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William Lloyd

May 12, 2013

William Lloyd | Two sides to government-dependency debate

— The argument that people should be less dependent on government is appealing. Unfortunately, unless there are major changes in the economy, it is also unrealistic.

Without question, there are freeloaders who would need less government help if they simply worked harder or took advantage of available opportunities. However, hard work does not guarantee a fair income.

A study by the nonpartisan Congressional Budget Office (CBO) concluded that the income earned by the average U.S. household from jobs and investments grew by almost 60 percent from 1979 to 2007. However, the income earned by the household that was halfway between the wealthiest and the poorest grew by only 20 percent. 

That means that, over a 29-year period, almost half of U.S. households received an increase of less than 20 percent.

In contrast, the income of the wealthiest 1 percent of American households more than doubled.

Admittedly, some government policies benefit average Americans more than the wealthy. At least in theory, the graduated federal income tax requires high earners to pay a bigger percentage of their income in taxes than those who earn less are required to pay.

Furthermore, government programs – such as Social Security, Medicare, Medical Assistance and food stamps – help assure most Ameri-cans a minimum level of income.

However, these policies have made only a modest impact on the growing concentration of income at the top since 1979.

To illustrate the point, the CBO study adjusted the income received from jobs and investments to include the effect of taxes and payments from government programs. Measured that way, the income earned by the household that was halfway between the wealthiest and the poorest increased by 35 percent from 1979 to 2007, instead of by only 20 percent. 

That was an improvement, but a 35 percent increase was still meager in comparison to the 275 percent increase enjoyed by the wealthiest 1 percent of American households.

Furthermore, half of U.S households experienced income growth of less than 35 percent. In fact, the income of the poorest one-fifth of households increased by only 18 percent.

One reason for the sluggish growth in the income of the poorest households has been the failure to increase the minimum wage more often. 

For example, the Economic Policy Institute estimated that a minimum-wage worker earned 53 percent as much as an average production worker in 1968, but only 37 percent as much by 2012.

A CBO study of changes in the poverty rate from 1959 to 2011 provides additional evidence of the problem. 

Although the overall poverty rate dropped from about  22 percent in 1959 to about  12 percent by 1979, it then increased to 15 percent by 2011. Even more troubling, although the poverty rate for Americans younger than age 18 fell from about 27 percent in 1959 to less than 14 percent in 1969, it then rose to more than 22 percent by 2011.

On a positive note, the poverty rate for Americans age 65 and older plunged from about 29 percent in 1966 to 8.7 percent in 2011. 

Not surprisingly, that decline coincided with the enactment of Medicare and annual Social Security cost-of-living increases. In fact, the Center on Budget and Policy Priorities estimated that the poverty rate among those 65 and older would actually have been 43.6 percent in 2011 – rather than 8.7 percent – without Social Security benefits.

Contrary to what has happened since 1979, the concentration of income at the top is not inevitable. For example, according to an analysis by Alan Krueger (chairman of President Obama’s Council of Economic Advisors), income grew by almost the same percentage for all groups of U.S. households, from the poorest one-fifth to the wealthiest one-fifth, from the end of World War II until 1979.

Unfortunately, at least since the Reagan administration, the advocates of less dependence on government have focused on taking things away from middle- and low-income Americans and have paid little attention to preventing the wealthy from getting more than their fair share. They convinced a majority that the key to prosperity was to tighten eligibility for Medical Assistance, welfare and food stamps while reducing taxes for the wealthy.

They convinced a majority that we will be better off by cutting pensions for public employees than by helping more workers to receive a pension.

Now, they are trying to convince us that our health care problems will be solved if we repeal Obamacare without enacting an alternative.

Regardless of the merits of any of their specific positions, these advocates have diverted attention from the real problem: An economy that gives the people at the top too much of the benefit from the hard work of average Americans.

William Lloyd of Somerset represented Somerset County in the state House of Representatives (1981-1998) and served as the state’s small business advocate (November 2003-October 2011). He writes a monthly column for The Tribune-Democrat.

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