November 2011 U.S. Poverty Action

Wealth and Income Gap Reaches Record Levels

Take Action! Write Letters Urging Congress to Support Policies that Address the Wealth Gap

NOTE: You can use the following talking points to draft a personal letter or email to send directly to your senators and representative. If you are unable to write a letter, you can send e-mails to Congress through our website. This action sheet was updated November 22 to reflect the adjournment of the "Super Committee" without reaching a deficit reduction deal.

  1. Introduce yourself to your representative or senator as a constituent and as a RESULTS volunteer. Tell them you want Congress to address the growing wealth gap in the U.S.
  2. Remind them that the gap between the rich and everyone else is reaching historic levels. Explain that recent tax data from the Congressional Budget Office shows that over the last 30 years, the income for the top one percent in the U.S. has skyrocketed by 275 percent, while the income of bottom fifth of Americans has grown a paltry 18 percent.
  3. Explain that continued wealth concentration at the top not only hurts middle and low-income households, it hurts our entire society. Recent research shows that societies with large gaps between the rich and poor (like the U.S.) suffer from higher health costs, higher mental health problems and drug use lower educational achievement, and higher violent crimes rates.
  4. Tell them that the wealth gap is much worse, especially for people of color. Right now, the top ten percent of Americans own 75 percent of all U.S. wealth. This gap is even worse for communities of color. On average, for every dollar of wealth white households owned in 2010, African-American households owned two cents.
  5. Despite these disturbing trends, tell them that you are appalled that some lawmakers are demanding that middle class and low-income families pay higher taxes in order to preserve tax breaks for millionaires and large corporations.
  6. Urge your members of Congress to talk with Senate Majority Leader Harry Reid (D-NV) and Minority Leader Mitch McConnell (R-KY) and House Speaker John Boehner (R-OH-8) and Minority Leader Nancy Pelosi (D-CA-8) urging them to reduce the wealth gap by:
    • Preserving and expanding the Earned Income Tax Credit and Child Tax Credit. The EITC and CTC lift millions of Americans out of poverty each year and support local economies.
    • Requiring wealthy individuals and corporation to pay their fair share. Reckless changes in tax policy over the last 30 years have hurt the middle class, pushed more people into poverty, and helped bring on the Great Recession. It is time to end the Bush tax cuts and close tax loopholes for the wealthy and big corporations.
    • Investing in innovative savings policies. We need to do more to help low-income Americans build wealth and assets. The Saver’s Bonus, which helps low-income workers start savings accounts right on their tax returns, will help hasten the move from poverty to prosperity for many of these households.
  7. Thank them for their time and ask for a prompt response to your letter.

Note: To find contact information for congressional offices and the name of the early childhood aide, visit our Elected Officials page (http://capwiz.com/results/dbq/officials/). For directory assistance, you can also contact the U.S. Capitol Switchboard at (202) 224-3121.

Wealth Gap Growing

The wealth gap between the very wealthy and everyone else, especially low-income households, is reaching unprecedented levels. According the NETWORK’s Mind the Gap campaign, in 2009, the top one percent owned over 36 percent of all U.S. wealth and the top ten percent owned a staggering 75.1 percent. The remaining U.S. households owned only 24.9 percent. For communities of color, the situation is far worse. A study by the Pew Research Center, as highlighted on NPR, found that the average black family had $5,677 in wealth, Hispanic families $6,325 and white families averaged $113,149. In other words, the median wealth of a white family in 2009 was 20 times greater than that of the average black family, and 18 times greater than the average Hispanic family.

The Spirit Level: Why Greater Equality Makes Societies Stronger, a 2009 book by British researchers Richard Wilkinson and Kate Pickett, demonstrated just how damaging inequality can be for society. Looking at data from countries around the world and all 50 U.S. states, the authors discovered that overall societal wealth (at the national or state level) had little relation to the likelihood of certain “societal ills” occurring (poor social relations, mental health and drug use, adult and child obesity, poor educational performance, crime, and poor social mobility, among others), By contrast, income inequality in a country or state had direct relation to these problems. The data showed that as income inequality increases, so does the frequency of these societal problems. In other words, income and wealth inequality not only makes it harder for middle and low-income households to move up the economic ladder, it presents a danger to our society through greater social challenges and to our democracy through greater concentrated wealth and power.

Strategies for Closing the Wealth Gap and Creating Economic Opportunity

Protect and Expand Low-income Tax Credits. There are provisions on the tax code that are designed increase the income of low-income Americans. The most effective is the Earned Income Tax Credit (EITC), which is a refundable tax credit for low-income workers. The credit amount is determined by earned income, marital status and the size of the family and can exceed $5,000 in a given year. This can be a significant income boost for someone making poverty-level wages. In 2010, it is estimated that the EITC lifted 5.4 million people out of poverty, including 3 million children. Another important tax credit is the Child Tax Credit (CTC), which is a $1,000 per child credit for low- and middle income families. These credits provide low-income families with important income support that helps them make ends meet. It is also provides an economic boost to local communities, as these taxpayers spend their refunds. As income and wealth becomes even more concentrated at the top (see below), Congress must protect these critical programs and expand them so more low-income workers can participate.

Roll Back Costly Tax Breaks for the Wealthy and Big Corporations. In October 2011, the non-partisan Congressional Budget Office (CBO) released a new report on U.S. income inequality. The news is not good. The report shows that between 1997 and 2007, the after-tax income of the wealthiest one percent of Americans grew by 275 percent. By contrast, income gains for the bottom fifth of the population grew by a mere 18 percent (CBO graph at right). More alarming, the total share of after-tax income in the U.S. going to the top one percent doubled from 8 to 17 percent and went from 43 percent to 53 percent for the top twenty percent. Total income for the bottom fifth dropped from 7 percent to 5 percent.

For decades, lawmakers have coddled wealthy Americans with generous tax breaks that not only exacerbate the wealth and income gaps but also our overall deficit problems. Meanwhile middle-class and low-income families are seeing there incomes dwindle, their wealth evaporate, and government services slashed. It is time that everyone pay their fair share to help create and maintain the America we want and deserve.

Support Asset Development for Low-income Americans. Helping low-income households build savings and assets is one of the surest ways out of poverty. For example, 71 percent of children born to high-saving, low-income parents move up from the bottom income quartile over a generation, compared to only 50 percent of children of low-saving, low-income parents. Also, children with a savings account in their name are six times more likely to attend college than those without an account.

Unfortunately, asset-building is largely overlooked in anti-poverty policy. Aside from the obvious benefits of having money, studies have shown that assets provide families with numerous important social, psychological, and economic effects, such as improved household stability, optimism about the future, and the enhanced welfare of children. There are many great ideas designed to help low-income Americans build these savings and assets. One such idea that can help low-income households build savings and assets is the Saver’s Bonus. The idea is to use the existing infrastructure of the annual tax filing season to help people start savings accounts. Generally, tax time is when low and moderate income taxpayers receive their largest check of the year via the EITC and CTC. Therefore, this can be an ideal time to start saving.

To receive the Saver’s Bonus, low-income tax filers would agree to deposit all or part of their federal tax refund into an eligible savings product right on their tax return. The government would match dollar-for-dollar deposits made into the account (up to $500 per year), thus providing the incentive needed for low-income taxpayers, who generally do not have much discretionary income, to start saving.

In 2006, New York City launched a Saver’s Bonus-like program called $aveNYC. $aveNYC used the convenience of tax time to help low-income residents begin to save. To participate, low-income New Yorkers had to agree to deposit at least $100 of their tax refund into a designated savings account. If after one year they had maintained those savings, they were eligible for a fifty cent match for every dollar they saved, up to $250 dollars. Among the 2,200 people who opened an account under $aveNYC, eighty percent maintained their deposits for a year (and received the match) and seventy percent of participants who received the match rolled over their account or participated in the following year’s program. The average $aveNYC participant saved $561 and over half contributed the maximum amount eligible for the match ($500 in 2008 and 2009, $1,000 in 2010) and in all 3 years, about 50 percent of participants saved up to the match amount. What the $aveNYC program shows is that when people are giving the opportunity and incentive to save, they will. Research shows the convenience of opening the accounts when they file their taxes, as well as the account match, are critical components to its success.

We will have more about the November Action and the broader negotiations over deficit reduction on our national conference call (November 12 at 12:30 pm ET). To participate, call (888) 409-6709 with your group by 12:28 pm ET.