Ugly Truths About Income Inequality in America, Which No Politician Dares to Say

Summary:  A new books by journalists Barlett and Steele shows some ugly and seldom-mentioned aspects of the growing inequality in America.  Most especially, the role of government policy. It didn’t just happen.

“Avarice, the mother of all wickedness, who, always thirsty for more, opens wide her jaws for gold.”
— ClaudianusDe Laudibus Stilichonis, II, 111.

Some are more equal than others

Contents

  1. Today’s reading about income inequality in America
  2. Reviews of the Book
  3. About the Sunlight Foundation
  4. For More Information

(1)  About income inequality in America

Barlett & Steele address what politicians won’t
by Bill Allison, Sunlight Foundation
28 August 2012

Investigative journalists Donald L. Barlett and James B. Steele are in Washington, D.C., today to talk about their new book, The Betrayal of the American Dream. I’ve read it, and if there’s one takeaway from I can share without spoiling it, it’s this:  The roots of the current economic insecurity felt by millions of Americans go well beyond the issues and programs promoted by politicians of either party. And as we kick off the Republican Convention (which Sunlight Live will cover), the Democratic Convention (ditto) and launch into the fall campaign season, it’s unlikely that either candidate will address them.

Betrayal describes the impact of a series of policies adopted by Washington on middle class and working class Americans; the work focuses more on the stories of the victims than on those who made the policies. Some of their earlier works — America: What Went Wrong (published in the Philadelphia Inquirer, which distributed for free more than 225,000 reprints of the series; the book went on to be a best-seller), America: Who Really Pays the Taxes and America: Who Stole the Dream (full disclosure: I was fortunate enough to work as their researcher on that book), go into great depth about how special interests used lobbying, campaign contributions and the revolving door to get their way in Washington.

I thought of Barlett & Steele recently when historian Niall Ferguson touched off a firestorm by writing a Newsweek cover story called “Hit the Road, Barack” (alternative title suggestion: 2008 John McCain supporter prefers Romney over Obama). Ferguson wrote, as part of his brief against a second term for the incumbent:

“Welcome to Obama’s America: nearly half the population is not represented on a taxable return — almost exactly the same proportion that lives in a household where at least one member receives some type of government benefit. We are becoming the 50–50 nation — half of us paying the taxes, the other half receiving the benefits.”

In a rebuttal to Ferguson’s piece, Matthew O’Brien of the Atlantic responded:

It is true that 46% of households did not pay federal income tax in 2011. It is not true that they pay no taxes. Federal income taxes account barely account for half of federal taxes, and much less of total taxes, if you count the state and local level. Many of those other taxes can be regressive. If you take all taxes into account, our system is barely progressive at all.

But why do almost half of all households pay no federal income tax? Because they don’t have much money to tax. Here’s the breakdown from the nonpartisan Tax Policy Center. Half of these households are simply too poor — they make under $20,000 — to have any liability. Another quarter are retirees on tax-exempt Social Security benefits. The remaining households have no liability because of tax expenditures like the earned-income tax credit or the child credit.

Left unsaid by either writer is what’s led to this state of affairs. Barlett and Steele point to multiple causes, starting with changes to the Internal Revenue Code stretching back decades that favored corporations and the wealthy. They also cite trade policies that led U.S. manufacturers to seek cheaper labor around the world (in some cases, the U.S. government supplied money and other incentives to foreign businesses to build industries that displaced U.S. workers), changes in the social contract that weakened or altogether eliminated benefits for workers, and deregulatory efforts that upended entire industries. These policies enacted without concern for their effects on the middle class, or were sold to Americans as policies that would make us all better off.

One catches glimpses from time to time suggesting all is not going as planned. Surveying an IRS report on the 400 income tax returns reporting the highest gross adjusted income, Forbes noted that this tiny fraction of taxpayers reported 16% of all capital gains. At the other extreme, Pew Research Centerreported that median net worth–not income, but total assets amounted in a lifetime–plunged 28% for middle class households between 2001 and 2011. “Since 2000, the middle class has shrunk in size, fallen backward in income and wealth, and shed some — but by no means all — of its characteristic faith in the future,” the report stated.

These trends didn’t start in 2000, but long before, and Barlett and Steele have spent decades documenting them. In the first part of America: What Went Wrong, published more than 21 years ago, Barlett and Steele addressed the same tax numbers that Ferguson blames on Barack Obama’s America, and O’Brien offers as an unremarkable fact of life. In the midst of a 1,600-word passage in which they analyze tax statistics — yes, you read that right, 1,600 words in a newspaper article on tax statistics – they documented the exploding incomes of those at the top against the much more sluggish growth of incomes for those in the middle. They predicted:

Because of the dramatic increase in their numbers, the over-$500,000 group is accounting for a larger share of overall income tax collections at the same time their individual payments have fallen off sharply. In 1980, they paid $2.8 billion in taxes, or 10%  of total individual income taxes. In 1989, they paid $59.4 billion, or 14% of the total. If this trend continues, those at the top will pay an ever-mounting share of the taxes. But that’s because everyone else will be falling further behind. Consequently, they will have less income to be taxed.

That’s precisely what’s happened. The top 1% of tax filers, with average income of about $960,000, paid a staggering 37% of federal income taxes. The bottom 50% of taxpayers paid just 2%.

In that same lengthy passage on tax statistics, Barlett & Steele noted the squeeze that middle class families faced:

In 1970, a Philadelphia family with income of $9,000 to $10,000 — median family income that year was $9,867 — paid a total of $1,689 in combined local, state and federal income and Social Security taxes. In 1989, a Philadelphia family with income of $30,000 to $40,000 — median family income that year was $34,213 — paid $8,491 in combined local, state and federal income and Social Security taxes.

Thus, while these taxes consumed 17.8% of a middle-class family’s earnings in 1970, by 1989 they took 24.3% of the family’s income. When real estate taxes, sales taxes, gasoline taxes and other excise taxes and local levies that have gone up are added in, the middle-class family’s overall tax burden rises to about one-third of family income.

As to those on the bottom:

Almost half of all Americans who had jobs and filed income tax returns in 1989 earned less than $20,000. Of the 95.9 million tax returns filed that year by people reporting income from a job, 47.2 million came from people in that income group. They represented 49% of all such tax filers. Between 1980 and 1989, the average wage earned by those in the under-$20,000 income category rose $123 — from $8,528 to $8,651. That was an increase of 1.4%.

Over the decade, the average salaries of people with incomes of more than $1 million rose $255,088 — from $515,499 to $770,587 — an increase of 49.5%. That, it should be stressed, was their increase in wages and salaries alone.

Here’s the most astonishing thing about that last passage. In 1989, 49% of Americans with income from wages and salaries reported income under $20,000. Thirty years later, that number looks slightly better: In 2009, according to statistics from the IRS, 45% of returns reported the same level of income (you can download the data by clicking here). But that doesn’t take into account the impact of inflation. So $20,000 in 2009 is worth only $11,560 in 1989 dollars. In other words, the filers of some 52 million tax returns and their dependents didn’t improve or stay even — they fell further behind, seeing their real earnings drop by 42%.

In all the speeches and punditry we’ll hear at the conventions, that fact is unlikely to be mentioned by either party.

(2)  Reviews of the Book

(3)  About the Sunlight Foundation

The Sunlight Foundation is a nonprofit, nonpartisan organization that uses the power of the Internet to catalyze greater government openness and transparency, and provides new tools and resources for media and citizens, alike. We are committed to improving access to government information by making it available online, indeed redefining “public” information as meaning “online,” and by creating new tools and websites to enable individuals and communities to better access that information and put it to use.

We want to catalyze greater government transparency by engaging individual citizens and communities — technologists, policy wonks, open government advocates and ordinary citizens –- demanding policies that will enable all of us to hold government accountable. Sunlight develops and encourages new government policies to make it more open and transparent, facilitates searchable, sortable and machine readable databases, builds tools and websites to enable easy access to information, fosters distributed research projects as a community building tool, engages in advocacy for 21st century laws to require that government make data available in real time and trains thousands of journalists and citizens in using data and the web to watchdog Washington.

Major elements of our work include the Sunlight LabsSunlight Reporting GroupSunlight Live and the Open House Project.

(4)  For More Information

Posts about inequality and social mobility: once strengths, now weaknesses:

  1. A sad picture of America, but important for us to understand, 3 November 2008 — Our low social mobility.
  2. America’s elites reluctantly impose a client-patron system, 5 November 2008
  3. Inequality in the USA, 7 January 2009
  4. A great, brief analysis of problem with America’s society – a model to follow when looking at other problems, 4 June 2009
  5. The latest figures on income inequality in the USA, 9 October 2009
  6. Graph of the decade, a hidden fracture in the American political regime, 7 March 2010
  7. America, the land of limited opportunity. We must open our eyes to the truth., 31 March 2010
  8. Modern America seen in pictures. Graphs, not photos. Facts, not impressions., 13 June 2010
  9. A pity party for America’s rich and powerful, 8 September 2010
  10. Why Americans should love Tolkien’s Lord of the Rings – we live there, 13 December 2011
  11. News You Can Use to understand the New America, 14 March 2012 — Articles about rising inequality
  12. The new American economy: concentrating business power to suit an unequal society, 27 April 2012
  13. Jared Bernstein examines the economic impact of raising taxes on high-income households, 30 April 2012
  14. How clearly do we see the rising inequality in America? How do we feel about it? Much depends on these answers., 27 September 2012

This post was originally published at Fabius Maximus and is reproduced here with permission.

 

2 Responses to "Ugly Truths About Income Inequality in America, Which No Politician Dares to Say"

  1. benleet   October 3, 2012 at 11:27 pm

    I write a blog with essays on inequality, http://benL8.blogspot.com. Inequality may be the cause the recessionary no-growth-slow-growth economy. Fewer purchasers leads to fewer employees. leading to fewer purchasers, leading to less employment, etc., a downward spiral. The economy had 111,395,000 private sector employees in Sept. 2000, and 111,400,000 in Aug. 2012 – no growth (see "data bls private sector employment). The working age population increased by 31 million, from 212 million to 243 million, or 14.6% more potential workers. If we had the same income distribution as 1979 each family in the lower-earning 80% of U.S. families would have $11,000 more income year after year, the recession would be over. And here's a few more details:
    Details of Inequality —
    U.S. households own on average $498,000 per household, yet half own less than $77,300. (See this source, pages 3 and 4.) The average net worth of half (50%) of America's households is less than $11,000 while the average for all (100%) is $498,000. Is that enough inequality to make one think?
    The average family income in 2010 was $78,500, but the median was $45,800 according to the Federal Reserve's Survey of Consumer Finances, 2012, (page 17 and 8 respectively for wealth and income stats).
    The average worker contributes $109,000 to the GDP or economic output, but half of all workers earned less than $26,363 in 2010, and collectively their wage income averages below $11,000 per worker. (See this source and this source.)
    Our economy generates over $47,000 per human, over $109,000 per worker, and over $140,000 per household. Why do 16.1% face food insecurity in 2011 and 15.0% live in poverty? The second most recent essay has most of these facts.

  2. Denver Bill   October 9, 2012 at 11:32 am

    Einstein said his biggest mistake was 'assuming' that the universe was static, i.e., not expanding. This caused him to 'make-up' data to balance his math. Given the inevitability of advancing technology (replacing human labor) and globalization (raising the standards of living of really poor people at the expense of relatively richer ones – Americans ?), it is possible / likely that the current standard of living of the average American is unsustainable. If, like Einstein, we refuse to observe this because we believe Americans are endowed with some 'equal' prosperity, we run the risk of implementing solutions that will not only not help, but likely waste time and make things worse. In any complex system a sober view of the starting conditions is a requirement to affect outcomes.