Imagining A Fair Distribution of Wealth and Income
Many have said that wealth and income inequality is the most serious long-term problem facing our country. So I invite you to play this thought game. Imagine that you are in a position to decide how wealth should be distributed and, further, that you can decide what rules will apply to the distribution of future income. Your objective is to devise the fairest system that will allow our economy to prosper and best ensure the long-term stability of our democracy.
Three general approaches to this game come to mind. First, there is the “Candide” approach in which we would conclude that this is the best of all possible worlds and that the wealth and income distribution we now have is superior to any other. A second approach might be called the utopian socialist approach where all wealth and income would be distributed equally among everyone. A third approach might be to devise some system, either moral or economic or both, that values the contribution made to society by each person and then distributes wealth and income accordingly.
Despite the huffing and puffing of conservatives (I can hear them now) redistribution of wealth and income is not a radical idea. We already do it regularly. Almost any taxation system imaginable takes wealth from one class of person and spends it in ways that benefit another class. This is especially true of the progressive income tax, which taxes the wealthy more heavily and spends on programs that either benefit everyone equally (national parks) or benefit only the poor (food stamps). Our Social Security and Medicare programs are well-loved income transfer devices. Even public schools have a redistributive effect – property owners pay tax that is spent educating the children of some parents who own little or no property. So in our game let us not be afraid to imagine that we can shuffle the deck.
Most of us will reject the Candide approach because it would be manifestly unfair, unstable and will lead to disaster. Anyone with a pulse has heard the statistics about how unequally distributed American wealth and income have become. Take this example: the six heirs to the Wal-Mart fortune command wealth of $69.7 billion, which is equivalent to the wealth of the entire bottom 30% of U.S. society. This inequality is getting worse. Some scholars like Thomas Picketty have advanced a theory for why this is happening.
In his 2013 book Capital in the Twenty-First Century, Picketty summarizes mountains of data by offering a simple maxim: over time income from capital grows faster than income from wages and salaries. Let’s say you start with an inherited nest egg. Your interest, dividends and capital gains make you better off today than the average Joe who works for a living. Picketty says that by normal operation of the economy you will be even better off than Joe next year, and then better the next, and so on. Add to this the fact that the wealthy have political power to protect their favored position and are shameless in exercising that power.
Wealth and income inequality is not just an abstract numbers game – it is a life and death matter. Take, for example, infant mortality and life expectancy. Out of 34 industrialized nations, life expectancy for newborn girls in America ranks 29th. While American babies born to white, college-educated mothers survive at normal levels, what drags our statistics down is the high mortality rate of infants born to non-white, unmarried, poor women. Infant mortality is not the only threat to life created by skewed wealth distribution in this country. Recent studies have shown an increase in “deaths of desperation” among middle-aged, uneducated whites.
If our social conscience is somehow blind to all this, consider the following wake-up call. Every society that has allowed itself to become seriously unequal has suffered a catastrophic redistribution of wealth and income. Some of this was the result of plague-related population decreases. But more often than not, it was the result of war or violent revolution. Those are the findings of a new book The Great Leveler, by Walter Scheidel:
Violent shocks were of paramount importance in disrupting the established order, in compressing the distribution of income and wealth, in narrowing the gap between rich and poor. Throughout recorded history, the most powerful leveling invariably resulted from the most powerful shocks . . . mass mobilization warfare, transformative revolution, state failure and lethal pandemics.
So if the best solution isn’t to leave things as they are, is it instead a utopian equality of wealth and income? There has never been such a system, except on a scale too small to be a reliable guide. The communist expropriation of wealth in the Soviet Union followed by forced collectivization didn’t work out so well. A complete redistribution of income in America, even in a thought game, is hard to imagine.
Putting aside that it would be politically impossible, a completely equal distribution of wealth and income would itself be unstable. Most people don’t see complete equality of wealth as necessary or even desirable. Recent research has shown that people are less concerned with inequality of wealth and income than with the negative consequences of that inequality and the unfairness of how the inequality developed. In other words, most people are willing to tolerate a modest level of inequality if it has not been unfairly achieved.
If we reject the two extreme approaches, we must imagine a wealth and income distribution based on social and economic values. But it must be a sustainable system that produces economic prosperity. At a minimum, such a redistribution would involve a shift of wealth and income from the super-wealthy to everyone else. We know how to do this – an effective progressive income tax with high marginal rates, a corporate income tax with no loopholes and an estate tax that prevents the inheritance of obscene fortunes. Such a regime would produce more money to put in the hands of people who will spend it rather than save it, increasing demand for the products and services offered by businesses and spurring growth.
But how would we make fair distinctions among the recipients of the new tax revenues? One idea now in vogue leap-frogs that problem by providing a universal basic income. Alaska does this now with its oil wealth, distributing around $2,000 per year to every man, woman and child in the state. In his 2006 book In Our Hands: A Plan to End the Welfare State, the conservative intellectual Charles Murray proposes a $10,000 payment per year to every citizen beginning at age 21, funded by the complete dismantling of welfare programs that grant benefits to some but not all citizens. The key would be to distribute a like amount to everyone that would raise the floor of income but not be so large as to create a disincentive to work. Universal basic income is an idea we will be hearing more about.
Finally, should we readjust the wealth and income benefits of people who contribute to society through public service but who are now underpaid? In this group would be teachers, police, fire fighters, country doctors and others. We could achieve this through tax credits. We do something similar to this now by forgiving the loan debt of people who enter public service careers. Why not get serious about it and through favorable tax treatment raise the income and status of these professions so they attract the best?
In this article I have suggested some action we should probably avoid and some we might pursue. Now the game is up to you. What would you do?
