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  • Progressive taxation similar to free market???

    Economic View - In Private Pay, an Implicit Progressive Tax - NYTimes.com
    ECONOMIC VIEW
    The Tax Hiding in Your Paycheck
    By ROBERT H. FRANK
    Published: April 23, 2010
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    EVERY year at tax time, libertarians indignantly denounce government income transfers from rich to poor. Society’s income distribution, they argue, should reflect as closely as possible what people would earn in unregulated private markets.
    Enlarge This Image

    David G. Klein
    When critics on the left counter that income transfers are required in the name of social justice, libertarians yawn — and the debate goes nowhere.

    There is a more fruitful way to look at the issue. Suppose, for the sake of discussion, that we grant the libertarian premise that private pay systems provide the best ethical template for society’s income distribution. As closer scrutiny of that premise will make clear, the libertarian denunciation of income transfers fails on its own terms.

    The main problem is that private pay patterns embody an implicit tax that is actually far more progressive than the federal income tax. To understand why, first consider some background about the way these patterns work.

    Economic theory holds that in competitive labor markets, workers are paid the market value of what they produce. In actual markets, pay does rise with productivity, but not by much. The most productive carpenter in a framing crew, for example, might produce twice as much as his least productive colleague, but is rarely paid even 30 percent more.

    To see the pattern at first hand, consider groups of co-workers who perform similar tasks in your own company. In one case, suppose that your two most productive co-workers leave the job; in the other, suppose that the three least productive leave. Which group’s departure causes a greater loss of value? Most people would answer that losing the top two hurts more.

    If so, economic theory holds that their combined salaries should be higher than the combined salaries of the bottom three. Yet the typical pattern is the reverse: any three workers in a group performing similar tasks earn substantially more than any other two.

    In short, the startling fact is that private businesses typically transfer large amounts of income from the most productive to the least productive workers. Because labor contracts are voluntary under United States law, it would be bizarre to object that these transfers violate anyone’s rights.

    But they do raise an interesting question: If the most productive workers in a group are paid less than the value of what they produce, why don’t rival employers just lure them all away?

    One answer is that these employees may care, often subconsciously, about things besides pay. The most productive workers in a group, for example, often appear to value their status, perhaps because they enjoy greater self-esteem and respect than the least productive workers. To bid successfully for the high achievers, a rival employer might not only have to increase their pay, but also place them in a group where they continue to enjoy a high ranking.

    In a free market, however, no one can be in the top half of any group unless others agree to be in the bottom half. And if people prefer not to occupy low-ranking positions, filling these positions would require extra compensation. The rival’s offer, then, would resemble the original pay pattern.

    The upshot is that top-ranked workers may well stay put. The high ranking they enjoy is more than enough to offset their sacrifice in pay. Similarly, their less productive co-workers may find it onerous to be at the bottom of the ladder, but they are compensated for that fact by their premium wages.

    So, in effect, private markets are already applying an implicit progressive tax in the way they pay workers. And, in the process, they serve the interests of everyone in the hierarchy. The alternative would be costly social fragmentation.

    CAN anyone doubt that high rank has value, not just among groups of co-workers but also in society? For starters, high-ranking members of society, who also tend to have the highest incomes, know they will be able to send their children to the best schools and have access to the best health care. Low-ranking members enjoy no such confidence.

    It’s much harder, of course, to organize new societies than to start new businesses. But that doesn’t mean high-ranking positions in the real world should be available at no cost. They are possible only when others bear the costs associated with a low social ranking.

    Tax systems that transfer income from rich to poor, thus mimicking the implicit transfers in virtually every private labor contract, reflect the costs and benefits of different rungs on the social ladder. They help make stable, diverse societies possible.

    Enlightened libertarians believe that the best social institutions mimic the agreements people would have negotiated among themselves, if free exchange had been practical. Private pay patterns suggest that our current tax code meets that test
    If nothing else it asks the question.
    Where free unions and collective bargaining are forbidden, freedom is lost.”
    ~Ronald Reagan

  • #2
    From each, to each, eh? Ask the question as many times as you want, Rosie, it's still colored commie-red.

    -dale

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    • #3
      I think the argument is pathetic. The main thing I point out is the author seems to agree that two bads somehow equal out to be a right, arguing that "well we do it anyway with labor".

      Also, who here agrees that the least productive earn as much as the most productive? Ive worked in many fields in my life. There are more than two ways to demonstrate pay than the author writes. What about knowing that working hard will elevate you to the next paygrade? So while you might make only 0.50 more an hour than the lazy slob next to you, you know that in 6 months you'll have a better position or a significant raise.

      The author needs a percocet, his arm is sore from reaching so far.

      Comment


      • #4
        Originally posted by Roosveltrepub View Post
        Economic View - In Private Pay, an Implicit Progressive Tax - NYTimes.com

        Economic theory holds that in competitive labor markets, workers are paid the market value of what they produce. In actual markets, pay does rise with productivity, but not by much. The most productive carpenter in a framing crew, for example, might produce twice as much as his least productive colleague, but is rarely paid even 30 percent more.
        I would lurve to see a pay comparison between Jamie Dimon and one of the countless minions at the lower rungs of JP Morgan Chase. Lets see how much income Mister Dimon (arguably the most "productive" employee in JPMC) is transferring to the least productive workers (any lowly teller, for e.g.);)
        "Is God willing to prevent evil, but not able? Then he is not omnipotent. Is he able, but not willing? Then he is malevolent. Is he both able and willing? Then whence cometh evil? Is he neither able nor willing? Then why call him God?" ~ Epicurus

        Comment


        • #5
          Originally posted by antimony View Post
          I would lurve to see a pay comparison between Jamie Dimon and one of the countless minions at the lower rungs of JP Morgan Chase. Lets see how much income Mister Dimon (arguably the most "productive" employee in JPMC) is transferring to the least productive workers (any lowly teller, for e.g.);)
          I think He is talking about those in the same job. I'd point out that executive pay is disconnected to performance. They get paid win or loose. I would of been glad to run HP into the ground for 1/10th of what Carly Fiorina got.
          Where free unions and collective bargaining are forbidden, freedom is lost.”
          ~Ronald Reagan

          Comment


          • #6
            Originally posted by Roosveltrepub View Post
            I think He is talking about those in the same job. I'd point out that executive pay is disconnected to performance. They get paid win or loose. I would of been glad to run HP into the ground for 1/10th of what Carly Fiorina got.
            They get paid more for success, it's just that they generally don't get paid zero for failure.

            -dale

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            • #7
              The author imagines that there are no such things as labor laws.
              Economic theory holds that in competitive labor markets, workers are paid the market value of what they produce.
              That would only apply in a completely unregulated labor market. Employers have minimum and equal pay rules that are enforced by the government.

              It does hold largely true for companies, who are generally paid something close to the market value of their products.
              "We will go through our federal budget – page by page, line by line – eliminating those programs we don’t need, and insisting that those we do operate in a sensible cost-effective way." -President Barack Obama 11/25/2008

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              • #8
                Originally posted by Roosveltrepub View Post
                I think He is talking about those in the same job.
                Should he not be talking about productivity (or usefulness) to company beyond any single job, since he wants to translate that philosophy to taxation across socio-economic classes?

                Originally posted by Roosveltrepub View Post
                I'd point out that executive pay is disconnected to performance. They get paid win or loose. I would of been glad to run HP into the ground for 1/10th of what Carly Fiorina got.
                Er, what???
                Performance pays represent a disproportionately large component of any executive pay. Worker bees are more isolated from performance than the executives are, unless they lose their jobs.
                "Is God willing to prevent evil, but not able? Then he is not omnipotent. Is he able, but not willing? Then he is malevolent. Is he both able and willing? Then whence cometh evil? Is he neither able nor willing? Then why call him God?" ~ Epicurus

                Comment


                • #9
                  The concept of progressive and regressive tax is one of the most insidious and evil ideology to ever permeate through human civilization. This abomination must stop.

                  Comment


                  • #10
                    I'm not sure why it hasn't been overturned by the Supremes on an 'equal protection' complaint.

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                    • #11
                      The argument is vacuous.

                      Take the carpenter example. The pay differential comes out of value added to the overall product. However, both carpenters require the same overhead for insurance coverage (this is but one fixed cost - we could drive through all fixed costs, but it isn't necessary to drive home the point), and so doubling the output mathematically/economically cannot result in doubling pay. I don't run a carpentry business, but I imagine that fixed costs run a good share (insurance - both health and worker's comp), and there are variable costs as well (e.g., an increase in wage results in an increase in SS taxes as well) that add into the mix.

                      Then add into the mix that people value their risk decisions (whether risk averse, neutral, or loving). For example, the lead carpenter that doesn't make much more than an apprentice may prefer working for the lower "productivity" wage because it's with an enjoyable contractor, it's guaranteed steady work, etc. These are non-wage benefits that have value and can drive the spread further than what looking at just the wage shows. Furthermore, if the carpenter wasn't satisfied, he/she could move to their own business and deal with the overhead/admin in pursuit of greater wages. They may not like that and so they get paid less because of their desire to avoid risk/other work requirements.

                      Finally, the most specious part of this vacuous argument is the fact that these workers voluntarily work for these wages. They can choose to go to work on their own, find a different line of work, etc (and don't try to pull any arguments that they can't do this because they have large families to feed, etc. - they also choose to have kids, etc., and so they placed this limits upon themselves voluntarily).

                      On the other hand, the confiscation of wages by the government under the threat of penalty/jail is not something they can walk away from as easily. Is it doable? Perhaps, although the costs of doing so (i.e., moving to a new country) are far greater than walking away from being a carpenter.

                      Lastly, the logic is flawed. Carrying the same logic, people that give to charity should be taxed more. Let's pass a law that bases income taxes on the percentage of income that is donated to charity in the previous year.
                      "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

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                      • #12
                        I kind of thought it was bs myself but, if I am doing an operation on equipment that is cost valued at 750 dollars an hr and I am 10 percent more productive than the next man my actual savings to the company equals the other man's entire compensation per hour. The overhead is a fixxed cost. If I produce 10 percent more the cost of what I produce is decreased by more than 10 percent of my pay. I am speaking in a manufacturing environment. I understand in most white collar jobs the overhead costs don't include equipment with extraordinary high hourly costs when depreciation is factored in.
                        Where free unions and collective bargaining are forbidden, freedom is lost.”
                        ~Ronald Reagan

                        Comment


                        • #13
                          Also to say high level executive compensation is market driven is not to understand the compensation committees. It'd be like my mechanic, my dry cleaner and my co worker deciding my pay. They all have a vested interest in either pleasing me or seeing my pay high to increase their own compensation. Compensation committees aren't made up of those the CEO et al work for the shareholders.

                          The Icahn Report: Corporate Democracy is a Myth
                          compensation committees ceo - Google Search
                          Where free unions and collective bargaining are forbidden, freedom is lost.”
                          ~Ronald Reagan

                          Comment


                          • #14
                            Originally posted by Roosveltrepub View Post
                            Also to say high level executive compensation is market driven is not to understand the compensation committees. It'd be like my mechanic, my dry cleaner and my co worker deciding my pay. They all have a vested interest in either pleasing me or seeing my pay high to increase their own compensation. Compensation committees aren't made up of those the CEO et al work for the shareholders.

                            The Icahn Report: Corporate Democracy is a Myth
                            compensation committees ceo - Google Search
                            You should read Taleb. I think you'll enjoy his work and thoughts on CEOs.
                            "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

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