Once upon a time, there was an American Dream

and over the last three decades it has clearly been disappearing.

The US made incredible strides in the post World War 2 era by bringing huge numbers of American families into the middle class.  This has been clearly reversed over the last three decades according to a new report coming from the Congressional Budget Office.  The report shows that “the top 1 percent of earners more than doubled their share of the nation’s income over the last three decades”.  It also indicates  the role of government in creating the vast inequalities and the resultant stagnating economy, joblessness, and unsustainable federal spending.  Policy has deliberating pulled the rug out from under the middle class and placed a red carpet out for the very few.  The study was commissioned by Senators Max Baucus and Grassley.

In addition, the report said, government policy has become less redistributive since the late 1970s, doing less to reduce the concentration of income.

“The equalizing effect of federal taxes was smaller” in 2007 than in 1979, as “the composition of federal revenues shifted away from progressive income taxes to less-progressive payroll taxes,” the budget office said.

Also, it said, federal benefit payments are doing less to even out the distribution of income, as a growing share of benefits, like Social Security, goes to older Americans, regardless of their income.

The report, requested several years ago, was issued as lawmakers tussle over how to reduce unemployment, a joint committee of Congress weighs changes in the tax code and protesters around the country rail against disparities in income between rich and poor.

In its report, the budget office found that from 1979 to 2007, average inflation-adjusted after-tax income grew by 275 percent for the 1 percent of the population with the highest income. For others in the top 20 percent of the population, average real after-tax household income grew by 65 percent.

By contrast, the budget office said, for the poorest fifth of the population, average real after-tax household income rose 18 percent.

And for the three-fifths of people in the middle of the income scale, the growth in such household income was just under 40 percent.

The findings, based on a rigorous analysis of data from the Internal Revenue Service and the Census Bureau, are generally consistent with studies by some private researchers and academic economists. But because they carry the imprimatur of the nonpartisan budget office, they are likely to have a major impact on the debate in Congress over the fairness of federal tax and spending policies.

Rapid growth in the income of the very few has come from other factors too.  Of course, incredible bonuses and executive compensation has played a role.  Additionally, the increasing role of the financial services industry in the economy which mostly produces overhead in relationship to useable goods and services is another reason.  Another factor is capital gain with the preferential tax treatment it receives, its relationship to asset bubble and its disproportionate role in the incomes of the very wealthy.

The interesting thing is that the very rich can get richer from trade and globalization.  Huge businesses and capital can go any where these days.  Most Americans rely on their labor and are limited in their mobility.   If the KFC in Louisville has no customers, perhaps one in Beijing will. That is why it is essential that any attempt to stimulate the economy or create jobs happen in a way that ensures the money stay within communities.   There’s a bill coming up in to create an infrastructure bank in the US which would do just that.  It ensures that funds would be used on projects that would create jobs, tax revenues, incomes, and spending that stays within our borders.

On Tuesday, Rep. Marcia Fudge (D-Ohio) offered H.R. 3259, which would create the bank and fund it at $5 billion per year through 2015. Assuming that bill could be approved this year, that would provide $20 billion for the bank, double the initial amount of money Obama requested.

Democrats have said any money provided to an infrastructure bank could be leveraged to provide financial support to infrastructure projected valued at 10 times that initial amount, or more.

“Whether you are a Democrat or Republican, we all have infrastructure that is crumbling, and we have people in our districts who are eager to get back to work,” Fudge said. “This legislation allows us to target the large number of deficient bridges in our communities and other dangerous infrastructure for repair, making travel safer for our residents.”

Fudge said the bill would allow funding for transportation, drinking water and public housing projects. Her bill is the House companion to S. 1550, which Sen. Sherrod Brown (D-Ohio) introduced in September.

Of course, there’s one problem.

While the bill could move in the Democrat-controlled Senate, it would seem to have no chance of being considered in the House. Republicans in the House continue to insist on spending cuts, and no new federal spending programs. Neither bill provides for any offset in spending to create the infrastructure bank, and instead rely on new appropriations.

How did we possibly arrive at the point where elected officials will actively work against the interests of the people that elected them?