AFFORDABILITY IS ABOUT MORE THAN RISING PRICES

In the 2024 Presidential election, Donald Trump disputed the Democrats’ claim that the economy was in good shape. He made the election about the lack of affordability, due to inflation, allegedly caused by the Biden administration.

Now, two years later, it is Trump’s turn to claim that the economy is sound. Official government data shows the opposite, largely because of the Trump tariffs and the war in Iran. It is beyond dispute that inflation is increasing and prices are rising.

Predictably, Democrats have turned the table and made affordability a central issue in this year’s midterm elections. Nevertheless, at every opportunity, the President calls the affordability crisis “a hoax,” perpetrated by Democrats.

Elected officials from both parties, political candidates, and most people are incorrectly focused only on “price” when they discuss affordability. They are missing an important point because affordability is actually the outcome of the race between incomes and prices. The race is being fought between those Americans who live month-to-month based on inadequate wages and those Americans who own assets that continue to appreciate in value, along with their much higher earnings.

According to a recent study performed by the Economic Policy Institute, “Wages, Inequality, and the Roots of America’s Affordability Crisis,” income inequality has done more to reduce the purchasing power of working Americans than inflation. A major conclusion of the study is that “The growing gap between what shows up in typical workers’ paychecks and benefits versus the overall income being generated by the economy is the root of American inequality and of today’s affordability crisis.”

This study has gone deep into economic data since the 1970s to explain why “Far too many families are unable to afford a decent economic life.” Its research has determined that “the rise in inequality was caused by increasingly unequal ‘market’ incomes (wages and salaries, returns on investment).”

If typical workers’ pay had kept pace with overall economic productivity since the late 1970s, today’s hourly pay would be much higher. Instead, those productivity gains have flowed directly into corporate profits and executive salaries. At large U.S. corporations, the average CEO-to-worker pay ratio is approximately 325-to-1.

The report furnishes the following background. “Historically, shared prosperity has only been achieved when policies that intentionally support workers (like strong unions, adequate minimum wages, and full employment mandates) have provided a countervailing force against employers’ power in labor markets. Much of the post-1979 period of the United States saw an assault on worker-friendly policies, and this led directly to the rise in inequality and to weak income growth for working families.”

Among the proposed solutions to create a fairer economy are: 1) Avoid recessions at all costs 2) Protect the right for workers to organize and to bargain collectively 3) Raise minimum wages 4) Enact rules that support healthy wage growth, not just healthy corporate profits 5) Raise taxes on the wealthy and on corporations.

Two narratives involving income inequality recently left me in a pessimistic and irritated frame of mind. On a weekend in late September, I read a featured essay in the New York Times. It was written by the daughter of a construction worker who fell 35 feet on a job, survived, endured 18 years of chronic pain, financial hardship, and fighting for help before committing suicide. (“The $15,000 Settlement That Destroyed My Father’s Life”).

What is unique about this story was that the father had privately recorded 694 videos detailing years of navigating workers’ compensation, disability benefits, and the health care system. The videos documented an ongoing battle with government programs that were supposed to be there to help him.

The following Monday, a construction crew arrived at our residence to install windows. One of the workers was a middle-aged individual from Washington County. During a break, he told me his story involving a work-related injury. Years ago, he was injured on the job. He lived in Pennsylvania, his employer was from another state, and he was working in a third state. He was instructed not to file a claim because of the complexity and that everything would be fine. Several months later, he was terminated, and it was too late to file for compensation. He was left with a chronic injury that has limited his ability to earn a living.

I could not stop thinking about the tens of thousands of laborers who have worked in construction, in landscaping, in processing plants, and other dangerous environments. How many others have similar stories?

The second narrative also helps explain increasing income inequality. Our taxation system supports a “20 percent deduction for pass-through income” available to businesses and tax filers at the highest income levels. Pass-through deductions reduce federal tax revenues by roughly $50 billion annually. Over half of this tax reduction flows to the top 1.5% of taxpayers.

The deduction lowers the top marginal rate on qualified business income from 37% down to 29.6%. For years, critics have argued that this deduction yields minimum gains in employment or wages. Moreover, it encourages business owners (and others) along with their accountants to game the system by reclassifying income to pay less taxes.

Yes, affordability is a problem. However, there is something more sinister than the price of gas or eggs in play. Until our elected officials admit that widening income inequality is the root of the affordability problem, matters will only get worse.