Economy -- The Income Divide

May 5, 2008

by Faiz Shakir, Amanda Terkel, Satyam Khanna, Matt Corley, Ali Frick, Benjamin Armbruster, and Sarah Dale

ECONOMY

The Income Divide

The gap between rich and poor in the United States has widened exponentially over the past three decades. The Congressional Budget Office reports that since 1979, the average income for the bottom half of American households has grown by 6 percent. In contrast, the top 1 percent of earners have seen their incomes shoot up by a 229 percent during that same period. Under the Bush administration, the average income of most Americans has fallen, but the average income of top wage earners (those above the 95 percentile range) has increased from $324,427 in 2001 to $385,805 in 2006. Only one other year has seen a comparable income gap: 1928, the year before the Great Depression. Inequality has not been confined to one region or sector but has spread all across the country. North Carolina and Indiana, two geographically and economically disparate states whose upcoming presidential primaries have brought them to the forefront of the national media, are no exception. With the average income of the richest 20 percent of families 7.2 and 6.7 times larger than the poorest 20 percent of families, respectively, North Carolina and Indiana are a microcosm of a larger national trend. Both of these states are looking for relief from declining wages, sinking job security, and falling benefits.

WHY THE DIVIDE?: The reasons for this rise in income inequality can be split into three basic components: government policies, tremendous wage inequality, and high investment income. The federal government under Bush, which provides the fundamental rules that guide how economic gains are distributed around the country, has embraced deregulation and an unstructured financial system. Consequently, huge corporations have raked in profits while the economy sags. The administration's tax policies, which lower taxes on the wealthy rather than the middle class, have furthered the problem. As billionaire Warren Buffett explained, "The 400 of us [here] pay a lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter. If you're in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent." CEO pay, which has increased by 20.5 percent over just the past 12 months, dwarfs the mere 3.5 percent salary increase for American workers. To put this in perspective, the top 500 American corporate executives earned a combined total of $6.4 billion in 2007, about $12.8 million each and roughly 10 percent of all company profits. An absence of laws protecting collective bargaining has removed the leverage that unions once had on companies to increase wages quickly. Wage inequality, the shrinking value of the minimum wage, and the all-around decline in manufacturing jobs only intensify the problem. The New York Times' Steven Greenhouse explains, "A little-known secret is that, over the past seven years, the United States has lost one in five manufacturing jobs. ... Those are usually jobs that pay good wages, middle-class wages, usually provide middle-class benefits on health and pensions."

WHERE DOES THE MONEY GO?: With less money available, Americans are increasingly forced to make tough choices on how to spend their diminishing disposable incomes. Consumer spending and confidence have fallen to record low levels, causing families to skimp on discretionary spending. U.S. consumers, up until recently the most powerful force on planet Earth, are in retreat," wrote Joseph Quinlan, a chief market strategist for Bank of America. A recent report by the Bureau of Labor Statistics shows that the largest increases in consumer spending between 2006 and 2007 was on necessities: fuel, food staples, and medical bills. Not surprisingly, the largest decreases were in a newly defined category of "luxury" goods: electronics, toys, home decor and fresh fruits, and vegetables. "People are not not spending, but they are changing how they spend," said Marshal Cohen, chief analyst at the NPD Group, a consumer and retail market research organization.

HEALTH INSURANCE PERILS: The decline in the average middle class wage means that Americans who were once financially comfortable are now feeling the sting. Approximately 158 million Americans enjoy employer-provided health care benefits. More and more workers, however, are opting out of their health insurance because they simply can't afford it. The average cost of those benefits to employees has increased by $1,500 -- from $1,800 to $3,300 -- since 2001. For a middle class worker, that amount is an entire month's paycheck, which is particularly troubling as national incomes rose only one-tenth that amount during that same period. Due to a combination of bigger out-of-pocket deductibles and co-payments, higher premiums, and less extensive coverage, medical bills now account for almost one-fifth of average family income.

MILITARY -- MULLEN: WAR WITH IRAN WOULD BE 'A SIGNIFICANT CHALLENGE': Speaking to Israel's Channel 10 today, Adm. Michael Mullen, chairman of the Joint Chiefs of Staff, said he was "very hopeful that we don't get into a position where we have to get into a conflict" with Iran. "It would be a very significant challenge for the United States right now to get into a third conflict in that part of the world," Mullen said. Just last week, CBS News reported that the Pentagon was developing new "options" for attacking Iran; an American aircraft carrier was deployed to the Persian Gulf, apparently to increase pressure on the Iranians. CBS's David Martin said the United States is frustrated by what it sees as Iranian meddling in Iraq, and said that "the State Department has begun drafting an ultimatum that would tell the Iranians to knock it off -- or else." In April, Mullen issued a "stark new assessment" that reported that "the government of Iran continues to supply weapons and other support to extremists in Iraq, despite repeated promises to the contrary, and is increasingly complicit in the death of American soldiers." Yet Mullen added, "I have no expectations that we are going to get into a conflict with Iran in the immediate future."

IRAQ -- PENTAGON BACKS PLAN TO CREATE U.S. 'ZONE OF INFLUENCE' IN BAGHDAD: President Bush has repeatedly insisted that the United States has "no desire for permanent bases" in Iraq. Nevertheless, his administration is seeking to leave its footprint on Iraq through other means. The AP reports that the Pentagon is backing a $5 billion dollar plan to "transform the U.S.-protected Green Zone from a walled fortress into a centerpiece for Baghdad’s future," resulting in "big paydays for early investors." "For Washington, the driving motivation is to create a 'zone of influence' around the new $700 million U.S. Embassy to serve as a kind of high-end buffer for the compound," the AP notes. A U.S. embassy official said Iraqis, a majority of whom oppose the U.S. presence, are unlikely to want the United States to "turn this area into downtown Kansas City." "The Iraqi government wants to limit U.S. power in the Green Zone," a top adviser to Prime Minister Maliki said. But the permanent commercial footprint is already making inroads. In addition to the $1 billion embassy the largest in the world, the Los Angeles-based company that developed Disneyland is planning a "massive American-style amusement park" in Baghdad "that will feature a skateboard park, rides, a concert theatre and a museum." The project reportedly has the support of Gen. David Petraeus as well.

IRAQ -- ANOTHER CONTRACTOR AVOIDING TAXES THROUGH OFF-SHORE HAVENS: The Boston Globe reported yesterday that a Pentagon contractor responsible for training Iraqi police has established shell companies in Bermuda and the Caymen Islands in the appearance of avoiding payment of millions of dollars in taxes and evading scrutiny from the IRS. Tax experts say the company -- Virginia-based MPRI -- appears to be avoiding "the payment of roughly $4 million dollars a year in Social Security and Medicare taxes." Last March, the Globe reported that KBR -- one of the top profiteers of the Iraq war, already with a dismal record -- has also avoided paying more than $500 million in "Medicare and Social Security taxes by hiring its workers through shell companies" based in the Caymen Islands. Bunnatine "Bunny" Greenhouse, who oversaw contracts for the Army Corps of Engineers, told the Senate in 2005 that the Pentagon's relationship with KBR represented the "most blatant and improper contract abuse I have witnessed during the course of my professional career."

Militants from Hezbollah "have been training Iraqi militia fighters at a camp near Tehran, according to American interrogation reports that the United States has supplied to the Iraqi government." The evidence, which was "provided by four Shiite militia members who were captured in Iraq late last year and questioned separately," indicates that Iran is attempting to "train the fighters in unobtrusive ways."

Though "the nation's financial markets have rallied since early March" and stocks are up, the pain to the economy could just be starting. The Wall Street Journal reports that celebration over the resurgence in the markets "may be premature" because it is "common in a crisis for markets to hit bottom long before the economy does."

Warren Buffett, the world's richest person, yesterday said, "The U.S. is in recession as I define it. I would define that as a situation where people are doing less well than they were three months, six months or eight months earlier and most businesses find themselves in that position too." In March, Buffett had also said that the country was in a recession "from a common sense standpoint."

"State welfare rolls, which declined for more than a decade after a 1996 overhaul of the nation's cash-assistance program, are beginning to rise, due in part to the struggling economy." Welfare rolls rose about 0.6 percent in the first half of 2007, with 27 states reporting increases.

$0.15: The amount the national average price for regular gasoline rose in the past two weeks, according to a new survey. "The average price of self-serve regular gasoline on Friday was $3.62 a gallon," up from $3.47 two weeks ago.

Auto industry lobbyists are engaging in a "state by state battle" to "dissuade lawmakers from following California's move to regulate greenhouse-gas emissions." "No state should set national policy," said Dave McCurdy, president of the Alliance of Automobile Manufacturers, whose members include General Motors, Ford, and Toyota.

And finally: On Saturday, White House Press Secretary Dana Perino returned to her alma mater, Colorado State University, to deliver the commencement address. While there, she graciously posed for photographs and signed autographs, sometimes writing, "you go girl!" During her speech, she said, "I've learned so much. I study every night as if I'm going to have a final every day for the rest of my time at the White House. If I mess up, I’m just not going to flunk; I could start a war."

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"The U.S. Education Department will be ready to process emergency advances for student loans by June 1. ... Under the plan, the Education Department would temporarily be allowed to pump liquidity into the sluggish secondary market for federally guaranteed student loan debt."

MISSOURI: Group that backed an anti-affirmative action ballot measure "missed the state deadline to submit its initiative petition."

FLORIDA: "State legislators approved a plan to provide basic health insurance Friday for nearly 4 million Floridians who can't afford coverage."

HEALTH CARE: "State officials say they will soon ask Congress for more power to regulate the marketing of private Medicare insurance plans to older Americans."

THINK PROGRESS: KBR ignored warnings of unsafe electrical wiring that led to deaths of U.S. troops.

WONK ROOM: Who fired Mary Gade?

CARPETBAGGER REPORT: CNN hires yet another Bush administration loyalist.

DAILY KOS: The White House is still wedded to its own Iraq propaganda.

"When the history is written, it will be said this is a safer country...because George Bush was president."
-- Vice President Cheney, 5/2/08

VERSUS

"Al Qaeda leaders continued to plot attacks and to cultivate stronger operational connections that radiated outward from Pakistan to affiliates throughout the Middle East, North Africa, and Europe."
-- State Department report on international terrorism in 2007, 4/30/08

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