain, America and Japan and as we speak India.

      Commenteddalai guevara

      Gary,

      you must be American to find this stupid. Affording yourself a wide spreading middle class will:

      - reduce income inequality leading to a fairer society
      - reduce risk of revolution, as the middle class always sits at the table
      - give the lower end of society no footing to loot as soon as a bomb explodes/ a tower collapses.
      - reduces crime
      - allows the perpetuation of the principle of the American Dream, in which anyone could move from mailman to CEO subject to his/ her abilitites.

      In Anglo-American society, we increasingly see these opportunities vanish, education is unaffordable, club membership rules. It results in essence in a massive loss of economic and cultural capital.

      CommentedGary Marshall

      Dalai,

      How does driving out wealthier people and creating a greater middle class benefit a nation, any nation?

      What a stupid argument?

      GM

      Commenteddalai guevara

      Ronald

      Huh? Where did that come from? Did I leave the impression that I hadn't worked to complete my 1982 Bordeaux wine collection?

      Being selfish does not mean you are not being lazy.

      CommentedRonald Reagan

      Dalai,
      Be the best, achieve to be the best, stop complaining and work to be the best. Everyone can be the best if they are smart and put in the time and effort effectively. You know what happens to those who aren't the best at what they do in the animal kingdom? They die, at least in the human world you can survive even when you prefect mediocrity and if you cant even do that well then theres a big fat welfare hammock waiting for you. I might start complaining about the inequality of how some people are good looking and others are ugly. If i do that enough do you think government should be required to pay for me to be handsome? Deal with the cards you are dealt and find a way to make it a flush, you can do it you just have to spend the amount of time you do complaining about inequality as you do trying to figure it out. I wasn't born with anything but im figuring it out and im going to be the best.

      Commenteddalai guevara

      Hello G.A.

      'Admittedly, his income is likely coming from investment income that receives a favorable 15% rate.'

      There you go, we have seen his tax bill. It delivers a disasterous message. Kerry might have also profited in the same way, but at the time, the rising inequality in the Anglo-American economies was not an issue, so perhaps this explains why it was not discussed when Kerry was in the global public domain.

      To believe the 1% do as you state is farcical. This might apply to the top 20%, but not the former.

      Reduce income inequality as measures by the IHDI. Until then, Romney's personal wealth will prevent him from being a serious contender in the race for power.

  12. CommentedMark Hayes-Newington

    We in Britain for many years had a fine economic system whereby the successful aggregated to themselves much of the countries economic assets, and collected rent from the large working population.

    From time to time we would collect money from the wealthy to fund expeditions,often military in nature. These adventures allowed the same rich families to accrete to themselves even greater wealth by extracting rents from a global population. 

    However quite early on in this economic miracle, for it was, one group sought to wreck the party.

    This annoying group of people felt that this situation was not fair. They argued it was wrong that by dint of birth and or circumstance these few asset rich individuals. Furthermore  the state operated only to really protect these wealthy family's  interests.

    So this people threw off this onerous regime. They set about building a country where all were equal and all sought to try and work together to build a new prosperous nation of opportunity. They were an extraordinary group of humans and they forged an extraordinary nation, the United States of America.

    But now some if then think that with hindsight it might be best to adopt the economic model they sought to free themselves from. They have slowly built a new aristocracy.  Slowly they are working to create some ruling dynasties one of which may eventually become a king, possibly with a name like George. Which by chance is the name of the last King to have reigned over them.

  13. CommentedRonald Reagan

    Lets start from the beginning. First of all, in order to fully understand economics, you must understand the power of incentives. The entire economy is based around the theory of incentive. With out incentive, the economy doesn’t function. If I tell you that if you achieve x, y and z in the next hour you will earn $50 and if you only achieve x in the next hour you will still earn $50, no one will strive to complete y and z because there is no incentive to do so. Profits are a primary example of incentive, and with all due respect the 1% are the one percent because they really wanted it, they worked harder and smarter and earned their wages. Now I agree, the wealthy should pay taxes but to say they are not paying their fair share is hog wash. However its articles like these that really get people going even though they don’t understand the economy. Those who are taxed at a 15% rate are being taxed on simply their capital gains, the lower tax rate is an incentive for you to invest in the market, it add money to the system. The lower tax rate is an incentive for those to invest their money instead of hiding it away, adding money to the system is what makes the economy function. Next, back to my point of incentive, are you telling me that we should tax the wealthy at a higher rate so it almost discourages the idea of making money, making money which inevitably adds to our system. So if the wealthy no longer have an incentive to make money because the government feels the need to tax them at a rate close to France’s new rate, what will happen to the pile of cash that the government collects. Right now the top 25% collect 88% of the tax revenue, what happens when the top 25% average salary drops dramatically, what happens to the value of the tax revenue.

    Now lets focus on the situation at hand. Right now the USA has lost its manufacturing industry to China, for Christ sake even the original USA Olympic uniforms were made in China, under USA corporation. That being said, the last industry that the USA really controls is the intermediary market, AKA Wall Street. If the government over regulates Wall Street, or feels the need to tax the wealthy at an even harsher rate, what happens when the best and the brightest think to himself or herself “you know what I could make a lot more money if I lived in London, or worse Hong Kong”. Every thing is computerized; it really isn’t that hard for a wave to move the financial capital of the world outside of the USA due to over regulation. The reason the intermediary market is so affluent in the United States is due to the lack of government intervention in the private sector. So now the top earners in the United States, have left, they’re gone. Who is going to buy the consumer goods that fuel our economy now? What happens to the tax revenue? What happens to the Federal Reserve? What happens to government bonds? With all due respect but with the 1% fleeing the country, the 99% is fucked. So now the USA has lost the most important piece of the country and China says holy cow we now control the intermediary market and the manufacturing market, they control 11 percent of our debt, if the USA dollar’s value plummets because of it they no longer invest in the US dollar and what happen to the welfare hammock? No more government spending, say good night to all those public services that you to referred to as rights. So over tax the rich over regulate the private sector and risk Armageddon.

    You know what the issue is with the new generation?, when the baby boomers were growing up they say a guy driving a Rolls Royce and their parents said to them, “you see that Billy, that’s Mr. Jenkins, he worked really hard and created his own company, if you work hard maybe you can live like that too” and Billy said to himself I want that life style I am going to work my ass off to get it, that’s incentive. Now kids are walking down the street and see a guy driving a Rolls Royce and say fuck that guy, lets throw rocks at him because I don’t have what he has. They don’t think about the work that went into getting that Rolls Royce, everything cant just be given to you, you have to earn it and that’s a characteristic that is lacking in this new generation, the characteristic of hard work and reward. They all think they deserve it. No one deserves anything; you have to earn everything you have.

      CommentedJohn Brian Shannon

      RR -- Hogwash, the 1% are the 1% because they inherited it from their parents - who inherited it from their parents.

      Also. tip for you... less, is more.

      Cheers! JBS

      CommentedElizabeth Pula

      Your comments might be relevant if the guys and gals in a Rolls today actually did some work to be in the passenger seat.

      CommentedRonald Reagan

      Dear Michael,
      You may be jealous of his achieved wealth, and being a half way educated person, at least I hope so, you can understand that being in private equity does not mean you go to work at 9am, play solitaire and leave at 5pm everyday. It is a lot of sleepless nights, decisions that could compromise everything you own and so on. Also I dont think a Harvard Business degree is just handed to you. Dont be jealous, accept reality.

      Dear Thomas, AKA TCD,
      You work for you family, you were to put food on the table, send them to college and make sure that they live comfortably. That is you number one priority. Inherited wealth is a gift, its a gift that insures that I know they will never go hungry because I was able to achieve that. How would you like me to take 50% of the next gift you get and give it to people who don't dont contribute to "society". Its my gift to my family. Earn your own wealth for you family and I wont be asking for a piece of you gift to them.

      CommentedThomas Carlucci-Davies

      Your argument from incentives misses a crucial point, undermining the central plank of your argument; money, or the profit motive, is not the only incentive to action that exists, and to deny that is to deny any role for community and society among and between nations. The very basis of civic society and a broader notion of incentives is that indeed there are many who will do x, y and z for the same wage as just x because they are motivated by something more than profit, and on a societal scale, those additional incentives are enormous.

      'The reason the intermediary market is so affluent in the United States is due to the lack of government intervention in the private sector' Excuse me! If the Bush administration had not intervened to save the US finance industry, and in doing so probably brought the USA as close as it has come to socialism in its modern history, there would be no 'intermediary market'. Have you forgotten about the recent (massive) downturn in US economic fortunes and the state of the finance industr? The legacy of under-regulation, at least in part, a reasonable assessment would seem to suggest.

      'No one deserves anything'; a neat and powerful rephrasing of a maxim demanding total equality. What's your view on the often inherited wealth of the US wealthy?

      TCD

      CommentedKoen Breemersch

      In response to Mr. Flynn : Why are you arguing that a tax cut for the rich would increase investment and then bring growth as this would put more workers to work? Isn't it easier to simply give a tax cut to a class of people who would actually consume the entire tax cut (the richest would save up to 25% given the figures of the saving rates) and let them consume this, hence bringing on growth? This is a much more direct and logic way and, moreover, has actually worked in the passed, contrary to the trickle-down economics for which you are making a case.

      You also argue that it is a cultural problem, younger people misunderstand the rich and just want them treated badly. Yet your example itself is flawed. The guy having bought the Rolls Royce in the days that the baby boomers were growing up was actually paying a high marginal tax rate and was living in an extremely economically stable environment of strong growth despite that high tax rate. Now, marginal tax rates are much lower, yet there is also less growth. This does not fare well with the argument you made that lowering the tax rate would bring about growth.

      I will not go into other issues as many of your arguments presented are also addressed in prof. Stiglitz' book "the price of inequality". Yet, I do wonder, it must be a truly horrible fact that an economy like Sweden continues to flourish, much more so than e.g. the US, despite high marginal tax rates?

      CommentedMichael Parkhurst

      "...with all due respect the 1% are the one percent because they really wanted it, they worked harder and smarter and earned their wages."

      and... you lost me right there. It would surely be nice to believe that's so. Perhaps a look at Mr. Romney's history will shed some light on this question.

      CommentedRonald Reagan

      Kevin Lim, with all due respect but those are the words of a weak and defeated American. I know plenty of people including myself who came from families who could never dream of paying for private college education, but we found ways to earn scholarships and attend a university of our choice. We earned our way on our own merits, and put ourselves in positions to succeed. We never expected someone to hand us an education, we understood the value of education and worked hard to achieve that privilege. You dont have to be a Kennedy or a Bush to achieve any kind of success, look at our president for example, not that I support him but he found a way to succeed. I know plenty of young successful people who came from a nothing college with a major in sociology who found a way to succeed and make something of themselves. Life isnt fair, not everyone can be on top of the world, but the monarchies and the feudal system doesn't exist here, if you really want it you can have it, the only thing is is that you can't take the stance of "my dad isn't rich so I dont have an equal shot! This isnt fair, shit man I'm just going to settle and accept my shitty job at pathmark". No get off your ass go find a scholarship, get educated and meet the right people to succeed, yeah there is an upper echelon in our country, but thats the case in many other countries as well, the difference is you can find your way into that group of people in this country you just have to figure it out, and if you can't then quite simply you dont deserve to be there and thats just the way things are, its not all ways rainbows and butterflies.

      CommentedKevin Lim

      Income inequality is growing and has continued growing non-stop since the glory days you so idolise. Could it be that an entire generation has collectively decided to sit on its laurels and not put their backs into their jobs?

      Rubbish. In our parent's generation it was not unusual to hear stories of how the Wall Street Titan of today was some guy with with a community college degree in art history from whoknowswhere. Now you need to have a finance degree, preferrably from one of the Ivy League, to get your foot in the front door (unless your name ends with Kennedy, Bush, Rockerfeller etc. in which case thanks to the magic of WonderSperm this does not apply to you). In our parents generation, America was competing in the manufacturing sphere with a Europe still reeling from 2 world wars, mountains of debt. The concept of Asian manufacturing was an oxymoron. Rags to riches stories abounded of plucky mail order clerks working their way up to the boardroom.

      Today, a college education is out of reach for anyone with blue collar parents, Asia is eating our lunch in manufacturing, and America's principal export is the dubious ability to move digital bits of money around - incidentally an industry that doesn't hire many (excluding the army of people who provide them coffee / sandwhiches / hookers) and is of dubious net benefit because every so often they create asset bubbles that are great at destroying wealth and ruining the public purse. Rags-to-riches stories are confined to silicon valley and in any event are really stories of middle class to upper class. There are no more stories of plucky mail order clerks making it big because all lower echelon peons are the first to go in the event that a CEO needs to show he is cutting costs, and in any case your Next Big Idea is unlikely to get anywhere because it does not have the stamp of approval from a management consultant, was not phrased in the appopriate managementspeak.

      In short, the barriers to wealth have never been higher, the prospects of climbing the ladder have never been lower, the rich are getting richer and the poor are getting poorer. The level playing field is now a steep incline, especially greased at lower levels.

  14. CommentedMark Pitts

    @Dalai Guevara - You are wrong about the size of government mismanagement vs. derivatives.

    For example, recent articles indicate that only 5-6% of US mortgage debt was ever bundled into leveraged derivatives. The total US sub-prime mortgage market was about $1.3 trillion when it started to tank in 2007. Only a fraction of that ever went bad.

    In Europe, much of the cause was households speculating on housing and the banks that lent them money - not banks writing mortgage derivatives. But also of course, the really big problem was governments borrowing money they could never repay.

    So now many of the world’s richest countries are bankrupt. And others, like the US, will never escape their debt without significant inflation. All this government debt totals tens of trillions.

    So what’s the cause of the financial crisis? Derivatives, or government mismanagement? If you do the math, it is the latter by a factor of 10 (at least).

      Commenteddalai guevara

      Hello Mark

      with all due respect, the derivatives market is conservatively estimated at $699trillion as we speak. How big is global annual GDP?

      As Kevin puts it a few comments below:
      'When the derivatives market is orders of magnitude greater than the market from which it derives, you know something doesnt add up.'

      I could talk about the abstraction of capital to outline how far we are now removed from 'real' value. Just look at how 'product' was historically replaced by 'gold' which was then replaced by 'paper money' and so on.

      After 'shares' and 'options', we have now arrived at the 6th or 7th stage of abstraction, where capital is 'insurance of options on companies that produce future product' or assets. This pot is now 10x bigger than annual GDP.

      It is the prime driver of the crisis and makes sovereign debt look like peanuts.

  15. CommentedProcyon Mukherjee

    Let me draw the attention to rent-seeking once again.

    Stiglitz raises a very fundamental point on rent seeking. The very premise on which excessive quantitative easing is based on is mired in rent seeking as this flow of money does not need any one to sacrifice or defer any enjoyment in the near term. It helps and benefits those who have higher share of access to this induced credit flow. Such excessive flow under general conditions of depression adds to the formation of financial products that can help agents to continue economic rent seeking in absence of actual demand; the best example could be found in commodities trading where under dampened conditions of demand prices could have buoyancy or the volatility needed that does not stem from demand – supply fundamentals. In some very extreme example we have seen that excessive flow have dampened prices below the cost of production of some commodities, which does not help the producers but traders could profit disproportionately, which is the very basic tenet of rent seeking. The same could be true for stocks, where profits come from volatility, not from the intrinsic value.

    Procyon Mukherjee

      CommentedKevin Lim

      Spot on. When the derivatives market is orders of magnitude greater than the market from which it derives, you know something doesnt add up. Shorn of financial jargonm, you are saying that excessive quantitative easing allows banks to borrow from the Fed at close to zero interest, and then play around with those funds using complex derivatives. Money gets swapped back and forth between these banks where even day-to-day micro changes in the derivative means big bucks because of the volumes involved. Only a small trickle of this money ever reaches the real economy of John Q Public (unless John Q Public happens to be a Masserati dealer). If only there were some way for the Fed to designate that the funds it injects are not to be used for speculative purposes.

      Commenteddalai guevara

      Jesus. You need to reevaluate your affinity to semantics: making more money with money is a dubious concept to people who make things.

      Did you say anything else?

  16. CommentedPaul A. Myers

    Mr Stiglitz's overall thesis is excellent. However, the problem presented by Mr Romney's taxes is much worse because Mr Romney and a very small group of very wealthy, very well connected investors have created for themselves a superhighway of tax avoidance.

    The vast majority of taxpayers receiving income from "pass thru" entities pay ordinary income taxes on what is characterized as ordinary income. Only a small number of private equity an hedge fund partners are able to "launder" ordinary income into long-term capital gains.

    In particular, the recharacterization of "management fee" income as long-term capital gain income is unusually pernicious. What is going on with this tax ruse? Simply put, big law firms write "aggressive opinion letters" saying it's OK. This apparently has been greenlighted by high Treasury officials and staffers on Congressional committees--who of course are all lawyers from the same big law firms and who will return to the big law firms when their "service" to government is over.

      Commenteddalai guevara

      Gary

      Now you pay attention will you?

      Saudi spreads wealth? Where is your proof of that? Read the IHDI studies, will you finally have a look at the findings?

      Germany has no oil resources, correct - it was YOU who alleged that 'socialist' resource rich nations would do xyz, to which I replied: look at Germany. They have no oil resources. So, your argument has again no basis.

      What you list is plain irrelevant.

      There is no correlation between natural resource and inequality.

      There is no correlation between what you think 'socialism' is and inequality.

      CommentedGary Marshall

      Hello Dalai,

      So wealth in Saudi Arabia is not spread around!

      Well, add ignorance and stupidity to your impressive socialist resume.

      Tiny little societies with large amounts of resources to squander; the foundation of every socialist state. And when the money runs out, they just print it. But Europe can no longer print it. So they change or they perish.

      The industrious Germany has no oil resources. It is socialist but certainly not as socialist as some of their Euro counterparts. They do make products that others wish to buy. But they also face the headache of paying greater sums for imports. So exports abound while imports suffer.

      When you actually know a little about what you claim to speak on, then try again. Otherwise, why confirm again what we already know.

      GM

      Commenteddalai guevara

      Hello Gary

      ok, my 'socialist' hating friend, second in line of wealthy but equal societies is .... Germany. Oil resources? Still too small for you? Socialist? You make me laugh.

      None of what you have listed is relevant. It depends on how wealth is distributed, not created - wealth in Saudi is not spread, wealth in Norway is.

      And with regard to Mexico: that richest telecoms oligarch is extracting wealth from the nation - do you read the papers to realise what goes on over there? It is brutal, just like the soviet gulag, but in the sun.

      So, please refrain from giving me this socialist chitchat - it seriously bores me.

      CommentedGary Marshall

      Hello Dalai,

      Well, you see Australia is a massive country with about 30 millions. Same with Canada. Norway and Sweden are very small countries. When you are population wise small and resource rich, life is pretty good while those resources are in demand. Its when they aren't that things do not go so well.

      All those middle eastern kingdoms and their economic history and circumstances are proof of the noxious influence of oil, the greatest resource of them all. And all that resource wealth stunts rather than spurs them, as it does to lesser extent in western nations.

      But we are not talking about piddling little populations and their weighty socialist economies supported by vast resources. We are talking about large populations run by weighty socialist governments that do not possess such vast or proportioned natural resources, which I believe counts most Euro nations.

      Pay attention, will you?

      And how does less wealthier individuals and more middle and lower class nationals benefit the economies of these members of the socialist Euro pit?

      How does Mexico benefit from having a wealthy man? Well, I would assume the benefit is far greater than if Mexico were home rather to the world's poorest man! Don't you?

      GM

      But a socialist will never fail

      Commenteddalai guevara

      Hello Gary

      I am amazed to hear that you too have joined the group of confused that mixes up sovereign debt mismanagement with the derivative gambling armageddon.

      The latter is more than 10x larger than the former and is caused by asset holders' desire to gain control over even more assets. Nothing to do with 'socialism' a t a l l, and whilst an inflated public sector is not desirable, it is certainly not the cause for the mess we are in (in Greece perhaps, but not in the UK/US).

      If you wish to compare like with like, just look how Norway's fossil fuel wealth trickles thru' society, unlike Scotland where all goes to the few and Westminster. Who is getting the better deal?

      Calling Australia/ Norway/ Sweden 'just middling' is farcical - compared to what? Tax havens?

      How does Mexico benefit from the fact that the richest man of the planet is Mexican?

      CommentedGary Marshall

      Hello Dalai,

      And not wealthy ones either. Just middling. Australia enjoys the benevolent support of Chinese commodity buyers. When they disappear so will Australia's booming economy.

      Sweden and Norway are the part of the socialist contingent we find so potent in Europe. And they are not doing as well as one would expect for very small nations with great resources. Government is still 40% of Norway's economy. Its the same in Canada and Australia.

      Debt problems can be found in many places, and a lot of it has to do with brutal socialist and despotic policies. Get rid of big government and their ruinous taxes, and nations will prosper.

      Which brings us back to income equality. I would think the greater the aggregate income of the nation, the wealthier it would be. How does having more people earning in the middle and lower income bracket help anyone?

      GM

      Commenteddalai guevara

      Hello Gary

      you evidently have not looked at the issue to make such a comment. Norway, Australia and Sweden score highest (one two three), clearly not a 'poor' nations.

      Anglo-America with their CDS bubble and multiple QE events rank below Spain and just above Greece. Gruesome facts.

      CommentedGary Marshall

      Hello Dalai,

      Income inequality arises because some people run very large corporations, and most others don't. You want income equality, try North Korea. Everyone is poor.

      GM

      Commenteddalai guevara

      Hello Gary

      Touché with regard to home loans, but back to the development in income inequality.

      You cannot deny the facts.

      CommentedGary Marshall

      Hello Paul.

      Sure, and no one takes advantage of 401 K's. No one uses their homes to fund all sorts of purchases, deducting the interest. And half of US wage earners do no even pay Fed income tax. Its a one way street for the wealthy, who pay exorbitant amounts of income tax all out of proportion to their number for services like Medicare, Medicaid, Social Security, public pensions, police, fire, public education, welfare, unemployment benefits, workmen's comp, military defense, etc, etc.

      Those rich guys really know how to take advantage.

      GM

  17. CommentedPaul A. Myers

    I think one of the purposes of QE is to try to use monetary expansion to restart growth without having to spend public money that would have to come from taxes on the wealthy or some other source.

    The political system loves "magic money" that creates benefits without any visible costs.

  18. Commenteddalai guevara

    Income inequality has dramatically changed for the worse in Anglo-America since 2007 (source IHDI).

    Does this prove that QE has disproportionately favoured the rich?

  19. CommentedKelly Gauthier

    Gary Marshall cites some half-statistics to justify a presumption that the rich are paying their fair share: "The top 1% of income earners pay 37% of all income taxes. The top 5% pay 59% of all income taxes. The top 25% pay 88% of all income taxes. The bottom 50% pay 2% of all income taxes." This, of course, completely disregards marginal utility, but we can leave that out of the conversation for now.

    His numbers are meaningless unless we know the other side of the coin. We know how much the rich pay into our system, but HOW MUCH DO THEY GET OUT OF IT?

    For example, the wealthiest 1% controls about 1/3 of the nation's wealth (which they pay 0% income taxes on, since wealth is not income). Does this 1% group provide 1/3 of the government's annual revenue? If not, then they are being under taxed.

    In a truly fair system, a person who has 1/3 of the nation's resources would pay 1/3 of its bills. This is absolutely not the case in America.

    Personally, if I have dinner at a fancy steak house, I expect to pay more for my meal than when I eat fast food. The American wealthy want to eat steak and pay fast food prices. This is ridiculous and, yes, very unfair.

      CommentedSukhi Grewal

      If the top 1% income earners earned a 100% of the national income, they would pay 100% of the nation's taxes. Would it mean then that they are paying disperportionately larger share of the nation's tax haul? By the right-wing logic, they could make that argument.

  20. CommentedMark Pitts

    The proposed tax increases on the rich will not serve society's interests. There's just too little money at stake to help the poor or the middle class.

    The issue is primarily political - i.e. create resentment among the public and get their votes in November. This is about dividing people.

    For the economy as a whole, the issue is irrelevant.

  21. Commentedd clark

    Joseph Stiglitz bases his article on the fact that public goods must be paid for. His emphasis is that the rich paying their “fair share” of income taxes would supply a needed revenue influx.
    His target is the devilish Romney who doesn't pay his “fair share” of income taxes according to Stiglitz's two metrics: 1)Buffet's complaint that he is legally compelled to pay a lesser rate than his secretary, and 2)the implication that Romney's “insist[ence]” that he has paid at least 13% is not a “fair share.” Both Romney and Buffet legally pay what they must. Buffet's payed 11% in 2010.
    Stiglitz here terms capital gains “speculation”, suggesting more of a Las Vegas gamble than an incentive to provide equity capital. He swipes at Romney's “reported income” implying that Romney is a crook.
    Stiglitz stays above making concrete suggestions on how to improve the tax system, perhaps because as one moves away from equality, murkiness closes in fast. Offering the same tax rate for all, doing away with the deductions, would be understood by all. Some or many would still complain using their personal version of “fair share”, but, minimally, the same rate with no deductions would satisfy Buffet's “fair share” complaint. Tinker with equality and prepare for the unknown.
    Stiglitz doesn't touch the primary method of paying for public goods, that of limiting them, keeping them within our capacity to pay. Debt-ridden public goods are not "goods", they are "bads". Particularly now, putting pubic "goods" on a strict diet would obviate the need for payment, leaving more money in the taxpayers' pockets, and help regain our status as a fiscally responsible government. I really don't know why Stiglitz wrote this article, for he offers not one new thought.

  22. Commentedjohn berry

    Mr. Stiglitz also uses ambiguous phrasing that is deceptive. He should be ashamed. He states "those at the top of the income distribution who pay 15% of their reported income ... clearly are not paying their fair share." Well in fact "those at the top", as a group, pay far more than 15%. The top 1% of taxpayers pay 24% of their reported income in taxes, not 15%. Some of these taxpayers surely incur a 15% rate, but they are offset by others who pay more than 24%.

      CommentedMark Pitts

      Take a look at the author's other articles on Project-Syndicate. They are all carefully designed to deceive.

  23. Commentedjohn berry

    Let’ first establish that economists speak with no greater authority regarding what is “fair” than does the guy who cuts my hair. Mr. Stiglitz’s PhD, Nobel Prize, etc. carry no weight regarding the question of what is “fair”.

    Mr. Stiglitz apparently prefers to think of fairness in terms of the percent of one’s income that goes to pay federal income taxes. In his view those who earn more should incur a higher average income tax rate than those who earn less. Fine. I can no more disagree with this than I can disagree with Mr. Stiglitz’s religious convictions.

    I can however, point out that other definitions of “fairness” exist, just as there are other religions. For instance, some find it grossly unfair that the top 10 percent of taxpayers paid 71 percent of all federal income taxes in 2009 (the most recent data available).

    The difference of opinion regarding the proper measure of fairness here is whether one should consider dollars paid to the Treasury (in which case the wealthy are being treated “unfairly”) versus income tax rates, (where Mr. Stiglitz claims Mr. Romney is not paying his fair share).

    I’d like to make two additional observations. 1. It would appear that Mr. Stiglitz has access only to Mr. Romney’s past 2 years of federal income taxes, so his data set would appear limited as a useful basis from which to draw conclusions 2. Even by Mr. Stiglitz’s own definition of fairness, the wealthy as a group appear to be pulling their weight, and then some: In 2009 the top 1% of taxpayers incurred and average tax rate of 24% a rate higher than that incurred by the top 5%, 10%, 25% and 50%, as well as the bottom 50% of taxpayers (see Taxfoundation.org).

  24. CommentedRobert Pruzek

    For those who deny Professor Stiglitz's argument, I have a comment and a question. It is well documented that over the past three decades at least, the wealthiest in the U.S. have been paying a smaller and smaller percentage of their taxes, especially income taxes, than those in the so-called middle class. My question is, at what point, if any, should our society say that the extreme accumulation of income for the wealthy has reached the point where 'enough is enough'? If you argue that there should be no limit, you live in an untenable universe that no thoughtful person can accept. Many of us believe that we have gone far past any reasonable extreme of wealth accumulation among the wealthy. I see Professor Stiglitz as having made an eloquent argument that is consistent with this view, one that considers the needs of society as a whole, and does not simply confine itself to fully committed capitalists. BP

      CommentedGary Marshall

      Hello Robert,

      The top 1% of income earners pay 37% of all income taxes. The top 5% pay 59% of all income taxes. The top 25% pay 88% of all income taxes. The bottom 50% pay 2% of all income taxes

      How on earth can you, Stiglitz, or anyone else claim that the top wage earners do not pay their fair share?

      GM

      GM

  25. CommentedAly Kamadia

    Amongst raising numerous fundamental issues, this article serves as a great example of why political science departments should be much more connected to economic departments within the Academy - Kamadia.ca

  26. CommentedMark Pitts

    Taxes & Investments:

    Recent surveys show that 57% of US households own stocks, either directly or indirectly.

    An increase in the capital gains tax, and the proposed tax hike on dividends, are thus not tax increases on the 1%, they are tax increases on the 57%.

    Just do the math - the overwhelming majority of the new taxes would be paid by the middle class.

  27. CommentedGary Marshall

    Hello Mr. Stiglitz,

    Your rotten socialist innards are beginning to show.

    People in the private sector offer goods and services to the nation and its people. No one forces people to buy these goods. Those who do so, do so freely. That those who own and run such companies will benefit from this trade is naturally expected. Otherwise, they will not do it.

    There is only one corrupt organization that forces people to buy their goods. There is only one organization that can abet the conditions under which certain companies operate with all sorts of preferential rules and regulations. There is only one organization that can extract the wealth of others for the purpose of boundless squander and enrichment, and do so with impunity.

    What is a 'fair tax'? One in which an able few must pay all out of proportion to their number and income, whilst others for whom most of these public expenditures are made make little or no contribution?

    And then you argue that a public good provides benefits, but must be paid for. Well, here is a little secret for your narrow minded views. If a public good provides such wonderful benefits for the nation at large, as a private investment does for its enterprising counterpart, then the public good should pay for itself.

    But it never seems that a public good provides such benefits to pay for itself, or at least not while it is administered by the most corrupt of people and institutions.

    GM

  28. CommentedGary Marshall

    The editors of this web-site have indeed erased my post on the alleged criminally sexual preferences of Mr. Stiglitz. It was offensive I freely admit. The charge was made without any evidence.

    However, I have no idea why they allow Stiglitz the privilege of allowing his offensive and groundless allegations against Romney of tax crimes to remain.

    Would and could the editors please explain the double standard at work here. Or is there always a double standard employed when the left attacks the right?

    GM

      CommentedGary Marshall

      Mark,

      I don't think the Nobel bribery claim would have received as much attention as the sexual one. But I shall keep it in mind for the future so as not to ruffle the feathers as much.

      GM

      CommentedGary Marshall

      Hello Jean,

      I am sorry, but it was the leftist nobel laureate that started this trend to the disgraceful with his repetition of a groundless slur. This is not a one sided affair. Mine was a reaction, not an action.

      If you don't wish to be called all sorts of despicable things, then don't go around doing the same to others.

      Get the point. The editors here still have yet to explain themselves as to why they allow one slur and not the other.

      GM

      CommentedJean Pierre de Lutz

      Your reference was disgraceful and I would have flagged it if possible. That said, what I find alarming is the venom that transcends. America is indeed divided as perhaps never before and a fear a society that holds violence within as a second nature may unravel.
      Mature democracies need to dialog and flourish towards the center of the political spectrum, looking at European democracies, left and right extremes are not allowed to highjack political discourse.
      We have lost this perspective as our entire spectrum is skewed to the right and I daresay right wing populism seeks to further this trend unabated. Such political discourse carries within and feeds upon violence that has spiraled out of control since 2009. I fear we are on the wrong side of history.

      CommentedMark Pitts

      @Gary - I think your "crime" was the sexual reference. If, for example, you had accused Stiglitz of making a bribe to get the Nobel prize, you probably would have been okay.

  29. CommentedAaron Watson

    Mr. Stiglitz criticizes Mr. Romney for under paying his US taxes, at least as determined by Mr. Stiglitz. It appears to matter little that Mr Romney is "innocent (of under paying) until proven guilty" by the IRS and the absence of such charges by the IRS suggests they are satisfied with the manner in which Mr Romney has paid his taxes. My instincts, on the other hand, tell me the IRS has been very watchful of Mr Romney's taxes. The reward (for the US Treasury) for finding a error in his taxes would likely be significant.
    Since it is obvious that Mr Stiglitz believes US Tax Laws favor the wealthy 1% at the expense of the 99%, then his editorials should be directed to the IRS instructing them to re-write US Tax Code to come into line with his thinking.l

  30. CommentedThomas Haynie

    I’m perfectly ok with market gains being taxed at a lower rate. This is a sort of risk premium. I also get that for many in the 1% the majority of their revenue is from market gains. I think there may be some room for maneuvering there if in the end result you begin to distort society and the economy. Speculators give us liquidity in instruments. We need them. However we don’t need to over incentivize speculation and thus encourage bubbles, which are probably a normal part of free markets.
    There are ways to get reduced taxes on short term transactions. In my experience the corner tax advisor is unable to do this. But a securities tax specialist can give a list of tips for reducing taxes on speculative trading. So while it’s more than long term gains it still doesn’t need to be the same rate as regular income.

    Income from offshore accounts and massive tax loop holes are probably an area of greater return to focus on. But this is just my opinion.

    As far as taxes on investment reducing investment, we don’t know that. Economists still seem to have too much faith in “homoeconomicus”. Those taxes could reduce investments in more speculative and risky markets which could carry a benefit of helping reduce volatility in the affected market.

    Ultimately we seek the right balance of tax structure to allow the economy and society to thrive while minimizing the negative impact on investment. Looking at history I don’t think higher tax rates significantly affected investment. Probably it is the anticipation of changes that have the biggest effect. I reserve the right to be wrong.

  31. CommentedDavid Benson

    Mr Stiglitz writes:

    "There is an old adage that a fish rots from the head. If presidents and those around them do not pay their fair share of taxes, how can we expect that anyone else will? And if no one does, how can we expect to finance the public goods that we need?

    Democracies rely on a spirit of trust and cooperation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme. Both alternatives are unacceptable."

    Do you forget a mere four years ago? What is worse, a candidate who minimizes his tax bill legally or the president who hires (surrounds himself with) a tax cheat.

    Geithner's Tax History Muddles Confirmation

    http://online.wsj.com/article/SB123187503629378119.html





  32. CommentedRichard Surrency

    Mr. Stiglitz,

    Your comment "Conservative politicians in the US underestimate the importance of publicly provided education, technology, and infrastructure" is factually incorrect. It was Republicans such as Eisenhower who established America's largest and most profound infrastructure build-outs, the largest being the interstate highway system of the US ($425bn in 2006 dollars). I would also highlight that NASA is a product of a conservative Republican administration.

    Whilst we listen to billionaires like Buffet state that he only pays as much tax as he is required to, it is unlikely that the CEO's under his pay are likely to suggest they pay more than they should as a sign of social benevolence. I would be very interested in Buffets response to such a suggestion.

    The US tax code is a behemoth that is out of control, so much so that a legion of businesses have been created just to act as a Rosetta Stone between the government and the people during tax season. I certainly would not blame anyone, rich or poor, who have the time and skills to uncover loopholes beneficial to them. If they're there, they become a right. Unfortunately, this right is largely beneficial only to the rich who have the means to pay for it. This is clearly wrong, but neither Democrats nor Republicans have done anything about it, so it appears to benefit both sides of the aisle.

    Conservatives are often painted with a very wide brush when it comes to taxation and social services, however I would dispute your claim that they underestimate the importance of these issues, because the facts do not support your statement.

      CommentedRob Gvozden

      You tagged Mr. Stiglitz on several counts. But why let your right-wing frustration get the better of you by conflating personal income tax and business tax?

      Of course a paid manager does not perform fiduciary duty by seeking to increase the tax incidence of shareholders' funds. That's not Buffett's point and never was. He was talking about personal income taxes, the ones that Romney and other lords of private equity dodge neatly by calling their take "carried interest" and routing the cash flows through tropical islands and European duchies. These are issues of personal responsibility; a commodity that seems in desperately short supply as Mr. Stiglitz alludes.

  33. CommentedMelanie holzman

    You neglect to mention that we are in a financial crisis not simply because of a lack of regulations. There was -- in fact -- a mass hypnotizer that got an enormous portion of low and middle class citizens to sign loans they could not afford.
    To me, this is the cost of learning: You make a mistake, you pay for it and hopefully you do not make the same mistake again. Dr. Stigliz, you seem to enjoy spending more time worrying about 1% than the moral hazards of individuals and institutions. For your information, just as has always occurred, those folks like me (far less than 1%) will really pay the bills.

    Yes, Dr. Stigliz there is numerous problems with our education and other public institutions because many of them became incorporated into politics and the banking institutions: the exact propositions you are always proposing. There is no reason for the fees to be so high otherwise.

      CommentedMark Pitts

      Well said. But since the real problem was a large number of people making bad decisions, that leaves us without an institutional scapegoat - completely unacceptable since the professorial class could never blame ordinary people.

  34. CommentedFrank O'Callaghan

    The Stiglitz position is well put. Gary Marshall is offensive and abusive in his comments. There should be no place for his type of hatred in public discourse.

      CommentedMark Pitts

      In my experience, those who complain about others being full of hate, are quite full themselves. Just ask them how they feel about George Bush, then sit back and watch the hate spew out.

      CommentedGary Marshall

      The editors of this web-site have indeed erased my post on the alleged criminally sexual preferences of Mr. Stiglitz. It was offensive I freely admit. The charge was made without any evidence.

      However, I have no idea why they allow Stiglitz the privilege of allowing his offensive and groundless allegations against Romney of tax crimes to remain.

      Would and could the editors please explain the double standard at work here. Or is there always a double standard employed when the left attacks the right?

      GM

      CommentedGary Marshall

      Hello Frank,

      If Stiglitz claims that Romney may be a felon without any evidence whatsoever, then one is free to claim anything about Stiglitz without any evidence whatsover.

      Why is my claim about Stiglitz abusive and Stiglitz' claim well put? They are both made with the same underlying evidence, which is none.

      GM

  35. CommentedJohn Wiederspan

    I lectured on Federal Fiscal Policy from the late 70's until the early 2000's. THE problem has always been the American Voter does not want to pay for the government services received. The Laffer Curve, trickle down economics, supply side economics, support the job creators, et.al.; all excuses to spend without raising tax revenues. The political truth is that, to get the fiscal house in order, government spending must be capped (or reduced) and tax rates, for the rich AND the middle class, must go up. Not to worry, both political parties know that the public will not support anyone who supports this so, nothing of significance is going to change. More's the pity.

  36. CommentedTim Chambers

    The people you "gentlemen" despise for not paying income taxes, pay more than their fair share of other kinds of taxes. They pay property taxes either directly, or indirectly through their rent, and those property taxes, all too often subsidize those who don't pay them, churches, hospitals, universities, factories, and big box stores that often wring tax abatements out of local governments in exchange for providing low wage employment.

    Additionally, they pay sales taxes, which amount to a far greater share of their incomes than they do for wealthy people.

    And they pay payroll taxes, which are in effect liabilities, but are nonetheless regarded as an asset base against which profligate politicians of both political parties finance further liabilities, known as government bonds, to pay for unfunded wars and interest payments on previous debt.

    They are, in effect spending that money twice, which makes borrow and spend fiscal policy even worse than a ponzi scheme, in which money can only be spent once, and most is used to pay "returns."

    The amount of money the government spends on federal programs for the poor is pocket change for a skid row bum in comparison to what it spends on the Pentagon and its contractors and rent seeking bankers with "deals" to sell them.

    We already have a demand side induced recession, because people simply don't make enough money to pay for the things they need, let alone desire. When many of them can't even make the rent, and have to rely on payday lenders, how does it help the economy to tax what little they have?

    The rich are doing just fine, because, like Romney, they know how to avoid paying taxes. They aren't growing any poorer because of what they pay Uncle Sam. In fact, they just keep growing richer, by grinding guys like you into dust. If you have time to argue about it on websites like this, it's pretty damn certain you're not among them, just foolishly deluded wannabes.

  37. CommentedMark Pitts

    Doesn't Prof. Stiglitz know that “speculation,” which is commonly defined as trading with a short-term time horizon, is already taxed at the same level as income from wages??

    May I suggest that the Professor does some research before he begins to write...

  38. Commentedlee kus

    It appears you don't know what an economic rent is, Mark Pitts; economics might be deeper than you think. And if workers were paid more they would obviously pay more in taxes.

      CommentedGary Marshall

      Hello Lee,

      Then let's pay everyone $1 million a year, or why not $2 million! And why work 40 hours per week when you can work 20! Then what a wealthy nation we shall all enjoy.

      Is that the deeper thought you were asking for?

      GM

  39. CommentedMark Pitts

    Professor Stiglitz surely seeks to bias and mislead his readers:

    RELEVANCE:

    Tax increases on the 1% proposed by Buffett and advocated by the author would decrease the annual deficit by only ¼ to ½ of 1%.

    Thus, higher taxes on the 1% are irrelevant for the poor and the middle class.

    FAIRNESS:

    The top 10% pay over 70% of all taxes. The bottom 50% pays about 2%.

    Half of all filers (and all non-filers) pay no federal income taxes at all.

    INVESTMENT & RENTS:

    Prof. Stiglitz states that investments (which he disparages as “speculation”) do not increase the size of the economic pie. Among economists, he is alone in this opinion.

    Taxing investments at a higher rates means we will get less investments – which will hurt everyone.

  40. CommentedJean Pierre de Lutz

    One might wonder if Romney's run for the executive is his last LBO (leveraged buy-out) through further deregulation and "financialization" of collective goods and services, notably privatization of social security and medicare. With the financial backing of Citizen's United one might suspect it is a done deal, the best support money can buy with a brow beaten GOP willing and ready to jump off the cliff led by its extremes.
    This potentially massive diversion of funds fed through the insurance industry to the high speed trading and related financial products of Wall St. will continue to distort future economic growth.
    What type of change does America really want. An evermore Wall St centric party that supports a savage capitalist vulture culture, one still regretting the auto sector bailout? Obviously canceling the biggest picnic in history is a downer for between the lawyers spinning wheels, bankers hedging outcomes and supposed turn around artists draining pension funds in favor of tax free (from Uncle Sam) offshore accounts, oh my is was the opportunity of a lifetime.
    Should his LBO succeed the saddest reality? The mostly race induced hate vote so barely disguised will have tipped the ballot tally and enabled the beginning of a profound transformation of America by a party highjacked by its extreme right, itself manipulated by moneyed interests likely in proxy control of the three pillars of Government.

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