Wednesday, October 26, 2011

US income inequality in the New Gilded Age — CBO report confirms that the past three decades have been a spectacular bonanza for the top 1%

As everyone knows who has been paying any serious attention (with the exception of some propagandists at Fox News, the Wall Street Journal editorial page, and similar venues), over the past three decades there has been a massive increase in economic inequality in the US, taking us back to plutocratic concentrations of wealth and income last seen from the Gilded Age through the 1920s. Not only have the benefits of economic growth gone disproportionately to the wealthy, but an astounding proportion of the overall growth in national income has been monopolized by the top 1% of households. For one very effective graphic presentation of this pattern by Lane Kenworthy in 2008, see here.

The Congressional Budget Office just issued a report analyzing trends in the distribution of household income, after taxes, from 1979 (i.e., just before the election of Ronald Reagan) through 2007 (i.e., just before the current economic crash). The CBO report further confirms the basic picture with which we're already familiar, and adds some more graphs and charts that help to bring it home in a vivid way.

As Brian Beutler of Talking Points Memo sums up the major findings:
CBO found that, between 1979 and 2007, after-tax income grew by 275 percent for the top 1 percent of households. That dwarfs income growth for middle and lower income households over the same time frame — nearly three decades during which the rising tide vaulted yachts and cruise ships, but barely nudged house and tugboats.

Specifically:

CBO finds that, between 1979 and 2007, income grew by:

* 275 percent for the top 1 percent of households,
* 65 percent for the next 19 percent,
* Just under 40 percent for the next 60 percent, and
* 18 percent for the bottom 20 percent.
And here are some of their graphs (you can click on them to expand them):


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The key factor, of course, has been the massive long-term redistribution of pre-tax income toward the top of the economic scale. But contrary to what some people may assume, federal taxes and transfers have not done much to counter this tendency. (At least, in terms of money income—I don't know how one would factor in, say, Medicare and Medicaid, since the medical care they help provide represents real but non-monetary income.) Again, Beutler sums up the larger picture:
CBO notes, “the highest income quintile’s share [JW: i.e., the share of the top 20%] of market income increased from 50 percent to 60 percent [between 1979 and 2007]. The share of market income for every other quintile declined…. In fact, the distribution of market income became more unequal almost continuously between 1979 and 2007 except during the recessions in 1990-1991 and 2001.” There’s no professional consensus about why this happened, though the explosive growths of the financial sector, executive compensation, and celebrity pay are among the likeliest culprits.

[JW: Another crucial factor is certainly the long-term collapse of the labor movement and its mutually-reinforcing economic and political consequences, both direct and indirect.]

But federal policy has exacerbated the trend. Income taxes have become less progressive in the last three decades, and federal programs that used to benefit poor people have shrunk or disappeared altogether. That’s left Social Security and Medicare as the biggest federal wealth transfer programs, both of which benefit people at all income levels, not just the poor and middle class. In other words, federal programs have become less progressive in their distribution.

If you think of all income as a single pie, almost everyone’s slice has shrunk since 2007 thanks to the explosive growth of the top 1 percent relative to fairly minor gains for everybody else.
There's more here, and the CBO report is available here.

—Jeff Weintraub

P.S. One counter-argument offered by pro-plutocratic analysts and propagandists is that this dramatic increase in income inequality is justified by the fact that it has helped promote overall economic growth, which has benefited everyone. (The favorite right-wing slogan used to sum up this argument, based on the somewhat misleading use of a quotation attributed to John F. Kennedy, is the claim that "a rising tide" automatically and necessarily "lifts all boats.") But there is actually no good reason to believe that this argument holds any water.

And pro-plutocratic apologists would first have to explain away an inconvenient historical comparison (rather than trying to ignore it, as they usually do): During the quarter-century that followed the Second World War, income inequality in the US was much lower than it is now, tax rates for the wealthy were considerably higher, labor unions were much stronger, financial regulation was much tighter, and the benefits of economic growth were much more evenly distributed across the income scale ... but the overall rate of economic growth was significantly higher than it has been for the period since 1980. (And to complicate matters further, in the period since 1980 overall growth rates were most robust during the presidency of Bill Clinton, after he raised taxes.) How do they explain that?

(Sure, one can imagine possible arguments that could be used to explain away this embarrassment, and some have been attempted. But most of the time the apologists for the new plutocracy don't even acknowledge the problem, and hope that the rest of us won't notice it, either.)

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