The rich are getting much richer, much faster than everyone else

Graph showing income inequality. From McClatchy Washington Bureau

I found this off McClatchy Washington Bureau:

WASHINGTON - Over the past quarter-century, and especially in the last 10 years, America's very rich have grown much richer. No one else fared as well.

In 2004, the richest 1 percent of households - 719,910 of them, with an average annual income of $326,720 - had 19.8 percent of the entire nation's pretax income. That's up from 17.8 percent a year earlier, according to a study by University of California-Berkeley economist Emmanuel Saez.

The study, titled "The Evolution of Top Incomes," also found that the richest one-tenth of 1 percent of Americans - 129,584 households in 2004 - reported income equal to 9.5 percent of national pretax income.

However, median, or midpoint, family income rose only 1.6 percent between 2001 and 2004, when adjusted for inflation, according to the Federal Reserve. Median family real net worth - a family's gross assets minus liabilities - rose only 1.5 percent during those four years.

Those are very sluggish income-growth rates compared with the four years between 1998 and 2001, when median family income grew by 9.5 percent and median family real net worth grew by 10.3 percent.

Experts disagree on the causes, but they're in near agreement that this trend threatens to erode a fundamental American belief about fairness.

"It's not the actual getting ahead in America that's so important - it's been Americans' deep belief that they have the opportunity to get ahead. And if you lose that, there's damage to our society," said Douglas Holtz-Eakin, who until last year was the director of the nonpartisan Congressional Budget Office and before that was chief economist for President Bush.

Yes, it appears that the rich are getting richer. Now the McClatchy story points out that one possible reason for the rich getting richer than the rest of us is that the rich have more assets than the rest of us. According to the McClatchy story:

The very wealthy simply own more assets than the rest of us. That means they benefit more from the booming stock market, which is reaching record highs.

Since 1926, stocks have given investors an average annual return of about 10 percent (with large fluctuations, depending on the years). In 2004, the wealthiest 10 percent of Americans were almost three times more likely to own stock than the broad universe of U.S. families, according to the Federal Reserve.

The median value of stock holdings for the wealthiest 10 percent of Americans was $110,000 per household in 2004, according to Morgan Stanley, the banking giant. The value of stocks held by the other 90 percent of Americans averaged $8,350.

Those numbers lead some to question the fairness of Bush's 2003 tax cuts, which lowered the top rate at which capital gains and dividends are taxed. Individual income tax rates in the top four income brackets were also lowered to 25, 28, 33 and 35 percent.

"We've had a 30-year trend of income inequality. What's new in the last five years is the degree to which tax policy has made that worse, rather than leaned against that trend," said Jason Furman, a senior fellow for the liberal Center for Budget and Policy Priorities and an economist at New York University.

What is really damaging here about this story isn't the 30-year trend of income inequality, but rather the rapid increase of inequality over the past 10 years--five of those years under the Bush administration's tax cuts. Consider this CNN Money story about how the Bush administration's 2006 tax cuts on investment income benefited the rich:

NEW YORK (CNNMoney.com) - President Bush's tax cuts for investment income have significantly lowered the tax burden on the richest Americans, reducing taxes on incomes of more than $10 million by an average of about $500,000, according to a report Wednesday.

An analysis of Internal Revenue Service data by The New York Times found that the benefit of the lower taxes on investments was more concentrated on the very wealthiest Americans than the benefits of President Bush's two previous tax cuts.

The Times analyzed IRS figures for 2003, the latest year available and the first that reflected the tax cuts for income from dividends and from the sale of stock and other assets, known as capital gains.

According to the study, taxpayers with incomes greater than $10 million reduced their investment tax bill by an average of about $500,000 in 2003, and their total tax savings, which included the two Bush tax cuts on compensation, nearly doubled, to slightly more than $1 million.

These taxpayers, whose average income was $26 million, paid about the same share of their income in income taxes as those making $200,000 to $500,000 because of the lowered rates on investment income.

Americans with annual incomes of $1 million or more reaped 43 percent of all the savings on investment taxes in 2003. The savings for these taxpayers averaged about $41,400 each.

The newspaper's tax cut analysis showed that more than 70 percent of the tax savings on investment income went to the top 2 percent, about 2.6 million taxpayers.

And the savings from the investment tax cuts are expected to be larger in subsequent years because of gains in the stock market.

And President Bush wants these tax cuts to be made permanent. The Bush administration's economic plan is working--for the rich. Of course, the rich are the main constituents for President Bush. The real danger for President Bush and the Republican Party in the long term is that as this income inequality grows, you're going to start seeing anger and resentment against the rich by the rest of American society--anger and resentment for not being able to climb the economic ladder and enjoy their own benefits. If President Bush and the Republicans push this inequality too far, they are going to see a backlash--just as we're now starting to see a backlash against the Republican-controlled Congress, with more congressional races leaning towards the Democrats. And you can bet that once the Democrats do take control of Congress, they will allow the Bush tax cuts to expire in 2010 as a means to reduce the income inequality.