The Road Back to 1929: Historic income shift to benefit the wealthy
is now an undeniable fact that George W. Bush is the first president
to finish a term in office with a net loss of jobs since Herbert
Hoover 75 years ago. Officially, more than a million jobs disappeared
from January 2001 through October 2004; unofficially, many
more. Almost three million of the jobs lost were well paid, often
unionized, manufacturing and related jobs, replaced by nearly two
million mostly low paid service jobs—at least a third of which
were part time or temporary with little or no benefits.
the permanent loss of jobs is not the only similarity with 1929,
the year that marked the beginning of the Great Depression. The
percent of unionized workers today in the private sectors in the
U.S. is less than 10 percent, below the 11 percent figure in 1929.
Just as 1929 marked the beginning of a decline in hourly wages and
incomes for working class Americans, so too have real wages and
take home pay for workers steadily fallen under Bush from 2001 through
2003; a decline now accelerating in 2004.
1970 the richest 13,000 of all U.S. taxpaying households had incomes
approximately 100 times that of the average working person; today
the richest 13,000 enjoy an income 560 times that of the average
working class taxpayer—about equivalent to the share they enjoyed
the 1970s, there has been an enormous shift in the distribution
of national income generated each year—from the working class
Americans who earn an hourly wage to those who make their living
from profits, dividends, interest payments, stock trades, inheritance,
and other forms of capital.
richest 10 percent of all taxpaying households in the U.S. saw their
share of total annual income rise from 33 percent in 1970 to 48
percent by 2000—a gain of 15 percent. Conversely, the remaining
90 percent of the approximately 134 million taxpayers saw their
share of national income each year decline by the same 15 percent—from
67 percent to 52 percent.
percent may seem like a small number, but when it is 15 percent
of a $6.2 trillion annual U.S. economy it amounts to approximately
$900 billion a year. Had the 15 percent shift not occurred, each
of the approximately 100 million working class Americans who make
their living almost exclusively from hourly wages would be getting
$9,000 more in their paychecks this year.
more noteworthy is that the 15 percent/$900 billion is not divided
proportionately among the richest 10 percent taxpayers. The richest
90-95 percent (the bottom half of the richest 10 percent) realized
no increase in their share of national income from 1973 to 2000,
according to the U.S. Census Bureau. Although their incomes rose
substantially over the period, their share of the total income pie
was still flat.
of the $900 billion transferred from the 100 million working class
people in the U.S. by the year 2000 went to the richest 5 percent
of taxpayers, a group with annual incomes of $178,067 and above.
Moreover, within their ranks, the top 1 percent, or roughly 1.3
million households with annual incomes ranging from $384,192 to
$777,450, enjoyed a 47 percent increase in their share of national
income. At the pinnacle of it all were the richest 13,000 households,
who had a huge 500 percent increase in their share of national income.
even a conservative $300 billion in shifted incomes on average per
year, the result is still $9-$10 trillion from 1970-2000, transferred
from the working class to the wealthiest 5 percent households. All
this before the onset of the recent Bush recession.
Accelerating Income Shift: 2001-2004
roughly 100 million taxpayers who make up the solid core of the
U.S. working class who have jobs or who live off of pensions and
social security, earn no more than $76,000 a year in annual income
from all sources. They are the 80 percent of the taxpaying households
in the country with annual incomes below that figure. They own less
than six percent of the total stock shares in the country and that
is largely tied up in their pension plans. They earn their income
almost exclusively from hourly wages, by working overtime or double
jobs or by having other family members enter the workforce to supplement
their household income.
2001, working class families with a median income of $43,000 watched
as their annual income fell $1,500 over the past three years, a
drop of 3.4 percent. Those earning less than the $43,000 median
experienced an even greater decline of 6.0 percent since 2001.
shift in national income since 1970 and the accelerating decline
in working class family incomes since 2000 were not always the case.
From 1947 to 1973 the median household income rose each year about
4 percent on average. That gain was roughly equal to the annual
average 4 percent gain in productivity during that same period.
from 1973 on the growth of U.S. workers’ real incomes has been
flat or declining despite the continued rise in productivity between
1973-2000 and the accelerating productivity gains from 2001-2004.
From 1973-2002 workers received only one-third of the total gains
in productivity; for the past four years, 2001-2004, with productivity
rising on average 4 percent per year—twice the yearly rate
compared to the “boom” years of the late 1990s—with
real wages falling and virtually none of the gains. Output per person
in the U.S. is the highest in the industrialized world, in fact
more than 10 percent higher than output per person in the next closest
advanced European economy.
one well-known business columnist from the New York Times
reported recently, “The benefits of productivity gains and
economic growth are flowing to profits, not worker compensation.
The fat cats are getting fatter, while workers…are watching
the curtain come down on the heralded American dream.”
are several major explanations for this massive, historic shift
in incomes. It didn’t happen by accident or coincidence, but
was the result of conscious policies, planned and implemented in
the corporate boardrooms, in Congress, and in the executive halls
large among the various causes are the so-called “Free Trade”
policies from Presidents Reagan through Bush, that have resulted
in the loss of five million high paid, mostly unionized jobs in
the manufacturing sector since 1980 and their partial replacement
with much lower paid service, part-time, and temporary work.
addition, there’s the successful corporate lobbying strategy
aimed at holding down the minimum wage. With few adjustments over
the past 25 years, the minimum wage today in real terms has declined
by more than 30 percent.
de-unionizing of the U.S. work force has also played a major role
in holding down wages and thus workers’ incomes. The decline
in union membership in the private sector to less than 10 percent
compares to a percentage nearly twice that at the start of the Reagan
years. That decline in union “density” is a major reason
why real hourly wages are less today than they were in 1979, and
still continue to fall.
as an effective force for raising hourly wages will likely weaken
further, as they are being forced today in contract after contract
negotiation to focus by necessity on maintaining health benefits
in lieu of wage increases. In the process, they are being locked
into longer and longer term contract agreements, often five and
six years or more, in exchange for maintaining health benefits demanded
by their members. The consequence is a ticking incomes time bomb.
As inflation rises over the term of these extended contract agreements,
the minimal if any negotiated increases in wage rates will mean
hourly real wages in the near future will likely decline even faster
than during 2001-2004.
combined with intense political pressure to prevent any increase
in the minimum wage, with the Bush administration’s current
efforts to end overtime pay for millions by means of executive order,
with the continuing corporate practice of exporting high pay manufacturing
jobs overseas, and with the growing trend to replace full time jobs
with part time and temporary employment—the continuing decline
in real hourly wage rates in the U.S. raises serious doubts about
the ability of the U.S. economy to generate incomes sufficient to
sustain consumer spending and consequent job creation. A chronic,
self-sustaining downward spiral of incomes may now be emerging in
the U.S., with serious consequences for the U.S. economy in general.
offset the stagnation and decline in their hourly wages, working
class families the past two decades have resorted to two alternatives.
The first has been to take on additional part time jobs, working
more overtime or by having other family members take jobs.
other major solution undertaken by U.S. workers to offset the decline
of family incomes has been to assume a massive increase in personal
credit and indebtedness. U.S. families are now $9 trillion dollars
in debt, 40 percent of which was taken on in just the last four
years; $2 trillion of which is credit card debt.
solutions—working more hours and taking on more debt—appear
to be approaching their limits. Family hours worked fell by 5.5
percent, or 173 hours a year, from 2000 to 2003 reversing the hours
and income gains of the late 1990s. In addition, the rate at which
spouses are entering the workforce to supplement family hours of
work has declined sharply in the last decade.
the overall income shift is the record surge in executive and management
compensation. In the early 1980s typical U.S. CEOs earned about
40 times the pay of their average employee. Today, they earn more
than 400 and, in some surveys, as much as 500 times. The surge in
income at the top levels of corporate management has filtered down
to a lesser, but still significant, extent for second-tier management
as well. Apart from executive compensation, capital incomes in general
have soared the past 15 years with booms in the stock and bond markets,
real estate, and foreign investment.
Turning the Tax System On Its Head: 1970–2000
the biggest reason for the historic shift in shares of national
income has been the radical re-structuring of the tax system in
the U.S. from Reagan to Bush. The restructuring has raised the total
burden of taxation on working class families while lifting it dramatically
on the rich and very rich.
is no coincidence, for example, that the top income tax bracket
in 1970 was 70 percent and today is only 35 percent. Similarly the
tax rate on capital gains, from which the rich earn virtually all
their income, was 28 percent as recently as 1987, but today is only
15 percent. Similar reductions in tax rates for dividends, estate
taxes, and property taxes for the wealthy have also been implemented,
while tax shelters have proliferated and IRS audit rates for the
rich have declined.
decades ago the corporate income tax produced 20 percent of all
federal revenues; today it produces only 7 percent. In 2000, according
to IRS data, 63 percent of all companies in the U.S. reported they
paid no corporate tax from 1996 through 2000 on revenues totaling
$2.5 trillion. The effective tax rate for the 37 percent of companies
that did pay some taxes in 2002 was only 12 percent, compared to
18 percent as recently as 1995.
tax shelters for companies and individuals abound. In 1983 offshore
tax havens sheltered $200 billion. Today $5 trillion. Of 370,000
corporations registered in Panama, only 340 bothered to file income
tax reports in the U.S. According to a study by the Federal Reserve
Bank of New York, U.S. deposits in the Cayman Islands tax haven
amount to more than $1 trillion and are growing by $120 billion
contrast, the payroll tax rate, which all working class people in
the U.S. must pay, has been raised since 1983 to the current 12.4
percent and the income on which it is levied has been raised year
after year to nearly $90,000. Since the 100 million core working
class Americans earn well less than $90,000, they pay the payroll
tax on all their annual income. For millions, the payroll tax reduces
their take home income more than their income tax payment. The payroll
tax constitutes 40 percent of all federal tax revenues today, when
it accounted for only 10 percent of such revenues before 1980.
declared with much fanfare in 1983 that an increase in the payroll
tax was necessary to save Social Security. In 1992 Congress passed
a rule to put the social security surplus created in a “lock
box.” But the “lock box” has been broken into every
year and the $1.4 trillion surplus it generated since 1983 is gone—to
pay for federal budget deficits to finance wars and tax cuts for
Bush, Federal Reserve Chair Alan Greenspan, and others are loudly
telling the U.S. worker that Social Security is in danger once again
and without sufficient funds. The retirement age must be raised
and benefit levels cut. Ironically, it was the same Greenspan who
in 1983 headed the Presidential Commission to “save Social
Security,” led the charge to raise the payroll tax, and assured
everyone that Social Security would now be safe for a century to
come once the payroll tax was raised.
one listened to the debates in recent months between Bush and Kerry
about how to pay for minor fixes to a crumbling health care system,
it is worth noting that single payer universal health care could
be provided to all Americans by simply requiring that the wealthiest
10 percent of taxpayers pay the same 12.4 percent payroll tax rate
as everyone in the U.S. now pays on all their income.
simple reform would generate annually more than $300 billion in
revenue. An additional $100 billion a year could supplement this
if Congress stopped “borrowing” from the Social Security
Trust Fund and honored its own “lock box” rule. The two
sources produce a combined total of $400 billion a year, yielding
a sum more than enough to cover single payer health care for all.
1981 Ronald Reagan gave $758 billion, then a record, in tax cuts
targeted largely to the wealthy. Capital gains taxes were again
cut under Reagan in 1987, from 48 percent to 34 percent, and the
top rate of the income tax lowered from 50 percent to 28 percent.
A new Alternate Minimum Tax was added which, originally intended
for the wealthiest, now threatens to become another major tax burden
on the working class.
George H.W. Bush and Clinton the shift in incomes and taxes continued,
but at a slower pace. Tax rates were raised in 1990 and 1993, but
tax loopholes and individual tax shelters were added back in by
the dozens. Tax rebates were given to workers in order to assist
recovery from the 1991-93 recession. But the latter were temporary
and never structured as fundamental changes to the tax system, such
as have occurred under Reagan and now Bush. In Clinton’s second
term, in 1997, another major capital gains tax reduction was enacted.
this was followed by Bush’s massive tax cuts totaling more
than $2 trillion between 2001 and 2004, accruing largely to the
top 1 percent and 5 percent of taxpaying households.
Phase 1: Slash Taxes for the Rich
the heart of the Bush tax cuts were the major Tax Cut Acts of 2001
and 2003, the lion’s share of which addressed capital incomes—reducing
the top tax brackets for the income tax, lowering the capital gains
tax rate for stock sellers, and reducing taxes on dividends and
on estate taxes for high income payers. Less well noticed, however,
were other tax cuts sandwiched in along the way which provided an
additional host of industry-by-industry tax breaks for corporations,
as well as individuals, all carefully buried in other legislation
passed by Congress or by presidential executive order or rule changes.
Working class families were thrown a few tax crumbs in 2001 and
2003 in the form of one time rebates, small adjustments to the child
care credit or marriage penalty, and the like.
ensure passage by Congress, Bush and corporate lobbying friends
cleverly “backloaded” the $2 trillion giveaways so most
would take effect after 2004. So the biggest impact of these tax
cuts for the rich are yet to come.
is projected that of the more than $100 billion of the tax cuts
set to take effect in 2005, 73 percent will go to the top 20 percent
of tax payers. The remaining 80 percent with incomes of less than
$76,400 a year will share the 27 percent left. Those with incomes
over $1 million a year in 2005 will receive a tax cut of $135,000
a year. All those with incomes less than $76,400 will get about
$350 on average.
Brookings and Urban Institute’s Tax Policy Center estimates
the annual transfer in income to the rich and super rich flowing
from the Bush 2001-2003 tax cuts is $113 billion a year.
Phase 2: Roll Back Corporate Taxes
Bush’s tax strategy from 2001 through 2003 was to get personal
incomes taxes reduced (reduce top tax brackets, cut capital gains,
dividends, estate taxes, etc.) for wealthy friends and campaign
contributors, in 2004 the Bush strategy shifted. Henceforth the
goal was not only to make personal tax cuts for the rich permanent,
but to add further tax cuts for their corporations.
years conservatives have railed against “double taxation”
of the rich—aimed first at their companies and then at their
incomes derived from those same companies. What the Bush record
shows, however, is that the U.S. is now experiencing a new policy
of “double reverse taxation”—record tax cuts for
the rich as individuals followed by further tax cuts for their companies.
August 2003 Bush publicly declared he would seek no further tax
cuts. However, within days Bush supporters in the House of Representatives
immediately proposed an additional $128 billion in corporate tax
cuts. Not to be outdone, supporters in the Senate proposed a six
month “tax holiday” for U.S. corporations that had accumulated
$400 billion in foreign profits on which they had not bothered to
pay any U.S. taxes. Instead of enforcing the existing law to pay
the required 35 percent corporate tax rate on the $400 billion,
the Senate offered a new rate of only 5.25 percent if companies
would only “bring their money back.” The corporate beneficiaries
of this extraordinary Congressional largess included oil and gas
refiners, movie studios, technology and pharmaceutical multinationals,
and engineering companies like Halliburton. The Senate message to
corporate America thus was clear: the way for corporations to get
bigger tax cuts was to shift more investment, jobs, and profits
offshore and use that as a barter chip to get tax cuts in the U.S.
fewer than three separate corporate coalitions have been lobbying
for their preferred versions of corporate tax cuts, bidding up a
Congress stumbling over itself trying to satisfy all corporate comers.
corporate lobbying group, the Coalition for Fair International Taxation,
led by General Electric, sought to reduce the foreign profits tax.
A second, led by Boeing and Microsoft—called the Coalition
for U.S. Based Employment—lobbied for a $60 billion permanent
reduction in the corporate tax rate, from 35 percent to 32 percent.
A third, led by Hewlett-Packard, pushed for the one year “tax
holiday” noted above. All have been major exporters of U.S.
jobs offshore; ironically each argues their tax cut proposal is
the way to create jobs at home. By mid-year 2004 all three groups
ended with nearly everything they each sought in the combined tax
cut legislation currently up in the House and Senate for a vote.
the pork barrel got even larger as other special interests and lobbyists
jumped on board. A parallel $31 billion tax cut for oil and energy
companies, which failed to pass in November 2003 by only 2 votes
in Congress, was resurrected as a $19 billion add-on to the general
corporate tax cut by mid-2004. More than $10 billion was added for
the Tobacco companies. Other special interest provisions have been
thrown in for the wine industry, aerospace, and the child tax credit
extended to families with annual incomes up to $309,000 by right
wing tax radicals in the House of Representatives. By summer 2004
the various corporate and special interest tax cuts proposed amount
to $155 to $170 billion, depending on the House or Senate versions.
the Bush legislative strategy in 2004 was to hold “hostage”
those modest provisions (child care, marriage penalty, 10 percent
bracket, etc.) of the 2001 and 2003 laws that would benefit working
families. Bush insisted the provisions for the rich and super rich
would have to be made permanent for the next 10 years first. Otherwise,
he declared, he would veto any bill.
as the drums of the November 2004 elections approached, in July
2004 Republican leaders in Congress attempted to cut a deal with
moderates permitting a two-year extension of the modest provisions
in the general tax cut laws passed in 2001 and 2003. This would
have allowed the immediate extension of the child care credit, the
marriage penalty, and other relatively minor benefits affecting
working families, granting the working class about $27 billion of
the $100 billion in tax cuts scheduled for 2005. But the White House
intervened at the last moment in July and prevented the Congressional
compromise, insisting that Bush’s 2001 and 2003 tax cuts for
those with capital incomes must be extended for a minimum of five
years or else no deal.
the end of September, however, the power of the corporate tax lobby
was increasingly felt on Capitol Hill. Not willing to tolerate further
delays, or to wait until after the elections to pass the corporate
tax cuts in a lame duck session of Congress, they demanded the de-coupling
of the $27 billion in cuts for working class families (marriage
penalty, child care credit, etc.), in order to move the corporate
tax provisions forward posthaste before the November election and
the October adjournment of Congress. The Bush administration backed
off its previous position insisting on linkage. Congress obliged.
way now lay clear, while they still had the votes, to pass the various
corporate tax cut measures before adjournment. The outcome in October,
in a session of Congress extended for the sole purpose of passing
the bill before the November elections, was 700 pages of legislation
containing hundreds of tax cuts for corporations, including a provision
eliminating the obligation of corporations under current law to
pay $42 billion of taxes on $500 billion of offshore profits. The
total value of the corporate cuts are still not exactly known and
will take weeks to sort out, but are likely in the $140-$160 billion
range—$73 billion in personal cuts for the wealthy in 2005
and another roughly $140-$160 billion for their corporations. More
than $2 trillion total over the course of a decade.
expect the recent waves of personal and corporate tax cuts to stop
there. The next phase has already begun to appear.
Phase 3: Eliminate Taxes on Capital Incomes
the top of the Bush agenda in a possible second term is restructuring
the entire tax code; new tax proposals to undermine social security
and union negotiated pension and health plans; and perhaps a national
sales tax to totally replace the income tax.
Bush and corporate America are intent on eliminating taxes on all
capital incomes. Nor do they care if record budget deficits are
the result. Many of their more right-wing friends, including those
in Congress, actually want larger deficits. They see chronic, record
deficits as producing the budget crisis necessary to use as an excuse
to privatize Social Security and dismantle what remains of the Roosevelt
New Deal programs of the 1930s.
economic revolution will turn the clock back to the 1920s, the road
back to 1929. A road for working class Americans filled with potholes
of declining wages, few retirement guarantees, extended hours of
work at straight time pay, a virtually non-existent minimum wage
law, weak and ineffective unions, and an end to progressive taxation
that interferes in any way with the uninterrupted expansion and
growth of the incomes of the rich and super rich.
Jack Rasmus is
a member of the National Writers Union. This article is from his forthcoming
book, The War At Home: The Bush-Corporate Offensive in