Monday, August 2, 2010

The Latest Income Distribution Figures: The Richest 1% Gobbled Up 21% of All U.S. Income in 2008. How Did the Richest Fare in the Great Recession?

Are the rich still getting richer?

For the past few years Emmanuel Saez, a Berkeley economist, and Thomas Piketty, an economist at the Paris School of Economics, have been updating some work they published in the Quarterly Journal of Economics in 2003. They look at income tax returns, especially for the top ten percent of the U.S. and calculate the amount of pre-tax income going to the top 10%, the top 5%, the top 1%, the top .1%, etc. Their results show an astonishing concentration of income to the richest Americans during the past thirty years. In 1978 richest 1% of Americans gobbled up almost 9% (8.5%) of all the income reported for taxes that year. By 2007, the year before the Great Recession of 2008, they were gobbling up 23.5% of all the income. The only year since the income tax was created in the U.S. in 1913 that surpasses this concentration is 1928 (when it was 23.94%), the year before the stock market crash that jump-started the Great Depression.

For the downloads click here.

This year Saez's update includes a discussion about what he thinks may be happening at the very top of the income heap as a result of the Great Recession of 2008-2009. Here is a quote: "in the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth." That is, the bottom 99 percent had to share only 33% of the growth in income during that period. However, in the Great Recession of 2008-2009 the top one percent did suffer disproportionately, falling by 19.7%, while the bottom 99 percent's income dropped only 6.9%; however, this 6.9% drop is the "worst drop on record since the Great Depression of 1929-1933." And the drop in the incomes of the rich should be put into perspective: "the top 1 percent absorbed a larger fraction of losses in the 2000-2002 recession (57%) than in the first year of Great recession (47%)." And he concludes that although there has been a drop in the proportion of income going to the very rich, "the Great Recession is unlikely to have a very large impact on top income shares and will certainly not undo much of the dramatic increase in top income shares that has taken place since the 1970s."

At the present time there is a debate in Congress as to whether the huge tax cuts to the rich, enacted by President Bush should be allowed to expire at the end of the year, in order to help pay for the federal government's deficit spending. Should Congress continue to enact policies designed to shovel money up from the masses to the richest Americans, as we have for the past three decades? Should stimulus money continue to be used to pay for bonuses that go to the business class in the richest one tenth of one percent on income earners? Both political parties have gone along with policies that have distributed income up to the rich in the past thirty years. Is there any indication this will change now that we know the very wealthiest class in America, after screaming at and bribing both parties to deregulate their financial activities, provoked the conditions, through smoke and mirrors and a little fudging on bond ratings, that led to the greatest economic disaster since the Great Depression? A top economist at Berkeley thinks not.

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