Ian M. MacIsaac: Great Recession hit homeowners, lower-middle class hardest while wealthy recovered quickly

  The gap between the rich and the poor in America continues to grow, according to a report by the nonpartisan Congressional Research Service (CRS) entitled "An Analysis of Distribution of Wealth Across Households, 1989-2010."

  A full half of Americans--150,000,000 people--possess only 1.1% of the total assets held by all Americans. The other, richer half of the population holds the other 98.9%.

  The United States has never had a wealth gap this large between its upper and lower classes, not even during the Gilded Age when Standard Oil and US Steel reigned terror over the country.

  According to the CRS's report, the three million Americans who make up the top one percent possess 34.5% of a pie that a full half of us own only 1.1% of.

  Including the one percenters, the wealthiest 10 percent of Americans hold 74.5% of the population's assets, as of 2010. That is three out of four dollars in the hands of one out of ten people, with one buck left for the nine to split among themselves--three dollars for one out of ten and less than 25 cents apiece for the rest.

  The gap between the rich and the poor in America has been growing for at least thirty years, including an increase in the growth of income inequality during the first half of the 2000s. Nonetheless, the report notes that the years 2007 to 2010, during the economic crisis, were by far the worst on record for Americans outside the top 10 percent.

  The Great Recession hit the wealthy as well as the rich. The differences appeared when the wealthier Americans began to recover much earlier than the rest of us: they did so, in many cases, astonishingly quickly.

  The middle and lower classes, on the other hand, have in many cases begun to recover only in the past year or two, if at all.

  In 1995, the lower-income half of Americans possessed 3.6% of the nation's assets-- their highest percentage since the 1970s. That peak was a product of the economic growth under President Clinton, demonstrated by the rapid payment of the national debt during his administration. The people were paying off debt, and saving, and buying homes.

  The decline in their wealth began as early as 2001, when the lower half of Americans registered 2.8% of the nation's wealth, a .8% decline from 1995.

  By 2004, and again in 2007, they were down to 2.5%, a one-third decline from their 1995 peak nine years earlier. None of this accounts for the dramatic jump decrease to 1.1% from 2.5% that took place from 2007 to 2010.

  Even with the lower half's ongoing decline in net worth since the late 1970s, a downward jump such as the one that took place between 2007 and 2010 was--and is--unprecedented.

  This loss of wealth characterizes perhaps the single most damaging aspect of the Great Recession: its crushing, almost Depression-level impact on Americans whose income was already low even before the Recession.

  These people--more than a hundred million Americans--had very little economic stability and few financial bulwarks up even before the housing and stock markets collapsed.

  For them, the recession did not end at the end of 2009, as it did for most of the big banks and Wall Street firms; in fact, for millions of Americans, it has not ended yet.

  The reasons for this are much more complex than the simple economic and political favoritism toward the wealthy classes seen so often in American politics.

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  A crucial distinction between the assets of the upper classes and the assets of the middle-lower classes--and the key reason that the Great Recession had such an aggravating effect on income inequality--has to do with the types of assets generally preferred by poorer Americans versus richer Americans.

  Financially comfortable, more affluent Americans often have their biggest investments in stocks, bonds, venture capital, hedge funds and investments.

  On the other hand, the largest investment most lower- or middle-class families will ever make is their home.

  Wall Street and Main Street both suffered heavy losses during the collapse of the financial system and the onset of the Great Recession's most damaging phase, but recovery came much more quickly for Wall Street than Main Street.

  By the end of 2009, the majority of the money from the federal government's bank bailout (the Troubled Asset Relief Program, or TARP) had been paid back by the banks, and many of them were on the road to once again affording their CEOs the giant bonuses hammered so often in politicians' campaign speeches.

  But for those whose primary investment was their home--those in the lower half, who today possess only 1.1% of the total assets--the Great Recession went on much longer than the end of 2009.

  It was less than a year ago that job growth and the federal government's Home Affordable Refinance Program (HARP), which assisted Americans in lowering their monthly payments by making it easier to refinance their mortgages, slowly began to brighten the light at the end of the tunnel.

  Foreclosure rates did not begin to fall until the end of 2011, nearly two years after the banks had largely recovered.

  And although almost five million Americans lost their homes from 2007 to 2011 through foreclosure, the more lasting damage was to those who did not lose their homes.

  Tens of millions of Americans who survived the threat of foreclosure instead went underwater, which means that the value of their house fell below the amount they paid for it.

  Many rich Americans went underwater as well. Many of them were able to remain financially stable, however, through major investments elsewhere that recovered at an accelerated pace (many by the fourth quarter of 2009) along with the banks, venture capital firms, and hedge funds.

  Those in the lower 50 percent of asset holders--and even some in the bottom reaches of the richer half--whose primary investment was their home spent years on the edge of a financial cliff long after Wall Street brethren were back to bonuses and private jets.

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  The fall in housing prices explains the massive loss of more than half their overall net worth experienced by the lower-income half of Americans between 2007 and 2010. But what will be the consequences, over the next few years, of the United States' new 98.9-1.1 percent split in asset ownership?

  According to the Congressional Research Service, one of the biggest changes among the lower half since 2007 is a growing dearth of savings. More and more, Americans outside of the affluent classes must live paycheck to paycheck for years on end, with very little economic security of any kind.

  The report states that four of five households in the top 10 percent put away money in savings in 2010. In the bottom 20 percent, only one of three households put away any money at all in savings.

  Saving money for the future is a crucial part of the American dream; without savings and the potential they provide, most of the idea's other aspects crumble as well.

  The determination and hard work Americans are supposed to be known for mean a lot less if the prospects for socioeconomic advancement are slim to none.

  The United States is virtually the only country on earth that, lacking an official, enforced state ideology, nonetheless regularly proclaims itself a "classless society."

  The irony is that the U.S. is one of the most socioeconomically unequal and divided societies in the developed world.

  Middle- and lower-class families face increasing uncertainty from day to day in various aspects of their life: their finances, to employment, to the energy they need to power their homes and cars.

  By mandating health insurance, President Obama has managed to at least partially plug one of the many holes in the dike. But the president's accomplishment will not ring so loud if the sum of the inequality, instability, and uncertainty he reduced is replaced within the next few years by a net increase in these same socioeconomic diseases in the realms of savings, home ownership, and general income inequality.

  President Obama's recommendation to let the top two brackets of the Bush tax cuts expire (affecting those earning than $250,000 a year) is another step in the right direction in the fight against income inequality.

  But, considering those increases would mainly tax earned income, the investment gains and financial deregulation that created the 98.9-1.1 assets split would remain largely unaffected.

  And, thanks, to deregulation since the early 1980s, new tax loopholes have allowed the richest Americans to pay a far lower amount in income taxes than the current federally mandated rate of 35 percent. (Mitt Romney, for instance, paid around 15 percent total in taxes in 2010, the single year of tax returns he has released to date.)

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  A financial policy committed to regulation of the incredible wealth creation machines on Wall Street--along with a tax package leveling fair percentages on the richest Americans, their investments, and the corporations and banks they invest in--is needed to bring the United States back into line.

  The simple truth is that it takes much more political capital to raise taxes on inheritances, capital gains, and stocks than it takes to lower them. They are universally opposed by the powerful, monied classes, and the people who would benefit the most do not vote frequently enough.

  Republican presidents make lowering and even removing these taxes a highest priority in their administrations. Democratic presidents will usually nominally commit themselves to repealing Republicans' unrealistically deep cuts in these areas, but rarely make doing so a major point of their tax policy programs.

  This country's best economic years took place in the 1950s and 1960s. We were the world's number one manufacturer, performing the role in the non-communist world that China now performs for the United States.

  Factories came to the United States from poorer countries. We made pioneering investments in space technology, computers, education, and medicine.

  And during those years--from 1950 until 1964, when President Johnson, a liberal Democrat, passed one of the country's largest-ever tax cuts--the top one percent paid an effective income tax rate of 91 to 92 percent.

  Somehow, the American economy survived under this tax rate, and still managed to create more millionaires and billionaires than any other country at any other time in history. Furthermore, the government was able to invest money, create programs like Medicaid and Medicare, and still balance the budget far more frequently than we have since.

  Since President Reagan's major 1981 tax cut, the nominal top tax rate has never gone above forty percent. Since then, United States has had a surplus only four years--from 1998 to 2001, under another Democrat, President Clinton.

  Every other year there has been a growing deficit, reaching its two peaks first under Ronald Reagan and then again under George W. Bush (who spent about three times as much money in his first term than Obama has in his).

  Even more crucially, we have made progressively fewer and fewer investments since the 1980s--in science, in education, in infrastructure. We have become a country resting on our laurels, living on borrowed time.

  About the author: Ian MacIsaac is a staff writer for the Capital City Free Press. He is a history major at Auburn University Montgomery in Montgomery, Alabama and former co-editor of the school newspaper, the AUMnibus.

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