In the days and weeks after Mitt Romney’s electoral defeat, there was what seemed like an endless stream of hand-wringing and soul-searching among Republican elites. The political landscape had changed overnight, forcing rising stars within the party to acknowledge the need for greater diversity, a new position on immigration reform, and a less exclusive rhetoric. Foremost among these would-be reformers was Louisiana Governor Bobby Jindal, who made waves when he told Politico, “We got to make sure that we are not the party of big business, big banks, big Wall Street bailouts, big corporate loopholes, big anything. We cannot be, we must not be, the party that simply protects the rich so they get to keep their toys.”
Yet, less than two months after he made those comments, Governor Jindal isback in the news for a considerably less egalitarian proposal: Jindal wants Louisiana to abolish both its personal and corporate income tax, which are moderately progressive, and replace them with a highly regressive state sales tax. The effect, as many analysts have already pointed out, would be a massive tax break for the wealthy—over $25,000 on average for the top one percent—financed by higher taxes on the bottom 80 percent, who spend a higher percentage of their income on things like food and utilities. The greatest impact would be felt by those in the lowest quintile, who would see their average after-tax income fall 3.4 percent, according to the nonpartisan Institute on Taxation and Economic Policy—roughly the same tax pain as falling off the “fiscal cliff.”
Some Republican states want to switch to a regressive sales tax system
Doubling down on discredited ”trickle-down” economics is a poor way for Republicans to shed their image as “the party that simply protects the rich so they get to keep their toys.” But Louisiana’s Jindal is not the only governor helping to prove how little conservative ideology has evolved. Similar plans are being promoted by Republicans in Kansas, Oklahoma, and North Carolina (which is also considering a business license fee that would make it harder for low-income people to start their own businesses). The passage of any of these regressive tax schemes would no doubt embolden lawmakers in the twenty-one other states with single-party Republican control.
Most pernicious, however, is the way in which the repeal of personal and corporate income taxes—and the commensurate rise in state sales tax—accomplishes several conservative goals simultaneously. All regressive tax systems increase the effects of income inequality by shifting the tax burden from the rich to the poor. But the switch to a sales tax also means state revenue streams are far more vulnerable to the business cycle, compounding the austerity effects of shrinking state budgets and public sector layoffs during economic downturns. This is, however an intended outcome for the conservative vanguard, for whom lower, less predictable tax revenues are designed to “starve the beast“—forcing state and local governments to cut social programs and other allegedly growth-inhibiting spending.
Although research shows no relationship between state income tax rates and economic growth, Republican legislators leading the push for state tax reformcontinue to insist that while the poor would be hit disproportionately by a higher sales tax, cutting income taxes is proven to spur job creation. To back up their claims, conservatives point to a November 2011 report by “trickle-down” theorist Arthur Laffer that purports to show a “negative and highly significant” relationship between state tax rates and economic growth. Laffer reaches this conclusion by misleadingly combining federal and state tax rates over the 2001-2008 period, when federal tax rates were falling and the economy was growing from the bottom of a recession to the peak of the housing bubble. When Laffer’s model is corrected to include only the variation in state tax rates, the relationship between states’ tax rates and economic growth “actually becomes positive and insignificant,” according to a 2012 rebuttal from the Institute on Taxation and Economic Policy.
Unfortunately, such empirical evidence has had little effect on Rhodes Scholar Bobby Jindal, who two months ago called on fellow Republicans to “stop being the stupid party. ” Perhaps it will take another electoral defeat in 2014 for the realization that tax cuts for “job creators,” financed by tax hikes on the bottom 80 percent, are neither an intelligent nor winning proposition.
Originally called “taxmageddon,” it is revealing that policymakers and journalists eventually settled on the less apocalyptic “fiscal cliff” to describe the $607 billion of tax cuts and stimulus spending scheduled to expire at the end of the year. The image of a cliff—literally something that you either fall off or walk away from—is oddly appropriate for Washington, where Republican obstructionism has made it increasingly likely that Congress will kick the can down the road rather than take the plunge and negotiate a timely compromise.
Andrew Fieldhouse, a fellow at The Century Foundation and the Economic Policy institute, and Josh Bivens, also at EPI, are somewhat more optimistic. They suggest Congress could approach the expiring provisions like a “fiscal obstacle course,” with several separable policies. Some, like the Bush-era tax cut for high income households, add hugely to the deficit while contributing little to overall economic growth. Others, like the payroll tax cut and expanded unemployment insurance, have a much more positive impact on GDP and employment levels while costing comparatively little. The report concludes that policymakers could achieve the best of both worlds—deficit reduction and sustained economic growth—with just $415 billion of well-targeted stimulus, rather than the $732 billion cost of extending 2012 spending levels.
Economists agree that we must begin to stabilize the growth of our national debt, with a long-term plan to increase taxes and lower spending. But allowing all of the tax cuts and spending provisions in the fiscal cliff to expire as scheduled would undoubtedly send the United States into a recession, with disastrous spillover effects for the world economy. So how is it possible that Fieldhouse and Bivens find savings of $318 billion (43.4 percent) without shrinking GDP or increasing unemployment?
The short answer is that each component of the fiscal cliff stimulates the economy to a different extent. Emergency Unemployment Compensation, for instance, is a federal extension that provides additional weeks of unemployment insurance after workers have run out of their usual benefits. Because the unemployed are more likely to go out and spend each additional dollar of income (economists say they have a high “marginal propensity to consume”), it is estimated that the economic output increases by $1.52 for every dollar the government spends on unemployment insurance. The “fiscal multiplier” for policies that benefit people with higher incomes, like the capital gains tax or the estate tax, is lower because the wealthy tend to save a greater percentage of each additional dollar they earn.
The graph above shows how the impact of the fiscal cliff breaks down across the income distribution, with different policies benefiting the bottom 80 percent of Americans and the richest 20 percent. The top quintile, for instance, benefits disproportionately from the upper-income Bush tax cuts and the low estate tax. EPI estimates that those provisions alone cost the government $64 billion a year in lost revenue, while providing a meager $14 billion boost to the economy (0.1 percent of GDP). Tax credits and stimulus programs that benefit lower and middle income households, meanwhile, generate substantially more growth than they cost.
The only program that falls outside this simple rule is the $1.9 trillion “sequester,” which is divided equally between cuts to defense and discretionary domestic spending over the next ten years. According to EPI, repealing sequestration would have a multiplier effect of 1.4, the second highest of all the policies listed in the graph below.
Based on the figures above, Fieldhouse and Bivens argue that a sensible compromise to lower the budget deficit while maintaining economic growth and employment would include the following provisions:
- Disengage the sequester in the Budget Control Act.
- Extend and expand temporary fiscal stimulus programs that provide high “bang-per-buck,” like Emergency Unemployment Compensation.
- Replace the expiring payroll tax cut with targeted stimulus like infrastructure spending or federal aid to states. (Although extending the payroll tax cut would boost GDP by nearly a full percentage point and preserve up to a million jobs, neither party has expressed any serious interest in continuing what many see as damaging Social Security.)
- Allow the upper-income Bush tax cuts, the estate tax and the gift tax to expire. This alone would boost revenue by $1.2 trillion over the next decade while shaving just 0.1 percentage points from real GDP growth next year.
- The middle-income Bush tax cuts could also be eliminated, increasing revenue by an additional $1.4 trillion. However, EPI recommends reinstating the provisions within the Bush tax cuts with high-multiplier impact, like the expansion of refundable tax credits.
The only danger for EPI’s progressive approach is that it will be seen as partisan for supporting lower and middle income households, rather than the wealthy. But the math behind the multipliers is sound: benefits for the upper end of the income distribution are of comparatively little worth at a time when the country needs to begin lowering its debt. With a smarter, more targeted stimulus in place of the fiscal cliff, we don’t have to choose between deficits and recession.
When it comes to fiscal policy proposals, the devil is in the details. Budgets require numbers to work, placing them somewhat outside the typical reality distortion field of the campaign trail and offering a rare chance to objectively analyze the substance of a candidate’s ideas. At the end of the day, the math has to work. Which perhaps explains why Mitt Romney’s tax plan—which promises to simultaneously lower taxes, eliminate deductions and reduce the deficit—is so short on any details that could complicate or invalidate its incredible premise.
Romney himself has admitted that “it’s kind of interesting for the groups to try and score it, because frankly it can’t be scored,” leaving journalists and think tanks in the dark as to how he could possibly lower taxes without growing the deficit or raising taxes elsewhere. But thanks to a report released last week by the Brookings Institution and the Tax Policy Center, we now know that obfuscation was precisely the point. Even their purposefully favorable treatment of Romney’s plan reveals his promises to be mathematically impossible.
The Tax Policy Center analysis begins by assuming that Romney would first eliminate all tax deductions for the rich, except those he has already promised to preserve, such as the preferential treatment given to investment income. But the total amount of revenue available from tax deductions for the rich is still less than the revenue that would be lost by cutting tax rates. For his plan to remain revenue-neutral as promised, Romney would therefore have to continue eliminating deductions all the way down the income distribution. In practice, this results in a net tax increase on all taxpayers with income below $200,000 of 58 percent—an average $500 tax increase for 95 percent of Americans and an average $2,041 increase for families with children.
That $86 billion shift in the tax burden—from the top 5 percent to the bottom 95 percent—is the most progressive possible result of Romney’s proposal. Again, it assumes (quite generously) that a Romney administration would aggressively cut benefits for the rich before proceeding to deductions for the middle class, like mortgage interest, employer-provided health care, education, medical expenses and child care.
What’s more, those numbers are based on Romney’s own model for economic growth, which assumes lower taxes on the rich would generate significant job creation and higher revenues. If you take away Romney’s “dynamic scoring” model, the tax increase facing the poor and middle class would need to be even higher. And all this assumes the Bush tax cuts are made permanent. Against a current law baseline (wherein the Bush tax cuts and other temporary tax breaks expire next year), the chance that Romney’s tax cuts are revenue neutral drops effectively to zero.
But maintaining revenue levels was never the point for establishment Republicans, as keen observers of the Bush administration will remember. What the Tax Policy Center analysis reveals is that unless Romney and his advisers intend to commit political suicide by raising taxes on 95 percent of the population, their real plan is to double down on the fairy tale logic of the Bush years: cut taxes, raise deficits, and wait for the magic of trickle-down growth to kick in.
It says a lot about today’s hyperpolarized political climate that a bipartisan movement to include new revenues in a long-term deficit reduction plan should be considered newsworthy, even radical. And yet, when Fix the Debt, a newly-formed coalition of America’s top CEOs, descended on Washington last week to pressure President Obama and Congress to embrace a balanced deficit reduction strategy along the lines suggested by the Bowles-Simpson Commission (which called for $2 trillion in new revenues), they made waves for breaking with their traditional Republican allies:
The reality now facing practical, pragmatic corporate executives is that their Washington lobbying apparatus has become one with a Republican caucus on Capitol Hill that is dominated by ideological zealots and uncompromising partisans. So if they have now concluded that the most important issue for American business, and the economy, is getting a reasonable bipartisan compromise on taxes and spending, their only choice is to bypass that apparatus.
It should not be surprising that America’s corporate titans, having crunched the numbers, decided to reject the GOP position. There is nothing conservative, in the true sense of the word, about Paul Ryan’s 2013 budget or Mitt Romney’s tax plan, which would cost the government $4.6 trillion and $3.4 trillion respectively over the next decade. That’s not including the $5.4 trillion cost of extending the Bush tax cuts, which would bring the total revenue loss for either proposal to nearly $10 trillion.
Both Ryan and Romney insist they will more than make up for these deficits by eliminating loopholes in the tax code (although neither can name a single deduction they would cut) and generating incredible “trickle down” economic growth through lower taxes on the rich—an assumption completely unsupported by historical evidence. Both propose draconian cuts to social programs, especially Medicare, to make up the remainder.
The business community, which supposedly knows a thing or two about finances, is right to be skeptical. Whether or not they have the interests of the middle class at heart (hint: probably not), they still need people to be able to afford their products.
As the November elections draw near, thinking people inside and outside the Beltway are recognizing the fundamental unseriousness of the GOP’s proposals. Even some Republican senators are rumored to be in support of going over the looming fiscal cliff, as a backdoor way of raising much-needed revenues without explicitly breaking their no-tax-pledges to anti-tax crusader Grover Norquist.
Sadly, one can imagine Romney, in more hospitable political climes, also taking up some version of Bowles-Simpson (as Obama once did, before backing down in face of an intransigent opposition) in a bid for the independent vote. But Romney and the Republican establishment, in thrall to the radical elements within their party, long ago surrendered their ability to compromise with Democrats on deficit reduction. If they cannot return to the center and accept higher taxes (as President Reagan did eleven times), the electorate will move on without them.
On Monday, President Obama formally announced his proposal to extend the Bush tax cuts for 98 percent of Americans for another year, while allowing rates to return to Clinton-era levels for marginal income earned over $250,000. Commentators on the right were quick to dismiss the plan as “political theater” and class warfare, while Mitt Romney called it “another kick in the gut to the middle class” (apparently the top 2 percent of households are now middle class). But new revelations this week about Romney’s own finances—including details of his accounts in offshore tax havens like Bermuda and the Cayman Islands—demonstrate why the debate over tax policy is about more than simply winning votes.
According to a new study by the OECD, the United States now has the fourth highest level of income inequality among advanced industrial nations. Thanks to the “disproportionate income growth for top earners over the past two decades,” the report finds that “children born to low-income parents in the U.S find it more difficult to move up the social ladder than in most European OECD countries.” Our tax and transfer system is among the least effective at reducing poverty, and it’s gotten worse since 1980.
Statistics such as these are lost on Mitt Romney, whose tax proposal includes massively regressive tax breaks that would save the richest 1 percent nearly $150,000 a year, while increasing the national debt more than $3 trillionover the next decade.
The fact is, the budget deficit is too large and tax rates are at historic lows. The Bush tax cuts cannot continue without eventually bankrupting the government or destroying the social safety net, neither of which is a serious option. And so taxes must go up. But while rates will eventually have to rise across the board, most economists agree it would be counterproductive to put pressure on the middle class until the unemployment rate drops further. Until then, it is fair and reasonable to ask wealthy and successful citizens like Mitt Romney—who have benefited the most from the opportunities this country provides—to do their part.
Unfortunately, patriotism today has little to do with civic duty. That seems to be the consensus among Republicans like Senator Lindsey Graham, who defended Romney’s tax avoidance schemes, saying “It’s really American to avoid paying taxes, legally… . It’s a game we play. Every American tries to find the way to get the most deductions they can. I see nothing wrong with playing the game because we set it up to be a game.”
According to the Internal Revenue Service, some $5 trillion in U.S. assets are held in offshore tax havens like the ones used by Mitt Romney, costing the federal government around $100 billion a year in revenue that would otherwise help fund poverty reduction, health care, and education.
Earlier this week, I explained how the majority of new revenue raised by the Affordable Care Act will come from the richest 5 percent of households; hardly the apocalyptic middle class tax hike Republicans have described. But end-times rhetoric (“Obama lies; freedom dies”) is more exciting than wonky explanation, as Fox News has discovered. “Democrats can fight back,” writes Mother Jones’s Kevin Drum, “but only by explaining that the mandate tax will only be paid by about 4 million people, not everyone, and then explaining that the other taxes in Obamacare mostly fall on high earners and corporations. This is, needless to say, a losing strategy. If you’re explaining, you’re losing; and if
you’re explaining about taxes, you’re digging yourself a big fat grave.” In other words, good policy doesn’t always make good politics.
That being said, I’m surprised more people on the left aren’t talking about the 3.8 percent surtax on investment income over $200,000 ($250,000 for joint filers), which will be a major source of funding for the Affordable Care Act beginning in 2013. The current 15 percent tax on income from capital gains—of which more than two-thirds go the richest 1 percent—is the main reason why wealthy households often pay a smaller share of their income in taxes than those who earn less, and is one of the primary drivers of income inequality in the United States. Of course, there are a number of reasons why we should eliminate the preferential treatment given to capital gains (Century Foundation vice president Greg Anrig lists ten of them here), not least of which is the principle that income from investments should not be treated as more beneficial to society than income from work.
Forget about the optics: any increase in the tax rate for capital gains is a victory for economic fairness. If more Americans saw graphs like the one above, that message just might play well on television, too.
Within hours of the Supreme Court’s decision to uphold the constitutionality of the Affordable Care Act, the GOP-Fox News messaging complex had settled on a new line of attack: rebranding President Obama’s landmark healthcare reform as “the largest tax increase in history” and a massive burden on the middle class. This latest spin is so outrageous it hardly passes the laugh test, let alone any serious analysis. Yet Republicans appear determined to repeat this falsehood until, as tends to happen in our postmodern media, it takes on the veneer of truth. Or at least truthiness.
Liberal media and objective journalists alike need to hit back hard on this one. The first issue is that the Supreme Court officially changed the semantics of the individual mandate from a “penalty” to a “tax” (a distinction without meaning), which Republicans are calling ”a tax increase on the middle class.” Not true: according to the nonpartisan Congressional Budget Office, only about 2 percent of people are expected to be pay this free-rider penalty. It will raise just $27 billion over the next decade, and the vast majority of Americans will be unaffected.
The second claim admits the first claim is bogus, and focuses instead on the two major taxes included in the ACA, which help fund the bill. The first is a 0.9% surtax on Medicare taxes for individuals making over $200,000 or $250,000 for joint filers—approximately the richest 5% of households. The same income bracket is also responsible for a 3.8% surtax on investment income, which includes things like capital gains, dividends and interest.
The ACA also includes several minor changes to the tax code, which have the potential to be more regressive than the high income and investment income taxes. Business Insider describes most of them here; the list includes a cap on Flexible Spending Account contributions (which allows you to shelter some of your income from taxes), a 10% tax on indoor tanning services and a 40% tax on so-called “Cadillac” healthcare plans beginning in 2018. But these penalties are more than offset by the tax credits provided by the ACA, which are estimated to help 28.6 million Americans buy insurance by 2014. According to the CBO, these subsidies offset the individual mandate’s tax penalty by a factor of 10, even as the overall tax increases and spending cuts reduce the nation’s budget deficit.
When you add up all those taxes, as PolitiFact recently did, you find that the government should see increased revenues of $104 billion in 2019, or about 0.49% of GDP, thanks to the ACA. That figure will do little to persuade talk radio personalities like Rush Limbaugh, who recently decried Obamacare as “the largest tax increase in the history of the world”—but we don’t expect them to. Unfortunately, Limbaugh’s histrionics have a way of filtering down to the mainstream; just yesterday, Tennessee congresswoman Marsha Blackburn parroted the “largest tax increase in history” line on CNN, where she was not corrected. A responsible anchor would have responded that the ACA is actually only the 10th largest tax increase since 1950—smaller than the 1993 increase under then-president Bill Clinton, and about a third smaller than the 1982 tax increase signed by Ronald Reagan.
Liberals need to be shouting these numbers from the rooftops.
“Even Critics of Safety Net Increasingly Depend on it,” read a recent New York Times headline, capturing in a sentence the uncertain and contradictory sentiment of millions of middle class Americans who say they want the government out of their lives, but admit they count on Social Security, Medicare, and other benefits to stay afloat. Chisago, Minnesota—the archetypal heartland county in which much of the article takes place—is illustrative: a former Democratic stronghold, now with a declining middle class and a decidedly conservative outlook, whose residents struggle to reconcile their resentment with reliance on entitlement programs.
The remaining Republican presidential candidates have seized upon that resentment to construct an alternative narrative to the one President Obama favors. While the administration talks about helping hard-working Americans to get back on their feet after the worst economic downturn since the Great Depression, Mitt Romney has warned that the United States is becoming an “Entitlement Society,” with dependence on government fostering “passivity and sloth.” Rick Santorum talks of social insurance “systematically destroying the work ethic.” And Newt Gingrich has called Mr. Obama a “food-stamp president,” suggesting that “the African-American community should demand paychecks and not be satisfied with food stamps.”
But this racially-charged narrative—able-bodied young people collecting government benefits instead of finding honest work—couldn’t be farther from the truth. According to a new report from the Center on Budget and Policy Priorities, more than 90 percent of government benefits went to the elderly, the seriously disabled, and members of working households in 2010. The majority of the remaining 9 percent went to medical care, unemployment insurance (which requires previous work experience), Social Security survivor benefits (for children and spouses of deceased workers), and early Social Security benefits. The CBPP analysis also finds that among entitlement programs that target only low-income households, five out of every six dollars were spent on the elderly or disabled (probably a low estimate, as the data comes from 2010, when the national unemployment rate averaged a historic 9.6 percent).
The CBPP data should also quash the Republicans implication that the poor benefit from entitlement programs at the expense of the middle class. In fact, the graph below shows that the middle class receives a proportionate share of benefits, while only the top 20 percent of the population receives less. Compare that to the distribution of tax credits, write-offs and deductions that are available to the rich: the top fifth of the population received 66 percent of the $1.1 trillion “tax entitlements” in 2010, compared to just 2.8 percent for the poorest fifth.
Unfortunately, the deterioration of the middle class has made many Americans susceptible to the politics of resentment that drive Republican misperceptions. In Chisago County, per capita income has fallen 13 percent in the last decade; nationally, median income remains little changed in over thirty years. But instead of questioning the vast upward redistribution of wealth to the top one percent, or why the 400 richest Americans—who control as much wealth as 150 million people—pay an average tax rate of just 18%, many of Minnesotans quoted in the Times article speak stoically of suffering to reduce the national debt and their own reliance on government:
“How do you tell someone that you deserve to have heart surgery and you can’t?” Mr. Gulbranson said.
“You have to help and have compassion as a people, because otherwise you have no society, but financially you can’t destroy yourself. And that is what we’re doing.”
He paused again, unable to resolve the dilemma.
The failure of the super committee fit easily into the prevailing media narrative that holds both parties responsible for the breakdown in bipartisanship. And when nine out of ten Americans disapprove of the job Congress is doing, there is naturally a strong impulse to blame Democrats and Republicans equally. But in truth, the political gridlock over deficit reduction ultimately comes down to the problem of raising taxes. While Democrats remain willing to put costly social programs on the chopping block, Republicans have not budged an inch in their opposition to new revenue.
However, recent polling shows that Americans overwhelmingly support a combination of spending cuts and higher taxes. Despite the obstinacy of the Republican leadership, seven out of ten people now believe that higher taxes should be a part of any deficit reduction plan; less than 20 percent think spending cuts alone would be sufficient.
That’s a remarkable shift from the Reagan years, when those numbers were nearly reversed. So while Congressional Republicans have become increasingly anti-tax over the last thirty years, the public has actually moved further to the left on the question of progressive taxation. That’s not surprising, considering how much income inequality has grown and social mobility has declined since the early 1980s.
By Benjamin Landy
Henry Blodget, the Editor-in-Chief of Business Insider, has compiled an excellent series of graphs this week illustrating the various ways that the distribution of wealth has grown more unequal over the last fourty years. Inspired by the Occupy Wall Street protests, Blodget highlights the ongoing economic injustice: middle class wages remain stagnant and the unemployment rate hovers near historic highs, but corporate profits and incomes for the nation’s wealthiest members are reaching levels unseen since the late 1920s.
I combined two of Blodget’s more powerful graphs and reconfigured them to compare the change in wages and corporate profits as a percentage of GDP since 1960.
The data is shocking: with the exception of a brief respite from 1967 to 1972, workers’ wages have been steadily declining as a share of the economy for over fourty years. At just 14 percent, wages have never been lower as a percentage of the economy than they are today.
Corporate profits, meanwhile, have never been better. As a percentage of the economy, today’s profits are surpassed only by a brief period in 2007, just before the stock market crashed, propelling the US economy into the Great Recession. If the current trend continues, they will soon be even higher.
And just in case you were wondering who is benefiting from those skyrocketing corporate profits, here’s a reminder:
It’s not the middle class.
By Benjamin Landy
As the Occupy Wall Street protest builds strength in lower Manhattan, inspiring offshoot movements to “occupy” Boston, Los Angeles, and numerous other cities, the mainstream media are finally beginning to address Americans’ growing discontent over income inequality, debt, corporate greed and corruption—a conversation dominated until very recently by the Tea Party. Unfortunately, class privilege remains an uncomfortable topic in most media circles, and the hard facts about rising income inequality go largely unreported.
Here, for those wondering what all the fuss is about—or those simply wanting to learn more—is the single most important graph concerning U.S. income inequality.
In the graph on the left (click to expand), it is difficult to discern any appreciable increase in real income for all but the top 15 percent of taxpayers since 1979. But while middle class wages have remained stagnant for the last 40 years, top incomes have skyrocketed, more than tripling in the same period. The graph on the right reframes this dramatic shift in terms of percent share of total income, illustrating a stark divergence between the most wealthy Americans and nearly everyone else.
Of course, it wasn’t always this way. For much of the twentieth century, the United States had a strong middle class. Incomes for all Americans were rising as wages tracked producitivity growth. Then, beginning around 1973, these two trends decoupled. Political scientists continue to debate the exact reasons—lower taxes on the rich, deregulation of business, a widening gap between the technological skills of the labor force and available jobs—but productivity soared while only the incomes of the top ten percent continued to rise in tandem. The middle class, as it had existed since the end of the Second World War, began to decline. The top one percent, meanwhile, now control a substantial majority of the nation’s wealth: In 2010, the 400 wealthiest individuals held more assets—in stocks, home equity and other investments—than the bottom 50 percent of Americans combined. The average wealth of the top 1 percent was nearly $14 million in 2009, down from a peak of $19.2 million before the financial crash.
When you look at the data, it’s not hard to see why so many Americans are upset, nor why Republican strategists are so concerned by the effectiveness of the protesters’ populist slogan, “We are the 99%.” It’s hard to defend tax breaks for millionaires when Congress is slashing budgets for social programs that help the poor, especially when the threshold income to join the top 1 percent is $516,633—about ten times median income.
That anger is now beginning to take form. When I walked down to Zuccotti Park in New York’s financial district last Wednesday to observe the thousands who had gathered there to protest, what I repeatedly overheard was some variation of “I’ve been waiting for this to happen.” And while it is too soon to say whether the Occupy Wall Street movement will grow into the Left’s answer to the Tea Party, the mainstream media and the Democratic Party are at least sitting up and taking notice. We’re long overdue for a national conversation about the unprecedented income inequality in this country, and Wall Street—the symbolic center of the financial world—is as good a place as any to start it.