Recent proposals from aspiring 2020 presidential candidates
have focused on decreasing the income gap by various forms of taking from the
rich and giving to the poor. One
suggestion was a general tax (2%/year) on the wealth of the richest Americans,
those whose net worth is over $50 million.
Another proposal is to re-introduce much higher marginal tax rates into
the federal income tax, similar to those that we had in the 1950’s.
The reactions to these proposals were no surprise. Epithets with ‘socialism’ and ‘communism’
were hurled angrily and all the failed so-called socialist states (Venezuela,
Cuba, the Soviet Union, North Korea, etc.) were invoked to dismiss these ideas
as horribly misguided if not outright immoral and evil.
But polarizing sound bites aside, what are the virtues, the
pitfalls and the cautionary tales for trying to make the income game a bit less
extreme? And why are even many middle to
lower middle class people so violently against the concept?
The first question to answer is whether the income gap is
indeed a problem that needs solving. I
would argue that it is, because a widening income gap creates a society of
distinct classes with less upward mobility and a growing frustration of
unrealized potential and expectations in those who are not part of the
elite. And as I have often speculated
before, all indications are that middle-class jobs are disappearing, and that
automation will only accelerate this process, resulting in even more extreme
income disparities.
Taking wealth from the super-rich is a tricky business,
because the rich will find myriad ways to foil any attempts to take what they
view as rightfully theirs. But let’s
assume, for arguments sake, that there is a fair and effective way to do this.
How will this wealth be used?
It is an axiom among conservatives that our government is
bloated, bureaucratic and inefficient.
One has only to look at growth in the Washington D.C. area to get the
impression that there is some validity in this point of view. It is a sad truth that most non-competitive
entities tend to grow ever larger and become less efficient over time. It is very difficult to rein in that kind of
sprawl. So it is understandable that the
thought of taking large amounts of money from the rich and giving it to the
government to spend is anathema to conservatives and even gives pause to many
liberals.
But what about a direct transfer of wealth from the rich to
the working (or even non-working, but that is another even more polarizing
discussion) poor and lower middle class?
This could be achieved by reducing or even totally eliminating taxes for
the recipients and giving credits to the lowest income group.
From a basic economic point of view, one could argue that
this wealth would be more rapidly spent on basic goods and services and
stimulate the economy, thus having a positive feedback effect of creating more
jobs and lifting more people into the middle and upper middle class. The counter argument would be that the wealth
would no longer be available for investment in new enterprises or expansion of
existing ones. But it seems to me that
an increase in demand must come before an increase in supply is warranted, and
the amount of wealth that is already stockpiled in the coffers of the rich must
surely be sufficient to meet the investment needed to balance any increase in
demand.
This direct transfer from the super wealthy to the
non-wealthy would have to be carefully done to achieve maximum effect, but it
would avoid the further bloating of government (other than a modest increase
necessary to manage the transfer).
Another argument against this method would be that it would have
a negative effect on the ambition and work ethic of the recipients, creating
more of a welfare mindset. This is a
corollary to the free market theory that wages must be market driven to avoid
coddling the working classes and artificially creating inflation or other market
damage. But we may have already reached
a state in our economy where ambition and a strong work ethic will no longer guarantee
a better job or higher wage, if such guarantees ever really existed in an ideal
form.
The low level of wages for most service sector jobs is due
partly to the absence of the collective bargaining options that raised wages in
the latter stages of the industrial revolution and rescued the manufacturing
sector from imminent revolution! It
would be more effective to accomplish this wage increase through a top-level
transfer across society than to leave it to the slow machinations of the myriad
disparate collective bargaining groups that are currently facing a significant
headwind due to the general retreat and poor reputation of unions.
The entrenched myth of the rich ‘deserving’ their grotesque
incomes needs to be debunked, as does the quasi-religious mystique of the free
market. One look at the growth of CEO
salaries in the past 50 years is enough to convince anyone of the capricious
nature of the ‘market’. We may have
learned from the failures of centralized economies that some form of capitalism
and the free market is the most efficient system, but that does not mean that
we should not continue to smooth its very sharp edges and use our best understanding
to make it as humane as possible.
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