Distributing the Wealth

Roger Fritts

January 19, 1997

Cedar Lane Unitarian Universalist Church

Bethesda, Maryland

The New Testament records that Jesus asked his disciples, "How difficult it is for those who have money to enter God's domain?" Jesus answered his own question by saying "It is easier for a camel to squeeze through a needle's than for a wealthy person to get into God's domain!"⁽¹⁾

Three decades ago Rev. Martin Luther King Jr. spoke on this same theme. He said:

A true revolution of values will soon look uneasily on the glaring contrast of poverty and wealth. . . . America, the richest and most powerful nation in the world, can well lead the way in this revolution of values. There is nothing but a lack of social vision to prevent us from paying an adequate wage to every American citizen whether he is a hospital worker, laundry worker, maid or laborer. There is nothing except shortsightedness to prevent us from guaranteeing an annual minimum and livable income for every American family.⁽²⁾

If ever there were a nation where there should be no poverty, it would be our country. Our gross national product is in the trillions. We have 70% of the biggest companies on earth. An overflow of food can be found in storehouses throughout our nation.

However, during my adult life I have watched the gap between the rich and poor in our rich country grow wider and wider. Starting with the Arab oil embargo of 1973, wages and salaries have generally lagged behind inflation. The median family income in the United States has grown little since the early 1970s. Real wages are falling for most individuals although work time is lengthening. Real family incomes have been essentially constant in the United States since before 1970, even through the average number of wage earners per family has increased. The buying power of the minimum wage has eroded by 40% since Dr. King's death in 1968.⁽³⁾

Yet the rich have grown richer. Between 1977 and 1989, the top 1% of American families more than doubled their after-tax incomes, adjusting for inflation. In 1960, chief executive officers earned twelve times the average factory wage in the United States. By 1974, CEOs earned thirty-five times the average factory wage, by 1991 CEOs earned 120 times what the average factory worker earned.⁽⁴⁾

We live increasingly in what one economist calls a winner-take-all society.⁽⁵⁾ Many people are competing for a few very high salaries. As a result we are putting in more hours at work. For example, one study established that women work an average of 22% more hours in 1987 than they had in 1969.⁽⁶⁾ Of course, most workers who pursue this strategy are destined to be frustrated, for no matter how many hours they work there are only so many slots for promotion.

However, the most serious impact is on the poorest of our nation. Today about 39 million Americans live in poverty.⁽⁷⁾ According to the Children's Defense Fund, nearly one in two poor children lives in extreme poverty. This proportion has risen steadily over the past twenty years.⁽⁸⁾

Last summer the President signed "The Personal Responsibility Act," which attempts to transform welfare into a work-based program. First, the act requires states to put 50% of adult recipients of aid to work by the year 2002. If a state fails, the federal government will reduce the state's block grant. Second, states can use federal money to pay benefits to families for more than two years only if the adult is working or a case worker excuses the adult from working for a good cause. Third, states can use federal money to pay benefits to families for more than five years only if that family receives an exemption. States can only give exemptions to 20% of their caseloads. One difficult problem facing states is the limited number of jobs suitable for welfare recipients. A second difficult problem is that this mandated work will substantially increase child care needs. Although federal funding for child care has increased, the increase will not be enough to pay for all the child care programs that working parents will need.

Some anticipate that the number of poor persons seeking aid from churches will go up dramatically. Already, pressure is being placed on churches to play a larger role in caring for the poor among us. At a prayer breakfast a few days ago the President told religious leaders that every church in America should commit itself to hiring one welfare family.

With all due respect to the President, I do not see this as a practical solution to the problem of poverty in America. I believe that only our national government can effectively deal with these major issues involving the distribution of wealth.

So that no one misunderstands me, I should say at the outset that I believe strongly in a capitalist system. I believe in economic incentives and in the competition of the marketplace. I believe that pure economic equality is impossible to achieve and that in all human groups a hierarchy of income will always exist.

However, I also believe that our government should protect all of us from the extremes of a free market. No one should go without basic food, shelter, clothing or health care. There should be limits to how much wealth any one person can accumulate.

Over the 200-year history of the United States there have been two landmark programs established to redistribute income from the wealthy to the poor. The first was the progressive income tax. Under a progressive income tax system, the higher the income, the higher the percentage paid in taxes. Thomas Jefferson first suggested a progressive tax in a letter to James Madison written more than 200 years ago. In the 19^th century those who favored redistributing income from higher to lower income classes strongly supported the progressive income tax. After decades of political campaigning the Sixteenth Amendment became part of the Constitution in 1913, after ratification by three-fourths of the states.

The second landmark was the social security system, passed in 1935. Although not usually considered an anti poverty program, social security is in fact the most effective anti poverty program in the United States. It lifts fifteen million people out of poverty.⁽⁹⁾

Nevertheless, in spite of both a progressive income tax and social security, there remain extremes of wealth and poverty in America. "The time has come," wrote Rev. Martin Luther King Jr.,

. . . for us to civilize ourselves by the total direct and immediate abolition of poverty . . . True compassion [said Dr. King] is more than flinging a coin to a beggar; it understands that an edifice which produces beggars needs restructuring.⁽¹⁰⁾

I have come to believe that the best way to restructure our economy, while preserving economic incentives, is to enforce what The Council on International and Public Affairs calls a fairness ratio. According to the fairness ratio the average yearly income in the top 20% of the population should not be more than five times larger then the average income of the bottom 20% of the population. For example, if the average income of the top 20% of the population is $100,000, then the average income of the bottom 20% of our population should be $20,000, a ratio of five to one. In one recent year the World Bank estimated that the ratio in the United States was twelve to one. That same year the ratio in Japan was four to one. In West Germany it was five to one.⁽¹¹⁾

How do we achieve this fairness ratio? I suggest first that a truly progressive income tax replace our current tax system. Our current tax system has come to rely heavily on property tax and sales tax and a regressive social security payroll tax. Some supply side economists claim that a more progressive tax system would result in devastating effects on economic growth. They warn that a progressive income tax reduces incentives. There is, however, no evidence to suggest that the economy in Germany or in Japan is growing slower where executive compensation remains modest when compared to the United States. Supply side economists also warn that a progressive income tax will reduce savings and therefore reduce investments. However, by giving deductions to people who invest funds we can structure a progressive income tax so that it promotes savings. This is already in place in our current tax system with IRAs and tax-free bonds.

The second part of my solution would be a universal voucher system that would replace all current welfare programs. I would eliminate the hodgepodge programs including food stamps, social security, earned income tax credit, and unemployment insurance. In its place, out of the money collected from the progressive income tax, each month all of us would receive vouchers for basic food, clothing, shelter and health care. The vouchers would be something like the food stamp program except everyone would receive credits, not just persons with low incomes. People could not use the card to buy tobacco or alcohol. The government would entrust parents with the monthly vouchers of their children until the children reach the age of eighteen.

Monthly credits would be equal in value for all people. A formula would determine the credits each person would receive based on income collected by the previous year's national income tax. There would be no deficit spending. The program might start by setting tax rates so that each person would receive credits for food, housing, clothing and medical care of $8,000 per year.⁽¹²⁾In future years that amount could rise or fall, depending on the income received in taxes the previous year.

There would be no work disincentives because people would not lose the credits if they went to work. People who had higher incomes could have better housing, more expensive food, more expensive clothing and more expensive health care. However, everyone would have certain basic needs met.

Competition of the free market would control basic health care costs, in the same way the free market controls other costs. Under the system I am suggesting the government would not guarantee people unlimited health care. Persons who earned more money would get better health care, as happens today. However, everyone would have basic health care guaranteed, which is not so today.

Most of us realize that we cannot find happiness only by competing with the brothers, sisters, parents and children in our family. Although some competition in families is inevitable, in a healthy family there is an intermingling of both competition and sharing. A nation is like a family. Like a family, relationships between people in a nation cannot bring happiness only through competition. Just as in a healthy family, in a healthy nation there is a mixture of both competition and sharing. In both a healthy family and a healthy nation there is a blend of individual freedom and a collective responsibility.

Of course one way to modify my proposal is to save money by granting a minimum income only to the poor. Some have recently suggested that we should modify the social security system in this way. However, if one goal of economic reform is to treat all persons with dignity, then giving everyone vouchers is a good solution because it removes the negative stigma. This is why receiving a check from social security is not considered shameful in our society. Furthermore, the more people perceive programs as benefitting only certain groups, the less political support the programs receive. In addition, besides helping the poor, vouchers for basic services would also be helpful to students, and to artists at the beginning of their careers. It would enable people to embark on careers that would not otherwise be possible and to take risks with their professions and lifestyles.

Now I know that dismissing me as a pie-in-the-sky idealist may be logical. However, in my defense, I can say that I am not alone in proposing this idea. President Richard Nixon proposed a form of this idea. A few years later President Jimmy Carter proposed another form of this idea.⁽¹³⁾Also, the notion has won support from some conservatives. They find a guarantee voucher system an attractive means of reducing government intervention in the marketplace and in the lives of families and individuals. The conservatives, like Milton Friedman, argued that individuals and families are the best judges of how they should allocate their limited resources.

The main objection to this proposal is that such a voucher system would reduce the number of people working. However, all researchers agree that when the income guarantees are set significantly below the poverty line, they produce little decline in hours worked. For example, in one New Jersey experiment, male workers reduced their working hours by less than 5%.⁽¹⁴⁾Furthermore, in this experiment, income guarantees proved far simpler to manage than traditional welfare. The staff cut administrative costs by 50%.⁽¹⁵⁾

Other objections arise out of a moral conviction that no one who can work should receive $8,000 in vouchers each year. Yet there are many ways in which our government gives services to people without regard to how much they do or do not work. For example, our roads and sidewalks are expensive to build and maintain. However, no government requires people to prove that they have paid taxes before allowing them to use a road or the sidewalk. The same is true for our parks, our police services, our fire departments and our libraries. And over a century ago, the people of the United States reached a consensus that we should make free schooling available to all. These services are available to all people, poor and rich.

In the same way, we are today rich enough as a nation that we can make basic food, clothing, shelter and medical care available to all. All human groups partition life into different domains. The ability to take overseas vacations, for example, varies according to our income. However, in other important areas of life, such as the streets, the public libraries, and the public schools, all citizens are equal, despite our incomes. I propose that we expand these equal domains in the United States to include basic shelter, clothing, food, and medical care.

How can we enact such a program? The first step toward creating a healthier distribution of wealth in our national family is campaign finance reform. If our elected officials must beg for hundreds of thousands of dollars to finance their re-election campaigns, we are unlikely to see bold steps in the direction of redistributing the wealth.

What are the prospects for campaign finance reform? We make changes only when our dissatisfaction and unhappiness with what we have is greater than our fear of change. The separate scandals of the last few months, involving the President of the United States and the Speaker of the House of Representatives, involve efforts to raise the enormous amounts of money necessary to run for public office. Perhaps the discontentment and disappointment with these scandals will finally lead to campaign finance reform. If we can diminish the domination of our elected leadership by a few people with money, perhaps we can make progress in alleviating the extremes of poverty and wealth in America.

Many years ago Rev. King said:

All too many of those who live in affluent America ignore those who exist in poor America. In doing so, the affluent Americans will eventually have to face themselves with the question that Eichmann chose to ignore: How responsible am I for the well being of my fellows? To ignore evil is to become an accomplice to it.⁽¹⁶⁾

Many of us cannot ignore, cannot completely deny our feelings of unfairness about the way things are. We have religious questions about the meaning of life. We acquire a house, we acquire a car, we take our vacations. However, we feel in our hearts that we cannot be truly happy when others are going hungry. Feeling a basic religious sense that homelessness and poverty are wrong, we help at shelters and at soup kitchens and urge our government leaders to make changes.

I see the generosity of members of this congregation in organizing to help the poor in this community and in the larger world. This church works in cooperation with other churches and community organizations to do what we can to help people who seek us out. What we do to fund and staff shelters and a soup kitchen is very important work.

However I have a dream that some day our society will change so that all the shelters and soup kitchens will be history. I have a dream that the scandalous extremes will disappear and some day we will all join hands, liberals and conservatives, wealthy and not so wealthy, and walk together through the eye of the needle.

Closing Words

Speaking in 1967 Dr. King said:

The course of poverty has no justification in our age. It is socially as cruel and as blind as the practice of cannibalism at the dawn of civilization, when men ate each other because they had not yet learned to take food from the soil or to consume the abundant animal life around them. The time has come for us to civilize ourselves by the total, direct and immediate abolition of poverty.⁽¹⁷⁾

1. Matthew 19:24, Mark 10:25, Luke 18:25.

2. Martin Luther King Jr., in A Testament of Hope: The Essential Writings of Martin Luther King Jr., pp. 630-33.

3. Devine and Wright, "Minimum Wage, Maximum Hokum," Society, 27(5), July-August 1990, p.50-54.

4. Crystal, Graef, In Search of Excess: The Overcompensation of American Executives, New York, W.W. Norton, 1991, p. 27.

5. Frank & Cook, The Winner-Take-All-Society, Penguin Books, New York, 1995.

6. Wallich, Paul, "The Workaholic Economy," Scientific American, August 1994, p. 77.

7. Census Bureau, Income Poverty, and Valuation of Noncash Benefits: 1993.

8. Sherman, Wasting America's Future, p.5.

9. Levitan, Sar, Programs in Aid of the Poor, Johns Hopkins, Baltimore, 1990, p.45.

10. King, Martin Luther, Where Do We Go From Here: Chaos or Community?

11. Gilbert, Richard, How Much Do We Deserve? An Inquiry in Distributive Justice. University Press of America, Lanham, Maryland, pages 11, 128-9.

12. Brolfe, Cyann, "Why we Need A Guaranteed Minimum Income, The War on the Poor, Center for Popular Economics, New Press, 1990, p 128-9.

13. Levitan, Programs in Aid of the Poor, John Hopkins, Baltimore, 1990, p 171.

14. Devine and Wright, "Minimum Wage, Maximum Hokum," Society, 27(5), July-August 1990, p.50-54.

15. "Can Handouts Make Better Wage Earners?" 1970, February 28. Business Week, 2113:80-82.

16. Quoted in America's New War on Poverty, ed Robert Lavelle and the staff of Blackside (San Francisco: KQED Books, 1995, p. 184

17. Eigen and Siegel, the Macmillan Dictionary of Political Quotations, New York, Macmillan, 1993, p. 533.

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