Sunday, March 21, 2010

Unearned Income

by Richard Crews
The latest health-care reform bill includes a tax on unearned income (personal income that you did not earn as a salary, for example, from dividends, interest, or rent income).

Some people have objected that this is a "Wall Street killer." But doesn't it serve some positive goals?

Like turning the tide, even if just a little bit, against the obscene disparity between the very rich and the rest of us that has developed over the past 20 years? CEOs now make hundreds of times what line workers make--a couple of decades ago it was "only" dozens of times. As Warren Buffet said, he is taxed at a significantly lower rate than the person who empties his waste basket (15% vs. some 30%). The broad phenomenon termed "unearned income" is at the heart of this.

Basically Wall Street managers are supposed to perform two functions: allocate capital (from many pockets to entrepreneurs, production, and services), and preserve (or guard and protect) wealth. On the one hand, in recent years they have done both badly, their activities laced with short-sightedness and greed (in the absence of realistic regulation). On the other hand, even if they did these functions well, they should not receive major portions of the distribution premiums (the value added between "field and table") for them. They do not invent, produce, or even polish anything--neither goods nor services. But since the advent of Reagonomics (with favor-the-rich trickle-down taxation policies and favor-the-secretive-greedy deregulation), they have carved off bigger and bigger slices of the American pie.

The U.S. financial apparatus--especially the systems for wealth-holding and wealth-management--needs substantial rethinking, reorganization, and redistribution of assets, goods, ideas, and services. These have gotten badly out of whack, and not just our vaunted democracy (as Churchill said, "the worst form of government except for all others") but our invaluable (for humanity's advancement) entrepreneurial industrialized capitalism are being stifled.

It seems to me that such legislation as this makes a meager but useful chip in this obscene and counter-productive edifice.