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CNNMoney: Why the Rich Are Getting Richer

Wednesday, 13 Nov 2013 07:31 AM

By Michelle Smith

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While the rich are getting richer, the rest of America isn't getting anywhere close to becoming wealthy because their wages are falling and because the wealthy have other advantages.

Average income for the bottom 90 percent of American families has fallen 1.2 percent since 1983, but incomes for the top 1 percent have surged 145 percent, Emmanuel Saez, an economist at the University of California, Berkeley, tells CNNMoney.

The wealthy are gaining partly because of globalization, which allows celebrities and business owners to benefit from the global expansion of the middle class.

Editor’s Note:
Obama Donor Banned This Message (Shocking)

"There are the same number of people at the top, but they can appeal to a much broader base," of consumers, Michael Wolf, an economist at Bureau of Labor Statistics, tells CNNMoney.

Then, there are other people in an array of other fields who are just very good at what they do. Technology helps them to magnify the benefits of their skills, explains Robert Frank, an economist at Cornell University.

Email, cell phones and other technology allow top performers, whether salesmen or physicians, to "handle a much larger share of the load than before," he tells CNNMoney.

"It's a real bad time for mediocre people," Frank adds.

It's likely of little surprise that the stock market also plays a notable role in increasing wealth.

As Business Insider points out, the richest households own most of the stocks in this country. And the stock market, which has more than doubled since 2009, continues hitting new highs.

But the rich were not always as heavily invested in stocks as they currently are, CNNMoney explains.

Executive pay was once mostly provided in cash. Then, in the 1990s, President Clinton signed a law limiting the amount of executive pay a company could write off as a tax deduction, unless the compensation was connected to stock performance. Companies started issuing more stock options just as a bull market was taking off.

"These executives found that their total compensation went kaboom. And that changed the bar as to what was normal and typical," Peter Cappelli, a professor of management at Wharton, tells CNNMoney.

It also helps that rich people get to keep more of what they make. In 1980, the top tax rate was 70 percent, but now it's only 39.5 percent.

Lower tax burdens motivate people to try to earn more. It also encourages companies to pay better because they don't feel like most of the money goes to the government, CNNMoney explains.

Conditions may seem ideal for the rich, but decades of extreme wealth inequality is becoming problematic, Business Insider explains.

Average Americans grease the economy and stimulate growth. But as they are "getting hosed," mainstream purchasing power is suffering and the health of the economy is deteriorating.

As the economy ails, it's hurting the ability of companies owned by the richest households to grow. And their lack of growth will eventually be reflected in the value of the stocks owned by the richest households, according to Business Insider.

Editor’s Note:
Obama Donor Banned This Message (Shocking)

Related Stories:

Study: Richest 1 Percent Earn Record Share of US Income

Study: US Has the Worst Income Inequality of Developed Nations

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