Wealth tax or not, America must bridge its wealth gap

As we enter a new decade, the two Americas must be bridged

America looks a lot different from Washington that it does from Florida – which is likely why Donald Trump is spending his Christmas vacation at Mar-a-Lago rather than the White House. Having just spent Christmas in Florida myself – though on the quieter Gulf coast, rather than the flashier Atlantic – this has made me think about the extraordinary contrast between these two Americas.

Florida is warmer, of course, but the bigger contrasts are in politics and society. DC is profoundly Democrat, whereas Florida is a swing state. So in the nation’s capital, the focus is on public money – how the government distributes its tax revenues. In the country’s third most populous state, the focus is on private money – how people accumulate and spend their wealth. Its low taxation has made Florida a magnet both for the moneyed.

And at the end of this decade, there are many more moneyed Americans than there were 10 years ago.

Two facts I find extraordinary. One is just how well the rich are done: billionaires saw their wealth grow by 25 per cent last year. The other fact was that the market value of Microsoft and Apple was higher than that of all the companies listed on the German stock exchange.

These stories – one about the boom in assets benefiting those with the most assets, the other about the stunning value and concentration of American tech – are two sides of the same coin. Some thoughts about it.

The first is that this wealth gap is not sustainable, hence why Democrat presidential candidates including Elizabeth Warren have proposed a wealth tax. No one has any idea of how the forthcoming election will turn out but, whatever happens, I find it hard to envisage the US bringing in a wealth tax that would do much to reduce these disparities. But something will happen, and it will happen worldwide, because this is not just an American issue; the rich kids of Instagram are a global phenomenon.

So the questions is not whether, but when and how? Revolution or evolution? Big bang or steady(ish) state?

For America, at least, my guess is that laidback Florida will beat earnest DC. I don’t mean that in terms of politics – for anything can happen there – but in terms of approach. The US will move slowly to bridge its extremes. It will figure out, as Florida is doing, how to live with its diversities. It will become better at extracting wealth and channelling it towards socially beneficial outcomes. Government will play a greater role, but not in a heavy-handed way. And through the next decade, the new generation of rich kids will understand that you are more likely to remain wealthy if you don’t throw the stuff around (well, some of them will).

As for the other side of the coin, the value of the US tech giants vis-a-vis the companies of Europe and the rest of the world will surely adjust, too. It is interesting that Microsoft and Apple – great rivals of the personal computer era – are still top of the pile, and disturbing to see Germany’s great industrial machine so weakly valued. But the sky-high valuation of high-tech America must have something to do with the decade of ultra-cheap money, a trend that will be reversed over the next 10 years. Let’s hope that Germany manages a better economic performance over the next few years than Japan has in the past three decades.

These valuations of Microsoft and Apple should carry a health warning, however. Microsoft shares are up 56 per cent on the year so far, while Apple shares are up 83 per cent. Everything we know about markets suggests that at some stage part of these gains will be reversed. That does not mean the companies will do badly, or that the shares will collapse; it is simply that there is too much hope in the current valuation. It all feels a bit 1999.

The point here is that a decade that started with fear – we were just escaping from the crash and resulting recession – has ended with euphoria. Now the US will have a decade of adjustment. For the US, the thing to figure out will be how to adjust sustainably. Rising sea levels apart, that looks more doable in Florida than it does in DC.