If you want to address increasing income inequality in the United States, a good place to start would be to bring runaway health insurance costs under control. Health care costs — not globalization, automation or corporate greed — are the biggest driver in income inequality today, argue Mark J. Warshawsky and Andrew G. Biggs in the Wall Street Journal today. Warshawsky is a visiting scholar at George Mason University’s Mercatus Center.
Here’s what the usual media analysis doesn’t tell you about the growing income gap. If you compare total compensation — wages/salaries plus benefits — low-income workers actually fared better than high-income workers between 1999 and 2006. Citing Bureau of Labor Statistics data, Warshawsky and Biggs note:
For low-income workers, total pay and benefits rose by 41% from 1999 through 2006. But those workers’ wages increased only by 28%, barely outpacing inflation. The reason: Employer costs for those workers health costs nearly doubled. …
Total compensation for [those earning $250,000 or more a year] rose by 36% from 1999 through 2006. That’s actually less than for low-income workers. But the one-percenters’ health costs rose from just 4% of compensation in 1999 to only 4.3% in 2006.
The authors do not explain why they cite data only through 2006 when data is available through June 2014. Whatever the reason, it appears that the cost of benefits continues to outpace wages/salaries. According to the BLS, for the quarter ending June 2014, “wages and salaries (which make up about 70 percent of compensation costs) increased 0.6%, and benefits (which make up the remaining 30 percent of compensation) increased 1.0 percent.
In other words, much if not most of the perceived increase in income inequality in recent years is an artifact of the tax code. Employer-paid health insurance is not taxable, thus not reported as income, while wages/salaries are taxable and reported as income. Eliminate the tax break for employer insurance and the growth in the wage gap disappears.
If we are sincere about wanting to reduce income inequality, the first place we should be looking is at inflation in health care costs. Here’s a real irony that Warshawsky and Biggs do not explore: Insofar as Obamacare shifts the cost of health care to employer-sponsored health insurance plans — I have a friend, a small business owner, whose health insurance is scheduled to go up 35% next year — it doesn’t just destroy job creation, it shifts compensation from taxable income to non-taxable health insurance, thus aggravating the reported income gap.
Meanwhile, the low interest rate policy of the Federal Reserve Board rewards the Top 1% by pushing up the price of stocks and bonds and punishes small savers by depressing interest rates. It is no accident that income inequality is worse under Obama than Bush. Perhaps Obama acolytes can cite the Warshawsky-Biggs research as evidence that the administration’s policies haven’t been as unfair to the poor as they seem to be.
— JAB
