While I agree with your basic point, I wonder whether the distribution of assets will become much more important in the coming decades. We're entering a period of such rapid technological change that it's impossible to predict whether many jobs will even exist in 50 years. The near-total mechanization of agriculture and manufacturing seem like givens. More ominous (or promising, depending on your view) is the possibility that mainstay service jobs will be supplanted by computer systems -- for many such jobs, even the slightest machine intelligence would be enough to substitute.

In such a future, control of assets rapidly becomes all that matters: a body willing to work is worth almost nothing. An uneven distribution of assets, then, implies a similarly uneven distribution in income, and thus in welfare. And that is an alarming prospect.

The Report finds that the richest 2 percent of adults own half the world's assets,...

But are the richest 2% doing half the work? If the Paris Hiltons and Bill Gates of the world all stopped working and went on vacation, would the total economic output of the world decrease by half? Obviously not.

On the other hand, if assets owned by the richest 2% were destroyed, would the would economic output decline? If the hotels owned by Paris Hilton and the fraction of Microsoft owned by Bill Gates were destroyed, would the world economic output decline? Probably. Maybe even by half.

What if the assets of the ricest 2% were not destroyed but were instead put under the absolute control of corrupt dictators? Well, that's communism and we've seen how well that worked.

What if the economic output of these assets was taxed heavily and reinvested in collective assets such as schools and scientific research? It can hardly be argued that such taxes would be unfair to someone like Paris Hilton because she neither built the hotels she owns nor does she do the work of operating them. It might be unfair to Paris Hilton's father but without society he would be living in a cave picking flees off himself so he, himself, owes a rather substantial debt to society.

Clearly, certain technological assets allow workers to be vastly more productive. It would be undesirable to tax such assets at such a high rates that it discouraged their use. On the other hand, the major reason for increases in productivity over the long term is scientific and technical innovation. The inventors of electricity are no longer alive and yet society still derives considerable benefit from electricity. Future generations are more likely to benefit from the kinds of innovation funded by governments through tax revenue than from marginally higher economic efficiency in years gone by.

Also, if the goal of an economy is less to maximize efficiency and more to ensure that no one is desperately poor, particularly as a result of taking business risks, then taxation to provide a social safety net is easy to justify.

First a few operational suggestions:

Why is it that topic threads are cut off?

If it is necessary to cut them off couldn't your administrator post a "Topic Closed" message to save your contributors from having to guess and test?

Thanks!

It's not surprising that Posner and Becker who are satisfied to "let the market" continue to bid down the wages of those at the bottom and not favor intervening even to the extent of restoring the min wage to the purchasing power it had a decade ago, would also be complacently satisfied with the world-wide inequality of wealth and income, and glosses over the rapidly widening wage-wealth gap in the US that is of concern to more thoughtful social observers.

Matt makes some good observations in regard to technology changing the relationship of production and labor. Indeed there was an econ book a decade or so ago entitled "The End of Work". But as we've seen in the US all of the productivity increases have gone to capital owners with some accruing to what Posner terms "high-end abilities of human "capital" and of course if pressed this would all be justified by the "efficient" workings of "The Market" and the meeting would be gaveled to a close.

I got a chuckle out of Posner's remarks that wages, not earnings from capital, were the primary wealth of the world's poor. He's right of course as it's after low paid workers mine the gold, oil, diamonds, coal, etc, or for that matter code software, with token participation in their increased value that "our" mighty corporations turn them into capital.

Then Posner remarks that "the past 25 years have been devastating for persons with little education." He's right again, but I recall that 25 years ago heads of households often held jobs in grocery stores, but today, despite Walmart and others making tremendous improvements in the efficiency and productivity of distribution that the employees do not share in that productivity increase and that their meager wages are supplemented by more than $1.5 billion of taxpayer subsidies to Walmart's fattest bottom line in world history.

And oppostion to the estate tax? It's these very Walmart heirs who are most lobbying Congress for their "right" to pass on the Walmart fortune untaxed. Perhaps it's lost on Posner but the fortunes such as Walmart's or Gates being comprised of initial stock that has never been sold that it has paid no tax and if passed tax free down through the generations never would be taxed. Seemingly forgotten is that when the estate tax was put in a part of its purpose was that of breaking up vast inherited wealth that we not become the land of lords and vassals that we left. Many here will recall that pre-Thatcher England nearly succumbed to the lords not having to work, while the young seeing they'd never go much beyond floor foremen had little incentive to work or create.

In closing and returning to Matt's point of declining costs, I often find it handy to take some effect such as that to the extreme. Say that mfg goods had nearly a zero cost and that all who made those goods were out of a job and had no money to buy the goods, the goods would still be "too expensive" to buy. And, of course there are parts of our economy that do not lend themselves to rapidly increasing productivity and price declines such as teaching, lawyering, or hiring a plumber, so the costs of using human capital will continue to rise as compared to mfg goods.

So, Judge Posner, if all the productivity gains continue to accrue to corporate entities and the top X percent will it be the end of the Monopoly game when regular working folk land on "Legal Bill" or "Plumbing Repair?"

To me it seems clear that if "The Market" does not distribute the growing wealth of productivity gains among the very workers who make much of it happen then an external mechanism to fix the shortcomings of "The Market" must be designed. And, timely enough Yale economist Robert Shiller is writing a book on the subject:

http://www.econ.yale.edu/~shiller/

The book doesn't yet exist but the page contains other interesting concepts. Jack

Gentleman, Why did you not comment on the fairness of the resource distribution and the consequences of inequitable distribution in matters like health care and educational opportunities?
Should we care about a level playing field for everyone?

Countries that let the market decide have higher standards of living than countries where government is in charge of capital assets. Who cares if Bill Gates is in charge of MSFT's assets rather than some government offical, as long as consumers are getting products they see value in?

The wealth of the top 2% isn't some stockpile of diamonds somewhere (debeers excepted of course) but in assets used for the production of goods and services for *consumers*... that is to say for *us*. How is this a bad thing? Even Paris' family's hotels aren't for her own private use, they are for *our* use. So what if we have to pay by the night to stay in them? It's still far cheaper and more convenient than building our own houses all over the place just so we have somewhere to stay when we travel.

If Paris' family got rich building places for me to stay while travelling to make my life better, I don't begrudge them "wasting" a portion of that wealth on luxury goods or stupid lifestyles.

The issue of inequality is not so much an issue per se; the true issue is whether the degree of inequality is, for the lack of a better term, earned or unearned. That is, should people who have made no productive contribution to society [yes, I'm thinking here of Paris Hilton] keep their vast fortunes, whilst some much higher-skilled productive humans are compensated [including job satisfaction] much less? In essence, should people be allowed to keep the gains from luck? With the rise of superstar markets [markets in which one or a few people make tremendous earnings while others who are similarly skilled get nothing], I more and more think that you should not be able to keep gains from luck. If your operating system, as flawed as it may be, by some stroke of luck becomes the preferred OS of society, I don't see why you should get the benefit of such luck. [Same if you are a fortunate actor who was marginally better at one audition and as a result has a terrific career.] What is the argument for not taxing "lucky" gains heavily? Where is the disincentive?

STOP WORRYING what other people have. It doesn't matter if its from skill or good fortune or a combination. The argument against taking other's gains is they are not yours to take. If it bothers you so much that someone else has something, then stop thinking about them. Just pretend they don't exist. Someone else having insane amounts of wealth doesn't make me any worse off.

This isn't some dictatorship or monarchy that has all the resources of the country because they took them from others by force. This is America and non-political people are allowed to amass great fortunes by benefiting others... or just by being lucky. And Paris' wealth was not luck. Her family built their wealth by providing something that people were willing to pay for. If they *choose* to spend some of that wealth on Paris, then that is *their* decision to make, not some progressive/communist goody two shoes who thinks they can solve all the worlds problems by soaking the rich.

Nelson.... a few comments:

Countries that let the market decide have higher standards of living than countries where government is in charge of capital assets.

...... I, for one, have not suggested such.

Who cares if Bill Gates is in charge of MSFT's assets rather than some government offical, as long as consumers are getting products they see value in?

....... hmmm, my only comments on MSFT was that of there being virtually no choice for consumers to compare value and MSFT obtaining monopolistic profits. But...... then we've just seen "The Majority" and the Admin give Big Pharma the right to charge what they wish to Medicare which is nearly exactly TWICE what the VA pays for their prescriptions. So..... I guess I don't know what sort of capitalist principles we're going by these days. Looks like dogged competition at the bottom and socialistic protection at the top?

The wealth of the top 2% isn't some stockpile of diamonds somewhere (debeers excepted of course) but in assets used for the production of goods and services for *consumers*... that is to say for *us*.

......... perhaps I didn't make my point clear; that once upon a not so long time ago US working folk participated in productivity gains and windfall profits. Today, the price of oil, gas and energy may triple but wages for most involved? Flat to down. And countless other examples of capital taking ALL productivity gains. Walmart has done a great job of increasing the productivity of distribution and with so few clerks per gross sales they COULD pay good middle class wages. Instead? they "work the system" using 28 hour work weeks and low pay which third parties, $1.5 billion of what should be their wage cost to the taxpayer, plus who knows how much when their workers show up half dead at the ER with no insurance or means to pay. Is this "just ducky" considering that Walmart's bottom line is among the fattest in world history?

How is this a bad thing? Even Paris' family's hotels aren't for her own private use, they are for *our* use. So what if we have to pay by the night to stay in them? It's still far cheaper and more convenient than building our own houses all over the place just so we have somewhere to stay when we travel.

....... Whew!!! It would have been Paris' grandfather who built the hotel and management business and I've no problem at all with the hotel business which I think is a pretty competitive one.

If Paris' family got rich building places for me to stay while travelling to make my life better, I don't begrudge them "wasting" a portion of that wealth on luxury goods or stupid lifestyles.

........ I don't either. But the thread is about the soaring inequality in the US and the last thread was about a min wage that is about one third of a living wage. Perhaps Hilton is a good example for asking a few questions:

A. Should they pay something close to a living wage for their maids? Or, continue to pay them so little that taxpayers fill the gap via various programs for "the poor" and other's subsidize their medical care?

B. We're about $9 trillion shy of paying our bills and falling behind by much more than the half trillion deficits they admit to each year so, how ARE we to pay our bills? Should we take on further debt that Paris and the Walton heirs might not have their inheritances taxed?

These probably are not very good questions or answers as your post seems more of a partisan comment than a thoughtful consideration of policy.

Jack

Haris & Nelson:

Haris.... you seem close on to what will really have to be the policies of the future.

I was talking, a few years back, with Ralph Nader (whose first PIRG was in Alaska) about the corporate theft of the public resource of fish in the rich Alaskan waters, and he commented that "the word poverty should be unknown in Alaska". Hard to argue! With less than a million in population, we've the richest fisheries, mining, and producing 1.5 million bbls of oil each day, but there IS poverty and low pay in amounts similar to the rest of our "wealthy nation" where poverty should also NOT exist. Instead poverty, amid all the glossy news of the DOW and corporate profits, and wage increases coupled with tax reductions for those above $90k increased last year with 12.6% trying to live on $10,000. And the gap is widening at a rapid rate. I don't see any social benefit to this situation.

"Just pretend they don't exist. Someone else having insane amounts of wealth doesn't make me any worse off."

........ ahh Nelson but they do. And it seems that exactly the same people who give such advice are the FIRST to oppose an increase in the min wage or a raise in teaher's pay. So, far we are NOT so wealthy that the "insane" compensation of some, do not affect us all. For example last year just ONE medical insurance CEO's gleanings were $150,000,000 or $50,000/hr, or the pay of about 3,000 teachers. Or looked at another way; the ENTIRE premium of 30,000 "insured" paying $5,000/year AND using more chunks of what we pay to lobby in Congress so they can keep doing it to us.

1% 19% 80%

20.0% 38.7% 41.4%

These are the shares of income (2001) and I would submit there's something wrong with a "model" that awards 60% of the income to the top 20% and leaves the 80% doing most of the work to wrestle over the remaining 40%.

You might enjoy looking over a few of these charts: http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

Jack, its not your wealth. Do what you want with your wealth. If the wealth is not yours, do not think about it. If you wish to gain wealth to do good deeds, then you are more than welcome to try. But stay out of other people's lives. It's their property, not yours... not the states... theirs.

Sorry to butt in on Jack's party, but I thought I'd post a quick comment on Wes's post.

Wes the problem with taxing existing assets is not that the tax will likely cause those assets to disappear, at least in the short run, it is the signal that such expropriation sends to future investors about the security of their property rights. This signal is unrelated to concepts of fairness. Bottom line, raising taxes on existing assets is no free lunch because costs in the form of reduced or distorted long term investment must be accounted for.

Second, any claim that all economic benefits are ideally paid in proportion to time or work done is ultimately a disagreement with the concept of fixed assets. I'm not sure if that's what you're suggesting, but that kind of compensation is neither fair nor workable.

IIRC only a small fraction of innovation is attributable to government funding. Nearly all innovation is produced privately, mostly in corporations. I can pull out some literature references on this if you're interested. Baumol (2002) argues public good aspects of innovation (spillover effects) offer only weak support for government funding. So innovation is probably not a good reason for raising taxes.

Dear professor becker. first of all please forgive me for my weak writing. I always read your blog and I got meany useful thing about economic issue. but for several days i am waiting for your idea about the devaluation of dollar in world economy. let me ask you talk about this subjet. why dollar start to devaluate?what happened for it? what will be the effect of this devaluation in world economy? what will be the effect of dollar devaluation in supply of money and so intrest rate and inflation in country like china and japan which has much dollar reserve and federal bonds?

Ben sez: "Nearly all innovation is produced privately, mostly in corporations. I can pull out some literature references on this if you're interested."

Not that this is a significant fraction of the national budget or reason for taxation, I'd be interested. Probably tough, though to define "innovation" what with NIH and other government agencies doing basic research and companies making commercial products. Or, the converse, such as Congress giving the "Big Three" a billion in tax breaks plus nearly a decade to come up with a hybrid or other efficient vehicles only to see mileage worse today than ten years ago and the corps selling for break-up value while the foreign marquees eat their lunch? And how do we count the drug "innovation" of a "new" pill taken once a day instead of twice a day so as to extend the patent and avoid competition from the generics? Or that today they spend more on advertising than on research? And that US research dollars are declining?

Anyway, with big bills ahead, and half trillion buck deficits barely maintaining a job market, and $750 billion trade deficits I'd sure like to see fewer headlines and articles such as the following:

ASME NEWS Online May 2005 -- Symposium attendees learn that U.S. competitiveness lags

http://www.asmenews.org/archives/backissues/may05/meetcourse/505symp.html

.... could it be that it's time to take a break from stock buybacks, further consolidation, quit the chest thumping, and take a look around and then get back to work? And make some far wiser big decisions? Will "our" corps take on the task w/o government leadership? Or simply move their operations to "lower cost venues" and their HQ's to the Cayman's? Jack

http://www.asmenews.org/archives/backissues/may05/meetcourse/505symp.html

asmenews.org/archives/backissues/may05/meetcourse/505symp.html

On Inequality: It seems to me that experience is the only thing that really matters to conscious beings, and so the important inequality is in the quality of that experience. So the important inequality is experiential inequality, where by 'experiential' I mean something like the feeling of subjective well being. The effect of material goods on the quality of experience is determined mainly by consumption, not by wealth (which is just the total claim a person has on consumable goods) nor by income ( which is just the yearly increment to wealth). And the effect of inequality of consumption on the quality of experience is bound to be very small (once you get above a base level of consumption), mainly because everyone, no matter how rich, has only 16 hours in a day to have experience in, can only live in one house at a time, drive one car at a time, eat 3 meals a day, etc.

I don't actually care about other people's insane wealth. I am talking about wealth for tax purposes. It seems obvious to me that it makes much more sense to tax wealth that is received by luck [inheritances, for example] rather than wealth that was earned by labor or investment.

Haris: "just for fun" it's interesting to contemplate a society in which the inheritance tax was 99% So, we'd have all competing in a meritocracy, and everyone would spend virtually all they earned (as do 90% of Americans) would still invest in hopes of early retirement or at least a cushy retirement and income taxes would be fairly low. Just for fun!

A shot at a "real world" ideal taxing scheme. Yale economist Robert Shiller proposes that today, we implement a progress tax plan which would kick in later if (when) wage inequality gets worse, it would adjust taxation and something like the EITC so that the wage curve is can not become more steep than it already has.

It would have a number of advantages including that increased productivity would pay most of the bills and taxes for even middle class earners would be very low. That would lower the transaction costs of today, say when a bricklayer has to earn $140 to get home with $100 to pay the plumber who gets home with $65 after tax. We could hire each other, seemingly with a gain in efficiency over the bricklayer having to do his own plumbing to avoid hefty taxes. (Interesting that the costs are all deductible to business but not to home owners.)

I've a couple of add-ons to Shiller's plan: First, before adopting his plan we HONESTLY take some of the income tax burden away by a revenue neutral shift to energy and non-renewable resources to give incentives to conserve them.

Second, as the costs of tech and mfg goods keeps falling while the costs of employing people such as teachers, lawyers, dentists, or even fine dining and all who can not make productivity increases continues to outpace inflation, it might be good to shift some of the tax burden onto the mfg goods and away from increasingly unaffordable human services.

"How would we do that?" Shift yet more of the individual income tax burden to corporate profits and while we're at it levy a bit more on imported goods to make up for foreign factories not creating jobs here or adding anything to our Treasury. Result? A bit higher prices for mfg consumables and much less to hire teachers, docs etc. Adopt the whole package, and voila! any attempt to further widen the wage gap simply results in a more progressive tax, and as JFK said..... a rising tide raises ALL the boats. Something we've gone 25 years without seeing.

Haris: "just for fun" it's interesting to contemplate a society in which the inheritance tax was 99% So, we'd have all competing in a meritocracy, and everyone would spend virtually all they earned (as do 90% of Americans) would still invest in hopes of early retirement or at least a cushy retirement and income taxes would be fairly low. Just for fun!

A shot at a "real world" ideal taxing scheme. Yale economist Robert Shiller proposes that today, we implement a progress tax plan which would kick in later if (when) wage inequality gets worse, it would adjust taxation and something like the EITC so that the wage curve is can not become more steep than it already has.

It would have a number of advantages including that increased productivity would pay most of the bills and taxes for even middle class earners would be very low. That would lower the transaction costs of today, say when a bricklayer has to earn $140 to get home with $100 to pay the plumber who gets home with $65 after tax. We could hire each other, seemingly with a gain in efficiency over the bricklayer having to do his own plumbing to avoid hefty taxes. (Interesting that the costs are all deductible to business but not to home owners.)

I've a couple of add-ons to Shiller's plan: First, before adopting his plan we HONESTLY take some of the income tax burden away by a revenue neutral shift to energy and non-renewable resources to give incentives to conserve them.

Second, as the costs of tech and mfg goods keeps falling while the costs of employing people such as teachers, lawyers, dentists, or even fine dining and all who can not make productivity increases continues to outpace inflation, it might be good to shift some of the tax burden onto the mfg goods and away from increasingly unaffordable human services.

"How would we do that?" Shift yet more of the individual income tax burden to corporate profits and while we're at it levy a bit more on imported goods to make up for foreign factories not creating jobs here or adding anything to our Treasury. Result? A bit higher prices for mfg consumables and much less to hire teachers, docs etc. Adopt the whole package, and voila! any attempt to further widen the wage gap simply results in a more progressive tax, and as JFK said..... a rising tide raises ALL the boats. Something we've gone 25 years without seeing.

Perhaps World inequality has diminished slightly. But at what cost? From what I've seen, all economic action results in a zero-sum game. Some win, others lose. Even at the nation state level. Like it or not we are in an no holds barred economic war with each other and there are going to be clear winners and losers in the years ahead. How many here are willing to sacrifice what they already have so that the poorer nations can achieve parity?

Practical question - who decides whether wealth accumulated by an individual is due to luck or productive contributions? Who is that arbiter? The government?

Should a fashion model's earnings be taxed at the "luck" rate because she was lucky to be born beautiful, or should her earnings be taxed at the "productive" rate because she works long, hard hours on the catwalk, thus inspiring apparel buyers to produce practical clothing lines that make ordinary women feel beautiful?

Should Paris Hilton have her earnings taxed at the "luck" rate because she also happens to have a large trust fund, chooses to be a party girl, and many commenters disdain her personal choices? Should Angelina Jolie have her movie earnings taxed at the "productive" rate because she's a UN spokesperson and all-around Africa do-gooder?

Should a landowner who buys property that radically and unexpectedly increases in value have his capital gains taxed at the "luck" rate because he got lucky, or should he be taxed at the "productive" rate because he must have relied on insight and analysis that underscored his risk-taking?

Should the heirs of typical American baby-boomers with modest estates have their parents' wealth taxed at the "luck" rate, because their parents chose to invest for the long-term rather than spoil their children and transfer wealth instead over their childrens' lifetimes?

It's easy to make broad statements about income or wealth that is lucky rather than earned. It's not so easy, though, to walk through specific examples.

I'll agree that luck v. desert is a difficult question in some circumstances. A few are pretty easy, though.
The Paris Hilton example, for one. An heir to a fortune has done absolutely nothing to "earn" her family's fortune. Inheritances in general are a matter of luck: they depend solely who your parents are. While taxing inheritances heavily might discourage investment and saving by parents, I think that effect is more than made up for by the increased incentives on the child generation who will have to work harder then.
This is the most clearcut example of luck I can think of. [Even lottery winners have done more to "deserve" their earnings, by taking a huge risk and "investing."] The other examples you've listed are essentially all earned, although John Rawls would have his own take on whether a supermodel deserves the rents that result from genetic luck.
There are obviously grey areas, but the essential attributes of luck earnings is that the behavior that leads to such earnings will not be altered if such earnings are to be taxed. In the inheritance example, it's not as if one would [or could] choose different parents or as if one would turn down an inheritance because it is lower than it otherwise would have been. These taxes are good sources of revenue because they don't distort behavior as much as income taxes do. I'd rather have income taxes lowered and the shortfall in revenue made up by taxes on luck.

Hatfield sez:

From what I've seen, all economic action results in a zero-sum game.

.......The fact of it looking that way is why we're having this discussion. What makes econ activity NOT a zero sum game is productivity increases. In mid-industrial revolution the US became rich by outpacing others by just a percent or two in P. gains. In rough numbers we've DOUBLED productivity in the last 25 years but virtually ALL gains have gone to those high up on the "trickle down" ladder with zip-nada or in the case of min wage workers, a 40% taking of what little they had just a decade ago. Thus the troublesome to most rational folk soaring wage/wealth gap.

As for 'parity' with other nations right now we are giving at a tremendous level, GDP growth in the US is in the 2% range while that of China/India and others are 10%. The diff doesn't strike one as being a "biggy" but anything growing at 2% doubles in 35 years while something growing at 10% doubles every 7 years. And we "give" them free access to our markets just as if they were here and there growing prosperity was a help to us.

Birdwin, All of your concerns were addressed a long time ago with a sharply progressive income tax and a substantial inheritance tax on estates over a million or two.

For "some reason" despite the long trend of lower and middle income folk already falling behind and NOT participating in overall productivity increases those coming in in 2000 acted to dramatically increase the widening income/wealth gap at the EXPENSE of 85% of wage earners and 99% who will never be taxed on an inheritance over a couple of million.

Food for thought: It was always a concern that a democracy would fail due to The People voting themselves unsustainable benefits.... with those in power openly exacerbating an already roaring wage/wealth gap of significant benefit ONLY to the top 10-20% what does it say about Who is really running "our?" country? Jack

NE
So the poorer nations are catching up. Nothing wrong with that. It's not like they're stealing it from us. If the Chinese or the Indians or the Mexicans or the Rwandans or the Czechs are willing to manufacture our cars for less money, I don't see a reason to deny them. I'm in the minority on this here, but I don't see a reason why an American life is worth more to me than any other. I won't shed any tears for manufacturing jobs that go from Ohio to [insert name of Mexican or Chinese province]. It's unfortunate for a person to lose a job, sure, but it's fortunate to get a job, too. And, keeping in mind diminishing returns, the utility to those who gain the jobs is probably much higher than the utility loss of those who lose them. As a result, worldwide inequality will continue to fall in all the areas in which free trade is opened up. I don't really see anything wrong with that.

Jack & Harris, Just three questions:

1. And who's paying your bills?
2. What's the projected National Trade deficit for fiscal year 2006, approx. 800 billion dollars?
3. How many years has this deficit been running?

In the end, a final accounting and settlement always falls due. Hopefully, I'll be in my grave when it all falls due.

The answer to the "cost" of the estate tax is to make the rules clearer, not to scrap it altogether.

So what is the best way to tax the luck wealth?

I would personally favor a change in taxation such that income taxes are reduced and taxes on wealth are increased. Or, an ever better system would have income taxes reduced and consumption taxes increased.

If you really want to tax Paris Hilton's luck money, then you could do so by taxing her millions of dollars of consumer purchases annually.

Unfortunately, I believe that the very same people that would support increased taxation of luck earnings would also support increased income taxes. So realistically, there wouldn't be any offsetting tax decrease, now would there?

One other comment- I totally disagree that the heirs of wealthy parents would be incented to work harder and be more productive if their inheritances were heavily taxed. If estates are subject to an extremely high estate tax, then parents will simply transfer wealth over their lifetimes rather than at the end. Would the children work harder if the parents are paying for their houses, cars, education, lavish vacations, cosmetic surgery, expensive jewelry, wedding celebrations, and all of the expenses for their grandchildren?

Right now we have a modest estate tax and you see the above gifts commonly given by parents to their children. Yes, the IRS has an annual limit ($12,000) on gifts, but I speculate that this limit is often ignored or seriously underreported, particularly for gifts of goods or services, rather than outright cash gifts. Furthermore, in some ways the tax code even incents wealth transfer by parents and grandparents to their offspring. For example, a grandparent can fund a 529 education savings plan with $60,000 today, under the assumption that this represents five years of gifting at the IRS max of $12,000/yr. Do you actually believe that a grandparent who funds such an account will NOT give that same grandchild anything else over the next five years? Please...

I have even seen modestly well-do-to parents establish and continue to invest equity in businesses for their less ambitious children to manage...so that their children can maintain a certain lifestyle and have the appearance of productive work.

Parents have an instinctive desire to provide for their children. If the government were to legislate a 99% estate tax, the tax planning industry would immediately begin creating even more innovative ways of transferring wealth before death. Not to mention that the rate of retirement savings and investments would collapse as parents substitute between consumption tomorrow and consumption today.

Haris: I suppose that there is "nothing wrong" with any economic choice. But! an ever increasing trade deficit of $750 Billion (or say each American household buying $7,500 more than we produce and sell) is much like the inheritors of a farm partying in town and mortgaging their back 40 then the front 40 until some poor year has them facing their bankers with less income than there are payments. Hatfield sums it up cynically but well:

"In the end, a final accounting and settlement always falls due. Hopefully, I'll be in my grave when it all falls due."

As for "catching up" I'm all for it, and China is growing at 10% plus while we're at 3% or less and they, India are all running surpluses while we'll soon have Trillion buck trade deficits. But..... to be fair they have been lending us enough against our back 40 for us to keep partying!

Birdwin: "No go" Consumption taxes are ALWAYS regressive and fall more heavily on middle income and lower earners who spend all they make just to make ends meet. (Currently, they/we are spending 5% MORE than the earn, pulling the rest out of home equity) The rich spend a much smaller fraction of their income.

It's a bit difficult to tax wealth itself and those with a lot of assets could live their lives borrowing against the increased value of their holdings and never pay any tax.

That leaves: Taking a swipe at inheritance time, which the Brits call something like a "duty tax" or capital gains, to capture something when the assets are finally sold, and dividend taxes which are currently a far cheaper method of taking revenue from closely held family corporations than taking income.

The Bush Dynasty of course is playing to this set, and much of the run-up in capital gains tax revenue can likely be chased down to those taking advantage of "the one time sale" or discount.

For the last few years we've had twice the number of housing starts as the "sustainable number" (2.3 million) so LOTS of long held "family farms" have benefitted by the Cap Gains break........ but in terms of future tax revs? housing starts are dropping to just half that 2.3 million number and land use and cap gains will drop from that source.

And lastly we expect the very rich to pay for Jr's college, car etc. whether a tax "freebie" or not, and under the old rules estates of $1 - $2 million could be passed on tax free, while something on the order of a 40% tax was levied on the rest. I doubt that Unc would really get 40% of Gates or Buffet's thus far untaxed fortunes, but if they did do you think Gate's daughter could manage OK with half of $50 billion plus being the Ex Director of the Gates Foundation? Or would it be best not to have the ""death tax"" and have working folk tighten their belts a bit to cover the "war" debt?

No statement in political economics is more profoundly incorrect nor emotionally appealing to a demagogue populist politician than: the rich are getting richer and the poorer are getting poorer (with the implication that the gains were wrongfully taken from the poor). Why the case fails to make sense is demonstrated by the following examples:

Suppose two identical people getting identical monthly public assistance , except for credit history, occupy a public housing project and one is offered an opportunity to buy but the other continues to rent.

Suppose the buyer has to incur a mortgage payment of $100 a month more than the renter inorder to purchase the net equity value conveyed.

Assume an inflation rate in real estate of 3% per year in real estate prices. After 10 years, they are both still in their respective units receiving an identical monthly stipend. The renter is still poor, no net worth still living below the poverty line. The purchaser now has both purchased and appreciated equity as is substantially richer that the poor renter. The reality is that the renter has had $100 a month more in discretionary income and has enjoyed a higher standard of living.

A second and more cogent example.

Suppose five people come across a border to NEWLAND. They are alone around a campfire, none has anything more than the shirt on their back. One knows where he can borrow some capital to buy shovels. The borrower provides the shovels to the co-workers for a price equal to one hour of production say $8 per day. The borrower then repays the lender over a one year period, but he has to pay the equivalent of two hours of production during that year. After that the borrower gets to keep the proceeds. Assume the borrower also is a worker with a shovel during this time.

The income statement for the year look like:

Worker Income 2000 hours x $8 revenue /hour 16000
Shovel cost 50 weeks x 5 days x 8 2000
Worker Net Income 14000

Shovel Owner Shovel Work 16000
Shovel Rent 4 Workers x 2000 8000
Loan Cost 4 Shovel x 4000 -16000
Owners Net Income 8000

The next year:Owners Income 24000

The owner was poorer from an income comparison than the other workers the first year, but was 71% richer the next year. The owner also has 5 worn shovels valued at 16000 less depreciation. The point is that each worker became much better off than when they came to NEWLAND because one of them had knowledge and took a chance. Do the workers care that the owner owns $16000 worth of shovels? Probably not until some editorial writer tells them how rich the owner now is relative to them, the newly poor. The owner actually had to live on less each month than the workers during the first year. They probably did not care about that either. There was equality in poverty, but one person's care of capital made them all better off if unequal.

The point lost to the demagogues of wealth distribution is that in order increase workers real income it is necessary to improve the technology available to each worker. That inevitably requires an owner to mass ever larger amounts of capital to purchase more productive
technologies.

Referring back to the example, that an owner has a bunch of shovels or any other productive asset is irrelevant to the equality relationship among the five workers coming to Newland. If the owner sells the shovels and moves to Palm Beach and consumes the sales proceeds, that is different. But as long as the shovels are maintained in a productive relationship with the workers, the owner is a hero as far as the workers are concerned. When that understanding prevails among workers in an economy regarding the relationship between workers, owners and innovation, those workers will likely have an increase in real income. The economy that has the highest amount of capital per worker in an innovative economic setting may well have both the highest per capita income and the largest disparity between the top and bottom.

An attempt to reallocate the wealth arbitrarily in such an economy will likely cause a catastrophic decline in per capita income at the lowest level and a collapse in values of the productive assets.The result is more relative equality, but it is self destructive.

William! Ahhh, indeed it has been a long trek from Henry Ford's sharing some of the increased productivity of the assembly line at the, then, unheard of pay of $5/day to that of Walmart's similar productivity enhancing distribution system who keeps it all for themselves and does there VERY best to "third party" $1.5 Billion of what should be their labor costs to taxpayers and those who pay higher medical premiums for having to cover uninsured Walmarters who show up half dead at the ER. Puzzling too that Costco can pay double what Wmart pays and still be highly successful.

BTW.... productivity has about doubled over the last 25 years, but at the "poor" end of the wage spectrum not only is there NO wage gain, but in the case of the min wage it has fallen some 40% under the iron heel of the "majority". Do you think the best way to celebrate the doubling of overall productivity (ie std of living) is to not only let it "trickle" down to the $80k level, but if you can get away with it to steal bread out of the mouths of the lowest paid? Thanks, Jack

There is no such thing as a trade deficit. We should ignore any argument/call for action based on it.

Products and services comming in balance out the dollars going out... in fact, the products we import are worth more to us than the dollars we export, otherwise we wouldn't be making the trades to begin with.

I think Jack, and people like him, who think Wal-Mart is a bad thing should create a company that employs as many low skilled people as Wal-Mart does and pay them more without higher prices for consumers.

Nelson sez:
There is no such thing as a trade deficit. We should ignore any argument/call for action based on it.

Products and services comming in balance out the dollars going out... in fact, the products we import are worth more to us than the dollars we export, otherwise we wouldn't be making the trades to begin with.

....... were you to delve into an econ text you could see what should happen to those "worth les" dollars piling up in China and SO many other coffers around the world.

..... Using China is it IS a big, big problem today, what SHOULD happen is that with a mountain of useless Bucks around and NOTHING they'd wish to buy here, the value of their currency SHOULD rise and their exports to the US become less attractive. But! they are not allowing that to happen. There are a variety of means of doing this too complex to cover here. But one means of making the "current account" balance is for them to buy US securities with their pile of unwanted US script.

Well, having them "buy" something sounds kinda cool at first, until you wake up and realize it means they are buying the equities in our productive assets. "Cool!" sez the short-sighted winger, "pumps up our DOW!" Ahh, indeed it does and HAS! But we have to recall why anyone buys a stock and that is "for future capital gains and income" Thus MSFT and others are becoming "Chinese companies" and their future cap gains and income will ADD to the outflow of US dollars to China and our numerous other creditor nations at this year's rate of 3/4ths of a Trillion bucks.

You don't have to learn from me, but when guys like Gspan and Bernanke say the word "unsustainable" no matter how quietly and moderated their tone, it might be good to listen and believe. Perhaps you noted the clout Kerkorian and others have wielded with 5% of C or GM stock?

Posted by Nelson at December 15, 2006 01:09 PM | direct link

I think Jack, and people like him, who think Wal-Mart is a bad thing should create a company that employs as many low skilled people as Wal-Mart does and pay them more without higher prices for consumers.

.......... this one is definitely "wingerish" and sorry a company named Costco already pays their people double that of Walmart. None of my posts indicate the highly productive Walmart distribution gains are "bad" but we ONCE lived in a nation where productivity gains as JFK said "was a rising tide that lifted ALL the boats. Now I can SEE why top corporate owners might want to hog all the gains made by their innovations coupled with the hard work of their loyal workforce, but I can't for the life of me understand why average working guys would want to shill for them. Any idea?

Extra credit: Do you see a WORKABLE model in which increasing numbers what you describe as "low skilled" workers doing jobs that must be done can work for less that half what it costs to maintain the most basic living standard? (I'd hope w/o resorting to the creeping socialism of ever more transfer programs to "fill the gap?")

Thanks, Jack

Nelson sez:
There is no such thing as a trade deficit. We should ignore any argument/call for action based on it.

Products and services comming in balance out the dollars going out... in fact, the products we import are worth more to us than the dollars we export, otherwise we wouldn't be making the trades to begin with.

....... were you to delve into an econ text you could see what should happen to those "worth les" dollars piling up in China and SO many other coffers around the world.

..... Using China is it IS a big, big problem today, what SHOULD happen is that with a mountain of useless Bucks around and NOTHING they'd wish to buy here, the value of their currency SHOULD rise and their exports to the US become less attractive. But! they are not allowing that to happen. There are a variety of means of doing this too complex to cover here. But one means of making the "current account" balance is for them to buy US securities with their pile of unwanted US script.

Well, having them "buy" something sounds kinda cool at first, until you wake up and realize it means they are buying the equities in our productive assets. "Cool!" sez the short-sighted winger, "pumps up our DOW!" Ahh, indeed it does and HAS! But we have to recall why anyone buys a stock and that is "for future capital gains and income" Thus MSFT and others are becoming "Chinese companies" and their future cap gains and income will ADD to the outflow of US dollars to China and our numerous other creditor nations at this year's rate of 3/4ths of a Trillion bucks.

You don't have to learn from me, but when guys like Gspan and Bernanke say the word "unsustainable" no matter how quietly and moderated their tone, it might be good to listen and believe. Perhaps you noted the clout Kerkorian and others have wielded with 5% of C or GM stock?

Posted by Nelson at December 15, 2006 01:09 PM | direct link

I think Jack, and people like him, who think Wal-Mart is a bad thing should create a company that employs as many low skilled people as Wal-Mart does and pay them more without higher prices for consumers.

.......... this one is definitely "wingerish" and sorry a company named Costco already pays their people double that of Walmart. None of my posts indicate the highly productive Walmart distribution gains are "bad" but we ONCE lived in a nation where productivity gains as JFK said "was a rising tide that lifted ALL the boats. Now I can SEE why top corporate owners might want to hog all the gains made by their innovations coupled with the hard work of their loyal workforce, but I can't for the life of me understand why average working guys would want to shill for them. Any idea?

Extra credit: Do you see a WORKABLE model in which increasing numbers what you describe as "low skilled" workers doing jobs that must be done can work for less that half what it costs to maintain the most basic living standard? (I'd hope w/o resorting to the creeping socialism of ever more transfer programs to "fill the gap?")

Thanks, Jack

As the title of this thread is World Inequality, and we've mostly discussed the soaring inequality of the US, perhaps we should finish it out with some discussion of the main theme, and especially so as our border with Mexico is THE border of highest income/wealth inequality in the world.

From the Congressional, presidential and media "debate" discussion that delves deeper into Mexico than a km or so below the proposed fencelet might be "unapproved" or subject to some arcane rule buried deep in the Patriot Act, but being a wholistic sort of a guy, I have this idea that much of our immigration problem has its roots in Mexico, and indeed the further south one goes into their agricultural sector the worse are the impacts of an ill-conceived "NAFTA".

Anyone have ideas of how we might implement win-win policies that would improve employment and wages IN Mexico? Or, I suppose even, taking the theme of Becker Posner....... that, hand wring, sad but serious look "We can do nothing" and should begin right away to fence "them" in and ramp up our fortifications while they starve and perhaps revolt "down there?"

"Anyone have ideas of how we might implement win-win policies that would improve employment and wages IN Mexico?"

That one is easy. Fully and legally open up our borders to Mexico for goods, services and people. Let Mexicans work and live in the US legally without restrictions on going back and forth freely between the two countries.

The argument that we should only worry about income, not assets, is completely bogus. Yes, for the vast majority of people earnings matter more than returns on capital--that is because earnings matter more to poor people, and most people are poor. So benefits due to returns on capital are unjustly concentrated on narrow elite. Therefore, we should be focusing on asset inequality, not just income inequality.

Nelson, if you don't want to pay the bill for living in America, please go somewhere else. And then you can STOP WORRYING about what we do with our country, because it belongs to the voters of this country do, because it's our country, not yours.

Otherwise, we have the right to bill you--just as a landlord charges rent--for the privilege of living in our country.

Eliminating any programs to "protect" our farmers and buying more Mexican agricultural products would also help Mexican workers.

And as far as assets vs. income, the 5th Amendment states: "nor shall private property be taken for public use, without just compensation." There is a good reason why our founders believed in strong property rights. It shows the sad state of our educational system that so many "intellectuals" want to destroy those rights.

Nelson????? sez????

"Anyone have ideas of how we might implement win-win policies that would improve employment and wages IN Mexico?"

That one is easy. Fully and legally open up our borders to Mexico for goods, services and people. Let Mexicans work and live in the US legally without restrictions on going back and forth freely between the two countries.

@@@@@@@@@@@@@@ Do you jest?

Eliminating any programs to "protect" our farmers and buying more Mexican agricultural products would also help Mexican workers.

@@@@@@@@@@@@ Yes NAFTA should be rejiggered... but more than that; continuing bilateral talks to find more areas of mutual advantage. We have a problem they have a host of problems. "Let's talk".

Nelson sez:

And as far as assets vs. income, the 5th Amendment states: "nor shall private property be taken for public use, without just compensation." There is a good reason why our founders believed in strong property rights. It shows the sad state of our educational system that so many "intellectuals" want to destroy those rights.

@@@@@@@@@@@ Further readings should turn up the history of taxation. About the only way the Feds can take a share of wealth itself is when it is sold (capital gains) or when it is passed to the next of kin, and much of the justification for the estate tax WAS to break up massive fortunes that we NOT become the land of lords and serfs we "thought" we'd left behind. One does not have to be a "rights destroying" "intellectual" that the right to outspend ALL other countries combined on warmongery and incur $9 trillion in D E B T requires SOME means of paying for it. I guess I'd assume that since voters could hear the lust to continue some form of "cold war" in the Bush 2000 campaign that a vote for them was that of signing a blank check for the higher taxes? Remember!

"Taxes are not what they collect, but what they spend and these guys have spent $3 TRILLION more than they've collected with most of the cost of rogue warmongering still to come".

"Let Mexicans work and live in the US legally without restrictions on going back and forth freely between the two countries.
@@@@@@@@@@@@@@ Do you jest?"

No. "We hold these truths to be self-evident: that all men are created equal, that they are endowed, by their Creator, with certain unalienable Rights, that among these are Life, Liberty, and the Pursuit of Happiness."

Lets examine that for a minute. It says "all men" have the rights of Life, Liberty, and the Pursuit of Happiness, not just all American men... but all men. What could be more injurious to these "unalienable" rights than restricting the free movement of people and having the ruling elites telling them where they may live and where and for whom they may work. All men should be able to visit, trade, live and work in any country they want, regardless of where they were born.

Aside from the philosophical foundations of greater freedom for all being a "good", many of the so called negative externalities could be alleviated by making this freedom legal instead of driving people born in different locations who are willing to engage in voluntary exchanges underground to hide from the repression of the state (which should exist to secure our freedoms, not deny them).

Nelson
You're right, unrestricted migration would probably equalize wealth/income more than any other change of laws anywhere. But it's hardly necessary. Capital, fortunately, is becoming ever more mobile, and it will go where labor is cheapest. Rather than allowing unrestricted migration, which is politically untenable for a variety of unflattering reasons, free trade & free capital flows will accomplish the same thing. In American terms, rather than "foreigners" coming in to take "our jobs," "our jobs" will be outsourced. In any case, free trade & capital movements will lead to more convergence between the rich and poor. Well, they would. "Fortunately," we have the proper lobbies in place to prevent this from happening.

Nelson: Your ideal is interesting and to be sure, by comparison I'm taking "baby steps" from our past policies of "we stole your land by force, but otherwise "fair and square" and screwing Mexico and S-A vigorously and often over the intervening decades, but even bring the focus of the discussion of the "Mexican immigrant problem" below the border and asking that our "diplomats" seek policies beneficial to both is enough to have me labelled "soft on something or other" or "soft in the head" by the fence em off and forget em set.

But! stodgy as it may seem I've reservations as to having no nations and no borders but instead favor a "nations" or groups who can run somewhat differing experiments as we do in the US with different states. For example, I live in Alaska and it takes newcomers quite a while to learn why we might do things differently here, or better example, when our rich salmon fisheries were managed (before statehood) by those in WA DC the resource was wiped out. Today, under Alaskan management it's been restored to the runs of the early 1900's Currently there's a raging controversy over a proposed mining of a huge deposit of copper and gold, but the mining tech used for that type of mine may lay waste to Lake Illiamna (perhaps the largest and best sport fishing Lake in the world) and damage or ruin the huge Bristol Bay Salmon run. I doubt this would turn out well if it were up to a few Congressmen taking 3 day junkets; instead much of the outcome will be decided by those living here, native Alaskans in the region etc.

But more of your post is about the free migration of labor, and I'd agree that where a labor vacuum exists next to a country in labor surplus the vacuum is likely to be filled..... by one means or another.

But! there are concerns here as well. Say one country has sacrificed in some way, say to preserve their rivers, farmlands or the environment in general, while over a century a neighboring nation has laid waste to their natural resources, so when the inevitable famine or disaster strikes them, do they just pack up and move to the "green" country? And try to do the same?

Coming back to the present, fortunately, despite tremendous adversity 99.5% of Mexico's 100 million people chose to stay home each year; they like their country, family and friends. But half of them are under 30 and probably are looking at 30% unemployment in that age group. So the least disruptive policy would seem one that purposely exported some of our labor shortages to Mexico (if need be at the expense of rapidly growing China or India) in hopes of bringing their wages and levels of employment closer to ours.

If we "got it right" 50 or 100 years from now Mexico might play more of a "Canada role" in North America and freedom of choice would seem much easier. Today the problem for both "globalization" and immigration in many parts of the world is simply that the pace is too high.

Haris, also in "free trade" et al it's the pace of change that is far too high and with too many Americans being naively provincial I think we fail to "GET" just how large the labor overhang (unemployed or starving with a "job") is (something like 1.5 billion) and no matter how strong the market of our 5% of the world's population is we can NOT employ (offshore et al) all of them without taking our wages down so far that the living std of the US will be unrecognizable in the very near future.

The economics of "relative advantage" used to speak to the natural advantages one trading nation held over another at similar pay scales not the employment of .50 labor having the "advantage" over the nation of $20 labor.

There are but two choices here (other than ruin) the US has to aggressively find SOMEthing or MANY things to export or adopt policies to dramatically slow our imports. The "free trade" theory is fine but it only works in "the long run" and as Keynes famously said, "In the long run we're all dead". Jack

Nelson: Your ideal is interesting and to be sure, by comparison I'm taking "baby steps" from our past policies of "we stole your land by force, but otherwise "fair and square" and screwing Mexico and S-A vigorously and often over the intervening decades, but even bring the focus of the discussion of the "Mexican immigrant problem" below the border and asking that our "diplomats" seek policies beneficial to both is enough to have me labelled "soft on something or other" or "soft in the head" by the fence em off and forget em set.

But! stodgy as it may seem I've reservations as to having no nations and no borders but instead favor a "nations" or groups who can run somewhat differing experiments as we do in the US with different states. For example, I live in Alaska and it takes newcomers quite a while to learn why we might do things differently here, or better example, when our rich salmon fisheries were managed (before statehood) by those in WA DC the resource was wiped out. Today, under Alaskan management it's been restored to the runs of the early 1900's Currently there's a raging controversy over a proposed mining of a huge deposit of copper and gold, but the mining tech used for that type of mine may lay waste to Lake Illiamna (perhaps the largest and best sport fishing Lake in the world) and damage or ruin the huge Bristol Bay Salmon run. I doubt this would turn out well if it were up to a few Congressmen taking 3 day junkets; instead much of the outcome will be decided by those living here, native Alaskans in the region etc.

But more of your post is about the free migration of labor, and I'd agree that where a labor vacuum exists next to a country in labor surplus the vacuum is likely to be filled..... by one means or another.

But! there are concerns here as well. Say one country has sacrificed in some way, say to preserve their rivers, farmlands or the environment in general, while over a century a neighboring nation has laid waste to their natural resources, so when the inevitable famine or disaster strikes them, do they just pack up and move to the "green" country? And try to do the same?

Coming back to the present, fortunately, despite tremendous adversity 99.5% of Mexico's 100 million people chose to stay home each year; they like their country, family and friends. But half of them are under 30 and probably are looking at 30% unemployment in that age group. So the least disruptive policy would seem one that purposely exported some of our labor shortages to Mexico (if need be at the expense of rapidly growing China or India) in hopes of bringing their wages and levels of employment closer to ours.

If we "got it right" 50 or 100 years from now Mexico might play more of a "Canada role" in North America and freedom of choice would seem much easier. Today the problem for both "globalization" and immigration in many parts of the world is simply that the pace is too high.

Haris, also in "free trade" et al it's the pace of change that is far too high and with too many Americans being naively provincial I think we fail to "GET" just how large the labor overhang (unemployed or starving with a "job") is (something like 1.5 billion) and no matter how strong the market of our 5% of the world's population is we can NOT employ (offshore et al) all of them without taking our wages down so far that the living std of the US will be unrecognizable in the very near future.

The economics of "relative advantage" used to speak to the natural advantages one trading nation held over another at similar pay scales not the employment of .50 labor having the "advantage" over the nation of $20 labor.

There are but two choices here (other than ruin) the US has to aggressively find SOMEthing or MANY things to export or adopt policies to dramatically slow our imports. The "free trade" theory is fine but it only works in "the long run" and as Keynes famously said, "In the long run we're all dead". Jack

Jack, your posts are misguided enough when submitted once. I count your last post three times, twice here, one in Posner's. If you can't write anything sensible, you could at least learn to click the button once.

Thanks! and wouldn't it be great if the post showed up after posting!

As for "misguided" and not "sensible" after "tagging" me for using what's in econ books for discussing economic issues, I assume those words too have 4th dimension "meanings" among the, remaining, adherents to faith-based "voodoo" econ that has left us as the largest debtor nation in the history of the world? But if you would like to practice I'd certainly be open to some sensible criticism. Jack