Economists Suggest More Taxes on Rich
THE rich are getting richer - and to economist Alicia Munnell, it has become "excessive."
The research director of the Federal Reserve Bank of Boston says, "I don't want to live in a society where the top 1 percent control 37 percent of the assets. It establishes a privileged class of people who can use their wealth to influence decisions in society."
What got Ms. Munnell's steam up was the release this week of a study by two economist colleagues at the Fed in Washington, D. C. showing that wealth became sharply more concentrated in the boom years of the 1980s in the United States. In 1989, the study finds, the richest 1 percent of households owned 37 percent of net worth, up from 31 percent in 1983. All 834,000 richest households in 1989 were millionaires in terms of wealth (as versus annual income). Their total net worth was $5.62 trillion, an amoun t greater than the $4.8 trillion owned by the bottom 90 percent of households, numbering 84 million.
Historical numbers show that wealth has always been highly unequal in the US, though less so today than early in this century. This pattern is not unusual for industrial nations. Statistics, mostly for years in the 1970s, show the wealthiest 1 percent owning 19 percent of total personal wealth in France, 28 percent in Belgium, 32 percent in Britain, 28 percent in Germany, 25 percent in Denmark, 16 percent in Sweden, and 20 percent in Canada.
The 1989 number puts the concentration of wealth in the US far above this pack of nations. "I am really stunned by the increase in the wealth of the wealthy," Munnell says.
To her, such inequality is "unfair." That's because so much of great wealth has been inherited or acquired by what Munnell calls "flukishness and luck."
Of course, some wealth has been won the hard way - building a business with patience and hard work, reinvesting earnings. Goodly chunks of wealth have been acquired by technical genius, inventing and developing products. Many entertainers and sports figures have capitalized on their skills.
However, much wealth has been obtained by financial maneuvers, such as leveraged buyouts, that skim off some of the net worth of companies. Others among the wealthy just have been fortunate to be in the right business at the right time.
Together with Henry Aaron, director of economic studies at Brookings Institution, Munnell wrote a paper last year that concluded that inherited wealth accounted for 38 percent of net national worth in 1986. That estimate, they note, is "a lower limit" because it doesn't include financial transfers between generations while the parents live. Other economists have put that inheritance percentage as high as 46 percent. It would be even higher if parental contributions to the cost of a college education were
considered part of an individual's "inheritance."
Munnell holds that basically "everybody should start at the same starting line" in terms of wealth. She's not adverse to tax-free bequests in the hundreds of thousands. But she would like to see reform of the nation's estate tax system so that it does actually trim the amount of inherited wealth and thus to some degree reduces the concentration of wealth at the top.
At present, federal estate taxes are considered largely "voluntary." The well-to-do mostly avoid them by numerous legal loopholes. In 1986, the effective rate of tax on transferred wealth was about 3 percent, according to Munnell and Mr. Aaron. They reckon it costs the rich almost as much to avoid taxes as the federal government actually collected in 1986 - $6 billion. Those with wealth support some 16,000 lawyers for whom trust, probate, and estate law is their area of concentration.
With the Senate so full of millionaires, however, estate tax reform has not fared well in Congress in the past.
Bob McIntyre, head of Citizens for Tax Justice, proposes tackling the unequal distribution of wealth by trimming the income of the wealthy. Right now, the federal marginal tax rate (that rate paid on the last dollar earned) runs 32 percent for those at the top of the income scale. Mr. McIntyre would like it raised to 40 percent, generating an extra $40 billion in revenues.
He expects Arkansas governor Bill Clinton to make the new distribution of wealth numbers an issue in the coming election.