The Rise of the Working Poor and the Non-Working Rich

By Robert Reich, Robert Reich's Blog

01 April 15

any believe that poor people deserve to be poor because they’re lazy. As Speaker John Boehner has said, the poor have a notion that “I really don’t have to work. I don’t really want to do this. I think I’d rather just sit around.”

In reality, a large and growing share of the nation’s poor work full time — sometimes sixty or more hours a week – yet still don’t earn enough to lift themselves and their families out of poverty. 

It’s also commonly believed, especially among Republicans, that the rich deserve their wealth because they work harder than others. 

In reality, a large and growing portion of the super-rich have never broken a sweat. Their wealth has been handed to them. 

The rise of these two groups — the working poor and non-working rich – is relatively new. Both are challenging the core American assumptions that people are paid what they’re worth, and work is justly rewarded.

Why are these two groups growing?

The ranks of the working poor are growing because wages at the bottom have  dropped, adjusted for inflation. With increasing numbers of Americans taking low-paying jobs in retail sales, restaurants, hotels, hospitals, childcare, elder care, and other personal services, the pay of the bottom fifth is falling closer to the minimum wage.

At the same time, the real value of the federal minimum wage is lower today than it was a quarter century ago. 

In addition, most recipients of public assistance must now work in order to qualify.

Bill Clinton’s welfare reform of 1996 pushed the poor off welfare and into work. Meanwhile, the Earned Income Tax Credit, a wage subsidy, has emerged as the nation’s largest anti-poverty program. Here, too, having a job is a prerequisite.

The new work requirements haven’t reduced the number or percentage of Americans in poverty. They’ve just moved poor people from being unemployed and impoverished to being employed and impoverished.

While poverty declined in the early years of welfare reform when the economy boomed and jobs were plentiful, it began growing in 2000. By 2012 it exceeded its level in 1996, when welfare ended.

At the same time, the ranks of the non-working rich have been swelling. America’s legendary “self-made” men and women are fast being replaced by wealthy heirs. 

Six of today’s ten wealthiest Americans are heirs to prominent fortunes. The Walmart heirs alone have more wealth than the bottom 40 percent of Americans combined.

Americans who became enormously wealthy over the last three decades are now busily transferring that wealth to their children and grand children.

The nation is on the cusp of the largest inter-generational transfer of wealth in history. A study from the Boston College Center on Wealth and Philanthropy projects a total of $59 trillion passed down to heirs between 2007 and 2061.

As the French economist Thomas Piketty reminds us, this is the kind of dynastic wealth that’s kept Europe’s aristocracy going for centuries. It’s about to become the major source of income for a new American aristocracy.

The tax code encourages all this by favoring unearned income over earned income. 

The top tax rate paid by America’s wealthy on their capital gains — the major source of income for the non-working rich – has dropped from 33 percent in the late 1980s to 20 percent today, putting it substantially below the top tax rate on ordinary income (36.9 percent).

If the owners of capital assets whose worth increases over their lifetime hold them until death, their heirs pay zero capital gains taxes on them. Such “unrealized” gains now account for more than half the value of assets held by estates worth more than $100 million.

At the same time, the estate tax has been slashed. Before George W. Bush was president, it applied to assets in excess of $2 million per couple at a rate of 55 percent. Now it kicks in at $10,680,000 per couple, at a 40 percent rate.

Last year only 1.4 out of every 1,000 estates owed any estate tax, and the effective rate they paid was only 17 percent.

Republicans now in control of Congress want to go even further. Last Friday the Senate voted 54-46 in favor of a non-binding resolution to repeal the estate tax altogether. Earlier in the week, the House Ways and Means Committee also voted for a repeal. The House is expected to vote in coming weeks.

Yet the specter of an entire generation doing nothing for their money other than speed-dialing their wealth management advisers is not particularly attractive.

It puts more and more responsibility for investing a substantial portion of the nation’s assets into the hands of people who have never worked.

It also endangers our democracy, as dynastic wealth inevitably and invariably accumulates political influence and power.

Consider the rise of both the working poor and the non-working rich, and the meritocratic ideal on which America’s growing inequality is often justified doesn’t hold up.

That widening inequality — combined with the increasing numbers of people who work full time but are still impoverished and of others who have never worked and are fabulously wealthy — is undermining the moral foundations of American capitalism.

Saudi Airstrikes in Yemen Are Fueling the Fire

By Patrick Cockburn, CounterPunch

01 April 15

oreign states that go to war in Yemen usually come to regret it. The Saudi-led military intervention so far involves only air strikes, but a ground assault may follow. The code name for the action is Operation Decisive Storm, which is probably an indication of what Saudi Arabia and its allies would like to happen in Yemen, rather than what will actually occur.

In practice, a decisive outcome is the least likely prospect for Yemen, just as it has long been in Iraq and Afghanistan. A political feature common to all three countries is that power is divided between so many players it is impossible to defeat or placate them all for very long. Saudi Arabia is backing President Abd-Rabbu Mansour Hadi but the humiliating speed of his defeat shows his lack of organised support.

The threat of further intervention by Saudi Arabia and the Gulf Cooperation Council may be intended to redress the balance of power in Yemen and prevent the Houthis winning a total victory. But Saudi actions and those of the Sunni coalition will be self-fulfilling if the Houthis – never previously full proxies of Iran – find themselves fighting a war in which they are dependent on Iranian financial, political and military backing.

Likewise, the Houthis, as members of the Zaidi sect, were not always seen by Shia in other countries as part of their religious community. But by leading a Sunni coalition Saudi Arabia will internationalise the Yemen conflict and emphasise its sectarian Sunni-Shia dimension.

The US position becomes even more convoluted. Washington had sought to portray its campaign in Yemen against al-Qaeda in the patrickisis2Arabian Peninsula (AQAP) as a success. Drone attacks were supposedly wiping out important AQAP operatives, but the humiliating end result of America’s covert war in Yemen came last week when US Special Operations personnel blew up their heavy equipment and fled the country for the US base at Djibouti. AQAP is becoming a stronger force as the shock troops of the Sunni.

US policy across the Middle East looks contradictory. It is supporting Sunni powers and opposing Iranian allies in Yemen but doing the reverse in Iraq. On Thursday US aircraft for the first time started pounding Islamic State (Isis) positions in Tikrit, 87 miles north of Baghdad. The city has been under assault for four weeks, with 20,000 Shia militia and 3,000 Iraqi soldiers pitted against a few hundred Isis fighters. The Shia militiamen are now reported to have withdrawn but they do not appear to have gone far. Effectively, the battle for Tikrit is being waged by Iranian-directed Shia militia backed by US air power, even if the two sides are rivals as well as allies.

Ultimately, the US may not have much choice. If it refuses to back anti-Islamic State combatants for whatever reason it will be to the benefit of Isis. The numbers tell the story: there are between 100,000 and 120,000 Shia militiamen in Iraq compared with only 12 brigades in the Iraqi army capable of fighting, about 48,000 soldiers, although this total may be inflated. Isis has been conscripting young men across its self-declared caliphate since last October and may have over 100,000 fighters. If the US relies on Iraqi government and Kurdish Peshmerga ground forces alone to put Isis out of business, it will be difficult.

Why did the US finally use its air power at Tikrit, formerly a city of 200,000? First, it was the only help the Baghdad government formally asked for this week. The US may have concluded, as it did with the 134-day siege of the town of Kobani last year, that it could not allow Isis to succeed in Tikrit. Second, if the city did fall, Washington did not want Iran and the Shia militia to get all the credit.

A further motive is that both the US and Iran want to restore some credibility to the Iraqi government and army after their crushing defeats by Isis forces last year. So far the Iraqi army has not recaptured a single city or substantial town from Isis since the fall of Fallujah, 40 miles west of Baghdad in January 2014. Such limited military successes as there have been were won by the militias in the provinces neighbouring Baghdad.

The US-led international coalition opposing Isis also needs to do something to bolster its own credibility. Despite some 2,500 coalition air strike launched against it since last August, the Islamic State has lost little territory. Isis may be battered but it shows no signs of being anywhere near to defeat.

The Independent conducted a series of interviews in February and March with people who had recently left Isis and, while none were sympathetic to it, there was nobody who believed it was going to be destroyed by mounting internal discontent or external military pressure. A prime reason for this is that the Sunni Arab communities in Iraq and Syria are not being offered an acceptable alternative to Isis rule. They are all terrified of becoming the victims of a pogrom that does not distinguish between Isis supporters and ordinary Sunni.

A further feature of life in the Isis caliphate that emerged from these interviews is that it is well organised: it taxes salaries and sales, it conscripts young men of military age, controls education and mercilessly strikes down any opponents. Its stability might be shaken if it suffered a string of military defeats but so far this has not happened.

Air strikes have made it revert to semi-guerrilla tactics, not holding ground against superior forces backed by airpower but counter-attacking briskly when they have moved on or their lines of communication have become longer and more vulnerable. Given the difficulty in capturing Tikrit, it does not look as if an assault on Mosul will be possible for a long time. There seems to be no enthusiasm on the government side retake Fallujah, although it is so much closer to the capital.

Whatever happens in Iraq and Yemen, the political temperature of the region is getting hotter by the day. Looked at from a Saudi and Gulf monarchy point of view, Iran and the Shia are on the advance, becoming either the dominant or the most powerful influence in four Arab capitals: Baghdad, Damascus, Beirut and Sanaa. The Sunni Arabs in Iraq and Syria have linked their futures inextricably and fatally to Isis and other al-Qaeda type organisations. These have military strength, but they make many powerful enemies.

The confrontations between Sunni and Shia, and between Saudi Arabia and its allies and Iran and its allies, is becoming deeper and more militarised. Conflicts cross-infect and exacerbate each other, preventing solutions to individual issues. Thus Saudi intervention in Yemen reduces the chance of a US-Iranian agreement on Tehran’s nuclear programme and sanctions. As these conflicts and divisions spread, the chances of creating a common front that is capable of destroying the Islamic State are getting fewer by the day.