Rich versus Poor: rise of the robber barons

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I just finished reading this article http://www.alternet.org/economy/152601/5_facts_you_should_know_about_the_wealthiest_one_percent_of_americans
Very informative.  I think at the end of the day it's similar to what happened 100 plus years ago.  You had guys with mines, or oil wells, or whatnot, and they had the valuable item, so they got to decide who they allowed to work there and how much they got paid.  And it comes down to this: do I pay my lowest paid 10,000 workers $15 an hour, or do I pay them $7 an hour and make an extra $80,000 dollars per hour.  That comes out to 166.4 million dollars per year that the guy can either keep for himself, or pay the working man. 

Image by eamoncurry123 via Flickr

Except now it's not a guy, it's a small group of guys, with a whole ton of shareholders watching their every move, and both the leaders and the shareholders want the money, and either they get it or the working man gets it, and it's the decision of the people with the power and the money.  Except it's not a decision.  They decision has been made.  Over and over again.  All the extra money to those with the power and the money. 

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And the people with the power and the money are saying 'give us the tax breaks, and the power, and the money, and we'll make more power and money, and this will grow the economy, and then we'll all have more power and money.  But somehow only the people with the power and money end up with more power and money. 

And the people with the power and the money say 'of course I help the poor.  I have large houses built, and I consume many goods, and I visit the world all over, and these things provide work for others, so they can get power and money.  But the people that get the power and the money are not the people that build the houses or the cashiers that they pay for their prodigious consumption or those that fly them around in luxury, but those that own the companies, who are themselves other people with the power and the money. 

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And the people with the power and the money say 'I invest my money in new and smart businesses, which grow and provide more work for the working man.  In this way I give back to those less fortunate, and act for the greater good of all.  But the riches earned by these investments return again to the hands of those with the power and the money, and the working man is helped only with one more option of work. 

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And the people with the power and the money say 'I have done well because of my good choices' and ignore that their choices where much less important than their social network and the opportunities that were given them by others.  And they ignore that they did not work harder, or help others more, or do anything of merit to obtain so much more than their fellow man.

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And the people with the power and the money say 'You give a man a fish, but we should teach the man to fish, and he will never go hungry again,' but they neither give fish or teach to fish.  And they say that competition for resources is a natural state for man, and 'It's not my fault that I am better at it than you are.'

And the people with the power and the money say that giving money and power to the working man is wasteful, as they will squander it on such poor investments as food, clothing and shelter. 

Image by Shreyans Bhansali via Flickr

All of these things are said by the people with the power and the money.  The rest of us are too busy working to say anything.  ;)

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Thoughts on "The Price of Taxing the Rich"

An article was written for the March 26, 2011, Wall Street Journal exposing a noted problem with taxing the rich. The article can be found be clicking: http://online.wsj.com/article/SB10001424052748704604704576220491592684626.html Robert Frank, who wrote it, compares states by the amount of tax income received by their top earners, the mega-rich. It is a very interesting article and I suggest reading it.

The issue is that, apparently, the incomes of the mega-rich are also the most volatile in the country, so a state that gets a large percentage of its income from taxing them, will suffer a lot more in a recession when those incomes are decreased more than income earners that are closer to the average. I totally agree. California and New York are really hurting, and it's mostly because the guys that pull in 10 or 20 million dollars per year on average only pulled in 2 or 3 million in the most recent couple of years. Don't ya feel bad for them? It's like an 80% drop in income. How do they live?

Anyway, my big disagreement with the article is the proposed solution. The solution, apparently is to lower their taxes, and raise the taxes of the guys that are making 30,000 to 100,000. This would make a state's tax income less susceptible to recession swings.

I think there's something morally wrong with lowering taxes on the millions a year guy and raising them on the thousands a year guy, just to keep state tax revenues steady.

How about this. It'll be insanely hard. The most hard thing a politician can do, probably... Save money. I would say leave the tax rates where they are, put a spending cap in place, compute a rolling 10 year average of tax incomes from the richest 1%. Whatever that average is, any income above it from a given year gets put into a rainy day fund for any year when the income from this group is below average.

Here's another insanely difficult thing for a state to do. After a few boom years, when this fund starts getting big enough to cover some bust years, start investing any extra money. States could actually start getting money from investments, and then they wouldn't need as much in taxes years down the road. Lots of foreign countries do this, including communist countries and oil rich tyrant countries. A state could invest in companies, currencies, etc.

Another unthinkable thing to do would be for the federal government to do it. Instead of our federal government paying other nations that underwrite our increasing debt, how about we get out of debt, and start investing our money? Some say I'm a dreamer, but I'm not the only one.

Rich and Poor

My original purpose in this blog was to talk about the idea of a flat tax to replace the current stepped tax brackets that are used in the United States presently. I want to first talk about the relativity of wealth or poverty. It’s always interesting to me that nearly everyone thinks of themselves as ‘middle class.’ I knew a guy once that made $400,000 plus per year. When confronted with the opinion that he was rich, he said “no, I know a lot of guys that have way more money than I do.”

Others, like myself, may live in poverty, making far less than the established guidelines for poverty, and yet, we consider ourselves middle class. The idea of class originates in Europe from what I know, and was used in a time when class positions were not easily changed. Here and now many of us may make minimum wage when we are teenagers or even in the twenties, and make more than $100,000 per year later in life. Of course class wasn’t and isn’t just about income. It’s about culture. And in any case I hate class. The idea of some people being better than others because of the way they were raised. It continues to exist to some degree here, but thankfully, I believe it is much less prominent than in previous times or in other places. In any case it is all relative.
An Alexander the Great or a Julius Caesar did not have the internet. He did not have air conditioning. He did not have his choice from hundreds of different food items at any given time. He did not have a car. He didn’t have living quarters free from bugs. He didn’t have over the counter pain killers. While he may have had tailor made clothing, there weren’t a wealth of materials to choose from. He didn’t have TV or movies or video games. These are differences between him and us, and it is us in the enviable position of being the “haves”. Not only are these differences between peoples in ancient times and us, they are differences between us and others that are living and breathing right now. There are people that don’t have any of these things, and there are probably hundreds of millions of them. I just put $10,000 into the annual income cell at http://globalrichlist.com/ If I’d made that amount last year then I would be richer than 86.69% of people on planet earth. The reason that this is the case is that money is not evenly distributed… AT ALL!!! Look at the income graph below:
Graph from: http://benbyerly.wordpress.com/2008/11/28/how-rich-are-you/
According to this site, anyone that makes more than $47,500 per year is within the top 1% of income earners on the planet. The median income, which would be the one at the number 3 on the graph, is $1,700 per year.

Looking at annual income is one way to look at the disparity. Looking at ‘wealth’ is another. Looking at wealth, we look at the total value of assets minus total value of debts. There is some correlation with annual income, but not as much as you’d think. 40% of Americans own 1% of America’s wealth. 1% of Americans owns 38% of America’s wealth. The 40% (like me right now) are not saving any money, and have roughly equivalent income and expenses, and if they start making 100 times more money, they will start having 100 times more expenses. The other groups actually save and invest money in most cases, or have an inheritance in a few cases.

So the question is, are you getting compound interest, or paying compound interest? It’s not entirely coincidental in my opinion that the graph showing the increase of money with interest over time looks a lot like the annual income graph above. $100 per month for a year isn’t $1,200. At 7% interest, it’s $1,284. Not much right? At 5 years it’s $7,384. At 10 years it’s $17,740. At 20 years it’s $52,638. At 40 years it’s $256,331. At 50 years it’s $521,983. At 60 years it’s $1,044,560. That is $72,000 in money you put in over 60 years, and $1,044,560 you get out. Do you have $100 per month? Once I have a career job later this year, I’m going to put a lot more than $100.00 into savings/investments per month.
When I was in my second year of college, after my mission to Colombia, I had a friend that was single and raking in the money, and he didn’t know what else to spend it on. I was taking a personal finance class at Utah Valley State College (now Utah Valley University) and showed him the magic of compound interest. When he moved out, he had been getting interest on $1,000 per month invested for a number of months. If he does that for 40 years at 7% interest, he’s up to 2.6 million dollars. I should have charged him for my services.

I think having money helps, whether you want it for yourself or you want to help others. It won't bring happiness, but it can allow you to do a lot of good in the world. Anyway, there’s a major huge ginormous article split into 10 parts called “The United States of Inequality” by Timothy Noah on Slate.com: http://www.slate.com/id/2267157/ I’m going to read it now. It sounds interesting. More interesting to me than writing more blog.