Richest 1 percent earn biggest share since '20s
By PAUL WISEMAN
AP Economics Writer
WASHINGTON (AP) -- The gulf between the richest 1 percent and the rest of America is the widest it's been since the Roaring '20s.
The very wealthiest Americans earned more than 19 percent of the country's household income last year - their biggest share since 1928, the year before the stock market crash. And the top 10 percent captured a record 48.2 percent of total earnings last year.
U.S. income inequality has been growing for almost three decades. And it grew again last year, according to an analysis of Internal Revenue Service figures dating to 1913 by economists at the University of California, Berkeley, the Paris School of Economics and Oxford University.
One of them, Berkeley's Emmanuel Saez, said the incomes of the richest Americans surged last year in part because they cashed in stock holdings to avoid higher capital gains taxes that took effect in January.
In 2012, the incomes of the top 1 percent rose nearly 20 percent compared with a 1 percent increase for the remaining 99 percent.
The richest Americans were hit hard by the financial crisis. Their incomes fell more than 36 percent in the Great Recession of 2007-09 as stock prices plummeted. Incomes for the bottom 99 percent fell just 11.6 percent, according to the analysis.
But since the recession officially ended in June 2009, the top 1 percent have enjoyed the benefits of rising corporate profits and stock prices: 95 percent of the income gains reported since 2009 have gone to the top 1 percent.
That compares with a 45 percent share for the top 1 percent in the economic expansion of the 1990s and a 65 percent share from the expansion that followed the 2001 recession.
The top 1 percent of American households had pretax income above $394,000 last year. The top 10 percent had income exceeding $114,000.
The income figures include wages, pension payments, dividends and capital gains from the sale of stocks and other assets. They do not include so-called transfer payments from government programs such as unemployment benefits and Social Security.
The gap between rich and poor narrowed after World War II as unions negotiated better pay and benefits and as the government enacted a minimum wage and other policies to help the poor and middle class.
The top 1 percent's share of income bottomed out at 7.7 percent in 1973 and has risen steadily since the early 1980s, according to the analysis.
Economists point to several reasons for widening income inequality. In some industries, U.S. workers now compete with low-wage labor in China and other developing countries. Clerical and call-center jobs have been outsourced to countries such as India and the Philippines.
Increasingly, technology is replacing workers in performing routine tasks. And union power has dwindled. The percentage of American workers represented by unions has dropped from 23.3 percent in 1983 to 12.5 percent last year, according to the Labor Department.
The changes have reduced costs for many employers. That is one reason corporate profits hit a record this year as a share of U.S. economic output, even though economic growth is sluggish and unemployment remains at a high 7.2 percent.
America's top earners tend to be highly paid executives or entrepreneurs - the "working rich" - instead of elites who enjoy lives of leisure on inherited wealth, Saez wrote in a report that accompanied the new analysis.
Still, he added: "We need to decide as a society whether this increase in income inequality is efficient and acceptable."
I agree with Barney, the supposed crisis over the debt is a total fabrication. I'm not disagreeing there’s a debt of over $16 trillion, but in terms of debt to GDP and our ability to spend, it's not problematic. The debt/gdp ratio has two times been higher than it is now--one time over 120% of GDP, and neither time did it present a problem, and as the economy grew, the ratio shrank.
Here's a GDP piece from Robert Reich earlier this year:
A friend who’s been watching the absurd machinations in Congress asked me “what happens if we don’t solve the budget crisis and we run out of money to pay the nation’s bills?”
It was only then I realized how effective Republicans lies have been. That we’re calling it a “budget crisis” and worrying that if we don’t “solve” it we can’t pay our nation’s bills is testament to how successful Republicans have been distorting the truth.
The federal budget deficit has no economic relationship to the debt limit. Republicans have linked the two, and the Administration has played along, but they are entirely separate. Republicans are using what would otherwise be a routine, legally technical vote to raise the debt limit as a means of holding the nation hostage to their own political goal of shrinking the size of the federal government.
In economic terms, we will not “run out of money” next week. We’re still the richest nation in the world, and the Federal Reserve has unlimited capacity to print money.
Nor is there any economic imperative to reach an agreement on how to fix the budget deficit by Tuesday. It’s not even clear the federal budget needs that much fixing anyway.
Yes, the ratio of the national debt to the total economy is high relative to what it’s been. But it’s not nearly as high as it was after World War II – when it reached 120 percent of the economy’s total output.
If and when the economy begins to grow faster – if more Americans get jobs, and we move toward a full recovery – the debt/GDP ratio will fall, as it did in the 1950s, and as it does in every solid recovery. Revenues will pour into the Treasury, and much of the current “budget crisis” will be evaporate.
Get it? We’re really in a “jobs and growth” crisis – not a budget crisis.
And the best way to get jobs and growth back is for the federal government to spend more right now, not less – for example, by exempting the first $20,000 of income from payroll taxes this year and next, recreating a WPA and Civilian Conservation Corps, creating an infrastructure bank, providing tax incentives for small businesses to hire, expanding the Earned Income Tax Credit, and so on.
But what happens next week if Congress can’t or won’t deliver the President a bill to raise the debt ceiling? Remember: This is all politics, mixed in with legal technicalities. Economics has nothing to do with it.
One possibility, therefore, is for the Treasury to keep paying the nation’s bills regardless. It would continue to issue Treasury bills, which are our nation’s IOUs. When those IOUs are cashed at the Federal Reserve Board, the Fed would do what it has always done: Honor them.
How long could this go on without the debt ceiling being lifted? That’s a legal question. Republicans in Congress could mount a legal challenge, but no court in its right mind would stop the Fed from honoring the full faith and credit of the United States.
The wild card is what the three big credit-rating agencies will do. As long as the Fed keeps honoring the nation’s IOUs, America’s credit should be deemed sound. We’re not Greece or Portugal, after all. We’ll still be the richest nation in the world, whose currency is the basis for most business transactions in the world.
Standard & Poor’s has warned it will downgrade the nation’s debt from a triple-A to a double-A rating if we don’t tend to the long-term deficit. But, as I’ve noted, S&P has no business meddling in American politics – especially since its own non-feasance was partly responsible for the current size of the federal debt (had it done its job the debt and housing bubbles wouldn’t have precipitated the terrible recession, and the federal outlays it required).
As long as we pay our debts on time, our global creditors should be satisfied. And if they’re satisfied, S&P, Moody’s, and Fitch should be, too.
Repeat after me: The federal deficit is not the nation’s biggest problem. The anemic recovery, huge unemployment, falling wages, and declining home prices are bigger problems. We don’t have a budget crisis. We have a jobs and growth crisis.
The GOP has manufactured a budget crisis out of the Republicans’ extortionate demands over raising the debt limit. They have succeeded in hoodwinking the public, including my friend.
http://robertreich.org/post/8178875121
The Robert Reich video is from 2005, but it's just as relevant today, and basically is explaining where we're going to in terms of trends. This latest report (that Rae has posted) validates Reich's claims. The video is one hour long--59:30 seconds too long for most people here-- but Reich is a great public speaker, he has a biting sense of humor, and it's tight presentation.
In no way is that amount of debt good for our economy. I also disagree about the über wealthy wanting to keep interest rates low, because they already have piles of cash on hand and they make more money on investments when interest rates are sky-high.
Having said that, I agree the tax structure was more equitable in the 1940's - 1960's. Our debt was lower and our economy stronger when there were fewer tax shelters, loopholes for the Mitt Romney's of the nation and corporate welfare bailouts.
There's no getting around the solution: higher net taxes for those able to pay them, judicious cuts in deficit spending and more strict oversight on gov't waste. And NO MORE UNFUNDED WARS!
Here's a photo of the national debt clock. It's gone up A LOT since then.