January 26, 2006

America: Where the Rich Get Richer

By Bob Warren, aka The Old Pessimist

The inherent internal inequity of America – the proverbial ‘Land of Opportunity,’ the putative ‘Richest, Most Powerful Nation in the World’ – stands as one of the great contradictions of democracy in the New Millennium. Voracious wealth disparity implicates an inordinately complex calculus, involving social philosophy and economic policy, deeply embedded history, an unwillingness to confront reality, and political decisions that have little to do with the common good and much to do with special interests. Notwithstanding its compound complexity, the essence of the problem can be reduced to a simple single sentence: Far too few have far too much, while far too many have far too little.

Unless one is in a persistent vegetative state, mentally impaired or a hermit, the realities of inequality of opportunity, income and wealth disparity, and the deprivation occasioned by all manner of class barriers are manifest. If we don’t see them, it is only because we don’t want to see them. Cause-and-effect are the subject of endless studies and ceaseless debates, some purely academic, some firmly rooted in reality. To those who believe that all’s well with America, or that a citizen’s individual responsibility does not attach to national policy, or the jaded view that in the end, we all get what we deserve – I cite below a number of verifiable facts and assessments.

They are not necessarily presented entirely within context. Take them as you wish, although it is in the aggregate that they make the most sense.
  • On 2/7/05, the White House released its fiscal 2006 defense budget, amounting to $419.3 billion, a nearly 5% increase over FY2005. Defense spending in FY2006 is 41% above FY2001. [Source: DoD News Release, 2/7/05].
  • In 2004, only 15 other countries in the world had a Gross Domestic Product that exceeded the U.S. current defense budget. [Source: Wikipedia]
  • It is thought by many that by mid-2006, the U.S. Defense Budget will equal that of the rest of the world’s defense expenditures combined. [Source: Jane’s Defence Industry, 5/5/05, as reported by Guy Anderson.]
  • Admittedly, the American population chronically overburdens itself with personal debt, $2.157 trillion as of 11/30/05. [Source: Reuters, D.C., 1/9/06]
  • In a recent letter to Congress, Treasury Secretary John Snow stated that unless the Government’s current $8.2 trillion debt ceiling is raised by mid-March 2006, "we will be unable to continue to finance government operations." [Source: S.F. Chronicle, AP, 1/8/06] By way of comparison: in 2002, the national debt limit inherited by President Bush from the Clinton Administration was ‘only’ $5.95 trillion.
  • The official poverty rate in 2004 was 12.7%, up from 12.5% in 2003;
    In 2004, 37.0 million people lived in poverty, up 1.1 million from 2003;
    (NB: As defined by the OMB and updated for inflation using the CPI, the average poverty threshold for a family of four in 2004 was income of $19,307; for a family of three, $15,067; for a family of two, $12,334; and for unrelated individuals, $9,645, i.e., $26.42 per day for food, housing and incidentals.)

The above statistics reflect a worst-case perspective for viewing the economic facts-of-life in America. What follows broadens that perception. All figures, unless otherwise indicated, are as compiled by the Economic Policy Institute in a recently published report entitled FACTS & FIGURES, State of Working America, 2004 – 2005.

    In 2001, 20% of all income went to the top-earning 1% of households, which also held 33.4% of all net worth. The 90% of households with the lowest incomes received 54.8% of all income, but had only 28.5 of all net worth.
    In 2001, the top fifth of households held 84.4 of all wealth; the middle fifth held only 3.9%, their smallest share since 1962. The bottom fifth had a negative net worth, owing more than it owned.
    For the past 40 years, approximately 80% of all wealth has been held by 20% of all households.
    The top 1% of stock owners hold 44.% of all stocks, by value, while the bottom 80% own just 5.8% of total stock holdings.
    About 48% of households own no stock and another 11.8% have less than $5,000 in stock.
    Households with annual incomes of $100,000 or more control 69% of all stock.
    About 75% of the stock market growth from 1989 – 2001 went to the wealthiest 10% of households.
    In 1979, the average income for the top 1% was 33.1 times the income of the lowest 20% and 10.1 times that of the middle fifth. By 2000, the average income of the top 1% was 88.5 times that of the bottom fifth.
  • REAL WEALTH (or not):
    Distribution of U.S. Wealth Ownership, 2001
    (Total U.S. net worth $42,389,200,000,000):
    Top 1% of population = 32.7% of accumulated wealth
    Next 4% = 25.0%
    Next 5% = 12.1%
    Next 40% = 25.4%
    Bottom 50% = 2.8%
    [Source: A. B. Kennickell, "A Rolling Tide: Changes in the Distribution of Wealth in the U.S., 1989-2001," Table 10 (Levy Economics Institute: November, 2003.)
  • INCOME comparisons:
    Average real after-tax income levels, 1980 – 2000, by income group (2001 dollars):
    Year Lowest Quintile Highest Quintile Top 1% All Quintiles
    1980 $13,000 $83,800 $288,100 $40,500
    1985 $11,700 $99,200 $433,000 $44,300
    1990 $12,600 $107,900 $500,400 $47,500
    1995 $13,600 $112,000 $500,700 $49,400
    2000 $14,100 $145,400 $886,800 $58,600
    [Source: Congressional Budget Office]
    Real and Current Values of the Federal Minimum Wage, 1960 - 2003
  • Minimum Wage Minimum Wage
    Year Current Dollar Real Dollars (2003)
    1960 $1.00 $5.26
    1970 $1.60 $6.56
    1980 $3.10 $6.55
    1990 $3.80 $5.19
    2000 $5.15 $5.50
    2003 $5.15 $5.15
    [Source: The State of Working America 2004-2005, id., at figure 2W]

In my experience, there is only so much that one can absorb from bare, bloodless statistics.

Indeed, there is a disconcerting disconnect between statistical compilations and the human conditions they reflect. But this is enough of a start, at least if one makes the effort to project the impact of these dry data onto our nearly three hundred million fellow Americans who comprise the diverse American population.

It is a given: life is inherently unfair. Advantages and disadvantages are unevenly and unpredictably distributed. Sometimes, simply the circumstances of birth determine success or failure. Our time is filled with perils and risks, some avoidable, others not. Here are some of them:

-- a sudden critical illness;

-- the unexpected loss of a job;

-- an un- or under-insured personal catastrophe of one sort or another;

-- the withdrawal or reduction of employer-sponsored health-care benefits or pension funding;

-- the need to provide medical care and/or housing for aging parents,;

-- meeting the costs of higher education for two or three college-age children.

Wealth doesn’t buy happiness, but it can purchase peace, security and comfort. Wealth isn’t necessarily power, but it is protection. In the final analysis, wealth is opportunity.

Despite its enormous riches, America rations far too little genuine opportunity to most of its citizens. Freedom, yes. But freedom to do what? To paraphrase another’s famous observation: "It’s amazing. In America, even the rich are free to seek shelter under the cities’ bridges during freezing cold winter nights."

Part of answering questions about why so few Americans enjoy the opportunity of America's riches lies in questions about who is taxed, who isn’t, and what becomes of the revenue. Before turning to the specifics, first a preemptive rebuttal to those who will predictably claim that all the Bush Administration’s tax cuts have led to ‘good times’ for most of the nation’s taxpayers.

In its ‘Thanksgiving 2005 Report,’ United for a Fair Economy demonstrates its contention that there is “No correlation Between Bush Tax Cuts and Job Creation: Rate of Job Growth at Historic Low After 4 Years of Tax Cuts; Quality of Jobs [created in that time] Poor.”

The highlights of that report note that (1) a review of the past six decades shows that changes in tax policy have not resulted in either job creation or job destruction, i.e., tax policy has no predictable effect on the job market; (2) from June 2003 to December 2004, the Administration promised that its tax-cutting policy would create 5.5 million new jobs - but a Bureau of Labor Statistics survey showed that only 2.6 million new jobs were created, even though 4.1 million would have been expected without any special economic stimulus; and, (3) while there is no definitive evidence that massive tax cuts create jobs, there is considerable evidence that they contribute to economy-choking deficits.

A more recent report from the Center on Budget and Policy Priorities further undercuts the Bush Administration’s claims: (1) In six out of seven indicators, growth rates during the current recovery have been below average for post-World War II recoveries (the sole exception being ‘corporate profits,’ which have grown far more rapidly than on average); (2) the labor market is below average for a post-World War II recovery; (3) the President’s recent claim that “We’re still on track to cut the federal deficit in half by 2009” is true only when not including substantial future expenditures that are very likely to be incurred, e.g., additional funding for Iraq, Afghanistan, relief for the Alternative Minimum Tax, and massive additional federal subsidies for rebuilding efforts along the U.S. Gulf Coast following Hurricanes Katrina-Rita; and, (4) the Administration’s policies will expand the deficit over the next five years, mostly because the budget cuts that it has proposed in domestic programs [see below] are more than outweighed by its proposed tax cuts, coupled with increases in defense and homeland security spending.

The authors of the same CBPP report also note the following: (a) according to the Congressional Joint Committee on Taxation, tax cuts enacted since President Bush took office reduced revenues by $211 billion in 2005, a year in which the federal deficit was $319 billion; (b) even though revenue growth was better than expected in 2005, revenues in that year remained at historically low levels; and, (c) finally, revenues in 2005 were well below the levels at which they were projected after the 2001 tax cut was enacted (this, even after disregarding the additional revenue losses caused by the tax cuts enacted after 2001).

N. G. Mankiw, the former chairman of the President’s Council of Economic Advisers and a Harvard economic professor, wrote in his well-known textbook that there is “no credible evidence” that “tax revenues . . . rise in the face of lower tax rates.” Mankiw compared an economist who says that tax cuts can pay for themselves to a “snake oil salesman who is trying to sell a miracle cure.”

[See also a somewhat earlier but much more detailed report, since substantiated, also published by the Center on Budget and Policy Priorities, entitled, Tax Returns: A Comprehensive Assessment of the Bush Administration’s Record on Cutting Taxes, by Isaac Shapiro and Joel Friedman. Finally on this topic, I highly recommend the much discussed article authored by William H. Gates, Sr. and Chuck Collins, “TAX the WEALTHY: Why America Needs the Estate Tax.” The authors do an admirable job of explaining the particulars of ‘the death tax’ and lay waste to many misinterpretations of its cause-and-effect.]

On January 1, 2006, two tax cuts became effective that primarily benefit ‘persons of high net worth’ (the new term for the well-worn sobriquet of ‘millionaire’). These cuts will eliminate provisions of the tax code that limit the value of personal exemptions and itemized deductions that people at high income levels may take. Nearly all of the two combined cuts (97%) will benefit households with incomes over $200,000. To be precise: 53.3% of the benefit will flow to households with incomes over $1 million; 43.2% to households with income between $200,000 and $1 million; and, 3.3% to households with income of between $100,000 and $200,000.

Household with incomes under $100,000 will receive 0.1% of the benefits.

Putting this in perspective, only 0.2% of households have income over $1 million and 11% have incomes between $100,000 and $200,000. When the two cuts are fully implemented in 2010, millionaires will gain an average of $19,000 per year, which will be in addition to another $103,000 they received in 2005 due to other tax cuts that have been enacted since 2001. [Source: Center on Budget and Policy Priorities, 12/28/2005, Two Tax Cuts Primarily Benefiting Millionaires Will Start Taking Effect January 1; Congress Declines to Rethink These Tax Cuts As It Proposes to Cut Aid to Low-Income Families] For a complete statement of the underside of the pending tax legislation, see, Center on Budget and Policy Priorities, Assessing the Effects of The Budget Conference Agreement on Low-Income Families and Individuals, Rev’d 1/9/06

No matter what the excuse, explanation, justification, or pretext, we no longer treat ourselves very well. The rich do get richer, which is to be expected in a capitalist society I suppose, but they do so at the expense of the poor, who more and more get the back of Society’s hand. We’ve lost sight not only of the virtue of generosity, but of its benefits as well.

Perhaps the two most generous national acts in my lifetime were the enactment of the G.I. Bill after World War II, enabling an entire generationwhich had been in the trenches and fought and won ‘The Good War’ (to use Studs Terkel’s term) to pull itself up the economic and sociological ladder (a generation which, I might add, became the most prolifically innovative and diligent in modern America’s history, and the Marshall Plan, the far-sighted foreign assistance package to devastated Europe after World War II which, arguably, ultimately saved our world from Communist domination. Although the expense of each program was monumental, we got back far more than the cost of our initial investment.

I predict that the egregious wealth disparity that now prevails in this country ultimately will be the death of the American dream. These days, equality of opportunity is a whimsical notion at best, a cruel lie at worst. The ‘Me Generation’ has morphed into the ‘My Generation.’ Greed is on its way to squeezing out decency and kindness and caring. We would do well to listen to the words of the late Hubert Humphrey, who, in Washington, D.C. on November 1, 1977, observed"...the moral test of government is how that government treats those who are in the dawn of life, the children; those who are in the twilight of life, the elderly; those who are in the shadows of life, the sick, the needy and the handicapped."

By those tenets, our Government today is flunking this most important test of all.


Kvatch said...

Stephen that was a great post, though I don't recognize Bob Warren. Can you tell me more about him. I think I'm most disturbed by the unchecked increase in the poverty rate, and I particularly like your closing with the quote from Humphrey (sentimental I guess, the little frogette is a Minnesotan).

Angel, librarian and educator said...

I have to say as well that this is a great post. I am disturbed by what the government does, but I can't help but wonder what about those who put that government in power. We can write excellent posts like these, educate people on the problems and what needs to be done, ring the alarms, but if the people go ahead and vote for the same people who facilitate the increases in poverty and the other problems, what chance do we really have, if any? They are clearly flunking, but no one seems to be holding them accountable for it.

Dicky Neely said...

Stephen, I have to chime in with the previous commenters and agree that was a great and well researched postng.
It is very illumniating to see these facts in cold black and white. I see the results of this vast disparity every day.
I am disabled and living on Social Security Disability. I had to leave my last position about 16 months ago because of health reasons.
I had not worked there long enough, I was a special education teacher's aide in the local high school, to obtain retirement benefits.
I am now struggling to exist. I have not yet been able to get Medicaid and I am too young for Medicare and life is very different now.
I am optimistic and a fighter but most of the well to do I know and encounter live oblivious to all of the poverty and inequity and most feel like "I have mine, to heck with everyone else."
What we have is a divided, non-caring society where people have no consideration for anyone outside their group.
Keep up the good work.

Dicky Neely said...

I was thinking about this piece and I recalled the time when George the First was prez and he made a rare appearance in a supermarket and was entrhalled and amazed at the bar code checkout scanner! He really was surprised and delighted, he never knew such things existed!

Stephen McArthur said...

Bob Warren is a retired attorney living in the Southwest who publishes an occasional newsletter entitled The Old Pessimist to which I subscribe (it's free). He has allowed me to pick and choose what I want to republish on Orwell's Grave. He is an unreconstructed liberal in the Kennedy/Humphrey mold sickened by the current regime in Washington DC. Despite his "pessimism," he is fighting back.

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