Why Do People Stay Poor? [pdf] • Hacker News Board

Re: Why Do People Stay Poor? [pdf]

#261

Post by AlexTWithBeard » Thu, Jul 30, 2020, 7:47 AM UTC

missedthecue wrote: post #227

arcticbull wrote: post #219

Earlier quoted context omitted.

Yeah, no, they don't, and it isn't. Estate tax being practically zero means huge quantities of un-earned wealth are transmitted from generation to generation. This isn't true in most first-world countries. The top tax rate in the US isn't nearly as high as many European countries. The specific quantity of money that is collected as tax revenue has much more to do with just how successful the higher classes are in the…

>The top tax rate in the US isn't nearly as high as many European countries. And the bottom tax rate is much much lower than in other countries. The top 3% of earners pay 50% of income taxes in the US. Nowhere in Europe will you find this. Remember, in addition to their flatter income tax rates, Europe also has 20% VATs which is extremely regressive.

The bottom tax rate is highly negative in the US.

Think of an abstract poor family from New York State (outside New York City): two adults working for minimum wage (roughly $11), two kids.

Assuming 48 weeks in a year (allowing four weeks for vacations, seek days and such) total family salary will be about $41 000.

From that they will pay:

- $1700 of federal tax

- $1000 of state tax

- $4000 of sales and excise tax (assuming the rate for both is about 10%)

... while receiving back (all numbers are approximate)

- $5000 of federal earned income tax credit

- $4000 of federal child credit

- $1600 of state earned income credit

- $1300 of state child credit

Which gives a net credit of $5300.

That's not counting food stamps, free school meals and medical insurance subsidies.

If this is not a progressive tax system, then I don't know what is.

Re: Why Do People Stay Poor? [pdf]

#262

Post by burfog » Thu, Jul 30, 2020, 8:02 AM UTC

charwalker wrote: post #202

refurb wrote: post #102

Earlier quoted context omitted.

I'm not trying to generalize, because I know poor people who are poor through no fault of their own (and we should provide public support for them), but I also know a larger number of people who contributed to their own dire financial situation and it wasn't because they couldn't afford quality boots, it was because they over-extended themselves with new cars, a way too big house, the big screen TVs and expensive tri…

Perhaps proper education and examples of personal finance and budgeting, even in the face of celebrity promos and sales sales sales, could prevent some of the next generation from doing the same. I'd argue that you're oversimplifying those that got themselves stuck. They possibly lacked caring or supportive parents, stable childhood, stable role models that aren't rich, quality education on issues like personal finan…

If you make "laws to cut down interest rates", two things happen.

1. The normal lenders discontinue lending, either by choice or by bankruptcy.

2. The blackmarket lenders fill the gap. Mafia loans are not good for society. The nature of the blackmarket, without access to legal remedy, is that there will be violence.

Re: Why Do People Stay Poor? [pdf]

#263

Post by tim333 » Thu, Jul 30, 2020, 9:28 AM UTC

dublinben wrote: post #242

CarbyAu wrote: post #221

Earlier quoted context omitted.

Agreed. It is crazy that for a standard "Savings" account: - interest earned is less than inflation. - I pay tax on that interest earned. "Saving" money in a common savings bank account pisses away value. Many people are not capable of more financial management capability. The middle class is often locked into a mortgage - I am too! - and is barely one step up. But it is one step up. Ultimately, poor people don't own…

>interest earned is less than inflation. - I pay tax on that interest earned. Interestingly, the current administration proposed to index capital gains taxes to inflation to address that very paradox. Unsurprisingly, their proposal would have just been a giveaway to the wealthy.[0] [0] https://itep.org/why-trump-administrations-plan-to-index-cap...

We used to have capital gains indexed in the UK. I've never seen an inflation allowance for interest though. I guess it would be too expensive?

Re: Why Do People Stay Poor? [pdf]

#264

Post by arcticbull » Thu, Jul 30, 2020, 10:02 AM UTC

AlexTWithBeard wrote: post #261

missedthecue wrote: post #227

Earlier quoted context omitted.

>The top tax rate in the US isn't nearly as high as many European countries. And the bottom tax rate is much much lower than in other countries. The top 3% of earners pay 50% of income taxes in the US. Nowhere in Europe will you find this. Remember, in addition to their flatter income tax rates, Europe also has 20% VATs which is extremely regressive.

The bottom tax rate is highly negative in the US. Think of an abstract poor family from New York State (outside New York City): two adults working for minimum wage (roughly $11), two kids. Assuming 48 weeks in a year (allowing four weeks for vacations, seek days and such) total family salary will be about $41 000. From that they will pay: - $1700 of federal tax - $1000 of state tax - $4000 of sales and excise tax (as…

Payroll taxes are both regressive, substantial and non-refundable: 7.65% on each of the employer and employee totaling 15.3%, which stops when you make too much money. This accounts for a further $6273 if you haven’t taken the employee amount into consideration (I didn’t see it in your breakdown) and $3136 if you did but neglected that this is paid on your behalf by your employer and you never see it. This alone zeros out the net credit you mentioned.

Then of course since we’re comparing the rest of the world to the US, you need to add a couple hundred dollars per person per month - easily $10K for a family per year - for health insurance that gives them a $5K out of pocket maximum per year they can’t afford so they don’t die of cancer (but can’t afford an early diagnosis) and can’t afford their insulin. All of which is included in the tax burden and covered in Europe and Canada and Australia and New Zealand and Taiwan, to name a few. This amounts to a regressive 25% tax if you’re comparing directly (as good health insurance costs rich and poor the same, but represents a disproportionately higher amount of take-home pay for the poor).

I never understood the “freeloader” narrative, payroll taxes easily cancel it all out.

Re: Why Do People Stay Poor? [pdf]

#265

Post by mcntsh » Thu, Jul 30, 2020, 10:48 AM UTC

throwaway0a5e wrote: post #127

hprotagonist wrote: post #77

The reason that the rich were so rich, Vimes thought, was because they managed to spend less money. Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots…

This might have been true back when boots routinely had cardboard in them but when it comes to necessities and near-necessities the poor people versions do 90% as well at a fraction of the cost. It's all the other stuff you spend your money on when you're poor that screws you.

Then use your imagination and apply the hypothetical argument to other things. Another good modern example is the car. Imagine that you have $1800 in your bank account, you earn 8$/hr and your credit history is shot. Your options are either getting a predatory loan or dropping that $1800 on an old beater that breaks down every other week, bleeds oil and burns gas like crazy.

Re: Why Do People Stay Poor? [pdf]

#266

Post by quercusgrisea » Thu, Jul 30, 2020, 12:08 PM UTC

missedthecue wrote: post #257

quercusgrisea wrote: post #241

Earlier quoted context omitted.

Compared to most countries in the world today, would you say the Chinese government exercises relatively more or less control over their economy?

It's near the median. Plenty of corruption, but they are not a command economy in any sense.

You think that half of governments have more control over their economy than China? You keep bringing up China not being a command economy today. I never said they were, just that they exercise relatively more control over their economy than other states.

In case you don't know, in addition to the portions of the Chinese economy directly owned by state-owned enterprises, the Chinese government exercises a large amount of control over the private enterprises in the country. You might find this article helpful: https://www.theguardian.com/world/2019/jul/25/china-business...

All of this is distracting from my point earlier which is what exactly do you see as the difference between hunger experienced by people in communist countries in the past and the 37 million people in the US who experience food insecurity each year today? You mentioned that people don't have to "line up" for food in the US, but thousands of people do, every day.

Re: Why Do People Stay Poor? [pdf]

#267

Post by akerl_ » Thu, Jul 30, 2020, 12:08 PM UTC

twblalock wrote: post #260

tptacek wrote: post #248

Earlier quoted context omitted.

Assume that happens, and that no effective countermeasures are derived. How are poor families worse off for having the option in the first place? It's not like Booker is proposing to take the money from some other service offered to the poor: Booker proposed paying for it by increasing taxes on capital gains, which poor people weren't paying to begin with.

That's not really the point. Who do you think would be more likely, and more in need, to raid their children's trust funds? This would be yet another program where the poor don't get what was promised to them and the rich do just fine. Rich kids would get their $250k, and poor kids would find out exactly how their parents were able to pay the rent the whole time they were growing up. If you want to help poor kids you…

Even the worst case you’re describing sounds like a win to me, relative to the present. If gaming the system looks like “the child doesn’t have to worry about stable housing while growing up”, that seems like an upside.

But I’d caution against the idea that lower-income parents are so predisposed to both gaming the system and stealing money from their children, which seems like an unintentional undertone of your comment.

Re: Why Do People Stay Poor? [pdf]

#268

Post by fallingfrog » Thu, Jul 30, 2020, 1:25 PM UTC

Balgair wrote: post #222

jfrunyon wrote: post #143

Easy answer: because expenses are higher for poor people. Instead of buying a home, the lower class rent their whole life. Instead of their daddy giving them a home, the middle class pay interest on a mortgage most of their life. Instead of buying a 20-pack of $necessary_product that costs $20 and will last for months, the lower class buy a 2-pack that costs $5 and lasts a couple weeks because they need the $15 to pa…

Slight aside: Poor people aren't trying to maximize profits. They are trying to minimize risk. It's a small quibble, but it helps explain the different behavior of the wealthy and the poor. More importantly, it explains the mindset that changes with wealth. Bret Devereaux of the acoup blog had a good piece on this in reference to medieval farming estates of lesser nobles and the abject poor [0]: "I led in with all of…

All this makes sense. I’d also point out though that there’s a societal aspect of this too- rich people have a lot of ways that they use to make sure that when things go badly, it’s poor people who pay the cost. So they have good reasons to worry less about tail risks.

For instance: does your local city council respond to rising rents with the same urgency as they respond to falling real estate values? What did America put more money into during the coronavirus crisis, keeping people from being evicted or propping up the stock market?

Rich people don’t worry about tail risks because they don’t have to.

Re: Why Do People Stay Poor? [pdf]

#269

Post by marcosdumay » Thu, Jul 30, 2020, 1:32 PM UTC

JamesBarney wrote: post #246

marcosdumay wrote: post #110

Earlier quoted context omitted.

Hum... What exactly did you expect? It has a simple stochastic model and some statistics for verifying if the real world agrees with it. You are deluding yourself if you think one can study economics without advanced statistics.

Are these study's preregistered? It seems like there is so many degrees of freedom the researcher could easily take a stroll through the garden of forking paths.

> Are these study's preregistered?

No idea. I like this study, it doesn't have as many degrees of freedom as is usual, the theory is kept to a minimum, and the data is kept to the maximum available. But you are right, there is still a lot to go wrong.

Anyway, I haven't seen many empiric studies of poverty traps. The real test is, given many of those if they will agree with the theory, not what any single one says.

Re: Why Do People Stay Poor? [pdf]

#270

Post by marcosdumay » Thu, Jul 30, 2020, 1:33 PM UTC

paulpauper wrote: post #175

marcosdumay wrote: post #110

Earlier quoted context omitted.

Hum... What exactly did you expect? It has a simple stochastic model and some statistics for verifying if the real world agrees with it. You are deluding yourself if you think one can study economics without advanced statistics.

so how does one account for early economics writing being light on math. Were economists Adam Smith, Hayek, and Ricardo deluded because they did not know advanced stats?

Up to a point, yes. They did get many conclusions that are easily disproved today.