Income Equality Is the Problem: Those in the middle work much harder, but don’t earn much more, than those at the bottom

Income Equality Is the Problem: Those in the middle work much harder, but don’t earn much more, than those at the bottom. By Phil Gramm in the WSJ.

Contrary to conventional wisdom, the most dramatic and consequential change in the distribution of income in America in the past half-century isn’t rising income inequality but the extraordinary growth in income equality among the bottom 60% of household earners.

Real government transfer payments to the bottom 20% of household earners surged by 269% between 1967 and 2017, while middle-income households saw their real earnings after taxes rise by only 154% during the same period.

That has largely equalized the income of the bottom 60% of Americans. This government-created equality has caused the labor-force participation rate to collapse among working-age people in low-income households and unleashed a populist realignment that is unraveling the coalition that has dominated American politics since the 1930s. …

In 2017, among working-age households:

  • The bottom 20% earned only $6,941 on average, and only 36% were employed. But after transfer payments and taxes, those households had an average income of $48,806.
  • The average working-age household in the second quintile earned $31,811 and 85% of them were employed. But after transfers and taxes, they had income of $50,492
  • The middle quintile earned $66,453 and 92% were employed. But after taxes and transfers, they kept only $61,350

What incentives? Why bother?

With transfer payments giving recipients about as much for not working as they could earn working, only a mandatory work requirement as a condition for receiving means-tested benefits will bring them back into the labor market….

Despite Democratic politicians’ efforts to provoke resentment against the rich, when was the last time you heard working people complain that some people in America are rich?

The hostility of working people is increasingly focused on a system where those who don’t break a sweat are about as well off as they are.

This justifiable resentment is the economic source of today’s American populism. It is ravaging the increasingly unstable Democratic political alliance between welfare recipients and blue-collar workers. It was already building in the 1980s, with what were then called Reagan Democrats, and it was fully manifested in the Trump blue-collar political base. It is now driving political realignment among Hispanic voters, who are disproportionately middle-income earners.

By eroding self-reliance, worker pride and labor-force participation, government-generated income equality undermines the very foundations of American prosperity. A democratic society won’t knowingly tolerate it.

Too much socialism already.

No incentives, no striving, no civilization. Know incentives, know striving, know civilization.