Income Inequality

Allan Jones
Nov 6 · 6 min read

It’s not just about fairness, it’s also about sustainability! According to the Pew Research report, “Racial, gender wage gaps persist in the US despite some progress“, white men out-earn black and Hispanic men and all groups of women. In the United States, income inequality, or the salary gap between the rich and everyone else, has been growing markedly by every major statistical measure for some 30 years[1]. (Take a couple of minutes to watch the video linked below to get a better appreciation of the magnitude of the problem.) Income disparity is so vast that America’s top 10 percent now average more than nine times as much income as the bottom 90 percent. Americans in the top 1 percent are paid stunningly higher. They average over 40 times more income than the bottom 90 percent. However, that gap pales in comparison to the divide between the nation’s top 0.1 percent and everyone else. Americans at this lofty level are taking in over 198 times the income of the bottom 90 percent combined.

How is income inequality a problem? They earned it, right? To a certain degree that is true. However, they did not earn it all by themselves. If they are ultra-wealthy, that condition is usually the result of the efforts of many people who worked for them producing the products and services they sold to get rich. In the current largely unfettered or under-regulated US capitalist economic system, the people at the top can determine how much of the revenue goes to the workers and how much goes to the executives and shareholders. If they decide to skew the balance so that the majority of the revenue goes to the executives and shareholders, they can. However, when that occurs, it affects everybody, not just that company’s employees. For example, “Walmart’s low-wage workers cost U.S. taxpayers an estimated $6.2 billion in public assistance including food stamps, Medicaid, and subsidized housing, according to a report published to coincide with Tax Day, April 15[2]. Just a reminder; we (the taxpayers) paid $6.2B to supplement Walmart employees’ pay while “Walmart Inc. paid its median worker $19,177 last year, and Chief Executive Doug McMillon earned $22.8 million, …At Walmart, the CEO Makes 1,188 Times as Much as the Median Worker” [3] That is just one company. It is a national problem.

Why do we allow this situation to continue? America is in danger of becoming an oligarchy. (Definition: “An oligarchy is an organization controlled by just a few businesses or individuals. They have enough power to turn the organization to benefit them to the exclusion of other members. They maintain their power through their relationships with each other.”)[4] During the past few election cycles, Conservatives have accused the Liberals of wanting to engage in income redistribution — as though it is a bad thing; and perhaps it is. Over the past couple of decades, the very wealthy have used their money and power to redistribute income from the middle class to the very wealthy. In 1970, the average CEO earned $25 for every dollar the average worker in the company made. By 2000, that ratio was $90 to $1. In 2017, it is $271 to $1[5]. Looking at the issue from the other end, the bottom 80% of the population owns only 7% of the financial wealth. In 2005, the combined wealth of the 400 wealthiest people was greater than the combined wealth of the other 155,000,000 US Citizens.

In politico-speak, the Republicans consistently refer to these wealthy people as job creators. It is just not true. The wealthy invest their money in financial instruments to make more wealth, not create more jobs. Nick Hanauer in his TED Talk titled “Rich people don’t create jobs”[6] does an excellent job of making this point. In Hanauer’s explanation, consumers create jobs by buying products and services. Instead of trickle down, it is trickle up. If the middle-class workers earn a reasonable wage, they spend their money buying stuff. The more stuff they buy, the greater the demand for the stuff. Greater demand leads to companies needing to produce more stuff. In order to produce more stuff, the company needs to hire more people. Voila! Jobs created! The people with jobs pay taxes, enabling the government to fund more projects and the cycle continues to grow the economy. If you pay a meagre wage, the people can only afford the essentials necessary for survival. Paying a living wage provides some money for discretionary spending — buying stuff.

It is time to consider a different model of income redistribution. We need to make the wealthiest citizens the job creators they pretend to be. In this model, the wealthiest citizens would pay a much heavier tax (call it the “Infrastructure and Public Service Tax”). It would be a progressive tax (The more you make, the more you pay.) and people making less than $200,000 a year would be exempt. The government would spend the revenue generated from these taxes on rebuilding America’s crumbling and outdated infrastructure and paying for public services. We would not be giving the money away to people just because they need it. We would be building things (power and water distribution grids, highway and bridge construction and maintenance projects, water and sewer systems, renewable energy facilities, schools, etc.) and providing essential services (teachers, firemen, policemen, healthcare, national research labs, etc.). We need these things to maintain and improve our way of life. All of them create real productive essential jobs, reducing the unemployment rate and lessening the strain on social safety-net programs. Most of the jobs would not be ‘government jobs’. Private contractors would rebuild the infrastructure, paid for by tax dollars.

There is an added benefit to these spending programs. Applying what economists describe as the multiplier effect, every job directly created by a government contract results in the creation of 2–5 additional local jobs. The benefits of this approach include:

· More people have the personal satisfaction of earning a living.

· Fewer people are relying on social safety net programs — reducing the tax burden associated with funding them.

· Because these people are now earning a living, they will be paying taxes — helping fund additional needed infrastructure projects and creating additional jobs.

· More people working means more people consuming goods and services so all companies benefit.

· This model keeps the country’s financial wealth working to the benefit of all of its citizens, not just the wealthiest.

Please do not try to convince me that the wealthiest people ‘earned’ that money. Certainly, they deservedly earned a lot of money; but then they got greedy. They were not satisfied with a lot. They wanted more. In the words of the ESPN’s Chris Berman and the rest of the Monday Night Football crew, “C’mon, man!” The disparity they have created between executive and worker compensation is irrational, inexcusable, — and unsustainable. For a brief, thoughtful discussion of the cause and effect of income inequality, read, “OF THE 1%, BY THE 1%, FOR THE 1%” by Joseph Stiglitz.[7]

There are three elements to the needed new rules for the game.

1. There needs to be some system for achieving a more equitable ratio between executive and worker pay.

2. We need to tax the wealthiest among us more heavily to create real jobs and improve the nation’s infrastructure and public services.

3. We must pay workers a living wage.

This is an excerpt from my book on Poverty — part 11

(Written but not published. If you want a MS Word free copy, let me know.)

[1] https://www.youtube.com/watch?v=Gk5OJBry2ss

[2] https://www.forbes.com/sites/clareoconnor/2014/04/15/report-walmart-workers-cost-taxpayers-6-2-billion-in-public-assistance/#1a361263720b

[3] https://www.wsj.com/articles/at-walmart-the-ceo-makes-1-188-times-as-much-as-the-median-worker-1524261608

[4] https://www.thebalance.com/what-is-an-oligarchy-pros-cons-examples-3305591

[5] http://fortune.com/2017/07/20/ceo-pay-ratio-2016/

[6] http://www.youtube.com/watch?v=CKCvf8E7V1g

[7] https://www.vanityfair.com/news/2011/05/top-one-percent-201105

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