The United States has million people—in million households, as viewed by the Internal Revenue Service. That means 1. The top 0. The income share of the top 0. In terms of the rate of increase, the 0. After-tax income tells a similar story.
For the top 0. And posttax income for the 0. Posttax income for the entire US population rose by only 61 percent during this time, the study demonstrates. They say the share of total wealth of the top 1 percent has increased steadily, from below 25 percent in to 42 percent in The share of total wealth of the top 0.
Not everyone slices the data the same way, or draws the same conclusions. This would challenge the notion that wealth is increasingly concentrating at the top. All three groups saw their income shares and inflation-adjusted incomes peak in , and those shares have yet to recover to those pre—Great Recession levels, he points out.
They get their income from very different sources. They live in different parts of the country. There is a huge amount of diversity, even within a group that we think is small but is actually very big, which is the top 1 percent. When discussing the super-rich, many bring up family dynasties such as the Waltons of Wal-Mart, or the Rockefellers and Koch brothers of energy fortunes. But who is actually in the 0.
Researchers are developing a better understanding of how people in various rungs of the 1 percent make their money. And some research suggests business income plays a big part. This income is broad-based among the 1 percent. This is further support for the inference that the power of the corporate community and the upper class have been increasing in recent decades. Most amazing of all, the top 0. But the increase in what is going to the few at the top did not level off, even with all that.
As of , income inequality in the United States was at an all-time high for the past 95 years, with the top 0. However, in an analysis of tax returns for the top 0. And the rate of increase is even higher for the very richest of the rich: the top income earners in the United States. According to another analysis by Johnston a , the average income of the top tripled during the Clinton Administration and doubled during the first seven years of the Bush Administration.
How are these huge gains possible for the top ? It is widely believed that taxes are highly progressive and, furthermore, that the top several percent of income earners pay most of the taxes received by the federal government.
But what matters in terms of a power analysis is what percentage of their income people at different income levels pay to all levels of government federal, state, and local in taxes. If the less-well-off majority is somehow able to wield power, we would expect that the high earners would pay a bigger percentage of their income in taxes, because the majority figures the well-to-do would still have plenty left after taxes to make new investments and lead the good life.
If the high earners have the most power, we'd expect them to pay about the same as everybody else, or less. Citizens for Tax Justice, a research group that's been studying tax issues from its offices in Washington since , provides the information we need. So if we only examine these first two steps, the tax system looks like it is going to be progressive.
You'll note that the progressivity is slowing down. We also can look at this information on income and taxes in another way by asking what percentage of all taxes various income levels pay. This is not the same as the previous question, which asked what percentage of their incomes went to taxes for people at various income levels. And the answer to this new question can be found in Figure 7. So the best estimates that can be put together from official government numbers show a little bit of progressivity.
But the details on those who earn millions of dollars each year are very hard to come by, because they can stash a large part of their wealth in off-shore tax havens in the Caribbean and little countries in Europe, starting with Switzerland.
And there are many loopholes and gimmicks they can use, as summarized with striking examples in Free Lunch and Perfectly Legal , the books by Johnston that were mentioned earlier. For example, Johnston explains the ways in which high earners can hide their money and delay on paying taxes, and then invest for a profit what normally would be paid in taxes.
The degree of income inequality in the United States can be compared to that in other countries on the basis of the Gini coefficient, a mathematical ratio that allows economists to put all countries on a scale with values that range hypothetically from zero everyone in the country has the same income to one person in the country has all the income.
On this widely used measure, the United States ends up 95th out of the countries that have been studied -- that is, only 39 of the countries have worse income inequality. The U. In examining this table, remember that it does not measure the same thing as Table 5 earlier in this document, which was about the wealth distribution. Here we are looking at the income distribution, so the two tables won't match up as far as rankings. So one thing that's distinctive about the U. Source: Central Intelligence Agency One of the most striking contrasts is between Sweden and the United States from to , as seen in Figure 8; and note that the differences between the two countries narrowed in the s and s, but after that went their separate ways, in rather dramatic fashion.
Nor do various kinds of tax breaks and loopholes have much impact on the income distribution overall. But it is sometimes said that income inequality is reduced significantly by government programs that matter very much in the lives of low-income Americans.
These programs provide "transfer payments," which are a form of income for those in need. They include unemployment compensation, cash payments to the elderly who don't have enough to live on from Social Security, Temporary Assistance to Needy Families welfare , food stamps, and Medicaid. Thomas Hungerford , a tax expert who works for the federal government's Congressional Research Service, carried out a study for Congress that tells us about the real-world impact of transfer payments on reducing income inequality.
Hungerford's study is based on income data from an ongoing study of a representative sample of families at the University of Michigan, and it includes the effects of both taxes and four types of transfer payments Social Security, Temporary Assistance to Needy Families, food stamps, and Medicaid. The table that follows shows the income inequality index that is, the Gini coefficient at three points along the way: 1. The Citizens for Tax Justice study of income and taxes for , discussed earlier, included transfer payments as income, so that study and Hungerford's have similar starting points.
But they can't be directly compared, because they use different years. As can be seen, Hungerford's findings first support what we had learned earlier from the Citizens for Tax Justice study: taxes don't do much to reduce inequality. They secondly reveal that transfer payments have a slightly larger impact on inequality than taxes, but not much.
Third, his findings tell us that taxes and transfer payments together reduce the inequality index from. In short, for those who ask if progressive taxes and transfer payments even things out to a significant degree, the answer is that while they have some effect, they don't do nearly as much as in Canada, major European countries, or Japan.
Another way that income can be used as a power indicator is by comparing average CEO annual pay to average factory worker pay, something that has been done for many years by Business Week and, later, the Associated Press.
The ratio of CEO pay to factory worker pay rose from in to as high as in , at the height of the stock market bubble, when CEOs were cashing in big stock options. It was at in and in , according to research by United for a Fair Economy. By way of comparison, the same ratio is about in Europe.
The changes in the American ratio from to are displayed in Figure 9, which is based on data from several hundred of the largest corporations. The purchasing power of the federal minimum wage actually declined by 9. These startling results are illustrated in Figure Although some of the information I've relied upon to create this section on executives' vs. If you wonder how such a large gap could develop, the proximate, or most immediate, factor involves the way in which CEOs now are able to rig things so that the board of directors, which they help select -- and which includes some fellow CEOs on whose boards they sit -- gives them the pay they want.
The trick is in hiring outside experts, called "compensation consultants," who give the process a thin veneer of economic respectability. Woolard, Jr. His experience suggests that he knows whereof he speaks, and he speaks because he's concerned that corporate leaders are losing respect in the public mind. He says that the business page chatter about CEO salaries being set by the competition for their services in the executive labor market is "bull.
The compensation committee [of the board of directors] talks to an outside consultant who has surveys you could drive a truck through and pay anything you want to pay, to be perfectly honest.
The outside consultant talks to the human resources vice president, who talks to the CEO. The CEO says what he'd like to receive. It gets to the human resources person who tells the outside consultant. And it pretty well works out that the CEO gets what he's implied he thinks he deserves, so he will be respected by his peers.
Morgenson, The board of directors buys into what the CEO asks for because the outside consultant is an "expert" on such matters. Furthermore, handing out only modest salary increases might give the wrong impression about how highly the board values the CEO. And if someone on the board should object, there are the three or four CEOs from other companies who will make sure it happens. It is a process with a built-in escalator.
As for why the consultants go along with this scam, they know which side their bread is buttered on. They realize the CEO has a big say-so on whether or not they are hired again. So they suggest a package of salaries, stock options and other goodies that they think will please the CEO, and they, too, get rich in the process. And certainly the top executives just below the CEO don't mind hearing about the boss's raise.
They know it will mean pay increases for them, too. For an excellent detailed article on the main consulting firm that helps CEOs and other corporate executives raise their pay, check out the New York Times article entitled "America's Corporate Pay Pal" , which supports everything Woolard of DuPont claims and adds new information.
If hiring a consulting firm doesn't do the trick as far as raising CEO pay, then it may be possible for the CEO to have the board change the way in which the success of the company is determined.
For example, Walmart Stores, Inc. But when declining sales no longer led to big pay raises, the board simply changed the magic formula to use total companywide sales instead. By that measure, the CEO could still receive a pay hike Morgenson, There's a much deeper power story that underlies the self-dealing and mutual back-scratching by CEOs now carried out through interlocking directorates and seemingly independent outside consultants.
It probably involves several factors. At the least, on the workers' side, it reflects their loss of power following the all-out attack on unions in the s and s, which is explained in detail in an excellent book by James Gross , a labor and industrial relations professor at Cornell.
That decline in union power made possible and was increased by both outsourcing at home and the movement of production to developing countries, which were facilitated by the break-up of the New Deal coalition and the rise of the New Right Domhoff, , Chapter It signals the shift of the United States from a high-wage to a low-wage economy, with professionals protected by the fact that foreign-trained doctors and lawyers aren't allowed to compete with their American counterparts in the direct way that low-wage foreign-born workers are.
You also can read a quick version of my explanation for the "right turn" that led to changes in the wealth and income distributions in an article on this site , where it is presented in the context of criticizing the explanations put forward by other theorists. On the other side of the class divide, the rise in CEO pay may reflect the increasing power of chief executives as compared to major owners and stockholders in general, not just their increasing power over workers.
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Student Loans. Best personal loans. Best debt consolidation loans. Wealth begets power, which begets more wealth. The Supreme Court, in its recent Citizens United case, has enshrined the right of corporations to buy government, by removing limitations on campaign spending. The personal and the political are today in perfect alignment.
Virtually all U. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent. When pharmaceutical companies receive a trillion-dollar gift—through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price—it should not come as cause for wonder.
It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work. There is, for one thing, a well-documented lifestyle effect—people outside the top 1 percent increasingly live beyond their means.
Trickle-down economics may be a chimera, but trickle-down behaviorism is very real. Inequality massively distorts our foreign policy. Plus, the wealthiest class feels no pinch from higher taxes when the nation goes to war: borrowed money will pay for all that. Foreign policy, by definition, is about the balancing of national interests and national resources. With the top 1 percent in charge, and paying no price, the notion of balance and restraint goes out the window.
There is no limit to the adventures we can undertake; corporations and contractors stand only to gain. Imagine what the world might look like if the rules were designed instead to encourage competition among countries for workers. Governments would compete in providing economic security, low taxes on ordinary wage earners, good education, and a clean environment—things workers care about.
Of all the costs imposed on our society by the top 1 percent, perhaps the greatest is this: the erosion of our sense of identity, in which fair play, equality of opportunity, and a sense of community are so important. America has long prided itself on being a fair society, where everyone has an equal chance of getting ahead, but the statistics suggest otherwise: the chances of a poor citizen, or even a middle-class citizen, making it to the top in America are smaller than in many countries of Europe.
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