[ksrugis]

http://www.cnbc.com/id/49996787

“It’s not intended to raise more revenues but rather to reduce inequality which, he says, threatens growth.

“Wealth inequality is making the pie smaller for all of us,” Altman tells The Daily Ticker. It limits opportunities, which reduces productivity, and ultimately lowers “living standards for all of us in the long term.””

I really don’t understand his point of view. Can’t we bake more “pie” — create more wealth? This often comes up when I’m arguing with liberal friends about economic matters. What’s a sweet, short, and simple way of explaining why this view is wrong?

I haven’t seen the numbers, but I would take a guess that wealth inequality has been higher at some point, and we’ve continued to ‘better our lot’ as a people over time regardless of this.

[jmherbener]

Here is an Altman NYT piece on the wealth tax:

http://www.nytimes.com/2012/11/19/opinion/to-reduce-inequality-tax-wealth-not-income.html

He seems to be arguing that inequality of wealth polarizes the social classes and that can lead to reduced productivity. The evidence he cites for this is over the last twenty years wealth inequality has risen dramatically (while income inequality has not) and economic production has stagnated. What he doesn’t admit is the reason that income inequality has not change and wealth inequality has is the Fed induced asset boom. The rich hold much bigger investment portfolios than the middle class or poor and so their wealth explodes during booms and collapses during busts.

Also, he claims people in the middle class would not pay anything under the wealth tax and so they would be in a better position be productive under a wealth tax compared to an income tax. So, he would say that the wealth tax will make the pie bigger than it is with an income tax.

The big mistake in the argument he makes in the NYT piece is his claim that “wealth inequality distorts economic opportunity.” Regardless of a person’s circumstances, his economic opportunities are always greatest if the market is unhampered. Then he is able to buy from sellers who are willing to offer the lowest prices and sell to buyers who are willing offer the highest prices. People in a market live comfortably We all live comfortably because of the capital structure that has been built up over the decades by the saving of capitalists and investing of entrepreneurs. The bulk of the greater productivity rendered by working with capital goods goes to workers, not the capitalists or entrepreneurs. Roughly 70% of National Income goes to labor, 4% to capitalists (interest) and 15% to entrepreneurs (profits):

http://www.gpo.gov/fdsys/pkg/ERP-2012/pdf/ERP-2012-table28.pdf

In 2011 IV quarter at an annualized rate (billions of $):

National Income = 13,430.9
Employee Compensation + Proprietors Income = 8,250 + 1,113.7 = 9,363.7
Corp. Profits = 1,970.1
Interest = 535.7
Rents = 406.3

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