To John John Misci 3/21/2012 @ 5:17AM 239,392 views Average America vs the One Percent Alan Dunn , Contributor Comment Now Follow Comments If the Occupy movement does nothing else, it has at least introduced a new set of terms into the American vocabulary to talk about the distribution of wealth in America. Until recently, most average people had no idea how wealth was distributed in the country; most people had a vague idea of a wealthy minority, but they rarely grasped the full extent of income disparity between classes. Now, most people are aware of the notion of the 1 percent, although they still may not know exactly what it means or how that unequal distribution of wealth applies to the rest of the country. Unequal wealth distribution is hardly a new or uniquely American problem. In fact, it’s been prevalent throughout society since humans first built civilizations: A small minority of aristocrats has always wielded the most power throughout history. In modern times, America lags behind nearly every other first-world nation in closing the gap between the classes. In fact, we’re making it worse. The Distribution of Wealth Between Americans Before you can talk about the 1 percent, it’s important to put the figures into perspective by understanding exactly what that figure means. The average annual income of the top 1 percent of the population is $717,000, compared to the average income of the rest of the population, which is around $51,000. The real disparity between the classes isn’t in income, however, but in net value: The 1 percent are worth about $8.4 million, or 70 times the worth of the lower classes. The 1 percent are executives, doctors, lawyers and politicians, among other things. Within this group of people is an even smaller and wealthier subset of people, 1 percent of the top, or .01 percent of the entire nation. Those people have incomes of over $27 million, or roughly 540 times the national average income. Altogether, the top 1 percent control 43 percent of the wealth in the nation; the next 4 percent control an additional 29 percent. It’s historically common for a powerful minority to control a majority of finances, but Americans haven’t seen a disparity this wide since before the Great Depression — and it keeps growing. The Fallacy of Hard Work It’s a common belief in America that all people have the same opportunity for success as the top 1 percent. Most people consider success to be a by-product of hard work, and hard work is something that Americans are extremely familiar with. In fact, Americans have increased productivity by 80 percent since 1979; unfortunately, their income hasn’t risen accordingly, if at all. The average worker in an American company makes substantially less than supervisors and executives. In fact, corporate executives make 62 times more money than an average worker in bonuses alone, not counting the executive’s actual salary. For every corporate bonus, the company could have paid 62 employees. In fact, incentive pay actually rose 30 percent from years before the recession. A Difference in Lifestyle: Americans and the 1 Percent It’s no surprise that people in different classes spend their money differently. A person’s priorities change when he becomes wealthy, and certain expenses don’t vary much from one class to the next. The cost of food, healthcare and other expenses remains constant between classes, while the relative income may vary substantially. For example, all Americans pay an average of a third of their incomes for housing. The second highest expense of top earners in America is transportation; the rich spend about 17 percent of their income traveling for business and pleasure. On the other hand, the lower classes spend about 17 percent of their income on feeding their families. Rich people are also more likely to pay for private education for their children. The majority of the 1 percent have attended college, and it’s only natural that they want the same for their kids. Higher-income families are able to pay for education expenses, whereas poor kids must rely on academics and hope to earn a scholarship or other financial aid. This means that while it’s not impossible for a child from a poor family to attend Harvard, it will be substantially more difficult for him to get accepted than if his family had better connections and more money. Zero Sum Accounting A common complaint against the Occupy Wall Street movement is that it relies on “zero sum” thinking. Opponents will argue that the wealth of the upper class should have no effect on the lower classes. After all, they say, there is no finite amount of wealth; the upper classes aren’t stealing money from the lower classes. All people have an opportunity to rise up through the classes and join the 1 percent themselves. All of this sounds good in theory, but in practice it doesn’t usually work that way. The fact is that while wealth can be generated, money generally flows from one side of a population to the other. While money often works its way to the upper classes, it very rarely flows back the other way. Between 2007 and 2009, Wall Street profits swelled by 720 percent, even while unemployment rates doubled and home equity dropped by 35 percent. Since 1979, the bottom 90 percent of the nation has consistently lost money while the upper classes have gained. If the average person’s wages had kept pace with the economy since the 70s, most people would be making $92,000 per year. The fact is that the upper classes really are taking money from the poor in a very real and concrete way. The so-called trickle-down economy has never worked, despite the protestations of conservatives. Most extremely rich people do not spend enough money to stimulate the economy; they save or invest their money rather than spending it. This is a great financial practice for them, but it doesn’t promote wealth among the lower classes. Whenever someone in the working poor or middle class receives a large sum of money, such as a tax return, he will usually spend all of that money. The lower classes spend money on goods and services provided by people working in jobs that pay a middle-class or lower-class wage. While members of the upper classes may spend their money on creating jobs or increasing pay for corporate employees, they’re just as likely to invest the extra money instead. Perhaps it’s not the upper class’s duty to tend to the needs of the majority, but when a government claims to be cutting taxes for the wealthy specifically to stimulate economic growth, it’s reasonable to expect growth to be an actual consequence of the tax cuts. Who Really Pays for America? The rich do pay a higher tax than any other group of people. The top 1 percent of Americans pay approximately 35 percent of their incomes in taxes. Inside of the 1 percent, however, the people who make the most money actually pay the least taxes. If income disparity between the top 1 percent and the other 99 percent is high, it’s nothing compared to the disparity within the top earners. At the bottom of the 1 percent are doctors, lawyers and other professionals who earn a living wage of around $300,000. At the top of the 1 percent, people make around $5.2 million to $7.5 million each year on average, with some people making closer to a billion. This one-in-a-thousandth of the country pay closer to 23 percent in taxes. In fact, the top 400 highest earners in the country pay only 18 percent personal income tax. The top 1 percent may pay a higher percentage in taxes, but overall the lower classes are still paying more in tax revenue. People in the 15 percent tax bracket pay roughly 30 percent of the total tax gathered in the country, and their income tax accounts for more revenue for the government than any other bracket. The Relationship of the Upper Classes and the Government It’s impossible to ignore the fact that 57 members of Congress, or roughly 11 percent, are members of the financial elite. Overall, 250 members of Congress are millionaires, and their median net worth accounts for roughly $891,000, or nine times that of the average American. Asking politicians to enact changes that would reduce the wealth of the upper classes is a conflict of interests. It’s little wonder that tax cuts for the wealthy are repeatedly enacted while the reverse is so rarely true. People with high incomes want to keep the money that they have made, and this includes the men and women who control the country. It’s also important to remember that politicians are supported financially by the wealthy. In order to be elected, politicians of all levels require backing, and that backing generally comes from corporations. It’s impossible to deny the link between politicians and corporations, and the link is consistent regardless of a person’s political leanings. Right or left, big or small, politicians rely on corporations; more importantly, they rely on the extremely wealthy executives of those corporations. With the majority of tax income coming in from the middle class — despite the progressive tax — and the government’s interests clearly mingling with the upper class, is there any question of why the income disparity continues to grow? As Americans become more aware of the division of wealth among classes, they have turned their anger and despair into activism. There’s nothing wrong with wealth, but money that pools at one end of the population without benefiting anyone else is a sign of a suffering economy. Alan Dunn is a serial entrepreneur and founder of HowtoSaveMoney, a website dedicated to helping people understand how to save and manage money in everyday life. G
Posted on: Tue, 09 Sep 2014 18:40:07 +0000
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