On Income Inequality



Updated October 30, 2017

First, this at Wikipedia:

“Much of the earnings of those in the top income bracket come from capital gains, interest, and dividends, which are taxed at a maximum of 20 percent.”

Then this at MarketWatch.com:

“The market is really just a yardstick of our confidence, right? Actually, no. That’s because most of us who own stocks don’t hold much and most people don’t own any stocks at all. How is the market a reflection of this silent majority? The reality is that stocks are not only owned by a minority of Americans, but by a minority of that minority – and a very wealthy minority at that. The wealthiest 5% of Americans own 82% of directly owned, publicly traded stocks, according to the Federal Reserve. Mr. Favilukis concluded ‘changes in inequality are correlated with stock returns’ and that ‘stock market participants are on average richer and benefit disproportionately from a stock market boom.’“[Italics by Relevant Matters.]

“Both billionaires [Facebook CEO Mark Zukerberg and Oracle Chairman Larry Ellison] hold the vast majority of their wealth in their companies’ stock, meaning that market fluctuations have a big impact on their net worths.”-Forbes.com

And this at The Atlantic.com:

“It turns out that wealth inequality isn’t about the 1 percent v. the 99 percent at all. It’s about the 0.1 percent v. the 99.9 percent (or, really, the 0.01 percent vs. the 99.99 percent, if you like). Long-story-short is that this group, comprised mostly of bankers and CEOs, is riding the stock market to pick up extraordinary investment income. And it’s this investment income, rather than ordinary earned income, that’s creating this extraordinary wealth gap.”

And this at Bloomberg:

“'[L]ower rate expenses’ are one of the reasons why equity income has risen more than disposable income, thus adding to increased inequality.”

The last four years witnessed a meteoric rise in the stock market, bought into mostly by the well-off. The wages of lower- and middle-income Americans remained stagnant. [In Donald Trump’s first six months as president, the stock market shot up 20 percent, achieving its greatest gain since 1987.]

If Mitt Romney or any other Republican were president, the dramatic difference between Wall Street and Main Street would have been seized upon by liberals and the Democratic Party as undeniable proof of Romney’s lack of concern for wealth/income equality, for the poor, for minorities, for women….

The sharp difference between the “Streets” would have been portrayed, if Romney were president, as an on-going Republican strategy to help the rich at the expense of the poor. That portrayal would have gotten top billing and been showcased daily by the liberal press, most significantly by ABC/CBS/NBC/MSNBC/CNN and The New York Times. Ideologues such as Ed Schultz, Al Sharpton, and Lawrence O’Donnell would be yelling for people to get out and protest, perhaps even to march on both Wall Street and the White House.

But because Obama is president, these pundits and the liberal press seem utterly oblivious of the Streets’ difference.

Regrettably, the same can apparently be said of some Republicans.

As a former HUD employee, I worked closely for years with HUD’s housing counseling agencies. The purpose of the agencies is to provide advice on buying a home, renting, defaults, foreclosures, and credit issues. A question for liberals and Democrats:

Cartoon by Shannon Wheeler, https://medium.com/@muchcoffee

Cartoon by Shannon Wheeler, Too Much Coffee Man

How many of you see the need for similar agencies to help low-wage Americans learn how to save and invest for their future — to begin doing as the wealthy do?

Consider the case of one Medicaid patient as described by Dr. Starner Jones*: “…I had the pleasure of evaluating a patient with a shiny new gold tooth, multiple elaborate tattoos, a very expensive brand of tennis shoes and a new cellular telephone equipped with her favorite tune for a ring tone. Glancing over the chart, one could not help noticing her payer status: Medicaid. She smokes more than one costly pack of cigarettes every day and somehow still has money to purchase beer.”

Maybe only a negligible number of Medicaid recipients are like Jones’ patient.  Nevertheless, among low earners are millions who play the lottery and casinos, smoke and drink excessively…. No doubt these vices are, to many of the poor, balms for the grind and stress of poverty —  but the point is they do it. Could not they be encouraged to forsake one or two of these vices and save, along with their yearly earned-income tax credit, $20-$30 per month until they had enough money, first, to create an emergency fund, then enough to buy a handful of stocks or a mutual fund (an easy way to invest in the stock market; I’ll plug Vanguard’s low-cost index funds, though it requires a $3,000 initial investment), then continue saving until they had enough to make a fund’s minimum investment on a regular basis — so that over the next five, ten, or 20 years they could profit from the meteoric rises in the stock market? (A main reason for the stock market’s big run-up in recent years is that it has attracted many savers who are turned off to the nearly negligible interest paid to savings accounts, CDs, and bonds, all of which are where low-wage earners traditionally put their savings, a strategy over the last several years that has barely been better — when you exclude the FDIC guarantee — than stashing money under a mattress.)

“…[S]tock prices, which are a function of perceived future earnings, would rise substantially, inducing a wealth effect as people see their 401(k)s and mutual funds rising in value.” -John Steele Gordon, in the Wall Street Journal, December 30, 2014, listing the reasons we should remove the corporate income tax.

But I can already hear the Robert Reichs: “Low-wage earners can’t save, low-wage earners can’t save!” That belief alone is the hammer-blow to most political efforts to help low-wage earners save and invest. But promulgating it, I suspect, is intended to divert attention from the very real possibility that if low earners begin investing in stocks, many of them may become a lot more supportive of business and might demand government do likewise — a conservative position countless liberals have long denounced as hurting the poor! If the poor are helped in this manner, many more might vote Republican.

“Most Americans didn’t share in those gains, however, because most people haven’t been able to save enough to invest in the stock market.” -Robert Reich, SFGate.com

“The poor really cannot afford NOT to save or buy insurance….they risk losing health, home and any assets.” -Patricia [last name withheld], commenting at The New York Times

Because of liberal/Democratic hammer-blows, one significant effort that would have helped low-wage earners invest and acquire at least a modest amount of wealth to pass on to their children failed rather quickly. In his second term, George W. Bush wanted to give young workers the option of investing part of their Social Security contributions in private accounts. The rate of return, he said, “would be higher than in the traditional system; the accumulation could be passed on to children and grandchildren.”

Social Security is not sustainable over the long term at current benefit and tax rates. In 2010, the program paid more in benefits and expenses than it collected in taxes and other noninterest income….” –National Review, July 30, 2015

“US Savings Rate Crashes To 10 Year Lows” –ZeroHedge.com, October 30, 2017.
Now think of the astounding jump in the stock market following the November 2016 election. Investors left savers in the dust. Refusing to help low-wage savers wade into the market seems one sure-fire way to worsen income inequality.

In my view, the Democrats — and Republicans — who opposed Bush’s idea of giving the young the option of investing a small percentage of their income ought to hang their heads in shame.

One of the Democrats’ objections to the idea of young workers investing a very small amount in the stock market may have been that, in their view, even this relatively tiny investment by only a small segment of the population posed a risk to the Social Security fund and hence a risk to all recipients. (Think about that as a testament to the Democrats’ faith in the U.S. economy.) What they effectively said to young workers is this: “You cannot decide how to spend just a few dollars of your money which we forcefully take from you; we must spread low-wage earners’ wealth around.”

Kiyosaki is the author of “Rich Dad, Poor Dad.”

Now comes another liberal/Democratic hammer-blow — Obamacare. Its insurance subsidies may help extend the poor’s inability to save and invest: the low earners who are incentivized to cut their hours or to leave and stay out of the workforce, for whatever reason, will, despite all the Obamacare benefits extolled by Democrats, have less money to put aside for their and their children’s futures. (Read about unintended consequences of the Affordable Care Act in “Does Obamacare foster early retirement?” at BankRate.com, whose poll found that “23 percent of Americans would retire early if they could get affordable health insurance outside of their jobs….”)

Obamacare is also causing involuntary cuts to low earners’ pay: “Cities, counties, public schools and community colleges around the country,” says The New York Times on February 21, 2014, “have limited or reduced the work hours of part-time employees to avoid having to provide them with health insurance under the Affordable Care Act, state and local officials say.” How many of these part-timers are seniors who must work to supplement a fixed-income pension, or who want to save and invest for their children to give them a leg up? Will Obama address this problem? Apparently not soon, given that “For months, Obama administration officials have played down reports that employers were limiting workers’ hours.”

Many Democrats, I sense, inwardly want the poor to believe they cannot save. After all, if the poor learn to “do as the wealthy do,” they might, as I said, begin sympathizing with business and capitalism, and the Democratic Party might lose a huge portion of its dependent base (which Obamacare will enlarge).

As for President Obama, according to the Atlantic Monthly: “Indeed, Obama never uttered the words ‘inequality’ or ‘unequal’ in his 2008 convention speech. And while Obama used Mitt Romney’s wealth against him in 2012, he rarely discussed poverty on the stump.”


* See Snopes.com: http://www.snopes.com/politics/soapbox/starner.asp

For more on Social Security reform and stock market investing, see the National Review’s “Get Rich or Die Trying,” by Kevin D. Williamson, author of the brilliant “The End is Near And It’s Going To Be Awesome.”

See Motley Fool’s advice to millennials.

See also:

The Simple Secret to Building Wealth

The Health Care Employment Squeeze

How Obamacare kills jobs and boosts deficits

A Simple Tax Reform Can Help Families and Promote Economic Growth.”

“Some critics might charge that a Universal Savings Account [like Canada’s] can’t be “pro-family” if it also benefits unmarried millionaires. We disagree. Tax policy is not a tug of war between families and singles: All can win. The autonomy these accounts offer to everyone will make families become—and think like—millionaires.”


About relevantmatters

I do research and writing about issues that are relevant to our lives -- such as politics, peace, health care, climate change, and advice to young people. For relief, I offer a few short fiction pieces.
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