US inequality is getting worse

by Linda Beale

US inequality is getting worse

The Congressional REsearch Service released a report in March showing that US inequality is getting worse. Linda Levine, US income distribution and mobility: trends and international comparisons, Congressional Research Service (Mar. 7, 2012).

Here’s an excerpt from the summary provided in the report itself.

Approaching three years into the recovery from the 2007-2009 recession, the unemployment rate remains over 8%. The persistent difficulty of many of the workers who lost jobs to find reemployment has meant reduced incomes for them and their families. A historically slow rebound in the labor market appears to be partly responsible for some groups’ focus on the distribution of the benefits of economic growth and for some policymakers’ interest in redistributing income through the tax code, for example. Varying perceptions about a trade-off between economic growth and income equality appear to underlie longstanding congressional deliberations about such policy issues as the progressivity of income tax rates, the tax treatment of capital gains, and the adjustment of the federal minimum wage. If income were equally divided across households, each quintile (fifth) would account for 20% of total income. The Congressional Budget Office and others have documented that the bottom fifth has long accounted for much less than 20% of total income. The bottom quintile’s share of income has remained little changed for the past few decades at less than 4%, according to U.S. Census Bureau data. In contrast, the income shares of the top fifth and the top 5% of households appear to have trended upward. The top fifth’s share of total household income rose from 42.6% in 1968 to 50.2% in 2010; the top 5%’s share, from 16.3% to 21.3%. (Estimates derived from
federal income tax data suggest that those at the very top of the income distribution have experienced greater gains.) The middle class, defined as the middle 60%, received a
disproportionately smaller share of the total economic pie in 2010 (46.5%) than in 1968 (53.2%).

Based on the limited data that are comparable across nations, the U.S. income distribution appears to be among the most uneven of all major industrialized countries and the United States appears to be among the nations experiencing the greatest increases in measures of inequality. Three leading explanations are put forth for these cross-country differences: (1) other advanced economies devote a larger share of national output to transfers, which tends to equalize income across households; (2) the progressivity of tax rates varies by country and thus has different effects on the distribution of after-tax income; and (3) equality in the distribution of earnings,
which account for most household income, varies substantially across countries.

So Inequality is increasing and mobility in the US economy is diminishing, as the rich get richer and the middle class gets poorer and the poor stay poor. Because so many Americans have believed the hype about “free markets” pushed by the right and the Chicago School economic perspective, they don’t understand the failures of the “free market” theory –for example, that it cannot accurately predict much of anything about the economy,and that its policy dictates are likely to be total failures since they are based on assumptions that simply don’t hold for actual societies (like infinite lifetimes, 100% consumption of incomes, a unitary preference and other nonsense).

They echo the radical right’s rhetoric antagonistic to redistribution in favor of those who are disadvantaged by the growing inequality, and blithely miss the way tax policy and spending policy redistributes upwards in ways that contributes to the increase in inequality. Americans are also lulled into complacency about the harm of increasing inequality by the American myth that everybody that has the will to take the risks can be a self-made millionaire. Thus, they miss any opportunities to force Congress to bring the oligarchy under control through wiser tax policy and legislative initiatives focused on addressing genuine public needs through democratic egalitarianism.

crossposted with ataxingmatter