…and it keeps getting harder and harder for everyone outside the top 1 percent
By Shane Nicholson
Income inequality has reached levels not seen since the 1920s, according to a new report from the non-partisan Economic Policy Institute (EPI).
The 49-page report issued last week lays out the ever increasing gap between the top 1 percent of earners in the U.S. and the bottom 99 percent, and EPI and other groups say that politicians must act now to restore some kind of balance to the country’s economic structures.
“The rise in inequality in the United States, which began in the late 1970s, continues in the post–Great Recession era,” says the EPI summary. “In fact, the unequal income growth since the late 1970s has pushed the top 1 percent’s share of all income above 24 percent (the 1928 national peak share) in five states, 22 metro areas, and 75 counties.
“It is a problem when CEOs and financial sector executives at the commanding heights of the private economy appropriate more than their fair share of the nation’s expanding economic pie.”
Nationwide, the average income of the top 1 percent outpaced the average of the bottom 99 percent more than 25-times-over, the highest levels seen since 1928. Here in Illinois, the top 1 percent earned $1,207,547 on average, more than 24-times the average of the bottom 99 percent: $48,684.
But those numbers don’t come close to telling the whole story. The EPI study looked intensively at income growth over the years 2009-2013. In 15 states, the gains in income over those years went entirely to the top 1 percent of earners. In 10 of those states, the bottom 99 percent saw a net decrease in real income growth.
Another nine states, including Illinois, saw the top 1 percent capture between 50-to-94.4 percent of all income growth. In Illinois, the top 1 percent showed 15.2 percent income growth on average from 2009-2013, while the bottom 99 percent gained only 2.7 percent.
The authors also looked back on income expansions since the Great Depression, and while numbers favored the working class through much of the 1900s, since 1979 economic expansion has overwhelmingly benefited the top 1 percent of earners in the U.S.
“Normally during the economic expansion that follows a recession, workers make wage gains that hopefully leave them better off than before the recession started,” says the report. “But examining trends throughout economic recoveries in the post-World War II era demonstrates a startling pattern in which the top 1 percent is capturing a larger and larger fraction of income growth.”
The paper continues: “Through the 1975-1979 expansion, the top 1 percent’s share of income growth averaged between a low of 8.7 percent in the West to a high of 13.9 percent in the Northeast. In the four economic expansions since 1979, the top 1 percent’s share of average growth ranged between 43.6 percent in the Midwest to 71.4 percent in the West.”
From the period of 1979-2007, the authors found that real income growth in Illinois saw gains of 31.4 percent across all demographics. However, the top 1 percent realized an increase of 211.6 percent during that time; meanwhile, the bottom 99 percent saw just a 12.2 percent increase, meaning the top 1 percent captured 64.9 percent of total growth.
In periods of economic expansion after the Great Depression and prior to 1979, the top 1 percent captured just 12.3 percent of income growth, compared to 87.7 percent for the rest. Since 1980, however, the top 1 percent have grabbed 56.6 percent of all income growth, leaving the rest to spread out just 43.4 percent among them.
“Income inequality reached a peak in 1928 before declining rapidly in the 1930s and 1940s and then more gradually until the late 1970s,” say the authors. “The 1940s to the late 1970s, while by no means a golden age (as evident, for example, by gender, ethnic, and racial discrimination in the job market), was a period in which workers from the lowest-paid wage earner to the highest-paid CEO experienced similar growth in incomes.
“This was a period in which ‘a rising tide’ really did lift all boats. This underscores that there is nothing inevitable about top incomes growing faster than other incomes, as has occurred since the late 1970s.”
The paper outlines in broad terms the most apparent changes which saw an economy that benefited all U.S. workers to one that overwhelming benefits the top 1 percent.
“Today, unionization and collective bargaining levels are at historic lows not seen since before 1928. The federal minimum wage purchases fewer goods and services than it did in 1968. And executives in companies from Hostess to American International Group (AIG) still expected – and were awarded – bonuses after bankrupting their companies and receiving multi-billion-dollar taxpayer bailouts.”
EPI says that recent changes to the federal government’s overtime rules could help close the income growth gap. In Illinois alone, nearly 540,000 workers should benefit from the change which saw the salaried employee overtime threshold rise from $455 per week to $913.
A further study by the Federal Reserve of consumer finances paints a bleak picture for the bottom 60 percent of income earners, a range which encompasses the lower-, working- and middle-classes.
The study, which looked at the median net worth – what you own minus what you owe – showed that across the board, American families realized a 20.8 percent decrease in their economic status from 1998-2013, dropping from $102,500 to $81,200 (representing 2013 dollar figures).
The impact hit hardest in the lower- and working-classes, the bottom 20 percent and second-bottom 20 percent of income earners, with the latter seeing a net decrease of 52.7 percent while the former saw a decline of 26.5 percent. By comparison, the middle-class (the middle 20 percent of incomes) saw a decrease of 19.1 percent, from $47,400 to $22,400.
But, keeping with the trends highlighted by EPI, the top 10 percent of earners in the Fed’s study saw their median net worth climb 74.9 percent in the years 1998-2013, from $646,400 to $1,130,700.
The EPI warns that major systemic changes are needed to stem the tide and provide American workers with a more proportional share of the economic pie. Other experts agree.
While critics of the “social safety net” designed to protect and foster the economic growth of the lower classes point to supposed widespread fraud of the welfare system, another non-partisan group, the Corporation for Enterprise Development (CFED), says in a recent paper that tax breaks for the wealthy pose a much larger burden to the U.S. economy.
While the government’s Temporary Aid to Needy Families program (commonly referred to as welfare) spent just $17 billion in 2013, says CFED, mortgage-interest and real-estate tax deductions cost the government $98 billion that same year.
“(Deductions are) the equivalent to the government sending you a check,” Chuck Marr, the director of federal tax policy at the Center for Budget and Policy Priorities, told The Atlantic last week. “The mortgage-interest deduction is essentially the government paying a share of a person’s mortgage.”
Other examples of tax breaks for the wealthy include 529 plans, which allow people saving for college to avoid paying taxes on those savings; the capital-gains tax rate, which allows people who earn money on investments to pay lower taxes on those investments than they would on wages; and tax breaks for people who are landlords and incur expenses for renting out homes. Many of these exist to encourage behavior that society has deemed important on a mass scale, such as saving for college. Others, critics say, seem to have little public purpose.
“All kinds of people get subsidies from the government,” Marr said. “This kind of demonization singling out poor people is just an unfair double standard.”
EPI says a review of the priorities in the country’s political class is crucial to unburdening the vast majority of Americans.
“Policy choices and cultural forces have combined to put downward pressure on the wages and incomes of most Americans even as their productivity has risen,” the report says. “CEOs and financial-sector executives at the commanding heights of the private economy have appropriated a rising share of the nation’s expanding economic pie, setting new norms for top incomes often emulated today by college presidents (as well as college football and basketball coaches), surgeons, lawyers, entertainers, and professional athletes.”
And the report lays the challenges of recovering the American Dream on the doorstep of every politician, from Washington, D.C. to the state capitols to Anytown, USA.
“Since the ‘1 percent economy’ is evident in every state, every state – and every metro area and region – has an opportunity to demonstrate to the nation new and more equitable policies. We hope these data on income inequality by state, metro area, and county will spur more states, regions, and cities to enact the bold policies America needs to become, once again, a land of opportunity for all.”