Income Equality 2018

     

I have long suspected that the statistics used by progressive advocates to complain about income inequality in America were either flawed or misrepresented. In the June 25 edition of the Wall Street Journal an opinion piece co-authored by Phil Gramm, a former chairman of the Senate banking committee, and Robert B. Ekelund, Jr., a professor emeritus in economics at Auburn University, bore out my suspicions.

The authors cite a new study prepared by the Cato Institute’s John F. Early, a former assistant commissioner of the Bureau of Labor Statistics that provides the “most comprehensive accounting to date of how taxes and government payments affect income distribution in the U.S. Apparently, the traditional statistics used by the Census Bureau do not take into consideration about $1 Trillion dollars in annual government spending.

The value of Medicaid, food stamps, the earned income tax credit and about 85 other Federal government programs is not included. Also, state and local income supplements are not included in calculations of income. On the other hand, reductions in income due to all sorts of taxes are not factored into income distribution statistics.

Here is the authors' conclusion.

“The most surprising finding is the astonishing degree of equality among the bottom 60% of American earners, generated in part by the explosion of social-welfare spending and the economic and wage stagnation during the Obama era.”

In 2013 the income of the bottom 20% in this country amounted to only 2.2% of total earned income but when other forms of income and taxes are factored in, its share jumped to 12.9%, a six-fold jump in earnings. Similarly, the next 20% saw its share of the nation’s income jump from 7% to 13.9%.

When we get to the middle class in the next 20% or third quintile, their total income was not far from their earned income. Primarily wage earners, this group took home only 15.4 % of the national income, not much more than those in the two quintiles at the bottom.

The real inequality, however, is in the fact that this group had to work for most of its income while those in the lower quintiles did not. In fact, many of these middle income families had to work two or more jobs to just stay even with those in the lower quintiles.

Not surprisingly, when taxes are taken into consideration, even the well to do in the top 20% saw their share drop from “57.7% of earnings to 39.3% of consumable income.” I suspect that a society in which the top 20% make only 40% of the consumable income is unprecedented in American or even world history. Even in Communist countries like the former Soviet Union, China, and Cuba, the disparity between rich and poor was much greater.

Based on these new statistics it would appear that income inequality is not the great problem that progressives make it out to be. According to the authors, a much greater problem is the discontent in people who have to work hard to have the same spendable, after tax income of people who do not work at all.

Rather than Russian collusion or Hillary Clinton’s lackluster campaign, Senator Gramm and Professor Ekelund believe that it was this discontent in the middle class that led to Donald Trump’s victory in 2016. The headline above their article was "How Income Equality Helped Trump." The Gramm/Ekelund article was adapted from their forthcoming book, “Freedom and Inequality.” Progressives will never stop complaining about income inequality, but it was income equality that did them in in 2016.

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