Trump Represents The Rentier Class
The very first income tax was originally imposed on rents, royalties, interest, and dividends. Trump’s enormous power demonstrates the reason why.
We live in a nation where inequality is now worse than, greater than, the inequality of the time just before The Great Depression. Inequality is often measured by the GINI coefficient, an algorithm designed to measure concentrations of wealth. The United States has one of the highest GINI coefficients in the world. A good chunk of that accumulated wealth is a result of passive income in the form of rents, royalties, interest, and dividends. The people who earn the bulk of that income are members of the rentier class.
Trump is one of the wealthiest members of the rentier class, and the fact that he is president is a demonstration of the remarkable power of that class of people. Trump is a real estate developer. He owns properties all over the world and he charges rents for his apartments and his hotels. That man in the top hat and suit that you see in the game, Monopoly? That’s Trump. If you have ever spent a few hours playing Monopoly and lost everything when you land on Park Place with a hotel for the third time, that’s what it’s like to lose to Trump. That’s what the rentier class is all about. That kind of power is what the elite politicians in this country are fighting to keep.
The original income tax, imposed in 1861, was designed to finance the Civil War, and it was imposed on passive income: rents, royalties, interest, and dividends. We live in a nation ruled by rent-seekers. They own the vast majority of the land and they impose ever-higher rents on it. One reason people buy a home is to avoid the ever-growing costs of rent. Rents have been rising faster than inflation in some markets and when they rise, they demonstrate the power of the rentier class. One of the reasons I bought a house was to escape the predictable escalation of rents over time.
But when I bought a house, I fell into the arms of another rent seeker, the banks. I’m paying 4.5% on my loan. The “rent” on my house will stay the same over 30 years, so in this case, inflation could be my friend. With inflation, the effort required to earn the money to make the loan payment each month, interest and principal, declines over time. Inflation is inexorable, but it always seems to be a positive number in terms of the rate. On a $250,000 loan, total interest paid at 4.5% is $200,000. Bankers can profit at nearly the entire cost of the loan over 30 years. Now multiply that times a hundred million with many of those loans much larger than our example and you get a sense of the power of the banks. And that doesn’t even touch consumer credit for the earning power of the banks.
Dividends are payments by corporations to owners of stock. Not all stocks pay dividends, but many do. Shares in Six Flags Entertainment pay dividends. There are 84 million shares outstanding, with a current share price of $45. The dividend rate is 3.32% which means that at that price, the annual dividend would be about $1.49 per share. If you own a million shares of Six Flags, you would earn about $1.49 million every year, just owning the shares and doing nothing else. Ownership of the stock isn’t what creates the value in the stock, labor creates shareholder value. People work the front lines in customer service, maintenance and engineering to keep those parks running. But if you have enough shares in that company, you can have something approaching basic income or more, without working.
Royalties are rents on intellectual property. When you buy a T-shirt at the Disney Store with Mickey Mouse on it, you’re buying more than the shirt. You’re also paying a royalty on the copyrights to the image of Mickey Mouse. Movies, books, TV, and print media, like the articles you read on the internet, can all generate copyright royalties. J.K. Rowling became a billionaire from the royalties earned from her Harry Potter books. She donated much of her wealth away as a gesture of goodwill, but she is still fantastically rich.
The high cost of drugs in America is caused by rent-seeking. When you buy a non-generic drug, you’re paying royalties on patents. Economist Dean Baker, from the Center for Economic Policy Research had this to say about the hepatitis C drug, Sovaldi:
But it doesn’t cost $84,000 or anything close to that figure to manufacture Sovaldi. In fact, in India a high quality generic version of the drug is available for $200 for a three month course of treatment, less than 0.3 percent of the list price in the United States.1 We wouldn’t need a major debate to decide whether we would spend $200 for a drug that would hugely improve a patient’s health and would possibly save their life. The reason we have this debate is that the drug has a list price that is more than 400 times higher.
The reason for the high cost of our drugs is not the market. It’s government intervention in the markets with patents. The high price of drugs is a reflection of the power of rent-seekers in American public policy decision making.
I don’t know anyone that owns enough property, intellectual property or equity to earn even a basic income as passive income. Very few Americans have enough passive income that allows them the means to retire in some comfort.
The tax rates on interest, dividends, rents, and royalties tend to be much lower than on labor. The reason public policy works this way is that those with the money have the power to influence our legislators so that they will fashion laws in favor of money over humanity. Trump as president is how the rentier class demonstrates their power. The tax cuts of 2017, of which most of the benefits accrued to those who already have money, are another demonstration of the power of the rentier class.
This isn’t to say that the rentier class is evil or that they should be punished. I think that the structure of our economy, how income is distributed throughout is a reflection of our priorities. And we really need to look at our priorities. American economic policy suggests that it’s more than a coincidence that Trump is president.