People don't feel richer because they've gained benefits instead of wages
Recent Gallup polls reflect a historically high 75 percent dissatisfaction with how things are going in America. Some might wonder how that jibes with continued economic growth and higher consumption across all income classes.
Meanwhile, at least since the publication of “What’s The Matter With Kansas,” Democratic pundits have complained that the public is unappreciative of all the economic good that the party has done for them. For their part, Republican pundits suggest to voters, regardless of facts, that they become worse off whenever a Democrat is president, but achieve remarkable gains whenever a Republican is president.
These debates and their potential disconnect from economic data arise mostly because people value different types of income differently. Much of it they don’t even see.
I’m not referring to the frustration some feel when their income grows more slowly than others. Instead, I’m focusing on how a predominant share of income growth for many households comes from additional government transfers, not from higher wages and other market income. Also, a significant share of almost everyone’s income, whether from government or work, derives from improvements in healthcare that they don’t even count as income because it is not in their paycheck.
Of course, all income gains help finance higher levels of consumption. But eeconomists’ models, which often contain an implicit assumption that human happiness derives only from consumption, easily lead to the mistaken conclusion that people are indifferent to how they receive their income. In particular, unlike returns from work, income received from transfers adds little to individuals’ sense of dignity, accomplishment or productive worth.
Over recent decades, Social Security and various forms of healthcare support, such as Medicare and Medicaid, have dominated the growth in government transfers. Growth in SNAP (formerly food stamps) and the earned income tax credit are significant, but an order of magnitude lower. Other means-tested transfers, in such areas as housing and traditional welfare, fall yet further behind.
As a result, much of the real growth in transfer income extends across income classes rather than to those traditionally labeled welfare recipients. Moreover, for most income classes, net transfers (transfers less taxes) from the government have grown more than market incomes over recent decades.
Consider the middle-income quintile of households — those whose average income is higher than the bottom 40 percent and lower than the top 40 percent of households.
Based on Congressional Budget Office data, their average income in 1979 (in 2019 dollars) was about $49,000. In 1979, that class paid about the same amount of taxes as it received in transfers. From 1979 to 2019, their average income from wages and other market income grew by only $13,100, but their net government transfers (transfers less taxes) rose by $22,600.
Accordingly, the income growth within the middle class has derived primarily from increasing net transfers, not market income.
For the 40 percent of households with the lowest incomes, growth in net transfers dominated growth in market incomes even more. By contrast, across all households, average income just about doubled, mainly reflecting large gains in market income at the top of the income distribution.
To be clear, these are different people in 2019 than the earners from 1979. In particular, workers have become more likely to fall into the lower relative income categories.
This trend took place under Republican and Democratic presidents alike, and the point of it has nothing to do with the merits of these transfer (and tax) changes. The point, rather, is that people do not count these sources of income the same way as the cash they receive as a reward for work — if they count them at all.
Consider how inflation-adjusted lifetime Social Security and Medicare benefits for a couple with average and low wages over their lives have grown from a bit over $500,000 for a couple turning 65 in 1970 to more than $1 million for a similar couple in 2005 and are scheduled to reach over $2 million in 2050 for a similar millennial couple aged 40 in 2025.
From my experience, only a few people, even economists who study retirement, know the value of their lifetime benefits or how they fare relative to their parents.
Social Security and Medicare beneficiaries are highly unlikely to think to themselves, “Wow, look at all the government has given me. I’m so grateful to those politicians who made this possible.” Most say, “I’m entitled to this money,” whatever its level. Most incorrectly add, “The government didn’t give me anything. I paid more than I got back. If there’s a shortfall, it’s because the trust funds were raided.”
Few understand that their Social Security and Medicare taxes went out almost immediately to pay benefits to their parents’ generation, and that their current entitlement claim to higher benefits than their parents rests partly on a claim to an ever-higher share, not just amount, of income earned by their children.
How about the increased value of health care? Few individuals count gains in the value of health insurance as additional income. Even researchers at the Census Bureau or academia fail to count those benefits as income in most survey studies.
Yet, over recent decades, more than 25 percent and often 30 percent of the per capita growth in real income has been spent on health care. Yes, prices have risen, but so have real benefits. Better surgeons, drugs and equipment keep us alive longer and offer more cures than previous generations knew.
The government covers around two-thirds of all health spending through Medicare and Medicaid, exchange subsidies under Obamacare, veterans and other benefits, health benefits for federal, state and local workers, and various tax subsidies.
The story of hidden income growth applies to employer-provided health insurance as well. Much of the gain in total compensation for low-to-average-income employees in firms providing health insurance has come from the increased value of the health insurance provided.
Do they feel great when their cash wages can’t keep up with inflation even while the real “value” of their employer subsidies for health insurance rises? Or when the value of their employer-provided health plan rises but they get caught with a personal health bill of a few thousand dollars?
People also don’t tend to count as income growth the various improvements in air safety, cleaner water, school buildings, better highways and other government services. They do know about the failures.
In a recent post, I noted how the confusing debate over inequality, largely dependent upon what different researchers count, distorts policymaking. Here, I add a simple corollary. Dissatisfaction with the economy and government policy is derived significantly from sources, not just the amount, of income people receive.
Want a more satisfied public? Then figure out ways to enhance their dignity, self-respect, sense of accomplishment and belonging — not just their consumption. Compensating those with declining shares of market income, particularly wages, with more net transfers, mainly in retirement support and expensive healthcare, will not be enough.
And they won’t be thankful for it, either.
Eugene Steuerle is a fellow at and co-founder of the Urban-Brookings Tax Policy Center in Washington, D.C.
Date: |
Filter
-
Spooked by Apple stock’s AI-driven gains? Take a look at its bonds instead.
Apple investors who want to profit from the boost the iPhone maker enjoyed this week after unveiling its AI strategy but who are balking at the stock’s record levels could look at its bonds instead.MarketWatch - Business - Apple -
Fever's Clark: Don't use me to push 'agendas'
Fever star rookie Caitlin Clark pushed back against online commenters who have used her name in discussions to denigrate other WNBA players, saying any racist or misogynistic comments are "not acceptable."ESPN - Sports -
Eriksen, Højlund Utd linkup can 'benefit' Denmark
The Danish duo of Christian Eriksen and Rasmus Højlund will show the benefits of playing together for Manchester United at Euro 2024 despite plenty of turbulence at the Premier League club this past season, according to assistant coach Morten ...ESPN - Sports -
If Everyone Voted, Would Biden Benefit? Not Anymore.
Inside the unusual dynamic shaping the 2024 campaign.The New York Times - Top stories - Joe Biden -
'I wanted seven kids but instead I became a nun'
Three women explain why they left everyday life to join a religious order.BBC News - Top stories -
You’re richer than the king but only ‘pass’ at being posh? That’s the British class system for you | Marina Hyde
Like the characters in Ripley and Saltburn, the perfectly well-to-do PM longs to be even better-to-do. Psychologically speaking, I feel I understood the last two prime ministers only as they were leaving us. With Liz Truss this might seem ...The Guardian - World -
How Mazzulla benefited from Jerry West's tough love in college
Celtics coach Joe Mazzulla reflected on the time where Jerry West made a life-changing phone call during his time at West Virginia.Yahoo Sports - Sports -
The Textile Company Nordic Knots Opens Its First U.S. Store in New York
For its first U.S. store, Nordic Knots is meant to feel like the opposite of a design studio.The New York Times - Lifestyle - New York -
Ukrainian Refugees in Devon, England, Feel Safer but Lost
“When you live in the past, the people around you hate you, don’t understand and don’t accept you,” Valentyna Odnoviu wrote.The New York Times - Top stories - Ukraine -
Conor McGregor out of UFC 303 because of an undisclosed injury
An injury caused Conor McGregor to pull out of the upcoming pay-per-view event June 29 in Las Vegas that he was scheduled to headlineABC News - Sports - UFC
More from The Hill
-
Trump denies Milwaukee 'horrible' city comment: 'Democrats are making up stories'
After his campaign said that former President Trump was referring to election integrity and crime issues when he reportedly made a negative comment about Milwaukee three days ago at a meeting with Congressional Republicans, Trump took to Truth ...The Hill - Politics - Donald Trump -
Democratic lawmaker slams Project 2025 as 'un-American'
Rep. Madeleine Dean (D-Pa.) slammed Project 2025, a grand sweeping plan by Republicans to advance right-wing priorities and expand the powers of the presidency, as "un-American" in a new interview Saturday. Dean, speaking on MSNBC Reports, did not ...The Hill - Politics -
Greene alleges Fauci committed 'crimes against humanity' with COVID response
Rep. Marjorie Taylor Greene (R-Ga.), speaking at a Turning Point Action conference on Saturday, vowed to have former director of the National Institute of Allergy and Infectious Diseases Anthony Fauci sent to prison over his handling of the ...The Hill - Politics - Covid -
Scaramucci suggests CEOs backing former president have 'Trump-nesia'
Former Trump White House Communications Director Anthony Scaramucci suggested that some CEOs have “Trump-nesia” two days after former President Trump attended the quarterly meeting of Business Roundtable, with over 80 CEOs present including ...The Hill - Politics -
Watch live: Trump gives keynote at 'The People's Convention' in Detroit
Former President Trump is set to headline Turning Point USA's "The People's Convention" Saturday in Detroit. Trump, the presumptive GOP nominee for the White House, is also expected to use the trip to key battleground state Michigan as a way to ...The Hill - Politics - Donald Trump