[kenberg]

I simply took a guess at income. For a "regular doc" the guess is probably an overbid, maybe by quite a bit. I am speaking of net here. A good specialist makes more, I think, and he is welcome to it as far as I am concerned. I doubt that there would be much savings if we cut them back a bit.


The tax break on insurance no longer (usually) applies. Medical costs, with insurance included in this category, are deductible after they exceed a certain fraction of income. A healthy person generally doesn't run up enough bills for this to click in. There was a time when you kept all your medical receipts and listed these in detail on tax returns. Now, if you have a major expense, there is some relief at tax time but in normal years you can ignore it. Similarly with sales tax, I think. You used to list all the sales tax you paid. Good Grief! Now, I think you can deduct it if it exceeds something or other, for me it doesn't, and I just get a prescribed deduction for it without justification. I like it this way. It's a matter of personality. Somewhere in midlife I came to the view that if I saw another tax form I was going to puke. Paying taxes, no problem. But go easy on the forms, please.

[hotShot]

Who has more responsibility?

1) a pilot of a 300 million dollar airplane that carries 300-500 passengers
2) a manager of a company worth about 300 million dollar that has 300 employees?

How does that express in salaries?

[mike777]

hotShot, on 2010-November-16, 09:12, said:

Who has more responsibility?

1) a pilot of a 300 million dollar airplane that carries 300-500 passengers
2) a manager of a company worth about 300 million dollar that has 300 employees?

How does that express in salaries?

IS your government paying the salary or is hotshot out of hotshot's pocket?

If you are paying..how much do you pay them, exactly?

--


In any case if the plane crashes some may die...if the company crashes, thousands(not just 300) may suffer, be homeless, starve....many may die......tough question

[helene_t]

Why should "responsibility" be related to salary?

I can see why the risk of getting killed at work, or the risk of suffering personal bankruptcy in case the company collapses, would be something employees would demand a financial compensation for. But "responsibility"? By all means make me responsible for peace in the middle east and prosperity in North Korea if it can justify a salary increase.

[hotShot]

helene_t, on 2010-November-16, 09:27, said:

Why should "responsibility" be related to salary?

I can see why the risk of getting killed at work, or the risk of suffering personal bankruptcy in case the company collapses, would be something employees would demand a financial compensation for. But "responsibility"? By all means make me responsible for peace in the middle east and prosperity in North Korea if it can justify a salary increase.

The usual argument for a higher salary is responsibility that comes with being in charge e.g. "managerial responsibility", "disciplinary responsibility" or "financial responsibility".

The other arguments are longer education and risk.
The longer education argument is often a pseudo argument as e.g. physicians get paid during some phases of their training, and even if they would lose 10 year of payment that would only allow a 33% higher salary to compensate in the remaining 30 years.

The risk argument is also not very conclusive, esp. if we see that manager who drove banks or insurances (was it AIG) almost into bankruptcy still got/get bonus payments.

It's my impression since management salaries are published, it more of a vanity thing and not rally justified by performance.

[mike777]

I would say the owners have the ultimate responsibility. It is their money. Not the pilots and not the managers money.

For example if Hotshot is the owner then HOtshot should decide and hotshot should be responsible. Hotshot gets to set the rules on who gets paid the most and why. If hotshot pays a bank manager and he does not bother to follow up so be it.

Let me put this another way, why does hotshot own the company, what is his top goal?

[kenberg]

hotShot, on 2010-November-16, 09:12, said:

Who has more responsibility?

1) a pilot of a 300 million dollar airplane that carries 300-500 passengers
2) a manager of a company worth about 300 million dollar that has 300 employees?

How does that express in salaries?

Paying these managers good money to continue managing rather than pilot planes can be defended on the grounds of public safety.

[hrothgar]

mike777, on 2010-November-16, 12:19, said:

I would say the owners have the ultimate responsibility. It is their money. Not the pilots and not the managers money.

For example if Hotshot is the owner then HOtshot should decide and hotshot should be responsible. Hotshot gets to set the rules on who gets paid the most and why. If hotshot pays a bank manager and he does not bother to follow up so be it.

Interesting theory.

I was always taught that the purpose of a corporation was to shield the owners from liability / responsibility.
If I invest money in a corporation, my liability is fairly strickly limited.
In contrast, executives of corporations are often criminally liable for the behaviour of said institution.

(I seem to recall some very basic business classes that rather explictly describe notions like fiduciary responsibility and specifically discuss the obligations that one assumes when accepting an executive position)

[PassedOut]

hrothgar, on 2010-November-16, 14:12, said:

I was always taught that the purpose of a corporation was to shield the owners from liability / responsibility.
If I invest money in a corporation, my liability is fairly strictly limited.
In contrast, executives of corporations are often criminally liable for the behaviour of said institution.

(I seem to recall some very basic business classes that rather explictly describe notions like fiduciary responsibility and specifically discuss the obligations that one assumes when accepting an executive position)

So far as I know this is absolutely true, except where congress sells specific exceptions.

[mike777]

hrothgar, on 2010-November-16, 14:12, said:

Interesting theory.

I was always taught that the purpose of a corporation was to shield the owners from liability / responsibility.
If I invest money in a corporation, my liability is fairly strickly limited.
In contrast, executives of corporations are often criminally liable for the behaviour of said institution.

(I seem to recall some very basic business classes that rather explictly describe notions like fiduciary responsibility and specifically discuss the obligations that one assumes when accepting an executive position)

post did not say this was a corporation. In fact you changed the entire focus of his question.

If the poster wanted to know about corporate shield laws for owners that would have been a different post.

in any event if there is only one owner and a corp I still think the ultimate resp rests with the owner to decide who gets paid what in his example.

No one mentioned legal liability or criminal liable but you.

If I am the owner and I loses all my money because i hired crooks and did not follow up.....well silly to blame others and not myself...Going to jail is not the only penalty here.

"Who has more responsibility?

1) a pilot of a 300 million dollar airplane that carries 300-500 passengers
2) a manager of a company worth about 300 million dollar that has 300 employees?

How does that express in salaries?"

[kenberg]

This thread has taken a confusing turn, at least for me. Basketball players make more money than mathematicians. This is related to the fact that it is more fun (except for a few weirdos) to watch basketball than mathematics. Responsibility, education, etc do not enter into it.

I would like to see the deficit reduced. I have no problem with basketball players making more money than I do. Or with managers making more than pilots, as long as we do not have to rescue their companies. Lady Gaga is entitled to whatever money some idiots are willing to pay her. This does not disturb my sleep. The super-paid execs seem to have rigged the deck, and this should perhaps be dealt with, but otherwise market forces are in charge.

[mike777]

kenberg, on 2010-November-16, 17:29, said:

This thread has taken a confusing turn, at least for me. Basketball players make more money than mathematicians. This is related to the fact that it is more fun (except for a few weirdos) to watch basketball than mathematics. Responsibility, education, etc do not enter into it.

I would like to see the deficit reduced. I have no problem with basketball players making more money than I do. Or with managers making more than pilots, as long as we do not have to rescue their companies. Lady Gaga is entitled to whatever money some idiots are willing to pay her. This does not disturb my sleep. The super-paid execs seem to have rigged the deck, and this should perhaps be dealt with, but otherwise market forces are in charge.

Ken I think you raise an interesting discussion point. The whole issue of income disparity. The whole issue of how the top 1% or so make so much more money than the rest of us. How so few make so much more than so many others and the gap is increasing. This seems to be a huge political issue and how many think this is really bad if not evil. If only a few benefit I agree but if someone gets a billion buck raise and I only get a 10K I am still happy.

I think the phrase used is "income inequality" and comes up often in the whole deficit discussion.

http://www.nytimes.c...ness/29tax.html

-----------


In any event I still favor govt policy incentives to help to encourage innovation and have us try and grow our way out of the deficit, health care money issues. I dont think of economic growth as a cancer.

[PassedOut]

mike777, on 2010-November-16, 17:45, said:

I think the phrase used is "income inequality" and comes up often in the whole deficit discussion.

http://www.nytimes.c...ness/29tax.html

Thanks for the link.

Quote

While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.

The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.

The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.

I consider this a serious problem for the US and for businesses. We need a lot of customers with disposable income, and the very rich do not buy from us.

Quote

“The nation faces some very tough choices in coming years,” he [Robert Greenstein] said. “That such a large share of the income gains are going to the very top, at a minimum, raises serious questions about continuing to provide tax cuts averaging over $150,000 a year to people making more than a million dollars a year, while saying we do not have enough money” to provide health insurance to 47 million Americans and cutting education benefits.

In my opinion, the democrats should be hammering this point home at every opportunity.

[kenberg]

PassedOut, on 2010-November-16, 18:20, said:

Thanks for the link.


I consider this a serious problem for the US and for businesses. We need a lot of customers with disposable income, and the very rich do not buy from us.


In my opinion, the democrats should be hammering this point home at every opportunity.

Careful!
The link from Mike's is a NYT article dated 2007. It refers to a study by Emmanuel Saez, and this is where the 2005 data comes from. The author's homepage
http://elsa.berkeley.edu/~saez/
prvides more recent data.

Scroll down to:
Income and Wealth Inequality

"Income Inequality in the United States, 1913-1998" with Thomas Piketty, Quarterly Journal of Economics, 118(1), 2003, 1-39 (Longer updated version published in A.B. Atkinson and T. Piketty eds., Oxford University Press, 2007) (TABLES AND FIGURES UPDATED TO 2008 in Excel format, July 2010)

This gives a negative annual growth rate of -19.7% for 2007-2008 for the top 1% of earners. This compares with negative 9.9 for the overall average.


I'm not suggesting that we take up a collection for the poor and downtrodden millionaires, but we should hold off on using this data as a showstopper.

Another caution: If I understand the figures properly, we are not speaking of a decrease in wealth but rather a decrease in the rate of wealth accumulation. A second derivative effect, as we say in the math biz. That is, the guy that was making 10,000 times my income might now be making only 8,000 times my income.

[PassedOut]

kenberg, on 2010-November-16, 20:33, said:

Careful!
The link from Mike's is a NYT article dated 2007. It refers to a study by Emmanuel Saez, and this is where the 2005 data comes from. The author's homepage
http://elsa.berkeley.edu/~saez/
prvides more recent data.

Oops.

[PassedOut]

Here is something more timely by Warren Buffett: Pretty Good for Government Work.

Quote

Many of our largest industrial companies, dependent on commercial paper financing that had disappeared, were weeks away from exhausting their cash resources. Indeed, all of corporate America’s dominoes were lined up, ready to topple at lightning speed. My own company, Berkshire Hathaway, might have been the last to fall, but that distinction provided little solace.

Nor was it just business that was in peril: 300 million Americans were in the domino line as well. Just days before, the jobs, income, 401(k)’s and money-market funds of these citizens had seemed secure. Then, virtually overnight, everything began to turn into pumpkins and mice. There was no hiding place. A destructive economic force unlike any seen for generations had been unleashed.

Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm.

When the crisis struck, I felt you would understand the role you had to play. But you’ve never been known for speed, and in a meltdown minutes matter. I worried whether the barrage of shattering surprises would disorient you. You would have to improvise solutions on the run, stretch legal boundaries and avoid slowdowns, like Congressional hearings and studies. You would also need to get turf-conscious departments to work together in mounting your counterattack. The challenge was huge, and many people thought you were not up to it.

Well, Uncle Sam, you delivered. People will second-guess your specific decisions; you can always count on that. But just as there is a fog of war, there is a fog of panic — and, overall, your actions were remarkably effective.

Yes, the debt is a big problem, but things could have been a lot worse. And the US government can take appropriate action -- at least it can when there is no possible alternative.

And also timely, David Leonhardt discusses the deficit reduction plans: One Way to Trim Deficit: Cultivate Growth

Quote

In the short term, we should actually spend more. “Some politicians and economists present a false choice: reduce unemployment or stabilize the debt,” argues a new bipartisan deficit plan that will be released Wednesday, the second such plan to come out in the last week. As Alice Rivlin, a Democrat who oversaw the writing of the plan with Pete Domenici, a Republican, put it: “We can do both. We can put money in people’s pockets in the short run and trim government spending in the long run.” .

The plan calls for a one-year payroll tax holiday for employers and workers, costing $650 billion. But remember that’s a one-time sum, while the needed deficit cuts will be hundreds of billions of dollars a year. Relative to those cuts, a payroll tax holiday — or more spending on roads and bridges, as President Obama favors — is a rounding error. And, of course, putting people back to work has its own benefits.

Even more important than the next couple of years is the second part of a pro-growth strategy: the long term. A good deficit plan doesn’t simply make across-the-board cuts for years on end. It cuts funding for programs that do not spur economic growth and increases funding for those relatively few that do. Likewise, it raises tax rates that do not have a clear record of promoting growth and cuts those that do.

This task is not an easy one, because advocates and lobbyists inevitably claim that their idea, whatever it is, will help the larger economy. Just look at farm subsidies, a form of welfare for agribusiness that is supposedly crucial to the American economy. Or look at President George W. Bush’s tax cuts, which, after being sold as an economic elixir, were followed by the slowest decade of growth since before World War II.

A simpler tax structure designed to bring in more revenue and also to encourage growth is needed. And those two aspects are not mutually exclusive.

[phil_20686]

While I am seldom in favour of taxing more, it seems clear that the US should rebalance its tax to tax the wealthy more and the middle/poorer less. The income disparity in the US is fairly grotesque. However, I do think that it is almost impossible to imagine that the tax system can reduce income disparity by more than a factor of two without tax rates that are counter productively high.

Most of the problem with income disparity is the idea that you are "entitled" to earn a given salary. I cannot imagine sitting in a pay review meeting and voting for a CEO remuneration package of 100x the lowest paid in the company. Do I really believe that a CEO is worth 100 front line workers? Moreover, the idea that you need to pay that much money to attract top talent is simply untrue. It seems to be more the case that when you put people in charge of their own pay, they vote it up in what is essentially a form of kick back. (Since at some level in a company you all control each others pay). Moreover, the structure of share holders is often such that they cannot easily organise to oppose a CEO's pay scheme, despite having the final say (at least in the UK).

It seems to be an essential problem with capitalism (imo) that in any chain of supply and demand, the person who has the rarest the price for his wears until every other part of the chain is only marginally profitable. For example, you might imagine that in a busy shopping centre such as Oxford street London, would contain among the most profitable stores in the uk, as it is the busiest stores by a large margin. However, data I have seen suggest that this is far from the truth. In practice land lords can keep putting up the rent until the stores become only marginally profitable. As long as the store remains profitable, the corporation's will maintain the store, and the land lords make a fantastic amount of money. It seems fundamentally unfair that despite all the work that has gone into creating the goods for the shop, and selling them, growing the cotton, making the clothes, designing the clothes, shipping them out to London, the vast majority of the profits end up with the land lord, and the relentless upwards pressure of rents can depress wages throughout the entire supply chain.

I have no idea what one could do to fix this, I am simply aware that it is a problem. Other than a moral awakening that making profits at the expense of workers along the supply chain is probably immoral, and that one should not put up prices simply because it is profitable, I really see no way out of the dilemma. Capitalism will continue to concentrate wealth in the hands of those who own the means of production.

One thing that probably reduces income inequality over the long run, is to abolish the estate tax. This is very counter intuitive idea, but seems to be backed up by numerical studies. This is in part because of the miracle of compound interest. Imagine that you inherit $20000 from your rich uncle. This goes towards your house, and as a result you have a 25-year mortgage worth 20000 less initially, you will typically save twice that in repayments over 25 years. If you choose to make the same repayments as you would have otherwise, you might save as much as 4 times as much as that. While I have given the example of a mortgage, it applies equally to buying anything on finance. It is a *lot* cheaper if you can buy things without resorting to credit. Hence, one of the most expensive things, is being poor. The other part of it is that rich people often give a lot of their money to nieces, nephews, brothers, etc and it tends to be these lesser gifts to more distant relatives that suffer the most under estate taxes. Also, over a period of several generations most families have at least one "rich" person in them. This is part of a broader scheme in which the transference of capital to a wider base essentially transfers the means of production into a larger sphere. (Via the stock market, one can use capital to purchase the "means of production"). Further, the estate tax encourages counter productive spending policies. However, I do think that there is danger to having no estate tax, this is only the argument why you should set the estate tax threshold nice and high. 50% on estates worth over $20 million sounds pretty sensible (to prevent the emergence of a true elite - a worthy social goal imo).

[phil_20686]

A simpler tax structure designed to bring in more revenue and also to encourage growth is needed. And those two aspects are not mutually exclusive.

I both agree and disagree. There are 3 costs in a tax: the amount you pay, the amount growth is reduced, and the amount you spend trying to work out how much you pay. If your tax system is too complicated, the amount you pay accountants to work out how much you should be paying can be significant. However, I cannot beleive that it is more than a few % of revenue, and there is only a certain amount that a tax system can be streamlined. Often the "complications" were attempts to close holes that were being exploited. Other times they were an attempt to obtain some reasonable end.

It is easy to construct intellectual examples where taxing more results in more growth, but in practice it is very hard to see that this would be so. However you carve it up most government spending does not go into activities that stimulate economic growth. You cannot have a free lunch by pretending that we can spend more now, and have more later. IMO the economy is simply too complicated to put faith in simple correlations that may or may not appear between two variables in historical data. There are always hundreds of factors that cannot be accounted for which could be more important.

[hrothgar]

phil_20686, on 2010-November-17, 12:22, said:

It seems to be an essential problem with capitalism (imo) that in any chain of supply and demand, the person who has the rarest the price for his wears until every other part of the chain is only marginally profitable. For example, you might imagine that in a busy shopping centre such as Oxford street London, would contain among the most profitable stores in the uk, as it is the busiest stores by a large margin. However, data I have seen suggest that this is far from the truth. In practice land lords can keep putting up the rent until the stores become only marginally profitable. As long as the store remains profitable, the corporation's will maintain the store, and the land lords make a fantastic amount of money. It seems fundamentally unfair that despite all the work that has gone into creating the goods for the shop, and selling them, growing the cotton, making the clothes, designing the clothes, shipping them out to London, the vast majority of the profits end up with the land lord, and the relentless upwards pressure of rents can depress wages throughout the entire supply chain.

You're looking at things through the wrong lens.

You seem to be assuming that the landlords are stealing economic rents (unusually high profits) from other parts of the value chain. They're not.

What is actually happening is that most of the rents in the system get arbitraged out and captured by the consumer. The landlords are the only producers with a unique asset and the only ones able to capture economic rent.

There is some give and take involved, however, its mainly between the producers and the rapacious consumer...

[phil_20686]

hrothgar, on 2010-November-17, 15:09, said:

You're looking at things through the wrong lens.

Perhaps. It seems more likely that the error is assuming that at every stage the competition would not put the same downward pressure on wages throughout the supply chain. However, I am sceptical that competition is as efficient as many economists claim. Competition should put downwards pressure on profit margins because they put downwards pressure on price. But there are plenty of case studies where this doesn't seem to happen. Most recently the British gas industry. All of the major suppliers reported significantly increases profits, and by April all of them will have raised prices by 7-10%. This despite a fall in wholesale gas prices compared with this time last year, and two years ago. (Those of you who pay attention to European news will know that tension between Russia and eastern Europe over gas supplies has let to western Europe's supply occasionally being disrupted. This led to a hike in prices probably two years ago, although I am not sure of the precise chronology.)

It is unclear to me what the profit margins of gas and electricity actually are though, in terms of profit/turnover. If competition is working it should drive this number into low single figures of percent.

Maybe i could have a fermi-estimate. British gas serves 16 million households. Average gas + electricity bills are in the region of £50-60 a month (based on personal experience), £300 per year, in the first half of 2010 it had operating profits of £600 million. so profit margin is roughly 600 000 000 / 5 000 000 000 = 12%. Seems a bit high to me.