Sen. Bernie Sanders, I-Vt., says he is considering challenging Hillary Clinton in 2016. (Getty)
On April 19, 2015, Katie Sanders writes in the Tampa Bay Times:
When U.S. Sen. Bernie Sanders, I-Vt., finds a microphone these days, you can expect him to harp on the erosion of the American middle class.
Sanders, who has said he is considering a 2016 presidential run and caucuses with Democrats, made a striking point about the country’s income inequality over the last 40 years in an April 19 interview on Fox News Sunday.
“What we’re seeing, Chris, right now is that for 40 years, the American middle class has been disappearing. Millions of people are working longer hours for lower wages despite a huge increase in technology and productivity,” Sanders said. “And what we have seen during that period is a massive transfer of trillions of dollars from the middle class to the top one-tenth of 1 percent of America — massive wealth and income inequality, where you have 99 percent of all new income today going to the top 1 percent.”
With the financial rift between everyday and mega-rich Americans poised to dominate the 2016 White House race, PolitiFact wanted to examine Sanders’s statement about 99 percent of all new income going to the top 1 percent.
The research behind the claim
Sanders used a similar line about the top 1 percent taking home 99 percent of all new income during a Brookings Institution speech a couple months ago, saying, “In fact, the latest information that we have shows that in recent years, over 99 percent of all new income generated in the economy has gone to the top 1 percent.”
The Washington Post Fact Checker awarded that claim One Pinocchio, a designation for claims that include in part a “selective telling of the truth.” Sanders did not agree with the conclusion and doubled down on the accuracy of his claim in a displeased letter.
Sanders’ office told us the senator was talking about pre-tax income growth from 2009-13 during his Fox interview. A Sanders spokesman highlighted a New York Times Upshot article in January by Justin Wolfers, a senior fellow at the Peterson Institute for International Economics and professor of economics and public policy at the University of Michigan.
Wolfers based his calculations on the work of University of California Berkeley economics professor Emmanuel Saez, who uses pre-tax income reported on Internal Revenue Service filings in his studies of top incomes, including capital gains. Saez and French economist Thomas Piketty have written about the disparate recovery from the recession among America’s two big income classes for several years. Saez found most recently that the top 1 percent captured 91 percent of all income gains from 2009-12.
Using Saez’s preliminary 2013 numbers, Wolfers stretched the window to account for an average of 2012-13 incomes (He used an average for those years because tax rates on top earners increased in 2013, prompting some to shift more income to 2012.).
The takeaway?
The average income for the richest 1 percent of Americans, excluding capital gains, rose from $871,100 in 2009 to $968,000 from 2012-13, he wrote. The 99 percent, on the other hand, experienced a drop in average incomes from $44,000 to $43,900, Wolfers said. The calculation excludes government benefits in the form of Social Security, welfare, tax credits, food stamps and so on.
“That is, so far all of the gains of the recovery have gone to the top 1 percent,” Wolfers wrote for the New York Times post.
Sanders spokesman Jeff Frank said his office double-checked the statistic with Wolfers, who double-checked his own work with Saez.
Saez told PolitiFact that the key to understanding the statistic is knowing that it’s measuring pre-tax, pre-government benefit income.
“That’s the key stat to think about how the market allocates incomes in the first place,” Saez said. “Anybody should be worried that the recovery from the Great Recession has been so skewed in terms of market incomes.”
Other points to consider
Other economists argue that the more comprehensive way to talk about income is by looking at earnings after taxes and how government alters the income picture. That measure is called net or disposable income.
Under this measure, the income differences are not as badly skewed, Saez said.
That’s because on one side, government programs are making life easier for low-income Americans through things such as Social Security, unemployment compensation, veterans’ benefits, food stamps, welfare, housing assistance, health subsidies, and the Earned Income Tax Credit, said Brookings Institution fellow Gary Burtless.
At the same time, tax policy has become more progressive since 2009 through lower taxes for middle- and lower-income Americans and higher taxes for higher earners.
The drawback with this analysis, however, is it does not reflect how people are “sharing directly in the rewards of the market,” said Urban Institute fellow Eugene Steuerle, who has written about the different definitions of income. For Steuerle, all of the numbers matter, though each one holds a different meaning depending on the policy question.
Steuerle is a fan of the Congressional Budget Office, the nonpartisan research arm of Congress, which he said offers a more comprehensive look at the income gap by including labor, business, capital and retirement income. Another way to think of it is comparing living standards.
In November 2014, CBO released a study of household income taxes, which compared income growth after taxes since 1977. The problem is it only goes up to 2011, so we cannot compare it to the 2009-13 market measure. Other researchers have probed inequality in income growth over other time periods (a couple detailed here), but they do not apply to Sanders’s recovery timeframe.
“Is there a lot of inequality in living standards after tax and transfers? The right data to answer that question is simply unavailable for recent years,” Wolfers said.
Often, income inequality measures do not account for health care, the costs of which are often employer-paid and can level the playing field between low- and middle-income earners and the super rich, Steuerle said.
Another point to keep in mind: The country’s top earners experienced the biggest percentage of income declines during the recession — a point that Sanders’s claim does not account for because it picks up with the recovery, Burtless said.
To Burtless, Sanders’s estimate is correct in the narrow way he meant it but would be overstated under a broader income definition that extends pre-2009.
Our ruling
Sanders said that “99 percent of all new income (is) going to the top 1 percent.”
Sanders is referring to pre-tax, pre-transfer income growth during the economic recovery from 2009-13.
We found consensus among economists that the statistic and calculation offered by Sanders is credible, but it’s just not the only way to consider income inequality. Other measures may be equally valid and produce different results. But economists say specific data does not yet exist.
Sanders’ claim is accurate but needs additional notes of context. We rate it Mostly True.
What gets lost and NEVER explained is that the REAL reason that the rich are getting richer and the masses less well off is that the rich because they OWN wealth-creating, income-producing capital assets and the masses DO NOT OWN.
The reality is that fundamentally, economic value is created through human and non-human contributions––the human and non-human productive inputs. The human factor is, of course, all forms of labor exercised through jobs. The non-human factor is the result of human ingenuity that creates technological change, making 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 role of physical productive capital, the non-human factor, is to do ever more of the work, which produces wealth and thus income to those who own productive capital assets.
While productive capital always serves to do ever more of the work, the solution most often advocated is to create jobs. Yet full employment is not an objective of businesses, which people rely upon to provide jobs. Companies strive to keep labor input and other costs at a minimum in order to maximize profits for the owners. They strive to minimize marginal costs, the cost of producing an additional unit of a good, product or service once a business has its fixed costs in place, in order to stay competitive with other companies racing to stay competitive through technological innovation. Reducing marginal costs enables businesses to increase profits, offer goods, products and services at a lower price (which people as consumers seek), or both. Increasingly, new technologies are enabling companies to achieve near-zero cost growth without having to hire people. Thus, private sector job creation in numbers that match the pool of people willing and able to work is constantly being eroded by physical productive capital’s ever increasing role.
The majority of Americans, dependent on labor worker wages, no longer think that jobs and labor wages will return suddenly—if at all—and at a livable earnings level, that the value of their homes will rebound, or that their limited retirement funds will soon be fully restored. Americans are scared but attribute their worsening finances to job losses, reduced hours, wage givebacks, and overall reduced earnings. They do not understand the role of productive capital driven by technological innovation and science and the requirement for them to become capital owners contributing their “tools,” as well as labor workers, to earn a viable economic future. And until we, as a society, understand how wealth is produced, how consumers earn the money to buy products and services and the nature of capital ownership, we will not be able to set a course to obtain an affluent quality of life for middle and working class citizens, where everyone, as President Obama stated, “can earn enough to raise a family, build a modest savings, own a home, and secure their retirement.” The REAL solution is to build an economy of universally productive individuals and households through broadened wealth-creating, income-producing capital ownership.
The system is broken and corrupted and in need of replacement. A NEW and just means of participating in the capital wealth of the nation must be found or the world of man will not long survive. Read the Declaration of Monetary Justice at http://www.cesj.org/part…/declaration-of-monetary-justice/
