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Memories of the 28th Century

Freedom to Succeed

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I have written about equality before the law in the past, but there are other varieties of equality, and I was just thinking about equality of wealth. That was because I saw something about Lizzie Warren's idea for a wealth tax.

It seems that she and some others think that everyone should have equal wealth. That may seem nice in theory, but it never has worked in practice. But I can understand why some people are unhappy that there are people as wealthy as Bezos and Gates in a country where there are many people who are quite poor. What seldom comes out in discussions related to this is that the government set it up so that some people could become extremely wealthy while making it very difficult for others.

The main tools for determining wealth have been tax laws and business regulations. If people in Congress do not like people becoming filthy rich, then they should change the laws and regulation that led to extreme wealth. Congress has taken investment banking and capital investing from being a specialized niche to being something that anyone can do. It wasn't long ago when the stock market was difficult for the average American to understand, but Warren and others tried and succeeded in making investments accessible to all. That made it easier for Gates, Bezos, Musk, and others to raise even more money in capital markets, because more people had been encouraged to invest in capital markets, and they were encouraged by the additional safety.

It was only a few decades ago, when stocks traded in dollars and eighths, a relic of Spanish milled dollars and pieces of eight, but that was one little thing that scared off the ignorant. And it used to be that the stock listings gave the PE from the last four quarters, rather than giving it based on the best guesses of some analysts. In addition, there are several tax advantaged ways to invest that put certain restrictions on moving funds, but distort the markets by creating a steady stream of new investments.

If we look a few decades further back, there were unregulated investment trusts, bucket shops, and stock trading was on the same level as gambling, which it is. Those iffy investments were outlawed, so they had to be reinvented as mutual funds and hedge funds, which are a little less likely to pick your pockets but about as reliable. Personally, I think that bucket shops were a great idea, but they ran on too small a volume to be profitable now.

Before the Federal Reserve Act of 1912, there was no “safety net” for banks, so banks paid higher interest rates to cover the risk factor. Legislators listened to people crying about their losses too much and made things safer, but the risk is the reason for part of the reward. People who invest in iffy companies that win could reap the reward. The flip side of the right to get rich is the chance of going broke. If one looks carefully at the investments that Warren Buffet makes, then one can see that he weighed risk and reward, and he hedged the risk. Then look at the investments of good mutual funds, and it becomes clear that they play the tried and true and avoid the major risks.

On the other hand, tax laws and business regulations have allowed Gates, Bezos, and others to make huge amounts of money by playing with what is available and paying very little in income taxes. Rather than penalizing them for playing the game, the rules of the game should be put back as they were, when the economy did better by having higher marginal tax rates and provisions that made it more advantageous for businesses to reinvest in the U.S. Economy, instead of taking their business to other parts of the world.

Rather than tacking a new tax on top of income taxes, it might be nice to simplify income taxes to eliminate the giveaways to preferred customers, and to make the top step something around seventy five percent of income over ten million, while having the steps below that stay as they are. And corporate taxes should be similar in percentages, but without as many deductions. One little trick that might be useful would be changing the treatment of costs from things manufactured in other countries, so those costs would have a disadvantage. But we really need to convince Americans that the minimum wage laws don't help anyone, except contract manufacturers in other countries.

There is a great deal more to this set of ideas, but some of it is nit-picking detail about business practices.