Let em expire!

[Beavah]

Nah, jblake, you're bein' overly simplistic. Sorta like Woapalanne's B-School professors, eh? Yah, sure, if yeh make the definition of "manufacturing" broad enough then it can encompass almost any human activity. In that way, R&D is manufacturing. It's manufacturing knowledge and creative intellectual product, which is oft traded as a tangible asset (in the form of patents and copyrights and trade secrets), or as a human asset (in the form of an employee or teacher). When the government produces such knowledge and transfers it to the private sector, that's an increase in wealth to the private sector.

 

Yeh have noted that one of the largest growths in "wealth" has come by way of intellectual property in da last few decades, haven't yeh?

 

Your funny use of definitions have also let yeh fail to see the big picture. Yah, sure, in our system we don't like government ownership of the means of production (real socialism), though right now we do have some of it in the case of GM and some of the banks. So the government is makin' manufactured wealth .

 

But there's an additional piece, eh? There's no consumer market for a bomber. A bomber only has value because da government makes a market for it. So in order for Lockheed-Martin to make that manufactured wealth, the involvement of government is required. Markets are what determine value and wealth. Yeh could spend all kinds of resources building a widget, but if there is no market for it, the widget is valueless. Dismantle government Medicare, and watch the stock price of every health care outfit tank. Disappearing wealth!

 

-----

 

Woapalanne, I agree with yeh on the problems with the estate tax for small farms and small business owners. That's why I'd take the lower limit up pretty high before it kicks in. Right now it's at $1M, but $10M is more reasonable.

 

At that level, if yeh have an unproductive asset like the folks you mention who are only earning 2.5% on a $2M depreciating asset, it's your own tough luck for not doin' a better job managing your asset or business. Yeh don't get my sympathy for not being a good businessman or not saving any money as liquid assets. Pay for some of that education or intellectual consulting and you'll create more wealth.

 

Beavah

(This message has been edited by Beavah)

[scoutingagain]

Actually as I understand the estate tax mess currently there is no estate tax at the Federal level. (2010) If the Bush tax cuts expire the threshold goes back to 1$ Million.(2011). In 2009 the threshold was $3.5 million. There will likely be some compromise when the cuts are extended raising the level, probably back to $3.5 million.

 

So I agree it's a mess. Anyone trying to do estate planning with that kind of variability is really up a creek. Wonder how many older rich folks are looking over their shoulders between now and 1/1/2011

 

A permanent threshold of $10 million indexed to inflation would make sense to me.

 

SA

[Stosh]

Oh Beavah, one must always be able to know the difference between paper wealth vs. real wealth.

 

Let's say a farmer has land assets of $1M from which he borrows against to buy seed and fertilizer. He's doing well and making a living growing, let say corn.

 

Okay, the market drops out of the equation and overnight the market says his land value is now $500K. Where did the wealth go? It never existed except in the minds of people. The farmer, unlike the miner, can't just go back in the mine and dig out twice as much iron ore to make up the drop in value.

 

You see the wealth of the farmer is not in his land, it's in his crop!

 

Genius John R&D department of XYZ company comes up with a new bright idea and patents it. It's worth something until the patent runs out and now it's worth nothing because everyone else gets to use it for free. The miner still is sitting on his huge pile of iron ore and is planning on going in the mine to get more. He's acquiring real wealth in raw materials the same way the farmer acquires real wealth in growing corn.

 

I buy some XYZ stock and think it's real wealth until the stock market falls and Bingo! I'm broke. I only had paper wealth, not real wealth.

 

I'm needing to buy iron ore, I have paper wealth, the market collapses, I got nothing and the miner still has a pile of iron ore.

 

Because the government does not produce any real wealth, when the market goes, so does the government.

 

Because the government has only paper wealth, it's only source of "income" is the wealth of others, it taxes them or prints money. If it takes from the private sector, that is wealth it does not have to spend and thus the market drops. The farmer needs to plant more corn and the miner needs to dig more ore to make up for it. But because the government took money out of the hands of the consumers, they don't have the money to spend on corn and ore. The market slows even further and the downward cycle begins. Printing money on the other hand is counter productive for both the government and private sector people. That's why every one is trying so hard to keep inflation in place.

 

To think that consumable assets and paper wealth is real wealth is only a trick played on the people to think they're wealthy. Ask the people who's retirement savings went down the toilet with this last recession. There's no real wealth in the speculative market of stocks and bonds. This is why such market indicators such as Dow Jones INDUSTRIAL is important to know. It constantly evaluates the location of real wealth. Big banks faultered with the fluctuation of interest rates. Where did their wealth go? And so the farmer wants to know where his wealth went? Nowhere, its still sitting out in the silos. The miner is still sitting on his pile of ore and when the market settles down, they will again make money. The investors who lost it all have nothing from which to make money again. They didn't have any real wealth in the first place.

 

 

[Beavah]

Nope, not the way it works, jblake.

 

The miner can be sittin' on a bunch of bauxite that he labored long and hard to mine, and the manufacturing process can change so that bauxite is no longer in demand. So the miner's "wealth" can evaporate just as easily as the farmer's or the stockholder's. He can't go back and dig up more wealth, and the "wealth" you claim he has produced by mining is just vapor.

 

Wealth is determined by utility, eh? Utility creates demand. When demand drops, accumulated wealth drops with it. That's what we call "depression" or "contraction". All of those widgets yeh mined and manufactured become worthless things rusting in your back yard. That's no different than "paper wealth" as you call it. Yeh buy stock in the mining operation under the assumption it has value, both in current capital (stuff already mined) and future dividends (stuff still in the ground minus extraction costs). But if the demand for mined materials or widgets evaporates, the value of the stock falls. Just like the value of the mined mineral or the manufactured widgets.

 

However, if the government steps in and creates a market for those widgets (either by taxing, borrowing, or printing money), then you suddenly have wealth again. By making a market, the government "created" your wealth as a miner.

 

Similarly, patents have real value, eh? It's a government grant of monopoly protection which "creates" a special type of market for your device, and therefore increases your wealth.

 

Let's try one that's even more abstract. Education is a form of created wealth, eh? As an individual, yeh pay for (university) education in order to achieve marketable skills (or at least a marketable certificate) which increases your future earnings. That increased productivity has value. Others are willing to pay you for it. There is a market. So education is an "investment". It increases personal (and national) wealth. And the government can and does provide education.

 

Da issue with government by and large is a question of friction or overhead. Generally speakin', the government is less responsive than free capital markets, and so there is greater friction and overhead, making government involvement less than desirable in most cases. Even before yeh get into the possibilities for corruption.

 

However, in some cases, for example building & maintaining roads & highways, there is greater friction/overhead in the private sector. And in some other cases (like basic or high-risk research funding or national defense), the private sector does not have the resources or incentive to do it, or the possibilities for corruption (ex. private police forces) are too high. In those cases, yeh want government to provide the service.

 

The argument between liberals and conservatives is on where the efficiency point is, eh? For conservatives like me, the government should be involved in fewer things because a (properly regulated and policed) private sector does 'em better. And yeh can see why urban folks are more liberal and rural more conservative in this way, because in cities government (shared resources) is more necessary. Yeh need water treatment and sewers and more stoplights to keep people from bumpin' into each other. So a greater fraction of wealth is held in common infrastructure (government) supported by common sacrifice (taxes). Where in rural areas yeh just drill your own well and build your own septic and stop at the occasional stop sign. . We don't need so much government.

 

Beavah

(This message has been edited by Beavah)

[Woapalanne]

Bevah, the examples I gave were NOT "unproductive assets". In both cases the people were earning a comfortable (to them - which is all that matters) living from an asset that they paid what is to them a reasonable price and has been amortized over a number of years. Maybe even inherited (in the case of one small garage I know). Just because something happened next door that caused a local government to change its numbers, the business does not suddenly become "unproductive". The percentage ratio you gave is irrelevant.

 

Raising the bottom limit to $10 million might help some of these, but it doesn't change the fact that it is unfair, and double taxation, to begin with. Why does Washington think they have more right to my hard-earned (and tax paid) money than my children? Especially if those children helped earn that money (and paid their fair share of taxes in the process)?

[Beavah]

Sorry, Woapalanne, in the bigger world of business a 2% return on assets is very poor. Now, you're entirely right, a person or family can opt to take it easy and not make full use of their assets, instead enjoying a comfortable, easy-going life. But that's a choice, eh? The consequence of da choice is that yeh don't have as much wealth to pay taxes and pass down to your kids (or to survive in a business downturn, or make it through a loss from fire, or...)

 

I'm old fashioned I guess. I expect my kids to earn their own keep. Always have. I provided stability and education, da rest is up to them. Now, of course I'll opt to contribute my resources when I croak to various well-run charities and such rather than give as large a chunk to Washington But I don't begrudge da contribution to Washington, since it's been my generation of "leaders" that has done its best to keep me from payin' my fair share in favor of tryin' to foist it on the grandkids.

 

If yeh have a business where the kids' are workin', then I assume you're paying 'em? After that, if yeh feel it's worth it, talk to a friendly tax attorney and set up an appropriate structure to pass the business along with less tax exposure. It ain't rocket surgery. Just takes a bit of planning. They can buy your share with what they saved from workin' hard, eh? It'll still be a much, much better deal for 'em than if they went and worked for someone else, where they might not have ever been made a partner. (which raises da issue if it's fair for those kids who worked just as hard as yours and saved more but weren't given the same resources by accident of birth).

 

Capitalism should provide each person the opportunity to learn and work hard to achieve to the best of their ability. I don't think there's really any merit to lettin' a fellow sit on his arse because his great granddad worked hard and established a family trust. Just me. Mrs. Beavah calls me "an old coot."

 

Beavah

 

[Stosh]

Sorry to pop your bubble on this one Beavah.

 

Wealth is a result of real, not created value.

 

Let's look at it this way. Your have a $1M in General Mills stock and a second $1M in cash. I'm a farmer sitting on $1M worth of produce. The market collapses because someone said so! The only reason it was "valued" at $1M was because someone said so, the speculated, bartered, bought and sold and convinced everyone that the business had some sort of virtual value, i.e. assumed paper wealth.

 

Okay with the collapse of the economy the cash (which has no backing except the say-so of the government) becomes worth pennies on the dollar so it's worthless too. Just have the government start printing up more dollars and see how much "paper wealth" is really associated with it.

 

And then we have the farmer who's sitting there with $1M worth of food and a shotgun. Who's house is everyone going to visit. The wealthy man's house of course! The people stop by and say they want to buy some food. They have worthless stocks and worthless cash and even some relatively worthless gold and the farmer says, no sale. He knows where true wealth lies. When and if the jewelry business ever starts up again, there might be a market for the gold, but the rest is worthless, it had no real wealth to begin with.

 

At least with gold, the world has for thousands of years said and agreed that it has value, i.e. wealth so aside from it's metal properties, it is a fairly good trade commodity. But most of the metals are necessary for civilization if nothing more than to make weapons to protect one's wealth, i.e. food, clothing and shelter, all those items related to manufacturing, mining and agriculture, those items necessary for subsistence survival of civilization.

 

Economy collapses... and if you are one of the few that know how to manufacture things out of raw materials, grow food, and produce clothing, i.e. weave wool off of sheep you've raised and shorn, you will recover the fastest because that's where the real wealth lies. If I need food I talk to a farmer, not a stock broker.

 

The only reason the stock market falls is because people say the stock they want are no longer worth the price they are willing to pay and thus it falls. Do you want to welfare of the civilization based on the whims of the public? Nope, that's why we have such economic indicators like the Dow Jones INDUSTRIAL index. We talk in terms of GROSS NATIONAL PRODUCTS, i.e. how much we produce, etc. They measure real wealth with those indexes and people speculate beyond them.

 

Ever wonder why the foreclosure market is in such disarray? Too many people owning their own homes? Nope. Not enough people owning their own homes. If you have a mortgage you do NOT own your own home. The bank does and you're slowly buying it from them over time. If you don't pay them, you are in breach of contract and the bank simply states you don't need to pay any more but you need to move out of the house so we can sell it to someone else. It's got the fancy legal word FORECLOSURE associated with this process, but one you strip away all the fluff, that's exactly what's happening. Everything you have yet to pay for on credit really belongs to someone else and you cannot take credit for having it as wealth. It truly is paper wealth at it's finest. This is why an over credit extended economy is so fragile. It fell apart in 1929, and again last year. Those that don't learn from history are destined to relive it.

 

Stosh

[Woapalanne]

Sorry, Beavah, but they are making LOTS more than 2% "return on assets". A number in the county auditor's computer is not an asset, in that it cannot generate an income. So your calculation is STILL irrelevant in the real world.

[scoutingagain]

"Because the government has only paper wealth"

 

That's not quite true. Governments also have hard assets. Land, bridges, highways, watertreatment plants, buildings, etc.

 

In fact at the state level some states are exploring the possiblity of leasing or in some cases even selling assets such as bridges and highways to private companies to generate revenue. Private companies would then maintain the assets and charge users fees to use the asset. i.e. tolls.

 

There are few absolutes in the world which is the larger point I think Beav's making.

 

SA

[Gunny2862]

Gern said, "Count me on board for the Fair Tax, but eliminate all tax loopholes and deductions, even for charitable organizations. Adjust the Fair Tax annually to meet annual budgets."

 

No, at least not to the second part, because you simply then give the Gov't unlimited spending again - at least until that upward tick in the tax rate becomes noticeable. Better yet limit government growth to that provided for by the budget.

Just because I want a raise I don't get to go spend more money and then tell my boss he has to give me a raise - Should be the same way with government. If I want a service and am willing and ABLE to pay for it then maybe I subscribe to additional gov't services but they shouldn't be able to say we started doing this(non-Constitutionally mandated service) for you, now pay up.

[Beavah]

It'd be nice if net federal taxes were limited to a designated fraction of GDP. I sorta liked that thinking out of Obama's deficit commission. I've long worried about the risks of letting government as a whole control too large a fraction of GDP. There's a critical point in there where yeh start approaching a big enough block of people dependent on government funding in one way or another that yeh get easy majorities to "vote yourself largesse". Teachers' union control of many local school board elections is an example, eh? Da turnouts are often small enough and the information on candidates limited enough that the union members and their families can control the outcome of elections and who will be writing their next contract.

 

B

 

[Stosh]

scouting again: having assets is not the same as having wealth. Let's take a bridge for example. Land is a bit trickier.

 

The government bids out to private industry to have a bridge erected. They purchase it though values they did not generate, they only took it from the citizenry in the form of taxes. Not a real problem here, it benefits the citizens to have a bridge. They only pool other people's wealth, coordinate the building of the bridge and then give that wealth to the actual builders as payment. Okay, now the government has an asset which it acquired through the taxes of others. Those funds are now gone and all we have left to show is a bridge that will immediately on day one begin to deteriorate. Now the government must hire contractors to maintain the "asset" bridge. More money from others in the form of taxes to pay for this process as well. Maybe the government has employees who do this, but it is still an out-pay of payroll that reduces the value to the government. The government is not selling services to it's citizens, it is only taxing them for the purpose of providing civil infrastructure. To a certain degree most tax payers will go along with this.

 

What wealth does the government hold? An asset that if left alone will deteriorate and become worthless. So they must continually expend further resources to maintain it. That means it must continually pay to have it exist because it's value is generally declining without such expenditures.

 

The value of Land on the other hand is pretty much stagnant. Government buys it, and "preserves it" It is not a valuable asset because no one can buy it from the government. It was land merely taken off the market. Of what value is that? Unless they decide to take raw material off the land. Then they of course get private contractors to do that and pay them payroll to do so. Or they have private contractors come in and pay a minimal fee for the resources in return for their acquisition. With the government contracts out there for this process, it is obviously pretty much in favor of the contractors to come in and do this. No one is going to come in and lose money so the government can make money. If more money is going out on this process to contractors than is coming in, the government is loosing value in it's land values in the process.

 

In order to gain real wealth a business, organization, etc. must have earned income by providing either product or services. The government provides services but generates no real income, only tax revenue which is set by policy, not value of services rendered.

 

The value gained by the government doesn't correlate to the income required, thus the government can spend $30 on a hammer because it simply says so. All value derived by the government is what it simply states, not what in fact is any sort of reality. In other words there is no market regulation, definition or discernment associated with it's processes or policies. In the private sector of income/expense/profit, these would need to be narrowly defined and adhered to in order to be defined as successful.

 

Stosh

[scoutingagain]

"The value gained by the government doesn't correlate to the income required, "

 

I agree government is a net consumer of wealth. However in your example, if a bridge is built from tax revenue, it transfers wealth from the taxpayer, for the benefit of having a bridge to the contractor who builds it. The taxpayers have a bridge, which represents wealth of some sort. Yes it's depreciating, but it has value which can be sold, probably for less than it cost to construct it, but it is an asset.

 

However, the bridge could also be built from funds the government borrows in the form of bonds, paid for from tolls paid for by users of the bridge, not taxpayers. (At least in the sense those taxpayers not using the bridge don't pay tolls for it.) In this instance government acts almost like private industry. Borrowing money, to invest in an asset that creates a revenue stream that produces wealth...said bridge. In many cases infrastructure like a bridge or turnpike ultimately gets paid for and eventually returns a "profit" to government in the sense toll revenues exceed the requirements to pay bond holders and maintenance. (The Massachusetts Turnpike is an example.)

 

However, those "profits" are eaten up by other expenditures that exceed other revenues and ultimately government is a "net" consumer of wealth. But everthing is does is not necessarily wealth consumetive. No absolutes.

 

SA

[Stosh]

They say there's a government bridge up in Alaska that's for sale, I'm thinking the market's pretty much open for that one.

 

Stosh

[Woapalanne]

"Governments also have hard assets. Land, bridges, highways, watertreatment plants, buildings, etc. "

 

But they are not income-generating assets, which I believe was the point.