Rich get richer: Should we penalize them?

The Congressional Budget Office just released a report that shows rich Americans are getting richer faster than other classes of people. The report shows that the top 1% of Americans (in terms of household income) had a 43% income growth between 2003 and 2005, while lower income Americans only had single digit percentage growth.

The report goes on to say that the top 1% of America families had over 18% of total income, which was up from 14% in 2003.

But is life really this simple? The statistics tell us something about the way families earn money, but they don't even come close to telling us the whole picture. The numbers can't begin to tell us why this is happening... how the classes are growing their incomes, where their money is invested, how their values influence their income, or what their family priorities are in general.

This issue is a hot button for political rantings, but the statistics really don't do much for us as a society. Politicians get to pander to voters with promises of more and more taxes on the rich. It sounds great to the lower and middle classes.

But does it really make sense? Greater taxes on the rich penalize them for being wise with their money. Taxes attempt to redistribute the wealth. That might be a good theory, but what's the result?

The result may be that the rich stop investing their dollars in companies that we depend upon for jobs and growth of the economy. Greater taxes on the profits from those investments will discourage the investments... and the fact is that our economy needs the rich to invest their money.

So while a report like this may be great for political soundbites, it really doesn't do much else for society. It certainly doesn't offer any insights into how to help those in lower income households to do better financially.

Forensic accountant Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations through her company, Sequence Inc. Forensic Accounting. The Association of Certified Fraud Examiners honored Tracy as the 2007 winner of the prestigious Hubbard Award and her first book, Essentials of Corporate Fraud, will be on bookshelves in March 2008.
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