Washington, D.C. – On the eve of the Census Bureau’s release of the 2009 poverty data, a new report by the U.S. Congress Joint Economic Committee (JEC) shows that income inequality skyrocketed in the past three decades, peaked under President Bush just before the Great Recession began, and may have been a root cause of the worst recession since the Great Depression.
The report, entitled “Income Inequality and the Great Recession,” finds that middle class incomes, which had grown at a healthy pace during the Clinton Administration, declined under President Bush and never regained their highs reached before the 2001 recession. After President Bush’s eight years in office, middle class families had seen their annual incomes fall by more than $2,600.
Stagnant incomes led to an increased demand for credit, with the household debt-to-income ratio growing dramatically from 2001-2007. The unsustainable spending sparked the housing bubble, and subsequent collapse, and ultimately helped to trigger the Great Recession.
“This JEC report shows that the Bush economic policies exacerbated income inequality and led us into a painful, protracted recession, the effects of which we still feel today,” said Congresswoman Carolyn B. Maloney, Chair of the JEC. “Middle class Americans lost ground under President Bush and so when the Great Recession hit at the end of 2007, they were already vulnerable and were hit particularly hard. Tragically, the Bush economic legacy is greater inequality, a weakened middle class and the worst recession in more than 75 years. When we get a look at the 2009 poverty data tomorrow, we will get fresh evidence of the human cost of the Bush economic policies. And we’ll need to see this data for what it is – a final report card on the Bush years.”
The peak in income inequality that occurred prior to the Great Recession mirrored a similar high just before the onset of the Great Depression. In 1928, the share of income going to the top decile of households reached 49.3 percent. In 2007, the wealthiest 10 percent accounted for 49.7 percent of total income, eclipsing the high reached before the Great Depression.
While policymakers helped to keep income inequality low in the decades after the Great Depression, Bush Administration policies, including tax policies that lowered the top marginal tax rate for the wealthiest Americans, led to growing inequality that left the economy more vulnerable to a deep recession.
The JEC report also found:
- In the past three decades, the share of income going to the wealthiest 10 percent of households has increased significantly, from 34.6 percent in 1980 to 48.2 percent in 2008.
- Annual income for middle class Americans – those in the middle income quintile – increased by more than $6,700 during the Clinton Administration. During the eight years of the Bush Administration, this middle quintile saw their annual incomes fall by more than $2,600.
- Americans across all five income quintiles saw income gains during the Clinton Administration, while, by contrast, incomes fell for each quintile during the Bush Administration.
- The increase in marginal tax rates for the wealthiest one percent of households during the Clinton Administration did not lower these households’ income. Real income of the top 1 percent grew at an average annual rate of 10.3 percent during the Clinton years.
- From 1948 to 2005, incomes for Americans in the 60th percentile grew at an average of 2.5 percent under Democratic Presidents, compared to an average growth rate of just 1.1 percent under Republicans.
The Joint Economic
Committee, established under the Employment Act of 1946, was created by Congress
to review economic conditions and to analyze the effectiveness of economic