One of the common complaints I hear about the current economic state of the country is the large gap between the wealthy and the poor. These complaints mostly come from people who resent the very notion of being wealthy and who quickly make the suggestion to tax the rich heavily and give the money to the poor. These people suggest that "wealth redistribution" is just because the rich can afford to give "their fair share". There are several problems associated with this line of reasoning.
There is wealth inequality; that much is true. But what keeps the rich getting richer while the rest of us stay fairly stagnant? In a word, INTEREST.
The old adage is that it takes money to make money and this certainly seems to be the case. But this is not an inherent problem of being wealthy necessarily, so much as it is a problem of big government. Liberals like to suggest that big government can cure all our ills by taking from the rich and giving to the poor under penalty of law, like some kind of mafioso Robin Hood. But I argue that it is big government itself that allows for the vast discrepancies in wealth with every passing generation. Consider the fractional reserve banking system. In this system for example, a bank can loan you $200,000 for a new home. You make a down payment, say $20,000, and the bank fronts the rest. But wait? Did the bank really front that $180,000 from their own coffers? Hardly. Rather, by providing 10% of the loaned amount to the Federal Reserve, the bank is effectively getting the remaining 90% of the money in the form of an INTEREST-FREE loan. After 20 years, you might have paid back the loan to the bank, along with a hefty amount of interest. The bank pays back the capital to the Fed and keeps the interest as profit. Bankers also win the house in the event you can't pay back the difference, so they win no matter what basically. This is unjust because the bank puts no more on the line than you and gets an interest-free loan while you pay the interest. And if that bank still manages to lose money, the benevolent big government will use your tax dollars to bail them out.
To be fair to the wealthy, some individuals actually invested a great deal of time and money and risked everything on their dreams in order to get where they are today. These are not typically the individuals demonized for "not earning" their wealth. The example most used to promote the inheritance tax is the rich children of someone who did the work and died. These people didn't work for their money, they just had good luck that they were born to wealthy parents. This is the justification for taking their money and giving it to people who really had no connection to the earning of it. But what makes money so special? There are plenty of examples in which people have benefited simply because they were born to the right parents. Race, height, attractiveness, intelligence, athletic ability, healthy genes; these are all accidents of heredity. If you were born below average height, should the government step in and pay for bone lengthening surgery? What about people born with above average height? Cosmetic surgery for the unattractive and face mangling for the overly attractive? GPA leveling for intelligence? (BTW, there is an excellent consideration of GPA redistribution here). When Jefferson wrote that "...all men are created equal," he wasn't an idiot. He knew that there were some who had more or less intelligence, looks, money, etc. The best we can hope for is to ensure that children have equal access to the basics of food, water, shelter, clothing, and learning so as to provide some level of fairness when the time comes for them to accept the responsibility for their lives as adult individuals. A capitalistic society can provide equality of opportunities without guaranteeing equality of outcomes. But big government actually ensures worse outcomes for the have-nots by stacking the deck in favor of the wealthy. I have one more example.
The income tax. A code of over 17,000 pages, so complex that you'd need to be a rich person to hire the accountants required to tease it apart. Additionally, lobbyists often suggest amendments and loopholes to insert into the code so that they have legal work-arounds. And the real kicker: The income tax only applies to income and many of the wealthiest live off of dividends from investments (INTEREST!!!). So while we can talk about raising the income tax level against the wealthiest 1%, it doesn't have the impact because the taxes paid on dividends are meager in comparison. For this and many other reasons, I support a tax based on consumption rather than income (because apparently wealthy people purchase things too).
Trusting wealthy politicians to help close the gap between the haves and the have-nots will not solve our problems. Additionally, it is a mistake to base one's opinions of capitalism on the corporatism we have today (where the government actively helps keep big businesses free from competition). Changing the tax structure, ending the Fed and its ability to conjure money out of thin air (inflation), and reducing the influence of big corporations over the market (by reducing their influence over politicians and reducing government's influence over the market) will be key to setting the economy on a path toward closing the gap between the poor and the wealthy.
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