Absolute Income - the Supply Side
This is part three in a discussion of the impact of tax cuts on the economy. It is based on a discussion at a cast party 25 years ago. The demand side is largely explained as a consequence of government action and the Main Street economy. This essay is about the other side.
Income is considered to be the return on assets, including sold labor. As we have seen previously, this includes the return on taxation of assets. The challenge for public policy is providing for adequate income and assets for all households so that no worker can be considered someone else's property. How badly we have failed at this is impossible to see until we look clearly at the elements of the "supply side."
Absolute Income is adjusted gross income plus unrealized income. Wealth taxes are an attempt to go after part two, in its stored form, on an annual basis. They will never pass because, if done correctly, the wealth will be destroyed. For some, that is likely the goal. If it is done ineffectively (by self reporting or creating loopholes) it legitimates assets which have no inherent value.
In the macro-economy, absolute income is gross national product plus stored future income plus speculative income. Current economic discourse and statistics do not, and likely cannot, capture the difference between the last two, although looking at income class helps.
This inability to separate future spending from speculation does not mean we cannot quantify unrealized income. Doing so shows why taxing wealth and unrealized income are close to impossible. Here is a hint: it does not really exist. Once that secret is out, capitalism' s days are numbered.
Unrealized income =
the net unrealized gain on traded equity and securitized assets held for less than a year
+ the unrealized net gain on assets held for more than a year
+ additions to retained earnings for the year that are attributable to shareholders or partners if it were to be distributed
+ increased value in a year of physical assets less their distribution expense.
All if the above include increased asset values and undistributed earnings for assets held offshore.
Asset prices and retained income and asset book values can be valued and are related but are not mutually exclusive. Asset prices may or may not reflect retained earnings and physical or market value of real assets and may, in fact, be junk assets based on fraud.
Bonds have the same features and are valuable based on currently expected future income - including whether tax income attributable from holding these bonds can ever be collected.
All value is market based. These values may or may not relate to the productive power of the underlying physical and human assets. Indeed, mass resignations and innovations may turn today's intellectual property into dust. This is why capitalism is a less than perfect driver of real innovation.
Income inequality and hierarchical control are designed to protect against sudden devaluations in both private and state capitalism. Individual and cooperative socialist organizations (from communes to partnerships) always threaten intellectual property held by capitalists.
The value of the "supply side" is based on common perception, not in reality. Tax cuts and central bank liquidity are monopoly money until distributed into the real economy.
When such instruments are sold into retirement accounts, essentially turning stored labor of workers into monopoly money while the "supply side" trades it into new speculative instruments or the purchase of luxury goods, then the system collapses.
When mortgage debt is securitized and leveraged into monopoly money for speculation, the economy is heading for collapse. (It always seems to be housing debt).
When tax cuts become the initial capital for such speculation and to create "unrealized income," that is, mostly, then it is not good for society. Trying to tax the unreal wealth in the speculation sector simply puts lipstick on a pig.
Taxing the return on all realized income at higher rates destroys the incentive and the ability to create the junk. Ironically, taxes based in realized value also make bonds based on such taxes more valuable. Taxing ephemeral wealth reduces the value of the same bonds. The best bond is a tax prepayment bond because everyone knows that in the end, it has no value.
Income is considered to be the return on assets, including sold labor. As we have seen previously, this includes the return on taxation of assets. The challenge for public policy is providing for adequate income and assets for all households so that no worker can be considered someone else's property. How badly we have failed at this is impossible to see until we look clearly at the elements of the "supply side."
Absolute Income is adjusted gross income plus unrealized income. Wealth taxes are an attempt to go after part two, in its stored form, on an annual basis. They will never pass because, if done correctly, the wealth will be destroyed. For some, that is likely the goal. If it is done ineffectively (by self reporting or creating loopholes) it legitimates assets which have no inherent value.
In the macro-economy, absolute income is gross national product plus stored future income plus speculative income. Current economic discourse and statistics do not, and likely cannot, capture the difference between the last two, although looking at income class helps.
This inability to separate future spending from speculation does not mean we cannot quantify unrealized income. Doing so shows why taxing wealth and unrealized income are close to impossible. Here is a hint: it does not really exist. Once that secret is out, capitalism' s days are numbered.
Unrealized income =
the net unrealized gain on traded equity and securitized assets held for less than a year
+ the unrealized net gain on assets held for more than a year
+ additions to retained earnings for the year that are attributable to shareholders or partners if it were to be distributed
+ increased value in a year of physical assets less their distribution expense.
All if the above include increased asset values and undistributed earnings for assets held offshore.
Asset prices and retained income and asset book values can be valued and are related but are not mutually exclusive. Asset prices may or may not reflect retained earnings and physical or market value of real assets and may, in fact, be junk assets based on fraud.
Bonds have the same features and are valuable based on currently expected future income - including whether tax income attributable from holding these bonds can ever be collected.
All value is market based. These values may or may not relate to the productive power of the underlying physical and human assets. Indeed, mass resignations and innovations may turn today's intellectual property into dust. This is why capitalism is a less than perfect driver of real innovation.
Income inequality and hierarchical control are designed to protect against sudden devaluations in both private and state capitalism. Individual and cooperative socialist organizations (from communes to partnerships) always threaten intellectual property held by capitalists.
The value of the "supply side" is based on common perception, not in reality. Tax cuts and central bank liquidity are monopoly money until distributed into the real economy.
When such instruments are sold into retirement accounts, essentially turning stored labor of workers into monopoly money while the "supply side" trades it into new speculative instruments or the purchase of luxury goods, then the system collapses.
When mortgage debt is securitized and leveraged into monopoly money for speculation, the economy is heading for collapse. (It always seems to be housing debt).
When tax cuts become the initial capital for such speculation and to create "unrealized income," that is, mostly, then it is not good for society. Trying to tax the unreal wealth in the speculation sector simply puts lipstick on a pig.
Taxing the return on all realized income at higher rates destroys the incentive and the ability to create the junk. Ironically, taxes based in realized value also make bonds based on such taxes more valuable. Taxing ephemeral wealth reduces the value of the same bonds. The best bond is a tax prepayment bond because everyone knows that in the end, it has no value.
posted by Michael Bindner at 11:35 PM
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