According to a new study by the Urban Institute,
While the Great Recession didn’t cause the wealth disparities between whites and minorities, it did exacerbate them. The 2007–09 recession brought about sharp declines in the wealth of white, black, and Hispanic families alike, but Hispanics experienced the largest decline. Lower home values account for much of Hispanics’ wealth loss, while retirement accounts are where blacks were hit hardest.
In the United States, median annual household income in February 2013 was $51,404, about 1.1 percent (or $590) lower than the January 2013 level of $51,994.
As Catherine Rampell explains,
February’s median annual household income was 5.6 percent lower than it was in June 2009, the month the recovery technically began; 7.3 percent lower than in December 2007, when the most recent recession officially started; and 8.4 percent lower than in January 2000, the earliest date that this statistical series became available.
And we call this a recovery and not the Second Great Depression why?
As the New York Times reports:
As a percentage of national income, corporate profits stood at 14.2 percent in the third quarter of 2012, the largest share at any time since 1950, while the portion of income that went to employees was 61.7 percent, near its lowest point since 1966. In recent years, the shift has accelerated during the slow recovery that followed the financial crisis and ensuing recession of 2008 and 2009, said Dean Maki, chief United States economist at Barclays.
Corporate earnings have risen at an annualized rate of 20.1 percent since the end of 2008, he said, but disposable income inched ahead by 1.4 percent annually over the same period, after adjusting for inflation.
“There hasn’t been a period in the last 50 years where these trends have been so pronounced,” Mr. Maki said.
The headline takeaway from the new Congressional Budget Office report [pdf] on the pattern of slow growth during the Second Great Depression is the gap between the current recovery and the other periods of recovery in the postwar period.
But, to my mind, the chart that should scare us is buried toward the end of the report (on p. 14): labor income.
Over the first 12 quarters of the average recovery, the labor share of GDI [Gross Domestic Income] fell by about 0.3 percentage points. However, in the first 12 quarters of the current recovery, it fell by 1.2 percentage points (see Figure 7). That difference means that a smaller proportion of the growth in value of the economy’s output was distributed in the form of wages, salaries, benefits, and proprietors’ income during the current recovery than in past recoveries. Instead, capital income in the form of domestic corporate profits, another major component of GDI, rose more rapidly than usual.
The exit polls also reveal that Romney won a majority of white, male, conservative, married, Republican, suburban voters. So, as the editor of the Future of Capitalism concludes:
Mr. Romney is a 65-year-old who disclosed earning about $21 million a year, so at least he carried his own demographic groups.
*Note: the boxes are sized by the share of each state’s electorate.
The other day in class, I asked the students for their definition of the middle class. And they responded in what has become the usual manner in this crazy country of ours: everyone who makes between $60,000 and $200,000 a year.
Oops! That may be, as Dylan Matthews explains, how Romney and Obama have come to define the middle class but that’s not the middle—not by a long shot. It doesn’t even include the middle.
According to the Census Bureau’s latest report, “Income, Poverty and Health Insurance Coverage in the United States: 2011,” the mean income of the middle quintile of households was $49,842. While $200,000 or $250,000 is well above the median income of the top quintile (which was $178,020), although it’s closer to the 95th percentile limit (which was $186,000).
So, if we’re going to keep talking about the middle class, let’s get it right and refer to working-class households that are making around $50,000 a year, which is less than they’ve been bringing in since 1995. And understand, at the same time, that $100,000 already puts a household in the top 20 percent while $200,000 a year excludes all but the top 4 percent of households in the United States.
Poor Kentucky. Literally.
According to the latest U.S. Census Bureau report, “Income, Poverty and Health Insurance Coverage in the United States: 2011,” median income in Kentucky had declined almost 11 percent from 2009, leaving it with the lowest median income in the country, more than $10 thousand less than the national average. Kentucky also had a poverty rate—16 percent—that was a full percentage point above the national average.*
*Kentucky was better, on one measure, than the national average: 14.4 percent of Kentuckians did not have health insurance, compared to 15.7 percent for the nation as a whole—both of which surpass by a large margin the rate in Massachusetts (3.4 percent).
Elmgreen and Dragset, “Social Mobility (Staircase)” (2005)
The American Dream is often used to disprove the existence of a class structure in the United States. It is predicated on the idea that class mobility exists, that each succeeding generation will be better off economically than the previous generation.
So, how is that dream faring?
According to a recent report by the Pew Charitable Trusts, Pursuing the American Dream: Economic Mobility Across Generations, the dream gets a mixed review. While a majority of Americans exceed their parents’ family income and wealth, the extent of their absolute mobility gains is not always enough to move them up the economic ladder, and the results are different for groups at different points on the ladder.
Here are some of the key results with respect to income:
As Catherine Rampell explains,
The median person in the panel today earns a family income of $51,177, whereas the comparable figure from a generation ago was $27,036 after adjusting for inflation. You can see similar bumps upward for the typical family in other quintiles, and that the very highest earners got the biggest raises.
The median family in the top quintile earned $49,075 a generation ago, and $111,115 today, an increase of 126 percent in inflation-adjusted terms. That’s a much bigger raise, no doubt, but at least every income strata saw its earnings rise.
Here are some of the key results concerning mobility with respect to wealth:
Again, here’s Rampell:
Unlike with income, there were not across-the-board gains for wealth. The median person in the poorest quintile has a family net worth that is 63 percent less than that of his counterpart a generation ago: $2,748, versus $7,439.
There were similar drops in wealth for the next two socioeconomic strata.
On the other hand, the top fourth and fifth quintiles by wealth have gotten richer.
The median family in the top socioeconomic class today (i.e., the family at the 90th percentile) is worth $629,853, compared to $495,510 in the last generation. That’s a 27 percent increase in the size of the median fortune in the top income stratum.
In other words, compared to the last generation, wealth has been become more concentrated in the hands (and bank accounts and houses) of the richest Americans.
The American Dream never did successfully do its work to undermine the idea that the United States has a class structure. And now, when the poor are becoming poorer and the rich richer, it’s become the impossible dream.
A friend reminded me that, a few months after the attack on Pearl Harbor, President Franklin Delano Roosevelt proposed a 100 percent top marginal tax rate.
At a time of “grave national danger,” Roosevelt told Congress in April 1942, “no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year.” That would be about $350,000 in today’s dollars. . .
Roosevelt’s relentless campaign to cap top incomes kept that debate focused on taxing the rich. Conservatives didn’t want to do that taxing. They wanted a national sales tax, as do many conservatives today. But FDR’s aggressive advocacy for equity never let that regressive sales tax notion get traction.
The war revenue debate would be fought on Roosevelt’s terms — not on whether to tax the rich, but on how much. And, in the end, that “how much” would turn out to be quite a great deal. By the war’s end, America’s wealthy would be paying taxes on income over $200,000 at a 94 percent statutory rate.
Americans making over $250,000 in 1944 — over $3.2 million today — paid 69 percent of their total incomes in federal income taxes, after exploiting every loophole they could find. In 2007, by contrast, America’s 400 highest earners paid just 18.1 percent of their total incomes, after loopholes, in federal taxes.
We should also remember that, in 1941, the top marginal tax rate was 81 percent (but only for incomes above $5 million, or about $77 million in today’s dollars), and, in 1954, 91 percent (for incomes above $200,000, or $1.67 million today)—compared to 35 percent in the midst of the Second Great Depression.
