Wealth Distribution
When it comes to Wealth Distribution, as with most political topics, both sides are partly correct. What is needed, and what this article attempts to do, is to cut through the rhetoric and examine what is really best for the nation. The optimal solution is neither a completely unfettered free market system, as the Conservatives espouse, nor is a socialist system, as called for by the Liberal narrative. In the Conservative viewpoint, free markets rule and any government intervention merely provides inefficiencies and distortions to the market. This is in spite of the obvious need for some rules to the game, and the government to act as the enforcer of those rules. Similarly, wealth redistribution provides a disincentive to apply one's talents to the betterment of society. Former President Ronald Reagan found this from his own experience - when he reached the 90% tax rate tier he had little incentive to continue to make movies.
The answer lies between these two extremes: free markets should be allowed to play their role, but the government has a responsibility to keep free markets within bounds. Specifically, the real societal value is in “playing” the competitive game, not in the final outcome of the game. For example, we encourage companies to go head-to-head in competition of free-market Darwinism and let the market decide. In theory, when two companies compete, the company with the more desirable product will attract more customers and prosper while the other company will wither and die. Through these mini-contests, the consumer is the real winner - with choice and innovation in the marketplace. However, we also have realized that we need to set a base set of rules. We don't allow monopolistic situations or situations where a dominate company can use its position to crowd out competition through anti-competitive behavior. For example, we don't allow a company to temporarily "dump" products on the market at below production value to drive competitors out of the market. Why? Because the act of trying to get to the top of the hill provides more valuable to society then defending the hill against newcomers. Once in a dominate position, a dominate player tends to play defense rather than offense and becomes less innovative, less competitive, and provides less value to society.
The same is true for individuals. Having an ultra-wealthy oligarchy standing at the top of the hill throwing roadblocks in front of others is counterproductive. Having someone work hard, compete in the marketplace, and become ultra-wealthy means the individual is contributing his or her extraordinary talents to society and getting rewarded for it. As an example, Conrad Hilton's managerial talent created jobs and provided a valuable service to travelers by building his chain of Hilton Hotels, however Paris Hilton's partying off her trust fund does not provide the same level of contribution to society.
The American Dream is, fundamentally, to be able to maximize one's potential in society and to reap the rewards. To live the American dream means being able to move up (or down) socially and economically. Riots in Great Brittan, the Arab spring, and even the restlessness of the Tea Party, all are largely economically based. When people feel a sense of hopelessness, a sense that opportunity is being stunted; that they lack the ability to fully utilize their talents and the application of those talents will result in getting ahead; that the rules of the game are being used against them - they instinctively rebel. Fundamental to the human character, unlike animals, is the desire to advance: to learn, to apply one's talents, and to create a better and more comfortable world for themselves. In a word, this could be called an instinctive desire to be "free". Unfortunately, all too often revolutions against a governmental system simply result in a changing of the guard, when despots and leaders are simply replaced by others who take the top of the hill and manipulate the rules to defend it against upstarts.
What are the necessary elements to individual success? Various experts have defined it in different ways often including contract law, access to technology, access to modern medicine, and others, however, fundamentally there are three key components to the "American dream" (ie. social and economic mobility): health, knowledge (education), and a socio-political system set of rules that treats people equally and is fair. Taking the last, there are a lot of countries where someone's race, creed, tribe, sex, or other affiliation prevents them from realizing their true potential. For example, all too often in other countries a University slot or Managerial position is given to the politically connected rather than the most deserving. As we know, by not choosing the most talented societal value is lost. In regards to the first two, there is a reason that the Gates Foundation (and many other foundations) focus on providing basic health services (such as a low cost Malaria treatment) or educational initiatives (for example a sub-$100 PC that can be recharged without electricity). Obviously, the Gates foundation doesn't want to take on political, legal, or social norms of a country, but does want to help people around the world reach their full potential.
In America we are seeing a widening gap between the rich and poor. When someone works hard and "wins" at the game, we believe they should enjoy the fruits of their labors. After all, as Reagan experienced, a 90% tax rate disincentives one to continue to contribute to society. And one of those benefits is to provide for one's offspring. However, at The-Common-Sense-Party.org we believe that the value is really in the competition, not in the creation of an oligarchy of ultra-wealthy. As the wealth gap grows some are starting to defend the hill, not continue to innovate and compete. For the ultra-wealthy, the game changes from capital appreciation to capital preservation. The idea is to invest conservatively, to maintain and no longer build.
So how bad is it? The following facts are taken Economic Policy Institute&39;s State of Working America briefing paper1 and the commentary is ours.
The destruction of wealth that resulted from the Great Recession was widespread but not uniform. From 2007 to 2009, average annualized household declines in wealth were 16% for the richest fifth of Americans and 25% for the remaining four-fifths. People sense this inequality when the mortgages held by bankers are guaranteed by the government, but the homeowners are not. Quantitative Easing helps boost stock prices, but not the salaries of the average worker. The rules are being written by the wealthy.
The wealthiest 1% of U.S. households had net worth that was 225 times greater than the median or typical household's net worth in 2009: this is the highest ratio on record. The average wealth for the top 400 (the Fortune 400) trended upward and increased by 633% from 1982 to 2000-from $509 million to $3.7 billion. The general population is coming to the realization that those at the top of the hill are pulling away and the nation’s wealth is being consolidated in the the top echelons of society.
The Net Worth distribution is 34.6% for the top 1% of Americans, 38.5% for the next 9% (so the combined top 10% of Americans hold an astounding 73% of all the net worth in this country), and the remaining 90% hold only 27%. There is little wealth left to capture by the top 10%.
In 1962 the top fifth of Americans held 81% of America's wealth, growing to 87.2% in 2009. Likewise, the bottom 80% of Americans over the same timeframe saw their net worth decline from 19.1% to a mere 12.8%. The rich are getting richer and the poor are getting poorer.
These statistics show how the top 10% of the country's elite are consolidating their hold on the nation's wealth. Conservative commentators love to repeat the statistic that approximately 50% of the nation pays no tax, and repeat the mantra that instead of increasing taxes on the rich (or "job creators" in the Conservative narrative), we should "broaden" the tax base by having the bottom pay more. One has to wonder how much more the rich needs and how much more the rest will endure. The danger is when a country reaches a tipping point, when the hopelessness and lack of opportunity outweigh an individual's sense of public order. Taking a lesson from the French revolution, one would think that holding onto the average $3.4 billion for the Fortune 400 would be more valuable than an uprising in which they may end up with nothing. Although there are some at the top that realize their best interests may be served by ensuring there is a broad middle class and that people continue to believe in the American Dream, others cannot help themselves. They see is as economic Darwinism, where money is no longer about ensuring a comfortable life, but rather about keeping score.
If these gains were fairly obtained, through hard work and without a rigged system, it would be much easier to defend. After all, believing in American dream means that any one of us, with hard work, could become that next billionaire. But the rules of the game are under attack. The table is being tilted to avoid competitors and to defend the ruling elite.
As an example, we take issue when the tax rate is lower for Hedge Fund managers than commissioned sales people. Millions of people work off commissions or performance bonuses. Only a few are Hedge fund managers who work off the so-called "2 & 20" plan (a scheme where they take 2% of assets under management to pay overhead costs and their own salaries, and 20% of any profits from the fund - of course they absorb 0% of any losses). These hedge fund managers, several who have made $1 billion or more in a single year, have used their connections and wealth to convince the government that their bonuses (the 20% of any gains made) should be taxed at the lower capital gain tax rate instead of regular income tax, since it was derived from capital gains on the stocks they invested. By this convoluted logic a performance bonus for someone at a non-profit should be taxed at zero, since it was derived from non-profit work. Why should hedge fund managers be taxed one rate and most people at a higher rate, simply because their firm makes money investing instead of sell washing machines? Even the very concept of a lower tax rates for capital gains and general income is distorting. Even at the 2007 economic peak, half of all U.S. households owned no stocks at all-either directly or indirectly through mutual or retirement funds. And half the capital gains over the last twenty years were made by one tenth of one percent of the population. Here we see the Golden Rule in effect: those with the most gold make the rules. Yet, Greenspan and other conservatives have argued that capital gain rate should be zero - that any capital gains creates inefficiencies in a capitalistic system by preventing the free flow of capital from one investment to another. However, there is reason for short term gains are taxed at a higher rate than long term capital gains - because the rapid short term movement of money in day trading places too much value on the short term prospects of a company, and does not reward long term investments in people or capital. These differences in tax rates aren't much different than the inefficiencies introduced by corrupt dictators who use their power change the rules as a means of defending their position as economic and political leaders. Why not provide favorable tax rates and rules for friends and relatives and put up barriers against those in competition?
We don't believe in wealth distribution for the sake of making all people equal, rather in creating a system where people can compete - and the spoils of victory should be substantial. However, just as a monopoly creates an anti-competitive behavior, so does any one class of oligarchs who use their privileged position not to create but rather to protect. As Warren Buffet states, "why should he have a lower tax rate than his secretary?" As such, we are concerned with the current state of affairs: an all-out attack on the middle class. Some examples.
Breaking the unions is an attack on the middle class. Prior to the Progressive Era, free markets ruled. Sweat shops exists, under-age labor was legal, discrimination was rampant, and a worker was only worth their economic value. Should someone get hurt, they were of no value to the company and were promptly fired. Some Conservatives are trying to roll back the clock, to push back and prevent others from advancing. These same Conservatives are defending the outrageous salaries of executives - claiming it is free markets at work and not the cozy relationship between directors and the executives they are suppose to oversee.
We are not a huge defender of unions, which became overzealous in their power. Rather than allow an industry, airlines or automotive companies, for example, to thrive they came close to killing the golden goose. Rather than share with a smaller piece of a larger pie, they demanded every increasing piece of an ever shrinking pie. This trend is now in reverse, with unions recognizing that the good of the company must come first, but workers are not interchangeable cogs. So long as there are more workers than jobs, we are quickly racing to the bottom, and in doing so destroying the American dream for millions of Americans.
Speaking of a race to the bottom, we are seeing serious proposal by Republicans to lower or get rid of a minimum wage. As if a full time worker can live off $15,000/year, not to mention raise a family with this income.
There has been vocal opposition to the Dream Act, which would have provided citizenship to illegal aliens who get a college education or serve in the military. But this opens opportunity up to others who may not have opportunity. It provides upward mobility and is a threat to those that are at the top of the hill. This is a broader attack on immigration in general. Part of America’s greatness is its waves of immigrants. Immigrants tend to be someone who is a risk taker and willing to leave the comfort of their homelands to make a better life for themselves and their family. Risks that mirror the entrepreneurial spirit that has for decades helped make America great. Limited immigration means less competition - fewer risk takers and an easier time "defending the hill". There is no talk that immigrants help broaden the base. That their hard work starting at the bottom of the social and economic ladder create a better system for all. That part of our social security problem is changing demographics - people living longer and having fewer kids. The problem in a nutshell: fewer people paying in and more payees. Too many people see it as a zero-sum game. There are only X number of jobs and introducing more workers means fewer jobs for the rest of us. They fail to see that more workers means more GDP output - a larger pie in general, and that those at the bottom of the economic ladder create a larger pie for all to share.
Republicans have for years strived to abolish the inheritance tax, which provides a leveling agent to help reduce the idea of run-away ultra-wealthy, to level the playing field and ensure that each generation needs to contribute to society, not just feed off it.
The concept of Universal healthcare is loathed by Conservatives, who are attempting to use the courts to prevent the implementation of "Obamacare" and whose candidates are promising to roll-back expanded healthcare coverage. Ron Paul's budget went as far as providing vouchers to replace Medicare, knowing that would create a two tiered system - those that could afford to supplement their vouchers for comprehensive healthcare coverage and those that would have no access or only limited access to the most basic of healthcare. This is yet another way to throw a wedge between the haves and have-nots.
Or take education. Conservatives believe that we should have school vouchers. But take the hypothetical case of three couples, each paying an equal amount in local taxes, of which a good portion is used to fund the local public school system. Couple A has no kids. Couple B has kids and sends them to public school. Couple C has kids, but sends them to private school and receives vouchers. One could argue that to be a productive member of a 21st society, one needs basic reading, writing, and arithmetic skills. Therefore Couple A should pay into the system because they receive an indirect benefit. But Couple C receives the same indirect benefit, so why would they be able to take money out? Or one could argue that Couple C could send their kids to public school, but chose not to, so they should get voucher to reflect the savings on the local school district. But then why should Couple A, who also saved the school district money by not having kids, receive a voucher or refund? There is no way to consistently and rationally explain vouchers. Disproportionally the rich tend to send their kids to private schools. It's their prerogative to choose. If they think their kids will get a better education in a private school, so be it. But I don't believe there should be a separate rule that disproportionately helps the wealthy from others. All we are doing is robbing public schools of badly needed funding, making the gap between the wealthy private schools and public schools larger.
In higher education, when the Governor of Pennsylvania cuts higher education budget - who gets hit harder: Delaware County Community College or the University of Pennsylvania? The community college will have to raise rates, making college affordable to fewer students. Budget cuts are hitting community colleges hardest - the backbone of American's higher education system, but the rich will always be able to afford their college education. Combine this with attacks on Pell Grants and federally guaranteed student loan programs are ensuring that there are two classes of students (no pun intended): those that can afford an education and those that cannot. But to some that's the point. Once they've made it, their kids will be better educated giving them an advantage over others life. However, preventing people from reaching their full potential is not in society's best interest.
Republican front-runner, Texas Governor Perry's state has the highest uninsured population in the nation, with 1 in 4 uninsured. For schools, Texas ranks 43rd of the 50 states2, and that's before a $4 billion cut in education funding in the most recent budget. Yet Governor Rick Perry remains the GOP darling, with Texas held up as a Conservative model for the entire country.
The talk of Class Warfare has been largely promoted by those on the Right. We agree there is class warfare, but not against the wealthy, rather against the middle class and the poor. If there is class warfare against the wealthy, the results show the perpetrators of this "class warfare" are seriously failing.
Taking a lesson from unions who largely over played their hand by being too greedy and coming close to killing the golden goose, we are seeing some of the ultra-wealthy (Buffet being the most notable) realize moderation in letting Americans realize their full potential creates a better America for everyone. That competition is good, and should continue. Let the people have their education, their healthcare, and give them a fighting chance at achieving the American Dream. We are appalled at a tax system which is so manipulated that 25 of the top 100 companies in the United States paid their CEOs more than the US Treasury in taxes. This is a system where the wealthy have a net tax rate of 18%, well below what those in the middle class pay.
Our wish is for the system to be fair. To ensure people compete on an equal level and to allow everyone to fulfill their maximum potential. If everyone contributes to their maximum potential, America will be able to continue its current economic, military, and cultural dominance well into the 21st century. We cannot control external factors, such as the growth and rise of China, however, we can control our own trajectory. If it continues down the track of attacking and squeezing the middle class, of prevent people from achieving their maximum potential, we do so at our own peril.
1 EPI BRIEFING PAPER: Economic Policy Institute’s State of Working America March 23 , 2011; Briefing Paper #292 by Sylvia A. Allegretto entitled “The State of Working America’s Wealth, 2011; Through volatility and turmoil, the gap widens”.
