Bye, Bye American Dream! U.S. Economic Inequality Is Permanent, Study Finds

A new study by a team of economists in academia and the government has concluded that economic inequality is a permanent—not temporary—feature in the United States, based on an analysis of 350,000 federal income tax returns between 1987 and 2009.

“For household income, both before and after taxes, the increase in inequality over this period was predominantly, although not entirely, permanent,” the highly technical report concluded. “We also find evidence that the U.S. federal tax system helped reduce the increase in household income inequality; but this attenuating effect was insufficient to significantly alter the broad trend toward rising inequality.”

The study by economists at two state universities, the Federal Reserve and U.S. Treasury Department, also found, not surprisingly, that the wealthiest Americans consume more than less well-off people, and that disparity causes poorer Americans to suffer as a result.

“Our findings, along with economic theory, suggest that the increase in income inequality observed in roughly the last two decades should translate into increases in consumption inequality, and is therefore likely to be welfare-reducing, at least according to most social welfare functions,” the report said. “Although measurement problems with household consumption data in the U.S. have made it difficult to convincingly measure the degree of the increase in consumption inequality, some recent studies… suggest that the increase in consumption inequality was indeed substantial.”

Simply put, the study confirms what Vermont's U.S. Sen. Bernard Sanders has been saying for years, “The rich are getting richer and the poor are getting poorer.”

“The takeaway here is rough,” the Washington Post’s Ezra Klein wrote in his Wonkblog column. “The reason the permanent/transitory distinction matters is that lifetime earnings are much more important than a single year’s earnings. It’s lifetime earnings that decide how you live in general, what sort of house you can afford, whether you can send a kid to college, whether you can retire comfortably.”

Better-off Americans often opine that those below them on the economic ladder should just work a little harder. But this study suggests that there are irreconcilable gaps in income, lifetime wealth, consumption and the resulting health between the haves and have-nots in America. It also suggests progressive taxation can buffer those inequalities a bit, but not make up for the gaps.

It will be curious to see if this study will be cited in Washington’s ongoing debate about 'reforming' entitlement programs—namely Medicare and Social Security. It suggests, if anything, that growing slices of American society are heading to less financially secure futures, especially in old age. That means federal safety nets are more needed than ever—despite the GOP’s ideological crusade to cut spending on them.

Enjoy this piece?

… then let us make a small request. AlterNet’s journalists work tirelessly to counter the traditional corporate media narrative. We’re here seven days a week, 365 days a year. And we’re proud to say that we’ve been bringing you the real, unfiltered news for 20 years—longer than any other progressive news site on the Internet.

It’s through the generosity of our supporters that we’re able to share with you all the underreported news you need to know. Independent journalism is increasingly imperiled; ads alone can’t pay our bills. AlterNet counts on readers like you to support our coverage. Did you enjoy content from David Cay Johnston, Common Dreams, Raw Story and Robert Reich? Opinion from Salon and Jim Hightower? Analysis by The Conversation? Then join the hundreds of readers who have supported AlterNet this year.

Every reader contribution, whatever the amount, makes a tremendous difference. Help ensure AlterNet remains independent long into the future. Support progressive journalism with a one-time contribution to AlterNet, or click here to become a subscriber. Thank you. Click here to donate by check.

DonateDonate by credit card


Thanks for your support!

Did you enjoy AlterNet this year? Join us! We're offering AlterNet ad-free for 15% off - just $2 per week. From now until March 15th.