and Income Inequality in America
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
the same combined wealth as the poorest half of Americans --
over 150 million people.
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
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).
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.”
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
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.
... 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.
Read More About Wealth and Income Inequality in America
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'
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.
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).
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.
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.
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.
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.
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"
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
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.
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.
It now emerges, from the latest figures released by the BLSin 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
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:
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.)
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.
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
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!
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.
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
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.
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.
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.
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.)
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
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:
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.
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.
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.
“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.
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.
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
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.
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
"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
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
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.
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 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
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.
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
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.
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%.
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
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
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.
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
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
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:
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:
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.
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.
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.
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)
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.
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.
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.
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):
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.
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:
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
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.
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.
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.
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.
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:
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.
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:
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.
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.
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.
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.
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