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How Did The Income Gap in America Get So Big?

Kathleen Cochran is a writer & former newspaper reporter/editor who traveled the world as a soldier's better half. Her works are on Amazon.


Can average Americans still dream the dream?

Has America just become a nation of whiners?

“The rich are too rich while I can’t get ahead.”

“I work longer hours with less help for the same money while benefits take more and more out of my paycheck.”

“We’ve been at our jobs for twenty years and still live paycheck to paycheck.”

We have all heard these sentiments from our employees, our children, our spouses, our parents – ourselves. What’s happened to resourceful “pull yourself up by your own bootstraps” Americans? Well, if you look at the data, you'll find they don't have bootstraps any more. They can't afford them. And they have not been able to afford them for quite some time.

According to The Washington Post, The New York Times, Reuters, CNN, Investigative Reporters and Editors, the Center for Budget and Policy Priorities, and the Congressional Budget Office, the top one percent of U.S. households saw their after-tax incomes grow by 275 percent in the last generation. That was more than quadruple the growth of the rest of the top 20 percent of the population during that same period. After tax income is more unequal today than it was thirty years ago by all accounts. Researchers have reported the one thing that clearly stands out during this period was income tax cuts, especially rate cuts for high earners.

Reuters columnist David Cay Johnston won a Pulitzer Prize in 2001 for uncovering loopholes and inequities in the U.S. tax code. He wrote the 1934 economic rebound after the Great Depression was widely shared by the vast majority of Americans who all enjoyed income increases. While in 2010, when the top ten percent of Americans began to recover from the financial reverses of the second greatest recession in our history, while the rest of our society, the vast majority, did not see any income recovery. In fact, what they experienced was just the opposite. Just 15,600 of the highest income households pocketed an astonishing 37 percent of the entire national gain. Why such dramatic differences in 1934 and 2010? The answer lies in a major shift in federal policies that hurt most of the U.S. population.

Government policy in the early 1930s had the goal of improving the lot of the average American through such policies as supporting the creation of jobs and building things people need and use. But since 1980 policy has focused on lower taxes and fewer audits to make people accounable. Analysis of the latest IRS data by economists Emmanuel Saez and Thomas Piketty reports the average income of the vast majority of taxpayers in 2010 (adjusted for inflation) was only slightly more than the average income going all the way back to 1966. Those at the top of the scale saw their 2010 average income grow by $18.7 million per taxpayer compared to 1966.

A country of whiners? Bootstraps? Looking at these statistics you have to wonder why people are not rioting in the streets?

Oh, yeah.

They have been.

Put Another Way:

Can We Be Reasonable?

Data from the Center on Budget and Policy Priorities shows in addition to rising incomes for the top one percent of Americans, along with the benefit of reduced taxes, the equation should include the impact of the reduction in fringe benefits and government services on the average worker. Things like health care, child care, and spending for their children’s education take a bigger bite out of the budget for middle-class and poor Americans. The affluent have greater resources to cover those necessary expenses.

At some point don’t we have to ask ourselves if it makes sense to continue providing tax cuts averaging more than $150,000 a year to people making more than a million dollars a year, while saying we do not have enough money to provide health insurance to 47 million Americans and hire public school teachers? Call me a bleeding heart, but at some point isn't there an expectation of simply being reasonable?

If we are going to be reasonable, we also have to ask ourselves why the Democrat-controlled Congress loaded the 2009 stimulus with $15 billion for more Pell grants, $9 billion for community and rural development, $20 billion for the renewable energy tax credit and other items that had nothing to do with the crisis at hand? An estimated $87 billion was used to bail out state governments that had overspent on Medicaid. About $140 billion was put toward individual tax rebates that -- most economists warned -- would do little or nothing to energize the economy. Only about $100 billion of the stimulus -- one dollar in eight -- went to support new infrastructure projects. Why would the Democrats do something like that in a time of crisis?

Maybe, just maybe, they did it because of the income shift of the past few decades. Maybe they saw it as an opportunity to balance the scales to a miniscule degree. After so many years of things going extremely in favor of the very ones in our country who need the advantage the least, maybe they thought they needed to swing the pendulum in the other direction.

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The argument has been made that President Obama and the Democratic Congress didn’t engineer the stimulus to maximize its economic impact. It has been called a political exercise, repaying favors and supporting causes. To some, it looked like the stimulus's potential benefit was squandered. To others, it looked humane, offering to those who needed help longer and somewhat higher unemployment benefits, subsidies for those who had lost jobs to extend their health insurance, and expanded food stamps. It provided tax cuts to most workers – up to $400 for individuals and $800 for married couples. Not very much in light of the tax cuts given to the country’s highest earners over the past thirty years, but something. And at that point, something was a darned sight better than more of nothing.

Could we have a discussion, not just about what has happened in the era of President Obama and Trump and what may happen during the Biden Administration, but about what has happened in the past generation? Is the American Dream so deep-seated in the average American that we can’t recognize when it is year after year being methodically moved further and further out of the average person’s reach? Yes, in America anyone who works hard can go from humble beginnings to untold wealth. But looking at these numbers reported by so many verifiable experts, how likely is it that the dream will continue to be realized by the present generation and those to follow? To the objective observer, is it not obvious that the game has been altered to favor those who have already realized the American Dream, making it harder and harder for those who come after them to see their dreams come true?

If just as deep-seated in Americans is the conviction that you leave your children better off than you were, we had better have this discussion pretty quick. And instead of railing about how much in debt we are leaving them, pull the wool off our collective eyes, and talk about why in America today, only the rich are getting richer?