Distribution of Wealth and Income in the United States

Economics
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I think most Americans are aware that wealth and income have been redistributed upward in the last 30 years. The video posted above presents some powerful infographics that bring our hunches into stark light.

It makes it clear that (1) the middle class can’t afford any more pain and (2) our economy is basically in the same situation as our climate – if we don’t do something to bolster the middle consumer class we can kiss our economy as we know it or would like to know it goodbye.

I’m really concerned that the next grand bargain is going to require some more “shared sacrifice,” and we can’t afford to contribute even one thin dime. For instance, what if they go for the biggest middle class deduction of all, the mortgage interest deduction? Whether or not you think we should have one, millions of families have structured their whole financial future around this deduction. It will gut the middle class. Or, what if they raise the social security age for people younger than 55? Twenty-seven percent of the U.S. population is between 40 and 55 years old. Those workers at the older end of that range are already finished with their retirement strategy; that is, whatever approach they were going to use to save for retirement, they’ve already set that plan firmly in motion. It’s pretty much too late to change it without extreme hurt in their elder years. Those workers at the younger end of that range may be able to shift gears, save more, but they are also at the height of expenses in terms of childcaregiving. Again, it will be a significant impact on the middle class as a whole.

I really think a redistribution of wealth downward is in order. I wouldn’t have said that 30 years ago, but it’s gotten out of hand and the current distribution is a severe threat to our economy.

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If a policy is dead wrong, the best time to abandon it is the soonest time. Mortgage-interest deductibility has contributed immensely to a capital-transactions business which has been concentrating capital into the fewest possible hands for my entire life.

If someone pays you money not to go to school, and you start relying on it for groceries, then eventually you must choose between servitude and crisis.

Furthermore, the prices of houses reflect this entrenched entitlement, making housing not only a ridiculous expense but a terrible trap of capital and personal mobility. We have a government that does everything it can, regardless of consequences to wage-earners, to drive down prices of everything but the places we occupy. It celebrates increases in housing prices.

We are at a moment when the permanent income stream promised on a mortgage application has become the exception. If you hope to sell that house say, a decade from now, your best hope for not being under water will be an episode of currency inflation.

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And what do you do with the millions and millions who have thousands of dollars added to their tax bills? Just say oh well, suck it up, along with the wage and benefit cuts and the increase in food prices (yes!) and unemployment and the endless war? I don’t think our middle class can take it.

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Viewed in absolute isolation, every cent of taxation is unfair.

But the mortgage deduction is a reward for undermining a robust economy for everyone.

Let’s look at the effect even further.

Housing prices are driven by location. In middle-class suburbs, location means school district.

The school factor drives income streams into zones of economic exclusion, where the costs of education actually tax residents less than residents of denser neighborhoods with overburdened schools and hope-starved students. Talk about leaving children behind.

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Although in a perfect world mortgage interest wouldn’t be deductible, I think any current push to end deductibility is pretty much in line with the Screw-the-middle-class Austerian movement. Because right now your average middle-class household approaching retirement has one major asset: their house. Knocking out the tax deduction would knock home prices down somewhere on the order of 10-20% (because if people buying a house have to budget for income tax on the mortgage amount, that’s money they’re not going to bid for the house).

So you’re talking about taking a few thousand dollars a year more out of the pocket of every wage-earner who buys a house and tens of thousands of dollars out of the pockets of everyone who sells a house. Not good in the current economy, despite the Trumpian claims of how wonder it is.

Phased in over 20 or 30 years I could imagine it. Start with second homes and home mortgages over, say, half a million dollars, and maybe.

But otherwise you’re just increasing wealth inequality, because you’re clobbering the average people for whom a home is the major part of their savings while having little impact on the rich people who have lots of assets and, if necessary, can buy their homes for cash. (And the rich folks will be glad to sweep up houses from people who can’t afford mortgage plus taxes, and rent them back…)

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Phasing isn’t hard. Grandfather the current mortgages (with some time limit-- say, twenty years). Maximums on new purchases, with graduated phase-outs 90%, 80%, etc.)

The time to have done this would have been when mortgage-interest rates at their lowest because the deduction matters less. Conversely, cheap money pushes purchase prices higher. We can’t have that.

As for housing-as-retirement-savings, there are two sides to that sale.

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I’d have to see a thorough analysis, but I tend to think that the mortgage deduction distorts the economy in a way that hurts people more than it helps. Renting is much more efficient for everyone, but this tax deduction has the effect of putting a stigma on those who rent. We waste so much time and money and flexibility because of this tax deduction. And why should anyone get a deduction for mortgage interest in more than their primary residence.

Of course, it needs to be phased out carefully. It’s similar to the market distortions and inflexibility caused by the need to get quality health insurance through an employer. It makes no sense and ties people to jobs they may not want just to get insurance and makes losing a job seem that much more dangerous - but Obamacare was evil.

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Why do you think renting is so much more efficient for everyone? Sure, as leases are mostly now structured it has some nice advantages for flexibility, but rentals also require a huge legal/regulatory infrastructure to makes things work for tenants (and landlords). And where there is a reasonably competitive market for rentals, those tax savings get passed down to the renter. (In fact, the renter does better than the buyer in some ways, because the landlord’s cost is subsidized by depreciation.) (Oh, yeah, and that’s the other reason I think getting rid of the mortgage deduction for individuals is a tough job – if you’re rich it will take no more than a few hours of your accountant’s time to set up a corporation that rents your house to you, and the corporation is pretty clearly able to deduct mortgage costs.)

Of course, I’m also a parent with kids at home, so I see social advantages to structuring at least some housing stock with the expectation that people will spend 5-10 years or more in one place.

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Wealth inequality is a concerning issue that many often bring up, but do not elaborate on it past that. First of all how did we get here? The number 1 reason as far as I’m concerned is based on simple economics - supply and demand. Back in the 1960’s, which many refer to as the “Golden Era” for the middle class, there was little to no Globalization. As Globalization became more and more a reality well guess what happened? The demand for American goods went up exponentially and the supply of laborers for American companies went up as well. Those were two huge positive impacts to American businesses! Now where the American worker got really screwed was that foreign worker was a hell of a lot cheaper than the American worker. As a result wage stagnation became an unfortunate reality for many Americans as they had to compete with low wage foreign workers. During this time though corporate profits soared and hence those on the top of those corporations benefited tremendously! Sure there are factors involved but what I laid out is Economics 101.

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If we really want to destroy the middle class for good we should definitely keep our immigration and asylum laws like they are so as to encourage millions of impoverished people from Central and South America to flood into our nation and drain our welfare and healthcare systems.

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The middle class has not done a very good job of helping themselves. The middle class has more power than they will ever realize.

The middle class drives this country. The middle class is the ones purchasing the homes, new cars, the latest greatest in technology. We drive the markets. It’s our 401-K infusion into the market that keeps Wall Street moving forward. Without us, this country would collapse. We have all of this power yet refuse to use it to our advantage.

One big reason new home prices have gone up is that every time interest rates go down people run out and purchase larger homes. The builders know that so now all they are building are larger more expensive homes.

Do you think companies like Apple would be raking in billions if not for the middle class? We drive that company. And in return, Apple produces more expensive cell phones that really don’t mean shit for the average user.

The middle class chased our jobs out of the country by demanding lower prices. We might have saved a nickel but lost a dollar.

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Its not a zero sum game. Do you know what that means?

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first thing that video which Ive seen a few times is nonsense, it cherry picks data.
Why is it when they talk about income inequality and how it isnt fair that they always target business people and executives?

A CEO earns more than the average worker? duh , you think?

If being a CEO was easy then every one would do it, and if everyone can be a CEO than the compensation would decrease.

its a simple case of supply and demand

The average person has problems balancing their checking account, what makes you think the average person can run a billion dollar corporation ?

The same billion dollar corporations that hires these CEO’s, how many companies that are considered small cap that has CEO’s earning millions of dollars? can you name any?

If you want to talk about income inequality why is that Sports superstars , A list hollywood folks, Superstar musicians are earning way more than CEO’s.

Clayton Kershaw earns 30 million dollars a year in baseball and he pitches every 5 th day and during the late spring to early fall
Can you explain why he earns 30 million dollars a year?
Can you explain why Lionel Messi earned 111 million last year, 84 million in salary and 27 in endorsement?
for what kicking around a soccer ball and playing a game that kids play?

Floyd Mayweather basically gets paid to beat people up in a ring, 275 million dollars

Howard Stern earns 90 million dollars in 2018 to talk on the radio, and really what does he talk about, Im not a fan of his show but from the clips Ive seen and heard, he talks about women’s boobs, blow jobs, who is sleeping with whom?

Im sure he talks about substantive stuff right?

Yet you talk about the middle class eroding and poor yet the poor and the middle class fuels the wealth of the aforementioned.

They rally against some business people but say nothing about the others?

a bit hypocritical no?

For the record, Im not jealous on what any celebrity earns, or what anyone earns including the brain dead Kardashians.

I say if you can earn it , God Bless .

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It kind of reminds me of the same people who go around chirping about Climate change, yet they buy things made in China. Kind of defeats the purpose doesn’t it? Supporting the biggest polluters on the planet in exchange for cheap clothes and cheap things is also kind of hypocritical on their part to be preaching to the rest of us!

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I was reading somewhere that the average college president makes more than the average CEO for example. Whenever the left talks about income inequality they never talk actors, actresses, musicians, or sports athletes. Let’s see those people lead by example and that when they negotiate their salaries they should negotiate for everybody and spread the wealth around evenly with everyone else.

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exactly Eagle keeper, exactly, the hypocrisy is staggering at times from the left

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For the ones complaining about the “unfairness” of wealth distribution, familiarize yourself with the 80/20 laws i.e. the Pareto distribution

Further suggested readings:

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And for the same people that dont want to read

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Trump’s tax changes (in particular the doubling of the standard deduction) effectively removed the deductibility of mortgage interest for many.

I have been a proponent of the eliminating the mortgage interest deduction for many years. Someone earlier in the thread talked about a reasonable phase-out.

Such a phase-out wouldn’t shock the market. And grandfathering would hurt any who count on existing tax structures. Any new mortgages written under the phase-out period would maintain whatever deductibility was in play on the day they acquired their mortgage. And by the end of the phase-out, the market would have adjusted to the changes without collapsing the real estate sector.

But even with a phase-out, the current standard deduction structure has already taken the mortgage deduction out of play for a huge swath of home-owning taxpayers.

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I chose not to address the overarching issue of “income inequality” in this thread specifically for the reason you cite.

I just addressed a sub-topic regarding the tax implications of mortgage interest deductibility because it’s something concrete and mathematically addressable. In fact, I didn’t even want to respond to the nebulous assertion that such deductibility contributes to the even more nebulous concept of income equality.

Someone succeeding even more than I have succeeded does not diminish my own success.

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