For every Bill Gates there are many people who got rich by extracting a larger piece of the pie vs making the pie larger. Consider 401k's where designed not to maximize retirement income for middle class Americans they where setup so the companies that administer them could extract the largest possible slice of someone other persons pie. Over the lifetime of many plans they extract 20%-50% of all gains though direct and indirect fees. The SSA could administer the same program for literally 1/5th what people are being charged.
Many housing developers get rich not from building houses, but buying land and then rezoning it to be worth more and then building houses. Effectively they leverage an areas existing infrastructure to increase the value of that land without paying for it. And often the way the do this is though direct and indirect bribery of local politicians.
From this perspective the idea of zoning is simply a way for the well connected to make money. If instead you charged people for their share of the construction costs of existing roads, schools, bridges etc when they added a new single family home you could automatically pay for any needed upgrades rather than having existing homeowners subsides their infrastructure either by having already paid for it or sharing in the cost of building new infrastructure to support new immigrants.
Edit: Of course when you start to dig into things Bill Gates also leveraged his connections to make most of his money. The reason he could sell an operating system he did not have to IBM vs them dealing with the guy that created it has everything to do with his connections and nothing to do with him actually building anything.
PS: Often people get rich by doing both. They make a the pie slightly larger yet end up with a larger piece than the size of their increase. I would argue that the best way to separate the wheat from the chaff in this case is a direct tax on wealth say 1.5% per year on anything over 2 million instead of traditional capital gains. While it does little to those who are directly making money it drains the type of passive old boy networks that most damaging to economic growth.
If some rich people make their money "unfairly" then fix that problem independently, you don't need sky high taxes on all rich people to fix that problem. I make a very good living, but I don't cheat anyone out of anything, and I'm sick of having the specter of high re-distributive taxes hanging over my head.
Would a 1.5% wealth tax / year be worse for you if it replaced both short and long term capital gains? I don't mean to penalize you, but rather combat the type of entrenched mult generational wealth that's really damaging while also removing the need for special 401k/Roth IRA style retirement accounts. It would also increase liquidity by allowing people to buy and sell without concern for the tax implications.
Here is some examples of Merryl lynch lobbying for such things: http://www.opensecrets.org/lobby/clientbills.php?id=D0000001... 401(k) started in 1986 so it takes some digging to find who actually lobby'd for it, but you can look at recent examples on who is trying to kill SS to see who benefits from such things.
>> The SSA could administer the same program [ie a 401k investment plan] for literally 1/5th what people are being charged.
This is an odd thing to say, since SS is not in the business of investment. SS doesn't invest. It's a defined-contribution plan that takes the money in and loans it to the federal government. At some time later, they and Congress decide how much they'll pay you back. How can we know how much it would cost them to run investments?
>> Over the lifetime of many plans they extract 20%-50% of all gains
This isn't much of a statistic. If those expensive ones are charging lots of money for sky-high returns, then everyone is winning, right? But commonly, yes, they do take a big chunk of gains. But if you reframe your statistics to better show how hard it is to make money, it's really not so evil. If my investment manager is able to beat the Dow consistently, and takes a goodly chunk of the difference, then we're all better off.
Moreover, market theory holds that high profits are prima facia evidence that one is providing value to one's customers. Do you have reason to believe that this isn't the case here?
>> Bill gates connection to IBM
Yes, but so what? The only thing I can think to read from this is that the only people who add value are engineers; those who are able to see a need, identify a means of fulfilling the need, and bringing the two together, are irrelevant. But I think that this very story shows what a big difference such a role can make.
>> As for developer bribing local politicization's
I won't bother arguing, since again, I think you're making a point opposite of what you're trying for. Saying that government is corruptible and can be subverted to line the pockets of the unscrupulous is not a very good argument for having government step in to resolve putative differences in income inequality. Doing so would simply invite more abuses of power.
We know how much it costs them to collect money and do correspondence (aka mail stuff). While the SS administration is legally prohibited from running investments you can look at other government agency's that do so and it's significantly lower overhead than even cheap index funds. As to the actual costs of buying and selling stocks you can do that with moderately complex software buying 1000x as much stock is not a hard problem. http://en.wikipedia.org/wiki/Algorithmic_trading
putative differences in income inequality Taxing wealth and not the income that wealth generates is not inherently punitive. What it does is eat's away at fortunes that stick with ultra safe investments in favor of the risk takers. Because I don't think income / wealth inequality is inherently bad, what's dangerous is type of back room deals /networks that favor 'old' money.
In the end I don't think there is much you can do to prevent insider deals, but you can put a damper on what it means for your great, great, grand father to have built a modest fortune that was managed reasonably well after that.
PS: I have plenty of rich relatives, heck my grandmother went to Harvard and one of my closet friends growing up came from 'old' money with multi million dollar trust funds so I may be a little to close to be objective on this one. But, on net I don't have a lot of good things to say about what happens when your parents inherit wealth and you can look forward to more of the same.
I work in land development and as much as I despise much politically based zoning, zoning is decidedly NOT the source of a developer's profit. Zoning issues may increase the final price of a home, but that difference is not going to the developer, but to me as a civil engineer, and to the planners and to the banks who the developers are borrowing money from and paying interest every month the project sits in planning mode.
>The SSA could administer the same program for literally 1/5th what people are being charged.
Most people aren't begging the SSA to manage their money on the cheap, so there must be some kind of benefit with those more expensive options.
However, if you really think the SSA could do better with your money, I know someone who works there and could ask them where you can over send them more of your money.
> However, if you really think the SSA could do better with your money, I know someone who works there and could ask them where you can over send them more of your money.
AFAIK this isn't actually possible. I looked into it at some point, and the amount you contribute is completely fixed as a percentage of your (earned) income. There are years where I didn't make a lot of income, or earned income only in non-payroll-taxed categories like grad-student fellowship, and wanted to top up my SS contribution for the year, but there's no mechanism for voluntary extra contributions.
(A few European countries do actually allow that; when I took a job in Denmark I had some options about what level of contribution per year I wanted to make into the state pension system.)
Many housing developers get rich not from building houses, but buying land and then rezoning it to be worth more and then building houses. Effectively they leverage an areas existing infrastructure to increase the value of that land without paying for it. And often the way the do this is though direct and indirect bribery of local politicians.
From this perspective the idea of zoning is simply a way for the well connected to make money. If instead you charged people for their share of the construction costs of existing roads, schools, bridges etc when they added a new single family home you could automatically pay for any needed upgrades rather than having existing homeowners subsides their infrastructure either by having already paid for it or sharing in the cost of building new infrastructure to support new immigrants.
Edit: Of course when you start to dig into things Bill Gates also leveraged his connections to make most of his money. The reason he could sell an operating system he did not have to IBM vs them dealing with the guy that created it has everything to do with his connections and nothing to do with him actually building anything.
PS: Often people get rich by doing both. They make a the pie slightly larger yet end up with a larger piece than the size of their increase. I would argue that the best way to separate the wheat from the chaff in this case is a direct tax on wealth say 1.5% per year on anything over 2 million instead of traditional capital gains. While it does little to those who are directly making money it drains the type of passive old boy networks that most damaging to economic growth.