In California (and many other states), increasing income often leads to decreasing net income:
The underlying reason are various income-dependent benefits:
Most states have this phenomenon:
California:
Texas:
Florida:
New York:
The consequence of such policies is an disincentive to increase the amount of work.
Suppose you finally succeed in accumulating enough money after taxes that you can invest some of it in the hope of a comfortable retirement or giving your children a leg up in the world. What do they call youââresponsibleâ, âprudentâ, âprovidentâ? Well, in the eyes of the Washington regime in the age of Biden, âsuckerâ is closer to the mark.
Biden is proposing to increase the top Federal capital gains tax rate, which is currently 20%, to 39.6%. When you include the 5% surcharge imposed by the Obamacare âAffordable Care Actâ, increased from the current 3.8%, this raises the effective top rate to 44.6%. Now of course a central part of the âcapital gainsâ tax scam is that the âgainâ which is taxed is not corrected for depreciation of the dollars (âinflationâ) between the time the investment was bought and sold. Arthur Lafferâs company calculated the real capital gains tax given these changes for an investment bought, held for five years, given an annual real appreciation of 5%, assuming annual inflation rates of 2% (the presently-stated Federal Reserve target), 6.7% (recent figure), and 8% (last yearâs peak).
With an inflation rate of 2%, the real capital gains marginal rate is 86%, because the appreciation of the investment is reckoned in dollars depreciating at that rate during the time you held it, but taxed on the entire nominal gain. With 6.7% inflation, the capital gains tax rate is 110.7%, exceeding the total real appreciation, and with 8% inflation, it increases to 117.5%.
If the real return on the investment is less than the rate of inflation, the effective tax rate is infinite,
For example, if you buy a stock for $100 a share and then it rises to $120 per share five years later, but the accumulated inflation rate over that period was, say, 24%, then you lost money owning the stock after adjusting for inflation. But, you would still owe Uncle Sam a 40% tax on the phantom âgainâ of $20 per share. This is sheer idiocy.
This is federal tax only. When you add in state and local taxes, it gets even worse. In California, the top marginal capital gains rate would be 56.7% neglecting inflation, while residents of New York City, whacked by federal, state, and city taxes, would pay 58.2%.
Here is a list of capital gains tax rates for countries around the world.
I would love to see a calculation - in constant dollars - of the âreturnâ on the money sent to Social Security. What is paid in is already post-tax dollars, as those contributions are included in the Adjusted Gross Income, taxed at the marginal rate in the year paid. Then, when you receive âbenefitsâ 85% of the money is taxed again at your marginal rate. I have a rough idea of inflationâs toll on the buying power of the dollars I paid in beginning in 1958, when I had my first part-time job. I suspect the double taxation plus inflation turn this into a very bad deal, but I lack the sophistication to work it out.
A search for âsocial security real rate of returnâ turns up a lot of documents, some from the Social Security administration itself, with numbers all over the map. This is because an individualâs rate of return depends on things such as whether and when they hit any of the step function thresholds during their career (maximum FICA payment, etc.) and their longevity after they started to receive pension benefits. Obviously, if you pay in all your life and drop dead the day you retire, your return is zero.
Estimates of typical return over a population seem to come in well below the historical expectation for putting the same amount of money (employee + employerâs contribution together) into a broad based stock or stock+bond index fund and compounding tax-free, but then thereâs the question of how you manage the payments after retirement. If you, for example, sold out the whole thing and put it into a straight annuity, you run the risk of inflation reducing the value of the annuity payments. There are inflation-adjusted annuities, but the initial payments from them may be 20â30% lower than a straight annuity.
I have heard people say that the justification for government programs such as Social Security was that âWe the Peopleâ could not be trusted to save for retirement; instead we would blow it all on wine, women, and song. Whereas the smart people in government would think about the future and carefully invest our retirement savings in productive assets.
Seems that instead Our Betters took the peopleâs earnings (thereby reducing their ability to save for retirement themselves) and effectively invested those retirement savings in bombing random countries around the world â generating negative returns and leaving the retirement fund âlock boxâ full of dubious IOUs. Speaking personally, I would rather have had a little more wine, women, and song. At least then I would have had something to look back on and smile while searching for a suitable shop door to sleep in.
âI spent a lot of money on booze, birds and fast cars. The rest I just squandered.â
â George Best, Northern Irish footballer, 2005
Money is like manure: if you pile it up high, all it does is attract flies.
If you instead spread it out, all sorts of flowers start to bloom.
Government pension funds are such an attractive pile of manure for the flies.
Instituting the right incentives is the job of Man as Moral Animal and that includes Culture as Artificial Selection. âThe Economyâ, when it outbids young men for the fertile years of the most economically valuable young women, becomes The Problem if it doesnât compensate for the mining out of genetic stock. Thatâs when it becomes the job of Men - as Moral Animals â to transcend âThe Economyâ and impose a higher order of incentives than mere money.
Entertainment industry men out-compete other young men also by warping the culture and values to ensure their own supply of young women. By the time these young women turn into angry middle age women, the same industry pretends to be champions of âgoodâ while blaming âcapitalism,â âChristianityâ or âinherited wealthâ so that these women can further their agenda. Itâs a dark priesthood.
These are but some of the most potent dimensions of Pimp Game.
Atlanta Fed created this tool for analyzing the Family Net Financial Resources (Income + Public Assistance - Taxes - Expenses) for a particular individual. Hereâs are the subsidies vs income for a disabled single mother with 6 children in San Francisco:
And hereâs this familyâs impact on public finances:
Iâve recently learned about this offense:
I used to admonish billionaire monopolists such as Bill Gates, with whom I had a small social distance, to come out publicly and forcefully for replacing the 16th Amendment with a flat tax on non-distressed liquidation value of net assets, with payout of revenue in a citizenâs dividend as a way of averting a collapse into a reign of terror targeting the wealthy and powerful. Of course, not being wealthy or powerful myself, I had no credibility with them.
Itâs looking like automation of militias and the surveillance may avert such a reign of terror targeting the wealthy and powerful, without the need to resort to militia.money, but the question becomes:
What will we then have cultured?
Really, technological civilization should leave earth for space habitats and restrain human eusociality in the biosphere* with natural duel as mutual hunt between heads of households as the appeal of last resort in dispute processing.
* Losing E. O. Wilson at this bifurcation in humanity between the space diaspora and a terrestrial culture of feral heterosexuality is, in one sense, tragic. In another sense it may be necessary since he did not possess the moral courage of his convictions as evidence by the closing chapter of âThe Social Conquest of Earthâ where he denied what it will take to preserve humanity and the biosphere.
Technology innovators always want to escape the planet - instead of accepting the messy human nature, game-theoretic reality, owning it, and dealing with it. Otherwise, nothing really changes, and at some point they get outnumbered and overrun by politicos and their mobs.
My read of this technology innovator predisposition toward flight, rather than fight, is rooted in the critical threshold of cognitive competence reached in the Chimpanzee-Human Last Common Ancestor, at which gangs of males became an important selective advantage. Prior to that, individual competence was paramount. So with this additional cognitive competence, there is a divergence that is still playing out between the individualâs ability to innovate and thereby escape being beaten to a pulp by a gang, by expanding the ecological range of the species, and the gangâs ability to catch up to the innovator and beat him to a pulp.
Sticks, rocks, knapping, firemaking, fire hardening (possibly apocryphal in the case of sticks), atlatl, wolf domestication, bow and arrow, agriculture, horse domestication, copper, tin/bronze and especially iron with its ubiquitous bog sources, all of which could have been invented by an individual and passed on to his sons to attract mates from the âwoke centersâ left behind.
Thatâs a lot of filters, folks.
Then there came The New WorldâŚ
Understanding the nature of individuality â its strengths and weaknesses as compared to The Serpent:
âŚis the key to any organized resistance.
Iâm not sure about the cause and effect here: in good times amoebas are individualists, and when times go bad, they become collectivist. The data in the article seems to confirm that: countries doing well are individualistic and those who arenât doing too well, become collectivistic. The key is doing either individualism or collectivism in an evolutionarily sensible way.
But whatâs the cause and whatâs the effect? Collectivist countries famously donât do well compared to individualist countries. Consider the side-by-by side laboratory experiments of North and South Korea or, back in the day, East and West Germany.
This is why Iâm really focused on Algorithmic Information Theory being applied to sociology:
My investigation of the cause of autism, that Iâve discussed elsewhere, made me acutely aware of all the motivated reasoning about causality in the social sciences and human ecologies in general (including epidemiology). That awareness made me acutely interested in principled causal inference which led to various âinformation criteria for model selectionâ â that all seemed to simply kick the can down the road â all except for one information criterion which no one had called an âinformation criterionâ:
Lossless compression of all the data in evidence.
It was only later that I learned this was essentially what Ray Solomonoff came up with in the mid 60s.
PS: The first academic that I worked with on the problem of âinferring causality from the dataâ was the late Tom Etter (while working on a new mathematical foundation for programming langauges). It was only in the last couple of months that I learned Tom was apparently friends with Ray and they both arrived together for the Dartmouth Summer Research Project on Artificial Intelligence in 1956! Small world.
Iâd argue that Japan and South Korea are largely collectivist cultures that are doing well. Also, the Chinese and Vietnamese forms of Communism did reasonably well even with limited Westernization. Even the Puritans were largely collectivists. So the problem isnât collectivism, the problem is crazy communism.
Failed collectivisms stay collectivisms. Successful collectivisms can become more individualistic.
While itâs hard to infer causality from purely observational data (especially when there are few good ânatural experimentsâ like the ones that @johnwalker brought up) - itâs not impossible. Information theory can only help you âscoreâ different theories, but not actually prove anything, as with the Epicurean principle:
Keep all hypotheses that are consistent with the facts
âŚBut itâs hard to exclude them - and itâs beneficial to apply external information.
There are two levels of discourse to this assertion, and in my work on autism etiology I was driven to the higher level of discourse, ie scoring, by the lack of principles on the lower level, which is determination of âgoodâ as in ânatural experimentsâ. For my exploratory epidemiology, I had used measurements at the State level â since I didnât have access to county let alone individual disaggregation. So, in addition to the âcorrelation doesnât imply causationâ excuse to ignore anything I said, there was also âecological correlations are invalid due to the ecological fallacyâ excuse. On top of that I was falsely accused of âdata dredgingâ aka the âspurious correlation fallacyâ excuse.Other excuses involved the ârobustnessâ of my correlations, which, again, bottomed out in a lack of any principled definition (ie: there is no principled way of discounting a correlationâs p based on departure from normality, and so forth). All of this was increasingly obviously based on a lack of principles in the field of statistical inference of causality.
Thatâs when I got really interested in motivated reasoning and determined that academics have a conflict of interest in coming up with an objective sense of the Epicurean principle not subject to pedantic obfuscation. This lack of an objective principle is the academic equivalent of âprogrammer job securityâ in obfuscating code by making it complicated. Itâs like getting paid for falling off a log!
Thatâs when I discovered this objective notion of the Epicurean principle was Algorithmic Information Theory⌠and so went on to propose the Hutter Prize for Lossless Compression of Human Knowledge and thatâs when I discovered Eliezer Yudkowsky* as the most effective and highly motivated bulwark against reducing the argument surface in science to a single number for model selection.
*It would do little to no good to neutralized Yudowsky now. He nudged the AIT asteroid off course from nuking the social pseudosciences (and artificial pseudointelligence) at apogee, right when the Hutter Prize could have taken off before GPU-driven hysterics had built up momentum.
