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The Mass Media

The Mass Media

The Mass Media

Why We Still Have a Wealth Gap

US Wealth Disparity
US Wealth Disparity

Do you ever think that the richest one percent of Americans want the other 99 percent of us to just disappear?

Short answer: yes. Of course they do.

Let me explain.

It’s not complicated. High taxes discourage effort. The higher the rate, the less incentive you have to earn income. This is true for rich people, and it is true for poor people.

Think about it. If you were told that you could earn an extra $10,000 for your next week’s work, you’d be pretty excited, right? Now what if I told you that $9,800 of that income would be taken away in tax? You’d probably say, “$200? That’s not much for a week.” There’s a good chance you’d turn down the deal.

Now, I know what you’re thinking. 98 percent? No country would be foolish enough to implement a 98 percent tax. Wrong. The UK did exactly that (actually it got to 99.25 percent during WWII, but it stayed just about as high for a long time afterwards).

So you say, 98 percent may be ludicrous, but most realistic tax rates aren’t that high. The top US personal rate is 39.6 percent, plus another 3.8 percent Net Investment Income Tax. But then you have to add on state rates. California gets up to 13.3 percent. Ignoring the state tax deduction, that gets you to almost 57 percent. Is that high enough to be a disincentive?

Oh, and that’s before considering sales tax when you use the money, or estate tax when you pass it on. Is that enough? And if income is earned through a corporation (and it often is), there is a corporate tax before you pay personal tax.

And for even more disincentive effects of tax matter, next, think about a foreigner who’s considering investing in the United States. That person (or company) can invest in the United States or elsewhere. If the tax is too high (typically US corporate tax is around 40 percent), then one could set up elsewhere.

As a result, to attract large investments, governments end up bribing foreigners with corporate welfare, at the expense of their own taxpayers. This gives some companies (typically large and foreign, because they have leverage) an advantage over others (typically small and domestic).

Now you have to consider international tax competition. This is clear from a corporate perspective, but high-income people can easily move, so it applies to them as well.

This especially applies to smaller, more open economies, like Canada’s. We believe this applies to lower-income people as well. Maybe more.

If you’re a low-income person, there are a myriad of subsidy programs available to you. Not just welfare and food stamps, but rent subsidies, child care, clothing, medical care, dental care, the list goes on (and varies by location). As you earn more income, your eligibility for these programs diminishes. In some cases, there is a “cliff” effect once you pass a certain income level. So in many cases, it doesn’t pay to go from welfare to a minimum-wage job, or from that job to one paying a bit more. More earned income means a lot less subsidy. Effectively, people face a huge tax rate, sometimes over 100 percent.

This is what we call the “welfare trap.”

Governments can break the welfare trap by (a) coordinating their programs, and (b) ensuring that the subsidy loss as one earns more (effectively, a tax rate) is not too great.

However, in real life, politicians want to look good, so they need their own, independent programs. So part (a) isn’t realistic. Secondly, if you make the “takeaway” shallow, then you end up spending a lot more money, and the people who benefit at the margin are the not-so-poor.

But is it a better choice to throw more money at the truly poor, and retain the cliff? That’s a hard question to answer.

This illustrates that there’s a cap on what the government can extract from the economy. Progressives seem to believe that the government could do more and more. But as it tries to, it crowds out private action. And look at what happens to economies when the government is the primary driver. In general, the more the government tries to do, the worse it does. The more the private sector tries to do, the better it does.

I’m aware of the weakness of this argument. The word “economy” above is an aggregate. It doesn’t take into account the fact that some people do really well, and some people do really poorly. In a fully capitalist economy, certain people will suffer. So while most do better, and some do way better, some are worse off.

So what do we do about them? That is the $64,000 question.

The question could just as easily be, “Which is worse, Democrats or Republicans?” And you’d likely get the same answer.

At this point, both parties have become so corrupted by money and power that they are relatively worthless. Ideologically, after 9/11, the GOP went “full crazy” and has become far more extremely right wing than any of their idols would approve of. Reagan would be a commie liberal by today’s GOP standards.

Meanwhile, the DNC is just as disorganized and befuddled as it almost always is. Case in point: they get the money, yet routinely fail to know what to do with it.

It is not fair to say that ALL politicians on either side of the aisle, at the state and federal level, take big money for favors and call it their job. However, on the flip side, it would be spectacularly naïve to assume that all, most, or even some of them don’t.

The United States Congress has quite figuratively collapsed upon its own rubble of broken pillars. It should be our primary task as voters to unseat every single sitting Congressional member and replace them with people with the willpower to say “no” to special interest groups everyday, all the time.
Term limits for all; make “Congress Honorable Again,” or die trying.