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Income Inequality: Fact or Fiction?

According to U.S. Census data, after adjusting for inflation, median household income increased between 3% - 14% (depending on which group you belong) over the entire period between 1974 and 2012. That is a very small increase for a 38 year span and it shows that household income has essentially kept pace with inflation and was no better in 2012 than it was in 1974. This probably is not surprising to most working class individuals who routinely get annual raises at or below the rate of inflation.

Data showing large increases in executive compensation can be found in numerous places including Forbes, Bloomberg, and the Economic Policy Institute.

A recent New York Times Article shows how inflation adjusted, after-tax incomes increase at a faster and faster rate the closer you get to the top.

Frydman and Saks analyzed historical trends in executive compensation and show that between 1974 and 2005, executive compensation increased over 300% and CEO compensation increased over 800%. Interestingly, this study also showed that executive compensation rose only 0.8% per year in the 1950's and 1960's.

An April 4th, 2014 USA Today article showed that median CEO compensation increased 13% in 2013 while median wages for the nation's 105 million full-time workers increased by just 1.4%. Thus recent data suggests the trend of diverging income continues.

Many argue that CEOs are paid too much. Some argue that CEOs are paid too little if you consider their level of responsibility. Others argue that their compensation is the result of free-market forces dictating the value of a scarce resource. So who's right? To answer this question we need to know what is causing executive compensation to significantly outpace average worker income, something conservatives should focus on instead of blaming income inequality on what they believe are lazy poor people.

Executive compensation is determined by the Board of Directors Compensation Committee. This committee is made up of CEOs and business executives from other companies, something described by radio talk show host Michael Savage as interlocking corporate directorships. When business executives on the Board award other business executives generous compensation packages they raise the executive pay scale, something they themselves benefit from.

Large increases in executive compensation caused by interlocking corporate directorships combined with the fact that business leaders don't share the financial success of their company with the working class in their company causes income inequality. Employees see their benefits reduced during the same time the company stock and executive compensation doubles. This provides the fuel for the class warfare fire.

Whatever you do for a living, imagine what it would be like if you could determine the compensation of other people who do your job. Besides corporate Directors, I know of only one other group of people that have this ability - the United States Congress - and we all know how that is working out. Spending bills full of sometimes ludicrous pork projects for specific congressional districts routinely become law for the same reason executive compensation continues to increase. In both situations, the money being spent doesn't belong to those spending it and the money being spent helps those spending it make more money for themselves.

Instead of raising the minimum wage as many liberals in congress want to do, why not share a portion of company profits with the working class in the company? This would raise worker income with incentive for them to do their part to help the company succeed financially.

Why is it acceptable to give a portion of company profits to company executives via bonuses, but not acceptable to do the same for the people who do the work? Some will say that you can't give out bonuses to all the workers because there are too many and it would cost too much. Nonsense. A thousand dollar or several hundred dollar bonus would be a big help to working class families and a huge benefit to the economy. Somebody must think so because it wasn't that long ago the government mailed out stimulus checks of a few hundred dollars.

It is not the role of our constitutionally limited government to redistribute wealth using the tax code. Instead, business owners and executives should voluntarily lift up the working class by sharing with them the success of their business (by profit sharing) as a moral obligation, as a duty to the country and because they want to.

Copyright 2016