Income Gaps Between Very Rich and Everyone Else More Than Tripled In Last Three Decades, New Data Show
By Arloc Sherman and Chad StoneJune 25, 2010 Related Areas of Research · Poverty and Incomeo TrendsThe 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.
While the recession that began in December 2007 likely reduced the income of the wealthiest Americans substantially and may thereby shrink the income gap between rich and poor households, a similar development that occurred around the bursting of the dot.com bubble and the 2001 recession turned out to be just a speed bump. Incomes at the top more than made up the lost ground from 2003 to 2005.
The new CBO data — the most comprehensive data available on changes in incomes and taxes for different income groups — also show the following:
- 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 (see Figure 1).
- 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 $6,010.
- 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). [1]
Income Gains at Top Have Outpaced All Other Groups Since 1979
The gap in income between the wealthiest Americans and all others has grown strikingly in recent decades, the CBO data show. In 1979, when the data begin, the average after-tax incomes of the top 1 percent of households were 7.9 times higher than those of the middle fifth of households. By 2007, top incomes were 23.9 times higher than those of the middle fifth — a more than tripling of the income gap.
The gap between the top 1 percent and the poorest fifth of Americans widened even more sharply. In 1979, the incomes of the top 1 percent were 22.7 times higher than those of the bottom fifth. By 2007, top incomes were 74.6 times higher than those at the bottom — more than tripling the rich-poor gap in 28 years (see Figure 2).
The CBO data shown in Table 1 also show that between 1979 and 2007:
- The average after-tax income of the top 1 percent of the population nearly quadrupled, from $347,000 to over $1.3 million. As noted, this represented an increase of $973,100, or 281 percent, per household.
- By contrast, the average after-tax income of the middle fifth of the population rose from $44,100 in 1979 to $55,300 in 2007 — a relatively modest gain of $11,200 or 25 percent.
- The average after-tax income of the poorest fifth of the population rose from $15,300 to $17,700, an increase of $2,400 or 16 percent. [2]
The CBO figures show that the nation’s income has grown substantially since 1979; if this growth had been shared more broadly, most groups would have seen much larger gains. For the nation as a whole, 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).
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:
- The top 1 percent’s share of the nation’s total after-tax household income more than doubled, from 7.5 percent to 17.1 percent.
- The share of income going to the middle three-fifths (or 60 percent) of households shrank from 51.1 percent to 43.5 percent.
- The share going to the bottom fifth of households declined from 6.8 percent to 4.9 percent.
- The share going to the bottom four-fifths (80 percent) of the population declined from 58 percent to 48 percent.
In 2007, the top 1 percent received a larger share of the nation’s after-tax income than the middle 20 percent of the population. This represents a significant change from 1979, when the middle fifth received more than twice as much of the nation’s income as the top 1 percent (16.5 percent versus 7.5 percent). The CBO data only go back to 1979, but economists Thomas Piketty and Emmanuel Saez have used tax data to calculate the share of income going to wealthy Americans back to 1913. Taken together, the CBO data and the Piketty and Saez findings suggest greater income concentration at the top of the income scale than at any time since 1928. [3]Trend of Rising Inequality Continued in 2007
The new CBO data also show that income inequality widened significantly between 2006 and 2007. After-tax incomes rose faster among the top 1 percent of households than among any other income group, and more than twice as fast as among households in the middle fifth (see Table 2). As a result, the share of the nation’s overall after-tax income going to the top 1 percent rose from 16.3 percent in 2006 to 17.1 percent in 2007. This increase amounts to approximately $71 billion in additional income for the top 1 percent. [4]Recession Likely to Reduce Inequality, But Change May Only Be Temporary
The CBO data do not show the effect of the recession that began in December 2007. The recession is likely to lower incomes for all income groups, but if the previous recession is any guide,
incomes may fall most sharply for the wealthiest households, due in large part to the severe drop in the stock market.
In the recession of 2001, the bursting of the dot-com bubble reduced inequality sharply. Real after-tax incomes fell by 30 percent among the top 1 percent of households between 2000 and 2002, while remaining close to flat for the middle and bottom fifths of the population, according to CBO. As a result, while in 2000 the top 1 percent had incomes 20.6 times higher than households in the middle, by 2002 their incomes were “just” 14.3 times higher. Subsequently, however, as the economy recovered, this narrowing of the income gap evaporated. By 2007, the income of the top 1 percent was 24 times higher than those of households in the middle fifth (see Figure 2).
Not all recessions reduce inequality even temporarily, however. Inequality continued rising throughout the back-to-back recessions of the early 1980s, the CBO data show. The short- and long-term effects of the most recent recession will depend on the course of the stock market, trends in the labor market (including decisions about executive compensation packages, bonuses, and wages) and in the economy more broadly, and public policy choices.
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. The CBO data do not provide a direct measure of the impact of these tax policy changes because they also reflect the effects of changes in household incomes and other factors that influence tax payments. However, estimates by the Urban Institute-Brookings Institution Tax Policy Center that consider only the impact of the tax policy changes demonstrate that the tax cuts have widened income inequality. As a direct result of the tax cuts enacted since 2001, the Tax Policy Center found that in 2007: [5]- 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.
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The number of richest people increases
Yazar admin açık 2010-06-26 19:37:50
The number of richest people increases in 2009- The Economist
High-net-worth individuals
Jun 24th 2010
In 2009 the world was home to 10m people who had at least $1m to invest, according to Capgemini, a consulting firm, and Merrill Lynch, an investment bank. Between them, such people had a total of $39 trillion in investible assets. That is 16.3% higher than last year’s 8.6m, but still slightly lower than in 2007. America is home to 2.9m very wealthy people, over a quarter of the world’s total. Although it had only 127,000 high-net-worth individuals in 2009, India saw the numbers of such people grow by over 50% last year alone. Among the countries studied, the chances of running into a very wealthy person are highest in Switzerland, where 30 out of every 1,000 people make the cut.
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