US Income Inequality Continues to Grow

It is not your imagination that things seem worse than "before", especially if what you mean by before was your parents' prime years. While we continue to surround ourselves with Hi-Def televisions and a gajillion cable channels, iPods and iPhones, and a plump mortgage and think we are doing splendidly, the truth of the matter is that we are not. We are steadily losing buying power as compared to prior decades when adjusting for inflation. This article, originally published in the Madison, WI, Capitol Times on July 17, 2009, spells it out. Recent years were terrific if you were at the top of the heap.

During eight years of the Bush administration, the 400 richest Americans, who now own more than the bottom 150 million Americans, increased their net worth by $700 billion. In 2005, the top 1 percent claimed 22 percent of the national income, while the top 10 percent took half of the total income, the largest share since 1928.

Niiice. A different way to look at it is to compare the relationship of those earnings at the top with the average American paycheck. How did it play out for the rest of us? Not so well it turns out.

The highest incomes come from executive pay at top corporations. In 2007, the ratio of CEO pay to the average paycheck was 344 to 1, lower than the record 525 to 1 ratio set in 2001, but substantial.

This year's ratio is estimated to decrease to 317 to 1. In the '60s, '70s and '80s, the average ratio fluctuated between 30 and 40 to 1.

Great huh? For the 30 years prior to Reaganomics really kicking in, the big boss made about 30 times what you did. Is simple terms, if you made $10/hour, the head honcho made $300/hr. Then things changed and executive salaries took off. At the worst of the excess, the big boss was making $5,250/hour to your measly $10. And now that poor big boss's salary has dipped to merely $3,170/hour against your same old $10/hour. And all along We The People heard the same thing at salary review time: "Things are tight this year. We all have to suck it up and keep trying harder."

That disparity in salary also had a tremendous impact on net worth, the sum total of your cash and investments plus such things as your house (less outstanding mortgage).

In 1955, IRS records indicated the 400 richest people in the country were worth an average $12.6 million, adjusted for inflation.

In 2006, the 400 richest increased their average to $263 million, representing an epochal shift of wealth upward in the U.S.

During that same period, pensions largely disappeared and we were all encouraged to buy into the 401(k) scheme. Sure it has the potential to do well, though mine is not looking so great these days. Fortunately I do not need it today so I am merely set back, not destitute or forced come out of retirement (I am not retired!).

So what changed? Lots of things: Salaries, Tax rates, tax loopholes and shelters, Corporate taxes, health care costs, and the Story that was pitched to us.

In 1955, the richest tier paid an average 51.2 percent of their income in taxes under a progressive federal income tax that included loopholes. By 2006, the richest paid only 17.2 percent of their income in taxes. In 1955, the proportion of federal income from corporate taxes was 33 percent; by 2003, it decreased to 7.4 percent. Today, the top taxpayers pay the same percentage of their incomes in taxes as those making $50,000 to $75,000, although they doubled their share of total U.S. income.

Earlier I said that salaries for the likes of us stayed the same or even declined slightly. We now know that those at the top certainly did not have that problem! What was our reality?

Meanwhile, wages for most Americans didn't improve from 1979 to 1998, and the median male wage in 2000 was below the 1979 level, despite productivity increases of 44.5 percent. Between 2002 and 2004, inflation-adjusted median household income declined $1,669 a year. To make up for lost income, credit card debt soared 315 percent between 1989 and 2006, representing 138 percent of disposable income in 2007.

Remember all those pep talks at work about "working smarter, not harder", and "making do with less"? It seems like I heard that song routinely. Congratulations! We did it. We worked smarter and increased productivity. For our efforts, we were allotted meager raises that actually trailed behind inflation and ever-rising health care costs. In an effort to maintain that sense of class - where we fit in as the Middle Class - we blew up our credit card debt and ran steadily larger mortgages as a percentage of our income.

It is exactly this topic that made me call this blog Pitchforks and Torches. What are We going to do to curtail the exploitation occurring so systematically at the top? It seems our legislators are in the game just as deeply, and merely pander to Us rather than correct the imbalance. The game is rigged against us. We have too few votes with our puny stock holdings to change corporate direction. Our Senators and Congresspersons generally are not in the fight for us (there are exceptions). Do we have to unite for a collective demonstration of our power? It seems like it. But what? What will it take to make ENOUGH people wake up and get angry enough to actually do something to set things right?