Evidence of economic inequality keeps piling up

Class warfare is a reality, and it is being visited upon the middle class and the poor. The dots keep connecting over and again, and it’s important to see how data, politics, and public policy interact:

The Poor

Whether using a traditional or new measure for gauging poverty, over 15 percent of Americans are officially poor, reports CNN’s Tami Luhby (link here):

There were more than 49 million Americans living in poverty in 2010, under an alternative measure released by the Census Bureau Monday.

That’s 16% of the nation, higher than the official poverty rate of 15.2%. The official rate, released in September, showed 46.6 million people living in poverty.

The new measure “includes various government benefits and expenses not captured by the official poverty rate.”

The Near Poor

There are millions more living on the brink. Jason DeParle, Robert Gebeloff, and Sabrina Tavernise report for New York Times (link here) on a significant group of Americans classified as “near poor”:

They drive cars, but seldom new ones. They earn paychecks, but not big ones. Many own homes. Most pay taxes. Half are married, and nearly half live in the suburbs. None are poor, but many describe themselves as barely scraping by.

New U.S. Census methods for calculating poverty label the near poor as those with less than 50 percent above the poverty line:

Perhaps the most startling differences between the old measure and the new involves data the government has not yet published, showing 51 million people with incomes less than 50 percent above the poverty line.

They conclude: “All told, that places 100 million people — one in three Americans — either in poverty or in the fretful zone just above it.”

The Shrinking Middle

Lucia Mutikani reports for Reuters (link here) on a Stanford University study of 117 metro areas, finding that middle-class neighborhoods are shrinking:

The share of families living in middle-income neighborhoods has dropped to 44 percent in 2007 from 65 percent in 1970, the Stanford University study showed.

. . . The study found that the proportion of families living in affluent neighborhoods doubled to 14 percent in 2007 from 7 percent in 1970.

During the same period, the share of families in poor residential areas increased to 17 percent from 8 percent.

The Expanding 0.1 Percent

Robert Lenzner, writing for Forbes (via Yahoo! News, here), explains that the top 0.1 percent receive roughly half of the capital gains, thus pointing to Bush-era capital gains tax cuts as chief culprits in benefiting America’s wealthiest:

Capital gains are the key ingredient of income disparity in the US– and the force behind the winner takes all mantra of our economic system. . . .

Income and wealth disparities become even more  absurd  if we look at the top 0.1% of the nation’s earners — rather than the more common 1%. The top 0.1% —  about 315,000 individuals out of 315 million — are making about half of all capital gains on the sale of shares or property after 1 year; and these capital gains make up 60% of the income made by the Forbes 400.

It’s crystal clear that the Bush tax reduction on capital gains and dividend income in 2003 was the cutting edge policy that has created the immense increase in net worth of corporate executives, Wall St. professionals and other entrepreneurs.

The impact on economic recovery

Even Business Week understands that widening inequality makes genuine economic recovery even harder, as David Lynch writes (link here):

The public discussion about the widening gap between rich and poor hasn’t been this loud since the Great Depression. . . . What many are missing is the actual impact rising inequality is having on the U.S. economy. Hint: It isn’t good.

. . . Thus the growing chasm in the U.S. between the haves and the have-nots has serious consequences. Societies that manage a narrower gap between rich and poor enjoy longer economic expansions, according to research published this year by the International Monetary Fund.

. . . Expansions fizzle sooner in less equal societies because they are more vulnerable to both financial crises and political instability.

Discrediting the messengers

Occupy Wall Street has spawned a nationwide (nay, worldwide) movement protesting this massive inequality. Thus, it’s no wonder that efforts are underway to discredit the movement. For example, Jonathan Larsen and Ken Olshansky report for MSNBC (link here) on a major lobbying firm that wants to take on the Occupiers, but only if the price is right:

A well-known Washington lobbying firm with links to the financial industry has proposed an $850,000 plan to take on Occupy Wall Street and politicians who might express sympathy for the protests, according to a memo obtained by the MSNBC program “Up w/ Chris Hayes.”

The proposal was written on the letterhead of the lobbying firm Clark Lytle Geduldig & Cranford and addressed to one of CLGC’s clients, the American Bankers Association.

CLGC’s memo proposes that the ABA pay CLGC $850,000 to conduct “opposition research” on Occupy Wall Street in order to construct “negative narratives” about the protests and allied politicians.

Stay alert

These are defining dynamics of our age. When will we get it, and when we will do something about it?

One response

  1. The evidence could be even plainer still, if our various government entities stopped painting everyone with the same, broad brush. Poverty isn’t the same everywhere, even for households earning the same money. For instance, the federal government is blind to regional cost-of-living disparities, apart from a modest bump accorded to Alaskan citizens. In addition, a number of major expenses are deemed immaterial to the cost of living, like alimony payments or the portion of student-loan payments not applied to interest.

    Even helping to raise a child can be a non-issue. Let’s say two young parents divorce. They agree that their son, Lee, will live with his mother in Arkansas 27 weeks a year, and with his father in Boston the other 25. Combined, the parents’ child-rearing budget is $16,500, which coincidentally matches the father’s pre-tax income.

    The father, Jim, is in the 15% tax bracket. He recently earned his GED. He attends U. Mass. part-time; as a Commonwealth native, he pays state tuition. Jim also works part-time, since he looks after Lee when the boy’s school day ends. Jim spends a third of his gross income, $5,500, to help raise his son. Because Lee shares his rented apartment less than half the year, Jim’s is officially a one-person household.

    Lee’s mother, Kathy, lives in a Little Rock suburb. The boy’s maternal grandmother, Tina, meets the school bus each afternoon, staying with Lee until Kathy gets home from work. Kathy earns $66,000 a year, part of that from investments. She also owns half her house; the bank owns the rest. Kathy is paying $11,000 of Lee’s expenses this year.

    Come January, in terms of their gross incomes, Jim will have spent twice as big a chunk of his paychecks on Lee as Kathy. Also, though Kathy is in the 25% tax bracket, she will earn tax credits for child-rearing expenses, not to mention those for investments, 401(k) withholding, and mortgage payments. Jim, on the other hand, will have no tax break, despite having paid almost half his son’s upkeep and living in one of the most expensive parts of the country.

    In the eyes of the U. S. Government and the Commonwealth of Massachusetts, Jim lives alone. More importantly, he does not live in poverty; he isn’t even “near-poor”. In fact, Jim earns more than 50% over the poverty level, which in 2011 is $10,890, pre-tax. (Massachusetts relies on the federal standard, which can qualify a household for benefits like food stamps, when deciding whether to subsidize heating bills, etc.)

    All this may come as news to Jim, who will have spent about his 2011 take-home pay raising his son. After his federal and state taxes are paid, he’ll barely has enough to buy groceries and heat his apartment, much less to pay tuition, fees, and books. Let’s just hope disaster avoids him once he gets his diploma. If he can’t pay his student loans on time for ten months, for whatever reason, he could end up defaulting. In that event, he’d incur a 30% “collection-agency penalty”, and interest would continues to accrue even if for two years the government suspended payment.

    Something is seriously wrong here, isn’t it? We simply must start valuing our middle class. Otherwise the whole country will suffer — except, of course, for our elite.

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