In June, an analysis from the Center on Budget and Policy Priorities confirmed that gap between rich and poor in the United States reached levels not seen since 1929. Between 1979 and 2007, the yawning chasm separating the after-tax income of the richest 1 percent of Americans from the middle and poorest fifths of the country more than tripled. But while the Bush recession which began in December 2007 temporarily halted the stratospheric advance of the wealthy, the rich - and the rich alone - have largely recovered their losses. Which means that the record level of income inequality in America is growing once again.
The CBPP report found a financial Grand Canyon separating the very rich from everyone else. Over the three decades ending in 2007, the top 1 percent's share of the nation's total after-tax household income more than doubled, from 7.5 percent to 17.1 percent. During that time, the share of the middle 60% of Americans dropped from 51.1 percent to 43.5 percent; the bottom four-fifths declined from 58 percent to 48 percent. As for the poor, they fell further and further behind, with the lowest quintile's income share sliding to just 4.9%. Expressed in dollar terms, the income gap is staggering:
Between 1979 and 2007, average after-tax incomes for the top 1 percent rose by 281 percent after adjusting for inflation -- an increase in income of $973,100 per household -- compared to increases of 25 percent ($11,200 per household) for the middle fifth of households and 16 percent ($2,400 per household) for the bottom fifth.
To be sure, the deficit-exploding Bush tax cuts played an essential role in fueling the gap. (This is evidenced by the fact that between 2001 and 2007, the income share of the 400 richest American taxpayers doubled even as their tax rates were halved.) As the New York Times revealed in October, by 2007 the top 1% - the 1.5 million families earning more than $400,000 - reaped 24% of the nation's income. The bottom 90% - the 136 million families below $110,000 - accounted for just 50%.
But with the devastating Bush recession, the upper class joy ride hit a speed bump. As the media last fall lamented the downturn's impact on the tragically rich, David Leonhardt and Geraldine Fabrikant of the New York Times concluded concluded, "After a 30-year run, [the] rise of the super-rich hits a sobering wall."
They began to pull away from everyone else in the 1970s. By 2006, income was more concentrated at the top than it had been since the late 1920s. The recent news about resurgent Wall Street pay has seemed to suggest that not even the Great Recession could reverse the rise in income inequality.
But economists say -- and data is beginning to show -- that a significant change may in fact be under way. The rich, as a group, are no longer getting richer. Over the last two years, they have become poorer. And many may not return to their old levels of wealth and income anytime soon.
As it turned out, that time wasn't just soon. It's already here.
The Los Angeles Times announced the return of record-setting income inequality last month in an article titled, "Millionaires Make a Comeback." After getting pummeled as Wall Street plummeted in 2008, the rich have begun to recoup their losses. The short period of Gilded Interrupted is over:
In 2008, as the financial crisis raged, the stock market hit bottom and the Great Recession ate into the economy, the number of millionaires in the United States plunged.
But last year the number of millionaires bounced up sharply, new data show.
And after that decline and rebound, the millionaire class held a larger percentage of the country's wealth than it did in 2007.
"It's been a recession where everyone took a hit -- with the bottom taking a bigger hit," said Timothy Smeeding, a University of Wisconsin professor who studies economic inequality. But "the wealthy alone have bounced back."
Bounced back, it turns out, with a vengeance. The Boston Consulting Group found that "the number of U.S. households with at least $1 million in "bankable" assets climbed 15% last year to 4.7 million after tumbling 21% in 2008." Despite there being 10% fewer millionaires than in 2007, the percentage of Americans' total wealth held by those households was slightly higher, growing to 55%.
Writing in the Washington Post, Ezra Klein neatly summed up the dynamic which has restored income inequality to record highs:
The basic story here is that assets have recovered so much more quickly than the broader economy that in 2009, "the millionaire class held a larger percentage of the country's wealth than it did in 2007." In other words, inequality has actually gotten worse. If you want to see why that's unexpected, check out the chart I cadged from the Center for Budget and Policy Priorities: After the Great Depression, inequality fell and didn't recover until 2007. That's about 80 years. After the Great Recession, inequality fell and didn't recover until ... 2009? That's one year.
For his part, Larry Mishel of the Economic Policy Institute argued, "The recession is going to end up accentuating the inequalities of income and wealth we've seen for 30 years," adding, "This requires attention if we're going to see robust wealth growth going forward."
Which is exactly right. Sadly, Republican obstructionists in Washington are only paying attention to those who need it least. Before they united to block the extension of unemployment benefits to the long-term jobless, Republicans delivered a one-year suspension of the estate tax. And even as that gambit drains billions from the U.S. Treasury to produce a one-year windfall for the heirs of the richest Americans, the GOP and its Tea Party shock troops insist on making the expiring Bush tax cuts for the wealthy permanent.
As the numbers on income inequality clearly show, only one side is fighting the class war in America. It should come as no surprise that they are winning it.
(This post also appears at Perrspectives.)
