The Relative Comment

soothing waves of relativity

You make money from money? So what do you DO?

with 4 comments

I understand the differences between rich and poor pretty well, I think. For the most part. But what I don’t understand is the difference between making money from money and making money from a job.

This is a distinction highlighted by Warren Buffett, billionaire and (apparently) stand up guy in his op-ed in the NY Times today. In his editorial, titled Stop Coddling the Super-Rich, Buffett calls for an immediate tax increase on households making over $1 million, of which there were 236,883 (in 2009), and an even greater tax increase on households making over $10 million, of which there are 8,274 (in 2009).

This is all well and good and I totally agree. I actually think we should lower the bar from $1 million. But calling for higher taxes doesn’t need to be unpacked. It just needs to happen.

What really needs to be addressed in this conversation, in my opinion, is this: How have those individuals who have become super-rich by manipulating money gotten super-rich? The distinction as Buffett calls it is between people ‘making money with money’ vs. people who ‘earn money from a job.’ This is certainly not an anti-wealth question. When companies like Apple make piles of cash, who can blame them? They make a product that a generation of consumers want to buy and as such they earn money beyond people’s wildest dreams. Good for them. Wealth is not the problem, but how it is made is.

Bridging this gap might save the country, by calming the animosity that many (myself included lately) feel when they see so much wealth amassed by what, in the opinion of many (myself included) does not count as work, i.e. does not add anything to the United States (except more wealth for wealth’s sake). I’ve heard over and over how much profit companies have been making in this recession, and how much money is out there, but if a corporation makes a dollar, and a trader trades that dollar, and no one ever sees it, is it even a real dollar?

I don’t want this opinion of mine to be correct. I want to think that the wealthy money-movers are bringing something of value to the country other than wealth for the wealthy. But it’s hard not to be frustrated to hear about the low tax rates for these folks, when these  are the people who can most afford to pay a higher rate. And they can afford it. Much more so than the people I know.

The people I know, myself and my families and everyone in the social/cultural/economic spheres that I have ever inhabited, everyone has always worked a job, and gotten a paycheck for that job (or not gotten paid because it was volunteer work). This runs the gamut from farming and construction to desk-job at a clean energy policy shop to health-care to programming pacemakers. Jobs that work towards bringing something actual to the nation.

The  people out there (a lot of them, it turns out) who don’t quote have jobs unquote, but who manipulate money and then get more money have always been around, and always been silently moving behind the scenes, getting coddled by the government. Now they are a part of the national conversation, and it’s important that we know what the hell they actually do and what it does for the country. I don’t like not understanding what this means, and thus feeling antagonistic towards these folks. But lately I have felt this way.

So please, reader, help me understand what making money from money means, and who it benefits. Why shouldn’t money made from money be taxed at higher rates? Why should the wealthy not pay payroll taxes? These people obviously can pay. This piece from Buffett is not unique. The rich can pay, so why won’t we ask them to?

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Written by Christopher ZF

August 15, 2011 at 11:11

Posted in economics, taxes

4 Responses

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  1. Herman Cain said he wanted to eliminate capital gains tax. Can you imagine this? I wonder how big of an idea this is going to be in the Republican primary.

    whb

    August 15, 2011 at 13:21

  2. I completely agree with you that “money-movers” should be taxed at the same rate as everyone else. The wealthy should pay payroll taxes. In regards to your question about who benefits when money is made from money, isn’t the initial investor as much connected to the creation of a product as is the factory worker actually putting it together?

    To take your example with Apple, in order for apple to get started someone had to give them a lot of money. No one would give Apple money unless Apple said, “hey, once we start making a profit, we’ll pay you back more than you gave us”. Apple couldn’t make Ipods without their factory workers in China, and they couldn’t make Ipod’s without someone whose only job (might seem easy–I’m guessing its not) is to provide enough cash to allow them to run their business how they want to.

    I know you understand why businesses need start up capital, so maybe I’m not understanding the big picture. But that’s at least one scenario where a big-money mover adds value to America.

    Lukas Murchie

    August 15, 2011 at 14:43

    • An excellent point Lukas Murchie.
      And an example of what I’m talking about. Someone needs money to invest in start-ups. And I need to remember that when I ask what these money-movers do.

      The big picture that I think I struggle with is how we have moved to being an economy where such a large portion of the money, even Apple’s, is only a sort of money but mostly it is some kind of credit in the shifty-natured markets, where there is no real money, but only movement, and by moving things, people get very very rich.

      But I honestly admit that I have no idea HOW such things operate. I know that they do operate, and I have a little bit of understanding of what is happening, but I really don’t know how or why it happens.

      Rather, sometimes I feel like our markets are like watching a cartoon. I think about the debt ceiling debate, the S&P downgrade, the 5 days of yo-yo stock market, all of which I am told cost of (b)millions of dollars to change hands and be lost and drive the nation back to teetering on a new recession only to rebound only to drop only to rebound, and investors were skittish and confidence is low, and all I can think is: what the hell does this actually mean? literally. It strikes me as bonkers that people’s lives around the country and world can depend on something that is so fickle and based on the actions of such a small minority of wealthy people and what they are doing is largely not-understood by everyone else.

      But they tell me to trust them, that they have the best interest of the country at hear (apparently meaning stock-holders). And our politicians will do anything to please them (both parties, and I mean anything).

      That’s the big picture frustration.

      czfinke

      August 15, 2011 at 15:07

  3. I’ll venture some mulch:

    -The “money movers” do not only play the role of moving the money, they also assume all the risk associated with loaning the money.
    -For some in the past, this has often led to their company suffering a setback or, sadly, failing due to a risk that did not pan out.
    -Given what happened with the near-collapse of the lenders (the highest-profile risk takers, but only a small percentage of the PEOPLE who assume investment risk in our country) and the subsequent bailout, we now have the illusion of capital investment being “risk-free.” The problem is that it is only “risk-free” for the “to-big-to-fail” institutions.
    -Counter example to the “to-big-to-fail”: my dad and my younger brother have a startup company. It is a company in what is called factoring. In our current economy, there are many companies and individuals who cannot receive typical loans from banks given that they have defaulted on past loans. Thus, they cannot start their companies or keep their companies running. This is where a factoring company comes in. A factoring company purchases a company’s accounts receivable, essentially offering a loan of operating capital to a company with lending troubles.
    -This has not been an easy startup for them given that they must choose clients very carefully since they are assuming a great deal of risk. If it doesn’t go well, they feel the pain in their pocketbooks.
    -We hear a lot about the Bear-Sterns and Goldman Sachs types, but there are plenty of ordinary people who don’t even wear suits to work every day and buy things off Craigslist who make helpful contributions by money moving.

    Thanks for listening/reading,

    Matt

    Matt Van Zee

    August 19, 2011 at 22:30


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