Reflections: Increased Federal Outlays Are Not the Answer

By Dennis Boone

More tax revenues? Fix the wage imbalances.

While doing some research on employment trends for an article in Ingram’s, I chanced upon a set of statistics that would have elicited an “I tried to tell you!” from Ernest Hemingway.

In The Sun Also Rises, he penned the exchange between Bill and Mike, with Bill asking about how Mike found his way to bankruptcy. “Gradually,” Mike replies, “then suddenly.”

It’s like that with almost any poor outcome—financial, health-related (think obesity), soured relationships. But it’s worth pondering in public-policy terms as Washington is consumed this fall on whether to spend an additional $1 trillion here or $3.5 trillion there on all sorts of things that, if we’re being honest, we can’t afford.

A lot of those goals may be noble. Such nobility, however, has a way of triggering Hemingway’s “Suddenly” factor. The real discussion about bankruptcy isn’t related to dollars assigned to line items in the current spending bills, or the CBO scoring of longer-term impact, or whether the wealthy can afford to pay more in taxes—they can.

It’s a societal bankruptcy we’re flirting with. And, true to Hemingway, there’s a strong aspect of “Gradually” at work. You can find it in Census data regarding household income distribution by quintile in the half century from 1970 to 2020. This will not come as news to anyone who follows such metrics, but cutting to the chase here, the rich are getting richer.

I’ve long believed that their success was of little concern to me as long as my own personal situation continued to improve. That, I now see in the data, is like Pontius Pilate washing his hands of a certain prisoner’s fate. Unless one has a heart of stone, it’s impossible to feel good about improvements in your personal situation while everyone else around you sees theirs erode.

And in four of the five quintiles, erosion is precisely what we have:

♣ In 1970, the top 20 percent of households generated 43.3 percent of all income in the U.S. By 2020, that figure was 52.2 percent of total income—an increase of 8.9 percentage points, but a pop of more than 20 percent in relative terms.

♣ Over that same span, the second quintile—putatively, the upper middle class—went from a 10.8 percent to 8.1 percent share. Again, in relative terms, a decline of 25 percent.

♣ The middle class? From 17.4 to 14 percent, down 20 percent.

♣ The lower middle class went from 24.5 to 22.6 percent—not a huge point drop, but when you have a small pie to start with, even the loss of a 7.8 percent slice hurts.

♣ And at the bottom, remarkably, is the shift from 4.1 percent of total income down to 3 percent. It was the greatest relative percentage movement among all five quintiles. I can’t see how any American can take pride in a system that drops the relative share of household income by more than 25 percent when we’re talking about those already at the bottom rung.

So how’s any of that tie into Suddenly/Gradually? Lots of ways, but start with moral bankruptcy first. Something’s deeply wrong with a system that yields these kinds of outcomes—and with the ignorance or acceptance of those income trend lines by all of us.

To be sure, the rich aren’t eating those dollars—much of that wealth is invested in companies that could become the next Amazon, Cerner or C2FO. But those investments aren’t paying off at the lower levels with better-paying jobs to lift more boats; the blessings of those investments aren’t being truly shared with those who make those returns possible.

The harsh reality, rarely addressed in media or public-policy discussions, is that we have an economy overly reliant on low-wage jobs. That reliance may benefit consumers in the form of abundant, low-cost produce and (by historical standards) other foods, artificially depressed costs for travel and accommodations, dining at restaurants, getting a new roof, securing day care or nursing-home care, or other lines of service work. But it doesn’t help the lowest-paid workers get off the bottom rung.

The legendary Charles Koch of Wic-hita has long instructed employees at the nation’s second-largest private company to refrain from thinking of business conditions today in terms of conditions that existed in years past. Creative destruction and all that. Nothing is in a silo; every change in the economy is relative to another changing dynamic.

So no, you can’t go back to Reagan-era tax-cutting, because the economy of 1982 doesn’t exist today (thank God and The Gipper himself). At some level, tax-cutting can lead to economic expansion. Eventually, though, you have to find other ways to produce economic growth, and thus, the tax revenues it produces.

The bottom line for current spending discussions is: We haven’t done the hard work of building an economy that can finance Washington’s dreams. This is no time to live in denial of that harsh reality. Lift all boats, and revenues will rise.