Income Gap Widens

[GrnBay007]

As income gap widens, recession fears grow

Incomes fell for poor and stagnated for middle-class families since late 1990s, making it tougher for them to weather economic downturn.
By TAMI LUHBY, CNNMONEY.COM SENIOR WRITER


NEW YORK -- Poor and middle-class families are entering the recession in a precarious situation due in part to declining or stagnant income growth, a study released Wednesday has found.

Incomes, on average, have declined by 2.5% among the bottom fifth of families since the late 1990s, while inching up by just 1.3% for those in the middle fifth of households, according to an analysis by the Center on Budget and Policy Priorities and the Economic Policy Institute, two liberal think tanks.

The wealthiest slice of Americans, however, saw their incomes rise by 9 percent.

The average income of the bottom fifth of families was $18,116; the middle fifth, $50,434; and the wealthiest fifth, $132,131.

Unlike what happened during the economic boom of the 1990s, lower- and middle-class families did not share in the prosperity of recent years, the report found. In fact, the United States hashad its longest jobless recovery and slowest rate of payroll growth during this decade.

"We're worried about the impact of the downturn on the families whose incomes haven't recovered from the last recession," said Jared Bernstein, Economic Policy Institute senior economist and co-author of the report.


Wages have not kept up with inflation, families have loaded up on debt and homeowners have seen the value of their largest asset decline, he said. The situation will only get worse during the economic downturn.

"Families are uniquely economically exposed to the costs of recession," he continued. "As we head into a recession, their incomes will take a further hit."

The income gap between the rich and the rest of the population is widening. In 22 states, the top fifth of families made more than seven times what the poorest fifth took home, according to the report. In the late 1980s, only one state - Louisiana - had such a spread. Meanwhile, in more than two-thirds of the country, the wealthiest saw their income grow more than twice as fast as the middle-class over the past two decades.

State governments, however, can step in and help mitigate this growing inequality and insecurity, said Elizabeth McNichol, a senior fellow at the Center on Budget and Policy Priorities and the report's co-author. For instance, they can extend the amount of time workers receive benefits during an economic downturn. Also, they can offer or improve support services, such as child care, health insurance and transportation services.

Governments can also put resources into public services and infrastructure projects, which will help create jobs and stimulate the economy, said James Galbraith, professor at the University of Texas at Austin and income gap specialist. The federal government may also have to funnel more money to the states so they can maintain services at a time when tax revenues may decline.

The study is based on U.S. Census Bureau income data that have been adjusted for inflation, the impact of federal taxes and cash value of government subsidies. It does not factor in capital gains or losses. It compares data from 2004 to 2006 with that of 1987 to 1989 and 1998 to 2000.

[oregonpackfan]

Hmmm.... I guess W's view that tax breaks aimed primarily for the very wealthy are not "trickling down" to the middle or working classes like he says they will.

[HarveyWallbangers]

Re: Income Gap Widens

Incomes, on average, have declined by 2.5% among the bottom fifth of families since the late 1990s, while inching up by just 1.3% for those in the middle fifth of households, according to an analysis by the Center on Budget and Policy Priorities and the Economic Policy Institute, two liberal think tanks.

I'm sure this is super duper trustworthy. Heard the same things about Reagan's policies in the 1980's, but some on the left might even be able to admit now that old Ron did wonders for the middle class. Gotta love CNN.

[GrnBay007]

It's funny that the tiny little word "liberal" makes some people disregard any information.

I don't give a crap who writes it, I'm middle class and feeling it...I don't need to read it.

[the_idle_threat]

Re: Income Gap Widens

The study is based on U.S. Census Bureau income data that have been adjusted for inflation, the impact of federal taxes and cash value of government subsidies. It does not factor in capital gains or losses. It compares data from 2004 to 2006 with that of 1987 to 1989 and 1998 to 2000.

Why not factor in capital gains or losses? Because then the result would probably look a whole lot different. Capital gains were huge in the bull market days of '98-'00 as compared to recent years, and these gains would apply disproportionately to the incomes of the highest earners. Taking this into account, the incomes at the high end of the scale would likely be stangant as well or maybe (I'd say probably) would have dropped from '98-'00 to '04-'06.

Of course, then the income gap would not be widening, and they wouldn't have their fat headline. So they gerrymander the stats in this study to get the result they're looking for. It's perfect manufactured news for the opposition party in an election year.

It's a rough time in the economy with prices rising for everybody much faster than wages, but this canard about the rich getting richer while the rest of us suffer is a calculated political ploy.

In fact, high net worth retired folks who are risk-averse and are living off the interest from "safe" investments and savings are seeing their income cut dramatically right now with far lower CD, money market and short-term bond rates after the latest interest rate cuts by the Federal Reserve.

[the_idle_threat]

It's funny that the tiny little word "liberal" makes some people disregard any information.

I don't give a crap who writes it, I'm middle class and feeling it...I don't need to read it.

The information is terribly misleading, and intentionally so, so there's ample reason to disregard it.

We middle class folks are feeling the pinch---that is certainly true. But to say that other folks higher up the income ladder are not feeling the same pinch---and worse yet, to say they are making more money than before, based upon selectively considered data---is wrong. That's the problem with this article, and the underlying study. It is cynically designed to promote class warfare.

Now, surely the folks at the top of the income ladder are not suffering and dying in the streets. But nor are they making out like bandits on the backs of us lesser-income folks. Costs are going up for everyone. Income is not.

[Partial]

Hmmm.... I guess W's view that tax breaks aimed primarily for the very wealthy are not "trickling down" to the middle or working classes like he says they will.

They may not be trickling down as you say, but if they weren't there I bet there would be a lot less people employed..

[Harlan Huckleby]

Re: Income Gap Widens

Why not factor in capital gains or losses? Because then the result would probably look a whole lot different. Capital gains were huge in the bull market days of '98-'00 as compared to recent years, and these gains would apply disproportionately to the incomes of the highest earners.

Your theory sounding plausible, so I went to the original report to see what they say about capital gains.

http://www.epi.org/studies/pulling08/4-9-08sfp.pdf

The authors claimed they did not include capital gains only because they did not have reliable data. They did look at estimates for capital gains, and concluded that growth of inequality would be GREATER had it been factored into their study. Remember, they are looking at the stock market from the late 80's through 2006, certainly the overall market trend was positive. They noted that rich families lost much capital income in 2001, but the market had corrected, and capital gains were contributing to the widening gap again by 2003.

[Harlan Huckleby]

The information is terribly misleading, and intentionally so, so there's ample reason to disregard it.

It would take somebody more sophisticated than us to debunk the study, like say, I don't know, an economist? You reject the study because it doesn't fit your ideology. Maybe there is a credible debunking somewhere, but I don't smell anything fishy.

[the_idle_threat]

Re: Income Gap Widens

Why not factor in capital gains or losses? Because then the result would probably look a whole lot different. Capital gains were huge in the bull market days of '98-'00 as compared to recent years, and these gains would apply disproportionately to the incomes of the highest earners.

Your theory sounding plausible, so I went to the original report to see what they say about capital gains.

http://www.epi.org/studies/pulling08/4-9-08sfp.pdf

The authors claimed they did not include capital gains only because they did not have reliable data. They did look at estimates for capital gains, and concluded that growth of inequality would be GREATER had it been factored into their study. Remember, they are looking at the stock market from the late 80's through 2006, certainly the overall market trend was positive. They noted that rich families lost much capital income in 2001, but the market had corrected, and capital gains were contributing to the widening gap again by 2003.

You're mistaken in a couple of ways, Harlan. I didn't bother to look at the report when I made my posts above, but I've looked at it now, since you've made it conveniently accessible.

The report itself---and the article above---both state that they are not looking at the market continuously from the 80's to 2006. They are looking at a few discrete three-year periods. The periods I'm focusing on are the second and third periods---1998-2000 and 2004-2006.

They say they didn't include capital gains because they're too hard to measure. This is plausible. But how convenient is it that they leave out capital gains? If they had even tried to estimate capital gains in the respective periods---which they surely could have and would have done if doing so would have helped their point---the data would almost certainly show that incomes for the highest earners went down from the period 1998-2000 to the period 2004-06. This would have been unacceptable, so they decided to just leave out what they admit is a large component of income for top earners. (See page 63 of the report: "Capital gains or losses ... are largely received by high-income families.")

Where do I get the idea that capital gains would have gone down from the period ending in 2000 vs. the period ending 2006? Just look at the financial markets. People were making money in the stock markets hand over fist in the late 90's---the tech boom. Day trading was rampant, IPOs were skyrocketing, and mutual funds and separate investment accounts were doubling and tripling in a year's time. This was the era of "irrational exuberance." Realized capital gains would have been huge.

From 2004-06, the markets were pretty stagnant, there were few IPOs, and people were simply not raking in money the way it was flowing in '98, '99, and even in early 2000 before the tech bust started. There's no evidence to support capital gains going up from the period ending in 2000 to the period ending in 2006. There's every reason to believe that capital gains actually went down. This would mean that the income gap actually closed between top earners and low earners from the period ending in 2000 to the period ending in 2006. But that wouldn't fit with the hypothesis, so capital gain data is conveniently left out.

As for their claim to the contrary---that inequality would be greater if they included capital gains, I think you're reading that wrong. But it's really more the fault of the study, rather than your fault, since they worded it so misleadingly in the study.

It's empirically true that:

(A) there would be greater inequality between rich and poor incomes in any given period if they included capital gains, since capital gains are disproportionately realized by the rich. When capital gains are left out, high incomes are underreported.

But this does not mean that including capital gains would:

(B) widen the inequality between rich and poor going from one period to another, which is the conclusion of the study, and the conclusion you're coming to.

On the contrary---as I stated above---including capital gains would almost certainly narrow the gap between top and bottom incomes, going from the period ending in 2000 to the most recent period ending in 2006, since capital gains were almost certainly a lot lower in the later period.

In the study, they're stating (A) and you're inferring (B), even though (B) is not supported by any evidence and in fact is unlikely to be true. But I think they want people to infer (B), and that's why they state (A) the way they do. They say inequality would be greater with capital gains included, and they hope people infer that growth of inequality would be greater as well.

In fact, if you look at the study (on page 63 again) it says "results showed an implausibly large surge in capital gains going to low-income
households in 2006." Implausible how? Because it didn't match their preconceived notions? Because it would blow their study out of the water? Their own data estimates might have shown a closing of the income gap due to larger amounts of capital gains going to lower income households. They fixed this little inconvenience by omitting the data altogether. The result: they protect their study's dubious conclusion.

This is a junk study by biased researchers, designed to provide "evidence" to support their public policy goals. Large amounts of data are summarized, estimated, and---in the case of capital gains---left out completely. No valid conclusions can be drawn from it, except that people will believe anything if it supports their world view.

[the_idle_threat]

The information is terribly misleading, and intentionally so, so there's ample reason to disregard it.

It would take somebody more sophisticated than us to debunk the study, like say, I don't know, an economist? You reject the study because it doesn't fit your ideology. Maybe there is a credible debunking somewhere, but I don't smell anything fishy.

It's funny you should say this, because in another thread I was defending progressive income tax rates. My distaste for this report is really based less on on ideology, and more on the fact that I resent when so-called authorities try to pit the wealthy against the poor, especially under false pretenses.

As for sophistication, I've mentioned previously on this board that my undergrad degree is in economics. I've worked in the investments field all my adult life, even if I've never held the job title of "economist." I'm not spouting off about a subject I've only read about on the internet.

And in any case, it doesn't take specialized training or unusual knowledge to debunk this report. See my post above. Any person who knows about financial matters can understand how cynical and misleading this study is.

[packinpatland]

According to the stats in the article I(We) would classify as wealthy. Whoopee.
Sat. I did the grocery shopping.......when I came home I told me husband I am so glad that we only have one daugher still living at home......5 bags of groceries= $283.00. To eat healthy, it is expensive. Very expensive. I don't know how families with multiple children at home do it.
$283....and not one thing that was precooked, a mix, a snack in a box or bag......I even bake my own bread. Vegetables and fruit were the bulk of my purchase. I just don't know where this will all lead.............or end.

[SkinBasket]

To eat healthy, it is expensive. Very expensive. I don't know how families with multiple children at home do it.

Eating healthy is relative. When it's what you can afford, ramen, Mac n Cheese, Hamburger Helper, and egg noodles with butter is healthier than starving.

[packinpatland]

To eat healthy, it is expensive. Very expensive. I don't know how families with multiple children at home do it.

Eating healthy is relative. When it's what you can afford, ramen, Mac n Cheese, Hamburger Helper, and egg noodles with butter is healthier than starving.

I don't believe that........obesity, diabetes, high blood pressure...to name just a few, can be controlled or eliminated by eating right in most cases.
So, you either pay at the grocery counter, or pay at the doctor and pharamacy. Eat better and eat less.

[oregonpackfan]

Re: Income Gap Widens

I'm sure this is super duper trustworthy. Heard the same things about Reagan's policies in the 1980's, but some on the left might even be able to admit now that old Ron did wonders for the middle class. Gotta love CNN.[/quote]

Harvey,

What revisionist history book have you been reading to claim that Reagan "did wonders for the middle class." The reverse was true.

One of the first things he did as President was to fire all the federal air traffic controllers who went on strike.

It was during the Reagan administration where American corporations began exporting tens of thousands of American jobs overseas while receiving tax breaks for that practice.

It was during the Reagan administration that corporations began eliminating employee pensions. Those that do provide some form of employee retirement program began using 401ks, where saving for retirement is primarily the responsibility of the employee. Only about half of all American companies now provide any type of retirement program, almost all of them 401ks.

When Reagan took office, our country had a budget surplus. When he left office 8 years later, our country had the biggest budget deficit in its history. Part of the deficit was due to the corruption in his massive military buildup. Have you forgotten how Defense companies bilked the government by charging $89 for a wingnut and $600 for a toilet seat?

Reagan's economic policies were hardly friendly to the middle or working classes.