Hey America, You're Blaming the Wrong 1%!

Since the Occupy Wall Street movements began last year, people have been looking to place the blame for the growing income gap between the rich and everyone else on the top 1% of earners. There's real evidence that the divide between the wealthy and the middle class is growing. In 1980, the top 1% earned 12.5 times the median U.S. income. By 2006, that figure had ballooned to 36 times the median U.S. income.

But is the top 1% really the origination of our economic problems? Certainly they own more resources and subsequently have greater control in shaping policies in the United States than some would like, but these individuals also are often highly skilled and well-educated, and have worked their way into the top 1%. Some would argue that they even pay more than their fair share of federal taxes.

So instead of harping on the growing wealth of the rich, there's actually another group of people, a separate 1%, that's more responsible for sucking income directly out of our pockets.

America, incarcerated
With more than 2.25 million people currently incarcerated in America's prisons, our prison society is the 1% I choose to blame for crippling state budgets and taking money directly out of taxpayers' pockets without discrimination.

According to data released by the U.S. courts that detailed fiscal 2010's expenses to house prisoners, those on probation and parole, and those awaiting trial, the average cost to incarcerate a person is $77.49 per day. For those on probation, the cost still averages out to $10.79 per day. Pretrial detention is almost as costly as federal incarceration, with costs averaging $70.56 each day.

Now get ready, because here is where the staggering statistics really begin to fly.

When you do the math based on the current prison population, spending to keep this 1% of the population behind bars amounted to more than $63 billion in 2010! Based on figures from 2009, there were 5.1 million people either on probation or out of prison on parole. At an annual cost of $3,938 per year, you're looking at an additional $20 billion in costs. Add in the costs of those awaiting trial, and you're looking at huge amounts of spending -- for which taxpayers pick up the tab.

Now keep in mind these figures are based on the most recent data that could be found, and it's practically impossible to know the exact number of prisoners incarcerated in the U.S. prison system. However, if the U.S. prison system on the whole isn't costing taxpayers more than $100 billion per year yet, it will in the near future.

This may not sound like a lot when our own government is tossing around the idea of spending cuts in the ballpark of $2.2 trillion to $2.5 trillion, but make no mistake that the amount of resources being diverted to the prison system is enough to get in an uproar about. Also, consider these input costs with very little return. The rich are investing their money back into society, donating money, paying taxes, etc. What are we really getting out of a $100 billion-plus yearly investment in our prison system?

Here are a few analogies that might put the magnitude of our prison problem in an easier to understand light:

  • At an annual cost of $28,284, housing one inmate in federal prison costs more than tuition for one year at my alma mater, UC San Diego, and countless other colleges.

  • California spent six times more on housing inmates than it did on education in 2011. According to CNN's Fareed Zakaria, California has built 20 new prisons in the last 30 years, but only one new college campus.

  • Between 1987 and 2007, state prison costs rose by 315%.

  • In New Jersey, between 1982 and 2005, the state paid a total of $253 million to house its death row inmates -- a cost of $11 million per year

I could go on, but these select figures speak to the heart of America's prison problem.

Is it really worth it?
Statistically, the United States imprisons more of its population than any other country: 760 persons per 100,000. Outside of Russia, at 612 persons per 100,000, no other industrialized country even comes close! In short, the U.S. incarcerates an average of seven to 10 times more persons than the average European nation. No one has exactly been able to ascertain why the U.S. imprisons so many more people than other industrialized countries, but it's clearly becoming a financial burden on the states.

What's more, reported crimes as a percentage of population have been on a relatively steady decline since 1991, yet the costs for housing more prisoners have soared as the inmate population since 1991 has more than doubled!


Source: DisasterCenter.com, author's calculations.

You could make the argument that lower crime rates are a direct result of more prisoners being locked up, but the percentage of violent crimes now is the same as it was in 1972 (per 100,000 people), yet the number of crimes reported as a percentage of population was higher in 1972 (3.96% vs. 3.35%). To put it another way, the reduction in crime rates is not proportionate with the amount of people we are imprisoning.

One of the few groups counting its blessings for the increase in crime are the publicly traded corrections companies, Corrections Corporation of America (NYS: CXW) and GEO Group (NYS: GEO) . Both companies have been building correctional facilities as quickly as they can to keep up with the rising prison demand. In fact, things have been so good for CCA and GEO Group that both companies recently announced plans to initiate paying a quarterly dividend. But unless you've owned these stocks, chances are you've been fleeced by the U.S. prison system.

Our own financial prison
Instead of placing the blame selectively on those who earn more than you, we need to be blaming both the 1% who drain more than $300 out of the pocket of every man, woman, and child in this country each year, and the agencies that allow such an egregiously poor use of finances to occur. Is imprisoning 1% of our population absolutely necessary? Probably not based on the data presented here, and I certainly don't feel the money that is necessary is being spent prudently.

What's your take? Are we the taxpayers really the ones who find ourselves in a financial prison to the U.S. court system or are these funds necessary to keep society safe? Sound off in the comments box below.

Editor's note: A previous version of this article relied on source material that erroneously stated that the $11 million annual cost for New Jersey's death row was calculated on a per-inmate basis. A previous version also incorrectly stated the number of people in prison in the U.S. and Russia. The Fool regrets the errors.

At the time thisarticle was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. The only jail cell he's been in is the one on the Monopoly game board. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.Motley Fool newsletter services have recommended buying shares of Corrections Corporation of America. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that's always looking out for your best interests.

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