Income Inequality & The Middle Class

Does the middle class have a future?  Of course it does, but will it be one of growing prosperity?  It’s a question that came up with unexpected frequency during a recent week long conference at Kenyon College in Ohio.  Most were progressive clergy of one kind or another, with the balance in communication.  They were women and men, younger and older, but mostly in their 50s and 60s.  They were what might be called the middle of the middle class.  They’ve earned modest incomes, have little in savings, hope for even more modest church pensions, and are relying on Social Security and Medicare to be there for them when they retire.

They seem content, but are worried about the future of others in the middle-middle class who make up the bulk of their congregations.  Will there be jobs that pay well?  Will skilled and unskilled factory work come back to America?  Can income inequality be reduced?  What can be done?  All good questions, important questions.  Maybe it’s a clergy thing, but as important as they are, and dedicated as clergy are to issues of social justice, their interest in probing deeply into how the economy works was somewhat limited.  What they know, and are led to believe, is what they get from headlines, and snippets on radio and television.  As example:  If it wasn’t for NAFTA, factory jobs would still be here; the Trans Pacific Partnership (TPP) was a giveaway of even more jobs, and it’s good we’re out of it;  super salaries are the product of capitalistic greed.  Tax reform might be needed, but how would that fix anything?  It’s just more gobbledegook manipulated by lobbyists. 

Who can blame them?  I pay fairly close attention to the economy, but even as an informed amateur it can often seem like diving down a rabbit hole to end up in a maze that would confuse even Lewis Carroll.  With that in mind, here are few things to chew on.

High paying manufacturing jobs have been displaced, in large part, by automation.  Jobs that migrated to Mexico would have gone south without NAFTA, and jobs that Asian nations have created would have been created no matter what.  Even in the U.S., high paying union jobs in union states have butted up against lower, but good paying jobs in non-union states.  With others, I believe that America’s economic future is dependent on our engagement with other nations in a multitude of ways that include agreements such as NAFTA and the TPP.  I regret that some of my fellow progressives not only think otherwise, but find themselves in league with right wingers who think they can resurrect 1955.   

What would do the most to reduce income inequality and establish conditions for middle income growth?  It’s in the tax code.  In its simplest form, the current code has seven brackets topping out at 39% on income over $471,000.  In contrast, the 1980 code had sixteen brackets topping out at 70% for income over $215,000 (equal to about $550,000 in current dollars).  No doubt you’ve herd how immoral it would be to redistribute income, taking money from those who had worked so hard to earn it, and give it to those who hadn’t.  Since Reagan’s days, the tax code has been subtly amended to do just that, but in the other direction – redistribute income from the bottom and middle to the top.  Wow!  Who would’a thunk it?  And yes, it’s immoral.

I went over this with a well educated clergy friend, and was surprised to learn he believed each step up in a tax bracket applied to all other income.  He had heard the phrase marginal rates but didn’t know what it meant.  It was a revelation to him that the rate for each bracket applied only to the income earned in that bracket, and not to the income earned in others.  That small misunderstanding allowed him to be influenced by right wing demagogues screaming that tax and spend liberals wanted to take all of his money and give it to someone else.

No one wants to go back to a code of sixteen brackets, but revising it to include a few more than we have with steeply increased rates for multi-million dollar super salaries, say 80% or more, would diminish incentives for super salaries to even exist.  It would increase incentives for corporations to offer better pay at the middle levels where the investment would pay off in many ways.  What ways?  More adequate compensation with additional opportunities for income growth reduces anxiety about day to day living, while adding a measure of satisfaction about being valued by one’s employer.  It opens more doors for creative innovation and efficiency, if management is smart enough to take advantage of them. 

It sounds too simple doesn’t it?  In a sense it is.  The tax code is complicated.  Not all income is earned income.  Which is exactly the argument defenders of the current system use, claiming that such a simple fix would be impractical.  They’re wrong.  Because most personal income is earned income, and because a courageous Congress could include certain other sources of income as earned income, a change like this would create a tidal wave effect beneficial to the entire economy.  Will it happen?  Not under the current administration, not while right wingers have control of the legislature, and not while lobbyists for the wealthiest are unlimited in what they can spend to influence elections.  Not while otherwise well educated people are so ignorant about how the economy works.  But all of that can change.  Maybe it will. 

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