Take the money and run

Stack Of CashLike a lot of other people, President Barack Obama has a New Year’s resolution.

This week Obama pledge to return his focus to the subject of “income inequality.”

According to a story in the Washington Post, the president was a bit short on specifics about how he might achieve his long-sought economic goals. Instead, the speech — coming at the end of a difficult and politically damaging year — was designed to help define a populist argument that he and other Democrats can carry into upcoming legislative battles and into next year’s midterm elections.”

While most everyone can agree that a widening gap between the haves and the have-nots presents serious problems for the country, the real battles will come as various factions argue about how to narrow the gap between the poor and rich. You can expect these battles to line up in perfect symmetry between the two major political parties.

This is the year that I will turn 50. This year is also the 50th anniversary of President Lyndon Johnson’s declaration of a “war on poverty.”

This is where it gets tricky for Democrats. Five years into Obama’s presidency, and 50 years after our nation declared a so-called war on poverty, there is ample evidence that the war is failing and President Obama’s economic recovery measures are falling short. The poor are still getting poorer and the rich are getting richer.  This is why today’s political battles are about extending unemployment benefits, expanding Medicaid, etc.

An Inconvenient Truth

Republicans will have their own challenges in this debate.

They will be labeled, generalized and demonized as rich, fat cats. No one will talk about John Kerry, the Kennedys or the Roosevelt Family. We will ignore Nancy Pelosi’s wealth. This, as always, will be about politics . . . not about solutions. It will be about Republicans trying to beat Democrats by pointing to failures; and about Democrats blaming Republicans.

It’s just too easy for most Americans to get behind the Robin Hood concept of taking from the rich and giving to the poor without realizing that you are simply relocating wealth.

Since both parties have challenges in this mid-term election year, you can expect a lot of talk about the “top 1 percent.” But here is an inconvenient truth that I stumbled across on Twitter:

According to the non-partisan Congressional Budget Office (CBO),  the top 1% of wage earners make 14.9 percent of all pre-tax income in the United States, yet pay 24.2 percent of all federal taxes.This is a conversation we must have. We should focus on making poor people richer, not on making rich people poorer.

The best way to achieve that goal is to 1.) Focus on educating the nation’s workforce. 2.) Stabilize family units 3.) Drive down health care costs and stop focusing on expanding insurance (make health care more affordable, efficient)

Since U.S. poverty rates continue to climb, maybe it’s time to admit we’ve lost the war on poverty. Maybe we need a new strategy and a little less politicking. But don’t bank on it.

If you would like to read or download the CBO report, you can find it here

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One thought on “Take the money and run

  1. Poverty rates measure pre-transfer incomes–that is,the measurements do not take into account those programs designed to “fight poverty” (whatever that phrase is suppose to mean). when taking into account these transfers, we see the poverty rate is much lower:

    http://conversableeconomist.blogspot.com/2013/09/the-poverty-rate-income-and-consumption.html

    The next problem with this post is the framing of the argument with ‘we cannot make the poor rich by making the rich poor’–or something to that effect. In a society with haves and have nots, you have to redistribute income in order to provide for the have nots living below some (arbitrary) standard of living. There’s two ways to address this; either through government transfer programs, or by increasing incomes. In either case, companies/firms/employers will experience some loss in wealth–either through reduced revenues when paying higher incomes, or through reduced revenues through higher taxes to help pay for those programs.

    What is perhaps most curious about this post is the suggestion income inequality is brought on by a skills gap–hence the need to educate our workforce. If there were a skills gap then we should see industries facing those gaps increase wages, hours, or both. However, we’re not seeing that, and the skills gap is just a tired canard supported by academics (who love policymakers addressing this “problem” by increasing public investments in education) and the business sector (who win twice, first by reducing labor costs by having the public train the workforce further, and by flooding an already slack labor market with more workers, thus exerting downward pressure on the equilibrium wage).

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