Wealth Distribution and Taxes

by Ken Vincent, Featured Contributor

There is a lot of chatter these days about the inequitable distribution of wealth. It seems the rich are getting richer and the poor are getting poorer. If that is true and one sees that as a problem that begs a solution, then we must look at the options. It is a truism that wealth tends to create wealth just like power tends to create more power. However, some recent projections indicate that the number of millionaires will increase by 53% or more in the next 5 years. I don’ think anyone would claim that a millionaire today is “super rich” though. I have never wealth-poverty-distributionbeen clear as to where the line is that defines the super rich, but is clearly isn’t a million dollars anymore. (H. Clinton said that they were poor when they left the White House, though their net worth was several million. So, if that is poor then what is super rich?)

Thomas Piketty, a French economist in his recent book makes the point that wealth will continue to grow and become ever more concentrated if not disturbed by outside forces. Those of course can be civil unrest, world wars, or government action to name a few. His suggested solutions smack of socialism and I for one find that an undesirable way to try to solve the problem. Those attempts have never worked and are not likely to now.

Bill Gates suggests that there are three types of “super rich”. Those that hoard their money, those that are philanthropists and do good works, and those that are consumers.The hoarders do little to benefit anyone. The philanthropists (of which Bill Gates in one) can do much to alleviate suffering and help the disadvantaged. The consumers buying multiple mega mansions, huge yachts, and private jets along with $10,000 suits and dresses which at least provides some employment. I would suggest there is a fourth and more common group of mega rich and those are the ones that use their capital muscle to create businesses and new jobs.

So, if one buys into the theory that too large a gap between super rich and super poor is bad and it must be fixed then how do we go about that? Certainly war or civil unrest is undesirable, so that leaves government action. That typically condenses down to taxes. Our current tax code based on income, clearly isn’t doing the job. It has been suggested by some, including H. Clinton as I recall, that a tax on wealth be imposed. Under that theory everyone would pay a tax each year on their net worth. Another option is a national sales tax. Under that process the more you spend the more tax you pay. Of course the problem with that is it tends to penalize the poor more than the rich because the poor spend a much higher percent of their income than the super wealthy.

Robert Frank, an economist at Cornell University suggests a progressive consumption tax. Under that theory there would be a threshold under which there would be no consumption tax, perhaps $30,000 or $40,000. Above that there would be increasingly large taxes the more one spent. The definition of how much one spends would be the difference between income and savings. If you earned $250,000 in a year and you saved $25,000 then you would be taxed on $225,000. I don’t know whether anyone has run any reliable numbers on that theory, but it would certainly encourage savings. That in turn would decrease consumer spending and with a consumer based economy, I’m not sure where that leads.

Of course the reality is that there has always been a disparity between the rich and poor. In cave man days if Og had a haunch of mastodon and Yap had none then Og was rich and Yap was poor. If that diversity has existed since the beginning of mankind then are we really going to fix it?

That leaves us with two questions. First is there a problem? Second, how do we fix that problem without doing more damage than good?


Ken Vincent
Ken Vincent
KEN is a 46 year veteran hotelier and entrepreneur. Formerly owned two hotels, an advertising agency, a wholesale tour company, a POS company, a leasing company, and a hotel management company. The hotels included chain owned, franchises, and independents. They ranged in type from small luxury inns, to limited service properties, to large convention hotels and resorts. After retiring he authored a book, “So Many Hotels, So Little Time” in which he relates what life is like behind the scenes for a hotel manager. Ken operated more that 100 hotels and resorts in the US and Caribbean and formed eight companies. He is a firm believer that senior management should share their knowledge and experience with the next generation of management.

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