Category Archives: Income inequality

Sanders’ popularity is a warning

THE ISSUE: For 40 years, the majority of Americans have watched their financial prospects fall as the wealthiest added to their fortunes. The rise of Bernie Sanders, a self-described democratic socialist, suggests the oligarchs who increasingly control our government have gone too far.

The rising popularity of Bernie Sanders, a Democratic presidential candidate and an independent senator from Vermont, has startled many. He has little of the charisma that marks most politicians. His appearance is unremarkable. His campaign coffers are tiny.

In short, he has none of the attributes that would lead people to overlook his message in supporting him. Which means it is his message that’s attracting massive crowds throughout the nation. It is his message that’s resulting in his growing strength in the polls.

And that’s where the shock really comes, especially in a state such as Alabama where the people are fed on a steady diet of the sanctity of free enterprise. He’s a flaming liberal in a nation that most thought was to the right of center. He describes himself as a democratic socialist in a nation where the term “socialist” is used as an insult.

To be fair, socialism is hardly a foreign concept in the United States.

As used by Sanders, it merely means the people should exercise their ability to regulate the means of production. America long has recognized unrestrained capitalism is dangerous. The 40-hour week, the minimum wage, child-labor laws, laws prohibiting employer discrimination based on race or gender, consumer protection and environmental laws, public utilities and infrastructure and schools — all are “socialist.”

But make no mistake, his ideas are radical. Some may be reckless. He calls for free tuition at public universities. Health care should be a right guaranteed to all through a Medicare-for-all system. The minimum wage should be upped to $15, meaning no person working 40 hours per week would live in poverty.

And Sanders is blunt on how he would pay for these benefits. He would increase taxes on the wealthiest Americans and corporations, who he claims are reaping the primary benefits of a rigged political system without paying their fair share.

Sanders has not had to answer the hard questions. Would escalating tax rates chase corporations from the United States, along with the jobs they provide? Would a doubling of the minimum wage result in skyrocketing unemployment and business failures? Would high taxes on billionaires lead them to forego investments in production that benefit all Americans?

Sanders’ growing popularity is a surprise, but it shouldn’t be.

During the 30 years after World War II, the economy doubled in size, and wages of American workers grew with it. Since 1980, the economy has again doubled in size — but wages have remained stagnant, and benefits have deteriorated. Productivity is higher than ever, but since 1980, the increased profits have gone almost exclusively to corporate owners.

And maybe most significantly, wealth now translates directly into political power — the ability to create laws that make the rich richer, at the expense of those who work for them.

Sanders as president would be a disaster for the wealthy, and the consequences of his policies might hurt the nation. His popularity, however, is a direct result of corporate greed and the politicians who are complicit in creating a system that ensures cheap labor and low taxes for their wealthy benefactors.

For those who control our political system with cash, Sanders’ rising popularity should come as a warning. Push the American people too hard, and they will push back.

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Filed under Income inequality, Presidential election

Now is the time to address economic inequality

THE ISSUE: A recent study concluded Americans dramatically underestimate the level of economic inequality. An advantage to this misperception is that it gives policymakers time to reduce inequality before it causes more social unrest.

A recent study published by the National Bureau of Economic Research explored an oddity in the United States and other nations with dramatic economic inequality. Despite historical evidence that stark inequality of income and wealth leads to demands for income redistribution and often to violent class conflict, such consequences have not been pronounced in this country.

The underlying premise of the study — that inequality is high and growing higher in America — is an objective fact. America has the highest post-tax-and-transfer income inequality of any highly developed nation in the world. It outranks Israel, Britain and Canada, and its level of income inequality dwarfs that of Japan and most European nations.

Indeed, the list of countries with greater inequality than the U.S. is a disturbing snapshot of political instability, including countries such as Mexico, Colombia and Haiti, and a host of tottering regimes in Africa.

Why haven’t the citizens of the United States pursued tax reforms that help limit the gaps between the haves and have-nots? Why, after hundreds of studies demonstrating the nation’s growing inequality, do the nation’s wealthiest households often pay a lower percentage of their income in taxes than do those households at or below median income?

It’s a question that’s especially relevant in Alabama, which has a greater level of income inequality than all but five states. Why are Alabamians not clamoring for tax reform that would leave the vast majority untouched, but would slightly increase the burden on high-income households?

One answer, according to the NBER study, is that people do not recognize the level of inequality. For example, Americans underestimated the income of chief executive officers by 85 percent.

Maybe more significant people tend to believe they are higher on the income ladder, relative to other citizens, than they actually are.

“The rich tend to think that they are poorer than they are, and the poor tend to think that they are richer than they are,” the authors concluded. “Both believe they are closer to the national median than is, in fact, the case.”

So while it may be the case Alabamians are ideologically opposed to taxation and thus tend to oppose tax measures, it may also be the case that they wrongly assume their wealth or income would subject them to higher taxes in the event of progressive tax reform.

Economic inequality is not inherently bad. Socialism has been a consistent failure in part because, by aiming for perfect equality, it destroys entrepreneurial motivation. The desire to accrue wealth is a powerful motivator that has created huge benefits for the U.S. economy.

The level of inequality, however, has been growing at an increasingly furious pace. Rather than use tax policy to rein in inequality, Congress and state governments have too often used it as a tool to increase the chasm between those with capital and those without.

The NBER study concludes that people underestimate the level of inequality and overestimate their economic standing relative to the population. These misperceptions may help limit social unrest, but they are not sustainable. One benefit of the misperceptions is it provides lawmakers with a window in which to implement responsible policies aimed at curbing inequality.

Now is the time for leaders in our state and nation to put in place responsible tax reforms that impose higher burdens on the wealthy than on the poor, but not so high that they discourage innovation and investment.

Now is the time to provide educational opportunities that place the ladder on income mobility within reach of the poor.

(Published June 4, 2015)

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Give the low-income majority a voice

Posted: Tuesday, March 3, 2015 12:00 am

The Issue

  • On this first day of the legislative session, the Alabama Legislature should show a willingness to solve the state’s fiscal problems without increasing the tax burden on the low-income majority.
It’s a momentous day, or should be.

It’s a day when Alabamians expect to see self-governance in its noblest form. Thirty-five state senators and 105 House members, elected by the people, will come together in Montgomery to represent the interests of 4.8 million Alabamians.

Whether Alabama’s effort at governing itself is successful depends largely on the extent in which the voices of those 4.8 million Alabamians can be heard through their elected officials in Montgomery. Any test of the Legislature’s success in representing its constituents, therefore, requires a basic understanding of the people it represents.

Alabama is a desperately poor state. It is in the bottom five of all states when it comes to median income and per-capita gross domestic product.

Forty-two percent of Alabama households have an income of less than $35,000. A solid majority of households, 56 percent, have incomes below $50,000. Half of Alabama households bring in $43,000 or less. Some, of course, are better off. Just under 3 percent of Alabama households bring in more than $200,000 a year, and almost 6 percent of households make more than $150,000.

Fifty-nine percent of Alabama’s K-12 students receive free or reduced lunch. Twenty-seven percent of Alabama children live in poverty.

These grim numbers do not dictate a specific legislative agenda, but they suggest some logical directions.

For starters, Alabama needs to get its finances in order. Gov. Robert Bentley estimates a $700 million shortfall in fiscal 2016, which begins Oct. 1. Nobody likes to pay more taxes, but sensible people understand that self-governance requires funding.

So the question becomes how the Legislature can address the financial imperative of raising revenue while honoring the democratic imperative of representing a low-income population.

The answer is not mysterious, and it does not require a novel approach. It requires doing what most states already do: exact at least as heavy a tax burden from the wealthy as from the poor. Alabama does not do that. The half of Alabama households with incomes below $43,000 pay at least 10 percent of their income in state and local taxes. The percentage drops steadily as household income goes up, with those households enjoying the top 1 percent in income paying less than 5 percent in state and local taxes.

The Legislature can both solve its perpetual budget crisis and reduce the burden on the low-income majority by implementing basic reforms that reduce the state’s dependence on regressive taxes.

Throughout state history, the Legislature has catered to the wealthy — and politically powerful — minority.

Today, on the first day of the legislative session, the Legislature has an opportunity to demonstrate that 4.8 million Alabamians have a voice in Montgomery.

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Filed under Alabama politics, Income inequality

On inequality, Obama is talking to Alabama

You could almost hear the collective groan in deep-red Alabama when President Barack Obama, in his State of the Union address, reminded Americans of what he has long said was one of the nation’s most pressing challenges.

“Today, after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better,” Obama said. “But average wages have barely budged. Inequality has deepened. … Too many Americans are working more than ever just to get by; let alone to get ahead.”

The Alabama groans were expected. For six years, our elected officials have force-fed us a political diet that lacks any substance but the certainty that everything Obama says or does is wrong, and maybe evil.

Alabama’s groans at Obama’s words on the collapsing middle class, however, were misplaced. More than almost any other state, we feel the consequences of a four-decade trend in which the rich — blessed with capital and opportunity — have gotten richer and everyone else has struggled. Like him or not, Obama is fighting for Alabamians when he fights against inequality.

Obama’s description of growing income polarization is accurate. Corporations get it, and many are struggling to cope with it. In Decatur, we recently have lost two retailers that depended on the middle class: Sears and JC Penney. The disposable income of the companies’ traditional customer base is dwindling.

Some retailers, however, are doing great. Never better, thank you. High-end stores like Nordstrom and hotels like Four Seasons are powering ahead, reports the New York Times. The most nimble companies, like G.E. Appliances and Darden restaurants, are pushing high-end brands that appeal to the wealthy customers who still have disposable income.

Forty percent of all personal consumption expenditures in 2012 — up from 27 percent in 1992 — came from the top 5 percent of earners. The bottom 80 percent of earners accounted for only 39 percent of personal consumption expenditures in 2012, down from 47 percent in 1992.

Alabama — with more than one in five living in poverty and with a per capita income that is 42nd in the nation — should be especially disturbed by this trend. In a nation that has the greatest income inequality in the industrialized West, Alabama’s income disparity — its gap between the haves and have-nots — is greater than all but four states. And even corporate America should worry, as it is forced to market its products to an ever-smaller percentage of the population.

If our politicians have new ideas on how to reverse a trend that is undermining our economy and depriving Alabamians of access to capital and opportunity, they should speak up. If all they have to offer is attacks on Obama, they need to get out of the way.

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Filed under Alabama politics, Income inequality, obama, Uncategorized

My Labor Day rant to a friend

I loved the Krugman piece you forwarded..

If you want to get mad, read the attached Heritage email. The whole email infuriates me, but especially who they pick as the centerpiece: Ashton Kutcher. This is what the self-laudatory species of capitalists always do. They find examples of people who made it, but the examples are always people with unique talent or, in the case of Kutcher, unique looks. (He was drinking his way through college, per Wikipedia, when a modeling scout signed him up.) Yes, a Bill Gates or an Ashton Krutcher can avoid poverty, even if their parents aren’t rich. But what about regular people?

Krutcher may well have worked hard, but he lucked into his looks. Same with Gates and Krugman on their intelligence. Capitalism does a great job at rewarding those with unique gifts, which we need, but it no longer rewards the labor of those without unique gifts.

Hard work no longer gets the average person — one without unique intelligence or looks or talent — into the middle class. A hard-working person of average talent, but no family money, can’t go to college. He can’t pay for health care. He can’t save for a house. Thirty years ago, when a low-skill job at Wolverine or 3M paid enough for a middle-class existence, most people had access to the “American Dream.” They had opportunity, and they could provide opportunity for their children.

That has changed. Since 2009, 60% of the jobs that have been created pay less than $11 an hour. No one can accumulate capital at those wages, and success in America is impossible for those who can’t accumulate capital.

Sorry for the rant. Labor Day always brings out my worst.

Eric

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Filed under Capitalism, Income inequality, Poverty

ACA avoids welfare cliff, but not in Alabama

A common theme in American politics is that the nation is overly generous with those living in poverty. U.S. Rep. Paul Ryan, R-Wis., famously called the safety net a “hammock” for the poor. The CATO Institute recently published a report claiming the safety net is so comfy that people routinely spurn work, preferring the comparative luxury of tax-funded welfare programs.

It’s a sad attempt to reject the reality that structural changes in the U.S. economy have destroyed income mobility. People who are born poor generally stay that way. They need money to get advanced education. They need money to get and maintain a car that will get them to work on time. They need money for health care so minor ailments don’t turn into illnesses that prevent them from keeping a job. They need money for day care, so they can work while their children receive adequate care.

A few decades ago a hard-working person with no skills could find a job that allowed them to accumulate savings, which they could use to increase their income level.

Today, a hard-working person without unique skills is fortunate to get a job that pays enough for them to hover near the federal poverty level. Since the recession, the job they find is more likely to be a part-time position with no benefits. If they get sick, they lose their job and go into debt. If their car breaks down, they lose their job. Accumulating enough savings to obtain post-secondary education or buy a home — to participate in the American Dream — is, for most, impossible.

While the claim that the safety net has transformed the stressful misery of poverty into a luxurious refuge is both false and cruel, it does point to a national problem. The jobs available to those relying on the safety net are so inadequate that many — especially parents — suffer a setback if they get a job. For a person who is barely surviving, setbacks are not an option.

This problem, sometimes called the “welfare cliff,” is bad for everyone. People who desperately want a job and who hate receiving welfare too often cannot afford to take the jobs available. Taxpayers continue paying full benefits, and the recipient must forego the opportunity to demonstrate her value in the workplace.

One of the few programs that manages this problem effectively is the Affordable Care Act. By expanding Medicaid access to those with incomes up to 133 percent of the poverty level, it allows people to take a no-benefit job without losing their access to health care.

Everybody wins, because a major disincentive to employment disappears. Because they can take a low-paying job without losing access to health care, their dependence on other tax-funded welfare programs decreases.

But not in Alabama. Despite one of the highest poverty rates in the nation and one of the highest percentages of citizens without health insurance, Alabama offers such skeletal Medicaid access that even the lowest-paying job prevents enrollment.

By joining other states in opting to expand Medicaid under the Affordable Care Act — at a cost handled almost entirely by the federal government — Alabama could eliminate a major obstacle for those seeking to enter the job market.

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Filed under Alabama politics, Income inequality, Obamacare, Poverty

What happened to American Dream?

It would be comforting to conclude the dashed dreams of Amanda Wheless were a result of timing.

The young woman, with a bachelor’s degree in elementary education, entered the job market just as the recession hit. Faced with falling revenue, Alabama schools were cutting jobs rather than adding them. With admirable resolve, the Decatur resident adjusted. She put her dreams on hold, working instead at a coffee shop and now a car-rental store.

As a story in Sunday’s edition of The Decatur Daily explained, the frustrating experience of Wheless is commonplace in the economic slump that began with the 2008 recession. Half the jobs lost in the Great Recession were middle-class jobs. Seventy percent of the 3.5 million jobs created in the nation’s slow rebound are in low-paying industries.

Wheless is now struggling on the front end of her career, but she and most Americans also will struggle on the back end. The Center for Retirement Research, using Federal Reserve data, estimates that 53 percent of American workers 30 and older will be unprepared for retirement. In 2001, only 38 percent of Americans faced declining living standards in old age. In 1989, 30 percent faced that risk.

The average household has a $57,000 deficit in retirement savings, according to a recent U.S. Senate report.

While the recession exacerbated the problem, it did not start it. Since about 1970, Americans at all but the top income levels have seen a steady decline in real income. A few decades ago a family with one income earner could make it into the middle class. Now both parents typically have jobs, and the percentage of those families making it into the middle class is falling.

This trend has continued in times of deregulation and low taxes. High taxes and heavy regulatory burdens have not changed it. Except for an elite few, American workers are going backwards. They are less likely to be able to purchase a house and they are less likely to be able to send their children to college. Income mobility, a hallmark of the American Dream, has dropped as inequality of wealth and income have grown.

The solutions will not be simple, but America needs to pursue them. Low taxes and deregulation have not been successful at returning the ladder of income mobility to the motivated poor, but high taxes and clumsy social welfare programs have not done much better.

The goal needs to be to restore opportunity to the poor so they have a shot at meaningful participation in the economy. Health-care reform, pre-kindergarten programs and affordable colleges provide opportunity without fostering dependence. If the nation acknowledges the problem and sheds ideological barriers, even better strategies may emerge.

America has never been a nation that guaranteed success to its citizens. For previous generations, though, it was a nation that prided itself on expanding opportunities for those willing to work for their dreams. As a nation, America needs to again embrace its determination to offer expanded opportunity for each succeeding generation. Or it needs to acknowledge the American Dream, once so central to the U.S. identity, is a historical artifact.

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Filed under education, Income inequality, Poverty, Recession