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The following was taken from Robert Reich's new book, "I'll be Short" that members might be interested in.
Don't Redistribute Income, Redistribute Capital
Here's an idea for helping the bottom half share in the nation's prosperity. Give them, literally, a share in America. Spread capitalism by spreading capital. Rather than just redistribute income to people after they've become poor, give them capital up front to build their fortunes. Give a young family a starter nest egg. Give young adults a capital stake.
...Here's how it would work. Families earning under $40,000 would get an annual $600 tax credit, plus another $700 if they deposited $700 of their own money into their account. This adds up to an annual nest egg of $2,000. If they continue saving in this way for forty years, assuming a modest 5% rate of return, their nest egg would accumulate into a brontosaurus egg of over $250,000. Higher income families would get a smaller subsidy. Total cost to taxpayers: about $30 billion a year, most of which would go to poorer families.
Or consider former Senator Bob Kerrey's "Kid Saves" plan. Here, the government would give every newborn a $1,000 savings account, to which $500 would be added every year until the child's fifth birthday. The money accumulates and interest compounds until the child reaches twenty-one, and - presto! - the child has a cool $20,000 to start his or her adult life. The tab: about $15 billion a year.
There are other variations, but you get the point. Instead of redistributing income, redistribute capital. Encourage people to save and depend on their personal choices about how to invest money. This is the way we get the efficiency benefits of a market economy and also the social benefits of a more egalitarian society. It's a twofer...
So why is the interest now (in this type of approach)? Three reasons:
First, it's dawning on many people that the old ways of trying to broaden prosperity aren't working nearly as well or as fast as we'd like. As I've noted, the median American family is, in real economic terms, not much better off today than it was decades ago, even though its members are working longer hours - the equivalent of seven more weeks a year - than they did then. Meanwhile, it's become clear that we cannot rely on direct handouts and income transfers to do the job. They have all sorts of negative side effects, such as dependency. And there's no political will to carry them out on a large scale. Trying to redistribute income from rich to poor through specific federal programs financed by annual; appropriations, including everything from Head Start to low-income housing, has become particularly difficult.
The second reason for the new conversation is that capital assets - rather than income - are now where the action is. The story of the 1990s, if you hadn't noticed, was the extraordinary boom in the market valuations of companies, followed by homes, and even American dollars. Yes, I know the stock market boom ended with a thud. But even so, stock prices are still about three times higher today than they were at the start of the 1990s - which is more than can be said about most incomes. Most Americans haven't got much out of this capital boom, however, because most don't have much capital...The biggest single consequence of the nineties bull market was to make those who were already rich before 1991 fabulously richer. The wealthiest 10% of Americans received 85% of Wall Street gains. The wealthiest 1% got 40% of them...When the parents of today's baby boomers leave this world, the wealthier of them will also leave behind a collection of assets worth hundreds of billions of dollars more than they pad for them. Their boomers offspring will inherit the largest intergenerational windfall in the history of modern civilization.
Finally, those who have earned enough to be able to invest in this buoyant capital market are also advantaged by rules allowing them to defer income taxes on that portion of their incomes. The resulting benefits are wildly titled toward the very people who are already gaining the most from the surge in capital values. Two-thirds of all the tax benefits for pensions and retirement savings now go to families earning more than $100,000 a year. Only 7% of these benefits go to families earning $50,000 or less.
The asset elevator has been lifting America's wealthy to ever-higher vistas, without their moving a muscle (except perhaps, to speed dial their brokers). Current tax law is lifting them, and their children, even higher. Hence the case for allowing the rest of America on the elevator, too. Whether it's government subsidized "universal saving accounts" for Americans of modest means, or schemes to give every young American a certain amount of capital, the goal is the same - to let everyone in on the ride. It's no substitute for social insurance, and no replacement for other ways to make work pay. But redistributing capital and encouraging saving, is an important means of widening the circle of prosperity.