“Growing Inequality”: A Rich Man, Poor Man Election
Three new reports on taxes, inequality and economic mobility add up to one conclusion: The 2012 presidential election should be about one thing, and one thing only: class warfare.
Let’s start with a report from the Pew Charitable Trusts, “Pursuing the American Dream: Economic Mobility Across Generations.”
The Pew Economic Mobility Project has been tracking the economic status of thousands of families since 1968 — the data covered in the current report is through 2009. And there is some good news: Absolute income has increased for Americans of all economic classes, from the poorest to the richest. The richest Americans have seen much larger relative gains, and, naturally, are far more immune to skyrocketing healthcare and education costs than are the poor, but at least part of the American dream is still intact: Children are still earning higher incomes than their parents.
But then comes the bad news: When one measures wealth — the total assets held by families — instead of income, the picture is substantially different. As Catherine Rampell summarized in the New York Times:
The median person in the poorest quintile has a family net worth that is 63 percent less than that of his counterpart a generation ago: $2,748, versus $7,439 …
The median family in the top socioeconomic class today (i.e., the family at the 90th percentile) is worth $629,853, compared to $495,510 in the last generation. That’s a 27 percent increase in the size of the median fortune in the top income stratum.
If you’re scoring at home: Rich: richer; Poor: poorer.
Now let’s move to “Inequality and Redistribution During the Great Recession,” a research paper produced by the Minneapolis Fed.
In 2010, the bottom 20 percent of the U.S. earnings distribution was doing much worse, relative to the median, than in the entire postwar period. This is because their earnings (including wages, salaries, and business and farm income) fell by about 30 percent relative to the median over the course of the recession. This lowest quintile also did poorly in terms of wealth, which declined about 40 percent …
However, even as earnings plunged, disposable income and consumption managed to hold even, relatively speaking, for the poorest Americans as compared to other classes. This is a bit of a mystery, noted the authors, who believe it can be explained by aggressive government redistribution and tax cuts.
Our main substantive conclusion is that government redistribution in the Great Recession was at historical highs and partially shielded households from experiencing large declines in disposable income and consumption expenditures. The same households, though, have experienced losses in net wealth, and this might make them more vulnerable to further or more persistent earnings declines in the future.
If you’re still keeping score: While the rich were getting richer and the poor poorer, the Great Recession absolutely hammered the worst-off Americans, but substantial government support — unemployment benefits, food stamps, Medicaid, tax cuts — saved the most vulnerable Americans from utter disaster.
And that brings us to our third report, the Congressional Budget Office’s latest numbers on federal taxes: “The Distribution of Household Income and Federal Taxes: 2008-2009.”
The bottom line: In 2009, as a result of tax cuts included in the stimulus, Americans ended up paying the lowest percentage of their income in federal taxes since 1979.
The observations included in these reports mutually reinforce each other. For example, one reason why the wealthiest Americans have done so much better than everyone else is directly related to substantial cuts in the capital gains tax rate over the past several decades. High unemployment and the collapse in home prices as a result of the Great Recession, on the other hand, have a disproportionately greater effect on poorer Americans, whose net wealth has been declining over past decades.
The numbers also beg to be put in political context. Over the long term, the rich have been getting richer and the poor poorer. In the short term, the poor took the brunt of the impact of the Great Recession, and were only kept afloat through government assistance. However, as tax rates have fallen to historic lows, it has become more and more difficult for the federal government to find the resources necessary to ameliorate widening inequality.
Now consider the fact that the Republican candidate for president wants to cut taxes even further, while eviscerating the social welfare safety net that is the only thing staving off complete economic disaster for poorer Americans. It’s class warfare all right, but one side seems to have already won.
By: Andrew Leonard, Salon, July 11, 2012
“Bootstrapping Your Way To The Top”: The Myth Of Rags To Riches
In the latest version of SimCity, a computer game that let’s you pretend to be an urban planner, city residents are born into an economic class and there they remain for life. This may have been done for simplicity’s sake, but the scenario makes the popular computer game disturbingly similar to the situation of most Americans.
The latest report from Pew Charitable Trusts, “Purusing the American Dream,” deals a stunning blow to any romantic notions of bootstrapping your way to the top. It turns out only 4 percent of those raised in the bottom 20 percent ever climb into the top 20 percent. Rather, people raised on one rung of the income ladder are likely to stay pretty close to it as adults. As the report notes, “Forty-three percent of Americans raised in the bottom quintile remain stuck in the bottom as adults and 70 percent remain below the middle class.”
The report, from a non-partisan group that’s far from ideological, shows that while in absolute numbers, the vast majority of Americans are making more than their parents, those increases are rarely enough to help move Americans up the class ladder. In other words, even after adjusting for inflation, most Americans make more than their parents—but few have actually been able to change their socio-economic class. (The report uses the ladder analogy, and the rungs represents 20 percent marks.) That’s because the rich are getting richer faster; income growth has been disproportionately high among those who are already in the top 20 percent. That makes the distribution of classes significantly uneven, finds the report. “The difference between the size of the rungs between the two generations means that while the vast majority of Americans exceeded their parents’ family incomes, the extent of that increase—particularly at the bottom—was not always enough to move them to a different rung of the income ladder.” For 20 percent of Americans, they’re making more money than their parents but are still in a lower class rung.
Among African Americans, the cycle of poverty is even worse. They’re more likely than whites to get stuck in the bottom income quintile—more than half of blacks born in the bottom rung of the income ladder stay there as adults, compared with 33 percent of whites. Even more disturbing: Fifty-six percent of blacks raised in middle class families fall to the bottom two quintiles as adults.
The report confirms what many see in their daily lives: if you’re born rich or born poor, you’ll probably stay that way for the rest of your life. Right now, the American Dream seems to be just that—a myth with little relation to the reality. The implications are impossible to overstate. Our country’s identity is heavily rooted in the idea of economic mobility, and as far back as Alexis de Toqueville, commentators have discussed the importance of that belief. Conservative political rhetoric goes cheerfully on, of course, assuring us that anyone can be successful in this great country if they so choose. Meanwhile our public institutions are increasingly punitive to the poor: Whether it’s the humiliations of getting welfare or the difficulties of escaping student loan debt, we make the poor (and increasingly, the middle class) pay for the sin of not getting born in the right rung of the ladder.
Unlike a computer game, however, a static class system isn’t inevitable and doesn’t have to be permanent.
By: Abby Rapoport, The American Prospect, July 11, 2012
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