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Escalating InEquality II | January-March, 2016

INCOME INEQUALITY  (renewed from July 2015)

For a number of years now it is clear that the rich are getting richer and incomes of the poor and middle class at best are remaining about the same and at worst going down. As a result, the difference in the incomes of the rich (say the top 1%) and the rest of us are getting larger and larger. I will try in a few pages to summarize why this is happening, what the impact is and what we can do to reverse the trend.

One could start by analyzing how much folks are compensated for various types of work and what this compensation is based on. For example, why do we usually pay more for work based on intellect than work based on brawn? Or what is a fair wage for routine work or services? Should the minimum wage be increased? If so, who will really be impacted by the increase? Or why do some talents garner much higher incomes than others? Should financial acumen or stardom in sports or theater bring in much higher incomes than machinists, computer experts or clerks? In any case, broad generalizations are not very helpful in the complex world of compensation.

And then there is so-called unearned income (or perhaps one should say non-wage income). This is income one gets from investments, compensation for being important (speaking, ads, political gifts, etc.) illegal activities, and perhaps income for being too poor such as government subsidies. It’s amazing to me how much wealth is accumulated by politicians for example – the contributions they receive supposedly are used to pay for their campaigns but so many of them seem to become millionaires overnight and one cannot help but wonder how this wealth was accumulated. In any case, when we talk about income distribution, a very large percentage of rich folk’s income comes from these sources.

Of course, another factor that affects personal wealth is taxes. In recent years, there have been major changes in the U.S. tax system that have helped increase income inequality. Taxes have been lowered for investment income and taxes such as sales taxes that affect the poor more than the rich have been increasing. In addition, the rich can make use of a number of tax loopholes to reduce the amount of their taxes or they can transfer much of their wealth abroad in order to reduce taxes.

In addition to the above factors, I would add a number of politically motivated items:

  1. Except in the public sector, labor unions have been virtually wiped out. Probably the two main factors in the demise of unions are the large amount of money that corporations give to politicians who oppose unions and the low wages paid by international competitors. I feel that the first factor is far more important here in the U.S. than the second. In countries in which unions are acceptable, such as Germany, industries are doing just fine and the benefits that workers get are much better than in the U.S.
  2. The opposition to raising the minimum wage is claimed by conservatives to affect small industries but in reality, it is mainly an attempt by large corporations to pay lower wages in order to increase profits.
  3. Revisions in Estate taxes that allow the rich to pass their wealth down to their heirs with little or no tax deductions. Therefore, more and more of the wealthy people will be wealthy through their inheritance rather than by earning wealth through their own labor.
  4. Control of the financial markets – the richest folks have been able to influence the legislative process so that there are few controls on financial trading (the stock market and other financial traders) and on merging companies which continue to get larger and larger with monopolistic power over the markets.
  5. Too big to fail – Companies have become so large that if they fail it would have adverse effects on the whole economy. So through various legislative means, they are bailed out by the government if they are threatened financially.
  6. Changes in the banking system: In the last 20 years or so banks have been allowed to get into the investment business directly. This has resulted in consolidations of the banking industry and much greater potential for exorbitant profits and political control while also endangering assets of individuals, small businesses and pension funds should the bank fail.
  7. In general, corporation control over everything, the media, elections, etc. – And the large corporations that have resulted have no limit on controlling the country through their economic impact, their donations to politicians, their takeover of the media, and even the strings attached to their donations to colleges, the arts, etc.
  8. Privatization – So the corporations can make even more money, their political stooges, claiming private control is more efficient than government control, are attempting to privatize everything – the prisons, the schools, the hospitals, etc. This allows for huge profits with little control and the strong possibility of seeking ways to increase profits by cutting back on services or even by inventing means of increasing the number of folks they serve (more prisoners, for example).

As a result of all of these factors, the middle class is dwindling. A few with luck and fortitude have been able to move up to the 1% but most people who were in the middle class are barely making it any many have fallen to the poverty level. And it has been getting harder and harder to move up from the bottom economic level to the middle class as wages have stagnated and most of the jobs available are menial work that pays not much more than the present inadequate minimum wage. This is a threat to the so-called American way and democracy in general as the middle class has always been our strength in that it had enough political power to ensure that things got done that helped fuel our overall growth through investment in our infrastructure and the establishment of meaningful jobs for a large number of workers. (See the sources in the accompanying folder for an excellent article about the importance of a strong middle class that appeared recently in the Philadelphia Inquirer)

And the number of poor people continues to increase. Abject poverty is somewhat alleviated by government subsidies of various kinds but little is done to provide enough initiative or rewards for people to move up economically. Moreover, conservatives keep seeking ways to eliminate the help given to those who are not able to get work or cannot get by on the meager incomes available from working in mundane, low-paying jobs. In addition, cutbacks in community services as a result of lower taxes on the rich folks affect the poor more than any other group.

Below are a number of steps that could be taken to move toward greater income equality. To succeed, it will require important changes in the attitude of what is important to us over the long term and somehow lessening the greed associated with our capitalistic form of government.

  1. We need to support Move to Amend. Clearly, corporations are not people and should be for the purpose of providing services that are needed and not just for huge profits for a few.
  2. Along with this, we need to push for campaign reform. People should not be able to buy political positions through personal wealth or PACs that benefit the rich without any identification of who is providing the money. Clearly, our present elector system is set up to benefit those in power and not necessarily the country as a whole.
  3. Labor needs to have a say in the workplace. There are a number of good examples of how this might be done, both in some of our own progressive industries (the computer industry, for example) and in Germany and other advanced countries.
  4. We need to upgrade our infrastructure. This is a great opportunity to provide quality jobs for many folks who are unemployed or underemployed.
  5. We need to break up huge conglomerates through tough anti-trust laws. We cannot continue to be beholden to these mammoth organizations that are too big to fail.
  6. Our whole election system needs to be overhauled. Are our voting machines manipulated? How can we have a more democratic apportionment if voters in states with a small population have more political power than voters in states with large populations? And, voting districts need to be based on other factors than the politics of those in power.
  7. Our tax system needs to be more progressive and we need to eliminate means of avoiding taxes. Other financial reforms are needed to control the manipulation of the stock market and other financial activities, and banking reform is badly needed.
  8. Education, through college, needs to be free or easily affordable as it is in most developed countries and as it used to be in many of our states.
  9. We need to look at government as our government – an institution that represents all of the people and not just a few. It is not the government that is the problem – as many people claim – but who controls the government that is the problem.

Income inequality is but one of the Inequalities facing our nation. A few of the other inequalities are from discrimination, in services like health care, education.

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