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Posted by on May 6, 2016 in Economy, Guest Contributor, Politics, Society | 4 comments

The Increasing Income Inequality that No One Wants to Discuss (Guest Voice)

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The Increasing Income Inequality that No One Wants to Discuss

Seniors in the U.S. have been enjoying healthier income gains than younger workers for years.
by Brian Goebel

Whether you agree with the phrase, or believe that it is a loaded political term, there is no denying that rising “income inequality” is a serious issue in the U.S. For the past 50 years (not just the last 15 years, as has been widely reported), many working Americans have struggled to make economic gains. During this period, inflation-adjusted incomes for the bottom 60% of earners in the U.S. have been flat. Those in the 2nd quintile (21-40%), however, have seen substantial increases in income – a fact that the media and politicians have largely ignored because the success of this quintile undercuts the narrative that the middle class has been left behind by the new economy. What has not been ignored is the fact that the top 20% of earners have seen large increases in income, with those in the top 5% achieving the largest gains of all.

Irrespective of the gains made by the wealthiest Americans, we should all be concerned that incomes for the majority of Americans have been stagnant for decades. This is the antithesis of the American Dream and, as Alexis de Tocqueville noted, it undermines the unique social compact that glues America together. Indeed, one could argue that the disaffected voters who have flocked to the campaigns of Bernie Sanders and Donald Trump have already concluded that this bond has been broken given their shared concerns over wage stagnation and inequality.

Our presidential candidates fan this economic populist flame by consistently highlighting the dramatic difference in income gains between the wealthiest and poorest Americans over the past 15 years. Mr. Sanders, for example, argues that “there has been an enormous transfer of wealth from the middle class and the poor to the wealthiest people in this country.” Hillary Clinton has sounded similar notes in her campaign. Even Republican candidates have expressed concern over the widening gap between rich and poor in the U.S.

By framing the issue as the widening gap between the wealthiest and poorest Americans, the presidential candidates are deliberately ignoring another dimension of the problem. Since the Great Recession, “[s]eniors in the U.S. have . . . enjoyed healthier income gains that their younger counterparts.” This trend has been repeatedly documented over the past several years by Pew Research Center in 2011 and the St. Louis Fed in 2015, so our politicians cannot credibly claim ignorance of this increasing income inequality.

And ever increasing it is. In 2011, Pew concluded that “households headed by older adults have made dramatic gains relative to those headed by younger adults in their economic well-being over the past quarter of a century.” In 2015, the St. Louis Fed determined that “in 1989, old families had 7.6 times as much median wealth as young families. By 2013, it had grown to 14.7 times.”

There are several contributing factors to this widening wealth divide between young and old, but two stand out. First, the economy has sputtered along for the past seven years, failing to produce meaningful wage gains even with falling unemployment. Second, the entitlement programs have continued their relentless growth. As Pew noted, this has provided “older adults [with] the advantage of inflation-indexed Social Security as [an] anchor of their annual income streams.”

Rather than discuss entitlement reform, presidential candidates and elected officials would prefer to tout their various plans for economic (and hopefully wage) growth, with the Democrats also advocating for increased taxes on the wealthy to subsidize increased government benefits for everyone else (a hedge designed to reduce the expenses of working Americans if the Democrats cannot deliver meaningful wage growth). Even if wages were to increase for younger working Americans under both Democratic and Republican policy proposals, this would only solve half of the income inequality equation.

The Democratic candidates ignore the other half of the income inequality equation – rising entitlement spending – for two reasons. First, their proposals to expand the entitlement programs, especially Mr. Sanders’, threaten to widen the income gap between older and younger Americans and call into question their commitment to reducing income inequality. Second, drawing attention to this problem and their pro-retiree policy proposals could cost them the support of younger voters – a demographic where they need to maintain their healthy advantage over Republicans.

For the leading Republican candidates, this form of income inequality is equally inconvenient. Both Mr. Trump and Ted Cruz have stated that they will not seek entitlement reform (for fear of alienating elderly voters). John Kasich, however, has indicated that he will seek unspecified entitlement reforms (although he has not framed this as a means of reducing income inequality). But he is trailing badly in the delegate count and counting on a contested convention to secure the nomination.

This leaves younger voters in a bind. Since none of the presidential candidates wants to discuss the rising income inequality between younger working Americans and retirees, Millennials and Generation X will have to start the conversation. But how? If only there were rapid mass communication tools widely available to younger Americans that would allow them to draw widespread attention to this issue and force their elected officials and the presidential candidates to start addressing this form of income inequality.

Brian C. Goebel is the President of Reason in Government (an organization dedicated to more reasoned, effective, and efficient government in California), Editor-in-Chief of www.2040matters.com (a public policy blog focused on repairing the American Dream for younger Americans), and President of Sentinel Holdings, LLC (a company that owns and operates professional services firms with homeland security expertise). He received his B.A. from the College of William and Mary and his J.D. from the William and Mary Law School.

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  • Slamfu

    Every time people talk about income inequality it seems they never really get to the part about how to fix it. This article seems to say that the Democrats method of fixing it is simply to increase entitlement reforms, and then doesn’t really back it up. I’d like an explanation as to why he thinks increasing food stamps and welfare spending is what leads to wage growth and less income inequality. I’m all for paying for those things, the social safety net is necessary and I’m happy to contribute my taxes to it, I just don’t think it has much to do with fixing the middle class.

    The two biggest factors that keep income inequality down are progressive taxation and Unions. These things for decades worked well, even for the rich. Progressive taxes keep more of the overall economic pie where it does the most good for GDP, in the consumer class, and away from where it does the least, the very tippy top where it all goes offshore or into recursive investment vehicles and rarely touches actual goods and services to create demand. Would also be nice if the govt had some extra money to spend on things like reducing college education costs which also go a long way in the long term into reducing income inequality.

    Unions gave the working stiff a fair wage and played a big role in creating the middle class as well as reducing workplace fatalities and injuries by 99%. I’m not sure how to reinvigorate them again, but I think a good place to start is to destroy the conservative narrative that Unions are bad overall.

    Problem is, no one(almost) is willing to actually talk about the importance of raising taxes to get us back there. After Mondale got crushed in 1984 Democrats would rather jump out of their own skin than mention it on the campaign trail. It truly is heartbreaking that these concepts that were so effective and worked so well in the past have been slandered into politically taboo subjects that even “Liberal” leaders fear to speak of. Forget the hype, look at the numbers. Look at the data, look at history. So frustrating we have to sell ourselves twice on what the answer is.

  • sigh…

    Slamfu, have you even READ my posts? The Federal Government creates the money–so it has the money. The question is INFLATION, not solvency! The trick to getting the Federal Government to helping close the wealth gap is getting approximately 99% of the people to realize that they are not going to be disgustingly rich–thus policies that benefit poor and low-income people are not likely to adversely affect them!

    Plan: (note there are many, many variations on this theme)
    1. Create a minimum per-capita income (everybody gets a living amount of money) OR
    2. Create a guarantee that a person (absent misbehavior that has to exclude such an individual) who is physically able to do so may get a job at living wage/benefits (whatever that means)

    Next: Make sure that the tax system takes out enough money (that you created to pay all the above) so that inflation will be within acceptable limits (for instance 1.8-2.2%).

    Done.

    Details are details, but there is the plan.

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  • jdledell

    Yes seniors have done okay since 2008 mainly because SS is indexed to inflation. However, the indexing is merely keeping up with the rising cost of living – seniors really don’t have extra buying power. However, when seniors income is compared to other lower income Americans it looks on the surface as if Seniors are hogging the pie but appearances are deceiving since other lower income Americans incomes have stayed the same so their buying power has been diminished due to rising cost of living. The solution is NOT cutting SS entitlement but getting more income to other low income Americans by revitalizing the American economy and implementing tax policies the penalizes the wealthy from hoarding American wealth by implementing a wealth tax in addition to a progressive income tax.

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