What if tomorrow we decided to take money from the upper financial classes, and redistribute the money to the lowest financial classes. What does that actually mean, where would the dividing line be, and what would the impact be? This was done to very quickly pay for WWII debt, but at the same time, many of the wealthy simply hid their income. Some of them also ended up in jail. So one implication, some people would probably go to jail.
First, you have to sort out what you mean by "their money." The wealthy have "wealth." That's not their income, it's what they own, their assets. The total wealth in the US, which includes only individuals and nonprofit groups, totals a staggering $81.5 trillion. - That's $201 million for each person in the US.
That total includes Bob, who owns his own home after paying for it 3 times with interest payments over 30 years, making financial companies rich, and now it's valued at $275,000.00 because of 4% annual inflation.
But what does personal wealth really mean? In reality, the idea of personal wealth means very little to a huge number of people. "Forty-five percent, or 38 million working-age households, do not have any retirement account assets." Most, 68% are not participating in any employer savings plan.
Most are somewhat or very concerned about having any retirement savings, and many worry that Social Security won't be there. Unfortunately, US home ownership has dropped to 63.9% of households (2015), so 36% of households aren't benefiting in wealth from the typical annual 4% inflation rate of home values on which the Federal Reserve bases it's inflation index.
But on the other hand, the top 20% wealthiest possessed 80% of all financial assets. They have built up wealth in two areas. One, their assets, which are expensive to maintain, so they need a lot of income. Two, the stock market, which is a wealth producing mechanism.
"Say it ain't so! No grab for the wealthy's fixed assets." So, OK, we aren't likely to do any wholesale disassembly and redistribution of the wealthy's wealth. This method hasn't worked well in other nations.
We hear statements like, the "Richest 1 percent in the United States now own more wealth than the bottom 90 percent," and it sets our teeth on edge. But that's wealth, not income.
Income is the yearly amount of money that people earn. It's the money, honey. It's the liquid stuff you can get your hands on. What if we did?
Let's set some baselines for reference.
What if we just seize 100% of the income of the top 15%, and distribute it to the bottom 85%? Here is the math:
Well, I suspect 15% of the population would be very unhappy at having all of their income seized, and probably move to a nation with no income tax. Probably some floating city off the coast of California.
Who really needs the money? Households earning below poverty level is a good start. But what is really needed is to raise people well above poverty so that not only are they benefited, but money goes back into the economy as spending. What this will do is support business, which will create more jobs, and more spending in a vicious cycle of making everyone better off. Because that is the way the economy actually works... at least up to a point.
What if we took some of the income of the top 1% earners of the US and distributed it to the more needy? Well, the tax rate on them was 90% after WWII, and none of them died, and there are people who are dying simply because they are poor.
The average income of the top 1% of incomes is $525,000 annually (12% of households), which is 14,760,000 households. So we take a portion and distribute it to the bottom 10% of households, who earn no more than $29,000.00 each year - most of them actually earn an average of $15,000.00 each year, so we'll use the $15,000.00 figure as a base to start from, and raise their yearly income to $40,000.00. (And just so you know, most of these are single parent households who often work two jobs to make ends meet. In fact over 50% of US households are now single parent.) So 12,300,000 households, would need 308 billion divided among them. That would make a $20,833.33 contribution per wealthy household. That's an average 4% increase in taxes, which would probably be progressive, lower on lower earners, and higher on higher earners. This would work without causing pain and suffering.
Another way to obtain money for redistribution is to go after stock market investment or gains, or transactions, that are not retirement related. Dividends and money withdrawn from the stock market are already taxed. Why go after stock market investment? More later, but it is one of the places in which our money disappears, with minimal value to the economy in return.
The size of the US stock market is around $19 trillion in total investment. It is a very active market with stock constantly being traded. The US stock market grew by around $3.7 trillion in 2010.
If you tax $2 trillion in stock market growth (new investment), and use it to fund the $308 billion redistribution to the nation's two lowest quintiles, that would amount to a 7% tax on investment.
A quintile is one of 5 statistical divisions of US household income.
So either way, through taxes on the wealthy or taxes on investment, there are viable ways to make our financial system work for everyone through redistribution, whether they are hard working people trying desperately to make ends meet and support their children, or wealthy people who want to stay that way. Redistribution is one of the things that should be considered.
Part of the responsibility of government, in a very large, complex economic system, where people have minimal ways of meeting their needs except through employment and good salaries, is to keep the playing field relatively flat so that the powerful and wealthy don't destroy the powerless and poor, whether business or individual, and according to the Constitution, "insure domestic Tranquility... promote the general Welfare," which is variously interpreted according to the person's political leanings.
Since 1950, while society has given people many benefits, the real wages of Americans have steadily fallen. It now takes two people to earn the same income as one in 1950. The Middle Financial Class has trended downward toward poverty, and only EITC payments have kept millions from poverty.
Many jobs in the economy are now part time, to avoid paying benefits. There have been many demographic changes. Since 1950, single parent households have increased from just a few, to over 50% of households. That distorts the statistics some, and creates different needs, but it doesn't begin to make up for the decrease in real wages.
Businesses in the US are entering unchartered territory. Population growth is stabilizing, so that expanding markets are slowing to unlikely. People aren't spending they way they were prior to the Great Recession of 2007, which doesn't drive business. Business conditions are uncertain.
Financial institutions, which at first were a service for helping people or companies achieve their goals, have become an end in themselves: Wealth building mechanisms.
Since 2001, some of the trends in US individual or household economics have revealed that much of the 1980 - 2000 economy was built on household debt. Other trends, like stock market bubbles, have revealed the propensity for risk taking in the financial industry, and how destructive resultant stock market failures are on households. People lose their incomes, college savings, homes, medical services, and even commit suicide, all for financial market risky behavior and an economy falsely based on household debt.
The wealthy are not impervious to these forces, but they generally aren't seriously injured. We are a nation that believes in individual wealth building - we're not against it. But at what sacrifice of others, do the wealthy benefit and what is their responsibility.
Where does money come from? Some inherit it, some earn it in business, some get it from stock returns.... But all money, even from business, initially comes from the people (sometimes foreign). It's the way business works. Businesses sell products, and that enriches business owners, or pays stock dividends which enriches stock holders pockets.
If the money people give up to the wealthy is destroying people economically, then that economic tyranny is no different than any other tyranny. And it will destroy the entire economy. When the system gets out of balance, people don't buy products, businesses don't make money, and investors don't get profits. So the system has to be rebalanced. It's not the monopoly game - whoever gets all the money doesn't win. We all lose.
Recently things have changed for the worse. Despite the lack of consumer spending, corporation profits are at record levels, and stock is at record levels. Stockholders have put their focus on rising stock prices instead of dividends. CEOs are compensated based on how high they manage to push company stock prices. One of the ways they are pushing them up in a stalled market, is to purchase back shares of stock so that shares are worth more (value is spread across fewer shares).
Another way corporations try to improve profits is through eliminating jobs. They do this in a number of ways: Through mergers that eliminate layers of management and business services (like accounting). Sending jobs to other countries for much less expensive labor. Layoffs, and then hiring open jobs at much lower wages. Improving technology to eliminate workers. Corporations in the US are net job eliminators, not job producers. This constant pressure to do things more efficiently to raise dividends and stock prices is a race to the bottom, not the top.
In 2015, companies are beginning to deal with the fact that consumers aren't spending. Companies require stability and preferably growing markets, and the future is not looking bright. This is because consumer purchases become business profit, which becomes stockholder wealth. No consumer purchases, no profit, no investor wealth.
Does stock help the economy? If a stockholder purchased stock in 2008, it has probably doubled in value. Yet stock purchases have very little positive impact on corporations or the economy. Companies are not using the money from stock purchases on expansion. It just sits there. So the amount paid in dividends is a continuous drain on the business and the economy, that goes to the stockholder. It never ends - it's an endless loan. A drain (rent). Neither corporations nor stockholders have any compulsion to work for the economy or household economies. That isn't in their interests.
I will make a bold statement. If stock was divorced financially from companies, and stockholders simply gambled on which company was going to get the higher profits, the effect would be about the same. Corporations can borrow from banks for expansion, and do much better because they pay off the debt, not have it hang over their head forever like stock. Actual money has little do do with stock value - it is based on confidence of the company's ability to make money, or to increase the price of stock. The stock market today is simply a wealth producing mechanism based mostly on stock price.
There is minimal evidence that peripheral activity of the stock market has any benefit to society. - Social Costs of the Financial Sector
Everything doesn't have to be a benefit to our economy, but having $3.7 trillion sitting there doing nothing but sucking up money from the economy is insane. Wealthy people benefiting greatly from this is equally insane. Either the stock market or the wealthy should be taxed so the money taken out of the economy is not destructive, but some of it put back into the economy to help households.
Some billionaires are beginning to think in the same terms. Why conservative billionaires have started talking like Bernie Sanders: “We are creating a caste system from which it’s almost impossible to escape” - Salon.com
See more about Redistribution on this site in the article, Income Redistribution - Good or Bad.
The cost of the financial system seems out of proportion. The US Financial Sector in the Long-Run: Where are the Economies of Scale?
The 1 Percent’s Problem: As the widening financial divide cripples the U.S. economy, even those at the top will pay a steep price.