The Deceptive Impression Of Growing Income Inequality & Its Relationship To Income Mobility

"It is hard not to marvel at the audacity of a man, who after five years in office, identifies as, quote, 'as the defining challenge of our time,' an income gap that as you heard has steadily widened since he's been in office. But income inequality has long been a preoccupation of Democrats to the point that it sometimes seems they'd prefer everyone be equally poor than unequally rich."  Brit Hume's commentary on FNC following BO's remarks regarding income inequality @ the Town Hall Education Arts Recreation Campus (THEARC) in Washington on December 4, 2013.

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Talk about gaps in incomes – just look @ the above graphic that I first presented on November 15, 2007.   It shows the results of American prosperity, opportunity, & work ethic by matching the GDP of entire countries around the world with a U.S. state of similar GDP.  Russia's GDP is the size of NJ's & Ukraine's is the size of Idaho's.

Along with the above graphic I pointed out in 2007 that the claim that class warfare politicians like to make that there is rising income inequality in America is not true – certainly not in 2007.  This opinion is based on the results of a 10 year Treasury Department study, released on November 13, 2007, that started in 1996 using a sample size of 96,500 income tax returns.

The results of the study prove (along with other similar studies that go back to the 1960s) that the American economy is dynamic in that people move from one income quintile to another over time & then mostly upward.  For instance, of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, & only 17% moved down.  Moreover, more than half (57.4%) of the richest 1% in 1996 had dropped to a lower income group by 2005. Some of these people might have been "rich" merely for one year, or perhaps for several, as they hit their peak earning years or had some capital gains windfall. Others may simply have not been able to keep up with new entrepreneurs and wealth creators.  Source of this analysis – WSJ.

Common sense tells you that someone whose earnings are in the highest income tax bracket in their later years of work will probably move to a lower level after retirement just as sure as someone in their 20s who starts for low pay will move into a higher category unless they are a real loser.  The point is that the rich are not the same people over time as the above analysis shows.  Class warfare politicians want you to think that the rich are always the same people & the poor are the victims of capitalism that should be pitied & need a government hand up (from them of course).

My own study of this subject over the years reveals that there is a difference between "the rich or wealthy" & people with earnings in the highest income tax brackets.  For instance, according to the Spectrum Group in 2007 there were 930,000 households in the U.S. with a net worth of greater than $5 million - these are the rich & there is no relationship to their wealth & the progressive income tax bracket they are in (multi-billionaire Warren Buffet famously reported that he paid income tax @ a 17% rate - check your income tax rate against his 17% to prove my point).  The people whose earnings are in the highest income tax brackets are not necessarily wealthy but rather are recently successful people, maybe about 40 years old, who are in the highest earning years of their lives.  These are the people that class warfare politicians want to tax into oblivion having them pay for every boondoggle earmark or government welfare program the politicians can think of - all the while calling out the inequities of "the rich" over "the poor".

It is the current opaque IRS income tax code itself that is the real inequity - being able to be legally manipulated so that multi-billionaires' income tax rates are lower than those of ordinary people.  This is just one more of the maladies that the FairTax corrects.  The FairTax is hard to avoid & being transparent (like your quarterly property tax bill) people see exactly how much of their money goes to government so that we wind up with just as much government as we really want.

Class warfare politicians like to say that the fruits of American prosperity are not being widely shared.  America is not about sharing but rather about opportunity.

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Just look @ the above table – it shows a tightening, not a widening, of the top & bottom income divisions.  Although the table shows huge positive changes in the lowest two quintiles, which is very good, many of you will remember that I was worried in 2007 about the small changes in the top 20% &10% as well as the negative changes in the top 5% & 1%.  I am for raising everyone's earnings through economic growth rather than concentrating on raising the minimum wage that BO is obsessed with.

As the Treasury data show, we shouldn't worry about inequality. We should worry about the people who use inequality as a political club to promote policies that reduce opportunity.

An upcoming post in the near future will analyze income inequality, including years after 2005, from the spending side rather than the income side.  The insight gained from the above primer on income mobility is essential for understanding why the concept of increasing income inequality is a myth.  The post will explain why this is true & what makes it happen - so fasten your seatbelts please.

 

Cause For Concern

"They're more negative than they were five years ago." – Carl Van Horn, Rutgers University public policy professor, speaking about the results of a Rutgers poll conducted July 24 to August 3 (released on August 28) regarding Americans being more anxious about the economy now than they were right after the recession ended over five years ago. 

 

The following stats provide a strong confirmation of the results of the above referenced poll - there are over 3 million people still unemployed for more than 27 weeks  & over seven & a half million people still are employed part time for economic reasons.  The cumulative change in weekly earnings for those employed in the private sector increased 1.5% since January 2007.  A pitiful performance but all per BO's design – & it is working to his benefit as an apathetic citizenry buys into it.

 

The following statistics (1 – 4) are from the Rutgers poll (by economics writer Josh Borak of the AP):

 

1. Seventy-one percent of Americans say they think the recession exerted a permanent drag on the economy.  By contrast, in November 2009, five months after the recession officially ended, the Rutgers researchers found that only 49 percent thought the downturn would have lasting damage.  And that was when the unemployment rate was 9.9 percent, compared with the current 6.2 percent.

2.  The slow pace of improvement during most of the recovery, now in its sixth year, has eroded confidence and slowed a return to the pay levels that many enjoyed before the economy suffered its worst collapse since the 1930s.  About 42 percent of those surveyed say they have less pay and savings than before the recession began in late 2007.  Just 7 percent say they're significantly better off.  The survey results dovetail with estimates that the median household income was $53,891 in June, according to Sentier Research. That's down from an inflation-adjusted $56,604 at the start of the recession.

3.  Each year of subpar growth has compounded the anxieties of many Americans.   In contrast to the robust snapbacks that coincided with most economic rebounds, this recovery proved tepid well after the recession had ended. Consumers struggled with an overhang of mortgage debt and the risk of layoffs for much of the recovery. A majority of those surveyed say they fear that job security has all but disappeared and that they'll have little choice but to work part time during retirement.

4.  Recent evidence of economic strength has done little to brighten most Americans' outlooks. The Standard and Poor's 500 stock index has surged more than 170 percent since bottoming in March 2009. Yet only 14 percent of the respondents said the gains have affected them a lot — a sign of either meager investments or the extent to which families unloaded their stock holdings near the bottom of the market.

The type of results of the Rutgers poll are quite familiar to readers of RTE – from the decline in median household income where people now make a fraction of what they used to make if they are fortunate enough to find employment, to people working two or more part time jobs in retirement to meet their expenses, to the wealth spend down required as a result of the combination of no jobs or low paying jobs & meager CD or investment income – you have seen post after post present details of our economic deterioration even before BO became a national figure.  BO may not have started the decline but he sure has been the opportunist taking advantage of it for his own purposes.

In addition to the Rutgers poll the Bureau of Labor Statistics provides the following statistics for Morris County, NJ: 1) since 2006, the number of salaried workers has decreased by 5 percent—from 297,300 to 283,400, 2) the number of salaried workers who supplement their income with additional jobs, or freelance work, rose 40 percent—from 59,000 to 82,500, & 3) the number of self employed people dropped 15 percent from 16,200 to 13,800 – & most of these are more informal, unincorporated people who tend to work solo in home-based settings after losing a job rather than being self starting entrepreneurs with big dreams of innovation.

The Social Security Administration reports that in 2014 34% of the workforce has no savings set aside specifically for retirement, 51% has no private pension coverage, & 52% of couples & 74% of unmarried individuals who receive benefits get @ least half of their income from Social Security.

As long as the economy remains as weak as depicted above & people continue to show a growing trend toward favoring government dependence BO is getting his way – whether he is sitting in the Oval Office or playing golf – much to the consternation of conservatives.

And the trends of deterioration are relentless in BO's favor – last Thursday PA Governor Tom Corbett agreed to extend the state's Medicaid program to half a million low-income residents under the optional ObamaCare Medicaid feature.  Corbett is the ninth GOP governor to succumb to the ObamaCare Medicaid expansion that the Supreme Court allowed states to op out of in their June 2012 controversial unconstitutional decision.  Not coincidentally Corbett trails his Democrat opponent by 25 points in the polls & thinks this detestable move will help his reelection prospects.  Hope there is a good third party gubernatorial candidate in PA.

The WSJ reports that "the major budget driver now is Medicaid, which will surge by 15% on ObamaCare's expansion of that program.  The figure would be still higher had not 23 states opted out to protect the integrity of their own budgets."  All of this no thanks to Corbett & PA.

The above Republican Medicaid capitulation mirrors the GOP governors' cessation of resistance regarding running their own state healthcare insurance exchanges because of the foregone federal government subsidies their citizens would otherwise be entitled to.  Governors whose states opted out of setting up their own state exchanges have had tremendous pressure applied because of the lost federal money foreseen.  Republican governors in Idaho & Nevada, standing on quicksand, have each taken the position that their federally set up exchanges are state-based no matter who runs them.  Doesn't even sound like a good try.

It is no wonder that Jenny Beth Martin of Tea Party Patriots writes "ObamaCare is rapidly replacing the world's best healthcare system with a government run & rationed socialized boondoggle that will destroy Medicare, limit healthcare access, lower healthcare quality, & increase healthcare costs."  ObamaCare keeps steaming along with more damage scheduled right after the November 4 elections.

So as lovers of freedom hang on for dear life & try to contemplate an opposition that could possibly eliminate the Democrat majority in the Senate (while desperately hoping that the Democrats don't retake the House) the results so far are not good.  BO is no less popular now than he was in the fall of 2013 & Democrats de Blasio (NYC Mayor), Booker (NJ Senate), & McAuliffe (VA Governor) all won their respective races.  The primary turnouts in 2014 are @ record lows – for instance if Dave Larsen could have just held the vote total he had in 2012 & added just 50 votes he would have won the NJ – 7th district Republican primary – instead he received over 2,000 votes less than he did in 2012 & lost to a statist Republican candidate who received over 9,000 fewer votes than in 2012.

In the GOP's favor in this midterm election is the fact that second term presidents' parties historically lose congressional seats in midterm elections.  But if the GOP was any good we would not have this second term president to begin with.

Republican primary turnout is down 15% in 2014, positive feelings about Republicans has fallen from 34% in early 2011 to 19% today, there is a voter backlash against the way the GOP has used its House majority, & Democrats have a double digit lead among women.

BO's expected amnesty plan to the millions of illegal immigrants in America has been delayed insultingly until after the November midterms.  The thousands of unaccompanied children arriving on our southern border from several Central American countries has been met with disapproval as people recognized the children were being used as pawns & American citizens as fools – hence the delay until BO squeezes the electoral process dry.

Recent political science scholars are returning to the idea that a country's structural foundations are more important than even economic policies in determining a country's long term economic growth & prosperity.  America's foundations were built on the bedrock of limited government, personal responsibility, & free enterprise.  The danger to our liberty & individual rights is BO's relentless onslaught on America's structural foundations, as only partially detailed above.  Those of us who cherish these freedoms see clearly the great cause for concern that there will never again be times like most of us grew up in.

 

A Terrible Price To Pay

Click here to hear Governor Mike Huckabee's 30 second statement regarding what to do with ISIS & really all the other terrorists in the world.  Although this statement by Governor Huckabee was made several days before the beheading of American journalist Jim Foley it is the exact same sentiment that the governor made regarding all terrorists to Carol in Bluffton, SC in December 2007, the first time we met him.  In all of my study & contact with Governor Huckabee he has never wavered from this position regarding terrorists.

 

In summary, the governor said ISIS is a cancer that the U.S. either cuts out or the cancer kills us.  In the case of Jim Foley the cancer killed him by beheading.

 

Now the question is how do we accomplish what the governor said – cutting out this ISIS cancer?

 

The closest official thing we have regarding this matter is the Joint Congressional Resolution authorizing war against Iraq that was passed in October 2002 by the House 296 to 133 & by the Senate 77 to 23.  Very long time readers will remember this document was posted on RTE on November 16, 2005. 

 

The aforementioned Joint Congressional Resolution authorized the use of U.S. Armed forces in Iraq, found that Iraq posed a continuing threat to the national security of the U.S. & international peace, authorized the (unnamed) president to use U.S. Armed Forces pursuant to several United Nations Security Council Resolutions, & authorized the (unnamed) president to use the Armed Forces of the U.S. as he determines to be necessary & appropriate in order to defend the national security of the U.S. against the continuing threat posed by Iraq, & to enforce all relevant United Nations Security Council resolutions regarding Iraq.

 

As I pointed out @ the time of the post there were many points in the 2002 resolution that did not pertain to weapons of mass destruction in Iraq for why Congress authorized this use of force.  At the time I also asked did you want a congressman or senator representing you who thought we could afford to find out whether or not Saddam was a threat to our homeland with the twin towers lying in rubble @ the hands of people from Afghanistan who lived in caves.  This is a time sensitive question meaning to answer it properly you have to put yourself back in the timeframe of the fall of 2002 – not looking @ what happened afterward.

 

In summary, this authorization to use force no longer applies because it was specific to Iraq in 2002.

 

This leaves a vacuum that allows every elected representative to free lance – some say they would bomb ISIS today & others say they would do nothing.  Currently BO & every Member of Congress feel free to make any statement they want because they have no responsibility for the consequences of their statements since they all figure nothing will come of them.  As long as there is no terrorist attack in America their comments are all bluster.

 

Although BO used similar words as Governor Huckabee's in his press conference last Wednesday where he expressed outrage about Jim Foley's beheading he ultimately picks & chooses what principles & laws he wants to enforce.

 

But there is a solution to all of this.  If ISIS is an immediate & imminent threat to America it is up to Congress to determine & ultimately to declare War or authorize the use of force on the Islamic State as ISIS is now known.

 

It has been reported that hundreds of sleeper cell terrorist fighters from dozens of countries have joined ISIS – much like the marquis de Lafayette came to America when he was nineteen to fight for the American Revolution.  Many of these terrorist fighters are holders of European & American passports & have visa free access to the U.S.  Congress should determine if this is all hot air or if it is a national security threat to America & if so take appropriate action.  This is really why we have them there.

 

With one American beheaded by ISIS & several more held captive by the terrorist group the country should know where their elected representatives stand on the ISIS threat – whether it is big, small, or of no significance - to our citizens & strategic interests in the Middle East – especially to know about those elected reps up for reelection in November.

 

Now I am not looking for trouble but it seems a good chance trouble could very easily find us again.

 

But another problem starts if Congress unconditionally & unambiguously declares War or authorizes the use of force on the Islamic State because we will have a president being dragged into the conflict kicking & screaming with absolutely no experience & much more important no desire to proceed.  If, & it is a big if, we could get our allies to join our coalition against ISIS we would have the inept & disinterested leading a coalition of the unwilling – a team destined for defeat.

 

This is a terrible price to pay but some lessons do not come easily.  But it is one of the very few chances we have left to expose the evil & anti-American leadership that has presided over our country for over five & a half years.  The response to the ISIS threat to America is a chance for those dependent on government for their livelihoods to clearly see what they have been supporting & to take another look – & their doing this is about the only chance all of the rest of us have to turn BO's fundamental transformation of America around.