income inequality

Behold and Beware Our New 'SWAG' Economy

Sam Pizzigati — Sat, 07 Jan 2012 15:19:29 -0500

Today's swaggering rich are increasingly stuffing their dollars into investments that do America's 99 percent not one whit of good.

Your pop quiz for today: Define “art.”

Wait, you don't need to panic here. You don’t need to go fumbling in the deep recesses of your mind for some wisdom about “beauty” or “imagination” or “form.” You just need to repeat after Michael Plummer and Jeff Rabin, the two principals behind the midtown Manhattan-based Artvest Partners LLC.

“Art,” their maxim goes, “is an asset class.”

ArtVest Partners, the trendy financial firm Plummer and Rabin run, helps wealthy people invest in works of fine art. The firm is doing a bang-up business.

America’s wealthy — and deep pockets everywhere else for that matter — have been pouring epic sums into artwork. Christie's and Sotheby's, the two big fine art auction houses, are reporting a 35 percent gain in the prices paid for Gainsboroughs, Picassos, and other blue-chippers over the past 12 months.

The Artprice Global Index, a broader tally of the prices works of fine art are fetching, has art values up 120 percent over the last decade.

Why the surge? Higher prices reflect no greater appreciation — on the part of the wealthy — for the aesthetically pleasing. They do reflect a greater appreciation of art, within high-income circles, as a high-return investment. And bankers are appreciating, too. Financial institutions are making art-based loans. They're letting mega millionaires use their artwork as collateral for business deals.

“We now can start talking,” an arm of Deloitte, the global consultancy firm, reported last month, “about the early stages of an Art and Finance industry.”

The continuing Great Recession in regular, old-fashioned industry, analysts at ArtInfo explained last week, is helping this new art-and-finance combo along.

“International high-net-worth individuals,” the analysts point out, “are looking for somewhere to put their money besides the anemic stock market.”

But the art world hasn’t been the only “asset class” to benefit from this yearning for larger and safer returns. Dollars and euros and pounds are also flowing to other “hard” assets that share all the attractions that fine art offers. Silver, wine, and gold have all been ratcheting up steadily over recent years.

This past September, Investment Week’s Joe Roseman gave all these hot asset classes a memorable new handle.

“Everyone,” Roseman advised his well-heeled readers, “needs some SWAG.”

The elements of SWAG — silver, wine, art, and gold — have “all appreciated quite sharply” over the past decade, notes Roseman, despite “two global recessions, a severe global banking crisis, a credit crunch, and (generally speaking) highly volatile and mostly negative equity market performance.”

Fine wines, the Liv-Ex wine index shows, have jumped about 300 percent since 2000. Gold has appreciated at an even higher rate, as has silver.

The Standard & Poor’s 500 stock index, by contrast, rose just 0.04 percent in 2011, returning only 2.1 percent with stock dividends included.

The SWAG elements have plenty in common. Silver, wine, art, and gold all rate as scarce, transportable, long-lasting physical assets. They also make for wonderful tax shelters. They throw off no income stream and, consequently, create no annual tax liability for wealthy investors.

The profits SWAG assets generate at sale, meanwhile, count as capital gains and receive preferential tax treatment over ordinary income.

These tax benefits from SWAG ought to create obvious concerns for those of us in America’s 99 percent. The less the nation’s wealthy pay in taxes, after all, the greater the tax burden on everyone else.

But our cause for concern ought to go deeper than the tax games the swaggering rich can play with SWAG assets. SWAG just may symbolize the ultimate folly — and sheer irrationality — of our staggeringly unequal, top-heavy economy.

In today's troubled economic times, we desperately need investments in products and services that translate into jobs and paychecks. We need dollars for renewing our society. We need dollars for everything from replacing crumbling infrastructure to developing sustainable new energy technologies.

The last thing we need? We don’t need billions of valuable dollars sunk into SWAG that hangs on the walls of manses or ages in high-tech wine cellars or sits in locked safes. But in a deeply unequal United States, where wealth remains concentrated in a precious few pockets, that’s exactly what we have.

Many of those dollars pouring into SWAG today would have gone yesterday to Uncle Sam. In the middle decades of the 20th century, America’s wealthiest faced income tax rates that reached up over 90 percent on income over $400,000.

In that high-tax-on-high-income environment, wealthy Americans routinely plowed their wealth into tax-free municipal bonds. In the 1950s, for instance, the widow of automaker Horace Dodge invested her entire $56 million legacy from the Dodge auto fortune in municipals.

Those municipals didn't help Anna Dodge much. They paid only 3 percent in interest. But the dollars invested in municipals paid off handsomely for the mid-century 99 percent. Those dollars financed the schools and sewage plants and waterworks that created the foundation for the classic American middle class.

Those mid-20th century days did, to be sure, hold certain charms for America’s deepest pockets. They could pick up works of art for a song. In 1960, banker David Rockefeller only had to shell out $10,000 for painter Mark Rothko’s White Center. In today’s SWAG world, White Center now carries a $72 million price-tag.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up at Inequality.Org to receive Too Much in your email inbox.

How Income Inequality Undermines Social Security's Finances

Daniel Marans — Tue, 15 Nov 2011 11:39:16 -0500

A recent study reveals how rising income inequality is jeopardizing Social Security’s finances.

It is by now common to hear Social Security advocates demand that we “scrap the cap” on earnings subject to the Social Security payroll tax.

This is an important appeal. Few Americans realize that millionaires only contribute to Social Security on the first $110,100 they earn. If they did, perhaps they’d be even more adamantly opposed to the benefit cuts many in Washington are proposing.

But even fewer people realize that the “cap,” or taxable maximum, as it is called more officially, at one time covered a far larger share of earnings, existing in harmony with fully-funded Social Security benefits. In fact, the cap was baked into Social Security from its inception.

The Evolution of Social Security’s Taxable Maximum, a recent study by Kevin Whitman and Dave Shoffner from the Social Security Administration’s Office of Retirement Policy, shows how rising income inequality has greatly increased the amount of earnings above the tax-max, depriving Social Security of much-needed revenue and shifting a larger share of its financing onto middle- and low-income workers.

The truth is that Social Security’s taxable maximum was born of smart policymaking. The tax max helped Social Security meet “the goal as a social insurance program of focusing on low- and middle-income workers who were more likely to be economically vulnerable in retirement.” FDR initially proposed to exempt high-income earners. The House Ways and Means Committee replaced the exemption with a taxable maximum on earnings, reasoning that virtually all workers need at least some basic level of protection against lost wages in old age. Moreover, fluctuations in individuals’ income above and below the exemption level would cause the number of workers covered by the program to fluctuate.

The tax max started at $3,000 in 1937, the first year covered workers began contributing to Social Security. Congress increased the dollar amount on an ad hoc basis for several decades thereafter, in much the way it raised benefit levels and expanded coverage to new sectors of employment. In 1972, Congress finally indexed the tax max to changes in the average wage index. Because the automatic indexing put in place in 1972 did not work as intended as a result of the unanticipated stagflation of that decade, Congress modified it and specified as a goal that 90 percent of all wages nationwide be insured against loss by Social Security. These measures were largely successful, bringing the portion of earnings covered by Social Security to 90 percent of earnings in 1982 and 1983.

Since that time, the tax max has continued to go up with average wage increases, but rising income inequality has caused the percentage of the country’s total earnings covered by the tax max to steadily decline. “Wages above the tax max generally have grown more quickly than wages overall,” Whitman and Shoffner write. The percentage of the country’s earnings covered by the tax max has dropped from 90 percent in 1983 to 84.2 percent in 2010, and is slated to drop to 83 percent in the coming years. This seemingly small slippage translates to billions of lost revenue for Social Security every year.

While the percentage of the country’s earnings above the cap has increased, the percentage of workers with earnings above the cap has remained static—a telling reflection of the extent to which wealth is now concentrated in the hands of the few. In 1983, 6 percent of workers accounted for the 10 percent of the country’s earnings above the tax max. In 2010, the same percentage of the workforce accounted for a much greater portion of earnings above the tax max—nearly 16 percent.

Even if Social Security were not facing a modest shortfall beginning in 2036, the drop in the percentage of covered earnings below 90 percent deserves correction. Several Washington commissions have proposed raising the tax max to gradually cover 90 percent of earnings once again. This would in fact close one-third of Social Security’s projected long-term shortfall.

But increasing the tax max is often pitched as a major concession to the Left, rather than a correction for the consequences of rising inequality. As such, the price of its passage becomes wholesale passage of major benefit cuts that please the Right, but dismay the public.

If politicians in Washington want to be honest with the American people, they would raise the tax max as a matter of course – and should have decades ago—not use it as a pawn in negotiations to cut the program. Better still, they could enact policies to reduce income inequality so that more of Social Security’s earnings remain taxable.

If politicians want to completely restore Social Security to long-range balance, they should consider scrapping the cap entirely. That is what, poll after poll reports, the American people overwhelmingly favor.

America's Tilt to the Top: The Deepest Stats Yet

Sam Pizzigati — Sat, 29 Oct 2011 19:35:49 -0400

All sorts of federal agencies publish income inequality data. But only the nonpartisan Congressional Budget Office directly takes on America's income inequality deniers.

Back in 1979, America’s most affluent 1 percent took home — after federal taxes — about the same share of the nation’s income as all the Americans in the bottom 20 percent. In 2007, Americans learned last week, the nation’s top 1 percent took home more income than America’s entire bottom 40 percent.

These new stats didn’t come from some scruffy Occupy Wall Street encampment. They came — in a blockbuster new report — from the buttoned-down number crunchers at the nonpartisan Congressional Budget Office. And the portrait they paint essentially gives the Occupy movement’s most basic insight, that our top 1 percent has hijacked the nation, an official government imprimatur.

Over the past three decades, the new CBO study documents, the deep pockets who make up our top 1 percent have more than doubled their share of America’s after-tax income, “from nearly 8 percent in 1979 to 17 percent in 2007.”

What makes the new CBO figures so significant? Other federal agencies, after all, do regularly drop their oars into America's income distribution waters. But the statistics these agencies report never quite capture the complete big picture.

The Census Bureau’s annual income surveys, for instance, don’t even attempt to cover what’s happening at America’s economic summit. And IRS statistical tallies only include Americans who make enough to have a file a tax return.

Analysts at the Congressional Budget Office neatly solve this statistical snafu. They massage Census and IRS data together. But they don’t stop there. Their new report also directly challenges the nation’s inequality “deniers,” those apologists for concentrated income and wealth who loudly claim that the United States hasn’t become nearly as unequal as the Census and IRS data suggest.

These apologists invoke a variety of objections. Income breakdowns, they insist, should take into account the dollar value of all the government services that go to poor people — and adjust for differences in household size as well. The new CBO report released last week, Trends in the Distribution of Household Income Between 1979 and 2007, does all that and more.

The CBO’s expansive definition of income encompasses nearly every household revenue source imaginable — not just wages and salaries, but income allocated to 401(k) plans, not just Social Security and workers’ comp, but “the value of in-kind benefits,” everything from food stamps to free school lunches.

The CBO even counts as individual income what employers shell out for your Social Security, Medicare, and health insurance coverage. In other words, the CBO essentially tallies everything that impacts your economic well-being.

On top of all this, the CBO has adjusted all its income figures for inflation, for every year from 1979 through 2007. Why pick these two particular years? One practical reason: Some data streams the CBO taps only start in 1979.

The more significant reason: Both 1979 and 2007 rate as “economic peak years just prior to a recession.” By starting and ending at an economic peak, Congressional Budget Office researchers are comparing apples to apples — and giving a much more accurate sense of basic long-term trends.

These trends, the new CBO analysis finds, vary enormously by income level.

For households in the top 1 percent — households making over $352,875 before federal taxes in 2007 — the trend line goes steeply up. These households saw their after-tax incomes soar 275 percent between 1979 and 2007, quadruple the 65 percent increase for the rest of the households in the nation’s top 20 percent.

And below that top 20 percent? After-tax incomes for America’s statistical middle class, the middle 60 percent of the nation’s income distribution, increased “just under 40 percent,” or a bit over 1 percent a year, barely enough to cover an average household's rising utility bills.

Households in the bottom 20 percent fared even worse. Their incomes, after adding in federal “transfers” like food stamps and subtracting federal taxes, increased only 18 percent over 28 years, less than 1 percent a year.

All this “uneven income growth,” the new CBO report notes, has left the United States with a “substantially more unequal” distribution of income.

The new CBO numbers tell the same inequality story, no matter how you cut the data. Every category of income — from wages and salaries to dividends and capital gains — tilted more to the top 1 percent in 2007 than in 1979.

Has that tilting continued? The new Congressional Budget Office report doesn’t go beyond 2007. But all other signs, from CEO compensation to hedge fund manager pay rankings, point to even greater inequality today.

The latest sign comes courtesy of the Social Security Administration. SSA rsearchers reported earlier this month that half of America’s workers earned under $26,364 last year. The number of Americans making over $1 million, according to W-2 form payroll data, skyrocketed 18 percent.

The Rich Keep Getting Richer: Pro-Occupy TV Appearance (Alonya Show)

Richard Eskow — Thu, 27 Oct 2011 16:32:14 -0400

Here's the clip of a conversation we had yesterday on The Alonya Show about the new CBO report, which provides even more data on the explosion of wealth at the very top of the scale, the injustices driving Occupy Wall Street, and where we go from here.

After Alonya sets up the discussion by providing the figures, we start talking at about 1:00 minutes in (if it's not displaying properly below you can see it here):

Today's Big Idea To Get America Working: Invest In Public Education

Jeff Bryant — Wed, 17 Aug 2011 22:04:41 -0400

I don't think anyone has ever even tried to make the argument that education and jobs are not in any way linked. But the economic argument for education is not well understood even by those -- politicians especially -- who are most apt to make the connection. So before we demand that political and civic leaders at all levels turn around our troubled economy by increasing investment in public education, we need to get the framing right.

You Can't Blame The Bad Economy On Education

A truly specious argument about education and its relationship to the economy is that economic failures are "caused" by inadequate public schools. Both conservatives and "liberals" are often guilty of making this charge.

The tendency to do this goes way back, as the late Gerald Bracey explained:

In 1983, then secretary of education, Terrel Bell, put forth "A Nation At Risk." It said we had sort of lost our way in education. Finding "a rising tide of mediocrity" in the U. S., it painted Germany, South Korea and, especially, Japan, as countries that were leaving us in the economic dust. "A Nation At Risk" and media stories portrayed Japan as an economic colossus astride the globe. The reason? Its students scored high on tests. High test scores equals terrific economy. But around 1990, Japan's bubble burst and its economy sank into the Pacific . . . A few years after "A Nation At Risk" scared people, the United States began the longest sustained economic expansion in its history.

So the correlation of economic output to education quality wasn't hard-and-fast then, and it's not now. Again Bracey reminded us one more time before his passing, "Looking at tests, high-scoring Iceland is an economic basket case. High-scoring France is on strike. And even higher-scoring Japan in 2007 was in recession once again. Japan's students still ace tests."

You Can Blame Education Cuts For The Bad Economy

But conversely, cutting education is a sure-fire way to hurt the economy. According to a economic study conducted by the National Education Association, "K-12 Education In The U.S. Economy" (pdf), "cutting state support for public primary and secondary education imposes economic development costs that are very often greater than those that come from raising additional revenue." For instance:

Cutting statewide public K-12 expenditure by $1 per $1,000 state’s personal income: (1) reduces the state’s personal income by about 0.3 percent in short run and 3.2 percent in long run, (2) reduces the state’s manufacturing investment in the long run by 0.9 percent and manufacturing employment by 0.4 percent.
Cutting statewide public K-12 education per student by $1 reduces small business starts by 0.4 percent in the long run.
Cutting statewide public K-12 expenditure by one percentage point of the state’s personal income reduces the state’s employment by 0.7 percent in the short run and 1.4 percent in the long run.
A 10 percent reduction in various standardized test scores yields between a 2 percent and a 10 percent reduction in aggregate home values in the long run.
A 10 percent reduction in school expenditures could yield a to 2 percent decrease in post-school annual earnings in the long run.
A 10 percent increase in the student–teacher ratio leads to a 1 to 2 percent decrease in high school graduation rates and to a decrease in standardized test scores.

In post-secondary education as well, keeping investment in local community colleges is likely to produce better economic output in the long run. According to a fact sheet available at the website of the American Association of Community Colleges (pdf), state and local governments reap a 16 percent return on every dollar they invest in community colleges due to the increased earnings of community college graduates.

Community colleges are key to many of the jobs that our communities need to stay viable. From the same AACC fact sheet:

Close to 80 percent of firefighters, law enforcement officers, and EMTs are credentialed at community colleges.
20-40 percent of the nation’s teachers began their education at community colleges.
44 percent of students who receive baccalaureates or master’s degrees in STEM (science, technology, engineering, mathematics) fields attended a community college at some point in their careers.
52 percent of new nurses and the majority of other new healthcare workers are educated at community colleges.

Public Education Is An Engine For Economic Equality

Cutting spending on public education not only hurts the economy, it especially hurts those at the bottom rungs of the economy the most. That's because education is what opens up opportunities for those on the bottom rungs to learn their way up into higher earning jobs. Turning to another recent NEA study,The Effects of State Public K-12 Education Expenditures On Income Distribution (pdf), spending on public education tends to reduce income inequality, and it tends to do so mostly by raising up those who are at the lowest level of the ladder:

1. Spending on public education tends to decrease income inequality. This is even true when there are "adjustments made for other factors affecting income inequality."
2. Spending on public education decreases income inequality mostly by "contributing more to lower incomes than to higher incomes."
3. Public education expenditures also contribute to reductions in poverty rates. This is, of course, consistent with the finding that "increased public education expenditures decrease income inequality by increasing lower incomes."
4. "Greater income equality, increased lower incomes, and reduced poverty rates all lead to other non-economic social benefits, such as reduced crime rates and improvements in the quality of life." More specifically, "states with greater expenditures on public education seemed to have fewer incidences of property crime."

Spending More On Public Education Can Improve Education

Even the NEA, in one of the above reports, grants that "increased funding alone" does not always raise economic output. Nor does it necessarily guarantee an improvement in the quality of K-12 public education. But from a popular perspective, spending more on public education is not a hard argument to sell to the people.

People like their local schools. Every year, the academic society Phi Delta Kappa and Gallup ask the populace if they like their local schools, and every year -- the most recent publicized just today in USA Today -- nearly 80 percent say yes. Furthermore, these people also tend to trust teachers. They think teachers should make more money. And they resoundingly agree (65 percent) that public schools should get more money.

So let's not pretend that the popular will to steer more tax dollars to public education doesn't exist. Instead, what's behind school cuts and resistance to increased funding are conservatives, of course, who have vowed to cut everything (except the military and subsidies for big business), and "experts," such as Bill Gates who don’t think public schools are a good investment.

A big complaint of Gates and his crowd is that "the per-student cost of running our K-12 schools has more than doubled, while our student achievement has remained virtually flat." But as Richard Rothstein explains, Gates gets it wrong on both accounts. First, although K-12 per pupil spending has about doubled over the last four decades, "less than half of this new money has gone to regular education," and "the biggest single recipient of new money has been special education for children with disabilities," which climbed from less than 4 percent of all K-12 spending to consume 21 percent.

Furthermore, Gates' contention that "we've got nothing to show for it" isn't true either. Again, Rothstein corrects: On the National Assessment of Educational Progress (NAEP), "American students have improved substantially, in some cases phenomenally. In general, the improvements have been greatest for African-American students, and among these, for the most disadvantaged."

The fact is, the trail of evidence of a link of increased education outlays to improved education results is actually pretty lengthy and significant. As school finance expert Bruce Baker recounts time after time in his blog, there are "a multitude of rigorous empirical studies" that show that increased funding -- and more equitable distribution of funding -- produce real improvements in state test scores, post-secondary education enrollment, and narrowing of the achievement gap.

Education Is More Than A Jobs Program

As Chinese educator, now living in America, Yong Zhao points out, the USA continues to be the most economically competitive country in the world. We continue to be the most innovative, as measured by patents issued. And we're still, arguably, the most open and democratic. No other country comes close to the U.S. when it comes to exports of intellectual property and knowledge as evidenced by patents, royalties, copyrights, and license fees. The U.S. has by far the most Nobel Laureates. If the U.S. educational system is so bad, why are other countries (like China) trying to emulate us?

Where we've gone wrong is that many of our communities are being left out of the opportunity afforded by universal public education. So the goal is not to retreat. It is to expand. However, education is not a "jobs program." It's actually much more important than that.

Even though there's ample evidence that funding public education increases the job prospects of all Americans in the short term and preserves the viability of the American economy much further into the future, the greater goal cannot be measured in economic terms alone. Children and youth need to be educated in how to be self reliant and in how to know what to do when they don't know the answers to questions and problems. That's a bigger goal than "jobs."

But de-funding our public schools and narrowing education achievement to scores on standardized tests is taking us in a direction that will in fact leave our country out of the global economy.

It's not too late to course-correct. The federal government must insist that states and cities invest in creating the finest public education in the world, from universal preschool, to modernized public schools, to advanced training and affordable college. When cash-strapped states and municipalities can't sustain investment in schools, revenue sharing from federal sources should continue to make up funding shortages. And the federal government must continue its traditional role -- established by Brown vs. Board of Education and the establishment of the Elementary and Secondary Education Act -- of intervening when states flagrantly impose inequitable and undemocratic distribution of funds for public education .

Blaming The Economy's Victims For Economic Crimes

Dave Johnson — Tue, 21 Dec 2010 18:33:52 -0500

Blame the unions, blame the unemployed, blame loans to the poor, blame the government... As income and wealth increasingly go to a few at the top public anger is directed at the economy's victims.

I am in a clinic all day participating in a medical study, so I was talking to one of the nurses. She brought up that California is in real trouble, is going broke, it’s a real mess. She says she doesn't know what we’re going to do. She has heard that, "lots of states are going bankrupt. There is no money anymore."

So I asked her what we should do about it.

She said it is because of the unions. “It’s just ridiculous. They want so much.”

I asked if she follows the news closely, she said she does. “I watch the news a lot.”

Some facts: California is famous for leading the country in a wave of anti-government tax-cutting and into Reaganism. We cut taxes an an anti-government ferver and increased prison spending in a law-and-order fever. Then the federal government cut taxes and increased military spending, leading to big deficits. Now we’re out of money to run the state government and the country is getting there, too. California’s problems have little or nothing to do with what state employees are paid, and a lot to do with tax cuts and people across the state not getting paid enough.

Blaming The Unions

This weekend CBS' 60 Minutes joined the anti-worker chorus, blaming public employee unions for the problems faced by the states. Media Matters, in 60 Minutes' one-sided, GOP-friendly report on state budgets describes the segment,

In 2,600 words about state deficits, you won't find the phrase "tax cuts." Instead, CBS adopts the Republican framing that deficits are all about spending -- frequently with loaded phrasing like "gold-plated retirement and health care packages." And throughout the report, CBS allows Christie, New Jersey's Republican governor, to launch attacks on unions and make unsupported claims about budget problems, all without ever challenging his assertions and without including substantive disagreement from Christie critics.

... You'd never know from CBS' report that a big part of the reason that "Christie and his predecessors" failed to make required contributions to the pension fund is that they decided to use the money for tax cuts instead. [emphasis added]

Mike Hall at the AFL-CIO blog explains that New Jersey's workers and pensions are not the problem,

While politicians like Christie rail against the pensions public employees have secured through collective bargaining—painting them as overly generous golden parachutes, McEntee notes the average annual pension for an AFSCME member is $19,000, and the workers contribute 80 percent during their lifetime on the job.

Tax cuts, income and wealth going to a few at the top, but the unions take the blame because they fight for a better life for working people.

Blaming The Unemployed

The unemployed and the checks they get are often blamed for their plight. They are called "lazy," and it is even suggested the be tested for drugs. CAF graduate David Sirota, in Why the ‘Lazy Jobless’ Myth Persists

The thesis undergirding all the rhetoric was summed up by conservative commentator Ben Stein, who insisted that “the people who have been laid off and cannot find work are generally people with poor work habits and poor personalities.”

[. . .] The trouble, though, is that the whole narrative averts our focus from the job-killing trade, tax-cut and budget policies that are really responsible for destroying the economy. And this narrative, mind you, is not some run-of-the-mill distraction. The myth of the lazy unemployed is what duck-and-cover exercises and backyard nuclear shelters were to a past era—an alluring palliative that manufactures false comfort in the face of unthinkable disaster.

Blaming The Poor And Government

Republicans on the Financial Crisis Inquiry Commission are sabotaging the commission's work, demanding that "Wall Street" and "deregulation" not appear anywhere in the report. They are refusing to participate, instead releasing a counter-report blaming the government, claiming We, the People forced the giant banks to give home loans to the poor, and blaming the poor for receiving those loans.

What People Think

People tend to think about what is put in front of them to think about. That's why everyone goes to see a new movie on the first weekend instead of waiting until they can get good seats with no lines. Wall Street and the likes of the Chamber of Commerce understand this so they put scapegoats in front of the public to mask what they are doing. Right now there is a corporate/right campaign to blame working people for the problems they caused.

Like 60 Minutes this weekend, the news sources are run by big corporations, and they have been saying over and over (and over and over) that unions and the unemployed and the poor and the government are the cause of the problems. (When was the last time you saw a union representative on TV, explaining the benefits of joining a union?) And, naturally, after hearing these things over and over (and over and over), viewers like the nurse at the clinic I am in think they should blame the unions, the unemployed, the poor, the government, too.

So much of the income and wealth are concentrating at the top. Taxes have been cut so far. The things our government does for us have been cut back so far. Working people's wages have been stagnant for so long.

But the blame right now is directed at the unions, the poor, the unemployed and our government: We, the People.

As the AFL-CIO blog concludes,

The long term solution to state and local fiscal challenges ... is “a robust economy, one that is creating jobs and replenishing tax revenue.”

To repeat: The long term solution to state and local fiscal challenges ... is “a robust economy, one that is creating jobs and replenishing tax revenue.”

Mourning in America: Death of the Middle Class

Leo Gerard — Tue, 16 Nov 2010 13:58:25 -0500

The deficit commission report issued last week is another Saturday night special pressed to the temple of the American middle class.

“Turn over your money and your benefits or your country will die,” the report screams at workers. “You want your country to go bankrupt? No? Then you gotta delay retirement, get less from Social Security, pay more for health insurance and lose your precious few income tax breaks like the one that helps pay your mortgage while the banker is breathing down your neck right now.”

For 30 years, rich conservatives have successfully threatened the American middle class this way, ever since that rich conservative Ronald Reagan converted the White House into a castle.

The result is a country with greater income inequality than during the age of corporate robber barons at the turn of the 20^th century. It is a country whose 21^st century robber barons, the richest 1 percent of Americans, take nearly a quarter of all income and demand that politicians relieve them of their obligations. The rich -- hedge fund owners who rake in billions, Wall Street banksters handed bonuses in the millions, CEOs paid eight-figure golden parachutes after they mess up -- insist that politicians place government debt burdens on the middle class, the unemployed, the elderly, the struggling young, people whose income has stagnated for three decades.

The co-chairmen of the deficit commission complied with that mandate from the flush when they recommended the middle class bear the brunt of the cost of reducing the deficit. Simultaneously, conservatives in Congress are acquiescing by insisting on extending tax breaks for the nation’s wealthiest. Those are the very tax breaks that contributed dramatically to creating the debt – the one that the deficit commission now wants heaped on workers’ backs.

This will be the death of the nation’s strength -- its successful working class. Without the slightest regret or hesitation, the rich are killing the great American middle, rendering it a casualty of their shirked social responsibilities. Their campaign has been abetted by Republicans since Ronald Reagan. The Gipper contended slashing taxes for the wealthy would increase revenues for the government. Republican George H. W. Bush rightly ridiculed Reaganomics as voodoo.

In the GOP years between the beginning of Reagan in 1981 and the end of Bush II in 2009, the federal deficit exploded as Republican presidents failed to control spending and repeatedly cut taxes for the rich.

Reagan reduced the rate on the richest first down to 50 percent, then to 28 percent. The resulting budget deficit converted the U.S. from the world’s largest international creditor to its largest debtor. And now, the deficit commission sends the bulk of the bill for voodoo economics to the middle class, not the rich.

While Reagan gave the rich those breaks, income inequality increased. The share of total income taken by the richest 5 percent grew from 16.5 percent the year before he took office to 18.3 percent the year before he left. In that same time, the share of total income that went to the poorest 20 percent of households fell from 4.2 to 3.8 percent.

Democrat Bill Clinton fulfilled a campaign promise by increasing taxes on the rich -- to a 39.6 percent marginal rate. He balanced the federal budget and left Bush II with a surplus.

Then Bush II squandered it. He gave the rich more tax breaks, accumulated debts larger than all those created by previous presidents combined and worsened income inequality. During his administration, from 2002 to 2007, the pretax income of the richest 1 percent increased 10 percent every year. Over that same period, the median income for working Americans declined and the poverty rate rose.

From Reagan through Bush II, more than four-fifths of the total increase in U.S. income went to the richest 1 percent. Hedge fund owners, whose income is literally in the billions, pay income taxes at 15 percent – lower than the rate paid by their secretaries, who earn far less in a year than any of the top 10 hedgers do in half an hour.

Wall Street recklessness crashed the U.S. economy, throwing millions of middle income earners out of their jobs and their homes. The banksters went to Washington and got politicians to hand them bailout billions, and now those Wall Streeters plan to increase their bonuses -- while unemployment remains stuck at 9.6 percent in the Main Street economy.

It is those guys, bankers grabbing year end bonuses totaling two and three times what middle class earners get for a year’s labor; it is the five-home wealthy demanding that the foreclosed-on middle class suffer for the deficit. The rich, who have received the greatest benefits from this society, have no intention of paying their share of this national responsibility.

The deficit, the Social Security shortfall, difficulties with Medicare – they could all be solved if the nation returned to taxing policies that existed under Republican President Gen. Dwight D. Eisenhower, when the rate on top earners was 91 percent. That was not even the high point. In the mid-1940s it was 94 percent. Generally it fluctuated between 81 percent in 1940 and 70 percent when Reagan began slashing it in 1981.

Those rates may sound confiscatory now, but it’s not like the rich actually paid them after they subtracted out all of their exemptions, deductions, loopholes, special deals, tricks and wiles.

The dozen years in the 1950s and 1960s when the rate on the richest officially was 91 percent is a time considered by many Americans to be among the nation’s greatest for the middle class, a period when American workers could afford to buy homes, send their kids to college and travel across American on vacation.

There’s no talk of that now. Raising taxes on the rich now is considered ludicrous. Ridiculous. The whole Social Security shortfall could be solved if the rich paid taxes on their entire incomes, not just the first $110,000, a break that means the wealthy pay a smaller percentage if their income toward Social Security than the impoverished. But the deficit commission didn’t propose that.

No, the rich have succeeded in eliminating as a possibility their paying an increased tax share. Now, the only consideration is cutting their taxes. They didn’t hold an actual Saturday night special to anyone’s head. The rich are snake oil salesmen slick, Bernie Madoff-style schemers. They sold voodoo economics to America, and now they’re intent on making the middle class pay for what that policy has wrought in deficits.

Reagan’s re-election ad was wrong. He didn’t institute “Morning in America.” It was mourning for the once great American middle class.

One Decade Down, One Decade Wasted

Sam Pizzigati — Sun, 19 Sep 2010 11:54:32 -0400

The 21st century has opened with a decade that has seen the vast majority of Americans go backwards economically. Just-released Census stats tell that tale — but not the whole income story.

The U.S. Census Bureau last week closed the book on the first decade of the 21st century. We now know, after Thursday’s release of Census survey data for 2009, exactly how Americans fared over the decade that began on January 1, 2000.

Average Americans, the new annual Census data make plain, didn’t fare particularly well — even before the Great Recession.

The middle fifth of America's households opened the decade averaging $52,547, after adjusting for inflation. In 2007, just before America’s economic meltdown, this middle fifth of households averaged $51,691. Last year, after two years of Great Recession, that middle class average stood at just $49,534.

Our new century has begun, as Harvard economist Lawrence Katz noted after the new Census figures appeared, with a “decade of decline.”

And this decade of decline comes after a generation of income stagnation. America's average incomes rose consistently in the decades right after World War II. But those crisp increases ended in the 1970s. Between 1969 and 1999, the Census data show, incomes of households in America’s middle fifth increased by an average of only $315 a year, less than 1 percent annually after inflation.

Incomes at the top have fared considerably better. America’s most affluent 5 percent, the new Census data document, have seen their incomes rise by 81 percent after inflation since 1969.

These official Census numbers actually understate just how well America’s most affluent have been doing — and significantly so.

Reason one: The Census income totals include all the revenue streams that flow into average American households, everything from paycheck earnings and pension income to disability benefits and Social Security. But the Census doesn’t tally any income that households make from selling stocks and other assets.

These capital gains, according to analyses of IRS data, made up 14 percent of top 5 percent income in 2008, the latest year with numbers available. At America’s economic summit, capital gains count for even more.

In 2008, these capital gains made up 26 percent of the income that went to America’s most affluent 1 percent, 34 percent of the income for the top tenth of 1 percent, and 45 percent of the income for the top hundredth of 1 percent, taxpayers who averaged $27.3 million. None of this capital gains income shows up in the Census figures released last week.

The second reason why the Census figures understate the income of America's most affluent: Census researchers, to protect privacy, “top code” their data. That is, above certain levels, they stop counting income. Income from an employer carries a $1.1 million Census top code. The income of a CEO who makes $10 million goes down on the Census tally sheet as $1.1 million.

The result? We know from the Census figures how many Americans make between $50,000 and $60,000. But we don't know how many make between $50 million and $60 million.

Census officials, to their credit, do highlight the growing inequality in the data they do collect. They compare, for instance, income at America’s 10th percentile — “the income level at which 10 percent of the households have income below it” — and income at the nation’s 90th percentile.

Between 1967 and 2009, Census analyst David Johnson observed last week, “income at the 90th percentile increased by 63.0 percent, about twice as much as the 32.4 percent increase for income at the 10th percentile.”

And the Census researchers, also to their credit, collect data on more than just raw incomes. The report they released last week gives a sense of how the Great Recession is changing how Americans live. More families, the Census Bureau informs us, are doubling up on their living arrangements.

Over the last two years, the number of households in the United States has grown by only 0.6 percent. The number of households with multiple families in them, by contrast, has jumped by 11.6 percent. And 13.4 percent of adults aged 25 to 34 are now living with their parents.

But the most troubling figure in the massive new Census data flow lies elsewhere: Over 20 percent of America’s children under age 18 now live in poverty.

Why Bad Things Happen to Unequal People

Sam Pizzigati — Tue, 06 Jul 2010 10:13:24 -0400

Just in: new data on our staggering income gap. Just emerging: a better understanding why such gaps make economic calamities inevitable.

Years ago, in the mid 20th century, no one in the United States spent much time talking about rising income inequality, for the simple reason that inequality wasn’t rising. But that all began to change in the 1970s, and, by the mid 1980s, independent economists were sounding a rising income inequality alarm.

Conservative analysts, almost ever since, have been advising us to pay that alarm no attention. Anyone who takes the time to take into account all the government benefits that poorer households receive, these analysts have argued, would see we have no inequality problem worth worrying about.

Researchers at the Congressional Budget Office, over recent years, have actually been doing exactly what apologists for our unequal economic order have advised. In their ongoing income calculations, these researchers have been taking government benefits into account, everything from Medicaid to food stamps.

The CBO researchers, to understand how much income U.S. households have at their disposal, have also been factoring into their data a variety of other income intake and outgo streams — the value of employer-provided health insurance, for instance, and the dollars households pay in federal taxes.

The CBO researchers now have comprehensive annual income data sets that go back to 1979. Last month, they updated their data with figures from 2007. The main take-away from the new numbers: We most definitely do have an inequality problem worth worrying about.

Since 1979, the latest CBO stats show, America’s most affluent 1 percent of households have more than doubled their share of the nation’s after-tax income, to 17.1 percent. The actual average after-tax incomes of the top 1 percent have, over that same span, nearly quadrupled after taking inflation into account, from $346,600 in 1979 to $1,319,700 in 2007.

The new CBO's data most remarkable contrast of all: In 1979, America’s statistical middle class — that is, the 20 percent of households in the exact middle of the nation’s income distribution — took home well over twice as much income, after taxes, as the households in the top 1 percent.

In 2007, our top 1 percent took home after taxes, as a new Center on Budget and Policy Priorities analysis notes, more than the entire statistical middle class.

IRS stats, as crunched by economist Emmanuel Saez, let us track the U.S. income distribution picture back even further in time, to the World War I era. These numbers put the new CBO stats in an even more striking perspective.

In 2007, the data indicate, America’s top 1 percent took in their highest share of the nation’s income since 1928, the year before the epic 1929 Wall Street crash sent the nation spinning into Great Depression.

The year after 2007, we might want to keep in mind, saw a Wall Street crash that sent the nation spinning into Great Recession.

Notice any pattern here?

In 1928, we have a ridiculously high concentration of wealth at the nation’s economic summit. One year later, economic meltdown. In 2007, another ridiculously high concentration of wealth. One year later, another meltdown.

Coincidence? Or direct cause and effect? Or, to put the matter more broadly, does intense income inequality trigger economic calamity?

High-profile economists and journalists are starting to ask that question. Last week brought intriguing attempts at an answer from Nobel Prize-winning economist Paul Krugman and the Washington Post economic analyst Ezra Klein.

Krugman began his discussion by acknowledging that, before 2008, he saw no “clear reason why high inequality should lead to macroeconomic crisis.” Now he sees plenty of potential links.

One might be political. The same political tilt to the right that ends up slashing taxes on the rich — and concentrating income at the top — also minimizes government regulation of the financial sector and ends up leaving economies vulnerable to sudden breakdowns.

But the link may also be more classically economic. In an increasingly unequal society, with more and more wealth amassing in the pockets of a precious few rich, average consumers simply don’t have the means to make the purchases that can keep an economy humming. Economic collapse becomes inevitable.

Other economists, notes Krugman, see inequality’s reflection less in this underconsumption and more in overconsumption. Their argument: In an increasingly unequal society, the rich spend more because they have more. This rising spending by the rich raises a society's consumption bar.

With this bar rising, middle class families feel themselves under pressure to spend more, too — or else come across as unsuccessful. To do that spending, these average families find themselves saving less and borrowing more. A credit bubble builds and eventually pops. Crisis ensues.

The Washington Post’s Ezra Klein adds still another causal agent into the mix. In a deeply unequal society, he notes, rich people certainly do spend more. But even after spending more, they still have huge piles of cash that need investing.

And the more piles out there, Klein adds, the higher the demand for high-yield investment vehicles — and the higher the potential rewards “for people who can invent new investment vehicles with high yields.”

The result? Amid severe income inequality, says Klein, societies get “explosive innovations in weird financial instruments that look good for a while because the risk is underpriced but end up making the system more fragile when their risks come clear and everyone flees.”

So how, in the end, does inequality send economies crashing? Take your pick from these varied explanations. Or take them all. They all drive home the same basic message. We play with fire when we let income concentrate. Eventually, people who live in staggeringly unequal societies will always get burned.

Sam Pizzigati edits Too Much, the online newsletter on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Too Much appears weekly. Read the current issue or sign up to receive Too Much in your email inbox.

Danger: Falling Middle Class

Tula Connell — Fri, 05 Feb 2010 09:06:52 -0500

Jack Cafferty at CNN this week asked viewers one of his seemingly routine questions. But the responses to: "How has definition of 'middle-class American' changed?" reveal a cataclysmic shift in our nation's economic identity.

Gary from El Centro, Calif., summed up the vast majority of the nearly 200 responses when he replied:

You should ask this question of the three or four people in the country still remaining in the middle class.

The comments reflect more than the run-of-the-mill griping about taxes or middle-aged discontent. They demonstrate a visceral understanding of the deep forces underlying the dramatic change that in recent decades has eroded the solid financial footing of America's working families—America's middle class.

In short, the American public knows what most lawmakers in Washington and policymakers around the country have yet to figure out: The nation is losing its middle-class backbone and bifurcating into a have/have not country.

As Karen from Idaho Falls writes on Cafferty's site:

In my world, there is no middle class–only the very rich, the rich, the poor, and the very poor. Most of us are hanging on to being "poor" by our fingernails and hoping that we won't join the ever growing "very poor" class. Somewhere along the line, "middle class" disappeared.

The not-so-Great Recession is just the latest and loudest part of the long decline of the middle class. From the end of World War II to the early 1970s, wages grew along with productivity. But since then, wages have been stagnant or declining—while productivity skyrocketed. The decline in a family's earning power was offset by the entrance of vast numbers of women in the labor market—and then by wage-earners holding multiple jobs. By the late 1990s, debt—from second mortgages or credit cards—kept the middle class afloat. And now what is revealed is a middle class held together by nothing more than string.

One of the most consequential but least recognized aspects of the current economic disaster is the growing length of time workers are without jobs. In December, the average jobless worker had been unemployed for 29.1 weeks. In contrast, when the recession began in 2007, the average unemployed person had been out of work for 16.5 weeks.

At Economix blog, Catherine Rampell points out in an tellingly titled post, "A Growing Underclass," that the longer unemployed workers stay out of work, the less likely they may be to find work.

First, their skills may deteriorate or become obsolete—especially if they are in a dynamically changing industry like high technology.

Second, the stigma—both internal and external—of their unemployment grows. Studies have linked job loss to declines in self-worth and self-esteem, meaning these people will probably make less compelling job candidates.

So, even if there were jobs available—there are now more than six unemployed workers for every one job—getting one becomes harder and harder the longer you're out of work. Jobs are so few, in fact, even a weekly columnist at Forbes had this to say:

For many, many Americans there are no jobs and few prospects. For them the Great Recession is not a cute aphorism but a major cataclysm.

Long-term joblessness is one more nail in the middle class coffin. As Working-Class Perspectives describes it:

Unlike in past business cycles, the middle class has not been able to recover so far, despite increases in productivity and stock prices. In “America Without a Middle Class,” Elizabeth Warren documents how the de facto unemployment rate, credit debt, “underwater” mortgages, increased use of food stamps, personal bankruptcies, and the loss of pensions and health care have all dramatically increased. Middle-class households have depleted their savings and are increasingly accruing debt to pay for college, health care, and other expenses.

Some experts believe that the decline in jobs will only continue. For example, Alexandra Levit predicts significant losses in a number of key industries between 2008 and 2018: semiconductor manufacturing (33.7 percent), apparel manufacturing (57 percent), newspaper publishers (24.8 percent)….Corporations are moving many of these jobs offshore or replacing them with technology rather than paying middle-class wages and benefits. The economists are right that new jobs are being created in place of these. But as Jack Metzgar discussed last week, most of the new jobs offer even lower wages and benefits and require less education.

Jobs are offshored while the jobs that remain in the United States are low-wage, with little affordable health care or retirement options. Meanwhile, the smooth of face and soft of hand financial wizards who turn their noses up at the industrial manufacturing sector fail to realize that when the United States loses its ability to make things, it also loses the research and development power that fueled the nation to greatness. And it loses something a lot more. Louis Uchitelle interviews Sen. Sherrod Brown (D-Ohio) about the humiliation of building a new World Trade Center with no glass made in the United States:

“Imagine China,” he said in an interview, “building a huge structure intended to be an important national symbol and importing glass from the United States to build it. There is no way the Chinese would do that.”

And a low-wage job nation fuels income inequality. This from a stunning report by economist John Schmit at the Center for Economic and Policy Research:

From a peak just before the 1929 stock market crash through the early 1950s, wage and income inequality, broadly measured, were declining. From the early 1950s through the late 1970s, inequality was flat, or even falling slightly. Since the late 1970s, however, inequality has skyrocketed, climbing back to levels last seen in the 1920s. In 1979, for example, the top one percent of all U.S. taxpayers received about 8 percent of national income; by 2007, the top one percent received over 18 percent. If we include income from capital gains in the calculation, the increase in inequality is even sharper, with the top one percent capturing 10 percent of all income in 1979, but over 23 percent in 2007.

Back at Cafferty's site, Chad from Los Angeles knows why:

The middle class has turned into the "peasant class." We have been taken over by a few wealthy people who control our politicians and government. We have become an Aristocracy. Except the ones in control are not royalty, they are businessmen hiding behind a cloak of deception that is Corporate America.

In the short term, critical steps must be taken for immediate relief. The first is getting the Senate to extend unemployment insurance (UI) for the long-term unemployed. As usual, the House already has acted, extending UI in December, while senators dither. (Click here to tell your lawmakers it’s time to act.) Extending UI is part of the jobs initiative the AFL-CIO is pushing for immediate relief for jobless workers.

But before the current crisis fades, the nation must begin to reverse the more than 40-year trend in which the gap widens between rich and poor and the middle class falls out of the bottom.

Silas from Boston—a city not unfamiliar with fomenting revolutions—offers an intriguing insight:

We've allowed the "upper" class to become too big to fail. As a result, the middle class is an endangered species which has to bail out the class that got us into this mess to begin with. This is how the French Revolution started.

This is a cross-post from the Firedoglake blog.