If you were President, and had a House majority and Senate supermajority on your side, how would you address economic inequality in our nation, and, if cost is involved, how would you pay for it?
For a summary of the issue, read below.
The last few decades of the 19th century and the first couple of decades of the 20th century saw a period of rapid economic expansion due to the emerging Industrial Age in the US, from which a group “robber barons” emerged, such as the likes of John Rockefeller and Andrew Carnegie, that accumulated huge sums of wealth and capital. By the end of the 1920s, the top 1% of earners were taking in 18% of the total population earnings, much at the expense of the poor and working class, as poverty was more widespread during and before this time than it is today.
However, after the Great Depression of the 1930s hit, when the supply of money fell sharply by 30% from 1929 to 1933 and unemployment skyrocketed to 25%, a “Great Compression” occurred where the income inequality from the previous few decades fell dramatically. This was due to the New Deal and its taxation and the strengthening of unions, which saw the income of the poor and working class rise from 1937 to 1947 and the income of top earners decrease. During the next 30 years, from World War II to the early 1970s, Americans saw a steady period of relatively low level of wage inequality. American manufacturing jobs were abundant with little foreign competition, unions remained strong, and taxation of top earners were high at a marginal 90% rate. The poverty rate shrunk in half during this time and was 12-13% by 1970. Average household income was up to $50,000 per year, in today’s dollars, by 1970.
However, afterwards, income inequality started expanding again. From the early 1970s until today, average wages remained stagnant for a number of reasons, while productivity doubled, providing top income earners with greater capital. This widening gap was further exacerbated when tax cuts under President Reagan, President George W Bush, and President Trump reduced the marginal rate of top earners to under 40% today, as well as the shift of huge numbers of manufacturing jobs overseas for cheaper non-US labor.
The period from the early 1970s to today, however, saw a greater increase of women in the workforce, up by 50%, contributing to an increase in household income despite the wage stagnation. Both spouses were working in over 70% of households by 2008, up from 47% before 1970, and the total number of work hours in households increased by 50% over that span. As a result, average household income increased from $50,000 per year to $60,000 per year in today’s dollars.
However, average wages have remained stagnant at approximately $22 per hour in today’s dollars over this time span. This has been attributed to this influx of women in the workforce, shift of manufacturing jobs overseas, and increased benefits such as medical insurance, among other reasons. US minimum wage for a single worker was at 99% of the poverty level in 1968 for a family of four, but is now at 60%. In terms of living wage, which is higher than the poverty level and is defined as the earnings needed to sustain the basic cost of needs such as food, basic clothing, shelter, and utilities, today’s minimum wage for a single worker would only cover 25% of living wage for a family of four and 50% if both parents were working. The US minimum wage today is $7.25 an hour.
Furthermore, working hours have begun to decline since the Great Recession of 2007-2009, down 10% since its height before the Great Recession. And, while unemployment is at a low 4% today after 10% during the Great Recession, this figure is only based on those actively seeking work, as the employment to population ratio is down to 59% today after being at a peak of 62-65% during the decade before the Great Recession.
Top earners have enjoyed increasing earnings and accumulated wealth since the early 1970s due to this wage stagnation, a shift to cheaper overseas manufacturing, increased productivity and resulting capital, automation, and tax cuts that weighed in their favor. While the inflation adjusted median household income has grown 10% since 1967, it has grown 50% for the top 10% of earners and doubled for the top 5% of earners. The overall US share of income for bottom half of US earners declined from 20% to 12% from 1980-2014, while the overall US share of income for the top 1% of earners grew from 12% to 24%, far exceeding what it was in the 1920s before the Great Depression or any other time in our history. Today, the combined 1% of earners make 81 times more than the combined bottom 50%.
As a result, today, the top 1% of wealthiest families in the US own 40% of nation’s wealth and the top 10% own 80%, the latter having increased from 67% in 1990, while the wealth of the next 40% has decreased from 33% of the nation’s wealth to 20%, and bottom 50% continues to own only 1% of the nation’s wealth. 95% of all economic gains during the past decade went to top 1% of wealth owners. Today, the combined net worth of US households and nonprofits is $94.7 trillion, which would amount to or $760,000 per household if spread evenly, but, in actuality, the bottom 50% of households average only $11,000 in worth per household.
The poverty rate does remain at 12-13%, consistent with the rate in 1970, and the rate of homelessness is at .17% of the US population. The latter amounts to roughly 550,000 homeless individuals, and has largely been the same in the past decade, since the Great Recession. The homeless population tends to disproportionally accumulate around large US cities, however, such as Los Angeles and New York, exacerbating the situation for these cities.
The US government provides cash assistance for the needy primarily via food stamps and welfare. Individual and household earners who make less than 130% of poverty level typically qualify for food stamps, and the payout averages roughly $130 a month, a figure which has not kept up with inflation since the Great Recession. Qualification for welfare is typically held to earners making less than 50% of the poverty level, and is limited to those who have children. Since 1996 legislation, welfare is also usually paired with work requirements. Welfare payouts average roughly $150 a month, which also hasn’t kept up with inflation, as recipients were receiving roughly the equivalent of $230 a month in today’s dollars in the 1970s.