The intractable puzzle: Narrowing the Gap between the rich and the rest

The United States seemingly has puzzled with the problem of the growing Gaps between the rich and the rest of us. I say, “seemingly” because of the spectacular lack of success any remedial effort has had.

In 20 years, the share of American Net Worth held by the top 1% has risen from above 22% to above 32%.

Not only have the Gaps widened dramatically in the past 40 years, but there has been a stunning increase in just the past year.

To combat the economy-crushing effects of COVID, the government has pumped trillions into the private sector. An inordinate share seems to have benefited the upper 1%.

Although virtually all politicians pretend to bemoan the growing income/wealth/power Gap, the Democrats seem unable to enact a solution and the Republicans actively oppose one.

We are not alone in this conundrum. Japan faces a similar problem, as excerpts from the following article show:

Big tax break not enough for Japan’s employers to hike pay
Japan’s government wants employers to raise wages.
By Ben Dooley and Hisako Ueno The New York Times

TOKYO — Over the past two years, Masataka Yoshimura has poured money into the custom-suit business his family founded over 100 years ago. He has upgraded his factory, installed automated inventory management systems and retrained workers who have been replaced by software and robots.

Japan’s prime minister wants him to do one more thing: Give his employees a substantial raise.

Wage growth has been stagnant for decades in Japan, the wealth gap is widening and the quickest fix is nudging people like Yoshimura to pay their employees more.

Higher wages, the thinking goes, will jump-start consumer spending and lift Japan’s sputtering economy. But raises are a nonstarter for Yoshimura. Increasing wages would be “truly fatal,” he said last month from his office at Yoshimura & Sons in Tokyo.

And he is far from alone in his thinking. Business groups, union leaders and others have questioned the feasibility of a plan by Prime Minister Fumio Kishida to offer sizable tax deductions to companies that raise pay.

That businesses would resist increasing wages even when essentially paid to do so shows just how intractable the problem is. Years of weak growth and moribund inflation rates have left companies little room to raise prices.

The prime minister is calling on employers to increase pay as much as 4% in 2022. Companies that comply will be allowed to increase their overall corporate tax deductions up to 40%.

Japan has many differences from the U.S. — cultural, economic, historical — but both nations seem to agree that the growing Gaps are a bad thing. They are bad, morally. They are bad, economically. They lead to oligarchy.

From Wikipedia:

Oligarchy is a form of power structure in which power rests with a small number of people. These people may or may not be distinguished by one or several characteristics, such as nobility, fame, wealth, education, or corporate, religious, political, or military control.

Throughout history, oligarchies have often been tyrannical, relying on public obedience or oppression to exist.

Aristotle pioneered the use of the term as meaning rule by the rich, for which another term commonly used today is plutocracy.

In the early 20th century Robert Michels developed the theory that democracies, like all large organizations, have a tendency to turn into oligarchies.

In his “Iron law of oligarchy” he suggests that the necessary division of labor in large organizations leads to the establishment of a ruling class mostly concerned with protecting their own power.

Thus, we have a problem (the Gaps), as viewed by the nation as a whole, divorced from those who seemingly can solve the problem (businesses), who don’t see it as a problem at all.

Leaving the solution to a problem in the hands of those who don’t view it as a problem, or even who benefit from the problem, can lead only to today’s outcome: The problem grows worse.

It’s like telling a woman the “problem” is that her sexy dress attracts too many men, when that is exactly what she wants. She is unlikely to solve the “problem.”

Business is unlikely to solve the problem of the widening Gaps when that is exactly what business leaders want.

Gap Psychology dictates that people generally wish to widen the Gap below them.How the rich avoid taxes? --- Revealed by Paradise Paper — Steemit

Reality dictates that the rich wish to become richer, and the term “richer” implies a growing difference vs. “poorer.”

Without the Gaps, no one would be rich, and the wider the Gaps, the richer they are.

So both the motivation and the power to narrow the Gaps lies not with business, but with government, the sole question being how government should accomplish the narrowing process.

Some economists have suggested minimum wage laws, but clearly, these have failed even to approach the goal. The main problem is that wages are a business expense, and successful businesses devote themselves to minimizing expenses.

The undeniable fact that wage increases cut profits, stands as a concrete barrier to a business solution.

THE SOLUTION

The one entity that needn’t worry about profits is the federal government, and it has the perfect Gap-narrowing tool: Tax policy.

We must remember that unlike state/local taxes, which fund state/local government spending. federal taxes do not fund federal spending. In fact, the federal government destroys all tax dollars it receives.

The federal government pays all of its bills with newly created dollars, ad hoc. It can do this endlessly. No limits.

Why then does the federal government collect taxes? The primary purpose of federal tax collection is to control the economy. The federal government taxes what it wishes to discourage and gives tax breaks to what it wishes to encourage.

Example: The federal government long has wished to encourage home building and ownership, so it provides to homeowners, many tax breaks that are not available to renters. (The rich mostly are owners, not renters.)

Think of tax breaks for: Property taxes, mortgage interest, certain home improvements, mortgage insurance, and deductions from capital gains when you sell your house.

The government’s use of tax laws to benefit those the government favors is the primary reason why the rich benefit from tax breaks not available to you.

If the government really wanted to narrow the income Gap between the rich and the rest, it first would eliminate the FICA tax. This ultimately regressive tax applies only to the first $137.7K of salary, and not to anything above that level. 

The person have a salary of $150,000 pays exactly the same amount of FICA as does the person whose salary is $1 million. Half of FICA is deducted directly from paychecks and half ostensibly is paid by the employer.

In reality, however, all of FICA comes out of paychecks, because employers figure this cost when deciding what to pay workers.

The elimination of FICA (which contrary to popular wisdom, does not fund Social Security or Medicare), immediately would help narrow some of the income and wealth Gaps, particularly the Gaps between lower and middle-income salaried workers vs. upper income workers.

Second, the government could provide free, no-deductible Medicare for All. This is an expense ostensibly borne by those companies that provide health care insurance to workers. I say “ostensibly,” because it is a cost that companies consider when determining salaries.

Some other Gap-narrowing steps the federal government could take include:

  1. Free college for All.
  2. Social Security for All
  3. Tax deductions for renters
  4. Federally paid salary for attending school, grades K+
  5. Eliminate income tax for all those earning less than $500K per year, adjusted annually for inflation
  6. A reverse sales tax on food and clothing.
  7. Free life insurance policies for all
  8. A wealth tax
  9. Tax the annual value appreciation of stocks and other capital
  10. No-exception tax on inheritance.

In short, there are many steps the federal government easily could take, to narrow the Gap between the rich and the rest.

The sole problem is the rich. They don’t want the Gaps narrowed. The Gaps are what makes them rich. Without the Gaps, no one would be rich; we all would be the same. And the wider the Gaps, the richer they are and the poorer we are.

So, they use their massive financial power to bribe the politicians and to convince the populace, that these steps would be “unaffordable,” “unsustainable,” “socialism,” “undeserved” by the underclasses, and/or “inflationary.”

In truth, the federal government, being Monetarily Sovereign is unique in that it can afford and sustain any financial obligation. It never unintentionally can run short of dollars.

None of the above-mentioned steps are socialism, which involves government ownership and control, not just spending. Sadly, the people who cry loudest about “socialism” have the least idea about what socialism is.

The less-than-rich deserve the same kind of federal help as do the rich, who like Donald Trump, have found ways to pay zero taxes despite massive earnings.

And inflation always is caused by shortages of key goods and services, never by government spending.

The currently wide and widening Gaps are not inevitable. They are a choice, an insidious and harmful choice foisted on us by the rich.

The sole cure is to find, then elect, someone who understands the problem and the solutions, and who is not under the thumb of the rich — if such people actually exist.

Rodger Malcolm Mitchell Monetary Sovereignty Twitter: @rodgermitchell Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell

……………………………………………………………………..

THE SOLE PURPOSE OF GOVERNMENT IS TO IMPROVE AND PROTECT THE LIVES OF THE PEOPLE.

The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics. Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps: Ten Steps To Prosperity:

  1. Eliminate FICA
  2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone
  3. Social Security for all
  4. Free education (including post-grad) for everyone
  5. Salary for attending school
  6. Eliminate federal taxes on business
  7. Increase the standard income tax deduction, annually. 
  8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
  9. Federal ownership of all banks
  10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY

5 thoughts on “The intractable puzzle: Narrowing the Gap between the rich and the rest

  1. Japan never thought to cut their own payroll taxes? Not the sharpest tools in the shed over there.

    Employee side is 14.39%. 9.15% Pension + 4.935% Health Insurance + 0.3% Unemployment Insurance

    Employer side is up to 24.66%. 9.15% Pension + 0.6% Health Insurance + 4.98-5.815% Unemployment Insurance + 0.25-8.8% Work Injury + 0.29% Family Allowance

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  2. Should look at the volume of transactions in the modeled BIS [Bank of International Settlements; ie Basel] data. Pre-pandemic the US’s total volume of transactions was like three and a half qaudrillion dollars in a year. The top 10% of individuals and entities were responsible for almost 90% of those transational flows going back and forth. I have some bar charts or diagrams illustrating it saved somewhere here.

    Someone wants to narrow the gap they should start using a bit of banking software [since last I checked 94% of transactions settled digitally within seconds] to skim a little cream off the top of all that milk flowing around within the economy. Then either delete out of existence at the federal level or apportion it out to the lower levels of government on a per capita basis every week or two. In that way you could get rid of a whole bunch of shit like sales tax and all the paperwork and lost time spent collecting and accounting for it.

    That Feige fellow at UW-Madison was talking about such an automated EZ-Pass form of taxation 25 years ago. He might of been wrong on a bunch of other things having been one of Milton Friedman’s students, but hey even a broken clock is still right twice a day.

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    1. We can make taxes easy, but we can’t make them good.
      Federal taxes largely could be eliminated (leaving just enough to allow for federal control over the economy).
      State/local taxes also largely could be eliminated if the federal government gave each state/local government a per capita allowance, and/or directly paid some state/local expenses (roads, bridges, water, education).

      We always must remember that money is a human invention, the purpose of which is to motivate humans to do certain things. We have the infinite ability to create this motivation.

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  3. Your copy editor reporting for duty.

    FICA deductions total 12.4% for Social Security and 2.9% for Medicare, a total of 15.3% with the employer “paying” half and the employee paying half.

    The cap for Social Security deductions was $142,800 for 2021 and is raised to $147,000 for 2022. There is no cap on Medicare withholding and there is an additional Medicare tax of 0.9% for those making over $250,000, Married Filing Jointly, less for other filers.

    I hope it’s a healthy and prosperous new year for you and yours.

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