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Shawn Vestal: Economy finally recovering … for the 1 percent

We’re No. 9!

A new analysis of income growth in America confirms and updates the depressing reality of our so-called economic recovery: Virtually all recent bounceback has occurred in the bank accounts of the 1 percent. Not only have the 99 percent not kept pace – they’ve fallen behind, measured against inflation. And Washington is at the front edge of this trend.

Between 2009 and 2012, Washington’s overall income growth, adjusted for inflation, was 3.9 percent, according to a new report by the Economic Analysis and Research Network, a group of think tanks with a liberal bent.

If you stopped there, things wouldn’t look so bad. I think a lot of Washingtonians would be pretty happy had their incomes outpaced inflation by that measure. But that’s a flaw of averages: The vast majority of Washingtonians lost ground against inflation during those years.

The incomes of the 1 percent grew by 45 percent. The incomes of the 99 percent shrank by 3.5 percent.

Looked at another way, 175 percent of income growth in those three years went to the 1 percent. More than all of it.

The report ranks states based on the income growth of its richest residents, and Washington landed ninth. Idaho was 19th. The West has shown the greatest growth in inequality of all the regions in the nation: the 1 percent out West have seen incomes rise by 43 percent, while everyone else has lost 1.4 percent.

The report used Census data and the methodology applied by the economists who have done some of the most dramatic work on demonstrating the widening gulf in American incomes: Thomas Piketty, the French author of “Capital in the Twenty-First Century,” and Emmanuel Saez, an economics professor at the University of California, Berkeley. But the report’s authors take the analysis down to the state level for the first time.

“It is important to note that lopsided income growth is not a recent trend,” the authors write. “The average inflation-adjusted income of the bottom 99 percent of taxpayers grew by 18.9 percent between 1979 and 2007. Over the same period, the average income of the top 1 percent of taxpayers grew by 200.5 percent. This lopsided income growth means that the top 1 percent of taxpayers captured 53.9 percent of all income growth over the period.”

On the longer-term measure, Washington ranks sixth among all states. Between 1979 and 2007, incomes at the very top grew by 222 percent. Incomes for the 99 percent grew 14 percent.

Idaho ranked 16th. Incomes of the wealthiest Idahoans rose 198 percent over those 28 years; everyone else’s grew 16 percent.

The problem is not that some people are richer than others, of course. It’s that the fruits of economic expansion are so grotesquely and narrowly distributed – a dynamic that weakens the ties of most people to the values and systems of the culture. The authors of the report point to several factors, including plummeting unionization, stagnant minimum wages, and the normalization of extreme executive salaries.

The report says if the middle fifth of American earners had seen their income grow at just the average, by 2007 that income would have been 27 percent higher than it was.

“In other words, rising inequality imposed a tax of 27.0 percent on middle-fifth household incomes over this period,” the report says.

One other factor the report’s authors cite is policy decisions that contribute to the problem. Like what? The way we tax.

In Washington, for example, we impose dramatically higher taxes – as a proportion of income – on the poor than we do on the rich. All efforts to change this – to consider an income tax, to tax another sliver or two of capital gains – seem doomed to perish, sometimes from a lack of popular support but often from the creative supermajority blockages in Olympia, which place taxing authority in the hands of the minority.

Washington’s tax fairness problem is old news – every year, new analyses emerge that rank Washington near the bottom on measures of fairness. That’s based on the state’s reliance on the sales tax, which hits the poor the hardest. A report issued this month by the Institute on Taxation and Economic Policy ranked Washington at the top of its “Terrible 10” states; the poorest fifth of the population here pays 16.8 percent of its income; the wealthiest fifth pays 2.4 percent.

A different analysis, conducted by WalletHub, a consumer finance website, attempted to compare state tax fairness based on what Americans consider equitable. It surveyed conservatives and liberals about their views on fair tax levels, and then measured state systems against those views – a conservative index and a liberal one.

Washington ranked 50th in both.

Shawn Vestal can be reached at (509) 459-5431 or shawnv@spokesman.com. Follow him on Twitter at @vestal13.

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