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
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.
Copyright © 2000 by Stephen Rodnesky