On January 30, 2015, David Cay Johnston writes on Aljazeera America:
The first data on 2013 incomes show continuing bad news for Americans, my analysis of a new Internal Revenue Service report shows.
Average income fell 2.6 percent in 2013, even though the economy grew 3.2 percent in real terms over 2012.
Average inflation-adjusted income in 2013 was 8 percent lower than in 2007, the last peak economic year, and 6.9 percent less than in 2000, the year President George W. Bush set as the standard to evaluate the effect of his tax cuts and regulatory policies.
This is the latest sign of a disturbing trend. An ever-shrinking share of national income flows to individuals while corporate profits expand.
Capital over labor
In fact, profits hit a record high in 2013 both in absolute terms and as a share of the economy. By both measures, profits have continued rising.
By contrast, labor’s share of national income has been trending downward since 1980, except for a spike during the second term of President Bill Clinton. The decline accelerated after the Bush tax cuts took effect, retroactively, to the first day of 2001.
This redistribution of national income away from labor and toward capital flows from policies initiated by President Ronald Reagan and followed to varying degrees by every president since.
The decline in compensation for workers at every level below the handful of jobs paying $50 million or more tracks the decline in union membership among private-sector workers. Lacking bargaining power, most workers have had to accept flat to falling pay, a trend that has spurred local drives nationwide to raise the minimum wage to $15 per hour.
For his part, President Barack Obama signed a trade deal with South Korea in 2011 that has cost thousands of American manufacturing jobs. The previous administration bailed out Wall Street banks while the Obama administration failed to prosecute bank executives and managers whose incomes soared because of the mortgage and securities frauds that sank the economy in 2008. Those banks again enjoy huge profits.
So long as government policy favors the richest among us, shields bankers from criminal and personal civil liability and removes regulatory controls on corporations, the trend line that began 34 years ago is likely to continue even with upswings in the economy.
The massive and growing taxpayer subsidies to the wealthiest Americans and corporations, which I have documented for years in my books and columns, are also a factor in declining average incomes.Average income reported on tax returns in 2013 was $61,668, down from $63,297 in 2012.
A look at the numbers
Total income reported by America’s almost 145 million taxpayers was $9.11 trillion, down seven-tenths of 1 percent from 2012 when measured in 2013 dollars.
Average income fell by an even larger figure, 2.6 percent, because the number of taxpayers increased because of population growth.
Average income reported on tax returns in 2013 was $61,668, down from $63,297 in 2012 — a difference of $1,629 — my analysis of the latest IRS Statistics of Income report shows.
Along with the startling decline in average income, average wages also fell, although the number of taxpayers reporting income from work grew by almost 2.8 million or 1.9 percent. The average wage declined $576, or 1.1 percent, to $53,797.
This drop is larger than the average $79-per-worker decline shown in Social Security Administration data that I was the first to report on three months ago. No other news organization, my search of databases shows, has analyzed that data.
The IRS and Social Security data differ in part because the IRS figures are preliminary. Very high-income taxpayers tend to get extensions of the April 15 deadline for tax filing until Oct. 15.
A taxpayer can also be a single person or a married couple, while Social Security counts each worker. So while total wages should be virtually the same in reports of both agencies, the distribution among income groups is not.
Declines at the top
Americans at the top experienced the biggest income declines in 2013. The number of taxpayers with incomes of $250,000 or more — roughly the top 2 percent — rose by 4.8 percent, to almost 3.2 million taxpayers. Their total income, however, fell by 8.6 percent, and their average income declined by 12.4 percent to $659,103, probably reflecting the number of people moving into this group by joining its bottom ranks.
The major reason average and total incomes at the top slid was a 6.7 percent decline in average real wages at the top, to $400,687.
The number of sole proprietors — people who file a Schedule C — rose by 2.6 percent, to just under 18 million. The growing number of sole proprietors illustrates how many people who have lost their jobs create ones for themselves.
The average income of sole proprietors fell 3.4 percent, to just under $19,000.
Average income also fell for those in partnerships and related forms of business where tax liabilities flow through to the owners. It was down 5.4 percent, to an average $108,282.
And even though 2013 was a very good year for the stock market, dividends that qualify for reduced tax rates fell by 26.6 percent, and capital gains fell by more than 30 percent. These last two figures may be revised upward in the final IRS report, which is due in the fall, but suggest that the narrowing of asset ownership since 2000 that I have tracked continues.
The news here, overall, is this: The American economy is getting bigger, but average incomes are shrinking. If that trend continues, it will eventually spell economic, social and political trouble for the country.
I do not know why David Cay Johnston does not see the connection between cost-saving operational management of corporations, whereby lower labor costs (even if that means foreign cheap labor) and cost-efficient non-human capital asset replacement for labor result in greater income generation by way of greater profits to the owners of corporations growing the economy.
Because Johnston does not see the economic world from the standpoint of understanding binary economics he makes faulty statements such as: “This redistribution of national income away from labor and toward capital flows from policies initiated by President Ronald Reagan and followed to varying degrees by every president since.”
The real reason national income is greater for capital’s input is because productive capital is exponentially expanding as the principal productive input in the economy. Technological change makes tools, machines, structures, and processes ever more productive while leaving human productiveness largely unchanged (our human abilities are limited by physical strength and brain power––and relatively constant). The technology industry is always changing, evolving and innovating. The result is that primary distribution through the free market economy, whose distributive principle is “to each according to his production,” delivers progressively more market-sourced income to capital owners and progressively less to workers who make their contribution through labor.
Yet Johnston apparently continues to believe that labor work is the ONLY way to participate in production and earn income. Long ago that was once true because labor provided 95 percent of the input into the production of products and services. But today that is not true. Capital provides not less than 90 to 95 percent of the input. Full employment as the means to distribute income is not achievable. When the “tools” of capital owners replace labor workers (non-capital owners) as the principal suppliers of products and services, labor employment alone becomes inadequate.
The real culprit is the system that is rigged so that a tiny minority of capital owners manipulate the lives of people who struggle with declining labor worker earnings and job opportunities, and then accumulate the bulk of the money through monopolized productive capital ownership. Our scientists, engineers, and executive managers who are not owners themselves, except for those in the highest employed positions, are encouraged to work to destroy employment by making the capital “worker” owner more productive. How much employment can be destroyed by substituting machines for people is a measure of their success––always focused on producing at the lowest cost. Only the people who already own productive capital are the beneficiaries of their work, as they systematically concentrate more and more capital ownership in their stationary 1 percent ranks. Yet the 1 percent are not the people who do the overwhelming consuming. The result is the consumer populous is not able to get the money to buy the products and services produced as a result of substituting machines for people. And yet you can’t have mass production without mass human consumption. It is the exponential disassociation of production and consumption that is the problem in the United States economy, and the reason that ordinary citizens must gain access to productive capital ownership to improve their economic well-being.
Binary economist Louis Kelso postulated: “When consumer earning power is systematically acquired in the course of the normal operations of the economy by people who need and want more consumer goods and services, the production of goods and services should rise to unprecedented levels; the quality and craftsmanship of goods and services, freed of the corner-cutting imposed by the chronic shortage of consumer purchasing power, should return to their former high levels; competition should be brisk; and the purchasing power of money should remain stable year after year.”
Without this necessary balance hopeless poverty, social alienation, and economic breakdown will persist, even though the American economy is ripe with the physical, technical, managerial, and engineering prerequisites for improving the lives of the 99 percent majority. Why? Because there is a crippling organizational malfunction that prevents making full use of the technological prowess that we have developed. The system does not fully facilitate connecting the majority of citizens, who have unsatisfied needs and wants, to the productive capital assets enabling productive efficiency and economic growth.
Kelso said, “We are a nation of industrial sharecroppers who work for somebody else and have no other source of income. If a man owns something that will produce a second income, he’ll be a better customer for the things that American industry produces. But the problem is how to get the working man [and woman] that second income.”