Monday, December 31, 2007

The nation's richest families have a lot to celebrate tonight!

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.


Anonymous said...

Socialism, just come out and say it. you want more socialism. Why are almost all College professors (individuals who cannot get a job in the real world) always think socialism is the greatest thing since sliced bread

Michael Rosen said...


I am not- anonymous- that is.

I sign my name.

As far as working in the real world, I will match up my experience with your "anonymous" work experience anytime. I have worked for large and medium-sized manufacturing companies, construction firms, non-profits, the City of Milwaukee and as a consultant.

Your allegation that teaching is not the real world is dead, dead wrong. It is hard and worthy work and as real as any other job where folks sell their ability to work to an employer.

Much of the nation's economic growth is a byproduct of the work that your "socialist" professors do- the Silicon Valley," a byproduct of Stanford's government supported research; Route 128, a byproduct of MIT's government supported research; Madison's biotech companies-a byproduct of UW faculty research.

You may find name calling cathartic, but it neither intimidates nor convinces.

The fact is that despite productivity gains and a growing economy, the wealthy through their control of the Republican Party have implemented policies that have hurt working and middle class Americans in the real world while reaping almost all of the economic gains of the relatively weak Bush economic recovery.

I challenge you to refute these real world facts. Name calling and character assassination died with Joe McCarthy!

Anonymous said...

I came from a middle class background and I worked my ass off to be in the 5% income level,(which you seem to distain) that you consider rich. A family making $150,000 is not rich, upper middle class but not rich.

Approximately 40% of my income goes to taxes, Federal, State and payroll. This is not enough for you? I worked hard to get where I am and I am not going to feel guilty about it.

Keep reading the NY times, and watching Keith Obermann for your information, this is like me saying Fox News is credible.

I have read most of your posts and they really make me laugh.

As I said, I worked my way out of my situation on my own, without asking the government to bail me out.

By, the way, most of the richest congressional districts in the United States are DEMOCRATIC, and a majority of the rich people in congress are Democrats.

You are comparing apples to oranges when you compare income levels between years without considering tax law and reporting changes.

I really do not care about your resume. I really do not have much respect for college teachers anyway. Highschool and gradeschool yes, college now.

Anonymous said...

Mr. Rosen:

Instead of focusing on income inequality, maybe you should focus on income flexibility and how people move from poor to middle class and from middle class to rich. That to me is more important. It seems to me your suggested policies would decrease the rich and increase the middle class but limit upward mobility.

Anonymous said...

aparently you already feel guilty or you wouldnt feel the need to slander others (college professors) to make yourself seem righteous. no one ever mentioned that anyone should feel guilty about how much they are or arent making, rather we should do more for the greater good of society by developing policies that decrease the income inequality. it may make you feel good to know that you have it better than 95% of the country, but when public schools suffer leading to a lack of quality education, crime increases, and public services like police and fire men diminish i guess we should blame it on not enough people working hard enough. and your constant insults and generalizations about college professors only discredit you more... "To generalize is to be an idiot. To particularize is the alone distinction of merit. General knowledge are those knowledge that idiots possess."

Anonymous said...

Anonymous #2:

I am not slandering anyone. I do not have much respect for college teachers, that is my opinion, this is not slander.

Whenever someone mentions for the "greater good" that is socialism. You want to take from others to give to others.

I believe that people should be given the opportunity to increase their economic situation. But to have the Government forcefully take money from one groups and give to to another is wrong. I have no problem paying for education and police. However, we have been paying more are more for public education and we do not get better results, thanks WEAC.

Instead of increased taxes, that the left loves so much, why don't we change what we spend money on.

There are many economists that disagree with the income gap, just google it. However, since Mr. Rosen is a lefty and believes in liberal policies, he sites Keith Obermann and the NY times, which to him are reputable sources.

Again, I pay over 40% in taxes, is this not enough? This does not count the money I give to charities of my choice.

Anonymous said...

The IRS just reported that from 2005 individual tax returns filed, the top 1% of adjusted gross income generates 21% of total adjusted gross income and pays 40% of federal income tax. On the other hand, the bottom 50% on taxpayer adjusted gross income paid 3.9% of federal income taxes paid. It seems to me that the so called rich are paying their fare share, unless you think that paying 40% of the federal income tax is not enough. This is higher than in the 1980's when tax rates were much higher.

I think the income gap is meaningless, income mobility is a much better indicator. As someone stated comparing income levels between different periods is meaningless, given increases in fringe benefits, which would not be included in income, and how the income from S-Corporations is counted on these reports, and retirement plan contributions which our not counted as income. If someone is in a 401(k) they can contribute $15,500 of their salary(assuming no catch-up contributions)and this is not counted as income.

Income inequality is a way to get political votes, because people would rather have someone else pay higher taxes.

We want to increase economic opportunity in this country not decrease it. We want to increase the number of millionaires. Progessive taxation if too high reduces Government revenue and reduced motivation to work.

Anonymous said...

First off the highest taxable income rate is less than 40% so your falsifying the amount you pay. Second, the 40% of Federal income tax revenue that John P refers to does not include social security, etc. If you want to include that, the percentatge the top 5% decreases significantly. And lastly there is no reason someone making $10 million should be paying the same amount in taxes as someone making $50,000. To assume so would be absurd. Instead of looking at the total dollar amount we should be looking at the rate at which they are taxed. Right now someone working for a private equity firm making millions a year is only taxed at a 15% rate while the regular joe is taxed at a much higher rate. now where is the equity in that?

Anonymous said...


It is possible that certain taxpayers are paying 40% of their income in taxes when you include Federal and State income taxes and Payroll taxes (social security and Medicare.) However, 40% seems a bit high.

Regarding social security,which is 6.2% of income up to about $100,000, would not decrease the numbers significantly as you might think. In any event, benefits are only paid based on the wage cap, so why would it be fair for someone to pay more income but receive no increased benefits. This is why a wage cap was placed on it in the first place. Go back and review the history of social security.

I agree with you on how "carried interest" of hedge fund managers are taxed. It is not right that they should be taxed at capital gain rates. They should be taxed at ordinary income rates.

I would agree that taxation should be a bit more progressive once someone has over $1 million of taxable income. However, people in the $100,000 - $300,000 range are certainly taxed enough.

Anonymous said...

If you go to, there is a nice analysis of how the tax burden is shared among different income groups. As noted in the report for 2005 the top 10% of income earners which has an average income of $339,100 has an average marginal tax rate of 39.4%, and pays 54.7% of all the federal taxes. The bottom 60% of taxpayers paid about 28% of federal taxes.

I agree that the average income increases within each income group increased the most in the upper 20% compared to the other groups and the most for the upper 1% comparing 2005 vs 2004.

However, I still contend that that income mobility is a better indicator than %ages of income within a certain group.