The nation's richest families have a lot to celebrate tonight.
For the remaining 95% of us there is not a lot of good economic news to celebrate as we enter 2008.
The Congressional Budget Office's (CBO) recently updated its authoritative data series on household incomes (1979-2005). Its latest report reveals a sharp and unprecedented increase in income inequality.
Total household income grew $1.1 trillion in the 2003-05 period. But despite strong productivity growth, these gains have not been shared broadly. Almost two-thirds (63%) of the gain in household income from 2003 to 2005 went to just 5% of the nation’s wealthiest households. those making more than $150,000 annually.
This increase in income inequality (both pre- and post-tax) as measured by the change in the shares of income going to different income classes, was greater from 2003 to 2005 than over any other two-year period covered by the CBO data.
An amazing $400 billion in pre-tax dollars was shifted from the bottom 95% of households to those in the top 5% (all income data in this report are inflation adjusted and in 2005 dollars).
By 2005 the top fifth held a larger share of income (both pre- and post-tax) than everyone else in the bottom 80%.
On a pre-tax basis in 2005, the top 1%, with 18.1% of total income, held a much larger share of income than the bottom 40% of households, which only received 12.5
Had income shares not shifted as they did, the income of each of the 109 million households in the bottom 95% would have been $3,660 higher in 2005.
For more than a decade elite opinion makers, including the Milwaukee Journal Sentinel editorial board, have argued that income inequality was growing because the global economy rewarded education. Stemming the alleged "brain drain" of four year college graduates and increasing their percentage of the workforce has become a centerpiece of Wisconsin's economic development strategy.
If education was the key to increasing incomes, inequality would have declined over the past 30 years as Americans have increased their level of educational achievement. From 1970 to 2004, the percent of college grads nearly doubled in the U.S. to almost 30% of the adult population, while the share of income going to the bottom 90 percent decreased by almost 15 percent!
We have become more unequal as we have become more educated!
Income inequality has grown because the distribution mechanisms that have historically worked to ensure more equitable outcomes, strong unions, progressive taxation, labor market policy, and regulation have largely been dismantled over the past thirty years, a victim of the nation's 30 year romance with"free market" economics. Under the alluring guise of economic liberty, laissez faire policies allow powerful corporations and wealthy individuals to manipulate market outcomes. As a result corporate profits, CEO compensation and income inequality have soared to record heights.
If we are serious about reducing economic inequality, we need to adopt policies that ensure that economic prosperity is shared broadly. These would include making it easier for workers to organize unions (including extending this right to the University of Wisconsin faculty); indexing the minimum wage to the CPI; legislating protection for homeowners facing foreclosures; enacting universal healthcare and progressive tax reform (including closing corporate tax loopholes); insisting that all developments receiving public subsidies pay the prevailing wage and hire locally; and regulating the mortgage and financial sectors whose recklessness has brought the economy to the verge of a recession.
If the Wisconsin's legislative bodies and the United States Congress fail to enact policies that address the nation's growing economic insecurity and income inequality, most of us won't have much more to celebrate in 2008 than we do tonight.