inequality – Lone Candle

Many countries are weighing cash payments to citizens. Could it work in the U.S.?

Posted on December 28, 2024 by Lone Candle

“The Eastern Band of Cherokee Indians have a land trust, the Qualla Boundary, which straddles parts of Swain and Jackson counties in the Smoky Mountains, in the western part of the state. In the mid-1990s, they greatly expanded the gambling facilities on the Boundary to include a large casino. Some of the profits from the casino are ploughed back into the tribal community in the form of community services –roads and sewers, hospitals and clinics, gymnasia and schools. But some of the money goes straight back to the individual tribal members in the form of a payment every six months, the amount dependent on the profits from the casino. The “per cap”, as it is called, goes to everyone, young or old, healthy or sick, working or unemployed, law-abiding or not, as long as they are members of the tribe. (Money for children goes into a bank account for them until they graduate high school or reach age 21, whichever comes first.) In recent years the amount of the supplement has been around $4,000 a year.”

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“In 1993 my Duke University colleagues and I began a study of the mental health care needs of 1,420 randomly selected children living in the 11 western-most counties of North Carolina. We were especially interested in the American Indian community, because it provided strong access to mental health care. So we ensured that a quarter of the study sample were American Indian children – 350 of them.”

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“All of the American Indian children in the study, but none of the children in the surrounding counties, lived in families that had received a considerable boost in income.”

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“Four years after the casino opened, Indian children had fewer behavioral and emotional problems than did neighboring children. Moreover, the effect continued into adulthood. At age 30, one in five of the American Indians had mental health or drug problems, compared with one in three of those in surrounding communities. The Indians had less depression, anxiety and alcohol dependence. The payments had no effect on extremely severe but rare mental illnesses like schizophrenia and bipolar disorder. But those who had received the supplement had better overall health and fewer economic problems. The younger the participants were when their families started getting the casino payments, the stronger the effects on adult mental health.”

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“some individuals spent their extra money foolishly, on drugs and drink, just as was true outside the reservation. Most people used their income supplement wisely, however, and there was no evidence that people worked fewer hours. And, of course, it is much cheaper to give people a check than to administer all the complex means tests that go with government welfare programs such as Supplementary Security Income benefits.”

https://www.salon.com/2016/06/21/many_countries_are_weighing_cash_payments_to_citizens_could_it_work_in_the_u_s/

The billionaire’s guide to doing taxes

Posted on April 8, 2024April 8, 2024 by Lone Candle

“Do you want to pay less taxes? Great. Step one, be a rich person. Then, buy a yacht. Or a sports team. Give a lot to charity. Lose some money in the stock market. Above all, make sure most of your money exists in the form of assets, not cash — stocks, real estate, a Dutch master painting, fine jewelry, or whatever else strikes your fancy.
They say that money is a universal language, but it speaks at different volumes. When you have a fathomless bounty of wealth, money doesn’t quite register as an expense until you add a lot of zeros to the end — so spending a lot to save a lot is a no brainer. It’s why the mega-rich often hire expensive tax lawyers, wealth managers, or even set up a whole office dedicated to tax strategy. “It’s not just preparing the return,” says Paul Wieseneck, a tax accountant and director of the Fuoco Group. “There’s so much more involved in planning, in accumulating, offsetting, and trying to mitigate the taxes as best as possible.””

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“Jeff Bezos, when he was still Amazon CEO, had a base salary of around $80,000 a year. Elon Musk doesn’t take a salary at all at Tesla. Apple CEO Tim Cook does get a $3 million salary, but it’s a small slice of the $63 million he received overall last year. Most wealthy entrepreneurs are paid in bountiful stock rewards; Musk is currently fighting to keep his record-breaking Tesla pay package, made up of a bunch of stock options and now valued at almost $56 billion. ProPublica found that, because their income fell below the threshold, at least 18 billionaires got a Covid-19 stimulus check.

Paul Kiel, a ProPublica reporter who was an integral part of the newsroom’s billionaire tax return stories, says the income versus wealth divide was crucial in helping the public understand how differently the wealthy operate. “If you can avoid income as it’s defined in our system, and still get richer, that’s the best route,” he tells Vox.

Stocks aren’t taxed until they’re sold — and even then, what’s taxed is the profit on the sale, called a capital gains tax. Billionaires (usually) don’t sell valuable stock. So how do they afford the daily expenses of life, whether it’s a new pleasure boat or a social media company? They borrow against their stock. This revolving door of credit allows them to buy what they want without incurring a capital gains tax. Though the “buy, borrow, die” strategy isn’t quite as sweet right now because interest rates are high, a Wall Street Journal piece from 2021 notes that those with $100 million or more could get interest rates as low as 0.87 percent at Merrill Lynch. The taxable value of a stock also resets when it’s passed on to an heir, so that if a wealthy scion chooses to sell their inherited stock, they’d only pay a tax on the increase in value since the original owner’s death.”

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““We’ve talked to a lot of former IRS agents, and they would often hear the line that for wealthy taxpayers, their tax return is like an opening offer,” says Kiel.”

https://www.vox.com/money/2024/3/13/24086102/billionaires-wealthy-tax-avoidance-loopholes

Are $18 Big Macs the price of falling inequality?

Posted on February 10, 2024 by Lone Candle

“If the burgeoning bargaining power of less-skilled workers comes at middle-class consumers’ expense in the short run, almost everyone stands to benefit from rising working-class wages in the long term.
Middle-class households can more easily afford servants in many developing countries than they can in the United States. Yet America’s middle class is nevertheless far wealthier than its counterparts in India or Pakistan. Even the privileged are generally better off in an economy with high levels of labor productivity than in one with a large pool of hyper-exploitable workers.

And there’s reason to believe that rising working-class wages are a key driver of productivity gains. When workers’ time is cheap, businesses have little incentive to develop labor-saving technologies or production methods. As wage bills rise, by contrast, innovation often becomes imperative.

Ironically, conservatives often cite this reality as an argument against increasing the minimum wage. Specifically, right-wing economists and commentators have often warned that raising the wage floor will cause employers to automate jobs away. Yet this is another way of saying that minimum wage hikes increase investment in productivity-enhancing technology (which is the ostensible aim of just about every Republican tax cut plan).

In any case, it is true that when wages rise at the bottom of the labor market, firms invest in labor-saving technology. In 2018, Grace Lordan and David Neumark demonstrated this empirically. Those economists reviewed 35 years of government census data, identified jobs that could be automated given existing technology, and found that after minimum wage increases were enacted, “the share of automatable employment held by low-skilled workers” declined. In other words, minimum wage hikes spurred capital investment and increased productivity by mechanizing tasks that did not require uniquely human skills.

The notion that high wages spur productivity gains is consistent with the American economy’s broader historical record. As Neil Irwin observed in 2018, productivity booms have tended to follow labor market booms, while deep recessions have given way to productivity slumps.

This relationship between wage gains and productivity can be witnessed within today’s food service industry. As Bloomberg’s Justin Fox notes, as restaurant wages jumped between 2020 and 2021, the sector’s output per worker hour soared by 21 percent.

In the short term, these productivity gains have not been sufficient to reduce restaurants’ operating costs and, thus, prices. But in the long term, when businesses increase the labor efficiency of their production processes, their wares tend to become more affordable.

A world of cheap burgers and high working-class wages is therefore possible. Middle-class consumers need not see the rising fortunes of less-skilled workers as a threat to their standard of living.

For the moment, though, there is a genuine tension between boosting compensation for America’s most vulnerable workers and minimizing the cost of labor-intensive services for the nation’s consumers. Precisely how liberals can best navigate this tension isn’t easy to say. At the very least, though, we should not encourage our fellow Americans to mistake the symptoms of rising worker power for those of a deepening economic crisis.”

https://www.vox.com/politics/2024/1/9/24027094/fast-food-prices-wages-mcdonalds

Do we really live in an “age of inequality”?

Posted on February 10, 2024 by Lone Candle

“Piketty, Saez, and Zucman estimate that the top 1 percent earned 9.1 percent of national income in 1960, rising dramatically to 15.1 percent by 2019. Auten and Splinter, by contrast, show a very small increase: 8.1 percent in 1960 to 8.8 in 2019. The share is now actually lower, they find, than it was in the mid-1960s.
Auten and Splinter reach similar conclusions about the top 10 and top 0.1 percent: per their estimates, the former grew from 29.2 to 29.7 percent from 1960 to 2019, the latter from 2.5 to 3 percent.

How can two research teams, both looking directly at US tax data, reach such different conclusions? It’s not that one group are craven “inequality deniers,” to borrow an ugly term that Piketty has slurred Auten and Splinter with, or that the other group is “thoroughly discredited,” as billionaire libertarian economist Cliff Asness has described Piketty, Saez, and Zucman. The disagreement is, at root, about how to deal with the limitations of tax data, by far the best source of information on who earns what in America.

Neither side has a monopoly on truth. On some issues, Auten and Splinter made judgment calls that seem more reasonable to me; on others, Piketty, Saez, and Zucman do; on still more, it’s wildly unclear which assumptions are most appropriate to make.”

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“No one factor explains more than 1.6 points of this disagreement, and even those are offset by a couple of areas (like dealing with owner-occupied housing and Social Security) where Auten and Splinter make decisions that show a larger increase in the top 1 percent’s share than PSZ.”

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“Both teams show that income inequality has increased in the US in the past half-century. While Auten and Splinter show at most modest increases in the top 1 percent’s share of income after taxes, they do find substantial increases before taxes. Moreover, that’s only one way to measure inequality. The most comprehensive measure is something called the Gini coefficient, which attempts to summarize the whole scale of inequality across the income spectrum, not just at the very top. An increase in the coefficient means that inequality has risen.
Before taxes and government safety net programs, Auten and Splinter estimate that the Gini coefficient for the US grew 25 percent since 1962 and 23 percent since 1979. After taxes and transfer programs, the increases are 10 percent since 1962 and 16 percent since 1979. More progressive tax and spending policy reversed some of the increase, but the increase is real and significant.

To give a sense of the scale here, the after-tax/transfer figure grew from 0.355 in 1979 to 0.417 in 2019, a 0.062 increase. If that number means nothing to you (it means nothing to me!) then consider that this increase is akin to the gap between the US and countries like Australia, Spain, and Switzerland today. That is, if this increase in inequality hadn’t happened, the US would be close to many other rich countries as opposed to the rather unequal outlier it is today.

You can also see signs of a general increase in inequality across some other measures. Take wealth, for instance. A recent rigorous attempt by economists Matt Smith, Owen Zidar, and Eric Zwick to track wealth inequality (that is, the gap in net worth, rather than income, between rich and poor) in the US over recent decades shows a pronounced increase”

https://www.vox.com/future-perfect/2024/1/11/23984135/inequality-auten-splinter-piketty-saez-zucman-tax-data