According to the Center on Budget Policy Priorities:
Average pre-tax incomes in 2006 jumped by about $60,000 (5.8 percent) for the top 1 percent of households, but just $430 (1.4 percent) for the bottom 90 percent, after adjusting for inflation, according to a new update in the groundbreaking series on income inequality by economists Thomas Piketty and Emmanuel Saez. Their analysis of newly released IRS data shows that in 2006, the shares of the nation’s income flowing to the top 1 percent and top 0.1 percent of households were higher than in any year since 1928.Note that the latest data available is from 2006.
Notice the point (in the above chart) at which the top 1% began to earn a greater share of the total pie for the first time after the Great Depression... the early 1980's. Know what else occurred in the early 1980's? Financial professionals began to earn a SIZABLE relative share of national income while all other wages were stagnant.
The gains for the richest took place amid a booming economy, in which hedge funds and private equity firms blossomed and the subprime lending machine went into high gear.
In hindsight, it is not surprising to me that this level of income concentration was last seen right before the Great Depression (I assume financial professionals had an outsized share of income then as well). And even though much of this wealth was just saved by the trillions of taxpayer dollars used to keep the financial machine going, the 1-percenters are protecting this wealth at all costs. Truthdig details:
But what really makes the ultrawealthy so fortunate, what truly separates this moment from a run-of-the-mill Gilded Age, is the unprecedented protection the 1-percenters have bought for themselves on the most pressing issues.
With 22,000 Americans dying each year because they lack health insurance, Congress is considering universal health care legislation financed by a surcharge on income above $280,000—that is, a levy almost exclusively on 1-percenters. This surtax would graze just 5 percent of small businesses and would recoup only part of the $700 billion the 1-percenters received from the Bush tax cuts. In fact, it is so minuscule, those making $1 million annually would pay just $9,000 more in taxes every year—or nine-tenths of 1 percent of their 12-month haul.
Nonetheless, the 1-percenters have deployed an army to destroy the initiative before it makes progress.
While a lot of progress is needed, the bigger question is whether national healthcare is just another form of redistribution of wealth or do wealthy individuals owe it to society for all they have extracted from the system? Obama seems to think the latter (back to Truthdig):
For his part, Obama has responded with characteristic coolness—and a powerful counterstrike. “No, it’s not punishing the rich,” he said. “If I can afford to do a little bit more so that a whole bunch of families out there have a little more security, when I already have security, that’s part of being a community.”I agree...
If any volley can thwart this latest attack of the 1-percenters, it is that simple idea.
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10 comments:
But if it was all a bubble, then all the wealth will evaporate and there's nothing to tax...which means it ends up falling on everyone else. $700 billion in Bush tax cuts versus how many trillions in wealth lost?
And aside from a financial bubble, there were big tax cuts in the 1980s and wealthy people stopped sheltering their income. As they re-shelter income, along with middle class people getting nervous, the government deficits will rise.
The first poster makes some great points. But the truth is that all taxes fall on everyone in some way or another.
If you look at Obama's proposals, there is no doubt that he will let the Bush tax cuts expire. This effectively increases the marginal tax rate for the "rich" by 4.6% (not to mention that it will increase taxes for all tax classes). Obama is pushing for a health care proposal that seeks an additional tax on the "rich" (and businesses). My state, California, not only has a progressive state income tax, but also puts an additional 1% tax on the "rich" to fund health services.
The question is: Where does it stop? The top 1% pays more taxes than the bottom 90%. And the "rich" pay the highest percentage of their income in taxes.
While I fully agree that being in a community means helping those in need, the idea that the US government can tax and redistribute the nation into prosperity is absurd.
Perhaps I have misinterpreted what Jake was agreeing with in his final comment, but I am quite disappointed. While I believe that charitable giving is something that we should all do and should be admired, Obama is essentially saying that charitable giving should be enforced by government.
the system currently in place was created by the elite and benefits the elite. to make that system sustainable, we need a mechanism paid for by those that benefit from the system, to allow others the same opportunity to succeed in it.
one way is to tax those that benefit from the system (if anyone says the system benefits ALL the same, i will be the first to say bullshit).
i personally benefit from the system in that i received a better than average education (because i was born to a middle class family at a time when that didn't mean i was disadvantaged) and parlayed that into a job in finance.
just because i was born into that family and have a job in finance doesn't mean i should make multiples of the average family. that system is unstable. the only way to make it stable is to provide an opportunity for success to all those out there, not just those born into wealth or with a finance degree.
one such opportunity that can be provided from the wealthy to the poor is the ability to 'not die' from a disease that can be easily treated if you have medical coverage.
Jake,
Much of the recent wealth garnered by the finance industry as well as asset holders since 1970 is what I term "inflation gathering".
Since 1970, annualized nominal GDP growth has been ~ 7%, while annualized CPI inflation has been ~ 4.5%. In other words about 65% of "growth" is inflation (not earned imo).
And to add insult to injury, CONgress increased all manners of taxes on wages and CPI goods while decreasing taxes on asset gains such as stocks and real estate which gather inflation tax deferred.
Why did I choose 1970? That's just before we abandoned the gold standard and officially adopted a policy of positive inflation.
The middle class and labor in general simply can't keep up. Yet Bernanke still claims we have to save wall st. in order to save main st. I just don't see it that way. I'd argue we have to further decimate the middle class in order to save wall st.
I'm really struggling with the treasury/fed's logic too. In short, the government is gathering taxpayer wealth and handing it to finance so that finance can re-lend the same money back to the taxpayer at a higher interest rate. That process may save the system, but no way will it benefit the majority.
mab- thanks for the point on inflation and the taxation policy.
Jake,
Two more points.
One, your graph showing financial wage gains vs. all private wage declines would look even worse if the financial gains were stripped out of the private data.
Two, medical costs are underweighted in the CPI imo (~6.4%).
i know (re: including financial wages). not sure exactly how to strip it out as i don't know the relative weighting throughout that time frame
It is funny that Barack speaks of how we should be so generous while he is not himself!
It has been documented that his charatable giving is far less than average for his income and he has so little compassion that he didn't even send $100 to his direct blood relatives overseas that make $10/month on their own.
With so many important issues to deal with in the world, it's hard to understand how this proposed tax increase on multi-millionaires in the US is getting so much press. Wouldn't this be one of the LEAST important causes worth fighting for (making sure multi-millionaires don't pay too much tax)?
Great post jake I agree with everything -
Rob, I am too busy trying to become rich myself to confirm this but I am pretty sure the effective tax rates the top .1% pay are actually much lower that that of the median household.
The top .1% use trusts, off shore accounts and other mechanisms to minimize their tax rates (though based on your tone I suspect you are familiar with these).
In addition, anyone working in PE pay capital gains taxes on income rather than income tax so they too pay a lower tax rate (and may PE partners are in the top .1% of earners).
Also don't forget the reason the top 1% pay more taxes than the bottom 90 - because they make more!
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