What do Americans think about the distribution of income? Dan Ariely (MIT) asked about 10,000 of us. Here's what he found.
Americans think that the top 20 percent of households should get about 30 percent of the wealth.
Americans think that the top 20 percent of households actually get 67 percent of the wealth.
What's the truth: The top 20 percent of households control 85 percent of the wealth. Details here.
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Think about it. Line up 100 people and put a pile of stuff in front of them. The first person gets one third. By the time you get to the 20th person, 85 percent of the stuff has been handed out. The last 15 percent is for the other 80 people. By the time you get to the end, there are people without jobs, health care or enough food to eat.
If the electorate really understood this simple fact, we would have a revolution on our hands. But they don't and that's our problem. A failure to understand how skewed our distribution of income is distorts every debate we are trying to have in this country right now. Here are two examples.
The American Debt Panic: International Crisis or Rich Kids with their Hair on Fire?
The U.S. federal debt is $12.37 trillion; $40,083 for every American man, women and child. A pretty scary number considering median household income is only about $52,029.
There is only one problem with this seemingly obvious and terrifying math. This debt isn’t the responsibility of the median household. It is almost entirely owed by the top 20 percent of income earners.
In 2007, the top 1 percent of households owned 34.6 percent of the wealth and paid 40.4% of federal taxes. The next 19 percent of households owned 50.5% of wealth and paid 46.6% of taxes.
The median household falls in the remaining 80 percent. The lion’s share of the population controls only 15% of the net wealth and pays 13.4 percent of taxes.
But if the bottom 80 percent only pay 13.4 percent of taxes, they have responsibility for only $1.66 trillion of the debt. That clocks out to only $6714 per person! Not the scare $52,029 per person reported in the press every day.
So what is this debt panic really about? It’s a conflict between the parents and kids in the top 1 percent of households. Exactly how big will the net inheritance of kids in the richest 1 percent of households be? That’s it. The rest of us are not really involved.
The size of the debt is being used to scare the bottom 80 percent of the population into giving up policies to stimulate employment and provide affordable health care; a debt that we in the bottom 80 percent of the income distribution don’t even own!
Where's my Bailout? Social Security and Health Care Reform
American's are similarly being scared out of Social Security and Medicare. But here's the fact. Social Security is a program that the bottom 80 percent of income earners have set up among ourselves. Social Security taxes apply only to the first $106,800 of income. The tax barely touches the income earned by the top 5 percent of the income distribution. The tax to fund Medicare applies to all labor income, but the rate is only 1.45% on all earnings.
Imagine how much revenue would be available to fund health care for the elderly if the Social Security tax applied to all earned income instead of just the first $106,800.
So why are the top 20 percent of income earners even butting in? Social Security and Medicare don't really involve them.
Lying at the heart of this great deception is one essential fact: One third of the wealth in this country is claimed by 1 percent of the population. The progressive agenda will never be advanced until the beneficiaries of progressive economic policies grasp this simply truth.