Distribution of Wealth
In recent years I have noticed an increasing concern about the discrepancy in the wealth of the poor and the wealthy. It is good that we have compassion for those less fortunate than ourselves, but I am concerned that the rhetoric is so divisive and there is so much needless hysteria rather than a calm discussion of the real problems and what can be done about them. This issue seems to have come to a head with the 'Occupy Wall Street' movement. It seems that there is some underlying assumption that the rich are not paying their share, but this seems to ignore that, according to the I.R.S., the top 1% of tax payers pay over a third off all taxes and the top ten percent pay over two thirds of all taxes while the bottom half of all taxpayers pay only 2.25%.1 I am not sure how anyone can say unequivocally that they are not paying their share. As we aspire to everyone getting equal protection under the law (no prejudice), why should the top one percent pay more than 33 times their share and the top ten percent pay seven times their share. Just how much is enough? As I am almost certainly not in the top ten percent, that mean that I am paying less than a third of my share, less than one hundredth of what the very wealthy are paying. Yikes, I never considered myself such a free loader! As to the level of hysteria, there are so many people complaining about the huge difference in the incomes of the very rich and the average employee and claims that this is not sustainable. However, I don't think any of these people ever read Thorstein Veblem and conspicuous consumption. Indeed any review of history will show that the extremes in difference of wealth has been the norm since Roman times (and also in India, China, the Americas and everywhere else that there were large empires). The mix of wealth has changed significantly with our improving technology such that even the poorest in the U.S. has access to material goods beyond the wildest imagination of the wealthiest in the past. While the wealthy now have ever greater material wealth, the number of servants (and previously slaves) serving them has dropped substantially.Gradiatged Income Taxes.
Of course it may be true that in the last couple of decades the difference in income between the very wealthy and the very poor has increased somewhat, but this is to be expected as we adjust to gradiated income taxes. Gradiated taxes charge a higher rate to those who make more and are thought to be progressive as they attempt to decrease the difference in wealth in our society (a laudable goal if based on compassion for those less fortunate than ourselves), but they can not accomplish that goal long term. The underlying problem is that it is not workable to have the government or anyone else choose the profession for each individual. However, if we must allow people to choose their profession, there need to be incentives to get people to choose less desirable professions (like coal mining) or professions which require substantial sacrifice to get into (like being a neurosurgeon). As gradiated income taxes try to decrease these incentives, it just increases the shortage for difficult or undesirable professions so that the incentives have to be restored. However, that means even higher income differentials so that the taxes can be paid. In essence, gradiated income taxes simply tax companies for choosing to hire skilled empoyees and instead encourages them to use unskilled labor. This anti-technology bias is actually regressive as it discourages the development of a skilled workforce and decreases the overall community prosperity. The initial effect of the introduction of gradiated income taxes is a decrease in net income differential which we may have seen in the 70's, but as each generation must choose its professions, this temporary effect will dissipate and we will be return to the original net differences in income (now dramatized by the higher taxes charged to more skilled professionals). I expect that this regressive effect of gradiated income taxes would also apply to investment decisions. People need incentives in order to delay gratification (investing rather than spending) and these incentives need to be sufficient so that people will save / invest as required to support our needs for capital and government debt. The rate of return on investments is much more complex to monitor versus income levels, but one would expect that there would be a decline in net investment income (to everyone, especially those with substantial savings) after the implementation of a gradiated income taxes (again, perhaps peaking in the 70's) but that the effect would decline as the required net incentives are restored, now with the more dramatic investment returns as the government taxes those returns.Distribution of Wealth
I am a big fan of technology. Over the centuries life has gotten dramatically as most of the hard drudgery that dominated most people's lives has been eliminated, replaced by ever more efficient and helpful devices. I have found that computers and the internet, GPS's, cell phones, and so on are ever so useful. However, all these devices are dependent on massive amounts of capital. A single fabrication plant to make computer chips costs over four billion dollars and that is just a small part of the cost of the factories and other capital that is required to support our wonderful lives. The question this raises to me is who has and will save and invest this huge amount so that we can live such prosperous lives. From the massive government debts, it is certainly not the government. Further, it seems that most people in the U.S. are really poor at saving (deferring the gratification of spending) and investing in wise, long term investments. As such, I am thankful for the ultra-wealthy people as they have proven themselves as good custodians of the capital which is required to support our liesurely and prosperous life style. So, I am thankful that the wealthy have prospered in these changing times and hope that they will be able to retain their wealth for our continued well being. There has also been considerable concern about companies moving jobs (and factories, a.k.a. capital) overseas, but I am ever so pleased that the base of capital is growing fast enough to be able to support growth and increasing prosperity through so much of the world. As discussed previously, we are in a remarkable time of peace. However, world peace is really dependent on continued prosperity (desperate, starving people aren't easily placated) and this requires numerous new jobs through the rest of the developing world. In this sense, out-sourcing is a wonderful blessing. While it certainly presents many challenges to workers in the U.S., we have so much and I am sure that we pull together and grow from these challenges; hopefully learning that it is our relationships to the people around us that make life sweet and that we can easily be healthy and happy with much less material wealth (down sizing our material expectations can be a really good thing).Consequences of Choices
Another concern about the 'paying their share' dialog and attempting to minimize the differences in material wealth between the wealthy and the poor is that it smacks of co-dependency (albeit government mandated co-dependency). I have observed that people are really miserable if they aren't permitted to experience the consequences of the choices they make (the essence of co-dependency). The reality is that people do have substantial opportunities and choices in our society. While the socio-economic status that a person is born into does have substantial influence on their opportunties, it is also undeniable that people regularly make choices that allow them to improve or degrade their lot in life. The ultra-rich in each generation is not dominated by inherited wealth, but rather people who made good choices and developed incredible wealth. It is not surpising that most people who have put great effort and sacrifice to reach the pinnacle of success don't want most of their wealth taken away to support those who haven't made any particular effort or sacrifice. Of course this does not contradict the importance of having choices and opportunities. In order to experience the consequences of their choices, people have to have choices to make. However, I am amazed at how people can imagine they have no choices when they actually have numerous choices and opportunities. The controversy over illegal aliens is reflective of this blindness. Illegal aliens have no apparent difficulty finding work and 'making ends meet'. Of course their lives are not nearly as prosperous as that of most U.S. citizens, but we mistake their lack of material wealth for misery when actually the richness of life comes from our relationships. Many illegal aliens have much richer lives than most U.S. citizens primarily because their culture does not promote the extreme isolation which is the hallmark of U.S. society.Conclusion
I fear that the dialog about 'paying their share' is not really about compassion for those less fortunate than ourselves (which would be worded 'paying my share') but rather about the hypocritical stance of forcing someone else to pay for those things which I / we are not willing pay for as discussed in the tale about charity. Not only is the 'paying their share' dialog divisive, creating a false them and us distinction, depersonalizing the wealthy and imagining them as selfish and greedy when the problem is really that we (the speaker of 'paying their share') are being greedy, selfish, hypocritical, and immoral (using force and threat of imprisonment to take from others against their will, which is a lot like stealing). Sadly, such misguided efforts to have others 'pay their share' are also ineffective at their purpose and instead have a regressive effect of widening the pre-tax income differeentials in order and allowing us each to experience the consequences of the choices we make. Click here to see the next rambling tale. __________________________________1 There are numerous sources for these totals, all of which rely on I.R.S. figures published by the federal government. One is the National Taxpayers Union with a nice summary. In 2009 the top one percent paid 36.73% and the top ten percent paid 70.47%, whereas in 1999 the top one percent paid 36.18% and the top ten percent paid 66.45%. It is about the same, but there is a slight increase in the percentage of all taxes paid by the wealthy and a substantial decrease in the percentage of taxes paid by the bottom half, from 4.0% to 2.25%.
This page was last updated on November 7, 2011