Throughout this primary season, Hillary Clinton and self-proclaimed socialist Bernie Sanders have both been flogging the “crisis” of “income inequality,” which is “at the center of their campaigns,” according to CNN. Both have scourged the “greed” of the “1%,” called for higher taxes on the “rich,” and promised to expand and multiply government programs to rectify this injustice. Yet like other slogans progressives rely on, the idea of “income inequality” is an ideological construct, a statistical artifact that exploits envy and resentment for political advantage.
The first problem with “income inequality” is how “income” is defined. Progressives indulged in some noisy triumphalism a few years back when French economist Thomas Piketty seemingly proved with hard data that capitalism inevitably leads to a concentration of wealth and an increase in income inequality. Further analysis revealed the flaws in his argument and data. One problem is the same one that undermines how poverty is defined. As James Piereson wrote in The Inequality Hoax, “Figures [on income] exclude transfers from the government such as Social Security payments, food stamps, rent supplements, and the like, which constitute a growing proportion of income for many middle-class and working-class people.” Adding the value of those supplements would narrow the income gap considerably.
Ignoring the value of entitlement transfers also underlies Clinton and Sanders’ complaints about the “stagnant middle class” that worsens inequality. But Martin Feldstein points out in the Wall Street Journal that the dramatic gaps in income between the top 10% and everybody else “leaves out the large amount of wealth held in the form of future retirement benefits from Social Security and Medicare.” As Feldstein writes,
Add the $50 trillion for Medicare and Medicaid wealth to the $25 trillion for net Social Security wealth and the $20 trillion in conventionally measured net worth, and the lower 90% of households have more than $95 trillion that should be reckoned as wealth. This is substantially more than the $60 trillion in conventional net worth of the top 10%. And this $95 trillion doesn’t count the value of unemployment benefits, veterans benefits, and other government programs that substitute for conventional financial wealth.
And don’t forget, most retirees take 3-5 times more in benefits from Social Security and Medicare––which gobble half the federal budget–– than they contribute in payroll taxes. Try getting that deal in the private insurance market.