GHEI: The poorer middle class

Obsession with income redistribution is destroying U.S. productivity

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President Obama’s re-election prospects dim by the day. When it comes to all-important pocketbook issues, Americans quite simply are worse off now than they were when this administration moved into the White House. The Federal Reserve released its latest “Survey of Consumer Finance” on Tuesday, which confirmed widely held sentiment with hard data: Americans are poorer today than they were in 2007, when the Great Recession hit.

The difference between now and then is massive. The median household saw almost 39 percent of its wealth evaporate, and real income (that is, the amount adjusted for inflation) fell 7.7 percent. Only the old and the bottom 20 percent on the income ladder escaped the wealth destruction and income loss.

Much of the decrease in net worth can be ascribed to the housing bubble that burst before Mr. Obama took office. This was akin to a correction in the marketplace. However, misguided policies are preventing the economic growth needed to pull out of this slump. With Taxmageddon set to hit Jan. 1 as the George W. Bush tax cuts expire and businesses struggling under the weight of ever-expanding regulation from Washington, there’s little hope for meaningful recovery any time soon.

To the delight of the class warriors, the rich saw the biggest decline in income, with a mean drop of 16.2 percent. The bottom of the ladder saw its income increase slightly, by $500. In other words, Americans saw the leftists’ goal of reducing income inequality come true by making 80 percent of the population poorer.

The income slide hasn’t stopped, according to Gordon Green and John Coder of Sentier Research. These economists calculated median real income dropped 6.7 percent between 2009 and 2011, a period that overlaps and extends beyond the Fed’s “Survey of Consumer Finance” and includes a time when the economy was supposedly in recovery.

Middle-class families pay a great deal to Uncle Sam and rarely enjoy any breaks from the taxman. They saw their incomes drop between 7.7 and 12 percent. They are all likely to share the thought: “What recovery?”

Granny and Grandpa, on the other hand, are doing quite well, with the retired seeing their incomes jump 12 percent. They also have the lowest poverty rates of any demographic group, according to the Census. Incomes among the poorest in society are also going up.

This highlights the danger of policies that focus on achieving income redistribution. We are now saddled with unfunded liabilities for Social Security and Medicare that are consuming an ever-increasing share of the federal budget. These are transfers from the young, who are growing poorer, to the old, who are getting wealthier.

When the young and the productive are saddled with the greatest burdens, the country’s potential for growth is limited. The obsession with transferring wealth needs to end so entrepreneurs can focus on creating it. That’s the only way America will return to the days of across-the-board, ever-increasing incomes for all.


Nita Ghei is a contributing Opinion writer for The Washington Times.

© Copyright 2014 The Washington Times, LLC. Click here for reprint permission.

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