Report: Incomes rise for bottom 99 percent but inequality worsens

30 Jun 2015 | Author: | No comments yet »

Finally, US incomes rise for the 99 percent, even as top 1 percent earn even more.

Incomes for the bottom 99 percent of American families rose 3.3 percent last year to $47,213, the biggest annual gain in the past 15 years, according to data compiled by economist Emmanuel Saez and released Monday by the Washington Center for Equitable Growth. “For the bottom 99 percent of income earners, this marks the first year of real recovery from the income losses sparked by the Great Recession,” said Saez, a professor at the University of California-Berkeley, in a summary of his findings. REUTERS / Lucas JacksonMembers of the Occupy Wall St movement protest on 5th Avenue while marching through the upper east side of New York October 11, 2011. As of 2014, the top 1 percent of Americans have seen 58 percent of the gains in the economic recovery, while the average real income of the bottom 90 percent has grown just 1.6 percent since the recovery began in 2009.* These findings coincide with new data from the IRS showing that the top 0.01 percent received 5.6 percent of adjusted gross income in 2012.

Between 1981 and 1990, overall income grew 1 percent per year—not quickly but nonetheless a welcome change from the negative real income growth of the late 1970s. From 2001 to 2007, overall incomes continued to grow at the same rate as they did in the 1990s, but middle-class incomes grew at less than one-sixteenth of the overall rate.

The share of income captured by the wealthiest top 10 percent is now higher than what it was in 1928, “the peak of stock market bubble in the ‘roaring’ 1920s,” as Saez notes. Saez’s figures are compiled from IRS tax data, using pre-tax income that excludes government transfer payments, such as Social Security retirement income. The economy could withstand far higher tax rates on the wealthiest, and a 90 percent rate would both reduce inequality and also boost government tax revenue.

These developments have been a natural experiment in trickle-down economics—the theory that tax cuts, deregulation, and the destruction of basic labor protections would unleash a wave of economic growth. Income certainly has shifted upward, but its benefits have failed to materialize for everyone else; middle-class incomes after 1980 only displayed strong positive growth in the late 1990s.

The only period that boasted overall income growth above 1 percent without strong middle-class income growth was the 2000s, and this growth was the result of an unsustainable housing bubble that greatly reduced overall income when it could no longer continue. International organizations such as the International Monetary Fund and the Organisation for Economic Co-operation and Development, or OECD, have concluded that high levels of income inequality reduce economic growth.

When the middle class has no money, businesses have no customers: As shown in a 2014 Center for American Progress report, more than two-thirds of retailers cited stagnant or shrinking disposable incomes as a risk factor for their stock prices. The wealthy tend to save their money, which helps finance investment, but 0 percent interest rates prove that financial markets have more savings than they can invest. Healthy economic growth requires a healthy middle class, and a pro-growth policy agenda needs to focus squarely on everyday Americans. * Saez’s data use tax returns to measure “cash market income”—income received from wages, business, and capital.

This definition of income is useful for evaluating how the market distributes rewards, though it does not reflect the total amount of resources available to tax units. However, there are clear advantages to using Saez’s data to study and compare the current business cycle to past business cycles: They are more recent and go much further back, allowing comparison of post-1980 business cycles with other business cycles after World War II.

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