Social critics aren't wrong: The system is rigged.
The system is rigged in favor of White people, males, healthy people, physically attractive people, Boomers, and the wealthy.
Especially wealthy people: Money makes money faster than work makes money.
Bruce Van Zee is a retired physician who, like me, lives in Medford, Oregon. I was about to write a blog post on income inequality. Our economic and tax systems treat capital better than they treat work and earned income. Capital compounds, so the rich get richer. I read Bruce's post this week in his Subtack blog. He said about what I was going to say. Like mine, his blog is free. Check it out and subscribe.
Guest Post by Bruce Van Zee
America has an aristocracy.The evolution of a two-class society
I was raised in a small town in the 50-60’s. My father was a minister and my mother a homemaker. We were not at all wealthy, I remember my mother reusing aluminum foil, cooking from scratch. We never went out to restaurants. Clothes were hand-me-downs from brother to brother. But I never felt ostracized or embarrassed by lack of wealth nor did I ever feel deprived. We went to the same public school as all the other kids in town, and the schools were good. Our home was modest (owned by the church) and, at least to my young eyes, all the neighborhoods looked more or less alike. The middle class was most of us, though we were aware of smaller numbers of the rich and, conversely, poor.
This was a time when the top marginal income tax rates were approaching 90%, it is now 37%. And how the landscape has changed! I have written previously (here) of the remarkable wealth inequity that has occurred since the 1980’s (Reagan revolution). Over the last two decades, the average annual stock market return has been 9.8%. 62% of Americans own stock, but considerably less of them have sufficient investment holdings to avoid working. The percentage owning stock is highest among adults in households earning $100,000 or more (87%), college graduates (84%) and married adults (77%). By contrast, the rate is 49% among unmarried adults, 42% among those with a high school education or less, and 28% among those in households earning less than $50,000. Stock ownership also varies significantly by race/ethnicity, with 70% of White adults owning stock, compared with 53% of Black adults and 38% of Hispanic adults (here).
In contrast, W2 income growth is considerably less than investment income growth, probably less than 1% inflation-adjusted annual growth.The inevitable result has been a relative lowering of the standard of living for the majority of workers, particularly those whose incomes do not allow investment in the stock market. The graph below shows that the bottom 50% of the population own just 0.4% of the nation’s wealth. The top 1% own as much as the lower 90% of the population. It is unconscionable to allow this to continue. The Buffet rule would be a good start to reverse this trend and help ameliorate our debt problem, “No one of wealth should pay a lower tax rate on their income than a middle-class family.” But of course, many do because of our tax system.
Given Trump’s OBBB which further harms the economics of the very demographic groups that voted for him, one begins to see the Great Con Job that the GOP has pulled off. And then there is the SNAP and Health Care hits to the economically disadvantaged, especially the working poor.
The emerging aristocracy is not one of intellectual or cultural achievement. It is one of wealth, much of it generated in the digital tech boom. And it has been amplified by a decrease in the marginal tax rates of higher income groups and lowering of capital gain taxes. It goes without saying, that the vast array of tax avoidance rules and regulations are available only to those with wealth and business, investment income. Perhaps that’s why Donald Trump pays little or no taxes and even Warren Buffet admits his secretary pays a higher rate than he does. But of course, another thing wealth can buy is lobbying and monied influence over our law makers, which the underprivileged cannot afford. And SCOTUS made it even easier and more covert with Citizens United for monied interests to craft tax laws to their liking.
I don’t know about you, but I get an uncomfortable feeling of societal instability when I imagine this trend continuing. You get the sense that there is too much money chasing even more returns. I guess that’s the definition of a bubble. Somehow, I don’t think society will collapse if a few financial managers, bank exec’s, or hedge fund billionaires went away or, better yet, got taxed at a higher rate. But if our essential workers – teachers, electricians, construction worker, janitors, policemen, fire fighters, waiters, etc—disappeared, went on strike, or started a rebellion, society would collapse. So, why do we treat them so poorly? We are discounting the value of work and production for the lure of easy money. Somehow, we’ve got our values wrong.
In my career as a physician and now in retirement, I experienced both the world of W2 income and now investment income. It is so much easier to be relaxing at home or on vacation doing what you want while your money works for you than the sweat equity grind of daily work. So why not tax work at a lower rate and investment income at a higher rate? We’ve got it turned around. Thanks again to the monied class that has the wherewithal to write the rules.
This two-class society also has insidious ramifications for a major issue in our country today – affordability. Because the wealthy have excess investment monies, they are buying up resources (homes, businesses, whatever) and making those resources scarcer and more expensive for the masses. Young people today are putting off marriage and family because they cannot afford to buy a home. A recent source suggested that most young couples will not achieve home ownership until their 40’s.
Maybe the economy and taxing strategies will swing back in the direction of the 1950’s and 60’s, but I’m skeptical because of the hold monied interests have on the levers of power. And we haven’t even talked about how greed and lack of fiscal responsibility are allowing the National debt to skyrocket. Time for another cup of coffee, or maybe something stronger.
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