By David Cay Johnston

Income Inequality: One Inch To Five Miles

March 5, 2013 12:00 am Category: Economy, Memo Pad 39 Comments A+ / A-
Income Inequality: One Inch To Five Miles

Republished with permission from Tax Analysts

David Cay Johnston received the Pulitzer Prize for his coverage of tax policy while at The New York Times. He now teaches at Syracuse University College of Law and is the author of three books about taxes — Free Lunch, Perfectly Legal, and The Fine Print.

* * * * *

Incomes and tax revenues have grown from 2009 to 2011 as the economy recovered, but an astonishing 149 percent of the increased income went to the top 10 percent of earners.

If you wonder how that can happen, the answer is simple: Incomes fell for the bottom 90 percent.

The rich really are getting richer while the vast majority is getting poorer. These facts should be at the center of any debate about changes in tax law and spending.

The income growth and shrinkage figures come from analysis of the latest IRS data by economists Emmanuel Saez and Thomas Piketty, who have won acclaim for their studies of worldwide income patterns over the last century.

In 2011, entry into the top 10 percent, where all the gains took place, required an adjusted gross income of at least $110,651. The top 1 percent started at $366,623.

The top 1 percent enjoyed 81 percent of all the increased income since 2009. Just over half of the gains went to the top one-tenth of 1 percent, and 39 percent of the gains went to the top 1 percent of the top 1 percent.

Ponder that last fact for a moment — the top 1 percent of the top 1 percent, those making at least $7.97 million in 2011, enjoyed 39 percent of all the income gains in America. In a nation of 158.4 million households, just 15,837 of them received 39 cents out of every dollar of increased income.

That extreme concentration, however, is far from the most jaw-dropping figure that can be distilled from the new Saez-Piketty analysis. That requires a long-term comparison of those at or near the top with the bottom 90 percent.

In 2011 the average AGI of the vast majority fell to $30,437 per taxpayer, its lowest level since 1966 when measured in 2011 dollars. The vast majority averaged a mere $59 more in 2011 than in 1966. For the top 10 percent, by the same measures, average income rose by $116,071 to $254,864, an increase of 84 percent over 1966.

Plot those numbers on a chart, with one inch for $59, and the top 10 percent’s line would extend more than 163 feet.

Now compare the vast majority’s $59 with the top 1 percent, and that line extends for 884 feet. The top 1 percent of the top 1 percent, whose 2011 average income of $23.7 million was $18.4 million more per taxpayer than in 1966, would require a line nearly five miles long.

That disparity in income growth rates comes as the total federal tax burdens on those at the top have been slashed, compared with 1966, especially for the long-term capital gains that account for about a third of total income at the very top.

This $59 increase for the vast majority covers a time longer than most people work. Back in 1966, the first Star Trek episode aired and Barack Obama started kindergarten.

Skyrocketing growth at the top and, in recent years, plummeting income for the vast majority caused a major re-slicing of the national income pie. That re-slicing results in large part from tax, employment, and other rule changes that began with President Reagan and intensified under President George W. Bush. The situation changed slightly this year under President Obama, but the rules allow the rich to make their fortunes grow like a giant snowball rolling down a hill.

Candidate Bush said his tax cuts would make everyone prosper. But the real average pretax income of the bottom 90 percent in 2011 was $5,340 less than in 2000, a decline of more than $100 per week, or 15 percent, in pretax income. The top 1 percent of the top 1 percent saw their incomes plummet even more after the Bush tax cuts were enacted, down $7.5 million or 24 percent in real terms in 2011 compared with 2000.

Income Growth, 1966 to 2011

 

    In 2011 the average income of the bottom 90 percent was just $59 more than in 1966 in real terms, depicted here as one inch. This graphic shows the comparable income growth of those within the top 10 percent.

Source: Author’s calculations from analysis of IRS data by Saez and Piketty.

It has become widely understood that we cannot balance our federal budget by raising taxes only on those at the top, because there is not enough income there, even if we taxed away everything the top makes. What is equally true is that we cannot increase tax revenue if the incomes of the vast majority keep falling. That, however, has yet to become part of the debate on how to finance government.

Maybe this debate can change if we understand how the national income pie is being sliced now and how it was in more prosperous times.

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Income Inequality: One Inch To Five Miles Reviewed by on . Republished with permission from Tax Analysts David Cay Johnston received the Pulitzer Prize for his coverage of tax policy while at The New York Times. He now Republished with permission from Tax Analysts David Cay Johnston received the Pulitzer Prize for his coverage of tax policy while at The New York Times. He now Rating:

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Comments

  • nobsartist

    It sure does take Americans a long time to figure out when they have been screwed.

    The assholes in washington have gamed the system and changed the rules to benifiet corporations and politicians.

    Fair taxation? forgetaboutit.

    Corporations treated like criminals for destroying the environment? forgetaboutit

    washington helping Americans? forgetaboutit.

    Obama proved this when he signed the bush tax cuts that he benifieted from.

    Like Stevie Wonder says…”You havent done nothin”.

    • http://profile.yahoo.com/IQNV5NV2RS7A7XMJKYHLRBZZ5A Betta

      “It sure does take Americans a long time to figure out when they have been screwed.”

      You’re absolutely right about that. The koolaid that freebie getters drink is sweet, but very toxic. They like their free stuff so much they don’t care who else it hurts. But oh, just wait till they see and feel the betrayal their “messiah” has in store for them next. They can blame themselves for it, but they will find someone else to blame instead just like their leader does on a daily basis.

      • nobsartist

        And who gets the most free stuff? Millionaires, corporations and politicians.

        The amount of tax dollars spent on regular folks is a pittance compared to the welfare received by the likes of the half-wits that republiCONs run for president.

        Just look at how much money the bush crime family takes in and Obama did not even think that was worth an investigation.

        You morons seem to forget how much little things like the bush tax cuts, extended by Obama because he needed a few extra bucks costs the average tax payer. You morons seem to think that the infrastructure just magically appeared one day and
        that it will take care of itself.

        Afterall, the bush tax cuts eliminated all road maintenance and any type of taxpayer support all so millionaires or those making over $250,000.00 would only have to pay $5000.00 in taxes between the income of $250,000 and 1 Million.

        Only $5000 on $750,000 in income or about the same as a person making $30,000 pays yearly.

        Did Obama explain that clearly ?

        $5000.00

  • Melda Page

    I wish I thought I would still be alive to see the bloody revolution that is bound to come.

    • lana ward

      The rich are getting richer because those making $30,ooo a year are paying more taxes than those making $500,000 because of the deal O pushed for after the fiscal cliff debacle!! He promised only 2% would see a tax hike but–77.1 percent of all tax payers are paying higher taxes! He is destroying the middle class. He wants makers and everyone else to have to depend on Gov in order to make ends barely meet!!! Rich-poor, no middle class!!

      • http://pulse.yahoo.com/_QJNS5CZF7NYTG6ETOXKBQTJDEA romeo

        Dear Lana,
        Just imagine what would have happened if Mitt Romney would’ve become president. What Ronald Reagan did (trickle down economics) would be nothing compared to the GOP’s plans for the middle class. It really would be a two-class society. the government, Lana, works on the base of the decisions of Congress, this is not a dictatorship.

        • lana ward

          America would be turning around if Mitt Romney was President. What he has done for himself should tell you he’s a GOOD businessman. He loves America and wants what is best for her. O hates America and we’re just sinking deeper with his leadership!

          • http://www.facebook.com/people/Vernon-Sukumu/100000963359102 Vernon Sukumu

            He loves American, that is why he put his money in those foreign banks and out sourced as many jobs as he could. He supported the war in Vietnam, but differed, didn’t serve a day. THAT WHAT YOU MIGHT CALL REAL LOVE.

        • lana ward

          You watch and see- no middle class with Omuslim as leader

      • nobsartist

        Hey dummy, when will you quit blaming Democrats for the disaster republiCONs have created?

        Then again, they couldnt have done it without Biden and Shumer so….

        • lana ward

          The dems own it. It’s theirs. Obama promised only the top 2% would see taxes go up

  • lana ward

    The rich are getting richer because those making $30,000 a year are paying more in taxes than those making $500,000 because of the deal O pushed for after the fiscal cliff debacle. HE PROMISED only 2% would see a tax hike but–77.1 percent of all tax payers are seeing higher taxes!!!

    • FindingTheTruty

      Huh? How can you possibly blame this on Obama. You must be a die hard Republican to believe this nonsense.

      • tobyspeeks

        Leave the troll alone!

      • lana ward

        It’s true!! You are a die hard Dem to not believe it. Ask people if they’re paying more in taxes

        • FindingTheTruty

          They are finally paying the social security taxes which were temporarily dropped. The actual tax increase was for people making over $400K. There was never any intent to permanenty drop social security taxes.

        • http://profile.yahoo.com/47UD7UZ7UQ5IK3EO3BBZAS63IM Eduardo

          lana ward: Don’t waste your time with these IDIOTS who voted for Obummer, … TWICE !!
          To them, Obummer can do no wrong. Again, don’t waste your time.

      • lana ward

        Go to Youtube. Type in, ” The Democrats caused the financial crisis.” You will see Andrew Cuomo speaking and in the end you will see a young Acorn Attorney Barack Obama suing the banks to make subprime loans

    • cpbis

      What????? Can you not read or understand? No wonder we have problems when people can’t even understand what is happening! Did you get your information from Rush Limbaugh? Obama is to blame????? Are you of this world?

      • lana ward

        It’s true, he’s killing the middle class.And, go to Youtube. Type in ” The Democrats caused the financial crisis” You will see Andrew Cuomo speaking and in the end you will see a young Acorn Attorney, Barack Obama suing the banks to make subprime loans

      • http://www.facebook.com/people/Jim-Myers/100001512942781 Jim Myers

        cpbis –

        I wrote the following a few days ago. I think it is time to take another look.

        I think I finally figured something out about lana ward. Lana ward is actually a Nom De Plume for Karl Rove.

        And, why do I think that?

        BECAUSE NO SANE PERSON COULD POSSIBLY BELIEVE IN ALL THE FECAL MATTER THAT LANA DOES!

        The only people who actually believe all this crap are Ann Coulter, Glenn Beck, Rush Limbaugh, etc.
        Most of them are strictly ideologues. Too ingrained in the culture of the moneyed “conservative” movement to be able to even think like normal people.

        Karl, on the other hand, is a cold, calculating, power thirsty, money hungry, delusional psychopath, willing to screw the moneyed crowd as well as the poor and middle class in order to get what he wants.

        What better way for him to spread his filth than to create an idiotic moron who can incite the opposition in heated rhetoric?

        I rest my case.

  • http://pulse.yahoo.com/_QJNS5CZF7NYTG6ETOXKBQTJDEA romeo

    This article shows the real nature of the beast. The accumulation of money in the hands of the owners of the means of production. In this case, the corporations that moved the manufacturing over seas, and the investors whose capital multiplies geometrically. This is Capitalism. It has not changed since the very beginning of the industrial revolution which developed on the base of who has something to sell. Most people have only “labor force”, and a few, the ones with the money, decide what to do with it. These are the times we are living in, ” the ones that have and the ones that have not”. This is not Obama’s fault, it is Congress’ fault, and Congress is a majority republican. Moreover, the GOP sworn to go against anything Obama would propose, and to get rid of him no matter the cost. Do you know who betrayed the middle class? Ronald Reagan, and Daddy and Baby Bush.

  • FindingTheTruty

    I hope people take the time to study the fall of Rome which resulted in a concentration of wealth to a small number of people while the middle class collapsed. It could no longer support it’s military or civil administration and as a result was overrun. The same concept has occurred may times throughout history (Greek antiquity, Constantinople, Europes fudal system, etc.). People’s greed has always caused the demise and this will be no different. The Republican Party represents the rich but has somehow deceived the poor / middle class into beliving it cares about them. In the south, the Republican Party rules – as does the civil war. Yet, Lincoln was a Republican – makes no sense. Much of the south has some of the worst schools (another coorelation to failing historic powers), poorest employment records, and highest levels of illiteracy – yet they vote Republican.

    I do not have much hope for the future of this country. Washington has become inept. They cannot even use the tax system to help the economy anymore (take a look athe WSJ to see what China is doing). I fear for the grandchildren in this country and the future they have.

    • sigrid28

      As you say, “makes no sense.” Sometimes it is useful to try to understand social injustice by looking at just one factor at a time, in this case, income disparity.

      What David Cay Johnston writes DOES make sense, if we would only stick to the facts he sets forth in the graph and his interpretation of them. Income inequality HAS increased over the last fifty years: it’s not just a vague sense we have of it. Facts show it really has occurred, big time. Johnston shows how tax policy has helped the 1% increase their “wages” substantially, but he does not give an equally clear explanation for why wages have fallen so dramatically for the 99%.

      Progressives who read an article like Johnston’s come away with questions not talking points: Can it be that Republican tax policy is mostly responsible for income disparity in our country? How would proposed legislation to close tax loopholes and increase the minimum wage address the problem of growing income disparity in this country? Why isn’t there more urgency in Congress to fix the problem?

    • plc97477

      the red states also use the most welfare dollars

  • jnsgraphic

    Our government continues to spend more on corporate welfare subsidies than social welfare programs… Boehner and the GOP ‘House of Corruption’ refuse to close these ‘loopholes’ in protection of the rich and their ‘corporate backers’ financing them. It’s all about Money, Power & Greed in support of their pro-corporate agenda over the publics best interests.

    • RobertCHastings

      Amazing how the party that claims to be based upon good, Christian, family values, is anything but. Wealth is no sin, but greed is, and so is hypocrisy. The article states that the top 10% are the ones who have benefited over the past 47 years, while the remaining 90% have lost ground. Has it ever occurred to the somewhat less than half of that 90% who vote Republican that they are among the ones getting shafted by the greed of the wealthy? I guess that explains the gross stupidity of the vast majority of Republicans.

      • jnsgraphic

        The poor/middle class that vote Republican are deceived by the Republican Party believing that they will care for them because they share the same ‘values’ when the Party only cares about getting their ‘vote’ in order to benefit the rich and are voting ‘against’ their best interest… the poor/middle class (women, gays, seniors and immigrants) voting Republican is like a chicken voting for Colonel Sanders. The only people who benefit by voting REPUBLICAN are the rich and powerful.

  • m8lsem

    Libertarians wish to free us to march forward to the economy of the latter half of the 1800’s. Robber Barons, unbelievable richer than the workers, own everything worth owning; workers include ages 10 to 12 and up, all those children able to work having to work so that their family can eat. Smokestacks belching soot into the grimy air, and factory effluent polluting every river within reach with industrial wastewater and sanitary sewer outflow. Freedom to recreate the situation that gave rise to Marxism. Freedom to await a new Teddy Roosevelt to begin to introduce sanity.
    Libertarians are naive beyond belief if they think Capitalism left to run on its own chosen path will be altruistic, public spirited, and voluntarily control its externalities. Libertarians are cynical beyond any shred of human decency if they are aware of racing forward to 1880, but don’t care. And Libertarians who remain devoted to their cause without any such analyses are practicing a religion entirely alienated from the entire genuinely Judeo-Christian tradition.

  • http://www.facebook.com/michael.shaver.14 Michael Shaver

    1960 top rate was 91.5% at $400k. Today the commoner top rate is 39.6%, while the top rate is 20%. Clear violation of Amendment 16 “The higher the earnings, the higher the percentage collected from them.

    Honorable Senator/Representative/POTUS,
    Stop Sequestration.

    This is a mandate for a Federal income tax system that funds Federal, Health (Obama-Care and Medicare) and Social security. One Margin level will yield the $3.8T revenue: %0-$20k 0% tax rate, $20k upwards 35% flat rate, income bundled and taxed in summation form, couples freely share, no business tax and no exemptions. The rate is less than 2011 single standard at under $200K. The Federal Reserve sets the rates, mandated to maintaining monetary value and supply.

    Thank you for your immediate attention,

    Your constituent [Zip Code]

  • CPAinNewYork

    This article renders a very valuable service: it brings the problem to the fore.

    The problem is that we are involved in class warfare, which can only end in revolution, because the Congress and the state and local legislatures will do nothing to help the Middle and Lowest classes. To the contrary, they are and will continue to do everything in their power to further enrich the already rich at the expense of the Middle and Lowest classes.

    I believe that this can end in only one way: revolution.

    • nobsartist

      Thanks CPA.

      I and Thomas Jefferson both agree.

      It is time to get rid of everyone involved in this criminal exercise.

      It is time to put our government on trial. It is time to reject the Supreme Court and all branches of the government because they have subverted the Constitution for personal gain

      High treason.

      Voting just does not work and these criminals are all bank robbers.

  • CPAinNewYork

    Lana:

    Mittens and his class exacerbated this problem, which originated with Reagan.

  • http://profile.yahoo.com/IQNV5NV2RS7A7XMJKYHLRBZZ5A Betta

    Obama OWNS the sequestration. It was HIS idea! Our national debt has increased $6 TRILLION dollars under this illegal president. You guys then have the nerve to blame someone else????? This is Obama’s game plan and you all are falling for it.

    Have you read where Facebook made $1.1 BILLION dollars and paid NO TAXES on this money? And it is all legal.

    Meanwhile, your “messiah” king obama raised payroll taxes on the struggling middle class (after promising not to…LIAR) who are now taking home less money in their paychecks than last year. I guess that’s somebody else’s fault too? Can’t make this stuff up.

    Stop blaming others for what your illegal alien, guilty of multiple felonies president in the white house does. When will you guys wake the hell up?

    Oh, and by the way, our economy has never recovered, contrary to what this article tries to make you believe. Things will get worse. Much, much worse. You’ve seen nothing yet. Hundreds of thousands of people are about to lose their jobs. Happy about that?

    Look out for obama’s next betrayal of his sheeple. Medicare checks will be cut as well as your ability to get decent healthcare. All because you guys refuse to do your own research and due diligence. Instead you are under the spell of the talking heads you listen to on TV instead of searching for the truth for yourselves.

    • nobsartist

      Illegal? the only illegal president was the awol coke head tha lied us into two wars, was convicted of war crimes and tried to bankrupt our country.

      You should shut up because you voted for the felon twice.

    • karinursula

      You really can’t be this stupid, can you?

      • english_teacher

        Yes, she can.

  • Lovefacts

    I know the right wing doesn’t like or trust the UN, but years ago they created a chart based upon history of when the revolution or uprisings due to economic instability caused by the disparity between the rich and the poor/middle class takes place. This chart shows we’ve inched past that mark. So far the US has weathered this growing storm. How much longer though is the question.

    IMO, that’s why there’s so much open anger and roiling rage just beneath the surface of our country. Americans value their freedom and their ability to move up the economic ladder. Both of these have been major reasons people worldwide want to move here. However, as this inequality increases so too does economic and political instability.

    If those in power don’t focus on this, we “may” be heading toward riots, which will succeed in unraveling our economy and government as none of our enemies could have. And it will be self-inflected.

  • montanabill

    Indisputable information…but Mr. Johnson left out the most important part of his report: why is it happening? Just one small correction, his implication is that the ‘national income pie’ is a fixed size. It is not. It can shrink and grow. Simply because one segment grows, does not imply that other segments must shrink. In fact, a growing economy would change the pie slices easily. So the key question is, why isn’t the economy growing? We have done all the left’s prescribed answers. We have increased government spending. We have raised taxes on the rich. We have magnificently increased regulations to create a ‘level playing field’. We ought to be in a job creation utopia. If you don’t see a job creation, economy booming situation, just maybe the premise is wrong.

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