WAP! (for Greg)

May 12th, 2011

One thing we learn from the success of  microlenders such as Grameen Bank is that it may not be a mere tautology to say that a root cause of poverty is lack of money.  Matthew Yglesias has had some fun with this idea.  But take it one step further.  In a society like ours, where 1% of the population owns something like 33% of the assets (look it up yourself), it might even make sense to say that a root cause of poverty is rich people.  After all, there is only a finite amount of wealth.  If most of the sand is piled at one end of the beach, then the people at the other end will have muddy feet.

I would like to attack poverty at its cause by enlisting rich people in ending it. (I am going to assume that if you are reading this you already think that gross income inequality is a Bad Thing and you don’t need to be convinced of the immorality and exorbitant social cost of it.)  To this end, I would like to propose what I call the Wealth Against Poverty Tax, or WAP!  Let me explain.

I am not among those who think that our government has succumbed entirely to oligarchy, but it is fairly undeniable that federal policy is determined to an extremely high degree by the interests of big money.  Rich people are not normally terribly interested in the poor.  Oh, street crime is a concern to them, and so are the aesthetic issues involved when ill-nourished raggedy people congregate in public places the rich would otherwise like to frequent.  The result is that institutions of social control such as police and prisons are just barely adequately funded to direct their efforts at keeping the poor safely in their corner.  On the other hand, there isn’t a particular constituency of rich people pushing for more funding for community mental health agencies, homeless shelters, food and nutrition programs, public assistance with health care costs, financial support for indigent families, free clinics, literacy education, refugee resettlement services, job training and vocational rehabilitation programs, etc. etc.  There’s no direct link between such things and rich people’s interests, as they conceive them.

One of the primary ways we do social engineering in this country is via the tax code.  We encourage home ownership via the homeowner mortgage deduction.  We encourage charitable giving via charitable deductions.  We encourage certain industries (oil exploration, for example) with tax breaks.  Why not use the tax code to create a link between the self-interest of rich people and the diminishment of poverty?

It would work like this.  WAP! is a surtax on high incomes, linked to the national poverty rate.  We would set a target base poverty rate.  It could be zero, that being the amount of poverty any civilized society with adequate means should be prepared to tolerate within its borders, or it could be set at some level above zero, representing the amount of poverty we consider attributable to causes other than unequal distribution of income.  We would then levy a surtax upon incomes over, say $250,000/year, proportional to the amount the actual poverty rate exceeds the target rate.  For example, if the poverty rate is 5% over the target rate then WAP! could be an additional 5% above the otherwise applicable marginal rate.  I haven’t done the math to derive these numbers; they’re just placeholders.  But you get the idea.

Pretty soon rich people will be devising all sorts of programs and ideas directed at lowering the poverty rate.  The efflorescence of federal anti-poverty initiatives will dwarf that of the Great Society.  X federal dollars invested in poverty reduction will buy Y dollars in tax savings to the rich.  It’s a simple matter of cost effectiveness to them, as a class.  Harness the creativity, energy and above all power of the upper classes in reducing poverty, and I’ll bet pretty soon poverty will be a thing of the past in this country.

You might object that the enactment of WAP! would merely focus the attention of the rich on ways of gaming the statistics, that is, lowering the poverty rate by messing with the way it is measured, rather than on measures to genuinely reduce poverty.  But I think that even so, it would move poverty to the center of the national debate, where it belongs.  We don’t talk about it much, as things stand.  An ongoing tussle over the meaning of poverty in America would be a salutary thing.  You might also object that rich people act as individuals, not as a class, so how do I expect WAP! to influence their behavior?  If you really believe that the American rich do not collectively pursue their class interests, however, perhaps you are living on a planet without a Republican Party.  Can I go there?

This entry was posted on Thursday, May 12th, 2011 at 1:10 am and is filed under Poverty. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Responses to “WAP! (for Greg)”

  1. Upton O. Goode Says:

    Respectfully disagree with a part of your premise. You suggest that a nation’s collective wealth is something like an eight-slice pizza. If Mr. “Rich” takes five slices, then he condemns Mr. “Poor” to having only three. In effect, theft. But a nation’s collective wealth is a fluid thing, and depends just as much on on how its government allows the economy (or, pizza) to grow in size. Take North and South Korea, which are good examples because they remove most other variables. The North makes a five-year plan and says, in theory, “This is how big our economy will be and everybody in it will get an equal slice.” The South encourages foreign investment, it subsidizes new products and fosters entrepreneurial start-ups. It builds things that other people will pay money for. It’s pizza, so to speak, grows quite literally sixteen times larger than the North’s. So while this pizza is distributed unequally, everyone will have at least enough pizza and the net will be far greater for everyone on average. The fact that people defect North to South, and not the other way around, strongly suggests this is the scheme most people will choose. If a government comes up with a better scheme to grow and distribute wealth, its like John Lennon said, “We’d all like to see the plan.”

    Turning to your suggestion, I have never fully understood why governments tax income? Is income something we want to discourage? Why would we punish income? Income is our friend. (Or, at least tax it at a flat rate and cut out the poor from all taxes). Why, instead, do we not tax consumption and eliminate all tax on essentials like bread, milk and eggs? Then, tax the daylights out of things like cars, gas, cigarettes and jet skis. And while we are at it, how about a “stupid” tax? Dumb rich guy wants to buy a yacht to compensate for his withering youth, great, no problem, I have no problem employing people as yacht builders, its just now the sale of the yacht would be quadruple taxed – thus, a “stupid tax.” And, estates get taxed at nearly 100% to avoid dynastic empires, and you are all set. Thanks for listening.

  2. Seth Steinzor Says:

    The only problem with the theory that a rising tide lifts all the boats, as JFK put it, is that the theory is wrong. From 1980 to 2005, the richest 1% of tax filers claimed 80% of all income gains in the U.S. WAP! would provide an incentive to spread the buoyancy around.

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