How Income Gap Ignorance Will Hurt Entitlement Reform

Public perceptions about wealth distribution diverge significantly with economic reality.

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A number of liberal writers have fastened onto survey data, forthcoming in the journal Perspectives on Psychological Science, showing public perceptions about wealth distribution that diverge significantly with economic reality.

Matt Yglesias worries about the “extent to which the public vastly overestimates the prosperity of lower-income Americans. ... Poor Americans are simply much, much needier than people realize and this is naturally going to lead to an undue slighting of their interests.”

Without delving into an age-old debate about relative deprivation and objective poverty, I’d prefer to focus on what this data means for my hobbyhorse—i.e., how Republicans should gird themselves for the coming entitlement crunch.

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Roughly speaking, the average voter believes the rich are undertaxed and that the poor are pampered enough. The middle class, meanwhile, is being squeezed to the point of eventual disappearance.

Many of the Obama administration’s political woes can be traced to this impression: Wall Street gets a bailout. The poor get free healthcare. And it’s all coming out of the middle class’s hide.

Consider what such angst will mean when it comes time to curtail Medicare and Social Security benefits, which overwhelmingly benefit the middle class.

It won’t be pretty.

Since the late 1970s, Americans have come to favor the New Deal/Great Society status quo—minus anything that overtly benefits minorities (affirmative action, busing) or is seen to be caused primarily by minorities (crime). Moreover, they favor the continuation of this status quo at a discount—i.e., financed by low income taxes (relative to other industrialized nations) and reasonable deficits.

Looked at through this prism, the political success of both Ronald Reagan and Bill Clinton seem perfectly clear. Reagan cut taxes and saved Social Security. Clinton ran a New Democrat campaign that purported to be tough on crime, and he ultimately agreed to reform welfare.

The 1996 welfare overhaul was the first rollback of the New Deal safety net. But when considered against the backdrop of today’s wealth-distribution perceptions, it was low-hanging fruit.

There is no more low-hanging fruit.

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