Abstract: The Trillion Dollar Income Shift Part I
Summary of Article By Jack Rasmus
from Z Magazine February, 2007 Issue
From 1942 to the mid-seventies, there occurred a great leveling of income in the United States. Working class families received a share of the gains in productivity. Social Security was expanded. Health insurance plans were negotiated. Unions represented 35 per cent of the work force. Public universities were nearly free. The tax burden for workers rose slowly, while rich people and corporations still paid a fair share.
From the early 1980’s on, income inequality widened, deepened and accelerated. Today well over $1 trillion dollars is being transferred every year from the 90 million working class families to corporations and the richest households. This widening gap has finally become the subject of public debate. Even pro-business publications like the Wall Street Journal have acknowledged the phenomenon. There is concern that it will affect social cohesion and seriously undermine democracy. Some politicians, too, have begun to pick up on this theme. They sense the growing discontent of millions, who continually hear (from Bush and company) how great the economy is supposed to be doing but know that they themselves are losing ground.
Today’s income inequality is not about the upper twenty per cent of the population gaining an ever-increasing share of national income while the middle, the working class and the poor stagnate or decline. It is about the wealthiest 1 per cent—even the top 0.1 and 0.01 per cent. These now receive between 19 and 21.5 per cent of the annual GDP. In 1980, the figure was only 8 per cent. Today’s figure is close to the 22 per cent of national income that the top 1 per cent received in 1928—just before the stock market crash of 1929. Since 2000, the number of millionaires has risen from 6 to 7.5 million. Meanwhile, the bottom 50 per cent of all households own only 2.5 per cent of the country’s wealth. Real weekly earnings for 100 million workers are less today than when Ronald Reagan took office: a virtual quarter-century wage freeze.
The most telling statistic comes from the U.S. Department of Commerce. The 8.3 per cent drop in labor’s share of the GDP represents an annual shift in income today of about $1,080 billion. That now occurs every year. and it is rising. This figure, however, does not include additional income transfers from labor to corporations as a consequence of employers shifting a greater share of the costs of health care to their workers; the burden placed on workers by the discontinuing of pension plans since the 1980’s; and the transfer of hundreds of billions more every year in workers’ payrolltax payments from the Social Security Trust Fund to the U.S. general budget.
Discussion of income inequality today nearly always refers to government data sources. A major failing here is that the statistics are based on interview surveys of the very rich. It is naive to assume that such people would reveal details of their finances to government interviewers—after manipulating tax shelters, as most do, and paying lawyers and accountants to hide their income. Several of these official sources leave out capital gains from their totals. None of them make upward adjustments in income to account for the squirreling away of trillions of dollars in offshore tax shelters since the early 1980’s. Moreover, none of them consider the relative shift in income from workers to corporations.
Most of the income held by the top one per cent passes through corporations. However, none of the current discussion on the widening income gap gives an adequate picture of the corporations’ role.
A first step in the right direction has been made by two French economists, Thomas Picketty and Emmanual Saez. In their paper, “Income Inequality in the United States, 1913-2002,” they created a database from IRS sources on taxes paid by family units. Their findings represent an advance over official government sources. Unfortunately, their study has unavoidable limitations. Income from tax shelters, tax evasion, and fraud does not show up in the IRS data. Corporate retention of profits may be contributing to the underestimation of capital incomes; but this question is not addressed.
Between 1976-1980, great opportunities for defending and even advancing working class incomes were possible, but they were dissipated and lost. Now that the Democratic Party has gained more power, the potential exists for the kind of economic development that occurred between 1946 and 1950. Or will their right-wing associated make this impossible?
(Part 2 in the next issue will cover the specific corporate policies that have shaped the U.S. economy since 1980.)
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