As I sat reading the latest Economist magazine and all of the injustices spouted off by the Occupy folks, I wondered if we all are as helpless as they portray us to be. In their worldview, we are all pawns of the “wealthiest 1 percent.”
Sorry, but I don’t believe that. We (the collective “we”) have more power than they imagine. Here is a simple plan that would a) sock it to the wealthy and b) improve the security of your balance sheet all at the same time.
Step 1: If you earn less than $200,000, sell 10 percent of all your stock-holdings (401k, IRA, day-trading, etc.) over the next year. This sell-off would put downward pressure on stock prices in the stock-market. Whooaa, won’t that be bad?
Well, if you’re concerned with socking it to the wealthy, the drop in the stock-market will primarily hit them. As shown in the chart below, for folks making more than $200,000 net capital gains (gains minus losses) account for 10 percent of their income. For those folks earning less than $200,000, capital gains rarely break 1 percent of income.
It gets even more skewed as you dissect the data even further. For folks with incomes over $10 million or more their reliance on net capitals gains is a whopping 34 percent!
Overall, 84 percent of all net capital gains income is accrued to those earning more than $200,000.
Step 2: Take the money from selling your stock and use it to either pay down debt (that includes your mortgage) or if you have no debt put it into a traditional savings account. This will increase your own personal financial security as well as buttress the overall economy from future debt-fueled financial shocks.
Step 3: Repeat steps 1 and 2 next year, and the year after, etc. until you have completely removed yourself from the stock-market. If you are trapped in a 401k, move your money into a bond fund (preferably Treasuries).
So to the Occupy folks . . . no, we don’t need higher taxes or more government spending to fix the economy. We just need to recognize that the stock-market was never designed as place to passively park your life-time savings. The stock-market is meant to manage the flow of capital to the most economically efficient companies.
And yet . . . the stock-market has been rigged against you, but not in the way touted by the Occupy folks. Inflating the stock-market with retirement funds has transformed the market into a casino and less of an exchange. Since the wealthy had/have more of their wealth invested in the stock-market, it’s no surprise that this inflation has benefited them the most. Of course, the opposite (deflation) is true as well.
As an added benefit, unlike capital gains, paying down debt is non-taxable. For instance, if you have a $200 credit card payment, you will need to earn $250 to $300 (depending on your federal tax bracket and the tax burden where you live) in order to pay that bill. Paying off your credit card means you no longer need to earn money to pay it . . . unearned money is untaxed money 🙂
And just maybe these actions will also help prevent the decapitalization of America.