The Gap Between the Rich and Middle Class Grew During Recession

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The Gap Between the Rich and Middle Class Grew During Recession

via BV on Money by Boyce Watkins, PhD on 12/27/10

Filed under: Dr. Boyce Money, News

It turns out that the gap between the rich and the middle class is larger than it's been in recorded American history. Much of the growth in the gap is due to the recent housing crisis taking place over the past three years.

According to the Economic Policy Institute, the wealthiest 1% had an average net worth that was 225 greater than the average American. That's higher than the previous record, which was 190 times in 2004.

An intriguing aspect of the divide is that it occurred while the wealth of all Americans declined on average. The richest households lost 27% of their wealth between 2007 and 2009, while middle class Americans lost 47% of their wealth during the same time period. So, the growth in the gap was mainly due to the fact that the middle class and poor suffered more during the recent recession than the wealthy.

The decline in wealth was primarily driven by declines in real estate values. Most middle class Americans have the bulk of their wealth tied up in their homes. Wealthy Americans, on the other hand, are likely to have other forms of wealth, including stocks bonds and investment real estate. Additionally, changes in tax laws during the 1980s led to the wealthy paying lower taxes on investment income than they've paid in the past.

The poorest Americans struggle the most. In every study on net worth since 1962, the poor have had a negative net worth. The number declined recently to $27,000, nearly double what it was just two years before.

The results of the study are interesting in light of the recent debate on Capitol Hill regarding the extension of the Bush Tax Cuts. The Republicans, who've successfully branded themselves as the party of the rich, fought hard to preserve tax cuts for the wealthy in spite of the fact that these tax cuts would substantially increase the nation's budget deficit and lead to dramatic costs for the poor and unemployed. The bottom line is that neither the Republican Party, nor most of our other political leaders, care much about what happens to the poor in America. In fact, while you consistently hear political leaders in Washington make reference to the middle class, you hear almost no reference whatsoever to the poor. These numbers are a reflection of that fact.

On another note, there is a strong racial dimension to these numbers as well. The average African American family has a net worth that is roughly one-tenth that of the average white family. Therefore, when we talk about the nation's poor, African Americans are disproportionately represented within that particular demographic. So, when our nation's political leaders fail to mention the poor in their rhetoric, they are continuing to leave black folks behind. This is unfortunate, and I am not sure we should support any political leader who doesn't have our best interests at heart.

Dr. Boyce Watkins is the founder of the Your Black World Coalition and the author of the bookBlack American Money To have Dr. Boyce commentary delivered to your email, please click here.

 

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