The U.S. unemployment rate may be the lowest in almost 50 years and GDP growth the strongest in almost four, but beyond these stats is another trend that could have debilitating long-term effects on the economy: growing income and wealth inequality.
According to a new report from Moody’s Investors Service, since 1995 the median net worth in the U.S. has almost tripled for the top 10% of income earners while dropping about 35% for the bottom 40% of earners.
As a result, the government will likely need to spend more to support lower income households at a time when revenues will be limited by recent tax cuts, according to the Moody’s report.
Adding to this fiscal pressure are the growing number of people collecting Social Security, Medicare and Medicaid and rising health care costs — “all contributing to widening fiscal deficits and a growing debt burden,” write Moody’s analysts led by William Foster, senior credit officer of the Sovereign Risk Group.
They estimate the federal government debt burden and interest-to-revenue ratio will rise by around 30 percentage points (from about 77% in 2017) and 15 percentage points (from about 8% in 2017) respectively over the next decade.
In addition, the analysts expect household debt levels, too, will rise relative to incomes, which may lead to “unsustainable credit creation and volatile economic growth.” That’s what happened during the run-up to the financial crisis with the increase in subprime lending.