The scary arithmetic of grand fortune is shrinking our household nest-eggs.
“Redistribution” is a four-letter word to many establishment policy wonks in D.C., including quite a few who identify themselves as “center-left.”
But mention seldom is made of the constant redistribution of hard-earned income from those of little or modest means to those of enormous means.
Here’s one of the latest scams: Rent-to-own housing. After causing the housing crash, our friends on Wall Street took advantage of the depressed prices by snapping up tens of thousands of houses, now held in giant equity funds as rental units. ProPublica reports in Rent to Own: Wall Street’s Latest Housing Trick on this new twist to Wall Street’s rental housing empire.
Renters pay extra each month in rent for the option to purchase at the end of the lease term, at a price above market value at the time of the lease. The result: The equity fund — that is, the wealthy investors — shift costs to the tenant and receives additional rent, but rarely has to sell the home at the end of the lease term.
ProPublica reporter Jesse Eisinger attended a conference where fund managers pitched this scheme to investment managers. Typically, one pitch noted, tenants “stay until the end and then they say they cannot come up with the down payment or decide not to stay in the property.”
“This amounts to an admission that the product exploits consumers’ lack of financial savvy,” observes Eisinger. “This shouldn’t be surprising. Who are you going to bet gets the price right, an aspiring home buyer or analyst with access to oceans of data on prices and historic trends?”
So into whose pockets goes the extra cash of the fleeced middle-class and poor tenants? The ultra-rich Americans who invest in Wall Street’s housing funds, which generally require a minimum investment of $1 million.
There you have it: Redistribution up.
This redistribution up has become a part of everyday life in America. The new rent-to-own housing scheme rates as but one tiny facet of it.
Charles Blow of the New York Times recently explained just how everyday in a commentary on new polling showing that most rich Americans think America’s poor “have it too easy.”
Many low-income people, Blow points out, go through life “unbanked” — not served by any financial institution — and end up “nearly eaten alive by exorbitant fees.” As the St. Louis Federal Reserve reported in 2010:
“Unbanked consumers spend approximately 2.5 to 3 percent of a government benefits check and between 4 percent and 5 percent of payroll check just to cash them. Additional dollars are spent to purchase money orders to pay routine monthly expenses. When you consider the cost for cashing a bi-weekly payroll check and buying about six money orders each month, a household with a net income of $20,000 may pay as much as $1,200 annually for alternative service fees — substantially more than the expense of a monthly checking account.”
Those low-income people who do gain a bank affiliation, Charles Blow adds, increasingly pay “steep rates for loans and high fees on basic checking accounts.”
The list of mechanisms that strip hard-earned income out of the pockets of low- and middle-income households never seems to end: pay-day loans, title loans, exorbitant credit card interest rates.
Some of these mechanisms operate more subtly. Consider subsidies for sports stadiums and arenas that host events attended largely by the affluent. Those subsidies typically are funded by bond issuances, with an accompanying increase in local sales taxes to fund the resulting debt service.
And who pays the local taxes needed to subsidize the profits of billionaire sports team owners? According to the most recent analysis by the Institute on Tax and Economic Policy, the poor and middle class do. Citing ITEP’s analysis, Patricia Cohen of the New York Times has noted:
According to the study, in 2015 the poorest fifth of Americans will pay on average 10.9 percent of their income in state and local taxes, the middle fifth will pay 9.4 percent and the top 1 percent will average 5.4 percent.
Can it get any worse than that, fleecing poor people to subsidize billionaires?
I don’t agree with the policy wonks who consider redistribution a four-letter word. But I know redistribution up should be. It almost makes me share Paul Ryan’s worldview of makers and takers. Except the groups we’d each place in the “takers” category would not have much overlap.
Bob Lord, an Institute for Policy Studies associate fellow, practices law in Phoenix.