Income Inequality?

Income inequality is all the rage these days among liberals, young people and the media. Left-wing politicians led by President Obama have encouraged class warfare by denigrating capitalism and the awards affiliated with it.

What is income inequality? Some define it as an imbalance between the accumulated wealth of the affluent and average Americans. Others say it is the compensation gap between rich Americans and the rest of society.

Why do so many 99%ers begrudge those who have great wealth and those that are highly compensated? Do highly compensated workers deliver value added service that warrants their compensation?

The most common complaint about inequality relates to corporate executives. Yet opponents of high compensation have not attempted to understand the complexity of management and what corporate executives do year in and year out to earn their out-sized salaries.

Those that scream about income inequality say it is criminal for the chief executive officer of a corporation to earn one hundred times the amount of a common laborer. To assess this situation properly one should compare what each of these workers contributes to the company.

The CEO could be the founder of the company, which he created from scratch. The financial gains associated with successful privately held companies being sold to larger competitors can be gigantic. Keep in mind the founder assumed great risk from the outset and might have been building the business over decades. A sale after many years of hard work certainly should legitimize a large payoff.

The daily grind of a CEO at a major corporation requires great business acumen and perseverance. The buck stops with him, and he will receive the lion’s share of kudos when things go well and most of the blame if the company is unsuccessful.

The CEO is responsible for all aspects of the business including revenue and earnings growth, operations, human resources, finance and financial reporting. The CEO is also the principal liaison between the company, its board of directors and outside shareholders.

In comparison a person “on the manufacturing line” might have only one duty that he performs over and again. Should this person earn more than one one-hundredth of what the CEO earns?

The point is that critics of high compensation should be more analytical before calling for some kind of compensation equalization.

The compensation of the top group of executives at big companies are crafted by the board of directors, and specifically by compensation committees. Continuously the pay of top executives are reevaluated considering the importance of a particular job, the performance of the individual and the compensation of workers who have the same job at other companies.

Compensation experts carefully consider all the factors and help the compensation committee either confirm that salaries are appropriate and competitive, or they recommend changes.

The standard resume of a high-ranking executive generally includes great schooling and advanced degrees in business and/or other areas such as economics, science or engineering. And it always includes many years of experience.

Line workers, on the other hand, could be very young and inexperienced with little education. No one except uninformed critics expect these two individuals to have compensation that is in the same universe.

Critics of income inequality frequently call for redistribution of wealth. Of all things this concept is the most disconcerting as it suggests that wealth has not been, and is not being, earned legally and ethically, or it is based upon favoritism directed towards certain workers.

The principal issue that opponents of capitalism should appreciate is that nobody is paid millions of dollars unless they are providing significant value. Corporations do not bestow favors on any employees.

Value added service could have many faces. The obvious one is that an employee has special talents that result in increased revenues or decreased costs, both of which increase the net profits of a business.

Over time executives accumulate wealth from outsized compensation and equity awards. It should be noted that executives receiving shares of the company, in lieu of cash, are taking long-term risk in the business that are perfectly aligned with outside stockholders.

Vast fortunes that accrue to executives could very well be benefits that reflect long-term performance and loyalty. Any efforts to abscond this wealth would be unfair and detrimental to our capitalist system.

Every day liberals conjure up new ways to disgorge wealth from the best performers in our society. The simplest and most degrading is through unfair taxation. There is no number that is “fair.” Rather tax rates should reflect the needs of the government for the common good- everything from defense to welfare- assuming our tax dollars are being spent wisely.

Here is the rub. Some Americans are not confident that the federal government is in control of expenses. Old and ineffective programs are never cancelled. When was the last time the federal government questioned any antiquated expenditure? Recently President-elect Trump indicated that Boeing was gouging the government for the production of new aircraft for the sitting president. This criticism by Trump is revolutionary and certainly welcomed by many Americans.

Obamacare poses a different type of waste. This entitlement proceeded even though it was not well conceived. President Obama rammed the legislation through Congress to ensure his legacy (it didn’t). Several trillion dollars later the entitlement is unraveling before our eyes and will soon be abrogated or radically amended. Just imagine the needs that could have been met with this money.

Welfare is yet another questionable federal entitlement. How can it possibly make sense to pay Americans to stay home? Every able-bodied person should be required to work to get assistance. Giving citizens money without anything in return is bad policy. The growth of welfare over the years is proof that our current system needs reform.

Having said this, if the federal government is going to pay the needy only if they work, it must guarantee that jobs are available as they were during the Great Depression.

Most taxpayers would be ready and willing to pay their “fair share” if they had confidence in those who allocate our tax dollars.

Redistributing money from the wealthy to the needy with no strings attached is not going to fly in the long run. The system will eventually collapse. Resistance will continue to grow and those in real need will suffer.

With the election of Donald Trump as the next president, we have a chance to reset our priorities, objectives and plans. Much needs to be done to give rich and middle class citizens a square deal. The needy will be the biggest beneficiaries of a more thoughtful process.

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