It Didn’t End Well Last Time
Not since the Roaring Twenties have the rich been so much richer than everyone else. In 2005, the latest year for which figures are available, the top 1 percent of Americans — whose average income was $1.1 million a year — received 21.8 percent of the nation’s income, their largest share since 1929.
Over all, the top 10 percent of Americans — those making more than about $100,000 a year — collected 48.5 percent, also a share last seen before the Great Depression.
Those findings are no fluke. They follow a disturbing rise in income concentration in 2003, and a sharp increase in 2004. And the trend almost certainly continues, spurred now as then by the largess of top-tier compensation, and investment gains that also flow mainly to the top. For the bottom 90 percent of Americans who are left with half the pie, average income actually dipped in 2005. The group’s wages picked up in 2006, but not enough to make up for the lean years of this decade.
Sensing a political problem, administration officials from President Bush on down have begun acknowledging income inequality. But in their remarks, they invariably say it has been around for decades and is largely driven by technological change. Translation: “We didn’t cause it, and trying to do something about it would be silly.”
Let’s get a few things straight: First, the economic gains of the last few years have been exceptionally skewed. From the 1970s to the mid-1990s, the gap between rich and poor widened considerably, but produced nothing like today’s intense concentration of income at the very top. And from 1995 to 2000, the long trend toward inequality was interrupted by general prosperity. The richest Americans did best, propelled by stock market gains. But the lower rungs also advanced.
Second, government policies do matter. Part of the reason for the shared prosperity of the late 1990s was an increase in the minimum wage and a big expansion of the earned income tax credit. During the same period, a strong economy coupled with fiscal discipline — including tax increases, spending cuts and binding budget rules — conquered budget deficits and furthered job growth while providing a foundation for reasonably adequate social spending.
In contrast, the economic policies of the Bush years have failed to benefit most Americans. The tax cuts have overwhelmingly benefited the richest. As a result, the tax code does less to narrow the income gap now than it did as recently as 2000. At the same time, important social spending has been cut. That exacerbates disparities, because middle-class and poor Americans use government services more than affluent Americans.
The nation needs an administration that will offer solutions for the scourge of income inequality.