[aceriscoolon]

Emmanuel Saez, professor of Economics, University of California Berkley, has updated (through 2007) his study of income and wealth distribution in the United States.

His results show that income inequality is at record levels.





Share of Income Going To Top 10%






From The Business Insider: Professor Saez's numbers go through 2007. Judging from what happened after the last recession, income disparity will likely ease in 2008 and 2009 as the richest 10% of Americans get clobbered by stock and house wealth destruction.

Excluding the temporary effect of the recession, however, Professor Saez believes that the trend toward greater inequality is likely to continue unless the government implements radical policy changes--such as those that developed during the Great Depression. The Great Depression changes, it should be noted, reduced income disparity for nearly 50 years, until it began climbing again during the Reagan years.
Emmanuel Saez study here.

[DownloadMan]

Wednesday, August 12, 2009
Mind the Gap
What the right wing really thinks about inequality.
Jonathan Chait, The New Republic

Should we care about economic inequality? That question is the subtext for most debates in American politics. It just remains below the surface because the party that thinks we shouldn't care about inequality--I'll give you one guess--has an endless string of obfuscations ("death tax," "small business," "tollgate to the middle class") to avoid admitting that it doesn't care about inequality.

There are, however, some real reasons not to care about income inequality, and right-wingers who don't have to run for public office are happy to admit it. A new paper by the Cato Institute's Will Wilkinson, which compiles all the reasons why we shouldn't worry our pretty little heads about inequality, has drawn a lot of attention. It's a usefully honest and relatively persuasive iteration of the belief system that undergirds right-wing thought.

Alas, it still isn't very persuasive. Wilkinson begins by pointing out that, while the gap between how much the rich and the non-rich earn has exploded, the gap between how much the rich and the non-rich consume has remained fairly stable. And that's true. But Wilkinson misunderstands the implications of this fact. "Suppose you made a million dollars last year and put all but $50,000 of it in a shoebox," he writes. (He must have enormous feet.) "Now imagine you lose the box. What good did the $950,000 do you?"

Wilkinson's point--money only has value if you eventually spend it--may be true. Yet most rich people don't put their money in shoeboxes. They invest it so they, their children, or young trophy wives can one day spend even more of it. And, indeed, the gap in wealth (how much money you have) has grown even faster than the gap in income. Meanwhile, the middle class has tried to keep pace with the rich by spending beyond its means, sending average household debt skyrocketing. Tell me why this should make us feel better about inequality?

Wilkinson's most interesting argument holds that material inequality between the rich and the non-rich lags behind the wealth and income gaps. For one thing, he argues that the luxury goods rich people own offer only marginal improvement over the cheap stuff that poor people own. For instance, he compares the luxurious Sub-Zero PRO 48 refrigerator to a standard IKEA fridge. Despite the vast difference in cost ($11,000 vs. $350), he writes, "The lived difference ... is rather smaller than that between having fresh meat and milk and having none." He also notes that rich people have used some of their increased income merely bidding up the price of positional goods, like fancy real estate or elite college tuition, forcing them to buy the same stuff at higher prices. Wilkinson thinks this goes to show that there's "an often narrowing range of experience" between being rich and being poor, so inequality isn't that big a deal.

In fact, Wilkinson is inadvertently bolstering the strongest liberal argument against inequality: it's inefficient. In case you're unfamiliar with this argument--as Wilkinson seems to be; he doesn't rebut or even mention it anywhere in his paper--it runs like this: Taking money from the rich and giving it to the poor helps the latter more than it hurts the former (at least until you create serious work-incentive effects, a point which most liberals think we're not close to). Wilkinson is saying the rich are getting little (in the case of luxury goods like refrigerators) or zero (in the case of real estate and higher tuition) actual benefit from their rising incomes. So why not take some of that income away and use it to buy extremely useful but currently unaffordable things for the non-rich, like, oh, basic medical care?

One liberal complaint about inequality holds that it increases the political influence of the rich, thereby locking in even more inequality. Wilkinson scoffs at this prospect, pointing to rich voters' support for Barack Obama over John McCain. Oddly, Wilkinson confines his analysis to campaigning and pays no attention to governing. While it's true that many rich people used their money to help bring about Democratic control of Washington, every day brings a new example of the rich using their money to ensure that Democrats pose the least possible harm to their interests. Democrats in Congress have abandoned Obama's sensible call to limit deductions for the top bracket, backed away from an upper-income surtax to pay for health care despite favorable polls, shot down bank nationalization, and on and on.

The deeper problem with Wilkinson's argument is that it assumes the natural correctness of all market-based outcomes. This is a premise you either take on faith or don't, and which undergirds most of his argument. Wilkinson assumes that inequalities arising from the market are inherently fair. Therefore, he asserts that just about the only unjust forms of economic inequality are those that spring from non-market circumstances: "[I]t's not enough to identify a mechanism of rising inequality. An additional argument is required to show that there is some kind of injustice involved."

If such injustices persist, he further argues, it's usually because the American people like it that way. Wilkinson recognizes that some liberals blame "wealthy elites," not public opinion, for the persistence of injustice. But he dismisses this complaint as a "'false consciousness'" argument by liberals "frustrated to find that [their] convictions are in the minority." So we should stop whining. Yet, later on in the same paper, Wilkinson blames the state of education on teachers' unions, and hawkish foreign policy on "special interests that stand to benefit from war." Wait, what about that false-consciousness business? Apparently, it's fair to complain about special interests when they subvert the libertarian agenda but not otherwise.

Wilkinson concludes by asserting that people should only care about their absolute well-being, not their relative well-being. But comparisons are among the best measures we have to gauge our material well-being. Ten years ago, I felt perfectly happy with my low-definition television, because high-definition hadn't come out. Today, that same television gives me slightly less enjoyment because I realize that I'm missing out on a better picture.

"How are a poor, inner-city kid's life chances affected," asks Wilkinson, "by the fact that some Web entrepreneur makes billions of dollars as opposed to just millions?" They're not. But if the Web entrepreneur has to pay a slightly higher tax rate so the inner-city kid can afford to attend a decent college, or so the kid's parents can see a dentist, how are the entrepreneur's life chances affected?

Jonathan Chait is a senior editor of The New Republic.

http://www.tnr.com/politics/story.ht...7-26406e29af5a

[nermise]

Depression changes, it should be noted, reduced income disparity for nearly 50 years, until it began climbing again during the Reagan years. I noticed that. The spikes are VERY apparent right around 1982 or so.

I wish the "average American" that voted for this actor really knew what he was doing. The US seemed so prosperous, but that was because the rich were selling the ground out from beneath the feet of the poor......

Now we have many bureaucratic social welfare programs for the destitute, and an upper class that even after declairing huge debt can still manage to come back w/o any signs of problems (Trump) leaving the middle class to hold up the poor, and be bled dry by the rich.

It is only a matter of time before we become 2-tier again.

[bitymnmictada]

I noticed that. The spikes are VERY apparent right around 1982 or so.

This corresponds with the long and strong secular bull market that started that year, and kept going with few interruptions until 2007.

I'm betting this isn't a coincidence, as "the rich" are more likely to invest big $$$s and make big $$$ in the stock market than the "average american" - who is more likely to invest in lottery tickets, which as far as I know, has never been anything but a bear market.

[KlaraNovikoffa]

Those early 80s spikes also coincide with the introduction of the Individual Retirement Account scheme.

[MannoFr]

I noticed that. The spikes are VERY apparent right around 1982 or so.

I wish the "average American" that voted for this actor really knew what he was doing. The US seemed so prosperous, but that was because the rich were selling the ground out from beneath the feet of the poor......

The US was at its most prosperous when its middle-class was thriving. That's where all the volume is.

I grew up in that environment. The problems we had back then were social in nature, and from a perspective of the present, that turmoil might mask the economic reality - economically, the US population was the envy of the world.

The problems that developed in cities were simply a matter of depopulation. We built airports and interstate highways, and sprawled into the countryside. The resulting crime and decay were framed as the effect of the post-war societal changes. Thus was born the culture-wars that, although finally beginning to wane, still exist today.

[rojettafoxx]

Re-graduate the income tax.

[Trotoleterm]

I'm always struck by the amount of attention income distribution receives.

First of all income/wealth/non-monetary income data has to be handled carefully.

Secondly, some of the data representation suffers from scale "misuse". If the top 10% go from garnering 37% to 42% of national income is that really a socially transformational change?

Thirdly, there is a sticky issue of causality. All sorts of things changed since the early and mid 20th century. What caused what? Also, utility functions change. Maybe in the 1950s you could get as good (at least in relative terms) professionals, executives, leaders, etc. for less money. Maybe they got "paid" in other forms like deference, etc. Let's not forget that in this presumed golden age of American equality many groups (Jews, Blacks, Mexicans, WOMEN) were excluded from many positions of wealth and influence. Maybe it was MEIRTOCRAACY that created inequality. Maybe only in a distorted system the top 0.1% DON'T earn such a big chunk.

Fourthly and most importantly, why does the inequality matter per se? Some people and some social scientists believe that it’s better for everyone to have less but for it to be distributed more equally. Uh hu. Ask them to live like people IN THEIR STATION lived in the 1940sa or 190s. NO ****IGN CHANCE. They’d never wear it.

There ARE many REAL issues facing less economically advantaged people throughout the developed worlds. Like long periods of stagnating REAL income or the semi-permanent exclusion of substantial minorities from the economic mainstream. Compared to that, income inequality is AT BEST a symptom and at worst a stupid distraction.

[M1zdL0hh]

...Compared to that, income inequality is AT BEST a symptom and at worst a stupid distraction.

Considering that both elected government positions as well as patronage jobs are pretty much awarded to the highest bidder in this country, it is hardly a symptom.

Personally, I have no problem with people earning high salaries. My problem is not taxing them at a rate proportional to how far above the median average their TOTAL income lies.

[amelveEnromma]

Personally, I have no problem with people earning high salaries. My problem is not taxing them at a rate proportional to how far above the median average their TOTAL income lies.

Equality in all things except servitude to the government?


The top 1 percent of taxpayers (AGI over $410,096) earned approximately 22.8 percent of the nation's income (as defined by AGI), yet paid 40.4 percent of all federal income taxes. That means the top 1 percent of tax returns paid more in federal individual income taxes than the bottom 95 percent of tax returns. http://www.taxfoundation.org/news/show/250.html

[Bromymbollile]

Secondly, some of the data representation suffers from scale "misuse". If the top 10% go from garnering 37% to 42% of national income is that really a socially transformational change?

Looking at the graphs, that's like asking if ANY socially transformational change can occur in a couple of years.

This corresponds with the long and strong secular bull market that started that year, and kept going with few interruptions until 2007.

http://graphics8.nytimes.com/images/...ay.graphic.jpg

[hojutok]

User, could we see that stat with the ones not paying any taxes because of low income removed from the stats?

The only thing that comes to mind is that when you start getting below about 80K combined in a lot of areas, the money you earn is the money you live by. Any taxation of that money effects DIRECTLY what and how much you eat, drink, and live your life.

I am not talking the difference between McD's and Nobu, but more like Skirt Steak vs. Chuck vs. Kidney Beans and Rice.

I would really like to see the whole table of #'s before cherry picking a certain % point that seems to bear a contrary position. What do the top 0.1% earn and pay? What do the top 10% earn and pay? Statisticians have a field day playing with numbers dont you know!

[KuevDulin]

AGI = Adjusted Gross Income.

Keyword: Adjusted.

[DouseAuthott]

The top 1 percent of taxpayers (AGI over $410,096) earned approximately 22.8 percent of the nation's income (as defined by AGI), yet paid 40.4 percent of all federal income taxes. That means the top 1 percent of tax returns paid more in federal individual income taxes than the bottom 95 percent of tax returns.

http://www.taxfoundation.org/news/show/250.html

Yes, that is a convenient source of misleading data to bolster arguments of right-wing propagandists, shills for CEO's and corporate whores, ignorant people watching Glenn Beck, Fox News or depending on Larry Cramer for investing advice.

Here is what is printed at the end of that report:

Some important facts to keep in mind about the information provided on this page.

(1) All tax returns that have a positive AGI are included, even those that do not have a positive income tax liability. It is interesting that you victimize the top 1%. They do have the top .1% numbers as well, which are blended into that top 1% in certain places and broken out in others.

Based on this report:

The top .1% of tax returns were made up of 141,000 returns that had an aggregate AGI of $1,049,000,000,000. That's an average income of $7,439,716.

The bottom 50% of tax returns were made up of 70,535,000 returns that had an aggregate AGI of $1,079,000,000,000. That's an average income of $15,297.

The report you are citing actually is reporting the number of tax dollars paid in relationship to the number of tax returns filed. It would be more accurate (and honest) to report how much in taxes were paid in relationship to all other returns that also report a positive tax liability.

2) Income tax after credits (the tax measure above) does not account for the refundable portion of EITC. If it were included (as is often the case with other organizations), the tax share of the top income groups would be higher. The refundable portion is legally classified as a spending program by the Office of Management and Budget and therefore is not included by the IRS in these figures. This basically notes that people in the highest brackets are getting tax credits. Yes, people in the highest income groups (that would be the top .1 percentile earning over $7,000,000) are actually receiving CREDITS from the government.

What tax rates does this report cite for different groups?

Top .1% = 21.46% (Tax = 1,596,563 / Remaining Income $5,843,153)
Bottom 50% = 2.99% (Tax = 457 / Remaining income $14,840)

(3) The only tax analyzed here is the federal individual income tax, which is responsible for about 25 percent of the nation's taxes paid (at all levels of government). Federal income taxes are much more progressive than payroll taxes, which are responsible for about 20 percent of all taxes paid (at all levels of government), and are more progressive than most state and local taxes (depending upon the economic assumption made about property taxes and corporate income taxes). Yes, payroll taxes are responsible for about 20% of ALL taxes paid. That's why the big CEO's and highest paid Americans get paid in stock options, deferred bonuses, etc.; to avoid paying these taxes. In addition, Payroll taxes do not apply to non-salaried income, such as stock dividends or trust funds. Further, the richest Americans pay FICA taxes on their first $102,000 of earnings. The top .1% of tax payers earn $624,476 per month.

(4) AGI is a fairly narrow income concept, and does not include income items like government transfers (except for the portion of Social Security benefits that is taxed), the value of employer-provided health insurance, underreported or unreported income (most notably that of sole proprietors), income derived from municipal bond interest, net imputed rental income, worker's compensation benefits and others. Ah yes, we are basing this all on a fairly narrow income "concept". Look at the list of exceptions, but wait... we don't have enough room for all of the exceptions so we'll end the list with "and others".

(5) Tax return is the unit of analysis, which is broader than households, especially for those at the bottom end, many of which are dependent returns. Some dependent returns are included in the figures here, and under other units of analysis (like Treasury's Family Economic Unit), would likely be paired with their parents' returns. Oh dear, more exceptions to the reporting calculations and, therefore, more evidence that the numbers don't compare "apple to apples".

(6) The source data is the IRS Statistics of Income Division, which uses a national sample of tax returns to provide the figures used here. The figures above were taken from data that was labeled an "early release" by SOI in July 2009, and may be revised in subsequent months. My, my... this is a national "sample of returns". The data used was labeled "early release" and might have been revised in subsequent months. I guess it is kind of like "early polling" - the kind that had Norm Colemen beating Al Franken in the Minnesota Senate race. Of course, once all of the votes were counted, Franken was sworn in. The revisions took eight months.

I wonder how much this "sample" tax data changed over eight months.

(7) Figures presented represent the legal incidence of the income tax, although most distributional tables (such as those from CBO, Tax Policy Center, Citizens for Tax Justice, Treasury, and JCT) assume that the entire economic incidence of personal income taxes falls on the income earner. Finally, we see that this report does not use the prevailing assumptions used by governmental and reputable non-partisan tax policy and watchdog groups.

This report is pure crap.

[Foucceedo]

So, there.

(Bravo, BR)

Is it any wonder that everyone is confused?

[Saispapedlimi]

It's all number juggling.

All we need is something simple. You earn $XX, you bring home $YY. Period. I don't care WHERE you earned it, how, or whatever. "earned" also applies to all stock dividends and gains even if unsold, rental property income, every last penny.

Then you get a better idea of where the money is coming from.

Also, take a look at COL, to a modest extent. I do not expect Trump to be living off of Beans and Rice, but at the same time, he can certainly get by on less than $500 a plate....

Subtract what people need to have to live on, then look at the % that is left after that and compare that number to taxes garnered in ALL facets of that persons life (electricity, sales tax, gas, income, fees on medical, ANYTHING).

You will find that the ratios get massively skewed even when you allow the rich to have MUCH better lifestyle allowances than the poor.



The key thing to this whole thread is not necessarily breaking things down like I have described, but noting that the people that seem to be paying the most are the ones that are out of the bottom bracket, but who are not able to divest their funds and earnings into non-taxable sources of revenue (maximum taxation on stock profits is 15%, not the 39% or so for income tax.)

the middle class id being ridden too hard and there is more and more of a gap between the Upper Class and the Lower Class. You squeeze the middle too much and you head for problems, as you no longer have a working "body" of society to a) Feed the poor, and b) Buy things that the rich market and sell.

Our system does not work well without a viable working middle class America.

Unfortunately, 75% of said class are idiots and will go to town hall meetings crying over Lady Liberty and the Death Panel eyeing up Grandma.

Disinformation and public gullibility will be our downfall. See it now on PPV!!!!

[NarunapyCalry]

Sometimes I don't understand what you are saying - like now. If you are suggesting a flat tax, then you are suggesting a major shift in tax burden to the working middle- and lower-class.

15% of $7,000,000 vs. 15% of $15,000

I don't think so...

[bWxNFI3c]

Please show me where I even mentioned flat tax BR.

I was not even getting into that. All I wanted to see was a bottom line. How much does John Q. Public get paid, in TOTAL earnings, and how much of that goes towards state and federal taxes. ALL of it, including gas taxes, sales taxes, FAA taxes on telephone services, everything.

Once we see those numbers, we can get a better idea of where the monies are coming from and how much is actually left in your pocket in the end.

[MeverikcNils]

I understand that, but what would that tell you?

You know what the person makes and how much in taxes they pay. How do you draw comparisons between the low end and the high end?

[soonahonsefalh]

I understand that, but what would that tell you?

It would give a more realistic idea of the levels of income individuals eran and possess, rather than these skewed reports that keep siting one inequality next to another.

What I want is the meat, not whatever crispy topping the Chef of the Day decided to fry it with.

You know what the person makes and how much in taxes they pay. How do you draw comparisons between the low end and the high end? That gets more complicated, but less so than our current methods of comparison.

There are compulsory taxes that everyone pays regardless of what they spend on, and some "elective" ones (such as sales tax) that are supposed to be a kind of choice by the taxpayer. (You don't like taxes, do not buy as much luxury/unneeded goods). While I do not agree with this kind of reasoning, I can see where a direct comparison could get difficult when this is not taken into account.

Now, that being said, you hav ethe raw $$ that a person earns. Would it be fair to penalize someone because they earn more money? No, but it also would not be fair to deny someone their basic needs because they do not earn enough to afford the same percentage. There are certain levels that need to be taken into account, and that is where the fuzzy math starts.

How would you determine the COL at different income brackets? In different areas? How could you say it costs just as much to live in the suburbs of Alabama as a carpenter as it does to live in NYC as a construction manager? That is the one question I find difficult to answer when trying to figure out what every persons "fair share" is.

Just because the wealthy can afford to give more, does not mean they should be bearing the entire tax burden, but it does not mean they should be entitled to rules and regulations that allow them to pay less on what they earn than the "average joe".

BTW, if I remember right, taxes do start climbing over 15% on regular income way before the next bracket jump. So if that is the case, why are multimillon dollar stock options still only taxed at 15%?

Anyway, what I would do with the final number is try to establish a bracket. Each bracket has a deductable for simple costs of living limited to essential items similar to what we have now (but stripped down, simplified, and applied to a FLOATING COL INDEX dependent on larger demographic areas). The remainder of the spendable monies after that are then taxed.

Housing taxes on estates less than $1M? Deductable. Over $1M, or second residences, not deductable. This is only an example and the #'s would change depending on the area/real estate.

I think the key is in keeping the % simple, but trying to itemize the expenses a bit better.