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.
Copyright 2016 The Moderate Voice