The Road Back to 1929
Historic income shift to benefit
by Jack Rasmus
Z magazine, November 2004
It is now an undeniable fact that George
W. Bush is the first president to finish a term in office with
a net loss of jobs since Herbert Hoover 75 years ago. Officially,
more than a million jobs disappeared from January 2001 through
October 2004; unofficially, many more. Almost three million of
the jobs lost were well paid, often unionized, manufacturing and
related jobs, replaced by nearly two million mostly low paid service
jobs-at least a third of which were part time or temporary with
little or no benefits.
But the permanent loss of jobs is not
the only similarity with 1929, the year that marked the beginning
of the Great Depression. The percent of unionized workers today
in the private sectors in the U.S. is less than 10 percent, below
the 11 percent figure in 1929. Just as 1929 marked the beginning
of a decline in hourly wages and incomes for working class Americans,
so too have real wages and take home pay for workers steadily
fallen under Bush from 2001 through 2003; a decline now accelerating
In 1970 the richest 13,000 of all U.S.
taxpaying households had incomes approximately 100 times that
of the average working person; today the richest 13,000 enjoy
an income 560 times that of the average working class taxpayer-about
equivalent to the share they enjoyed in 1929.
Since the 1970s, there has been an enormous
shift in the distribution of national income generated each year-from
the working class Americans who earn an hourly wage to those who
make their living from profits, dividends, interest payments,
stock trades, inheritance, and other forms of capital.
The richest 10 percent of all taxpaying
households in the U.S. saw their share of total annual income
rise from 33 percent in 1970 to 48 percent by 2000-a gain of 15
percent. Conversely, the remaining 90 percent of the approximately
134 million taxpayers saw their share of national income each
year decline by the same 15 percent-from 67 percent to 52 percent.
Fifteen percent may seem like a small
number, but when it is 15 percent of a $6.2 trillion annual U.S.
economy it amounts to approximately $900 billion a year. Had the
15 percent shift not occurred, each of the approximately 100 million
working class Americans who make their living almost exclusively
from hourly wages would be getting $9,000 more in their paychecks
Even more noteworthy is that the 15 percent/$900
billion is not divided proportionately among the richest 10 percent
taxpayers. The richest 90-95 percent (the bottom half of the richest
10 percent) realized no increase in their share of national income
from 1973 to 2000, according to the U.S. Census Bureau. Although
their incomes rose substantially over the period, their share
of the total income pie was still flat.
All of the $900 billion transferred from
the 100 million working class people in the U.S. by the year 2000
went to the richest 5 percent of taxpayers, a group with annual
incomes of $178,067 and above. Moreover, within their ranks, the
top 1 percent, or roughly 1.3 million households with annual incomes
ranging from $384,192 to $777,450, enjoyed a 47 percent increase
in their share of national income. At the pinnacle of it all were
the richest 13,000 households, who had a huge 500 percent increase
in their share of national income.
Assuming even a conservative $300 billion
in shifted incomes on average per year, the result is still $9-$10
trillion from 1970-2000, transferred from the working class to
the wealthiest 5 percent households. All this before the onset
of the recent Bush recession.
Accelerating Income Shift: 2001-2004
The roughly 100 million taxpayers who
make up the solid core of the U. S. working class who have jobs
or who live off of pensions and social security, earn no more
than $76,000 a year in annual income from all sources. They are
the 80 percent of the taxpaying households in the country with
annual incomes below that figure. They own less than six percent
of the total stock shares in the country and that is largely tied
up in their pension plans. They earn their income almost exclusively
from hourly wages, by working overtime or double jobs or by having
other family members enter the workforce to supplement their household
Since 2001, working class families with
a median income of $43,000 watched as their annual income fell
$1,500 over the past three years, a drop of 3.4 percent. Those
earning less than the $43,000 median experienced an even greater
decline of 6.0 percent since 2001.
The shift in national income since 1970
and the accelerating decline in working class family incomes since
2000 were not always the case. From 1947 to 1973 the median household
income rose each year about 4 percent on average. That gain was
roughly equal to the annual average 4 percent gain in productivity
during that same period.
But from 1973 on the growth of U.S. workers'
real incomes has been flat or declining despite the continued
rise in productivity between 1973-2000 and the accelerating productivity
gains from 2001-2004. From 1973-2002 workers received only one-third
of the total gains in productivity; for the past four years, 2001-2004,
with productivity rising on average 4 percent per year-twice the
yearly rate compared to the "boom" years of the late
1990s-with real wages falling and virtually none of the gains.
Output per person in the U.S. is the highest in the industrialized
world, in fact more than 10 percent higher than output per person
in the next closest advanced European economy.
As one well-known business columnist from
the New York Times reported recently, "The benefits of productivity
gains and economic growth are flowing to profits, not worker compensation.
The fat cats are getting fatter, while workers... are watching
the curtain come down on the heralded American dream."
There are several major explanations for
this massive, historic shift in incomes. It didn't happen by accident
or coincidence, but was the result of conscious policies, planned
and implemented in the corporate boardrooms, in Congress, and
in the executive halls of government.
Looming large among the various causes
are the so-called "Free Trade" policies from Presidents
Reagan through Bush, that have resulted in the loss of five million
high paid, mostly unionized jobs in the manufacturing sector since
1980 and their partial replacement with much lower paid service,
part-time, and temporary work.
In addition, there's the successful corporate
lobbying strategy aimed at holding down the minimum wage. With
few adjustments over the past 25 years, the minimum wage today
in real terms has declined by more than 30 percent.
The de-unionizing of the U.S. work force
has also played a major role in holding down wages and thus workers'
incomes. The decline in union membership in the private sector
to less than 10 percent compares to a percentage nearly twice
that at the start of the Reagan years. That decline in union "density"
is a major reason why real hourly wages are less today than they
were in 1979, and still continue to fall.
Unions as an effective force for raising
hourly wages will likely weaken further, as they are being forced
today in contract after contract negotiation to focus by necessity
on maintaining health benefits in lieu of wage increases. In the
process, they are being locked into longer and longer term contract
agreements, often five and six years or more, in exchange for
maintaining health benefits demanded by their members. The consequence
is a ticking incomes time bomb. As inflation rises over the term
of these extended contract agreements, the minimal if any negotiated
increases in wage rates will mean hourly real wages in the near
future will likely decline even faster than during 2001-2004.
When combined with intense political pressure
to prevent any increase in the minimum wage, with the Bush administration's
current efforts to end overtime pay for millions by means of executive
order, with the continuing corporate practice of exporting high
pay manufacturing jobs overseas, and with the growing trend to
replace full time jobs with part time and temporary employment-the
continuing decline in real hourly wage rates in the U.S. raises
serious doubts about the ability of the U.S. economy to generate
incomes sufficient to sustain consumer spending and consequent
job creation. A chronic, self-sustaining downward spiral of incomes
may now be emerging in the U.S., with serious consequences for
the U.S. economy in general.
To offset the stagnation and decline in
their hourly wages, working class families the past two decades
have resorted to two alternatives. The first has been to take
on additional part time jobs, working more overtime or by having
other family members take jobs.
The other major solution undertaken by
U.S. workers to offset the decline of family incomes has been
to assume a massive increase in personal credit and indebtedness.
U.S. families are now $9 trillion dollars in debt, 40 percent
of which was taken on in just the last four years; $2 trillion
of which is credit card debt.
Both solutions-working more hours and
taking on more debt-appear to be approaching their limits. Family
hours worked fell by 5.5 percent, or 173 hours a year, from 2000
to 2003 reversing the hours and income gains of the late 1990s.
In addition, the rate at which spouses are entering the workforce
to supplement family hours of work has declined sharply in the
Exacerbating the overall income shift
is the record surge in executive and management compensation.
In the early 1980s typical U.S. CEOs earned about 40 times the
pay of their average employee. Today, they earn more than 400
and, in some surveys, as much as 500 times. The surge in income
at the top levels of corporate management has filtered down to
a lesser, but still significant, extent for second-tier management
as well. Apart from executive compensation, capital incomes in
general have soared the past 15 years with booms in the stock
and bond markets, real estate, and foreign investment.
Turning the Tax System On Its Head: 1970-2000
Perhaps the biggest reason for the historic
shift in shares of national income has been the radical re-structuring
of the tax system in the U.S. from Reagan to Bush. The restructuring
has raised the total burden of taxation on working class families
while lifting it dramatically on the rich and very rich.
It is no coincidence, for example, that
the top income tax bracket in 1970 was 70 percent and today is
only 35 percent. Similarly the tax rate on capital gains, from
which the rich earn virtually all their income, was 28 percent
as recently as 1987, but today is only 15 percent. Similar reductions
in tax rates for dividends, estate taxes, and property taxes for
the wealthy have also been implemented, while tax shelters have
proliferated and IRS audit rates for the rich have declined.
Three decades ago the corporate income
tax produced 20 percent of all federal revenues; today it produces
only 7 percent. In 2000, according to IRS data, 63 percent of
all companies in the U.S. reported they paid no corporate tax
from 1996 through 2000 on revenues totaling $2.5 trillion. The
effective tax rate for the 37 percent of companies that did pay
some taxes in 2002 was only 12 percent, compared to 18 percent
as recently as 1995.
Foreign tax shelters for companies and
individuals abound. In 1983 offshore tax havens sheltered $200
billion. Today $5 trillion. Of 370,000 corporations registered
in Panama, only 340 bothered to file income tax reports in the
U.S. According to a study by the Federal Reserve Bank of New York,
U.S. deposits in the Cayman Islands tax haven amount to more than
$1 trillion and are growing by $120 billion a year.
In contrast, the payroll tax rate, which
all working class people in the U. S. must pay, has been raised
since 1983 to the current 12.4 percent and the income on which
it is levied has been raised year after year to nearly $90,000.
Since the 100 million core working class Americans earn well less
than $90,000, they pay the payroll tax on all their annual income.
For millions, the payroll tax reduces their take home income more
than their income tax payment. The payroll tax constitutes 40
percent of all federal tax revenues today, when it accounted for
only 10 percent of such revenues before 1980.
Politicians declared with much fanfare
in 1983 that an increase in the payroll tax was necessary to save
Social Security. In 1992 Congress passed a rule to put the social
security surplus created in a "lock box." But the "lock
box" has been broken into every year and the $1.4 trillion
surplus it generated since 1983 is gone-to pay for federal budget
deficits to finance wars and tax cuts for the rich.
Now Bush, Federal Reserve Chair Alan Greenspan,
and others are loudly telling the U.S. worker that Social Security
is in danger once again and without sufficient funds. The retirement
age must be raised and benefit levels cut. Ironically, it was
the same Greenspan who in 1983 headed the Presidential Commission
to "save Social Security," led the charge to raise the
payroll tax, and assured everyone that Social Security would now
be safe for a century to come once the payroll tax was raised.
As one listened to the debates in recent
months between Bush and Kerry about how to pay for minor fixes
to a crumbling health care system, it is worth noting that single
payer universal health care could be provided to all Americans
by simply requiring that the wealthiest 10 percent of taxpayers
pay the same 12.4 percent payroll tax rate as everyone in the
U.S. now pays on all their income.
That simple reform would generate annually
more than $300 billion in revenue. An additional $100 billion
a year could supplement this if Congress stopped "borrowing"
from the Social Security Trust Fund and honored its own "lock
box" rule. The two sources produce a combined total of $400
billion a year, yielding a sum more than enough to cover single
payer health care for all.
In 1981 Ronald Reagan gave $758 billion,
then a record, in tax cuts targeted largely to the wealthy. Capital
gains taxes were again cut under Reagan in 1987, from 48 percent
to 34 percent, and the top rate of the income tax lowered from
50 percent to 28 percent. A new Alternate Minimum Tax was added
which, originally intended for the wealthiest, now threatens to
become another major tax burden on the working class.
Under George H.W. Bush and Clinton the
shift in incomes and taxes continued, but at a slower pace. Tax
rates were raised in 1990 and 1993, but tax loopholes and individual
tax shelters were added back in by the dozens. Tax rebates were
given to workers in order to assist recovery from the 1991-93
recession. But the latter were temporary and never structured
as fundamental changes to the tax system, such as have occurred
under Reagan and now Bush. In Clinton's second term, in 1997,
another major capital gains tax reduction was enacted.
All this was followed by Bush's massive
tax cuts totaling more than $2 trillion between 2001 and 2004,
accruing largely to the top 1 percent and 5 percent of taxpaying
Phase 1: Slash Taxes for the Rich
At the heart of the Bush tax cuts were
the major Tax Cut Acts of 2001 and 2003, the lion's share of which
addressed capital incomes-reducing the top tax brackets for the
income tax, lowering the capital gains tax rate for stock sellers,
and reducing taxes on dividends and on estate taxes for high income
payers. Less well noticed, however, were other tax cuts sandwiched
in along the way which provided an additional host of industry-by-industry
tax breaks for corporations, as well as individuals, all carefully
buried in other legislation passed by Congress or by presidential
executive order or rule changes. Working class families were thrown
a few tax crumbs in 2001 and 2003 in the form of one time rebates,
small adjustments to the child care credit or marriage penalty,
and the like.
To ensure passage by Congress, Bush and
corporate lobbying friends cleverly "backloaded" the
$2 trillion giveaways so most would take effect after 2004. So
the biggest impact of these tax cuts for the rich are yet to come.
It is projected that of the more than
$100 billion of the tax cuts set to take effect in 2005, 73 percent
will go to the top 20 percent of tax payers. The remaining 80
percent with incomes of less than $76,400 a year will share the
27 percent left. Those with incomes over $1 million a year in
2005 will receive a tax cut of $135,000 a year. All those with
incomes less than $76,400 will get about $350 on average.
The Brookings and Urban Institute's Tax
Policy Center estimates the annual transfer in income to the rich
and super rich flowing from the Bush 2001-2003 tax cuts is $113
billion a year.
Phase 2: Roll Back Corporate Taxes
While Bush's tax strategy from 2001 through
2003 was to get personal incomes taxes reduced (reduce top tax
brackets, cut capital gains, dividends, estate taxes, etc.) for
wealthy friends and campaign contributors, in 2004 the Bush strategy
shifted. Henceforth the goal was not only to make personal tax
cuts for the rich permanent, but to add further tax cuts for their
For years conservatives have railed against
"double taxation" of the rich-aimed first at their companies
and then at their incomes derived from those same companies. What
the Bush record shows, however, is that the U. S. is now experiencing
a new policy of "double reverse taxation"-record tax
cuts for the rich as individuals followed by further tax cuts
for their companies.
In August 2003 Bush publicly declared
he would seek no further tax cuts. However, within days Bush supporters
in the House of Representatives immediately proposed an additional
$128 billion in corporate tax cuts. Not to be outdone, supporters
in the Senate proposed a six month "tax holiday" for
U.S. corporations that had accumulated $400 billion in foreign
profits on which they had not bothered to pay any U.S. taxes.
Instead of enforcing the existing law to pay the required 35 percent
corporate tax rate on the $400 billion, the Senate offered a new
rate of only 5.25 percent if companies would only "bring
their money back." The corporate beneficiaries of this extraordinary
Congressional largess included oil and gas refiners, movie studios,
technology and pharmaceutical multinationals, and engineering
companies like Halliburton. The Senate message to corporate America
thus was clear: the way for corporations to get bigger tax cuts
was to shift more investment, jobs, and profits offshore and use
that as a barter chip to get tax cuts in the U.S.
No fewer than three separate corporate
coalitions have been lobbying for their preferred versions of
corporate tax cuts, bid; ding up a Congress stumbling over itself
& trying to satisfy all corporate corners.
One corporate lobbying group, the Coalition
for Fair International Taxation, led Z by General Electric, sought
to reduce the foreign profits tax. A second, led by Boeing and
Microsoft-called the Coalition for U.S. Based Employment-lobbied
for a $60 billion permanent reduction in the corporate tax rate,
from 35 percent to 32 percent. A third, led by Hewlett-Packard,
pushed for the one year "tax holiday" noted above. All
have been major exporters of U.S. jobs offshore; ironically each
argues their tax cut proposal is the way to create jobs at home.
By mid-year 2004 all three groups ended with nearly everything
they each sought in the combined tax cut legislation currently
up in the House and Senate for a vote.
And the pork barrel got even larger as
other special interests and lobbyists jumped on board. A parallel
$31 billion tax cut for oil and energy companies, which failed
to pass in November 2003 by only 2 votes in Congress, was resurrected
as a $19 billion add-on to the general corporate tax cut by mid-2004.
More than $10 billion was added for the Tobacco companies. Other
special interest provisions have been thrown in for the wine industry,
aerospace, and the child tax credit extended to families with
annual incomes up to $309,000 by right wing tax radicals in the
House of Representatives. By summer 2004 the various corporate
and special interest tax cuts proposed amount to $155 to $170
billion, depending on the House or Senate versions.
Initially the Bush legislative strategy
in 2004 was to hold "hostage" those modest provisions
(child care, marriage penalty, 10 percent bracket, etc.) of the
2001 and 2003 laws that would benefit working families. Bush insisted
the provisions for the rich and super rich would have to be made
permanent for the next 10 years first. Otherwise, he declared,
he would veto any bill.
However, as the drums of the November
2004 elections approached, in July 2004 Republican leaders in
Congress attempted to cut a deal with moderates permitting a two-year
extension of the modest provisions in the general tax cut laws
passed in 2001 and 2003. This would have allowed the immediate
extension of the child care credit, the marriage penalty, and
other relatively minor benefits affecting working families, granting
the working class about $27 billion of the $100 billion in tax
cuts scheduled for 2005. But the White House intervened at the
last moment in July and prevented the Congressional compromise,
insisting that Bush's 2001 and 2003 tax cuts for those with capital
incomes must be extended for a minimum of five years or else no
By the end of September, however, the
power of the corporate tax lobby was increasingly felt on Capitol
Hill. Not willing to tolerate further delays, or to wait until
after the elections to pass the corporate tax cuts in a lame duck
session of Congress, they demanded the de-coupling of the $27
billion in cuts for working class families (marriage penalty,
child care credit, etc.), in order to move the corporate tax provisions
forward posthaste before the November election and the October
adjournment of Congress. The Bush administration backed off its
previous position insisting on linkage. Congress obliged.
The way now lay clear, while they still
had the votes, to pass the various corporate tax cut measures
before adjournment. The outcome in October, in a session of Congress
extended for the sole purpose of passing the bill before the November
elections, was 700 pages of legislation containing hundreds of
tax cuts for corporations, including a provision eliminating the
obligation of corporations under current law to pay $42 billion
of taxes on $500 billion of offshore profits. The total value
of the corporate cuts are still not exactly known and will take
weeks to sort out, but are likely in the $140-$160 billion range-$73
billion in personal cuts for the wealthy in 2005 and another roughly
$140-$160 billion for their corporations. More than $2 trillion
total over the course of a decade.
Don't expect the recent waves of personal
and corporate tax cuts to stop there. The next phase has already
begun to appear.
Phase 3: Eliminate Taxes on Capital Incomes
At the top of the Bush agenda in a possible
second term is restructuring the entire tax code; new tax proposals
to undermine social security and union negotiated pension and
health plans; and perhaps a national sales tax to totally replace
the income tax.
George Bush and corporate America are
intent on eliminating taxes on all capital incomes. Nor do they
care if record budget deficits are the result. Many of their more
right-wing friends, including those in Congress, actually want
larger deficits. They see chronic, record deficits as producing
the budget crisis necessary to use as an excuse to privatize Social
Security and dismantle what remains of the Roosevelt New Deal
programs of the 1930s.
Their economic revolution will turn the
clock back to the 1920s, the road back to 1929. A road for working
class Americans filled with potholes of declining wages, few retirement
guarantees, extended hours of work at straight time pay, a virtually
non-existent minimum wage law, weak and ineffective unions, and
an end to progressive taxation that interferes in any way with
the uninterrupted expansion and growth of the incomes of the rich
and super rich.
Jack Rasmus is a member of the National
This article is from his forthcoming book,
The War At Home: The Bush-Corporate Offensive in America.
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