For some time, I’ve said that wealth distribution will more than likely not be a permanent solution to increasing wealth inequality. However, there are two sides to this coin. The first side that I’m gonna discuss is the one that many politicians won’t dare discuss.
The side that many politicians won’t discuss is wealth redistribution in the form of taxes on the super rich. Now, there has been a massive disinformation campaign carried on by conservatives to get the voting populace to believe that wealth distribution means taking from the rich and giving directly to the poor. Another lie that this disinformation campaign has convinced people of is that it is the middle class who will be taxed into oblivion in order to provide for the poor. That’s why you see many uninformed middle class citizens unknowingly fighting against taxing the super rich.
To be fair, there are people who believe that such a thing should occur but when people in the know discuss wealth redistribution, they’re simply talking about fair taxation. When you discuss this issue factually, be prepared to be called a socialist, or even worse, a communist. Those are terms that the gatekeepers of wealth inequality like to throw around in order to protect the status quo. With that being said, I will admit that at least one politician has spoken out against it and I quote.
There has been a mass redistribution of wealth in this country for the past 30 years. The problem is it’s gone from the middle class to the top one-tenth of 1%. I think we have to distribute it back to working families.
– Sen. Bernie Sanders (I-VT)
Yes, Bernie Sanders is absolutely correct. Since the Reagan presidency, in which he gave tax cuts to the richest Americans, we’ve witnessed a dying out of the middle class in America. It’s to the point where there is almost no middle class. The wealth gap in America is worse now than it was during the gilded age! This is laid at the foot of conservative economic policies that grant massive tax cuts to the richest Americans, which in turn places the tax burden on the poor and middle class. The rich pays little to no taxes while nearly half of the poor and middle class’ income goes towards paying taxes. In that way, money has gone from the middle class straight to the top and it is killing our economy. There are other policies which were brought about by trickle-down/supply side economics, IE: deregulation, which also contributed to this but we’re gonna leave it on the tax issue for the purpose of this article.
When the issue of the tax burden comes up and people advocate for wealth redistribution in that sense, I fully agree with them. Yes, I aspire to be wealthy myself but I don’t see the point of killing off the middle class (your customer-base). The way that I see it, the stronger the middle class, the better it is for businesses.
Another thing to bear in mind is that higher taxation on the wealthy is a common tool used by governments in order to recover from a depression. It is used primarily when governments need money to stimulate the economy but don’t want to borrow from either their central bank or other nations.
Let us now discuss the other side of the coin and this one has more to do with how many people manage their money.
Let’s say that even if we did take all of the world’s wealth and distribute it evenly amongst every citizen on earth, the truth is that the money would go right back to where it is now. Why? That is because the vast majority of the world’s population isn’t good at managing their money. Some people refer to this by using the condescending term “poverty-conscious,” which is a way of saying that a person’s mind is conditioned to mismanage their money and remain at their comfortable economic level. I don’t like the term poverty-conscious but when you take the semantics out of it, the mindset which the term describes is actually correct.
Question: Have you ever saw what happens to a person when they come into a sudden windfall of money? They usually get the money and a short time later, they’re asking themselves where’d it all go. The most obvious example of this would be lottery winners, but since lottery winners are a rare occurrence, I’m gonna use a more relatable example and that is — tax season. We see this every year. Someone receives a return of $2,000-$10,000 (where I live, $5,000 is 2 months salary for the average person). What usually happens when a person gets these tax returns that is almost double their monthly salary? Do they put any of that money aside in order to create some sort of nest egg? Do they look to put it into some sort of investment vehicle? Of course not. Instead, they waste it by purchasing frivolous items. Then they end up right back where they began… living paycheck to paycheck.
When it comes to making money, people are mentally programmed to handle certain levels of money (as I was alluding to earlier). For instance, a person who’s used to managing hundreds of dollars wouldn’t be able to handle thousands. Statistics even show that your average working citizen has less than $1,000 in the bank. Statistics also show that the median income of Americans is around $50,000 (before taxes). With a personal savings rate of disposable income being 3.5% (source: Personal Savings Rate | FRED), that only gives the average American a yearly savings of a thousand or so dollars. The increasing cost of living would definitely be a major factor in the reason why the personal savings rate is low. By the way, this is why Americans should really learn to invest their money, because investing would help one to hedge against inflation.
However, only 50% of this can be attributed the lack of financial literacy. After all, we do have athletes who earn millions of dollars yearly who live paycheck to paycheck. While educating citizens on money would help, it won’t be enough to overcome the causes of wealth inequality. Yes, people would become financially responsible and make better choices but the 0.001% would find a way to keep a yoke on the middle class.
Conclusion: The way that I see it, we have to do two things. 1) Distribute the wealth fairly and 2) Educate the populace on money.
Distributing the wealth fairly simply means making sure that the rich pay their fair share of taxes while also decreasing the tax burden on the poor and middle class. I spoke earlier about people spending their money on frivolous items but you have to also understand that the economy functions best when people spend. So yes, we need people to spend. When you understand that, you should come to the obvious conclusion that if the wealth gap were to shrink, putting more money into the hands of the middle class, the economy would do a hell of a lot better because people would have more to spend! When people have more to spend, that creates demand and demand creates a need for more entrepreneurs who are willing to create!