Posted 7/28/2010 05:09:00 PM by Douglas

Maybe it's just me, but when I think of terms like "transferring wealth to the rich," I think it conjures up images of the proletariat oppressing the bourgeoisie in the eternal clash of class struggle. What I don't think of is my rewards credit card.

Credit card fees and rewards programs exacerbate income inequality by acting as a transfer of wealth from poor to rich, according to a Federal Reserve Bank of Boston study released Monday.

The researchers argue that reducing card rewards and merchant fees "would likely increase consumer welfare."

Merchants usually don't charge different prices for card users to recover the costs of fees and rewards, but instead, mark up the prices for all consumers.

As a result, people who pay cash -- and who are more likely to be lower income -- end up subsidizing those who pay by credit card.

Hold the phone, flip-flop. Merchants mark up everything by 3% to pay for the credit card transaction. That's pretty stupid, but guess who pays it? Everyone! How does this benefit the rich?

U.S. consumer finance data shows that people on a low income are less likely to have a credit card, and those who do, spend less a month on average, than higher earners. High-income consumers are also 20 percentage points more likely to receive credit card rewards -- be they frequent flier miles, cash back or other enticements.

So because poor people are apparently incapable of using a credit card to extrapolate rewards from credit cards, this counts as "redistribution of wealth?" And since someone making $150k a year has just as much opportunity to get in over their heads (and end up paying credit card interest) as those that make $30k, it follows that their opportunity to reap the rewards are the same, too. Let's not forget that the $150K house pays around 30% in federal income tax, while the $30k house pays closer to 0% in federal income tax.

Here's also a news flash that does NOT count as redistribution of wealth: People that borrow money pay interest; people that have money earn interest. Anyone that has a problem with that should stop looking at banking laws and start looking at storming the Bastille.