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22 October, 2012

Redistribution is Scary

Following last week's debates, the media quickly settled in on a few themes and sound bites that, as usual, I didn't quite grasp. Even though I watched the debate, I guess I also failed to pay enough attention to body language, and spent time listening to what I thought mattered in America, which is the money, and a couple of things stuck out in my admittedly idiosyncratic mind.

Two things that Romney said stick firmly to the ends of an unstated policy that he and the GOP put forward at every opportunity. The policy should become clear as this post progresses, but first for the bites (dull and under-reported as they may be):
Thing 1: "The top 5% pay 60% of the taxes."
Thing 2: Under a Romney tax regime, "There will be no tax on your interest, dividends, and capital gains under $200,000 a year."

At first glance, nothing scary, and it even sounds truthy, but ultimately these things are obfuscation and bullshit.

The point of Thing 1 is that the rich pay more taxes than the poor because some of the poor pay no taxes, and because the rich have so much money that even though they can avail themselves of shelters and lower rates, they contribute more revenue. A rate of 13% tax on $10,000,000 certainly more cash than 28% of $60,000, but the fact is that it does not amount to a proportionate contribution, since the top 5% in fact control more than  60% of the wealth in this country. As the chart below illustrates, even if you only count net worth, the "top"* 5% control more than 60%, and if you zoom in on "financial wealth" which subtracts the amount of equity in the house you live in (i.e., shelter, as opposed to luxury crib or investment), the 5%-ers control 72%. If they contribute only 60% of the tax revenue, then they are doing less,  proportionately, than I am.**

This distribution, the control of the vast majority of US wealth by a small percentage of the population, is unknown to most of the American populace. A couple of years ago, an academic study revealed that Americans think that the "top" 20% of the population should control less than 35% of the wealth, and that they do control over 55% of the wealth. The truth is that they actually control nearly 85%.

As it happens, this is a situation that has become more extreme over the past few decades, ever since the 20th Century nadir of US wealth inequality during the Carter administration, when the 1%-ers controlled a mere 20% of wealth (sad that that seems so fair). As of 2007, this group controlled nearly 35% of the wealth. It is instructive, I think, that the 20th Century peak of wealth inequality was in 1929, just before economic lunacy and instability led to a crash that would not end without a decade of alleged socialism and then a world war. Don't believe me? Check out the data:

If the charts did not send you clicking elsewhere, then maybe you wonder why I digressed, and what ever happened to Thing 2. My intent was just to show that despite the current GOP/Tea Party dread of redistribution, we are 30 years or so into a redistribution that benefits their wealthy supporters. The rich have gotten richer, and everyone else has contributed to the effort.

Thing 2 is that the process is not over, and we commoners should be scared. Pitiful as my own life savings may be, and even though after 5 years come another 5 years until I am vested in my paltry pension plan, Washington state employees as a whole put a lot of money into "the market," where bit players like us are babes in the woods compared to the wealthy who can ante up millions and billions as individuals and small groups, able to demand results from their brokers, while each of the rest of us is one of a million.

The proles may no longer have pensions or 401K plans, but those of s in the shrinking middle class who do maintain a nest egg of sorts should be wary, because our numbers (if not our per capita wealth) attract the attention of the professionals who sway the market-bucket and pocket the slosh. The "top" 1% owned (as of 2010) a mere 35% of stocks and mutual funds, while the unwashed 90% had somehow held onto a whopping 20% of the same market…clearly a situation calling for rapid redistribution upward. And while the 59.8% share of the homes that people live in held by that same "bottom" 90% is often underwater and rarely liquid, the nearly 35% of pension account held by the same lump is also a part of "the market," and thus open to upward redistribution as well.

So that is why Mitt's tax plan is the scariest thing I heard in the 'town hall' debate. We in the shrinking middle class still hold enough cash to be attractive to the parasites who for some reason are still hungry, despite the gluttonous display of the past few decades. To sate that hunger, what better than a leader who encourages us to invest by promising that the profits will be (because almost no commoner will earn more than $200,000/year on investments) tax free? Sounds like a great deal, unless you are aware that the financial sector has a caste system, in which commoner mutual vends and public sector pensions are not allowed at the tables where the payoffs are large and predictable. The bait--tax free income--is calculated to make the gullible jump.

There are times when I lament the lack of differentiation between the Depublicans and Republicrats, but this debate was not one of them. Obama said that people whose income (not capital gains and dividends, taxed at a lower rate) was less than $250,000/year would see no tax increase, while those above would return to Clinton era rates (still way below the 90% tolerated by Ike Eisenhower).  Romney offered a sweet-sounding deal that could only be used to its utmost by people able to earn $200,000/year in investment income. Let's put that in real terms: My credit union pays 0.1% interest on savings; to earn $200,000, I would have to have  savings account of $200,000,000.00.

If I had that kind of money, I would not have a credit union savings account as one of my main "investments." If I were charitable, my interpretation of Romney's tax policy proposal would be that the guy is out of touch. If I were cynical (and I think I am), it would look like another ploy that acknowledges and strokes the American desire for upward mobility in hopes that it will override reason. Stop paying taxes like a chump, and join the investor class. Just don't come asking for a handout after we fleece you. Bailouts are for the big boys, fool.

* This "top 5%" stuff galls me. Reporters and pundits demand shorthand, but to substitute "top 5%" for  "wealthiest 5%" reinforces a semantic difference that actually shapes our culture in a significant way. The top 5% were mostly born into lives where wealth was already present and easily expanded compared to a poor person. The worked "top" implies superiority on any number of variables not having to do with money, but I refuse to stipulate that the richest 5% are more successful than I am in terms of moral, community, artistic, compassionate, environmental, and other dimensions.

** Disclosure: I control several thousand dollars of financial wealth. Twenty-something years after graduating college, I have amassed a fortune of less than $10,000. I will never retire.

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