A Tax the Wealthy Can Get Behind
Meanwhile, no reasonable scenario, starting from the present, forecasts sustained increases in household income sufficient to swell income tax receipts meaningfully.
In stark contrast, household incomes likely will remain under assault given foreign outsourcing opportunities and proliferating options to replace human labor brought to the fore by advancements in technology.
To cure our fiscal woes, why rely primarily on income or new, far-reaching consumption taxes, when there may be a politically "painless" alternative?
According to estimates prepared quarterly by the Federal Reserve, the pile of wealth (defined as "net worth") controlled by American households and nonprofit organizations stood at $74.8 trillion on June 30, 2013, 16.3% higher than the previous peak level of $ 64.3 trillion on Dec. 31, 2007.Why boost income taxes by gigantic percentage amounts to close annual government deficits when one might tap all households for a "measly" 1.5 % of total household net worth, or just the truly rich for a higher percentage? After all, according to one estimate by Professor Edward N. Wolff, the top 20% of American households held an average of 84.1 % of total net worth and an average of 92.3 % of net worth excluding personal real estate, measured every three years between 1989 and 2007. Figure 2: Estimated Shares Held by the Top 20% of all U.S. Households of Net Worth and Household Income Source: The Size Distribution of Wealth and Income, 1983-2007 in Edward N. Wolff, "Recent Trends in Household Wealth in the United States," published in March 2012 by the Levy Economics Institute at Bard College. This heavily skewed distribution of wealth is far less egalitarian than the frequently decried distribution of American household income. According to the same study cited above, household income for the top 20% averaged "only" 57.3% at slightly different measuring points every three years from 1988 through 2006. Could the richest among us be enticed to cure America's vexing economic ills by "contributing" a small portion of their monumental holdings?
Why Rich Voters Might Cheerfully Surrender Some WealthInvestor enthusiasm for a wealth tax would only come as part of a comprehensive deal in which the government and Federal Reserve embrace a "sound dollar policy" and subjected themselves to rigorous reshaping. Considering alternatives to restoring true economic progress inside America, too many ignore toxic effects from the undeniable decline in the value of our dollar since 1999 when performing their analysis of options. This decline, measured against prices of essential raw materials and precious metals, means that investors in dollar-denominated securities fight against punishing headwinds. America's weak-dollar delirium is as inexplicable as it is foolhardy -- it harms us, destabilizes the wider world and crushes the poor in rising nations. Given the indisputable reality that exports are not a large enough portion of the U.S.'s annual output, that the U.S. accumulated wealth far exceeds its output, and that no large and sound alternative exists to our dollar, why do we punish the globe and ourselves with a weak currency? If America's largest investors were convinced that empowered auditors might thoroughly evaluate the soundness of the Federal Reserve, that required equity would be invested promptly to shore up the Fed, and that its mission would change to protect the value of our currency, most would cheerfully advance funds required to bring our annual federal deficit and monstrous federal debts back under control. For these wealthy investors, interest rates set at levels seen since 2008 for overnight federal funds and for benchmark, 10-year Treasuries make little sense. At present, policymakers resolutely believe the laws of supply and demand no longer apply to the American currency or to debt securities of the federal government. Given delusional behavior exhibited in Washington by both parties in delaying the inevitable massive pruning that must occur to government services, prospects for the approach suggested herein will be muted at best, and histrionic at worst. But is there any other realistic hope that Democrats and big-government Republicans might wean themselves from the ruinous spending course we run? Abandoning policies I characterized starting in May 2009 as a "War in Wealth" and adopting truly equitable investor-friendly programs means that outsized portions of the vast wealth accumulated worldwide would elect to remain here.
Instead, Will Politicians Puncture America's Allure Permanently?The world watches in fear that the U.S. cannot get government finances in order fast enough. The world's wealth has no safer home, at present, then the one here, even though it's aflame in populist rhetoric that "billionaires and millionaires" painlessly could cure all ills if they only did their patriotic duty and followed impulses of anointed government masters, leaving Washington D.C. whirling out of effective control. Those who believe this unstable situation can remain forever benign in wide impact should reacquaint themselves with a short paper written in 1992 by Hyman Minsky titled The Financial Instability Hypothesis. The truth is that stories of renewed prosperity since year-end 2008 are not even fairy tales -- those have happy conclusions. Few assets priced and few financial statements struck since Dec. 31, 2008 would look attractive if key benchmark interest rates remained in pre-2009 historic relationships. The Federal Reserve System has painted each American into a boxed canyon, from which none of us will emerge unscathed before too long. Clear and present danger rises swiftly. Core inflation, measured consistently and fairly is set to surge as rising populations press for scarce inputs. Many abroad now watch developments inside America in a mix of disbelief and terror. How can it be that cadres in China and Russia's leaders seemingly operate thousands of miles to the right of Washington, D.C. and New York City? Meanwhile, elites in our power cities fear exposing and explaining financial truths -- after all, many of these enabled supposed progress, benefited since 2008 and may escape from the looming pain now staring us fully in our faces. Credible return to a "sound" dollar policy will help all Americans and especially the wealthy. This approach is the only reasonable course averting final descent to financial hell from purgatory we entered last September 2008. Alternatively, should the U.S. ignore centuries of economic history, soon we shall actually suffer the fate of sister nations located in this hemisphere such as Argentina, Uruguay, and Venezuela. Better, a wealth tax and far-reaching equitable reform fully explained to the public, than a diminished permanent reality in which all Americans suffer more than most may appreciate. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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