NEW YORK ( TheStreet) -- Trapped in a bitter conflict the wider public tunes out, politicians have lost sight of one key to unlocking a "Grand Bargain" in America's long-smoldering budget fight. This country's small yet powerful investing class might now enthusiastically support an "extraordinary" one-time tax on net worth, if it's accompanied by profound reform in the way our government spends money, monitors its finances, and treats those seeking to create, preserve and protect wealth. Implemented consensually and not via populist-inspired confiscation, a new compact toward shared prosperity just might work fast enough to convince frightened global investors that the U.S. can regain economic sanity.
Source: Bureau of Economic Analysis National Income and Product Account Table 3.2 Federal Government Current Receipts and Expenditures. Note that figures used in calculating the Federal deficit are total expenditures and total revenues shown in the Addenda section of the table. Yes, from the depths of fiscal depravity in 2009, politicians made "progress" reducing the federal deficit. Still, America remains far away from proving we manage our own government finances using a semblance of prudence. Even with goodwill in Washington, no set of politicians now will vote for doubling personal income tax collection to close a $1.1 trillion gap between the 2012 run-rate for federal expenditures and federal receipts.
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?