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One of the more perplexing aspects of our culture right now is the Occupy Wall Street movement.  Questions about this movement abound, most important of which are what exactly does this movement want?  What are the action points they are demanding?  Are they advocating a collectivist agenda, where the state forcibly redistributes wealth?  Are they demanding that the state employ people that cannot find work?  Are they demanding that the state punish all bankers and all real estate brokers?  Is there an agenda?  Whatever their demands, this group of demonstrators in New York and in other major cities around the world loathes what they call the ?undeserving rich.?  They disparage the Wall Street types, as overpaid and undeserving.  Bankers are also a likely target, for ?after all they are the ones who got us into this mess!?  So, it seems that the growing economic inequality (in the US and worldwide) is at the bottom of their concern and rage.  Economic inequality has, in effect, become the new political faultline in the US.  How should we think about all this?

The economist, Robert Samuelson, has written a helpful essay about economic inequality in the US and other nations.  He comments on three generalizations:

1. From 1945 to the late 1970s, the richest 10% of Americans accounted for about 33% to 35% of total income, including capital gains (mostly the stock market).  By 2007, their share was 50%.  Most of that gain went to the richest 1%, whose share rose from about 10% in 1980 to 24% in 2007.
2. Such disparity is a global phenomenon.  In a 2008 study, the Organization for Economic Cooperation and Development (OECD) found that inequality had increased for 17 out of 22 countries over two decades.  In Sweden and Denmark, the richest 10% have incomes about five times greater than those of the poorest 10%.  In the US, the ratio is 14 to 1.  The OECD average is 9 to 1.  Mexico has the highest, 27 to 1.
3. The rich of the US do not escape taxation.  In 2007, the richest 10% paid 55% of all federal taxes.  The richest 1% paid the lion?s share of that:  28.1% of federal taxes.  The average tax rate on the top 1% was 29.5%.  [Also important is that the richest 3% account for 36% of all charitable contributions in the US.]

Perhaps Samuelson?s most helpful comments focus on who the rich actually are in America.  They are not all pampered CEOs, investment bankers, pop stars or athletes.  Many own small and medium-sized companies.  Half of the wealth of the richest 1% consists of stakes in these types of firms.  That is double the holdings in stocks, bonds and mutual funds.  In short, to simply tax these folks who are supposed to create jobs does not make sense.  Samuelson asks then these probing and penetrating questions:  ?Are the rich to be punished for succeeding or merely asked to pay their ?fair share??  Who is wealthy or who is just well-off?  Is $250,000 a reasonable cutoff for couples, as Obama once indicated, or has that been repudiated?  If taxes do rise, what approach would best preserve incentives for hard work, investment and risk-taking?  Are Obama?s assaults on wealthy business leaders just desserts or political cheap shots??

As with most things in life, superficial generalizations, which are characteristic of the current debate about the wealthy, do not really make much sense.  Nor are such generalizations really that helpful in producing meaningful solutions to major issues, such as the issue of economic inequality.  This new political faultline of economic inequality will be a major talking point of the 2012 presidential campaign.  As Samuelson has shown, to simply advocate ?taxing the rich? as a solution to the nation?s economic problems, especially the reality of economic inequality, solves nothing.  Our nation?s leaders must debate and discuss an overhaul of our cumbersome and incredibly inefficient and ineffective tax code.  That debate then would include meaningful and constructive discussions about tax rates, equity and preserving incentives for genuine risk-taking and hard work.  What is occurring now in the Occupy Wall Street movement is neither constructive nor beneficial.  It is rhetoric and does not advance the cause of meaningful debate on a very important issue.

See Samuelson?s essay in the Washington Post (10 October 2011).PRINT PDF