Thomas Sowell, National Treasure

5 thoughts on “Thomas Sowell, National Treasure”

1. I find measuring wealth clouds the issue in a different way. Imagine the state revaluates your home from 200k to 250k. On paper your net worth just went up 50 thousand dollars, but in reality you’re bringing in less per year thanks to the increased tax liability. That 50k is imaginary money but the class warfare rabble-rousers can point to the net worth numbers and claim “the rich got richer” and justify even more tax increases. Bill Gates’ high net worth is primarily due to Microsoft stock, but no matter how much the price of the stock rises, he doesn’t actually get another dime unless he sells it. The problem with that is he can’t sell large quantities of his stock at one time without impacting the price. To calculate his worth by multiplying the current spot price times the quantity he owns paints a falsely high picture of what he could get if he actually liquidated. Again, I’m not saying he isn’t loaded, just slightly less loaded than his net worth would indicate. If Buffet liquidated all of his assets he would end up with quite a lot less than people estimate his net worth to be.
   Of course the study is based on what’s reported to the IRS only so Buffet probably doesn’t figure into the top 0.01% because of the methods you described. Only individuals who filed a return for every year were considered so death was not a factor but aging might have been. The median income for the top bracket went down so people weren’t simply bumped off the list by other rich people earning even more. So it would seem to indicate that during the years observed, the tope tier’s earnings went down while the bottom tier’s earnings went up. The big take away is simply that people aren’t stuck in their tax bracket. Some poor people get richer and some rich people get poorer.
   People like Buffet fall squarely into the “survival of the fittest” category I mentioned before, but the point of the study was to show that over time, individuals move across economic borders. Despite Mr. Buffet’s long term upward trend, there have been times when he took a hit. People tend to ignore his sometimes massive losses because 70% of more money than I’ll ever see is still more money than I’ll ever see. As a congressman’s son you could argue he started from an advantageous point, but you don’t have to look too far to find children of other prominent politicians that went the other direction. Economic mobility in both directions is still a possibility in the USA.
   As for taxes, only end consumers pay taxes, fees, or penalties anyway. This isn’t a matter of policy but rather an unavoidable fact of life. That’s why the punitive taxation schemes cooked up by class warfare practitioners never pan out the way they want them too.

2. You’re falling into the income versus wealth “trap” in the class warfare debates. The upper level people tend to NOT earn their income in the traditional way of going to a workplace and receiving a paycheck. They earn their income through investing (ala Buffett). There are two ways to invest either income investing or asset/wealth building. The upper tier investor relies on both which is why all the “tax the rich!” nonsense is just a ploy to rile up the masses with little actual gain to tax revenue generation.
   In times of high taxes, upper tier investors choose an asset/wealth building strategy which allows taxes to be deferred. Conversely, when certain taxes on passive income are low (dividends, short term cap gains, etc), then those top tiers may include more income investing into their portfolio. They do not need or want to generate income. They merely need to generate enough to pay the bills, donate to charity, etc. They will generate excess income to re-invest only when doing so is advantageous from a tax perspective. This is also why folks like Buffett can talk about their low effective tax rate — because they have the capability and flexibility to apply strategies designed to “pay the bills” while minimizing tax burden.
   If we were to make dividends be taxed at 99% then the only people paying taxes on dividends would be retirees trying to live off them. Buffett et al. would simply switch to a capital gains strategy. If we jack up capital gains then they switch to dividend paying stocks. If we jack up BOTH then they just let their money sit in the investments (so no cap gains) while minimizing their dividend pull to meet their expenses (so less spending on luxury items and frills).
   Society’s low information voters think that the “high income” or “high net worth” individuals live like Jay-Z with 12 houses and 50 cars. They don’t. Again, i’ll point to Buffett as an exemplar case.

3. http://www.treasury.gov/resource-center/tax-policy/Documents/incomemobilitystudy03-08revise.pdf
   Here’s the study cited for everyone’s critique.

4. Those are both relevant points, but this particular study follows specific people’s incomes in decline over those years. Those years include a lot of boom and bust cycles and some severe tax increases. The recession led many stocks to reduce or eliminate dividends which would tend to impact the incomes of the wealthy disproportionately. Of course that doesn’t mean they became poor so much as slightly less rich. It still debunks the ubiquitous battle cry “the rich get richer”. Some do. Many lose it all in a bad investment. A sort of economic survival of the fittest is bound to enshrine a successful few in a position of permanent wealth. The question is whether a society that allows that does itself more harm than good?

5. I generally agree with junkscience, but I am not impressed with this essay by Sowell, especially on the income issue. The two most likely reasons why the people in the top 1% in 1996 fell out by 2005 are 1, they are dead, and 2, others made more money. Not that those in the top 1% lost money.