Income inequality is another misunderstood economic idea in the news every day, so as is JAM VIEWS' mission, this week let's help our membership understand the facts of income distribution today in the United States.
Once we understand the math, we are permitted to scream for more redistribution, or to scream to take back more of our own money. That is the great freedom of being an American. All JAM VIEWS continually asks of us is to, first, understand the facts so that we may form an educated opinion for ourselves - not from someone else's sound bite.
And a side note, regardless of our opinions on the matter, make sure we hang around people with views much different than our own. Vanilla is boring, and lack of growth is boring. We must seek out diversity in our friendships and associates. Otherwise, we become that co-worker at the water cooler whom everyone already knows their opinion on everything. Nothing worse than predictable!
Previously, former Senator Phil Gramm and former Assistant Commissioner of the Bureau of Labor Statistics, John Early, had released a thorough report detailing the true economic distributions in the U.S., and this week I want to simplify and summarize this data so we all may be armed with simple facts when the evening news, invariably, covers this topic again tonight.
The first roadblock for Americans attempting to understand income inequality is that the Census Bureau chooses to produce irrelevant household income numbers. The Census Bureau claims the top quintile (20% of earning households) has 17 times as much income as the bottom quintile, but they do not distribute the net number we as U.S. citizens are left with to spend as we see fit. The Census Bureau does not calculate in the taxes we have to pay before we get our money, and it does not calculate in the redistribution public transfer payments to American households.
For example, in the top 20% the numbers do not factor in that one-third of the income is first taken by the government in federal, state and local taxes, as this top 20% pays nearly 70% of all taxes for our country. Wow, let's thank them for their service! Also, the Census Bureau, inexplicably, fails to count the $1.9 trillion a year taken from higher quintiles and given to lower quintiles.
So you know, there are 95 federal programs, such as Medicaid and food stamps, along with dozens of state and local programs with which the Administrative State takes and gives. Forty percent of federal spending is allocated to these transfers, and this income provides nearly 90% of the bottom 20%'s resources, as well as more than 50% of the next 20%'s resources. Still with me?
At the beginning, there is a 60-1 disparity as the top 20% earns an average of $295,000, while the bottom 20% earns $4,900. Then the bottom 20% receives $48,000 in transfer payments and pays out almost $3,000 in mostly sales taxes, ending with approximately $50,000 in net resources. At the same time, the top 20% pays out an average of $109,000 in taxes leaving approximately $190,000 in net resources to spend as they see fit: A true Income Inequality Ratio of three-point-eight to one (3.8 to 1)
Noteworthy, the average middle-income household receives nearly $18,000 in government transfers and pays the same $18,000 in taxes. Also, the lower second 20% earns 500% more income than the lowest 20%, but nets only 9% more to spend as they see fit.
The concerning issue, if you recall our Behavioral Economics posts, is that Americans operate in a mostly logical fashion when it comes to work and earnings. For instance, the anti-poverty spending of the last 50 years has raised most households into the middle class yet has tempted many to stop working. In 1967, 70% of prime working-age adults in the bottom 20% were employed, and now only 36% keep a job. They are not being irrational, but logical. I am even curious as to why the next 20%, and even the next 20%, still work. It really doesn't make much sense.
As many of you know, I mentor and teach job skills and interviewing courses for federal inmates. When I help individuals complete their resumes, a consistent response I receive is, "This doesn't matter. I'm just going to get a check." I have to tell them, "That sounds logical. It makes sense."
Maybe you think 3.8 to 1 is too much income inequality in our country, or maybe you believe this is too much income equality which is killing economic incentive and upward mobility, but at least now you have the truth. Vote as you see fit. Have a great week!
Thank you to Senator Gramm, Commissioner Early, and the WSJ for many statistics,
"Choose a job that you love, and you will never have to work a day in your life." - Confucius