US Income Gap Is Widening Significantly, Data Shows
Income inequality grew significantly in 2005, with the top 1 percent of Americans - those with incomes that year of more than $348,000 - receiving their largest share of national income since 1928, analysis of newly released tax data shows.The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression.
While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.
The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.
The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.
Prof. Emmanuel Saez, the University of California, Berkeley, economist who analyzed the Internal Revenue Service data with Prof. Thomas Piketty of the Paris School of Economics, said such growing disparities were significant in terms of social and political stability.
“If the economy is growing but only a few are enjoying the benefits, it goes to our sense of fairness,” Professor Saez said. “It can have important political consequences.”
Last year, according to data from other sources, incomes for average Americans increased for the first time in several years. But because those at the top rely heavily on the stock market and business profits for their income, both of which were strong last year, it is likely that the disparities in 2005 are the same or larger now, Professor Saez said.
He noted that the analysis was based on preliminary data and that the highest-income Americans were more likely than others to file their returns late, so his data might understate the growth in inequality.
The disparities may be even greater for another reason. The Internal Revenue Service estimates that it is able to accurately tax 99 percent of wage income but that it captures only about 70 percent of business and investment income, most of which flows to upper-income individuals, because not everybody accurately reports such figures.
The Bush administration argued that its tax policies, despite cuts that benefited those at the top more than others, had not added to the widening gap but “made the tax code more progressive, not less.” Brookly McLaughlin, the chief Treasury Department spokeswoman, said that this year “the share of income taxes paid by lower-income taxpayers will be lower than it would have been without the tax relief, while the share of income taxes for higher-income taxpayers will be higher.”
Treasury Secretary Henry M. Paulson Jr., she noted, has acknowledged that income disparities have increased, but, along with a “solid consensus” of experts, attributed that shift largely to “the rapid pace of technological change has been a major driver in the decades-long widening of the income gap in the United States.”
Others argued that public policies had played a role in the shift. Robert Greenstein, executive director of the Center on Budget and Policy Priorities, an advocacy group for the poor, said that the data understates the widening disparity between the top 1 percent and the rest of the country.
He said that in addition to rising incomes and reduced taxes, the equation should take into account cuts in fringe benefits to workers and in government services that middle-class and poor Americans rely on more than the affluent. These include health care, child care and education spending.
“The nation faces some very tough choices in coming years,” he said. “That such a large share of the income gains are going to the very top, at a minimum, raises serious questions about continuing to provide tax cuts averaging over $150,000 a year to people making more than a million dollars a year, while saying we do not have enough money” to provide health insurance to 47 million Americans and cutting education benefits.
A major issue likely to be debated in Congress in the year ahead is whether reversing the Bush tax cuts would slow investment and, if so, how much that would cost the economy.
Mr. Greenstein’s organization will release a report today showing that for Americans in the middle, the share of income taken by federal taxes has been essentially unchanged across four decades. By comparison, it has fallen by half for those at the very top of the income ladder.
Because the incomes of those at the top have grown so much more than those below them, their share of total income tax revenue has risen despite the reduced rates.
The analysis by the two professors showed that the top 10 percent of Americans collected 48.5 percent of all reported income in 2005.
That is an increase of more than 2 percentage points over the previous year and up from roughly 33 percent in the late 1970s. The peak for this group was 49.3 percent in 1928.
The top 1 percent received 21.8 percent of all reported income in 2005, up significantly from 19.8 percent the year before and more than double their share of income in 1980. The peak was in 1928, when the top 1 percent reported 23.9 percent of all income.
The top tenth of a percent and top one-hundredth of a percent recorded even bigger gains in 2005 over the previous year. Their incomes soared by about a fifth in one year, largely because of the rising stock market and increased business profits.
The top tenth of a percent reported an average income of $5.6 million, up $908,000, while the top one-hundredth of a percent had an average income of $25.7 million, up nearly $4.4 million in one year.
Copyright 2007 The New York Times Company
The figures are disgraceful, but don’t expect anyone in Washington D.C. to do anything about it. The rich own the government, including the Democrats in Congress. We are reaching a point where there is only one way to bring about change.
This is news that isn’t–because it has been going on for the past 34 years and shows absolutely no sign of abating. Two very good counter measures would be the raising of corporate income tax levels to those in the early 50’s and hte reimposition of a tariff program designed to encourage American manufacturing at decent wages. Of course that would mean dropping out of WTO and NAFTA and scaling back our expectations for the growth of our standards of living. Therefore it probably will not happen.
Poet, You can bet it will not happen.
Greed knows no limits. If you have the power to get it , you take it; A castle, yachts, a Lamborgini, a trophy wife or toy boy, it isn’t enough because someone else has more. It has been ever thus. It caused the French revolution and Robespierre decide the only cure was to cut off their heads. Chavez has upset the oligarchs in Venezuela, and Bush is upset. The neo conservative form of Globalisation has rediscovered the eighteenth century; pay the worker nothing,demand unlimited hours, deny benefits and security, undermine the middle class, buy cheapest where there are no environmental controls and your compny gets richer and you can reward your executives for this noble effort with unlimited riches. Mediocraties all believe they are gifted Michael Jordons and there is never enough. As for the rest of humanity, protect yourself from them and the hell with them.
“Treasury Secretary Henry M. Paulson Jr., she noted, has acknowledged that income disparities have increased, but, along with a “solid consensus” of experts, attributed that shift largely to “the rapid pace of technological change has been a major driver in the decades-long widening of the income gap in the United States.””
Would someone please explain this rationale to me, if there is one? How do technological changes widen the income gap? If you can answer this question, please be specific, because it sounds like bullsh*t to me.
I think that this gradual disenfranchising of working people is a consequence of the effects of widespread adoption of labor-saving technologies, and that the reality is that ultimately, technology will replace people in most (but not all) avenues of ‘work’.
This isn’t necessarily a bad thing, many jobs are boring and/or dangerous, but it will REQUIRE a rethinking of many things. The first and most important thing we need to understand is that people’s ‘worth’ is not determined by how much money they make or what job they have. If we stay thinking like that, it will lead to a global genocide. There are no worthless or superfluous people.
The 21st century could represent changes that are the beginning of a bright new future of abundance for mankind, or they could be unimaginably terrible.
The past was an era of global scarcity. Technology offers a future of abundance. The two viewpoints are fundamentally incompatible, but science tells us that abundance is the right one. However, the politicians are fixated on scarcity midset because they can exploit fear to give them power, just as they did during feudalism.
The sooner we start this discussion, the better.
Gall, what he means is that as productivity increases, businesses do more with less, including less labor. Its not businesses role in society to provide jobs, especially not if the extra people are not needed. Dealing with people and their needs is government’s job. Businesses have a duty to their owners (stockholders) to be as profitable as possible. We need to change our corporate model to recognize a duty of corporate people (corporations are legally seen as people, but they don’t die and can’t be imprisoned for crimes) to help enrich society as well as their owners.
But making businesses less effcient (and making them hire more people) is not the answer.
What I think IS the answer would be to incentivize businesses to deal with the entire consequences of their behavior. Right now governments and taxpayers subsidize many activities of corporations in some quixotic misunderstanding that somehow this will create jobs. That wont happen. Jobs wont ever come back unless we have people with the skills to fill them. And the economy will be global, not national. Wealth will flee aging nations with large liabilities of unemployed or sick people just like businesses are fleeing the older cities now. The only solution is stopping that.. and progressive taxation. Especially inherited wealth, because in the same twenty or thirty years otherwise, MOST wealth will be inherited.
There wont be anywhere near as many of the kinds of jobs you see now, compared to now. This stratification will accelerate, unless we work to stop it by changing our mindset.
And in twenty or thirty years from now, work will be so advanced and competitive that only the most skilled and most intelligent will be employed. Everything else will be done by various kinds of automation. Thats not a political thing, its unavoidable.
It’s “Moore’s law”
But the exciting part is that our future can be in the stars.. People may live to be much older than they do now, and they may be able to continue learning during that time. That is, unless we destroy ourselves with greed.
arando, I hope you do know that Moore’s Law isn’t connected to the future of business, but rather Moore’s Law is basically an observation that it takes a certain amount of time to get a new product from the drawing board to the store.
There are still many jobs that people do and can never be replaced by machines. Teaching, organic farming, protecting and caring for the environment and upkeep of the infrastructure. Care for the elderly and poor or ill. The list goes on.
The sad fact is that today the thought of helping other people less fortunate has become a bad thing to do - unless there’s a big pofit for a few at the top. And jobs that the government should carry out have or are being privitized.
Yes, technology will advance but just as the industrial revolution didn’t eliminate the need for people to work, any future advances won’t wipe people out of the equation.
The issue is how can we make things fair. Corporations do enjoy the same rights as people. In fact, they are gaining more rights all the time. But corpoations do have a certain role the must carry out faithfully or they can suffer a corporate death sentence. It’s time some of these corporations recieve the ultimate penalty when they fail to uphold their end of the bargain.
The last step of the beast is to make money edible.
These numbers are just the beginning of the disparities between our fellow citizens. The top 10 % mostly have their own parks in their yards so they dont need their kids to play with other kids whose parents dont own homes. Even if you are “middle class” and sacrifice, spending money on private school for your kid so he can have something better. He may become socially isolated due to his “class”. Hello America.
Hybridoma, let’s face it. Corporations have “personhood” rights, but no personhood responsibilities. Their responsibility is to make as much money as they can, and nothing else exceeds that responsibility. So their social behavior resembles that of a sociopath, without consequences. All court decisions granting them this extraordinary status refer back to the court case of Santa Clara County vs Southern Pacific Railroad in 1886. But they only refer to the headnotes, which had been rewritten by a corrupt clerk after the chief justice died. Why that has never been redressed, I do not know. But it has been a disaster for our citizens. Basically it makes corporations first class citizens, and the rest of us, second class citizens. States have the right to license and regulate corporations, but they have abrogated those rights - and now many corporations have gone multinational where they are even more free to do as they please.
I find it interesting that 1928 is mentioned so much as the last peak in income inequality. Just before the stock market crash of 1929. This, in the context of peak oil, climate change, increased anger globally at United States imperialism, and the fact that the U.S. Government’s military conquests are essentially on credit to Japanese, Chinese, & European bankers (and the increasing superpower dichotomy between the U.S. & China), seems like 2005 or 6 might be another peak year.
With 47 million without health insurance and 270 million with wages stagnant, it seems that any number of disturbances might cause a redistribution of wealth, or, at the very least, more equitable incomes.
Inflation the Hidden Tax
Rising inequality isn’t new. The gap between rich and poor started growing before Ronald Reagan took office, and it continued to widen through the Clinton years. But what is happening under Bush is something entirely unprecedented: For the first time in our history, so much growth is being siphoned off to a small, wealthy minority that most Americans are failing to gain ground even during a time of economic growth — and they know it.
According to the federal Bureau of Labor Statistics, the hourly wage of the average American non-supervisory worker is actually lower, adjusted for inflation, than it was in 1970. Meanwhile, CEO pay has soared — from less than thirty times the average wage to almost 300 times the typical worker’s pay.
People today are working longer hours for less pay then were just twenty years ago, when adjusted for inflation.
Inflation is a hidden tax and part of the squeeze that the middle class is feeling.
People have got to understand that as the money sits in their pockets it is melting away due to inflation.
Since 2000 the dollar as lost 33% of purchasing power.
So, now it takes a $1.33 to buy what you use buy with a $1.00 in 2000.As your pay increased 33% since 2000?
If it is not your are falling behind.
A stronger more long term example is that in 1920 you could buy an ounce of gold for $20.00.That same ounce of gold today will cost you over $600.00 dollars.
That my friends is inflation.
Money is a commodity like anything else,the more of it in circulation, the less it is worth. The Federal Reserve as been cranking the printing presses hard for long time.
The idea of course is to suck the wealth out of you through inflation without you noticing.So, where do think the difference is going. Take a good guess!
It is course not in our pockets.
Hybridoma and Kathyodat–Your wisdom should be read and pondered by all Americans–corporations have become the mask of “respectability” used by those whose intent is to evade responsibiity for the consequences of their actions.
Criminal prosecution of officers and boards as well as class action civil suits against stock holders might just curb such urges on the part of those who are complicit with such crimes.
As it stands now, it is just too easy to pull together enough money for whatsoever enterprise you will and evade all responsibility for any mess you make by declaring bankruptcy.
I recommend to everyone the book Natural Capitalism, written by authors associated with the Rocky Mountain Institute. It offers a solution to the Moore’s Law paradox Arando describes.
Oh, and I understand that the American Enterprise Institute has issued a fatwa on David Cay Johnston. True?
arando:
Thanks for trying to answer my question. I agree that technology has and will continue to put people out of jobs for an unknown length of time. Some of them may even end up increasing the unemployment and poverty statistics in this country.
I think Rick March hit the nail on the head with the following stats: “According to the federal Bureau of Labor Statistics, the hourly wage of the average American non-supervisory worker is actually lower, adjusted for inflation, than it was in 1970. Meanwhile, CEO pay has soared — from less than thirty times the average wage to almost 300 times the typical worker’s pay.”
This explains the “income gap” in real terms. What are CEOs and Supervisors doing today that they weren’t doing 37 years ago to earn such obscene increases in pay compared to average workers?
Some will say they deserve this increase because they are earning more profits for their shareholders than the CEOs of thirty-somthing years ago. Indeed, they are earning more profits, but the question is: By what methods and at whose expense?
We only need to visit websites who research this qestion to obtain answers. Here’s one to begin your search: http://www.corporatecrimereporter.com/
Gail wonders:
This explains the “income gap” in real terms. What are CEOs and Supervisors doing today that they weren’t doing 37 years ago to earn such obscene increases in pay compared to average workers?
The correct answer is that they have larned to steal more from thier workers (many of whom are in outsourced countriex and living in near slave conditions)and customers because see, they don’t pass their lowered costs of production on to the customer in terms of price reductions–they just don’t raise the prices as fast.
History reveals the concentration of wealth and power at the end of the spectrum is not new. From the Dutch in the 17th century to the British in the early 20th century, the end of a vibrant middle class has inevitably lead to transitions of international economic leadership. The mega-multinational corporate officers will no doubt continue to expand their personal wealth when the era of US ecomomic dominance closes. The rest of us will be collateral damage. Given the plutocracy in DC, in which even the Supreme Court protects purchasing political influence under the guise of the First Amendment, the likelihood of populist ideals disrupting this bastardization of democracy is remote.
The king is dead. Long live the king…
Nothing transfers wealth from the poor to the rich faster or more effectively than the war in Iraq. Since Bush’s tax cuts it is the ninety per cent of us at the bottom who pay for the war and the corporate stockholders who profit from the war.
The war is less about oil than about class warfare. The burned, maimed bodies of poor Americans and Afghans are a distraction, the ultimate sick slight-of-hand.
I can’t believe we put up with this unless it is because our longer and longer work day for less and less money is making survival our only concern. How is trying to support a family on three minimum wage jobs different from slavery?
Some of us still believe if we just work hard enough we can be among the ten per cent [sweet sweet vision; foolish foolish dream]. Even if it were true who wants to live in such violence?
Poverty, hunger, and ignorance are forms of violence that more of us every day fall victim to. The war in Iraq is supposed to bring peace but peace for whom? Since the Gipper an honest national motto would be
“WAR IS PEACE FREEDOM IS SLAVERY IGNORANCE IS STRENGTH”.
In the 1950’s, corporate income tax paid 35% of federal tax revenue. Now, it’s down below 9%. Congress has given away, corporate tax break after tax break, republicans and democrats alike to the point that the whole idea of taxation on corporate profits is a joke. Meanwhile, foreign imports are not taxed at all. We need to switch to a Value-Added-Tax (VAT) like they use in Europe. It taxes foreign and domestic production the same, and it’s much harder for corporation to weasel out of.
Hi all,
Given that globalisation, multinational trade, tech innovations, etc seem to make it easier for corporations/CEOs/etc to give the rest of us the short end of the stick… and as claimed above only the very educated/intelligent ones will be able to take advantage of the advanced and well paid jobs:
What is your opinion about the fact that most US Universities provide free graduate level education to thousands of students from China and India say (mostly subsidised by USA taxpayers), which tomorrow will take the highly paid jobs, instead of our kids already under heavy loads of student financial “aid” ?
Well for one thing we say free trade, who ever can make stuff the cheapest. We have let the Chinese build up a trillion dollars of surplus. While at the same time our country has gone minus somewhere in the vacinity of 10 trillion. {might be a lot more by some estimates]
Now we throw that extra burden of debt on our workers and tell them they have to go compete with virtual slaves in many other countries. It’s a race to the bottom.
I question our leaders commitment to helping us compete. I believe they are actively in many cases trying to undermine it.
Apparently they figure the best way is to steal other countries resources.
The problem with that idea is that [they] seem to be the main benefactors of such policies. We pay for the wars and they get the spoils. Win or lose they just keep getting richer.