The Long-Term Consequences of Economic Inequality David W. Rasmussen James H. Gapinski Professor of Economics Dean Emeritus, College of Social Sciences and Public Policy Affiliate, Pepper Center on Aging and Public Policy L. Charles Hilton Center on Economic Prosperity and Individual Opportunity

Increasing Poverty Among the 65+ Population will be a Long-term Consequence of Increasing Economic Inequality There will be more low-income households that cannot prepare adequately for retirement. There will be enriched high-income households that could maintain entitlement programs.

Share of Total Wealth by Richest Households Year Top 10% Top 1% Top .01% 2012 77.2% 41.8% 22% 1986 64% 25% 9% 1927 84% An economic “law” of rising wealth inequality?

Death of the American Dream

Market Forces 1 “Polarization” of the Work Force Employment Growth, 2014 - 2024 Median Annual Wage, 2016 Actual Percent Expected Actual - Expected $60,000 and over 3,246.7 33% 2,212.4 1,034.3 $40,000 - $59,999 2,087.3 21% 1,722.9 364.40 $30,000 - $39,000 805.1 8% 2,936.7 -2,131.60 $20,000 - $29,000 3,649.8 37% 2,907.3 742.50 TOTAL 9,788.9 100% 9,779.3 9.6 *Expected growth is total employment growth times the employment share in 2014

Market Forces 2 Employers cut costs in a “fissured” economy A plan to “fissure” ground crews at FSU The rise of alternative work arrangements Contingent workers Self-Employment

Debt: The Enemy of Saving for Retirement Student Loans (Federal Reserve Bulletin) Home Equity Loans Reverse Mortgages Credit Cards

Changing Landscape of Retirement Finance Decline of defined benefit plans Rise of defined contribution plans Entitlements under threat (Social Security, Medicaid and Medicare)

The Center for Retirement Research Offers Some Advice for Future Retirees Fix Social Security Save more Use home equity Work longer

There is Money Available to Fix Social Security Tax Expenditures Employer paid health care and insurance ($143.8b) Lower taxes on dividends and capital gains ($134.6b) Contributions to and earnings on defined contribution retirement plans ($82.7b) Deductability of mortgage interest ($77b) These four total $438b; 46% of the $945b spent on Social Security in 2017

Modest “Solutions” Fixing Social Security: The Easy Part Impose Social Security taxes on all wage and salary income Maintain current benefit levels Eliminate tax expenditures that favor high income households Can we “fix” the tendency to favor current consumption over saving for retirement? Public/Private Responses to a lower standard of living Give up highly valued independent living There doesn’t have to be a solution