Inequality in the Trump Era

Inequality in the Trump Era

The Trump administration didn’t invent the policies that redistribute wealth and income to the top, but it has doubled down on them in characteristically cruel and petty ways.

Donald and Melania Trump at the inaugural ball in 2017 (Jim Watson/AFP via Getty Images)

In the spring of 2014, I published a series of essays at Dissent under the banner of “Our Inequality.” The overarching argument, following the work of a generation of institutional and labor economists, was that the dramatic growth in economic inequality since the 1970s was not some unfortunate symptom of globalization or technological change but was essentially a political choice. Growing inequality, as John Schmitt put it succinctly in a 2009 essay, was and remains “a function of power, sustained by politics, and implemented as policy.”

In those essays, I focused on the political choices—in labor law, labor standards, social policy, and social insurance—that dampened incomes and wealth at the bottom of the distribution, and on the political choices—in tax policy, financial regulation, corporate governance, and fiscal and monetary policy—that exaggerated them at the top. Since then, we have seen five more years of recovery from the Great Recession and three years of Donald Trump. Where do we stand—on both the inequality metrics and those key policies—after all of that?

 

Still Growing Apart

Inequality in wages, incomes, and wealth has continued to widen. Despite persistently low unemployment numbers, real wage growth remains elusive. In the absence of bargaining power and higher labor standards, workers have struggled to turn tight labor markets into bigger paychecks. By one recent estimate, fully 44 percent of workers aged eighteen to sixty-four take home less than $10.25 an hour, or $18,000 a year. And recent gains (and losses) are unevenly distributed by race, gender, educational attainment, and geography.

Household and family income follow the same dismal trends. The top 1 percent of families have hoarded about half of real income growth since 2009. Income inequality was wider in 2018 than in any year since 1967 (the first year the Census Bureau generated such a measure). The frightening dimensions of that gap are underscored in new calculations of top income shares from Gabriel Zucman (see graph below). Since 1980, the real (inflation adjusted) income of the bottom 50 percent has grown just 25 percent. Over the same span, the income of the top 1 percent has more than doubled, and the income of the top .01 percent has increased nearly six-fold. The toggle on the graph shows what those incomes would have been if the gains in productivity since 1980 had been equally distributed.

 

 

The Great Recession savaged household wealth, especially for middle- and lower-income families whose net worth depends largely on home equity. As with incomes, “recovery” was hoarded by those at the top. In 2016, upper-income families (those whose household wealth was more than double median household wealth) claimed a net worth that was over seven times that of middle-income families and over seventy-five times those of lower-income families—both ratios nearly double what they had been in 2007.

This inequality is a political project—a carnival of unfettered finance, underfunded public goods, and unrelenting attacks on the security, dignity, and political power of working Americans that is now almost a half-century old. The Trump administration did not invent these policies, but it has doubled down on them in characteristically cruel and petty ways.

 

Labor’s Losses

Over the past three years, the most important political battles over collective bargaining and workers’ rights have occurred at the state level. These have included unrelenting attacks on public-sector workers, the passage of debilitating “right-to-work” laws in two more states (West Virginia in 2016 and Kentucky in 2017), and some significant pushback—especially from embattled teachers in many places, including West Virginia, Milwaukee, Chicago, and Los Angeles.

At the national level, the Trump administration has done its part to erode the material security of working Americans and to extend the near-dictatorial power of employers over workers and working conditions. Neil Gorsuch, Trump’s first nominee to the Supreme Court, cast the deciding vote in Janus v. AFSCME, the 2018 case that barred public-sector unions from collecting any fees from nonmembers. In the private sector, Trump’s National Labor Relations Board has kept a heavy thumb on the employers’ side of the scale, aggressively undermining the rights of workers to organize, to bargain, and to strike.

In the absence of bargaining rights, robust labor standards can offer some security and protection. But here too, the last three years have not been kind to workers. The Trump administration eviscerated a long-overdue revision of the federal overtime threshold, decreasing it from $47,000 to $35,000 and stripping away any inflation adjustment. This essentially treats any worker earning over $35,000 (the federal poverty level for a family of six) as a “highly paid executive” exempt from overtime compensation for work in excess of forty hours a week.

The federal minimum wage has not budged in over a decade. In October, Trump economic adviser Larry Kudlow called the very idea of the federal minimum wage “a terrible idea” and argued for more corporate tax cuts instead. While some twenty-nine states (plus Washington, D.C.) and fifty-one local governments have pushed the rate above $7.25 an hour, twenty-six states (eight since 2016) now prohibit cities and counties from enacting local increases.

 

Shredding the Safety Net

The U.S. system of social provision had been largely dismantled before Trump took office. Less than a quarter of poor families receive cash assistance, and benefits in all programs are now aimed narrowly at the elderly, the disabled, and working two-parent families. But Trump has waded into the social policy debate as if it were 1996, dredging up old canards about shirkers and cheats, fraud and waste. Across all social assistance and social insurance programs, the administration’s overarching goal seems to be the disqualification of as much of the needy and eligible population as possible—a goal underscored by an ill-conceived effort to dampen the inflation adjustment of the federal poverty rate, effectively lowering the eligibility threshold for many programs year by year. “The only thing unifying its policies on poverty,” as David Super noted last summer, “is cruelty.”

The first target was the Affordable Care Act. Trump’s ongoing campaign of sabotage has included cuts to cost-sharing subsidies, dramatic underfunding of ACA promotion and enrollment efforts, a rollback of the ACA’s restrictions on short-term “junk insurance” plans, a retreat from the inclusion of gender identity and language access in the ACA’s antidiscrimination provisions, and an expansive redefinition of the “public charge” standard for immigration to include Medicaid (and the ACA’s Medicaid expansion), making it harder for immigrants to gain entry to the United States or to obtain a green card.

The White House has not given up on the goal of killing the ACA entirely, which it might well achieve if the question of its constitutionality makes its way back to a Supreme Court now featuring Trump appointees Gorsuch and Brett Kavanaugh. In NFIB v Sebelius (2012), the Court rejected a “commerce clause” challenge to the ACA on the grounds that the enforcement of the individual mandate through the income-tax system fell within Congress’s power to levy taxes. But the administration refused to enforce the tax penalty for forgoing insurance, and then, in the 2017 tax bill, reduced that penalty to nothing. This teed up a December ruling by the U.S. Court of Appeals for the Fifth Circuit that held that the individual mandate—in the absence of a tax penalty—is an unconstitutional extension of federal power.

The administration’s hostility to the ACA has already had a negative impact—raising premiums, diminishing the quality of care, and reversing progress on reducing the ranks of the uninsured and underinsured. If the ACA—including its marketplace of individual insurance and the expansion of Medicaid coverage in thirty-seven states—were to disappear entirely, the effect on both family budgets and health outcomes would be devastating.

The administration’s other major social policy goal, laid out in the April 2018 executive order “Reducing Poverty in America by Promoting Opportunity and Economic Mobility” and in a follow-up paper by the President’s Council of Economic Advisers, has been to extend “work requirements” to a broad array of non-cash programs—including Medicaid, the Supplemental Nutrition Assistance Programs (SNAP), and Section 8 housing assistance.

Medicaid eligibility is set by the states, subject to broad federal guidelines. But the Center for Medicare and Medicaid Services (CMS) can also waive those guidelines for states interested in “experimental, pilot, or demonstration projects” that might further Medicaid’s goal of “furnishing medical assistance to needy populations.” In January 2018, CMS announced its willingness to “support state efforts to test incentives that make participation in work or other community engagement a requirement for continued Medicaid eligibility or coverage.” To date, nineteen states have approved or pending plans that require non-elderly, non-disabled adults to work 80 to 100 hours a month in order to remain eligible for Medicaid.

Fortunately, the courts have blocked or slowed the implementation of this cruelty—aimed largely at stripping coverage from those qualifying under the ACA’s Medicaid expansion. No stretch of the waiver process can justify “demonstration projects” that threaten to disenroll hundreds of thousands of otherwise eligible adults. Indeed such a gambit, as the District Court decision blocking Kentucky’s work requirement reasoned, was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

In early December, the administration finalized stiffer work requirements for SNAP, effectively narrowing the ability of states to extend benefits for able-bodied adults without dependents. This, alongside two other proposed changes (capping deductions for utility allowances and limiting the “categorical eligibility” of working-poor families), would boot 3.7 million people from eligibility for SNAP.

These new rules are built on a cascade of shaky assumptions: that open positions aren’t being filled because Medicaid and SNAP recipients are choosing non-cash assistance over work, that only the gainfully employed are truly deserving of public support, and that nothing but gainful employment has any social value. In this refrain, virtually unchanged since the 1970s, welfare is a trap, and work is the only redemption.

There is little experience or evidence to support any of this. Work requirements, including those imposed by the “welfare reform” of the mid-1990s, have a pretty clear track record: Employment gains are modest and fleeting. Most of those who move from welfare to work remain poor. And the new requirements impose harsh burdens on those whose personal health or family commitments make sustained employment difficult. Nearly two-thirds of Medicaid recipients already work, and all but a handful of those not working list poor health, disability, family responsibilities, or schooling as the reason. The issue is not that Medicaid recipients are not working, it is that most of them work in lousy jobs without employer-provided health insurance, other benefits, or union representation.

Work requirements also invite callous discretion and systemic discrimination. Local administration of behavioral expectations or standards for eligibility, as the record of welfare “devolution” underscores, is riven with explicit and implicit forms of racial bias—routinely sanctioning African-American clients at much higher rates than others. And the administrative burden of negotiating these rules and hurdles can leave even eligible populations without the benefits or resources they need.

 

The Big Tax Heist

The administration’s most direct and craven contribution to growing inequality, of course, is the 2017 tax cut. According to the Institute on Taxation and Economic Policy, $205 billion of the roughly $325 billion in revenue foregone by changes to the tax code went into the pockets of the richest 20 percent. Under $40 billion went the poorest 60 percent of American taxpayers—about the same share that went to foreign investors. Under the new code, as Gabriel Zucman and Emmanuel Saez estimate, the effective total (federal, state, and local) tax rate on the richest 400 Americans—about 23 percent—is now lower than the rate for any other income group.

At the same time, corporate tax revenues have virtually evaporated—now making up less than 7 percent of federal revenues. The culprit here is not just the Trump tax cuts (which lowered the corporate rate from 35 percent to 21 percent) but the loopholes and breaks and evasions that enable even profitable companies to shirk their share. In 2018, the effective federal tax rate on Fortune 500 companies that showed a profit was only 11.3 percent. In this sample of 379 firms, 91 paid no federal taxes at all, and another 56 enjoyed an effective rate of under 5 percent.

The damage here is not just in the distribution of the tax burden. Joining a long line of supply-side grifters, Trump promised the cuts would be “rocket fuel” for the economy and pay for themselves in new employment investment. But the impact has been underwhelming. According to a withering April 2019 analysis by the Congressional Research Service, the tax cut would need to generate a 6.7 percent increase in gross domestic product in order to offset revenue losses. The actual impact was less than 0.3 percent.

The result, unsurprisingly, was a spike in the deficit, which ballooned to $984 billion in fiscal year 2019—a 26 percent increase over 2018 and much higher than most projections. The cynical hypocrisy of “spend but don’t tax” Republican fiscal policies aside, the deficit will invariably be ushered in to justify even more attacks on social programs on the grounds that we just can’t afford them.

 

Trumping Inequality?

It is important to underscore, however, that defeating Trump will only get us so far. The Democrats have not—outside of campaign season—offered serious and equitable alternatives. And much of our inequality is now driven by state and local policy choices. For much of the last decade Republicans have maintained trifecta control of nearly half of all state legislatures. From there, they have waged war on workers’ rights, led the push for social policy cuts or waivers, cut spending on public goods and services, pre-empted local action on labor standards, pared back taxes on corporations and high earners, and—to make sure this all lasts—rolled back voting rights.

In the absence of robust and uniform labor standards, public goods, social policies, and civil rights protections, the mechanisms generating inequality are left virtually unchecked. Instead of leveling opportunity, our schools instead enhance and entrench existing social and economic hierarchies. At work, employer power goes unquestioned and unchallenged, and basic protections are either meager or unenforced. Racial disparities—on almost every opportunity and outcome metric—are persistently wide and in some cases growing.

There can be little doubt (and little surprise) that the Trump administration’s policies widened inequality. But we should not let the gleeful cruelty of those policies, or the fact that the president himself is such a grotesque caricature of the 1 percent, distract us from the larger picture. Our inequality has grown—virtually uninterrupted across Democratic and Republican administrations alike—for nearly half a century. Trump has simply doubled down on the policies feeding that inequality and dropped any pretense about caring about the results.


Colin Gordon is a professor of history at the University of Iowa. He is the author of, most recently, Growing Apart: A Political History of American Inequality and Citizen Brown: Race, Democracy, and Inequality in the St. Louis Suburbs.


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