A logical wealth gap

A logical wealth gap

November 9th, 2011 in Opinion Times

A new Pew Research Center report confirming that older Americans have significantly greater net worth than workers half their age should be no surprise. Owing to slowly accumulated home equity and retirement savings, most Americans approaching age 65 are at the peak of their net worth (the value of their assets minus debt), while the 30-somethings generation is just beginning the long climb up the economic ladder. What is surprising, however, is the scattered response that this particular wealth-gap justifies reductions in Social Security and Medicare for average elder citizens.

The Pew report justifies nothing of the sort. Republicans who suggest as much are simply seeking to shift attention away from the truly astonishing wealth gap of the nation's ultra-wealthy, which propels the Occupy Wall Street movement, by turning the older segment of the middle-class against the younger.

The Pew report found that the median net worth of households headed by someone 65 or older was $170,494. That's a relatively modest figure for seniors, who have mostly paid off long-term mortgages on their homes, and whose main source of net worth is their sunk costs in home equity. But the way the Pew report put in comparison with American households headed by someone 35 or younger with a median net worth of just $3,662 seemed startling: The Pew report said older Americans had a net worth 47 times higher than that of American households in the under-35 group.

The reasons it cited for that disparity - the scope of which has increased since 1984 - are plainly logical. They reflect both an unusually poor job market for people younger 35 and higher student debt levels. People under 35 fall in a group that includes recent college grads and a higher number of graduate students, who nowadays finish with an average of $20,000 in college debt.

Even if under-35 workers have obtained a family-wage job and have bought a home, they have had little chance to accumulate significant home equity, if any. Indeed, recent home purchases in what were the nation's high growth areas a few years ago may now have become under-water mortgages, due to the 2008-2010 housing bust that left many new home owners with mortgages higher than their current market value, or so-called "negative equity."

On the flip side, most Americans 65 or older with a median net worth of $170,494 (home equity makes up most of their net worth) often don't have enough savings to retire even if they have paid off their mortgages. Most companies have eliminated defined-benefit pensions in favor of 401(k) accounts, and retirement fund values have sagged since the Great Recession. That's why such a large segment of retirement-age workers keep working, which, in turn, further depresses the job market by restricting turn-over and thwarting upward mobility.

The Census Bureau's 2010 data on which the Pew report was based, moreover, shows a larger income disparity in favor of people younger than 65 in all working age brackets. Median household income for those 25-to-34 was $50,059; for ages 35-to-44, it was $61,644; for ages 45-to-54, it was $62,485; for ages 55-to-64, it was $56,575. But for ages 65 and older, it fell to $31,408, a bare-bones budget for seniors on fixed incomes based heavily on Social Security.

Incomes across the board for ordinary Americans, which is to say, those in the bottom 90 percent or income, have declined for more than decade. Robbing seniors of Social Security and Medicare benefits earned through payroll taxes is not the way to address net-wealth gaps for younger Americans. Rather, fairer wages for workers and more student aid, made possible by surtaxes on annual incomes of more than $1 million and restrictions on ceo's megamillion bonuses, would be a much fairer solution.