What’s fueling this astonishing concentration of wealth to the top 0.1 percent? It's tax policy...or in Bill Clinton’s words, it’s arithmetic.
$100 million (in $100 dollar bills) X 2 = Mitt Romney
$1 billion (in $100 dollar bills) X 72 = Bill Gates
$1 trillion X 2 (in $100 dollar bills) = the 400 wealthiest Americans on the Forbes Fortune 400 List
As of 2013 the 400 wealthiest Americans are worth just over $2 trillion, roughly equivalent to the entire GDP of Russia. That is a gain of $300 billion more than the year before.
From this blog > U.S. tax attorney Bob Lord makes an interesting prediction: If you're under 60 years of age, you're likely to witness the emergence of the world's first trillionaire - yes TRILLIONAIRE - within your lifetime. As Lord explains:
A fortune worth $1 trillion — $1,000,000,000,000 — would today be enough to buy every square foot of real estate in Manhattan. A trillionaire could take everyone on the planet out for a $100 steak dinner, if we had a restaurant that could hold 7 billion people. A $1 trillion fortune would equal the wealth of one million millionaires.
How has such concentration of wealth become possible? For Lord its a no-brainer: tax policy. Most people in paid employment face rising costs-of-living and (at best) stagnant earnings. Their effective household tax rates remain high across the majority of their working lives and beyond:
All individuals face four principal constraints on the wealth they can accumulate: living expenses, the taxes they must pay on income from labor, the taxes they must pay on income from capital, and inheritance taxes. The roles those constraints play change as people move up the wealth scale. At the bottom, living expenses and taxes on income from labor greatly impede the accumulation of wealth. But for the super rich, living expenses and taxes on income from labor have a negligible constraining effect, because these rich are pulling in income, mostly from capital, that dwarfs their living expenses.
While taxes on labor and consumption have generally increased significantly over the past 35 years, those on unearned income and personal wealth have been cut and in many countries slashed:
Taxes on income from capital and inheritance taxes, in the end, stand as the only meaningful constraints on wealth accumulation by the super rich. But these taxes have decreased over recent decades. Policy makers have, in effect, lifted the lid on wealth accumulation by those who already have significant wealth, while holding firmly in place the lid on wealth accumulation for those who don’t.
And we can safely predict, as does Bob Lord, that this situation will deteriorate significantly in the coming decade. There is no political will to reverse the tax cuts on wealth and unearned income. Worse, politicians are scrambling to engage in a disastrous tax "competition" which will benefit the super-rich while inevitably harming the interests of the 99.9 percent of people who don't fall into the millionaire/billionaire/trillionaire wealth brackets. As Bob Lord remarks in his conclusion:
The unavoidable result: Wealth at the top is growing faster than everyone else’s wealth. That’s where the arithmetic comes in to play. If the wealth of one group grows at a faster rate than the nation’s total wealth, that group’s piece of the pie will increase. That’s a mathematical certainty.
A sobering note to end 2013 on. We have our work cut out in 2014 to square up to the nonsensical politics of tax "competition".