Wealth Distribution – Evolution or Manipulation of Capitalism?

[Big Guy]

Our current federal tax laws and financial initiatives appear to continue to favour the rich. In 1999, the 86 wealthiest Canadians had a net worth of nearly $120 billion which is equivalent to the bottom 10.1 million Canadians. That increased to nearly $180 million in 2012.

This year, Canada’s richest 86 people are as wealthy as its poorest 11.4 million, according to a new report.

Not only do the 86 (who make up just 0.0002 per cent of the entire population) control a third of the country’s wealth, says the report from the Canadian Centre for Policy Alternatives, but they have enough money to purchase all of New Brunswick with billions to spare.

While I do not know why anyone would want to purchase New Brunswick it appears that the income between poor and rich is increasing yearly.

What (if anything) is wrong with that?

[TimG]

What (if anything) is wrong with that?

A successful modern economy requires capital more than it requires labour. This means the rewards of the economy will tend to go to those who have the capital. If the next Steve Jobs started work tomorrow a large chunk of the money earned from building the business would go to the rich backers with the money to fund the business. There is not much that can be done about this unless one wants to abandon the free market economy and go down the road of statism.

That said, some will argue that the wealth should be confiscated and redistributed but that is of limited use because the annual income of people with a lot a capital is often small compared to their assets. As we discussed on another thread, increasing marginal rates to 70%+ would bring in maybe an extra 10 billion per year out of a 700 billion/year budget.

Forcing the wealthy to sell assets is also of dubious value because they can only sell them to other rich people. It might even things out within Canada but at the cost of increasing foreign ownership of the economy.

The one thing that might be worth considering is looking at the capital gains tax rate. However, that would decrease the ROI on capital investments and potentially cause more harm than gain.

Edited April 4, 2014 by TimG

[August1991]

And of the 7 billion people on this planet?

Should we 35 million "rich" Canadians share our wealth with these 7 billion?

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Big Guy, your OP is a simple-minded example of "zero sum thinking": The world has only so much. If they're rich, we're poor.

If we rich Canadians gave all our wealth to the poor in this world, would the world's 7 billion be better off?

More pointedly, would Canada be a civilized society, would Canadians be rich if year after year, they gave all their wealth to the world's poor?

Edited April 4, 2014 by August1991

[Argus]

A successful modern economy requires capital more than it requires labour. This means the rewards of the economy will tend to go to those who have the capital. If the next Steve Jobs started work tomorrow a large chunk of the money earned from building the business would go to the rich backers with the money to fund the business. There is not much that can be done about this unless one wants to abandon the free market economy and go down the road of statism.

You mean like we did in the fifties?

[TimG]

You mean like we did in the fifties?

I don't see why this addresses my point at all. The economy is much more capital intensive today because competitive businesses must invest in technology that reduces the need to hire people. The recent take over of WhatsApp is perhaps the most extreme example: $22 billion for a company with only 55 people. On top of that, businesses which still require labour can go anywhere in the globe looking for it which, given the global oversupply of labour, puts even more cards in the hands of people with capital. Edited April 4, 2014 by TimG

[Michael Hardner]

The economy is capital intensive today because competitive businesses must invest in technology that reduces the need to hire people.

I'd like to challenge this. The most profitable and forward thinking businesses today really only need a server. They can ask their teams to bring their own laptops in a lot of cases too.

The recent take over of WhatsApp is perhaps the most extreme example: $22 billion for a company with only 55 people. On top of that, businesses which still require labour can go anywhere in the globe looking for it which, given the global oversupply of labour, puts even more cards in the hands of people with capital.

? Are you saying that the technology costs in that were $17B ?

What's the difference between capital-intensive startups and non capital-intensive ? I don't think I'm getting this.

[Argus]

I don't see why this addresses my point at all. The economy is much more capital intensive today because competitive businesses must invest in technology that reduces the need to hire people.

First, I disagree. You had to buy physical plant and equipment in the fifities, as well. You think steel and cars build themselves? Second, we're not discussing business costs. Those costs were and remain tax deductible. The difference between now and in the fifties is that the tax on corporate profits, on dividends and capital gains paid to shareholders, on large incomes, is FAR lower today than it was in the booming fifties.

[TimG]

I'd like to challenge this. The most profitable and forward thinking businesses today really only need a server. They can ask their teams to bring their own laptops in a lot of cases too.

I am talking about the ratio between capital and labour. In the case of WhatsApp it has 200 million active customers yet it only needed 55 employees to serve them. This is because it spent heavily on Server farms which automatically handled the traffic. Can you give me any business in the past which could serve so many people with so few employees?

What's the difference between capital-intensive startups and non capital-intensive ? I don't think I'm getting this.

Even tech start ups need marketing more than they need people. A small team of people can produce a lot of impressive technology but if no one knows about it goes no where.

[TimG]

The difference between now and in the fifties is that the tax on corporate profits, on dividends and capital gains paid to shareholders, on large incomes, is FAR lower today than it was in the booming fifties.

A myth.

One answer is that taxes in the 50s weren’t really high. Yes, the top marginal tax rate was 90%, but it applied to almost no one. What matters more is the average marginal tax rate – that is, the average rate paid on the next dollar of earned income. That figure tells you more about the incentives facing individuals working in the economy.

http://www.aei-ideas.org/2013/01/were-taxes-really-higher-in-the-1950s/

[Argus]

A myth.

http://www.aei-ideas.org/2013/01/were-taxes-really-higher-in-the-1950s/

First of all, this opinoin ignores corporate taxes. Second, it blithely dismisses the higher rate by saying, well, it applied to almost no one (no definition supplied). Didn't the OP make the case that 0.0002% of the population now owns as much wealth as 10 million people? I think 0.0002% would definitely qualify as 'almost no one'.

Remember that capital gains and dividends were also taxed at their full amount in the 1950s, not at 15%-20% as is the case today.

Edited April 4, 2014 by Argus

[Michael Hardner]

Even tech start ups need marketing more than they need people. A small team of people can produce a lot of impressive technology but if no one knows about it goes no where.

Ok. I recently listened to an economics podcast on this. Actually, there was a thread too:

http://www.economist.com/news/leaders/21594298-effect-todays-technology-tomorrows-jobs-will-be-immenseand-no-country-ready

There's a shift happening, and "tax the rich" as well as "pull up your socks" don't really capture what needs to happen. There will be a huge transition, and afterwards we'll all be better off. What happens in between is a big question.

[TimG]

There's a shift happening, and "tax the rich" as well as "pull up your socks" don't really capture what needs to happen. There will be a huge transition, and afterwards we'll all be better off. What happens in between is a big question.

It seems to be making the same points I am. People will be better off as population growth levels off but it might be 20-30 years from now. I agree with the emphasis on education and life long learning. Edited April 4, 2014 by TimG

[TimG]

First of all, this opinoin ignores corporate taxes.

US corporations pay less taxes today because their corporate tax rates are so high. This creates a financial incentive to leave profits elsewhere. IOW - corporate taxes can't be increased much above where they are now in this globalized capital market.

I suggested we could look at capital gains taxes but I am not convinced that reducing the ROI on potential investments is a good thing for the economy. The dividend system today is balanced and avoids the double taxation which existed in the past. The dividend tax system also benefits millions of retirees with modest incomes (remember the outrage over taxing income trusts).

Edited April 4, 2014 by TimG

[Argus]

US corporations pay less taxes today because their corporate tax rates are so high. This creates a financial incentive to leave profits elsewhere. IOW - corporate taxes can't be increased much above where they are now in this globalized capital market.

I suggested we could look at capital gains taxes but I am not convinced that reducing the ROI on potential investments is a good thing for the economy. The dividend system today is balanced and avoids the double taxation which existed in the past. The dividend tax system also benefits millions of retirees with modest incomes (remember the outrage over taxing income trusts).

The changes in capital gains and dividend taxes were certainly presented as helping ordinary people with their retirement funds, and they do, but the VAST majority money lost to the taxman from these tax breaks is from money which goes to the rich. Eighty percent of the population owns a grand total of 12.8% of all wealth, and that includes houses.

In terms of the stock market, the 1% own 51% of all stocks. The top 10% own over 90% of all stocks. So the cuts to capital gains and dividend taxes can hardly be presented as a general aid to regular people and their retirement savings. All of this money would have been taxed in the fifties at its full value.

http://www.businessinsider.com/15-charts-about-wealth-and-inequality-in-america-2010-4#look-at-the-wealth-gap-grow-4

[bush_cheney2004]

... but the VAST majority money lost to the taxman from these tax breaks is from money which goes to the rich.

Such money is not "lost", as it never belonged to the "taxman" to begin with. It is not a "tax break"...such twisted logic would make for 100% tax rates as the baseline.

[eyeball]

What (if anything) is wrong with that?

What's wrong is the unequal distribution of power. Address that and we'll probably find that wealth can distribute itself quite nicely without any undue interference from government at all.

I suspect the wealthy might not agree but at least they'd be no more entitled to their opinion than anyone else.

[TimG]

In terms of the stock market, the 1% own 51% of all stocks. The top 10% own over 90% of all stocks.

If you earn 80K in Canada you are in the top 10%. Edited April 4, 2014 by TimG

[Big Guy]

What's wrong is the unequal distribution of power. Address that and we'll probably find that wealth can distribute itself quite nicely without any undue interference from government at all.

I suspect the wealthy might not agree but at least they'd be no more entitled to their opinion than anyone else.

Do those in power or who take power then use their position to gain wealth? Or do those who have wealth use their resources to gain power? Or ...

Perhaps the indicator is education and intelligence. I suspect that of those top 86, all are well educated and very intelligent while the percentage of those in the 11.4 million poor who have minimum education and are of average intelligence is significant.

[August1991]

What's wrong is the unequal distribution of power.

So eyeball, you favour letting poor Indians, Africans and Chinese vote in Canadian elections. This, according to you, would correct the world's "unequal distribution of power".

====

IMV, life is not a "zero-sum game". If Canadians are richer or more powerful than the rest of humanity, our wealth/power does not come from other people's poverty.

Hence, taking from rich Canadians and giving to the poor elsewhere in the world will not make the world richer; it will simply impoverish Canadians.

To make the world richer, we must find ways to encourage others in the world to live as we relatively rich Canadians do.

Edited April 5, 2014 by August1991

[eyeball]

Do those in power or who take power then use their position to gain wealth? Or do those who have wealth use their resources to gain power?

Both. It's certainly more overt in the case of a place like Russia where oligarchy rules and the effect is more pronounced but the effect is esentially the same. We just dress it up in more fancy and official sounding justifications.

Or ...

Perhaps the indicator is education and intelligence. I suspect that of those top 86, all are well educated and very intelligent while the percentage of those in the 11.4 million poor who have minimum education and are of average intelligence is significant.

I suspect they are too but like wealth and influence, it's what's done with education and intelligence that matters and using them in a way that thwarts our fundamental principles of equal and unbiased representation is an inappropriate use that will eventually lead to dysfunction and violence.

[eyeball]

So eyeball, you favour letting poor Indians, Africans and Chinese vote in Canadian elections. This, according to you, would correct the world's "unequal distribution of power".

According to me where? When did I ever say anything even remotely like this?

IMV, life is not a "zero-sum game". If Canadians are richer or more powerful than the rest of humanity, our wealth/power does not come from other people's poverty.

Hence, taking from rich Canadians and giving to the poor elsewhere in the world will not make the world richer; it will simply impoverish Canadians.

To make the world richer, we must find ways to encourage others in the world to live as we relatively rich Canadians do.

We don't have to take anything away from rich people, we just have to stop affording them as much influence in our governance.

[Argus]

Such money is not "lost", as it never belonged to the "taxman" to begin with. It is not a "tax break"...such twisted logic would make for 100% tax rates as the baseline.

Spin, spin, spin. The fact is if you have a tax rate of 90% and lower it to 35% that is a huge loss of income to the state. This was done repeatedly over the years with a result that the American state is near bankrupt from its obligations while corporations and the wealthy have tens of billions to play with, and hide tens of billions more overseas.

[eyeball]

Spin, spin, spin. The fact is if you have a tax rate of 90% and lower it to 35% that is a huge loss of income to the state. This was done repeatedly over the years with a result that the American state is near bankrupt from its obligations while corporations and the wealthy have tens of billions to play with, and hide tens of billions more overseas.

Someone or something must have influenced the state to believe it was more obliged to enrich the rich while developing much of the multinational regulatory regime that facilitates hiding their wealth.

What if anything do you propose be done about checking that influence?

[TimG]

Spin, spin, spin. The fact is if you have a tax rate of 90% and lower it to 35% that is a huge loss of income to the state. This was done repeatedly over the years with a result that the American state is near bankrupt from its obligations while corporations and the wealthy have tens of billions to play with, and hide tens of billions more overseas.

Please explain why people and/or corporations who make a large chunk of the money overseas have any obligation to pay punitive taxes to the American state? Seems to me that the only legitimate claim is on moneys earned selling products or services to Americans. Edited April 5, 2014 by TimG

[Argus]

Please explain why people and/or corporations who make a large chunk of the money overseas have any obligation to pay punitive taxes to the American state? Seems to me that the only legitimate claim is on moneys earned selling products or services to Americans.

I make a huge chunk of cash overseas. In fact 98% of my income is from overseas. I am still responsible to pay taxes to Canada Revenue at a 48% rate. Americans are in the same boat, generally. They still have to fork over the cash.

So please explain why corporations can stash hundreds of billions of dollars offshore with no responsibility to pay taxes on it. Please also explain why corporations whose headquarters and the great bulk of their employees are in the United States are permitted to buy a postal box in Bermuda or some other tax haven, and blithely state they are not American companies for tax purposes? If I tried to do that, or if an ordinary American tried to do that we'd go to jail.

"Oh, hello, IRS, well, here's the thing, I know I live in Portland, but I have this postal box in Bermuda, see, so for tax purposes, I'm now a Bermudan. Is that okay with you? Gee, thanks!"