The rich are getting richer — faster

December 17, 2007

One of the more common laments of conservative Republicans is that the economy has been great under Bush, but the president just doesn’t get the credit he deserves. Despite steady growth, ungrateful Americans consistently say they disapprove of Bush’s handling of the economy, and add that they perceive these “boom” days as sluggish and challenging. It’s not at all unusual to hear Republicans suggest opposition to the war in Iraq is so strong, it leads the public to irrationality — rejecting as weak what is actually a strong economy.

But it need not be complicated. When the top 1% of Americans made more money than the bottom 20% of Americans, there’s a problem. And when the wealthy see their incomes soar, while everyone else see their incomes stagnant, it offers clues as to why the public is unhappy with the economy.

The poorest fifth of households had total income of $383.4 billion in 2005, while just the increase in income for the top 1 percent came to $524.8 billion, a figure 37 percent higher.

The total income of the top 1.1 million households was $1.8 trillion, or 18.1 percent of the total income of all Americans, up from 14.3 percent of all income in 2003. The total 2005 income of the three million individual Americans at the top was roughly equal to that of the bottom 166 million Americans, analysis of the report showed. […]

Earlier reports, based on tax returns, showed that in 2005 the top 10 percent, top 1 percent and fractions of the top 1 percent enjoyed their greatest share of income since 1928 and 1929.

“A lot of people justifiably feel they are working harder and smarter, they are baking a bigger and better pie, and yet their slice is not growing much at all,” Jared Bernstein, an economist at the Economic Policy Institute, said. “It is meaningless to middle- and low-income families to say we have a great economy because their economy looks so much different than folks at the top of the scale because this is an economy that is working, but not working for everyone.”

Paul Krugman fleshed this out in more detail, showing percentage gains in after-tax income from 2003 to 2005:

Bottom quintile: 2%
Next quintile: 2.4%
Middle quintile: 3.9%
Fourth quintile: 3.7%
Top quintile: 16%

Top 10%: 20.9%
Top 5%: 27.7%
Top 1%: 43.5%

Most of the Republican presidential candidates, especially Rudy Giuliani, look at these numbers and conclude, “You know what we should do? Offer those people at the very top even more tax cuts.”

It’s not trickle-down anymore. It’s vacuum-up economics.

  • None of this, of course, is at all related to the inflation of the U.S. Dollar (through the printing of fiat money and “Fractional Reserve Banking”) by a “quasi-private” cartel of secretive banksters who manipulate and exploit our monetary system for their benefit and that of their corporate and government cohorts.

    That is, if you believe in the Tooth Fairy and Santa Claus and the benevolence of the Federal Reserve.

  • Just to try and get people thinking

    Technology will make it easier for the top 1% to get rich and make it harder for the bottom 20% to survive. I think it is up to our political system to figure out a way to help society adjust to this fact.

    Look at baseball.

    Today, you are willing to pay to see the best players. It appears you are willing to pay a lot since baseball makes a fortune from TV and marketing and ticket sales. If you can’t get to the game you can watch the best on TV.

    70 years ago, you had to go to the game or listen to it on radio. We had a lot of minor league clubs. The difference in pay between the top major league players and class C minor leagues was not as significant as it is today. (Yes, I know that baseball salaries were artifically low until recently because they didn’t have free agency.)

    My point is that technology has allowed more people to appreciate the talents of A-Rod that could appreciate the talents of Babe Ruth. Therefore, A-Rod should get paid more than Babe Ruth.

    If you don’t like baseball then you can substitute music. 100 years ago if you wanted to hear music you had to hear it live. Now you can get the best in the world on a CD. The market for a good, but not great, muscian has dried up. Therefore, the compensation for the best has gone up and the compensation for the very good has gone down.

    These are natural laws that can’t be changed.

    Society needs to figure out how best to live with them.

  • These are natural laws that can’t be changed.

    It seems to me that regulation and progressive taxation does change these “natural laws”. Government in a democracy is supposed to help correct for economic and power disparity.

  • Shalimar:

    How can tax policy or regulation change the ‘natural law’ that you would rather watch A-Rod on TV than the AAA Toledo Mud-Hens?

    Tax policy and regulation can help the players on the Mud-Hens but it can’t change the fact that A-Rod is more valuable today than Babe Ruth was 80 years ago.

  • It was never “trickle down” it was always “piss on you”.

    And we’re suppose to just be grateful that they didn’t take a dump…

    Which on some Americans, they truly have.

  • What is not mentioned is this study is based on Adjusted Gross Income (AGI). This income measure extends beyond salaries and includes interest, capital gains etc. The cuts in capital gains taxes has generated an increase in asset sale volume in recent years which has boosted reported investment income and therefore AGI has gone up… i.e., with lower tax rates folks have been willing sell long held assets (stocks, real estate, businesses), which they might have held onto in the past because of the higher capital gains tax rates.

    Moreover, more importantly, yet again, Krugman (and CB ) only tells half the story and love to cherry pick the data to support their argument. I find it interesting that they don’t show the disproportionate share of what the wealthy pay in the US tax burdon. In 2005, the wealthiest 5% of Americans made up 36% of the total US income but paid a whopping 60% of the total tax bill. This was an increase from 1990 when the richest 5% made up 27% of the population and paid a small 44% of total taxes. In 2000, 35% of the population made up the top 5% and paid 56%, respectively. So in absolute dollar terms, the wealthy have taking on a greater larger proportion of the tax burden than the middle class and the poor – its gone up 16 percentage points since 1990 vs. their share of the wealth rising 9 percentage points over that same period.

    Even more interesting is that richest 5% classes’ share of income has risen only 1 percentage point during the period of 2000 to 2005 (from 35% to 36%) but rose 8 percentage points from 1990-2000 (during the Clinton years). Needless to say a lot of this boost AGI can be attributed to a rising stock market (where the wealthiest hold a large percentage of their savings) and can quickly reverse itself in a bear market. Just look at what happened in 1990-2000 vs. 2000-2002, AGI for the rich got spanked during those periods. Take that a step further… In 2005, the wealthiest 1% of Americans made up 21% of the US AGI, flat with 2000. Yet while Clinton was in office, that ratio rose from 14% to 21% from 1990-2000.

    So, If I was a ‘rich’ individual, probably using less of the US Government’s resources (because I wouldn’t need them as much) but paying many multiple dollars in taxes of what the poor and middle class pay, how is that scenario unfair? In fact, those households that report AGI under the US median ONLY pay 3% of the US’ total tax burden.

  • “So, If I was a ‘rich’ individual, probably using less of the US Government’s resources (because I wouldn’t need them as much)”

    This is such amazing BS.

    The “RICH” use far more of the government resources than the poor because they became RICH in our society.

    I am a dirt poor worker making $8 an hour. I get government to assist me with my health care, and shelter, and food. I pay very little in taxes

    My brother is one of those RICH people who makes $50 million a year. My brother pays over $10 million in taxes.

    Who benefits more from the government?

    By definition, my brother benefits far more than I do. Our government and society has created a place to live where my brother gets to keep more than $30 million a year. He can do virtually anything he wants.

    My brother didn’t earn this money in Peru or Angola. He earned it in the US.

    My brother couldn’t earn this money in Peru or Angola because those places don’t have our government which allows freedoms to have a thriving middle class who can afford to pay my brother $50 million.

    ##########
    I know what I am talking about. My job is to save people money in taxes and it isn’t how much money you pay in taxes that count. It’s how much money you have AFTER paying your taxes that count.

  • So, given this information, perhaps Bu$h’s presidency isn’t a failure at all, in fact, it’s an overwhelming success… for the haves and have mores.

    After all, isn’t that what republicanism is all about? Transfering wealth from the people to the plutocracy? The wealthy elites?

  • it’s an overwhelming success… for the haves and have mores.

    Now over 13 millions US households, households have and have more (have over $100k in AGI)– the greatest number ever.

  • Shorter JRS 9: “US income tax is progressive.”

    That’s the plan in force now, so, surprise, the data reflect that. Republicans fight for an ever-flatter progression to shift the tax burden off the rich, and Democrats fight for a steeper progression to shift the burden back to the rich. Ronse and repeat.

  • Neil @11 wasn’t specific.

    The SEC – Securities and Exchange commission. The poor don’t use much of their services.
    Fire Departments protect homes form burning. Far more useful to home OWNERS, not poor renters.
    The military budget includes the Coast Guard. The poor rarely leave land in a way that requires ocean rescues.
    The court systems are teh arbiter of million dollar contracts when business goes awry. The poor avoid using teh court system in m,ost cases, even when it might benefit them. (Who pays for time off to go to court?) It’s not as though today’s courts find for individual plaintiffs often.
    The entire legislature that makes laws and taxes are bankrolled by the wealthy and therefore configure the legal system mostly to benefit their patrons.
    Cutting edge research by NASA and NIH are commonly exploited by pharmaceutical and electronics industries to make their owners millions. Only after state of the art devices become affordable 10 years do the poor get a hold of these advantages.

    Name a government service other than welfare, and think about how such a service helps the rich and poor. You’ll find the wealthy getting most of the benefit. I should HOPE they pony up most of the cost.
    Almost every function except welfare disproportionately helps the wealthy.

  • And let’s not forget the Pentagon. Yes, it “defends” the poor as well as the rich, at least in theory. But most of the money we’re pouring into oh, say, Iraq, goes to contractors like Halliburton, who use the Pentagon like an ATM and pay their executives (like Cheney) obscene salaries for “connecting” them. And then there’s the whole question of the real magnitude of the threat to the average American — hyped to keep those dollars flowing freely from working and middle class taxpayers to the ultra-rich? Nah, our Republican fellow Americans would never do anything like that…

  • I have a hunch that JRS, Jr. numbers are also “cherry picked” to speak only of the U.S. income tax. The Republicans & MSM frequently (really, almost always) does this mis-information. This would exclude the Social Secuity & Medicare tax (on 99.8% of my income, but SS is only on payroll of up to $92,000 per year, Medicare on 100% of payroll, but 0% on interest, capital gains etc.
    You see, it’s OK that wealth generated by wealth is taxed at a lower rate then wealth generated by work.
    This “Income Tax only” tactic also excludes excise taxes, gas taxes, and the multitude of taxes, fees & charges that ordinary Americans pay, resulting in about the same, or larger level of taxation for the ordinary person, when the progressive income tax is factored in.
    I’ll find the links when I’m not so busy here at work, my lunch break is almost done.

  • With a few exceptions, all, and I mean something like 99% of ALL wealth in the world is created in places with a high rate of taxation.

    There are all sorts of places that claim to have a low flat rate tax. I really don’t know if it is true but Russia and a number of former east block countries have some sort of flat tax.

    Why aren’t all the rich people in the world living there?
    Because their societies don’t have a rich middle class to help the upper class get really rich.

    Yes, I know the founder of IKEA no longer lives in Sweden to escape high taxes. But he made his millions in places with high taxes.

    Bill Gates lives in Washington. He doesn’t live in Laos. (OK, I don’t know what kind of tax structure they have in Laos.) He made his fortune in the US because we have skilled workers and a rich middle class.

    Now, I don’t care how much he pays or paid in taxes. Bill Gates has benefitted more from the US government than anyone reading this blog.

  • Buzz — My point was based on absolute dollars paid, I made no reference to tax rates. Sure, a wealthy person’s rate based on AGI could be lower than a middle class person’s based on lower capital gains rate, social secuirty maximums, etc. Yet that wealthy person will still pay multiples of what the middle class person in absolute dollar terms.

    For instance if a middle class person who makes $75,000 is taxed a 30%, he/she would pay $22,500 in taxes. Then lest assume a person making $750,000 and and found all these ‘tax breaks’ you speak of, pays a rate of 25% would make a $188,000 — 8.5x greater than the the middle class worker.

    Now, are you arguing for a flat tax, so that everyone is taxed at an equal rate?

    Also, I am willing to give you the arguement that the rich benefit greatly from the US Government’s stability and services, but what is the absolute dollar premium they should pay for that benefit?

  • Come on now, why have a flat tax? Why not charge each person the same amount?

    If the federal government spends $3 trillion and we have 300 million Americans then why not just send each person a bill for $10,000?

    Why should I pay more just because I earn more than you do?

  • If I made $40 million each year and only paid $10 million in taxes, I would be dramatically richer than I am now. I sincerely doubt I would be working harder either.

    Comparing baseball or entertainment figures to the rest of us is a bit stupid. Not all of us are in “star” based jobs.

  • The bottom line is very simple:

    The rich run the show. They run the private sector, and they run the government. In fact, they’re pretty much the same folks. They determine the taxes, and how much they make, and how much the rest of us make. We have no say in any of it.

    Now tell me why they wouldn’t stack the deck in their favor at every opportunity.

    Anyone who thinks they wouldn’t, or don’t, is hopelessy naive. Power and money corrupt. The more you have, the greedier you get.

    What amazes me is how many ordinary Americans go around repeating the nonsensical talking points the rich feed them to justify robbing the bottom 80% or 90% from everything they can get away with.

  • Well, luckily there’s no emergency, or WAR, going on that requires gops of money to pay for, otherwise the government might have to act responsible and raise taxes, so that future generations (such as my two daughters, their children, and grandchildren) aren’t stuck with the credit card bill for such an adventure, not to mention the accrued interest.

    Like I said, it’s a good thing nothings going on that needs a lot of money to pay for.

  • JRS forgets to mention that the bottom 50% of Americans don’t actually have any money to tax after basic consumables. JRS says more capital gains were made ‘from long-held capital’ without any sort of evidence of the sort.

    The top 1 percent paid 27.6 percent of all federal taxes in 2005 – and made 18.1% of all income.

    Exactly why shouldn’t they pay more of the income taxes?

    It’s not like they’re part of the 60 million households making less than $50K a year. And that includes: “Other sources of income include all in-kind benefits (Medicare, Medicaid, employer-paid health insurance premiums, food stamps, school lunches and breakfasts, housing assistance, and energy assistance).” Half a million households made a negative gross income, even counting those things.

    Should those 60 million have to cough up the $20K each that would be ‘fair’ by their portion of the population? How would they, when more than 25 million households, make less than that per year?

    Should they pay a tax rate of 30%? Is that what JRS would consider fair? 30% of every dollar for the first dollar you make in a year to the last? …Instead of merely the last?

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