So far there are only tentative projections -- based on the price of housing and stock in July 2009 -- on the effects of the Great Recession on the wealth distribution. They suggest that average Americans have been hit much harder than wealthy Americans. Edward Wolff, the economist we draw upon the most in this document, concludes that there has been an "astounding" 36.1% drop in the wealth (marketable assets) of the median household since the peak of the housing bubble in 2007. By contrast, the wealth of the top 1% of households dropped by far less: just 11.1%. So as of April 2010, it looks like the wealth distribution is even more unequal than it was in 2007. (See Wolff, 2010 for more details.)
One final general point before turning to the specifics. People who have looked at this document in the past often asked whether progressive taxation reduces some of the income inequality that exists before taxes are paid. The answer: not by much, if we count all of the taxes that people pay, from sales taxes to property taxes to payroll taxes (in other words, not just income taxes). And the top 1% of income earners actually pay a smaller percentage of their incomes to taxes than the 9% just below them. These findings are discussed in detail near the end of this document.
Here is the picture in 2007, before the recession: Total Net Worth: top 1%: 34.6%. Next 19%: 50.5%. Bottom 80%: 15%.
Financial Wealth (This excludes the value of your home because realistically people don't sell their homes due to the fact that they need to live in them): Top 1%: 42.7%. Next 19%: 50.3%. Bottom 80%: 7%.
So this makes things pretty clear. Half the worth of the bottom 80% was locked into the value of their homes. Those home values have now been firebombed by the mainly housing based recession. As a result, the poor (which is 80% of the country) have been firebombed out of all of their savings. The rich, however, didn't suffer practically any losses. To make matters worse, our tax code is so complicated and devious that the top 1% are actually paying less as a percentage of their income in taxes than the next 9%. This cannot possibly be considered rational. Why are poor people expected to pay a larger percentage of their income in taxes than rich people? Why are poor people alone expected to take all the losses of a recession that was caused primarily by rich financial industry speculators?
The top 10% have 80% to 90% of stocks, bonds, trust funds, and business equity, and over 75% of non-home real estate. Since financial wealth is what counts as far as the control of income-producing assets, we can say that just 10% of the people own the United States of America.
Even more striking, they did not come close on the amount of wealth held by the bottom 40% of the population. It's a number I haven't even mentioned so far, and it's shocking: the lowest two quintiles hold just 0.3% of the wealth in the United States.
Here are some dramatic facts that sum up how the wealth distribution became even more concentrated between 1983 and 2004, in good part due to the tax cuts for the wealthy and the defeat of labor unions: Of all the new financial wealth created by the American economy in that 21-year-period, fully 42% of it went to the top 1%. A whopping 94% went to the top 20%, which of course means that the bottom 80% received only 6% of all the new financial wealth generated in the United States during the '80s, '90s, and early 2000s (Wolff, 2007).
If you don't like wealth as a measure of inequality, take income instead, this from 2006 (no doubt it's gotten even more lopsided since the recession):
Top 1%: 21.3%. Next 19%: 40.1%. Bottom 80%: 38.6%
Although overall income had grown by 27% since 1979, 33% of the gains went to the top 1%. Meanwhile, the bottom 60% were making less: about 95 cents for each dollar they made in 1979. The next 20% - those between the 60th and 80th rungs of the income ladder -- made $1.02 for each dollar they earned in 1979. Furthermore, Johnston concludes that only the top 5% made significant gains ($1.53 for each 1979 dollar). Most amazing of all, the top 0.1% -- that's one-tenth of one percent -- had more combined pre-tax income than the poorest 120 million people (Johnston, 2006).
Since almost 75% of the income for the top 400 comes from capital gains and dividends, it's not hard to see why tax cuts on income sources available to only a tiny percent of Americans mattered greatly for the high-earning few. Overall, the effective tax rate on high incomes fell by 7% during the Clinton presidency and 6% in the Bush era, so the top 400 had a tax rate of 20% or less in 2007, far lower than the marginal tax rate of 35% that the highest income earners (over $372,650) supposedly pay.
Specifically, the next 10% (about $100,000/year) pay 30.2% of their income as taxes; the next 5% ($141,000/year) dole out 31.2% of their earnings for taxes; and the next 4% ($245,000/year) pay 31.6% to taxes. You'll note that the progressivity is slowing down. As for the top 1% -- those who take in $1.3 million per year on average -- they pay 30.8% of their income to taxes, which is a little less than what the 9% just below them pay, and only a tiny bit more than what the segment between the 80th and 90th percentile pays.
Even the lowest 20% of Americans pay 16% of their income in taxes, and this before we take into account the stealth inflation tax, and the stealth property tax that comes in the form of higher rents (the bottom 20% can't afford a house, but they still essentially have to pay property tax because landowners just raise the price of rent in exact accordance with their property taxes.) So the top 1% of income earners don't even pay twice as high a percentage in taxes as the poorest people in America. Does this make any sense for a country concerned with helping the poor?
We also can look at this information on income and taxes in another way by asking what percentage of all taxes various income levels pay. (This is not the same as the previous question, which asked what percentage of their incomes went to taxes for people at various income levels.) And the answer to this new question can be found in Figure 7. For example, the top 20% receives 59.1% of all income and pays 64.3% of all the taxes, so they aren't carrying a huge extra burden. At the other end, the bottom 20%, which receives 3.5% of all income, pays 1.9% of all taxes.
This is the real crime though. The rich are, barely, paying more in taxes than a flat tax would have created. Meanwhile the poorest of the poor are barely paying less than a flat tax would have created. How can we redistribute income from the rich to the poor when we use a flat tax in a completely non-flat world?
As we've seen, taxes don't have much impact on the income distribution, especially when we look at the top 1% or top 0.1%. Nor do various kinds of tax breaks and loopholes have much impact on the income distribution overall. That's because the tax deductions that help those with lower incomes -- such as the Earned Income Tax Credit (EITC), tax forgiveness for low-income earners on Social Security, and tax deductions for dependent children -- are offset by the breaks for high-income earners (for example: dividends and capital gains are only taxed at a rate of 15%; there's no tax on the interest earned from state and municipal bonds; and 20% of the tax deductions taken for dependent children actually go to people earning over $100,000 a year).
Even if taxes are flat, there would be some hope if we took the money we taxed from the rich and gave that to the poor, and took the money we took from the poor and gave that to the poor too. Then we'd surely be able to level things out, right? Sorry, America doesn't do that either:
But it is sometimes said that income inequality is reduced significantly by government programs that matter very much in the lives of low-income Americans. These programs provide "transfer payments," which are a form of income for those in need. They include unemployment compensation, cash payments to the elderly who don't have enough to live on from Social Security, Temporary Assistance to Needy Families (welfare), food stamps, and Medicaid.
Thomas Hungerford (2009), a tax expert who works for the federal government's Congressional Research Service, carried out a study for Congress that tells us about the real-world impact of transfer payments on reducing income inequality. Hungerford's study is based on 2004 income data from an ongoing study of a representative sample of families at the University of Michigan, and it includes the effects of both taxes and four types of transfer payments (Social Security, Temporary Assistance to Needy Families, food stamps, and Medicaid). The table that follows shows the income inequality index (that is, the Gini coefficient) at three points along the way: (1.) before taxes or transfers; (2) after taxes are taken into account; and (3) after both taxes and transfer payments are included in the equation. (The Citizens for Tax Justice study of income and taxes for 2009, discussed earlier, included transfer payments as income, so that study and Hungerford's have similar starting points. But they can't be directly compared, because they use different years.)
Table 8: Redistributive effect of taxes and transfer payments
Income definition Gini index
Before taxes and transfers 0.5116
After taxes, before transfers 0.4774
After taxes and transfers 0.4284
Source: Congressional Research Service, adapted from Hungerford (2009).
As can be seen, Hungerford's findings first support what we had learned earlier from the Citizens for Tax Justice study: taxes don't do much to reduce inequality. They secondly reveal that transfer payments have a slightly larger impact on inequality than taxes, but not much. Third, his findings tell us that taxes and transfer payments together reduce the inequality index from .52 to .43, which is very close to the CIA's estimate of .45 for 2008.
In short, for those who ask if progressive taxes and transfer payments even things out to a significant degree, the answer is that while they have some effect, they don't do nearly as much as in Canada, major European countries, or Japan.
Gini Index for the Civilized World:
1. Sweden 23.0
2. Norway 25.0
8. Austria 26.0
10. Germany 27.0
17. Denmark 29.0
25. Australia 30.5
34. Italy 32.0
35. Canada 32.1
37. France 32.7
42. Switzerland 33.7
43. United Kingdom 34.0
45. Egypt 34.4
56. India 36.8
61. Japan 38.1
68. Israel 39.2
81. China 41.5
82. Russia 42.3
90. Iran 44.5
93. United States 45.0
We're behind Russia, China, and Iran in wealth distribution, and that's AFTER transfer payments are taken into account.
The degree of income inequality in the United States can be compared to that in other countries on the basis of the Gini coefficient, a mathematical ratio that allows economists to put all countries on a scale with values that range (hypothetically) from zero (everyone in the country has the same income) to 100 (one person in the country has all the income).For those of you who don't know what the GINI index means.
We don't have a progressive tax system. We aren't redistributing wealth. The country is not helping the poor in any way. Since the recession has thrown the bottom 20% out of work entirely, the situation has gotten even more dire. The country that refuses to help anyone, like an irresistible force of apathy, is meeting the immovable object of people who can no longer help themselves:
Projections to July 2009, made on the basis of changes in stock and housing prices, indicate that median wealth plunged by 36 percent and there was a fairly steep rise in wealth inequality, with the Gini coefficient advancing from 0.834 to 0.865.
We're fast approaching the point where America is owned by 1 person! 87 out of 100, where 100 means all the wealth of America belongs to one person. That should be frightening. Why is the government powerless in the face of this kind of threat? Is the government also owned by a single person?
America is out on an extreme limb. Our democrats are anywhere else's libertarians. Our libertarians are anywhere else's nightmares. There simply is no representation whatsoever for the bottom 80% of this country. We cannot vote for ANYONE who represents our interests.
Democrats make tentative gestures about raising taxes on the rich, but even though they had complete power for two years, they didn't raise taxes on the rich. How is this possible? Even though the Bush tax cuts were set to naturally expire in December of 2010, at a time when Democrats controlled the House, the Senate, and the Presidency, so all they had to do was do NOTHING, they instead extended tax cuts for the rich. The Democratic party is either the most powerless group of pussies in the world, or they're simply lying and are also owned lock, stock and barrel by the powerful. The people can either have a pushover sissy who couldn't beat Bambi the big-eyed fawn in a Congressional session or a lying hypocrite. Should it really comfort us whichever option we choose to believe?
Why did people vote out the Democrats in 2010 in favor of Republicans? Because Democrats weren't doing anything about the recession but were instead playing around with people's Health Care, which frightened everyone and hurt the poor the most, by making it mandatory for poor people who can't afford health insurance to buy health insurance anyway, against their own will. What are they supposed to do, donate their kidney so they can buy health insurance with it? This is one of the worst bills ever imagined. Instead of taxing the rich and giving to the poor, it actually taxes the poor (young, but healthy people who can't afford health insurance are forced to buy health insurance) and gives to the rich (this forced purchase of health insurance is then used to subsidize older, unhealthy people who get reduced prices for their health care as a result.) Maybe the American people realized that Obama wasn't promising to increase health care benefits for the average Joe, he was actually promising to cut our benefits and raise our prices. This is no friend of the poor. What we want is a single payer system. The government, marvel of marvels, collects real money from the rich, with a serious tax rate that actually targets the people who own everything in this country, and then pays health care providers whatever it takes to provide decent health care for all. You know, like every other country on Earth has already done.
Obama didn't provide that, instead he provided a bill that really solves nothing, but is sure to hurt the poor. So of course he found zero supporters in 2010. He also did nothing to address unemployment. There were no public works programs like under FDR. There was no citizen's dividend. There were no incentives given to businesses to hire more workers. There was no immigration moratorium. There wasn't even a push to get a more fair trade agreement with China which could have raised our exports to them and thus increased employment stateside. Obama just dithered around for two years working on a health care bill that ultimately helped no one and hurt the poor. To make matters worse, Democrats were threatening to impose a carbon tax (read, a consumption tax) that would hit the poor just as hard as the rich at a time where the poor were out of work and had just lost 36% of their median wealth. Why would they vote for someone who promised to make oil and electricity unaffordable? What were the Democrats thinking? If they wanted to save the environment, they could have taxed the rich, and the rich alone. Using this new tax money, they could have invested in a new green infrastructure all across America: natural gas, solar and wind together with the power lines and batteries to form a new national energy grid that would be the most advanced on Earth. We have the technology. We could build this new, carbon free infrastructure tomorrow, and it would create a lot of jobs, and it would ultimately save money in the long run because the cost of fuel would be virtually zero for the rest of American history. But Obama didn't propose that. Instead he proposed a consumption tax that would hit the poor as hard or harder than the rich for anyone who dared to use energy (how dare we cook or heat our homes or drive to work!).
The Democrats ARE NOT HELPING THE POOR. None of their policy suggestions help the bottom 80% of this country. The only thing they are doing is allowing gays into the military! This is apparently the ONLY PRINCIPLE THEY CARE ABOUT and, substantially, is the ONLY ACHIEVEMENT THEY CAN POINT TOWARDS IN THE PAST 4 YEARS!
The stimulus bill was a drop in the bucket. 700 billion over three years simply isn't enough money. It wasn't even enough money to counteract the cuts by state and local governments or the cuts by businesses and household spending. It simply disappeared into an abyss of deflationary forces like it had never been. The stimulus program might have helped, if it had been ten or a hundred times as large, but as it was it simply made no difference. Just like these spending cuts, 2.4 trillion over ten years, are so small that they simply make no difference whatsoever.
There is no party that is proposing new taxes or spending that would actually help the bottom 80% of this country. Republicans want the same formula that worked so well in the 00's. You know, the one that deregulated everything, cut taxes on the rich to the bone, let the debt skyrocket without any concern, and didn't produce a single job in the past 10 years while still allowing in millions of legal and illegal immigrants completely unmolested. They are playing a game of divide and conquer: Point at shiftless unemployed people and criminals and say "That's where all the money in America is going! All your taxes are going to pay for these lazy bums and thugs! Vote for us and we'll pull the rug out from under them and show them what for!" (Republicans have certainly delivered on this promise, we have more people in jail than probably the rest of the world combined.) But that's not where all the money in America is going. It's all a myth. It's a Big Lie. All the money in America was never taxed from the rich, or the middle class, in the first place. After it was never taxed, it was never spent on the poor either. All the money is still sitting, safe and sound, in the bank accounts of the hyper-wealthy, who have been collecting an ever greater share of the national wealth every year for the last century. The reason the middle class is finding it so hard to get a job, have a family, buy a home, provide a job-winning college education for their kids, and pay for their health insurance all at the same time is NOT because of the unemployed or the criminals Republicans point at. These people have no power and no money, they didn't take a single dime from the middle class and they are not ruining anyone's chances at happiness but their own.
The money is still in the same hands as where it started! The rich have it, and they kept it, throughout the political process! All the money in America is in the hands of the top 10%! The reason you can't pay for a house, college, and health insurance anymore, and thus can't afford to start a family, is because the wealth have amassed so much of America's wealth that the rest of us are simply being suffocated for lack of funds. We cannot carry on normal life activities anymore because the money that would have funded these activities earlier, from the 1940's-1990's, is now in the hands of the rich. God knows what they're doing with it! Probably buying factories in China. Or maybe they're just playing a giant game with it of financial speculation, buying up gold one day and Greek bonds another and Chinese real estate the next and oil the next. The one thing they aren't doing is spending it in the domestic economy -- ie, paying the rest of us wages, hiring any of us as workers, or investing in America's future. They certainly aren't giving any of it away to charity. The poor give a larger percentage of their income to charity than the rich do. The rich don't care about us, or hate us (take your pick), and aren't about to freely spare a penny to the unwashed masses.
No doubt it's our fault because we didn't cheer the inclusion of gays into the military as much as they did, so we all deserve to die of famine and pestilence anyway.
Democrats, apparently, care more about gays, the one group they actually helped in their last 4 years in power, than the bottom 80% in the middle of a Great Depression.
Republicans, meanwhile, care only about the top 1%, but pretend they care about the middle class by lying and saying the reason the middle class are poor is because the poor are even poorer, more helpless, and more miserable than the middle class is. This is an inverted world philosophy. How can the poor, who are by definition powerless, who by definition aren't receiving nearly any money, whether tax dollars or honestly earned, affect anyone else? How can the poor be 'stealing' the wealth of the middle class without simultaneously becoming the middle class???????????????????????????????????? That should be plenty of wealth to skyrocket them to heaven, right? That is, if they ever saw a dime of it! And yet this line has been bought by millions of angry tea partiers who go out and protest the POOR for stealing THEIR money when neither side had any to begin with! Could this mass hallucination be any sadder? Could it be any funnier?
There needs to be a drastic redistribution of wealth and incomes in this country. A one-time tax of 66% of American's wealth, to match the losses of the poor during this recession, would be a good start. With that tax, we could pay off all debts, all of them, and invest in whatever government projects we wanted -- energy, health care, housing, education, you name it. After that a 66% tax on the top 10% of income earners would be a good start. If wealth begins to unbalance yet again (Let's say if the top 20% ever accrue 80% of the wealth of the country again) we should just raise taxes even higher, until this demon is finally put down for good. In the 1950's the top marginal income tax rate was 80%, and they were the best years in American history. No pity for the rich! They don't need it! Seriously! They don't need a single tear! They've got the world on a silver platter and they don't need our help one bit! Not an inch! We need to stop worrying about the poor rich guy who worked so hard and only gets 10 million as a reward when he deserved 100 million and start worrying about the cold, the hungry, the sick -- anyone who's suffering in America and could use help. The amount of pity and compassion we feel for those suffering from high taxes is a stench that rises all the way to heaven, where Jesus is thinking to himself, "Why are they crying tears of sympathy for the 80% marginal tax rate of the rich who now only get to afford two vacation homes instead of three when there are still homeless people in America that they never spare A SINGLE THOUGHT for?"
Why? Because poor people are evil and deserve to die? The entire bottom 80% of Americans? Seriously? This would be a new record in mass slaughters, the Chinese never even came close. 80% of Americans is 248 million people. All of them have to go because they didn't make the cut?
And the rich are so wonderful because they did, precisely what? Because they were good at math and managed to trick others into buying useless pieces of paper? Or because they were good at verbal and managed to convince juries that clearly guilty people were in fact innocent of all charges? They deserve more sympathy because of their oh so noble activity of. . .exactly what? Trading stocks?
Firemen, policemen, soldiers, preachers, teachers, nurses, none of them deserve any sympathy and should just be liquidated because, after all, they're ignoble and detestable. But lawyers, bankers, politicians and stock brokers! Oh boy! My heart lights up with joy whenever I think of these saintly personages! A papercut to these lights of the world is more important than a plague on the rest!
No thanks. Monetary worth and moral worth are not correlated in any way. If anything they're correlated in an exact negative line.