1984: The Year Income Equitability Began To Die In The U.S.

Today, I watched a market analyst’s presentation regarding retailer performance this holiday season. What stood out dramatically was the difficulty those retailers were experiencing who cater to middle Americans (GAP, Abercrombie & Fitch, Aeropostale, etc — with the noted exception of “trend” retailers catering to “teen” markets with high style, cheap products: H&M, Forever 21, etc.) while those retailers catering to the upper 5% of society were performing remarkably well.

Why the disparity? How’s that happen? Get used to it… this is your future:

Income Chart

1984 was the year America’s inequality trend began in earnest. 1984 is the year the future for most Americans diminished. 1984 is the year any hope of income equitability died.

So how is it that the U.S. income gap has grown large enough for us to claim the title of worst inequality in the developed world? Here are a few of the many explanations:

1. Tax Cuts For The Rich:

Many of the spikes in the chart correspond with periods when the government slashed taxes on the rich. As the Center for American Progress notes, Ronald Reagan’s early 1980s tax reforms helped to increase income inequality.

The same thing happened in the late 1990s when Bill Clinton passed a tax cut on capital gains, or investment income, which rich people are more likely to have than ordinary Americans. And then it happened again when George W. Bush cut the top marginal tax rates in 2001 and 2003.

Altogether, about 30 percent of the expansion of the after-tax income gap between 1979 and 2007 was due to tax and budget policies becoming less progressive, according to a June analysis from the Economic Policy Institute.

2. Corporate Profits & Executive Pay Soar:

Over the past several years corporate profits — which go in large part to rich investors — have soared to the point where they now make up the highest share of the economy on record. And over the last several decades, CEO pay also skyrocketed. The result: The ratio between CEO and average worker pay ballooned by roughly 1,000 percent since 1950.

3. Workers’ Wages Decoupled From Productivity Growth:

In the 1960s workers and their families used to be able to live above the poverty line on a minimum wage income. But now, that’s no longer the case, according to EPI. In fact, if the minimum wage had kept up with boosts in worker productivity over the past several decades it would be $18.30, according to EPI. That’s more than double the current minimum wage of $7.25.

Part of the reason workers have had a tougher time securing higher wages in recent years is because of a marked decline in unionization. Drops in union membership typically correspond with growth in income inequality, research finds.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s