David Cay Johnston on wealth inequality in America

Posted by AzBlueMeanie:

Pulitzer Prize winning tax analyst David Cay Johnston has a staqggering new anlaysis of the divide between the haves and have nots in America. His TaxAnalysts.com post is linked in a Huffington Post report, Income Growth For Bottom 90 Percent Of Americans Averaged Just $59 Over 4 Decades: Analysis:

Another day, another mind-blowing fact about the staggering difference between the haves and the have-nots.

Incomes for the bottom 90 percent of Americans only grew by $59 on average
between 1966 and 2011
(when you adjust those incomes for inflation),
according to an analysis by Pulitzer Prize-winning journalist David Cay
Johnston for Tax Analysts. During the same period, the average income
for the top 10 percent of Americans rose by $116,071
, Johnston found.

To put that into perspective: if you say the $59 boost is equivalent
to one inch, then the incomes of the top 10 percent of Americans rose by
168 feet, Johnston explained to Alternet last week.

(Click over to Tax Analysts to read Johnston’s full Tax Notes column.)

Johnston’s long-distance analogy is one way to look at the huge gap
between the rich and everyone else, and there are many ways to think
about and compare income growth and inequality across various segments
of the population. Incomes for the bottom fifth of Americans, for
instance, grew about 20 percent between 1979 and 2007,
according to a 2011 study from the Congressional Budget Office. During
the same period, members of the top 1 percent saw their incomes grow by
275 percent.

From Johnston's TaxAnalysts.com post:

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 with the March 1 budget
sequestration deadline just four days off.

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.

* * *

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.

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.

JohnstonGraph

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.

Back in 1966, the top 1 percent of the top 1 percent
reported 1.3 percent of all pretax income. In 2011 that tiny number of
American households saw their slice of pie more than triple, to 4.5
percent.

Overall, the top 10 percent got a bigger share of the pie in
2011 than in 1966, but the biggest increases went to those at the top,
with just a sliver extra for those down near the 90/10 dividing line.

What of the vast majority who make too little to be in the
top 10 percent? The bottom 90 percent saw their slice of the national
income pie shrivel, from two-thirds in 1966 to barely half in 2011 (66.3
to 51.8 percent).

Between 1980 and 2005, more than 80 percent of the total
increase in income went to the top 1 percent of American households.

Those at the top are pulling away from everyone else not because of hard
work, but the shift of income from labor to capital and changes in
federal income, gift, and estate tax rules.

* * *

The Saez-Piketty analysis shows the concentration of growth at the very
top increasing. That is bad for tax revenue and bad for social
stability. The drop in incomes among the vast majority holds back
economic growth, because there is just not enough aggregate demand to
support creating enough new jobs to keep up with population growth.

And who was hit hardest by the new federal taxes that took effect this year? The vast majority.

* * *

If we look at the half-century from 1961 to 2011, ignoring inflation,
we can see how federal tax burdens have shifted, especially the Social
Security tax. It expanded from 3.1 percent of GDP to 5.5 percent. That
tax stops this year at $113,700 of wages, just about the threshold for
the top 10 percent.

Over those 50 years, federal corporate income tax receipts
grew 764 percent and personal income taxes 2,540 percent, while Social
Security taxes soared 4,881 percent.

Visualize it this way: Increases in national income are
becoming more and more concentrated on the top rung, while the combined
federal income and payroll tax burden grows down the ladder, where
incomes are getting smaller.

That is a lot of stress being placed on people between the
bottom rung and the top. I think it is more stress than the social
ladder can bear, although when and how it will break no one will know
until it happens.

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