We Are the 99.9%
By PAUL KRUGMAN, NY Times
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“We are the 99 percent” is a great slogan. It correctly defines the issue as being the middle class versus the elite (as opposed to the middle class versus the poor). And it also gets past the common but wrong establishment notion that rising inequality is mainly about the well educated doing better than the less educated; the big winners in this new Gilded Age have been a handful of very wealthy people, not college graduates in general.

If anything, however, the 99 percent slogan aims too low. A large fraction of the top 1 percent’s gains have actually gone to an even smaller group, the top 0.1 percent — the richest one-thousandth of the population.

And while Democrats, by and large, want that super-elite to make at least some contribution to long-term deficit reduction, Republicans want to cut the super-elite’s taxes even as they slash Social Security, Medicare and Medicaid in the name of fiscal discipline.

Before I get to those policy disputes, here are a few numbers.

The recent Congressional Budget Office report on inequality didn’t look inside the top 1 percent, but an earlier report, which only went up to 2005, did. According to that report, between 1979 and 2005 the inflation-adjusted, after-tax income of Americans in the middle of the income distribution rose 21 percent. The equivalent number for the richest 0.1 percent rose 400 percent.

For the most part, these huge gains reflected a dramatic rise in the super-elite’s share of pretax income. But there were also large tax cuts favoring the wealthy. In particular, taxes on capital gains are much lower than they were in 1979 — and the richest one-thousandth of Americans account for half of all income from capital gains.

Given this history, why do Republicans advocate further tax cuts for the very rich even as they warn about deficits and demand drastic cuts in social insurance programs?

Well, aside from shouts of “class warfare!” whenever such questions are raised, the usual answer is that the super-elite are “job creators” — that is, that they make a special contribution to the economy. So what you need to know is that this is bad economics. In fact, it would be bad economics even if America had the idealized, perfect market economy of conservative fantasies.

After all, in an idealized market economy each worker would be paid exactly what he or she contributes to the economy by choosing to work, no more and no less. And this would be equally true for workers making $30,000 a year and executives making $30 million a year. There would be no reason to consider the contributions of the $30 million folks as deserving of special treatment.

But, you say, the rich pay taxes! Indeed, they do. And they could — and should, from the point of view of the 99.9 percent — be paying substantially more in taxes, not offered even more tax breaks, despite the alleged budget crisis, because of the wonderful things they supposedly do.

Still, don’t some of the very rich get that way by producing innovations that are worth far more to the world than the income they receive? Sure, but if you look at who really makes up the 0.1 percent, it’s hard to avoid the conclusion that, by and large, the members of the super-elite are overpaid, not underpaid, for what they do.

For who are the 0.1 percent? Very few of them are Steve Jobs-type innovators; most of them are corporate bigwigs and financial wheeler-dealers. One recent analysis found that 43 percent of the super-elite are executives at nonfinancial companies, 18 percent are in finance and another 12 percent are lawyers or in real estate. And these are not, to put it mildly, professions in which there is a clear relationship between someone’s income and his economic contribution.

Executive pay, which has skyrocketed over the past generation, is famously set by boards of directors appointed by the very people whose pay they determine; poorly performing C.E.O.’s still get lavish paychecks, and even failed and fired executives often receive millions as they go out the door.

Meanwhile, the economic crisis showed that much of the apparent value created by modern finance was a mirage. As the Bank of England’s director for financial stability recently put it, seemingly high returns before the crisis simply reflected increased risk-taking — risk that was mostly borne not by the wheeler-dealers themselves but either by naïve investors or by taxpayers, who ended up holding the bag when it all went wrong. And as he waspishly noted, “If risk-making were a value-adding activity, Russian roulette players would contribute disproportionately to global welfare.”

So should the 99.9 percent hate the 0.1 percent? No, not at all. But they should ignore all the propaganda about “job creators” and demand that the super-elite pay substantially more in taxes.

Congressional Budget Office

CBO Cites Income Inequality
Posted Oct 28, 2011 by Sadiq Green
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As the Occupy Wall Street movement persists in cities across America and gains supporters across the globe, a new report by the nonpartisan Congressional Budget Office (CBO) echoes the concerns raised by the movement’s growing legions.

The CBO report details trends in the distribution of household income between 1979 and 2007, and reveals that after-tax income for the highest income households grew more than it did for any other group during that period. After-tax income is income after federal taxes have been deducted and government transfer payments, such as Social Security and unemployment insurance, has been taken into account.
The report reinforces the message that President Obama has been delivering since the battle on Capitol Hill over the debt ceiling; the necessity to restructure taxes and make higher-income Americans pay a greater share. That message has become a consistent mantra of the Obama administration and is a centerpiece of the President’s “American Jobs Act,” the administration’s jobs plan that has been opposed by Republicans on the Hill.

Among its findings, the CBO notes that between 1979 and 2007 income grew by 275 percent for the top 1 percent of households, 65 percent for the next 19 percent, just under 40 percent for the next 60 percent and just 18 percent for the bottom 20 percent. Moreover, the report notes that more concentrated sources of income such as business income and capital gains grew faster than labor income. The top fifth of the population saw a 10 percentage point increase in their share of after-tax income.

Increasingly, the question of income inequality is becoming a volatile political issue as the nation prepares for the 2012 presidential election. For the most part of his first term, President Obama has evaded the question of class disparities, and steered clear of making distinctions in economic impacts based on race, but the economic downturn has taken on a life of its own. In retrospect, the President’s battle with Congressional Republicans over raising the debt ceiling might have been the spark that aroused the latent anger of Americans toward their financial circumstances. What was widely characterized as a policy defeat for the President when he could not convince Republicans to consider revenue enhancements as part of a “grand bargain” to adjust the debt ceiling, might have been the equivalent of a political rope-a-dope on the part of Mr. Obama. By embedding a poison pill – the slashing of the Defense budget – in the mandate of the “super committee” if it fails to come to agreement on a plan, the President cleverly forced the reconsideration of his tax proposal.

President Obama went a step further by making certain revenue enhancement were part of his jobs plan. By doing so, the White House made the issues of income inequality and wealth disparity a part of the public discourse, especially in light of said disparity being so widespread. It provided President Obama with the perfect contrast to enable him to point up Pennsylvania Avenue to House and Senate Republicans as the drivers of inequality. Then along came Occupy Wall Street and what started out as online venting quickly caught fire as a grassroots movement of the economically dispossessed.

The CBO report also comes against the backdrop of the latest New York Times/CBS News poll that shows most Americans – 84 percent- disapprove of Congress. It is perhaps the sense that members on the Hill are simply preserving the status quo; and are defiantly defending the growing income inequality the CBO report chronicles while ignoring the masses of Americans. The question remains whether Republican presidential candidates will begin to tone down their near obsessive adherence to their anti- tax increase stand, reinforced by the rhetoric of the Tea Party and conservative activist Grover Norquist’s anti-tax pledge. This latest report by a credible source could serve to unhinge a group of GOP candidates that have sought to portray the White House incumbent as oblivious to the concerns of middle class Americans; a charge that appears to be considered far less legitimate given the mountain of data that suggests our nation is being torn apart by widening inequality.