July 27, 2002

1:47 PM

To those who have much, more will be given; to those who have little, more will be taken away. The NY Times (mefi/mefi) has uncovered the abuse of an IRS policy - established in 1996, ostensibly to aid widows and orphans - by some of the wealthiest Americans to avoid income and estate taxes altogether. Yet again, only in the land where the individual comes before all else!
posted by luriete (35 comments total)

My father does this and hes not wealthy.
posted by stbalbach at 2:04 PM on July 27, 2002

I believe the article was mainly not about the unfairness of the rule itself, but only that it was being abused by many who are rich to avoid paying taxes. Certainly it has legitimate uses.
posted by luriete at 2:08 PM on July 27, 2002

What a shocking outcome: Social engineering via tax code has unintended consequences. Perhaps if Americans stopped using the tax code to attempt social engineering, things like this would happen less.

In the mean time, I'm inclined to tip my hat to these clever folks.
posted by Hieronymous Coward at 2:16 PM on July 27, 2002

Social engineering via tax code has unintended consequences. Perhaps if Americans stopped using the tax code to attempt social engineering, things like this would happen less.

It's a bit rich to describe an exemption for life insurance that dates from 1913 as 'social engineering via tax code': the 'social engineering' has gone on in the 89 years since then, with the introduction of other means to protect widows and orphans. The loophole's a historical relic.

(I'm suspicious that you haven't actually read the article, though: it wasn't this element of the tax code that was 'established' in 1996, but the IRS's interpretation of the technique devised the year before by a pair of odious tax-whores to exploit it: the sentence reading 'it is but one example of how a tax exemption on life insurance that was approved by Congress in 1913 to help widows and orphans has been stretched to benefit the very richest Americans' gives this away.)

And I'm sure they're building an extra circle of hell right now for tax-avoidance experts who say things like this: "We think it is good policy to allow this because it discourages games like renouncing your citizenship or investing offshore." Oh, well, that makes it all right then: what 'clever' people they are, just as Ken Lay was 'clever' for years. We've seen the wonders of over-valuation and dodgy accounting in the US markets, where 'goodwill' on the balance sheet means 'think of a number, double it, and add eight zeroes'. This is no different.
posted by riviera at 2:38 PM on July 27, 2002

if the tax system was simpler we would have no need to build an extra circle of hell for tax-avoidance experts.

Too bad a flat tax makes it hard to steal from the rich to give to the poor though.
posted by Mick at 2:47 PM on July 27, 2002

I like livin' in a country where the individual comes first. There's lots of countries where the individual isn't even in the top ten. Talk about circles of hell...
posted by Faze at 3:19 PM on July 27, 2002

...besides, these are billions of dollars that won't go into the war on drugs, or the upcoming war in Iraq. They'll go to nice, innocent consumer spending -- probably the same stuff your or I would buy. I think it's a good idea.
posted by Faze at 3:26 PM on July 27, 2002

Oh yeah, the flat tax! What a great idea. Not.
posted by swerve at 3:39 PM on July 27, 2002

Swerve - you see that note up at the top that says it does not take into consideration deductions and exemptions? The devil's in the details. You show me someone with $200k in income that actually pays the full graduated tax rate, and I'll show you someone with a bad accountant.
posted by Lokheed at 3:53 PM on July 27, 2002

I've been in discussions where the mere mention of "The Laffer Curve" practically elicits hysterical shrieks, with the insistence that it isn't true, and even if it is, it's still a lie.

I gather it boils down to: if you try to take away rich people's money, they will try to prevent you from taking their money. And if you get really obnoxious about taking it, they won't let you have any of it at all.

In a way, it's like the man who, on leaving his apartment, hears someone screaming. A block away, a crackhead is screaming at him to "come over here and give me your money!", as he is shaking so hard from crack that he can't walk. The man just shrugs and walks away, as the crackhead continues to scream and curse at him.
posted by kablam at 4:02 PM on July 27, 2002

I oppose a flat tax, but Mick has a point. I do my family's taxes, which can get fairly complicated -- even using forms TurboTax doesn't provide. It's insane how complex it can get. A rewritten, vastly simplified tax code would reap many benefits, not the least of which would be fewer loopholes like this to exploit.

Unfortunately, it's exactly loopholes like this, or rather their closing, that often leads to complexity as Congress adds new rules, caps, floors, tables, eligibility, and the like; and as long as I can recall there has been intense attention paid to revenue-neutral solutions, which often means that even a simplification proposal ends up adding yet more complexity.

Sometimes, too, complexity stays with us. Congress reformed depreciation rules years and years ago, but legacy depreciation has remained in many tax returns.

Returning to the instant case, there's a lot of smoke here, but the fire is a little less certain. It seems to be an easy way to, as the Times puts it, pass a gift to one's heirs. But here are lots of other ways to do that as well. It may just be that this is popular because it's easiER than other ways: in short, that the money the NYT charges won't be collected comes from a pool that would not have gone to the IRS in any event.

Also, one coda: the 401(k) was invented by exploiting a loophole; it wasn't common until the IRS formally approved and regulated it, but essentially it used a provision intended for one purpose to create a tax shelter for middle-class professionals. Shocking! Millions of well-paid Americans are sheltering billions of dollars! Taxes are going uncollected with no penalty!
posted by dhartung at 4:11 PM on July 27, 2002

again, only in the land where the individual comes before all else!

Right. Evading taxes is a problem unique to the United States.
posted by ljromanoff at 4:46 PM on July 27, 2002

where the individual comes before all else!

What's more important than an individual?
posted by insomnyuk at 10:14 PM on July 27, 2002

What's more important than an individual?

Many individuals, also known as 'society'.
posted by aeschenkarnos at 10:52 PM on July 27, 2002

Oh, so if "society" (a nebulous, ill-defined term) stands to gain at the expense of a few individuals, then its ok? Because majority rules, or might makes right, or what have you? Does this society, being more important, bear the power of the sword, which it can use to force people to hand over their property (taxes)?
posted by insomnyuk at 10:54 PM on July 27, 2002

Hey, you can take a hint from the inverted title of this link...

"To whom much is given; much is expected."

JFK said that - but he was quoting Luke 12:48

And isn't that really what it's all about? The best thing we can is renounce the big screen TV with THX sound and the enormous SUV, etc and help our fellow man? It's not just all about money either - it's about brains and the ability to understand issues and help each other out.

Further, wasn't the estate tax crafted by the founding fathers in order to prevent the rise of some sort of capitalistic aristocracy? I mean - the whole idea was that every generation the entire country would have to boot strap itself up into wealth. It was sort of like a democratic "reset button" which went into affect every generation.

It's progression on the national level but in a more unified manner. The United States of America provides infinite opportunities to it's citizens to develop wealth - unlike any other nation in the world. So why shouldn't the government (remember the government is really just the people) expect some sort of pay back into the system?

Folks, greed is a sin.
posted by wfrgms at 12:18 AM on July 28, 2002

insomnyuk...I thought the same thing.

a) The US has some of the lowest tax evasion rates in the world. *Bad* economies (for instance, Argentina right now) produce widespread tax evasion. Prosperity doesn't.

b) The individuals are and always will be more important than society. In fact, without them, there would be no society at all. And if the individuals aren't happy, then I would say there's a good chance that 'society' isn't either.

Here's my tax solution. Figure out a baseline (say x amount for a married urban couple with 2 kids, etc., etc.) that would provide decent food, clothing and housing. Everything you make more than that is taxed at a flat rate. That rate depends on last year's federal budget. If government grows, everyone pays, not just the richest (although the problem of a large portion of the voting public paying no more than payroll taxes and thus don't care if the "rich" get taxed more wouldn't be solved, but alas, nothing is perfect). Such a system would eliminate these loopholes.

Greed is a sin, yes. But making money isn't. The Gates Foundation and Rockefeller Foundation and a million other charities exist because of inherited money, not despite it.
posted by Kevs at 12:27 AM on July 28, 2002

So luriete , How long have you been a socialist?
posted by revbrian at 3:48 AM on July 28, 2002

The Estate Tax was not crafted by the Founding Fathers. There was no Federal income tax until 1919; and the estate tax wasn't permanently established until 1926. It does have a history stretching back to the advocacy of Thomas Paine and Andrew Carnegie, among others.
posted by dhartung at 3:48 AM on July 28, 2002

And Carnegie is one of the subjects of Alistair Cooke's latest Letter from America (not up yet, but will be here on Monday, or via the Radio 4 'on demand' audio thingy): he's turned into a crabby old Tory in his later years, but he has something interesting to say on the use of wealth then as compared to now. Notably, he mentions that Carnegie was an immigrant: his sense of indebtedness to both his old and adopted countries would probably scandalise the Ken Lays of this world.

The individuals are and always will be more important than society. In fact, without them, there would be no society at all.

Or not: without society, there wouldn't be 'individuals', and certainly not individualism. Because 'the individual' is the product of a certain sort of society, which in turn backdates certain 'pre-existing' things to its constituents. Basic political philosophy, that is.

revbrian: 'To Caesar, what is Caesar's', yes?
posted by riviera at 4:22 AM on July 28, 2002

Further, wasn't the estate tax crafted by the founding fathers in order to prevent the rise of some sort of capitalistic aristocracy?

No. They did, however, abolish laws of primogeniture, which did very much to democratize this nation, if that's what you were referring to.

'To Caesar, what is Caesar's', yes?

You mean 'Render unto Caesar what is Caesar's and to God what is God's? Doesn't that imply that certain things don't belong to Caesar? If you read the Bible, and it put Caesar and God side by side, who do you think the authors of the Bible hold more important? I'm guessing God. Maybe that means, as well, that more belongs to God. Actually, everything belongs to God. So what belongs to Caesar? If he prints the money, sure he gets some of it. But that doesn't mean he has the right to tax my property, the things I buy, and the fruits of my labor, all at the same time.

Also, the argument has gone from 'society' (which no one here has defined, because it can't be defined easily) to Caesar, which is a bit easier to define.

"To whom much is given; much is expected."
JFK said that - but he was quoting Luke 12:48

Indeed, words of wisdom to live by. But where in that admonishment does it say that because you are blessed with talents or resources, that much is expected of you, by the government? No. It means you have a duty and an obligation to help your fellow Christians. It is not, at its root, a call for government coercion. When Christ told the rich man to give up his possessions and follow him, did he tell the rich man to give his riches to the Roman empire? Hardly. If you think he did, you are delusional.
posted by insomnyuk at 5:23 AM on July 28, 2002

So what belongs to Caesar? If he prints the money, sure he gets some of it. But that doesn't mean he has the right to tax my property, the things I buy, and the fruits of my labor, all at the same time.

That's amusingly naive, but shockingly inaccurate. Believe it or not, Jesus wasn't famous for his op-eds in the WSJ on the benefits of a flat tax, possibly because he regarded possessions as utterly irrelevant to living the good life. Caesar, in effect, can do what the fuck he likes, because 'property' is a creation of man, as is 'labour', as is 'commerce'.

...did he tell the rich man to give his riches to the Roman empire? Hardly. If you think he did, you are delusional.

Did I say that? For a naive little boy, you're very good at twisting my words. Now engage your brain for a change.

"Now when Jesus heard these things, he said unto him, Yet lackest thou one thing: sell all that thou hast, and distribute unto the poor, and thou shalt have treasure in heaven: and come, follow me."

Return it, in effect, to assist those within the social structures made by man, not God. (God does not create 'the rich' and 'the poor'. Or do you believe that: I know that some American evangelical types regard their wealth as an index of divine blessing, and in turn regard the poor as getting just desserts for your sins. I'd hate to think that you held such a fuckwitted set of opinions.) Because the stuff invented by man and the stuff created by God is different in kind, not in degree: 'treasure in heaven' is not made out of gold, and can't be bought and sold.
posted by riviera at 6:38 AM on July 28, 2002

When man's labor does not directly and proportionately benefit himself, his labor decreases (see communism).

If the return on capitol diminishes to the point that expenditure is no longer worth the risk when working within the system then black markets will arise to provide the return needed (see war on drugs, prohibition, cigarette taxes, and communism).

The tax rate is a balancing act, a racket. When the amount taken seems greater than what is gained (protection) people will no longer pay it, government revenue falls, programs get cut.
posted by Mick at 7:16 AM on July 28, 2002

For a naive little boy

For a crusty old bastard, you're very good at twisting my words. I said this: If you think he did, you are delusional. Go back and read my fucking post, goddammit. I never said you were delusional (I was making a generalized statement in response to someone else's post), but now I have reason to believ that you are. I guess alzheimers is setting in a little early, eh gramps?

I'd hate to think that you held such a fuckwitted set of opinions

No, I don't hold wealth as an index of divine blessing.

"Now when Jesus heard these things, he said unto him, Yet lackest thou one thing: sell all that thou hast, and distribute unto the poor, and thou shalt have treasure in heaven: and come, follow me."

Note that this is a voluntary act, with no state intervention. Again, he did not say: sell all your things and give them to Caesar in hopes that he will properly distribute your income. Christ told him to do it himself. Unless of course, you want to institutionalize it into a theocracy.

Caesar, in effect, can do what the fuck he likes, because 'property' is a creation of man, as is 'labour', as is 'commerce'.

Bullshit. Caesar is bound to the same laws and morality as all men (if you believe in such things as law and morality, as I do). Furthermore, if you believe that God is the creator and sovereign ruler of the world, than everything exists because of him, and in a sense, everything belongs to him. In this context, man cannot even exist without divine intervention. What greater claim does Caesar have to peoples property than anyone else? If you deconstruct it far enough you take it down to a system where might makes right ("doing whatever the fuck you like", as you so eloquently put it, riviera).
posted by insomnyuk at 11:47 AM on July 28, 2002

Since I do not accept phone calls or advice from Jesus, it looks like I am free and clear to reduce my taxes in anyway I can get away with. Sweet.
posted by thirteen at 4:45 PM on July 28, 2002

good thing, that, thirteen! He might switch you to WorldCom for Long Distance....
posted by dwivian at 7:20 AM on July 29, 2002

When man's labor does not directly and proportionately benefit himself, his labor decreases (see communism).

If the return on capitol diminishes to the point that expenditure is no longer worth the risk when working within the system then black markets will arise to provide the return needed (see war on drugs, prohibition, cigarette taxes, and communism).

Which is actually a good point. Marx may have flubbed the political details but his analysis of capitalism as it existed in the early 19th century (and as it is turning into today) is quite astute. Capitalism depends on the fact that working class labor does not directly and proportionately benefit the laborer, instead it disproportionately benefits the plant owner. The only way that the plant owner makes money is by pocketing a percentage of the value of the worker's labor. As a result, capitalism becomes a modern-day serfdom. A classic example of this is turn of the century mine labor and sharecropping. The laborer was screwed from both ends, needing to tithe a percentage to the owner but also forced to pay rent and buy food from the company as well. The end result is basically a capitalism tax on the poor that is very effective at transfering capital from the laborer to the property owner with the property owner taking a larger and larger cut.

Note that this is a voluntary act, with no state intervention. Again, he did not say: sell all your things and give them to Caesar in hopes that he will properly distribute your income. Christ told him to do it himself. Unless of course, you want to institutionalize it into a theocracy.

Of course, later in the book of acts it becomes compulsory to the point where those who did not sell all their goods and give them to the embryonic church were struck dead by God. Capitalism as it is practiced is incompatible with early Christianity as described by the book of acts. It makes the point quite clear that the accumulation (or even witholding) private property at the expense of feeding all is an immoral act worthy of divine punishment.

Now of course, it would be nice if in a good Christian country people actually did what they were called to do and we didn't have a situation where executive salaries have increased from 40X the median within companies to 400X the median in 20 years. Of course, America isn't quite as bad as Brazil where %5 of the population owns %80 of the usable land. Certainly it would be nice to live in an anarchy in which the thought of letting others go hungry is unthinkable. However anarchy does not work in the presense of morally disabled people, therefore a democratic government capable of levying taxes for the common welfare is a preferred secondary option.
posted by KirkJobSluder at 10:09 AM on July 29, 2002

KirkJobSluder: Of course, later in the book of acts it becomes compulsory to the point where those who did not sell all their goods and give them to the embryonic church were struck dead by God.

Never happened. A couple LIED about their after-tax donations, and God struck them down for lying.... Remember that next April 15th. Tithing was strongly encouraged, and a subject of massive peer pressure, but lying was the sin, not failure to give.

And, the concept of proportion means that the laborer, even in a capitalist system, gets a salary as a percentage of the total profit, subject to the value of his work to the creation of that profit. The plant owner's value to the system is the ownership of the capital needed to generate the profit, and he gets paid, too. This is all proportional, of course. The lack of proportion is when the product suddenly doubles in price, but no salaries are increased (except bonuses to execs and to shareholders). This makes the worker less inclined to work harder to meet the obviously increased demand. Now, give him a part of that profit, and you'll find the plant goes to double shift 24 hour speed assembly....
posted by dwivian at 10:16 AM on July 29, 2002

did not sell all their goods and give them to the embryonic church were struck dead by God.

WRONG. Ananias and Sapphira were struck dead because they lied about tithing their property, and did not do it.

The only way that the plant owner makes money is by pocketing a percentage of the value of the worker's labor.

If this were true, then why do employees ever get raises?
posted by insomnyuk at 10:20 AM on July 29, 2002

Never happened. A couple LIED about their after-tax donations, and God struck them down for lying.... Remember that next April 15th. Tithing was strongly encouraged, and a subject of massive peer pressure, but lying was the sin, not failure to give.

The passage must be read in context with the complete story from Acts
4:32-5:11

4:32 And the congregation of those who believed were of one heart and soul; and not one of them claimed that anything belonging to him was his own, but all things were common property to them.
4:33 And with great power the apostles were giving testimony to the resurrection of the Lord Jesus, and abundant grace was upon them all.
4:34 For there was not a needy person among them, for all who were owners of land or houses would sell them and bring the proceeds of the sales.

Perhaps more importantly, in Acts 5 Peter makes it clear that the sin was not lying, but keeping control of the property:

5:3 But Peter said, "Ananias, why has Satan filled your heart to lie to the Holy Spirit and to keep back some of the price of the land?
5:4 "While it remained unsold, did it not remain your own? And after it was sold, was it not under your control? Why is it that you have conceived this deed in your heart? You have not lied to men but to God."

Actually, the entire passage should probably be one chapter rather than broken into two chapers. The meaning is pretty clear. The early church disavowed public property. Ananias held some private property. Ananias was punished not only for lying about the sale of the property, but for holding back some of the profit for his personal use. This goes quite a bit beyond a "tithe". This is quite a bit more clear than any of the pet Christian issues of today such as homosexuality, abortion divorce or human cloning. Which goes to show that the morality of the religious right isn't worth a bucket of warm spit by obessing over issues not mentioned in the Bible such as cloning and birth control while actively blocking issues such as land and labor reform demanded by the early Church.

In fact the rest of Acts 5 reads practically like the first description of union-busting with the apostles thrown into jail for advocating what we call "communism" today.

And, the concept of proportion means that the laborer, even in a capitalist system, gets a salary as a percentage of the total profit, subject to the value of his work to the creation of that profit. The plant owner's value to the system is the ownership of the capital needed to generate the profit, and he gets paid, too. This is all proportional, of course. The lack of proportion is when the product suddenly doubles in price, but no salaries are increased (except bonuses to execs and to shareholders). This makes the worker less inclined to work harder to meet the obviously increased demand. Now, give him a part of that profit, and you'll find the plant goes to double shift 24 hour speed assembly....

Which is what appears to be happening today with execs getting paid more and more while actual wages for most people are declining compared to inflation. In additon it is not the case currently that shareholders are getting paid because the trend over the last 20 years has been to cut dividends in favor of increasing stock value. Thus the only way to profit as a shareholder in a company is to remove your stake in the company.

If this were true, then why do employees ever get raises?

Lets get back to basic economics. You spend one hour to create a widgit. If you sold it yourself, the widgit will cost $10.00. The manufacturer can't sell the widgit for $11.00 because the market won't accept that price, so the manufacturer is compelled to pay you $9.00 and sell the widgit for $10.00.

This doesn't change no matter how productive you are. The manufacturer will take a slice from your productivity above and beyond the cost of purchasing and maintaining the equipment.

Now then, in an ethical capitalist environment the success would be shared around among the workers and the capital owners. More importantly, the brunt of failure should be borne by primary owners of the capital. However with Enron we have a case where a handful of execs negotiated a 300 million package for leaving a failed company while the rest of the workforce got a grand total of 3 million. (Of course, in grand Enron style the 300 million severance package for executives was hidden in negotiating the bankrupcy agreement with labor.)

But one of the useful insights of Marx was that while a rising tide lifts all boats, capitalism does not lift all boats equally. Those running businesses receive disproportionate benefits, and are disproportionately protected from risks. While standard of living increases for everyone, the competition is unstable. As economic power consolidates into the hands of a few, the market becomes more anti-competetive than competitive. At that point, the labor market is effectively fixed and you've created an economic serfdom. I don't see that being a serf to the company is all that much better than being a serf to the government.
posted by KirkJobSluder at 11:54 AM on July 29, 2002

KirkJobSluder: The passage must be read in context with the complete story from Acts

That's how I preach it, yes. And, my point still stands -- The important text is While it remained unsold, did it not remain your own? That is, the property was that of the believer. It was encouraged, and in fact was considered essential to the community that some property be shared with those who had need, that none among them lacked anything, but the sin was NOT retention of property. Peter even says this outright -- it was his property to do with as he wanted, both before and AFTER it was sold. It was his money, and he could have gone and done anything he wanted with it....

His sin was pretending to give, and not. The greek there is "nosphizomai", which has the basic meaning "misappropriate." It implies that a decision was made to give all the money -- perhaps an announcement was made in the church, or at the time of the presentation. For you see, what Ananias wanted was some of the respect that Barnabas was just given for selling off his own property (in that section you skipped: Acts 4:36-37). Peter, instead, rebuked him, saying in effect that sacrifice has to be more than just giving up some of the excess you have, but instead a real and meaningful expression of your devotion. You can't buy your way into heaven -- the widow giving two pennies gave much more, and was given greater acclaim by Jesus, than any of the rich men with their grand gestures.

But, I can get easily started in to writing an entire sermon on this subject. Oh wait. I already have. *grin*

Lets get back to basic economics. You spend one hour to create a widgit. If you sold it yourself, the widgit will cost $10.00. The manufacturer can't sell the widgit for $11.00 because the market won't accept that price, so the manufacturer is compelled to pay you $9.00 and sell the widgit for $10.00.

You've got a problem there -- if you created it, you're the manufacturer.... if you shift here and assume that you, the company, and you, the worker, are different, then I can follow you. The company can make and sell a widget for $10. It uses your labor, which it has agreed to pay you $9 for. You can't create this widget on your own for the same price because of economies of scale (cost of materials, equipment, etc). So, you do it for someone else and get paid a portion of the selling price.

And, $9.00 divided by $10.00 is a ratio. And, ratios measure the way things are proportioned. So, the fact that your proportion is not 100% is immaterial -- you're still getting 90%. For every widget you produce and sell you get some profit. If the company sells many of these widgets, you get $9 for each, so you do well. You are inspired to make as many as you can, because you get $9 from each.

Now, suppose you get $9 per hour, not per widget. You're not as pushed to make widgets faster than one an hour (the company's worst case), because you get paid the same no matter what. So, the company decides that it should pay you more, if you can do more. They put out a performance incentive to management, and when it is recognized that you can produce 1.5 an hour, you get a raise to $13.50 an hour! You're happy, the company is happy, and profitability is maintained.

Am I missing something, still?

Oh, and yes, early Christianity was very communistic. It really galls some of my congregation to hear that.... *grin*
posted by dwivian at 12:41 PM on July 29, 2002

That's how I preach it, yes. And, my point still stands -- The important text is While it remained unsold, did it not remain your own? That is, the property was that of the believer. It was encouraged, and in fact was considered essential to the community that some property be shared with those who had need, that none among them lacked anything, but the sin was NOT retention of property. Peter even says this outright -- it was his property to do with as he wanted, both before and AFTER it was sold. It was his money, and he could have gone and done anything he wanted with it....

Certainly it is possible (although in my opinion dishonest) to interpret it that way. But this seems to be an overly optomistic interpretation given the entire passage. Again the previous verse, "...to lie to the Holy Spirit AND to keep back some of the price of the land." (emphasis added) the next verse is a continuation of the condemnation. The action was wrong because he did not give up control of the land.

And of course, this is just the most explicit passage calling for the renunciation of private property for the purpose of feeding the poor. The theme is repeated over and over again in the new testatment to a greater extent than just about any other political issue persued by contemporary Christians.

Now, suppose you get $9 per hour, not per widget. You're not as pushed to make widgets faster than one an hour (the company's worst case), because you get paid the same no matter what. So, the company decides that it should pay you more, if you can do more. They put out a performance incentive to management, and when it is recognized that you can produce 1.5 an hour, you get a raise to $13.50 an hour! You're happy, the company is happy, and profitability is maintained.

Am I missing something, still?

Here is the problem. We are supposedly at the tail end of an economic boom but real wages have been decreasing in comparison to productivity. The price of most goods have been steadily increasing, profits have steadily increased over the last 10 years, and yet very little of this supposed economic boom has been passed on to middle-class labor. In fact even though inflation trucks along at its usual pace, corporations during the 1990s slashed wages and benefits for much of its workforce, or moved operations to countries where it can pay $0.10 an hour for the widgits.

In other words, what's happening is that the few managers at the top are sitting on larger and larger ammounts of cash rather than passing the wealth onto workers or even investors (by refusing to pay dividends). This, combined with increasing consolidation means that rich are getting richer while the rest of us are staying even.

Furthermore, your original comment (that workers get paid a salary as a percentage of the total profit) is false. Salaries are not based on the profitability of the company, but rather by the competing prices in the labor market. Microsoft is under no obligation to pay higher salaries than Sun Microsystems in spite of the fact that Microsoft is making a profit while Sun Microsystems reported a loss for three quarters this last year. And investors are not getting paid much either.

But this gets to one of the big flaws in most libertarian reasoning as exhibited by this thread. Libertarians focus on the risks of government attacks on our freedom but fail to realize that the consolidation of economic power in the hands of a few can be just as damaging to individual liberties as government restrictions.

Perhaps I'm just a bit bitter, but I live in a community where multinational corporations shut down 3,000 jobs in three years in order to increase stock prices. The phrase "class warfare" is frequently used in discussions of progressive taxes or inheretance taxes that affect less than %5 of the population. And yet increasing executive salaries by 100X over 20 years while most workers are struggling to keep up with inflation seems to pale in comparison.
posted by KirkJobSluder at 1:28 PM on July 29, 2002

but fail to realize that the consolidation of economic power in the hands of a few can be just as damaging to individual liberties as government restrictions.

Kirk, I think it is the government that does the most to ensure that only big corporations are successful in the market.
posted by insomnyuk at 2:46 PM on July 29, 2002

This is a loophole in the same sense as the mortgage interest deduction is a loophole - it's an exception specifically carved out to promote a certain government interest.

This is morally wrong only if you think government is entitled to as much of each citizens' money as it can grab before sparking a revolt. If, on the other hand, you think that citizens have the right to manage their affairs to miminze their tax vurdens within the contours of the law, then there is NOTHING WRONG with it.

I'm sure that the IRS decision creating this "loophole" - to the exent that any IRS decisions do - had some logical basis, although I can't think of one. But the folks using this scheme are taking a risk: if the IRS or Congress closes this loophole, future premiums would be taxable as gifts at the amount paid, meaning that the insured would either have to pay taxes on the premiums or possibly forfeit the policy - effectively wasting all the money previously spent. It's even possible that the government could attempt to close the loophole retroactively - although that would certainly lead to legal challenges.
posted by mikewas at 7:16 PM on July 29, 2002

KirjJobSluder:Certainly it is possible (although in my opinion dishonest) to interpret it that way

I thought that an odd response, so I took a review of commentaries online and in my library.

To an author, NONE interpret it the way you suggest. I think perhaps it is dishonest to imply that the view was otherwise -- the fact Peter says that the property was NOT communal is important, and cannot be ignored. You are focusing too much on one verse, when, as you said, the entire story must be read to understand it.

Ananias wanted the kudos he saw going to Barnabas. He then sold property to give the money to the apostles, to lay it at their feet in support of the goal of the early church. He apparently claimed to give it all, when in fact he didn't. He wanted both sides of the coin -- wealth, and the appearance of sacrifice. He got called on this. He died. Again, Peter said it was his to do with as he wished. Had he said "I sold my land, and look, here is 50% of the money" I think everyone would have been fine with the gift, but wouldn't have given him the same "attaboys" as Barnabas got.

Greed and Jealousy, in 8 verses. Good story.

Furthermore, your original comment (that workers get paid a salary as a percentage of the total profit) is false. Salaries are not based on the profitability of the company, but rather by the competing prices in the labor market.

Until the company dies from not being profitable, I'd agree with you. But, profitable companies pay out on profit, not on losses. If doing the business kills the company, it's a dumb venture. But, I had money in the dot-coms, and I'm a bit jaded.

Once the market stablilzes again you'll see that a good budget for the strategic business plan involves establishing a pool of money for salaries, measured as a expense, against the profitiablilty of the company, in a percentage of non-capital expenses. Capital expenses are not subject to float/flux during lean years, so have to be paid first, or ejected quickly. The remnant of the income is a gross profit, from which salary is paid, as a percentage of the whole.

Ugh. I had to remember back to my classes as a Business Major for that diatribe. Can I get back to my study of ancient church fathers now? *grin*
posted by dwivian at 10:56 AM on July 30, 2002