America's Inequality Story

One of our readers has a blog and publishes material on the economy.  His piece below has useful information on the inequality and  distribution of wealth in the US.  It is sickening to listen to Union officials in the mass media including the major news outlets like CNN stress, for the ears of the capitalist class, that the protests in Wisconsin have nothing to do with money and benefits and that "their" members realize they have to sacrifice and are offering their wages and benefits to the billionaires to "take one for the team".

We have already explained why we believe the Union officials take this position, that times are bad in the previous few posts. The ideological offensive on this front, a combined effort on the part of the capitalist class and their supporters at the head of organized Labor is so pervasive that many workers end up making the same argument, cutting our  own throats basically; taking food from their own children.  It reminds me of the domestic violence victim, convinced that the cause of the perpetrator's violence is her nagging, her personality, her fault.  When the realization hits you that it isn't, the road to emancipation is opened up.  We have to reject the argument that the bosses and the Union leaders put forward that we have to sacrifice; then we can move on. 

The views in the piece below are the authors, the information is useful to counter the argument that it is workers and the middle class that must pay for the crisis of capitalism.  The author's blog is here.

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 "America's Inequality Story," to give it a name, is copiously documented; State of Working America has web pages that shows many graphs that quickly and easily demonstrate rampant inequality; UC Berkeley Professor Emmanuel Saez reports in "Striking It Richer" that the top 1% of households “captured slightly more than half of the overall economic growth over the period 1993-2008. . . in the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth.” The period 1940 to 1980 stands in contrast; the portion going to the top 10% never exceeded 35% of the nation's income, while in 2007 they captured 49.7%, an all-time historical record. Almost all the shift of income went to the top one percent. Another source, Edward Wolff, published a report, March 2010 for the Levy Economics Institute, showing, like the Saez report, the top one percent received more income annually than the bottom 60% and owned more assets than the bottom 90%.

Our rich economy annually creates $46,000 of value for every human being in the nation. Yet the distribution of income, according to the Brookings/Urban Institute Tax Policy Center, shows the following distribution by quintile (or 20% of households group) from bottom to top for 2006: 1 - 2.5%, 2 - 6.4%, 3 - 11.4%, 4 - 19.8% (the total for the bottom 80% of households is 40.0% of the nation’s total pre-tax income for 2006) and the fifth quintile, 5 - 60.3%. The bottom 80% receive 40% of the nation’s income; the top 20% receive 60%. The bottom 80% of households’ income from salary and wages is 28.2% of the nation’s total income. The Citizens for Tax Justice also breaks down income distribution according to quintiles, showing average annual income for the 5 quintiles of tax filers: 1 - $13,000, 2 - $26,100, 3 - $42,000, 4 - $68,800, 5 - $210,375. This ratio roughly duplicates the ratio from the Tax Policy Center. These are the average pre-tax incomes for each 20% of households from bottom to top. The average income of the top 20% is five times greater than the average income for the lower 80%. One worker receives $5.61, while four workers’ average income is $1.00. I know I’ve thrown out too many numbers, but I’m trying to make a strong point. It’s hard to believe how skewed our economy’s income distribution is.

The U.S. has the most unequal distribution among industrial nations (the OECD nations), and among all nations in the world we rank at #73 in inequality behind such nations as Morocco, Ethiopia, Pakistan, Bangladesh, India, Russia, Egypt and Romania. The U.S. also has the highest childhood poverty rate among all developed nations. France has about the same child poverty rate as the U.S. before government interventions. France reduces childhood poverty to 7%, we reduce it to 20%.

Searching for solutions, Demos and Campaign for America's Future published a report written by Jeff Madrick on “Jobs, Deficit Reduction and America’s Economic Future.” He presents a very detailed program. I cannot rival Madrick’s erudition, but I will present here a six step program:

1. create tariffs and quotas on foreign imports combined with new trade treaties designed to bring back manufacturing jobs; the nation has fewer private sector jobs in 2011 than it had in 1999 and we had better stop exporting our jobs’; this proposal comes from William Greider's book Come Home, America, page 103; and since our trade deficit is so high, the World Trade Organization allows the U.S. to impose these tariffs;

2. impose taxes on value-added imports of multi-national corporations who assemble products like Ford trucks at $15 a day labor cost in northern Mexico; this tax again would return manufacturing work to the U.S.; the key focus is to seal our marketplace and our purchasing dollars from low-wage exploitative labor markets and stanch the investment flow of U.S. investment wealth into low-wage countries, the race to the bottom;

3. install a full employment program as presented by Professor Phillip Harvey of Rutgers University, “Learning from the New Deal”; see National Jobs for All Coalition, njfac.org;

4. raise the minimum wage to $12.30 an hour and increase by 80% the maximum benefit of the Earned Income Tax Credit according to a plan by two University of Massachusetts professors J. Wicks-Lim and J. Thompson to balance the income distribution ratio (see peri.umass.edu or my blog, http://benL8.blogspot.com, for a summary essay);

5. authorize Professor Robert Pollin’s program, UMass/Amherst, that suggests a federal government guarantee of private bank loans to local and state governments for local jobs programs, mostly insulation work on government building and then private housing stock; Pollin's program would create 18 million jobs. He also presented a more recent article series in the Boston Review. Banks are sitting on $1 trillion of mostly tax payer money and not making loans; the S and P 500 corporations achieved record profits in the third quarter of 2010 of $1.66 trillion, yet still they are not adding new jobs;

6. create a free childcare policy per the program "Why Obama Should Care about Care" at Levy Economics Institute. This would employ many women in a government jobs program that tends to employ mostly men; it would relieve family budgets of many low-income parents.

These six new policies would restore employment and create a healthy, balanced economic growth.

And, to make it too complicated, I’ll toss in 3 more: pass the Employee Free Choice Act for workers who want unions; require corporations to place non-shareholder representatives on their boards of directors; create more legally mandated vacation days for the over-worked U.S. workforce. There is no end to reforms. Everyone has their favorite. My favorite is to outlaw money. But until that time comes, we have to pay for these reforms.

As for paying for these programs, you know the top one percent of U.S. households own 37.1% of all private assets in the nation, and that comes out to $20 trillion. The top 10% own 70%, and that comes to about $38 trillion. These people don’t pay “overall” an effective tax rate that is much higher than most people. The Citizens for Tax Justice shows that the top one percent pay an effective overall tax rate of only 30.9% on incomes averaging $1,445,000 a year and wealth averaging $18,500,000. The average overall effective tax rate for the bottom 80% of income earners is 24.5%. By raising the capital gains tax rate from 15% to the normal income tax rate of 35%, government revenues would grow by an additional $200 billion to $266 billion. A tax on financial transactions could bring in $100s of billions. Closing a tax expenditure to financial corporations’ interest payments brings in another $77 billion. Congresswoman Jan Schakowsky has a plan to cut the deficit by $400 billion and still have $200 billion for a jobs program. Spending $200 billion federal dollars can create 5 million jobs at $40,000 per job. She suggests following the outlines of the Local Jobs for America Act. One can download her program at her web page.

To reach the pre-recession, late 2007, rate of unemployment, 5.0%, the economy needs 11 million jobs. The Economic Policy Institute reported that, “This means the labor market is now nearly 11 million jobs below the level needed to restore the pre-recession unemployment rate (5.0% in December 2007). So, despite the job growth of 2010 [of 91,000 new jobs per month], we remain near the bottom of a very large hole. To achieve the pre-recession unemployment rate in five years, the labor market would have to add nearly 300,000 jobs every month for the entire period.” At our present growth rate, 91,000 per month, it will take until 2026 to create the same number of new jobs. Do you believe the economy will triple its 2010 rate of job creation for the next 5 consecutive years?

Creating federal jobs would get the economy cooking again, and the other policy changes in regards to imports would help balance the income distribution ratios.

There are many solutions, and the best ones begin with adjusting how the nation's income is distributed. We have to understand our condition and find broadly based support for fair change. Ben Leet

see http://benL8.blogspot.com, toomuchonline.org, epi.org, njfac.org, cbpp.org, newdeal20.org, inequality.org, cebr.org, Campaign for America's Future.