Links Worth Noting at CBPP: more on causes of deficit and increases in income inequality

by Linda Beale
crossposted with Ataxingmatter

Some Links Worth Noting at CBPP–causes of deficit, increases in income inequality

Center on Budget and Policy Priorities, Where Today’s Large Deficits Come From

Amidst all the renewed talk about budget deficits, it’s important to remind ourselves what caused the signficiant expansion of the deficit. As I’ve noted, it can be attributed primarily to three things: Bush’s tax cuts, Bush’s decision to go to war in Afghanistan and Iraq, and the need for economic stimulus and financial system bailout to counter the financial crisis that began in the next to last year of Bush’s Administration as a result of the four-decades-long financialization of the economy due to deregulation and development of a casino-gambling mentality in the nation’s commercial and investment banks. The Center’s graphs and data do a good job of setting out more of the details of those three causes of the deficit.

Center on Budget and Policy Priorities, Income Gaps Between Very Rich and Everyone Else More than Tripled in the last three decades, new data show,June 25, 2010, hat tip Tax Prof

The facts of income disparity increase in this country are startling, and the likely result–in terms of corporatist capture of government policies (as witnessed in the “flawed success” of financial reform, as noted by Salon’s Andrew Leonard) and continued degradation of lifestyle for most ordinary Americans, is disturbingly remininiscent of the “roaring twenties” contrasts in lifestyles of the poor and the excessively rich. Even the Great Recession hasn’t given Congress the will to shake the shackles of catering to the uber-wealthy class, as witnessed by the failure to enact a carried interest provision (treating the compensation income of venture capital, private equity, hedge fund, real estate and any other service partner as the compensation income that it is, subject to ordinary rates just like every other type of compensation income), the limited success in dealing with health care reform (limited, since the corporations were able to stave off a public option that would have forced them to accept lower profits and make health care more affordable for all), and the limited success of financial reform (which left banks with some proprietary trading–up to 3% of their capital–and with the ability to retain most of their derivatives profits, even though the trading and derivatives represent considerable risk to taxpayers and little productive value for the economy).

Here are several key points detailed in the report:

  • Between 1979 and 2007, average after-tax incomes for the top 1 percent rose by 281 percent after adjusting for inflation — an increase in income of $973,100 per household — compared to increases of 25 percent ($11,200 per household) for the middle fifth of households and 16 percent ($2,400 per household) for the bottom fifth.
  • In 2007, the average household in the top 1 percent had an income of $1.3 million, up $88,800 just from the prior year; this $88,800 gain is well above the total 2007 income of the average middle-income household.
  • The CBO figures show that the nation’s income has grown substantially since 1979; if this growth had been shared more broadly, most groups would have seen much larger gains. For the nation as a whole, after-tax household income increased 55 percent from 1979 to 2007, adjusted for inflation. If all groups’ incomes had grown by 55 percent, the average income of the bottom fifth of households would have been $23,710 in 2007 (rather than $17,700) and the average income of the middle fifth would have been $68,342 (rather than $55,300). Instead, the wealthiest households reaped a sharply growing share of the nation’s income, while the share going to middle- and lower-income households shrank.