Tuesday was the deadline for filing IRS tax returns. It was also Tax Freedom Day, when, collectively, all Americans have worked enough to pay off all required federal, state and local taxes.
In Florida, Tax Freedom Day came on April 12, but many states have still to reach that liberation day. Connecticut is last, with May 2. It could be worse.
What better time than now to profile and analyze the hottest economic topic of the day — inequality of wealth in the United States?
Our current mass discontent with our economic system and its distribution of wealth is caused by three factors. They are the rise of the global economy, the predominance of the financial services industry, and the decline of the manufacturing economy in the United States. Since 1980, these trends have drastically altered the concentration of wealth between the top percentiles (especially the top 1 percent) and the lowest 50 percent. Various changes in the tax codes since the ’80s have exaggerated the impact of these trends. Ruling classes have always gamed the system.
Consider some of the telling statistics:
IRS data shows that the top 1/10 of 1 percent had an adjusted gross income over $1.43 million in ’09. The top 1 percent had an AGI of $343,927. The top 2½ percent had over $250,000 — President Obama’s threshold for increasing income taxes.
Prize-winning economist Joseph Stiglitz calculates that the top 1 percent own 40 percent of our national wealth. On the international scale of wealth concentration, other sources show the United States is in the company of Russia, China, Iran and Mexico.
One of the very newest forms of system gamesmanship — centered in New Jersey — is a daily occurrence. Popular belief has it that the trades are executed on Wall Street, but in reality there are some 13 exchanges for trading, and New Jersey hosts the underlying technology for all of them.
Their computer-enabled “high-frequency trading” (HFT) is making headlines. Cumulatively, these operations took in $7 billion in 2009.
Some industry sources claim that these profits come largely at the expense of the average person’s 401K, IRA or other retirement savings accounts invested in equities.
Hence, we have the creation of what I call Stealth Wealth by HFT. Recent financial reports see HFT as the major cause of the stock market’s rise this year, artificial wealth from which profits are made everyday through costs of trading.
Americans will be learning a lot more about these matters in coming months. Hopefully, there will be technological innovations, and SEC regulations that can protect the public against stealth wealth created by HFT.
A more spectacular gaming of the system concerns the IPO and exaggerated — even obscene — salaries and bonuses of top executives. At the heart of this analysis in many ways is the enigmatic figure of the entrepreneur, the archetype hero of the capitalistic system.
But those entrepreneurs who do achieve success don’t profit as greatly as myth would have it. According to IRS data, in the top 1 percent of the wealthy, only a minute two-third of 1 percent is composed of entrepreneurs.
All the entrepreneurs I know claim that the venture capitalists take too much share of the profits. The return, as always, is highest on capital (investors) instead of labor (entrepreneur and his team).
In the mature Fortune 1000 corporation the executives take home inordinate amounts of compensation compared to the people who work at the company.
These CEO superstars, as I dub them, make 300 to 400 times what the average worker in their company makes. Only 30 years ago, before the great changes mentioned at the beginning of the article, that ration was only 30 to 40 times, as it is in Japan today.
The cure? Reformed tax law and salary caps put in by shareholders.
A final consideration of this analysis must look at transfer payments to the poor. Certainly, this system can be gamed too, but the problem isn’t so much the transfer of wealth, as it is excessive transfer for all the wrong reasons. Almost no one wants to see a permanent underclass living forever at the public expense. But this seems to be the reality.
How can the poor become more productive and participate in the creation and distribution of wealth? The best way is to overhaul educational infrastructure. The poor, as far as their ability and motivation allow, must be provided the opportunity to acquire the higher-level skills to fill slots in the professions, in high-tech service, repair and maintenance jobs, and in manufacturing jobs repatriated to our shores. Those who are unable or unwilling to achieve requisite levels of skill and ability should trade their labor for government benefits. Only the weak, infirm and defenseless should be candidates for long-term public assistance.
We can’t create a classless society. But we can create a more equitable society with more opportunity for all. We don’t want to game the system; we want to change the system in far-sighted ways that will maximize our tax dollars for all people.
Source Article from http://www2.tbo.com/news/opinion/2012/apr/18/naopino2-tax-day-perspectives-ar-393584/
