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Michael Patterson is a private investor who enjoys analyzing individual investments, the market, and the economy. He has published articles in academic and popular publications and his subjects have ranged from management, to investment, to arctic trekking and mountain climbing. He is a... More
  • Do Americans Really Want A Redistribution Of Wealth? 0 comments
    Feb 8, 2013 1:33 PM

    Do Americans Really Want a Redistribution of Wealth?

    Michael Patterson July 8, 2012

    A lot of politicians like to beat the drum concerning wealth inequities and the growing divide between the rich and the poor in our country. President Obama has said that income equality is the defining issue of our time. The President is also quoted as saying, "I think when you spread the wealth around, it's good for everybody." John Edwards once complained that "One America does the work while another America reaps the reward." The Occupy Wall Street protests also were concerned with wealth inequity, although they had plenty of other gripes. Even Karl Marx had a lot to say on the subject, including his famous suggestion in 1874, "From each according to his ability, to each according to his needs."

    There is no doubt that the rich-poor gap is growing in this country. In 1980 the average CEO pay averaged 42 times the average blue collar worker's. By 2010, CEO pay had increased to 343 times that of the median worker pay. The list of what some would describe as excessive CEO and executive pay is steadily growing. To mention a few, last year the CEO of Simon Property Group received $137 million, the CBS CEO received $68 million, and Liberty Mutual paid its CEO $200 million over four years. To make things worse, these salary extremes occur at a time when America is still struggling with high unemployment, mortgage foreclosures, and a host of other challenges.

    As expected, there does appear to be some support for wealth redistribution. An April 2011 Gallup Economics and Finance poll found that 47% of the Americans surveyed believed that wealth should be redistributed by heavy taxes on the rich while 49% were opposed. The poll also found that 57% of Americans believe wealth should be more evenly distributed among a larger population while only 35% believe the current distribution is fair. It should be noted that currently, the top 10% of Americans pay 70% of the federal incomes taxes, while the bottom 50% pay virtually nothing.

    Gallup also found a curious, seemingly contradictory response when asked about the number of rich people in this country. Forty-two percent responded there are about the right number of rich people, 21% said there are too few, while 31% said there are too many rich people.

    Although they may be swayed by political rhetoric, most Americans recognize that, in spite of its many shortcomings, our country has been successful because of our extremely resilient, capitalistic, free enterprise system. In America we are all created equal. That means everyone should be treated equally. It doesn't mean we should all receive the same financial rewards. Most Americans don't object to individuals with the intelligence, judgment, initiative, and energy doing well and rising to the top of the economic ladder. We have a long list of successful entrepreneurs, ranging from John D. Rockefeller to Henry Ford and in more recent times, Bill Gates, and Steve Jobs. These men became very rich but they also created a huge number of jobs and greatly enriched our country and our lives. Most Americans understand this fact.

    Nevertheless, it clearly rankles a lot of people when they see what appear to be corporate abuses involving executive pay. It is perturbing to see examples of inappropriate corporate largess whereby highly paid corporate boards over-compensate their CEOs (who often invited the members to join the board in the first place). But most people realize that, maddening that it may be, excessive corporate pay doesn't really affect them personally. A corporate board's ill- considered decision to grant $200 million in compensation to an employee doesn't affect the individual citizen. The excessive pay generally won't raise people's taxes or increase their costs.

    Americans can be annoyed about the bad behavior of corporations and they can complain about what they see as tax inequities. There is a lot of clamoring for a surcharge or additional tax on the "rich" - - people making over $250,000 a year or perhaps those making over $1,000,000 a year. However, such a tax would not be a redistribution of wealth. To fit that definition, it would have to involve a far greater taking from the rich and giving to the poor. And there is little pressure for a wholesale redistribution of this magnitude.

    Why? Americans support our economic system, even though that system sometimes allows for abuses. Class hatred or envy, as found in other countries where most of the population is locked out of the upper economic echelons, is something that is foreign to Americans. The majority of Americans still believe in the "created equal" statement and most still believe that the top level is open to them, no matter how distant it may seem. A large scale redistribution would close this door.

    7/8/2012

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