23 ms·

1% is obviously a simplified, talking-point metaphor; not a literal 1 out of every 100. The sliding cliff, gray-area seems to be an issue regarding the problem

1% is obviously a simplified, talking-point metaphor; not a literal 1 out of every 100. The sliding cliff, gray-area seems to be an issue regarding the problematic portion is around the top .01% or perhaps smaller still. Another issue is that said narrow group is incredibly skilled in exploiting whichever rules are enforced, buying elected officials from all three branches of US government under the current campaign finance rubric and generally making sure their interests are first. Folks whom have tax accountants, tax attorneys and investment managers are able to hyperoptimize purposefully-byzantine tax code while grandpa does TurboTax (in the US, take a look at the 1040 (full, non-EZ form) for all the odd, special interest tax deductions which clutter up forms and have the own extra forms (Schedule _)). Complexity is a game to catch the unweary, confuse most people and create an official "elite qualifying miles" gambit to reduce taxes in "certain" situations. It comes down to whom has the most influence over collection, allocation and redistribution of taxation.

cm2187 10y ago
If we focus on the .01%, I am not sure what we are observing says much about inequality in our society. More to do with the fact that 50 years ago, a successful US entrepeneur would sell its products to a few millions americans, if he was lucky enough to be a national success. And if it was international (even more rare, and taking many years) a few more millions western europeans. The rest of the world was basically not a potential customer. Today a successful entrepeneur can go directly international, and with a client base that includes not only the US and Western Europe but also a huge (and quickly growing) middle class all over the world. This is several orders of magnitude the potential reach than 50 years ago. Successful entrepeneurs make billions not millions anymore. So it's not absurd that we end up with more extreme wealth in the top .01%, and I think it is kind of structural to a modern, global society. If we focus on the 1%, or rather the delta between the 1% and the 99%, I think we are rather observing skill supply/demand mismatch. In the US and Western Europe there is an oversupply of unskilled or low-skills labour, driving their wages down (relatively to skilled labour). So they will do worse than the more sought after skilled labour. It can partially be mitigated with better education. But part of it is also structural. Not everyone can be a good programmer or engineer. Unless we find a way to change IQ distributions, we may have a long term problem here that we may not be able to solve.
- id 10y ago
  > In the US and Western Europe there is an oversupply of unskilled or low-skills labour, driving their wages down (relatively to skilled labour). You're right, but the reality is that even skilled workers rarely make it to the top 1%. In fact, they might not even find a job in their field. Even if you're super-high-skilled and work in Silicon Valley as a programmer, your net income probably doesn't come close to the entry bar of the top 5%.
  - cm2187 10y ago
    But the examples cited in the article all relate to an undersupply of physicians or lawyers, or professions that have not learned to scale.
    - merpnderp 10y ago
      Part of the problem is the US education system seems to not be turning out enough people with quality educations, even when there isn't a shortage of of credentialed people. For instance, there are plenty of lawyers. Most of them don't make much money and leave the industry quickly. Yet it is difficult to find a highly qualified lawyer to handle difficult issues. With medical professionals, there is simply a huge shortage. Same with researchers, engineers, etc. My company hires H1B visas not because they are cheaper, but because we can't get anyone here to do the job at reasonable rates. Reasonable being new graduate hires start out at CPI adjusted rates to near top end in silicon valley.
      - ratboy666 10y ago
        "not because they are cheaper, but because we can't get anyone here to do the job at reasonable rates." Um... that is the definition of cheaper. In your own justification sentence. H1B must (should) be paid at your prevalent rate -- and this may not be what you consider a "reasonable" rate.
      - scottlocklin 10y ago
        "My company hires H1B visas not because they are cheaper, but because we can't get anyone here to do the job at reasonable rates." Sounds like "H1B visa holders are cheaper" to me. High quality engineers should be commanding on the order of $250k. In the absence of H1B visa holders lowering wages, that's what high quality engineers would command as an average salary; same as a good doctor or lawyer. The main reason doctors and lawyers cost that much: you can't H1B them. Lawyer skills are too specific to a locality and subsection of the trade; for whatever reason, law school doesn't actually help with this -experience, networking (particularly for criminal law) and apprenticeship is how it ends up working. LLD is just a hoop that needs to be jumped through to get such apprenticeships. The AMA is the most effective labor union in America, keeping out highly skilled doctors from abroad by denying their skills validity.
harryh 10y ago
Your understanding of what high earners are doing to reduce their taxes is mostly incorrect. They're just earning most of their income as capital gains or qualified dividends instead of ordinary income, so it's taxed at a lower rate. It's not really all that complicated.
- peteretep 10y ago
  I think in turn you are describing what 1%ers do to reduce their tax, and not 0.1%ers, which involves all sorts of shady schemes often involving "loans" that are not intended to be repaid.
  - fegu 10y ago
    That specific loophole was closed in Norway just half a year ago. Sigh... Lucky you to still have it in the US. (or not, depending on your position)
  - hkmurakami 10y ago
    ex: Larry Ellison taking out a 9 figure loan with Oracle stock as collateral. He prevents a capital gains tax hit, maintains control of Oracle, and gains liquidity. Kill 3 birds with 1 stone.
    - charlesdm 10y ago
      And how is this a problem? You would only do this if interest rates are low, and if you believe the stock will appreciate more over the long run than it would cost you to service the interest on the loan. Also, if the value of the stock tanks, the bank will come collecting and sell the shares you pledged as collateral. Second, this is a part of doing business - you can leverage anything (real estate, stocks, bonds, etc)
      - hkmurakami 10y ago
        Generally speaking I think individuals have the right to minimize their taxes through legal means, no matter how convoluted. But I also think it's reasonable for people to draw the line somewhere for what they consider fair or unfair. Another example of an instrument that has benefited tremendously from our recent ZIRP + rising equity markets is the Grantor Retained Annuity Trust, which will likely leave a worse taste in people's mouths compared to Ellison's maneuvers. [1] It is a fair point for people to ask whether these legal maneuvers should remain legal. [1] http://www.bloomberg.com/news/articles/2013-12-17/accidental-tax-break-saves-wealthiest-americans-100-billion http://www.bloomberg.com/news/articles/2013-12-17/accidental...

cm2187 10y ago

If we focus on the .01%, I am not sure what we are observing says much about inequality in our society. More to do with the fact that 50 years ago, a successful US entrepeneur would sell its products to a few millions americans, if he was lucky enough to be a national success. And if it was international (even more rare, and taking many years) a few more millions western europeans. The rest of the world was basically not a potential customer. Today a successful entrepeneur can go directly international, and with a client base that includes not only the US and Western Europe but also a huge (and quickly growing) middle class all over the world. This is several orders of magnitude the potential reach than 50 years ago. Successful entrepeneurs make billions not millions anymore. So it's not absurd that we end up with more extreme wealth in the top .01%, and I think it is kind of structural to a modern, global society. If we focus on the 1%, or rather the delta between the 1% and the 99%, I think we are rather observing skill supply/demand mismatch. In the US and Western Europe there is an oversupply of unskilled or low-skills labour, driving their wages down (relatively to skilled labour). So they will do worse than the more sought after skilled labour. It can partially be mitigated with better education. But part of it is also structural. Not everyone can be a good programmer or engineer. Unless we find a way to change IQ distributions, we may have a long term problem here that we may not be able to solve.

id 10y ago
> In the US and Western Europe there is an oversupply of unskilled or low-skills labour, driving their wages down (relatively to skilled labour). You're right, but the reality is that even skilled workers rarely make it to the top 1%. In fact, they might not even find a job in their field. Even if you're super-high-skilled and work in Silicon Valley as a programmer, your net income probably doesn't come close to the entry bar of the top 5%.
- cm2187 10y ago
  But the examples cited in the article all relate to an undersupply of physicians or lawyers, or professions that have not learned to scale.
  - merpnderp 10y ago
    Part of the problem is the US education system seems to not be turning out enough people with quality educations, even when there isn't a shortage of of credentialed people. For instance, there are plenty of lawyers. Most of them don't make much money and leave the industry quickly. Yet it is difficult to find a highly qualified lawyer to handle difficult issues. With medical professionals, there is simply a huge shortage. Same with researchers, engineers, etc. My company hires H1B visas not because they are cheaper, but because we can't get anyone here to do the job at reasonable rates. Reasonable being new graduate hires start out at CPI adjusted rates to near top end in silicon valley.
    - ratboy666 10y ago
      "not because they are cheaper, but because we can't get anyone here to do the job at reasonable rates." Um... that is the definition of cheaper. In your own justification sentence. H1B must (should) be paid at your prevalent rate -- and this may not be what you consider a "reasonable" rate.
    - scottlocklin 10y ago
      "My company hires H1B visas not because they are cheaper, but because we can't get anyone here to do the job at reasonable rates." Sounds like "H1B visa holders are cheaper" to me. High quality engineers should be commanding on the order of $250k. In the absence of H1B visa holders lowering wages, that's what high quality engineers would command as an average salary; same as a good doctor or lawyer. The main reason doctors and lawyers cost that much: you can't H1B them. Lawyer skills are too specific to a locality and subsection of the trade; for whatever reason, law school doesn't actually help with this -experience, networking (particularly for criminal law) and apprenticeship is how it ends up working. LLD is just a hoop that needs to be jumped through to get such apprenticeships. The AMA is the most effective labor union in America, keeping out highly skilled doctors from abroad by denying their skills validity.

harryh 10y ago

Your understanding of what high earners are doing to reduce their taxes is mostly incorrect. They're just earning most of their income as capital gains or qualified dividends instead of ordinary income, so it's taxed at a lower rate. It's not really all that complicated.

peteretep 10y ago
I think in turn you are describing what 1%ers do to reduce their tax, and not 0.1%ers, which involves all sorts of shady schemes often involving "loans" that are not intended to be repaid.
- fegu 10y ago
  That specific loophole was closed in Norway just half a year ago. Sigh... Lucky you to still have it in the US. (or not, depending on your position)
- hkmurakami 10y ago
  ex: Larry Ellison taking out a 9 figure loan with Oracle stock as collateral. He prevents a capital gains tax hit, maintains control of Oracle, and gains liquidity. Kill 3 birds with 1 stone.
  - charlesdm 10y ago
    And how is this a problem? You would only do this if interest rates are low, and if you believe the stock will appreciate more over the long run than it would cost you to service the interest on the loan. Also, if the value of the stock tanks, the bank will come collecting and sell the shares you pledged as collateral. Second, this is a part of doing business - you can leverage anything (real estate, stocks, bonds, etc)
    - hkmurakami 10y ago
      Generally speaking I think individuals have the right to minimize their taxes through legal means, no matter how convoluted. But I also think it's reasonable for people to draw the line somewhere for what they consider fair or unfair. Another example of an instrument that has benefited tremendously from our recent ZIRP + rising equity markets is the Grantor Retained Annuity Trust, which will likely leave a worse taste in people's mouths compared to Ellison's maneuvers. [1] It is a fair point for people to ask whether these legal maneuvers should remain legal. [1] http://www.bloomberg.com/news/articles/2013-12-17/accidental-tax-break-saves-wealthiest-americans-100-billion http://www.bloomberg.com/news/articles/2013-12-17/accidental...