More than a third of a century after Ronald Reagan led America down a costly and unnecessary path into extreme income and wealth inequality, the opportunity to restore broad prosperity is rising before us. This is a moment not for despair, but resolve—and hard work.
Income inequality has become so outrageous that even Republicans vying for their party’s presidential nomination are talking about it, though not their party’s role in creating it or any workable solutions. On television the talking heads wring their hands, saying, “If only we could afford the costs of digging ourselves out of the economic hell most Americans have been shoved into.”
Actually, America has an immense pool of money that can be put to work closing the nation’s extreme inequality gap. Doing so will also improve our health, longevity, level of education, and knowledge.
Before getting to that, though, let’s take a quick look at the latest data.
In June, for the first time, the Internal Revenue Service released data on not just the top 1 percent, but also the top one-thousandth of 1 percent. The report excludes dependent children who file their own tax returns because they have a trust fund or work.
Even for those who know that the average income reported by nine out of 10 households has fallen back to the level it stood at in 1966, this is a shocking report.
My analysis shows that from 2003 through 2012, the bottom 90 percent of Americans saw their incomes decline by 6 percent, or about $200 a month.
Every penny of increased income went to the top 10 percent, but even there it was heavily skewed to the very few at the very top. Slightly more than half of all the increased income in the country went to the 1.36 million taxpayers who make up the top 1 percent. The most shocking detail: Just one in 1,000 of those top taxpayers collected 8 percent of all the increased income in the entire nation.
Think about that. America has 136 million primary taxpayer households. Over those ten years just 1,361 households raked in 8 percent of all the increased income in America.
Those one in 100,000 households averaged $161 million each in 2012. They paid 17.6 percent of their money in federal income taxes, about the same share as a single worker making just $80,000.
The awful truth is that the great industrial engine that once created rising prosperity for the vast majority has been converted into a mining operation. Instead of creating new wealth by making ever more useful widgets and services ever more efficiently, today’s economic titans mine the pockets of the many.
Public policy—laws passed by Congress, regulatory agency rules, and lax oversight of business—makes this mining economy possible.
We see this in the private-equity, high-speed trading, and hedge-fund operators who combine scads of borrowed money, favorable accounting rules, and offshore companies that block taxes to report huge profits. They rarely create new enterprises or improve existing ones. Instead they strip companies of their assets and froth the stock exchanges so they can collect profitable bubbles.