Watching CSPAN's Washington Journal this morning, my mind conjured up an image of a cartoon of the 1% saying to the rest of society something along the line of "give us what we want to grow the economy, and this time you-all will get 95% of the growth and we'll only take 5% for our cut of it." All I could picture was Lucy holding the football for Charlie Brown to kick it.
Recall that the Congressional Budget Office recently issued a report showing that while average household income (after taxes and transfers) grew by 62% from 1979 to 2007,
- the income of the lowest income 20% of us grew by 18%;
- the income for the middle 60% of us grew by almost 40%;
- the income for the next 19% of us grew by 65%; and
- the income for the top 1% of us grew by 275%.
In other words, over 80% -- probably close to 90% -- of us experienced below-average growth.
To quote directly from the study:
- The share of income received by the top 1% grew from about 8% in 1979 to over 17% in 2007.
- The share received by other households in the highest income quintile was fairly flat over the same period, edging up from 35% to 36%.
- In contrast, the share of after-tax income received by the 60% of the population in the three middle-income quintiles fell by 7 percentage points between 1979 and 2007, from 50% to 43% of total after-tax household income, and
- the share of after-tax income accruing to the lowest-income quintile decreased from 7% to 5%.
- By 2005, the share of total after-tax household income received by the 20% of the population with the highest income had exceeded the share received by the remaining 80%. In 2007, those shares were 53% and 47%, respectively.
- In 1979, the top 1% received about the same share of income as the lowest income quintile; by 2007, the top percentile received more than the lowest two income quintiles combined.
So what changes do we need to make in our structures so that the next 29 years don't continue the trend of the 29 years shown here? Readers of this blog will know that I regard the ideas of Henry George as our best textbook for correcting the situation. Check out "Social Problems" and "Progress and Poverty," from the links at http://www.wealthandwant.com./
I'd like to be able to calculate from these data what percentage of the growth went to each quantile, but haven't put it in a spreadsheet.
What the data hides is that the bottom portion of the top 1% is probably more like the next 19% than like the top portion of the top 1%. [See Box 2, page 8 of the CBO analysis, and compare the lines for the top 1% and the next 4%.]
Interesting bits and pieces:
- households in the lowest-income quintile received 54% of federal transfer payments in 1979 and 36% in 2007. [page 21]
- Over the 1979–2007 period, transfers ranged from 45% to 60% of market income for the elderly. [page 23]
- The overall average federal tax rate dropped from 22% in 1979 to 20% in 2007 (see Figure 17). The average tax rate declined in the early 1980s, then rose through much of the 1980s and 1990s. It peaked at 23% in 2000, and then fell sharply following the 2001 recession and tax legislation enacted in 2001 and 2003, reaching just under 20% in 2003, the lowest rate since 1979. By 2007, the overall rate had risen to just above 20%, a percentage point below the average for the 29-year period. [page 24]
- Average federal income tax rates in 2007 ranged from -5.6% for households in the lowest income quintile to 18.8% for the 1% of the population with the highest income (see the top panel of Figure 18). [page 25]
- In 2007, total federal tax rates ranged from under 5% of income for households in the bottom quintile to 14% for households in the middle quintiles to just under 30% for households in the highest income percentile (see the bottom panel of Figure 18). [page 29]
Assumptions of the study
- It is worth noting that these percentages include both the employer and employee portions of withholding taxes on wages.
- Households of various sizes are equivalized using the square root of the number of members of the household. Thus household income of $40,000 for a one-person household equates to incomes for these amounts for larger households
- 2-person: $56,600 ($40,000 divided by the square root of 2);
- 3-person: $69,300 ($40,000 divided by the square root of 3);
- 4-person: $80,000 ($40,000 divided by the square root of 4);
- 5-person: $89,400 ($40,000 divided by the square root of 5);
I have some difficulty seeing that that a 5-person family can have the same standard of living on $89,400 as the couple next door with $56,600 in income, but that is an assumption typical of income analyses. The first child "costs" $12,700; the second $10,700, the third, a mere $9,400! Amazing, particularly when one considers that each requires food, a place to sleep, and lot of other things that aren't free!
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