The reality of income inequality is widely recognized. For all the chatter, though, we have yet to come to agreement on its primary source. Let's start with a fairly simple graph.
(Derived from the Emmanuel Saez incomes database)
The Numbers - Gated Prosperity Takes Over
- In the Postwar Era (1946 - 1980), Americans in the Lower Nine-Tenths captured 67% of the nation's income growth. In the Reagan Era (1981 - ), Americans in the Lower Nine-Tenths have collected only 41% of the nation's income growth.
- In the Postwar Era, Americans in the Top Tenth received 33% of the nation's income growth. In the Reagan Era Americans in the Top Tenth have captured 59% of the nation's income growth.
- In the Postwar Era, marginal tax rates on the wealthy were 70% and more. In the Reagan Era, marginal tax rates have been half that and less.
- In the Postwar Era, the nation's income tripled from end 1945 to end 1980. The nation's income has yet to double during the Reagan Era.
The Explanation - A Labor Market Coup
- In the Postwar Era, the labor market had been responsibly balanced. Employers had a voice, employees had a voice, everyone prospered. During the Reagan presidency, the Republican Party engineered a labor market coup on behalf of the nation's chief executives. They stripped the middle class of its seat at the bargaining table.
- In the Postwar Era, full employment was the norm, the labor market was a sellers' market, and jobholders earned reasonable paychecks. In the Reagan Era, chronic unemployment has become the norm, the labor market has become a buyers' market, and jobholder paychecks have suffered accordingly.
- In the Postwar Era, unions were strong and widely respected. The gains they won helped raise wage levels for everyone. In the Reagan Era, unionism has been relentlessly attacked. Union decline has contributed to the decline of the entire middle class.
- In the Postwar Era, high tax rates discouraged top executives fom seeking unlimited personal wealth. Executives left money on the table for others and the entire nation moved forward. In the Reagan Era, much lower tax rates have incited top executives to enrich themselves without limit. The share of the pie left over for middle class Americans has become much smaller.
The very last bullet point identifies the heart of America's problem. Those in the Top 0.1% will enrich themselves at everyone else's expense if federal tax policy permits them to do so. They will throw the economy out of balance. They will send the middle class into stagnation. And without a prosperous middle class, the entire economy goes into decline. Low marginal rates for those at the very top have been disastrous for ordinary Americans.
Fix that, and we'll be in a position to make progress on many fronts. Let's define our terms. "Fixing that" means targetting those in the top 0.1%, those who make salaries of a million dollars a year and up, and restoring a marginal tax rate of seventy percent.
Capitalism is a great system, provided its leaders honor the societies in which they do business, respect their limits, and practice integrity at scale. Reagan took away those limits and the consequences have been disastrous. It is time to reestablish our sense of limits; it is time for American capitalism to recover its soul.
Steven Howard Johnson