As this chart prepared by the Center on Budget and Policy Priorities shows, until about 1980, the real family income of Americans at all income levels increased at approximately the same rate. It didn’t matter if your family was in the 20
th , 95 percentile th or
anywhere in between, you participated about equally in the growing wealth of
the nation. That all changed around 1980
when Reagan took office and the Republicans began their accent to power. Since about 1980, lower and middle income
Americans have seen percentile any income gains.
The country has become richer overall, but the wealthy has gone to the
top 5%. The rich got richer, almost
every year. Income creation became less
fair. Why was that? few if
Chart 1: Real Family Income
Cause #1: Decline of Progressive Taxes
As you can see from the following charts, since the 1950s and particularly since 1980, the highest income tax bracket (the tax rate very rich people pay on their income above a certain level—over about $400,000 in 2014) has been cut dramatically as has the average tax rate that the highest income earners paid.
tax rate is now at a level
comparable to the late 1920s, just before the Great Depression and New Deal. These dramatic cuts in the tax rates the top
10% of Americans pay has made the The highest much less progressive as shown in Chart
3. As a result, the burden of taxation has been
shifted to lower and middle income brackets. taxe
Chart 2: Top Tax Bracket
Chart 3: Average Tax Rate Paid by Highest Income Tax Payers
Chart 4: Progressive Taxes
NOTE: Republicans argue that reducing the tax burden on the rich is the true path to economic growth. They say with less taxes to pay, the rich will create jobs for the rest of us and wealth will come trickling down. The fact is, it never happens. The independent Congressional Research Service analyzed the impact of cuts in the top tax rates on economic growth going back to 1945. It found practically no relation between the top tax rate and economic growth. In fact, real per capita GDP growth was higher in the 40s and 50s when the top rate was 90%.
"Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it
1970s; today it is 15%. The real GDP growth rate averaged 4.2% and real per capita GDP
1.7% and real per capita GDP increased annually by less than 1%. This analysis finds no
Cause #2: The Decline of Union Membership
The decline of union membership is a second contributing cause of income inequality as can be seen in Chart #3 from the Economic Policy Institute. Union membership in America peaked in the 1950s and has been in decline since then. The decline has been particularly sharp since 1980, again coinciding with Reagan and the rise of Republicans who have waged an ongoing and largely successful war on unions, first private and now public, by advocating so called “right to work” laws that make it very difficult for unions to operate.
Click here for an explanation of why Right To Work laws are so deadly for unions:
Without the ability to organize, the average working American is at the mercy of his/her employer for wage gains and employers are typically very reluctant to share the bounty from productivity growth even when that bounty in no small part from worker sacrifices. In fact, a 2013 Bureau of Labor Statistics report found more than a $3 per hour difference in
he average wages of union vs
non-union workers. In short, wages for
most Americans remain low because they have lost he one vehicle through which
they could bargain for higher wages.
Without unions, profits from productivity gains flow to the owners and
top managers who, thanks to favorable non-progressive tax policies allow the to
keep most of the gains as after-tax income.
Chart 5: Union Membership and Top 10% Income
Bottom Line: If we are concerned about income inequality (and we should be) then we need to re-institute a progressive tax system and make it easier, not harder, for Americans to organize and bargain for better wages and benefits. It’s called Income Fairness.