Monday, February 25, 2019

Economic inequality update - who is doing well and who is not

Here is the debate over who is doing well in our economy.

Have upper-middle-class Americans been winners in the modern economy — or victims? That question has been the subject of a debate recently among economists, writers and others.

On one side are people who argue that the bourgeois professional class — essentially, households with incomes in the low-to-mid six figures but without major wealth — is not so different from the middle class and poor. All of these groups are grappling with slow-growing incomes, high medical costs, student debt and so on.

On the opposing side are people who believe that the country’s defining class line is further down the economic ladder. To them, the upper middle class is on the happy side, enjoying rising incomes, longer lifespans, stable marriages and good schools. …

After that framing of the debate in his NY Times piece, David Leonhardt asks “Is it more similar to the top 1 percent or the working class?” He answers in his report on How the Upper Middle Class Is Really Doing. The short version: “Since 1980, the incomes of the very rich have grown faster than the economy. The upper middle class has kept pace with the economy, while the middle class and poor have fallen behind.”

Thus Leonhardt makes the case for three income groups. “… To make grand pronouncements about the American economy, you need to talk about three groups.”

The first is indeed the top 1 percent of earners, and especially the very richest. Their post-tax incomes (and wealth) have surged since 1980, rising at a much faster rate than economic growth. They are now capturing an even greater share of the economy’s bounty.

Then there are the bottom 90 percent of households, who are in the opposite position. The numbers here take into account taxes and government transfers, like Social Security, financial aid and anti-poverty benefits. Even so, the incomes of the bottom 90 percent have trailed G.D.P. Over time, their share of the economy’s bounty has shrunk.

Finally, there is the upper middle class, defined here as the 90th to 99th percentiles of the income distribution (making roughly $120,000 to $425,000 a year after tax). Their income path doesn’t look like that of either the first or second group. It’s not above the [GDP] line or below it. It’s almost directly on top of it. Since 1980, the incomes of the upper middle class have been growing at almost the identical rate as the economy.

… Politicians should recognize that there are three broad income groups, not just two. The bottom 90 percent of Americans does deserve a tax cut, to lift its stagnant incomes. The top 1 percent deserves a substantial tax increase. The upper middle class deserves neither. Its taxes should remain roughly constant, just as its share of economic output has.

That’s happening, at least in the 2020 pool of Democratic candidates.

Kamala Harris’s big tax cut applies only to families making less than $100,000. Elizabeth Warren’s child-care proposal delivers 99 percent of its benefits to the bottom 90 percent of earners, according to Moody’s Analytics. The housing plans from Harris and Cory Booker give all their benefits to the bottom 90 percent, according to the Center on Poverty and Social Policy. The tax cut from Sherrod Brown, who’s a potential candidate, is likewise focused on the middle class and poor.

We should add to this list proposals for tax increases on the very rich. For example, Alexandria Ocasio-Cortez offers a not-so-radical proposal for a progressive tax rate system. Her proposal, quite moderate really, would tax income over $10 million at 60 to 70% - basically a return to tax levels during the pre-Reagan, Eisenhower years.

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