Rich Man, Poor Man
Optimists (or politicians intent on painting a rosy picture of the economy) will point you to the statistics on median family income. Don't be fooled. While the numbers show incomes up, from $43,913 to $54,061, a 23 percent growth in real terms, the growth has been due almost entirely to the fact that more and more wives have gone out to find jobs to make ends meet.
Stratification. We can now see clearly that there is no silver lining to any of these gathering clouds. If we look at net worth, as distinct from income, the growing inequality is equally manifest. Some 85 percent of the nation's wealth now resides in the hands of the richest 15 percent of American families. The bottom 50 percent of families, on the other hand, claim only 2.5 percent of household net worth. In the most recent three-year study of median family net worth, covering 2002 to 2004, the growth was virtually zero--much lower than in the previous couple of three-year periods studied. The average net worth of the richest 10 percent of American families rose to $861,000 last year, a 6.5 percent increase over 2001. What happened to the typical family in the bottom 25 percent? Net worth actually fell, by 1.5 percent.
What's going on?
First, our tax system has become much less progressive, enabling families in the top decile to benefit, and especially the top within the top. It is true that the rich have paid more taxes, but that's because their pretax earnings have taken off, up by 67 percent since 1980 compared with 12 percent for the middle fifth of society. It is here that the tax system hurts ordinary Americans most. Progressivity used to mean taxing the better-off to assist society's less fortunate. That concept has now been stood squarely on its head. Taxes for the well-to-do are lower today than they have been in 60 years. It is role reversal for Robin Hood: We are robbing the poor to enrich the rich. This is not to say that the rich aren't entitled to the fruits of their hard work, talent, risk-taking, and innovation, but the rewards for high achievers shouldn't be inconsistent with an economy that helps the average American family. And certainly the government shouldn't be exacerbating the differences in income between the rich and the nonrich. All of us have the potential to earn a comfortable living in a safe environment under the protection of our armed forces, the police, the FBI, and our firefighters. That's certainly not true of a lot of places in the world, so it's not inappropriate that our tax system should be reasonably progressive.
Why has this profound shift in incomes taken place? Is it because of foreign competition from lower-paid foreign workers or lower-paid immigrant workers, or because of the personal computer that made junior clerical workers less valuable?
Well, the primary reason is that over the past 25 years, globalization and technology have increased the rewards for intellectual skills, vastly increasing the value of a college degree. Education and family background are replacing the old barriers of class based on race and gender. The income gap between college graduates and those without university degrees doubled between 1979 and 1997. In the 1930s and 1940s, only half of all American chief executives had college degrees. Now virtually all do, and three quarters of them also hold advanced degrees, such as an M.B.A.
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