NCPA - National Center for Policy Analysis


November 5, 2008

For years, we've debated rising economic inequality.  But the conjunction of the presidential campaign and the financial crisis has given the debate a curious twist: soaking the rich has become more acceptable, but making the rich poorer doesn't make everyone else richer, says Investor's Business Daily.

In fact, all the financial turmoil has left the wealthy -- however defined -- much less wealthy.  Stock ownership is highly concentrated:

  • In 2001, the richest 1 percent owned 34 percent of stocks and mutual funds; since the market's high in October 2007, stocks are down (through Oct. 31) 38 percent, or $7.5 trillion.
  • That will mean lower capital gains taxes, because capital gains -- profits on the sale of stocks and other assets -- will plunge.
  • In recent years, capital gains taxes have been running at $100 billion or more; that amount could drop sharply, even if the top rate on capital gains were raised from 15 percent to its pre-2003 level 20 percent.
  • Thousands of well-paid investment bankers, traders, portfolio managers and security analysts are losing their jobs; gains in executive compensation may be similarly squeezed.
  • In 2005, the richest 1 percent of Americans had 18 percent of total income and paid 28 percent of all federal taxes; their income won't grow much, even if higher tax rates increase government revenues.

More, the poor aren't poor because the rich are rich.  They are usually poor for their own reasons: family breakdown, low skills, destructive personal habits and plain bad luck, says IBD.

Furthermore, the presumption in the criticism of growing economic inequality is that society's income is a given and, if the rich have less, others will have more.  Up to a point, that's true.  The government already redistributes much income.  But scapegoating and punishing all of the rich won't do us any good if the resulting taxes dull investment and risk-taking, discouraging economic growth that benefits everyone, says IBD.

Source: Robert Samuelson, "Poor Aren't Poor Because Rich Are Rich," Investor's Business Daily, November 3, 2008.


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