2018 World Inequality Report: inequality in U.S. is a result of deliberate policy decisions (updated)

Christopher Ingraham at the Washington Post reports, U.S. lawmakers are redistributing income from the poor to the rich, according to massive new study:

Back in 1980, the bottom 50 percent of wage-earners in the United States earned about 21 percent of all income in the country — nearly twice as much as the share of income (11 percent) earned by the top 1 percent of Americans.

But today, according to a massive new study on global inequality, those numbers have nearly reversed: The bottom 50 percent take in only 13 percent of the income pie, while the top 1 percent grab over 20 percent of the country’s income.

Since 1980, in other words, the U.S. economy has transferred eight points of national income from the bottom 50 percent to the top 1 percent.

That trend is even more remarkable when you set it against comparable numbers for wealthy nations in Western Europe. There, the bottom 50 percent earn nearly 22 percent of the income in those economies, while the top 1 percent take in just over 12 percent of the money.

Screen Shot 2017-12-16 at 5.27.33 AM

The income situation in Western Europe today, in other words, is similar to how things were in the United States nearly 40 years ago.

The 2018 World Inequality Report, written by a team of leading international economists including Thomas Piketty of “Capital in the Twenty-First Century” fame, finds that the rise of income inequality in the United States is “largely due to massive educational inequalities, combined with a tax system that grew less progressive despite a surge in top labor compensation since the 1980s, and in top capital incomes in the 2000s.”

Since the 1970s the price of higher education has skyrocketed, putting the price of tuition out of reach for many low-income students. Over the same time, the tax code became more generous to the wealthiest Americans — the top marginal income-tax rate fell from 70 percent in 1980 to 39.6 percent in 2017, taxes on capital gains fell by more than half from the mid-1970s to the mid-2000s, and the estate tax has fallen as well.

Those changes have made it easier for high-income Americans to grab more and more of the income pie in any given year.

From 1980 to 2014, for instance, the bottom 20 percent of earners in the United States saw their after-tax income rise by just 4 percent, according to the World Inequality Report. By contrast, the top 10 percent saw their post-tax income more than double over the same period.

Screen Shot 2017-12-16 at 5.31.45 AM

Income gains at the tip of the distribution were even more extreme, with the top 1 percent nearly tripling their post-tax income and the top 0.001 percent realizing income gains of over 600 percent.

Western European countries, by contrast, took a different approach. “Continental Europe meanwhile saw a lesser decline in its tax progressivity,” according to the report, “while wage inequality was also moderated by educational and wage-setting policies that were relatively more favorable to low and middle-income groups.”

The income situation in Europe is a reminder that advanced economies don’t need to be set up this way and that the growing gulf between rich and poor in the United States is largely a result of deliberate policy decisions.

The tax bill under consideration in Congress is likely to drive these disparities even wider, via a massive corporate tax cut and further reductions in the estate tax and the income-tax rate for millionaires.

And then there were none  . . . Senator Bob Corker, who was the only Tea-Publican to vote against the Senate GOP tax bill, announced on Friday that he will vote for the final GOP tax bill. Et tu, Corker? Corker to support tax bill in boost to GOP.

The GOP tax bill in all likelihood is going to pass on a party-line vote: all Tea-Publicans in favor and all Democrats opposed.

The GOP exists for one purpose, and one purpose only: to serve the interests of corporations and wealthy plutocrats who are systematically turning our country into an authoritarian oligarchy. They do not represent the interests of working Americans, the retired, the disabled, or the poor — the 99%.

Now that the GOP’s wealthy plutocrat donors have their tax bill, next year they are coming for the spare change they have left in your pockets, i.e., America’s safety net: social security, Medicare and Medicaid.

The GOP tax bill already includes massive cuts to Medicaid, and if Congress does not vote to waive the PAYGO rules, the GOP tax bill will also trigger massive cuts to Medicare, and other social welfare programs. The GOP tax bill will also undermine the “Obamacare” health insurance system. It is all about taking wealth from average Americans and redistributing it upwards to the wealthy plutocrats at the top who seek to lord over us all in an authoritarian oligarchy.

Touching the third-rail of American politics, social security, will prove to be a heavier lift for the GOP. But as we are seeing with the GOP tax bill, they have the votes to do as they please, regardless of public opinion, because they do not serve your interests.

UPDATE: The New York Times editorializes, The Tax Bill That Inequality Created:

Most Americans know that the Republican tax bill will widen economic inequality by lavishing breaks on corporations and the wealthy while taking benefits away from the poor and the middle class. [A Middle-Class Tax Cut? Americans Aren’t Buying It.]What many may not realize is that growing inequality helped create the bill in the first place.

As a smaller and smaller group of people cornered an ever-larger share of the nation’s wealth, so too did they gain an ever-larger share of political power. They became, in effect, kingmakers; the tax bill is a natural consequence of their long effort to bend American politics to serve their interests.

As things stand now, the top 1 percent of the population by wealth — the group that would primarily benefit from the tax bill — controls nearly 40 percent of the country’s wealth. The bottom 90 percent has just 27 percent, according to the economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman. Just three decades ago these numbers were almost exactly the reverse: The bottom 90 percent owned nearly 40 percent of all wealth. To find a time when such a tiny minority was so dominant, you have to go back to the Great Depression.

Screen Shot 2017-12-17 at 7.49.35 AM

As kingmakers, rich families have supported candidates who share their hostility to progressive taxation, welfare programs and government regulation of any kind. These big-money donors have pushed the Republican Party in particular further to the right by threatening well-funded primary challenges against anybody who doesn’t toe the line on tax cuts for the rich and other pro-aristocracy policies. The power of donors has contributed to political polarization and made the federal government less responsive to the needs of most voters, a new book by Benjamin Page of Northwestern University and Martin Gilens of Princeton University argues.

The power of the one-percenters may help explain why President Trump, who ran as a populist, has not only abandoned any pretense of fighting for the working class but also joined Republicans in Congress in ripping up regulations that protect families and the environment — in order to help business tycoons. Together, they’ve tried to repeal the Affordable Care Act. Its repeal would have deprived millions of people of health insurance while trimming taxes for high-income families. Now, they want to cut taxes on corporations and offer new loopholes to the rich, even if that means hurting their own constituents by limiting the ability of middle-class families to deduct state and local taxes on their tax returns.

Most political campaigns now rely on a small group of wealthy donors who give tens of thousands of dollars or more per election cycle. About 40 percent of contributions to campaigns during the 2016 federal election came from an elite group of 24,949 donors, equivalent to 0.01 percent of the adult population. In 1980, the top 0.01 percent accounted for only 15 percent of all contributions, according to an analysis by Adam Bonica, a Stanford professor, and his collaborators.

Screen Shot 2017-12-17 at 7.58.03 AM

Of course, the growing importance of wealthy donors is not exclusively a Republican phenomenon. Democratic candidates have also benefited from the largess of wealthy donors like George Soros, Tom Steyer and James Simons. But on economic and tax issues, big-money liberal donors have not really shoved their party to the far left. Donations from Wall Street and corporate America have, in fact, pushed many Democrats to the center or even to the right on issues like financial regulation, international trade, antitrust policy and welfare reform.

Further, liberal donors have been nowhere near as skillful at coordinating their giving as conservative donors have been. No liberal organization comes close to rivaling the network of donors and political activists created by the conservative Koch brothers, says Theda Skocpol, a professor at Harvard, who has written extensively about these issues. The Koch network has spent years methodically pushing state and federal lawmakers to cut regulations, taxes and government programs for the poor and the middle class. The leading donor network on the left, the Democracy Alliance, is smaller and much less successful.

Even allowing for money “wasted” on losing candidates and failed causes, the donor class has notched many impressive wins. Tax rates have fallen substantially, with the top marginal income tax rate now just below 40 percent, from 70 percent when Ronald Reagan won the presidency. The top corporate tax rate has dropped to 35 percent, from 46 percent in 1980, and many businesses pay an effective rate that is much lower than that. While supply-side economics remain mostly a Republican fiction, politicians from both parties have supported the effort to reduce taxes on capital — profits, capital gains and dividends — on the grounds that this would spur investment and make American businesses more competitive.

Screen Shot 2017-12-17 at 8.02.52 AM

But the cuts have done little to bolster the economy or the working class. In fact, incomes have stagnated, and workers have been forced to part with a larger share of their pretax earnings in the form of payroll taxes.

Meanwhile, where are the political champions of poor Americans? Whoever they are, they haven’t been producing results. Wages for the poorest have languished, partly because Congress has been so slow to raise the minimum wage — $7.25 an hour since 2009 — that its purchasing power is now about 10 percent less than it was in 1968. Lawmakers and conservative judges have also undermined workers by making it harder for them to unionize, so they are not in a position to demand better pay and better working conditions.

Cartoon_34This tax bill would exacerbate all these trends. The Urban-Brookings Tax Policy Center and the Joint Committee on Taxation, both respected, both nonideological, say the bill would primarily benefit the wealthy and would leave most poor and middle-class Americans worse off over the long run. That’s without Congress doing anything else to widen the gap. But even now, Mr. Trump and Republicans in Congress are talking about cutting government programs like Medicare, Medicaid and Social Security next year to help make up for the more than $1 trillion the tax bill would add to the federal deficit.

Inequality in America does not have to be self-perpetuating. When people turn up at the polls, as they did recently in Alabama, they can produce unexpected results. That’s why Republican lawmakers might want to think again about whether they want to be the means through which their wealthy donors pull off this heist.

Our nation’s Founding Fathers rejected the old European status of a privileged aristocracy of inherited wealth. This is what the GOP has now given us over the past 40 years with their “trickle down” tax policies.

9 thoughts on “2018 World Inequality Report: inequality in U.S. is a result of deliberate policy decisions (updated)”

  1. Income equality is exaggerated by not including government welfare payments (AKA entitlements) into the equation. After all, that is also income.

    • Let’s see, some guy making minimum wage (I’ll use $15 an hour) makes $30,000 a year and suppose it gets supplemented by $20,000 of “government welfare”—now he’s at $50,000. Another guy makes $500,000 but gets no “government welfare”. If you leave out the welfare the first guy makes 6% of the second guy—put in the welfare and the first guy jumps all the way to 10% of the second. Yes, the income gap has narrowed—the equation has been adjusted—but do you really think that makes any difference? The income gap is huge in both cases. Also the wealth gap is probably even worse; the second guy can certainly save much more so that over several years he is even further ahead.

  2. tax the rich feed the poor tax the rich till they aint rich no more! 90% tax bracket worked well for america. jfk started cutting taxes on the rich and we have gone down hill since. value added tax for imports like europe does with our exports.

  3. What kind of Democracy do we want?
    What does ‘general welfare’ in our preamble mean to our Legislators?
    “We the people of the United States, in order to form a more perfect union, establish justice, insure domestic tranquility, provide for the common defense, promote the general welfare, and secure the blessings of liberty to ourselves and our posterity….”
    …41,000,000 Americans living in dire poverty.

    • The latest Supreme Court rulings say that the general welfare is whatever Congress says it is. So if Trump’s tax plan passes, it promotes the general welfare.

      • Which rulings? When were the rulings made? What is the exact language in the rulings that support your assertion?

        • I should have gone to law school. Takes me a paragraph to point out that Kavanagh doesn’t think things through, while you do it with one sentence.

Comments are closed.