We represent a group of concerned market practitioners and business leaders, who understand the economic grievances of the middle and working classes to be the major driver of social and political instability in the United States. Among our cohort of business leaders is Joe Ritchie, founder of Fox River Partners. According to BusinessWeek, “Ritchie is widely acknowledged to be one of the sharpest minds in the options business.”

Joe and Fox River Partners’ analysis has discovered that a small group of American individuals and corporations have manipulated the tax system, creating unfair advantages and unsustainable capital concentration that dampens competition, decreases consumer demand, slows economic growth and reduces economic mobility for all Americans.

Our understanding of the economy and markets comes primarily through hands- on experience and common sense. All of our arguments are grounded in academic analysis and research.

Not at all. On the spectrum of Socialism to Capitalism, our country is currently somewhere near the middle, a mixed economy. If anything we currently have socialism for the rich that is paid for at the expense of everyone else. Regulations, taxes, government spending are all currently structured to benefit the wealthiest in our country. We believe in free markets, but free markets need protection from monopolistic forces and crony corruption. Nothing we advocate for has anything to do with moving our system towards socialism or away from capitalism. It’s all about creating more economic mobility and opportunity with the institutions and systems we already have.

Positive Stability means a system that tends toward equilibrium (internal and external forces keep the system balanced). Imagine a cream pie sitting on a table; if you tilt it any direction, it rights itself. Negative Stability is when a system tends toward disequilibrium (internal and external forces create and compound imbalance). Imagine a cream pie balanced on top of a pole. If you tilt it any direction, it will tilt itself more that direction. Which makes it tilt more, and more, until it crashes.

Historically, America had net positive stability from the ‘40s through the ‘60s: inequality tended away from extremes; i.e the poorer you were, the easier it was to make your next dollar. This brought steady growth for all classes in society.

America had net negative stability in the pre-depression era, and now has it again present era: inequality tended to accelerate. Other market practitioners like Ray Dalio agree. We are living the tale of two economies. The very top is doing well but the bottom 60% of our economy, the middle and working classes, can’t breath. Most people at the top don’t see it until it is too late. This happened in pre-Revolution France and pre-Communist Russia. It could happen again.

Yes, moderate inequality drives growth. When inequality becomes extreme, it prevents growth. Moderate inequality is good. Extreme inequality is bad. It’s all a question of balance.

It sounds like you are advocating government-sponsored redistribution. Hasn’t history shown that strategy to be immoral and destructive?

The Government already redistributes with every tax it currently institutes. The only question is how much should be redistributed and between whom. There is a wide spectrum with infinite options. Right now, our tax system is distributing wealth from the working and middle classes to the top of the system.

Adam smith wrote: “The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities”

Currently the system does the opposite of what Adam Smith recommends. The poorer you are the higher proportion you pay and the richer you are the more benefits you receive.

The class war has already started.  The elite class has been waging a devastating class war against the middle class since the 70’s. The purpose of this effort is to persuade the elites to call off the war and level the playing field again, lest they bring themselves and the entire economy to ruin.

“We’re the ones that have gotten our tax rates reduced dramatically. If you look at the 400 highest taxpayers in the United States in 1992, the first year for figures, they averaged about $40 million of [income] per person. In the most recent year, they were $227 million per person — five for one. During that period, their taxes went down from 29 percent to 21 percent of income. So, if there’s class warfare, the rich class has won.” -Warren Buffett

No. The size of the government is entirely beside the point. Most changes could be made revenue neutral using no additional investments in government infrastructure. In reality, history and logic would suggest that one of the fastest ways to expand the government is to let wealth concentrate until those on top can buy the government and impose corporate welfare and restrict market access and competition (like America is doing). According to The Sunlight Foundation, 200 of America’s most politically active corporations spent a combined $5.8 billion on federal lobbying and campaign contributions. What they gave pales compared to what those same corporations received: $4.4 trillion in federal business and support.

That is a fantastic question. It gets raised virtually every time a new tax on the rich is proposed. It’s odd though, no one ever seems to raise the question when discussing taxes that hit the lower 90%. We charge middle class homeowners a wealth tax of 1.3% per year (a.k.a. “property tax”) on assets that have already been taxed. We charge almost everyone up to 8.5% sales tax, on after tax money for every single thing they buy. We tax small-business income that people invested with after tax savings. The list goes on with every tax that hits the working and middle classes yet there does not seem to be an answer to why it is fair to tax the lower classes on the same money over and over and over and over again?

They are paying 40+% of the federal income tax not all taxes on all types of income. If they were paying 40% of all taxes it might be about right considering that the 1% controls about 40% of the all the wealth. Unfortunately those in the top 1% pay much less of the total tax burden relative to their wealth. In looking at all taxes paid, including taxes on property, consumption and income, at all levels of government, it is precisely the opposite. They pay 2.4% of their wealth in total taxes.

The lower classes, by far. After that, the middle classes, by far. Our lower class pays a wide array of taxes (payroll, social security, sales, gasoline, etc, etc) which could take 40% to 400% of their (admittedly tiny) net worth every year. Our (shrinking) middle classes typically pay 5% to 25% of their net worth every year, in the form of income taxes, property taxes, sales taxes, etc.

In contrast, the upper classes typically pay just 3-5% of their net worth, and finally…

The billionaire class typically pays just 2% of their net worth in taxes every year.

 It sounds nice to take care of the little guy but when you interfere with the free market it always ends up hurting everyone. This is not a moral argument. This is a pragmatic economic argument. This is an exhortation to rich people that, on strictly practical terms, will increase prosperity for rich and poor alike. And if we do not deal with this problem of two divergent economies, we risk further political instability that could threaten wealthy assets. 

There are others better qualified to analyze which economic policies are more or less moral than others. The author is a market practitioner and based on data and economic history, he believes that cutting the “economic pie” more equitably than we currently cut it, will make the whole pie grow much larger.

Sure it would be nice for everyone to have plenty of money to spend, but if you tax it from the rich, investments would plummet, innovations would stagnate and there would be no new jobs?

Yes, you need investment capital. It’s essential. You also need spending money in the pockets of the middle class. It’s even more essential. Investment capital is completely worthless without a middle class with spending money.

The market is currently so over capitalized it’s a joke. There is more cash being managed in investments then people know what to do with. It’s a simple matter of balance. If we tax more of the excess investment capital and ease the burden on the middle class the return on investments would go up. This obviously would not apply to all cases. In the hypothetical case that a country was overtaxing investment capital and giving too much extra cash to the middle class, the reverse prescription might be necessary but that simply is not the case right now.

Actually yes, depending on what you mean by the “free market.”

People have vastly differing ideas of what “free market” means. Most people agree, however, that the Government’s role in a free market is to be accountable to every citizen regardless of class, promote economic competition and allow opportunity for everyone to access the marketplace. Currently the government caters only to the wealthiest citizens, gives outrageously unfair advantages to the largest corporations and richest Americans, which in turn prohibits almost everyone from access to the marketplace and stifles competition. We are concerned about stopping this government interference and ending the unfair advantages given to a small segment of the economy.

It is a well-known fact that, if you tax something, people do it less. The biggest taxes on the bottom 90% are taxes on labor (income, payroll social security), sales, and home ownership. All three of these things are highly beneficial to the economy and society and thus should be incentivized rather than punished (taxed). The wealth of the working and middle class comes from their human and intellectual capital. Reducing taxes on human capital or even reversing them in in the form of earned income tax credits (EITC) should make people work more, not less. Reducing/eliminating sales tax promotes buying and selling which boosts economic activity. Reducing/eliminating property tax promotes home ownership which creates a much more stable society and again more potential for economic growth. The whole point is to incentivize these beneficial behaviors and dis-incentivize harmful ones, the opposite of what we are currently doing with the current tax regime.

This is an odd question to ask in an age when statistics show that the poorest people spend the highest portion of their money on essential items like food shelter and transportation.

But let’s say everyone who does get a tax break “wastes” their extra money on new TVs and lotto tickets. That money goes straight back into the economy, which is exactly where you want it to go. In our current economy, an extra dollar in the pocket of a rich guy ends up in a bank account or as cash in an investment portfolio. However, a dollar in the pocket of a working or middle class guy gets spent and circulates back into the economy. 60% of customers in our economy are middle and working class. It is just common sense that if we hollow out this part of our economy, businesses won’t have customers and investors will find it more difficult to find businesses to invest in.

This is an odd question to ask in an age where the government hands out hundreds of billions of dollars in aid to the largest corporations owned by the wealthiest people.

But anyway, you can’t leach off a tax cut or an earned income tax credit or almost anything that we are talking about.

No. Many of the people advocating for these economic policies are rich people themselves who realize that their economic position will be strengthened over the long run. None of them will leave the country if their effective tax rate on their wealth goes from 2% to 5%. Generally speaking, it will not affect their lifestyles at all. In the long run, the growth and stability of the economy will replace any additional wealth taxed.

Irrelevant. Again, the main suggestions are revenue-neutral. The question isn’t how much money we are giving the government, but ‘what proportion is our middle class giving to our upper class?’

An incredible array of billionaires, investors, Federal reserve chairmen, Nobel Prize-winning economists, and more are terrified about runaway inequality.

As well as a large number of historical figures:

“An imbalance between rich and poor is the oldest and most fatal ailment of all republics.” –Plutarch,  ancient Greek biographer (c. 46 – 120 CE)
           
“I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. . . . corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.” – Abraham Lincoln, President of the United States (1809 -1865)
           
“The man of great wealth owes a peculiar obligation to the state because he derives special advantages from the mere existence of government.” –Theodore Roosevelt, U.S. President (1858-1919)

“The form of law which I propose would be as follows: In a state which is desirous of being saved from the greatest of all plagues—not faction, but rather distraction—there should exist among the citizens neither extreme poverty nor, again, excessive wealth, for both are productive of great evil.” –Plato, Greek philosopher (427-347 B.C.)

“The poor have sometimes objected to being governed badly. The rich have always objected to being governed at all.” –G. K. Chesterton, English essayist (1874-1936)

“Our inequality materializes our upper class, vulgarizes our middle class, brutalizes our lower class.” –Matthew Arnold, English essayist (1822-1888)

“The causes which destroyed the ancient republics were numerous; but in Rome, one principal cause was the vast inequality of fortunes.” –Noah Webster, American editor and writer (1758-1843)

“Any city, however small, is in fact divided into two, one the city of the poor, the other of the rich; these are at war with one another.” –Plato, Greek philosopher (427-347 B.C.)

“No person, I think, ever saw a herd of buffalo, of which a few were fat and the great majority lean. No person ever saw a flock of birds, of which two or three were swimming in grease, and the others all skin and bone.” –Henry George, American political economist (1839-1897)

“Money is like muck, not good except that it be spread.” –Francis Bacon, English philosopher (1561-1626)