Paul Krugman on how the rich are getting richer...again and again
Where's My Trickle?
Four years ago the Bush administration, exploiting the political bounce it got from the illusion of success in Iraq, pushed a cut in capital-gains and dividend taxes through Congress. It was an extremely elitist tax cut even by Bush-era standards: the nonpartisan Tax Policy Center says that more than half of the tax breaks went to Americans with incomes of more than $1 million a year.
Needless to say, administration economists produced various misleading statistics designed to convey the opposite impression, that the tax cut mainly went to ordinary, middle-class Americans. But they also insisted that the benefits of the tax cut would trickle down - that lower tax rates on the rich would do great things for the economy, helping everyone. Well, Friday's dismal jobs report showed that the Bush boom, such as it was, has run its course. And working Americans have a right to ask, "Where's my trickle?"
It's true, as the Bushies never tire of reminding us, that the U.S. economy has added eight million jobs since that 2003 tax cut. That sounds impressive, unless you happen to know that a good part of that gain was simply a recovery from large job losses earlier in the administration's tenure - and that the United States added no fewer than 21 million jobs after Bill Clinton raised taxes on the rich, a move that had conservative pundits predicting economic disaster.
What's really remarkable, however, is that four years of economic growth have produced essentially NO gains for ordinary American workers. Wages, adjusted for inflation, have stagnated: the real hourly earnings of nonsupervisory workers, the most widely used measure of how typical workers are faring, were no higher in July 2007 than they were in July 2003. Meanwhile, benefits have deteriorated: the percentage of Americans receiving health insurance through employers, which plunged along with employment during the early years of the Bush administration, continued to decline even as the economy finally began creating some jobs. And one of the few seeming bright spots of the Bush-era economy, rising homeownership, is now revealed as the result of a bubble inflated in part by financial flim-flam, which deceived both borrowers and investors.
Now you know why 66 percent of Americans rate economic conditions in this country as only fair or poor, and why Americans disapprove of President Bush's handling of the economy almost as strongly as they disapprove of the job he is doing in general.
Yet the overall economy has grown at a reasonable pace over the past four years. Where did the economic growth go? The answer is that it went to the same economic elite that received the lion's share of those tax cuts. Corporate profits rose 72 percent from the second quarter of 2003 to the second quarter of 2007. The real income of the richest 0.1 percent of Americans surged by 51 percent between 2003 and 2005, and although we don't yet have the data for 2006, everything we know suggests that the income of the rich took another upward leap.
The absence of any gains for workers in the years since the 2003 tax cut is a pretty convincing refutation of trickle-down theory. So is the fact that the economy had a much more convincing boom after Bill Clinton raised taxes on top brackets. It turns out that when you cut taxes on the rich, the rich pay less taxes; when you raise taxes on the rich, they pay more taxes - end of story.
But it's not just trickle-down that has been refuted: the whole idea that a rising tide raises all boats, that growth in the economy necessarily translates into gains for the great majority of Americans, is belied by the Bush-era experience. As far as I can tell, America has never before experienced a disconnect between overall economic performance and the fortunes of workers as complete as that of the last four years.
America was a highly unequal society during the Gilded Age, but workers' living standards nonetheless improved as the economy grew. Inequality rose rapidly during the Reagan years, but "Morning in America" was nonetheless bright enough to make most people cheerful, at least temporarily. Inequality continued to increase during the Clinton years, but wages rose, as did the availability of health insurance - and the great majority of Americans felt prosperous.
What we've had since 2003, however, is an economic expansion that looks good if not great by the usual measures, but which has passed most Americans by.
Guaranteed health insurance, which all of the leading Democratic contenders (but none of the Republicans) are promising, would eliminate one of the reasons for this disconnect. But it should be only the start of a broader range of policies - a new New Deal - designed to turn economic growth into something more than a spectator sport.Truth's out.