Is Wealth Distribution a Problem Cause or Symptom?
The passion and thought that went into this month's questions about wealth redistribution suggest that the topic is of more than passing interest. Some cautioned against hasty changes. Many used the questions as a platform for their own diagnoses. Others advocated tax and non-tax solutions.
The case against hasty change was made by Dave: "Market based capitalism is the greatest driving force of prosperity in the world today, but if we forget this and marginalize it through income redistribution, we will pay the price with less prosperity for everyone." David Wittenberg added, "Experience shows that income inequality need not lead to disaster, provided that there are fair means for the poor to achieve their aspirations." Donna succinctly asked, "Where is the incentive to accomplish if the fruits of one's labor only serve to make fruit salad for everyone else?" Gerald Schultz commented that democracy "is the only way to bring back equality… The problems are being identified. Voters will make changes happen eventually. I hope I'm not too naïve."
Anthony Von Mickle made the general case for taxation. "Democracy has long been for sale; in fact, bought and paid for… taxes have to be properly extracted and redistributed." Others suggested how this could be done. For example, Alan Kalake proposed that "There is a need to distinguish two types of wealth … wealth that is earned … (vs.) that which is inherited…Each member of society must contribute to society's wealth by building their own and sharing…Once you die, the wealth gets transferred to society." Carlos Avendano made the point that wealth eventually flows to real estate, pushing up values. "Isn't it obvious that we must tax the hell out of vacant properties and/or urban land speculation?"
Others suggested non-tax solutions. One such proposal was put forth by Mok Tuck Sung: "(The wealthy) … should be encouraged to participate actively in socially responsible initiatives (such as life-long learning programs) to help the lower income groups and the under-privileged… Government could launch reward programs to both groups to encourage their willingness to participate." Peter McCann said that, "The threat to democracy is almost self-evident, and the response is equally self-evident: campaign donation limitations … The 'playing field' would still be unequal but less severely so." Albert Stepanchic had a suggestion that hit close to home: "If I were evaluating the redistribution of wealth, I'd start with an examination by Harvard on 'redistributing' that endowment by spending some of it supporting open curriculum projects … that democratize higher learning."
Several embraced solutions aimed at what they see as the real heart of the problem. As Bruce Hiller put it, "Redistributing wealth from the super rich or even 'middle class' to poorer citizens … in and of itself will do little to improve general social conditions… Education and family are key ingredients in lasting income generation…" Don Powell's suggestions reflected Hiller's concerns: "'Inequality' is a concept of relativity … Focusing on the absolute will help to engender answers to how the absolute can be changed. A few suggestions: appropriate … education; socio-economic policies that foster the family unit; incentives … for capital formation and application, health improvements, elimination of resource waste (principally government but also business)"
Columnist Michael Gerson, writing in The Washington Post, generally agreed with these views. His thoughtful column suggested ways of overcoming the political differences running through this month's comments, when he said: "Proposals focused mainly on reducing income inequality require the political triumph of the left…But an agenda that increases the rewards of work, encourages stable, engaged families and promotes healthy community institutions could be a shared political enterprise." Is wealth distribution a problem cause or symptom? What do you think?
Michael Gerson, "The social disconnection," May 16, 2014, The Sarasota Herald-Tribune, p. 9A (reprinted from The Washington Post, May 15, 2014).
Some years ago, my spouse and I had a conversation with a former student over dinner and a fine French wine. The topic was the proposed imposition of a wealth tax in France and, as a result, whether our host's family would remain in the country. We discussed it sitting near a priceless painting by a master with only a few examples of his work in private hands.
This was all brought to mind by the recent publication of the book Capital in the Twenty-First Century, by French economist Thomas Piketty. It's being hailed by some as one of a handful of important economic treatises in the last 50 years. Others question it as the work of a naïve academic. But the gist of Piketty's findings, based on centuries of historical economic analysis, is that returns to capital have, except for a time after the wars and depression of the twentieth century, outpaced economic growth. As a result, returns to labor have lagged far behind, accentuating the concentration of income and wealth in the hands of an increasingly small number of people. The pace of this trend has accelerated since the 1990s. (Work by a number of other economists, disputed at times, suggests that inequality of wealth is associated with slowing economic growth.)
To Piketty's way of thinking, forces leading to inequality are so serious that they threaten democracy. His data suggest that unless halted by external mechanisms, the situation is not self-correcting. His preferred form of intervention is a global tax on real wealth (minus debt). No fan of big government, he suggests that a mechanism be devised to effect a proportional transfer of wealth from the top to the bottom of the social structure by reducing the tax burden for those at the bottom.
The object here is not to analyze Piketty's work or biases—this is already happening. His strong views on oversized executive paychecks are under debate and estimates of wealth can be subjective. And his wealth tax would have to be imposed globally to discourage the kinds of moves contemplated by our French friend with the priceless painting, prompting comments about Piketty's naivete.
Rather, the purpose here is to discuss remedies, assuming for the moment that the concentration of wealth needs to be halted. Just how should it be done? It's not a novel concern. In Switzerland, for example, there is a movement to provide a minimum income for everyone. This, of course, requires a bigger role for government. In the United States, negative taxes are intended to address the problem.
Are significantly higher taxes on income, investment, or wealth the answer? The top income tax bracket used to be 90 percent in the US during the rare period when trends toward inequality were interrupted. How about higher estate taxes to reduce the amount of wealth that can be passed to future generations? If returns to capital are the concern, could those returns be taxed much more than so-called "earned" income? Or should a progressive consumption tax be considered, as suggested by New York Times columnist David Brooks? In his words, the purpose would be to lift "people from the bottom with human capital reform, not pushing down the top" with capital reform.
Can we devise a way that doesn't involve taxes? This might include sanctions on the flight of capital to tax havens. Or should we do something to stimulate competition and technological innovation to reverse accelerating inequality and the threat of stagnation? How should wealth be redistributed? What do you think?
To Read More:
David Brooks, The Piketty Phenomenon, The New York Times, April 25, 2014, p. A19.
Thomas Piketty, Capital in the Twenty-First Century (Cambridge: Harvard University Press, 2014).