Skip to content

Socialism = Take from the Rich, Give to the Poor

June 24, 2014

Socialism = = Take from the Rich, Give to the Poor? June 23, 2014

 

The debate about income and wealth inequality comes in and out of focus generation after generation. At this moment, I will try a new looking glass to understand rich and poor concepts of socialism.

As much documented, 1% of people hold and control 35% of wealth, the next 19% hold 53% of wealth. Give me some socialism, please! Go after that pot of wealth and hand it out to the poor folks. The Pope, President Obama, Fareed Zakaria, the French economist and author Thomas Piketty and some think tanks have suggestions on how to do that.

So we have the 1% of people holding thousands of big pots of money measured in Billions of dollars and the poor people who number in the millions have inadequate money to cover basic needs. Maybe some tax (socialism) could move that money around, get poor people spending it, and raise all boats? A quick fix to wealth inequality, –the masses vote for programs to use tax dollars and provide housing, food, and a spring time shot of cash if you work for low pay and/or low hours and file a tax return (since 1997, earned income tax credit) ? In the US we already have those programs and wealth inequality keeps growing.

 

The founding fathers of our country stressed “no work—no food”. These founding fathers would feel that today’s programs are not fair, rich people earned their money, some choose to give it away, but that should be their choice. Which view is right? Let me become the judge and jury.

Fair Taxation

“In this world, nothing can be said to be certain, except death and taxes”.

Ben Franklin—( lived before the Earned Income Tax Credit)

Not long ago, kings collected tribute from the peasants or the peasants worked the land for the king’s benefit. You might even call that “tax the poor and give to the rich”. The founding fathers rebelled against English taxes and thus the no work -no food motto applied to the colonies which included some people who came over as royals. It can be argued that in 1776 there was no income inequality, only a middle class, everyone began on the same starting line (Indians and slaves did not count).

Many fortunes grew during the industrial revolution and from high farm productivity with cheap labor, slaves. Some fortunes were built by a few hard working smart people who built the nation with factories that relied on cheap labor for production of goods affordable by many people. This model of owning the business and paying the workers the minimum wages was not so different from the king and peasant model. Dread taxes were kept to a minimum and government was small.

Everything began to change 100 years ago when federal income tax was put into law. The evolution of the tax code was described by Andrew Beattie and tax changes match the rise of income inequality and swings in who pays taxes.

“So the 16th Amendment was introduced in 1913 to pave the way to an income tax by removing the proportional to population clause, thus saving the poor souls at the IRS from the unemployment line. It was quickly followed by an income tax on people with an annual income of over $3,000. This tax touched less than 1% of Americans.” ^

^  A Concise History of Changes in U.S. Tax Law, By Andrew Beattie, April 2, 2010

“By 1940, the need for the U.S. to prepare for war and support its allies led to even more aggressive taxation. People with incomes of $500 faced a 23% tax and the rates climbed up to 94%. By 1945, 43 million Americans paid tax and the yearly receipts were in excess of $45 billion, up from $9 billion in 1941.”^

 

“Despite this, the IRS announced that in 1985 more than 400,000 Americans had reached the millionaire rank thanks to the high-level tax cuts under Reaganomics. In 1986 another tax reform act lowered the top rate from 50 to 28% and cut corporate tax from 50 to 35%.” ^

If these 400,000 people had an average annual income of $100,000, the cut in tax rate from 50% to 28% would equal $40B x .22 or $8.8B/year less tax- more in the millionaire pockets.

With all the gaming of tax rates, loopholes, and expanded federal spending, the budget was balanced just 14 years ago when Bill Clinton left office. Historically, when wars caused a shortfall in revenue, short term taxes were increased to pay the bills, pay off the war debt.

The reverse was true when the Bush administration cut the highest tax rates and began incurring costs for the wars in Iraq and Afghanistan. Social programs still got their cash since they were formula payouts from an invisible hand. A bad economy and more poor people equaled more socialism. The world banking system had evolved to support foreign debt as the funding approach. Spending that is written into dozens of laws created a cost side that operates outside of the revenue side. The idea of taxing only the rich shifted to creating tax loopholes and getting historically low amounts of tax from the rich.

The masses of workers in our democracy can only vote for the priorities for government spending via their elected representatives. In principal, the masses could vote for more income equality (higher minimum wage) and enact laws to tax the very rich at 50%, 70%, even 94% and expand social programs –give to the poor.

If you are rich you better spend some discretionary income to keep the elections going your way and not let some clever leader unite the peasants and take your stuff. So use your money wisely: fund the election of your guys, fund a large military to prevent foreign or internal invasion, and keep the poor people dumb, fed, housed, and maybe even on drugs.

 

Federal Spending

The US Federal budget is a massive collection of check writing, bank wire transfers, tax collections, tax loopholes, and borrowing to send out more money than is coming in. What are we the people buying and what are we getting for our money?

Some past number 2006:

  1. Health care   $511B
  2. Social Security $544B
  3. Defense and Military $400B
  4. Food and Housing for the Poor $103B
  5. Foreign Aide?
  6. Homeland Security $150B
  7. Agricultural Subsidies?
  8. Education

The 2012 numbers are available but the relative numbers are only changing due to ending two wars.

  1. Health Care

“It is better to be rich and healthy than poor and sick.” Dad original was “handsome … ugly”

Everyone wants health care. The older you get the more you will need. Those getting the service and those getting the checks are all voting “yes” to this spending.

Q1. Is the amount of spending right? Q2. Who should be paying? Q3. Should poor people get poor healthcare? Q4. Should rich people and high-end, state-of-the art medical facilities operate in an exclusive market for those who have the money to pay for preferred access? Q5. How should the VA budget fit into the market?

Amount of Spending

This is not a line item for the voter or an elected official to approve. The dollars flow somewhat without limit under “guidelines” in the past laws covering Medicare, Medicaid, Child Care and the new Affordable Health Care Act. With zero federal funding, no wealth would equal no health care for many.

 

The health care market would be much smaller and fewer practitioners would serve only the people who could pay. Costs would be capped by individual household budgets and I believe all services would cost less. The poor would get sick and die or find some volunteer clinic to treat them at minimal cost—virtually no “drain on the society”. This approach would run the socialists out of town!

Affordable Health Care attempts to use the name to magically cap the cost while expanding guidelines and including every living being in its coverage. If the government placed some legislated real cost cap, like the per-student funding of public education, for example $2000 per year for every living person, would the providers sign up all takers? My bet is “yes”. The poor people with the worst health would be treated maybe with a secret maximum provider expense of $5000 per year via controlled and limited services. Somehow, everyone would have to “stay happy” and live or DIE by the budget.

Well not really everyone—if you have the money you can order whatever service you want at the hospital (designer drugs, new breasts, or sex therapy from a prostitute) and maybe you can even bid on a heart or kidney to help balance the cash flow against the pittance that the healthcare provider is accepting under the $2000 per head fee. Dying billionaires may get all of the hearts for transplants, but their high bids add cash flow to hospitals and thus would “promote the general welfare” of the society.

In conclusion, neither the voters nor their elected officials have set any limits on health care spending. There is no special tax on the rich to pay for the bill. Instead the cost is to be paid by “robbing from the well to give to the sick.” The cost control idea is to dig into every medical situation and set payments without setting any limits on how many items can be put on one patient’s bill- i. e. there is NO annual $ per patient federal cap. Clear winners are those who cash the checks and each year bring in 10 to 15% more cash flow. Is socialism to be measured on the services provided to everyman with assumed value or on the income recipients cashing the checks? It is hard to find the rich who can pay their way wanting to put any extra money in the pot.

 

2. Social Security — an aside

“Is that like having guaranteed friends?” Facebook Founder

 

Everyone wants to have enough money to live when they retire. The most wealthy people with large bank account and growing stock accounts are sure to live well, not so for the poor.

These social security funds are really outside of the federal budget, but money is still taken from your paycheck to fund the cash flow. The Social Security Administration direct deposits money to checking accounts for the elderly to be able to pay their bills. The money has been collected during the working years from these people and supposedly is not part of socialism’s tax-and-spend approach. The structure is insurance (somewhat a socialist concept) with shared risk; it is not an annuity or an individual retirement account where each person gets their money back.

 

Flaws happen. Cheaters may collect beyond their fair share. The poor people, smokers, the obese may die young and in effect transfer money to the healthy rich and the middle class who live longer. A shortfall of funds due to a longer life of baby boomers may force those paycheck withholdings (not a tax) up for the young working people to pay for the retired people. Poor people who “beat the system” and live longer than the average poor (with affordable health) may qualify for federal budget funds from Health and Human Resources to pay their food and housing bills. If Social Security fails you socialism will save you.

 

3. Defense and Military

“Nothing from nothing leaves –nothing.” Billy Preston

 

If you are poor, own no land, no stock accounts, no lavish estates, you have nothing to defend. If you are part of a whole society that has no rich people, who would want to invade your country and kill you? (Maybe China in Tibet just seeking land? Or the US attacking North Korea as their propaganda says just because “we do that”? Or foreign terrorists looking to attack US targets, big assets, for Allah?)

If I am rich or very rich, I have the money and the interest to push for a high defense budget. This is a form of insurance. My assets are worth $-billions, therefore government protection funded by everyone paying taxes is like paying a flat rate insurance premium where I pay the same as the middle class. A more fair idea would be to cap defense and military spending at some relative value considering the suggested health cost cap $2000/yr/person, and have billionaires add to their present private security forces. More in the spirit of community, the very rich could pay an asset tax dedicated to fund the A+ military that they need. The present socialistic system has the middle class paying the bill for the rich.

 

4. Food and Housing for the Poor

“Now we are talking full socialism baby!” Marks

 

Me, a Middle Class Guy is feeding and housing you and your babies who are doing nothing to help yourself. The very rich can afford keeping the poor alive to work for them at minimum wage. With a defined “poverty level” setting guidelines for benefits/payments, these programs, like health care, have no cap, no voter approved budget. If lawmakers want to reduce this “rob from the rich” action, they can monkey with the guidelines to reduce food subsidies and housing vouchers. Cut the cash flow and in theory more people will line up to work at McDonalds to make $8/hour. I like that, help the rich owners of the Mickey Ds cash cows, keep making a buck off of the poor workers. Then there is HUD housing– the rich and very rich landlords get direct deposits of rent payments. Mr. Landlord will vote for that kind of socialism.

If Middle Class Guy feels victimized in giving his income to poor folks, he can buy a Mickey Ds or buy and rent out section 8 housing, or sell over priced groceries in bad neighborhoods for SNAP payments. Foreigner immigrants, not having big bucks to buy a franchise, can open the high priced convenience store and take the neighborhood crime risk to be able to slightly climb the income ladder.

There are ways for poor people to be a net winner (more income from the government than taxes) as the taxpayers pay in “funny money” for their food in a SNAP and their affordable housing plus the Earned Income Tax Credits give out spending cash. Add in some untaxed work for cash and the poor people get by. They may even have some fun money to spend maybe on lottery tickets, really a 50% tax rate on those who dream of being rich. The rich meanwhile can bet on the stock market. It stocks start falling the taxpayers will bail out the companies. Then the tax rate on stock gains is much less than on lottery tickets. Solution is to make those tax rates equal, 50% or maybe 40%.

 

5. Foreign Aide

This is a favorite item for budget cutting. It does not have a catchy name.

 

I did not find the dollar number but it is nothing like the big items. The picture can be of the benevolent US citizen helping the foreigner as we would from our personal funds after a natural disaster. Dig deeper and the money fits best under the defense department. Managing risk of world chaos that would hit the global economy is the goal. Much of the money is used to buy American made weapons and the defense contractors cash the checks. As outlined above, the very rich are getting much more value from these US interventions than the average middle class guy paying a share above his benefits.

 

6. Homeland Security

Living at the top of the wealth pyramid, you need the most security to avoid being knocked off.”

 

This is another name for Defense and Military. The idea is a lot like marketing Coke and Original Coke. People will buy more Coke if they think they are getting two different things. Who would be against “Homeland Security”? -“Affordable Healthcare”? –the “Patriot Act”? Do government agencies pay marketing /ad agencies to find these names? If some anti marketers can do de-branding, change Affordable Health Care Act to the non-word, “Obamacare”, can poor black folks with kids dying daily from gun shots find an ad agency to rename/de-brand “Homeland Security”?

 

7. Agricultural Subsidies

“If you grow it, they will eat it.” Fields of Dreams

Inversely, if you don’t -they won’t, but you can still get a farm insurance-socialists type check.

This socialism is getting old!

No one has any idea about who is approving, paying, and maintaining the present cash flow of the federal government. You can account, and account, and account and never find the cross cash flows, the net beneficiaries of the huge federal dollar spewing.

Check the Mickey D owners meetings, the NFL owner meetings, the hospital CEO conventions or go to their meetings with lobbyists. What you can track is that Adam Smith’s Invisible Hand of the “free market” is dealing more dollars to the very rich each year. Under our present socialism, the rich getting richer, and the stock market growing in value while the minimum wage and the overall economy stay stuck.

 

 

 

 

 

 

 

 

 

TABLE s1 Budget Totals

Billions of dollars
Actual
2006 2007
Receipts 2407 2540
Expended 2655 2784
   Deficit 248 244
Security 474
Non security 369
Total Discretionary 843
   net interest
Global war on terror 120.4
Hurricane response 20.7
141.1
by agency
Defense 410.7
Health & Human serv 69.1
Homeland Sec 30.7
Housing and Urban dev 34.1
non- discretionary
social security 544
Medicare 325
Medicaid 186
Other 357
1412
Budget deficit 248
Changes in debt 549
Total govt debt 8425
debt as % of GDP 37

 

 

 

Table 2: Distribution of net worth and financial wealth in the United States, 1983-2010

Total Net Worth
Top 1 percent Next 19 percent Bottom 80 percent
1983 33.8% 47.5% 18.7%
1989 37.4% 46.2% 16.5%
1992 37.2% 46.6% 16.2%
1995 38.5% 45.4% 16.1%
1998 38.1% 45.3% 16.6%
2001 33.4% 51.0% 15.6%
2004 34.3% 50.3% 15.3%
2007 34.6% 50.5% 15.0%
2010 35.4% 53.5% 11.1%
Financial (Non-Home) Wealth
Top 1 percent Next 19 percent Bottom 80 percent
1983 42.9% 48.4% 8.7%
1989 46.9% 46.5% 6.6%
1992 45.6% 46.7% 7.7%
1995 47.2% 45.9% 7.0%
1998 47.3% 43.6% 9.1%
2001 39.7% 51.5% 8.7%
2004 42.2% 50.3% 7.5%
2007 42.7% 50.3% 7.0%
2010 42.1% 53.5% 4.7%

Total assets are defined as the sum of: (1) the gross value of owner-occupied housing; (2) other real estate owned by the household; (3) cash and demand deposits; (4) time and savings deposits, certificates of deposit, and money market accounts; (5) government bonds, corporate bonds, foreign bonds, and other financial securities; (6) the cash surrender value of life insurance plans; (7) the cash surrender value of pension plans, including IRAs, Keogh, and 401(k) plans; (8) corporate stock and mutual funds; (9) net equity in unincorporated businesses; and (10) equity in trust funds.

Total liabilities are the sum of: (1) mortgage debt; (2) consumer debt, including auto loans; and (3) other debt. From Wolff (2004, 2007, 2010, & 2012).

 

 

Advertisements

From → Uncategorized

Leave a Comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: