Don’t Bet Against the United States
Overblown Symptoms
These days, the doctors diagnosing American decline tend to focus on two types of disease. Some worry about deteriorating “social capital” — inadequate education, a demoralized workforce, dysfunctional politics. Others focus on the physical fitness of our economic edifice: the scale of investment, the level of debt, the fractures in the infrastructure. If you collect enough symptoms, you can make a strong-sounding case that the country is indeed quite sick. But fallen trees don’t prove the forest is dying. And some of the most cited symptoms are overblown. Take the much discussed problem of income inequality. A very small number of superwealthy people are pocketing nearly all the growth in our national income. That sounds dire for a nation founded on the ideal of equality. It isn’t, though, for a couple of reasons. First, a significant part of the rise in inequality is an illusion. Changes to the tax code since the 1980s have created strong incentives for owners of private businesses and certain partnerships to report their business earnings as personal income. This didn’t necessarily change the amount of money in their pockets; it just meant that money is recorded in a different column of Uncle Sam’s ledger. This expansion of so-called Subchapter S corporations and LLCs inflated the tax returns of the very rich — primarily the top 0.5% of all taxpayers. If the tax laws are changed again, money will shift again. Count on that.