How Washington Really Redistributes Income

[question everything]

From the WSJ review of Stan Druckenmille but I think it raises important questions about the young generations:

Stan Druckenmiller makes an unlikely class warrior. He's a member of the 1%—make that the 0.001%—one of the most successful money managers of all time, and 60 years old to boot. But lately he has been touring college campuses promoting a message of income redistribution you don't hear out of Washington. It's how federal entitlements like Medicare and Social Security are letting Mr. Druckenmiller's generation rip off all those doting Barack Obama voters in Generation X, Y and Z.

(snip)

Mr. Druckenmiller describes the reaction of students: "The biggest question I got was, 'How do we start a movement?' And my answer was 'I'm a 60-year-old washed-up money manager. I don't know how to start a movement. That's your job. But we did it in Vietnam without Twitter and without Facebook and without any social media. That's your job.' But the enthusiasm—they get it." Even at Berkeley, he says, "they got it. There is tremendous energy in the room and of course they understand it. I'd say it's a combination of appalled but motivated. That's the response I've been getting, and it's been overwhelming."

(snip)

When the former money manager visited Stanford University, the audience included older folks as well as students. Some of the oldsters questioned why many of his dire forecasts assume that federal tax collections will stay at their traditional 18.5% of GDP. They asked why taxes should not rise to fulfill the promises already made. Mr. Druckenmiller's response: "Oh, so you've paid 18.5% for your 40 years and now you want the next generation of workers to pay 30% to finance your largess?" He added that if 18.5% was "so immoral, why don't you give back some of your ill-gotten gains of the last 40 years?" He has a similar argument for those on the left who say entitlements can be fixed with an eventual increase in payroll taxes. "Oh, I see," he says. "So I get to pay a 12% payroll tax now until I'm 65 and then I don't pay. But the next generation—instead of me paying 15% or having my benefits slightly reduced—they're going to pay 17% in 2033. That's why we're waiting—so we can shift even more to the future than to now?"

(snip)

Breaking again with many Wall Streeters but consistent with his theme, Mr. Druckenmiller wants to raise taxes now on capital gains and dividends, bringing both up to ordinary income rates. He says the current tax code represents "another intergenerational transfer, because 60-year-olds are worth five times what 30-year-olds are." And 65-year-olds are "much wealthier than the working-age population. So the guy who's out there working—the plumber, the stockbroker, whatever he is—he's paying the 40% rate and the coupon clippers who are not working anymore are paying a 20% rate."

(snip)

"I would go for something simple that is very, very tough for the other side to argue, for example, means-testing Social Security and Medicare," which would adjust benefits by income. He notes again his impending eligibility for a monthly government check. "I don't need it. I don't want it. I could also make the argument that every health expert will tell you that wealthy people live 4.5 years longer than the middle class or the poor. So I'm going to get paid 4.5 years more than the middle class or the poor," he says. "It's not that many dollars, but I think it would be a great symbol in seeing exactly how serious they are."

(snip)

http://online.wsj.com/news/articles/SB10001424052702303680404579141790296396688

(copy and paste the title onto google if you cannot open at the link)

[Laelth]

1. k&r for the truth. n/t

-Laelth

[Squinch]

2. This is a steaming pile of bullshit.

First he says, "Why am I getting social security? Because I earned it? I didn't earn it." No, dear, you didn't earn it. You saved it. You contributed to it. He says, "the elderly take out much more than they put in." Yes. As I will take more out of my 401K than I put in, because the interest over 40 years vastly increases the value of what I put in.

Then he says that "entitlement reform" is a worthwhile reason to hold the debt ceiling hostage or default for a couple of weeks. He says that it would be immoral to raise taxes because that would mean a new generation is paying more than this generation. He neglects the fact that individual federal taxes are at the lowest level they have been in our lifetimes. We have not paid at this rate all our lives. There is no moral problem with going back to Clinton era tax levels.

Then he tosses in the old saw about exploding debt. He is apparently ignorant of the fact that the debt has been halved.

THEN, and this is my favorite, he says to eliminate corporate taxes so that corporations will no longer have incentive to lobby to reduce their taxes. WT Everloving F????

What an unmitigated jackass. The WSJ, Fox New's financial newspaper, is as stupid as the TV version.

Why did you want us to read this? Do you agree with him?

[1KansasDem]

3. "Debt has been halved"

When did that happen? Thought we just popped 17 trillion.

[Squinch]

4. Here:

Last edited Sun Oct 20, 2013, 02:36 PM - Edit history (1)

http://www.usnews.com/opinion/blogs/pat-garofalo/2013/05/14/federal-budget-deficit-is-gops-incredible-shrinking-issue

And sorry. I misspoke. It's the deficit. However, the deficit is the number that we need to be watching.

Edited to add: and all my sources have the deficit around 11. Am I missing something?

[1KansasDem]

7. The yearly deficit and the national debt are both important numbers.

We have to pay interest on the debt. Interest on the debt was 415 billion for the last year according to treasury direct.gov.
National debt this week broke 17 trillion. Google "how much is the national debt".
If something were to spur interest rates, that 415 billion a year could double or triple. That's why the Fed is busy printing money and buying bonds, to keep interest rates down.

[Squinch]

9. Actually, the most important number is debt relative to GDP.

The trend in this is anticipated by the deficit numbers.

So that number, debt relative to GDP, has finally started to recover from the crash (as was indicated by the downward trend in the deficit) leveling out this year, and trending slightly downward for the next few years.

And yes, inflation could be problematic. It could have been problematic as we were running up this debt (two unpaid for wars, a nice big payout to the banks after they trashed the economy). It could be problematic now, but the trend is toward its becoming less problematic.

Tax cuts, further cuts of public jobs, further shrinking of the economy will reverse this and make things trend worse again.

We need expansion and the jobs that it creates. We need tax revenue from more jobs, not tax revenue from bleeding the already poor. And we need the most wealthy to pay something approaching the same percentages in taxes as the poor and middle class. (And yes, I know Michelle Bachmann says the poor don't pay federal taxes, but she's conveniently forgetting the 18% payroll tax that every wage earner pays. Which is many times what, for example, Mitt Romney pays.)

[question everything]

5. I was intrigued

I can see how the younger generations end up with high student loans, with no chances of getting a decent job that will sustain them and their families, not to mention save for their retirement.

Starting in the 70s and accelerating in the 80s, we shifted from a manufacturing based economy to a service one. With the old system, even high school dropout could get decent jobs and benefits and pension plans that allowed them to send their kids to college.

Now, 70% of our economy is service based. Service mean that it depends on our discretionary income. Sure, there are many high earners accountants and lawyers and health care providers, but most service jobs do not pay that much and, of course, do not offer any future or retirement saving.

One reason why so many college graduates cannot get decent jobs is because there are none. Corporations hoard cash instead of hiring but hiring for what? Many jobs disappeared and will never return. And employers learned to do more with less - in some case employees working long hours, tethered to their phones what I consider a modern day slavery. Almost.

The only solution that I can see is, of course, investing in infrastructure. Jobs that cannot be shipped, jobs that would require a wide range of skills. But we don't have many forward thinking politicians who would be willing to follow on this.

Iceland was a major casualty of the Great Recession and it recently pulled through. Low homogenous population it agreed to tax itself, to nationalize the banks and to get back on its feet.

I don't know why students debt is so high. I don't know why university presidents are paid like CEOs, not to mention the football coach.

And I wish that he spoke during the 00's when we were spending billions on two wars with no funding, and on the unregulated financial institutions that got us into the Great Recession.

But, since he visits campuses and, apparently, finds eager listeners, I think that it is important for our side to offer something instead of just raising taxes. And, I think that the first thing that needs to be done is eliminate the cap on income subjected to Social Security Tax. Have all income taxed, like Medicare.

[Squinch]

6. I think the difficulties lie in

the absolutely absurd levels of income inequality, and the continuing reduction of the wealth of the middle class which makes disposable income a thing of the past. I do think you are right that maintaining infrastructure would be a great source of jobs, and a great and multiplying investment in the economy. There are ways for us to increase jobs, and make jobs into good jobs. If a manufacturing job used to be enough to support a family, why can't we make the jobs we have available now do the same thing?

Yes, he says he's finding eager listeners. I am guessing that's with the Young Republicans and not the Economics students.

When WE talk about raising taxes, we are not talking about raising taxes on recent grads and entry level jobs. You and I are talking about eliminating tax loopholes, like - as you say - raising the SS cap. This, though you see it as an alternative to taxation, is in my mind a tax. It is those kinds of taxes that I think must be raised.

Mitt Romney had to scramble to make it look like he was paying more than 9% in taxes on his income. And his offshore income isn't even included in that, so we can presume his tax rate is about 5%. I pay 18% payroll taxes, and a hefty income tax on top of that.

Those entry level kids pay the 18%. Let's get them mad at the takers like Mitt, and not at the elderly who are living on Social Security. Let's never forget that those elderly are living on Social Security because pensions have been all but eliminated, and the financial sector decided to get rich by siphoning off enormous chunks of everyone's 401Ks.

And FFS, let's laugh anyone out of the room who suggests we need to eliminate corporate taxes.

[1KansasDem]

8. Just curious

How are you paying 18% in payroll taxes. Self employed?

[Squinch]

10. The self employed do pay the whole nut.

The wage earners pay their whatever it is (I know in years past it was around 10% for the middle income groups. It's still higher than Mitt's probable total tax rate when you include the money moved offshore) and the employer pays the rest. Presumably, if that were not paid by the employer to the payroll tax, it would be paid to the employee as a wage, so in effect their wage is reduced by the total amount of the payroll tax.

[SharonAnn]

11. And remember, your employer's percentage is actually part of your compensation.

It's money they set aside for you as part of the value of your work. They don't take it out of their profits.

It's like Retirement plans and Health Insurance plans that employers sometimes provide. It's part of your compensation. Also, if they match some of your 401-K savings, it's part of your compensation.

If you're not working for them, they're paying any of this for your non-work.