Wednesday, 9 March 2011

Inequality in America: A Modest Proposal

The problem with unequal distribution in the US is huge: the top 5% of the people take in 21% of the income and control 61% of the wealth.  One might ask, why the disparity in the two figures? Well, there is undeclared income of the rich, but that is unlikely to be more than a few percent: certainly nowhere near the 40% difference.   A more reasonable explanation is that some of the top 5% are both smarter and harder working – better able to turn their income into wealth - while the rest of the top 5% just inherited it all and don’t have much other income.

So the imbalance can be corrected by death taxes, and without punishing the needed drivers of our economy.   Few Americans think money should be passed from the bright and diligent to the stupid and lazy.  So let each kid get, say, $1 million tax free and confiscate the rest of any estate.  Those rich kids who are as bright and diligent as their parents will do just fine, creating new pots of money to be confiscated, while the dull and idle will have enough to keep them off the dole.

True, government has proven extremely incompetent at spending other people’s money to good effect, so let's entail all funds so confiscated.  Estate taxes can only be used to pay down the national debt or given to the Bill & Melinda Gates Foundation, where it will be put to good use.     (If the Gates folks get too fat and stop being results-driven, we can pick another charity that takes up their early methods.)

There's an emotional catch.  While most Americans do not think the idle and stupid should be rewarded for being idle and stupid (we don't believe in inherited political power,  eschewing kings, queens, and aristocracies) nonetheless, all people at all economic levels desire to give as much as they can to their children: from cheap Chinese toys, to over-priced sneakers, to billion dollar trust funds.

Okay, the rich are smart enough to set up trust funds to get around death taxes.  But we can be equally smart and put caps on such funds.  No trust recipient may be paid more than 150% of the average income.  (Some government programs provide support to folks at 150% of the poverty line, so sauce for the goose is good for the gander.)  Similarly no trust employee may earn more than 150% of the average wage.   Add a commission, say 10% of the increase of a fund in any year, paid to employees responsible for the growth.   This would keep the funds as active players in our economy.

Resistance from the rich should be easy to overcome, since 5% should be easy to out-vote on these measures. Sadly, in a land with the best democracy that money can buy, those who are able to make large political contributions get a better hearing than the poorer 95%.  Worse, they can now contribute from the corporations they control, and with much lower disclosure requirements.

Oh well, back to the drawing board.

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