1/Alright, so let's talk about wealth redistribution.
In the past, economists and policymakers talked mostly about income redistribution. But recently, the focus has been shifting to wealth inequality.
gabriel-zucman.eu/files/SaezZucm…
In the past, economists and policymakers talked mostly about income redistribution. But recently, the focus has been shifting to wealth inequality.
gabriel-zucman.eu/files/SaezZucm…
2/Wealth is MUCH more unequally distributed than income.
You've probably all seen the infographics, charts, videos, etc.
You've probably all seen the infographics, charts, videos, etc.
3/The top 1% of Americans controls about 40 percent of the country's wealth.
money.cnn.com/2017/09/27/new…
money.cnn.com/2017/09/27/new…
4/Just three men - Jeff Bezos, Bill Gates, and Warren Buffett - own more wealth than HALF of all Americans put togther. forbes.com/sites/noahkirs…
5/Naturally, this has led economists to call for direct taxation of wealth: cnbc.com/2015/03/10/why…
On Twitter, of course, the call is often simpler: "Eat the rich!"
On Twitter, of course, the call is often simpler: "Eat the rich!"
6/Now, direct taxation of wealth is a good idea. (In fact, property and estate taxes already do this, so it's hardly unprecedented.)
BUT, we should be realistic about what wealth redistribution would be able to actually accomplish.
BUT, we should be realistic about what wealth redistribution would be able to actually accomplish.
7/Let's do some quick, rough calculations.
The U.S. has about $100 trillion of household wealth. bloomberg.com/news/articles/…
That means the top 1% of Americans has somewhere around $40 trillion.
The U.S. has about $100 trillion of household wealth. bloomberg.com/news/articles/…
That means the top 1% of Americans has somewhere around $40 trillion.
8/Suppose we were to confiscate ALL of the wealth of the top 1 percent of Americans, and distribute it evenly among the bottom 80 percent.
What would Americans in the bottom 80 percent gain out of that?
What would Americans in the bottom 80 percent gain out of that?
9/First of all, the amount confiscated wouldn't be nearly $40 trillion. Much of that wealth is in stocks, bonds, and real estate, which would go down in price if confiscated. Because confiscation would leave fewer people willing to buy those assets, their price would fall.
10/But let's ignore price impacts, and assume we could grab $40 trillion from the 1 percent. The bottom 80% = about 260 million people,
So that's about $150,000 per person.
So that's about $150,000 per person.
11/$150,000 is nothing to sneer at. For a great many Americans, having $150,000 in their bank accounts would provide them with a level of financial security they've never known.
12/To put it concretely, $150,000 is around 5 times the median personal income in America. So $150,000 would allow someone to take a 5-year vacation at the median income.
Not bad!
Not bad!
14/It's enough to buy one kid an education at a top college, but not two kids.
It's definitely not enough to retire on.
It's definitely not enough to retire on.
15/As a side note, it's worth noting that a massive wealth confiscation like that would be a one-time thing. After you do that, no one is going to amass a fortune, because they know it'll just happen again. Equality achieved, but it also kills the goose.
16/But anyway, how can it be that massive wealth confiscation - 40% of the nation's entire wealth! - would achieve such modest results?
The answer is that most of our wealth isn't "wealth". Most of it is the income we produce, and consume, from day to day and year to year.
The answer is that most of our wealth isn't "wealth". Most of it is the income we produce, and consume, from day to day and year to year.
17/"Wealth", or the value of real and financial assets, is theoretically the value of the durable productive assets that we use to move consumption from the present to the future - houses, machines, computers, cars, etc. etc.
But what we actually consume is much bigger!
But what we actually consume is much bigger!
18/Our "wealth", even measured at current market prices, is only about 5 years of income (our national yearly income is around $18.57 trillion).
Most of what we produce, we consume. The net national savings rate is only a few percent.
Most of what we produce, we consume. The net national savings rate is only a few percent.
19/This means that in order to truly redistribute the fruits of our economy, we need INCOME redistribution.
Wealth is more unequal, but income is a much bigger deal, especially over the long run.
Wealth is more unequal, but income is a much bigger deal, especially over the long run.
20/Instead of confiscating the wealth of the rich in one dramatic reorganization, the best approach is to take a piece of the rich's income and wealth every year.
Not only does that minimize price impact and tax avoidance, but it creates a sustainable income stream.
Not only does that minimize price impact and tax avoidance, but it creates a sustainable income stream.
21/In other words:
Give a man the rich, and he'll eat for a day.
Teach a man to combine progressive taxation with a highly productive economy, and he'll eat for a lifetime.
(end)
Give a man the rich, and he'll eat for a day.
Teach a man to combine progressive taxation with a highly productive economy, and he'll eat for a lifetime.
(end)
Oh, as an addendum, I should note that progressive taxation isn't the only way to redistribute income. You can also have worker-owned businesses, Social Wealth funds, etc. to "predistribute" capital income without taxes.
