U.S. Wealth Gap Grows During ‘Lost Decade’ For Middle Class

    September 12, 2012
    Sean Patterson
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The Economic Policy Institute (EPI), a non-profit think tank focusing on the needs of middle- and low-income workers, this week released a new report that shows the U.S. Wealth Gap has continued to grow over the past decade. It also calls the first 10 years of the 21st century a “lost decade” for middle class Americans. A summary of the report can be seen in the slideshow below.

By “lost decade,” the report means that real median income for working-age families has dropped to $63,000 in 2010, down from $69,233 in 2000. This is during the same time period in which overall economic productivity has continued to rise steadily. The report warns of another lost decade, if unemployment continues to stay at high levels.

As for wealth disparity, the report shows that real annual household income for the top 1% in income has risen 240% since 1979, and has skyrocketed the past decade. For the bottom 20% in income, their real annual household income has risen only 11% since 1979.

When it comes to real annual household capital income, the top 1% have increased their take by 309% since 1979, while the bottom 60% bring in less real annual household capital income than they did in 1979. An interesting graph in the report shows why 1979 is used as a cut-off. From 1947 to1979, the income rate for all income groups rose fairly evenly. From 1979 to 2007, the average family income growth rate for the top 5% income group rose 2%, while the bottom fifth income group had no family income growth rate change.

The report blames the growing disparity on a number of factors. EPI shows that CEO and executive compensation have grown dramatically since around 1985, while effective tax rates on those with the highest incomes have dropped dramatically since around 1970. As for the middle class, the report shows that wages, including minimum wage, have stagnated over the past four decades. It blames this stagnation partly on a drop in union coverage, and partly on growing trade with less-developed nations.

  • http://www.TaxNetWealth.com Eugene Patrick Devany

    The Poor and Middle Class Should Not Take it Anymore!

    The more conservative senators voted against the $205 billion tax extender package consisting of tax loopholes for the rich and powerful (who know how to lobby Congress). While the package may be small in comparison to the total $1.3 trillion in annual tax expenditures it may be useful to compare this with the total net wealth held by the bottom 50% of the country.

    You may shocked to learn that the bottom half of the country have only $3 for every $10 they had in 1995 according to a July 2012 report from the Congressional Research Service. While the country prospered, all of the increase in wealth went to the top 10% due to tax loopholes that primarily helped the well to do. In 1995 the bottom 50% only owned 3.6% of the wealth. This dropped to 3.0% in 1998 and to 2.8% in 2001 and then to 2.5% in 2004. Things were really bad at the bottom and then the housing bubble and the Recession caused the wealth to plummet down to 1.1% of the net wealth in 2010. This means that half the country only has $584 billion in net wealth (in 2010 dollars).

    So along comes this Senate Committee with a routine tax extender bill approved on a bipartisan basis that wants to take 35% of the wealth owned by half the country, and just give it to the wind farms (so the nation gets wind energy a little sooner at a time when other new technologies make wind energy less urgent). Sure there are other industries that have their hand out, but the point is made that our tax code is a disgrace and the routine extension of any tax expenditure is morally wrong in light of the unintended transfer of wealth.

    There is no doubt in my mind that the tax code has caused both the Great Recession and the high unemployment and economic malaise that has followed. There is only one tax reform that will create jobs and restore the economy to sustainable growth without more taxes and government spending. It is called the 2-4-8 Tax Blend and it is worth a look on Wikipedia or at TaxNetWealth.com.

    Eugene Patrick Devany, JD, MPA