By Dustin Siggins
Wednesday, March 27, 2013
On November 20, 2012, a video alleging vast wealth
inequality in America was posted on YouTube. Over the last few weeks, the video
has gone viral, with over 5.1 million views as of this writing and prominent
political mentions, including at Ezra Klein’s Washington Post “Wonk Blog.”
The video relies on scare tactics, such as a reference to
the wealth held by the top 1 percent being “off the chart” — which is a problem
with the scale, not the wealthy. It changes from referencing “wealth” to
referencing “income” without appropriately differentiating between the two. And
it makes loaded assertions, such as saying that wealth distribution is not
“fair” and the non-wealthy are “scraping by,” without providing data to back
these points up.
There are probably a hundred ways the video is wrong, but
here are twelve:
1. The video’s narrator says that “we certainly don’t
have to go all the way to socialism to find something that is fair for
hard-working Americans.” What does this person think is fair? The average 1 percent
earner makes 50 times as much as someone in the bottom 20 percent of earners,
but pays 1,500 times as much in taxes. Is that “fair” enough?
2. In bashing the “wealthy” for having too much money,
the video’s creators forget that even with alleged “inequality” of wealth, it’s
all a matter of perspective. Compared with previous eras and civilizations, in
America and in many other countries, the difference between the rich and
non-rich is modest. Today the rich have very nice cars, fly first-class, and have
a vacation home or two. Meanwhile, non-rich Americans have a decent used car or
two, fly coach, and go on some vacations.
Compare this with the differing lifestyles of the rich
and poor in ancient Rome, or in the early 20th century — or today in socialistic
countries like Cuba and China.
3. According to the video, the poor are “suffering”
because of inequality. However, as Heritage Foundation researchers Rachel
Sheffield and Robert Rector noted in a paper about poverty in America, “poor”
doesn’t equal “suffering.” From the paper, describing “poor families with
children” in 2005:
—• These homes typically had both
air conditioning and a personal computer.
—• For entertainment, they
typically had cable or satellite TV, three televisions, a DVD player, a VCR,
and a video-game system, such as an Xbox or PlayStation.
—• In the kitchen, they had a
refrigerator, a stove, an oven, a microwave, and an automatic coffeemaker.
—• Other amenities included a cell
phone, a cordless phone, and a clothes washer.
This is not to say that being poor means one is
flourishing in America, but it does provide important context.
4. In the video, the bottom 80 percent of the people have
just 7 percent of the wealth in America. Some basic math reveals that this
means the average wealth of the bottom 80 percent of Americans is just over
$15,000. However, this is an apples-to-oranges comparison, since the common
analysis of wealth looks at household wealth, not individual wealth — after
all, four kids under the age of eight might be wealthy because of their
parents, but they don’t actually make income.
According to CNN, the median American household had a net
worth of $57,000 in 2010, which would have been much higher had the Great
Recession not occurred. The Federal Reserve’s estimate in July 2012 was a bit
better — the median family “had a net worth of $77,300 in 2010, compared with
$126,400 in 2007,” according to the New York Times.
Perhaps this lack of applicable data on individual wealth
(and the fact that inequality of wealth was made worse by the recession that
began in 2007) is why the authors of the video have no citations to back up
their “facts” related to inequality, and why social-media site Mashable.com’s
only link to “data” backing up the claim is Wikipedia.
5. The video gives the impression that the average “one
percenter” is someone like Donald Trump. Reality is a bit more clear. According
to CNN in September 2012, the average one-percenter household has assets worth
$16.4 million. Certainly, this is a lot of money, but not for the top 1 percent
of a wealthy country like the U.S.A. — especially since this is about
households, not individuals.
6. The video switches from wealth to income and says that
the bottom 50 percent of Americans own a mere 0.5 percent of stocks, bonds, and
mutual funds, concluding that this 50 percent is “just scraping by.” While the
recent recession has eroded wealth and income for many middle-class and poor
Americans, “scraping by” is a relative term in America, as compared with true debilitating
poverty.
The video never admits that the upper 50 percent may have
that much money in stocks, bonds, and mutual funds because they made smarter
financial decisions when they were middle-class or poor. Either way, the lack
of bond and stock ownership by non-wealthy Americans does not equal “just
scraping by,” particularly when the bottom 50 percent pay so little in taxes
for government programs benefiting them.
While almost all Americans do pay some sort of federal
taxes, the 50 percent or so who don’t pay non-payroll income taxes benefit from
federally funded roads, education services, immigration control, the military,
and other federal services. Who pays for these services? According to an
October 2011 report from the Tax Foundation, “The top 5 percent earned 31.7
percent of the nation’s adjusted gross income, but paid approximately 58.7
percent of federal individual income taxes.” In short, most taxes for
non-retirement social spending — the same social spending liberals are so keen
on expanding — are being paid by the people liberals say don’t pay enough in
taxes — the top 5 percent, whose threshold income was a relatively modest
$154,643 in 2009, according to the Tax Foundation.
7. Speaking of income inequality, the implication that
the wealthy earn unbearably more than non-wealthy Americans is rebutted by a
Congressional Budget Office (CBO) report in July 2012 showing how government
transfer payments increase the income of non-wealthy Americans. Because of that
pattern, before-tax income is more evenly distributed than market income alone.
Households in the lowest quintile of the before-tax income distribution
received 5.1 percent of income, the middle quintile received 14.7 percent, and
the top quintile received 50.8 percent.
8. The video’s definition of income does not include
these transfer payments from government programs, whose total of means-tested
welfare was over $1 trillion in 2011. That’s without including Social Security
and Medicare.
9. The video’s next point is that while many wealthy
people work hard, “Do you really believe that the CEO is working 380 times
harder than his average employee?” Maybe not, but:
—• CEOs are paid for their added
value. Example: A popcorn vendor is important to an NBA game. But LeBron James
adds far, far more value.
—• CEOs are paid for the quality,
not the quantity, of their work. Would the video’s creators prefer to pay for
the relatively modest profit advantage of a popcorn vendor or the much larger
profit advantage of LeBron James?
—• Finally, most CEOs aren’t
making millions to sit around. Many are small businessmen who own LLCs and
similar modest-sized corporations.
The average pay of all CEOs might be 380 times that of
average employees, but it’s certainly not accurate for every CEO. According to
this October 2012 analysis of census and Forbes data, there are over 2 million
CEOs in America. Half of them make $250,000 or less.
10. In complaining about income inequality, the video
never describes the full reality of income differences. According to the tables
below this chart, all of which are based on CBO data, the top 1 percent earned
at least $1.219 million in 2009. The middle 20 percent of earners averaged
$64,300. A lot of income, yes — but
Donald Trump these people are not.
An additional fact: Using the data in the aforementioned
tables, the average one-percenter makes 19 times as much as the average person
in the middle quintile of earners — and pays over 49 times as much in taxes.
11. Switching back to wealth, the narrator never asks why
the wealthy have their money. The basic assumption throughout is that the top 1
percent are evil, corrupt, uncaring, or outright thieves, and it is the place
of government to step in. Yet if it weren’t for government giving $100 billion
annually to corporate welfare, government collusion with big business on
regulations that hurt smaller competitors, and tax loopholes benefiting the
wealthy (including $67 billion in the fiscal-cliff law signed by President
Obama), those who are indeed corrupt would not have so much more wealth than
honest workers. Nor would the wealth difference be so high if major banks and
other corporations hadn’t gotten trillions in bailout money from Congress and
the Federal Reserve after the financial crash.
Obviously, most wealthy people are regular and decent.
But if the video’s creators really want more “equality,” government
intervention is the last place they should look.
12. How do the wealthy live? The video insinuates they
are dishonest, evil people putting the screws to the rest of us. According to a
New York Times article in January 2012, however, the full story is more
telling. While “most 1 percenters were born with socioeconomic advantages,
which helps explain why the 1 percent is more likely than other Americans to
have jobs, according to census data,” the following is also true:
They work longer hours, being three times as likely as
the 99 percent to work more than 50 hours a week, and are more likely to be
self-employed. Married one-percenters are just as likely as other couples to
have two incomes, but men are the big breadwinners, earning 75 percent of the
money in one-percenter households, compared with 64 percent of the income in
other households.
The top 1 percent of earners in a given year receives
about 17 percent of the country’s pre-tax income, about double their share 30
years ago. They pay more than 25 percent of all federal taxes, according to the
Tax Policy Center. In 2007, they accounted for about 30 percent of
philanthropic giving, according to Federal Reserve data. They received 22
percent of their income from capital gains, compared with 2 percent for
everybody else.
In other words, yes, the top 1 percent make a lot of
money. They also pay a lot in taxes and make up a vastly disproportional share
of charitable giving. They work long hours and are entrepreneurial risk-takers.
It has been claimed by the Left for some time now that
inequality is bad in and of itself. The real question remains unanswered,
however: Is inequality permissible if all people’s lives are improving? If all
people are making economic gains, would liberals destroy that progress in the
name of equality?
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