Why do I feel squeezed?

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Jul 2, 2008 No Comments ›› admin

July 2, 2008

“We just can’t make it.” The man spoke in barely a whisper. “I am squeezed between the price of gas, food, health insurance, and property taxes; I can’t support my family on what I make. Is there anything you can do?”

People contact me with concerns about money.  People are suffering. Reasons vary; sometimes related to personal decisions; sometimes troubles are part of bigger problems.

What is happening around us? Why do things feel worse?

I am researching wealth, taxes and possible alternatives to rein in growing property taxes. In the next few weeks I will share what I have learned. The numbers may surprise you. Today I begin with what I have learned about wealth.

People are squeezed between rising costs and falling wages.

Yes, even if you got a raise, it is likely costs are increasing faster than your raise. Minimum wage earners across the county received a raise last year. But the new federal minimum wage of $5.85 an hour is still 7% below (in real terms) where the minimum wage was a decade ago[1]. (Wisconsin has a slightly higher minimum wage.)

A study released in April[i] found wages at the lowest 10th (household income) have actually fallen since 2000. Wages for middle income folks have been stagnant. The only growth in real wages happened for those making the top 20% of income.

For the average family this means, despite raises, people are making less or just the same as they were eight years ago.

And we live in a country where the income gap between the rich and the poor is growing.

Another study released in December[ii] found that the average household in the top 1% of income saw a gain of $180,000 in their annual income in 2005. The $180,000 gain is more than four times the average income for a Wisconsin family for an entire year!

The report also showed record trends in this income gap: the share of the nation’s after-tax income going to the top 1% wealthiest households has hit the highest level on record; higher than 1929. 

In 1979, the richest 1% made more than 23 times the poorest 20% of people. But by 2005 this number had grown – the wealthiest 1% of households made 70 times more than the poorest fifth.

The nation’s share of income going to the bottom fifth of income earners is now the smallest on record. This is not only a story of the wealthiest and the poorest. The report also found that the middle fifth of households saw their share of income shrinking to the smallest on record. Average income for middle income households rose only 0.8% in 2005. This compares to an increase of 20.2% for the top 1% in the same year, which is the largest one year gain in 17 years – or since data was available.

To put this all in perspective Lawrence Mishel, of the Economic Policy Institute, wrote last week “…in 1979 it took the highest-paid earners 12.4 days to make what most other earners did in a year, but by 2004 that feat was accomplished in a mere 3.7days[iii]”

Economists say the income gap is growing so fast in part because of changes in our tax laws.

Since 2001, changes in federal legislation have provided tax-payers with $1 trillion in tax cuts. The Tax Policy Center found that the wealthiest 1% of taxpayers saw an average tax cut of $44,200 or 5.4% in 2006. Those making over $1 million saw an increase of 6% in after tax income. This 6% is more than double the 2.5% increase in middle income households[iv].

As a state legislator, I can’t change federal tax policy. But I can help improve the fairness of our state tax system. Next week I will share what I’ve learned on the subject of Wisconsin’s taxes.

[1] Anderson, Sarah, John Cavanaugh, Chuck Collins, Sam Pizzigati, Institute for Policy Studies; Mike Lapham, United for a Fair Economy. Executive Excess 2007: The Staggering Cost of U.S. Business Leadership. August 29, 2007. p. 10.

[i] Bernstein, Jared, Elizabeth McNichol, & Andrew Nicholas. Pulling Apart: A state-by-state Analysis of Income Trends. April 2008. Center on Budget & Policy Priorities & Economic Policy Institute p. 39.

[ii] Sherman, Arloc. Income Inequality hits record levels, New CBO data show: Incomes rose $180,000 for top 1% in 2005 but just $400 for middle income households. December 14, 2007. Center on Budget and Policy Priorities. p. 1.

[iii] Mishel, Lawrence. Surging Wage Growth for Topmost Silver. June 18, 2008. The Economic Policy Institute. p. 1.

 [iv] Tables T06-0273 & T06-027 November 13, 2006. Tax Policy Center: Urban Insitiute & Brookings Institute. http://www.taxpolicycenter.org/numbers/Content/PDF/T06-0273.pdf Also reported in Sherman (2007) above.

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