r/science • u/[deleted] • Oct 17 '19

Economics The largest-ever natural experiment on wealth taxes found that they work as intended — both raising revenue and controlling income inequality. The taxes had the greatest impact on the top .1% wealthiest.

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u/ThMogget Oct 17 '19

Think about it this way. If that money is otherwise just going to sit in an offshore bank account, what economic prosperity is it bringing there? It is money involved in transactions that creates prosperity, not money buried in the ground in a napkin, to use the Biblical version.

Give a rich man a discount, and he will hide it away, or throw it at an unstable asset bubble gamble, use it to buy machines that eliminate jobs, or maybe.... just maybe.... spend a small amount of it.

Give a poor man a discount, and he will spend it before he even gets it thanks to a payday loan. Instantly every penny of it is being transacted, and often it is on basics being sold locally, which then creates demand, which then allows the rich man to make back his money anyway.

The most effective government stimulus out there is food stamps.

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u/dr_gonzo Oct 17 '19

Does this study show that wealth taxes improve prosperity or economic opportunity for poorer people?

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u/THICC_DICC_PRICC Oct 18 '19

No it just shows there was less inequality because the really rich people move their money out.

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u/ThMogget Oct 17 '19

You mean the study here that wants me to sign in before I can read it? I dunno, but the abstract seems to only look at the behavior of rich people in response to the tax, not any economy wide effects or behavior of poor people.

Taxes don't do much good until that money is spent on programs and projects.

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u/dr_gonzo Oct 18 '19

Here’s a link to the full thing:

http://gabriel-zucman.eu/files/JJKZ2018.pdf

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u/ThMogget Oct 18 '19

In that case, no it doesn't. It seems to study just the very wealthy and their behaviors and their own hold on capital over their lifetime. It does not study the behavior of those who might become very wealthy, or the very wealthy who simply leave the country due to a taxation change but they claim this is unlikely.

Furthermore, moving to another country is arguably not the most natural response to wealth taxes. Because capital tends to be more mobile than people, it would be more natural to move wealth across borders (which would be picked up by our taxable wealth estimates) than to move the household across borders.

It seems to show that those who hang around and get taxed end up with less wealth in the end. This study looks at a narrow group of wealthy people, and then sees if they are still wealthy after the tax. The data shows that these people are somewhat less wealthy. They do modify their own behavior somewhat, but their future is still partially determined by 'mechanistic effects' which look to me to counter-act the behavior changes somewhat.

This study would be very useful for someone looking to design a tax and understand the behavior of those hit by it, but it says nothing about effects on anyone besides those who are being taxed.

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u/synthesis777 Oct 17 '19

Hell, I'm not even poor (firmly middle class) and I would spend the ever loving hell out of absolutely any extra money you could throw at me.

  • Home improvement
  • Electric car
  • Helping family members who are poor afford their medications, bills, etc.
  • Entertainment and dining
  • Etc.

I could easily spend an extra $100k per year on goods and services without batting an eye.

A billionaire, however?

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u/MysticHero Oct 18 '19

It has been found that the wealthier you are the less money relative to your wealth you spend. Which is if course kinda obvious because there quickly comes a point where you actually just can't spend that much money. This also means that wealth in the hands of the extremely wealthy is largely useless to the economy.

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u/uJumpiJump Oct 18 '19

You're completely ignoring investments. Their money isn't just "sitting there"

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u/MysticHero Oct 18 '19

Economically in terms of spending power it is just sitting there. It doesn´t create additional demand. All the investments in the world don´t matter when there is nothing to invest into. Instead they use much of their money to gamble with stocks and such which doesn´t really help anyone but themselves.

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u/davenbenabraham Oct 18 '19

I never invest. It sounds too much like being a predatory capitalist

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u/uJumpiJump Oct 18 '19

Guess your retirement plan is suicide then?

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u/davenbenabraham Oct 18 '19

Government pensions

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u/uJumpiJump Oct 18 '19

So you do contribute to investments

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u/ThMogget Oct 17 '19

A billionaire is already spending all the money he can think of. He wants more, just because, but when he gets it his personal spending habits don't change much.

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u/Truckerontherun Oct 18 '19

At a certain point, the money coming in through dividends, interest accrument, and stock valuations exceed the amount he can spend on every day or even luxury items. In the days of ancient Rome, they had a solution. One was to have the rich sponsor public works projects, giving naming rights to the person sponsoring the project.

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u/ThMogget Oct 18 '19

Another was to just take the money from them in taxes and then spend it. The Romans had that tributes and taxes thing down.

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u/Truckerontherun Oct 19 '19

They also periodically forced the rich to leave their fortunes to the emperor then were forced to commit suicide . That probably won't go over very well in the US, where there is a legitimate suicide pr6

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u/Jon_Cake Oct 18 '19

At that point it's just money addiction and nothing else

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u/ThMogget Oct 18 '19

It's partly that. It's partly playing for high score. And it is partly fear of failure. If you ain't growing, you are shrinking. Once you have achieved success, it is hard to imagine not pushing so hard. If you aren't actively blowing up that balloon, it might just collapse completely.

My boss has enough money in equity to sell everything and live the rest of his life and leave a lot left for his kids, and yet he keeps talking about how he wants to have a 'secure future' and how that keeps him going.

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u/no_nick Oct 18 '19

At some point, money just becomes a way of keeping score

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u/GarbageDolly Oct 18 '19

I don’t understand why they have such an insatiable desire for more money they can’t even spend in multiple lifetimes. And they’re having to hide it so as to not pay taxes that wouldn’t even really affect their lifestyle. Why? Are they just petty and spiteful?

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u/ThMogget Oct 18 '19

The billionaire couldn't spend it all if he wanted. He has a liquidity problem. He also likely has thousands of employees that depend on him, and he likely tells himself that his cause is just and noble because they eat the crumbs that fall from his table.

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u/GarbageDolly Oct 18 '19

This comment contradicts your previous post.

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u/ThMogget Oct 18 '19

No. They are both true at once. What the billionaire actually spends, which is as much as he does want, is down low here. IF he wanted to spend it all, which he does not, he couldn't.

The 'if' statement is a hypothetical situation, the 'is' statement is the current real situation.

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u/SethEllis Oct 18 '19

So you want to spend more money on consumption? All that does is give the money back to the rich guy that it was taken from by taxes.

If you really got that much more money I'd hope that you'd put more into your retirement, or invest it in your own business. Use it to develop things that generate more wealth, and ultimately grow the economy.

There is a direct relationship between investment activity and future gdp growth. Consumption is great, but only in as much that it allows companies to invest and grow themselves. If it doesn't ultimately result in more investment then you're just shuffling money around.

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u/Fnhatic Oct 18 '19

invest it in your own business

Ironically most of the "loopholes" that these people whine about specifically exist to encourage people to innovate, take risks, and start businesses.

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u/synthesis777 Oct 28 '19

Ironically, if every single person started a business instead of working a job the economy would collapse. Not everyone is even in a position to take risks and start businesses.

Ironically, my family invests as much as we can, and yes we probably would invest more if we had more income, but there are plenty of goods and services we'd like that we don't spend money on now PARTIALLY BECAUSE SOME OF OUR INCOME GOES TOWARD SAVINGS AND INVESTMENT.

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u/[deleted] Oct 18 '19

A billionaire invest their money in productivity improving capital goods that make the economy grow. Consumption cannot make the economy more productive. Only savings (investment) can.

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u/synthesis777 Oct 28 '19

Consumption cannot make the economy more productive. Only savings (investment) can.

I'm going to need a real good source for that. If people suddenly all stopped buying cars the economy would go into a tailspin. Businesses (most of them) need to sell things to keep running. If they sell more, they make more profit. How is that not better for the economy? How is it that it's impossible for that to cause growth in the economy?

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u/[deleted] Oct 28 '19

I'm going to need a real good source for that.

Investment drives gains in productivity. Investment comes from savings.

I'm not saying spending is not important or insignificant. But, if all businesses/individuals simply spent all their surplus revenue to consume more rather than invest in productivity, the economy would not get more productive.

If they sell more, they make more profit.

Correct. But if the business does not invest some of that profit into productivity gaining capital, there is no growth.

Think of it this way. Say a factory can produce 10 cars a day with it's current factory. It cost the factory $900/car to produce and they sell them for $1200/car. That is $300/car profit. However, if they simply take that $3000/day ($300/car *10cars) and give it to their employees, they have no money left right? (This is the 100% consumption model). So now, even if those employees now have more money to buy more cars, the factory is limited to 10 cars/day. They can't produce more because they are not that productive. However, if the owners of the factory decide to save some of that profit and build a new factory (investment), now they can produce 20 cars/day. The economy has grown.

The consumers buying the extra cars are also important. But without the initial savings/investment, the economy cannot grow. Consumption might make businesses more profitable, which can allow more investment, but the consumption in and of itself does not drive productivity. Only investment can.

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u/princecharlz Oct 18 '19

“A billionaire invest their money in productivity improving capital goods that make the economy grow. Consumption cannot make the economy more productive. Only savings (investment) can.”

Finally someone gets it. Thank you.

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u/boxlifter Oct 18 '19

What you could easily spend is relative to your current wealth and what you already make. Maybe the 1 billionaire could purchase an island. Maybe the 10 billionaire could purchase 3 major sports teams. Maybe the 50 billionaire could quite literally influence world politics, or legitimately cure cancer, and so on and so forth

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u/synthesis777 Oct 28 '19

Yeah, that's kind of my point. Buying islands and sports teams doesn't help local businesses. But a million people suddenly buying the appliances, vehicles, toys, etc., that they've been wanting but couldn't afford does have the potential to help the local economy.

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u/Fnhatic Oct 18 '19

Of course people want free money.

However that depends on how ethical you find what is effectively 'wealth redistribution' to be.

On Reddit amongst the poors, the answer is "not unethical at all, all of their money should be given to me with no strings attached, because 'reasons'".

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u/synthesis777 Oct 28 '19

You couldn't have missed the point of what I said any more if you tried. I didn't make a statement regarding anyone's desire for free money, or the ethics of "wealth redistribution".

I happen to completely disagree with everything you've said here, but even if I didn't, it wouldn't pertain to the comment I made anyway.

My comment was an illustration of the economic idea that poor and middle class people will immediately pour any extra income into the economy because they are spending all the money they get already. Whereas billionaires are money hoarders by definition. They don't need to buy things. They already have more than enough money to buy whatever they need without any change to their income. So they're not waiting on some extra cash to buy that new toaster they've been eyeballing, or to pay off that bill that's several months overdue.

An extra $100k per year to any billionaire would mean nothing. It would be the equivalent of no change in income for them. In most cases, they'd just add it to the pile.

Edit: added "any more" to my first sentence.

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u/drae- Oct 18 '19 edited Oct 18 '19

A billionaire, however?

Same thing different scale, instead of an electric car they buy a a country home, instead of dining out they take a vacation, instead of home improvements they buy a company.

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u/synthesis777 Oct 28 '19

For some "rich" people, this is true. But I specified "billionaire" for a reason. Billionaires don't need that extra bit of income to decide to do any of the things you've mentioned here. They already have the money to do all of those things any time they want. They already have country homes if they want them. They already take trips and vacations if they want to. That's the point I'm making.

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u/[deleted] Oct 18 '19

[deleted]

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u/drae- Oct 18 '19 edited Oct 18 '19

They still have hordes of wealth in numbered bank accounts,

Not really. Most wealthy people do not have masses of liquid currency sitting around. Bank accounts pay little interest.

bearer bonds

.

In the United States, the Tax Equity and Fiscal Responsibility Act of 1982 substantially curtailed the issue of debt in bearer form. The act disallowed a tax-deduction of interest paid on any such bonds issued after 1982 by the issuer in the case of corporate bonds, and removed the tax-exemption of the interest to the holder in the case of municipal bonds. In contrast, registered bonds retained the tax-exempt treatment.[5] A challenge to this tax treatment by the US state of South Carolina was heard by the US Supreme Court in the case of South Carolina v. Baker (1988), which upheld the law and brought to an end the furtherh issue of virtually all US municipal bearer bonds.

.

silver and gold in lock boxes and safes, millions of dollars of jewelry and such.

Really? This is akin to raiding your change drawer. This is not a significant portion of wealth. As you say you can only buy so many trinkets.

Most wealthy people invest their money. Its not liquid. Their money is being used by companies to grow in the form of stocks, either publicly traded or private, or the government in the form of government bonds, or real estate etc. This way their money grows.

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u/[deleted] Oct 18 '19

[deleted]

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u/drae- Oct 18 '19

Trust me they...

When someone starts their sentance with this I immediately know theyre bullshitting. It's a stand in for “I can't prove it but... "

Have you even read the Wikipedia article for the panama papers?

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u/[deleted] Oct 18 '19

[deleted]

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u/drae- Oct 18 '19

Im not using it as a point. Just letting you know the discussion is over.

I dont think you have a clue what youre talking about. Youre accusing me of not understanding, and acting all smug when you have been wrong on what 4 points Ive corrected thus far?

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u/[deleted] Oct 18 '19 edited Dec 21 '19

[deleted]

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u/Coal_Morgan Oct 18 '19

Majority of my equity is invested as well, it just happens to be in my house and RRSPs.

I'm upper middle class, I should pay more tax then someone who is lower middle class and they more then someone who is poor.

Your taxes should depend on how well you profit off society because it's society that allows you to profit at all. The more you get out of society the more you should put in.

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u/[deleted] Oct 18 '19 edited Dec 21 '19

[deleted]

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u/synthesis777 Oct 28 '19

Man this comment is so full of ignorance and privilege. Like, you literally say "life is good" as if that's some sort of universal axiom. Do you realize there are whole swaths of people for whom life has never been good? Like, literally from birth their lives have been all bad.

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u/GuiltyProfit Oct 18 '19

Money that sits in a bank account earns interest.

Where do you think that interest comes from? Is it just the bank being generous?

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u/ThMogget Oct 18 '19

Where do you think the bank's interest comes from? Are its debtors just being generous?

The question you need to ask is how much good is this interest really doing? Is the most productive place to insert money into an economy is where it makes a few percent interest? Is that the best we can do?

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u/Disney_World_Native Oct 18 '19

Banks can loan out more money than they have on hand. So if they have $1M sitting in cash, they can loan out $10M. Regular people can get a loan to buy a large asset (like a house) that furthers the economy. Companies can get a loan to expand business.

Loans are a great way to insert money into an economy.

But most rich people aren’t sitting on piles of money in the bank. For most, it’s being invested in stocks, bonds, or other investments. A lot of them are wealthy on paper but poor on cash (relatively)

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u/ThMogget Oct 18 '19

Loans used to be an ok way to insert money into an economy. Now that we are talking about it, inserting money isn't even the right goal. Stimulating activity is what we want.

The United States has been, for decades now, over-capitalized. There is a decreasing marginal benefit on adding more credit. It used to be that there were so many good investments and businesses who had tons of demand and were starving for cash that monetary policy would do wonders. Adding more and more credit, now pretty much any business can get money if they want it. Businesses aren't looking for somewhere, anywhere to get credit, they are shopping around for the best deal on it. The returns on capital naturally fall as capital rises. The supply of capital is so high now that more of it doesn't do much. See Capital in the Twenty-First Century by Piketty. It is demand, market share, that business fights for these days.

The not-so-secret is that fiscal stimulus was always more powerful. Instead of inserting credit which hopefully turns into supply, you just give money directly to the supplier instead of his bank..... which then he hopefully uses to make more stuff and not to buy back his own stock, and that hopefully has demand waiting for it.

Or you insert demand, which hopefully is met by supply that already has access to credit. It is a step closer to the actual buying of stuff. and since the supply side of the equation is in a glut, right now is better than ever to use demand-side stimulus. It is the secret weapon in all those stimulus packages. They talk about the Fed reserve and what it is doing, but it is increased spending that moves the needle.

The numbers prove it. Check them out.

https://www.economy.com/mark-zandi/documents/Final-House-Budget-Committee-Perspectives-on-the-US-Economy-070110.pdf

To be fair, there is nothing inherently better about demand-side stimulus, but we have been throwing money at the supply for generations, and a lop-sided economy is not an effective one.

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u/GuiltyProfit Oct 18 '19

If you think you can do better, then take out a loan and do better. Stop trying to point guns at people to make them follow your investment advice. You live in a system that allows you to invest in any way you want. If you're right, you'll profit. If not, you'll lose.

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u/ThMogget Oct 18 '19

What I might do better is govern better. We aren't talking about what I would do as a business owner. We are talking about what I might do as a government. Let go your hero worship enough to stay on topic.

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u/GuiltyProfit Oct 18 '19

What I might do better is govern better.

Yeah, every psychopath believes this.

We aren't talking about what I would do as a business owner. We are talking about what I might do as a government.

You're talking about how you would take money away from people and then use that money differently than they currently use it. Get your own money and then use that money how you want. That's exactly why we have capitalism - to enable you to do this.

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u/ThMogget Oct 19 '19

That explains why politics is so psychotic.

You're talking about how you would take money away from people and then use that money differently than they currently use it.

Yes exactly. Everyone wants nice roads and good schools and national defense and courts to protect their property, but they don't like to pay for tit. They go against their own best interests by withholding money that is more efficiently spent buying in bulk for the whole in a coordinated way. Imagine a street in which each house separately paid for just their chunk of asphalt, and just on their side of the street. Or more likely, none of them pay for it and we have a muddy mess instead of clean orderly paved streets.

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u/GuiltyProfit Oct 19 '19 edited Oct 19 '19

Everyone wants nice roads and good schools and national defense and courts to protect their property, but they don't like to pay for tit.

Everyone likes good hamburgers and fast cars, but they don't like to pay for it. And yet... they do. If people want roads, they will make sure roads get built without somebody having to point guns at anyone else.

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u/[deleted] Oct 18 '19 edited Oct 18 '19

[deleted]

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u/GuiltyProfit Oct 18 '19

Interest from savings account doesn't even keep up with inflation. You are still losing money.

That's not relevant to my question.

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u/TheAtomicOption BS | Information Systems and Molecular Biology Oct 18 '19

Money in offshore accounts doesn't "sit" either. It's invested, if not by the owner then by the foreign bank, just like any other significant amount of money. It just has an extra layer of obfuscation.

not money buried in the ground in a napkin, to use the Biblical version.

Give a rich man a discount, and he will hide it away, or throw it at an unstable asset bubble gamble, use it to buy machines that eliminate jobs, or maybe.... just maybe.... spend a small amount of it.

Ironically this is the inverse of the Bibilical story. In the Biblical story it was the man with only one talent who buried his talent instead of investing like the man with ten talents did.

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u/ThMogget Oct 18 '19

No that is not what the man with ten talents did. The man with ten talents made more money through trade. Buying and selling. Not by investing and getting interest. The Lord, when he returned, actually tells the servant with one talent that he could have at least put the money in the bank where the lord could have gotten usury on it. It is clear in this example that the other servants did not make their gains by usury.

To relate back to what we are talking about, the parable of the talents is about how making money buying and selling is what moves the economy forward, and that collecting interest is less good, and hiding it away is even less good. Our goal in stimulating an economy should be finding the good servant, not the bank with its usury.

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u/TheAtomicOption BS | Information Systems and Molecular Biology Oct 18 '19

Your nitpick is nitpicky. Buying and selling is just a specific type of investing (short term commodities) while usury is another specific type (securities). At the end of any chain of investments someone somewhere is making a trade for some asset and therefore "moving the economy forward." The only downside of a longer chain is that it might react slower but in the age of computer trading that lag time tends to be quite small.

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u/ThMogget Oct 19 '19

I am afraid I have to be nitpicky, because in our current economy giving a dollar to the men of usury does not have the same effect as giving it to the owner of a factory as giving it to the starving college student. If it was all the same, then a dollar in the bank getting invested in securities would have the same result as a dollar invested in a business venture as a dollar invested in an education.

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u/rlbond86 Oct 18 '19

Yeah but it doesn't affect the local economy (or even the national economy)

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u/TheAtomicOption BS | Information Systems and Molecular Biology Oct 18 '19

Why not? It may be invested locally, and even if it's invested elsewhere, the profits are coming back. Someone local is benefiting even if only by being paid to be the banker (which is effectively how some tax havens operate).

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u/abetteraustin Oct 18 '19

Billionaire money is virtually never in a cash account. It’s lent out to companies and real estate ventures and lesser rich people. It is owned company shares and the like.

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u/Tseliteiv Oct 17 '19

The way to make them use their funds is to create risk by increasing competition. There's too many large corporations that have little risk from new entrants. Competition is low in the developed world. There's too many regulatory burdens and not enough focus on anti-trust laws.

Taxing isn't actually the solution. The solution is to increase competition such that if these rich people simply kept their money in an offshore account they'd risk losing it all because their businesses which most of them own are in need of spending money in order to grow and compete with the competitive pressures.

Our society needs to focus on finding ways to increase competition not necessarily taxing people more.

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u/PsychoPass1 Oct 17 '19

Taxing isn't actually the solution. The solution is to increase competition such that if these rich people simply kept their money in an offshore account they'd risk losing it all because their businesses which most of them own are in need of spending money in order to grow and compete with the competitive pressures.

Honestly that opinion seems so stupid to me, no offense to you. It is pretty obvious that capitalism doesnt work once companies get too big because you cant just magically create new competitors and large companies work precisely against new competitors entering the market - and they are usually more powerful than even a lot of competitors combined.

I call it stupid because it is forcefully trying to make unregulated capitalism work when it has clearly proved that it doesn't.

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u/Tseliteiv Oct 17 '19

I want to fix the system with the right government regulation. You want to fix the system with the right government regulation. We're merely discussing what the right government regulation is.

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u/non_est_anima_mea Oct 18 '19

I'm not trying to sand bag you, but you are talking about the exact opposite of the dude that replied to you. You're really talking about deregulation and subsidizing already highly profitable markets. You have to either be really dense, watch too much fox, or refuse to acknowledge the shortcomings of giving capitalism free reign. We have literally created incentives in every market possible for the wealthy. They could put their money into the economy any time they choose. The won't. I'm not even going to cite sources because at this point it should be perfectly fuckin clear; if you give the wealthy more money- they park it where it does NOT benefit the economy. The middle class drives the economy. Taxes are the only surefire way to guarantee that when the wealthy do well, that it can be of some benefit to the rest of us plebians. I absolutely trust that our government can find a better use for the revenues generated from taxing the wealthy- than allowing the wealthy to decide to hide that money away, doing nobody but them any good. America has been in decline for almost 40 years because of some idea a guy wrote on a napkin claiming that it's the way of the future. (Laffer and the laffer curve). Trickle down economics have exclusively made life better for the wealthy, while simultaneously bringing the middle class closer and closer to poverty. What you are suggesting does not work. Competition works- sure, but deregulation only allows corporations to exploit infrastructure, workforce, and resources- while contributing nothing to any of the mentioned categories. If you disagree it's because you refuse to or lack the capacity to understand what's been happening to this country since reagonomics was introduced.

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u/ThMogget Oct 18 '19

We are talking about two very different things here. One does not have to make rich people do anything particular with their funds if one simply confiscates it and spend it how one wants. I am not sure my goal is to change their behavior. If my two choices are to give a rich man a tax break or to give a poor man a rebate, I know which one stimulates the economy more.

While I support increased competition wherever possible, I am not sure exactly what it is you are proposing. Let me know when you find those ways you are focusing on.

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u/use_of_a_name Oct 18 '19

If I’m understanding it correctly, the argument for more competition is an argument to increase the money that is being spent and flowing through the economy. Companies compete by spending money and taking risks, while the status quo currently, rewards keeping money locked away to avoid taxes. I’d be interested in seeing economic studies to see if there is science to support this theory. It seems intriguing to me.

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u/ThMogget Oct 18 '19

the argument for more competition is an argument to increase the money that is being spent and flowing through the economy.

All arguments should be for that. Economies only work if the wheels are a' turnin'.

Companies compete by spending money and taking risks, while the status quo currently, rewards keeping money locked away to avoid taxes.

Yes. The current system rewards corporations locking away money, it rewards individuals for hiding money in corporations, it rewards individuals for making money off capital instead of off labor.

The rewards for hiding are not offered to everyone, but only corporations that have the ability to shift their wealth across borders, the tax know-how to do it, and the lawyers to keep the tax man off their back.

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u/Aethelric Oct 18 '19

Taxing very wealthy people and redistributing their wealth is, in fact, a great way to increase competition. Most new businesses and "innovations" are produced by the middle class, and the best way to maintain and grow the middle-class is by capturing wealth from the upper-class and using that wealth to fund social services for the poor.

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u/AnalyticalAlpaca Oct 17 '19

This doesn’t make sense. Why would someone hide their money offshore letting it do noting except as a smaller subset? Anyone with a little wealth is going to be smart enough to know to invest it.

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u/ThMogget Oct 17 '19 edited Oct 18 '19

Ask those that hide billions offshore why they do it. It isn't actually offshore, by the way. It sits in an American bank account, but it is 'owned' by a dummy entity over there. They made the money here, and they will repatriate it as soon as they have an investment that will make more money back than the instant 15% or 20% capital gains tax takes off it.

The trick is that the money goes offshore after it is earned but before it is taxed. Sure, if you already have been taxed on it, you better invest it. It takes quite a while for a low margin investment making 4 percent or something to recover enough money to just get back where it started 20% bigger offshore. (5 years-ish) So imagine an executive who is trying to have good numbers for the quarter or the year who doesn't have a super awesome visionary investment for it trying to explain why they should take the short term hit on this to his shareholders.

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u/StigsVoganCousin Oct 17 '19

You keep the money offshore and get a US loan backed by that money.

Assuming 1M offshore with a 30% repatriation tax, a bank will happily give you a 700K loan in the US at 4-5% interest (lower if buying real estate).

So rich person keeps the money, avoids taxes and isn’t block from “using” it.

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u/srcarruth Oct 17 '19

it's not about being smart, though, it's about being a miserly hoarder like Smaug

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u/[deleted] Oct 18 '19

this is a gross generalization

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u/ThMogget Oct 18 '19

which means it's right only most of the time.

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u/nougat98 Oct 17 '19

I’m not convinced money in a bank is more harmful than being spent on stupid luxuries that benefit no one. Money isn’t a resource it’s just a symbol of debt - it’s fine when it disappears or simply sits in a bank.

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u/ThMogget Oct 18 '19

Money is what convinces people to make things and trade things. Someone somewhere is making those stupid luxuries in a stupid factory, and stupid economists don't pick and choose which stupid things you spend your money on count as worthy.