Wikipedia (http://en.wikipedia.org/wiki/Millionaire
) defines a millionaire as one whose net worth is at least 1 million units of
currency. A billionaire has about 1,000 times that much. Net worth is a concept
that is calculated by subtracting what you owe from what you own. Furthermore,
statistics tend to net out a family’s primary residence. In that sense net worth
is essentially examining your ability to spend beyond your primary house. For
example, if I borrowed $1 million from the Dumbhead Bank of Bloomington and I
bought $1 million dollars of gold (or a second home or a Rolls Royce, etc) –
that would not improve my net worth. I would have more stuff but I would also
have a big liability to go with it. I would not be wealthier. If, on the other
hand, I now own bonds, stocks, second homes and numerous cars and but I have no
debt, then I would have substantial net worth that increases my ability to
spend.
Millionaire has a special and specific meaning. According to
Wikipedia’s further analysis approximately 3 million persons or 1% of the US
population is a millionaire in the sense of net worth. Wikipedia says that
about 95,000 US families have more than about $30 million in net worth. Of course, there is some disagreement about the exact number of millionaires but I won't get into that here.
So what does all that mean? Let’s suppose your net worth is
$1 million. At today’s interest rates you might be able to invest that money
with little risk at about 3-4%. That means that your net worth could produce an
annual income stream of about $30,000 to $40,000 per year. That’s a lot less
than a plumber earns in most cities of the USA.
Which Americans have all that net worth? The answer is that
half of them are retirees. That is, these are people who spent much of their
lives squirreling away money here and there to take care of them in retirement.
For those who acquired millionaire status as a result – they can live on a
little more than $30,000 to $40,000 per year assuming they eat into the capital
to live.
We hear some politicians saying they want millionaires and
billionaires to pay more in taxes. So notice a couple of things. First, many of
these folks are old people who spent their lives saving and probably live on
less than $50,000 per year. It hardly seems fair to penalize these people.
Second, let’s see what we can get from them. If there are 3 million people
whose average net worth is $3 million, then by confiscating all of it we would
net a one-time amount of $9 trillion dollars. That sounds like a lot of money.
But think further. The US government will spend about $3.8 trillion in 2012. So
that doesn’t make a lot of sense. We take away all their wealth and blow it in less
than three years! What do you do in 2016? They have no more wealth left to
take! The estimate for the Gross Federal
Debt for 2012 is a little more than $16 trillion. So a 100% net worth tax on
all millionaires would still leave us with a debt of $7 trillion and no real
means to keep it from rising thereafter by about $1 trillion a year.
No one has suggested taking away all the assets of
millionaires but this illustration shows that if you took a more “reasonable” 20
- 30% of millionaire’s wealth -- it isn’t going to go very far to solve our
problems. You cannot just increase the taxes on millionaires and billionaires
and hope to avoid major changes in taxes paid by the middle class or reductions
in the growth path for spending.
No one has seriously mentioned raising the necessary funds
by taxing the net worth of millionaires. In fact, while the rhetoric focuses on
millionaires and billionaires, tax policies are aimed at annual incomes. Much
of what I read today defines policy in terms of adjusted gross incomes and
mostly for families well below the million dollar income mark. I keep seeing
numbers like $200,000 to $250,000. Since when is someone who earns in that
range a millionaire? I agree that these people are doing pretty well. But do
they really fit the vivid picture of a millionaire? Are they really people who
are the envy of the rest of us? Are they people who somehow lied or cheated
their way through society and now fail to pay their fair share?
I won’t sufficiently answer those questions because many
people simply want to take from these folks regardless of the real situation.
But maybe Joe made that much because he worked 16 hours a day for forty years
at a tough job. He is now really good at his job and earns both respect and
high income because few people have the skill or knowledge he brings to his
job. Maybe Tom is a retiree who saved
for 50 years and now enjoys a decent retirement income. He made a decision that
it was better to spend less in his younger years so he could enjoy some income
security in his retirement. Maybe Ann worked her way through college, borrowed
money for an advance degree, and is now a prominent scientist engaged in the development of new cancer drugs. Given our tax laws in the US – many of these
people are entrepreneurs who forsake normal working and social lives and risk
everything to start and run new businesses.
The point is that it is both rude and careless to stereotype. Stereotyping the poor is always frowned upon. But somehow making
baseless conclusions and insinuations is perfectly okay when talking about people who hold $1
million in a saving account or who earn $200,000 per year.
Rather than stereotyping anyone, one wonders why our
politicians do not spend more time telling us why despite a long-term running
war on poverty the number of poor people continually rises. When are they going
to be honest and admit they lost the war and need to find out what went wrong. Why
despite almost a century of social security have they failed to make it financially sound?
Was the retirement of the baby boom generation starting in 2011 a big surprise?
Did they not have 65 years to get ready for their retirements? It is sickening
to stand by and watch politicians totally ignore their responsibilities to
society while they insult us with meaningless demagoguery. It is okay to discuss raising taxes. It is
okay to ask wealthier people to pay more. But all this should be part of an
earnest and respectful attempt to solve our national problems.
War on poverty? It cannot be won by entitlement programs. The field gets a lot bigger with declining middle class and 11 million illegal aliens also collecting. Add to that elimination of non technical jobs....
ReplyDeleteI heard somewhere that if the feds raised the tax rate to 50% on incomes of $250K and above, they would spend the amount collected in 8.5 days....and that would cover only the "must pay" items. It wouldn't begin to pay on interest owed.
ReplyDeleteI keep hearing wailing and whining about a "shrinking middle class" with the blame being laid at the feet of the "wealthy." There are probably myriad reasons why/if the middle class is shrinking. One of them IS NOT tax rates. If Romney made $20M last year and paid a 14% tax rate, he still paid a Power Ball jackpot more than I did even if I paid 20%. Only the intellectually-challenged buy into the tax-rate argument.
I agree that there are chronically poor...yea verily even destitute...who need assistance, but I also know that there are poor who are so because of poor life choices, and there are probably more of the latter than the former. There are also a a ton of people who are stuck in the middle class by choice. They're comfortable with what they have. There are also many in the middle class who don't want to be there but who are unwilling to put forth the effort to move up, unlike Joe the Plumber. That group would rather have the government bring everybody to their level. Ah, the "utopian classless society!" Unfortunately, that's exactly what our federal government has been playing to for too many years. "Income equality?" Just how do you do that? Increase the minimum wage to $80,000/year? How has the minimum wage worked for small businesses or even large businesses. Why not just let people sit at home and have the government send them a check each month for doing nothing? Oh wait! We already do that. We conditioned several generations to accept a something for nothing attitude, and it's killing us. Of course there are people stuck in the middle class who have tried very hard to move up without success, but the one characteristic they share is that they keep trying and don't wait for the government to pay their way.
So tell me, what is income equality and how do we get it? Do we make everyone a CEO, or do we make everyone an unskilled laborer, or something in between, and how do we do that? "Income equality" has such a nice ring to it, but the concept lies somewhere beyond Pluto, the almost-a-planet. It's a concept from the Marx and Engels Brothers.
I know this wasn't the gist of your post, but it's that time of month, and I just had to vent a little. BTW, where are you getting 3%-4% interest? Do you issue credit cards because that's about the only place I've seen interest rates higher that 1.5%.
Dear LSD. Gosh, you really opened the choke and shot a lot of jive in many directions. Stereotyping, Social Security, earnings levels of $200,000--$250,000, poverty . . . . all in the context of the gap between those that got and those that don’t got . . . and solutions to close that gap. This wise old chicken of the sea could post numerous solutions, but he knows . . . . like those wimpy pols that doing so would be like swimming upstream; tough to do and possibly pointless. Easier to just go with the flow . . . like mindless jellyfish bopping along with the tides and winds. Easier just to throw $$$ at the problems . . . particularly OPM. But the problem with OPM is at some point you run out of it and have to borrow $.42 on the dollar from China . . . much like what’s happening now . . . to continue to throw $$$ at the problem rather than address the underlying root problems, such as an nonexistent economic/industrial policy that fosters jobs of the future supported by an education system that produces grads to fill those jobs. Such as political doctrines that promote group rights rather than individualism, self-reliance and responsibility; guarantee of outcomes rather than opportunity; socialization of risk rather than individual reward (and loss) . . . and on and on . . . I think you get my drift.
ReplyDeleteThere always has been and always will be those that got and those that don’t got. Until recently that condition has ideally motivated the latter to pursue behaviors and decisions that will elevate them to the former. However, the thrust of OPM on the latter has stifled motivation by guaranteeing outcomes. Yet the intended guaranteed outcomes have not resulted in the latters’ elevation to the former; wimpy pols’ decisions to embrace OPM have failed. Unfortunately, the pols who embrace OPM don’t understand that it is a failed policy and still pursue it. Fortunately, Nov. 6th might be the tipping point. Let’s keep our fins crossed.
This is an appropriate place to vent! Your points underscore the fact that this all needs work. It needs an objective look. In what senses is inequality bad? What causes inequality? What can we realistically do about it? It is sickening to me how little our government even tries to work on these questions.
ReplyDeleteAll men are created equal..........it's up to them to stay that way, decline, or move ahead. The government can't do anything to solve that "problem."
ReplyDeleteSeems a little extreme to me Fuzzy. I buy two things. The government doesn't really solve many problems and people can get hooked on entitlements. Having said that however I do think that all societies have used some form of government or social solution for people who simply can't get it done themselves. Physical, mental, emotional and other sources of inequality will always be with us and impose a moral requirement on the rest of us. The trick, of course, is to do the most good with the least unintended consequences.
DeleteThis is from Charles not from Larry
ReplyDeleteDear LSD. I say inequality is in no sense bad . . . I assume in the sense you imply, which I assume in a social/economic sense. Social inequality has existed since Adam bit the apple . . . . in all levels of the cosmic, animal, biological, mineral, et al worlds and always will despite the use of OPM to equalize the natural force that prefers status quo. Economic inequality likewise is a natural force which OPM cannot overcome. The only equality the chicken of the sea prefers is that of opportunity. Yet even govomit’s forces to attain equal opportunity e.g. busing, rearranging school districts, affirmative action, 8(a) SBA programs, liberal access to housing and credit . . . all . . . . all . . . all have failed. The situation best suited to let natural laws operate and to ensure the most equal of opportunity is the free market.
I love markets and want them as free as possible. But Adam Smith and many other capitalists understand that there are very good reasons for government intervention. Externalities, monopoly, health and safety and other market imperfections have been recognized by economists as reasons for government intervention. But alas the essence of government is unintended effects. As you say, despite good rationale, many government interventions have not been truly successful. So we stagger ahead knowing there is reason for government to intercede yet always mindful of unintended consequences. Poverty and inequality of income are worth tackling but we need a new and better approach.
ReplyDeleteProf D, if you'll reread my first submission, you'll find that I address those who simply are incapable of moving out of the "poor" category, and I said that the government has a responsibility there; however, it is the other categories to which the government has no business providing direct "help." Our system was designed to provide opportunities for each of us to advance. The onus is on each of us to take advantage of those opportunities. If we're going to depend on government to provide those handouts to ensure we all remain equal, then we might as well continue on the present course. Whatever happened to individual initiative? When I had brand new 2LTs with brand new shiny wings walk into my squadron and ask when do I get my airplane and crew, I knew we had a problem. As the song says, "I want it all. I want it all, and I want it now." The old I-deserve-it-because-I'm-here attitude. And no, I don't believe in the SBA primarily because of all the strings that have been attached. Probably, it was a great idea, but it has been corrupted like most government ideas. As I've said before, government's job is oversight not over-regulation. There's no "equal opportunity" when government gets involved.
ReplyDeleteYou keep using the term "inequality of income." Why don't we just set the min wage at, as I said, $80,000/year? Is that "equal" enough for you? Exactly what is "income inequality?" As long as I've been alive, people have earned different levels of income. You can't change that. A hamburger flipper at Mickey Ds shouldn't earn more than a rocket scientist. The term sounds so collectivist. I'm sure that's not where you're coming from, but it is a poor choice of descriptors for the concept you invision.......I hope.
Fuzzy,
ReplyDeleteWhether we like it or not, it is traditional to measure the inequality of income. Virtually all countries do it. Most people accept inequality as you do -- and do not advocate reducing it to zero or anywhere close to zero. People also measure it over time to see how it is changing. The experience in the US is that the inequality has been increasing and that creates concern by some people. I don't know how much inequality is good or bad. But I do suspect that in a democracy -- a continuous widening of the inequality is not seen as a good thing. They think too much widening is bad because it may cause social unrest. Unfortunately this concern does not often lead to specific policies that would adequately address the causes of the widening. As I was saying in my post it is a shame that we don't admit that our poverty programs don't work. Instead some people think that playing Robin Hood will solve the problems of the poor. And they won't.
OK, I suppose I can buy that. At the least, Robin Hood was still a thief. Again, there's no way to fix income inequality without direct government intervention through a minimum wage-type action, and any action like that will result in a bit of civil unrest. Methinks people worry too much about things that can't be fixed. The public dole certainly hasn't done anything to quell unrest because the people who are funding it are highly dissatisfied. Somebody will invent a perpetual motion machine before "income inequality" gets fixed.
ReplyDeleteIn about 2 more weeks I should be back to normal.
You used the word "democracy," so I will display my "anality" and say that we do not live under a democracy. Ours is a republic wrapped around democratic principles. There's a major difference in our form and a pure democracy. Minorities are not protected in a pure democracy, and a pure democracy eventually evolves into total anarchy. A mere technicality, but you will find that the Founders referred to the "Republic" and "republican government" much more often that they referred to "democracy."
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ReplyDeleteTwo comments are deleted above because of a major typo and I don't know how to edit. So below is what I was trying to say....
ReplyDeleteDear Fuzzy,
Thanks for keeping the discussion going! Because inequality is not an easy concept to nail down, you are correct that society or at least parts of it will never be satisfied that we hit a specific goal. There will always be some people who believe that everyone should have the same income. But hopefully reasonable people (Ha ha) would out number them and might admit that at some point in time we had enough inequality.
The fact that we are a republic limits the ability of the majority to run roughshod over us. In a parliamentary system it is possible for the majority to go a long time in one direction favored by the ruling party. As our split government shows it is much more difficult for any government to implement its programs undiluted. So we get a lot of stalemates and kicking of the can.In that environment we get finger pointing and accusations instead of policy. Democrats accuse Republicans of causing greater income inequality. This is nonsense, but Republicans don't help matters much by minimizing the fact that real trends are trampling some in the middle and lower classes. Republicans are right to worry about moral hazard and sizes of deficits and runaway government spending. But anything that makes it seem like they are not earnest about these problems just makes it that much harder to find a way to solve these problems.
Just two brief comments. First, Social welfare programs started under the Victorians and were privately financed. They made an important distinction between the deserving poor, i.e. widows, orphans, disabled, etc. and the undeserving poor, the drunks, lazy, crooks, and so forth. When the government took over the responsibility of providing for the poor, no discrimination could take place and everyone had to be treated equally. No one objects to the truly needy being helped but most object to commonly observed behavior that should not be rewarded.
ReplyDeleteIn regards to income inequality, it is hard to argue that the massive increase in top salaries is justified by performance. As Charles Murray puts it; it's not illegal, nor even immoral but it is "unseemly".
We can all agree that the folks who "reside" inside the Beltway have one primary goal.....to stay inside the Beltway in their elected positions, and they will do/not do anything that will secure their butts in their elected seats....is that redundant? Perhaps an unforeseen glitch in the republican system of government? I contend that it's still much better than any other which man has devised. The Founders figured that it would be corrupted, but maybe they didn't figure we'd screw it up as bad as we have. As some wise soul said, "Power corrupts and absolute power corrupts absolutely." Maybe Tom, Ben, and the boys naively thought that we'd each want to do a 2-year stint in the House while the pros occupied the Senate for lengthier terms, as they envisioned. Obviously, they didn't see how lucrative it would become to hang onto those seats in both chambers, and they certainly didn't intend that. Perhaps they didn't see that Washington DC wouldn't be a place where intelligent people, like a blacksmith for instance, would want to live for extended periods of, say, 2 weeks. It is a problem which We the People have created by being ignorant of our Constitution and what went into it and by allowing ourselves to be hoodwinked by those we elect over and over and over.....and over and.....over...
ReplyDeleteThere's a great book, "The 5,000-Year Leap," which gives one a much better appreciation for our Constitution and form of government. I highly recommend it. I've read it twice....a tough hing for a DT since there are few pictures.
Instead of "income equality," perhaps a better term would be "income relativity." We can agree that equality of income is an ideal we can never achieve even if the pols wanted to address it. There's just no practicality to the concept. Should a manual....not to be confused with Manuel....laborer's income be equal to a world-class brain surgeon? Should an airline pilot's pay be equal to a PhD econ guru......well, bad example.....but you get the picture. I believe we're talking semantics here or whatever that word is. Some things will never be equal as many of us have seen in the showers after practice, but many things can be relative.....except there are several people I don't want to be related to or even relate to. Can you relate?
Fuzzy, I can relate. This is why most women don't know the difference between 2 and 6 inches. Anyway that is supposed to be ajoke and not meant to alienate our female friends. I agree that we have a good form of government but nothing is perfect. As for income distribution I get your point and it is true -- it will never disappear. But what I was saying before is that the relative changes over time. When the distribution gets wider it concerns us. There may be good and fundamental reasons for a widening. In that case there may be no need for concern. But the widening may be a sign that something is wrong and needs to be fixed. The challenge is that you can't just assume it is one or the other. It would take some objective analysis to decide. Sadly our politicians just point fingers and take their usual positions behind their usual bunkers.
DeleteJames,
ReplyDeleteThanks for the two points! As for unseemly, so is Kimchi and I am glad no one regulates it. I would rather have the markets determine what is excessive. While the government might have good intentions we all know about the road to hell.
As for the idea that the government does not discriminate with respect to welfare I do not agree. I think the laws do deny welfare to the undeserving. The problem is more to do with human government workers not implementing the law. We have a community kitchen in Bloomington that is mostly privately funded. They don't check IDs there. If you walk in and want food they give it to you. I think the government is the same. We probably need better laws but I think we also need better enforcement. But this has to do with ALL government programs. Medicare abuse is rampant. I suspect the military wastes a bundle too. We also need a new attitude. Getting more people to use food stamps does not mean the program is a success. Govenment supervisors and emplohees need to understand that these programs are supposed to get people out of poverty. Success means less food stamps!
What a lively discussion. I am in a similar blog with my classmates from 64. Same subject but not quite as proper responses. Income equality is impossible unless we are in a perfect world and income is doled out by the King or whoever rules. Income is based on earning powe3r which is based on position and sometimes skill. To grow a strong country we have to care for those who cannot earn but otherwise reward those who can earn and do earn. Otherwise there is no incentive to work other than sheer joy. How many professions offer sheer joy. Last time I checked...not many that pay well. If the provider of care is losing income due to its foolish political mistakes then it needs to raise taxes, drop programs or borrow funds from another source...or in our case print more money. Bottom line is to stay economically strong and take care of those who cannot we must grow our GDP in real dollars. The question is how do we do that?
ReplyDeleteThanks James. Not sure how we do this with all those yoyos in Congress.
DeleteBut "less food stamps doesn't win any votes, and that's why we have more food stamps.
ReplyDeleteFood stamps, like many poverty programs, are open-ended. That means that if more people apply for the benefit then we spend more on that program. The spending therefore is pro-cyclical. It is possible the change these laws and they sometimes do -- but I think most of the recent increases are mostly just a sign of the economic slowdown and higher unemployment.
Deletehttp://blog.heritage.org/2011/11/15/income-inequality-and-the-founding-fathers/?query=Income+Inequality+and+the+Founding+Fathers
ReplyDeletehttp://www.cato.org/publications/commentary/incomeinequality-myth
ReplyDeleteFuzzy,
ReplyDeleteThese article are good ones -- everyone should read them. But they don't recognize the reality that as long as enough people think the government should do more to help people and so long as social unrest derives from perceived (even if measured poorly)inequalities, then much attention will be given to inequality. The only real cure for poverty is economic growth but so long as the average guy thinks the government can and should do it, then we will never get away from these discussions.
http://www.weeklystandard.com/articles/if-sweden-can-do-it_650802.html
ReplyDelete