The Skewing of America: Disparities in Wealth and Income
by Ronald D. Pasquariello
Mr. Pasquariello is senior fellow at the Center for Theology and Public Policy in Washington, D.C. This article appeared in the Christian Century, February 18, 1987, p. 164. Copyright by the Christian Century Foundation and used by permission. Current articles and subscription information can be found at
www.christiancentury.org. This material was prepared for Religion Online by Ted & Winnie Brock.
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The Federal Reserve Board reported some staggering news last summer: one-half of 1 per cent of American families (just 419,590 out of a total of about 87 million households) possess 35 per cent of this country’s privately held wealth. As it turns out, the board had to rescind its study because a major error had been made. The new results are not yet available; they will not be as drastic, though they will show that the gap between the rich and the rest of us -- stable until recently -- has widened. Private wealth is the value of an individual’s or household’s possessions. It includes real estate, homes, cars, stocks, trusts, savings and retirement accounts. Wealth is not income. Wealth is capital, stored-up economic power; it tends to be stable, and to grow. It is the cushion against the shocks of a mercurial economy. Income, on the other hand, is constituted primarily by wages and salaries (it also includes interest and dividends) , and offers only as much economic stability as the job market does -- which is very little.
The wealth concentrated in the hands of the very rich includes assets that confer economic power. In 1972, the top 5 per cent of the population held 66.7 per cent of the corporate stock and 93.6 per cent of state and local bonds. This disparity, which has since widened, suggests that the very rich can control the decisions related to corporate and municipal assets. The net worth of most Americans does not amount to much. Most families’ forms of wealth are limited to homes, automobiles, furnishings, appliances and checking and savings accounts. For most, the family residence is the principal form of wealth. Except for money that may be raised by second mortgages, residences are not an available asset for most families. Furthermore, the value of a residence is subject to the capriciousness of the housing market. The fragile economic situation of most Americans has been starkly evident in communities where plants have closed or moved away. Many homeowners have been left job-less, with houses that are unsalable. As for savings, the average American has at most $5,000 -- hardly enough to support a family after unemployment benefits run out.
Within the past decade, the median family income has leveled off and begun to decline. In 1979, 50 per cent of two-parent families had an income of $26,299. Today 50 per cent earn $24,556 or less. (There is a similar decrease for single-parent families.) The distribution of income among families has also become more unequal in recent years. The share of total income going to the bottom 60 per cent of American families has declined, and the share going to the next 20 per cent has increased negligibly, while the share going to the top 20 per cent has increased by 2.5 per cent.
The major reason for the decline in family income is the decline in real wages: most incomes are from wages. and average earnings have declined since peaking in 1973. Weekly wages have declined by 14.5 per cent, hourly wages by 10.1 per cent. Behind this decline is the loss of middle-income jobs as a result of the rise of the service economy and the failure of the minimum wage to keep pace with inflation.
According to statistics supplied by the Economic Policy Institute, a 25-year-old male worker in 1953 or 1963 could expect to more than double his income over a period of ten years. But in 1973, a 25-year-old male could expect a mere 16 per cent increase in income by 1983. The average male who was 40 in 1973 actually saw a 14 per cent decline in his income over ten years.
Practically all the households with annual incomes of more than $25,000 in 1983 were those of working couples. The traditional middle-class family with one wage-earner is no longer as economically feasible as it once was. Even in two-earner families incomes can stagnate, for women’s wages still remain low relative to men’s (so a woman’s salary does not necessarily double the family income)
All of these figures indicate why there has been a decline in the proportional size of the middle class. Between 1973 and 1985, the proportion of American families with incomes between $20,000 and $50,000 dropped 5 percent. The sector of families earning less than $20,000 grew 3.4 per cent. The number with incomes greater than $50,000 grew, but by only 1.8 per cent. Meanwhile, poverty has been increasing among low-income persons. In 1978 about 24.5 million Americans lived below the poverty line, but by 1984 the number had climbed to 33.7 million. Moreover, the number of persons who work but are still unable to escape poverty has grown dramatically in recent years. The number of those aged 22 to 64 who work but are still poor has increased by more than 60 per cent since 1978, according to the Center on Budget and Policy Priorities.
Are there any specific forces responsible for this situation? For instance, what is the role of the current administration; is it to blame? The Wall Street Journal put it this way: "The Reagan administration’s policies haven’t narrowed the gap between rich and poor. The tax cuts in the first five years of Mr. Reagan’s presidency favored the wealthy: reducing capital gains taxes benefited those with capital. Government programs aimed exclusively at the poor were trimmed, but others that help a broader group -- Social Security and veterans benefits, for instance -- weren’t" (September 22, 1986).
Though the skewing of America began before President Reagan took office, his policies have markedly accelerated the process. The Congressional Budget Office has indicated that budget and tax changes enacted from 1981 to 1983 have taken $20 billion from those with incomes below $20,000 a year and brought about a $35 billion increase for households with incomes of $80,000 or more.
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