Sunday, October 30, 2011

The Massive Increase in Economic Inequality in the United States Since 1979

Protestors participate in an Occupy Oakland rally Monday, Oct. 10, 2011, in Oakland, Calif. (AP Photo)

October 25, 2011

(CBS News) The Occupy Wall Street movement has, for the most part, been formed around the idea that wealth distribution in America is unfair, and that the economic system is skewed to reward the already wealthy with the highest gains. A new report from the Congressional Budget Office appears to have confirmed that.

Specifically, it has confirmed that the rich really are getting richer.

Between 1979 and 2007, the top 1 percent of Americans with the highest incomes have seen their incomes grow by an average of 275 percent, according to the CBO study (PDF).

In comparison, the 60 percent of Americans in the middle of the income scale saw their incomes increase by just 40 percent during the same time period, according to the study, which was based on a combination of IRS and Census data.

To put the growing disparity of income distribution in a slightly different perspective: Between 2005 and 2007, the top one-fifth of earners in America earned more money than the bottom fourth-fifths.

The report declines to offer exact reasons for the growing income disparity, but acknowledges they are likely to include: Growing "superstar" salaries for actors, athletes and musicians; Changes in executive compensation; and the growth of firms in general.

Reports from the non-partisan CBO tend to get trumpeted by politicians who are supported by their conclusions, and dismissed by those who aren't, in a trend that crosses party lines.

The most relevant part of the report to the ongoing debt battle in Washington will surely by the argument, pointed out by The New York Times, that the government has done less and less to involve itself in redistributing the nation's wealth since 1979. That said, the report was careful not to draw a direct line between the growing income disparity and the lower rate of government wealth distribution.

"The equalizing effect of federal taxes was smaller" in 2007 than in 1979, as "the composition of federal revenues shifted away from progressive income taxes to less-progressive payroll taxes," according to an excerpt from the CBO report in the Times.



After-tax income for the highest-income households grew more than it did for any other group. (After-tax income is income after federal taxes have been deducted and government transfers—which are payments to people through such programs as Social Security and Unemployment Insurance—have been added.)

CBO finds that, between 1979 and 2007, income grew by:

275 percent for the top 1 percent of households,
65 percent for the next 19 percent,
Just under 40 percent for the next 60 percent, and
18 percent for the bottom 20 percent.

The share of income going to higher-income households rose, while the share going to lower-income households fell.

The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income.

Most of that growth went to the top 1 percent of the population.

All other groups saw their shares decline by 2 to 3 percentage points.


Shifts in the distribution of market income underlie most of the changes in the distribution of after-tax income. (Market income—or income before taxes and transfers—includes labor income, business income, capital income, capital gains, and income from other sources such as pensions.)

Each source of market income was less evenly distributed in 2007 than in 1979.
More concentrated sources of income (such as business income and capital gains) grew faster than less concentrated sources (such as labor income).


Government transfers and federal taxes both help to even out the income distribution. Transfers boost income the most for lower-income households, while taxes claim a larger share of income as people's income rises.

In 2007, federal taxes and transfers reduced the dispersion of income by 20 percent, but that equalizing effect was larger in 1979.

The share of transfer payments to the lowest-income households declined.
The overall average federal tax rate fell.

New CBO Report Reaffirms the Growth of Income Inequality in America by PHIL SCARR
OCTOBER 25, 2011

We have become a class-based society

The Congressional Budget Office just released a report which shows yet again the growth of inequality in America. We have become a class-based society.

For the 1 percent of the population with the highest income, average real after-tax household income grew by 275 percent between 1979 and 2007 (see Summary Figure 1).

For others in the 20 percent of the population with the highest income (those in the 81st through 99th percentiles), average real after-tax household income grew by 65 percent over that period, much faster than it did for the remaining 80 percent of the population, but not nearly as fast as for the top 1 percent.

For the 60 percent of the population in the middle of the income scale (the 21st through 80th percentiles), the growth in average real after-tax household income was just under 40 percent.

For the 20 percent of the population with the lowest income, average real after-tax household income was about 18 percent higher in 2007 than it had been in 1979.

As a result of that uneven income growth, the distribution of after-tax household income in the United States was substantially more unequal in 2007 than in 1979: The share of income accruing to higher-income households increased, whereas the share accruing to other households declined. In fact, between 2005 and 2007, the after-tax income received by the 20 percent of the population with the highest income exceeded the aftertax income of the remaining 80 percent.

What’s really depressing about this is that American’s don’t understand how unequal America has become. A study by Michael Norton surveyed Americans on the question of what they think inequality is and what they think it should be. His results were startling.

Notice the variation between Ideal and Actual. And the startling line that shows how deluded Americans are as to the real distribution of wealth in the nation.

I challenge anyone to argue that this level of inequality is a good thing for America.