Where billionaires roam: In this part of Manhattan, condos sell for tens of millions of dollars. Cash only. The growing income disparity in the United States, which is worse in New York City than anywhere else, is not sustainable, according to many economists. Mitch Traphagen photo.
We live in a bizarre world. It is a world in which a group of billionaires has formed a pact to give away the bulk of their wealth and, in some cases, asked to be taxed at higher rates while people living near poverty levels vote for those who pledge to never raise taxes on the rich.
As of January, 128 of the world’s 1,645 billionaires have signed the “Giving Pledge,” a commitment to ultimately give the bulk of their wealth to philanthropic causes. It is a step, perhaps, in addressing growing yet unsustainable income inequality in the United States.
The U.S. Supreme Court’s Citizens United ruling handed corporations a significant amount of power in an era in which they already have significant power.
Ironically, some of those corporations are waking up to the fate of their power, as well. The fate being that they need customers with money if they want to continue to make money themselves. On Monday, the New York Times announced in an article that 20 of the largest companies in the U.S., led by Starbucks and including both Target and Walmart, have joined forces on an initiative to provide 100,000 American young people with jobs.
I earned a bachelor’s degree in business in college. As part of my degree program, I had to choose a specialty that ranged from accounting to retail management to marketing to finance.
Finance was by far the most potentially lucrative specialty — even back then, but far more so today. Unfortunately, I had a major problem with finance — and that is the very philosophy of the field that success was defined by continuous growth.
To me, that is simply not possible. At some point, growth must become finite, which made finance a house of cards that would someday collapse.
In 2008, it almost did.
Fortunately, America is a land of not only wealth and opportunity but also optimism. With hundreds of billions of taxpayer dollars, the cards were propped back up, and the resulting house appears to be stronger today. But somehow, the average guy or woman on the street doesn’t seem to be better off for it. Real wages are stagnant at best, in decline at worst. And they have been for most of the 21st Century thus far.
Income inequality has been described as a threat to the American economy. It is the theoretical finance problem from my college years: wealth cannot continue to flow upward forever. At some point, there must be a correction. Even the Federal Reserve has raised concerns, issuing a report in 2014 that revealed that just five percent of the U.S. population holds 63 percent of the wealth. The lower-earning half of the population — that is half the population of the United States — holds just one percent of the wealth.
How can that possibly be corrected? Torches, pitchforks and armed mobs are a possible solution but hardly one that would be preferable for anyone not insane. Taxing the daylights out of the wealthy is also a possible solution. When President Eisenhower championed the Interstate Highway System, arguably one of the largest public works projects in the history of humanity, untold numbers of jobs were created by, and in periphery to, that project. At that time, the highest federal tax rate on the wealthiest was a staggering 91 percent.
Today, the highest tax rate is 39.6 percent.
Some would argue that the wealthy would simply leave rather than be taxed on their income. But another New York Times article suggested otherwise. Their findings were that New York City millionaires and billionaires weren’t fleeing the high taxes of the city and state for the no-tax paradise states like Florida. At most, they were simply moving to other high-tax states such as New Jersey (which has a millionaires tax) and Connecticut. Taxes, while surely unpleasant, don’t mean everything to those who can afford them.
But in a nation such as this, sacrifice must be shared. There can be no real argument that Bill Gates or Warren Buffett didn’t earn their billions, nor can anyone say they don’t deserve the rewards of that earned wealth. So if they are going to be expected to pay, that means that every American has to chip in, in whatever ways are possible.
Welfare is a necessary component of capitalism. In an ideal economy, at any given time roughly four to five percent of adults must be unemployed. There can be no possibility of full employment because companies would then have to bid against each other to fill jobs. While that would increase income, it would also increase prices, creating a nightmare of inflation. So a safety net needs to be provided for those who temporarily fall out of the system. But that should never be long term. No able-bodied American man or woman of working age should be dependent upon anyone but themselves over the long term.
I’ve met and personally like former governor Jeb Bush. While I definitely don’t agree with everything he says, I’m quite certain he was taken out of context when he recently made headlines for saying Americans need to work longer hours. I’m certain he was referring to the problem of underemployment rather than making a suggestion that Americans are lazy. If so, he is correct.
If the rich are going to pay, the guy and woman on the street are going to have to work, and work hard. Increasing productivity is a way of increasing wealth, thus forestalling a different collapse of the cards. If nothing else, there aren’t enough rich people to shoulder the whole load, nor should they be expected to.
The pendulum is swinging, and at some point it will stop and swing back. Ideally, when that happens, large corporations, which by definition must grow to succeed, will decide to invest in this nation and in the long view rather than in executive bonuses or offshore tax havens, which in turn would provide new opportunities for their own future and for American workers. It is likely that the super-rich will have to pay more. It is likely that average Americans will have to work harder and work longer, and thus, ideally, increase their own wealth.
To me, that sure beats mobs, torches and pitchforks. Or worse, failure.
This column is the opinion of the writer and not that of The Observer News Publications.
