By
Robert Reich
Many
believe that poor people deserve to be poor because they’re lazy. As Speaker
John Boehner has said, the
poor have a notion that “I really don’t have to work. I don’t really want to do
this. I think I’d rather just sit around.”
In reality, a large and
growing share of the nation’s poor work full time — sometimes sixty or more
hours a week – yet still don’t earn enough to lift themselves and their
families out of poverty.
It’s also commonly
believed, especially among Republicans,
that the rich deserve their wealth because they work harder than others.
In reality, a large and
growing portion of the super-rich have never broken a sweat. Their wealth has
been handed to them.
The rise of these two groups — the working poor and non-working rich – is relatively new. Both are challenging the core American assumptions that people are paid what they’re worth, and work is justly rewarded.
Why are these two groups
growing?
The ranks of the working
poor are growing because wages at the bottom have dropped,
adjusted for inflation. With increasing numbers of Americans taking low-paying
jobs in retail sales, restaurants, hotels, hospitals, childcare, elder care,
and other personal services, the pay of the bottom fifth is falling closer to
the minimum wage.
At the same time, the real
value of the federal minimum wage is lower today than it was a quarter
century ago.
In addition, most
recipients of public assistance must now work in order to qualify.
Bill Clinton’s welfare
reform of 1996 pushed the poor off welfare and into work. Meanwhile, the Earned
Income Tax Credit, a wage subsidy, has emerged as the nation’s largest
anti-poverty program. Here, too, having a job is a prerequisite.
The new work requirements
haven’t reduced the number or percentage of Americans in poverty. They’ve just
moved poor people from being unemployed and impoverished to being employed and
impoverished.
While poverty declined in
the early years of welfare reform when the economy boomed and jobs were
plentiful, it began growing in 2000. By 2012 it exceeded its level in 1996,
when welfare ended.
At the same time, the ranks of the non-working rich have been swelling. America’s legendary “self-made” men and women are fast being replaced by wealthy heirs.
Six of today’s ten
wealthiest Americans are heirs to prominent fortunes. The Walmart heirs alone
have more wealth than the bottom 40 percent of Americans combined.
Americans who became
enormously wealthy over the last three decades are now busily transferring that
wealth to their children and grandchildren.
The nation is on the cusp
of the largest inter-generational transfer of wealth in history. A study from the Boston College Center on
Wealth and Philanthropy projects a total of $59 trillion passed down to heirs
between 2007 and 2061.
As the French economist
Thomas Piketty reminds us, this is the kind of dynastic wealth that’s kept
Europe’s aristocracy going for centuries. It’s about to become the major source
of income for a new American aristocracy.
The tax code encourages
all this by favoring unearned income over earned income.
The top tax rate paid by
America’s wealthy on their capital gains — the major source of income for the
non-working rich – has dropped from 33 percent in the late 1980s to 20 percent
today, putting it substantially below the top tax rate on ordinary income (36.9
percent).
If the owners of capital
assets whose worth increases over their lifetime hold them until death, their
heirs pay zero capital gains taxes
on them. Such “unrealized” gains now account for more than half the value of
assets held by estates worth more than$100 million.
At the same time, the
estate tax has been slashed. Before George W. Bush was president, it applied to
assets in excess of $2 million per couple at a rate of 55 percent. Now it kicks
in at $10,680,000 per couple, at a 40 percent rate.
Last year only 1.4 out of every
1,000 estates owed any estate tax, and the effective rate they
paid was only 17 percent.
Republicans now in control
of Congress want to go even further. Last Friday the Senate voted 54-46 in
favor of a non-binding resolution to repeal the estate tax altogether. Earlier
in the week, the House Ways and Means Committee also voted for a repeal. The
House is expected to vote in coming weeks.
Yet the specter of an
entire generation doing nothing for their money other than speed-dialing their
wealth management advisers is not particularly attractive.
It puts more and more
responsibility for investing a substantial portion of the nation’s assets into
the hands of people who have never worked.
It also endangers our
democracy, as dynastic wealth inevitably and invariably accumulates political
influence and power.
Consider the rise of both
the working poor and the non-working rich, and the meritocratic ideal on which
America’s growing inequality is often justified doesn’t hold up.
That widening inequality —
combined with the increasing numbers of people who work full time but are still
impoverished and of others who have never worked and are fabulously wealthy —
is undermining the moral foundations of American capitalism.
ROBERT B.
REICH, Chancellor’s Professor of Public Policy at the University of California
at Berkeley and Senior Fellow at the Blum Center for Developing Economies, was
Secretary of Labor in the Clinton administration. Time Magazine named him one
of the ten most effective cabinet secretaries of the twentieth century. He has
written thirteen books, including the best sellers “Aftershock" and “The
Work of Nations." His latest, "Beyond Outrage," is now out in
paperback. He is also a founding editor of the American Prospect magazine and
chairman of Common Cause. His new film, "Inequality for All," is now
available on Netflix, iTunes, DVD, and On Demand.
