Wednesday, November 21, 2012

Obama Is Right, Part II

I shocked quite a few people last week when I wrote an article advocating some redistribution of wealth in this country because the concentration of income and wealth has become enormously unfair and widely misunderstood. I believe President Obama was re-elected mainly because he understood and articulated the need for reform, which has become urgent due to the tremendous loss of wealth (mostly by the lower 80%) caused by the housing crash.

I am disgusted with Obama that he made no attempt to explain this situation or work to correct it. He only used the anger of millions to batter Republicans who, like Speaker John Boehner and Minority Leader Mitch McConnell, kept stupidly saying, “no increase in taxes on the wealthy”.

We not only need to reduce spending and reform entitlements, we need to make our income tax system more progressive and also enact a steeply progressive estate tax system – both without the loopholes that very wealthy people use to escape taxes. See my post on this here.

The 99% mostly get it, though, even if most Republicans don’t (including me before I was challenged to do some research).

They “get” it even though they misunderstand the extent of the problem. Below is a quote from an exceptional report which I used for most of my data:

“A remarkable study (Norton & Ariely, 2010) reveals that Americans have no idea that the wealth distribution (defined for them in terms of "net worth") is as concentrated as it is. When shown three pie charts representing possible wealth distributions, 90% or more of the 5,522 respondents -- whatever their gender, age, income level, or party affiliation -- thought that the American wealth distribution most resembled one in which the top 20% has about 60% of the wealth. In fact, of course, the top 20% control about 85% of the wealth.

Even more striking, they did not come close on the amount of wealth held by the bottom 40% of the population. It's a number I haven't even mentioned so far, and it's shocking: the lowest two quintiles hold just 0.3% of the wealth in the United States. Most people in the survey guessed the figure to be between 8% and 10%, and two dozen academic economists got it wrong too, by guessing about 2% -- seven times too high. Those surveyed did have it about right for what the 20% in the middle have; it's at the top and the bottom that they don't have any idea of what's going on.

Americans from all walks of life were also united in their vision of what the "ideal" wealth distribution would be, which may come as an even bigger surprise than their shared misinformation on the actual wealth distribution. They said that the ideal wealth distribution would be one in which the top 20% owned between 30 and 40 percent of the privately held wealth, which is a far cry from the 85 percent that the top 20% actually own. They also said that the bottom 40% -- that's 120 million Americans -- should have between 25% and 30%, not the mere 8% to 10% they thought this group had, and far above the 0.3% they actually had.”

Another misconception that most people have is that “the very wealthy are already paying their fair share because our tax system is very progressive”. In fact our tax system has become much less progressive over the past few decades, and in fact the top 1% actually pays less in total taxes than the next lower grouping.

Source: Citizens for Tax Justice (2010a).
Left-Click to Enlarge

An argument that conservatives make that has some validity is that “raising income taxes on the job creators is self-defeating since they will be less motivated to invest and work to create more jobs”.

My response to this is threefold:

1. Federal income tax rates have decreased in recent years and are much less punitive of success than they once were.


3. When I worked for a large corporation and analyzed investment opportunities, only when competing projects outnumbered available funds were income taxes considered in a present-value analysis of projects.  That was when corporate tax was 50%.

When income taxes became prohibitive, it is true that when they were lowered, an increase in economic activity and jobs immediately followed. This happened under Kennedy, Reagan and Bush 43. I can’t ever remember when the opposite was true; that is, when raising taxes reduced economic growth. That certainly didn’t happen during Clinton’s presidency, although other factors were also at work then. No-one wants to see a huge increase in income tax rates, but some upward adjustments are absolutely necessary.

I believe that most liberals believe what they do basically from guilt (if they are wealthy) or from hatred caused by envy of success (today’s Democrats are much different than the Truman-Kennedy school). However, once in a while they are right about something, and they tend to be more creative than we conservatives. Social Security was a liberal idea. Without it most of our seniors would be living in abject poverty. The right to bargain collectively was a liberal idea. Without it there would be no middle class. Don’t reject the idea of trying to even out the extremes of capitalism just because it is a liberal concept.

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At 9:13 AM, Anonymous Anonymous said...

what did the doc say that made you want to research this


At 10:03 AM, Anonymous Anonymous said...

If ALL the income from all the "wealthy" people was taxed at 100%, it would hardly make a dent in our national debt.

Why does taking someone else's money solve any problem?

A friend of mine is quite affluent. He made it the old fashion way- he worked his ass off. So why am I or anyone else "entitled" to his money?

At 10:22 AM, Blogger RussWilcox said...

Anonymous, when people have nothing to lose, violent revolutions happen. Right now, in America, lot's of people have nothing to lose.

At 10:24 AM, Blogger RussWilcox said...

Steve, the doctor, with whom I have lots of good discussions, made me aware of the extent of the problem I am discussing.

At 11:34 AM, Blogger RussWilcox said...

Also Anonymous, My article was not directed at paying off the debt. It was directed at correcting some of the excesses created by the greatest economic system the world has ever known - the free-market capitalist system.

By the way, I am not advocating this, but the 100 wealthiest families in America could pay off the entire national debt and still have an average of $220 Billion per family left.

At 1:53 PM, Anonymous Anonymous said...

"People have nothing to lose". Are you serious? The poorest people in America would be considered rich by other world standards. The so called "poor" have a house or an apartment, cell phones, wide screen tv's,adequate food (see food stamps), adequate utilities (see more state/fed subsidies), access to health care (see no hospital can legally turn away any free loader). There are many ways a person can live quite nicely in the USA and have little or no ambition to work or even look for work.
The people who have money have generally worked for it. )I know work is a foreign concept for many today.) They (the rich) did not consider themselves entitiled to other people's money.

I think you are way off the mark here. If you think those that sit on their rears are entitled to someone else's money, you are dead wrong. That type of thinking was the communist type of thinking. Do you wish to live in such a lovely place? Then see how well that worked in the former Soviet Union.

At 2:46 PM, Blogger RussWilcox said...

Anonymous, Republicans will never win another presidential election if they do not show some sympathy for this situation and a willingness to do something about it.

At 4:15 PM, Anonymous Anonymous said...

The Republican's can show more sympathy for the poor- not by giving them other people's stuff, but by giving them some hope/encouragement to succeed by using their own God given talents to be self sufficient.

My parent's worked in the local factory all their lives. We did not have a lot of material things but we were never told that because we did not have what more affluent people might have, that we needed to take from them. No. If we wanted to climb up the ladder, the way to do that was to get educated, learn a skill or trade, work hard, and success will likely follow.
If that prevents (and I disagree with that assumption) the Republicans from winning the presidency,let it be. Giving people a fish to eat (taken from someone else's catch) may seem like sympathy, but showing them how to fish will be giving them much more- personal dignity and self reliance.

At 4:38 PM, Blogger RussWilcox said...

Anonymous, We have the same ideology, but your ideology is getting in the way of your brain. Ken Burns just presented "The Dust Bowl". You should watch it if you have not. With your point of view you would have opposed giving those starving Americans any help at all. Millions have lost everything due to the housing crash.

At 7:46 AM, Anonymous Anonymous said...

No, you are wrong. To give staving people help is not ideology- it is the right thing to do, especially if you have Judeo-Christian values.

What the Dems would want is for that kind of sympathetic response to be set up by the federal government so that generations of "less priviledged" folks could become permanently dependent upon government. Hence they would permanently be part of the Democratic base of voters who want more stuff (from anyone). Also, the numbers of all those useless government beaurocrats in dozens of useless departments, agencies, divisions, would be increased. Go to any listing of federal/state departments and you would be amazed at the virtually thousands on that list) Again increasing the number of people dependent upon government who will also tend to vote Democatic Party.

The housing crash was in part
created by the ideology of many Dems (see Barney Frank and company)who felt that everyone should have "stuff" whether they earned it or not. They were entitled. Bull. And so millions of people who had bad credit, no credit, low paying or no paying jobs suddenly qualified for a mortgage. When these low lifes didn't pay, their homes were foreclosed on and this began the snow ball effect upon the whole housing market. Also, there is the greed factor here. People for many years bought more house than they could afford but knew (or thought they knew) that what the heck, home values always continue to rise, so'll just take out another mortgage.

At 9:47 AM, Blogger RussWilcox said...

I personally know many good people who have been decimated by the housing crash (some of them live in my condo association). They didn't know the prices they were paying (and the mortgages they needed) would shortly crash. They acted in good faith. They need help.

At 10:24 AM, Anonymous Anonymous said...

No one said life is fair. If they did, they were telling a lie. Bad things happen to good people and I know that from personal experience. That's life. Accept it. Deal with it. As the saying went in a group I once was in, "lifes a bitch and then you die". No one owes you a favor. And if you want unconditional love, you get a dog.

At 9:27 AM, Anonymous Anonymous said...

the republican party used to be associated with the middle class, it has deteriorated to the rich. Democrats have always had the poor, but now they have lots of the working middle class as well. We need to stop being affiliated with the very rich and with big business. We also need to come up with a workable solution on immigration that does not further alienate hispanics.



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