Morton J. Marcus is an economist formerly with the Kelley School of Business at Indiana University. His column appears in Indiana newspapers.
After a column on income distribution two weeks ago, I received numerous disapproving e-mails.
Be assured I am not a bloodless, unfeeling conservative who would rip the ragged covering from a homeless, shivering child on a winter’s night. Nor am I a drug-crazed liberal preparing to equalize income, independent of effort and ability, in the name of an ancient goddess of justice.
Let’s move on.
Annual income alone does not signify poverty or affluence. Public policy should not rest on how much an individual or a household makes in a single year.
Down the street from each of us lives an elderly lady who has no income beyond her small Social Security check. However, she may not be poor. She may not suffer for anything other than companionship. She may have substantial savings, no mortgage, no household maintenance or utility expenses. She may be blessed with a son and a daughter-in-law, further down the street, who pay all those bills.
Near the local college campus could be a set of condominiums filled with the sons and daughters of alumni who pay for their children’s housing, utilities and credit cards. These students may hold low-paid jobs, but these “households of unrelated individuals” may not be “poor” in the conventional sense.
Out by the lake are the luxury homes of mediocre athletes who earn more in a year than you or I in a lifetime of diligent effort. Their bounty is reduced when 40+ percent of that annual income is taxed away. Yet, shortly they may also lose the rest through poor money management, inappropriate charity, or dissipated consumption.
Close to downtown are formerly fine houses of the 1920s where some writers and artists get by on meager incomes. Occasionally one will get lucky, sell a manuscript, a painting, or a sculpture and be rewarded with a seemingly magnificent check. But the intervals between such sales can be extraordinarily irregular.
America abolished income averaging in 1986. Today only farmers and fishermen can meld together the lean and the fat years. That’s why superstars enjoy deferred compensation. You cannot do that with over-time pay from a bonanza year if you have a white- or blue-collar job.
Certainly, persistent poverty is real and requires our determined, immediate attention. Clearly, people in some occupations earn outrageous amounts of money over long periods of time, but those folks always live elsewhere, not in our houses.
If you want to learn more about income distribution and taxation, see the November 2014 report by the Congressional Budget Agency:
https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/49440-Distribution-of-Income-and-Taxes-2.pdf
There you will discover that, from 1979 through 2011, the top one percent of all households saw their inflation-adjusted, after-Federal tax incomes rise by 200 percent (it tripled) while for those in the bottom 20 percent of households realized a “meager” 48 percent increase.
Inequality, however, is not itself inequity. Further, a decrease in income disparities would not necessarily reduce poverty. If poverty is our real concern, let’s get on with addressing the real issues.