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We think a lot about the poor at Christmas. Salvation Army bell ringers remind us when we’re shopping that many Americans have nothing to shop with. Newspapers tell us where to bring toys for those who otherwise might get nothing for Christmas. The spirit of giving mingles with public appeals to help the poor more than at any other time of the year.

american income inequality

Rich and Poor at Christmas—Steve Hochstadt

15% of American families, 1 in 7, are poor. Nearly 25% of our children live in poverty. Why are there so many poor people in such a rich country? On that issue, the US does very poorly in comparison with the other rich nations in the world. The UN Children’s Fund found that among 35 developed nations, the US had the second highest children’s poverty rate. Countries that we think of as enjoying similar economies to ours have less than half as many poor children.

Compared to our developed peer nations, the US has the highest levels of inequality, more like Saudi Arabia and China than like Germany or Belgium.

One cause of high poverty in our rich country is the inequality of income distribution. Although a huge amount of money comes into American families every year, a few families get most of the income and many get very little. Compared to our developed peer nations, the US has the highest levels of inequality, more like Saudi Arabia and China than like Germany or Belgium.

That inequality is getting much worse. In the good old days, perhaps when America was “great”, the richest 1% of Americans earned about 10% of the total income. That lasted from the 1950s through the early 1980s. Since then the “1%” have doubled their share to over 20%, while the rest get less. In the 1960s, CEO’s made about 20 times the wages of typical workers. Now CEO’s make 300 times what workers make. CEO income has multiplied about 1000% over the past 40 years, while workers have gained only 11%.

The conservative argument about economics has always been some version of “a rising tide lifts all boats.” Let the rich get even more, but everyone will gain. Their argument that money flowing into the bank accounts of the richest Americans would eventually trickle down to the rest of us through economic growth sounds nice, but it hasn’t happened. As the American economy has expanded over the past decades, the rich have been getting richer by keeping all of the growth for themselves. The biggest boats float away on oceans of income, while the little boats have gone nowhere. Now the Republican proposals to lower taxes on the rich would make this inequality even worse.

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There’s another reason why poverty remains a problem in America, a reason that was a carefully guarded secret until April of this year: the very rich in America and across the world cheat their own countries by hiding their income. The most significant hack of the year was not the Russian break-in to the records of the Democratic Party or the burglary of the records of the World Anti-Doping Agency, but the revelation of 11 million documents from the Panamanian law firm Mossack Fonseca, labeled the Panama Papers. Mossack Fonseca helped create over 200,000 shell companies to allow the world’s richest people to hide their money from taxation in places like Luxembourg or the Cayman Islands.

The economist Gabriel Zucman, an expert in worldwide tax avoidance, estimates that American individuals escape $30 billion in taxes every year by not reporting their offshore assets, while US multinational corporations avoid $120 billion annually. Together that’s about one third of the projected 2017 federal deficit or about the same as all Americans making under $60,000 pay in federal taxes.

Oxfam reports that the 50 largest American corporations dodge about $111 billion in taxes every year. These corporations have received $27 in federal loans, loan guarantees and bailouts for every $1 they paid in federal taxes. They spend a huge amount on lobbying, but the return is much greater than for any investment normal people could dream of. For every $1 spent on lobbying, they received $130 in tax breaks and more than $4,000 worth of federal funds.

Yes, the system is rigged. But it’s rigged in the way that Bernie Sanders talked about, not what Donald Trump said. The media is not dishonest, it’s our only hope of finding out what the rich are up to. The poor don’t give illegal votes to the Democrats; the very rich buy influence from both parties to make sure that they get back much more than they pay in taxes, which is much less than they ought to pay.

So the poor stay where they are, listening to the rich tell them to work harder. Maybe the billionaires in Trump’s cabinet will change that. But don’t bet on it.

steve hochstadt

Merry Christmas.

Steve Hochstadt
Taking Back Our Lives