MY TURN:  A way to take care of income inequality for everyone

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By Holley Hewitt Ulbrich, special to Statehouse Report  |  Growing income inequality gets a lot of press these days. Some of it is about bargaining power.  Some of it is about productivity.  But some of it also is about plain, old arithmetic.

Every July, I get a raise from the state retirement system.  We state retirees get 1 percent or $500, whichever is less.  So a retiree whose pension is $50,000 or more gets $500, or $41.67 a month.  A retiree whose pension is $10,000 would get $100, or $12.50 a month.  The raise is supposed to help pay for increases in the prices of what we buy.

Ulbrich

But both retirees pay the same price for their retiree health insurance, a gallon of gas, a loaf of bread, a gallon of milk, Internet service and a kilowatt of electricity.  Why should the person with the bigger pension get the bigger raise? Over time, it leads to a big increase in the gap between their pensions.  After 20 years of retirement, the person with a $50,000 pension would have a $55,000 pension. His less fortunate fellow retiree would have $12,202.

The same is true of Social Security, except that there is no cap on raises, just a COLA (cost of living adjustment).  This year, it looks like it may be 2 percent — $44 a month for someone with a Social Security benefit of $2,200 a month; or $28 for someone with the average benefit of $1,400 a month. On an annual basis, the difference is $182 and it gets wider over the years. Likewise, when an employer gives a cost of living adjustment, it widens the gap in earnings between the highest and lowest paid workers.

Hardest of all, the minimum wage is NOT adjusted for inflation, so the purchasing power at the bottom of the scale continues to decline over time. It has remained at $7.25 since 2009.  Despite the fact that 55 percent of minimum wage earners are 25 or older, and a majority of Americans support an increase in the minimum wage, it’s not likely to happen any time soon.

Here’s a radical idea.  Why not calculate a COLA for the average worker or retiree and give that same dollar amount to everyone?  If the average state retiree has a pension of $30,000 ($2,500 a month), a 1 percent increase would be $300 a year or $25 a month.  The dollar gap would remain the same.  Same for Social Security.

Where the COLA is an appropriate tool is for the minimum wage.  If the $7.25 minimum wage from eight years ago was just adjusted for inflation, it would be $8.24 in 2017.  And Congress wouldn’t have to legislate every year.  Updating the minimum wage could be just as automatic as Social Security inflation adjustments.

State and federal governments take care of their retirees with annual adjustments so they aren’t living on a fixed income. Perhaps it’s time to take better care of those who have to continue to go to work every day and contribute to the retirement system and the Social Security fund that make those increases possible.

Holley Hewitt Ulbrich is an Alumni Distinguished Professor Emerita of Economics at Clemson University and a member of the Board of Directors of the League of Women Voters of South Carolina.

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