The Occupy Wall Street slogan, "We are the 99 percent," was partly a response to reports showing that recent economic growth has chiefly benefited those at the top of the income and wealth scales. Plenty of academic and think-tank research has demonstrated the trends, but a new report from the nonpartisan Congressional Budget Office should be a must-read for anyone with lingering doubts or those who just want to know more.
We can debate the causes of the growing disparity, and how society should respond. On the right, flat-tax proposals drawing plaudits in the Republican primaries reflect support for doing nothing at all - saying that's just the way the market works. Though they rarely argue their case equally forcefully, President Obama and most Democrats want to make the tax code a little more progressive, and to use some of the extra revenue to support investments in education, research, and infrastructure that should pay off for everybody in the long run.
But the CBO's report should lay to rest any doubts about what has happened since 1979, the year before President Ronald Reagan was elected and the country essentially turned to "trickle-down" economics, which was based on faith that benefits flowing from policies helping the rich - starting with a flatter tax code with decreased top rates - would trickle down to everybody else. As the CBO data show, the vast majority of gains since then have gone to the top 1 percent. From the CBO Director's Blog:
CBO finds that between 1979 and 2007:
- For the 1 percent of the population with the highest income, average real after-tax household income grew by 275 percent [see figure above].
- For others in the 20 percent of the population with the highest income, average real after-tax household income grew by 65 percent.
- For the 60 percent of the population in the middle of the income scale, the growth in average real after-tax household income was just under 40 percent.
- For the 20 percent of the population with the lowest income, the growth in average real after-tax household income was about 18 percent.
CBO Director Douglas W. Elmendorf doesn't prescribe solutions, or even claim to know why income patterns have trended as they have. He writes:
The precise reasons for the rapid growth in income at the top are not well understood, though researchers have offered several potential rationales, including technical innovations that have changed the labor market for superstars (such as actors, athletes, and musicians), changes in the governance and structure of executive compensation, increases in firms’ size and complexity, and the increasing scale of financial-sector activities.
But the report makes clear what many people have long recognized: Even before the 2008 economic meltdown, earnings had largely stagnated for most of U.S. society, while small numbers of people were growing fabulously wealthy. For much of the last three decades, that was papered over by cheap stuff from China, cheap energy, high-tech innovations with falling prices, and easy credit - fueled in the last decade by a housing bubble that allowed many Americans to believe that they had housing wealth even if their paycheck wasn't really growing.
Even Bill Gross, the billionaire bond investor and Wall Street contrarian, thinks it's time to address the underlying problems, writing recently: "If Main Street is unemployed and undercompensated, capital can only travel so far down Prosperity Road."
The CBO has given us some very important data for understanding what's at stake.