The problem of income inequality is so apparent it needs no repetition in another diary here. No fewer than three diaries were already published today with words on the subject (here, here and here). As obvious as the problem is to those of us paying attention, I would suggest that there are five reasons why even the rich should be concerned. Follow me below the orange squiggle of affluence, and I’ll explain.
1. Income Inequality Hurts the U.S. Economy
A 2013 study conducted by Emmanuel Saez at the University of California-Berkeley provides a dramatic perspective on the issue of income inequality in the U.S. Saez found that 95 percent of all gains in income accrued to the richest 1 percent of individuals and families between the years of 2009 and 2012. This disparity in income growth has had a major impact on the ability of lower and middle class families to maintain a decent standard of living. Many experts also postulate that income equality has actually had a chilling effect on the U.S. economy as well.
2. As the Gap Widens, Purchasing Power Falls
Economist John Maynard Keynes is famously paraphrased as saying that resources are scarce and wants are infinite. When financial resources are accumulated primarily at the very top of an economic pyramid, the ability of those below that pinnacle to purchase luxuries and even necessities falls to a significant level. Since the American middle class has historically been both the producer and the consumer for most goods bought and sold in this country, reduced purchasing power among this group can have a significant impact on economic growth. Who will buy the products and services of the rich if not the American middle class?
3. The Middle Class Is Vanishing
Data collected and compiled by the U.S. Census Bureau indicates that median household incomes have fallen by 8 percent since 2007. Fewer than half of all American families fell into the middle class category in 2012. While some households have moved up the income ladder to achieve a higher degree of financial success, most are slipping inexorably into the lower classes and are experiencing reduced buying power and mobility in the economic marketplace. This has had an impact on sales and profitability across a wide range of business sectors. Many companies have compensated for these losses by reducing their staff or by cutting wages for new hires.
4. Our Prime Consumers Are Hit Hardest
Falling wages at the entry level have created untenable situations for many recent graduates (the ones who make up much of the coveted 18-25 year old purchasing demographic). Individuals with significant levels of student debt are finding fewer jobs that will allow them to pay off those loans while maintaining an adequate standard of living. Most job growth continues to occur in the lowest-paid parts of the economy, including the retail, food service and temporary employment sectors. As residential rental rates continue to rise, many younger workers are trapped in a cycle of ever-increasing living expenses, limited opportunities and relatively flat wages. Some have moved back home to share living space with parents; others are experiencing serious cash flow problems and taking on multiple jobs to try to make ends meet.
5. Even Social Security Is Threatened
That income inequality has long been known to erode the Social Security trust fund balance, a new report by Rebecca Vallas of the Center for American Progress documents the threat with persuasive numbers. The problem for social security is that income growth for the wealthy tends to come from nonwage sources such as capital gains which do not feed the social security tax system.
This growing divide in wages—combined with the fact that wages in excess of the taxable maximum are exempt from payroll taxes—means that millionaire and billionaire earners stop contributing to Social Security early in the year, while the average worker contributes all year long. In 2015, individuals with wage incomes of $1,000,000 stop contributing on February 12; those with higher incomes stop contributing sooner.
https://www.americanprogress.org/...
No End in Sight
Some political experts and economists have suggested increasing taxes on the top 1 percent and using those funds to create a works project similar to those implemented by President Franklin D. Roosevelt during the New Deal. Education may be the way out for some workers; however, the overall reduced level of employment in today's economy may make that a risky proposition, especially for those interested in pursuing careers in non-technical fields.
More research is needed to determine the best ways to support the middle class and to reduce the effects of income inequality on individuals and on the economy as a whole.
Academic institutions can lead the way in this endeavor by providing the insights and analysis necessary to provide workable solutions for the issues created by the income gap in the U.S.