The Wonk Room

As The Rich Got Richer, The Poor Got Poorer

Last week, University of California, Berkeley economist Emmanuel Saez released new data showing that U.S. income inequality in 2007 (the latest data available) was the worst that it has ever been. Saez found that the top ten percent of Americans made 49.7 percent of the total wages, a level “higher than any other year since 1917 and even surpasses 1928, the peak of stock market bubble in the ‘roaring’ 1920s.” Paul Krugman called the data “truly amazing.”

And as those at the top of the income scale have been getting richer, those at the bottom have been getting poorer. Bloomberg reported today on a new analysis by Tax Notes:

A separate analysis by the weekly journal Tax Notes suggested the poor got poorer in 2007. The share of all U.S. income made by the 66 million Americans who earn less than $30,000 a year shrank by 2.3 percent from 2006, a decline of $149 per taxpayer.

Tax Notes said the richest 0.01 percent of Americans has had greater income growth than the rest of the country since the early 1970s. From 1973 to 2007, the average income for taxpayers in that category grew 758 percent, or more than $30 million. Excluding the wealthiest 10 percent, the rest of the population got an average increase of $286 over that period, or about $8.41 annually, adjusted for inflation, Tax Notes said.

At the same time, the consulting firm Hewitt Associates found that “salary increases for 2009 were below 3%, on average, for the first time in the 33 years it has been keeping records.” Companies are also making “variable pay” (essentially incentive-based compensation) a much greater percentage of payroll. So as Businessweek put it, “while companies are paying less, they’re also making you work harder and perform better to get the pay you do receive.”

The Tax Notes report is indicative of two things: lower-income wages dropping and middle class wages stagnating. Of course, these income numbers are going to change in 2008, since the recession surely hit the wealth of those in the top percentiles pretty hard. Be that as it may, the trend for the last few decades has been toward wealth concentration in the hands of the few, and unless systemic changes are made, there’s no reason to think that this trend will change after the economy recovers.

As Matthew Yglesias put it, “using the tax code to take some of this wealth and transform it into more and better public services for the broad mass of people would do a lot of good.” Indeed, those vigorously opposing implementing a surtax on the richest Americans in order to pay for health reform need to square their position with these inequality numbers and the fact that executives made one-third of all the wages in the country in 2007.

Tax changes will not solve all of the problems keeping middle- and lower-class wages stagnant, but throw in the data showing that the effective tax burden of the richest one percent has been falling for nearly 15 years, and there’s little excuse for not using the tax code to address some of this inequity.