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New Evidence that the Rich Have Prospered while the Poor Got Poorer

8:54 am in Uncategorized by WI Budget Project

We got more evidence last week that rich Americans are getting richer and the poor are getting poorer. A new report released August 21st by the Census Bureau shows not only that the top 20% of Americans have been enjoying most of the economic gains over the last decade, but the median net worth of most Americans has actually decreased (for those in the bottom, second and middle quintiles). The following graph illustrates that trend.

Coincidentally, the new report was released a day or two after Wisconsin Congressman Paul Ryan told a reporter at the Weekly Standard that cutting tax rates for the wealthy is a higher priority than raising the child tax credit for middle class and low-income Americans. (Read the Weekly Standard blog post here.)1

The new Census Bureau analysis divides American households into five quintiles and calculates the median net worth for each quintile, and how that changed from 2000 through 2011. Here are some of the key findings from the data:

  • Median household net worth decreased by $5,124 for households in the first (bottom) net worth quintile and increased by $61,379 (or 10.8%) for those in the highest (top) quintile. (See Figure 1).
  • The median net worth for all households decreased by $5,046 a decline of 6.8%.
  • Median net worth of households in the highest quintile was 39.8 times higher than the second lowest quintile in 2000, and it rose to 86.8 times higher in 2011. (Figure 2).

The one small bit of good news in the data is that the ratio between the wealthiest fifth of households and the second lowest quintile wasn’t as wide in 2011 as it was before the Great Recession (see Figure 2). However, I suspect more current figures would indicate that we are again approaching the extreme gap in wealth that existed in the mid-2000s, if we haven’t already surpassed that gap.

The Census Bureau report (Distribution of Household Wealth in the U.S.: 2000 to 2011) includes liabilities in its measure of net worth, as well as assets such as stocks, bank accounts, home values, and retirement accounts. The bottom fifth of households had a negative median net worth in 2011, -$6,029, compared to -$905 in 2000.

The new report doesn’t estimate the amount of wealth held by the very richest Americans, but another analysis issued this summer sheds light on that. That research by European Central Bank economist Philip Vermeulen and London School of Economics’ Gabriel Zucman concluded that the top 0.1 percent of America’s rich — those worth at least $20 million — held at least 23.5% of all U.S. wealth in 2012. The figures they cite are somewhat higher than others because they have added in estimates of how much was hidden in offshore tax havens.  (Read more here.)

According to a Bloomberg article earlier in August, Nobel Prize winning economist Joseph Stiglitz says that a greater concentration of income and wealth at the top could help explain why consumer spending has been slow to rebound from the recession that ended in June 2009.


Tax Cuts or Tax Reform? (and the Implications for Inequality)

9:37 am in Uncategorized by WI Budget Project

Recent Tax Policy Choices Have Widened Disparities; More Cuts Could Do the Same

Photo of Joseph Stiglitz

Does inequality hurt economic growth? Nobel Laureate Joseph Stiglitz says yes.

Martin Luther King Day is a good occasion to think about disparities in income and wealth, and the policy decisions that contribute to the growing chasm between the rich and poor. We need to think carefully about which policy choices can reduce that gap, which will make it wider, and what the failure to address the problem means for the economy.

A new report issued by the Working Poor Families Project examines the widening economic gap. Their analysis of Census Bureau data found that the current economic recovery is leaving many working families behind. The number of working families who were low income (below 200% of the poverty level) grew to 10.4 million in 2011, which was 32% of all working families, and they included 23.5 million children.

In Wisconsin, there were 174,000 low-income working families in 2011, comprising 29% of all working families in our state.  A report we issued in late November, in conjunction with the Center on Wisconsin Strategy, uses Department of Revenue data to illustrate the widening chasm between the rich and the poor in Wisconsin.

Tax policy choices are one of the factors that have contributed to the growing rift. An op-ed column by Jack Norman in Sunday’s Journal Sentinel challenges state lawmakers to work on comprehensive tax reform, rather than simply a new tax cut.  He urges policymakers “to be tax reformers, not just tax panderers” seeking simplistic tax cuts.  His column lays out an excellent list of questions that lawmakers and the public should ask about proposed tax changes.

One of Norman’s recommendations is to “compare effects at the top and bottom of the income scale.”  He points out that the sort of income tax rate cut that has been suggested by Governor Walker and Assembly Speaker Robin Vos would provide no benefit to 40% of Wisconsin tax filers.

Inequality shouldn’t only be a concern among liberals, because it has very broad negative consequences.  Joseph Stiglitz, a Nobel laureate in economics, wrote a recent commentary in the New York Times explaining four important ways that America’s growing inequality “is squelching our recovery.”  He contends that “inequality stifles, restrains and holds back our growth.” Stiglitz adds:

When even the free-market-oriented magazine The Economist argues — as it did in a special feature in October — that the magnitude and nature of the country’s inequality represent a serious threat to America, we should know that something has gone horribly wrong.

The widening rift mustn’t be something that we only think about on Martin Luther King Day.  We need to keep it foremost in our minds as we contemplate budget choices Wisconsin lawmakers will make in the coming months.

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