Tuesday, July 21, 2009

Wealth Gap Widens

Once again the nation's wealth gap has widened, much to the chagrin of those who are suffering from the wrecked economy. According to the Wall Street Journal's analysis of Social Security Administration data which excluded stock options, unexercised stock options, unrestricted stock and other benefits, highly paid employees received nearly $2.1 trillion of the $6.4 trillion in total US pay in 2007, the latest figures available. The pay of employees who receive more than the Social Security wage base (now $106,800) increased by 78% or nearly $1 trillion over the past decade. The top-paid represent 33% of the total, up from 28% in 2002. According to the analysis, the growing portion of pay that exceeds the maximum amount subject to payroll taxes has contributed to the weakening of the Social Security trust fund, which is due to be exhausted in 2037, four years earlier than was predicted in 2008.

I'm not going to go off on some ranting tirade about the growing wealth gap. Obviously poor people just need to work harder to keep up with all those folks who were busy getting $500,000 paychecks structuring CDOs for the banks back in 2007. The data presented here is stale and represents the peak of a bull market where bank employees and company executives were being showered with lavish pay. Since then, the economy has shed roughly 6 million jobs, many high paying ones in finance, and I suspect that the gap has returned back to a more recessionary 2002 level.

A very quick and easy fix for the fact that the pay of employees has exceeded the wage base is to simply raise the wage base. Democrats are already trying to cram through a 5.4% tax on employees making over $1 million to fund their ambitious health care plan, so really what's another 12% on another $50k or so in pay? Although rumor has it that the 5.4% tax is not sitting too well with some of the Democrats' wealthiest constituents. The real solution to resolving the problem of our underfunded Social Security system is the one proposed by former Fed Chairman Alan Greenspan: Simply raise the retirement age. To perhaps a nice round number like 90? That would plug up the Social Security gap in a jiffy.

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