Wednesday, February 3, 2016

How to Solve Income Inequality? Take the Wealth from Where It Is to Where It Isn't.

Shifting wealth is not rocket science. We know how to do it and why, without breaking the bank.

Mitt Romney: not the richest man in the world, but, boy, did he figure
out how to alienate many Americans by making rich look mean-spirited.

Being rich -- like being poor -- doesn't have to indicate bad character. If there's a disconnect between conservative and liberal thought, it lies in that very statement.

Conservatives feel that if you've earned your wealth, you have a right to keep it. That leads to the belief that taxes are a confiscation of a person's hard-earned money, some of it going to the undeserving, also known as the poor.

Liberals feel that leaving the poor in the dust while condemning them as lazy or undeserving is a misreading of the causes of poverty and the reality of shrinking opportunities in America. That leads to the belief that taxing those who can afford it and using it for, among other things, helping the poor survive in an often uncaring world is both wise and moral.

I'm not imagining this difference in political views: This is the message conservatives and liberals make plain in statement after statement. There are, however, a few clarifications that can help.

First, wealth isn't always earned, and it's never earned in a vacuum. Barack Obama's purposely mischaracterized statement, "You didn't build that," was meant to correctly point out that the milieu in which money is made and wealth acquired is the product of all Americans. The roads that carry Walmart merchandise all over the U.S. were built by the sweat of often underpaid workers and paid for by everyone's tax money on the local, state, and federal level.

The financing available for the wealthy to borrow to make more money comes from banks that hold the money of the rich, the middle class, and the working poor alike. And though the middle class participates in the equities market more and more these days, the very wealthy capture more of the profits generated in all markets.

And, finally, using the Walmart model again, the wealth that flows to the Walton family and Walmart's stockholders comes, to great extent, from the wages of the working classes that shop there for the low prices. The Waltons didn't build their wealth out of thin air, they grew it from consumers.

At some point, the Waltons stopped being hard-working, innovative entrepreneurs. Now they're children and grandchildren that inherited an absurd amount of money.

Somewhere between the hideously wealthy beneficiaries of estates they didn't build and recently wealthy entrepreneurs who did the initial hard work and creative thinking that leads to new wealth lies a middle ground. That middle ground does not contain either the billionaires of the top .1 percent or the bottom 50 percent.

The why of shifting wealth is, to me, obvious. When too much accrues to the top, too much is deprived at the bottom. Both extremes are, yes, hideous.

The how of shifting wealth is not difficult, either, and, yes, these aren't novel ideas, but clearly it's vital that we undertake them to restore balance and economic health to our nation:
  • A transaction fee on the sale of stocks, bonds, and mutual funds. The fee doesn't have to be large, it just has to be ubiquitous.
  • Higher marginal tax rates. And marginal means marginal: a 50-percent rate on income over $1 million means only that portion of income above $1 million. The rates are progressive, e.g. the first $50k is taxed at a much lower rate, and so on.
  • Social Security and Medicare are successful programs for everyone, rich or poor. Expand them! How? By Raising the cap on the payroll taxes.
  • Restore reasonable estate taxes. If you inherit great wealth, you can afford to pass some of it on to spend on the common good. (You'll get some of that back in better infrastructure, a healthier workforce, and better educated and trained Americans.)
  • Raise capital gains taxes and properly tax carried interest. Investment income shouldn't be taxed less than a teacher's salary, for example.
  • Corporations rely on the entire infrastructure American society provides. Don't let them off-shore their profits. It's unfair and immoral.
How to distribute this revenue is open to discussion. It should, at the very least, be used for the common good of society. And, yes, it should be targeted in a way that brings the poor and the working class up the income ladder. I favor, like Bernie Sanders, free public education through college and Medicare for all. These are not novel ideas. They are in regular practice in most developed countries, as we all know, or should know.

I go further, in that I favor folding all welfare programs -- from unemployment insurance, food stamps, WIC, Pell grants, TANF, etc. -- into a guaranteed income, set at something like 120 percent of the poverty line. Finland has instituted such a program, and Switzerland has been toying with it. So it's not CRAZY. Also, if we institute Medicare for all, we pay for it by eliminating health insurance, work-based health insurance (and mandating an equivalent pay raise), and Medicaid and SCHIP. We don't need them, saving billions of dollars we can then fold in to paying for Medicare for all. Again, most developed countries in Europe and Asia offer this to their citizens.

This may shock you or not, but these are not radical ideas. They are progressive, yes, and of course they are popular in the social democracies in Europe and Asia. Japan, for instance, has affordable universal health care and much, much less poverty than we have in America. I know because I lived there for some years and have visited there extensively since. I've lived and traveled in Europe, as well, so I've seen how it works there.

Redistributing wealth is not rocket science and will benefit all, including the wealthy. Yes, they give up some wealth, but what they get in return is a more widely prosperous, healthy, productive, and educated society. How bad would that be?

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