By Allison Brito

Study Finds Income Inequality Is Permanent

March 26, 2013 7:55 pm Category: Memo Pad 33 Comments A+ / A-

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A recent Brookings Institution study reveals that the disparity between rich and poor is larger than ever, and is only expected to grow unless proper reforms are made. The paper, titled “Rising Inequality: Transitory or Permanent? New Evidence from a Panel of U.S. Tax Returns,” analyzes the growing and permanent inequality between rich and poor in the United States by looking at thousands of confidential tax returns to examine the progression of household income over the course of 23 years.

Brookings Papers on Economic Activity co-editor Justin Wolfers said of the findings, “It’s actually the rich are getting richer and staying richer. The poor, poorer and staying poorer. Now the tax system is somewhat helpful here. Yes, we have progressive taxes in the United States, and were it not for that, the authors show us, income inequality would have grown by more.”

The phrase “the rich are getting richer and the poor are getting poorer” has never been more true, and stating that the middle class is shrinking is not just political rhetoric but a matter of fact that can have serious consequences on the economy. This isn’t the first study to confirm the growing gap in inequality, but what makes this Brookings study so compelling is its rare method — it is not a survey, but instead an analysis based on over two decades’ worth of actual tax data.

During the 2012 presidential election, Mitt Romney called the debate on income disparity a “bitter politics of envy,” adding, “I think it’s about class warfare.” What Romney failed to see were the serious implications that growing income inequality can have on the economy and society. When individuals and households can’t afford to purchase commodities, it affects businesses and stunts economic growth. The data presented in this study show that the attempt to close the inequality income gap is not an attack on the wealthy, but instead entirely necessary and in the best interest of society as a whole.

According to the Brookings study, “for men’s labor earnings, the increase in inequality was entirely permanent (100 percent), while for total household income, roughly three-quarters of the increase in inequality was permanent. [The authors] estimate that the permanent variance for men’s earnings roughly doubled in the 20 years between 1987 and 2009, while the permanent variance of total household income increased by about 50 percent over the same period.” Currently, the opportunity for households to work their way to a higher income bracket is more remote than ever.

The authors cited tax policy as a main contributor to this inequality. Despite a progressive tax code, Wolfers says, “the tax system is not enough to overcome the overwhelming economic force through this period, which is for income inequality to have risen, and so it’s still risen substantially even on an after-tax basis.” The tax code alone won’t stop the expanding income gap, but can most certainly slow the quickly expanding inequality.

The authors conclude the survey by stating, “Our findings, along with economic theory, suggest that the increase in income inequality observed in roughly the last two decades should translate into increases in consumption inequality, and is therefore likely to be welfare-reducing, at least according to most social welfare functions.” The consequences of this growing disparity will have a negative impact on the overall well-being of Americans.

It is more challenging than ever for low-income individuals or households to come out of poverty, which is why Congress and the White House must now implement a tax code that can more effectively slow down the shrinking of the middle class. This study proves that it is poorer Americans who need assistance through tax breaks, a raising of the minimum wage to meet the cost of living, and to be provided with the education and resources to break into new industries.  Providing these incentives for American workers can help fix the economy from the bottom up, and re-strengthen the diminishing middle class.

Photo: Andrew Brown via Flickr

Study Finds Income Inequality Is Permanent Reviewed by on . A recent Brookings Institution study reveals that the disparity between rich and poor is larger than ever, and is only expected to grow unless proper reforms ar A recent Brookings Institution study reveals that the disparity between rich and poor is larger than ever, and is only expected to grow unless proper reforms ar Rating:

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  • bpai99

    The world needs ditch diggers, too. So sayeth the Haves about the Have Nots.

    • Mark Forsyth

      Just because one digs ditches for a living does not imply that one should be poor.It is usually the rich who undervalue labor.

  • charleo1

    Some do not agree. But for the sake of discussion, let’s agree, wealthy people
    are not just like everybody else, that just happens to have more money. Their
    concerns are different than those who struggle in poverty. And different from
    even those who are solidly Middle Class. And although there continues to be
    this ongoing conversation, and debate, about the proper role of government.
    Each group wants, and expects a good number of things from their government.
    Lower income groups are far more likely to be concerned about the rising
    cost of education, healthcare, stagnant wages, and wealth disparity, itself.
    But, it would be natural expectation, that those, who because of their wealth,
    are not nearly so concerned about such matters. The vast majorities with more
    modest incomes, do not look to the government to solve all their problems.
    But, do want, and expect those in government, to know about, and understand
    their day to day realities. And, their long term challenges of needing to prepare
    for that not too distant day, they retire, or are otherwise, no longer able to work.
    Again, not one of those things, those in the upper income brackets, loses a lot
    of sleep over. What they do toss, and turn in bed about, is wealth protection.
    This does not make them horrible green eyed monsters. Most of us who are
    not rich, likely know someone who is. And chances are, better than even,
    they are a super nice person. It’s their politicians that is adding all the undue
    rancor. “Freedom’s just another word, for nothing left to lose.” Kristofferson
    writes, to describe the metaphorical confinement of the well to do. But, before
    we get to feeling too sorry for them. Worrying about how to keep, or make even
    more money, is certainly preferable to worrying where your next meal is coming
    from. A lot of us have been there. And know, when it starts to rain in your life.
    It usually pours.

    • CPAinNewYork

      I have found that generally, the rich are not “nice.” Generally, they are a bunch of self-centered pricks.

      • charleo1

        First I would say, you’re spot on about the optimism. The article
        kinda throws in the towel, doesn’t it? Is it a warning about inequity?
        Yes. But, like you said, we’re still a great Country. And we should
        feel lucky, and blessed to be living in it. As to your experience with
        the wealthy. There are many who still hold to the philosophy, to
        whom much is given, much is expected. I guess you definitely
        need to meet a better class of rich folk.

        • CPAinNewYork

          charleo1:

          You’re right about my pessimism, but I think that you’re confusing what I wrote with what the article’s author wrote about this being a great country. I think that we’re heading toward a class revolution, because the rich do not seem inclined to give up any of their perks. To the contrary, they and their vehicle the Republican Party seem hell bent to totally subjugate the middle class and the poor.

          My pessimism also stems from what I’ve seen in history, namely that class revolutions are nasty affairs and historically have tended to produce tyrants instead of leaders.

  • http://www.facebook.com/dominick.vila.1 Dominick Vila

    The wealthy will continue to get richer, and will continue to demand legislation by a friendly government to protect their assets regardless of circumstances or the well being of the majority of Americans. Along the same lines, the poor will continue to struggle, and will continue to dream of a day when a friendly government will extend them a hand to get them out of their misery, even when all evidence suggests they will struggle the rest of their lives to make ends meet.
    That is the way it has been since the beginning of time and, unfortunately, that is like to be the way it will be for many years to come. To guarantee the status quo the elite depends on two things: a powerful military and law enforcement designed to protect their interests, and an ignorant and complacent populace willing to accept their circumstances as part of life.

    • gahoof

      Time and history also show us that when the disparity between the wealthiest and poor become great, there are sometimes “corrections.” Think French revolution; think Russian revolution. But, of course, this couldn’t happen today; these are modern times.

    • CPAinNewYork

      Mr. Vila:

      I disagree with your prediction that the disparity will continue to grow ad infinitem. It will grow to the point where an explosion, called a revolution, happens and a lot of rich people either quit the country or get murdered.

      Unfortunately, short-term solutions like that sometimes lead to tyrannies, such as those that characterized the France and the Soviet Union. France worked itself out of theirs; Russia never did.

    • Independent1

      What many of the 1% seem to fail to realize, is the only reason that they are making money today, is because there are people in the populace who can afford to buy their products or services. As the disparity between the rich and poor expands, there will gradually be fewer and fewer people in the populace who can afford to by smart phones, or go to casinos, or go to sporting events, or put money in the bank, etc. etc. As this happens, the profits of corporations and the availability of money in the populace will gradually decrease, gradually cutting into the profits of corporations, casinos and the such which will lead to drastically reduced government revenues (tax inflows), resulting in more budget cutting, reduced government services, more people falling into poverty and welfare, simply creating a downward spiral that will result in even the wealthy themselves gradually losing their wealth from reduced money inflows from the peons that are left. How clueless does one have to be to not see the handwriting on the wall??? Like fossil fuels which are not renewable, the rich do not have an unlimited source of money, unless they are willing to put it back into the economy. What’s happening only goes to show how shortsighted and clueless the majority of the 1% truely are.

      • http://www.facebook.com/people/Andy-Kinnard/100000044001976 Andy Kinnard

        Ah, but the have all new markets in China and India where rapidly expanding middle classes effectively replace the consumer demand of the shrinking American middle class. Don’t think for a second they don’t have ALL this figured out: they can reduce us to feudal serfs without hurting themselves, and, if their risky bet doesn’t pay off (in the form of our economy totally collapsing), they can simply headquarter in another country and move on totally unscathed.

  • atc333

    Compare the graduated tax rates of the 50s,60s, with the current tax rates. Compare the distribution of wealth in the late 60s (top 2% owned 8% then, now the top 2% own over 46% of all the wealth of America) with the distribution of wealth today Compare the Federal debt created then, with the Federal Debt today. This is the end result of trickle down economics, the rich get richer, the poor, poorer, the middle class shrinks, Corporate America gets more wealth and political power, lobbyists gain more and more power, and America follows the path of Ancient Rome, in 300 years, instead of the 1400 plus years it took Rome.

    The plundering of America will not end until the people of America wake up, and begin to understand that extremism is the problem, not the solution. The Tea Party has nothing to offer except more of the same. Begin voting moderates into office, and we will see a change for the better. Otherwise, we will lose the economic war we are now in with China and India.

    • http://www.facebook.com/seekerx777 Jr Leal

      Agree with everything you said. However, I should point out how pathetic it is to be in an economic war with another country… Logic forbid we just COOPERATE WITH EACH OTHER LIKE ADULTS. Or like rational adults even. Sanity forbid we do that because dur it are all about competition…

  • Mark Forsyth

    I reject the negativity of this article outright.The wheels of progress may turn slow, but see how many have awoken to the inequality.It is not confined to the U.S..The indication is that there are more of us than there are of them.Time is not frozen and everything is temporary.Our circumstances are not permanent and we should not fall into the pit of thinking that they are.Negative thinking produces negative results.We have already taken important steps in the right direction doing the right things for the right reasons.We must remain committed to our highest goals.United We Stand,divided we fall.I know beyond the shadow of a doubt that we will succeed.Remember that the Wright Brothers did not get their plane off the ground at Kitty Hawk by thinking that it can’t be done.

    • http://www.facebook.com/people/Andy-Kinnard/100000044001976 Andy Kinnard

      This article does not express a jaundiced opinion; it simply makes direct conclusions based on incontrovertible data sets. You can go all ostrich and stick your head in the sand, but that doesn’t make the realities disappear; you’re just refusing to look at them.

      • Mark Forsyth

        Well,I guess you are entitled to “your” opinion regardless of the dung heap you scraped it from. I have survived for sixty one years in spite of challenges and unnecessary roadblocks thrown up by the gop and crooked corporations.I drove over the road for thirty four years while maintaining my own commercial fishing business for twenty six years.I helped to keep Countless people working in my time and I know what works.Who the fuck are you to make comments to me? The sand is the last place I have my head and have been engaged in the struggle all my life.Why don’t you pull your head out of your ass.You are someone who is merely rationalizing your own inaction to make things better for your self or anyone else.Go fuck yourself!

        • http://www.facebook.com/people/Andy-Kinnard/100000044001976 Andy Kinnard

          I suppose your comment encapsulates the good will that typified your business practices, huh? Nice language, there, Mark. The only opinion I expressed was that the article didn’t express a jaundiced opinion but was more fact-based than an opinion piece.

          I congratulate you on success in life’s struggles, but you’ll see that what we’re discussing are the CURRENT conditions that have made income inequality more difficult to overcome than in the decades past (during which your touted experience took place). Moreover, the article references aggregated statistics (which you don’t refute) that cannot be refuted by a single anecdote of relative success (that’d be your [his]story).

          BTW, I am (the f*ck) another person with a valid point of view; that, alone, gives me agency to comment on your assertions.

  • clarenceswinney

    INTERNET HEADLINES I DETEST/LIKE
    House Republicans Unanimously vote down minimum wage
    Sherrod Brown goes after Big Banks
    America Third Least Taxed in OECD nations
    210 new members on Forbes Billionaire list
    Housing Starts Start up
    16 Giant Corporations that have basically stopping paying taxes
    Paul Ryan’s Budget will not balance the budget in ten years
    Paul Ryan Budget has $1.4T in hidden cuts
    What happened to worker wages?
    Economists disagree with Paul Ryan claim “Debt is crushing our economy”
    Beware the new Corporate Tax Cut Scam:LIFT is a Big Lie
    House Democrats unanimously oppose extreme Republican budget
    As the provisions of the Affordable Care Act becomes into effect over the next year we must continue to make sure it works for everyone
    The Democratic Budget alternative has the right priorities for America
    The Obama Make It In America Program will enable more of our businesses
    to afford investments in America
    Democrats have led the fight to restore fiscal responsibility after President Bush and the Republicans left behind deep deficits. The Republican record of Fiscal Irresponsibility
    turned surpluses into massive deficits by borrowing trillions to finance two wars, Huge tax cuts for the wealthy, and major increases in spending.
    The President has proposed to let the high-income tax cuts expire and uses the $1Trillion over ten years to reduce deficits and debt and put the nation on a sustainable fiscal course that includes $2.50 of spending cuts for every $1 of revenue
    How the Billionaires Class is Destroying Democracy
    Lords Of Disorder: How the Big Banks are designed t6 prey off Economic Misery
    Obama’s Shakedown Of Medicare
    The Economic Challenge Ahead: More Jobs and Growth,, not deficit reduction

  • CPAinNewYork

    Allison Brito:

    Good article, but nothing will change. The rich will continue to exploit the poor until the frustrated poor explode and revolt.

    • Independent1

      Let’s hope it doesn’t have to come to that. Let’s hope that the wealthy start to realize that like fossil fuels, the less rich are not an unlimited source of income to make them even more wealthy. As quickly as the wealth disparity has grown over the past 30 years since Reagan and his nonsensesical economic theories have poisoned the minds of many Republicans, the time when the middle class and poor will no longer have the resources (money) to feed what seems like an insatiable desire for more wealth, is not far off. Let’s hope the wealthy start to see that soon before a revolt by the middleclass and poor is needed

      • CPAinNewYork

        Don’t bet on it. The only example of what you hope for happening of which I’m aware is Bismarck’s policy of “killing Socialism with kindness,” whereby he stole the Socialists” thunder by granting workers’ demands before they became a hot and contentious issue in Prussian politics.

        I don’t think that the present crop of reactionary Republicans is intelligent enough to read the future to any great extent. That failure will cause the violent explosion that I predict.

    • Mark Forsyth

      But that is not a lack of change.When have we ever had major societal change that did not include violence? Our government is thoroughly corrupt.Take a look at all those who are part of the Bilderberg Group,very ominous.Under the circumstances I would be more surprised if things did not get violent.

    • CPAinNewYork

      True, revolution is change, but the change to which I was referring is the attitude of the rich. That won’t change, because the rich want to keep their perks. Historically, the rich have been caught completely by surprise when class revolutions occur and suffer grievously for their ignorance of what’s happening. Three examples of this phenomenon: France in 1798, Russia in 1917 and Cuba in 1958.

  • howa4x

    As long as elections can be bought, they will stay very wealthy. They can afford to pay for the private meeting that few of us can have with a high ranking elected officials who will do their bidding. Whether its the continuation of the Keystone pipeline, or weak environmental laws on fracking, they get their way. Tax codes are written for their benefit. Did you ever wonder why investment earnings from stocks are taxed at a rate of 15% while the rest of us pay 33%? Ask Phil Graham the former senator from the banking industry. Democrats are just as guilty when it comes to catering to the one percent. The only difference being they will at times they will enact worker and consumer protection(however many loopholes it has). The fact is as long as we have a pay for play election system, the ones with the most money will always win the game.

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  • http://www.facebook.com/people/Andrew-Rei/100001727442607 Andrew Rei

    So, let’s see….how long have I been saying that we need to repeal ALL of the Bush 43 TCLCW (tax cuts/loopholes/corporate welfare)? Those fascist and Reverse Robin Hood fiscal policies are the reason that wealthy Americans and big US corporations were able to completely shelter $42 trillion of income from 2001-2012. That cost us $16.6 trillion in tax revenue and, when you add the $1.5 trillion in corporate welfare during that same period, the total bill comes to $18.1 trillion. That’s the largest upward redistribution of wealth in human history. Bernie Madoff’s Ponzi scheme pales in comparison.
    The worst part of this is that most of the Bush 43 TCLCW are STILL IN EFFECT! The Fiscal “Cliff” mess did only one thing: raise rates on the wealthy. But, with the loopholes for the wealthy still in effect, the raise in rates will only bring in about $60 billion this year. If the rest of the Bush 43 TCLCW were repealed, and, the sooner the better, we could actually have a SURPLUS for fiscal year 2014!
    The only way to address and stop income and wealth inequality, which is a defining characteristic of fascism, is though a truly PROGRESSIVE tax code. Even “flat” taxes are regressive, which makes them fascist. Not only is our tax code far away from progressive, it’s actually UPSIDE DOWN, where the wealthy and big corporations pay a lower effective rate than the middle class and smaller companies, if they pay any taxes at all! But, which political parties in this country suborn these fascist Reverse Robin Hood fiscal policies? The Republicans and the Libertarians, which is why I’ve combined them into what I call the American Nazi/Fascist Party.

    • Mark Forsyth

      Yup,that’s what they are.And they should have a fast train to hell.

    • http://www.facebook.com/people/Andy-Kinnard/100000044001976 Andy Kinnard

      Fascinating how the final figure on the GW giveaways to the rich is JUST more than our current national debt.

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  • montanabill

    Holy cow, did someone finally review world history for the past 10,000 years!

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