“Who gets what, when and how?” once was acknowledged as being the essence of politics. It still is ? we just do not talk about it candidly. Questions of skewed income distribution somehow are deemed inappropriate for polite company. That includes political parties, Congress, Executive agencies, the media, and ? yes – even the ‘intelligensia’ in the foundations, in the think tanks, in the universities. So the greatest wealth transfer in America history goes on ? into the bank accounts of the nation’s 2% upper crust from the increasingly threadbare pockets of the lower 85% – to the sounds of silence.
Here are the facts in digits. Numbers can obscure the truth. At times they can bring the truth starkly to our attention. Numbers are able to bring precision to rough, off the top of the head estimates. They also are able to shed a bright light on matters that are routinely obscured in our opaque public discourse. That opacity often is the intentional aim of self-interested parties ? whether politically or financially or doctrinally motivated. Here are some numbers about the distribution of the nation’s wealth that sharpen the distinction between how it currently is distributed and how it might be distributed were more equitable standards incorporated into public policy.
The economy of the United States as stated in Gross Domestic Product (GDP) was approximately $15 trillion in 2010 ? actually somewhat more*. Total expenditures by governments at all levels (federal, state and local) were approximately $5 trillion ? actually somewhat less.. That does not include Social Security and Medicare expenditures since they are financed by outlays of dedicated Trust Funds that are solvent. Social Security receives more in FICA withholdings than it pays out to recipients.(The question of future solvency will be addressed below). The balance is approximately $10 trillion. Simple arithmetic tells us that per capita income is approximately $32,000 per capita ? per every man, woman and child, not per worker. That is $32,000 per capita left over after all our governments pay their bills.
More simple arithmetic tells us, that the average income of a family of four is $128,000. The average family size, though, is 3.14 persons. The statistically average family’s share of net (post-public expenditure) is $100,000+. The actual median family income is approximately $40,000.** (Median refers to the point midway between the upper half and lower half of the number – in this case, the number of U.S. households). We have to reduce that $100,000+ by the standard FICA withholding of 7.65, i.e. the wage-earner’s obligatory contribution to the Social Security and Medicare Trust Funds. Let’s raise that to 10% in anticipation of a shortfall in the two Trust Funds (the former funded to 2040 without an increase; the latter unsure). Such a steep increase, which should be accompanied by a raising of the ceiling on FICA withholding well above the current income cap of $105,000, would ensure the solvency of both programs for the foreseeable future. So we cut the statistically average family’s income from $100,000+ to roughly $90,000.
Now comes the stunning reality: only 7% of American families earn that amount. Median family income is $50,000 lower than the adjusted statistically average family. There are approximately 105,000,000 household units in the United States. Of them, 93% have an income lower than the statistical median noted above. Multiply 105,000,000 (households) by $50,000 and you get $5.25 trillion. That is the difference between the total actual annual earnings of every household which receives less than the statistical median and what they would earn in aggregate if all national income were distributed equally. Or, to put it another way, $5.25 trillion is the income of the top 7% of households above and beyond what they would receive were national income distributed absolutely equally.
Of course, no society distributes wealth on a perfectly equal basis ? nor should it. So let’s conjecture a situation in which 25%, or one quarter of net national income or $2.5 trillion, goes to the top 7% households, i.e. 7 million households. That comes to $354,000 for each of those households. (That figure does not include any dividend, interest, capital gains earnings that were not reported fully/accurately to the Census Bureau ? but was reported to the IRS which does not share that information with the Census Bureau). That would leave about $7.56 trillion per annum for the other 93% of households. A second scenario that is more generous to the rich assumes that 50% goes to the top 7% households. That would mean $531,000 for each of those households. In this latter scenario, that would leave $$5.02 trillion to raise the income of the 93% of American households. This second scenario is close to what actually occurs in Scandinavia. A third scenario that sees fully 75% of national income go to the top 7% of American households raises the income for each to $708,000. That would leave $2.48 trillion to raise the income of 93% of American households.
Any of these net sums buys a lot of groceries, pays a lot of utility bills, pays for a lot of college tuition, pays for a lot of vision and dental care, pays for a lot of uninsured medical costs, pays a lot of rent or mortgage. It also could pay for a lot of teachers, policemen and firemen’s salaries. It could build a lot of mass transit. All that even without cutting our bloated military and intelligence budgets which amount nominally to $825 billion per annum; and with attendant follow-on costs more than $1 trillion per annum. Cut those expenditures by 25% and you add $250 billion per annum to funds available to pay for the good things in life whether distributed among income earners or applied to productive social expenditure or a combination of the two..
How is it that so many American citizens do without so much that the citizens of other wealthy developed societies enjoy ? especially economic security? Just look at the numbers. The future? Watch the ripples. The ripples from the bipartisan campaign to cut Social Security (now with AARP connivance), cutting Medicare, cutting Medicaid, cutting private pensions and health insurance, firing government workers, busting unions, the Bush/Obama tax cuts for the super-rich.
In short, economic life is too serious to be left to the economists.
Michael Brenner is a Professor of International Affairs at the University of Pittsburgh.
*The question is raised whether aggregate national wealth should be the Bureau of Economic Statistics ‘National Income’ figure or its ‘Gross Domestic product’ figure. The former is lower than the latter. I do not believe that the distinction is significant for the purposes of this discussion. GDP and National Income are different accounting categories . The latter subtracts depreciation and the like. Depreciation is just a tax gift which, if accurate, simply indicates (possible) future capital expenditure. Those deductions do not change the aggregate value of real economic activity which is identical with GDP. So my numbers hold up. See for yourself from official NBS numbers. The BES also subtracts from GDP ‘Government’ activity ($606 billion). The justification for doing so is obscure; after all it is every bit as much a valuable service to the national economy as is inventing new derivatives.
Gross national product 14,637.6 TRILLION
Less: Consumptio n of fixed capital 1,852.4 1,860.6
Domestic business 1,231.1
Capital consumption allowances 1,145.5
Less: Capital consumption adjustment -85.6 ?
Households and institutions 291.7
General government 276.5
13 Government enterprises 53.2 14
Equals: Net National Product 12,785.2 TRILLION
**There is no definitive method for calculating median household income. Hence, no consensus on the number. The OECD figures put it at $31,000 on a Purchasing Power Parity (PPP) basis. The Census Bureau calculates it to be as high as $46,000. $40,000 is round number closer to the latter figure.