THE JUBILEE - WEALTH REBALANCING - AMENDMENT

Specifics

JUBILEE AMENDMENT: The jubilee amendment looks to rebalance wealth in the USA by taxing the wealth of the very rich and reallocating it proportionately (pro rata) to those whose wealth falls below the national average. Given that much of the wealth of the rich is in securities, businesses and illiquid assets it will be more efficient for the rich to forfeit certain assets rather than have to sell assets to pay for taxes. The Jubilee amendment would be a one-time measure. To maintain stability and allow for a smooth transition there would be a graduated income tax, which rises steeply for incomes above the national median for three years after the Jubilee amendment takes place.

The idea for the Jubilee amendment is based upon the Old Testament concept of the 50- year Jubilee whence an economic truce was declared and liberty was granted to all: land was returned to the original owner, slaves were freed and debts forgiven (see Religious section ). The Jubilee amendment looks to similarly redress wrongs and level the playing field. There would a 100% tax on all wealth above some national average, ($205,000 in 1995, and $270,300 in 1998), if your wealth were below the national average you would receive payment. As noted previously individuals would receive securities and not cash. Individuals would only be allowed to gradually sell assets over a period of years.

ANALYSIS: On the surface it seems absurd to think that your average American would vote for the Jubilee amendment, but wealth has become so concentrated that approximately 80% of Americans stand to benefit from the Jubilee.

PERCENTAGE SHARE WEALTH HELD BY (1998)
Top 1% Next 4% Next 5% Next 10% Top 20% 2nd 20% 3rd 20% Bottom 40%
38.1% 21.3% 11.5% 12.5% 83.4% 11.9% 4.5% 0.2%


DISTRIBUTION OF NET WORTH IN DOLLARS (1998)
Top 1% Above $3,352,100
Next 9% $475,600 to $3,352,100
Next 10% $257,700 to $475,600
Middle quintiles 2, 3, 4 $263 to $257,700
Bottom Quintile 5 Less than $263


Arguably over 80% of Americans would receive a check. Consider, the following:
1) The bottom 18.1% of households has zero or negative net worth.
2) The bottom 40% of Americans own 0.5% of the countries wealth.
3) Mean or average wealth was 205 k (1995), 270.3 k (1998) while the median wealth was 45.6 k (1995) and 60.7 k (1997). So the average American has a 270.3 k net worth , yet the median, or 50th person out of 100, has only 60.7 k net worth. These statistics clearly show that the top 1-20 % of the populace is grossly skewing the average wealth numbers.
4) In fact, less than 20% of Americans have a net worth above the 270.3 k average. Net worth for the top 1-% is +3.4 million; while the range for the next 19% is 3.4M to 257.7 K.

Point #4 drives the issue home: Over 80% of Americans would receive a jubilee redistribution check because their net worth is below the national average of 205 K. Even those in the top 20% with wealth between 205 K and 176 K would receive a check to bring their net worth up to the national average.

HOW IT WORKS: Whether you receive or pay money will be determined by whether your net worth is above or below the national average (mean). We use Wolff's basis (see bibliography) which excludes automobiles and consumer durables (TV, Refrigerator, etc) for calculating net worth. Net worth is the value of your assets less the value of your liabilities. The following analysis calculates the hypothetical benefit/cost for various households:
Value of home Value of securities , bank accounts Total Assets Less: Debt , mortgage Net Worth (Assets- Debt) National Average Wealth Difference, (Nat. Avg. less net worth)
Family 1 250,000 20,000 270,000 150,000 120,000 270,000 $150,000 Receive in assets
Family 2 0 0 0 0 0 270,000 $270,000 Receive in assets
Family 3 1,200,000 300,000 1,500,000 600,000 900,000 270,000 ($630,000) Pay in assets
Families 1 and 2 would receive a check because their respective net worth’s are below the national average of $270,000. Family 3 would end up paying because their net worth is above the national average.

Frequently Asked Questions

Can we realistically get at the rich's money? It is held in illiquid and hard assets?

Yes! We can get at it! And the table below shows how accessible the wealth of the very rich is:

Primary Residence Liquid Assets Pension Assets Unicor- Porated Business Equity Corp Stock, Trusts, Securities Misc. Assets
Top 1% 6.8% 5.0% 6.9% 46.9% 31.6% 1.8%
Next 19.0% 28.8% 11.3% 14.9% 23.2% 20.0% 3.1%


The top 1-% has most of their assets in securities or businesses. Their personal residence accounts for only 6.4% of their wealth. However, the next 19% do have 30.1% of their wealth tied up in their personal residences. This could be a challenge, but most likely the numbers are skewed by the lower percentiles, which as we noted before would receive a redistribution check because their net worth is below the national average (top 20% begins at 176k which is below the 205k national average).

Financial engineering and innovative techniques currently in use in the marketplace will go a long way in overcoming any challenges posed by the redistribution process. Businesses would be privatized, as is done every day on Wall Street with IPO's, the new shares would be reallocated. Illiquid assets would be securitized, meaning they would be turned into securities, which could be reallocated; such could be done with homes as well. Other innovations could further be employed to homes where their ownership is transferred to a large trust containing hundreds or thousands of homes, the trust could then be securitized. These are only a few of the possibilities.

Can assets be distributed equitably and fairly?

Yes, most certainly assets can be allocated fairly and equitably; and again we take a page from current financial engineering techniques being employed in the market today : bundling of securities. Bundling entails combining several securities together. Combining securities diversifies the assets and commensurately reduces risk. The concept is very similar to the pooling of loans as with GNMA's. For example, the securities created by 30 new businesses privatized could be combined. By combining (bundling) securities it reduces the chances for inequities in distribution by spreading the risk around and diversifying.

To further protect individuals and allow for a fair and equitable distribution, some securities would be kept in a trust, to reallocate in the years following the initial distribution as an insurance policy.

The Jubilee amendment would lead to capital flight?

Several measures will be undertaken to prevent capital flight. First, the Jubilee amendment will be retroactive to 1-5 years before its proposal. Which means any actions taken by the rich to shield or hide their assets would be superceded by the Jubilee amendment. Secondly, strict laws will be passed to punish those trying to circumvent or break the laws regarding the Jubilee amendment. Extra emphasis will be placed on the institutions and individuals, which the rich would employ as conduits to shield them from the law. Third, the laws will be strictly reinforced and severe penalties imposed upon those that break the law.

You are basically confiscating the riches wealth?

No. Think of the Jubilee Amendment as a legal remedy or lawsuit to correct a wrong. As we have pointed throughout this text the rich have benefited at the expense of the poor. In 'It's Time we kicked the Rich Off the Dole' the wealthy have consistently benefited from government policy of bailing out the rich. Special interest groups and political action committees dominate politics to the benefit of the rich and powerful. Think about how big business has gained from corporate welfare or the ability to tap into government research grants, star wars and NASA research and technology. Do these corporations pay a just royalty? Who invented the Internet? The United States Government. Why aren't the citizens of the United States reaping the benefits of the Internet explosion? Do you think a venture capitalist would have given away the Internet technology, star wars technology or NASA research all of which have contributed to our technological boom; Of course not! Where's our royalty check? WE THE PEOPLE DEMAND COMPENSATION FROM THOSE THAT HAVE BENEFITTED FROM THE LARGESSE OF GOVERNMENT! CONSIDER THE JUBILEE AMENDMENT LIKE A LAW SUIT TO COLLECT THOSE ROYALTIES.

What you are proposing is communism?

Absolutely not. We are not proposing the money go to government to dole out as it sees fit. We are not proposing government take control of assets. There is no central planning committee. We want to level the playing field and start anew. Our goal is to bring about economic justice.

You are calling for some sort of starry-eyed Utopia, which is impossible?

Bunk. Can there only be progress in science and technology and not in society, community and how we govern ourselves; Are you proposing that there be no progress in those areas. Those that stand against technological advancement are called Luddities. Maybe we should expand the word to include those that stand against the progress of society, community and how we govern ourselves. We must not accept the status qou. It is time community, society and government advance; Those that stand against progress in those areas should ask themselves who the real Luddites are.

Direct democracy would be a bureaucratic nightmare; people would have to spend all their time voting on issues from foreign policy to the placement of streetlights.

You speak of direct democracy in the extreme where 'we the people' decide all issues. We don't necessarily think that this might be the best thing. Rather we should begin exploring variation and blends of direct democracy and representative government in combination 'We the people' should have the option to propose legislation and correct wrongs. Democracy is an elusive pursuit, a dream, we may never reach; but like a fish that must constantly swim to live so to must democracy advance or it to will die. The Internet provides us with a new opportunity to advance and improve democracy.

It is only a matter of time before special interest groups take control of the Internet and direct democracy and we are no better off and maybe even worse off.

We are not so cynical and refuse to accept defeat before we begin. First, redistributing wealth will go a long way in reducing the special interest trump card-money! Secondly, the Internet technology and a more direct democratic government will empower and encourage citizens. Feeling less helpless people will be encouraged to participate.

You run the potential that majority rule creates a tyranny that tramples the rights and interests of the minority?

The constitution has this in mind and protects the rights of individuals against a tyranny of the masses.

The redistribution of income would be a huge economic shock?

Not really. Less than 20% of the population would end up transferring wealth, probably 15-17% of the population. And these individuals would not be impoverished. Interestingly, the amount of people paying (rich) approximates the percentage of the population living in poverty, which has hovered at 11-18% of the population. Secondly, we are not proposing liquidation of assets only rebalancing the ownership of assets.

The Jubilee amendment would lead to an economic depression?

We have already addressed this issue by pointing out how the Jubilee amendment would lead to an economic boom. More importantly, we would be in the camp that feels capitalism inherently has booms and busts and that depressions are inevitability. Creative destruction is what makes capitalism work. Most economists would dismiss such a notion arguing a variety of points of how we have learned from previous policy mistakes and that we have entered a new era. Interestingly such pride about policy being a panacea and entering a new era has historically preceded depressions, as have tremendous wealth and income inequality. The Jubilee holds the hope of circumventing a potential financial calamity.

The consequences of the Jubilee amendment raise several problems: a consumption boom and many of the poor would be back in poverty shortly after the jubilee because they will spend their money quickly?

Previously we mentioned that much of the wealth of the rich would be securitized into tradable securities. As a secondary measure we propose that there be a limit on the ability to sell (or borrow against) a proportion of their securities. Basically, we propose the distributed wealth not be allowed to be turned into cash for immediate consumption, but rather become liquid/tradable over a fixed period of 5 to 20 years. This strategy accomplishes several goals:
1) It would prevent a huge consumption boom.
2) It protects the very poor from falling back into poverty.
3) It is a huge incentive in many ways. Asset ownership would make many feel that they are participating. Secondly, people would have savings and not feel that they are running on a treadmill to nowhere.

The Jubilee amendment is socialist and anti capitalist?

No! As we already mentioned the bailout of Long Term Capital and others("It's Time We Kicked The Rich Off The Dole"), we have a double standard of socialism for the rich and capitalism for everyone else; The invisible hand of capitalism is biased and the tenets of free markets such the survival of the fittest have been cast aside for the wealthy. The Jubilee amendment looks to rebalance the playing field and insure a democratic and fair environment for business to flourish. It will motivate and insure equal participation by giving the poor and less wealthy share ownership.

Starting anew! This is one of the primary economic reasons for the Jubilee. It is in the spirit of the Old Testament Jubilee and politicians such as Jefferson that felt a cleansing was periodically necessary. Imbalances, inequities occur and they must be addressed. It is time we started anew!

In conclusion, we think that the assets of the rich can be fairly and justly reallocated. We intentionally are relying on the conventions currently at work in the financial marketplace today. And although we will try and to be as fair as possible, there will be inequities and inefficiencies created through the distribution process, we will make every effort to be as equitable as possible. But it must be remembered that it is said that monetary policy is a blunt instrument; It is this bluntness which created much of our current wealth inequality as we noted in "Its Time We Kicked The Rich Off The Dole," So don't cry foul now!


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