Who Will Win The Billionaire Race? (AI)
Recent polls show that a majority of Americans support defining rules and regulations designed to reduce the concentration of wealth of billionaires. Since Congressional action is needed to define these rules and regulations, the upcoming midterm elections are critical. This trend shows signs of steadily growing stronger. Predictably this trend encourages those opposed to these policies to pushback. Before examining some pushback, here is some data from the Federal Reserve Economic Data (FRED), a respected and nonpartisan source of economic data.
This data makes the recent polling seem sensible and understandable.
Who Will Win The Billionaire Race? (AI)
New opposing media content has responded by claiming voters, who support these policies, are simply confused about what the real issues are. These opposing responses are largely funded by the very wealthy or by organizations they fund. Below are two specific examples. The very presence of these examples show that this trend is being taken seriously and cannot be ignored.
The upcoming midterm elections provide a real test. Will candidates provide platforms that support policies targeting the concentration of wealth, as current polling shows the majority of voters support? Or will enough voters be persuaded that this trend is incorrect, the economy is fundamentally fine, and any concern about concentration of wealth is a distraction from more important issues.
This is the race. It is a competitive race. The very wealthy have the means to produce a significant amount of media content through think tanks and political campaigns. The difficult task they face is producing credible content that will persuade voters to change their minds. Voters have experienced stagnant wages, rising healthcare costs, and unaffordable housing for decades. It will take more than words, that only tell them everything is OK, to change minds.
Big News (AI)
One example is a recent opinion published in the NY Times titled: "What Liberals Get Wrong About the Middle Class" By Stephen J. Rose and Scott Winship. This is easy to find using an internet search. This opinion, which apparently is only aimed at liberals, claims the middle-class is not actually shrinking. Their claim is that so many middle-class families have become wealthy enough that they should be considered as upper-class families now. Saying the number of middle-class families is shrinking is inaccurate. The article is trying to convince us that everything is economically fair and getting more fair. Of course this opinion was subjected to a large number of negative comments. Stephen J. Rose and Scott Winship are associated with the center-right think tank known as the American Enterprise Institute (AEI) which was founded in 1938. Support has come from sources like The Koch Brothers, Bill & Melinda Gates Foundation, and Board of Trustees member Harlan Crow (wealthy friend of Supreme Court Justice Clarence Thomas). It's fairly easy to see that the FRED data above contradicts the argument that the middle class is disappearing upward into a wealthier class of people. It's worth repeating that the upper 1% owns a third of all household wealth, the upper 10% owns two thirds, while the bottom half own only 2.5% of household wealth. Another key point is that the growth in income for the middle class since 1970 has not kept pace with the growth in income for the upper-income tier (Pew Research). Acquiring wealth is easier if income is growing because investing is easier. If income is stagnant or decreasing then investing in assets becomes much harder. Investing in assets is the best way to increase wealth. This opinion only looks at income and fails to consider the more important metric - wealth.
The tactic being used here is to cast this movement as a distraction that is preventing voters from seeing that, in reality, everything is fine with the economy. The presented opinion is trying to convince voters that it is in their best economic interests to keep the economy going in the same direction it has followed for decades now. I bring this example up because, to me, this shows the ultra wealthy consider this movement against wealth concentration to be concerning. This movement is winning at the polls. A large number of voters now believe that wealth concentration is a problem, and the ultra wealthy are wondering how voters will vote in the upcoming midterm elections. Voters realize that unless the concentration of wealth is addressed, this will lead to the emergence of a few more trillionaires, more inflation, more expensive healthcare, less affordable housing, and wages that remain stagnant as household expenses rise.
Knowing that voters have been convinced to change their minds in the past, it's safe to assume the opposition will produce significantly more opinions attempting to influence the vote. I assume the new messages will change if there is a realization that opinions like this one are ineffective. However their goal will be the same - win the race.
There is a 6 minute YouTube video of Jeff Bezos being interviewed on CNBC's SQUAWK BOX, in which he discusses wealth disparity in America. Just search YouTube for "jeff bezos squawk box" and you'll find it (Here is the YouTube link: https://youtu.be/6RH_C3ZU-hw). His argument centers on workers in America earning around $75K per year. It turns out this amount is about the average national income for full time employees (median value is less). Bezos argues that workers earning income at this level are overtaxed, that the government owes them an apology for this over taxation, and reducing or eliminating this unfair tax burden would meaningfully improve their financial lives. Bezos never mentions paying workers livable wages that increase as the cost of living increases.
Bezos points out that allowing workers to pay no taxes is not the same thing as making billionaires pay more because the latter is just pointing fingers, which is an attempt to turn billionaires into villains. He also argues that trying to turn billionaires into villains will not expose the root causes of the problem. He then claims the root cause of the problem is that the government has a 'spending' problem, not a 'revenue' problem. It appears Bezos is promoting ideas like, he's just your friendly billionaire trying to help everyone avoid paying taxes, and he's definitely not a villain. It's not at all clear that claiming billionaires should pay their fair share can reasonably be viewed as a vilification. An opinion that is often expressed by many people is that everyone should pay their fair share and having this opinion does not, in any way, mean everyone is a villain. No villains are created by proposing policies about taxation and revenue generation. Bezos even says discussions about taxation systems is a perfectly valid policy debate.
Let's examine the logic at work here by using the following example. Imagine that you are having lunch or playing a round of golf with a billionaire. You tell them that you think they should pay more than their share of the meal or the round of golf because they have considerably more money. They decline because they are not going to do that. You say, "OK, how about neither one of us pays anything because these establishments have a 'spending' problem and not a 'revenue' problem." Come to think of it, these restaurants and golf courses owe us apologies for past payments we have made. They are taking advantage of us.
Watching this video can be interpreted as casting Jeff Bezos into some sort of an "I'm freaking out" mode after reading what the polls are saying, and how it might affect him. Why else would he try to convince voters that all they need to do is to somehow stop paying taxes and leave billionaires alone? This approach fails to recognize that voters want fair incomes, fair taxes, and the ability to stay ahead of inflation. Further examination is needed to understand why this distinction matters.
I think we can all agree that taxing average income earners is different from taxing billionaires. Even if both billionaires and average income workers pay no income taxes, the billionaires will continue receiving returns on investments because of Compound Annual Growth Rates (CAGR). That is, thanks to CAGR the assets they own will continue to increase in value over time. The average worker, on the other hand, will regularly experience unexpected expenses and cost increases as inflation rises. These are life events that occur all the time to average workers. Every year the cost of healthcare increases while, at the same time, fewer medical procedures are covered by the insurance companies and the number of doctors and hospitals in-network decreases (that is, if you can even afford insurance). Similarly the costs associated with owning cars and houses increases (if you can afford them). These increases in expenses often force the average worker to draw down the amount of money they currently have. Since we live in a time of wage stagnation, average income workers often cannot maintain the wealth they once had if they experience unexpected or increased expenses. A CAGR is much less effective at increasing wealth if the amount of money invested is regularly reduced. Billionaires continue to receive increases in wealth while many average workers do not. The share of total US household income held by the middle class has fallen almost without fail in each decade since 1970 (PEW Research). The result is a gap that widens over time even when both parties are subject to the same tax rules. The economy works best if everyone pays their fair share. Providing livable wages that grow as inflation grows improves the chances that average income earners also increase their wealth.
Now consider the following loopholes billionaires can exploit. The first one is often referred to as the "buy, borrow, live" strategy. They can live on loans taken out at fixed rates and use their assets as collateral. Loans are not subjected to income taxes. Billionaires still accumulate additional wealth because they are still invested in assets that continue to increase in value because of CAGR. Capital gains taxes are only paid when assets are sold, not when they are used as collateral.
The second loophole is referred to as the "buy, borrow, die" strategy. Inheritance taxes also heavily favor extremely wealthy individuals. One of the most significant advantages is what's called the stepped-up basis rule at death. When an heir inherits an asset (like stocks or real estate) that has grown in value during the previous owner's lifetime, the rules allow the asset's basis to "step up" to its current market value. This means the heir owes no capital gains tax on any appreciation that occurred before they inherited it.
The strategy employed by both examples above (AEI opinion and Bezos interview) rely on a similar approach: convincing the average worker that their financial situation is fine, and asking billionaires to pay more will not help them. Ineffective messages like these are only going to encourage the majority of voters to feel positive about their current political stance. In past elections promoting tax reductions has been an effective message, while promoting increasing taxes has been ineffective. Therefore it's somewhat understandable that this approach is being tried again as an opening move. When the realization occurs to them that these types of messages are no longer working, other messages, like crime and fraud, will appear. However, workers are now realizing it's important to remain focused on important messages like livable wages, affordable housing, and affordable healthcare. The FRED numbers show that the top 1% holds as much wealth as the bottom 90% combined. The bottom half of the country holds 2.5%. This is the economy that exists today. The winners of the upcoming billionaires against everyone else race (i.e., the midterms) will reveal either the beginning of economic progress going in a new direction, or continuing deterioration. The data is clear that a better solution involves reducing the concentration of wealth that has accumulated into the hands of a few people, while also paying the average worker better and fairer wages. This is how to win the race.