Wealth is bad . . . when it’s convenient

There are two anti-wealth scenarios we hear a great deal about these days.

First, income/wealth inequality is bad because it leads to a few super rich powerful gaining control and thus destroying our democracy; ala Russian oligarchs.

Second, wealth inequality is bad because it results from the transfer of money from the middle class to a few.

Politicians will switch from income inequality to wealth inequality in the same sentence as if they are the same thing. I recently heard a politician say “Americans can’t buy things” because of income inequality. We are also told taking more from the wealthy will “level the playing field.”

I guess there is a third mostly unspoken scenario. I resent your success and that you have much more than I do and I don’t like it and I think I deserve some of what you have. That’s just human nature.

Wealth inequality will not hamper our democracy unless the political class participants in it. We are not Russia. The political class can’t do that unless Americans help them. That includes electing and re-electing individuals to office, including people with significant financial problems (several current members of Congress are deeply in debt and some have a negative net worth).

This process simply puts us at greater risk from individuals who are increasingly subject to those who seek influence. If we can’t trust ourselves, then we need term limits to help protect us.

Before accepting the second assumption that wealth inequality somehow transfers money from the middle class to the wealthy, we need one question asked; how? Wealth is not part of a finite pie, it expands. Who did Gates, Zuckerberg, Musk or Bezos take wealth from…and how? Each of these individuals created their wealth via the process I describe above. Others create their wealth through investing, including in the companies represented by these individuals.

There is one element of inequality that we should be concerned about. That is inequality of opportunity, of the inability to move up in income class. There is a great deal of research on the issue. Upward mobility is hampered by many factors including family structure, the family you are born to, poverty to start your life, where you live, education and training, race, declining industrial jobs, technology and within all that, motivation and attitude. I would add that trying to complete in a global world is also a factor because it directly affects jobs and wages.

Understanding and dealing with all these factors should be our focus. We waste our time by simply labeling the cause of social problems as income and wealth inequality or by creating the illusion that taking more in taxes from the wealthy will somehow solve the problems all the money spent to date has not solved.

Perhaps we should address the relationship between property taxes and school budgets, a process that goes back to 17th century Massachusetts. There is no logical connection, but great disincentive for some towns to adequately fund their schools or simply the inability to do so.

In any case, even critics are starting to acknowledge that generalizations about inequality and billionaires are not valid.

5 comments

  1. Currently billionaire Bloomberg is running presidential campaign ads that he will tax the wealthy. Why doesn’t he just donate his money to the federal government if he feels that way? Instead he used his money to by the democrats the statehouse in Virginia during the last election and now there is a serious talk of civil war or revolution in that state, but that is another topic. My point here is that Bloomberg’s wealth was gain creating a service for Wall Street. Who in the middle class did he steal it from? Yet he claims to be using his wealth for good, that is telling the rest of America how to spend their money and to pay for free college and medical for all.

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  2. Closely related …. THIS article describes the proposed changes to how both IRA’s and 401K’s will be treated for your inheriting heirs:

    https://www.cnbc.com/2019/12/17/lawmakers-may-kill-this-popular-retirement-tax-break-for-the-wealthy.html

    And contrary to the title of the article, it ain’t just a “tax break for the wealthy” that’s getting “killed”.

    EVERYBODY WITH AN INHERITABLE IRA or 401K RETIREMENT PLAN is going to get hit HARD by this piece of legislation just now coming out of the House of Representatives.

    And the best part: Since it is wrapped together with the Budget that has to be passed by December 20th to avoid another “Government Shutdown” AND it goes into effect Jan 1, 2020, there (ostensibly) “isn’t time” to debate or fully vet any of these types of features – the Bill gets passed, or the Government “shuts down”. And if you had wanted or even planned on leaving your kids, or anyone else, all or part of your IRA or 401K that remained after you pass, you’d better hurry up and die before Jan 1, 2020 (13 days from now), or your heirs are going to be stuck with a big fat tax bill along with their inherited IRA/401K, by virtue of this “Budget Bill”.

    Nice work, House of “Representatives”!!! (NOT!!!!!)

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      1. By the time I was permitted to have a Roth IRA, the conversion taxes would have killed me. Roth IRA would be a very good option if you are just starting out saving for retirement. But I am sure over time that they will change the laws and tax that too. After all they tax regular interest now at a higher rate than capital gains in most cases. The government needs your money to give away free stuff and pork barrel projects.

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      2. Jack:

        You are correct. But Dwayne Gartner might be correct as well. This CNBC article doesn’t specifically reference Roth IRA’s, but I wouldn’t be a bit surprised if this legislation doesn’t also similarly affect Roth IRA’s as well – as Dwayne indicated.

        Wanna know the really funny (actually pathetically stupid) part of this?

        In their zeal to accelerate and snatch tax revenue and “wealth” from people’s retirement accounts, THIS Government is actually REDUCING their overall long-term Tax Revenue with this measure!!!

        Consider that an Inherited IRA/Roth IRA/401(k) account is an INVESTMENT account. It WILL, by its very nature, GROW in size with economic growth, and with general historical investment growth.

        If my children/grandchildren inherit my IRA’s and other retirement accounts NOW, under current law, they will be required to take Required Minimum Distributions (RMD’s) from those accounts – PLUS ALL OF ITS FUTURE GROWTH – throughout THEIR entire lifetimes. And pay taxes ON those (increasing) RMD’s throughout their lifetimes.

        But under this NEW law, they’ll have to take it ALL within 10 years – foregoing ALL of the potential investment growth beyond that time AND the Government will be foregoing ALL OF THE FUTURE TAX REVENUES as well!!

        The pathetic, morbid stupidity of these people never ceases to amaze me!

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