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That's Rich

Much was rightly made of Newt Gingrich’s recent avowal that he’s “not rich,” despite an annual income of several million dollars and a net worth somewhere between $6.7 and $7.5 million.  It’s certainly a stark example of how disconnected the wealthy are from the economic realities of mainstream America.
 
But the former House Speaker’s finances and his view of them illustrate other important points as well.  The first is that the spectrum of riches has become so extended in our country that it’s possible for a multimillionaire to view himself as strictly middle class.
 
Gingrich poor-mouthed himself as part of his struggle for the GOP presidential nomination against Mitt Romney, a rival he’s trying to define as a Wall Street plutocrat.  Since Romney (whose net worth is approximately $200 million) has some 30 times the wealth of Gingrich, looked at comparatively, Gingrich isn’t rich.
 
But for the purposes of public discourse and policy-making, wealth can‘t be breezily dismissed as all in the eye of the beholder—there should be an objective standard, and that standard should in a democracy be the average citizen.  By that yardstick, Gingrich is rich: he stands in approximately the same position financially vis a vis the typical American family—30 times as wealthy—as Romney does to him.
 
What’s mind-boggling, though, is that there are individuals who similarly dwarf Romney—multi-billionaires beside whom the former Massachusetts governor must feel like a pauper.  These are the hyper-rich, handfuls of whom own more assets than whole, thick percentile slices of the rest of the U.S. population. These are the folks who have benefited so magnificently from the scandalously low tax rates on passive income like capital gains and dividends—rates that have exacerbated our nation’s widening, destabilizing wealth gap and added billions to the national debt.
 
Also pointed up by Gingrich’s finances is the important, often-overlooked distinction between income and assets.  If this distinction were better understood, even high earners would be more likely to support appropriate tax rates on passive income—the kind of money made by other money, rather than by work.  
 
This income-asset distinction shows that significant wealth doesn’t spring from hard work alone.  Look at Gingrich: he’s making several million dollars a year, principally from his production company (which publishes books, makes documentaries, and otherwise monetizes the ideas and celebrity of Newt).  Whatever you think of his products, Gingrich is essentially a small-business owner who works for a living: writing, editing, giving paid speeches.  Because that multimillion dollar income comes from work, it’s taxed at a marginal rate of 35 percent. And after many years at this kind of high-paid employment, he’s accumulated what by rich-person standards is a fairly modest fortune. 
 
Now if he had inherited wealth—or been a high-tech entrepreneur who struck it rich in a stock deal, rather than crashed and burned like dozens of equally hard-working entrepreneurs who were less lucky—he could enjoy the same multimillion dollar income and pay no more than 15 percent on it, since it would be income (capital gains, dividends) generated by money, not work.
 
The moral is that high-paid athletes, actors—and political performers—should feel free to join the cause of tax equity, since it’s not principally targeted at them. Even with years of hefty salaries and ample small-business income, their chances of joining the hyper-rich and enjoying millions of dollars of passive, low-tax income are not much better than those of the 99 percent.

18 Comments to That's Rich:

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Guest on Wednesday, April 18, 2012 1:44 AM

Thought you might find it helpful to know that the housing crash that is responsible for our economic crisis was predicted years ahead of time:

In 2006 ...

Peter Schiff Was Right 2006 - 2007 (2nd Edition) http://www.youtube.com/watch?v=2I0QN-FYkpw

In 2003 ...

Ron Paul Calls the Housing Collapse in 2003 http://www.youtube.com/watch?v=9S3lXDOQ7ec

In 2001 ...

Ron Paul: "This real-estate bubble will burst, as all bubbles do" (part 3) http://www.youtube.com/watch?v=KONpt9a6HrI

In 1999, when Gramm-Leach-Bliley was being considered ...

CONFERENCE REPORT ON S. 900, GRAMM-LEACH-BLILEY ACT SPEECH OF HON. RON PAUL OF TEXAS IN THE HOUSE OF REPRESENTATIVES Thursday, November 4, 1999

"Government policy and the increase in securitization are largely responsible for this bubble. In addition to loose monetary policies by the Federal Reserve, government-sponsored enterprises Fannie Mae and Freddie Mac have contributed to the problem. The fourfold increases in their balance sheets from 1997 to 1998 boosted new home borrowings to more than $1.5 trillion in 1998, two-thirds of which were refinances which put an extra $15,000 in the pockets of consumers on average— and reduce risk for individual institutions while increasing risk for the system as a whole." ...

... "Government regulations present the greatest threat to privacy and consumers’ loss of control over their own personal information. In the private sector, individuals protect their financial privacy as an integral part of the market process by providing information they regard as private only to entities they trust will maintain a degree of privacy of which they approve. Individuals avoid privacy violators by ‘‘opting out’’ and doing business only with such privacy-respecting companies.

"The better alternative is to repeal privacy busting government regulations. The same approach applies to Glass-Steagall and S. 900. Why not just repeal the offending regulation? In the banking committee, I offered an amendment to do just that. My main reasons for voting against this bill are the expansion of the taxpayer liability and the introduction of even more regulations. The entire multi-hundred page S. 900 that reregulates rather than deregulates the financial sector could be replaced with a simple one-page bill."

The housing crash was not caused by the free market, but by government interventions into the market.

Yes, crashes are related to capital market failures, which is why the Left blames the free market on them. But the failures come because they were misled, by artificial interest rates, into making malinvestments.

These malinvestments are artificial bubbles - such as the Roaring 20s, which was also caused by artificial interest rates and not the free market - and because they are artificial, they MUST crash.

Bubble prices are, by nature, unsustainable. The malinvestments represent a destruction of wealth caused by false prices; The crash represents a return to real market prices.

But the more government tries to prop up prices, the longer it will take to recover, and the greater the economic destruction will be.

Learn why capital markets crash, and why America benefits at the expense of other nations; It's not because of our supposedly free market, but because of fiat money:

Smashing Myths and Restoring Sound Money | Thomas E. Woods, Jr. http://www.youtube.com/watch?v=HAzExlEsIKk

"What About Money Causes Economic Crises?" with Peter Schiff - Ron Paul Money Lecture Series, Pt 3/3 http://www.youtube.com/watch?v=npJ0CUT8d_Y

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Guest on Wednesday, April 18, 2012 1:49 AM
Sorry for the formatting. HTML ... ^^
Reply to comment


Guest on Wednesday, April 18, 2012 1:50 AM

Thought you might find it helpful to know that the housing crash that is responsible for our economic crisis was predicted years ahead of time:

In 2006 ...

Peter Schiff Was Right 2006 - 2007 (2nd Edition) http://www.youtube.com/watch?v=2I0QN-FYkpw

In 2003 ...

Ron Paul Calls the Housing Collapse in 2003 http://www.youtube.com/watch?v=9S3lXDOQ7ec

In 2001 ...

Ron Paul: "This real-estate bubble will burst, as all bubbles do" (part 3) http://www.youtube.com/watch?v=KONpt9a6HrI

In 1999, when Gramm-Leach-Bliley was being considered ...

CONFERENCE REPORT ON S. 900, GRAMM-LEACH-BLILEY ACT SPEECH OF HON. RON PAUL OF TEXAS IN THE HOUSE OF REPRESENTATIVES Thursday, November 4, 1999

"Government policy and the increase in securitization are largely responsible for this bubble. In addition to loose monetary policies by the Federal Reserve, government-sponsored enterprises Fannie Mae and Freddie Mac have contributed to the problem. The fourfold increases in their balance sheets from 1997 to 1998 boosted new home borrowings to more than $1.5 trillion in 1998, two-thirds of which were refinances which put an extra $15,000 in the pockets of consumers on average— and reduce risk for individual institutions while increasing risk for the system as a whole." ...

... "Government regulations present the greatest threat to privacy and consumers’ loss of control over their own personal information. In the private sector, individuals protect their financial privacy as an integral part of the market process by providing information they regard as private only to entities they trust will maintain a degree of privacy of which they approve. Individuals avoid privacy violators by ‘‘opting out’’ and doing business only with such privacy-respecting companies.

"The better alternative is to repeal privacy busting government regulations. The same approach applies to Glass-Steagall and S. 900. Why not just repeal the offending regulation? In the banking committee, I offered an amendment to do just that. My main reasons for voting against this bill are the expansion of the taxpayer liability and the introduction of even more regulations. The entire multi-hundred page S. 900 that reregulates rather than deregulates the financial sector could be replaced with a simple one-page bill."

The housing crash was not caused by the free market, but by government interventions into the market.

Yes, crashes are related to capital market failures, which is why the Left blames the free market on them. But the failures come because they were misled, by artificial interest rates, into making malinvestments.

These malinvestments are artificial bubbles - such as the Roaring 20s, which was also caused by artificial interest rates and not the free market - and because they are artificial, they MUST crash.

Bubble prices are, by nature, unsustainable. The malinvestments represent a destruction of wealth caused by false prices; The crash represents a return to real market prices.

But the more government tries to prop up prices, the longer it will take to recover, and the greater the economic destruction will be.

Learn why capital markets crash, and why America benefits at the expense of other nations; It's not because of our supposedly free market, but because of fiat money:

Smashing Myths and Restoring Sound Money | Thomas E. Woods, Jr. http://www.youtube.com/watch?v=HAzExlEsIKk

"What About Money Causes Economic Crises?" with Peter Schiff - Ron Paul Money Lecture Series, Pt 3/3 http://www.youtube.com/watch?v=npJ0CUT8d_Y

Reply to comment


Guest on Wednesday, April 18, 2012 1:52 AM

Dang, your blog really hates paragraphs. LOL.

Please forgive the seeming spam.

Reply to comment


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