One of my standing google alerts brought me to a page where this question was posed. I jumped in to answer it, and thought I'd share my answer here:
Answer #1: It is determined by what we tax and what we don't; what we
permit to be privatized, and what we socialize. When we permit the
privatization of natural resources and the economic value of land, by
collecting only small royalties and low taxes on land value, we permit
individuals and corporate shareholders to privatize value which all of
us create. Corporate stock ownership is quite concentrated, even
though lots of people own a little each.
When we place taxes on buildings, and the sales of goods and sometimes
services, we tax that which individuals and corporations create. Many
would argue that this is unfair, and most economists would agree that
we discourage production, innovation and job creation.
When we place taxes on wages, we socialize a part of that which
individuals create. At the very highest income levels, where a
significant portion of "wages" might actually be natural resource
values, or urban land rent, or other kinds of privilege, we are --
somewhat clumsily -- collecting via an income tax that which ought to
have been collected via taxes on land values and natural resource
values. But it is a clumsy tool.
When we tax the very largest estates (we currently tax the estates of
fewer than 1% of the people who die each year), we are collecting, once
per generation, a percentage of the appreciation of land and natural
resources (which hasn't been taxed yet) -- which is better than never
collecting it at all but far inferior to collecting it annually -- but
we are also collecting some things which are genuinely the fruits of
someone's labor or brilliance.
Huge fortunes may be built on good ideas, but frequently they are built
on urban land values, on natural resources (Jed Clampett) -- or on
privilege or monopoly of some kind. "Capital" doesn't appreciate. As
every homeowner knows, buildings depreciate, even with good
maintenance. As every car owner knows, cars and other machinery
depreciate, even with good maintenance. What appreciates is what is
scarce or in finite supply: choice urban lots and nonrenewable natural
resources that meet a consumer need. When we permit some of us to say
"THIS IS MINE!" we determine wealth distribution. The rest of us pay
the privileged folks for that upon which we rely to live. What a
deal! Every young person must either pay rent or buy a piece of land
on which to live, and much of our housing payment is for the location,
not the structure; and on top of that we must pay interest. (Guess who
benefits? Shareholders of lenders.)
You might be interested in the fact that the board game Monopoly is
based on a game which was developed in the early 1900s to teach these
ideas. It was called The Landlord's Game, and it came with two sets of
rules. One set was called the Prosperity rules, and it made for a
rather dull game: no big winners, no abject losers. Not an exciting
game, but a model for sustainable living, in which all could prosper.
Needless to say, the board game Monopoly is based on the other set of
rules.
Should life be based on Monopoly rules, or Prosperity rules?
Answer #2: If your question was "how do we measure the distribution of
wealth" then perhaps the best answer is via the Federal Reserve Board's
triennial Survey of Consumer Finances, last conducted in 2007. They
survey households in great detail, and then report how wealth in total
and of various kinds, and debt, are distributed. However, since their
sample omits the Fortune 400, they under-report the concentration of
wealth. See
http://lvtfan.typepad.com/lvtfans_blog/2010/02/the-house-of-tranquillity-a-middle-class-agenda.html
for a bit about wealth concentration, and look on that same page for
more about the Survey of Consumer Finances (SCF).
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