The “Working Rich” Are Not Like You and Me–or the Oligarchs

The “Working Rich” Are Not Like You and Me–or the Oligarchs. By Charles Hugh-Smith.

According to a recent paper published by the National Bureau of Economic Research (NBER), Capitalists in the Twenty-First Century (abstract only), the “working rich” are different from you and me, and from the Oligarchs above them who pay little in U.S. income taxes due to offshore tax havens and philanthro-capitalist tax avoidance scams.

Before we start complaining about the rich not paying their fair share, let’s note that the top 3% of taxpayers — mostly “working rich” — pay more than 50% of all income taxes.

So what distinguishes the “working rich” from the Oligarch rich?

The Oligarch rich collect passive, rentier income from the ownership of assets: stocks, bonds, real estate, etc…. the passive income from financial/physical assets continues on unchanged even if the owner retires or dies. ..

The “working rich” are owners of companies, and most of their income comes from human capital, meaning their knowledge, expertise and experience. … According to the NBER authors’ research, when these “working rich” owners retire or die, business income tanks by 75%. In contrast,  …

The “working rich” are not tax cheats like the super-wealthy revealed by the Panama Papers; they’re the ones doing the heavy lifting of paying most of the $1.7 trillion in income taxes (which doesn’t include the payroll taxes of Social Security and Medicare, with employees and employers each paying 7.65% of wages/salaries). …

The other key finding of the NBER paper is that the “working rich” kept most of the gains earned by their enterprises: rather than distributing much of these gains to employees, the business owners increased their share of net profits, a trend which has fueled the income inequality so many of us have been scrutinizing.

Why is this occurring? I have a theory. I doubt this theory lends itself easily to quantification, so it may be difficult to support statistically, but here goes: business owners are keeping more of the net gains because the commoditization of labor has reduced the incentives to retain the most experienced employees. … The days in which the senior workers held the most profitable knowledge in their heads, and employers who wanted to secure strong profits paid senior workers handsomely to keep them, are largely gone.