"Spreading
the wealth around," calling for a redistribution of wealth, is the newest,
hottest issue on the campaign trail.
The
class-warfare warriors have accidentally let it slip from their lips, with
or without lipstick. But wealth is earned and not distributed. Wealth does
not come magically from a pot of gold at the end of some rainbow to be doled
out. Wealth has to be created every day by people like you and me.
The Federal
Reserve Bank of St. Louis in its October 2008 issue of The Regional
Economist analyses U.S. Income Inequality based on annual census data.
Periodically commentators report and anguish over the growing gap between
the highest and lowest quintiles in household incomes. Rarely, do they
report that a household can be one person or six people. Thomas Sowell has
written of a previous census release when there were more than 19 million
people working in households in the top 20 percent and less than 8 million
working in the bottom 20 percent. How utterly unfair -- that people who work
get more money than those who don't.
When my
three brothers, sister and I were teenagers we worked after school, and
together with mom and dad, had six people working in one household.
Obviously, our "household" income was higher when reflected in the
statistics compared with a household comprised of a single non-working
mother in the lowest 20 percent. Politicians who see themselves as
descendents of Robin Hood intend to rectify this by "spreading the wealth
around." They want to tax the rich and give to the poor. We read that Robin
Hood robbed only the rich. Our politicians can't afford to be so
discriminating. There aren't enough rich. So they must take from the rich
and poor and middle class alike. (In the old Soviet Union, Robin Hood was a
national hero -- proclaiming him the world's first socialist).
First,
households headed by someone under 20, just out of school or in college,
earn about one-third of those households headed by someone over 50 in his or
her peak earning years. Also, one report noted that 40 percent of the lowest
quintile reported having no wage earners at all. Not surprisingly, the
income gap is growing as more and more single mothers without jobs and
immigrants earning subminimum wage are included in the bottom quintile,
while inflation keeps inflating the higher incomes in the top, thereby
increasing the gap.
Second, the
St. Louis Fed reports that according to the U.S. Census, over time there is
substantial movement between quintiles. "For example, between 1996 and 2005
nearly 58 percent of households in the lowest income quintile in 1996 moved
to a higher category by 2005" (greater experience and knowledge pays). And,
"Of those households that were in the top 1 percent in income in 1996, more
than 57 percent dropped to a lower income group by 2005." Simply taking a
snapshot in time distorts reality.
Third, it
should be recognized the top 10 percent of income tax filers (the rich),
reports the IRS, pay 70 percent of all income taxes collected, of which a
portion goes to the bottom 20 percent. And government subsidies for housing,
food, medical care and income tax credits "are not" included in the growing
gap statistics. When was the last time you saw that reported?
Forget we
are told every year, sometimes monthly, that the rich don't pay their fair
share of taxes (even though the richest 1 percent pay 40 percent of all
federal income taxes).
The real
problem is we have over 120 million Americans outside the federal income tax
system. When polled, are these are the people opposed to tax cuts, since
they pay none? They exert no constraints on government spending because many
see themselves as often recipients of someone else's taxes paid to
government. Believe it or not, the founding fathers anticipated this and
felt the House of Representatives would keep the poor from being oppressed
by the rich and the Senate would dampen any "tyranny of the majority."
Little did the founders know that eventually the House and Senate would come
to represent themselves first and foremost through gerrymandering.
Spreading
the wealth around, taking money from those who earn it and redistributing it
to those who haven't, may seem compassionate. But it's a zero sum game and
does nothing to increase the general standard of living.
There is but
one way to increase the standard of living for all those eager to work: the
progressive accumulation of new capital (capitalism) invested in the
technical improvements of production, which makes people more productive for
each hour worked. (Think of the time it once took to laboriously copy a
Bible in longhand, then typing or shorthand, compared to printing one off
your laptop today while doing something else).
Capitalism
is exemplified in John Kennedy's words, "A rising tide raises all boats."
Oct. 28. 2008
Fred Schnaubelt
2728 Adams Avenue
San Diego, Ca. 92116
(619) 280-2082
