A bunch of decades ago, when I was a kid, my father, being wise to the way of the world, bought shares in two companies. One was a bank and the other an oil company. He held these shares in trust for me – meaning that they would become mine when I became an adult.
As I went through my cavity-prone years, then off to college, then into community organizing and writing, the two companies grew and split and sold themselves and changed their names. In fact, they grew far more impressively than I did.
When I turned 21, I started receiving checks every three months. These were dividends – the cash these companies paid me for the right to use this money that my father had shelled out so many years before. Over time, the payout approached $1,000 a month. Generally, without thinking, I spent it.
And every April 15th, I had to pay money I no longer had to cover the taxes on the money I did nothing to earn.
Then came the Bush tax cuts of 2003. Suddenly the dividends I had been receiving as a functionless investor got renamed. They were now called “qualified dividends.”
Qualified for what?
For the past ten years, if you, like me, are in the lower tax brackets – that is, if your taxable income is less than approximately $39,000 ($52,000 if you’re head of a household, $77,000 if you're married and filing jointly) – your qualified dividends go straight into your pocket, tax-free. If you’re a bigger earner, you pay only about half of what you would have paid if you had earned the same amount from your job. Long term capital gains – the money investors make if they sell shares they’ve owned for more than a year – get a similar tax reduction. Multi-millionaire hedge fund managers, too, exploit a parallel dodge to halve the taxes they pay.
So my functionless income is frictionless. It arrives in my bank account each quarter, free from any social responsibility.
Then I read John Maynard Keynes, the economist whose prescription for governmental investment in society led to the three and a half boom decades between the end of World War II and the election of Ronald Reagan in 1980. In his magnum opus, The General Theory of Employment Interest and Money, published in 1936, Keynes said some hard things about people like me. He called for “the euthanasia of the rentier, of the functionless investor.”
Why did Keynes want to kill off people like me? To break what he called “the cumulative oppressive power of the capitalist to exploit the scarcity value of capital.”
In today’s terminology, Keynes wanted to break up the big banks – or at least to break up their politically-enforced stranglehold on the availability of money. He wanted cash to be abundant and accessible at minimal rates of interest. This way, corporations would no longer need to pay idiots like me for the use of our cash and there would no longer be any reason for me to receive dividends for doing absolutely nothing. This, Keynes asserted, offered capitalism a lifeline – the possibility of revolution without a revolution, a chance to make society more equal without overthrowing the system.
Of course, we haven’t taken Keynes up on this challenge. Instead, over the years, the government decided to reward us functionless investors. When I write an article like this one, I have to pay full taxes on what I earn. When I invest in a bank, I don’t.
The tax deals for functionless investors don’t appear on the 1040 form that all American taxpayers file to determine how much they owe. Rather, there’s a bunch of worksheets hidden in the instructions. That’s right: the government trusts us functionless investors so much that it lets us determine our own savings without even reporting them on our tax returns.
The dance of the functionless investor is inequality at work. Most Americans don’t own any stocks at all. And those who do tend to be well-off: 90 percent of all the stock shares in the US are held by the fortunate people who can count themselves among the wealthiest 20 percent of the nation. This gift from Uncle Sam to the functionless investors of the nation is a direct subsidy to the rich.
It's hard to give up easy money. But it’s time to put the jackpot I received from my father into doing things in the world, things I believe in, things that leave a legacy that is not just tax-free cash.
It’s time to kill the functionless investor inside me.