Wednesday, December 15, 2010
Eighty percent of workers receive twenty-eight point two percent of the nation's income
Dear Congressman Stark, December 10, 2010
Until wealth and income inequality are fixed, the economy is broken. The lower earning 80% of American families earn 28.2% of the annual income and own 12.3% of the private wealth of the nation. 24.1% of the nation’s families own nothing.
I try not to waste your time, Congressman. I’ve written before about economics.
Today I have a specific plan I’d like your help with. I think we need better information about the economy than what we have. I have recommendations, but you will have to read my story.
Twenty-eight point two percent, 28.2%, is the portion of the nation’s entire income that the lowest earning 80% earned in salary and wages in 2006. I know this because of a table printed in State of Working America, 2006-2007, published by the Economic Policy Institute. They took the table from the Tax Policy Center which is run by the Brookings/Urban Institute. The table is called the Microsimulation Model Version 0305-3A, and if you e-mail them they will send you a copy. *
The bottom 80% received 40.0% of all income, but about 12% was "other income", mostly pension income from Social Security. Readers can view the document from the Tax Policy Center at this address, Table 1.17, http://www.stateofworkingamerica.org/tabfig_2008_01.html
I had no idea my computer could do that, but there is the table; page 79 of the book State of Working America. How much income is total Salary and Wages?
64.5%. (Look at the bottom of the far column at the left) How much of that do the lower 80% of households get? 43.7%. (Look at the top column in the middle labeled “Wages & Salaries”) If you multiply the two, then the lower 80% of households receive 28.19% as their portion due to their labor. The top 20% receive 60.3% of all income.
Most people would say that the condition of 80% of the workers receiving only 28% of all income was inadequate, unfair, and maybe immoral. Few economists know these figures much less report the details of income distribution, and most citizens are basing their judgment on bad information. I had to use some imagination to multiply the 64.5% with the 43.7%. No one else has ever reported this data. This is why I’m writing.
Some 80% of the workforce are non-supervisory workers --- not managers, not owners, not professionals or self-employed. The post-tax picture looks much like the pre-tax picture.
Is it immoral? Just as invading Iraq on bad information and causing one million civilian deaths (see Wikipedia article Casualties in Iraq) can be ascribed to moral torpitude of the invading nation, there is a moral dimension to such one-sided income distribution. This is an important distinction. Voters may base their judgments on the supposed laziness and unworthiness of recipients of “entitlements” and other government provided social benefits. Much of the right-wing media presents this picture. Many Americans think that success is simply a matter of work-effort, not of opportunity. The following should be a part of everyone’s working assumptions: about 10% of the workforce are involuntarily out of work and actively looking for work, about 10% are underemployed and want full-time employment, or have given up on active job searches but still want to work, and a last 10% are employed full-time and full-year at wages that pay less than the poverty level for a family of four. That’s 30% of workers for whom work opportunity is very unpromising. That is 46.5 million adult working Americans, not counting their dependent children, almost a third of the nation, for whom the American Dream is out of reach. There is, in December, 2010, about 1 full-time job opening for every nine job seekers. (Go to njfac.org and search the unemployment numbers from BLS data to confirm those figures.)
Immoral? Our economy generated in 2009 over $46,000 per citizen per year (multiply 310 million Americans by $46,000 to get a GDP of over $14 trillion). With such a rich economy, how can any worker be “working poor”? We generate over $100,000 per worker per year, and that includes the 36% who work part-time. Yet 16.3 million workers in 2009 worked full-time and full-year for less than the annual income needed to raise a family of four above the government’s poverty line (See njfac.org). How can the poverty rate be 15%? Why is it that Italy has an average wealth per adult of $115,000, Japan $102,000, Canada $94,000, and the U.S. has a wealth/adult rate of $44,000? Maybe our economic system is lacking, not the moral fiber of the population. (See the Credit Suisse Bank Research Institute Global Wealth Report, October 2010)
The 28.2% income distribution fact is very important for several reasons, and in your office as Congressman I think you can create legislation to make figures about the economy easier for the average citizen to access. Voters need accurate and relevant information, and the source should be from the government, not the Brookings or Urban Institute. I do not know where this information could be found in government documents. I wrote the U.S. Census for a simplified version of the federal budget, and they had nothing. I’ve looked at the President’s budget, the CBO, the BEA, Wikipedia, and other non-profits and foundations. The Tax Policy Center is the best I’ve found, but even they are inaccurate and inadequate. The average person, concerned citizen, does not have time for this search. The media is helpless at best.
One friend of mine thought that half the government’s expenditures went to welfare. What was I to tell him? That was not too difficult, but ask yourself, how much goes to education? And I don’t mean just federal dollars. You have to go to Wikipedia to find out. What is the “overall” tax rate (federal, state and local) for those who earn less than $20,000? You have to go to Citizens for Tax Justice, because they compile a roster of “overall” tax rates for all incomes in all states. What about Medicaid expenses, or public health? The military, does it spend $1.5 trillion like I heard on the news, and Chalmers Johnson said $1.1 trillion, and officially it’s $873 billion or something like that.
I’d like to spend a minute on the latest tax compromise deal, the Obama Republican tax compromise. 84% of the national income is subject to Social Security taxes, and that income will have a 2% drop in taxation, down to 4.2%. This will add spending power to the economy. Since 2007 much consumer spending power has been lost, about 1.5% of what was there in 2007, arguably. What was wrong with just increasing the Earned Income Tax Credit? Or just printing the money and mailing the checks? Same outcome except you don’t spend down retirement savings accounts for workers who can’t afford to spend their retirement today and have little tomorrow.
The Citizens for Tax Justice has a pdf. file article that shows, state by state, who gets the benefit of the tax cut. Overall 64% goes to the top 20% of families who receive 60% of all income. In California, the 20% receive 70% of tax cuts. Thought you should know.
Most of what I’m saying you know, in part. But I’ll continue. My point is that the public should not have to buy a book, they should be able to e-mail the Bureau of Economic Analysis, Department of Commerce, and find their information.
One professor of economics at U.C. Berkeley, Emmanuel Saez, recently received the MacArthur “Genius” Award. He has been analyzing IRS data from 1913 to the present, disaggregating it into income percentiles. His report “Striking It Richer” the August 2010 Update, shows a graph that shows the income portion of the top earning ten percent of households from 1913 to 2007. During the period 1940 to 1980 the top ten percent never received more than 35% of the nation’s total income. In 2007 they had 49.7%. You might know this. It is becoming well known, especially the top one percent receiving 23.5% of all in 2007. Between 1946 and 1972 all income groups, quintiles, doubled their incomes in real terms. Between 1983 and 2007 the median family increased their income by 7.7%, even though the nation’s economy had expanded GDP per capita by 64%, and the worker’s productivity went up by 90%.
You may know that the Chairman of the Federal Reserve Bank during the Great Depression, Marriner Eccles, laid the blame for the Great Depression on income inequality. You may know that U.C. Berkeley professor Robert Reich also now claims, in his blog and his book After Shock, the 2008 recession was brought on by inequality. Now you know, exactly, that 28.2% of all income is what the non-supervisory workers got for their labor. I don’t think many people know this. They would conclude this is immoral, as I believe. It is not a fair reward. And it’s not just wrong, it’s really bad for the economy.
The 28.2% figure and the 49.7% figure came not from government but from an academic or a non-profit source. There should be a people friendly authoritative government source of information. There is not. Maybe you can direct me to someone who can talk to me about these issues. The White House now has a White Board video web page that explains different economic issues. That’s a step in the right direction. How about a simplified explanation of all government spending and revenue? A visit to the data.gov site does not provide a simple picture and answer to my questions. For instance, I never knew that 8% of ALL government revenues is federal revenue shared with states and localities, but then I went to the Tax Policy Center web page. Federal revenue amounts to 49% of all government revenue. How much does welfare amount to? I’ll tell my friend about 4% of GDP. Close enough.
I have a blog page, http://benL8.blogspot.com, and it has an essay about eight different proposals to create federal jobs. I recommend it to you (see April 2010, second essay). We need federal jobs. Marshall Auerback wrote a good article that shows between 1933 and 1937 the unemployment rate descended from 25% to 9.6% (See “The Real Lesson from the Great Depression”). And several other reliable authors have picked up this figure, so I imagine it must be accurate. It’s new data that shows a revision in the metric for unemployment before 1940. James Galbraith says we need an active deficit, that is a jobs program.
I was an elementary teacher, Oakland and Richmond, for 16 years. Now I’ve been reading economics for the past four years. I hope as more of my age cohort retire they will spend their energy sorting out our problems and making your job less frustrating. I disagree with you plenty. We should have creamed the banks in 2008, we should have fought for a 90% top marginal income tax rate, and so on. But I would never wish to have your job, and you deserve a big thank you, from my heart. Bernie Sanders finished his talk this evening, and I’m not going to type for 8.5 hours tonight. Thanks, best wishes.
Ben Leet, San Leandro, California.
For additional information:
Go to the Citizens’ Commission on Jobs, Deficit Reduction and America’s Economic future at ourfuture.org for a plan for economic recovery. See also Representative Jan Schakowky’s plan for deficit reduction. See the report “Battered by the Storm” from the Institute for Policy Studies. See toomuchonline.org for additional information on inequality.
I’m enclosing four charts। The third is the one I talked about from the table in this letter. I have not fixed it, the figures are not perfect, but for now close enough.
About half of the U.S. workforce (47% to 52%) are working full-time full-year at income above the poverty level income. Many people wrongly believe that everyone can find full-time work in a good paying job. They are wrong. This is the logic: There are 155 million in the workforce, subtract the 15.2 million unemployed, leaving 139.8 million working each day. Subtract 36% or 50.3 million who work part-time, leaving 89.5 million. Subtract 16.3 million who work full-time full-year for below poverty level wages, leaving 73.2 million. This number of workers, 73.2 million, is either 47% of all who work each day or 52% of the total workforce. Therefore, about half who work are full-time full-year workers receiving more than poverty level wages.
We should note though that about 80% of part-time workers do not want full-time work. None-the-less, finding that “good job” is not simply a matter of stepping up and applying your talents. As Professor Frank Stricker noted in his book Why America Lost the War on Poverty, there are never enough good jobs.
Potentially we could improve our nation by: providing child care for all parents, improve public education, make energy efficient all public buildings, and then private residences, repair and upgrade all roads, parks, bridges, ports and water systems, evolve our energy system into a non-fossil-fuel clean energy system, create a majority of clean electric vehicles, and allow for additional vacation time for all workers. To accomplish this would require intelligent policy, not just the invisible and blind hand of the market that has created a grossly out-of-balance and unfair distribution of income and wealth.
There are policies that would increase total employment and compensation for non-supervisory workers. These policies would make for both a healthier economy and a healthier society. Full employment for all who want to work may not be a realizable inalienable right, but it is an admirable goal, probably attainable.