The Price of Inequality: How Today's Divided Society Endangers Our Future (45 page)

6.
The top 1 percent of income earners received some 60 percent of the gains during the country’s economic expansion between 1979 and 2007. While the real after-tax household income of the 1 percent grew by 275 percent in that period, the bottom fifth’s average real after-tax household income rose only 18 percent.
Indeed, the bottom 90 percent of earners got just a fourth of what the top 0.1 percent gained
. Based on data from, Piketty and Saez, “Income Inequality in the United States, 1913–1998,” and the updates on Saez’s website, cited in n. 2, above. See EPI Briefing Paper, October 26, 2011, cited in n. 3, above; and Josh Biven, “Three-Fifths of All Income Growth from 1979–2007 Went to the Top 1%,” Economic Policy Institue, October 27, 2011, available at
http://www.epi.org/publication/fifths-income-growth-1979-2007-top-1/
(accessed February 28, 2012). The CBO 2011 study, cited in n. 1, above,
presents a similar picture.

7.
We use the term “typical” to refer to the median income, i.e., the income such that half of all workers have an income higher than that number, half below. Median household income was actually lower in 2010 ($49,445) than it was in 1997, adjusted for inflation ($50,123 in 2010 dollars). Over the longer period, 1980–2010, median family income essentially stagnated, growing at an annual rate of only 0.36 percent. Based on table H-9 of Census historical tables, available at
http://www.census.gov/hhes/www/income/data/historical/household/index.html
.

8.
Adjusted for inflation, male median income in 2010 was $32,137; in 1968 it was $32,844. See table T-5 of the U.S. Census Bureau’s income report, available at
http://www.census.gov/hhes/www/income/data/historical/people/index.html
(accessed February 13, 2012). (Of course, the median worker today is a different person from the median person in 1968, and these numbers can be affected by immigration of unskilled workers.)

9.
By April 2010, stock market prices (S&P 500), which had fallen 56 percent between the peak, in October 2007, and the trough, in March 2009, were up 78 percent from the trough (though at the time of writing, they are still 13 percent below the peak).

10.
See the 2012 update to the data for Piketty and Saez, “Income Inequality in the United States, 1913–1998.”

11.
House prices are, at the time of writing (February 2012), still down 33 percent, and for those living in some parts of the country (e.g., Miami, Florida), the decline is still more than 50 percent (using S&P/Case-Shiller Home Price Indices). See “All Three Home Price Composites End 2011 at New Lows According to the S&P/Case-Shiller Home Price Indices,” press release of S&P/Case-Shiller Home Price Indices, February 28, 2012, available at http://www.standardandpoors.com/servlet/BlobServer?blobheadername3=MDT-Type&blobcol=urldocumentfile&blobtable=SPComSecureDocument&blobheadervalue2=inline%3B+filename%3Ddownload.pdf&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobkey=id&blobheadername1=content-type&blobwhere=1245329497678&blobheadervalue3=abinary%3B+charset%3DUTF-8&blobnocache=true (accessed March 2, 2012).

12.
According to Lawrence Mishel and Josh Bivens, “Occupy Wall Streeters Are Right about Skewed Economic Rewards in the United States,” Economic Policy Institute Briefing Paper no. 331, available at
http://www.epi.org/files/2011/BriefingPaper331.pdf
(accessed February 10, 2012). Some other studies give slightly different numbers—all, though, show correspondingly high ratios of CEO pay to that of the median worker.

13.
Figures are from 1983. See Piketty and Saez, cited in n. 2, above. There are some problems in estimating changes in income share over long periods of time. Prior to 1986, thanks to the relatively low corporate income tax rate, it paid some high-income individuals to shelter their income inside a corporation, because it allowed the deferral of paying the high individual income tax rates so long as money remained within the corporation. This changed in 1986, leading to higher incomes reported on individuals’ own tax returns. While this explains a substantial portion of the increase in reported incomes around 1986, looking beyond this period—1988 onward—it is clear that there have been huge increases in the share of income going to the top. See Jon Bakija et al., “Jobs and Income Growth of Top Earners and the Causes of Changing Income Inequality: Evidence from U.S. Tax Return Data;” Roger Gordon and Joel Slemrod, “Are ‘Real’ Responses to Taxes Simply Income Shifting between Corporate and Personal Tax Bases?,” in
Does Atlas Shrug? The Economic Consequences of Taxing the Rich
, ed. Joel Slemrod (Cambridge: Harvard University Press, 2000); and Joel Slemrod, “High Income Families and the Tax Changes of the 1980s: The Anatomy of Behavioral Response,” in
Empirical Foundations of Household Taxation
, ed. Martin Feldstein and James Poterba (Chicago: University of Chicago Press, 1996). It is important to note that the composition of the 1 percent (or the 0.1 percent) is changing over the years. It’s not that the income of those who were in the 1 percent in 2002 were 65 percent richer on average in 2007. There is some mobility—but, as we discuss later in this chapter, much less than is widely assumed. The statistic says only that those who were in the top in more recent years seized a much larger fraction of the nation’s economic pie than those who were in the top positions ten years ago, or twenty-five years ago.

14.
While those at the bottom and middle have seen their income fall in this century, the divide between the rich and the poor has been growing for a third of a century. Between 1979 and 2007, the after-tax income for the top 1 percent income earners increased 275 percent. For the 21st through 80th percentiles, the increase was just below 40 percent. For the bottom 20 percent, the increase was only 18 percent. The net result of this is that the “the share of household income after transfers and federal taxes going to the highest income quintile grew from 43 percent in 1979 to 53 percent in 2007” (for the 1 percent the increase was from 8 percent to 17 percent), whereas the share of after-tax and transfer income for all other quintiles fell (all by between 2 and 3 percentage points). See CBO, “Trends in the Distribution of Household Income.” The
threshold
for belonging to the top 1 percent of income earners in 2010 when capital gains are included, according to Piketty and Saez, “Income Inequality in the United States, 1913–1998,” and the related data updated on Saez’s website, is $352,055. For the top 0.1 percent, the threshold was $1,492,175. (The data have not been updated past 2010.) In contrast, the median
household
income in 2010 was $49,455 (in 2010 dollars), according to census data, table H-9, cited in n. 7, above. Different studies have used slightly different calculations to assess the cutoff point for the top 1 percent, but the picture is essentially the same.

15.
Assuming a 2,000-hour work year, the $1.3 million per year converts into approximately $650 per hour, or some 80 times greater than the minimum wage. The figures come from CBO,
Average Federal Tax Rates in 2007
, June, available at
http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11554/average federaltaxrates2007.pdf
(accessed February 29, 2012). See table 1. Again, different data sources provide slightly different numbers—but the picture is essentially the same. According to Piketty and Saez, “Income Inequality in the United States, 1913–1998,” the “top 1 percent” (those with incomes above $352,055 in 2010) had an average income, including
realized
capital gains, of $1.4 million in 2007 (dropping to $1.0 million in 2010).

16.
See CBO,
Average Federal Tax Rates in
2007. Table 1 reports the average after-tax income of the highest quintile as $198,300, whereas the sum of the after-tax income averages of the other quintiles is $77,700 + $55,300 + $38,000 + $17,700 = $188,700.

17.
Poverty was reduced by 40 percent. Using the national poverty standard, the percentage in poverty fell from almost 36 percent in 2003 to 21 percent in 2009. Also reduced was the income share of the top 10 percent, from 46.7 percent to 42.5 percent between 2001 and 2009. See
http://www.unicef.org/infobycountry/brazil_statistics.html#0
;
http://web.worldbank.org/wbsite/external/countries/lacext/brazilextn/0,menuPK:322367~pagePK:141132~piPK:141109~theSitePK:322341,00.html
; World Bank Development Indicators:
http://data.worldbank.org/indicator
.

18.
From 2004 to 2010, the Brazilian economy expanded at an average rate of 4.4 percent per year; if the global recession year of 2009 is excluded, the average is nearly 5.3 percent, much higher than it was, say, from 1985 to 1994. See World Bank Indicators, available at
http://data.worldbank.org/indicator/ny.gdp.mktp.kd.zg?page=2
(accessed March 5, 2012).

19.
Growth in the past thirty years (1981–2011) was not as strong as in the preceding thirty years (an average annual growth of 2.8 percent versus 3.6 percent). Federal Reserve Bank of St Louis, Real Gross Domestic Product growth rate, available at
http://research.stlouisfed.org/fred2/series/GDPC1/downloaddata?cid=106
.

20.
From 1992 to 2000, the lowest quintile grew at 2.6 percent, faster than any of the other quintiles except the top fifth, which grew at 3.5 percent. U.S. Census Bureau, cited by Alan B. Krueger, “The Rise and Consequences of Inequality in the United States,” address delivered at the Center for American Progress, January 12, 2012.

21.
There’s been redistribution
away
from the bottom and middle, and almost all of what’s been redistributed has gone to the
very
top, the top 1 percent. This is a direct corollary of the fact that incomes at the bottom and in the middle have been falling, while those at the very top have been rising. CBO, “Trends in the Distribution of Household Income.”

22.
See also Krueger, “The Rise and Consequences of Inequality.”

23.
See National Center for Education Statistics, “Fast Facts,” on the question “What is the average income for young adults?,” available at
http://nces.ed.gov/fastfacts/display.asp?id=77
.

24.
Based on median income for households with a householder who is at least 25 and has a bachelor’s degree or more. See Census Household Income Historical Table H-13, “Table H-13. Educational Attainment of Householder—Households with Householder 25 Years Old and Over by Median and Mean Income: 1991 to 2010,” available at
http://www.census.gov/hhes/www/income/data/historical/household/
(accessed March 1, 2012). Median incomes for college-educated women over the same time period have been flat and are today at two-thirds the level of male earnings. See U.S. Census Bureau, Historical Income Table P-16, available at
http://www.census.gov/hhes/www/income/data/historical/people/
.

25.
As Paul Krugman has pointed out, “almost two-thirds of the rising share of the top percentile in income actually went to the top 0.1 percent . . . who saw their real incomes rise more than 400 percent” from 1979 to 2005. “Oligarchy, American Style,”
New York Times
, November 4, 2011, available at
http://www.nytimes.com/2011/11/04/opinion/oligarchy-american-style.html
(accessed March 1, 2012). According to data from Piketty and Saez, “Income Inequality in the United States, 1913–1998,” and Saez’s website, cited in n. 2, above, the income of the top 0.1 percent in 1979 accounted for just 3.44 percent of the total income, but by 2005 its share had more than tripled, to 10.98 percent. Bakija et al., “Jobs and Income Growth of Top Earners,” report that the increase of the top 0.1 percent in pretax income share was from 2.2 percent to 8 percent from 1981 to 2006. Other data series give slightly different numbers, but corroborate the enormous increase in the share of the top 0.1 percent.

26.
That is, household income consists of wages and salaries and returns on capital. There is a third determinant, which we will discuss later in the chapter—government can augment incomes (through transfer programs) or diminish them (through taxes). As we note below, government programs have become less progressive, that is, taken less from the top and given less to the bottom.

27.
More precisely, over the period 1979–2006, the top 1 percent saw wages grow by 144 percent; the top 0.1 percent, by 324 percent. Even the top 1 percent gets more than 20 times that of the bottom 90 percent. Lawrence Mishel, Jared Bernstein, and Heidi Shierholz,
The State of Working America 2008/2009
(Ithaca, NY: ILR Press, an imprint of Cornell University Press, 2009), table 3.10, cited in Mishel and Biven, “Occupy Wall Streeters Are Right.”

28.
When the numbers were already large—125 to 1 and 131 to 1, respectively. From Mishel and Bivens, “Occupy Wall Streeters Are Right,” based on
analysis of Edward Wolff, unpublished analysis of the U.S. Federal Reserve Board, Survey of Consumer Finances and Federal Reserve Flow of Funds, prepared for the Economic Policy Institute, in Sylvia Allegretto,
The State of Working America’s Wealth, 2011: Through Volatility and Turmoil the Gap Widens
, Economic Policy Institute Brief Paper 292 (Washington, D.C.: EPI, 2010).

29.
Mishel and Biven, “Occupy Wall Streeters Are Right,” based on data from CBO, p. 8. This is why the data on
income
inequality show so much more inequality than the data focusing just on wage and earnings inequality.

30.
From 1979 to 2007. Mishel and Biven, “Occupy Wall Streeters Are Right,” p. 9, EPI analysis of data from the CBO collection of data on effective federal taxes.

31.
“Six Wal-Mart Heirs Are Wealthier Than U.S. Entire Bottom 30%,”
Los Angeles Times
, December 9, 2011, citing analysis done by the UC-Berkeley economist Sylvia Allegretto, available at
http://latimesblogs.latimes.com/money_co/2011/12/six-walmart-heirs-wealthier-than-bottom-30-percent.html
(accessed January 25, 2011).