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It's the Wealth Gap, Stupid

ProudProgressive 2012/02/13 13:55:39

It's the Wealth Gap, Stupid
Why the truly alarming economic trend is not income inequality.
—By Reid Cramer
Mon Feb. 13, 2012

When Mitt Romney bowed to political pressure and released his 2010 tax return, it showed, to no one's great surprise, that the Romneys are rich. Really, really rich. They reported income of more than $21 million, itemized deductions of over $4.5 million, and a total tax bill of just over $3 million. They made charitable contributions of almost $3 million, although more than half of that went to their church.

But what really stood out in the tax return—beyond the presidential candidate's 13.9 percent tax rate—is not that Mitt makes a lot of money, it's that he has a lot of money. Romney's finances are illustrative of the growing gulf between haves and have-nots. It's not about income equality; it's about the widening wealth gap.

In recent years, the fortunes of the Romneys and others in their cohort have continued to grow, notably diverging from the majority of Americans still struggling to deal with a slow economic recovery. The Occupy Wall Street protestors stole the media spotlight this past fall by creatively highlighting these discrepancies. President Obama has taken notice and, as reflected in his State of the Union address, is teeing up inequality as a major a campaign theme for the fall. But it is not enough to highlight the gap between incomes of the top 1 percent and the bottom 99. What’s more alarming—and consequential over the long haul—is the growing concentration of wealth.

Recent estimates indicate that the while the top 1 percent earn 21 percent of the nation's income, they possess 36 percent of total wealth. This is especially troubling because while income dictates how well you’re doing today, it is access to wealth (the stock of resources) that creates opportunities down the line. Wealth is the bundle of assets, investments, and savings that can be tapped at will and strategically deployed. Or it can be used to generate passive income, as it does for the likes of Warren Buffett and Mitt Romney. There certainly is an issue of fairness to consider. As long as we tax capital gains and dividends well below the tax rate on earnings gained through work, the rich will have much lower marginal tax rates than the rest of us.

Minority families now own a nickel for every dollar of their white counterparts.There's an additional problem. When wealth is concentrated at the top, there are fewer resources available for everybody else to deploy. And in the aftermath of the Great Recession, we should recognize that the dynamics of inequality have fundamentally shifted.

What's the primary cause of our current and growing wealth gap? Home values, the largest item on most families' balance sheet, remain depressed, while stock prices, the largest item on the balance sheet for those at the top, have rebounded. In short, Wall Street has recovered, Main Street has not. Consequently, in the last three years, the concentration of wealth has occurred at the expense of those in the middle. Economist Sylvia Allegretto estimates that the top 1 percent of households by wealth had net worth 225 times greater than the median household in 2009. This is the highest ratio of wealth inequality on record and an increase of 24 percent since 2007. Without drastic changes in the market or in policy, the divergence between housing values and securities prices will be the main driver of wealth inequality for the foreseeable future.

One of the most dispiriting trends is a quickly expanding racial wealth gap. Prior to the recession, the average African-American and non-white Hispanic families owned 10 percent of the wealth of the average white families. But the recession has hit hard. Not only do minority families have larger shares of their assets held as housing equity, they are also more likely to live in communities hard hit by foreclosures and housing price drops. New findings from Pew Charitable Trusts estimate that this figure has been cut in half: Minority families now own a nickel for every dollar of their white counterparts.

Low wealth holdings have been linked to poor health and educational outcomes, which undermine economic mobility as well as national economic growth. Without policy efforts to get working families out from the overhang of debt and empower them to save and invest, wealth inequality will persist and undercut opportunities for families to move up the economic ladder.

The first step in changing this trajectory is to help families rebuild their balance sheets wrecked by the recession. This will require a large-scale effort to modify loans of families with underwater mortgages. This means reducing the principle owed and not just lowering the interest rate or extending the term. Currently, consumers behind on their credit obligations may file for bankruptcy to protect some of their assets, but primary mortgages are exempted. Bankruptcy laws should be changed to allow judges to lower the principal and interest rate on outstanding mortgages.

Another way to ensure families have greater opportunities to save and build wealth is to let Richard Cordray and the new Consumer Financial Protection Bureau do their job. The mandate of this new agency is to make sure families have access to high-quality and low-cost financial products, rather than ones that rip them off. It would also be a good idea to support widespread financial education programs in high schools and in the workplace. To fund these efforts, we can raise the tax rate of capital gains to bring it more in line with income, lessening the advantages conferred on those that have already accumulated wealth.

The OWS demonstrators have performed a valuable public service. They have initiated a conversation about how the distribution of wealth, income, and power correspond to our common values. Fundamentally, radical wealth inequality is incompatible with a meritocracy and undercuts our national creed that everyone has the opportunity to succeed. In response, we should design policy interventions that minimize household debts and democratize savings and investment opportunities. This is not the politics of envy. Few are asking Romney to apologize for his success (although some may be asking where their jobs went). But if America is to be a country where success is not determined by circumstances of race, class, or birth, he should have to pay his fair share.


Read More: http://motherjones.com/politics/2012/02/its-wealth...

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Top Opinion

  • Bill ~PWCM~JLA 2012/02/13 16:46:00
    Bill ~PWCM~JLA
    +3
    How come liberals never complain about the rich and famous Hollywood celebs making tens of millions on some movie?

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  • MW121 2012/02/17 14:52:13
    MW121
    +1
    People need to get over how much someone else has and figure out how they can get there.. Opportunities are out there and it's up to each individual to go out and figure it out.. If you want more go out and figure it out.. It's what I had to do... It never ends, I'm always seeking other opportunities or looking out past 4-5 years on what's going to change and how I need to be prepared. I hear many of my friends complain all the time about how they wish they made more money, they are overworked, underpaid.. I look at them and say quit.. Go out and figure it out on your own.. Why are you worth more.. what makes you marketable? Do you network with other companies that are in your field? How can you bring more value to the company you work for? Take a risk and start your own business... None of them can really answer and none of them are willing to take a risk. for whatever reason, children, family, can't can't' can't ... I say then you will never get ahead... People seem to always want more but don't want to go the extra mile.. It hasn't been easy building my company or wealth.. there's a price to pay as well.. I am rarely at home, I'm luck if I see my wife and 6 mo old 5-7 days a month and that's a good month.. I live in airplanes and hotels and if it wasn't for FaceTi...
    People need to get over how much someone else has and figure out how they can get there.. Opportunities are out there and it's up to each individual to go out and figure it out.. If you want more go out and figure it out.. It's what I had to do... It never ends, I'm always seeking other opportunities or looking out past 4-5 years on what's going to change and how I need to be prepared. I hear many of my friends complain all the time about how they wish they made more money, they are overworked, underpaid.. I look at them and say quit.. Go out and figure it out on your own.. Why are you worth more.. what makes you marketable? Do you network with other companies that are in your field? How can you bring more value to the company you work for? Take a risk and start your own business... None of them can really answer and none of them are willing to take a risk. for whatever reason, children, family, can't can't' can't ... I say then you will never get ahead... People seem to always want more but don't want to go the extra mile.. It hasn't been easy building my company or wealth.. there's a price to pay as well.. I am rarely at home, I'm luck if I see my wife and 6 mo old 5-7 days a month and that's a good month.. I live in airplanes and hotels and if it wasn't for FaceTime on my iPhone, I'd probably never see how much my daughter has grown.. I don't take vacations unless I can tie it to business and the days are not long enough... So why do I need to keep paying more and more in taxes.. It's ridiculous... People need to make their own wealth and people create their own value.. It's just a matter of people taking the risks and many are not willing to do it..
    (more)
  • Gloria 2012/02/13 19:32:12
    Gloria
    If you are wealthy the gap makes no difference whatsoever. If you are not wealthy usually there is nothing you can do about it.
  • Bill ~PWCM~JLA 2012/02/13 16:46:00
    Bill ~PWCM~JLA
    +3
    How come liberals never complain about the rich and famous Hollywood celebs making tens of millions on some movie?
  • Ira Bill ~P... 2012/02/13 19:27:23
    Ira
    Probably they are not seeking public office and spouting off ill advised statements relative to the poor.
  • MichaelJ 2012/02/13 15:22:08 (edited)
    MichaelJ
    +2
    Income problems for many people are self generated. I know plenty of people who make more than I do and they will never be financially secure. The reality is that we as a group spend our money stupidly.

    There seems to be some requirement that you buy absolutely the biggest house you can possibly afford, then have at least one new car and sometimes two. I have never made more than 100,000 a year and for the majority of my working life under 45,000 a year. My wife and I raised four children, assisted them in getting college educations, lived in a modest home and never bought a new car. I am going to retire in 4 years and will have a retirement savings of almost 2 million. As I said I never made the big bucks but did from even a young age save as regular as clock work. It's like Dave what's is name says, 'Live like no one else, to live like no one else'.
  • darcie ... MichaelJ 2012/02/13 17:28:52
    darcie lamar
    +1
    Very smart. I teach my kids what my mother always taught us. Pay your bills, save as much as you can and have fun with the rest. We have a big family and all my siblings have done very well on their own. As for me, life is good
  • MichaelJ darcie ... 2012/02/13 18:07:08
    MichaelJ
    +1
    Darcie, thanks for your reply!

    Another advantage of saving is that when you are faced with an emergency, you are prepared for it. Living on the edge of your income means you are two or three pay checks away from loosing everything you have worked for.
  • Ira MichaelJ 2012/02/13 19:34:33
    Ira
    Too many people do not keep their Id in check. They want. They feel they should have and they overspend. They feel tomorrow is far away. Unless someone teaches you responsible personal economics, it is very hard to stem the tide of advertisers alluring ads for products when you see others have and you don't. THis sort of mindset is prevalent in how we treat our bodies in this country. Significant obesity, diabetes, heart disease and cancer even as we live in a mega center of quality health care initiatives.

    I believe that since we are a market/capitalistic economy where we measure success in this country by GDP, we have lost sight of the human element floating along in this sea of consumerism.
  • MichaelJ Ira 2012/02/13 19:42:12
    MichaelJ
    Ira, I know it's very easy to enslave yourself to credit card company's. When my wife and I discussed money issues, we never tried to do that in secret from our children. Many times they actually participated in the discussion of say, we have this much money for vacation and these are our family's choices, what did they think.

    Those teaching moments are reflected in choices our children make in their personal lives to this day. In other words I would be very surprised to see one of our children in financial distress unless they were hit with an exceptional and expensive emergency.
  • Ira MichaelJ 2012/02/13 20:08:22
    Ira
    +1
    Love it. We acted differently and though not millionaires, have saved and taught our kids to save and are there for them when necessary. We would rather compromise our financial situation rather than allow themselves to get into grueling and untenable debt. Our daughter, a classic example, was provided the freedom to pursue a career in acting. Not a very sane course for her (or us) but, as far as we were concerned, our philosophy was and still is you live once and dreams are both fascinating and difficult to stick to. Turns out she stuck to it and we provided her a University degree in Drama-BFA at a noted conservatory. Add to this no specific requirement to study a back up education in case she either quite it out of frustration or failed at it.

    Life is a gamble in and of itself. She is well on her way to some degree of self sustaining success at it, for now both directly from acting revenues and side revenues working in the service industry at top hotels as a server of 16 dollar martinis with guaranteed tips of 20%. We continue to cover her edu. loan until she is able to assume it. We would have those millions if we didn't carry her for the moment. She is 25.

    Love for family. What can you do? Our 33 y/o boy is self sufficient and self directing. The thing with ...



    Love it. We acted differently and though not millionaires, have saved and taught our kids to save and are there for them when necessary. We would rather compromise our financial situation rather than allow themselves to get into grueling and untenable debt. Our daughter, a classic example, was provided the freedom to pursue a career in acting. Not a very sane course for her (or us) but, as far as we were concerned, our philosophy was and still is you live once and dreams are both fascinating and difficult to stick to. Turns out she stuck to it and we provided her a University degree in Drama-BFA at a noted conservatory. Add to this no specific requirement to study a back up education in case she either quite it out of frustration or failed at it.

    Life is a gamble in and of itself. She is well on her way to some degree of self sustaining success at it, for now both directly from acting revenues and side revenues working in the service industry at top hotels as a server of 16 dollar martinis with guaranteed tips of 20%. We continue to cover her edu. loan until she is able to assume it. We would have those millions if we didn't carry her for the moment. She is 25.

    Love for family. What can you do? Our 33 y/o boy is self sufficient and self directing. The thing with us is money is not the core value we instill in our kids or ourselves for that matter. Obviously it is important but, life is so much more than about money and its pursuit. Had I been a bit more confident as a young man I would have easily attained the status of MD or Attorney or Professor, but alas, I did not. I only came to realize this after I became too lazy and complacent to further myself.

    We have a relatively and comparatively happy life.

    Good luck to you.
    (more)
  • MichaelJ Ira 2012/02/13 20:15:37
    MichaelJ
    +1
    Right back at you Ira! Sounds like a sucessful family which I agree is measurment of happiness not money.

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