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Do Business Friendly Policies Reduce Poverty?. A look at the numbers.
When America’s wealthy elite talk of the redistribution of wealth it is a derisive term applied to federal aid to the working poor paid out of federal tax revenues. The rich are unhappy that some of their compensation goes to support low wage earners. But the growing need for federal aid to support working families is really a consequence of the unfair redistribution of wealth that takes place every working day.
Beginning around 1978 and continuing today, hourly employees have not received a fair wage for a days work. More specifically, hourly wages stopped keeping pace with the rise of hourly productivity (or GDP). Workers continued generating new wealth but they were no longer receiving a share in the additional wealthy they were creating. This simple fact, compounded over the decades, is the single most relevant factor behind our economic difficulties today. Below are some key findings from a report regarding how America’s wage earners are doing. It is from a report put out by the Economic Policy Institute.
THE STATE OF WORKINGAMERICA
Policy-driven inequality blocks growth for low- and middle-income Americans
Daily stock indices, monthly employment reports, and even quarterly data on the gross domestic product are insufficient indicators for answering this vital question:
How well is the American economy providing acceptable growth in living standards for most households?
EPI’s The State of Working America, 12th Edition looks broadly at available data and concludes that the answer is simply “not well at all.”
This is not because the economy has failed to grow, on average. National income has grown enough to substantially improve the fortunes for all. As the data reveal, however, it is the top 5%, the top 1%, and fractions of the top 1 percent that have received almost all the benefits of the economy’s growth.
America’s low- and middle-income families have suffered a lost decade
22% – Despite an increase in productivity of more than 22 percent [between 2000 and] 2010, typical wage earners made roughly the same amount per hour as in 2000.
↓ 6% – Median family income was 6 percent lower in 2010 than in 2000.
This lost decade of no wage and income growth began well before the Great Recession—which started in Dec. 2007—battered wages and incomes. In the historically weak economic expansion following the 2001 recession, hourly wages and compensation failed to grow for either high school– or college-educated workers.
Another lost decade ahead?
Consensus forecasts predict that unemployment will remain high for many more years, suggesting that typical Americans are in for another lost decade of living standards growth. For example, as a result of persistent high unemployment, the incomes of families in the middle fifth of the income distribution in 2018 will likely still be below 2000 levels.
A generation of rising inequality.
156% – From 1979–2007, wages for the top 1 percent of wage earners grew 156 percent, compared to 17 percent for the bottom 90 percent.
60% – From 1979–2007, the top 1 percent of tax units claimed 60 percent of the cash, market-based income growth, compared to 9 percent for the bottom 90 percent.
38.3% – From 1983–2010, 38.3 percent of the wealth growth went to the top 1 percent and 74.2 percent to the top 5 percent. The bottom 60 percent, meanwhile, suffered a decline in wealth.
Rising inequality prevented wage growth for low- and middle-income workers
0.6% – From 1979–2007, incomes for the middle fifth of households grew, but the annualized rate of growth (0.6 percent) reflects a deep economic failure. This middle-fifth growth lagged far behind average growth over the same period, and pales in comparison to growth during earlier periods of history; between 1947 and 1979, for example, cash incomes (not even including expanded employer-provided and government in-kind benefits like health care) for the middle fifth of American families grew at an average annual rate of 2.4 percent—or four times as fast as what was achieved by the middle fifth of households between 1979 and 2007. If the middle fifth of the income distribution had grown at the average rate of income growth overall, these households would have had income $18,897 higher in 2007.
7% – The typical worker has not gained from improvements in the ability to produce more goods and services per hour worked (productivity growth). Between 1979 and 2011, productivity grew 69 percent, but median hourly compensation (wages and benefits) grew just 7 percent.
Policy choices generated inequality
Policy decisions made over the last several decades have caused this explosive rise in inequality. These decisions include: lowering individual and corporate tax rates; deregulating industries; failing to maintain the value of the minimum wage; failing to protect the right of workers to obtain collective bargaining; and failing to prevent asset bubbles.
These sobering data could be mitigated by the ability of Americans to move freely up and down the income or wealth ladders (mobility). There is no evidence, however, that mobility has increased to offset rising inequality.
Further examination of the data through the lenses of race and ethnicity finds the overall data obscure the dramatically worse outcomes minorities face.
Gender gaps have been reduced in many of our labor market analyses. While due in large part to substantial gains for women, part of the closing of the gap has occurred because men have lost significant ground.
Bureau of Labor Statistics
For release 10:00 a.m. (EDT) Thursday, October 18, 2012 USDL-12-2072
Technical information: (202) 691-6378 • firstname.lastname@example.org • www.bls.gov/cps
Media contact: (202) 691-5902 • PressOffice@bls.gov
USUAL WEEKLY EARNINGS OF WAGE AND SALARY WORKERS THIRD QUARTER 2012
Median weekly earnings of the nation’s 103.6 million full-time wage and salary workers were $758 in the third quarter of 2012 (not seasonally adjusted), the U.S. Bureau of Labor Statistics reported today.
This was 0.7 percent higher than a year earlier, compared with a gain of 1.7 percent in the Consumer Price Index for All Urban Consumers (CPI-U) over the same period.
Data on usual weekly earnings are collected as part of the Current Population Survey, a nationwide sample survey of households in which respondents are asked, among other things, how much each wage and salary worker usually earns. (See the Technical Note.) Data shown in this release are not seasonally adjusted unless otherwise specified. Highlights from the third-quarter data are:
- Seasonally adjusted median weekly earnings were $765 in the third quarter of 2012, little changed from the previous quarter ($773). (See table 1.)
- On a not seasonally adjusted basis, median weekly earnings were $758 in the third quarter of 2012. Women who usually worked full time had median weekly earnings of $685, or 82.7 percent of the $828 median for men. (See table 2.)
- The female-to-male earnings ratio varied by race and ethnicity. White women earned 83.4 percent as much as their male counterparts, compared with black (93.2 percent), Hispanic (87.5 percent), and Asian women (73.1 percent). (See table 2.)
- Among the major race and ethnicity groups, median weekly earnings for black men working at full-time jobs were $633 per week, or 74.1 percent of the median for white men ($854). The difference was less among women, as black women’s median earnings ($590) were 82.9 percent of those for white women ($712). Overall, median earnings of Hispanics who worked full time ($556) were lower than those of blacks ($606), whites ($780), and Asians ($915). (See table 2.)
- Usual weekly earnings of full-time workers varied by age. Among men, those age 45 to 54 and 55 to 64 had the highest median weekly earnings, $976 and $980, respectively. Usual weekly earnings were highest for women age 35 to 64; weekly earnings were $740 for women age 35 to 44, $754 for women age 45 to 54, and $766 for women age 55 to 64. Workers age 16 to 24 had the lowest median weekly earnings, at $437. (See table 3.)
- Among the major occupational groups, persons employed full time in management, professional, and related occupations had the highest median weekly earnings—$1,300 for men and $948 for women. Men and women employed in service jobs earned the least, $530 and $440, respectively. (See table 4.)
- By educational attainment, full-time workers age 25 and over without a high school diploma had median weekly earnings of $464, compared with $648 for high school graduates (no college) and $1,170 for those holding at least a bachelor’s degree. Among college graduates with advanced degrees (professional or master’s degree and above), the highest earning 10 percent of male workers made $3,448 or more per week, compared with $2,311 or more for their female counterparts. (See table 5.)
Revision of Seasonally Adjusted Usual Weekly Earnings Data The Usual Weekly Earnings news release for the fourth quarter of 2012 will incorporate annual revisions to seasonally adjusted data for the number of full-time wage and salary workers and median weekly earnings in current dollars. (See table 1.) Estimates for constant (1982-84) dollar median weekly earnings also will be affected by revisions to the current dollar series. Seasonally adjusted estimates back to the first quarter of 2008 will be subject to revision.
Go to Tables: http://www.bls.gov/news.release/pdf/wkyeng.pdf
I came across a 1963 tax return the other day that belonged to a 63-year-old, self-employed tradesman named Edward. For context, that was the year John F. Kennedy was assassinated. Historically speaking, it wasn’t that long ago. In 1963 Edward’s income was $6,806. He paid $933 in income tax plus $259 in self-employment tax for a total of $1,192 dollars.
My own father was a Sears repairman and my mother a bookkeeper back then. Together they made around $5,000 and paid about $1,020 in taxes. But what struck me most about Edward’s income tax return were the rate tables for that year. The top income listed was only $400,000. The tax on that was a whopping $313,640 while income over that amount was taxed at a rate of 91% . Did the rich really pay that much more back then? (Imagine the stir today if we called for a return to the 1963 tax rate.)
It’s hard to put this into perspective because inflation rose by over 700% since then. What wondered what these numbers would look like in today’s dollars? How does the tax rates today compare with the tax rates back then?
The Inflation Adjustment
When we adjust for inflation, Edward made $ 50,247 in todays dollars and paid $8,800 in taxes. He paid $1,912 in self-employment taxes and $6,888 in income taxes (a 13.7% income tax rate, close to what Presidential candidate Mitt Romney paid in 2010).
My parents, with two children, made $ 36,956 in today’s dollars, and paid $ 7,531 in taxes (a 20% income tax rate).
Someone making only $700 then would make $4,988 in today’s dollars and pay about $28.50 in taxes (a 0.6% income tax rate).
The guy who made $400,000 in 1963 was making $2,850,405 in today’s dollars. He paid $2,235,003 in taxes (a 78% tax rate). That sounds like a lot, yet it seems the rich in American some how always seem to getting richer.
(Bureau of Labor Statistics Inflation Calculator at: http://www.bls.gov/data/inflation_calculator.htm)
The Tax Rate Adjustment
Today, someone making $4,988 is taxed at 10% , or $49.88, That’s $16.88 more than in 1963.
Both Edward, and my parents would be taxed at 15% today. Edward would also pay a 15.3% self-employment tax for a total of $14,087. That’s an increase of $5,287 from the ‘63 tax rates. Edward would pay slightly lower income taxes, $6,384 vs. $6,888, but self-employment taxes rose dramatically. Since 1963, Edward’s self-employment tax jumped from $1,912 to $7,703. So much for helping the small business man.
My folks would have to paid $5,344 in taxes at today’s rate, or $1,924 less than the 1963 rate. That’s surprising. We keep hearing how high our taxes are, yet we are paying less now than we did 46 years ago.
The top income tax rate today is 35%. President Obama wants to raise the top marginal income tax rate on salaries and other ordinary income from 35 percent to 39.6 percent by letting the extended temporary Bush tax cuts expire at year-end. The income tax rates on millionaires has already been cut in half for some. Someone making $2,850,405 pays $997,642 in taxes at today’s rates. That is $1,237,361 less than they would pay at the 1963 rate.
(US 2010 tax rates: http://taxes.about.com/od/preparingyourtaxes/a/tax-rates_2.htm)
So what’s the point?
America is still a very wealthy nation. There is plenty of wealth. We can afford to be a much better country than we are. When the income tax code was first implemented in 1913 it was intended to tax only people who were financial well off. Adjusted for inflation, the bottom rate at which a person had to start paying income taxes was about $100,000 in today’s dollars. It was because the income tax rates weren’t indexed to inflation that income taxes eventually reached the middle and lower income households. Our financial crisis has a lot to do with the decline of income taxes for the richest Americans. We are asking those who have benefited most from this great American system to pay a tiny fraction more. It is hard to see how so much resistance to this small ask is justified. What’s all the fuss?
If you enjoy a weekend off now and then, you can thank labor unions.
If you had a holiday off this year, you can thank labor unions.
If you take a week or two off to relax in the summer, you can thank labor unions.
If you can afford a place to live and can put food on the table, you can thank labor unions.
If you have a pension at your job, you can thank labor unions.
If you are not fired when you are out sick, you can thank labor unions.
If you get paid sick time, you can thank labor unions.
If you are home for supper and can tuck your children in bed, you can thank labor unions.
If your employer tries to keep you safe on the job, you can thank labor unions.
If you aren’t fired if you get hurt on the job, you can thank labor unions.
If you get paid time off after being hurt on the job, you can thank labor unions.
If you aren’t fired when your boss’ nephew needs a job, you can thank labor unions.
If you get extra pay or time off for working extra hours, you can thank labor unions.
Most of us don’t have to be in a union today to enjoy these benefits.
We just have to live in the beautiful parts of American life that labor unions built.
Stop Spanking Unions!
Start Thanking Unions!