THE RICH GET RICHER
We all know about Warren Buffett’s remarkable acumen for investing wisely. That’s why he is the third richest man in the world. Famously called the “Oracle of Omaha,” the principal stockholder of Berkshire-Hathaway continues to make investments that produce hundreds of millions of dollars for his stockholders.
I use Warren Buffett as my case study for the increasing inequality of earned income for the working-class, not only in America but in most developed countries. Surveys by major financial institutions seem to agree that a disproportionate amount of wealth is held by one percent of the population.
Before I discuss that issue, here is the history of Buffet’s climb to the lofty heights of wealth. He started building his financial empire as a kid selling chewing gum and magazine subscriptions door-to-door. At the age of 11 he invested his profits in three shares of stock. The rest is history.
This is an example of a clever, hard-working entrepreneur who is able to become very rich. There are over 60 more billionaires like Warren Buffett worldwide, including foreign countries where taxes do not confiscate so much of the earnings and political corruption can shield the wealth of prominent entrepreneurs.
In most of the developed countries, the rich get richer and the poor are failing to meet a decent standard of living. The continuing increase in standard of living has exceeded the growth of wages for at least a decade. This caused a devastating decline of the working middle class.
Many economists blame tax havens for increasing wealth inequality. The financial value of the world’s super-elite is up 44% since 2010 with the result that 62 people (53 of the men) own the same wealth as half the planet, reported U-T News Service. That compares with 388 people just five years ago.
A study by Oxfam discussed at the recent Davos World Economic Forum reported that a global network of tax havens contributed to the divide by allowing the rich to hide trillions of dollars from their governments. Almost half the superrich individuals are from the United States, 17 from Europe and the rest from countries including China, Brazil, Mexico, will Japan and Saudi Arabia.
Another reason for the widening gap between the superrich and the working-class was promoted by author Robert Gordon in his recent book “The Rise and Fall of American Growth.” The Northwestern University economist predicts that growth in America that soared in the early 20th century won’t be soaring again anytime soon.
Why is that? Gordon cites decrease in the rate of productivity, an aging population, rising health care costs and soaring education cost. America has already harvested the fruits of the IT revolution that helped to create wealth inequality. A by-product of these pressures are festering social ills. That’s a favorite message being delivered by several of the presidential candidates in the 2016 campaign.
An editorial in The San Diego Union-Tribune supports the public view that people back Donald Trump’s vicious campaigning style on such a theory. Americans see an economy and a tax system that help only the rich get richer. They see decades of middle-class stagnation that Washington leaders are willing to accept.
Other economists and financial journalists are concerned that the income tax system is broken and needs a complete overhaul. In previous years, every effort to clear some of the inequities of the tax laws has only resulted in making it more complicated. With unlimited funds at their disposal, the rich can hire clever consultants to minimize and in many cases eliminate taxes on their wealth.
This is particularly applicable to how the U.S. corporations are finding profitable shelters for corporate income tax by acquisition of foreign domains to create more wealth. The current income tax code is so convoluted that these corporate inversions are costing the US economy billions of tax dollars. This is truly a lose-lose situation for not only government tax revenues but taking away work from the diminishing American middle-class. The only logical solution is a complete rewrite of the income tax code.
As the income inequality and tax dodges develop, our government leaders fail to find solutions. That’s one reason Trump and Sanders are getting attention and possibly the nomination. Americans are fed-up with Congressional gridlock and decline of earnings to meet the rising cost of living. According to the Social Security Administration, there was no cost of living increase in 2015. The pension allocation stays the same as 2015 and 2014. However, it had no qualms about increasing Medicare deductions by 20%.
If Donald Trump or Bernie Sanders catch the nomination for president, there will be considerable shakeup in the federal government. If Hillary Clinton is nominated and elected, we can expect the same-old, same-old establishment administration dominated by the wealthy and the elected Congressman under pressure of Wall Street and other powerful industries. Already the halls of the Capitol Building are crawling with thousands of lobbyists doing the inside work of their clients who provide campaign support.
It will be interesting to follow the 2016 presidential campaign as the primaries unfold. Unfortunately the top rated candidates, other than possibly Bernie Sanders, will not reduce the inequality of wealth. Professional politicians are not listening to public anger over politics-as- usual government.