Improving the Economic Lot of the Bottom 75%

Scott Burns, a financial columnist for the Dallas Morning News always writes interesting and practical pieces, sometimes on personal finance, sometimes on bigger issues. Today’s column was on the declining buying power of the lower 75% of the American populace. Here are some snippets of what he has to say:

According to the most recent IRS statistics on tax returns (for 2003), households needed at least $295,495 to be in the top 1 percent, $130,080 to be in the top 5 percent, $94,891 to be in the top 10 percent and $57,343 to enter the top 25 percent.

Yes, you read that right. If your household income is over $57,343, you’re well toward the front of the line when the checks are handed out. If your income is below $29,019, you sink into the bottom 50 percent.

Increasingly, those in the bottom 75 percent – households with incomes below $57,343 – are looking like a long, slow train wreck….

Over this period [1993-2003], the dividing-line income for the bottom 50 percent has risen from $21,179 to $29,019, rising 4.3 percent a year. Had the income line only risen with inflation, it would have climbed to $26,504.

And that’s an important fact: Even the bottom of the income scale has gained purchasing power over the period – about $2,515.

Combine that additional income with declining interest rates on home mortgages, a period of weak to declining rents for apartments, a multitude of low-interest and no-interest offers from stores and automakers, and the people who do a lot of the heavy lifting in our society have gotten along.

Meanwhile, those with more earning power have done a lot better than just get along.

Earners at the top 1 percent line have gained $63,040 in purchasing power. Earners at the top 10 percent line have gained $12,198 in purchasing power, while seeing the portion of income they spend on income taxes decline from 20.2 percent to 18.5 percent. Earners at the top 25 percent line have gained $5,570 in purchasing power.

Unfortunately, gains for the bottom 75 percent are vaporizing.

It would take a major hit to destroy the $12,198 gain for those at the top 10 percent line.

That isn’t the case for those in the bottom 50 percent. Their entire $2,515 purchasing power gain since 1993 may already be history.

Will a tax cut solve the problem? Burns says,

If the federal income tax was simply eliminated for every household in the bottom half, it would liberate only about 3.5 percent of their income – less than inflation for one year.

Doesn’t sound like a lot of help to me.

I’m inclined to think this is a problem – and not only because I’m in that lower 75%. I think it would be a good thing for people in the bottom 75% of the economic scale to do at least as well, percentage-wise, as those in the top 25%.

How is that going to happen? I don’t know. A raise in minimum wage would help a few, but not the majority. In the olden days an increase in unionizing seemed to have helped, but I’m doubtful that’d work today. First, the nature of jobs has changed. Industries are more varied now. Second, we’re even more individualistic than ever. Unionism seems to depend on denying yourself more than we’re used to. Third, at least for me, unions don’t have a great reputation. I’m sure many are just fine – maybe even most – but I’ve read too many stories of union bosses who are every bit as mean, controlling, greedy and corrupt as some of the worst business people they oppose.

Here are a few ideas, though they maybe too idealistic:
1. Find a way to bring CEO pay & expectations in line. Their huge packages ought to embarrass businesses. But you’d think the businesses would be embarrassed by hiring leaders who fail to lead and destroy their companies. It would seem companies need smarter boards to do this.
2. Think up ways to make it so work and not just wealth can build wealth. Right now, wealth has great leverage. As far as work alone goes, you can work all day every day, and still not get ahead. Completely unrealistic, I know. The underlying requirement seems to be moving away from a culture built on gambling – and I don’t mean what they do in Las Vegas & state lotteries. Right now money makes money better than work because our culture sees investors as taking a risk in their investment. We’ve developed ways of quantifying and measuring these risks (markets, stock exchanges, etc.). That’s great. Since people want a big return, they’re often willing to take big risks. But is work seen as a risk? Short term, unless you have a dangerous job, it’s often not. But economically with our economic structure, yeah, working for a lifetime and not getting ahead sounds like a risk to me. But we have no institutions that quantify this risk. I’m not an economist so I haven’t a clue how to do this, but I’m inclined to think it’s not impossible.

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3 Responses to Improving the Economic Lot of the Bottom 75%

  1. Do you think we ought to lobby to reinstate capital gains taxes?

    I am 100% with you on the outrageous CEO compensation packages… What can be done?

  2. Richard H says:

    How would raising capital gains taxes help the lower 75%? I feel no need to hurt/penalize the upper 25%.

  3. Let’s start a move to outsource CEOs jobs to Asia! I am quite sure there are qualified folks there who will do that work for pennies on the dollar!

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