I started thinking about the income and buying power per dollar matter in the post I wrote a little while ago and something about the statistics being reported troubled me. I began noodling around and here’s what I came up with.
Take Nebraska, for instance, one of the states single out in the article I used as the jumping-off point for the post. If my back-of-the-envelope calculations are correct, one-sixth of all of the income in the state goes to just a single individual: Warren Buffett. That translates into per capita income in Nebraska about $7,000 lower than the figure in the article. Per capita income in California (the state to which Nebraska is compared) isn’t nearly as dependent on the income of the richest individual in California (Mark Zuckerberg) because California has a much larger population, Mark Zuckerberg’s annual income isn’t as high, and, frankly, contrary to the information in the Tax Foundation post, personal incomes are higher in California than in Nebraska.
My point isn’t that the Tax Foundation is deliberately misrepresenting the data, that Nebraska is a hellhole, or that California is the Earthly Paradise. I don’t think any of those things are true. My point is that when income is distributed the way it is with a very small number of individuals receiving extremely large incomes it has a distorting effect on certain aggregate statistics, e.g. per capita income, average income, and they’re useless in determining policy.
I think that distortion and the incomes are worth considering. My emphasis in remediation isn’t on the tax code. For most proposing solutions the effectiveness of the tax code as a tool for curbing huge incomes is an article of faith but I see little evidence of that effectiveness.
I think that most people who are enormously wealthy are experts at gaming the system. They exploit some aspect of the law and become hugely wealthy as a consequence. Reducing the opportunities for such exploits is a gigantic game of Whac-A-Mole but life itself is a gigantic game of Whac-A-Mole.
I suppose “enormously wealthy” depends on your definition. But statistics would indicate that a net worth of $50mm qualifies. (And if you are thinking billionaires there are so few that it seems pointless to develop broad based policy around them)
I would suggest that very few of those who have $50mm and up (very, very, very few in the $15mm and up crew) have gamed the system. Rather they are very good at something in high commercial demand. That might be the entertainers in film, sports, music etc. The specialists in professions. Business owners of all stripes, and so it goes.
But those who “game” the system are few. Warren Buffet is a very good investor, but then games the system by using government connections to create monopoly. “Big Ag” uses government to subsidize and manipulate sugar, corn etc. And the Hillary Clinton’s of the world use political access to get, ahem, extremely robust value for making speeches. And the Kennedys………well.
But these are few by raw number. To be sure, this behavior is reprehensible and should be controlled through law, regulatory minimization or the ballot box (good luck with that.). In perspective, if it’s the extremely large numbers of Average Joes we really want to construct helpful policy for we won’t focus on torch and pitchfork kill/tax the rich vendettas or yet more government schemes that can in fact be gamed or ever more burdensome private sector taxes to support the public sector workers and the transfer payment crowd. That stuff makes for winning politics, but poor policy.
In this election cycle a multitude of graphs, statistics etc will be produced to make the case for the current lot of the Average Joe and who,is to blame and of course, yet more policies to “fix” things. Call me crazy, but most data I see show the beginning of trouble in the late 60s early 70s time frame. Not a coincidence in my opinion.
There are 536 billionaires in the U. S. I’m not sure what “broad based policy” means. Bill Gates relies heavily on expansive copyright protections, unenforced immigration laws, and a general reluctance to enforce our laws when they apply to the wealthy. If the laws had actually been applied, Microsoft would have been broken up and much of Gates’s wealth confiscated as the proceeds of illegal conduct. We already have the policies. We just don’t follow them when they apply to the ultra-rich.
Based on his testimony before Congress Mark Zuckerberg seems very concerned about importing STEM workers presumably so he can keep his labor costs down. I think we should look skeptically at his claims.
It doesn’t take a lot of the ultra-rich abusing the system to create a lot of malinvestment.