The large part of the stratagey of the Democrats for the coming mid-term elections seems to be to focus on the Koch brothers, the Texas billionaires who are pouring tens of millions of dollars into funding various conservative causes.
The Democrats argue that vast sums of money coming from a few candidates undermines democracy, particularly when coupled with the Supreme Court decision that Corporate campaign contributions cannot be regulated by Congress.
Republicans (and the Republican dominated Supreme Court) argue this is a freedom issue. People who work hard to gather wealth should be able to use their money to advance their political goals in a free society.
There is some validity to both positions of course. But both positions also mask fundamentally wrong principals.
The Democratic position, that rich folk should be banned from spending beyond certain minimal limits (or that longtime liberal notion that Government should finance campaigns) has a couple of serious policy flaws:
1. It unquestionably undermines the freedom of rich folk. It is in essence discrimination by government against a class of citizens (the folks who value money above all else),
2. It also is the lazy solution that has characterized totalitarian thinking down through history. If you don't like something, or want to increase your power at the expense of others, limit their ability to participate in politics.
On the other hand, the Republican position focusing on individual freedom ignores a fundamental requirement of a functioning democracy. Honesty. Rich folk who want to support various political causes have a dizzying array of ways to hide where the money is coming from. The can use corporations they control. Or set up shell corporations and run the money through a whole string of them to hide where the money is coming from. They can set up organizations with names designed to suggest they are supporting exactly the opposite of what they are in fact trying to accomplish.
In an ideal world, we should ban an organization that is created under an authorization of government granting special priviliges, such as Corporations, from contributing funds to politics, but we should not ban individuals from contributing as much as they want to political causes, as long as contributions are publicly disclosed in a timely manner.
For those of us who are not rich our power to counter money from rich folk depends on our willingness to factor who gave that money, and why they are doing it, into our decision making when we go to vote. If we do our homework rich folks money should not be able to sell us on something we don't really want.
In an ideal world.
Friday, May 2, 2014
Wednesday, April 30, 2014
Finite and Infinate Assets
One of the oddities about the Federal system of taxation is the way it treats assets that are fundementally different exactly the same.
Stocks are an infinite asset. They are created at the whim of people with something of value they want to sell. Although a person can in theory lock up the stock of some particular company, there is always an opportunity for some new person with an idea for something else to sell, or another version of the same item to create their own company and sell interests in that company. Free market theories work pretty well with stocks, even though the people whose power is based on ownership of companies will always have a tendency to seek monopolies to undermine market forces. We have had laws on the books for a hundred years to deal with monopolies, and although from time to time the laws get undermined for period of time when the public isn't paying attention, in the longer term we are pretty good at dealing with monopolies.
Land, on the other hand, is a finite asset. There is only so much of it. In the United States that fact has received very little attention because we arrived on what we viewed as an empty continent (ignoring the native populations). Government policy was to give land away to whoever wanted to move onto it and improve it. But there is not much land left for the Government to give away, and as the population of the United States continues to grow land is becoming monopolized in a different way. Land is becoming more expensive in comparison to individual incomes. In the most economically successful cities the average family already can't afford to buy a home despite extremely low interest rates. When interest rates start going up it is going to aggravate the problem, since the loan the average family will qualify for will be even lower. (The source of the next big housing downturn). For the last half a decade a bigger and bigger percentage of single family homes have been bought up by speculators, often with cash, who turn around and rent them to the folks who, in prior decades would have bought a home. Bare land on the margins of town is being snapped up by development companies with cash.
Much of the war and uproar in the last 2 millenia, and most memorably the revolutions in China and Russia early in the last century that led to a century marked by tens of millions of people being exterminated, were a direct result of ordinary people being shut out of access to land - they lived at the mercy of the landlords. That disparity in wealth distribution gave the wealthy disproportionate influence that contributed to a string of wars over the centuries by powerful people seeking to expand their power using rootless, powerless, young men as cannon fodder.
Why do we allow people to speculate in land cheaply through our low capital gains taxes and big exemptions? We are a long way from being a Feudal society, but it seems to me we are drifting in that direction.
Because Stocks are an infinite asset low capital gains rates on stocks are not a big problem. We can argue about the fairness of working folks paying higher taxes on their income than folks just selling stock, or collecting dividends or rents, but collapses in the value of those kinds of investments don't threaten the fundamental stability of society. The Great Depression and the Great Recession weren't caused by the stock market crash, it was the accompanying crash in the housing markets that had been destabilized by tax laws that encouraged speculation in real property that crippled the country. (Legislation pushed through by Republican Congress's in 1919 and 1995 created the impetus for speculation that resulted in housing market crashes about a decade later)
After the Great Depression Congress recognized the harm speculators in real estate could do. They didn't ban speculation, but they created a distinction between taxation on speculation in the real estate market and people buying homes to live in. Everyone was entitled to a tax sheltered haven for their their own home, and people trading up to bigger homes as their family grew, or down to smaller homes as they went into retirement were able to do so largely without a tax burden.
If we really want to bring back stability to our economic system for the future, we need to recreate that distinction. Don't provide a big tax break to speculators and create a tax haven for everyone to own a piece of property of their own. The housing market is a different animal than the stock market, we shouldn't treat them both as equal in terms of opportunities for speculation.
Stocks are an infinite asset. They are created at the whim of people with something of value they want to sell. Although a person can in theory lock up the stock of some particular company, there is always an opportunity for some new person with an idea for something else to sell, or another version of the same item to create their own company and sell interests in that company. Free market theories work pretty well with stocks, even though the people whose power is based on ownership of companies will always have a tendency to seek monopolies to undermine market forces. We have had laws on the books for a hundred years to deal with monopolies, and although from time to time the laws get undermined for period of time when the public isn't paying attention, in the longer term we are pretty good at dealing with monopolies.
Land, on the other hand, is a finite asset. There is only so much of it. In the United States that fact has received very little attention because we arrived on what we viewed as an empty continent (ignoring the native populations). Government policy was to give land away to whoever wanted to move onto it and improve it. But there is not much land left for the Government to give away, and as the population of the United States continues to grow land is becoming monopolized in a different way. Land is becoming more expensive in comparison to individual incomes. In the most economically successful cities the average family already can't afford to buy a home despite extremely low interest rates. When interest rates start going up it is going to aggravate the problem, since the loan the average family will qualify for will be even lower. (The source of the next big housing downturn). For the last half a decade a bigger and bigger percentage of single family homes have been bought up by speculators, often with cash, who turn around and rent them to the folks who, in prior decades would have bought a home. Bare land on the margins of town is being snapped up by development companies with cash.
Much of the war and uproar in the last 2 millenia, and most memorably the revolutions in China and Russia early in the last century that led to a century marked by tens of millions of people being exterminated, were a direct result of ordinary people being shut out of access to land - they lived at the mercy of the landlords. That disparity in wealth distribution gave the wealthy disproportionate influence that contributed to a string of wars over the centuries by powerful people seeking to expand their power using rootless, powerless, young men as cannon fodder.
Why do we allow people to speculate in land cheaply through our low capital gains taxes and big exemptions? We are a long way from being a Feudal society, but it seems to me we are drifting in that direction.
Because Stocks are an infinite asset low capital gains rates on stocks are not a big problem. We can argue about the fairness of working folks paying higher taxes on their income than folks just selling stock, or collecting dividends or rents, but collapses in the value of those kinds of investments don't threaten the fundamental stability of society. The Great Depression and the Great Recession weren't caused by the stock market crash, it was the accompanying crash in the housing markets that had been destabilized by tax laws that encouraged speculation in real property that crippled the country. (Legislation pushed through by Republican Congress's in 1919 and 1995 created the impetus for speculation that resulted in housing market crashes about a decade later)
After the Great Depression Congress recognized the harm speculators in real estate could do. They didn't ban speculation, but they created a distinction between taxation on speculation in the real estate market and people buying homes to live in. Everyone was entitled to a tax sheltered haven for their their own home, and people trading up to bigger homes as their family grew, or down to smaller homes as they went into retirement were able to do so largely without a tax burden.
If we really want to bring back stability to our economic system for the future, we need to recreate that distinction. Don't provide a big tax break to speculators and create a tax haven for everyone to own a piece of property of their own. The housing market is a different animal than the stock market, we shouldn't treat them both as equal in terms of opportunities for speculation.
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