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Rich-Poor Gap Widens to Most Since 1967 as Income Falls

By Catherine Dodge and Mike Dorning
September 12, 2012 3:33 PM EDT 193 Comments
A teenager who collects bottles and cans and lives in a city shelter walks near Times Square in New York City.
Photographer: Spencer Platt/Getty Images
A teenager who collects bottles and cans and lives in a city shelter walks near Times Square in New York City.

A census report showing median household income fell last year puts a new focus on the biggest issue of the U.S. presidential election. And it’s likely to be deployed by both candidates to reinforce their campaign themes.

The U.S. Census Bureau figures released yesterday underscored the struggles of American families in a sputtering economic recovery. The report also showed the income gap between rich and poor people grew to the widest in more than 40 years in 2011 as the poverty rate remained at almost a two-decade high.

“Weirdly, I think you’re going to see both sides take these numbers and suggest it’s evidence why ‘I should be elected,’” said Steve Jarding, a lecturer at Harvard University’s Kennedy School of Government and a former Democratic political consultant.

Median household income dropped 1.5 percent last year to $50,054 -- the lowest level since 1995 when adjusted for inflation -- while the proportion of Americans living in poverty was 15 percent, little changed from 2010. The 46.2 million people in poverty remained at the highest number in the 53 years since the Census Bureau has been collecting that statistic.

The economic plight of Americans is at the center of November’s presidential election. Republican challenger Mitt Romney argues that people are worse off because of President Barack Obama’s economic policies. Obama counters that Romney would push plans benefiting the wealthiest at the expense of the middle class and those striving to escape poverty.

‘More Evidence’

“Romney is going to say, ‘This is more evidence Obama failed,’” Jarding said. “Obama is saying, ‘It’s guys like Romney who gave us these income drops and this poverty level.’”

Romney has stressed tax cuts for wealthy “job creators” as a way of boosting economic growth, while Obama has focused on maintaining government support for education, health care and other programs financed by tax increases on higher-income earners.

The president got some good news from the census report, which said the number of Americans who lack health insurance declined to 15.7 percent from 16.3 percent. Many people under the age of 26 took advantage of a provision in Obama’s 2010 health-care overhaul that allowed them to be covered under their parents’ plans.

About 540,000 more young people were insured in 2011, the bureau said. Nationwide, about 48.6 million people were uninsured last year, compared with 49.9 million a year earlier.

Sharpened Attacks

During the Democratic National convention earlier this month, the Obama campaign sharpened its criticism of Republican economic policies under former President George W. Bush as undermining the middle class and accused congressional Republicans of obstructing progress.

Those attacks are resonating with many voters. Americans blame Bush and Congress more than Obama for the decline in middle-class living standards over the past decade, according to a July 16-26 Pew Research Center poll. Among respondents who described themselves as middle class, 62 percent placed “a lot” of responsibility on Congress and 44 percent faulted Bush, compared with 34 percent who said Obama is culpable.

Within hours of the census data release, a posting on the White House’s official blog written by Obama spokeswoman Amy Brundage cited the figures as reason that Republicans in Congress “should act this month” to pass an Obama-backed jobs package they have opposed for a year.

‘Pro-Growth Agenda’

The Romney camp used the release to criticize the president. “Nearly one in six Americans are living in poverty, including a record number of women, and the middle class is struggling amid falling incomes, rising prices, and persistently high unemployment,” Andrea Saul, a Romney spokeswoman, said in an e-mailed statement. “Mitt Romney’s pro-growth agenda will revive our economy.”

Dan Schnur, a campaign adviser to Republican John McCain’s 2000 bid for the White House, said the impact on the election campaign is diminished, both because public perceptions of the economy are so well-entrenched and Obama’s campaign themes stress the contrast between the two parties’ economic principles over progress on the economy.

“If Obama had given a convention speech that tried to tell the country how well the economy was doing, a report like this one would have undercut that message very severely,” said Schnur, now director of the Unruh Institute of Politics at the University of Southern California in Los Angeles. “But numbers like this underscore what voters already know.”

Wealthiest Gain

The census data show the wealthiest Americans secured most of the benefits from the economic recovery that began in June 2009.

“The gains from economic growth in 2011 were quite unevenly shared as household income fell in the middle and rose at the top,” Robert Greenstein, president of the Center on Budget and Policy Priorities in Washington, said on a conference call with reporters.

Average incomes fell for the bottom 80 percent of earners and rose for the top 20 percent, highlighting the need for “those at the top to share” as the nation looks to reduce its budget deficit, Greenstein said.

The top 1 percent of households experienced about a 6 percent increase in income, said David Johnson, chief of the social, economic and housing division at the Census Bureau.

While the ranks of Americans in poverty were little changed in 2011, median household income last year was $50,054, down from an inflation-adjusted $50,831 in 2010. In 2011, median household income, adjusted for inflation, was 8.1 percent less than in 2007, the year before the recession began, and 8.9 percent below its peak in 1999.

Not Enough

The weighted-average poverty threshold for a family of four in 2011 was about $23,000, according to the census.

“Even though the recovery has been slow, the economy has been expanding,” said Melissa Boteach, who coordinates an effort to cut U.S. poverty in half in 10 years at the Center for American Progress, a Washington-based research group with ties to the Obama administration. “The gains from the economic growth have not reached working families struggling at the bottom.”

U.S. unemployment, which hovered at or above 9 percent for most of 2011, has exceeded 8 percent since February 2009, the longest stretch in monthly records going back to 1948. The increase in hardship comes as state and federal governments are cutting spending to close budget deficits.

Modest Expansion

The income figures declined as the U.S. economy expanded 1.8 percent in 2011, down from 2.4 percent in 2010. Growth has averaged a 1.9 percent annual rate through the first six months of this year.

The Census Bureau also reported that a measure of the gap between rich and poor households rose. A figure of zero means all income is evenly distributed while a 1 represents complete concentration. The measurement, known as the Gini index, rose to .463 from .456. The figure has risen steadily from its 1968 low of .351.

The persistent poverty rates pose a threat to the nation’s long-term economic competitiveness as more and more children are growing up in poor households, Boteach said. Down the road, that leads to higher health-care costs, lower educational levels and reduced worker productivity.

“We’re really shooting ourselves in the foot if we don’t tackle early childhood poverty,” she said.

To contact the reporters on this story: Catherine Dodge in New York at cdodge1@bloomberg.net Frank Bass in New York at Fbass1@bloomberg.net

To contact the editor responsible for this story: Mark McQuillan at mmcquillan@bloomberg.net

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