Intriguing Income Inequality Facts

Today, I came across some interesting facts about the “rich” in this country that either challenge those offered by the Occupy Wall Street movement, or force its followers reconsider how they “redistribute” wealth in this country.

Let’s Do the Time Warp Again

According to The New York Times, the share of income earned by the top one percent dropped from 23 percent in 2007 to 17 percent in 2009. In other words, the Great Recession has served as a bit of an income equalizer. In fact, the numbers are now back to where they were during the Clinton administration. It seems the financial crisis has already to a large extent “corrected” income inequality.

Rethinking Social Security

If Occupiers are interested in redistributing income, a recent Pew Center report may indicate that reducing Social Security benefits may do more for income equality than increasing taxes carte blanche on the “wealthy.”

Why?

Because there is a rising age gap in economic well-being. In 1984, the net worth of households headed by adults 65 and older was 10 times that of those headed by an adult under 35. It should be no surprise that there is at least some wealth gap, given that those over 65 have had at least three more decades to earn and save their salaries. However, in 2009, this ratio had nearly quintupled to 47 to 1. That is, the typical household headed by an older adult had $170,494 in net worth versus his younger counterpart with $3,662.

Rather than increasing taxes on the “wealthy”, shouldn’t the government simply apply a means-test to senior citizens each year so that only those who actually need Social Security receive it?

It seems pretty reasonable to me.

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About Sean Patrick Hazlett

Conservative clean energy crusader, national security hawk, financial analyst, engineer, and former military officer.
This entry was posted in Finance and Economics, Policy, Politics, Social Security, Socialism, Taxes and tagged , , , , , . Bookmark the permalink.

19 Responses to Intriguing Income Inequality Facts

  1. middleagedhousewife says:

    Sean,
    It is a reasonable and simple solution to at least part of the Social Security dilemma. It will be a hard sell though. Unlike the Occupiers who feel they are “entitled” to government benefits simply because they exist, many seniors on Social Security have worked hard, have earned their benefits and won’t feel inclined to give them up. They are a formidable voting block with a powerful lobby. The AARP.

  2. I could see the sensationalist headlines already: “Republicans want to bar Seniors from Social Security.” haha

    Here’d be an interesting thing, though: just like you want the voluntary overpayment for “fair share”, let’s do the same thing for rich seniors. Let them check a box that says they want to give back their social security income, and then have an aggregate percentage listed every year of the amount who do.

  3. The decline in income share by the top 1% in 2009 was caused entirely by the drop in income from capital assets (stocks, bonds, real estate, etc.). That has mostly rebounded. If you check now I think it’s back above 20% again (21%?). You have a good suggestion, though, about means testing for social security, and I would add medicare, too. It’s not the that the elderly in general are so much wealthier, it’s that the wealthier elderly are so much wealthier. Also, why not raise the cap on income subject to SS tax — why should it top out at $110K?? This alone solves the “funding gap” for at least another 60-75 years.

    • Chuck,

      I agree that the income decline was likely almost entirely due to capital losses. On SS, rather than raise the maximum cap, I would simply just raise the retirement age. My generation’s not going to get social security at all, so I don’t think we should solve the problem by forcing the young to cough up more funds for something they won’t get.

      • Scott Erb says:

        Unless the bottom falls out of the US economy completely, I think Social Security will be around for a long time. They’ve been saying since the 70s that young people of that era would not see it, but while it must be reformed, it’ll survive. I agree with raising the cap and raising the retirement age. In principle I’d agree to means testing, but the tricky part is avoiding incentives not to save. IOW, if means testing will be in place will one be tempted not to contribute to their own retirement accounts in order to be eligible for SS? I think one could get around that, but that would be a concern.

        • “I think one could get around that, but that would be a concern.”

          I agree it could be a concern. But I think most people make an honest attempt to save. I certainly wouldn’t change my behavior just to ensure I get a meager SS check when I am 65+.

    • pino says:

      The decline in income share by the top 1% in 2009 was caused entirely by the drop in income from capital assets (stocks, bonds, real estate, etc.). That has mostly rebounded. If you check now I think it’s back above 20% again (21%?).

      I think if you look at the data further, it’s not even the top 1% that holds the wealth. But really the top half of the top 1%.

      My question is this: Is it a reasonable “price” to pay for a very wealthy and prosperous nation to have a very very few households making money that we can’t even imagine?

      Also, why not raise the cap on income subject to SS tax — why should it top out at $110K?? This alone solves the “funding gap” for at least another 60-75 years.

      If we are forced to keep social security the way it is, that is, no private accounts, I would make four changes:

      1. Up the cap
      2. Extend the retirement age
      3. Means test by income/wealth
      4. Change the way that the SS payment is pegged to inflation

  4. If we didn’t have to pay into Social Security, I’d agree that a means test would be appropriate. But it’s mandatory (unless you’re a government official, a teacher, etc.) and at least the portion we actually pay in plus some low amount of interest should be paid to the people who paid into the system upon reitrement. Maybe I could buy raising the cap on social security pay-ins. But that would only push dealing with the real problem for the next 20 or more years. Congress taking the trust funds to pay for other things is the problem. If the trust fund had been put into Al Gore’s “lock box,” (God-forbid that I should quote him!) Social Security wouldn’t be bankrupt.

    • “If we didn’t have to pay into Social Security, I’d agree that a means test would be appropriate. But it’s mandatory (unless you’re a government official, a teacher, etc.) and at least the portion we actually pay in plus some low amount of interest should be paid to the people who paid into the system upon reitrement.”

      Bee, I agree that people who have paid into the system for their entire lives should get Social Security. That said, unless we raise the retirement age and start instituting means testing for people my age and lower, there will be nothing left by the time we retire.

      “Maybe I could buy raising the cap on social security pay-ins.”

      This is the one area that I strongly oppose for the same reasons above.

      “Congress taking the trust funds to pay for other things is the problem. If the trust fund had been put into Al Gore’s “lock box,” (God-forbid that I should quote him!) Social Security wouldn’t be bankrupt.”

      I completely agree with you here.

  5. Alan Scott says:

    Social Security has only one practical benefit to a select portion of the younger population. If you are young and happen to be in the will of one today’s geezers, you have a good chance of having that wealth passed down to you. SS allows today’s upper middle class to not have to waste their wealth on their old age. So at least a part of the young are getting something for the suckers’ bet they are forced to make. To the rest of the younger population, Tough Situation.

  6. dedc79 says:

    RE: Let’s do the time warp – the problem is that there’s a big difference between a person making $50 mill a year who is now making $47 million instead, and a person who was making $50 thousand and is now making nothing b/c he lost his job. That doesn’t strike me as a correction of income inequality.

    • “That doesn’t strike me as a correction of income inequality.”

      Statistically, it is – i.e., the percentages have returned to 1990 levels. Though I agree that on a individual case-by-case basis, it is harder for those at the low end of the spectrum than it is for those at the higher end. That said, the fundamental problem is the overall economy. Transfering even more income from one segment of the population of another will do nothing to correct a lack of demand. If the government is to help improve the situation, it ought to provide incentives to business to build manufacturing facilities in the United States, which create the jobs that help stimulate demand. Provide a business with a 15-year tax holiday for all products that come out of a new manufacturing facility built in the United States, for instance, and the income taxes generated from all the jobs the plant creates will more than pay for itself. The problem now is that everyone is looking at our nation’s economic problem as a zero-sum game, when we should be focused on growing the overall pie.

  7. Perhaps the we could start with a reduced inflation adjustment for those of considerable means. I think it might be politically feasible and at least get us started in the right direction.

  8. A very good article on income inequality is here: http://www.nationalaffairs.com/publications/detail/justice-inequality-and-the-poor. Ryan Messmore suggests that “inequality” of income outcomes is an entirely inappropriate measure of justice here. I thoroughly agree Income distribution is not a zero sum game. Because your income goes up or down has, at best, only a vague, tenuous effect on my income.
    Plus there are other intriguing details. The count of persons in the top quintile (of income) is 24.6% of the population while the bottom quintile (of income) is 14.3% .

    (ps: Apologies for the lateness of this comment, I survived a Whipple Procedure and recovery is long.)

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