Is it feasible to switch from an income-based tax system to a wealth-based tax system

[Imran Siddiqui]

We're talking about savings that isn't invested but is used for speculation.

What do you think people keep savings under their beds until the value of money is higher?. Most savings are placed in banks. Banks invest the money they have in their vaults.

And I would say that while the productivity of labor has increased greately with capitalism, real wages have increased little thoughout the era, and have decreased since the 70s in this country.

Check our real wages from 1800 to now. There is an INCREDIBLE spike in real wages per capita in capitalist countries. There will be ebb and flows but capitalism generally will dramatically increase the real wage.

[DuncanK]

Originally posted by Imran Siddiqui

We're talking about savings that isn't invested but is used for speculation.

What do you think people keep savings under their beds until the value of money is higher?. Most savings are placed in banks. Banks invest the money they have in their vaults.

Did you read the discussion in this thread that I had with JohnT? The Law of Diminishing Returns shows us that people will not invest all of their money because they will get less and less return from the next dollar they invest. So, the money that is not invested is used for speculation. This is all according to neo-classical thought except the neo-classical economists just conveniently failed to see that Savings doesn't equal Investment.

[DuncanK]

Originally posted by Imran Siddiqui

And I would say that while the productivity of labor has increased greately with capitalism, real wages have increased little thoughout the era, and have decreased since the 70s in this country.

Check our real wages from 1800 to now. There is an INCREDIBLE spike in real wages per capita in capitalist countries. There will be ebb and flows but capitalism generally will dramatically increase the real wage.

Sure, but you're taking this out of context. I was comparing real wages to productivity gains.

[JohnT]

Edit: Nevermind, I didn't read correctly. Sorry about that, Duncan.

[DuncanK]

Originally posted by JohnT
Edit: Nevermind, I didn't read correctly. Sorry about that, Duncan.

np, i think you meant to put this in another thread though

[Goingonit]

Originally posted by DuncanK
Savings doesn't equal Investment.

It is hard to save money and not invest it, unless you bury your money into the backyard.
Think, what does the bank do when you give it your money? It invests it! The only dollars that aren't invested are the physical ones that are actually in people's hands - and for each dollar bill, there are whole gobs of dollars that are created through debt and investment.

It is actually very hard to take cash money out of the economic system. Besides burning it and putting it in your sock drawer, there is nothing you can do. If you give it to someone else, they'll spend it, and so on until someone saves it - when it goes into equities, bonds, or the bank, and is invested in any case.

Furthermore, as to your point about diminishing returns, the effect is inversely proportional to the size of the system - in one as big as the economy, it would take a really serious amount of money (such as $10bil) for a well-diversified portfolio to begin to have any real moderating effect on the markets. Similarly for saving in banks - they won't stop borrowing your money for quite a while.

And how many billionaires do you know who keep any money uninvested?

And don't tell me to reread the thread - I did, and everybody's right except you.

[DuncanK]

Originally posted by Goingonit


It is hard to save money and not invest it, unless you bury your money into the backyard.
Think, what does the bank do when you give it your money? It invests it! The only dollars that aren't invested are the physical ones that are actually in people's hands - and for each dollar bill, there are whole gobs of dollars that are created through debt and investment.

It is actually very hard to take cash money out of the economic system. Besides burning it and putting it in your sock drawer, there is nothing you can do. If you give it to someone else, they'll spend it, and so on until someone saves it - when it goes into equities, bonds, or the bank, and is invested in any case.

Furthermore, as to your point about diminishing returns, the effect is inversely proportional to the size of the system - in one as big as the economy, it would take a really serious amount of money (such as $10bil) for a well-diversified portfolio to begin to have any real moderating effect on the markets. Similarly for saving in banks - they won't stop borrowing your money for quite a while.

And how many billionaires do you know who keep any money uninvested?

And don't tell me to reread the thread - I did, and everybody's right except you.

Let me start by addressing your comments about banks. The Federal Reserve pumps money into banks to control the level of investment in the economy. As they do this the interest rate drops. The interest rate drops because businesses are only willing to make investments at the lower interest rate. This is due to the Law of Diminishing Returns.

Now lets look at that interest rate. The interest rate that you get from your savings account goes up and down the same way that the interest rate that businesses pay to invest goes up and down. You make a decision to either keep your money in the bank or do something else with it based on that interest rate. Most people tend to buy stocks or bonds or something. Now just because you buy a stock doesn't mean that you have made an investment. Keep in mind that when I'm talking about investment I'm talking about an expenditure that will result in the production of goods and\or services. Back to the stock that you bought. That stock has a speculative value. That means that you have paid for it under the assumption that the price will go up. The only economic value that it has is a store of wealth. The money that you paid for it does not neccessarily go to increase the overall production of goods and services.

[Goingonit]

Originally posted by DuncanK


Let me start by addressing your comments about banks. The Federal Reserve pumps money into banks to control the level of investment in the economy. As they do this the interest rate drops. The interest rate drops because businesses are only willing to make investments at the lower interest rate. This is due to the Law of Diminishing Returns.

Interest rate drops are totally artificial. Alan Greenspan decides what they will be. He's not a universal law, he's just head of the bank.

I also don't think you understand the lending process between the Bank of the US and private banks that well.

Now lets look at that interest rate. The interest rate that you get from your savings account goes up and down the same way that the interest rate that businesses pay to invest goes up and down.

No, it doesn't. The interest rate businesses gets depends on the prime rate (ultimately the fed rate, see above) and the amount of risk banks are willing to accept.

You make a decision to either keep your money in the bank or do something else with it based on that interest rate. Most people tend to buy stocks or bonds or something. Now just because you buy a stock doesn't mean that you have made an investment. Keep in mind that when I'm talking about investment I'm talking about an expenditure that will result in the production of goods and\or services.

It's not buying a stock that results in the production of goods and services, it's owning a stock. Owning a share in a company is like owning a company, only you own it with a bunch of other people. Buying a business is clearly an investment, yet the act of purchase doesn't result in creation of goods/services. It's owning the business, and thus, through the business, producing goods/services.

Back to the stock that you bought. That stock has a speculative value. That means that you have paid for it under the assumption that the price will go up. The only economic value that it has is a store of wealth. The money that you paid for it does not neccessarily go to increase the overall production of goods and services.

The money that I pay for it, unless I buy a stock from the company itself, doesn't even go to the company. It goes to some other guy, who will use it for his own purposes, but will also not put it in his sock drawer. The money keeps moving around, effectively creating more of itself.

GNP, a measure of total exchange of goods and serivces, is a product of 2 quantities: "mass" (amount of currency in circulation) and "velocity" (speed at which currency is circulated). If you buy a stock, besides the effect of stock ownership, you're adding to the velocity of the money supply, effectively allowing more people to buy more things.

Lastly, I have problems with your definition of investment. Buying consumer goods isn't an investment, yet it results far more directly in the production of goods and services than, say, buying a stock. Webster's Dictionary defines an investment as, "the outlay of money usually for income or profit".

[Imran Siddiqui]

The Law of Diminishing Returns shows us that people will not invest all of their money because they will get less and less return from the next dollar they invest.

As long as the return is positive from the investment, there will be investment. As Goingonit pointed out it is related to the size of the economy and the immense size of the US economy means that there will be positive returns for just about all possible investment.

Most people tend to buy stocks or bonds or something. Now just because you buy a stock doesn't mean that you have made an investment.

Are you kidding? I know what you are defining investment as (which is flawed, btw... by your definition consumption is investment), but buying ownership in a company results in money going to someone who WILL invest that money. If you buy it directly from the company it goes to them. If you buy it from a broker, then he will use that money and invest it himself.

[Zkribbler]

Originally posted by Goingonit
And how many billionaires do you know who keep any money uninvested?

Any who've bought diamonds or furs for their wives, girlfriends or mistresses; any who have bought statutes, paintings, etc. for the pure enjoyment of having them; any who own Rolls Royces; any who own miles and miles of undeveloped land. This was the wealth I was trying to get at when I started this thread, the wealth that's not being used to produce anything.

It makes more sense to tax non-productive wealth than income streams, which by their very nature are indicative of wealth production.

But I see practical problems, and many of you have pointed out more--such as the flight of assets out of the country. Most people have only one or two income streams, so it's fairly easy to track income. But to track assets is slippery.

A few posters have expressed concern that citizens would dump assets in order to put their money into investments. But I perceive a migration of money from idle assets into income-producing investments as a good thing. It means more money for everyone.

I'm going to read the Henry George blub soon. Thanks for the link.

Flubber, give Mrs. Flubber a kiss on the nose for me. Nurses are my very favorite people in the entire galaxy!

[Goingonit]

First of all, I hope nobody's saying that wealth produces anything - only one specific kind of wealth does that, and it's capital.

And it's impossible to convert fur coats and diamond rings to income-producing investments, because only capital can produce wealth. Even if you sell your fur coat to raise capital to pay taxes, someone else is converting their capital to a fur coat.

Wealth is not capital. Capital is the power to make things (along with land and labour) and wealth represents the actual things. Moving wealth accomplishes something (increases the velocity of goods+services transferred), but it doesn't move any more capital into the economy.

Dissuading people from buying luxury goods is also counterproductive, because the fewer fur coats people buy, the more furriers are out of a job.

And this applies to the wealth tax argument too. Not only are investments still wealth, but no amount of asset-dumping by the rich will increase available capital.

[Imran Siddiqui]

any who own miles and miles of undeveloped land.

Land isn't an investment? That's news to me.

It makes more sense to tax non-productive wealth than income streams, which by their very nature are indicative of wealth production.

Income is easy to track. Wealth is VERY difficult to do so.

[Goingonit]

Imran, aristocrats who owned large tracts of undeveloped land were the reason why such a large percentage of capital was not being used in the 19th century. One of the only successful uses of a wealth tax was by the British, who managed to take the land out of aristocrats' hands, and thus open to public use many lands which were not developed, and never were going to be.

[Imran Siddiqui]

Yes, in the past, Go, but in modern times, land is the ultimate investment!

[DuncanK]

Originally posted by Goingonit


Interest rate drops are totally artificial. Alan Greenspan decides what they will be. He's not a universal law, he's just head of the bank.

I also don't think you understand the lending process between the Bank of the US and private banks that well.



No, it doesn't. The interest rate businesses gets depends on the prime rate (ultimately the fed rate, see above) and the amount of risk banks are willing to accept.


It's not buying a stock that results in the production of goods and services, it's owning a stock. Owning a share in a company is like owning a company, only you own it with a bunch of other people. Buying a business is clearly an investment, yet the act of purchase doesn't result in creation of goods/services. It's owning the business, and thus, through the business, producing goods/services.



The money that I pay for it, unless I buy a stock from the company itself, doesn't even go to the company. It goes to some other guy, who will use it for his own purposes, but will also not put it in his sock drawer. The money keeps moving around, effectively creating more of itself.

GNP, a measure of total exchange of goods and serivces, is a product of 2 quantities: "mass" (amount of currency in circulation) and "velocity" (speed at which currency is circulated). If you buy a stock, besides the effect of stock ownership, you're adding to the velocity of the money supply, effectively allowing more people to buy more things.

Lastly, I have problems with your definition of investment. Buying consumer goods isn't an investment, yet it results far more directly in the production of goods and services than, say, buying a stock. Webster's Dictionary defines an investment as, "the outlay of money usually for income or profit".

I was just trying to teach you some economics. I do have a BA in the field. I know people like to debate here, but what I've told you is nothing more than you would find in an economics text book. Just letting you know.