No matter how you slice it, when it comes to income and wealth in America the rich get most of the pie and the rest get the leftovers. The numbers are shocking. Today the top 1 percent of Americans control 43 percent of the financial wealth (see the pie chart below) while the bottom 80 percent control only 7 percent of the wealth. Incredibly, the wealthiest 400 Americans have the same combined wealth as the poorest half of Americans — over 150 million people.
According to the Center for Budget and Policy Priorities:
In 2007, the share of after-tax income going to the top 1 percent hit its highest level (17.1 percent) since 1979, while the share going to the middle one-fifth of Americans shrank to its lowest level during this period (14.1 percent).
Between 1979 and 2007, average after-tax incomes for the top 1 percent rose by 281 percent after adjusting for inflation — an increase in income of $973,100 per household — compared to increases of 25 percent ($11,200 per household) for the middle fifth of households and 16 percent ($2,400 per household) for the bottom fifth.
If all groups’ after-tax incomes had grown at the same percentage rate over the 1979-2007 period, middle-income households would have received an additional $13,042 in 2007 and families in the bottom fifth would have received an additional $6,010.
In 2007, the average household in the top 1 percent had an income of $1.3 million, up $88,800 just from the prior year; this $88,800 gain is well above the total 2007 income of the average middle-income household ($55,300).”
Slate.com collects more data in an article titled “The Great Divergence In Pictures: A Visual Guide to Income Inequality.”:
Income for the top 20 percent has increased since the 1970s while income for the bottom 80 percent declined. In the 1970s the top 1 percent received 8 percent of total income while today they receive 18 percent. During the same period income for the bottom 20 percent had decreased 30 percent.
In the 1970s the top 0.1 percent of Americans received 2 percent of total income. Today they get 8 percent.
In 1980 the average CEO made 50 time more money than the average worker while today the average CEO makes almost 300 time more than the average worker.
Over the past 30 years the rich in America have become a lot richer, while many millions of Americans have seen their income stagnate or decline. As Warren Buffett, the second richest man in America, famously said, “There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.”
Wealth and income inequality today is by far the worst in the industrialized world and has fallen in line with many Third World countries. Nobel Prize winning economist Joseph E. Stiglitz explains why this is bad news:
Some people look at income inequality and shrug their shoulders. So what if this person gains and that person loses? What matters, they argue, is not how the pie is divided but the size of the pie. That argument is fundamentally wrong. An economy in which most citizens are doing worse year after year—an economy like America’s—is not likely to do well over the long haul.
The top 1 percent have the best houses, the best educations, the best doctors, and the best lifestyles, but there is one thing that money doesn’t seem to have bought: an understanding that their fate is bound up with how the other 99 percent live. Throughout history, this is something that the top 1 percent eventually do learn. Too late.
Where Has All the Money Gone?
This may be the one of the most important graphs you will ever see. It show the reason for the decline of the American middle class — how the rich have become so much richer in the last 30 years and why the rest of us have been left behind:
In the post World War II period through the mid 1970s the productivity of the American worker increased at a steady rate. During this period workers were rewarded for their increased productivity with a commensurate increase in wages. Then something happened. Productivity continued to increase, but workers’ wages stagnated.
Trickle Up Economics
As Nobel Prize winning economist Paul Krugman points out, since 1973 national Gross Domestic Product (GDP) per household has increased 46 percent in real Inequality and Unsustainable Growth: Two Sides of the Same Coin?terms, but median income per household has only increased 15 percent. Where did the other 31 percent go? It went to the wealthy.
… the gap between economic growth and median incomes has a lot to do with rising inequality.
… it remains striking how little of growth has trickled down to the typical family.
Supply Side economics is the cornerstone of Republican economic theory and has driven U.S. economic policy since the Ronald Reagan presidency. This is how Investorpedia describes it:
Supply-side economics is better known to some as “Reaganomics“, or the “trickle-down” policy espoused by former U.S. president Ronald Reagan. He popularized the controversial idea that greater tax cuts for investors and entrepreneurs provide incentives to save and invest and produce economic benefits that trickle down into the overall economy.
In other words, if government economic policy focuses on making the rich richer, the benefits will “trickle down” to everyone else. As supply-siders are fond of saying, “A rising tide lifts all boats.” Since Supply Side economics came to dominate American economic policy during the Reagan administration, the rising economic tide has certainly lifted a lot of yachts, but at the same time it has left most of the row boats stuck in the mud.
The past quarter century of Republican economics has proven that the trickle down theory is just a convenient excuse to justify an economic policy favoring the rich, with the benefits trickling up to make the very wealthy even wealthier.
Must-See Videos on Wealth Inequality in America
Shocking Wealth Inequality
Nick Hanauer’s “Banned” TED Talk
The wealthy are not job creators.
Below are the most shocking consequences of this income inequality:
1. Income inequality forces Americans into debt.
As the wealthy become wealthier, they create an “economic arms race in which the middle class has been spending beyond their means in order to keep up,” a 2013 study from the University of Chicago’s Marianne Bertrand and Adair Morse concludes.
2. Income inequality makes America sick.
Researchers at Harvard University’s School of Public Health found that women living in areas with large gaps between the “haves” and “have-nots” are at greater risk of being depressed and are nearly twice as likely to suffer from depression compared to the women living in areas that have a more equal income distribution.
3. Income inequality makes America less safe.
Statistical patterns show that crime rates increase with rising economic inequality. For instance, a 1999 Harvard analysis of the homicide rates in each state and the District of Columbia found that as the gap between the rich and the poor rose, the rate of homicide rose along with it. Income inequality alone accounted for “74 percent of the variance in murder rates and half of the aggravated assaults,” the research concluded. A 2002 World Bank study confirmed these results, concluding that homicide and an unequal distribution of resources are inextricably tied throughout the world.
4. Income inequality makes America less democratic.
A large body of research suggests that high inequality leads to lower levels of representative democracy and a higher probability of revolution, as poorer citizens become convinced that the government is only serving and representing the interests of the rich. And today’s political candidates and parties are relying more on deep pocketed campaign donors than at any other time since the early 1970s, when Congress first enacted campaign finance laws.
5. Income inequality undermines the American dream.
New research finds that while economic mobility in the United States has stayed flat for two decades, the distance between the richest Americans and the poorest has grown dramatically. So if social mobility is a ladder, this means “the rungs of the ladder have grown further apart (inequality has increased), but children’s chances of climbing from lower to higher rungs have not changed,” the researchers note.
6. Income inequality is undermining long-term economic growth.
Societies with greater income inequality experience slower and less stable economic growth, a recent global comparison from the International Monetary Fund concluded, and see far shorter economic expansions.
Oxfam’s new report, “Working for the Few,” is getting a lot of attention — mostly because of the newsworthy tidbit that the combined wealth of the world’s richest 85 people ($110 trillion) is equivalent to that of the poorest half of the world (3.5 billion people).
I mean, that’s striking. But here’s something else that’s shocking, though perhaps it shouldn’t be.
First, as shown in Figure B, average hourly compensation—which includes the pay of CEOs and day laborers alike—grew just 39.2 percent from 1973 to 2011, far lagging productivity growth. In short, workers, on average, have not seen their pay keep up with productivity. This partly reflects the first wedge: an overall shift in how much of the income in the economy is received in wages by workers and how much is received by owners of capital. The share going to workers decreased.
Second, as also shown in Figure B, the hourly compensation of the median worker grew just 10.7 percent. Most of the growth in median hourly compensation occurred in the period of strong recovery in the mid- to late 1990s: Excluding 1995–2000, median hourly compensation grew just 4.9 percent between 1973 and 2011. There was a particularly large divergence between productivity and median hourly compensation growth from 2000 to 2011. In sum, the median worker (whether male or female) has not enjoyed growth in compensation as fast as that of higher-wage workers, especially the very highest paid. This reflects the wedge of growing wage and compensation inequality.
How have the folks outside the one per cent been faring? A second chart from Saez tells us the answer. Going back a century, the light line shows the path of inflation-adjusted pre-tax incomes for families in the bottom ninety-nine per cent. The dark line shows how families in the top one per cent have been doing.
Once again, the long-term trends are clear. Between the start of the Second World War and the first oil-price shock of 1973, families in the bottom ninety-nine per cent saw their incomes rise sharply. With the exception of the late nineteen-nineties, the past forty years have been marked by slow growth. For those at the top of the income distribution, recent history has been very different. After growing modestly in the postwar decades, the incomes of families in the top one per cent took off in the late nineteen-seventies, and have been zig-zagging upward since then.
Text: Richard Kersley, Head of Global Securities Products and Themes, Credit Suisse
Text: Michael O’Sullivan, Chief Investment Officer, UK & EEMEA, Credit Suisse
Video: Cushla Sherlock, Editor, Credit Suisse
Distribution of Wealth Across Individuals: Inequality Remains High
To determine how global wealth is distributed across households and individuals – rather than regions or countries – we combine our data on the level of household wealth across countries with information on the pattern of wealth distribution within countries. Our estimates for mid-2013 indicate that once debts have been subtracted, an adult requires just 4,000 US dollars in assets to be in the wealthiest half of world citizens. However, a person needs at least 75,000 US dollars to be a member of the top 10 percent of global wealth holders, and 753,000 US dollars to belong to the top 1 percent. Taken together, the bottom half of the global population own less than 1 percent of total wealth. In sharp contrast, the richest 10 percent hold 86 percent of the world’s wealth, and the top 1 percent alone account for 46 percent of global assets.
International Monetary Fund, Andrew G. Berg and Jonathan D. Ostry
The key result from the joint analysis is that income distribution survives as one of the most robust and important factors associated with growth duration. As Figure 3 demonstrates, a 10-percentile decrease in inequality — the sort of improvement that a number of countries have experienced during their spells — increases the expected length of a growth spell by 50 percent. Remarkably, inequality retains a similar statistical and economic significance in the joint analysis despite the inclusion of many more possible determinants. This suggests that inequality seems to matter in itself and is not just proxying for other factors. Inequality also preserves its significance more systematically across different samples and definitions of growth spells than the other variables. Inequality is thus a more robust predictor of growth duration than many variables widely understood to be central to growth.
Striking it Richer: The Evolution of Top Incomes in the United States (Updated with 2012 preliminary estimates)
Emmanuel Saez, U.C. Berleley Professor of Economics; Director, Center for Equitable Growth
From 2009 to 2012, average real income per family grew modestly by 6.0% (Table 1). Most of the gains happened in the last year when average incomes grew by 4.6% from 2011 to 2012.
However, the gains were very uneven. Top 1% incomes grew by 31.4% while bottom 99% incomes grew only by 0.4% from 2009 to 2012. Hence, the top 1% captured 95% of the income gains in the first three years of the recovery. From 2009 to 2010, top 1% grew fast and then stagnated from 2010 to 2011. Bottom 99% stagnated both from 2009 to 2010 and from 2010 to 2011. In 2012, top 1% incomes increased sharply by 19.6% while bottom 99% incomes grew only by 1.0%. In sum, top 1% incomes are close to full recovery while bottom 99% incomes have hardly started to recover.
From 2009 to 2012, average real income per family grew modestly by 6.0% (Table 1) but the gains were very uneven. Top 1% incomes grew by 31.4% while bottom 99% incomes grew only by 0.4%. Hence, the top 1% captured 95% of the income gains in the first two years of the recovery. From 2009 to 2010, top 1% grew fast and then stagnated from 2010 to 2011. Bottom 99% stagnated both from 2009 to 2010 and from 2010 to 2011. Preliminary statistics for year 2012 show that top 1% incomes increased sharply from 2011 to 2012 while bottom 99% incomes grew only modestly.
Hey, who says America is in decline? The U.S. is still more awesome than the rest of the world at making at least one thing. And that thing is income inequality.
A new paper by economists Facundo Alvaredo, Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez lays out just how much better at making inequality the U.S. is than everybody else and tries to explain how it got that way.
Since the 1970s, the top 1 percent of earners in the U.S. has roughly doubled its share of the total American income pie to nearly 20 percent from about 10 percent, according to the paper. This gain is easily the biggest among other developed countries, the researchers note. You can see this in the chart below, taken from the paper, which maps the income gains of the top 1 percent in several countries against the massive tax breaks most of them have gotten in the past several decades. (Story continues after chart.)
SUPPOSE that an investor you admire and trust comes to you with an investment idea. “This is a good one,” he says enthusiastically. “I’m in it, and I think you should be, too.”
Would your reply possibly be this? “Well, it all depends on what my tax rate will be on the gain you’re saying we’re going to make. If the taxes are too high, I would rather leave the money in my savings account, earning a quarter of 1 percent.” Only in Grover Norquist’s imagination does such a response exist.
Between 1951 and 1954, when the capital gains rate was 25 percent and marginal rates on dividends reached 91 percent in extreme cases, I sold securities and did pretty well. In the years from 1956 to 1969, the top marginal rate fell modestly, but was still a lofty 70 percent — and the tax rate on capital gains inched up to 27.5 percent. I was managing funds for investors then. Never did anyone mention taxes as a reason to forgo an investment opportunity that I offered.
So let’s forget about the rich and ultrarich going on strike and stuffing their ample funds under their mattresses if — gasp — capital gains rates and ordinary income rates are increased. The ultrarich, including me, will forever pursue investment opportunities.
And, wow, do we have plenty to invest. The Forbes 400, the wealthiest individuals in America, hit a new group record for wealth this year: $1.7 trillion. That’s more than five times the $300 billion total in 1992. In recent years, my gang has been leaving the middle class in the dust.
The Great Gatsby Curve
Countries with greater inequality of incomes also tend to be countries in which a greater fraction of economic advantage and disadvantage is passed on between parents and their children. It is now common to represent this relationship with what Alan Krueger has referred to as “The Great Gatsby Curve.” Figure 1 depicts an example.
Relatively less upward mobility of the least advantaged is one reason why intergenerational mobility is lower in the United States than in other countries to which Americans are often compared. But it is not the only reason. Inter-generational mobility is also lower because children of top-earning parents are more likely to become top earners in their turn. An era of rising inequality is more likely to heighten these differences than to diminish them. The cohort of American children raised since the 1980s, who will reach their prime working years in the coming decade, is likely to experience an average degree of inter-generational income mobility as low—if not lower—than previous cohorts who were raised in an era of less inequality.Inequality lowers mobility because it shapes opportunity. It heightens the income consequences of innate differences between individuals; it also changes opportunities, incentives, and institutions that form, develop, and transmit characteristics and skills valued in the labor market; and it shifts the balance of power so that some groups are in a position to structure policies or otherwise support their children’s achievement independent of talent.
The fundamental law of capitalism is that if workers have no money, businesses have no customers. That’s why the extreme, and widening, wealth gap in our economy presents not just a moral challenge, but an economic one, too. In a capitalist system, rising inequality creates a death spiral of falling demand that ultimately takes everyone down.
Low-wage jobs are fast replacing middle-class ones in the U.S. economy. Sixty percent of the jobs lost in the last recession were middle-income, while 59 percent of the new positions during the past two years of recovery were in low-wage industries that continue to expand such as retail, food services, cleaning and health-care support. By 2020, 48 percent of jobs will be in those service sectors.
Policy makers debate incremental changes for arresting this vicious cycle. But perhaps the most powerful and elegant antidote is sitting right before us: a spike in the federal minimum wage to $15 an hour.
True, that sounds like a lot. When President Barack Obama called in February for an increase to $9 an hour from $7.25, he was accused of being a dangerous redistributionist. Yet consider this: If the minimum wage had simply tracked U.S. productivity gains since 1968, it would be $21.72 an hour — three times what it is now.
An objection to a significant wage increase is that it would force employers to shed workers. Yet the evidence points the other way: Workers earn more and spend more, increasing demand and helping businesses grow.
Critics of raising the minimum wage also say it will lead to more outsourcing and job loss. Yet virtually all of these low-wage jobs are service jobs that can neither be outsourced nor automated.
Raising the earnings of all American workers would provide all businesses with more customers with more to spend. Seeing the economy as Henry Ford did would redirect our country toward a high-growth future that works for all.
The question at hand isn’t how much inequality has increased over the past couple of decades, it’s where the increase has come from. The study is from Thomas Hungerford, an analyst with the Congressional Research Service, and the chart on the right tells the story:
Capital gains and dividends have contributed more to the rise of income inequality than everything else put together.
As Hungerford put it in an interview, “The reason income inequality has been increasing has been the rising income going to the top one percent. Most of that has come in capital gains and dividends.”
Published on May 30, 2013
As we endure the slow, uneven recovery from the “Great Recession,” there is no more critical or timely question than that of the relationship between economic growth and inequality. On May 20, 2013 at the Graduate Center of the City University of New York, two of the world’s most preeminent economists discussed the connection between prosperity for some and poverty for others.
Paul Krugman is Professor of Economics and International Affairs at Princeton University, a 2008 Nobel laureate, and an Op-Ed columnist for the New York Times @NYTimeskrugman. He is the author of numerous books, including the recently published End This Depression Now!
Sir Tony Atkinson, Professor of Economics at the University of Oxford, is one of the world’s foremost scholars of inequality and the author or editor of more than thirty books on inequality and related topics. He recently coedited Top Incomes: A Global Perspective, a volume that analyses high-end income inequality around the world.
Moderated by Chrystia Freeland, managing director and editor of consumer news at Thomson Reuters and author of Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else @cafreeland.
Presented by the Advanced Research Collaborative @ARCCUNY and LIS @lisdata.
Incomes and tax revenues have grown from 2009 to 2011 as the economy recovered, but an astonishing 149 percent of the increased income went to the top 10 percent of earners.
If you wonder how that can happen, the answer is simple: Incomes fell for the bottom 90 percent.
The rich really are getting richer while the vast majority is getting poorer. These facts should be at the center of any debate about changes in tax law and spending with the March 1 budget sequestration deadline just four days off.
That extreme concentration, however, is far from the most jaw-dropping figure that can be distilled from the new Saez-Piketty analysis. That requires a long-term comparison of those at or near the top with the bottom 90 percent.
In 2011 the average AGI of the vast majority fell to $30,437 per taxpayer, its lowest level since 1966 when measured in 2011 dollars. The vast majority averaged a mere $59 more in 2011 than in 1966. For the top 10 percent, by the same measures, average income rose by $116,071 to $254,864, an increase of 84 percent over 1966.
Plot those numbers on a chart, with one inch for $59, and the top 10 percent’s line would extend more than 163 feet.
So here’s some bad news: The rise in wealth inequality? It’s permanent.
In an impressive new paper, Vasia Panousi and Ivan Vidangos of the Federal Reserve Board, Shanti Ramnath of the Treasury Department, Jason DeBacker of Middle Tennessee State University and Bradley Heim of Indiana University got tax data for 34,000 households between 1987 and 2009 and use it to track what was actually happening to individual families over that period.
Sadly, they did not find households easily shifting up and down the inequality scale. Instead, they found “the advantaged becoming permanently better-off, while the disadvantaged becoming permanently worse-off.” For men, the added inequality was entirely of the permanent sort. For households, three-quarters was permanent.
Here are two things that are true about the economy today.
(1) The Dow Jones industrial average is poised to set a new record as corporate profits stretch to all-time highs.
(2) There are still fewer working Americans today than there were before the start of the Great Recession.
The fact that these two things can be true at the same time might outrage you. But it shouldn’t surprise you. In the last 30 years, there has been a great divergence between growth and workers’ incomes, as the New York Times reminds us today. Corporate profits have soared, in the last decade especially, particularly because of three things: Globalization has pushed down the cost of labor available to multinational corporations; technology has allowed companies to make more with fewer workers, in general; and Big Finance has gobbled up the economy, as the banks’ share of total corporate profits has tripled to about one-third since the middle of the last century, according to Evan Soltas.
In 1962, the top 1% had 125 times the net worth of the median household. That shot up to 288 times by 2010, according to a new report by the left-leaning Economic Policy Institute.
That trend is happening for two reasons: Not only are the rich getting richer, but the middle class is also getting poorer.
Most Americans below the upper echelon have suffered a decline in wealth in recent decades. The median household saw its net worth drop to $57,000 in 2010, down from $73,000 in 1983. It would have been $119,000 had wealth grown equally across households.
The top 1%, on the other hand, saw their average wealth grow to $16.4 million, up from $9.6 million in 1983. This is due in large part to the growing income inequality divide, as well as the sharp rise in value of stocks over the period.
Politicians typically talk about rising inequality and the sluggish recovery as separate phenomena, when they are in fact intertwined. Inequality stifles, restrains and holds back our growth. When even the free-market-oriented magazine The Economist argues — as it did in a special feature in October — that the magnitude and nature of the country’s inequality represent a serious threat to America, we should know that something has gone horribly wrong. And yet, after four decades of widening inequality and the greatest economic downturn since the Depression, we haven’t done anything about it.
There are four major reasons inequality is squelching our recovery. The most immediate is that our middle class is too weak to support the consumer spending that has historically driven our economic growth.
Second, the hollowing out of the middle class since the 1970s, a phenomenon interrupted only briefly in the 1990s, means that they are unable to invest in their future, by educating themselves and their children and by starting or improving businesses.
Third, the weakness of the middle class is holding back tax receipts, especially because those at the top are so adroit in avoiding taxes and in getting Washington to give them tax breaks.
Fourth, inequality is associated with more frequent and more severe boom-and-bust cycles that make our economy more volatile and vulnerable.
Now we are engaged in a great tug-of-war over a few points in the top tax rate in Washington. But even if the White House pulls hardest, it won’t amount to much of a victory for the long-suffering middle class. The sources of their income stagnation are too deep, too varied, and too long-term for Clinton-era tax rates to cure them.
To understand the full story, you have to look at capital income — from assets like housing and stocks and bonds. This is where income growth for the top 1% has positively exploded, taking income inequality to record highs.
Since 1960, average effective tax rates have fallen dramatically for the top 0.1% — much of it thanks to preferences for capital gains income. Progressive taxation won’t fix the middle class crisis, Mishel pointed out to me over the phone, but it can discourage sky-high CEO salaries and provide more public funds to pay for infrastructure, education, and a safety net.
The three years of wealth data from 2007 to 2010 just provides an extreme example of how the economic fortunes of Walmart’s owners have diverged from those of typical American households. Concretely, between 2007 and 2010, while median family wealth fell by 38.8 percent, the wealth of the Walton family members rose from $73.3 billion to $89.5 billion (note that the 2007 wealth number is slightly larger than was reported at the time—to provide an inflation-adjusted comparison, I converted the 2007 wealth value of $69.7 billion to 2010 dollars using the consumer price index (the CPI-U-RS, to be specific)).
In 2007, it was reported that the Walton family wealth was as large as the bottom 35 million families in the wealth distribution combined, or 30.5 percent of all American families.
And in 2010, as the Walton’s wealth has risen and most other Americans’ wealth declined, it is now the case that the Walton family wealth is as large as the bottom 48.8 million families in the wealth distribution (constituting 41.5 percent of all American families) combined.
Let’s take these critics’ suggestion and remove all the negative values at the bottom of the distribution, extinguishing the value of their debts that exceed their assets and assigning them a zero net worth instead. What does the comparison look like then? Not that different: After making this adjustment, about 15.4 million families (13.1 percent of the population) have zero net worth, no small number to be sure. But the Walmart heirs’ $89.5 billion is still equal to the combined net worth of the bottom 33.2 million families (about 28.2 percent of the total), even after extinguishing all negative net worth values in the SCF.
In short, it would still take a city’s worth of families with the overall median wealth to match the Walton family’s net worth. The figure below shows just how many families with median wealth would need to be combined to equal the Walton family’s wealth, and how this has changed over time.
Although poverty levels held, there’s still bad news. Median real household income fell 1.7 percent, to $62,273, and income inequality rose in 2011. The Gini index, a common measure of inequality, rose 1.6 percent from 2010 to 2011. “This represents the first time the Gini index has shown an annual increase since 1993, the earliest year available for comparable measures of income inequality,” the Census said.
The rise in inequality seems to be driven by gains at the upper end of the income spectrum and declines in the middle class. The real income of the highest quintile of earners rose 1.6 percent, and the top 5 percent of earners saw their incomes increase 4.9 percent. At the same time, the middle-income quintiles fell between 1 percent and 1.9 percent each. When you adjust the Gini intex to take into account different types of households for each segment, the lowest quintile basically stayed the same. The rate of the extremely poor—people earning less than half of the official poverty threshold—was constant at 6.6 percent of the population.
A third of a century ago, all of us economists confidently predicted that America would remain and even become more of a middle-class society. The wealth inequality of the 1870-1929 Gilded Age, we would have said, was a peculiar result of the first age of industrialization. Transformations in technology, public investments in education, a progressive tax system, a safety net and the continued decline in discrimination on the basis of race and sex had made late-20th century America a much more equal place than early-20th century America and would make early-21st century America even more equal – even more of a middle-class society – still.
We were wrong.
America is at least as unequal as, and might be more unequal than, it was back at the beginning of the 20th century when Republicans, such as President Theodore Roosevelt of New York condemned the power wielded by “malefactors of great wealth,” and Democrats such as perennial losing presidential candidate William Jennings Bryan of Nebraska denounced shadowy conspiracies that had somehow manipulated the financial system to rob the typical family of its proper share in America’s prosperity.
Four major factors have driven rising inequality over the past 35 years:
Center for Economic and Policy Research, Shawn Fremstad
The chart below … summarizes the basic theme: the difference between what [Robert] Reich calls ?The “Great Prosperity” years between 1947 and 1979 and the “The Great Regression” between 1980 and now.
As the top chart in the graphic shows, during the Great Prosperity, compensation for most workers rose steadily at the same pace as overall economic growth and increases in productivity. During the Great Regression, the economy and productivity kept growing at roughly the same rate, but compensation for most workers leveled off. The next set of bar charts focuses in on income trends for each fifth of the population, sorted by income. During the Great Prosperity years, everybody experienced large gains in income, but low-income Americans gained the most; during the Great Regression, gains were concentrated at the top, while the poorest lost ground and the middle didn‘t do much better.
From 1970 to 2010, Saez and Piketty show, the share of total market income going to the top one percent more than doubled, from 9.03 to 19.77 percent. The share going to the top 0.1 percent more than tripled, from 2.78 percent to 9.52 percent; and for the top 0.01 percent, it nearly quintupled from 1.00 percent of the total to 4.63 percent.
In addressing the issue of inequality, Saez and Piketty found that from 1970 to 2010, average pre-tax income per taxpayer in the bottom 90 percent of the distribution fell from $31,839 to $28,840 in inflation-adjusted dollars. For those in the top 0.01 percent, market income rose from $2.14 million a year in 1970 to $16.27 million in 2010. The gains at the top from 1970 to 2010 stand in contrast to the post-war period from 1945 to 1970 when the share of income going to those at the top fell. During those earlier 25 years, the share going to the top 1 percent dropped from 12.52 to 9.03 percent; the share going to the top 0.1 percent dropped from 4.16 to 2.78 percent, and the share going to the top 0.01 percent dropped from 1.26 to 1.00 percent.
The C.B.O. used information from tax returns and from the Current Population Survey to determine “real (inflation-adjusted) average householdincome, measured after government transfers and federal taxes.” Gains from 1979 to 2007 were heavily concentrated among those in the top one percent, with smaller gains moving down the income ladder. In contrast to Saez and Piketty, the C.B.O. report shows modest gains for every income group below the top 1 percent:
A concerted effort by business interests in general, and Republicans in particular, instigated a massive transfer of newly created wealth from wage earners to the owners of capital via various measures, including lowering upper income tax rates, restricting employees collective bargaining, rolling back regulations on financial institutions, and the like.
The other side of that coin is blatant attempts by Republicans to suppress incomes by taking away collective bargaining rights of both private and public sector workers, such as happened in Wisconsin. The result is the almost disappearance of the middle class that has been the main driver of growth since WWII.
First, on inequality, Michael Tanner from the Cato Institute couldn’t understand why I kept going on about inequality. It doesn’t have anything to do with poverty (Scott Winship of the Brookings Institution made a similar argument in a Senate hearing a few weeks back). Tanner argued that if everyone’s income doubled, poverty would go down but inequality wouldn’t change, so inequality must not matter.
Um…ok…but that’s a total non-sequitur. What’s been happening for most—not all—of the past 30 years is the pattern of real income growth you see here, from a recent CRS study. Sure, if everyone’s income grew at the overall average of the first bar–20%–we’d have less poverty and less inequality. But in the real world, average income grew 20%, fell 6% at the low end, and was up 60% for the top 1%.
This isn’t rocket science. If growth reaches the bottom, there’s less poverty. If inequality diverts growth from the bottom, poverty goes up.
Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006: The Role of Labor Income, Capital Income, and Tax Policy
This report examines changes in income inequality among tax filers between 1996 and 2006. In particular, the role of changes in wages, capital income, and tax policy is investigated.
Inflation-adjusted average after-tax income grew by 25% between 1996 and 2006 (the last year for which individual income tax data is publicly available). This average increase, however, obscures a great deal of variation. The poorest 20% of tax filers experienced a 6% reduction in income while the top 0.1% of tax filers saw their income almost double. Tax filers in the middle of the income distribution experienced about a 10% increase in income. Also during this period, the proportion of income from capital increased for the top 0.1% from 64% to 70%.
Income inequality, as measured by the Gini coefficient, increased between 1996 and 2006; this is true for both before-tax and after-tax income. Before-tax income inequality increased from 0.532 to 0.582 between 1996 and 2006—a 9% increase. After-tax income inequality increased by 11% between 1996 and 2006. Total taxes (the individual income tax, the payroll tax, and the corporate income tax) reduced income inequality in both 1996 and 2006. In 1996, taxes reduced income inequality by 5%. In 2006, however, taxes reduced income inequality by less than 4%. Taxes were more progressive and had a greater equalizing effect in 1996 than in 2006.
Three potential causes of the increase in after-tax income inequality between 1996 and 2006 are changes in labor income (wages and salaries), changes in capital income (capital gains, dividends, and business income), and changes in taxes. To evaluate these potential reasons for increasing income inequality, a technique to decompose income inequality by income source is used. While earnings inequality increased between 1996 and 2006, this was not the major source of increasing income inequality over this period. Capital gains and dividends were a larger share of total income in 2006 than in 1996 (especially for high-income taxpayers) and were more unequally distributed in 2006 than in 1996. Changes in capital gains and dividends were the largest contributor to the increase in the overall income inequality. Taxes were less progressive in 2006 than in 1996, and consequently, tax policy also contributed to the increase in income inequality between 1996 and 2006. But overall income inequality would likely have increased even in the absence of tax policy changes.
With the rise of the Occupy movement and confirmation from the nonpartisan CBO that the U.S. income gap is at its highest level since 1929, defensive conservatives by necessity spawned a thriving if laughable cottage industry in income inequality denialism. Now with word from the New York Times that the share of income for the top 1 percent dropped from 23 to 17 percent between 2007 and 2009, you can expect more cries of “so get a time machine, Occupy Wall Street!”
But the right-wing echo chamber need not worry about the plight of the tragically rich. While working Americans continue to struggle as the economy slowly recovers from the Bush recession, the rebound of Wall Street has ensured that the upper crust has already recouped its losses. As the data show, millionaires are not only making a rapid comeback. For the gilded class, the economic downturn is already over.
Seizing on federal tax data showing that the average income for the top 1 percent fell to $957,000 in 2009 from $1.4 million in 2007, conservatives have complained that income inequality is so over:
Analysts say the drop largely reflects the stock market plunge, and most think top incomes recovered somewhat in 2010, as Wall Street rebounded and corporate profits grew. Still, the drop alters a figure often emphasized by inequality critics, and it has gone largely unnoticed outside the blogosphere.
By focusing on the top 1 percent, the Occupy Wall Street movement has made economic fairness a subject of street protest and political debate.
“It’s very interesting that this has become such a big topic now when the numbers are back to where they were in the 1990s,” said Steven Kaplan, an economist at the University of Chicago’s business school. “People didn’t seem to be complaining about it then.”
That might have been because during the 8-year Clinton boom that generated 23 million new jobs, the rising tide for once did lift all (or at least most) boats. But after the Bush recession that started in December 2007, many Americans’ dinghies were capsized by yachts once again cruising at full speed. As it turns out, the recession that has proved so devastating for most Americans for the wealthy has been merely a hiccup.
In the eight decades before the recent recession, there was never a period when as much as 9 percent of American gross domestic product went to companies in the form of after-tax profits. Now the figure is over 10 percent.
During the same period, there never was a quarter when wage and salary income amounted to less than 45 percent of the economy. Now the figure is below 44 percent.
For companies, these are boom times. For workers, the opposite is true.
Note: Personal taxes includes state and local income taxes, taxes on personal property and employee share of payroll taxes
Source: Bureau of Economic Analysis, via Haver Analytics
But here’s the rub: The overall income of the top 1 percent has risen significanly faster than that over the same time period. The second chart shows that the percentage change of the overall average income of the top one percent has risen by 119 percent. That’s more than twice the amount of the change in their income tax, which grew by 54 percent in that time:
For most of the post-World War II era, we tolerated relatively high inequality because we envisioned it as a necessary side effect of an exceptional economy that (supposedly) guaranteed opportunities for advancement. As the Wall Street Journal put it, we believed that “it is OK to have ever-greater differences between rich and poor … as long as (our) children have a good chance of grasping the brass ring.”
However, the last three decades have invalidated our standing hypothesis. After the conservatives’ successful assault on the New Deal, America has lived a different reality — one perfectly summarized by a new Federal Reserve study revealing that today’s increasing inequality accompanies comparatively low social mobility.
“U.S. family income mobility has decreased over the 1969-2006 time span, and especially since the 1980s,” notes the Fed paper, adding that “a family’s position at (the) end of (the) 2000s was … more correlated with its start position than was the case 20 years earlier.”
Of course, some class mobility still exists. The trouble is that it’s primarily of the downward kind. As the Pew Charitable Trusts reports, roughly a third of those who grew up in the middle class have now fallen below that station in adulthood.
This is why, for all the right-wing mythology about “Eurosocialism” snuffing out upward mobility, data from the Organization for Economic Cooperation and Development show that social mobility in uber-capitalist America is actually lower than in most industrialized countries.
There has been no shortage of headlines this week about the growing income and wealth inequality in the United States. A new study from the Congressional Budget Office, for example, found that income of the top 1 percent of households increased by 275 percent in the 30-year period ending in 2007. American households at the bottom and in the middle, meanwhile, saw income growth of just 18 to 40 percent over the same period
But less attention has been paid to the fact that not only are the numbers bad in America, they’re particularly bad when compared to other developed nations.
A new report (.pdf) by the Bertelsmann Foundation drives this point home. The German think tank used a set of policy analyses to create a Social Justice Index of 31 developed nations in the Organisation for Economic Co-operation and Development (OECD). The United States came in a dismal 27th in the rankings. Here, for example, is a graph of one of the metrics, child poverty, in which the U.S. ranked fourth-to-last (click for larger size):
America’s 99 percent are not just imagining it. The gap between the incomes of the rich and poor in this new Gilded Age is strikingly broad and deep, according to an October report from Congress’ data crunchers.
What are the Occupy Wall Street protesters angry about? The same things we’re all angry about. The only difference is the protestors turned their anger into public action. Occupy Wall Street lit the embers and the sparks are flying. Whether it turns into a genuine populist prairie fire depends on all of us.
Now is not the time for wonky policy solutions, as the media meatheads are calling for. Rather, it’s time to air our grievances as loudly as possible, which is precisely what Wall Street and its minions fear the most. Here’s a brief list of why we should be angry and the charts to back it up.
1. The American Dream is imploding…
In 2008, the top 0.01 percent of earners controlled 5 percent of the nation’s wealth, as depicted by Catherine Mulbrandon at Visualizing Economics. At the same time the bottom 90 percent of earners’ share of income was slightly over half.
But the gap between the super-rich and everyone else wasn’t always so wide. Indeed, the share of income belonging to the top 1 percent of earners in the U.S. more than doubled between 1982 and 2008, according to the Wall Street Journal.
The problem in a nutshell is this: Inequality in this country has hit a level that has been seen only once in the nation’s history, and unemployment has reached a level that has been seen only once since the Great Depression. And, at the same time, corporate profits are at a record high. In other words, in the never-ending tug-of-war between “labor” and “capital,” there has rarely—if ever—been a time when “capital” was so clearly winning.
Let’s start with the obvious: Unemployment. Three years after the financial crisis, the unemployment rate is still at the highest level since the Great Depression (except for a brief blip in the early 1980s)
It is a mantra among economists that the growth of productivity translates into the an increase in society’s living standards. But what if that growth eludes the middle class and the poor? The productivity mantra is an average mantra—it does not account for the growth of income inequality.
Today’s Census data show that since median HH inc peaked in 1999, the amount of income loss you suffered was very much a function of where you were in the income scale…the higher the better, or the least worst, I should say. Here’s a little table of household income changes at various percentiles (not that these Census data leave out realized capital gains, which play a large and important role in the increase in inequality.
These Census results should force us to be very clear eyed in recognizing that markets sometimes fail and when they do so, the federal gov’t must fill two very important roles.
Do societies inevitably face an invidious choice between efficient production and equitable wealth and income distribution? Are social justice and social product at war with one another?
In a word, no.
It may seem counterintuitive that inequality is strongly associated with less sustained growth. After all, some inequality is essential to the effective functioning of a market economy and the incentives needed for investment and growth (Chaudhuri and Ravallion, 2007). But too much inequality might be destructive to growth. Beyond the risk that inequality may amplify the potential for financial crisis, it may also bring political instability, which can discourage investment. Inequality may make it harder for governments to make difficult but necessary choices in the face of shocks, such as raising taxes or cutting public spending to avoid a debt crisis. Or inequality may reflect poor people’s lack of access to financial services, which gives them fewer opportunities to invest in education and entrepreneurial activity.
Political Correction, Jamison Foster
… wealth is now lower for the typical household than it was a generation ago in 1983, while the wealth at the upper end expanded a great deal.
In other words, the richest 5 percent of households obtained roughly 82 percent of all the nation’s gains in wealth between 1983 and 2009. The bottom 60 percent of households actually had less wealth in 2009 than in 1983, meaning they did not participate at all in the growth of wealth over this period.
Political Correction, Jamison Foster
Today’s Census Bureau release of household income data contains some awfully gloomy numbers: The nation’s poverty rate is 15.1 percent, the highest since 1993, and median household income in 2010 was only $369 higher than in 1989.
But, as usual, the new data contains some good news… for the rich. Here’s a chart showing mean household income from 1978 to 2010 for the bottom, middle, and top quintiles:
It seems that you can look at a chart of almost anything and right around 1981 or soon after you’ll see the chart make a sharp change in direction, and probably not in a good way. And I really do mean almost anything, from economics to trade to infrastructure to … well almost anything. I spent some time looking for charts of things, and here are just a few examples. In each of the charts below look for the year 1981, when Reagan took office.
Conservative policies transformed the United States from the largest creditor nation to the largest debtor nation in just a few years, and it has only gotten worse since then:
Working people’s share of the benefits from increased productivity took a sudden turn down:
[Emphasis in original]
The gap between the top 1% and everyone else hasn’t been this bad since the Roaring Twenties
Art on Issues, Dr. Art Kamm
As more income has been pushed to the top over the past 30 years, the income growth of the middle class, and thus its purchasing power, has not kept pace with the growth of the economy. Quintile by quintile, the lower 80 percent of America is down almost $10,000/yr in income distribution since 1979 while the upper 1% is up over $740,000 in average income during that same timeframe. And with an economy that is 70% personal consumption, this has resulted in weaker demand for goods and services and thus slow recovery and higher unemployment (ref).
But graphs and charts do a disservice in showing what is really happening with wealth and income inequality in America. The actual dollar increases in income and wealth in recent years within the top 0.1% of income earners, as well as the rapidly growing sums of money held within that group, are mind-staggering; perhaps obscene is a better word during these economically troubled times. And that will be thrust of this article. It will compare and contrast increases in wealth and income at the top versus the extent and effects of growing poverty (including death) and unemployment in the rest of America. The failure to share sacrifice at the top while pursuing cuts in programs benefitting the victims of the recession, represents nothing less than a moral crisis for our country.
Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States
That income inequality has grown substantially over the past thirty years is no longer in dispute. Yet persistent confusion remains about the exact nature of this change and its main causes. Indeed, these two sources of confusion are linked, since properly identifying the character of American inequality is essential to offering convincing explanations of its rise.
As we show in this section, the three crucial features of growing U.S. inequality are that (1) economic gains have been highly concentrated at the very top; (2) these lopsided gains have been sustained, growing virtually without interruption since around 1980; and (3) these gains have resulted in few “trickle-down” benefits for most of the population. Together, these three features call into question standard economic accounts of rising inequality that focus on gaps between broad groups based on rising returns to education and skills. They also call into question the leading political science accounts of rising inequality taken up in the next section, which also tend to focus on the growing distance between the top and bottom thirds of the population rather than the pulling away of the very affluent.
There are three ways to measure global income inequality. The first measures inequality of incomes between states as a whole, regardless of their population size. The second adjusts the first to take account of states populations, hence a slightly more personal measure of actual Global inequality; the third and best measure is total global inequality, treating every person as individual across the globe. The most widely accepted measure of inequality is the Gini Coefficient, which simply measures statistical dispersion. The higher the gini coefficient, the higher the inequality within a system. Here is the Global Gini Coefficient from 1950 to 1998 using the third measure in inequality, that between each individual person on the planet:
What this remarkable graph shows is a spike in global inequality that began in 1984 and rose to an unprecedented level. Between 1964 and 1984, there were global workers struggles, there was civil rights legislation, there were regulatory apparatuses in place to prevent major economic crises. Since 1984, that relative level of equity has rapidly vanished, and today we are living in a more unequal world than ever before.
Here’s a chart I put together showing what percentage of all of America’s income (including capital gains) is going to each of several income classes, today versus previous years:
Pretty striking, right? As of 2008, about 21 percent of income was received by just 1 percent of earners.
But economic inequality isn’t just about how much you make — it’s about how much you have.
To that end, the Economic Policy Institute, a liberal research organization, has published a new report looking at disparities in wealth in the United States.
It includes this chart, showing estimates of what share of wealth each class claims:
Remember that wealth accumulates over time. The highest earners are able to save much of their incomes, whereas lower earners can’t. That means high earners can accumulate more and more wealth as time goes on (assuming they don’t blow it all, of course).
New data released by the IRS reveals that, over a period of 12 years, tax rates for the richest 400 Americans were effectively cut in half. In 1995, the richest 400 Americans paid, on average, 29.93% of their income in federal taxes. In 2007, the last year for which the IRS has released data, the richest 400 Americans paid just 16.63%.
Who Has Benefitted from the Post-Great Recession Recovery? A New Look at the Growth Performance of Jobs, Wages, Corporate Profits, and Stock Price Indices During the First Two Years of Recovery
Center for Labor Market Studies; Andrew Sum,Joseph McLaughlin
Not one of these five groups of full-time wage and salary workers received a real earnings boost over this two year period. Each group experienced a modest weekly wage decline of 1 to 2 per cent over this period with the top two wage groups actually faring slightly worse. Over the entire decade (2001 I – 2011 I), those workers at the top (90th percentile) obtained a real weekly wage increase of $92 or 6% while those at the bottom (10th percentile) experienced a wage loss of 1%. The lost decade did not generate any substantive improvement in the real weekly earnings of the vast majority of U.S. workers.
In contrast to the absence of any growth in aggregate wages and salaries or in the mean or median hourly and weekly wages of individual workers, corporate profits have experienced very strong growth over the recovery (Table 4). Annualized corporate profits exploded from the second quarter of 2009 to the second quarter of 2010, growing by more than $410 billion, and increased further to $1.694 billion in the first quarter of 2011. During the first seven quarters of recovery, corporate profits rose by $491 billion or 41%. A substantial jump in labor productivity (of 9%) from the last quarter of 2008 to 2011 I with no increase in real wages provided the major portion of the boost in corporate profits. The link between productivity growth and real wage growth was completely separate.
The recovery from the Great Recession has been highly uneven in its effects on workers, wages, profits, stock prices, and savers (bank savings accounts, money market accounts, CDs). Many U.S. adults, especially from low income and middle income households, have reported to poll takers that the U.S. is still in a recession or depression.11 From their vantage point, it still is. The same cannot be said for corporate profits, the CEOs of large corporations, or for those with large stock holdings. The disparities in economic rewards are the largest ever seen in a post World War II recovery.
In the first quarter of 2011, aggregate U.S. GDP — the total value of all the goods and services produced in the United States — was higher than the peak reached before the recession began in 2007. During the six quarters since the recession technically ended in the second quarter of 2009, real national income in the U.S. increased by $528 billion. But the vast majority of that income was captured as profit by corporations that failed to pass on their happy fortunes to their workers.
Wages are moribund, unemployment is stuck at 9 percent, and the corporate bottom line is doing just fine. You could be excused for thinking that if ever there was time to put the stake through supply-side economics, it would be now. Wall Street and big corporations are doing just fine, but absolutely nothing is trickling down. And yet Republicans are still pushing the same old song and dance, passionately holding the entire creditworthiness of the United States hostage in return for even lower taxes on corporations, adamantly refusing to countenance even the slightest revenue increase to help cushion the hard times for the Americans who are getting a raw deal out of the current recovery.
The globe’s richest have now recouped the losses they suffered after the 2008 banking crisis. They are richer than ever, and there are more of them – nearly 11 million – than before the recession struck.
According to the annual world wealth report by Merrill Lynch and Capgemini, the wealth of HNWIs around the world reached $42.7tn (£26.5tn) in 2010, rising nearly 10% in a year and surpassing the peak of $40.7tn reached in 2007, even as austerity budgets were implemented by many governments in the developed world.
Salon, Natasha Lennard
The wealth report highlights the uneven way that the economic recovery is playing out: the net worth of the wealthy has not trickled down to prop up global economies, as the U.S. fiscal deficit and sovereign debt crisis in Europe shows. However, the rich getting richer has funneled into the luxuries industry.
The income gap between the wealthy and the rest of the country has grown along with dramatic increases in CEO pay.
Inequality in the U.S. has has grown steadily since the 1970s, following a flat period after World War II. In 2008, the wealthiest 10 percent earned almost the same amount of income as the rest of the country combined.
Plus three more charts.
Whatever people think of it, the gap between the very highest earners and everyone else has been widening significantly.
Income inequality has been on the rise for decades in several nations, including the United Kingdom, China and India, but it has been most pronounced in the United States, economists say.
In 1975, for example, the top 0.1 percent of earners garnered about 2.5 percent of the nation’s income, including capital gains, according to data collected by University of California economist Emmanuel Saez. By 2008, that share had quadrupled and stood at 10.4 percent.
The phenomenon is even more pronounced at even higher levels of income. The share of the income commanded by the top 0.01 percent rose from 0.85 percent to 5.03 percent over that period. For the 15,000 families in that group, average income now stands at $27 million.
In world rankings of income inequality, the United States now falls among some of the world’s less-developed economies.
“The rich are always going to say that, you know, just give us more money and we’ll go out and spend more and then it will all trickle down to the rest of you. But that has not worked the last 10 years, and I hope the American public is catching on,” Buffett said in the clip from ABC News’ “This Week with Christiane Amanpour.”
Our thirty years research shows that:
1) In rich countries, a smaller gap between rich and poor means a happier, healthier, and more successful population. Just look at the US, the UK, Portugal, and New Zealand in the top right of this graph, doing much worse than Japan, Sweden or Norway in the bottom left.
The big debt lie: After three decades of failed experiments, you’d think we might finally give up on supply-side economics
The betting system the GOP’s been playing for the past 30 years is called supply-side economics. “The theory goes like this,” explains David Cay Johnston. “Lower tax rates will encourage more investment, which in turn will mean more jobs and greater prosperity — so much so that tax revenues will go up, despite lower rates.”
To anybody with a passing interest in the material world, it’s clear that this has never happened. Over the same period, the national debt has risen to more than $14 trillion — almost 90 percent of it under Republican presidents.
Huffington Post, Janell Ross
American workers’ productivity has soared over the last 30 years, but that extra output hasn’t translating into higher earnings for the American middle class, according to a report released this week.
As middle-class Americans have lost out economically over that 30 year period, productivity, corporate profits and the incomes of America’s rich have all soared, the report said. By 2009, 1 percent of the population lived on 21 percent of the nation’s total annual earnings.
[Chart by he Employment Policy Research Network]
“Let me tell you about the very rich. They are different from you and me,” wrote F. Scott Fitzgerald. He wasn’t talking about taxes (the laws were very different back in 1926) but his assertion certainly applies to the way the wealthy fare under today’s tax law.
The National Ledger, Froma Harrop
If low taxes are the key to economic growth, as Republicans claim, why aren’t we doing better? What explains the phenomenal growth of the 1950s, when the top marginal rate hit 91 percent? Or the years following the Democrats’ 1993 tax hike on high incomes, when the economy boomed, the budget ran a surplus and the rich did better than ever?
The Republican House budget offers a Third World vision for America. More tax cuts for the jet-setters. Fewer government guarantees for those below them. The plan would curtail health care programs for the elderly and poor, law enforcement, environmental regulation, and nutrition programs for women and children. And they would repeal the Democrats’ health care reforms guaranteeing coverage to all, even though they would reduce deficits over time.
People often remember the past with exaggerated fondness. Sometimes, however, important aspects of life really were better in the old days.
During the three decades after World War II, for example, incomes in the United States rose rapidly and at about the same rate — almost 3 percent a year — for people at all income levels. America had an economically vibrant middle class. Roads and bridges were well maintained, and impressive new infrastructure was being built. People were optimistic.
By contrast, during the last three decades the economy has grown much more slowly, and our infrastructure has fallen into grave disrepair. Most troubling, all significant income growth has been concentrated at the top of the scale. The share of total income going to the top 1 percent of earners, which stood at 8.9 percent in 1976, rose to 23.5 percent by 2007, but during the same period, the average inflation-adjusted hourly wage declined by more than 7 percent.
Technologically induced productivity whose benefits are only partially (if at all) passed along to workers. Union busting. Squeezing workers to do more with less (which was something some hotshot facilitator at a management seminar once called “work smarter, not harder” before that insulting slogan went viral). Erosion of the buying power of the minimum wage. A deteriorating manufacturing base abetted by “free trade” agreements that pit Americans against workers in China, India and elsewhere who earn 10 percent at companies which can compete without bothering with safety and environmental regulations. The sum? One of the plagues of the U.S. economy during the past few decades: stagnant wages.
In the view of multitudes of corporate CEOs and the folks at the American Enterprise Institute and its ideological compatriots, the market is working just fine. As traditionally measured, that’s true. A multinational operation that maintains efficiency and manages, for instance, to sell plenty of cars at a good profit around the planet is doing what such enterprises are supposed to do. It’s no skin off a shareholder’s nose if new employees are hired at half the rate their predecessors were and the benefits they receive are trimmed. If they can no longer afford, as they could working for Henry Ford, to buy one of the cars they make, so what? And it doesn’t matter to shareholders if jobs are exported where workers paid 20 percent of what Americans receive can build cars just as efficiently. Or computers. Or televisions. Or software. You name it. If it doesn’t matter to those own the stock, it certainly doesn’t matter to the CEOs.
Art on Issues, Dr. Art Kamm
Republican tax cut/deregulation (supply-side) policy assumes the United States to be a closed economic system where the benefit remains in America when in fact we invest in a global economy. A critical break occurred in supply-side theory when enhanced savings from tax cuts was not followed by increased US capital investment. The failure of this policy to stimulate US business investment contributes to its underperformance in jobs creation, job recovery following recession, GDP growth, real annual median household income growth and wage levels. Without economic stimulative effects from this policy, the loss of tax revenue from tax cuts was not offset by increased tax receipts from economic growth and our national debt has substantially increased as a fraction of our economy under all five complete 4-year periods where this policy has been in effect since 1981. With no control over where the wealthy and corporations deploy their capital, the money we borrowed to support tax cuts largely favoring the wealthy has supported job creation and business growth abroad while our job creation has lagged at home.
The government spends money through appropriations and writing checks, but it also showers individuals and companies with a astonishing array of special exemptions, credits and deductions that amount to a $1.1 trillion giveaway each year. (For comparison: the big budget fight that concluded last week cut spending by about $38 billion.)
The top-earning 20 percent of Americans – those making more than $100,000 each year – received 49.4 percent of all income generated in the U.S., compared with the 3.4 percent earned by those below the poverty line, according to newly released census figures. That ratio of 14.5-to-1 was an increase from 13.6 in 2008 and nearly double a low of 7.69 in 1968.
A different measure, the international Gini index, found U.S. income inequality at its highest level since the Census Bureau began tracking household income in 1967. The U.S. also has the greatest disparity among Western industrialized nations.
1. Taxes for the Wealthy have Fallen Dramatically
2. Income Gains at the Top Dwarfed Those of Everyone Else
Also on Top Ten Tax Charts:
3. The United States is a Low Tax Country
4. Federal Income Taxes on Average Families Are Historically Low
5. Corporate Tax Revenues Are Historically Low
6. Bush Tax Cuts Heavily Tilted to the Top
7. Rise in Debt Could Be Halted Over the Next Decade By Letting Bush Tax Cuts Expire
8. Tax Expenditures are Substantial
9. Top 1 Percent’s Share of Total After-Tax Income Has More than Doubled Over the Past Thirty Years
10. Most of the Budget Goes Toward Defense, Social Security, and Major Health Programs
Data from tax returns show that the top 1 percent of households in the United States received 8.9 percent of all pre-tax income in 1976. In 2008, the top 1 percent share had more than doubled to 21.0 percent.
The total inflation-adjusted net worth of the Forbes 400, an annual listing of America’s richest individuals, rose from $507 billion in 1995 to $1.62 trillion in 2007, before dropping back to $1.37 trillion in 2010.
Estimates from the Credit Suisse Research Institute, released in October 2010, show that the richest 0.5 percent of global adults hold well over a third of the world’s wealth.
Approximately one third of annual deaths in the United States, epidemiological researchers believe, can be credited to the nation’s excessive inequality.
Put together by the Center on Budget and Policy Priorities, a liberal Washington think tank, the chart is pretty self-explanatory. It shows that the 30 years following the Second World War were a time of broadly shared prosperity: Income for the bottom 90 percent of American households roughly kept pace with economic growth.
But despite the best efforts of some commentators, there’s really no serious debate about the overall realignment of income in our age: The already super-rich have vastly increased their share of the pie–at the expense of everyone else.
With Tax Day fast approaching and deficit reduction all the rage, one fact deserves significant attention: the wealthy are enjoying some of the lowest taxes in generations. The Figure shows the average tax rate in 1979, 1992, and 2007, as well as the tax rate for the top 1% of households, and the top 400 households (who have an average annual income of nearly $350 million). Since 1979, the country’s overall average tax rate—the share of income paid in taxes—has fallen slightly, but for those at the top of the earnings ladder this share has fallen dramatically.
This diminished tax burden on the wealthiest has contributed to the historically low federal revenue levels we are seeing today, and in turn, to higher deficits.
Some dismiss inequality and focus instead on overall growth—arguing, in effect, that a rising tide lifts all boats. But assume we have a thousand boats representing all the households in the United States, with boat length proportional to family income. In the late 1970s, the average boat was a 12 foot canoe and the biggest yacht was 250 feet long. Thirty years later, the average boat is a slightly roomier 15 footer, while the biggest yacht, at over 1100 feet, would dwarf the Titanic! When a handful of yachts become ocean liners while the rest remain lowly canoes, something is seriously amiss.
A rising tide is still critical to lifting all boats. The implication of our analysis is that helping to raise the lowest boats may actually help to keep the tide rising!
I have no objection to financial success. I’ve had a lot of it myself. All of my income came from paychecks from jobs I held and books I published. I have the quaint idea that wealth should be obtained by legal and conventional means — by working, in other words — and not through the manipulation of financial scams.
In June, an analysis from the Center on Budget and Policy Priorities confirmed that gap between rich and poor in the United States reached levels not seen since 1929. Between 1979 and 2007, the yawning chasm separating the after-tax income of the richest 1 percent of Americans from the middle and poorest fifths of the country more than tripled. But while the Bush recession which began in December 2007 temporarily halted the stratospheric advance of the wealthy, the rich – and the rich alone – have largely recovered their losses. Which means that the record level of income inequality in America is growing once again.
Despite an economy that’s twice as large as it was thirty years ago, the bottom 90 percent are still stuck in the mud. If they’re employed they’re earning on average only about $280 more a year than thirty years ago, adjusted for inflation. That’s less than a 1 percent gain over more than a third of a century. (Families are doing somewhat better but that’s only because so many families now have to rely on two incomes.)
So the question is, what does account for the divergence between economic growth and median family income?
Let’s look at GDP per household versus median and mean income per household since 1973. I use households because there’s some slippage between “families” and “households”, and I didn’t want to get into all that. I end at 2007 to leave the Great Recession out of the picture. Anyway, here’s what you get:
It now emerges, from the latest figures released by the BLS in the US, that changes in workers real hourly compensation has been lagging labor productivity growth. This effectively means that in relative terms, workers are getting squeezed from both side. On the one side, incomes of those at the top are exploding. On the other hand, their own incomes are not even keeping pace with productivity growth.
It’s no use pretending that what has obviously happened has not in fact happened. The upper 1 percent of Americans are now taking in nearly a quarter of the nation’s income every year. In terms of wealth rather than income, the top 1 percent control 40 percent. Their lot in life has improved considerably. Twenty-five years ago, the corresponding figures were 12 percent and 33 percent.
Income Gaps Between Very Rich and Everyone Else More Than Tripled In Last Three Decades, New Data Show
The gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007 (the period for which these data are available), according to data the Congressional Budget Office (CBO) issued last week. Taken together with prior research, the new data suggest greater income concentration at the top of the income scale than at any time since 1928.
Having won one class war, Republicans are starting a second. To perpetuate record levels of income inequality not seen since before the Great Depression, conservatives are agitating for middle class Americans to wage a civil war on each other. Their latest divide-and-conquer tactic is to portray government workers as “takers“ and “parasites“ somehow responsible for the decline of manufacturing and other sectors of the U.S. economy. Of course, like so much Republican mythmaking, the claim not only is untrue, but a cynical diversion to deflect attention from the real winners in the class war.
What happens if there’s a class war and only one side bothers to show up and fight it? That’s what happened over the last thirty years. There was a class war, and the rich won. Period. It’s over, they kicked our knees out from under us, put on their steel toed boots and spent the last thirty years telling us that they were going to trickle on us and we’re going to like it and beg for more.
So, if you’re an ordinary slob, you haven’t had a raise in over 30 years. In fact, your real wage peaked over 30 years ago and it’s never recovered.
This would be ok if the US hadn’t been getting richer, getting more productive, ever since then, but I’m sure you won’t be surprised to hear that, well, actually, productivity and whatnot has kept going up. Yet somehow wages didn’t.
Global Balance Research, Don Monkerud
Since the national rise of Ronald Reagan three decades ago, the United States has been on a deadly course for a Republic, with wealth rapidly concentrating at the top and average Americans sinking or struggling to stay afloat.
Recent debates about whether public- or private-sector workers earn more have obscured a larger truth: all workers have suffered from decades of stagnating wages despite large gains in productivity. The current public discussion illogically pits state and local government employees against private workers, when both groups have failed to sufficiently benefit from the economic fruits of their labors. This paper examines trends in the compensation of public (state and local government) and private-sector employees relative to the growth of productivity over the past two decades.
Outside the Beltway, Alex Kanpp
Contrary to my colleague Doug’s description of the Federal government as existing primarily to redistribute wealth, there is actually very little wealth re-distribution in the United States. The chart above uses numbers I pulled from the latest CBO report showing shares of taxes, pre-tax income, and after-tax income by quintile in 2007 (last year available).
During the 20th century, the United States experienced two major trends in income distribution. The first, termed the “Great Compression” by economists Claudia Goldin of Harvard and Robert Margo of Boston University, was egalitarian. From 1940 to 1973, incomes became more equal. The share taken by the very richest Americans (i.e., the top 1 percent and the top 0.1 percent) shrank. The second trend, termed the “Great Divergence” by economist Paul Krugman of Princeton (and the New York Times op-ed page), was inegalitarian. From 1979 to the present, incomes have become less equal. The share taken by the very richest Americans increased.
A huge share of the nation’s economic growth over the past 30 years has gone to the top one-hundredth of one percent, who now make an average of $27 million per household. The average income for the bottom 90 percent of us? $31,244.
The superrich have grabbed the bulk of the past three decades’ gains.