Unequal Income Distribution

Do YOU want to redistribute some of the nation's wealth? Do you feel jealous that somebody out there is making $250k a year, but you are earning a paltry $40k? I'll tell you how to fix this problem, in a simple three step plan!
Step one: Figure out what these rich bastards do.
Step two: After you've pinned down the careers of these flamboyant wealth slingers, figure out how they got there.
Step Three: Copy them.
It's that simple! After step three, that wealth will be redistributed to you! Generally, what this entails is getting educated, working hard at the job, making sacrifices, taking risks, climbing the ranks of the organization and building personal relationships.

Of course, I am being facetious about the simplicity because this is not easy to do. But I am making a point. This is precisely the reason people earn high salaries. They didn't just wake up one morning and a high-powered career was 'distributed' to them. Sure there are people who find these jobs because of their family connection or whatever, but aside from this being beside the point, it doesn't mean that they don't work hard. And say they don't work hard and they aren't worth it, then their organization is the one suffering and it's the organization's own problem where the situation will likely correct itself through competitive forces. But notice my emphasis of this three step program was on you. Not punishing the other guy who worked hard to get where he is, but elevating yourself to get to a level you are happy with.

But here is the problem in America. We've heard it is called the 'entitlement generation.' Given that over half the federal budget goes to social programs (see previous posts), it's not too hard to see what encourages that mentality. Americans just want stuff given to them without having to work for it. They want the easy road. But why should the easy road be rewarded? Who would want to become a doctor if they spent 8 years in college, 4 years in residency if they only stood to make $40k a year? The point is that people get paid for their marginal productivity. The system values their contribution to society, and values it highly.

And why should it matter to you that Joe down the street is making 3 times as much as you? Aside from pure jealousy, I can't think of anything. Americans are a jealous people. They hate when their neighbor has more toys than them. They want to be better than everybody else, but mainly through the reliance on luck. Because Joe down the street is making 3 times as much as you does not mean that he is stealing money from you. This is not a zero-sum game where one person's gain is at the other's expense.

And here is another fact. The demographics of the wealthy, middle class and poor are generally at different stages in their careers (another great point discussed by Thomas Sowell). Most of the people considered wealthy are senior level professionals in their 40s and 50s (obviously). Many people currently considered the middle class will soon ascend into this upper class designation as their career progresses. Simply cutting a cross section of the economy and dividing it up based on income is highly misleading to the true economic situation and facts surrounding it.

For myself, a difference of a few weeks brought me from being classified as legally poor to being legally 'rich.' And no, I didn't win the lotto. I graduated with another graduate degree and was hired into a full time position. Did anything substantially change? Did my bank account shoot up? Did I go out and buy an Aston Martin V12 Vantage? None of the above. The only thing changed was what tax bracket I will end up in and a mark in the IRS database as being 'rich.' But my point is that from one day I was legally poor and then a few days later was legally 'rich,' but the only thing that changed was that I reached a new stage in my life. These income/wealth distribution statistics should report life cycle information, but that wouldn't rile up the voting base as much, now would it?

I used to envy people driving nice cars and living the good life. But what did I do, whine and cry about how they should be getting paid less or taxed more? No, I worked my ass off in college sacrificing nearly all of my 20s to obtain 3 degrees. While most college students were off at frat parties or in Cancun for spring break, I was in the library studying. Am I living the good life now then? No, not quite. I will be paying off massive student loans for years, but it is the sacrifice that I am making to make it in life and to earn the things I want in life. I have invested in my future, and I should be allowed to keep the return on my investment since it was me who put in the hard work and financial investment.

Value Added Tax

Also on today's front page is that the government is mulling over yet another tax :::gasp:::. Didn't see that one coming. This time however, it is essentially a national sales tax, known in Europe as a VAT tax. Maybe all these freeloaders from today's earlier post would actually raise a ruckus about this one since they couldn't get exempted.

Kudlow writes some additional points about the "The Tax Attack on America"

What's your federal tax bracket, zero?

We live in a country of leeches. According to a new news article on the front page of CNBC today, Nearly Half of US Households Escape Fed Income Tax. As I stated in a previous post recently, it's no wonder that more people aren't up in arms over excessive taxation, because they benefit from the current status quo. If you read further in the article you will see that many are getting PAID not to pay taxes because their tax credits exceed their tax liability. Well gee whiz, that's going to motivate someone to elevate themselves above their current situation so that they can stop earning free money.

With half paying taxes and half not, essentially all the successful, hard-working people are subsiding another person. It's like having another child in your house. Or, another way of looking at it is having your neighbor sneak into your house and steal money out of your wallet so that he can pay his taxes with your money. If these people actually had to put some of their own money into the pot, they wouldn't be so carefree about wasteful government spending.

Average American mentality:
"I want some free stuff! Let's go legally rob that rich guy over there with additional taxes because he can afford it."
Uh yeah, American leech, you could afford it too if you followed a similar path that the 'rich' guy followed.

Perhaps if you went to college, majored in something useful, spent most of your time in school worried about how you were doing in the class instead of how drunk you were going to get for spring break Cancun, and then landed a career so that you could start working 70 hour work weeks, maybe you too could be rewarded for all your hard work by paying more of your hard earned money to fund wasteful government programs that reward laziness.

But unfortunately, American's don't want to be great. They just want to get by, preferably with someone else paying the bill.

Who are the Tea Partiers?

According the a Gallup poll, they represent average America.

Laffer Curve

So, I was at the bookstore browsing through the business section and came across a book by Steve Forbes, Capitalism Will Save US. Aside from it appearing to be an overall interesting book, I came across a chapter that discusses tax cuts simulating economic activity and leading to more overall tax revenues. It is an economic theory called the Laffer Curve. I have encountered this theory numerous times throughout the years in both my education and in articles, but I haven't researched it for its empirical veracity. There are many critics who say we are not on the side of the curve that increases tax revenue (such as one of the few ultra-liberal economists, Krugman), but actual studies that present data seem to be in short supply. I plan to research this a little more thoroughly for a more in-depth blog article, but a cursory search on information led to a study by the independent International Monetary Fund (IMF) that showed tax revenues increased in Russia when they cut taxes to a flat tax system.

More to come.

High Taxes

What these governments don't understand is that taxes reduce innovation. They seem to think that people will tolerate any tax rate and business will continue as usual. It doesn't.

A good example is France. France has one of the highest tax rates in the world. If people are willing to leave their homeland to keep more of the money they earn, they will do so. About 3.5 years ago, an article published in the Washington Post titled, "Old Money, New Money Flee France and Its Wealth Tax" is a good example of the flight from taxes. Or, more recently, the flight from the new taxes imposed in the UK, "Hundreds of bosses flee UK over 50% tax".

Relatively, USA looks pretty good on the list (except for New York and Illinois). But our relative position is not as important. People always get caught up with how we compare to something else. Relatively, I am rich compared to a homeless guy living on the street. At the same time, relatively, I am poor compared to Steve Jobs. Relatively is not what matters. Absolute terms does because that is what affects you.

A top federal income tax rate of 35% + social security taxes (since I will never see a return) + medicare/medicaid taxes + state income taxes + sales taxes + property taxes + car registration taxes + and on and on. At the end of the day, easily 60% of the money you make goes to the government.

You may not work for the government, but in fact, you do.

Low Savings Rate and Social Security

The government always expresses concern about the low savings rate in this country, but in reality it is their own fault. They don't encourage policies that promote saving. If I put money into a bank account (or other investment) and then 30% of it goes back to the government, why not just go buy a Hummer or a BMW 7 series like everybody else in America? Plus, is the government really setting a good example here when they have a massive budget deficit and federal debt is $14 trillion dollars? By way of example, living loaded with debt is a stamp of approval. It's the American way.

Social security. So the idea is that I pay into this system and am supposed to get money later in my life (which I won't because the system will be bankrupt, but let's pretend for the original sake of the program; also, the program is financed with taxes being paid by the young directly going to payments for the old - the 'trust account' is more like a checkbook, tallying up what is owed). Essentially this program is forcing me to save at a paltry rate of return (treasury bills). How about I opt out and handle my own affairs? By its very nature, this program impedes on my economic freedom. I don't need the government to hold my hand and force me to save. If I fail to save on my own, then I would get my just desserts. It's about personal responsibility. And anyway, people put too much emphasis on what this program will provide for them. The implication is, why save, when the government will take care of me?

Here's an idea, unlock the cap of 401ks and IRAs. For IRAs, why are we limited to $5k a year? If all young people were encouraged to save for their retirement now, then reliance on social security 40 years from now would not be as important and this government ponzi scheme wouldn't be such a crisis. Why is it a felony for Bernie Madoff, but an entitlement when the government does it?

A simple piece of advice for Americans: Live below your means, not above them.

Flat Tax Theory

I will discuss more about this later, but I think if there were a flat tax, citizens of the United States would be more concerned about the wasteful spending of this country. As the situation stands, only a small minority of Americans pays the bulk of taxes in this country (see prior posts) and therefore the voice against prodigality is muted. The way I see it, if everybody were putting in their fair share, they would care more.

Health Insurance Costs

Well, it looks like I called it. The CEO of Aetna is interviewed in the April 5, issue of BusinessWeek. The answer to the question, "Will insurance premiums go up?" Is a direct yes. He cites that some of the reasons leading to higher premiums will be an increase in taxes, but I have a hunch that is just a small part. It may be politically difficult to blame the very sick people who previously couldn't get coverage and will now be subsidized by the rest of payers.

Think about it: according to aids.org, nearly 900,000 people live in the US with HIV. Since it costs nearly $25,000 a year in health case costs for a person with this disease a simple calculation shows that these insurers will now be paying an additional $22,500,000,000 per year. And that is just one disease.

And what about those who live irresponsibly with unhealthy lifestyles: smoking, obese, excessive fast-food eaters, excessive drinking, drugs, the list goes on. Don't make the responsible people pay for other people's poor life choices.

Term Limits for Congressmen (and women!)

Should term limits be imposed on people in office? This is an interesting issue that I haven't fully decided upon, but I slightly lean towards the affirmative. I think that too many politicians continue to be voted in as a result of name recognition to the voting public. Unless these politicians really mess up and the media picks it up, the status quo remains. Perhaps voters think that because the representative (or senator) is currently in office, it's less risk to take a chance on a new guy. It's easier (and lazier) than having to research a competing politician's viewpoints.
But maybe that is what we need? We want voters to know what politicians are up to and what issues are important to them. Perhaps this would force voters to pay attention.

And if the politician is well liked, he or she can still run for another area of office. For instance, a Representative of the House can run as a Senator or Governor, etc.
Voters always pay lip-service to wanting change, but they continually vote in the same candidates. So why not upset the status quo and put some new representatives in place after the old ones have had their chance?