Our Economic Katrina

By Curtis Hewston

Pulitzer Prize-winning tax policy journalist David Cay Johnston has crunched the numbers, and they’re downright terrifying. Okay, maybe not quite as scary as The Road, but it must feel that way to the many affected Americans among us, in the same way those who were abandoned on New Orleans’ rooftops and starving and sweltering at its convention center must have felt.

Johnston reported at Tax.com today that in 2009, total wages fell to just above $5.9 trillion, down $215 billion from 2008. And compared with 2007, when the economy peaked, total wages in 2009 were down $313 billion or 5 percent. For some perspective, read on, though please also see his full report, charts and all.

According to new data from the Social Security Administration, Johnston adds, every 34th wage earner in America in 2008 went all of 2009 without earning a single dollar! That’s 2.94 percent of working Americans — gainfully employed one year, flat broke the next. All 52 weeks of it. The number of Americans with any wages in 2009 fell by more than 4.5 million from 2008. That’s to say, in his words, “The number of idle hands and minds grew by 6 million.”

The median wage in 2009 fell $159 to $26,261 from 2008, meaning half of all workers made $505 a week or less. The 2009 median wage was $37 less than in 2000!

These figures show, far more powerfully than the official unemployment measure known as U3, how both widespread and deep the loss of jobs was in 2009. While the official unemployment rate is just under 10 percent, deeper analysis of the data by economist John Williams at Shadow Government Statistics shows a real under- and unemployment rate of more than 22 percent.

But at the very top, Johnston reports, salaries grew more than fivefold.

The new data hold important lessons for economic growth and tax policy and take on added meaning when examined in light of tax return data back to 1950.

The story the numbers tell is one of a strengthening economic base with income growing fastest at the bottom until, in 1981, we made an abrupt change in tax and economic policy. Since then the base has fared poorly while huge economic gains piled up at the very top, along with much lower tax burdens.

He’s mirroring Chad Stone’s report from last week, cited here in On The Great Divergence, who said, “It wouldn’t be surprising if the Great Recession proved to be just another speed bump on the road to even greater concentration of income at the top.”

The number of Americans making $50 million or more, the top income category in the data, fell from 131 in 2008 to 74 last year. But that’s only part of the story.

The average wage in this top category increased from $91.2 million in 2008 to an astonishing $518.8 million in 2009. That’s nearly $10 million in weekly pay!

(Update: An interesting development here regarding the quoted figures that I’ve since underlined above and below. See Mr. Johnston’s comment at the bottom or follow this link to his update at Tax.com.)

You read that right. In the Great Recession year of 2009 (officially just the first half of the year), the average pay of the very highest-income Americans was more than five times their average wages and bonuses in 2008. And even though their numbers shrank by 43 percent, this group’s total compensation was 3.2 times larger in 2009 than in 2008, accounting for 0.6 percent of all pay. These 74 people made as much as the 19 million lowest-paid people in America, who constitute one in every eight workers.

Italics, above and below, are mine. Johnston provides the bottom line:

We have created a tax system that changes continually as politicians manipulate it to extract campaign donations. We have enabled ‘‘free trade’’ that is nothing of the sort, but rather tax-subsidized mechanisms that encourage American manufacturers to close their domestic factories, fire workers, and then use cheap labor in China for products they send right back to the United States. This has created enormous downward pressure on wages, and not just for factory workers.

Combined with government policies that have reduced the share of private-sector workers in unions by more than two-thirds — while our competitors in Canada, Europe, and Japan continue to have highly unionized workforces — the net effect has been disastrous for the vast majority of American workers. And of course, less money earned from labor translates into less money to finance the United States of America.

Remember Al Pacino in And Justice For All? “… something really wrong is goin’ on here!” We must do whatever it takes — and that includes getting the teabagger class to see the light — to make it right again.

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One Comment

  1. Posted December 15, 2010 at 5:30 am | Permalink

    A number reported above was changed by the Social Security Administration because my column drew attention to it, promoting an internal inquiry that discovered two people had filed $32 billion of bogus W-2 statements.

    Social Secueity changed the data, which I wrote about the next day at tax.com (Scary Wages II). The top salaries were not $518.8 million on average for 74 people, but $81 million for 72 people. This also lowered average pay and total pay, which fell for everyone by a half of a percentage point.

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