Is 'Free Money' Harming Us All?

I don't think inherited wealth is the problem, the problem is spending money not yet earned. You waited for your money before buying the camera, yes that is consumerism to already have a purchase in mind, but you're not buying it on credit and worrying about how to pay for it later.
That's the problem with the subprime loans where people were banking on future equity or not planning for any kind of temporary loss of employment.

Our economy is based on consumerism to the extent that it requires buying on credit to keep it moving at the same rate. Now that people are using less credit, even if it's healthier in the long run, it will contract our economy somewhat. I think this recession is a necessary first step in healing our country's economy (and delays effects of peak oil).

 

I think Nerfer has half the problem there - buying things on credit is extremely bad when taken to the extreme. Credit is there for one reason: To allow you to make large purchases you otherwise couldn't afford with a structured payment plan. When you take out a mortgage, you do so knowing what the monthly payments are and if you can afford them. When you but a big screen TV on your credit card, you should do so knowing that you have the money in the bank for it and can write a check at the end of the month. However our government and country have, in general, taken it to the extreme. Purchases are made with no plans or intentions of ever being able to actually pay it off. We have credit cards with $20 thousand+ limits for people making $60,000 each year. Wth?

The other part of the problem is in the concentration of wealth. Someone who has more money than they need does the logical thing - they stick it in the stock market and make more money off it (ideally). With so much money tied up in stocks, it's not circulating. That money isn't being spent on goods and services. It's not trading hands. It's just sitting there. And for letting their money just sit there, these rich guy make more money! Think about that for a second... we have an economy where a majority of our money (wealth) is generated by the money itself by just sitting there. It's not generated through work and effort. It's not dug out of the ground, or grown, or produced. It just simply *is*. Our money isn't based on anything other than our firm belief that there will always be more of it.

 

I agree with nerfer that the problem is not gifts or inheritance but credit. The problem is people are buying things that they can't afford to pay for. Estates and gifts are already heavily taxed. See the below from wikipedia:

For amounts not greater than $10,000, the tax liability is 18% of the amount.
For amounts over $10,000 but not over $20,000, the tentative tax is $1,800 plus 20% of the excess over $10,000.
For amounts over $20,000 but not over $40,000, the tentative tax is $3,800 plus 22% of the excess over $20,000.
For amounts over $40,000 but not over $60,000, the tentative tax is $8,200 plus 24% of the excess over $40,000.
For amounts over $60,000 but not over $80,000, the tentative tax is $13,000 plus 26% of the excess over $60,000.
For amounts over $80,000 but not over $100,000, the tentative tax is $18,200 plus 28% of the excess over $80,000.
For amounts over $100,000 but not over $150,000, the tentative tax is $23,800 plus 30% of the excess over $100,000.
For amounts over $150,000 but not over $250,000, the tentative tax is $38,800 plus 32% of the excess over $150,000.
For amounts over $250,000 but not over $500,000, the tentative tax is $70,800 plus 34% of the excess over $250,000.
For amounts over $500,000 but not over $750,000, the tentative tax is $155,800 plus 37% of the excess over $500,000.
For amounts over $750,000 but not over $1,000,000, the tentative tax is $248,300 plus 39% of the excess over $750,000.
For amounts over $1,000,000 but not over $1,250,000, the tentative tax is $345,800 plus 41% of the excess over $1,000,000.
For amounts over $1,250,000 but not over $1,500,000, the tentative tax is $448,300 plus 43% of the excess over $1,250,000.
For amounts over $1,500,000, the tentative tax is $555,800 plus 45% of the excess over $1,500,000.
For years before 2007, additional tax brackets applied for amounts over $2,000,000 with marginal rates of up to 55%

 

So a person's internal self dicipline is a minor or non-factor?

So who gets to make these decisions, and who gets the money?

There is indeed a critical need to control the financial forces that concentrate wealth and power to a very small minority. However, figuring out who gets to make these rules is actually a more important issue to solve than what the present (and future) rules are. Since every rule has a loophole (or a loophole can be created) the rulemaking mechanism needs to be dynamic, public, and enforceable.

 

Money "tied up" in stocks is not "just sitting there" at all. It's invested in companies that use it to run their business. Companies buy/lease office space, pay utilties, hire employees, fly their private jets, etc. with that money. If the company earns a profit, the shareholders might be paid dividends. If the company loses money, the shareholders might lose their investment. Either way, the money is very active.

 

Your theory is simpleton, Marxist nationalist in nature, and rings popular with the segment of the population who are typically ignorant, uneducated, and believe the government, not themselves, should provide.

High quality of life can only be achieved through a system of rewards. The system must reward those who pursue high levels of education, abide by the laws of the land, are leaders, and have the capability to innovate.

When the government or some other entity takes a large proportionate of money from its citizens, the above mentioned qualities are simply not worth achieving for many.

You also mention with your scheme prices on many items would be drastically lower. Really? Hmm, wonder how low the prices are for that camera you coveted or a new 50" flat screen are in North Korea, Cuba, Venezuala, Russia, or Zimbabwe?? Or are they even available within reason in these countries?

Again, here we go with another post by an embittered person who for some reason could not in his mind "keep up with the Jones'".

The lesson here is live within your means and be happy with what you have and limitless opportunities this country can afford you if you possess the desire, the will, work ethic, and integrity to do so.

Rick
#4 2006

 

Actually, no... Lets take a look at a start up company and see how they operate. Things are going well for them, so they have an IPO. They sell a bunch of stock to the public, and guess what happens to that money? It's goes to the owners of the company. A few years down the road things are still going well, so what happens? The initial owners, who still own a ton of stock, sell some. Does the company get anything from that sale? Nope! The company awards stock options to it's management team... does the company get any money when those individuals sell their stock? Nope!

When i bought Apple at $60/share, did they see a penny of that money? Nope, the person i bought it from did. When i sold it at $120/share, did Apple share in my profits from that sale? Nope!

In short, the buying and selling of stock is nothing more or less than one person paying another person for a piece of paper that has a perceived value. Sure, they might get dividends off the stock (what, a buck a year on a $100 stock, if they're doing well?), but in the end what you're buying is the idea that that piece of paper will have an increased perceived value at a later date. The company that paper is for doesn't get any of the profit for that sale.

Now, a company can offer to buy and sell it's own stock. Typically they'll sell it if they have problems with cash flow and have no credit available. They'll buy it in order to increase value for their shareholders. However, doing too much of this is called market manipulation and is closely watched. Companies do not, however, sell stock in order to pay for the things you said they do. To finance their operations they actually sell goods and services. When you buy a computer from Apple, you're paying for the parts, the factories, the offices, the utilities, the labor, the management, the jets - essentially, you're paying a portion of what it costs the company to run. Anything more is profit that goes towards expansion or the shareholders.

If a company could use it's stock price to pay for it's office space, employees, utilities, etc, then what cost do they have for actually producing their product? None! You've conveniently wrapped it all up in their stock. Now that company can sell their widget and make 100% profit. Amazing!

 

Your theory is simpleton, libertarian in nature, and rings popular with the segment of the population who are typically wealthy, greedy, and believe the free market is perfect in regulating society.

The top tax bracket in the US varied between 63% and 94% from 1932 to 1980. It was above 90% for more than 15 of those years.

US GDP (in billions of 2000 dollars) rose from 643.7 to 5161.7 in this time period. That is a 700% increase for an average of 14.6% per year. Fortunes were made and people continued to pursue riches and power.

In 1981 the rate dropped to 50% then in 38% in 1990 and has been in the high 30's since.

US GDP (in billion of 2000 dollars) rose from 5291.7 to 11523.9 from 1981 to 2007. This a 118% increase for an average of 4.3% per year. Fortunes were made and people continued to pursue riches and power.

Since the 80's federal debt has rapidly increase.



Where is the benefit to the nation from lower taxes on top earners? Where is the disincentive to work hard and succeed?


The reality is not simply and lies in the center of these two polar opposites.


Historical Top Tax Rate
U.S. Department of Commerce. Bureau of Economic Analysis

 

FreshAir, you're missing a rather important part of the supply/demand curve in your thinking. The curve basically dictates, for a given product, the optimal price point to sell that product. If you increase the supply of the product, the price drops. If you increase the demand, the price increases. it's pretty straightforward stuff, and you seem to get that.

What you don't get is the scale we're dealing with. We have 300 million people in this country. Of those, only a fraction are rich enough to make purchases as you describe. the top 1% control over 1/3 of our total wealth. the top 20% control over 80% of our total wealth. The rest are living day to day or are amassing huge amounts of debt. When you look at the supply/demand curve, do you think 60 million have more of an impact on the price of an object than 240 million?

The other thing you have to consider is the object you're buying. Lets take the camera from your OP. Lets take your most basic digital camera - it's pretty cheap. It appeals to those with much smaller incomes, and is easily affordable. It probably doesn't make the company much money. A few steps up from there, you start getting more advanced features, like a zoom. That costs a bit more money, but it's an easy "upsell" to the customer. A few more levels up, and you start getting into the camera's you can sell to those with a bit of extra cash. A few more levels, and you start getting into camera's designed for professional photographers. Simply put, the camera you desired for the past year was designed, priced, and marketed for a select audience that could afford to pay a little more than you would have liked to. You could have bought a cheaper camera for $50 and it wouldn't have had an impact on you. But you wanted the features of the more expensive camera and thus you paid market price for them.

 

That's great. And I mean that sincerely! You seem to have done well for yourself. You apparently gained the American Dream. If you fully own your primary residence, have a second vacation home, all well furnished, own numerous autos, carry no credit card debt, and can live fully independent of any outside income for nearly FIVE years, well, you are definitely very well off and well above middle class; oh and did I forget to mention, most assuredly NOT the Joneses... I think most Americans or any person in the world would be insulted by your implication that you are just an "average Joe".

Your expenditures throughout the years have gainfully employed countless craftsmen and women, from the construction workers who built your houses, the corporations that supplied materials for your houses, the regular Joe on the auto assembly line to the supplier for all the thousands of parts in every automobile. The list goes on and on. YOU and YOU alone have made a positive mark on our society. You may not realize it, but many, perhaps thousands, of people who see you or know you aspire to be more like you and therefore follow your lead of working hard to live a better life for themselves and their families.

And now you believe throughout all those years you have accumulated your wealth and success that if the government was to tax you at a much greater rate you or the government somehow would be able to contribute to our society in a more positive fashion than you have in the past. Or even that that government (not YOU) would be able to make our society a better place.

Er, what am I missing here?? Substantially higher taxes will help us to an even better standard of living???

Rick
#4 2006

 

This kind of talk :

is so extreme.

Government, regulation and taxes have their place. Certainly a balance must be struck between socialistic and capitalistic forces. The economy must exist to serve everyone and individual responsibility must also be maintained.

 

I asked some sensible questions. Prius Chat is a forum for discussions that can be mutually beneficial, but only if that is what is wanted. What do you want?

You start out saying the average Joe has no self dicipline and then shout at the end of the post "I AM the JONESES". (This will be my only less than positive remark.) I was hoping for more thoughtful commentary, such as the excellent points made by eagle 33199 and jhinton. There is no question that spending habits vary vs. income. The more worthwhile topic is how to restrain the forces that concentrate the money to a very small group of individuals. This is a real problem, and a very hard one.

What determines when money is free vs. earned? Is social security free or earned? Is a work bonus for good performance free or earned? Does discovering oil on land you bought get classified as free or earned? Is a good investment return free or earned? Poker earnings? These are very serious questions, not insults or jabs. The "solution" you are advocating depends deeply on the answers.

Unfortunately, the key is in the details, not a general statement. (By the way, I made it clear that something is needed.) Just pick one detail you thing would have majority agreement and let's discuss further.

That's why I avoid using degrading names. I am here for the thinking discussions, and my questions are true questions.

Do you want higher taxes? Again, a serious question based on what you have stated. Or are you targeting a more specific type of taxation change?

Is being rich the problem, or is it being legally successful, or some other criteria? What defines a "rapist"?

 

Certainly so. But the original poster proposes absolute confiscation of all inheritances, etc. Not the balance I believe leads to a healthy, innovative society.

As a responsible, educated, hard working parent I wish to leave as little or as much as I wish to those who I choose. Why should my family have to live at a Salvation Army shelter if I die? Is my "free money" my family will use to survive going to drive up the price for that little digital camera you so desire?

I'd rather have my children and widowed wife benefit from my savings in the event of my untimely or natural death rather than give it to some government bureaucrat to decide on who to "give" my savings (perhaps to bailout an auto company so they can continue paying $71/hr to the wrench turners on the line).

If Freshair wishes to give his money to the government (and they will accept it) then I suggest he wills his estate to the government and perhaps he could help them now by sending them checks on a weekly basis... Every little bit helps...

Rick
#4 2006

 

Agreed, there are no inheritance taxes in Canada, and we like it that way.

 

I love welfare checks.

 

MJ: oh, forget it, you'll never see beyond your own self if you go off like that.