03/14/2009 11:21 am ET Updated Dec 06, 2017

The Coming Gobal Competition for America's "Top 2%"

In a little noted press conference last week, Spain's Prime Minister Jose Luis Rodriquez Zapetero said "The implementation of a broad new agenda within the United States is resulting in a significant long term obligations for its people. We welcome those who would choose to bring their prosperity to our great country."

While this could be glossed over as a trivial comment, a source within Rodriquez's administration who requested not to be named elaborated: "The United States is ushering in sweeping and expensive new social programs. With the announcement of each new program, there is the insinuation that the payment burden for these programs will be shouldered by the nations top wage earners, the top 2%. We are prepared to offer an alternative environment to America's top 2%. We are working on a broad program of tax incentives, tax credits, community development, assimilation and educational programs that will provide a much more welcoming environment to those who are the wealthiest and most productive." In what the source seemingly considered a humorous reference to the plaque on the Statue of Liberty, he concluded "Bring us your productive, your creative, your rich..."


Is any of this true? NO. Could it be? Absolutely. The more relevant question is when.

While the wealthiest Americans have seen a significant rise in their real income during the last twenty years, their share of America's income tax burden has grown dramatically during the same period. In 2005 (the most recent year data is available), 97% of all income taxes were paid by only 50% of tax payers. In fact, the bottom 40% of America's tax payers (in the aggregate) actually had a tax rate that is negative - meaning they received more money through the income tax system (mostly through earned income tax credits) than they paid. And this was during a republican administration. It is hard to imagine that the U.S. can maintain social cohesion when soon a majority of voters can set the country's social agenda and share none of the burden of paying for it.

But perhaps the most alarming trend has been the consolidation of income within the top percentage of American workers. The top 1% now account for a staggering 40% of all income taxes paid in the US! For the tax collector in any country, this small segment represents an extremely lucrative target.

There has been a lot of discussion about the fairness of this consolidation of wealth, but in the end, this debate may be irrelevant. Globalization creates macro-economic factors that result in this consolidation as an inevitable byproduct. Despite numerous creative attempts by governments to reverse it, this consolidation of wealth is occurring in nearly every modern nation in the world. Legislating away this disparity is difficult, if not impossible.

This is a particularly illusive objective in a global labor market. Should the US choose to dramatically raise taxes on the wealthy, attractive alternatives for citizenship will become much more prevalent. This trend is already occurring in pockets, but what if a desirable country like Spain made a comprehensive effort to attract the top wage earners in the US? Over time, Spain would likely bask in the wealth of new citizens contributing vastly more to the system than they take out, and the US would start to hear whispers of bankruptcy.

The world is now truly flat for those at the top of the labor pyramid. Nearly all have passports and have traveled abroad, and a significant number have already worked and lived in another country. For many, citizenship is now considered a choice, not an obligation. Every country now actively participates in a global market for citizenship, one in which competition for individuals will likely one day approach the intensity in which businesses compete for customers.

It seems that whether or not to shrink the income disparity is, in the end, a false debate. What we should be discussing is how to maintain an environment in which the wealthiest among us will choose to stay. Americans at every point on the political spectrum will end up on the losing end if we don't.

I hear Spain is lovely this time of year.