Inequality is Weakening Social Security. Here’s How We Fix That.
When Congress set the cap on Social Security contributions in 1983, they didn’t anticipate forty years of rising inequality. And it’s cost us — a lot.
The other 99 percent do far worse in the United States than in any other developed country.
By Salvatore Babones
In September 2011 the Occupy Wall Street movement grabbed the world’s attention with its protest against the injustices of 21st century capitalism. The Occupiers focused on the fact that “the other 99 percent” — the non-wealthy majority of the population — are increasingly excluded from the world’s economies.[pullquote]The other 99 percent take home just 82.6 percent of America’s personal income.[/pullquote]
The other 99 percent didn’t benefit from the economic booms of the 2000s. The other 99 percent didn’t cause the global financial crisis. The other 99 percent paid for the bank bailouts of 2008. And yet the other 99 percent are now being asked to suffer cuts in pay, benefits, and government services. Increasingly, the other 99 percent are saying “no.”
Occupy movements have now sprung up in at least 20 countries, and probably more. They all speak, in one way or another, for the other 99 percent. But the other 99 percent means different things in different places. In some countries, the other 99 percent are truly oppressed. In others, they manage reasonably well.
The accompanying figure shows the percentage of total income going to the other 99 percent in eight different countries. The data are taken from the World Top Incomes Database produced by economists Emmanuel Saez, Facundo Alvaredo, Tony Atkinson, and Thomas Piketty. This database uses tax records to analyze the distribution of income across countries.
What immediately stands out in this figure is that the other 99 percent do far worse in the United States than in any other developed country. The other 99 percent take home just 82.6 percent of America’s personal income. In the United States the share of the other 99 percent has been falling for decades.
The other 99 percent share of total income reached a high of 92.3 percent in 1973. Back then, the United States income distribution looked like continental Europe looks today. It fell slightly in the late 1970s and early 1980s. In the mid-1980s it was still over 90 percent. Then the slide began.
Between 1986 and 2000 the share of the other 99 percent fell from 90.9 percent to 83.5 percent. It reached its lowest point at the height of the 2000s boom, just before the global financial crisis. By 2007 the income share of the other 99 percent was just 81.7 percent.
In other words, between the 1970s and the 2000s the United States went from looking like a European country to looking like an African country. Data are available for very few poor countries, but even in South Africa the income share of the other 99 percent is higher than in the United States.
The only developed country that comes close to the United States in the decimation of its other 99 percent is the United Kingdom. In the UK, the other 99 percent take in 85.8 percent of total income, down from 90.2 percent in 1990, the earliest year with data are available. Surely it’s no coincidence that the biggest Occupy encampments have been in New York and London.
Note that the data in our figure are from 2005 because that’s the latest year for which comparisons are available for most of our peer countries.[pullquote]U.S. capitalism has not always been more unequal than in the rest of the world.[/pullquote]
Back in the 1970s, the United States and United Kingdom looked, statistically, more or less like the rest of the developed world. We may have had our own distinctive institutions and policies, but the outcome for the other 99 percent was similar in the US, UK, Europe, Japan, and Australia. It’s simply not true that American — or British — capitalism has always been more unequal than in the rest of the world.
With the Reagan-era tax cuts and union busting in the 1980s the United States moved decisively from being a country for the other 99 percent to being a country for the top 1 percent. The same happened in the United Kingdom after the premiership of Margaret Thatcher, though her policies were more strongly resisted and took longer to have an impact. Today, the US and UK represent pathological economic models, out of step with the rest of the developed world.
The decline of the other 99 percent in the United States has now been underway for 30 years or more. It will take a major, sustained effort to restore normalcy. If we want to restore a healthy income distribution, somehow we have to claw our way up from the low 80s to the middle 90s.
In other words, it’s not enough to stem the decline of the other 99 percent. At some point in the near future ordinary workers have to start getting raises that are actually higher than those of their bosses and CEOs, and they have to keep getting those higher raises for 30 or 40 years. That may sound like a fantasy scenario, but it happened from the 1930s through the 1970s. It can happen again.
Policies to support the other 99 percent include a shift in taxation from payroll taxes to capital gains taxes, an expansion in government employment and government salaries, support for unions, and much higher minimum wages. The experience of other countries shows that such policies are possible in the United States. It all comes down to politics: If the other 99 percent demand these policies, they certainly have the numbers to get them.