Why Are Corporations Hoarding Trillions?

One plausible exception would be for items so expensive that they're often financed with debt: A car manufacturing company might plausibly generate more than a dollar in revenue in the short-term if its employees borrowed money to finance it.

Another plausible exception would be if you gave someone a temporary raise, and they immediately started spending more and going further into debt(think buying a bigger house, bigger car, funding a bonus vacation on a credit card, etc.). Then when you cut their wages 6 months later, it's possible that for some items you would've convinced your own employees to spend more money than you gave them on your own products.

A third exception might be for companies that completely control the employees' spending. For example, a prison or a camp full of debt slaves might be paid $3/hour, but they could only spend it on overpriced company goods. Raising it to $4/hour still wouldn't exactly generate direct revenue over the long term, but it wouldn't cost the company much at all since they'd capture 100% of the spending. Anything short of that 100% is savings, and people might be more willing to spend down their savings if they thought money was easier to get. So you could - in the short term - make money by raising wages. Doubly-so if you extend them credit(on top of whatever debt they're working off).

I can't think of a way that the "giving people more money gives them more money to give back to you" argument actually works that doesn't involve saddling them with debt. And these are merely plausible - I don't know that they're what would actually happen.

Actually, what does them being employees have to do with the argument? If that argument were valid, why wouldn't my local grocery store hand out free $20 bills to anyone who comes in, since this would spur them to buy stuff? Or if you were truly convinced that this would make the companies more money, you could easily be a millionaire by buying up a local McDonalds(with a government-backed loan), raising everyone's wages, and then when your income goes up by x% reselling the business for an x% increase on the $300,000 or so you bought the McDonald's for(and repeating this a couple times).

The focus on income tax creates a situation where the person who makes $200k/yr but has a net worth of $0 gets taxed far more than the person whose investments bring them $100k/yr and they have a net worth of $2,500,000.

Oh, and their lifestyle might be about the same despite the disparity in income, because one of them needs to work for a living so they'll need to live somewhere close to jobs, pay more for transportation, etc.

Higher income tax is great, if you're already wealthy. If I was wealthy, I'd be very happy people if stay focused on that. But I think taxing accumulated wealth is a much better way of leveling the playing field over time and also making sure capital stays in productive use. France already has something like a 0.5-1% "solidarity tax" on wealth, and it's a progressive tax.

According to Piketty, the return on capital has historically been around 5% per year, and returns are better at scale. For multi-billion dollar funds, the rates are around 9-10%. The "Financial Independence/ Retire Early" people who plan for pessimistic scenarios say to expect 4% return. Let's say it's reliable to expect 2-3%.

At $10M a person can expect about $200-300k in income. If we have a wealth tax of 1% their investment income after taxes reduces to $100-200k. If they want to maintain their previous standard of living, they need to make about $100k per year.

At $100M let's say economies of scale start to happen and even in a pessimistic scenario you can expect a 4% return. If we have a 2% wealth tax at this point, the person can still expect an investment-only income of $2M per year.

You can see where this is going. At $1B with a 5% pessimistic return, 3% wealth tax, $20M investment income. At $10B with a 6% pessimistic return, 4% wealth tax, $200M investment income.

The nice side effect of this is that the mere scale of capital doesn't provide competitive advantage. The wealth tax should be designed to even out the advantage of scale so that larger accumulations of capital need to be put to best use.

Putting some numbers on the napkin... The US has an aggregate net worth of $85 trillion dollars. The federal budget is $4 trillion. Assuming a power law distribution of net worth, let's guesstimate an average 2% tax on that $85 trillion, which comes out to $1.7 trillion. We could roughly cut income taxes in half or eliminate them except at very high levels ($1M+) if we used a wealth tax instead.

The important thing to note here is that the wealth tax still leaves about 2% investment income, it doesn't reduce the total over time. I think it's great that people can accumulate wealth and then live on it, or pass it on to the next generation. But it would be great if we can keep the income at around 1-2% so that the nearly guaranteed increase in accumulated wealth is the same or less than the growth rate of the economy, meaning that people who build businesses today have the ability to reach the same heights as those who built businesses yesterday, without extraordinary luck or blunders by those with wealth.

The summers are amazing though!

You get spoiled living here and thats why people like it.

The article makes it sound like these dollars are somehow being removed from the economy. If they're put in a bank, the bank loans it out to someone else. If they buy treasury bills, the government then takes the money and spends it. Even if all this money was converted to paper notes and stuffed into giant mattresses, the net effect would simply be to deflate the currency and increase the value of everyone else's money.

Hoarding money isn't like hoarding oil or rice or microchips. Maybe GM spending money would grow the economy more than GM loaning it to the federal government so they can spend it, maybe not. Depends on what they spend it on - the return on education is probably higher than the return on fancy pensions or factories for products that nobody buys.

good call, this is Econ 101 stuff that most people just don't know. Saving money in a bank or government bonds is not the same as locking it in a vault or burying it in your backyard. It is still out moving around in the economy.