Income Gap Has Grown In U.S. Over Two Decades

Associated Press
August 16, 2004 10:32 p.m.

WASHINGTON -- Over two decades, the income gap has steadily increased between the richest Americans, who own homes and stocks and got big tax breaks, and those at the middle and bottom of the pay scale, whose paychecks buy less.

The growing disparity is even more pronounced in this recovering economy. Wages are stagnant and the middle class is shouldering a larger tax burden. Prices for health care, housing, tuition, gas and food have soared.

The wealthiest 20% of households in 1973 accounted for 44% of total U.S. income, according to the Census Bureau. Their share jumped to 50% in 2002, while everyone else's fell. For the bottom fifth, the share dropped from 4.2% to 3.5%.

Jobs and the economy top the list of voter concerns this election year. President Bush touts a strong economy that is growing, but polls find that Americans have doubts and think jobs are scarce. John Kerry is trusted more on the economy, with Democrats talking regularly of "two Americas," divided between the rich and everyone else.

That argument has merit, some private economists say. "For those working in the bottom half of the pay scale, they're under an enormous amount of pressure," said Mark Zandi, chief economist at Economy.com.

New government data also shows that President Bush's tax cuts have shifted the overall tax burden to the middle class from the wealthiest Americans.

The U.S. jobs market is soft, sending wages down. Hiring came to a near standstill last month, with companies adding just 32,000 new jobs overall, stunning economists who had expected seven times as many.

Some Signs U.S. Economy Grew Stronger in July

By JOSEPH SCHUMAN
THE WALL STREET JOURNAL ONLINE

The warnings about stagflation appear to have been premature. In July, the output of U.S. industry grew almost as much as it diminished in June, inflation remained tame, and the housing market shook off a momentary lapse for what has otherwise been an indefatigable sector, government reports indicated today. The three reports provide some support for officials at the Federal Reserve, whose latest policy statement had seemed a bit out of line with other recent data.

The Labor Department said consumer prices fell by 0.1% following an increase of 0.3% in June and a spike of 0.6% in May. This decline was overwhelmingly due to a 4.2% plunge in gasoline. Excluding the costs of energy and food, the so-called core consumer prices index rose 0.1%, the same as in June. Separately, the Federal Reserve said industrial production increased by 0.4% in July, following June's 0.5% decline in output. Both months suffered sharp declines in utility output -- prompted by moderate weather. But in July, manufacturing output grew by 0.6% following a 0.2% decrease. And the most interesting part of this rebound is that much of it came from makers of business equipment rather than producers of consumer goods. Production of consumer goods -- part of the biggest driver of the economy -- had fallen 1.2% in June but eked out a 0.2% increase in July. Production of business equipment rose by 1.5% in July, the ninth consecutive month of growth.

In the third report, the Commerce Department said housing starts surged by 8.3% in July to a seasonally adjusted annual rate of 1.978 million, following June's decline of 7.7%. Now, none of this means the economy is likely to operate anywhere near the speed it reached in the first quarter of the year, or that the current sky-high cost of oil won't translate into higher gas prices, higher costs for all fuel-producing industries and a drag on economic growth as a whole. (Payrolls, in particular, could be the victim when companies are looking for places to cut back as they pay higher fuel bills.) And the Fed's report included a mixed picture of capacity utilization -- how much industry is matching what the government considers sustainable maximum output. The utilization rate edged up to 77.1% in July after falling to 76.9% in June, but that's still less than what it was in May and compares with an average rate of 81.1% from 1972 through 2003. But these reports are consistent with the Fed's view that the economy's summer softness is transitory.