A preliminary analysis of 2005 IRS data by two economics professors is reported by David Cay Johnston in the New York Times Business section Thursday. Prof. Emmanuel Saez, UC, Berkeley and Prof. Thomas Piketty of the Paris School of Economics, consider the growing disparities in American income “significant in terms of social and political stability.”
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, … 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.
So much for the trickle down hypothesis. It gets worse.
[Professor Saez] 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 comparison to the roaring twenties figures:
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.
Others have chimed in to interpret the data.
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.
Those cuts in the fringe benefits are despite the facts of business profits.
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 profits being aided and abetted by Government subsidies and tax cuts? Speaking of tax cuts. Greenstein has more to add to the picture.
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.
So for much of America, our income has not risen, our share of the tax burden has remained the same. The rich have enormously increased their income, their taxes have been cut in half because their share of the tax burden has increased. And now, for the bonus round.
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.
Would anyone else bet the possibility of slowing investments will take precedence over slowing the deficit, debt and the widening gap in American incomes?