America's Poor and Middle Class Decline as Counterparts in Europe and Canada Advance

Posted April 30, 2014

MP3 Interview with Sam Pizzigati, veteran labor journalist and Institute for Policy Studies Associate fellow, conducted by Scott Harris

middleclass

Since the birth of the Occupy Wall Street movement in New York City’s Zuccotti Park in September 2011, America has seen more discussion and debate about rising income inequality. While many politicians, including President Obama, talk about the need to address inequality, little of substance has been done to reverse policies that exacerbate the accelerating wealth gap. Now a new study published in the New York Times, titled, “The American Middle Class Is No Longer the World’s Richest,” cites statistics from the Luxembourg Income Study Database, and concludes that the middle class in other industrialized nations around the world have seen considerably larger increases in income over the last three decades, than their American counterparts.

The study also found that poor Americans have fared even worse than the middle class in comparison to families with similar incomes living in Canada and Europe. Major factors in the different outcomes revolve around tax policies that favor the rich, lagging education attainment, the distribution of wealth upwards to the wealthiest sector and the weakening of labor unions.

Recent research on inequality and views on America’s dysfunctional political system have found a large audience among Americans looking for answers about declining living standards. French economist Thomas Piketty’s best-selling new book, “Capital in the Twenty-First Century,” argues that unfettered capitalism inevitably leads to extreme income inequality. A new study by professors at Princeton and Northwestern University conclude that America is no longer a democracy, but an oligarchy where the rich call the shots. Between The Lines’ Scott Harris spoke with Sam Pizzigati, a veteran labor journalist and an associate fellow at the Institute for Policy Studies. Here, he assesses the decline of the American middle class, rising income inequality and public policy initiatives that can help reverse falling living standards.

SAM PIZZIGATI: When you look at disposable income around the developed world, you see that it's been an incredibly lousy century so far for average Americans. Since the year 2000, disposable income in the United States has barely nudged at all. It's only up 0.3 percent.

In other countries, by comparison, the increase is much, much higher. So if you look at Spain, is much, much higher. Spain we now see as a basket case with all sorts of economic trouble. But yet, in Spain they've had a disposable income increase of 4.1 percent, well over 10 times the U.S. increase.

In Italy, another country that's doing very poorly economically, the (disposable income) increase has been 8 percent. In the Netherlands, 14 percent. In Canada, our neighbors to the north, they've seen a 20 percent increase in household disposable income since the year 2000. Again, we've seen 0.3 percent. Looking across the world, the developed, our peer nations, average people in the United States are doing much, much worse than people elsewhere.

BETWEEN THE LINES: You know, there ares a lot of people out there that probably don't understand the forces that contribute to inequality in this country. But by looking at the public policies of these other industrialized nations around the world and what they do different from the United States that contributes to less inequality than we have here, what can we learn?

SAM PIZZIGATI: I think the best comparison to make is the comparison within the United States, that is, the comparison between the United States today and where we were in the middle of the 20th century when we became the first nation in the world to create a mass middle-class. And at that time, that mass middle class was built on two factors: one, we had a strong labor movement in the United States, over one of every three workers carried a union card and because of that unions set the labor market pace and even non-union workers ended up getting union level wages because unions were so prevalent. Right now, less than seven percent of U.S. workers hold union cards over vast swatches of the country. The labor movement and collective bargaining have essentially disappeared. So what we have is that the treasure that the United States economy is generating every year is flowing into the pockets of people at the top and not average Americans, and that's a prime, prime source of inequality that we're facing.

Back in the middle of the 20th century, we also had a strong, progressive tax system that limited inequities from the operations of the market. Income over $400,000 in the 1950s faced a 91 percent top tax rate. Now it's 39.6 percent for that same income. So just by letting our progressive tax system atrophy just by tolerating the assault on unions that we've seen over the past 50 and 60 years – we've changed the dynamics of income and wealth distribution in the United States and other countries have not gone through that process anywhere near that extent that we have here in the United States.

BETWEEN THE LINES: Sam, I also wanted to ask you the million dollar here, trillion dollar question: What are some of the policy prescriptions that you would advise the country take a serious look at, debate, and vote on in terms of the capacity to reverse economic disparity in this country? What are the ones that you think are the most important?

SAM PIZZIGATI: There are a number of things. But I would say that the very first thing is that we need to stop subsidizing inequality with our tax dollars. And that's exactly what we're doing right now. Every major corporation in the United States depends on government contracts and government tax subsidies of various support, whether you're talking about Lockheed Martin, the defense contractor or General Motors, or Apple computer, every major corporation has its hand in the till in one way or another.

So one thing that we're talking about – the Institute for Policy Studies in Washington – is that we should tie government procurement and government tax breaks to corporate pay policies. And if corporations are paying its top executives hundreds of times more than its average workers are receiving, that corporation should not be able to receive a government contract. That corporation should not receive a government tax break.

There are a number of other things that we can do along those lines in the state of California right now. There's legislation pending that would tax corporations that have a high ratio between CEO and worker pay than those corporations that have a modest differential between CEO and worker pay. These are the sorts of steps I think that we need to start thinking about. At the same time, we need to do the things that we know work from the past. We need to enable unions to organize and change the labor rules that benefit management so overwhelmingly today and of course we need to reinstitute a strong progressive tax system where people of great wealth pay a higher share of their income and taxes than people of modest means.

Sam Pizzigati is author of the book, "The Rich Don't Always Win." Read Pizzigati’s online column “Too Much” at toomuchonline.org.

Related Links: