IPS Blog

It is said one has to get outside of Washington DC to get a proper perspective on the nation's problems, but the nation's capital provides plenty of insight into the challenges facing this country. Washington DC, like the country as a whole, is currently on a path of increasing division and inequality. The DC Fiscal Policy Institute notes that in Washington DC the average household income for the richest fifth increased by 81% or $78,900 from 1980 to 2006. For the middle fifth there was an increase of 31% or $11,000 and for the poorest fifth only a 3% increase equaling $400. In over 25 years, the richest of DC increased their household income by almost $80,000, while the poorest saw their increase disappear by spending an extra dollar a day over one year. Similarly, from 1980 to 2005 over 80% of the total increase in all of America's income went to the top 1 percent.

This growing economic inequality has strengthened racial and class divisions throughout the country, creating new dynamics in the defacto segregation that still exist in Washington DC and many of the country's urban centers. The new trend in the ongoing segregation of America is the urbanization of upper income whites and the suburbanization of the working class and disenfranchised minorities. The new trend is reversing the segregationist trends of the latter half of the 20th century...

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The U.S. Census Bureau last week closed the book on the first decade of the 21st century. We now know, after Thursday’s release of Census survey data for 2009, exactly how Americans fared over the decade that began on January 1, 2000.

Average Americans, the new annual Census data make plain, didn’t fare particularly well — even before the Great Recession.

The middle fifth of America's households opened the decade averaging $52,547, after adjusting for inflation. In 2007, just before America’s economic meltdown, this middle fifth of households averaged $51,691. Last year, after two years of Great Recession, that middle class average stood at just $49,534.

Our new century has begun, as Harvard economist Lawrence Katz noted after the new Census figures appeared, with a “decade of decline.”

And this decade of decline comes after a generation of income stagnation. America's average incomes rose consistently in the decades right after World War II. But those crisp increases ended in the 1970s. Between 1969 and 1999, the Census data show, incomes of households in America’s middle fifth increased by an average of only $315 a year, less than 1 percent annually after inflation.

Incomes at the top have fared considerably better. America’s most affluent 5 percent, the new Census data document, have seen their incomes rise by 81 percent after inflation since 1969.

These official Census numbers actually understate just how well America’s most affluent have been doing — and significantly so.

Reason one: The Census income totals include all the revenue streams that flow into average American households, everything from paycheck earnings and pension income to disability benefits and Social Security. But the Census doesn’t tally any income that households make from selling stocks and other assets.

These capital gains, according to analyses of IRS data, made up 14 percent of top 5 percent income in 2008, the latest year with numbers available. At America’s economic summit, capital gains count for even more.

In 2008, these capital gains made up 26 percent of the income that went to America’s most affluent 1 percent, 34 percent of the income for the top tenth of 1 percent, and 45 percent of the income for the top hundredth of 1 percent, taxpayers who averaged $27.3 million. None of this capital gains income shows up in the Census figures released last week.

The second reason why the Census figures understate the income of America's most affluent: Census researchers, to protect privacy, “top code” their data. That is, above certain levels, they stop counting income. Income from an employer carries a $1.1 million Census top code. The income of a CEO who makes $10 million goes down on the Census tally sheet as $1.1 million.

The result? We know from the Census figures how many Americans make between $50,000 and $60,000. But we don't know how many make between $50 million and $60 million.

Census officials, to their credit, do highlight the growing inequality in the data they do collect. They compare, for instance, income at America’s 10th percentile — “the income level at which 10 percent of the households have income below it” — and income at the nation’s 90th percentile.

Between 1967 and 2009, Census analyst David Johnson observed last week, “income at the 90th percentile increased by 63.0 percent, about twice as much as the 32.4 percent increase for income at the 10th percentile.”

And the Census researchers, also to their credit, collect data on more than just raw incomes. The report they released last week gives a sense of how the Great Recession is changing how Americans live. More families, the Census Bureau informs us, are doubling up on their living arrangements.

Over the last two years, the number of households in the United States has grown by only 0.6 percent. The number of households with multiple families in them, by contrast, has jumped by 11.6 percent. And 13.4 percent of adults aged 25 to 34 are now living with their parents.

But the most troubling figure in the massive new Census data flow lies elsewhere: Over 20 percent of America’s children under age 18 now live in poverty.