The rich are getting richer, the poor are getting poorer, and the middle class is disappearing – or at least that is what we are told by vote seeking politicians who preach redistributionist policies. From Bernie Sanders to Alexandria Ocasio-Cortez, buzz words about income inequality are all the rage in American political discourse. If you follow the headlines, you are likely apt to believe that those at the top of the income ladder are stealing money from the rest of us, while the poor keep getting poorer thanks to the evil wealthy class.
How information is presented is arguably as important as the information itself, and the conclusions we come to as a result of seeing certain information can have profound impacts on how we view the world. Because our worldview frames our perspectives and our perspectives can affect our day to day experience, it is of vital importance to be careful as to what ideas we buy into and those that we question.
By framing information in an ignorant and sometimes disingenuous fashion, modern day progressives and neo-marxists hold a pessimistic and skewed view of the world. Through the use emotional rhetoric, the conflation of statistics with individual circumstances, and the aiming at targets which can never be hit, progressives and neo-marxists popularize bad ideas and perpetuate tropes which are unhealthy for our society.
Progressives Love Emotional Rhetoric
Discussions about economic issues are often peppered with emotive rhetoric, stirring up feelings at the expense of investigating facts. Phrases such as “transfer of wealth” paint a picture of someone taking something that was not rightfully theirs, while saying income inequality is the “moral issue of our time” makes it such that anyone who questions the narrative is easily thrown into the basket of immoral heathens.
While it may be politically expedient to incite class warfare, the “us versus them” picture that has been painted is not so black and white. While it may be a tried and true political tactic to convince people that their lives are horrible and that the only solution is to vote for the guy who promises you free stuff, economic realities cannot always be so easily reduced to political rhetoric and emotive slogans.
More recently, Alexandria Ocasio-Cortez celebrated the departure of Amazon from New York,
The Poor Are Getting Richer
Though it may not fit the leftist narrative of morally repugnant income inequality and stagnation, a quick look at individual income over time paints a picture of income mobility for people who work in the United States, not stagnation.
From 1975 to 1991, those that started in the bottom 20% had their real incomes rise at both a higher rate and higher total amount than those who started in the top 20%.
“Individuals in the lowest income quintile in 1975 saw, on average, a $25,322 rise in their real income over the 16 years from 1975 to 1991. Those in the highest income quintile had a $3,974 increase in real income, on average. The rich got richer, but the poor got richer faster.”
During this period, more people moved from the bottom quintile to the fourth of fifth than moved from the bottom to the second or third quintile. Put plainly, most people who started out with incomes in the lowest 20% ended up being in the top 40% of earners in the country, and 95% of those who started in the bottom quintile were no longer there by 1991. Regarding the top quintile, 62.5 stayed, 37.5% fell down the ladder, and 0.9% of them moved all the way to the bottom quintile.
“Of individuals who were in the lowest income quintile in 1975, 5.1 percent were still there in 1991, 14.6 percent had moved up to the second quintile, 21 percent to the middle quintile, 30.3 percent to the fourth quintile and 29 percent to the highest quintile. Of those in the highest quintile in 1975, 62.5 percent were still there in 1991, while 0.9 percent had fallen all the way to the bottom fifth.”
This can all be found in the Federal Reserve Bank of Dallas’ 1995 report.
More recently, the Department of Treasury took a similar look at specific individuals from 1996 to 2005. More than 50% of those in the top 1% in 1996 had moved to a lower income bracket by 2005.
Median income of every income group from the bottom quintile to the top 10% saw increases in incomes over this period, ranging from a 232% increase at the bottom quintile, 70.6% increase in the second quintile, 43.1% in the middle quintile, 28.3% increase in the fourth quintile, and a 10% increase in the top quintile, and a 2.9% increase among the top 10%.
Alternatively, the top 5% so a 6.8% loss, and the top 1% saw a 25.8% loss. Similarly, within the top 1%, those with the most money had the greatest propensity to lose money.3
Tax Rate Brackets Can Be Misleading
The vast majority of people in the United States fall into tax brackets where they pay 0%, 10%, 15%, or 25% of their income in taxes. 36 million Americans pay a 0% tax rate, and 42 million Americans pay a 15% rate. If one were to look solely at the tax rate, one could assume that 36 million people made so little that they had no tax obligation. In reality, the tax rate you pay is based not only off of the sheer number of dollars your earned in that year, but also your tax deductions and credits. Many people who own sole proprietorships for example will utilize deductions and credits in order to reduce taxable income, thus reducing their tax rate.
“The large percentage of people who don’t owe federal income tax is a feature, not a bug, of the revenue code,” according to the Tax Policy Center. “By design, the federal income tax always has excluded a significant fraction of households through a combination of personal exemptions, the standard deduction, zero bracket amounts, and more recently, tax credits.”
To a smaller but still relevant degree, we must consider age and career development when making assumptions about the state of income distribution in the United States. Those who are younger tend to make less money than those who are older and have established careers. As such, some of those in the large group of people being taxed between 0% and 15% may be young people in part-time jobs or young people early in their careers. Alternatively, these may be older people who not longer earn an income from their job, and instead receive money from low or no-tax sources, such as Roth IRA’s, 401(k)’s, municipal bonds, etc.
Bernie Sanders’ website toots the horn of income bracket inequality, talking about how the top 1% holds more wealth than the bottom 99%. While true, framing the economy in this way is disingenuous. By looking at broad statistical categories instead of individuals and specific situations, progressive paint the picture that individuals are somehow statically place within a given income bracket. In reality, individual people move in and out of the top 1% all the time. “The rich” is not a group of specific individuals, but rather a a term used as a placeholder for a group of people who are temporarily in a state of increased wealth.
Membership within this group now offers no guarantee of your membership tomorrow.
Poverty Is Historically Common – Wealth Is Rare
There is nothing in nature that suggests wealth is or ever has been a natural state of existence for humans. For the vast majority of our existence, that vast majority of people have lived in extreme states of poverty. It is only in relatively recent times that it is common for large swaths of people have any form of wealth that they can sustain over time.
Poverty is not a thing simply as a result of exploitation by the rich and zero-sum transfers of wealth. Poverty is a natural state of existence – the most natural state of existence, in-fact. Thousands of years ago, nearly every human had nothing but blunt tools and a hungry stomach. It is only as a result of competition in the world, which evolved to competition in markets, that people have been able to accumulate wealth.
The idea that poverty can be eradicated through redistribution of wealth is as shaky a premise as saying that greed can be eliminated by instituting a planned economy. If socialists and neo-marxists were being genuine in their pursuits for solutions, they would ask not how to eradicate poverty, and instead ask how can we create more wealth. The problem is that the creation of wealth requires market capitalization, and marxists are allergic to profit.