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I have seen any number of articles on how proposed changes to the Social Security system will increase income inequality, but very few on how the existing increase in income inequality is contributing to the Social Security shortfall.

We have all seen charts like the one below which shows how the top 1% has been taking a disproportionately larger share of our income over the last 40+ years.  What this means is that the percentage of money available for the Social Security income tax is reduced.  Wages may have risen in real dollars, but relative to 1970 dollars wages are fairly flat.

It is important to remember that the portion of a person's salary that can be taxed by Social Security is capped - currently the first $110k dollars. That means that larger the portion of the income increases that is going to the top earners, the proportionately smaller the amount of income that can be taxed for Social Security.

From the end of the Second World War to the 1970's, productivity gains were shared proportionately across income groups.  Since the 1970's, productivity gains have gone almost exclusively to top earners as illustrated in another familiar chart:

For the president to be pushing such Social Security reforms as raising the minimum retirement age is simply wrong-headed.  Once again it increases the economic burden on the people who have already been hammered by the unfair distribution of productivity gains.

The reasons for the growth in income inequality are too numerous to discuss here, but at the very least we need to stop the Democrats from reducing Social Security benefits.   One quick way to take action is to sign this Credo petition asking President Obama to stand his ground on Social Security reforms

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Originally posted to bluemonk on Wed Nov 14, 2012 at 07:00 AM PST.

Also republished by Income Inequality Kos and Social Security Defenders.

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