On the back of industrial strike action from various unions, a session with clients brought up a couple interesting discussions. One of them was about pay rises, another about how people don't focus on the right things. This led into a discussion on inflation, interest rates, and progressive tax brackets.
While everyone focuses on what they take home in their pocket each month, they don't look at whether it actually makes a difference and for some, getting more is going to be quite a lot worse. This is because it is going to nudge them over the line from one bracket to the next, in a more you earn, the more you pay situation. And, because the brackets don't change with the rate of inflation, earning more will make people are going to be increasingly worse off, because the money has less buying power.
But, what is interesting is that this isn't what happens with corporate tax, as that is flat, no matter how much they earn. In fact, generally, the more they earn, the less tax they end up paying percentage-wise, as they are able to creatively account it down. This means that there is a growing gap between the earnings of corporations and that of people, even though a corporation is a legal entity that has all the same rights as a person economically - it can own property, but never have to pay inheritance tax. Just keep generating income for the passive owners, who are taxed at a lower rate than if it was earned income.
And, the passivity of that income is an issue too, as while we might all want passive income, it actually breaks the system. The only way passive value is generated, is when some percentage of active value is not given to those who create it. This is business. Someone creates 100 units of value and gets paid 50 units, 30 go to costs and the last 20 go to the owners. That last twenty can be used to invest into hiring another 100 unit generator, so that 40 units are earned. So on and so forth.
Wealth gaps.
In the past this wasn't the case, as everyone in the small tribe had to generate enough value to be supported. In a tribe of 100 for example, there might be 30 children, 50 working adults and 20 elders. The workers add value as the elders had done earlier, but the elders pass on the knowledge to the children that will allow them to add value in the future. This way, it is a closed system, with value circulating throughout the tribe.
But, if there is value leakage, where for example 20 percent of the food is extracted from the group, it will lead to there not being enough value to maintain the system I harmony. The working adults would either have to work more or, reduce the burden on their work, lowering quality of wellbeing for the adults, having less children or, both. Even though the tribe is producing the same, the quality of life decreases across all sectors.
This is a simplification, but this is pretty much what happens in the economy, where the extraction from non-value-adding extractors are increasingly widening the value gaps and eventually, it is unsustainable and collapses. There isn't enough resources or desire for the value producers to keep generating and, there is not enough skilled young to replace them. And for a time at least, there is also a growing number of aged ex-producers, who are no longer utilized to develop the next generation.
Population control.
But, the corporations themselves are able to operate in this environment transferring value amongst themselves as they rise and fall, replacing each other, but not leaking value back into the system to support the producers. Not until there is a catastrophic event will it adjust, where for example, millions of people (and value producers), as well as value holders are killed in a war, releasing the held value like a carbon sink back into the economic atmosphere for new sinks to develop to capture and concentrate it again.
Rinse and repeat.
While at a global natural level, the resources of the universe balance, the economy is not a natural system, it is imperfect and broken. This doesn't mean it can't be used effectively, which is why those who know how are able to build such an advantage over those who are ignorant. And while ideally it would be better to replace the entire shemozzle that it is, the first steps are for people to build an understanding as to why they should. This is not easy, because people don't know any different, which makes imagining different, near impossible.
What I am noticing though, is that people like my clients today, are changing their perceptions of the economy. Skeptics of alternative ideas are beginning to see the façade that not only is the economy, but the reporting in the news too, where there is a growing distrust, even in places like Finland that typically have high confidence. But, it also seems to be getting more polarized, so while more are changing their views, others are doubling-down, creating a larger gap. This in itself will lead to inequalities of outcome, in the same way education gaps do.
While the unions are driving industrial actions and putting their workers on strike, I wonder at what point the collective bands together, downs tools and opts out of the traditional economy as a whole. Trade will still need to happen, which means that alternatives will have to be in place, but if the alternatives are functioning better than what was previously used, why go back?
Taraz
[ Gen1: Hive ]
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I've been really hit with the reality lately that my time is more important than my money. Sure, the money helps the time be better spent sometimes, but it isn't he be-all end-all. I think eventually we are going to see a more socialist approach to things even though people are going to freak out about that. My hope is that it would be some form of socialism without the money aspect tied to it. If you think about the idea of a utopia, it's largely everyone supporting everyone else. I keep going back to Star Trek and the idea that money wasn't a driving factor anymore but the pursuit of knowledge.
Star Trek is one of the utopias that only seems to exist in the movies. It is not that it isn't possible, but it can't work with a system even remotely close to what we have now. What is likely a move toward that, is being able to accurately track the value of activities. Would be interesting to see 1000 years into the future.
Yeah, I don't expect it to happen over night. I think they had to go through WWIII before they even got to the point they were at. It's still interesting though.
Individuals pay income tax before they got their wage; on the other hand, companies can adjust how much they pay, even evasion.
Exactly!
This is what I brought up with my clients today in regard to the tax havens. Individuals can't use them, unless they are siphoning through shelf companies.
wise words, this moments feel like back in the 90s when computers change the way we communicate, a disruption that large when the cell phones got to the masses, same way more and more ppl are starting to see the economy different or at least paying more attention to it, to do not trust what the mainstream media says, I have a client that is soon to be 10 year of me providing tech support remotely, I have been planing to ask for payment in crypto since I have a ton on confidence with them and I think its possible, reason why? taxes, easy to store, easy to use now days and that their payment is something Im not going to use that often starting next month, things are changing and fast after the covid, thx for sharing ✌️
It is going to be interesting once more people start taking percentages of their income in alternative currencies, as that starts to drive value to innovate further to capture that value. Right now, most corporate leaders are crypto unaware - that changes in ten years.
The issue of progressive tax brackets and inflation is an important one, as it can have a significant impact on people's financial situation. It is true that as people earn more, they may be bumped up to a higher tax bracket, which means they will pay a higher percentage of their income in taxes. However, it's important to note that this is a feature of a progressive tax system, which is designed to ensure that those who earn more contribute a higher proportion of their income towards the overall tax burden.
Yes. This is what progressive tax means. But why should it be that way? Why not have a flat-rate tax system with the same percentage for all, including corporations?
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I wonder what do you think about Universal Income, where each choose what to do, but the income is received no matter how much you work, covering basic expenses (rent,bill,food, clothes). Can this work in closed environment like small cities, or nations?
In India villages there are still some tribes which support each other. They don't pay in money instead they pay in grains, cattles and other items. This way they always exchange things and they never want to store more and more money. They are living very sustainably in this manner. They don't worry about any taxes.
I do not fully see that passive income are just a form of subtracting value to the active value creators. Think for example to Real Estate dealers. They get money from thrid parties and they put their skills into the operational. There is a joint intent from different parties. Everyone gets a fair (more or less, here is arguable and negotiable) share.
But I totally feel right when you say that people are overwhelmed by bad feelings, habits and behaviours. I recently wrote an article (in italian as well for ITA community), to highlight how italian elections are just a fiction and the average politician value are at the historical minimum. Influent people with good money and lawyers can even have parties with <18 year old girls and getting no consequences.
If you feel to give it a read, I would appreciate your opinion on the matter.
https://ecency.com/hive-148441/@mikezillo/the-drama-of-italian-elections
Everyone changes over time and people have no choice but to adapt. The economy has been messed up ever since covid and the lockdowns happened. At some point, people had to accept the reality and everyone realizes it when their own pocketbooks get hit.
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Now that ChatGPT is taking over some of the minor jobs in the IT. What do you think would happen to all the jobless people and potential future work scenario? Maybe cover that in possible next article? :)