Income Disparity

by Ray B. Williams

Income inequality has increased significantly in the U.S. during the current recession, perhaps more than at any time in recent history, a trend that may have significant damaging effects on the economy and social fabric.

The BBC reported startling economic equality figures in a recent documentary: the top 200 wealthiest people in the world control more wealth than the bottom 4 billion. But what is more striking to many is a close look at the economic inequality in the homeland of the "American Dream."

The United States is the most economically stratified society in the western world. As The Wall Street Journal reported, a recent study found that the top .01% or 14,000 American families hold 22.2% of wealth, and the bottom 90%, or over 133 million families, just 4% of the nation's wealth.

The U.S. Census Bureau and the World Wealth Report 2010 both report increases for the top 5% of households even during the current recession. Based on Internal Revenue Service figures, the richest 1% have tripled their cut of America's income pie in one generation.

In 1980 the richest 1% of America took 1 of every 15 income dollars. Now they take 3 of every 15 income dollars.

Economic & Social Inequality
Income inequality grew significantly in 2005, with the top 1 percent of Americans -- those with incomes that year of more than $348,000 -- receiving their largest share of national income since 1928, analysis of newly released tax data shows.

The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression. The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans.

According to research done by Elizabeth Gudrais, associate editor of the Harvard Magazine, income inequality has been rising since the late 1970s, and now rests at a level not seen since the Guilded Age (1870 to 1900), a period in U.S. history defined by the contrast between the excesses of the super-rich and the squalor of the poor.

Early in the twentieth century, the share of total national income of the top 1 percent of U.S. earners hovered around 18 percent. That share hit an all-time high in 1928 -– when top earners took home 21.1 percent of all income, including capital gains -- then dropped steadily through the next three decades.

Amid the post-World War II boom in higher education, and overall economic growth, the American middle class swelled and prospered, and the top 1 percent of earners took home less than 10 percent of all income through the 1960s and 1970s.

Since then, the topmost 1 percent have seen their share rise again: it shot past 15 percent in 1996 and crested at 20.3 percent in 2006, the most recent year for which numbers are available.

The gap between the wealthiest Americans and middle- and working-class Americans has more than tripled in the past three decades, according to a June 25 report by the Center on Budget and Policy Priorities.

New data shows that the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest parts of the population in 2007 was the highest it's been in 80 years, while the share of income going to the middle one-fifth of Americans shrank to its lowest level ever.

According to Dean Baker, Co-Director of the Center of Economic and Policy Research, it is no longer possible to contest the fact that there has been an enormous upward redistribution of income since 1980.

Dozens of economists have reached the same conclusion, using different methodologies and different data sets. Yet, in the last few months, columnists in many of the nation's leading publications have told readers that the upward redistribution over this period is good, because income has risen for everyone.

According to their perspectives, everyone has benefitted from the fact that some people are richer and a relatively small number of people are very rich. Part of that perspective is the argument that tax breaks for the wealthy and very rich (both individuals and corporations) will have a beneficial "trickle down" beneficial effect for the middle class and poor. There is little if any evidence to support this argument.

The Pew Foundation study, reported in the New York Times, concluded, "The chance that children of the poor or middle class will climb up the income ladder, has not changed significantly over the last three decades."

The Economist's special report, Inequality in America, concluded, "The fruits of productivity gains have been skewed towards the highest earners and towards companies whose profits have reached record levels as a share of GDP."

Americans, on average, have a higher tolerance for income inequality than their European counterparts. American attitudes focus on equality of opportunity, while Europeans tend to see fairness in equal outcomes. Among Americans, differences of opinion about inequality can easily degenerate into partisan disputes over whether poor people deserve help and sympathy or should instead pull themselves up by their bootstraps.