America's Income/Wealth Gains Broadly Shared After WWII Up To Late 1970s

… BUT NOT SINCE THEN

by Frank Thomas

Following data gives some ‘big picture’ insights into U.S. concentration of income and wealth in 2016 and 1979-2015 historical changes in average income. All such published data by reliable, responsible sources shows how the Top 10% and 20% groups of Americans are getting richer and richer while the Bottom 90% and 80% groups are standing still in a “bare keeping up” survival mode. U.S. economic growth without an equitably broadly shared prosperity remains the societal norm. Income and wealth concentration have returned to 1920s’ levels before the Great Depression.

Following shows the concentration of U.S. income and wealth in 2016:

TABLE 1	Top 1%	Next 9%	Bottom 90%
Distribution of Before Tax Income, 2016	24.00%	27.00%	50.00%
Distribution of Wealth, 2016	39.00%	39.00%	23.00%

SOURCE: Center on Budget & Policy Priorities (CBPP)

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Following shows the historical changes in average Income and transfers in 1979-2015:

TABLE 2	Top 1%	Next 19%	Middle 60%	Bottom 20%
Changes in Average Income
1979-2007
Before Transfers &Taxes	273.00%	60.00%	31.00%	40.00%
After Transfers & Taxes	312.00%	72.00%	41.00%	57.00%
1979-2015
Before Transfers & Taxes	233.00%	74.00%	32.00%	32.00%
After Transfers & Taxes	242.00%	78.00%	46.00%	78.00%

SOURCE: CBPP Calculations From Congressional Budget Office Data

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Back in 2011, Warren Buffet had this to say about the special tax advantages of the top 10% versus the rest of us:

"While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn $millions and $billions from our daily labors but are allowed to classify our income as carried interest, thereby getting a bargain 15% tax rate. Others own stock index futures for 10 minutes and have 60% of their gain taxed at 15%, as if they had been long-term investors. These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It's nice to have friends in high places.

Last year my federal tax bill - the income tax I paid, as well as payroll taxes paid by me and on my behalf - was $6.9 million. That sounds like a lot of money. But what I paid was only 17.4% of my taxable income - and that's actually a lower percentage than by any of the other 20 people in our office. Their tax burdens averaged 36%.

If you make money with money, as some of my super-rich friends do, your tax rate percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine - most likely by a lot. The reason why is that the mega-rich pay income taxes at a rate of 15% on most of their earnings but pay practically nothing in payroll taxes. It's a different story for the middle class: typically, they fall into the 15% and 25% income tax bracketts, and then are also hit with heavy payroll taxes ."

SUMMARY

If I were to recommend a social-economic-political paradigm for the next decade, it would comprise following values/aims:

• Commercially innovative and enterprising from bottom up

• Intense focus on jobs, job mobility, worker training and retraining in a world of accelerating digitilization, robotization, AI

• Fair, sound social nets, wage growth and progressive tax structures –to reduce menacingly unstable, huge income/wealth inequality

• Bipartisan constructive engagement and compromise in solving severe societal, problems, e.g., healthcare, infrastructure, education, fundamental climate change

• Prudent, strict control of Defence Spending at 3.5% of GDP

• Adherence to financially sound Federal Debt and Deficit levels that do not exceed 110% and 3.0% of GDP, respectively,

The challenge is how to harmonize these values/aims; how to realize them pragmatically by a broadly acceptable series of actions that ensure an equitable, unified, constructive social-economic course and progression. The key to reinventing ourselves around the new realities of fierce global connectedness and competition is to find the right balance between government and market forces to meet effectively the needs and well-being of ALL citizens. Something the advanced EU countries in the main are pretty good at - despite some obvious problems here and there. This means throwing out the window our self-limiting, hardened, inflexible conservative and liberal dogmas of the past to open the door to fresh ideas for achieving a cooperative, practical variation of a new social-economic paradigm along lines suggested above for the next decade.

Is such a paradigm change easy to achieve? Certainly not. It requires exceptionally creative, flexible bipartisan leadership - something we have been disgustingly horrible at the past four decades. Until we as a nation come to terms with this simple fact, I think we are destined to sink further in the quicksand of our ugly societal polarization and dysfunctional governance – all leading inevitably to another extremely painful social, financial collapse.

Francis Fukuyama summed up the terrible state of things rather well:

"Inequality in the U.S. rose throughout past decades because the gains from economic growth went disproportionately to wealthier and better-educated Americans, while the income of working-class people stagnated." ... The Reagan Revolution broke the 50 year dominance of Democrats and liberals in American politics and opened up room for different approaches to the problems of the time. But as the years have passed, what were some fresh ideas have hardened into HOARY DOGMAS."... The quality of political debate has been so coarsened by partisans (e.g., purest-minded ideologists captive to divisive identity politics) who question not just ideas but the motives of their opponents. All this makes it harder to adjust to the new, difficult reality we face. American democracy has its work cut out for it."

Frank Thomas

April 4, 2019