The Growing Income Gap

Income Gaps Between Very Rich and Everyone Else More Than Tripled In Last Three Decades, New Data Show
Source: http://www.huffingtonpost.com/2010/07/08/income-gap-between-rich-a_n_639984.html Note: The text below has been edited to include the most graphic information.

By Arloc Sherman and Chad Stone
June 25, 2010

[Editor’s note: Ask yourself what the rich have given us during this time – the savings and loan crisis, Enron, toxic mortgages, bogus derivatives used to bet with our money giving them huge commissions off the top and leaving our jobs, retirement funds and other investments depleted, the world-wide economic crisis these practices created, government budgets that cannot afford schools, police and fire protection, infrastructure maintenance… ]

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, according to data the Congressional Budget Office (CBO) issued last week. …[The] new data suggest greater income concentration at the top of the income scale than at any time since 1928…

* 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.
* 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).

The CBO figures show that the nation’s income has grown substantially since 1979; if this growth had been shared more broadly, … after-tax household income increased 55 percent from 1979 to 2007, adjusted for inflation. If all groups’ incomes had grown by 55 percent, the average income of the bottom fifth of households would have been $23,710 in 2007 (rather than $17,700) and the average income of the middle fifth would have been $68,342 (rather than $55,300). [Editor’s note: These are not just empty numbers. It represents food on the table, reasonable housing, health care and other necessities for most of us. For the rich, it meant second and third mansion, yacht, private airplanes, and the ability to afford $ million country club memberships – let alone the ability to buy our government.]

Instead, the wealthiest households reaped a sharply growing share of the nation’s income, while the share going to middle- and lower-income households shrank (see Figure 3). Between 1979 and 2007:

Average After-Tax Income

Income Category 1979 2007 Change

1979-2007 From To % < $ < Lowest fifth $15,300 $17,700 16% $2,400 Second fifth $31,000 $38,000 23% $7,000 Middle fifth $44,100 $55,300 25% $11,200 Fourth fifth $57,700 $77,700 35% $20,000 Top fifth $101,700 $198,300 95% $96,600 Top 1 Percent $346,600 $1,319,700 281% $973,100 Source: Congressional Budget Office, Effective Federal Tax Rates: 1979-2007, June 2010. The CBO data only go back to 1979, but economists … have used tax data to calculate the share of income going to wealthy Americans back to 1913. Taken together, the … findings suggest greater income concentration at the top of the income scale than at any time since 1928. Bush-Era Tax Cuts Have Exacerbated Income Gaps

Legislation enacted under the Bush Administration provided taxpayers with about $1.7 trillion in tax cuts through 2008. Because high-income households received by far the largest tax cuts — not only in dollar terms but also as a percentage of income — the tax cuts have increased the concentration of after-tax income at the top of the spectrum.

[Editor's note: These are serious numbers: Nothing but "pin money" at the bottom; huge money at the top.And most people think that the tax breaks are fair and just.]

Change in Real Average After-Tax Income, 2006 to 2007 … [just 2 yers!]
Source: Congressional Budget Office, Effective Federal Tax Rates: 1979-2007, June 2010.

* Households in the bottom fifth of the income spectrum received tax cuts averaging $29, which raised their after-tax incomes by an average of 0.4 percent.
* Those in the middle fifth received tax cuts averaging $760, which raised their after-tax incomes by an average of 2.4 percent.
* The top 1 percent of households received tax cuts averaging $41,077, which raised their after-tax incomes by an average of 5.0 percent.
* Within the top 1 percent, those with incomes exceeding $1 million received tax cuts averaging $114,000, which raised their after-tax incomes by an average of 5.7 percent.

Pre-Tax Income Inequality Also Growing Rapidly

… The incomes of the top 1 percent rose 141 percent from 1979 to 2007 before taxes are considered, the CBO data show. The top 1 percent’s share of before-tax income … more than doubled from 1979 to 2007, from 9.3 percent to 19.4 percent.

By 2007, the top 1 percent had before-tax incomes that were 24 times higher than those of the middle fifth of Americans — a share that had nearly tripled since 1979.

The rapidly rising pre-tax incomes of the wealthy help to explain the notable rise in the percentage of total tax revenue collected from these households. …The increase in the share of taxes paid by the wealthy is often cited erroneously as evidence that their tax burden is rising. In reality, the effective federal tax rate … — the percentage of their income that they pay in federal taxes — declined from 33.0 percent of income in 2000 to 29.5 percent in 2007.

The top 1 percent paid a growing share of total taxes chiefly because they received a growing share of total before-tax income: 19.4 percent in 2007, compared to 17.8 percent in 2000. Indeed, the effective tax rate of the top 1 percent of households was lower in 2007 than in any year since 1990, demonstrating beyond a doubt that their tax burdens were decreased, not increased.

CBO Data Offer Most Comprehensive Look at Inequality

These CBO data are the most comprehensive data available on changes in incomes and taxes for different income groups, capturing trends at the very top of the income scale that other data sources, such as Census data, do not show.

Census income data do not include significant amounts of income received by high-income households. For instance, they ignore earnings above $1 million in order to help preserve confidentiality. If an individual makes $10 million a year, the Census records those earnings as $1 million. (The Census data also do not include capital gains, which constitute a large share of the income of wealthy households.) Partly for this reason, the Census data do not break out trends among the top 1 percent of households, where income gains have been especially concentrated.


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