We saw earlier that there has been some wage growth for lower income families in recent decades. Today’s chart, again from the Economic Policy Institute’s State of Working America, shows that much of this income growth can be attributed to more hours being worked in the household as opposed to higher hourly wages. This means fewer stay-at-home parents and more second and third jobs.
Today’s chart, again from the Economic Policy Institute’s State of Working America, shows how the distribution of stock market wealth has changed since 1983. This time period coincides with the start of the wholesale changeover of retirement savings from defined-benefit plans to defined-contribution plans. These changes were supposed to “democratize” the stock market and give all Americans a stake in what happens. Well, that hasn’t occurred. In fact, the distribution of stock market wealth is largely unchanged over that time period.
Today’s chart, again from the Economic Policy Institute’s State of Working America, looks at the rates of change in household income by income group. What you can see is that most of the income growth in the country is occurring at the top of the income scale. Income is growing 24x faster for the top 1% versus the bottom 20%. In the bonus chart below, we see that this trend is even worse for capital income (stocks, bonds, and housing). Even before the housing market crash, lower income folks were actually seeing declining capital incomes.
This chart, from the Economic Policy Institute’s State of Working America, shows that for the last 40 years workers have not been sharing in the productivity gains they have provided for their employers — this stands in sharp contrast to the first 25 years after WWII when income and productivity tracked together. And below, in a bonus chart, we see that the trend since 1995 continues for all education groups.
This chart, from Henry Blodget at Business Insider, shows that corporate profits as a percent of GDP are at an all-time high. This is occurring as wages are stagnating for most Americans — more on this in the remaining charts,
With the issue of income inequality poised to play a significant role in the 2012 election, let’s talk about the rhetoric that’s flying around. Republicans like to talk about how the policies of Democrats and President Obama would create “equality of outcomes”, while Republicans wish to create “equality of opportunity”. And, in fact, the implication has been from many Republicans, that “equality of opportunity” already exists. Like Mitt Romney, for instance:
“It would be popular for me to stand up and say I’m going to give you government money to pay for your college, but I’m not going to promise that,” he said, to sustained applause from the crowd at a high-tech metals assembly factory here. “Don’t just go to one that has the highest price. Go to one that has a little lower price where you can get a good education. And hopefully you’ll find that. And don’t expect the government to forgive the debt that you take on.”
Does equality of opportunity exist? Well, that’s highly questionable. Look, for instance, at the higher-education situation:
What this data is shows is the percentage of students completing a four-year degree broken down by their test scores in eighth grade and their income levels. What it shows is that low-income (bottom 25%) students with high test scores (top 25%) have basically the same probability of graduating college as high income (top 25%) students with low test scores (bottom 25%).
We’re not strictly dealing with a meritocracy here, are we?
Rhetorically, I completely agree with the notion of “equality of opportunity” as being preferable to “equality of outcomes”. Let’s not delude ourselves, though, into thinking that equality of opportunity exists. It doesn’t. This isn’t the time to cut vital programs (like Pell Grants) that help low-income students climb the ladder. This isn’t the time to continue to squeeze our public schools and subject them to budget games on a yearly basis. This isn’t the time to pull up the ladder and tell everyone at the bottom of the scale, “you’re on your own”.
Previously, we’ve discussed the widespread effects of the numerous credits and deductions that have littered our tax code. There’s also been talk about income inequality and how to address it — and part of the answer is in the tax code.
Well, there’s another part of the puzzle that we don’t talk about — and that’s “horizontal equity” in the tax code. Specifically, that means looking at how much taxes are paid by people with similar incomes. The latest Economic Report of the President shows just how out-of-whack we are on this measure as well, as pointed out by conservative economist Bruce Bartlett.
What the graph above shows is the distribution of tax rates for each income quintile. For instance, the middle 20% of income earners (households with income between $38,000 and $61,000) see a range of effective federal tax rates between 1.7% and 23.5%. That’s a massive swing, which depends on the composition of your income (wage income is at a higher rate than capital gains) and the particular specialized tax credits and deductions you are eligible for. Most people would consider it unfair for two households with $60,000 income to have tax bills that differ by as much as $10,000.
So, as we look to reform the tax code, we need to keep in mind horizontal equity issues along with “vertical equity” (income inequality) as well.
Today’s Chart of the Year comes from the Roosevelt Institute. It shows the difference in after-tax and after-government transfer income by income level over the last 30 years.
What does this chart mean?
There was a moment of synchronicity between a report years in the making from the economic wonks at CBO and the activists planning on occupying a square near Wall Street. Both turned critical attention towards the idea of the 1%. As CBO found, even after taxes and transfers, the top 1% were taking a much bigger slice out of the America economy than 30 years ago. Meanwhile corporate and Wall Street profits are up, giving the 1% a nice boost, while 2011 was a lost year for the American worker – adding to the sense the something is broken with the American income distribution.” — Mike Konczal, Roosevelt Institute, Rortybomb Blog
It’s not exactly a newsflash at this point to mention that income inequality in the United States is increasing, has been increasing noticeably for the last 30 years, and the trend shows no sign of moderating.
Even conservatives don’t dispute it anymore, merely asserting that it’s the result of people who don’t work hard.
The real questions that we need to face as a society are as follows: what does it mean to our society, and what should we do about it (if anything)?
There are some who think that income inequality doesn’t really have an impact on our society. They believe that in a capitalist society, it’s OK for there to be sharp divisions between winners and losers — and even more to the point, that the “winners” should be given preferential treatment for they are the ones responsible for the prosperity of the others.
It matters little that the others have provided great productivity gains since WW2, but have not received a correpsonding share of income over that time (graph from Urbanomics).
In fact, over recent years, all of the gains in the economy have gone to those at the top of the scale, while the bottom 90% have seen their share of the pie decrease.
The problem with income inequality, though, can’t be resolved or ignored by having the wealthy retreat into gated communities and leaving the poor to fend for themselves. Increasingly, there’s data that shows that income inequality — even in a country like the United States where our poor are better off than most citizens in other parts of the world — causes massive disruption and problems that you wouldn’t expect, such as lower health and increased crime.
Of particular note are studies by Kate Pickett of the University of York in the United Kingdom released in 2009. The United States leads the world in income per capita, and among developed countries also has the largest income disparity.
While wealthy Americans have longer life expectancy than poorer Americans, they have life expectancy equal to (or frequently worse) than the average citizen of other developed countries. Why is that? Researchers have found that Americans (and citizens of other unequal societies) tend to feel less valued, feel less “in control” of their work and home lives, and tend to have lower levels of civic engagement.
We can see the symptoms of these conditions in our political system today. The Tea Party movement, the dismally low levels of approval for Congress, and low voter turnouts are indications that as a society great chunks of our population are feeling disconnected from what’s going on around them. Increased corporate involvement in our political process (thanks to the Citizens United decision) additionally makes the voice of the individual harder to hear in the current political environment.
On critical economic issues, both parties have largely turned their back on middle class citizens. Democrats promised robust initiatives to boost the nation’s economy following the 2008 elections, but followed it up with tepid measures that only served to mildly soften the economy’s landing from the recession. Republicans elected in 2010 have failed – in Washington and in St. Paul — to deliver on their campaign jobs agenda.
And most people don’t understand how severe the inequality issue has become. A 2010 Harvard University study shows that most Americans dramatically underestimate how much wealth has become concentrated in the hands of the wealthy. 84% of the country’s wealth is actually controlled by the top 20% of income earners — but Americans thought the number was only 59%. And, when asked what their ideal distribution of wealth for the top 20% would be, the average figure was 32%.
The relatively modest steps that have been proposed by Democratic politicians to protect priorities like education, health care, and infrastructure wouldn’t turn any of these trends on their ears. Even under the higher tax rates of the Clinton era, wealthy people did better than everyone else — it’s just that everyone else also saw some real improvement in their situation as opposed to watching all the profit from their hard work go to someone else.
Under Mark Dayton’s proposed plan to increase taxes on the wealthiest Minnesotans, the top 10% of income earners would still have paid the lowest aggregate tax rate of any group of Minnesota citizens. These proposals won’t suddenly change the U.S. income distribution into that of Japan or Finland.
What these proposal would do, though, is protect vital priorities that give people at the bottom of the scale a chance to climb the ladder. It’s instructive to note that many Congressional Republicans were ready to bail on the debt ceiling deal over Pell Grant funding — a program vital to giving low-income students the opportunity to go to college. The Republican budget here in Minnesota takes higher education funding back to 1990s levels. These policies are like pulling up the ladder once you’ve safely climbed to higher ground.
We need a truly balanced approach to rebuilding our nation’s economy and our state’s economy. It’s not too much to ask that the wealthy — who have benefited the most from the economic policies and tax cuts of the last decade — to chip in a little bit so that society can meet its obligations. Continued growth in inequality threatens the fabric of our society and calls the values that we hold dear into question. Former Republican Congressman Joe Scarborough calls a spade a spade:
Since 1970, executive pay has increased 430 percent while workers’ wages have crept up at a pace that barely kept up with inflation. The average executive’s pay has jumped over that time period to 158 times that of the average worker’s pay in those companies. It’s no wonder that the top 0.1 percent of income earners get richer by the day while millions of Americans are seeing their situations get worse.
This is not John Wayne’s America. This is Gordon Gekko’s America.
In fact, I’m pretty sure that if the Duke faced one of these CEOs in a John Ford film, he’d kick some ass and force the leech to start treating his workers fair.
Who’s going to stand up and fight for the working families of our country? If we want our economy to reach its full potential, we need to start valuing the middle class ahead of the elites.
The frenetic pacing of the GOP budget resolutions the last two weeks has made it hard to keep up with what is going on in St. Paul. The reality of the disastrous budget plans supported by Senator Julianne Ortman, Representative Joe Hoppe and Representative Ernie Leidiger hasn’t been fully explained. Let’s summarize the GOP spin versus what is really happening here:
SPIN: GOP budget bills result in “no new taxes”.
FACTS: While state taxes don’t increase, severe funding cuts to local government aid will cause statewide increases in property taxes, and the bottom 40% of income earners will see their tax burdens increase.
Analysis by the State Department of Revenue projects that local government aid reductions will cause $859 million in property tax increases over the next three years. That represents a 4.3% increase statewide. All types of property will see their property taxes go up — even with the GOP’s proposed cut to the tax rate for business property, increases at the city and county level will still result in Minnesota businesses paying $63 million per year more in property taxes.
SPIN: GOP income tax cuts to the lower and middle brackets are progressive and will provide substantial help to those taxpayers.
FACTS: The Department of Revenue analysis concludes that 47% of the tax relief in the GOP budget goes to the top 20% of income earners, who will get an average benefit of $391. The bottom 10% of earners will get an average benefit of 87 cents from the GOP budget bill.
The GOP budget proposals also slash the renters’ property tax credit to 12%. This provision will result in 38,000 renters losing their credit altogether and the remaining renters will see their benefit slashed by an average of $300. This is a clearly regressive tax change that will hit lower- and middle-class taxpayers the hardest.
SPIN: Severe cuts to higher education funding won’t impact students because of tuition hike limits.
FACTS: The budget bills passed by the Legislature cut funding for the University of Minnesota and Minnesota State colleges and Universities (MnSCU) by 13-19%, reducing funding to the same levels as in the late 1990s.
The problem, of course, is that our public colleges and universities serve 52,000 more students today than they did a decade ago, and the cost of goods and services have been inflated over that time. The result of these cuts is going to be lost jobs and lost futures.
For many of Minnesota’s community colleges, personnel costs represent over half of the budget, so any cuts result in professors and support staff out of work. Class sizes will increase, and availability of libraries and laboratories will be reduced.
MnSCU has already indicated that if these cuts are signed into law that they will have to look into closing campuses to save money. That will be a real hit to rural areas of the state, as closures will make it difficult for students to commute to and from school.
SPIN: Everyone is sacrificing as part of the GOP budget plan.
FACTS: The latest Tax Incidence Study released by the Department of Revenue shows that the wealthiest taxpayers in the state – the top 10% — pay an average of 10.3% of their income in state and local taxes. That’s 1.2% lower than the statewide average of 11.5%. The top 1% of earners pay only 9.7% of their income in state and local taxes, nearly two full percentage points below the state average. This has been a consistent trend since the tax cuts that were passed during the Ventura administration.
The DoR analysis of the GOP budget plan shows that these trends would continue to get worse if it becomes law. The total tax burden of the lowest 40% of income earners would increase under the plan, while the upper 50% would see their tax burden decline.
The GOP claims that reducing the tax burden on the wealthiest and business is necessary to create jobs. Well, we’ve been following those policies for the last decade, and what has it gotten us? State tax rates have remained constant since the cuts in the Ventura administration and the federal government has passed five rounds of tax cuts since 2000.
Yet, Minnesota ranks 39th in job creation and has posted below national average performance in wage and wealth growth since 2002. It’s clear the GOP approach doesn’t work.
Minnesota deserves a balanced approach to our budget problems, one that shares the sacrifice equally and doesn’t destroy the foundation for our future growth. Let’s demand that our elected representatives support a budget that enables us all to thrive, not just a select few.