Redistributing the Wealth

Redistributing the Wealth

  As protesters protest, and occupiers occupy, government reports indicate that indeed the rich are getting richer and the poor poorer in a relative sense. That is, the report states that between 1979 and 2007  incomes for the top one per cent grew by 275 per cent while the bottom 20 per cent grew by only 17 per cent. I don’t know whether the figures include welfare benefits for the bottom portion or not. Anyway, that’s before the big crash and it will be interesting to see what 2010 figures look like.

  A more alarming report is that the top 10 per cent own 66 per cent of the net wealth of this country. Note the word “net”. It means after debt. I assume that to mean that if you have a mortgage on your home and it is financed 75 per cent by the bank, that the bank is a 75 per cent owner and you are a 25 per cent owner. It might be interesting to note that in the early 1900s, my grandfather was writing articles for the New York papers complaining that four or five families owned 40 per cent of the wealth of the country. 

  That was before estate taxes and a vigorous application of income taxes and a concurrent burst of new entrepreneurship. It is also interesting to note that the estate tax law in the past 30 to 40 years or so, actually provided incentives for people to pass their wealth, not to their heirs, but to big corporations which could pay them the big bucks.

  However, no matter how you cut it, there’s disparity out there. Almost everyone has complained when they see some CEO depart from a corporation with a multi-million dollar severance package even though the company did not fare well. So, the question arises: is it unfair? Of course, we know that neither life nor capitalism, or any other economic system is fair. But is it as fair as it can be? How can we make it fairer?

  Here’s my list of the rich rich: Hollywood actors and entertainers and writers and producers. Corporate CEOs. Investment bankers and traders. Investors such as Warren Buffet. Inventors and innovators such as Gates and Jobs and Allen. Athletes -in football, baseball, hockey and basketball (on strike for more) and athletic team owners. Professional coaches, college coaches. Trial lawyers. Entrepreneurs who start and keep their own businesses instead of creating public companies. Those who inherit wealth. Surgeons. I’ve probably missed a category or two. But, you get the idea.

  Now how do we get this wealth from them to us? Taxing helps, but already the top 10 per cent pays 70 per cent of the federal tax burden and 47 per cent of the population pays no federal taxes (yes, they pay other taxes, but so do the rich) and 35 per cent of that group actually gets a tax check from the feds. Adding another tax on the top tier would probably help, but not much.

  So, should we fix salaries and wages? There was talk of that in the 1960s and 70s, but it all sounded like what the communists were doing and still do in Cuba. Should corporate CEOs be paid only as a multiple of the average workers’ salary? Stockholders have votes. How should they exercise them? Should the government do it for them? Who in government should decide? How about the business owner, a sole proprietor or owner? Should we tell him what he should pay himself (or herself)? What about athletes and entertainers, television personalities and inventors? Should these salaries be fixed? Trial lawyers object vehemently to attempts to cap their earnings in class action suits.

  Should we force the richer people to give their money away or just take it from them? Many form foundations to shelter their income from taxes as well as to give to charity. Should we interfere with this mechanism? And, where would the money go? Back to the government coffers, direct payments to those with lower incomes? Again, we’re back to what is fair and maybe what is rich (someone who makes more than you do?).

  Tax mechanism can help. The progressive tax rates reflect the ability to pay. A flat tax would not necessarily help, though it might stimulate growth. The FairTax, which is a sales tax on all first purchases, and an elimination of federal taxes including payroll taxes, would hit everybody on the basis of costs of goods. Buy a higher priced car and you pay more. It would hit the underground (illegals and evaders) economy. But, it’s a hard sell and may or may not solve the disparity problem.

  Higher taxes on dividends and capital gains - already taxes on top of already taxed transactions - might seem fair, but could also stifle development.

  In short, I don’t have the solution. Hopefully, and historically, the categories of income are fluid. That is,  not everyone stays poor or rich. In that perspective, the important strategy is to provide opportunities for people to move up the income bracket.