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Cash Flow Hides Declining Prosperity for Majority

Most Americans have lost ground despite the booming economy. Regular paychecks have allowed many to feel richer than they really are. Under this false sense of security they charge, lease, and refinance their way into massive debt. They are no longer building a financial base, which will weather the next economic downturn. The best they can manage is leasing a life-style that can collapse during a personal economic reversal. During the period from 1979 to 1998 personal bankruptcy filings increased from 196,976 to 1,379,249 per year -- more than a 600% increase. If this trend continues, over half the adult population will be declaring bankruptcy at least once in their lifetime.

Yet the economy is flourishing. During the period between 1976 and 1997 the population increased 23% while the number of tax returns filed increased 45%. Society as a whole has gotten more productive. There are more people contributing and their effort has grown the economy from 1 trillion dollars in 1976 to 5 trillion dollars in 1997. Much of that growth was due to factors such as inflation. If we eliminate those factors and convert the 1997 figure to its 1976 equivalent, the economy actually grew from 1 trillion dollars to about 1.75 trillion dollars. If we divide this amount by the number of tax returns filed in 1997, we see that the economy grew at a rate of 15% per worker.

This 15% growth is deceptive though. Once we subtract the gains of the top one and one half percent of the income scale, the gain for the other 98% of American workers drops to a paltry 3%. Even this tiny gain disappears if we factor out the gains of the top five and one half percent. The bulk of the remaining 94% of the American taxpayers lost ground in the middle of an economic expansion after twenty years of tax cuts. What’s wrong with this picture?

The fact that the 60% of taxpayers, who make up the middle class, sustained a loss is outrageous. The actual per capita losses sustained by the middle class are much worse than these figures indicate. Important trend factors are not considered in the above income analyses. As you can see from Table 7, between 1970 and 1996 the number of married couples increased less than 23%, while the number of married women who worked outside of the home increased by 82%. This pumped millions of extra paychecks into the coffers of middle class. Since most married couples file jointly, the income contribution of these millions of women did not materially increase the number of tax returns filed. Their contribution did mask the actual decline in income share experienced by the middle class. During the period between 1970 and 1996 the median income of married couples with a wife in the paid labor force increased by better than 25%, while the income of couples without a wife working outside the home decreased 4.5%.

Why has nearly all gain gone to the richest few among us? The politicians have given the bulk of the tax cuts to these privileged few. While the richest in the top one percent income group averaged a 42% tax cut, the majority of Americans only got about a 3% in tax relief the same year. 1997 alone, this meant an average $637,000 savings for each one of the top group of 144,000 multimillionaires over what they would have paid under the 1976 rules. The staggering 92 billion dollars worth of tax cuts bestowed upon this privileged one-eighth of one percent was several times what everyone else received.

Back in 1976 the top one-third of one percent got nearly 4% of the personal income and paid over 11% of the nation’s tax bill. Despite this tax ‘burden’, the group was doing as well as their peers in democratic nations throughout the world. The spin-doctors of the superrich are quick to complain that by 1997 this group was paying over 24% of the tax bill. On the surface that 24% seems like a big increase over the 11% they were paying in 1976 until we consider the fact that they now get over 12% of all personal income. Their taxes as a percentage of income have dropped significantly. No other income group has seen anywhere near that amount of tax decrease.

Under misleading slogans, laws are quietly being put into place that funnels an increasing share of wealth to the richest few at the expense of the majority. The cash flow supplied by the current economic expansion is lulling us into a false sense of security. The long-term effects of these shortsighted policies are jeopardizing the stability of our nation.

Copyright © 2000 by Stephen Rodnesky

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