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The Trillion Dollar Income Shift, Part 2
Policies behind income inequality
P art 1 of this article showed how even conservative estimates reveal that income inequality in the U.S. today has reached extremes not seen since the 1920s. More than $1 trillion a year in relative income is now being shifted annually—from roughly 90 million middle and working class families to the wealthiest households and corporations.
The policies and practices responsible for today’s widening income gap date back to the 1978-1982 period. At that time, policies and practices—both corporate and government—underwent a fundamental shift. The consequence of this shift has been a major restructuring of the U.S. economy since 1980 along a number of fronts, including an overhaul of jobs and job markets, widespread de-unionization, breakup of industry-wide collective bargaining agreements, a realigning of the federal tax structure, a new free trade offensive by corporations and government, cost shifting of health care and pension plans, government assisted compression of the minimum wage and overtime pay, annual diversion of social security fund surpluses to the U.S. general budget to offset federal deficits, deregulation and privatization of entire industries—to name the most significant.
Corporate lobbying and electoral strategies also underwent a fundamental overhaul as new ways began to emerge that re-defined how the corporate elite functioned within the Republican Party. In the late 1980s, other changes also took place altering how corporate interests functioned. New legislation and laws, executive orders, U.S. government rule making, federal agency decisions, etc., subsequently followed the new political landscape, assisting the implementation of new corporate policies and practices then emerging at the shop floor.
There has been a long-term continuity in the new policies and practices that emerged after 1978-1982. During the Reagan period, 1980-88, a relatively greater emphasis was placed on changing the tax structure, industry deregulation, shifting the power balance between unions and management, taking first steps towards dismantling the post-World War II retirement system, and encouraging job market restructuring.
During George Bush senior, 1988-1992, the emphasis shifted to policies more strongly promoting U.S. corporations’ foreign investment, trade, and on implementing neoliberal policies in emerging offshore economies and markets.
Under Clinton, 1992-2000, the focus centered largely on promoting and expanding “free trade.” Additionally, the Clinton period was characterized by the introduction of new formulas for enabling health care cost shifting from corporations to workers, by accelerating the diversion of social security payroll taxes to the U.S. general budget to create the false appearance of declining federal budget deficits and by passing government rules encouraging the further decline of the traditional private pension system.
Under George W. Bush, once again tax cuts for corporations and the
wealthy became the pre-eminent policy focus while further expanding
“free trade” assumed a second policy priority, in particular
in the case of U.S.-China trade. In as much as government tax and
trade policy have been among the largest contributing sources to
the general income shift, the George W. Bush era has thus combined
the worst of both the Reagan (tax) and Clinton (trade) eras. Not
surprisingly, the income inequality gap accelerated at the fastest
rate during the Bush period, 2000-2006. In addition to tax and trade-driven
income inequality, under George W. Bush other new income-shifting
policy initiatives were launched as well in health care cost shifting,
retirement system restructuring, and legislated wage compression
by government edict, targeting overtime pay for millions of hourly
While the above tax, trade, wage and benefits policies were being implemented top down between 1980-2006, corporate policies and practices further contributing to the growing income inequality gap were being simultaneously overhauled from the bottom up.
High on this bottom up list was the corporate shift from full-time, permanent jobs to part-time, temporary, and independent contract work. Growing consistently since the 1980s, more than 44 million of the 137 million employed workforce in the U.S. are now part-time, temporary, and contract workers earning 60-70 percent of the pay of full-time workers and typically 20 percent of the benefits.
New industry driven de-unionization policies also launched in the 1980s have resulted in the decline of union membership from 22 percent of the workforce in 1980 to barely 7 percent in the private sector in 2006. Two decades of corporate job offshoring policies sent millions of high paying, decent benefit jobs in manufacturing, technology, and business professional services overseas, a loss filled with lower paying service jobs—frequently part-time, temp, and contract jobs. Corporate fringe benefits policies shifted fundamentally during the same period, resulting in the dismantling of more than 100,000 traditional pension plans and their replacement with cheaper cost 401K plans; the discontinuance and/or shifting of costs of health insurance plan coverage; widespread unilateral corporate elimination of retiree health benefits; reduction of paid vacation and other paid time off; and other similar company-driven cost reduction measures.
The two approaches—corporate policy changes at the company-industry level and government policy changes—worked in close concert with each other. For example, government tax, depreciation, and free trade policies provided significant financial incentives to corporations for expanding offshoring of jobs and consequently dismantling and transferring abroad much of the manufacturing sector in the U.S. Government agency rule changes allowed corporations to extract pension fund surpluses for general business use and/or to delay properly funding pension plans. Government bodies like the National Labor Relations Board directly aided corporate efforts to de-unionize while government de-regulation and privatization of entire industries further decimated union membership ranks and undermined union bargaining effectiveness. On the health front, government policy in the form of managed health care under Clinton and consumer driven health care and health savings accounts under George W. Bush, encouraged corporations to more rapidly shift health care costs to workers.
Estimating the Income Shift
T able 1 summarizes some of the major shifts in middle/working class incomes that occurred in 2005 as a consequence of accumulated past corporate-government policies. Given the magnitudes of these income shifts, it is not surprising that corporate profits have increased at double digit rates (more than 10 percent) every quarter for the last three and a half years to more than $1.4 trillion; or that CEOs and the top 5 managers of U.S. corporations have increased their total share of national income from around $50 billion a year in 2001 to more than $140 billion a year in just five years; or that the wealthiest 1 percent (1.1 million) households have grown their share of total national income reported to levels of 20-22 percent of total national income, levels not seen since the late 1920s.
However, policies promoting domestic cost-driven income transfer (from the 90 million households) are not the whole picture. U.S. corporations and wealthy households are able to expand their income additionally from speculative activities and from offshore investment activity as well. And a good part of that income—corporate and individual—never gets reported in the income totals of the wealthiest households in the official data.
Table 1 categories represent income that passes through the conduit of the corporation. From there it may be disbursed by the corporation to shareholders, senior managers, and CEOs in the form of dividends, interest payment, capital gains, and various forms of deferred and total compensation for senior management. What is not disbursed may be accumulated and expended on corporate expansion (i.e., invested) or held by the corporation as retained profits. Official figures for retained profits by U.S. corporations are now at the level of more than $500 billion a year, now running about $200 billion a year higher than long term historical averages. And those figures only represent retained profits that are reported.
Largely unreported are additional profits by multinational corporations that get transferred by various accounting means to their offshore subsidiaries and affiliates and then held there as unrepatriated profits for years. The precise totals for such unrepatriated profits are not known, either by the IRS or the U.S. government. A brief glimpse was provided, however, by the investment bank Morgan Stanley in 2005 when it publicly reported that the total in offshore unrepatriated profits held by U.S. corporations amounted to about $700 billion—that was only what was publicly admitted at the time.
A third and even more opaque category of profits consists essentially of unknown profits (from domestic U.S. or foreign operations) that are diverted to offshore tax shelters and never reported to the IRS. The latest unofficial indication of the level of income held today in offshore tax shelters—which now proliferate from islands in the Caribbean to Cyprus to the Seychelles in the Indian ocean to various locales throughout the Pacific archipelago—is about $7 trillion. That is up from $250 billion in the mid-1980s. It is reasonable to assume that at least $4 trillion of that $7 trillion is held by U.S. corporations and wealthy households, the mix between corporate and individuals essentially unknown. An annual additional net flow of income from the U.S. into such shelters is easily around $200 billion a year, not counting interest earned annually on the $4 trillion already there (which would amount to another $300 billion, assuming a conservative 7 percent rate of return). Discounting the additional $300 billion in interest, $200 billion never gets reported to the IRS and is therefore never counted as income of the wealthiest households or corporations. Such profits and sheltered income should be considered as temporarily undistributed deferred income of wealthy households that will eventually be paid out in subsequent years to those households.
During George W. Bush’s first term alone, more than $4 trillion in tax cuts were passed. Studies show that approximately 80 percent of these cuts are accruing to the wealthiest 20 percent households and largely in turn to the highest income groups within that 20 percent. Should the Bush tax cuts be made permanent, the amount will grow to $11 trillion, again with the highest income groups receiving the lion’s share of the cuts and income. Additional corporate tax cuts amounting to more than $1 trillion were also passed under Bush and have contributed significantly to the previously noted bulge in corporate retained profits.
Thus, while corporate level policies have increasingly shielded unreported income from the IRS on behalf of the wealthy in various ways, government tax policies from Reagan through Bush Jr. have served to shift income to the wealthy from the partial sources that are reported to the IRS. Table 2 shows select categories of income shifted to the wealthiest households and corporations as a result of government tax policies, as well as from corporate-level policies diverting and/or shielding income. Not included are various government direct subsidies to corporations and wealthy individuals, which conservatively amount to additional tens of billions of dollars a year from the U.S. government.
F rom the foregoing it is clear that there is, at minimum, a $1$1.5 trillion shift in relative income occurring annually today. Even assuming the possibility of some double counting in the income categories in Table 1, the amount of income shifted annually as a result of policies represented in Table 1 is easily in the $700 billion to $1 trillion range. Added to this must be categories of income in Table 2, which represent underestimations of income accruing to the wealthiest households due to tax sheltering, tax evasin, and the record tax cuts to the wealthy. Even reducing the totals in Table 2 by half yields at minimum $300$400 billion a year in additional income to the wealthy. When Tables 1 and 2 are combined, the result is a total income shift of at least $1 trillion annually.
The $1 trillion annual shift in relative income is roughly equivalent to the $1.09 trillion reported by the U.S. Commerce Department in Part 1 of this article. It is likely this $1.09 annual income gap will continue to widen in the next few years, since gains from Bush’s capital income tax cuts for the wealthy are projected to increase through 2010 while the policies responsible for shifting working families’ incomes in areas of wages, jobs restructuring, job offshoring, shifts to more part-time/temporary/contract work, health and pension benefits cost shifts, payroll tax diversions, and the like show no sign of deceleration or reversal. Furthermore, should recession occur by late 2007early 2008—an increasingly likely prospect—the income shift will further accelerate as it always does during recessions. The outlook and probability is high that the income inequality gap in the U.S. will continue to grow even further.
Jack Rasmus is the author of The War At Home: The Corporate Offensive From Ronald Reagan To George W. Bush (www.kyklosproductions.com).
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AnnouncementsLABOR - May 1 is May Day. Workers of the world will celebrate the 124th anniversary of International Worker’s Day. Born out of a call for an 8-hour workday in the United States, this day is an opportunity for all workers to show their solidarity with one another, as well as to renew the call for labor rights.
FARM CONFERENCE - The Farm Conference on Community and Sustainability will be held May 24-26 in Summertown, TN, in partnership with the Fellowship of Intentional Communities. Tour green homes, see sustainable food production, learn about solar installations, alternative education, midwifery, and more.
Contact: Douglas@thefarmcommunity.com; http://www.thefarmcommunity.com/.
PALESTINE - The Conference of the Palestinian Shatat in North American will be held June 3-5 in Vancouver. The conference will examine the future of the Palestinian liberation movement.
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LABOR - The Pacific Northwest Labor History Association’s 45th annual conference will be held May 3-5, in Portland, OR. This year’s theme is Labor Under Attack: Learning from the Past and Preparing for the Future. A call for presentations, workshops and papers is currently underway.
Contact: PNLHA, 27920 68th Ave. East, Graham, WA 98338; 206-406-2604; PNLHA1@aol.com; http://www3.telus.net.
MARIJUANA - On the first Saturday of May marijuana legalization activists will hold informational and educational events, rallies and marches in over 300 cities around the world.
ECONOMICS - The Union For Radical Political Economics will hold its 39th annual conference May 9-11 in New York City.
RECLAIM THE DREAM - The 2013 Poor People’s Campaign & March from Baltimore to Washington D.C. will be May 11. Communities, schools and unions interested in participating are encouraged to contact the Baltimore People’s Assembly.
Contact: 410-500-2168; 410-218-4835; BaltimorePeoplesAssembly@gmail.com; Southern Christian Leadership Conference of Baltimore and the Baltimore Peoples Power Assembly, 2011 N. Charles St., Baltimore, MD 21218.
MOTHER’S DAY - The 17th Annual Mother’s Day Walk For Peace will be May 12th, in Dorchester, MA. The walk began in 1996 for families who had lost children to violence. The day has become a way for thousands of people to financially support the work of the Louis Brown Peace Institute.
Contact: http://www.ldbpeaceinstitute.org/; http://mothersdaywalk4peace.org/.
NATO 5 - An International Week of Solidarity with the NATO 5 has been called for May 16-21. Supports call on supporters to raise awareness of the NATO 5 and support funds for the defendants on the one-year anniversary of their preemptive arrests.
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MOUNTAINTOP - The 2013 Mountain Justice Summer Activist Training Camp will be held May 19-27 in Damascus, VA. It will be a week of workshops, field trips to view Mountain Top Removal coal mines, direct actions, and service project.
FEMINIST SCI-FI - The feminist science fiction convention WisCon 37 is scheduled for May 24-27 in Madison, WI.
Contact: WisCon, ? SF3, PO Box 1624, Madison, WI 53701; firstname.lastname@example.org; http://www.wiscon.info/.
ANARCHY FEST - A month-long Festival of Anarchy is scheduled for May in Montreal. The festival includes The Montreal Anarchist Bookfair (May 19-20).
Contact: http://www.anarchistbookfair.ca/; http://www.radicalmontreal.com/.
LABOR - The International Labor Rights Forum will present: Down the Supply Chain, Driving Corporate Accountability, on May 22 in Washington, DC. The Labor Rights Awards Ceremony and Reception will honor pioneers in supply chain worker organizing, working solidarity and international labor rights policy.
MULTICULTURE - The 26th annual National Conference on Race & Ethnicity in American Higher Education (NCORE) will take place May 28-June 1, in New Orleans.
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MEDIA - The 2013 Alliance for Community Media Annual Conference will be held May 29-31, in San Francisco, CA. Participants will include educators, community leaders, media professionals, journalists, nonprofit leaders, policymakers and students.
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BRADLEY MANNING - On June 1, a rally will be held at Fort Meade in support of Bradley Manning.
BIKES - Bikes Not Bombs is holding its 24th annual Bike-A-Thon and Green Roots Festival in Boston, MA on June 3, with several bike rides scheduled, music, exhibitors and more.
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LEFT FORUM - The 2013 Left Forum will be held June 7-9, at Pace University in New York City.
Contact: 365 Fifth Avenue, CUNY Graduated Center, ? Sociology Dept., New York, NY 10016; http://www.leftforum.org/.
VEGAN FEST - Mad City Vegan Fest will be held in Madison, WI, June 8. The annual event features food, speakers, and exhibitors.
Contact: 122 State Street, Suite 405 B, Madison, WI 53701; firstname.lastname@example.org; http://veganfest.org/.
ADC CONFERENCE - The American-Arab Anti-Discrimination Committee (ADC) holds its annual conference June 13-16, in Washington, DC, with panel discussions and workshops on civil rights, media and other topics.
Contact: 1990 M Street, Suite 610, Washington, DC, 20036; 202-244-2990; email@example.com http://convention.adc.org/.
CUBA/SOCIALISM - A Cuban-North American Dialog on Socialist Renewal and Global Capitalist Crisis will be held in Havana, Cuba, June 16-30. There will be a 5 day Seminar at University of Havana, plus visits to a cooperative, urban garden, community development project, social research centers, and educational & medical institutions.
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NETROOTS - The 8th Annual Netroots Nation conference will take place June 20-23 in San Jose, CA. The event features panels, trainings, networking, screenings, and keynotes.
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MEDIA - The 15th annual Allied Media Conference will be held June 20-23, in Detroit.
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GRASSROOTS - The United We Stand Festival will be hosted by Free & Equal, June 22 in Little Rock, Arkansas. The festival aims to reform the electoral process throughout the U.S.
SOCIALISM - The Socialism 2013 Conference is scheduled for June 27-30 in Chicago, featuring talks and panel discussions.
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LITERACY - The National Association for Media Literacy Education (NAMLE) will hold its conference July 12-13 in Los Angeles under the heading, Intersections: Teaching and Learning Across Media.
Contact: 10 Laurel Hill Drive, Cherry Hill, NJ 08003; http://namle.net/conference/.
IWW - The North American Work People’s College will take place July 12-16 at Mesaba Co-op Park in northern Minnesota. The event will bring together Wobblies from branches across the continent to learn new skills and build One Big Union.
PEACESTOCK - On July 13th, the 11th Annual Peacestock: A Gathering for Peace, will take place at Windbeam Farm in Hager City, WI. The event is a mixture of music, speakers and community for peace. Sponsored by Veterans for Peace.
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CHILDREN’S DEFENSE - July 15-19, join clergy, seminarians, Christian educators, young adult leaders and other faith-based advocates for children at CDF Haley Farm in Clinton, Tennessee, for five days of spiritual renewal, networking, movement building workshops, and continuing education about the urgent needs of children at the 19th annual Proctor Institute for Child Advocacy Ministry.
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ACTIVIST CAMP - Youth Empowered Action (YEA) Camp will have sessions in July and August in Ben Lomond, CA; Portland, OR; Charlton, MA. YEA Camp is designed for activists 12-17 years old who want to make a difference in the world.
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LA RAZA - The annual National Council of La Raza (NCLR) Conference is scheduled for July 18-19 in New Orleans, with workshops, presentations and panel discussions.
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LABOR - The Eastern Conference For Workplace Democracy: Growing Our Cooperatives, Growing Our Communities, will be held at Drexel University in Philadelphia, PA, July 26-28.
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WOMEN/LYNNE STEWART- Radical Women is asking for support letters and cards to be sent to Lynne Stewart. Stewart is a civil rights attorney and political prisoner who is currently in jail. She has breast cancer and authorities have denied her request for transfer from her Texas prison to the New York City hospital where she received medical attention during a prior bout of breast cancer. Send messages and cards to: Lynne Stewart 53504-054, Federal Medical Center Carswell, P.O. Box 27137, Fort Worth, TX 76127.
Contact: 747 Polk Street, San Francisco, CA 94109; 415-864-1278; RadicalWomenUS@gmail.com; http://lynnestewart.org/; http://www.radicalwomen.org/.
HAITI/WOMEN - Haiti’s government is considering a legal reform measure that would prohibit and punish all sexual assault, including marital rape. MADRE and the International Campaign to Stop Rape & Gender Violence in Conflict are launching a petition to raise international support for this push to address violence against women in Haiti.
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SYRIA/MIDDLE EAST - The Middle East Children’s Alliance (MECA) is currently seeking funds to assist more than 200,000 refugees fleeing violence in Syria.
FOLK FESTIVAL - The Falcon Ridge Folk Festival will be held August 2-4, in the Berkshires, NY.
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WAR RESISTERS - The War Resisters League will hold its 90th anniversary conference, Revolutionary Nonviolence: Building Bridges Across Generations and Communities, August 1-4, at Georgetown University. The event will focus on the U.S.’ long history of antimilitarism.
Contact: 339 Lafayette Street, New York, NY 10012; 212-228-0450; email@example.com; http://www.warresisters.org.
POPULAR ECONOMICS - The Center for Popular Economics is holding its 2013 Summer Institute August 4-9 at Hampshire College in Amherst, MA. No background in economics is needed for this intensive training. This year’s theme is, The Care Economy: Building a Just Economy with a Heart.
Contact: Center for Popular Economics, PO Box 785 Amherst, MA 01004; 413-545-0743; firstname.lastname@example.org; www.populareconomics.org.
VETERANS - Veterans for Peace is holding the 28th annual convention August 6-11 in Madison, WI. This year’s theme is, Power To The Peaceful.
DEMOCRACY - The Democracy Convention will take place August 7-11 in Madison, WI. The convention brings together nine conferences including topics such as media, education, defense, race, environment and others.
MEN - The 38th National Conference on Men & Masculinity: Forging Justice: Creating Safe, Equal and Accountable Communities, presented in partnership with HAVEN, will be held in Detroit, MI, August 8-10.
Contact: email@example.com; http://www.nomas.org/.
OCCUPY - An Occupy National Gathering will be held in Kalamazoo, MI, August 21-25.
Contact: firstname.lastname@example.org; http://occupynationalgathering.net/.
COMMUNITIES - The Communities Conference is a networking and learning opportunity for co-operative or communal lifestyles, with workshops, events and entertainment; scheduled for August 30-September 2 at the Twin Oaks Community in Louisa, Virginia.
LABOR DAY - The 29th annual Bread and Roses Festival, a celebration of the ethnic diversity and labor history of Lawrence, MA, will be held September 2, in honor of the 1912 Bread and Roses Strike. There will be music, dance, poetry, drama, ethnic food, historical demonstrations, walking & trolley tours.
Contact: PO Box 1137, Lawrence, MA 01842; 978-794-1655; http://www.breadandrosesheritage.org/.
OCCUPY WALL STREET - September 17 is the two-year anniversary of the Occupy Wall Street movement. Events are planned in New York City and worldwide.
TEACHERS - The 13th Annual Conference, “Teaching for Social Justice: The Politics of Pedagogy,” will be held October 12 in San Francisco, CA. The free event features workshops, resources, and free childcare.
Contact: 415-676-7844; email@example.com; http://www.t4sj.org/.
HAITI - International Action, which brings clean water and chlorinators to Haiti, seeks office space capable of housing up to six people and their office equipment.
Contact: Zach Bremer, Zbrehmer@haitiwater.org; 202-488-0735; http://www.haitiwater.org/.
MEDIA - The Union for Democratic Communications and Project Censored are sponsoring a joint conference on media democracy, media activism and social justice to be held November 1-3 at the University of San Francisco. Proposals for presentations, workshops and panels from activists and critical scholars are invited.