Candidates and public have split views on wealth

NEW YORK — The war of words waged by John McCain and Barack Obama for the votes of plumbers and other average Joes is a reminder of the nation’s long-standing doubts about concentrated wealth — and its qualms about doing something about it.

Americans have voiced concerns about putting too much wealth in to too few hands since the country was founded, but the public’s views also come with contradictions.

Now it’s clearer than ever — thanks to Obama’s much scrutinized talk about taxes with a certain Ohio voter and McCain’s dogged criticism — that these mixed feelings about income inequality are a long way from being resolved.

“I think that when you spread the wealth around, it’s good for everybody,” Obama told the man — maybe you’ve heard of him — Joe the Plumber.

The remark may have sounded pretty innocuous. But McCain has lambasted his rival’s words as sounding “a lot like socialism,” and turned the criticism into a central theme of his campaign’s final round. Obama’s remarks, McCain says, are emblematic of a tax plan to confiscate wealth and give it to the poor that would make the IRS “into a giant welfare agency.”

The role of wealth

The comments of both presidential candidates touch nerves in American politics — longtime concern about too much concentration of wealth, but also about the role of government and the individual. More than two centuries after Alexander Hamilton, Thomas Jefferson and other early leaders warned about the hazards of too much in the hands of too few, Americans have developed complex views on the intertwining issues.

A substantial majority of Americans say the rich don’t pay their fair share of taxes, opinion polls show. A growing number say the U.S. is becoming a nation of haves and have-nots.

The public’s concerns reflect a shifting dynamic in recent years, as an increasing share of the wealth has gone to people at the top of the income scale. The top tenth of U.S. households now earn an average of 11.2 times what those in the bottom tenth make, according to the Census Bureau. That’s up from a ratio of 8.7 three decades ago. The wealthiest fifth of U.S. households now take in 50 percent of all income, up from 44 percent in 1977. The differences are even more pronounced in analyses of incomes for the top 1 percent of households.

“The income gap between the rich and the rest of the U.S. population has become so wide, and is growing so fast, that it might eventually threaten the stability of democratic capitalism itself,” then-Federal Reserve Chairman Alan Greenspan said in 2005.

But Americans are divided on whether government should be heavily taxing the rich in order to benefit those with less.

“It’s a complicated area to try to understand American attitudes,” said Frank Newport, editor-in-chief of the Gallup Poll. “It’s kind of like, in some instances, conflicting medical research … There’s no one answer.”

Most back redistribution

A majority of Americans — 51 percent in a poll by Gallup this past April — said they support “heavy taxes” on the rich to redistribute wealth. That is significantly higher than when the same question was asked in 1939, at the tail end of the Great Depression, when 35 percent agreed.

But people’s support for higher taxes on the wealthy are tempered by their own aspirations.

“Most Americans hope to some day be wealthy and as a result, the idea of kind of redistributing income is not as popular as (government policies resulting in) making a bigger pie so everybody does better off,” said Dennis Jacobe, chief economist for Gallup.

The tension between those ideas runs through American politics in ways that don’t always seem logical. Even many wealthy people support higher taxes on the rich. In a country that believes in itself as a place where anybody who works hard enough can make it, though, there’s a certain wariness of taxes that might discourage hard work.

McCain’s criticism of Obama’s tax plan is “trying to go for this idea that, in the U.S., is much more popular than in other countries … that you get ahead through your own efforts,” said Bryan Caplan, author of “The Myth of the Rational Voter: Why Democracies Choose Bad Policies,” and an economics professor at George Mason University. “I think he’s trying to tap into what is a distinctly American view.”

A long debate

That view is far from universal, but it does go way back. In fact, the debate over distribution of wealth has been going on since the U.S. was a brand new nation.

After years of being ruled by British royalty, the country’s first political leaders argued that the U.S. must avoid creating its own aristocracy that would allow the wealthy to exert unfair power. But the party that touted itself as the true champions of economic equality was the Democratic-Republicans, led by Thomas Jefferson and James Madison.

“Of course, in actuality, many followers of Jefferson were also slaveholders and the greatest disparities in wealth concentration were right in front of their noses,” said Robert E. Wright, who teaches economic and financial history at New York University’s Stern School of Business.

Americans didn’t face the first tax on personal income until 1861, when a Union government desperate for cash to fight the Civil War decided it had little choice. The tax was sold as a way of making sure the rich, most of whom who were not marching off to war, were bearing their fair share of responsibility, Wright said.

That tax — a flat assessment — survived until 1895, when it was declared unconstitutional.

First income taxes

The country’s first experiments with income taxes were promoted as necessities, rather than as a way to shift wealth to where it was needed. Over time, economists came to embrace the concept of a progressive tax — one that levies higher rates in proportion to income — as a means of not just paying for government, but ensuring fairness.

And when the income tax was brought back with the passage of the 16th Amendment to the Constitution, the tax that was enacted was progressive. Rates began at 1 percent and rose to 7 percent for taxpayers with income above $500,000. Less than 1 percent of the population paid income tax at the time.

A 2003 survey of U.S. economists found most endorse policies resulting in redistribution of wealth. The strongest support came from economists who identified themselves as Democrats, said Daniel B. Klein, a co-author of the survey. But self-identified Republican economists were near neutral, offering only mild opposition to the concept.

Misgivings about wealth are pretty universal. For most of economic history, people viewed the total amount of wealth in society as finite and those with less viewed those with more as having gotten it by unfair means.

That view has shifted in modern economies, as people have embraced the idea that policies that lead to growth can improve all fortunes. Still, in much of the world, proposals to share wealth more fairly by means of higher taxes on the wealthy would win wide support.

But the U.S. is a young nation with a highly developed economy, giving rise to a uniquely American strain of thought. Those with less look at those with more and try to figure out how to catch up.

“Here we call it ‘keeping up with the Joneses,’” Wright said.

Americans do strongly favor higher taxes on those with more, and back efforts to help those with less.

When Americans were polled by Gallup in April, 68 percent said they believe money and wealth should be distributed more fairly. In a survey in July, 49 percent said the U.S. has become a nation of haves and have-nots, up from 37 percent who felt the same way four years ago.

A split opinion

But a majority of Americans also say the government is doing too much and should instead be leaving more to individuals and businesses. And when asked how government should fix the economy, people overwhelmingly said they favor policy to improve overall economic conditions and the jobs situation, rather than steps to redistribute income.

In retrospect, though, the question forced people to make a choice that now seems obvious, Gallup’s Newport said. Who wouldn’t favor policies to improve the total economy?

To him, the poll showing more than half of people favor “heavy” taxes on the rich is more revealing, given the strong wording of the question.

But even with such support, politicians have learned to walk a careful line in explaining the need for higher taxes.

“It’s not like, ‘Look, we’re raising your taxes to (more evenly) distribute,’” income, Caplan says. “We’re doing it because we need to raise money.”

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