Thursday, September 15, 2016

257. Want to make America great again? Fix the wealth gap

There is a difference, although often correlated, between income inequality and wealth inequality. Usually successive periods of income inequality lead to greater wealth inequality. As most know, today our country faces both dangerous levels of wealth and income inequality—to the point that most wealth and most gains in income are going to the top one percent. Not only do the top one percent own 35 percent of the entire wealth in the country, their income is also growing faster than ever.

Bryce Covert, in his article, “Income Inequality Is at The Highest Level in American History,” writes:

“According to a new analysis by economist Emmanuel Saez, Americans in the bottom 99 percent of the country’s income distribution saw their take home pay rise 3.9 percent in 2015 over 2014’s levels, adjusted for inflation, the best increase they’ve seen in 17 years. But the top 1 percent of the country far outpaced them: the wealthy’s income grew by 7.7 percent last year, reaching a new high.”

To add perspective, 3.9 percent on $40,000 is about $30 a week or $1,560 a year. But 7.7 percent, on a $425,000 income is about $630 per week or $32,725 a year. Most people would be happy with a 3.9 percent raise—especially since many have gone without raises for years—but how much does $30 per week really help? Meanwhile, 7.7 percent on the top one percent is a new car or maybe a boat.

Although both parties generally recognize the issue, neither has been fully committed to fixing the problem. It is a political ping pong. One moment it is about patriotism and nationalism—working together to make our country the best it can be. The next, it is capitalism and everyone out for themselves. It is greed and exploitation and dealing with the exhausting burden of the poorer classes.

There has been a push to raise the minimum wage, and some cities/communities have succeeded in raising the minimum wage to $15.00 per hour. While raising the minimum wage does help those employees earn a livable wage, it is not without its drawbacks. It can detrimentally affect small businesses as they may not be able to afford their employees or have to raise prices. On the other hand, larger employers may cut staff, not because they can’t afford it, but to ensure that profits don’t decline. The discussion of pros and cons is a long one.

The simplest way to cure wealth inequality is to tax the wealthy.  It is not only the most effective way, it is also fair and serves to improve the lives of almost all Americans.

As Covert writes:

“Many factors have contributed to growing income inequality, but a lot of them have to do with taxes. Since the late 1990s, income inequality has been driven by the rich getting more and more of their money from returns on investments, something the less well-off are less likely to benefit from, and that money is taxed at a lower rate. Overall, taxes and public programs are doing much less than they used to to mitigate the growth of income inequality as taxes have been lowered on the rich while lawmakers have withered the social safety net.”

Heavily taxing the wealthy is not a new idea. However, what most don’t understand is that everyone pays the same tax rate on their earnings. Progressive tax rates mean that everyone pays the same amount of taxes on the amount of money earned, but as high earners progress through the tax brackets, they pay a higher percentage of those earnings (not all earnings). The wealthy need to be taxed at much higher rates—such as a top tax bracket that approaches the 70 percent. This was the rate in the early 1980s (before Reaganomics and the miserable theory of trickle-down economics). It might seem extreme, but I would be thrilled to pay 70 percent income tax on earnings over, for example, $500,000. I would be thrilled if my tax money helped improve the country’s crumbling infrastructure.

From a society perspective, the concept is well understood. It’s not socialism—there will still be the very rich and the very poor. Nothing is free. The disparity just won’t be as extreme. The taxes collected by the government is put back into the economy. It can be directed to states and cities who are struggling. From there it can be invested in government, private and non-profit organizations to provide services within the community. Roads can be fixed, police officers can be hired, and plighted homes can be destroyed. Schools will improve, parks will be safer and homes will increase in value There would be well-paying jobs for millions of people, who will in turn buy houses, cars and take vacations. They will buy goods and services, putting even more people to work and providing raises for others. Money would eventually work its way back to the top, but the high tax rates would ensure that it is returned to the economy to be invested again.

From an individual perspective, I understand that it seems unfair to tax the wealthy at higher rates. But often there was nothing fair about how an individual earned his or her money. There is inheritance, good fortune and the power of exponential earnings. It’s ridiculous to believe that an individual who inherited his or her money and earns money through investment works any harder than a single parent working two low paying jobs. Despite what capitalists want us to think, wealth is not positively indicative of effort—there are variances on both sides. Some people have a head start in life—attend the best schools, benefit from family connections. Others start at the very bottom with dire circumstances.

Though raising taxes are an unpopular subject, it is important to remember that it would only effect the very highest wage earners. The one percent would never fight for me, so I am not sure why the middle and lower classes are so willing to fight for them. The result would be remarkable and improve the lives of millions of Americans.

It’s trickle up economics. Provide jobs and opportunity to those who need it and the money will flow upward—improving our communities in the process.