The Widening Gap Between the Haves and the Have Nots

Huge Productivity Gains Barely Benefitting Workers

The number of government employees at all levels surged from about 8.2 million in 1959 to 22.5 million in 2009. Historically, government work paid less than comparable employment in the private economy, but greater job security and good pensions compensated for the lower wages. No longer: now government workers tend to fare better than private-sector workers across the board—not only in job security and pensions but in wages and other benefits as well. - What public-sector unions have wrought, Jeff Jacoby, October 2010

March 15, 2011

The Lookout - As we wrote last week, even though the economy is finally starting to create jobs, there's growing evidence that those jobs pay less, offer fewer hours, and require fewer skills, than the ones lost during the Great Recession. Now, a new report by a progressive Washington think tank suggests that much of the problem is more deeply rooted. Despite large gains in productivity over the last two decades, the report finds, wages for American workers have been stagnating.

The study (pdf), by Lawrence Mishel and Heidi Shierholz of the Economic Policy Institute, found that productivity grew by a whopping 62.5 percent between 1989 and 2010, but that real hourly wages increased by just 12 percent over the same period. That suggests that companies are giving far more of their profits to shareholders, and far less to workers. Indeed, corporate profits are 22 percent above where they were before the recession.

Of the meager wage growth that did occur, the study found, it all came between 1996 and 2002, powered by the economic boom of the late 1990s.

In recent months, we've seen heated debate over the relative compensation of public- and private-sector workers, with some arguing that the latter have been forced unfairly to foot the bill for generous benefits packages enjoyed by the former. But as EPI notes, the data show that compensation for state and local government employees rose only slightly more than that of their private-sector counterparts. More important, both lagged far behind productivity gains. In other words, arguing about private vs. public largely misses the point: Over the last 20 years, employers -- whether private companies or governments -- have decisively gained the upper hand over employees in terms of how profits are allocated.

Why has this happened? Well, here's EPI's argument:

Essentially, economic policy has not supported good jobs over the last 30 years or so. Rather, the focus has been on policies that were thought to make consumers better off through lower prices: deregulation of industries, privatization of public services, the weakening of labor standards including the minimum wage, erosion of the social safety net, expanding globalization, and the move toward fewer and weaker unions. These policies have served to erode the bargaining power of most workers, widen wage inequality, and deplete access to good jobs.

U.S. Millionaires Population Expanded by 8% in 2010

March 16, 2011

CNN Money - What recession? The millionaire population jumped in the U.S. by 8% last year, fueled by the stock market recovery, according to an industry report on Wednesday.

The number of U.S. households worth at least $1 million rose to 8.4 million in 2010, compared to 7.8 million the prior year, according to a report by Spectrem Group.

"The affluent market grew in 2010 due primarily to the stock market rebound, but despite their growing portfolios, attitudes remain significantly different than in 2007," the report said.

"The size of the affluent market increased in 2010 but did not reach the highs obtained in 2007," the year that the recession began, according to the report.

Last year marked the second consecutive year of increases, the group said, following a 16% surge in the millionaire population in 2009.

"The millionaire comeback continues," said George H. Walper Jr., president of Spectrem Group.

But he added that many millionaires are still operating under a cloud of caution.

"While investors are feeling positive about their own portfolios, they are not convinced that the economy has recovered," said Walper. "Our ongoing polling and research indicates that investors remain unconvinced that we are back on solid ground."

In the prior year of 2008, the millionaire population plunged 27%.

The group said the number of "ultra high net worth" households, with a net worth of at least $5 million, jumped 8% in 2010 to 1.06 million, compared to 980,000 the prior year.

The broader affluent population, meaning households with a net worth of $500,000 or more, also grew in 2010. This population rose by 6% to 13.5 million in 2010, compared to 12.7 million the year before.

Households worth at least $100,000 also grew last year, to 36.2 million from 34.6 million. But the report showed that Americans, even those with money, are more cautious than they used to be.

"Overall attitudes are not the same as in 2007," the report said. "Many households no longer believe their home is a stable asset."

The report also showed that 55% of households worth less than $1 million "still feel that it is more important to protect their principal than grow their assets."

Chart Shows Low Tax Burden for Rich

March 16, 2011

The Lookout - We hear a lot these days about how government spending has led to a deficit that could pose a major long-term threat if it goes unaddressed. It's true that government has of late grown under both Democratic and Republican presidents. But deficit hawks often sidestep a no-less important trend: In recent decades, tax rates--especially for the rich--have been on the decline by historical standards. Everyone likes getting a tax cut, but it's worth remembering that the shrinking of tax revenue has contributed to the deficit problem, just as spending has.

Via Felix Salmon, a fascinating (and strangely beautiful!) chart, compiled by Stephen Von Worley at the DataPointed blog, drives home that point, and a few others.

What to make of all those swirling lines? The chart shows how tax burdens for different income levels have fluctuated over the last century, adjusted for inflation. Blue areas represent a historically low tax burden for a specific income level, while red areas represent a historically high burden.

So in a nutshell, the chart shows that until around 1940, tax burdens were low for everyone, in historical terms. Then they rose sharply for everyone until about 1970. At that point, the rich and poor began to diverge. Those making around $10,000 to around $50,000 per year enjoyed a comparatively low-tax period in the 70s, but by the early 80s they were taxed slightly higher than the historical average. In the 2000s, their tax rate came back down a bit. By contrast, those making more than roughly $200,000 a year saw a sharp decrease in their tax burden starting in the 80s. That trend has continued to this day.

It's clear, then, that across the board, today's tax rates are low by historical standards--and for the rich they're very low. If the bottom of the chart showed more red and less blue, our deficit problem would be a lot more manageable.

The chart also has implications for another topic we've written about here before--wealth and income inequality. As you can see, no one's taxes today are particularly high by historical standards, but those making $1 million or more per year--that is, roughly the top 1 percent--enjoy the lowest burden, relative to past rates.

At a time when a horde of stats indicates that the gap between rich and poor has widened into chasm--and when Congress and the White House are set to argue again later this year about whether to permanently extend the Bush tax cuts for the rich--it's well worth keeping this bigger picture in mind.

Unions Frame Collective Bargaining as Civil Rights Issue

Only 9% of all private sector workers are now represented by a union, less than half the percentage of two decades ago. Meanwhile, the proportion of state and local workers with union representation has held steady over the same time, at about 43%... Government pensions are generally much richer than those offered by corporations. The average public sector employee now collects an annual pension benefit of 60% after 30 years on the job or 75% if he is one of the one-fifth or so of workers who are not eligible to collect Social Security benefits. Of the corporate employers that still offer traditional pensions, the average benefit is equal to 45% of salary after 30 years... Just as important, about 80% of government retirees receive pensions that are increased each year to keep pace with the cost of living, a feature which protects pensions against the effects of inflation and that can increase the value of a typical pension by hundreds of thousands of dollars over a person's retirement. But such inflation protection is nonexistent in corporate plans. - Bankrupt Public Pensions: A Time Bomb That Will Explode, AnchorRising.com, May 16, 2005

March 11, 2011

AP – Labor unions at the heart of a burning national disagreement over the cost of public employees want to frame the debate as a civil rights issue, an effort that may draw more sympathy to public workers being blamed for busting state budgets with generous pensions.

As part of that strategy, unions are planning rallies across the country on April 4 — the anniversary of Martin Luther King Jr.'s assassination. Union officials want the observances in dozens of cities to remind Americans that King was supporting striking sanitation workers in Memphis, Tenn., the night he was shot.

By portraying collective bargaining as a human rights issue, union officials hope the rallies can help fuel a backlash against Republicans in Wisconsin and other states trying to curb collective bargaining rights for public employees.

"This is a fight for workers, this is a fight for the middle class, this is a fight to try to stave off the shift in power and wealth that is starting to become gross," said Harold Schaitberger, president of the International Association of Fire Fighters.

The planned rallies on the 43rd anniversary of King's death are part of a coordinated strategy by labor leaders to ride the momentum of pro-union demonstrations and national polls showing most Americans support collective bargaining rights as Wisconsin Gov. Scott Walker and other GOP leaders in states fight to reduce or strip those benefits.

Walker has argued that collective bargaining is a budget issue. On Friday, he signed into law a bill the strips nearly all collective bargaining benefits from most public workers, arguing the move will give local governments flexibility in making budget cuts needed to close the state's $3.6 billion deficit.

"That's something people forget about Dr. King," said Liz Shuler, secretary-treasurer of the AFL-CIO, the nation's largest labor federation. "We all know about his work in the civil rights movement, but he was also a workers' rights advocate."

It's also another signal that labor leaders are trying to broaden the coalition of groups speaking out against efforts to limit collective bargaining rights for public employee unions. Unions are coordinating the rallies with the NAACP, the Leadership Conference on Civil and Human Rights and other civil rights, religious and progressive groups.

"Dr. King lost his life struggling to help sanitation workers — public sector employees — achieve their goals for a dignified existence as workers," said Wade Henderson, president of the Leadership Conference. "We think that's an extraordinary backdrop in which to frame the debate over what's taking place in the country today."

When King traveled to Memphis in 1968, he was lending support to more than 1,100 black sanitation workers who were on strike seeking better working conditions, higher wages and benefits, and union recognition.

Daniel Walkowitz, a labor historian at New York University, said the gesture was typical of King's later years, in which the targets of his activism were less often the legal barriers to civil rights for blacks. More often, King was focused on lack of employment and educational opportunities for African-Americans.

"Tying the rallies to King is an interesting strategy because it does draw upon King's understanding that the problems of labor were problems of civil rights," Walkowitz said.

Walker argues that the sweeping step against collective bargaining is necessary to balance the budget not only over the next two years but into the future. He said he wouldn't compromise on the issue or on anything that saves the state money.

But union leaders see it as a fight for middle class rights. Wisconsin unions had agreed to cuts in pension and health benefits as long as they could keep collective bargaining rights. Labor leaders say Walker's refusal to compromise shows he wants to leave unions toothless and cripple their political clout.

While unions are on the verge of losing power in Wisconsin, Ohio and other states, union leaders believe they are winning the war of public opinion and pulling in broader support.

"The movement is bigger than just the labor movement," United Steelworkers President Leo Gerard said. "What we're seeing is an awakening about the importance of collective bargaining."

Labor leaders already have pledged to pour more than $30 million into a push to stop legislation in dozens of states that seeks to limit bargaining rights of public worker unions or otherwise curb union power. Union officials are also helping mobilize demonstrations in state capitols and spending money on recall campaigns against GOP officials who support efforts to curb union rights.

5 Reasons You Shouldn't Contribute to a 401(k)

Corporations have been moving away in massive numbers from the defined benefit programs that governments had emulated. In 2008, just 48,000 companies in the U.S. offered pension programs -- down from 150,000 in 1988. Instead of maintaining costly pensions and committing to a lifetime of defined benefits for retirees, companies contributed to mobile retirement accounts, such as 401(k)s. The nation's workforce has also changed. By January 2010, for the first time, public employees made up the largest percentage of union workers. Several recent studies show that at least some public employees now make more than their private-sector counterparts, although that is not true across the board. - Star Tribune, Public Pay, Benefits Set Off New 'Civil War', February 13, 2011

March 16, 2011

U.S. News & World Report - Employer-sponsored 401(k) accounts allow you to defer taxes on your retirement savings and perhaps earn extra income from your employer. But building a nest egg within a 401(k) isn't the right solution for everybody in every situation. Here are five reasons contributing to a 401(k) may not be in your best interest.

[See 10 Ways to Boost Your Social Security Checks.]

No employer match. Perhaps the biggest reason to contribute to a 401(k) is because your employer will often match a portion of your contributions. Yet, for a sizable portion of Americans, this perk just does not exist. The plans that don't come with matches may also have bad fund selections, which is another reason not to participate.

Really high fees. You may also want to forgo your employer's plan because of the ridiculously high fees that some of the fund offerings charge. Sure, you defer taxes on gains in a 401(k). But the tax advantage will be quickly eroded by a 1.5 percent annual expense fee. There are many other lower cost ways to invest in a tax efficient manner, such as in an IRA or a tax efficient index fund.

Higher tax rates on equities. Equities held outside of retirement accounts can be taxed at the long-term capital gains rate of just 15 percent, even for people in the highest tax bracket. If you hold the same index fund inside your 401(k) you will have to pay the typically higher regular income tax rate on the money when you withdraw it.

[Visit the U.S. News Retirement site for more planning ideas and advice.]

A big retirement tax bill. Deferring taxes using a 401(k) simply means that you are shifting that income from now to later years. You will be required to begin withdrawing and pay taxes on this money in retirement. Having to make very large withdrawals each year could push you into a higher tax bracket, especially if you also have other sources of retirement income. In some cases, deferring taxes on too much income could hurt you.

Future tax increases. Between 1944 and 1945 the top tier federal tax rate was 94 percent. If you are going to be taxed at that rate again in the future, it simply makes no sense to defer your taxes now when the most you will pay is 35 percent this year. Of course, I highly doubt that a 94 percent federal tax rate is in our future since tax increases that extreme are never going to be politically popular. But it's worth thinking about whether you expect tax rates to increase in the future.

[See How to Turn Your Retirement Savings into Income.]

These 401(k) quirks may cause you to rethink your retirement saving strategy. But you shouldn't skip saving for retirement all together. Even if you don't contribute to a 401(k), you should still put money away in traditional IRAs, Roth IRAs, or taxable accounts. While minimizing taxes and fees will help you to protect your nest egg, your ability to save will still be the major reason you can retire comfortably.

David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.

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