On Sun, Jan 26, 2003 at 01:20:31PM -0600, Dan Minette wrote: > The Federal reserve has just issued its latest report on net worth in 2001, > and the distribution thereof. Not unexpectedly, the tend of wealth > concentration continues. The top 10% now has 80.7% of total net worth in > the United states, up from 78.9% in '92. The bottom 50% now has 1.3% > compared with 1.5% in '92. The top 25% owns 93.9%, compared with in 92.7 > in 92; while the bottom 75% owns 6.1% compared with 7.3% in '92. > > Net worth, BTW, includes the value of one's home-mortgage.
Do you mean net worth includes the equity one has in one's home? It doesn't seem to make sense to add the mortgage liability as positive in net worth -- net worth would be assets minus liabilities. > So, Bush unvails a plan to focus tax cuts on dividends, thus > preferentially cutting the taxes of those who already are the most > wealthy. The logical conclusion is that he thinks the trend of > concentration of wealth is a good thing. I don't. Does anyone else > agree with Bush? It is a tough question, obviously, and not black and white. I think it makes sense for those who most efficiently allocate capital to have more capital under their control, since it will tend to benefit everyone in the long run. But are the majority of the people with the capital these days doing a good job of efficiently allocating it? I'm not sure, but anecdotal evidence appears to be negative. Certainly many corporate execs and board members are not doing a good job. And what about private companies? I've worked for two start-up fiber optics components companies, so I have had some contact with venture capitalists and investment bankers, and I haven't been impressed with their capital allocation skills either. But there are a few good, and wealthy, capitcal allocators. If more "top 10%" people ran their businesses and their investments like Warren Buffett, then I would have no problem at all with the distribution of wealth. If you aren't familiar with Buffett's philosophy, I will summarize it by saying that he uses "common sense" about people and life to locate and promote efficiency in business, but he does not let the pursuit of profit override his sense of ethics [1]. So, the solution to America's problems is obvious -- Warren Buffett for President. Unfortunately, I don't think he'd take the job [2]. If we can't count on the "top 10%" to efficiently allocate our capital, then we should divide it evenly, right? Well, Dave Berry's quote notwithstanding [3], I don't know that if the "bottom 50%" had more of the wealth that it would be used more efficiently. One only has to look around to see so many people buying lottery tickets, cigarettes, alcohol, latest fashion fads, etc. rather than saving money or investing for the future. Not that saving is a panacea either, just look at Japan whose economy has been in the doldrums for years, but they have a high personal savings rate, and if Americans started saving significantly now, there could be other problems. [4] If we don't the most efficient way to allocate the capital among everyone, then what should we do? I think we should fix inefficiencies in the system where we find them. As for the dividend taxation question, I do think there is an inefficiency in the system. Because dividends are taxed at a higher rate than capital gains, corporations are at a disincentive to issue dividends. But many, many corporations don't invest the money NOT paid out as dividends efficiently, even though they claim their acquisitions and share buybacks are increasing shareholder value, they rarely are. Mostly, they increase the empire of the executives at the expense of the shareholders, or worse, sometimes the money goes directly into the executives pockets instead of the shareholders. This is not efficient. But I don't think eliminating or reducing dividend income tax is the way to go. It certainly doesn't benefit the large number of people who hold stocks in tax-deferred accounts. And the tax law is already an inefficient mess: it needs to be simplified, not made more complicated. Between corporate tax laws, municipal bonds, two types of IRA's, 401(k)'s, Keogh's, alternative minimum tax, social security, and stock options it seems a real mess. Let's not make it more complicated. I think the best solution would be to eliminate all corporate taxes, and tax the wealth at the regular income tax rate when it is distributed to shareholders by either dividends or capital gains. But this is probably too redical to have a chance of passing. A more likely to succeed approach might be to allow corporations to deduct from their taxes all dividends distributed, while having dividends continue to be taxed as income when received by individuals. This removes the disincentive for corporations to inefficiently hold on to cash earnings, and it doesn't complicate the individual tax code. And while we're at it, pass some regulation to give shareholders more control over the corporations they own. By the way, another tax issue that doesn't seem to get much complaint but has always seemed inefficient to me is the mortgage interest deduction. Why should someone who can afford a down payment on a home get a perk while the poor person who can only rent does not? Government encouraging home ownership, pashaw! If that was the main goal, then the money could be better spent funding the various FHA programs for first time home buyers. The mortgage interest deduction mainly helps middle class homeowners afford a slightly more expensive home, as far as I can tell. If you must give a tax deduction for shelter, why not give it to low income renters so they can get out of the trap of paying their money to wealthy landLORDs :-) and become the lord of their own manor? [1] Buffett's letters to Berkshire Hathaway shareholders are full of anecdotes and pithy expressions of his ideas. You can read them at http://www.berkshirehathaway.com/letters/letters.html, also collected in book form, _The Essays of Warren Buffett_ edited by Lawrence A. Cunningham [2] Buffett would probably say something like, "when a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact" [3] See, when the GOVERNMENT spends money, it creates jobs; whereas when the money is left in the hands of TAXPAYERS, God only knows what they do with it. Bake it into pies, probably. Anything to avoid creating jobs. --Dave Barry [4] http://www.efficientfrontier.com/ef/103/hell4.htm : interesting article discussing how saving actually becomes a competition in a simple economy, but it may be too simplified to apply to a complex economy -- "Erik Reuter" <[EMAIL PROTECTED]> http://www.erikreuter.net/ _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
