(I am going to change my typical terminology here in a bow to 19th century theory. Usually the language used would be the "cost of labor" instead of labor's share of production wealth. However nothing is created without labor, even speculative wealth requires the efforts of someone, so how can one say that by creating something you are an inherent cost to it? It is more accurate to say that capital, meaning the non-personal entity which most corporations are and the environment in which they function creates "cost". Nothing can happen without labor, nothing can happen without the organizing principal which management represents, but how much of ownership represents a function completely dependent upon a particular individual to justify the argument that management as the personification of capital is the primacy of production? Onward.)

Generally labor's share of the wealth created through production is recognized as wages, and benefits, including possible equity interests. But labor's ability to create through production is dependent upon family structure and a stable society, the markets ability to give an adequare share of wealth to labor is also dependent upon the market function effectively, which requires a pool of unemployed labor. So there are workers who are either, not unemployed, out of the workforce but contributing to the family unit or society in some way, or out of the workforce but still contributing to the labor pool which has the potential of being drawn upon. These people are not simply negatives to the wealth created through production, and they also share in the wealth created through production, either through government run programs or through a drain on employed labor's share of wealth through family expenses or charitable expenses, government programs also are funded through directly taxing labor itself.

So labor's share of wealth is much higher than simple wages and benefits, it's true share includes many other social expenses. This does not mean that unemployed persons aren't performing functions required by the family unit, society or markets.

Given the above premise the way we tax capital and individuals to fund programs and dispense their benefits would seem to be an emormously complicated way of sharing the wealth created by production. The taxes come from multiple sources and in multiple ways, the methods of distributing the wealth mask the required amount of wealth and are inflexible and overburdened with bureaucratic inefficiencies. The core idea is simple, production creates wealth which must be shared in as simple and effective a manner as possible amongst the whole of the labor pool.

This I've thought out a bit, the actual administration I am still muddling over, any thoughts are appreciated. Perhaps a simple surcharge on profits represented by the amount of unemployed people in the labor pool, to be equitably ditributed amongst the labor pool. This might help to encourage offering employment options to the labor pool since the wealth needed by the unemployed goes up as the amount of labor unemployed goes up.

A more conservative line of thought would be to funnel the money now taxed into wages benefits so labor may share more of the wealth the recieve amongst themselves, through family or charities. But this places many in the labor force at the risk of having a viable family structure, something many people do not have.

An associated though somewhat different thought is that markets require educated workers to function properly, and so the cost of educating the labor pool should be directly levied on capital, instead of the family unit. If a corporation requires an input of certain specifications to function it pays for that, rather than asking labor to pay for it. The family unit may pursue some education from an altruistic standpoint but most is done to accrue marketable skills. In this regard they are placed at the mercy of a system that recognizes broad educational goals as opposed to marketable skills as the goal, the system doesn't reflect real market needs in real time. By creating a more direct capital to education cost relationship one may increase the administration of more relevant, usuable, and culturally appreciated education.

I don't really want to belittle the import of your post by picking at details, but it must be done in the interest of clarity.

First, you seem to conflate the meanings of income and wealth. These both have usual and differing meanings. A reasonable model of the relationship might be this: Say you have a bucket with a small hole in the bottom. Water is poured into the top of the bucket and some or all of it trickles out of the hole. If the water is poured in faster than it runs out, then some water accumulates in the bucket. The water running in represents income, the water running out represents expenses, and any water which accumulates in the bucket represents wealth.

The other conflation which seems to appear is between ownership and management. Ownership can be completely blind, such as when one invests in a fund which the investments of the fund occur rapidly and effectively out of view of the owner. Thus, the owner is completely unaware of what he/she owns. No management participation can be inferred there. On the other hand, managers are hired help, and function independently of participating in ownership, although it has to be recognized that many top level managers might also be owners, especially in the early life of the company. The practice of management should be viewed as labor, as surely as the practices of sanding, grinding, or painting.

It might also makes things clearer to think of a worker as selling his labor as a product rather than to view himher as renting out himself. This makes it easier to speak of people as alike, with only their products and their holdings being different. This makes generalizations about social issues easier to state.

I tend to agree with you about education. I feel there is much to be learned that is for the good of the student, regardless of his/her future. This is quite different from those skills which would only be of value if particular tasks at particular employers were to be undertaken. In the past, a person often performed the same work throughout his/her life and was identified with that work, even to the point of taking a name like Cooper or Smith that designated that work. This is no longer so much the case, and it is quite reasonable to expect an employer to supply, or at least finance, the learning of skills necessary for a given job. If a person, already skilled, by reason of training or repetition, in a particular task accepts a new job, then it would be reasonable to expect that person to be rewarded by increased compensation representing at least a part of the cost of training which would otherwise be required. In practice, this part is already accomplished by hiring "experienced" workers at a premium rate.

I generally align with your observations and I hope my comments might help clarify some later iteration.

O.k...Thanks for your reply.

According to your example wealth equates to profit, yes? Income is gross income, wealth is net income. I find this example acceptable since for me wages/benefits are not an expense and so not a part of gross income, they are a part of profit, or wealth. From an accounting standpoint one might say that wages/benefits are indeed an expense since they are a fixed cost unlike profit which is a variable dependent upon excess after paying overhead. I also do not have a problem with this. A contradiction? I would say not necessarilly. Because an accounting function is different than the ideology which drives a viewpoint. To call wages/benefits an expense is to call them cost. I don't buy this. Take this example, two companies create equivalent products at equivalent overhead, yet one company for whatever reason, brand identification, marketing, distribution arrangements, whatever, sells their product and pays their labor higher wages the base view would be that they are in a unsustainable condition because they have higher labor costs, it is viewed as a negative, instead of a positive, this company can afford to pay it's labor higher wages, (or give it's labor a higher percentage of the profit they have created), and that should be viewed as a positive.

I do agree that ultimately management is labor, and should be viewed as such. Management and labor are a team, to suggest otherwise creates an adversarial relationship which should not exist. Unless ownership is completely divorced from operations it also should be viewed as labor, being removed from every decision does not mitigate this. Labor is not aware of the intricacies of every step of operations either. What I am suggesting is that not only are management/ownership labor, labor is ownership as it resides in a place of primacy in the creation of wealth/profit. But what becomes an issue is that the wellbeing of the system is beyond human, especially in terms of corporations which, while they may not employ the bulk of people, drive the global economy. The mechanics of markets, the mechanics of capital, trump the interests of simple owner/labor relations.

Does labor "sell" their efforts? I don't really care for this analogy. Reason being labor is doing what it does, it creates. It owns it's efforts always. Capital markets, owners/management, benefit from these efforts more than labor but this is because of the cultural bias we have created. Labor should have equal claim to the profits resulting from it's creative powers. The organizing principle is as replaceable as labor.

(I am working to not "accept my own fultility" I have stock arguments for the real politik economic discussions here. My own bias is much more leftward leaning. And it will take me some time to become comfortable with the language and the mechanics of my arguments. I know they are for the most part sound since real world models do work. But I am working to resolve your well taken criticism in an earlier exchange).

No. wealth equates to assets. I meant the bucket model to apply to a person (or a family, for that matter). Wealth, the net of what you own, is represented by the water retained in the bucket. Because the inflow (income) and the outflow (expenses) both vary with time, the quantity of water (wealth) does not remain fixed. You can think of that wealth as the total of your cash, home equity, stock equity, bonds, real estate, paintings, the equity in your car, etc.. The income would represent wages, insurance reimbursements, money for the sale of a car, increase in the value of your stock holdings, dividends, etc. The outflow would represent your expenses, insurance premiums, taxes, groceries, mortgage payments, etc.

It is probably best to represent those things which can be either positive or negative, such as changes in stock value or home value, as signed values and always include them in the input. Wealth would be the sum, up to the present, of all inputs less the sum of all outputs. Now I making what was a simple model less simple. I'm sorry about that.

Phil notes that: In the past, a person often performed the same work throughout his/her life and was identified with that work, even to the point of taking a name like Cooper or Smith that designated that work.

LeRoy: And we had Bakers, and Millers, and even some Tanners. [Probably a lot more I am forgetting at the moment.] We also had coopersmiths. Most people nowadays have forgotten the profession of a coopersmith. Coopersmiths were the people who constructed the oak barrels that many products used to be shipped in, back in the day before steel containers became widely available (and cheaper). I probably wouldn't even know this, except that we have a fairly popular restaurant here in Fort Collins that is called 'Coopersmith's', and they explain the origin of their name on their menu. [They specialize in selling a lot of locally brewed beers, including their own, which I am told is quite good.]

Should I change my last name to 'Teacher'? Maybe not. I think I like 'Guru' better.

Gingham seems a bit confused about the distinction between stock variables and flow variables in macroeconomics. I have always used a bathtub analogy to explain this, but your bucket model is essentially identical. Wealth cannot be the same as profits, because wealth is a stock variable, while profits are a flow variable. A stock variable can be measured at a point in time, whereas a flow variable requires a unit of time. Examples of stock variables would be: wealth, both personal and national; the capital stock of America, the amount of water in a bathtub. Each of these can be measured at a point in time. Examples of flow variables would be: Gross Domestic Product, investment (whether gross or net), income, savings, profits, depreciation, the amount of water flowing into the bathtub, the amount of water draining from the bathtub. Each of these requires some interval of time for them to make any sense. As Phil noted, any stock variable is going to have both a positive flow variable and a negative flow variable associated with it. The national debt is another stock variable; there are scary websites where you can look up what the national debt is, right this instant, and watch (perhaps with some degree of horror) as it grows by the millions every minute. [And that is using the understated official measure of the national debt!] Deficit spending is a positive flow variable for the national debt. A budget surplus, should we ever have one again, could be a negative flow variable for the national debt. In this case, a negative would be a good thing.

Or at least so I think.

John McCain may differ.

Thanks both for your points. They are informative and well taken.

I feel that tax policy overdoes the distinction between these in its treatment of capital gains vs. income. Capital gains can be considered to be an increase in wealth, but it also can be deemed to be tantamount to income. Tax policy sometimes neglects to even tax capital gains--in the case where a primary home appreciates less than $500,000 in two years (which includes virtually all houses) or when assets are passed down to a surviving spouse or children. Straight capital gains are now taxed at considerably lower rates than income, yet, the net result of both capital gains and income is more money to save or spend.

In thinking about the bucket/bathtub descriptive model discussed above, it occurs to me that it is about as simple a model as is possible. However, when taxes are considered, although it is easy to recognize that these are a component of the outflow (through the hole in the bucket or the bathtub drain), there is no natural faultline which would divide what is taxable from what is not taxable. There is a universe of arbitrary divisions which could be made, but not all are intellectually satisfying. I would like to suggest some rules for this taxing model.

First, I think it is relatively easy to get agreement that taxation should be applied to some prior period rather than being forward-looking or even simultaneous. This would avoid any hard-to-predict feedback phenomena.

I have posted, at various times, my position that society, nationality, and humanity are all about people and not corporations. I have noted that the Founding Fathers, who were certainly aware of the existence of corporations, made no mention of them in the Constitution (and, without providing support, I will guess this is true of all the founders intellectual products). I definitely see no sign that they ever intended them to be seen as persons. I see the fact that a SCUSA jurist wrote a footnote to a minority judgement that a particular railroad was qualified to act as a person for the purpose of a trial as showing only that this made including corporations in trials a convenience, relieving the government of much work defining how they would treated in this eventuality. OK, I can allow that - although I can predict, with a certainty, that the physical embodiment of a corporation will never appear in a courthouse. Let them send their lawyers; I can live with that!

I proceed from the assumption that corporations are not truly persons to the idea that only persons can be citizens or even residents of a country, and that only persons should be liable for taxation. In strictly practical terms, corporate income taxes have been, more or less, a failure. It is very difficult to keep a corporation from placing its assets in some position, either physically or by definition, which keeps the earnings from that position from being eligible for taxation. Because corporate taxes draw more thunder than lightning, and because they seem to do many things not in the national interest which they blame on the threat of taxation, it can anticipated that the withdrawal of the taxes imposed on them might be, on the whole, beneficial to the nation. It would at least dull the propaganda sword wielded by the corporations.

I have said in the past that I believe that we can find or establish a correlation between wealth and income which is statistically very robust - that is, as wealth increases, so does income. Of course, this assumes that there is a mean wealth model which minimizes the effect of the minority which has its investment in shower curtains. I believe they represent a lunatic fringe and will not seriously affect the quality of the correlation. These data could be used to reform the personal income tax table (more on that below) so that the income lost by abandoning the corporate taxes will be regained by increases in personal taxes. The idea here is to increase the personal tax, at each level, in some proportion to the probable extent of ownership of corporate wealth which was previously taxed (or which we attempted to tax) according to the related earnings. This, of course, glosses over the variation of earnings to equity between corporations. However, the market is supposes to take care of that, isn't it??

The tax rate table has been reduced to only six steps, which all switch at rates far below the top end wages. I have pasted the married couple filing jointly tax table from the IRS site below. It looks neat as I edit, but might be "slated" into some mess, for which I apologize in advance, I believe that the number of steps should be increased dramatically. I think that, in the past, it had as many as 14 steps, and I do not think that would be excessive.

If taxable income is over-- But not over-- The tax is: $0 $15,650 10% of the amount over $0 $15,650 $63,700 $1,565.00 plus 15% of the amount over 15,650 $63,700 $128,500 $8,772.50 plus 25% of the amount over 63,700 $128,500 $195,850 $24,972.50 plus 28% of the amount over 128,500 $195,850 $349,700 $43,830.50 plus 33% of the amount over 195,850 $349,700 no limit $94,601.00 plus 35% of the amount over 349,700

One can easily see (if the table reproduces correctly) that the last step has been place low enough to guarantee that many people in the media who are seen and read by the public will be in it and will (possibly unconsciously and reflexively) complain about the level. It is better for the highest rates to involve fewer people, leaving them to complain on their own, and with little sympathetic support.

Obviously, the tax liability transfer I suggest above would not create new tax revenue, so some increase in rates - at the top, of course, since that is where it damages the economy the least (actually, closing the tax gap strengthens the economy, and the really rich are really unimportant to the economy, despite their protestations to the contrary).

Note that what I propose in the tax area does not map well into the bucket/bathtub model, so I need to add a little more plumbing. I would like to get it right the first time, so I don't intend to describe it in this post.

Here is the (sadly) deconstructed table, based on taxable income, which is less than gross income:

$0 to $15,650 pays 10%

$15,650 to $63,700 pays $1,565 plus 15% over $15650

$63,700 to $128,500 pays $8,772 plus 25% over $63,700

$128,500 to $195,850 pays $24,972 plus 28% over $128,500

$195,850 to $349,700 pays $43,830 plus 33% over $195,850

Over $349,700 pays $94,601 plus 35% over $349,700

It is easy to see how well those with ultrahigh incomes actually do with the present tax rates.

I'll pretend I'm a visitor from Mars and ponder this tax schedule of ours. Comments:

1. 10% bracket. I suppose I'm alright with this bracket. The first $15K they let you off sort of easy. However, the first edition of the Federal Tax didn't tax anybody who made under $20K, and $20K in those days was a thousand ounces of gold--nearly a million bucks. Somehow, we've gone from taxing millionaires to taxing people with taxable incomes of under $15,000. The rich have indeed won the war.

2. 15% bracket. Notice the much wider spread. First we had the first 15 thousand in the lowest bracket, then we have the next 48 thousand in the second. Why not tax the first $30,000 of taxable income at 10% and the next $30K at 15%? Granted, one does expect the brackets to widen as you climb the income ladder. Let's look at the third bracket.

3. 25% bracket. $63K to $128K. Notice the tax rate jumped from an increment of 5% to 10%, while the width of taxable income grew by about a third. Uncle Sam is really going after the middle class with this 25% rate, which exceeds the 15% capital gains tax rate on hedge fund managers making $3 billion, as did one fellow named Paulson in 2007 (not the treasury secretary).

4. 28% bracket. $128K to $195K. Now the tax rate increment shrunk to 3% from 10%. Why bother? OK, tax the middle class at 25% and the upper middle class at 28% if it makes your day.

5. 33% and 35% brackets. As we ascend to $350K the tax rate increments remain small. $350,000 and $350 million are taxed at the same marginal rate, which makes the Republicans happy. But my original point was that virtually all the high rollers are rolling in capital gains on stock, not high salaries. They've gamed the system.

From taxing only those who made today's equivalent of a million bucks a year in 1914 we've gone to taxing everybody, but mainly the middle class. No wonder the middle class is deep in hock on mortgages.

Genedio: Uncle Sam is really going after the middle class with this 25% rate, which exceeds the 15% capital gains tax rate on hedge fund managers making $3 billion, as did one fellow named Paulson in 2007 (not the treasury secretary).

LeRoy: The other Paulson (the Treasury Secretary) is probably jealous.

Warren Buffett noted the perversity of a system in which he, the third richest man in the world, paid only 17% on his income, since most of it was from capital gains, while his receptionist, who makes a miniscule fraction of what he does, paid 30% on her income.

I have often expressed the view that I think it would be better to tax people on their consumption rather than their income, as this would go far in restoring the incentive to save in this country, and I believe it would not be hard to design a thoroughly progressive consumption tax. The ones most hurt by such a tax would be those high-income couples who nevertheless manage to spend all they make and more; the people most rewarded by such a system would be low-income people who nevertheless manage to save a good chunk of their income. I freely admit that I would be one of the beneficiaries of such a system; but I am tired and offended by a system that forces me to pay taxes to subsidize people who make outrageous financial decisions.

"...the people most rewarded by such a system would be low-income people who nevertheless manage to save a good chunk of their income."

I would think that there would be few, if any, low-income people who could save "a good chunk of their income", probably by definition.

Phil: I would think that there would be few, if any, low-income people who could save "a good chunk of their income", probably by definition.

LeRoy: Would I qualify? I make a bit less than $40,000 a year, which may not be what you have in mind by the phrase 'low-income', but which I think you will agree is certainly not 'high income'. Various people (such as Run and Genedio/Diogene) have told me that I am not making enough to call myself 'middle class'. I am nevertheless managing to save about $10,000 a year...somewhere in the neighborhood of 30% of my income. I think that is a pretty high saving rate for a person who is probably somewhere between low-income and middle-income.

There are anecdotal stories of people who worked their entire lives as janitors or seamstresses and who had nevertheless managed to save hundreds of thousands of dollars by the time they retired. I recall a news story, a rather sad one, from Philadelphia a few decades ago. It was about a little old lady who was so poor that she was living on canned cat food. Her neighbors felt very sorry for her. When she died, it was discovered that she had a savings account with almost $800,000 in it. There was a lady who was saving 'too much'---very rare in America these days!

No, I don't think you would qualify since, with no dependants, you earn near the median family income. Wikipedia gives the median male worker's income as $39,403 for workers over age 25 in 2005. That makes you far from low-income by that definition. I think of low family income as more like $20,000. That would put the total before tax income $10,000 below your residual after savings are deducted - and with a family to feed, clothe, and shelter!