Why the Rich Will Get Richer Under Obama
By Victor J. Massad
Victor J, Massad, Ph.D. is a semi-retired professor of marketing & business at a Pennsylvania college.
The Google search “spread the wealth around” yields 221 thousand results, nearly all of which discuss then-candidate Barack Obama’s most candid moment in the 2009 presidential election campaign. What Obama said was this:
"It's not that I want to punish your success. I just want to make sure that everybody who is behind you, that they've got a chance for success, too. When you spread the wealth around, it's good for everybody."
For liberals and conservatives alike, the statement was like opening an old political wound. It exposed the essential philosophical difference between the two political persuasions. Modern day progressivism is built on the assumption that wealth inequality is negative for our society, and that government needs to play a fundamental role in seeing to it that the gap between rich and poor in America is reduced.
Paradoxically, the highest income earners in the country were either unthreatened by Obama’s rhetoric, or voted against their self-interest, as 52 percent of voters who earned more than $250 thousand per year voted for Obama. Some may find this confounding, but if one assumes that these voters were rational, economic thinkers, a case can be made that they were actually voting in their self-interest. In point of fact, in spite of the high-minded oratory to the contrary, progressive policies will likely make the rich richer and the poor even poorer, and it is therefore the poor who were voting against their self-interest when they voted for Obama.
Here are 5 reasons why the Obama presidency will exacerbate the wealth distribution “problem” in the USA:
1.The US Cannot Raise Revenue by Increasing Marginal Income Tax Rates.
Most economists, including liberal economists, recognize that the US is currently at a point of diminishing returns in terms of income tax rates. Increasing income or capital gains tax rates will actually lower the amount of revenue that comes into the government as people will seek to avoid the taxes by reducing economic activity, going underground, sending capital offshore, etc. The only thing that raising marginal tax rates would accomplish is positive public relations for liberals who want to be seen as making the rich “pay their fair share.” Beyond that, no new revenue would come into the treasury, and in fact revenues might actually decline as more and more big income earners pull back on the reins. Therefore, the only ways that revenues to cover the deficit can be raised are: (1) a general tax that nearly everyone pays (ie, cap and trade); or (2) inflation.
2.Wealth and Income are Not the Same Thing.
Progressives often intermix the terms “wealth” and “income.” They are not the same thing. Income is what you make, wealth is what you keep. Obama campaigned on the idea that folks who have incomes above $250 thousand should be taxed at a higher rate. For someone who is wealthy and whose investments return 5 percent on that wealth, it would require $5 million in assets to graduate to the higher tax level. Meanwhile, for someone who earns $250 thousand by employment, it would take 20 years to acquire $5 million, assuming the earner spent nothing and got to keep all of his salary tax free. More likely, it would take 40 years or more for someone who made $250 thousand to get to $5 million in assets. The point is, income taxes do not punish the wealthy so much as they punish the people who are trying to get wealthy. And that is the reason the wealthy do not usually object to them.
3.Inflation is an Extremely Regressive Tax.
Much of the added federal spending from the stimulus, bailouts and health care proposal will necessarily be funded by increasing the money supply. This will cause prices for everything to rise and consumers will bear the burden. Thus, inflation is a “tax,” one that affects the poor and lower income earners much more severely than the rich. Lower income people spend a much higher proportion of their income on discretionary spending, and since all discretionary spending will be affected by inflation, the lower classes will bear a much bigger burden than the upper classes. Also, lower income people rent, whereas higher income people own homes with fixed rate mortgages. Since rents will rise with inflation, and mortgages will not, lower income people will pay more. To add insult to injury, inflation will drive property values higher, which will make the rich richer, relative to the poor.
4.The Federal Government Itself Makes the Rich Richer.
The common progressive wisdom is that government levels the playing field, and if it were not for government, the gap between rich and poor in the United States would be far worse. The opposite is true. The single largest long-term liability the federal government has is entitlement spending for senior citizens, which, once baby boomers retire, will represent the largest wealth transfer from the poor to the rich in the history of human civilization. Exact figures are hard to come by, but the median net worth of a Social Security/Medicare recipient today is something like $250 thousand. The median net worth of a Social Security/Medicare contributor is something like $50 thousand. Think of the federal government as a luxury hotel with a group of rich seniors living in the penthouse, and 20 percent of the earnings of the janitors, maids and clerks is confiscated to keep them living there. This problem is only going to get worse as boomers, who are on average far richer than previous generations of seniors, go onto the public dole.
5.Capital Will Rise to Whatever Level is Necessary to Corrupt Government.
If nothing else has been learned by the study of history, it is the fundamental truth that power corrupts. The housing bubble and its ultimate burst is only the latest example. Whatever restrictions this administration attempts to place on capital and its use, the capital will rise like water against a dam and place relentless pressure on government until loopholes are created, barriers to entry erected and monopolies protected; and then the dam will break and the ever-vigilant progressivist bureaucrats will promise the trusting people to rebuild the wall, only this time, stronger. The capitalist knows the truth, even if the average citizen does not, which is that congress is a collection of self-interested politicians, and that is a reality that can be exploited. The bigger and more powerful the government, the bigger will be the corruption, to the point that it is expected and out in the open (ie, ACORN).
There are virtually only two scenarios available to a country with the debt levels and unfunded liabilities of the United States of America: bad and worse. The bad scenario would mean that society evolves to the point that the upper class represents a small portion of society, there is a much reduced middle class made up mostly of government employees and workers of large corporations in government-protected industries, while lower classes comprise up to half the population. Upward mobility is rare or nonexistent. The lower classes are kept comfortably numb with minimal government assistance that seems to increase around election time. The worse scenario is equally-divided misery, which can only come about if the constitution is disregarded, property confiscated and rights revoked. Eventually, it may come to that, but there will be a long period of slogging before it happens.
The alternative is for the citizen to assert his sovereignty and insist that the fiscally-perilous course we are on be reversed by at last limiting governmental authority. The question is whether conservative politicians have the leadership skills, or even the will, to do it.
Given the modest opposition by Republican politicians to now, one wonders what on earth they might be waiting for.