The Redistribution of Wealth in America

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Most Americans have no idea just how concentrated the wealth distribution in this country actually is. In spite of America being more than twice as wealthy as it was in 1980, the incomes for the majority of middle class Americans has stagnated and in some cases even lost ground. Adjusting for inflation, the average increase in hourly salary was equivalent to about 33 cents per hour…..over the last thirty years. The fact middle class workers have managed to show any gains what so ever is due almost entirely to increased work hours and women joining the work force. Meanwhile the economy has made remarkable gains, corporations are recording record profits, CEO salaries have continued to skyrocket and the stock market is at historic highs.

The explanation for this disconnect is that most of these gains have gone to the top 1% of Americans in the form of favorable tax legislation. From 1973-2005, during three decades of economic expansion and growth the average income in the 90% bracket was $33,000, by 2005 it had fallen to about $29,000.  This is a difference of about $4,000 per year. The decline is greater for those at the bottom. In 1980 their average income was $15,465, in 2005 it had fallen to about $14,150. Not a significant difference but it means making ends meet with $25 less on an income under $300 per week. All things being equal, if the economy had grown at the same rate without a redistribution of wealth, the average middle class income would be over $12,000 higher today. Contrast these numbers with the average after-tax income of the wealthiest one percent, which increased almost 260% from $337,000 in 1980 to more than $1.2 million in 2007. This group’s income more than tripled in the same 25 years.

The concern about taxes, CEO salaries, high income Americans and corporations paying too little in taxes typically ebbs and flows in the public discourse. Americans are accustomed to a progressive tax structure, the higher your income the higher your taxes.. The main difference today is that tax rates for Americas wealthiest are at historic lows and have continued to decline over the past thirty years. Beginning in 1929 and until Reagan in 1980 almost everyone in this country got richer. The Marginal tax rates for the rich were cut in 1981 under Reagan and the Republican “Contract with America” agenda and America started moving backward. The share belonging to the richest 1% went up by 5 % while the wealth at the bottom 40% showed an absolute decline by…..five percent.

It remains long accepted and firmly established fact the top 1% has been pulling further away economically than everyone else during the past thirty years. We could correct this by taxing the wealthiest 1% at the rates of 1980, or at the very least to Clinton era rates. However, the Republican cult-like addiction towards big tax cuts for those who utilize the carried interest provision which treats much of their extraordinary incomes as capital gains and subsequently lowers their rate to15% continues even though their share of wealth has grown faster in the previous decade than at any time in the last century. These individuals are not simply much richer today because their paychecks have risen…they are richer because government taxes them much less than it once did.

What this inequality and redistribution of income more closely resembles are countries like Brazil, Mexico and Russia. Similar factors these three countries have in common with the U.S. is they all have a rapidly growing number of billionaires, an expanding and nearly permanent poverty base and a middle class that that is under increasing stress and worse yet, all four of these countries have political influence that is wielded by a narrow, wealthy segment at the top, and ultimately run the risk of an oligarchy. This doesn’t suggest a broad change in the economy, just a broader distribution of the economy’s wealth. It’s not the well-worn conservative definition of America’s redistribution of wealth from the top down; the facts indicate redistribution from the bottom up. The bottom line is the rich are getting enormously richer, the vast majority are somewhat worse off and the bottom half, for all practical discussion-the poor, are being forced into permanent poverty by our economic policies over the past thirty years.

What this represents is an historic shift of wealth and for a country with our values; it also represents an historic failure.

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