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Following Income: Some Problems

phattonez

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It seems to me that many people have gotten in the habit of following income trends by comparing classes over time. This is a deeply, deeply flawed method.

A substantial fraction of workers ages 25 to 55 (about 40 percent between 2002 and 2003) experience large changes in earnings from one year to the next (defined here as changes in earnings of 25 percent or more).

That right there should be enough to dismiss any claims of income trends using census data, but let's go deeper. In case you were wondering about household income:

Large changes in household income from year to year (defined here as changes in income of 25 percent or more) are less common than large changes in individual earnings. Still, about 25 percent of U.S. households experienced such large changes in income between 2004 and 2005.

It's the same problem with following household income by class! Of course, I like to point out the flaws that household income is unreliable because the composition of the household changes with time, divorces are at about 50% which makes this statistic even more unrealiable (unless this data is somehow corrected by excluding that, but anyway, this isn't my only criticism of following household data).

Now let's look at people who have gained more than 25% and those who have lost more than 25%.

Figure2.gif


All sourced here. https://www.cbo.gov/ftpdocs/95xx/doc9507/MainText.3.1.shtml#1088998
 
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Isn't one of the purposes of following income by classes to discern and posit reasons for changes, so as to make more-informed policy decisions?
 
Isn't one of the purposes of following income by classes to discern and posit reasons for changes, so as to make more-informed policy decisions?

But there is no reason to follow it if the composition of the group varies greatly with time. It would be like following the trends of fish in a lake over a year. Over the whole year you might see a general trend of decreasing amount of fish, but is that because the amount of fish in the lake is truly decreasing, or is it because of the fish that migrate there in spring and leave thereafter, giving the perception of a general decrease. The same is true of looking at groups: it can mask some truly important information. Think of a baseball team. You can look at team hitting and say it has gotten worse in the year. However, when looking at individuals you see some doing well and some doing not so well. What is the reason for the decrease in hitting? Probably injuries and fatigue, but by looking at the group you ignore the great seasons that some of the players are having. You can't make the conclusion that all of them are falling in hitting if the group as a whole is.
 
phattonez said:
Over the whole year you might see a general trend of decreasing amount of fish, but is that because the amount of fish in the lake is truly decreasing, or is it because of the fish that migrate there in spring and leave thereafter, giving the perception of a general decrease.

That is exactly the kind of reason you want to research groups: to find out what makes the composition of the group change over time.

If your point is that a researcher shouldn't focus on only on a single characteristic (say, household income), then I would tend to agree. However, I would add that one must discern not only any trends evident in the (household income) time series, but one must posit reasons why that trend is evident. For that, one necessarily studies the composition of the group over time; in particular, whether or not the changing (if it has changed) composition is a reasonable hypothesis that explains any evident trend (or why there is no trend).

For example, household formation has historically been an important variable for housing demand. Personal and household incomes have historically played a significant role in determining household formation, along with employment and a few other demographic variables. Can you imagine making policy without an appreciation of the role played by household formation?
 
phattonez said:
Think of a baseball team.

And if I am the manager and I need a pinch hitter, I want to know the stats of individuals. If I am putting together my lineup for tonite's game, I want to field the team with the best overall batting average, taking into consideration each players history with both the opposing team and the opposing pitcher, and any physical ailments that my guys might have at the moment which might limit their effectiveness.

You gotta know the group; you gotta know the composition.
 
And if I am the manager and I need a pinch hitter, I want to know the stats of individuals. If I am putting together my lineup for tonite's game, I want to field the team with the best overall batting average, taking into consideration each players history with both the opposing team and the opposing pitcher, and any physical ailments that my guys might have at the moment which might limit their effectiveness.

You gotta know the group; you gotta know the composition.

And we don't compose the All-Star teams with teams, we fill them with players.
 
That is exactly the kind of reason you want to research groups: to find out what makes the composition of the group change over time.

If your point is that a researcher shouldn't focus on only on a single characteristic (say, household income), then I would tend to agree. However, I would add that one must discern not only any trends evident in the (household income) time series, but one must posit reasons why that trend is evident. For that, one necessarily studies the composition of the group over time; in particular, whether or not the changing (if it has changed) composition is a reasonable hypothesis that explains any evident trend (or why there is no trend).

For example, household formation has historically been an important variable for housing demand. Personal and household incomes have historically played a significant role in determining household formation, along with employment and a few other demographic variables. Can you imagine making policy without an appreciation of the role played by household formation?

But instead of doing all of that, why not just look at individual income data? You wouldn't need to mention all of those changes if you just look at individual people; it seems much more reliable.
 
And we don't compose the All-Star teams with teams, we fill them with players.

The starting team is (now) pretty much selected by fan ballot, so it is a different situation. Nonetheless, the same principles apply: I go to my bench, I still look at the match-ups.
 
phattonez said:
it seems much more reliable.

"reliable" for what use? Is the purpose of your examination of the data to ascertain trends/implications/inform policy making in manufacturing household goods/building houses/informing the debate on national housing policy or to study trends in income, or what?

If your sole purpose is to study trends in income, then certainly you want to put considerable, if not total focus on per capita income and its sources. But if you are studying the impact of income on the myriad facets of the economy that are impacted by household formation and household incomes, you must necessarily expand your analysis.
 
Here's another problem: immigration.

Brink Lindsey said:
The share of the total population born in foreign countries has jumped from 5 percent in 1974 to 12 percent in 2004. Relatedly, people of Hispanic origin have climbed from 5 percent of the population in 1974 to 14 percent in 2004.

The huge wave of Hispanic immigration over the past generation has been good for the immigrants and their families, and good for the country as a whole. But this big influx of relatively low-skilled immigrants has to have depressed median income compared to what it otherwise would have been. Unfortunately, I’m not aware of good studies that quantify the effect.

Quoted here: Faking Real Income - Hit & Run : Reason Magazine

Sourced here: Amazon.com: The Age of Abundance: How Prosperity Transformed America's Politics and Culture (9780060747664): Brink Lindsey: Books
 
The other problem of following income trends as it relates to household income is the volatility that I showed at the beginning of this thread. If income falls, is it indicative of a serious problem or just that someone has retired? When someone retires, the income may have fallen, but that does not make the household poor.

Then there's the distinction between "income" and "wealth." Once a person retires, their income generally drops. This is reflected in the fact that seniors have lower household incomes than other Americans, earning $20,761 per year, compared to the median overall household income of $37,005. This does not, however, make them poor. After a lifetime of working and saving, seniors have stores of wealth with an average net household worth of $103,608, far surpassing any other age group with comparable income. Sixty-five percent of seniors own their homes outright.

Medicare Madness - Reason Magazine

Gee, I wonder then if baby boomers are bringing down household income statistics.
 
I really don't see the point in all of this. What's it matter that an individuals income may vary. That is to be expected. What does matter is what the income levels are, regardless of what the names are of the individuals who happen to be in that group at any one particular point in time.

Would anyone really want to live in a society where everyone makes around $600 a year except for one person who makes a 10 trillion dollars a year? Would it really matter if everyone took turns being the 10 trillion dollar person?

or would it be better to live in a socity where most people make between $50k and $500k?
 
I really don't see the point in all of this. What's it matter that an individuals income may vary. That is to be expected. What does matter is what the income levels are, regardless of what the names are of the individuals who happen to be in that group at any one particular point in time.

Why does that matter? Why do you care what your neighbor makes, it's none of your business frankly. That's why people don't share salary info, someone always gets envious...a shame adults behave this way.

or would it be better to live in a socity where most people make between $50k and
$500k?
You're trying to pick earnings for everyone else, including the market. It's a fools errand. That's an attempt to dictate the market, i.e. like central planning. It's always flawed. It also happens to be contrary to the idea of a free market where individuls are free to negotiate value. You want to dictate value to everyone. You can try to grab that power, but you may find people enjoy being free from your yoke. I know I am :)
 
The reason behind having different ways of viewing, interpreting, charting data is to compare the data and see any correlations that might exist - overall - the end result is a deeper and more well rounded understanding of how things work.

To want to ignore one aspect and suggest we remove it from consideration is really taking just one variable out of the equation.
 
Why does that matter? Why do you care what your neighbor makes, it's none of your business frankly. That's why people don't share salary info, someone always gets envious...a shame adults behave this way.

Thats what I am saying. It really doesn't matter what income bracket a particular individual is in. What matters is how many people are in that bracket, how much they make (on average, not as individuals), and how much disparity there is between brackets, and whether it is an amount of disparity that works well for our economy.

If there was 308 million people, and on average, people who produced made $140,000, then that sounds pretty good. But what if 307,999,999 only made ten dollars a year and one guy made all of the rest (in the trillions). You have to admit that there would be a problem with that (unless you happened to be the "one guy"). Obviously, income distribution DOES matter, to denie that is to be absurd.
 
The reason behind having different ways of viewing, interpreting, charting data is to compare the data and see any correlations that might exist - overall - the end result is a deeper and more well rounded understanding of how things work.

To want to ignore one aspect and suggest we remove it from consideration is really taking just one variable out of the equation.

Sure, I can agree with that. By measuring the difference between the mean income ($140,000) and the median income ($47,000) it is quite clear that we have an income disparity issue in this country. To ignore that one aspect or to remove it from consideration would be insane.

So exactly what can we get out of the fact that there is a some income mobility? The fact that we all have the opportunity to increase or decrease our income? Thats fine and dandy. So exactly how often do the people at the bottom get to have a billion dollar income? The reality is that despite the fact that there is a certain amount of income mobility, it is fairly small. One third of the people who are now listed on the Forbes 400 list were BORN onto that list. That tells me that the rich most likely stay rich and become even richer. About one third of the people on that list came from families with "significant advantages" (meaning that they were born rich, just not uber rich), and about a third are truely self made zillionairs. Out of 308,000,000 million Americans, only about 400 are super duper uber wealthy, and only about 150 of those people came from the ranks of the non wealthy. Not that I would expect everyone to get rich, but there is really not nearly as much income mobility as some would make it out to be. I'm glad that we have some income mobility, but I am not so much sure that the income mobility that we have differs that much from what we would have due to luck or chance. Out of 308,000,000 million people, it's really not that suprising that 150 non-rich would become mega-rich.
 
The other problem of following income trends as it relates to household income is the volatility that I showed at the beginning of this thread. If income falls, is it indicative of a serious problem or just that someone has retired? When someone retires, the income may have fallen, but that does not make the household poor.
.

But arn't there always individuals retiring, and arn't there always a pretty steady stream of new people to replace them? I don't understand why the income of a particular individual matters. If the income of a particular income bracket of people falls, that is an indicator that the average income in that bracket has fallen, nothing more, nothing less. It doesn't matter that some of the names or faces have changed.

phatz, was it you who used the example a few weeks ago of "Person A" "B" and "C" showing them to have wildly different income in different years but in the end it all averaged out to be the same? I still don't understand the purpose of that. Very few people go from $15k incomes one year to million dollar incomes the next year and then to $50k incomes the following year. Our lifetime incomes rarely would average out to be equal. Sure, a rare poor person can become poor or a rich person could become poor, but those kinds of income swings are much more dependant upon luck than anything else. It's quite rare for a middleclass person to every become rich, no matter how hard they try or how capable they are. they just simply don't have the personal contacts that tends to make people rich, or the amazingly rare good luck.

Maybe I am reading more into this than I should. Yes, there is some income mobility in this country and that is a good thing. I just hope that you are not trying to justify the huge income disparity that we have by claiming it is OK because we have some income mobility or that in the end everyones salary averages out to about the same thing.
 
Thats what I am saying. It really doesn't matter what income bracket a particular individual is in. What matters is how many people are in that bracket, how much they make (on average, not as individuals), and how much disparity there is between brackets, and whether it is an amount of disparity that works well for our economy.
I'm saying none of that can be used to justify tax/spend policy, or overall prosperity, etc. The first part, and all the other stuff you wrote. Disparity doesn't work for the economy. I WORK IN THE ECONOMY. Your misinterpretation of disparity doesn't trump my freedom to work a lot, or not at all.

In business when more people buy an iphone, one may think "more people want an iphone".
When more people don't work for higher pay, one may think "fewer people want to work for higher pay".
But then, if you have the option of making people who work for higher pay, subsidize the lower pay....oh boy, then they have some incentive to label it differently don't they?
Let's then tell all those people that choose to not strive for higher pay, it's actually NOT their fault, it's the fault of the "rich bitches". And it's our due to go get it from them!! Yeah!!! (for shame)

Disparity also doesn't really matter. It *should* increase as the economy does better. Some percentage of people will always want to do bare minimum, that will always be relatively close to 0.
Some will always want to maximize earnings, they will always make more, and more, as populations increase, markets open up, etc.
So yes, as the global economy grows :
2000 Lowest income = 0, top 1% = $1M
2020 Lowest income = 0, top 1% = $1.5M

Obviously that's a simplification, but I would assume the low end would always hover closer to 0, and the upper end should be growing *AS FAST AS POSSIBLE* (legally). Which means, the income gap is a sign of economic prosperity and opportunity. How do you argue otherwise?

If there was 308 million people, and on average, people who produced made $140,000, then that sounds pretty good. But what if 307,999,999 only made ten dollars a year and one guy made all of the rest (in the trillions). You have to admit that there would be a problem with that (unless you happened to be the "one guy"). Obviously, income distribution DOES matter, to denie that is to be absurd.
If there were such a distribution, it would certainly be some systemtic issue that was obvious, and the "disparity" would still not matter.

Look at it this way. Let's say we have a country A, everyone makes $50K and works up to $100K at retirement @55 (hah). At retirement they all get $50K. Your utopia right?
In a country B, everyone works right off, at $200K, saves up enough to invest early, compound those gains over years, and retire 20 years earlier at $50K.
If you used this bracket/analysis, the income gap is lower in A, and fewer people are in the lower income bracket. Yet I would prefer to be the person in country B. The people in B not only are wealthier, they have 20 priceless years of their life back. Statistics fail? (or did I fail, it's late) Considering I place a high value on the approach of company B, I certainly don't want to use statistics or policy that would trend towards A, and not B.

Either way, people should be free and have opportunity and the rule of law. After that, the rest is just academic IMO.
 
I'm saying none of that can be used to justify tax/spend policy, or overall prosperity, etc. The first part, and all the other stuff you wrote. Disparity doesn't work for the economy. I WORK IN THE ECONOMY. Your misinterpretation of disparity doesn't trump my freedom to work a lot, or not at all.

In business when more people buy an iphone, one may think "more people want an iphone".
When more people don't work for higher pay, one may think "fewer people want to work for higher pay".
But then, if you have the option of making people who work for higher pay, subsidize the lower pay....oh boy, then they have some incentive to label it differently don't they?
Let's then tell all those people that choose to not strive for higher pay, it's actually NOT their fault, it's the fault of the "rich bitches". And it's our due to go get it from them!! Yeah!!! (for shame)

Disparity also doesn't really matter. It *should* increase as the economy does better. Some percentage of people will always want to do bare minimum, that will always be relatively close to 0.
Some will always want to maximize earnings, they will always make more, and more, as populations increase, markets open up, etc.
So yes, as the global economy grows :
2000 Lowest income = 0, top 1% = $1M
2020 Lowest income = 0, top 1% = $1.5M

Obviously that's a simplification, but I would assume the low end would always hover closer to 0, and the upper end should be growing *AS FAST AS POSSIBLE* (legally). Which means, the income gap is a sign of economic prosperity and opportunity. How do you argue otherwise?


If there were such a distribution, it would certainly be some systemtic issue that was obvious, and the "disparity" would still not matter.

Look at it this way. Let's say we have a country A, everyone makes $50K and works up to $100K at retirement @55 (hah). At retirement they all get $50K. Your utopia right?
In a country B, everyone works right off, at $200K, saves up enough to invest early, compound those gains over years, and retire 20 years earlier at $50K.
If you used this bracket/analysis, the income gap is lower in A, and fewer people are in the lower income bracket. Yet I would prefer to be the person in country B. The people in B not only are wealthier, they have 20 priceless years of their life back. Statistics fail? (or did I fail, it's late) Considering I place a high value on the approach of company B, I certainly don't want to use statistics or policy that would trend towards A, and not B.

Either way, people should be free and have opportunity and the rule of law. After that, the rest is just academic IMO.

I am following you, but I don't think that you totally "get" just how disparit our income distribution is. We are not talking the difference between $50k and $200k (that you used in your scenarios), we are talking the difference between $15k (minimum wage) and a billion dollars (what the top earners make). Reality in the US is much closer to my first fictional senerio than than either of your fictional senarios, and both of your fictional senerios are fairly similar to what I was suggesting the situation SHOULD be.

I suspect that we are a lot closer on this issue that you want to believe.

Please understand that I am not suggesting that the government should directly subsidise anyones wages (although I do believe that corporations freqently subsise the wages of their top executives, for political reasons, and at the expense of lower paid workers and shareholders), only that it should tax the crap out of people who have incomes that far exceed the "norm" (defined by what our highest skill level workers earn, surgions, - around $400k/year) and allow people who earn less than that to keep every penny they make so that they can save and invest and move into the upper income brackets (and pay the higher tax rates), and retire comfortably without government interferiance or having to rely on social security or other direct forms of welfare. And I am not talking about seizing all income over a certain amount, mearly taxing it, pretty much like we do now (just a tad bit higher rate). It's a social contract that is practical, sensable, and would tend to improve our economy (by penalizing people who earn normal wages a little less, and by penalizing people who get paid extroidinary wages a little more).

In an indirect way, we would be subsidising the non-rich (by them not having to pay taxes) and we would be penalizing the wealthy (by them paying "more than their fair share), and maybe some people don't think that is "fair". Life is not fair, suck it up rich people, you are doing fine and will continue to do fine no matter what the top tax rate is, you made it to the top, now sit back a little and stop impeding other people make it to the top also.
 
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Please understand that I am not suggesting that the government should directly subsidise anyones wages (although I do believe that corporations freqently subsise the wages of their top executives, for political reasons, and at the expense of lower paid workers and shareholders), only that it should tax the crap out of people who have incomes that far exceed the "norm"

So people who grow our economy should be penalized?
People who push themselves beyond the norm should be penalized?
What's special about the "norm"? You want to promote average?

It makes no sense.

And they not only directly subsidize wages with despite your desire, they indirectly subsidize the **** out of them as well. Unemployment = direct. SS, medicaire/aid, indirect. All the other services they get for a far lower cost. It's all giving money/services/goods, without having earned them...paid for involuntarily by someone who did.

Every dollar that is earned is at someone elses expense. Trying to paint lower income earners as victims is an age-old argument that still isn't based on reason.

If we are stuck with this injustice, and a complicated tax code, and with tax brackets based on income, I do believe there is reason to question why the highest tax bracket is around $200K, when incomes go into the billions. But that's a very narrow debate, and I'm not about to claim it's in the name of "justice". And it's also not related to income inequality as "bad" thing (which it isn't).
 
It seems to me that many people have gotten in the habit of following income trends by comparing classes over time. This is a deeply, deeply flawed method.
That right there should be enough to dismiss any claims of income trends using census data, but let's go deeper. In case you were wondering about household income:
It's the same problem with following household income by class! Of course, I like to point out the flaws that household income is unreliable because the composition of the household changes with time, divorces are at about 50% which makes this statistic even more unrealiable (unless this data is somehow corrected by excluding that, but anyway, this isn't my only criticism of following household data).
Now let's look at people who have gained more than 25% and those who have lost more than 25%.
Figure2.gif

All sourced here. https://www.cbo.gov/ftpdocs/95xx/doc9507/MainText.3.1.shtml#1088998
So because households change over time, tracking the net effects of many households doesn't yield useful information?
 
So people who grow our economy should be penalized?
People who push themselves beyond the norm should be penalized?
What's special about the "norm"? You want to promote average?

It makes no sense.

And they not only directly subsidize wages with despite your desire, they indirectly subsidize the **** out of them as well. Unemployment = direct. SS, medicaire/aid, indirect. All the other services they get for a far lower cost. It's all giving money/services/goods, without having earned them...paid for involuntarily by someone who did.

Every dollar that is earned is at someone elses expense. Trying to paint lower income earners as victims is an age-old argument that still isn't based on reason.

If we are stuck with this injustice, and a complicated tax code, and with tax brackets based on income, I do believe there is reason to question why the highest tax bracket is around $200K, when incomes go into the billions. But that's a very narrow debate, and I'm not about to claim it's in the name of "justice". And it's also not related to income inequality as "bad" thing (which it isn't).


Our biggest difference is our view of who grows our economy and whether taxes on exceptionally high income actually penalizes the people who grow our economy.

I think that it is the masses who grow our economy. Roughly the people between the 15th percentile right up to the 99th percentile or even a little higher. They buy the vast majority of products, they produce those products, they are responsible for designing most of those products, they think up the business concepts.

And the idea that increasing taxes on someone who makes tens of millions or hundreds of millions of dollars penalizes someone is ludicris. For the most part, people who have that type of income have personal wealth beyond my comprehension. Someone who makes $10 million a year may only net $7 million after (current) taxes, but the remaining $7 million is far more than they could ever spend, outside of just pure waste. So what if they had to pay an extra million or two or three in taxes? They would still have more income than most people make in their entire lives. At some point, additional income and/or wealth stops improving our lifestyles and becomes almost an abstract number. Once someone has reached that point, they either stop working, or keep working just because they enjoy doing what they do. A higher tax rate is very unlikely to change their actions. If anything, if they have this drive to make all the money in the world, a higher tax rate will likely make them work even harder, as to reach their goals they will have to be even more productive.

I agree with you that the highest tax bracket starts at an income that is too low. There is absolutely no point in taxing the heck of of people who have salaries within the norm, and our current highest tax rate starts at about half of the average earnings of commonly found highly skilled professions, so it most certanly penalizes people who are well within our norm.
 
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Our biggest difference is our view of who grows our economy and whether taxes on exceptionally high income actually penalizes the people who grow our economy. I think that it is the masses who grow our economy.
Test it. Take a population say, China 30 years ago. Why were they not booming them? But they start reforms based on capitalism, and low and behold they grow leaps and bounds, create an enormous middle class, lift millions out of poverty. The people did not change!! The masses were the same, how are they so productive now, as opposed to then? Admit it that *something else changed*.

Or look at the Asian Tigers. Similar populations to many other countries, how did they do so much better? Same reason...capitalism.

If you want an analogy, think of catalysts. They do not do all the work, and the process they catalyze may normally happen, but at far slower rates (or not at all). But you add a catalyst, and BOOM. Rapid change. Same with capitalism. You essentially incentivize the creation of catalysts. Taxes doubly disincentivize it. Both as a penalty on the higher income, and because that tax revenue is used to subsidize NOT working (or not being a catalyst). So someone who might be a catalyst today, if given enough of a free ride, may rationally opt for the lower stress life of just getting by...but with very little need for income.

I agree with you that the highest tax bracket starts at an income that is too low. There is absolutely no point in taxing the heck of of people who have salaries within the norm, and our current highest tax rate starts at about half of the average earnings of commonly found highly skilled professions, so it most certanly penalizes people who are well within our norm.
I oppose it in principle. In practice, if stuck with brackets, adding higher brackets to ease the overall burden is not a terrible idea. Someone making $300K a year seems odd to lump in with someone making $100M a year, no doubt.

But even then the tax rate is typically less important than what the revenue is being spent on, and who is spending it.

Government is the wrong way. Politicans are the wrong ones to empower. I don't think politicians, or the masses who vote based on propoganda, have more of a right to that money than a financial investor who took risk to earn it.
 
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Test it. Take a population say, China 30 years ago. Why were they not booming them? But they start reforms based on capitalism, and low and behold they grow leaps and bounds, create an enormous middle class, lift millions out of poverty. The people did not change!! The masses were the same, how are they so productive now, as opposed to then? Admit it that *something else changed*.

Or look at the Asian Tigers. Similar populations to many other countries, how did they do so much better? Same reason...capitalism.

If you want an analogy, think of catalysts. They do not do all the work, and the process they catalyze may normally happen, but at far slower rates (or not at all). But you add a catalyst, and BOOM. Rapid change. Same with capitalism. You essentially incentivize the creation of catalysts. Taxes doubly disincentivize it. Both as a penalty on the higher income, and because that tax revenue is used to subsidize NOT working (or not being a catalyst). So someone who might be a catalyst today, if given enough of a free ride, may rationally opt for the lower stress life of just getting by...but with very little need for income.

I oppose it in principle. In practice, if stuck with brackets, adding higher brackets to ease the overall burden is not a terrible idea. Someone making $300K a year seems odd to lump in with someone making $100M a year, no doubt.

But even then the tax rate is typically less important than what the revenue is being spent on, and who is spending it.

Government is the wrong way. Politicans are the wrong ones to empower. I don't think politicians, or the masses who vote based on propoganda, have more of a right to that money than a financial investor who took risk to earn it.

I will admit it. Incentive is what changed, I am sure you will agree. Thats why I am all for capitalism. But that in no way defeats my arguement that in capitalism the masses create product demand, and produce the vast majority of the products.
 
I will admit it. Incentive is what changed, I am sure you will agree. Thats why I am all for capitalism. But that in no way defeats my arguement that in capitalism the masses create product demand, and produce the vast majority of the products.

Under the umbrealla infracture created by capitalists (catalysts), sure. Under the security of a military funded primarily by capitalists, sure.

You are missing the risk/reward part of capitalism. Just making a good is not high risk if you walk up to an established business and simply ask for a job in exchange for labor. 10 year of a near-guaranteed salary, benefits...where was the risk (relative to investing money AND time?) People have that choice every, single, day.
1. Risk it all on your own venture
2. turn bolts for someone else in exchange for a relatively stable salary/benefits.

They choose #2. The market provides. Freedom is scary like that, it puts people face to face with themselves.
 
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