Posts from October 2011

Workers & Economic Inequality

Graph: New Numbers on Rising Inequality from CBO

Post by: Benjamin Landy , on October 27, 2011

CBO income inequalityThe Congressional Budget Office released a new report on income inequality this week, confirming what most families already know: few but the wealthiest Americans have seen their income grow appreciably since 1979.

As the graph on the right shows, the real after-tax income of the middle class (broadly defined as those between the 20th and 80th percentiles) has improved little more than 1 percent per year on average, while incomes for the richest 1 percent have surged nearly 300 percent, or 7 percent per year. Income for the top quintile as a whole grew 65 percent during the period, substantially more than the bottom eighty but still nowhere near that of the top one percent.

The CBO suggests several theories as to why the wealth gap has widened so dramatically in recent years (although in keeping with their mandate "to provide objective, impartial analysis," the study provides no recommendations). The first is that technological changes have increased returns for entertainers like athletes, actors and musicians, as new forms of mass media have allowed them to access wider markets. A related theory is that executives have seen their paychecks skyrocket as corporations have merged, growing in size and scope relative to 1979, igniting a bidding war between firms seeking to retain the best (and best compensated) talent. The CBO also notes a 2010 study that identifies surging income growth in the financial and legal sectors as a primary source of growing inequality; another pinpoints financial deregulation and risky new financial instruments like derivatives.

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Education

Graph: Household Credit Market Recovering, But Student Debt Soars

Post by: Benjamin Landy , on October 20, 2011

Two years after the nadir of the recession in early 2009, the household credit market is slowly stabilizing. According to the latest data from the Federal Reserve Bank of New York, loan defaults and delinquency rates are falling for car payments, mortgages, and credit cards, with total household debt down over a trillion dollars from its peak. In other words, Americans are finally getting their borrowing and debt payments under control—with one major exception. Student debt continues to rise ominously, with loan delinquency up 30 percent since 2009, and a whopping 400 percent in the last decade.

Bucking the deleveraging trend, total student loan debt has multiplied fivefold in the last ten years, from just $120 billion in 2001 to around $550 billion today—and shows no signs of stopping. Contra the NY Fed, the New York Times estimates that student loan debt has already outpaced credit card debt, and will likely top a trillion dollars this year.

Change in new loan balances since 1999Source: New York Federal Reserve Bank

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Workers & Economic Inequality

10 Reasons to Eliminate the Tax Break for Capital Gains

Blog Post by: Greg Anrig , on October 20, 2011

As Occupy Wall Street protesters deliberate over a policy agenda that would combat economic inequality and political favoritism, they will find no target better suited to their mission than the tax break for capital gains. Under current law, the maximum tax rate on profits from the sale of investments held longer than a year is 15 percent. That rate is substantially less than half of the 35 percent applied to ordinary income for the highest earners, who collect an overwhelming share of taxable capital gains. Reforming the tax code to abide by the simple principle that income from investments should be taxed at the same rate as earnings from work would greatly enhance the fairness of the tax system while eliminating myriad economic distortions. 

While the nation's economy remains far below its potential capacity, with the unemployment rate stuck above 9 percent, it would be premature to raise any tax rates today. But because it will take time to overcome the powerful political forces defending the special treatment of capital gains, it is by no means too soon to begin the campaign to eliminate the tax break.

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What Think Tanks Owe the People in the Park

Blog Post by: Janice Nittoli , on October 17, 2011

I run a progressive think tank (this one), and as I wander around this Fall, I see conditions that should mean boom times for my business. Occupy Wall Street protesters are passionate, committed, numerous and widespread. They have made clear that many on the left are finally as angry and restless about the economy as the Tea Party on the right was in 2009 and 2010. But I don't see our supply keeping up with their demand for new ideas. (And theirs is not the only demand: polls actually still show that a new Democratic presidential term will most likely begin in 15 months. For what will it stand?)

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Additional Focus

Welcome to Newburgh, Murder Capital of New York

Blog Post by: Patrick Radden Keefe , on October 5, 2011

Republished with the  permission from New York magazine.

One morning earlier this month, just before sunrise, a silent convoy of SUVs streamed into the tiny, troubled city of Newburgh, New York. Over 200 law-­enforcement officers descended on the blighted heart of town, and a company of military-style commandos prepared for a synchronized raid. Armed with M4 assault rifles and dressed in helmets, goggles, and green fatigues, SWAT teams burst into a series of dilapidated houses, shouting, “FBI! Get down!”

 

By late morning, twelve alleged members of the Bloods street gang were in ­federal custody. Along with eight others who were already behind bars, the young men were charged with murder, attempted murder, robbery, ­assault, possession of firearms, and conspiracy to distribute drugs. It was the third major sweep by federal authorities in ­Newburgh over the past sixteen months. At a press conference, Preet Bharara, the U.S. Attorney for the Southern District of New York, said that the raid was designed to ­“restore the rule of law” in the impoverished city, where violent street gangs “have held the good citizens of Newburgh ­hostage for too long.”

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Workers & Economic Inequality

Graph: Income Inequality Weakens Economic Growth

Post by: Benjamin Landy , on October 3, 2011

Soaring income inequality may be holding the United States back from a broader economic recovery, according to a newly released study by the International Monetary Fund. Although political scientists have long debated whether social justice comes at the expense of social product—theoretically by reducing incentives to work and invest—the report provides strong evidence that an unequal distribution of wealth actually causes economies to experience deeper recessions and weaker recoveries. "Sustainable economic reform," the authors warn, "is possible only when its benefits are widely shared."

The report's authors studied a wide range of international data spanning nearly sixty years, and found that there was a positive correlation between the equality of a society and the strength and duration of its economic growth during expansionary periods. Based on their model, a 10 percent decrease in income inequality could actually extend U.S. economic growth by a full 50 percent. Higher levels of income equality were also found to correspond more strongly to sustained economic growth than any other factor, including trade openness, political institutions, and lower debt levels.

Income inequality weakens economic growth

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