Why, with the U.S. economy prospering over the three decades prior to 2007, did the quality of life for the overwhelming majority of Americans decline? Inflation-adjusted income more than doubled and wealth increased by 81 percent. So why did most people have to work longer hours and fall deeper into debt to make ends meet? Why did public services deteriorate?
The reason is that as the economy produced ever more, the very wealthiest Americans grabbed practically all of the gains.
Just how much did the rich grab? Between 1979 and 2007, inflation-adjusted income, including capital gains, increased $4.8 trillion — about $16,000 per person. Of this, 36 percent was captured by the richest 1 percent of income earners. The richest 10 percent captured 64 percent, almost twice the amount collected by the 90 percent below.
What happened to the gains in wealth was even more dramatic. Between 1983 and 2007, total inflation-adjusted wealth in the U.S. increased by $27 trillion. If divided equally, every man woman and child would be almost $90,000 richer.
But of course it wasn’t divided equally. Almost half of the $27 trillion (49 percent) was claimed by the richest one percent — $11.7 million more for each of their households. The top 10 percent grabbed almost $29 trillion, or 106 percent of the total. Meanwhile, the bottom 90 percent suffered an average decline of just over $16,000 per household.
What could be bought with the $29 trillion increase in the top ten percent’s wealth over the past three decades? Strikingly, it covers all of the expenses necessary for our future collective well-being — the very expenses that, we’re told, can’t be funded because of budget deficits and rising public debt.
The American Society of Civil Engineers estimates that the United States needs to spend $2.2 trillion over the next five years to meet its infrastructure needs. To ensure that Social Security can pay all promised benefits for the next 75 years would cost $8.6 trillion. Providing all needed Medicare funding for the next 75 years would cost a total of $4.6 trillion.
To pay for all Medicaid, the Children’s Health Insurance Program, and subsidies for purchasing health insurance through the Affordable Care Act for the next 10 years would cost $1.5 trillion. To close all projected federal budget deficits until 2021 would cost $7 trillion. Taking back the $29 trillion would cover all of these needs and the $5.1 trillion that would be left over could pay off about one-third of the national debt.
The rich managed to capture this $29 trillion because they gained greater command over the political process, which allowed them to engineer economic policy for their own gain. Their greater wealth meant greater command over the political process, which in turn made them wealthier. The explosion of corporate lobbyists and corporate campaign contributions leveraged their political influence.
The rich promised that everyone would benefit from deep tax cuts for the wealthy and welfare cuts for the less privileged. Deregulation, weaker unions, and freer trade, they argued, would make the economy grow more rapidly, creating jobs and raising everyone’s incomes.
But these promises never materialized. Between 1948 and 1976 — a period in which taxes were far higher, the safety net stronger, regulations stiffer, labor unions stronger, and inequality lower — GDP grew an average of 3.8 percent per year and unemployment averaged 5 percent. Since then, GDP growth averaged only 2.8 percent and unemployment averaged 6.4 percent.
Americans need a new social contract, one that partially recaptures the $29 trillion rip-off, offers protection against it happening again, and moves us toward a more equitable and democratic society. So how can we take back the rich’s ill-gotten gains?
The first step is to guarantee a job at a living wage to everyone capable of work, and where necessary, provide retraining needed to enter the private sector. The second step is to return to the more progressive income tax schedules that were in place from the end of World War II until 1981. In spite of the fact that top marginal tax rate hovered between 91 and 70 percent between 1946 and 1981, the U.S. economy grew more robustly than it did after these taxes were slashed—so much so that the period is often called the “Golden Age of Capitalism.”
Other tax measures should include treating capital gains as regular income; implementing a financial transactions tax to mitigate the economic and social risks engendered by the rich’s gambling; ending the carried interest income tax loophole for hedge fund managers; placing an excise tax on luxury goods; enacting a progressive wealth tax; lowering the cap on mortgage interest deductions; and phasing-in an energy or carbon tax.
The revenue from these policies could then be used to fund improvements to education, implement a more efficient and egalitarian health care system, create neighborhood child-care centers, guarantee jobs and adequate training, publicly finance political campaigns, and better enforce workers’ right to unionize.
Democratic control of the American economy must be reclaimed so as to create an economic and social order that works for the benefit of all—not just the elite. But what about the richest one and 10 percent? They’ll still be the richest one and 10 percent, just not as outrageously so.