Reverse the Trend of Income Inequality in America
By Caryl Carpenter
The election in November is critical because the Democrats must take back Congress. Let me count the ways! The Republicans in Congress and the Trump administration have jeopardized many things that Democrats hold dear – voting rights, environmental protection, women’s rights, access to health insurance, and much more. My greatest concern is about how Republicans have succeeded in exacerbating income inequality in this country – a problem of social and economic significance.
What Is Income Inequality?
Income inequality refers to the income gap between the wealthy and the poor – between a six or seven-figure executive and someone making minimum wage. It also refers to the hollowing out of the middle class.
Inequality results from a combination of income coming in to a family and expenses going out. As income inequality has expanded over the last few decades, it is harder for working class and middle income families to make ends meet and almost impossible for low income families to make ends meet.
Wages and salaries of most Americans have been growing at a very low rate over the last 30 years. At the same time, many family expenses have grown exponentially. Compare the generation currently in their 70s and 80s to those in their 50s. Those in their 50s and younger:
Pay more out-of-pocket for health care. Those with employer-sponsored health insurance pay a larger share of the premium today and have higher deductibles and copays. The underlying cost of health care has increased faster than inflation which is why employers pass more of the cost onto employees. Those who do not get insurance from their employers typically have barebones policies with very high deductibles and many services uncovered if they have coverage at all.
Pay more for child care. Since most families have two parents working, they must pay for child care, pre-school, and after-school care. This was not true 40 years ago.
Pay more for higher education. The cost of college, like health care, has grown much faster than people’s incomes. Many families take on huge debt to finance higher education for their kids. That debt is a burden to the graduate as well as the family for many years. States have cut back on funding for state universities and colleges, making families bear a larger share of tuition. Opportunities for Federal loans and grants have decreased.
Save less for retirement. The percent of the workforce with a defined benefit pension has declined rapidly. Defined contribution retirement plans (IRAs) typically require the employee to contribute more than was true in the past. Because of all the other rising expenses in life, many people do not contribute to IRAs or other forms of retirement savings. The amount that employers contribute has been declining as well.
Pay more for post-retirement health care. Retirees cannot cover their health care expenses with Medicare alone. Most people need to buy some form of supplemental insurance to cover co-insurance and deductibles, as well as services not covered by Medicare. Because of changes in tax laws, the percent of employers who fund all or part of this supplemental insurance has plummeted. The majority of employers no longer fund post-retirement medical benefits.
The combination of slowly rising incomes for most Americans and increasing costs of living creates a widening gap between the wealthy and everyone else.
How Have Republican Policies Made Matters Worse? The Tax Bill
The tax legislation passed by a Republican Congress and signed by Trump is not tax reform. True tax reform would eliminate loopholes and special tax benefits for corporations, none of which was part of the tax bill passed. Instead, the tax bill gave large tax cuts to corporations and wealthy individuals, and modest cuts to middle income individuals.
What have corporations done with their tax cuts? Many companies have used the tax cut to buy-back stock from shareholders, increasing the wealth of the remaining shareholders. Some have given one-time bonuses to employees. Rarely have workers received a permanent increase in wages or salaries as a result of the corporate tax cuts. The result: income for the majority of Americans continues to grow slowly.
There has been job growth since the tax bill passed, a growth that started in 2010 under Obama and continued under Trump. However, the jobs that are coming back fall into two categories. One group of jobs requires technical skills that most workers who lost their jobs in the recession do not have. The Republicans and Trump have not funded any job training programs that could help these workers get good-paying jobs in the new economy. The second group consists of new jobs that have lower wages and fewer benefits than the jobs people lost in the recession. Most of these jobs are in the retail and service sectors.
Meanwhile, those in the top income brackets received large tax cuts that they did not need. The notion of “trickle-down” economics (the theory that tax cuts given to the wealthy trickle down to everyone else as the wealthy increase investments) was discredited during the Reagan presidency. It does not need resurrection today. The tax cuts to the wealthy widen the gap between rich and poor, and income inequality increases. The tax cuts will result in a $2 trillion increase in the national debt. That means the Federal government must spend more on interest expense and have less available for everything else.
Access to Affordable Health Insurance
The Republicans in Congress have continued to chip away at the Affordable Care Act, making it harder for people to buy affordable health insurance coverage. At the same time, health care costs continue to rise, especially for prescription drugs. Republicans have done nothing to stem escalating pharmaceutical prices.
Education, Medicare, Medicaid, Social Security and Everything Else
With passage of the tax bill, Republicans have succeeded in starving the Federal government of the revenues needed to fund vital government services.
- There has been no investment in infrastructure that could bring back good-paying jobs and make our economy more competitive.
- Federal support for education has decreased, leaving states to struggle to finance K-12 public education, primarily through increased property taxes.
- There have been no proposals to finance pre-K education that low and middle income families struggle to pay for so both parents can work.
- Republicans seem to have no interest in helping to make college education more affordable.
There is continuing speculation that if Republicans retain control of Congress there will be efforts to privatize Medicare and Social Security, and turn Medicaid into a block grant program to states, which is likely to reduce Medicaid benefits.
Remember: Medicaid pays for the health care of people with disabilities and long-term residents of nursing homes, as well as the poor.
How Do We Measure the Health of the Economy?
Republicans continue to point to the low unemployment rate, the soaring stock market, and the growth in Gross Domestic Product (GDP) as indicators of the health of the US Economy.
- The unemployment rate does not take into account the many people who have given up looking for work and it does not tell us what kinds of jobs are available with what wages or salaries.
- The majority of Americans do not own stock. Increases in stock prices do not necessarily translate into corporate investments that produce good-paying jobs.
- GDP does not measure how the wealth of our economy is distributed across income groups. A growing economy does not float all boats.
The Bottom Line
Despite seemingly positive indicators (unemployment rate, stock prices, and GDP), the net effect of Republican policies has been to expand the gap between the wealthy and the rest of us. Wage growth is slow. There is no support for a Federal minimum wage. And many workers lack the requisite skills to get good-paying jobs.
On the expense side of the family ledger, out-of-pocket payments for health care and education not only make it hard to balance a family budget, they make it increasingly impossible to save for retirement.
This situation can only be turned around if Democrats take control of Congress. That’s why the November election is one of the most important elections in our lives.