Des Moines Register
07-09-07
Dividend data indicate widening rich-poor gap
GARY MAYDEW
The Wall Street Journal and other publications have made much of a recent
study by the Congressional Budget Office showing that real earnings for
households had increased from1991 to 2005. Commentators claim the data
show that income inequality is not increasing.
However, two trends are troubling:
- More of our gross domestic product is going to investors and less to labor. The
Bureau of Economic Analysis reported that compensation to labor declined from
59 percent in 2000 to 56.5 percent in 2005.
- Since 1983, the share of dividends received by high- income groups has
increased, while the share received by the bottom 40 percent of taxpayers has
decreased sharply.
As the chart illustrates, the share of dividend income received by the bottom 40
percent of taxpayers fell from 20 percent to 8 percent from 1983 to 2004. The
share received by the top 10 percent increased sharply (their share of dividends
in 2004 was more than 50 percent higher than in 1983).
What is really astounding is the share received by the top 1 percent of taxpayers.
Their share of dividend income almost doubled during that period.
Indeed, while Wall Street likes to tout widespread ownership of stocks, in 2004,
the average dividend income reported by middle-income taxpayers (in the 40 to
60 percentiles) was only about $290. If one divides those dividends by the 1.6
percent dividend yield on the S& P 500 stocks for 2004, the average stock
holdings for middle-class taxpayers would amount to only about $18,000. So
much for widespread ownership of stocks.
Globalization and free trade are likely to continue to increase the percent of GDP
received by investors at the expense of workers. Suppose the share of GDP
received by workers drops another 2.5 percent by 2010. At the current $13 trillion
level of GDP, such a shift would transfer more than $500 billion from workers to
investors, more than $3,000 per household.
Policymakers need to monitor this current trend toward investors reaping more of
our GDP because it exacerbates income inequality. Several steps could be taken
to mitigate the effect of this trend. They include:
- Reducing the employee's portion of Federal Insurance Contributions Act taxes,
which finance Social Security, and making up the difference from the general
budget. Low-income workers pay proportionately more in payroll taxes than their
high-income employers.
- Making more taxpayers eligible for the earned income credit and increasing its
rate.
- Providing more generous grants to workers losing jobs due to globalization.
- Retaining the federal estate tax.
A recent article in Atlantic magazine reported that social mobility in the United
States actually trails that of many European countries, contrary to our cherished
belief that we are the land of opportunity. Restoring a greater share of GDP to
labor would help us regain that title.
GARY L. MAYDEW is a retired Iowa State University accounting professor.