US Income Gap Is Widening Significantly,
by David Cay Johnston
New York Times, March 29, 2007
Income inequality grew significantly in
2005, with the top 1 percent of Americans - those with incomes
that year of more than $348,000 - receiving their largest share
of national income since 1928, analysis of newly released tax
data shows.The top 10 percent, roughly those earning more than
$100,000, also reached a level of income share not seen since
before the Depression.
While total reported income in the United
States increased almost 9 percent in 2005, the most recent year
for which such data is available, average incomes for those in
the bottom 90 percent dipped slightly compared with the year before,
dropping $172, or 0.6 percent.
The gains went largely to the top 1 percent,
whose incomes rose to an average of more than $1.1 million each,
an increase of more than $139,000, or about 14 percent.
The new data also shows that the top 300,000
Americans collectively enjoyed almost as much income as the bottom
150 million Americans. Per person, the top group received 440
times as much as the average person in the bottom half earned,
nearly doubling the gap from 1980.
Prof. Emmanuel Saez, the University of
California, Berkeley, economist who analyzed the Internal Revenue
Service data with Prof. Thomas Piketty of the Paris School of
Economics, said such growing disparities were significant in terms
of social and political stability.
"If the economy is growing but only
a few are enjoying the benefits, it goes to our sense of fairness,"
Professor Saez said. "It can have important political consequences."
Last year, according to data from other
sources, incomes for average Americans increased for the first
time in several years. But because those at the top rely heavily
on the stock market and business profits for their income, both
of which were strong last year, it is likely that the disparities
in 2005 are the same or larger now, Professor Saez said.
He noted that the analysis was based on
preliminary data and that the highest-income Americans were more
likely than others to file their returns late, so his data might
understate the growth in inequality.
The disparities may be even greater for
another reason. The Internal Revenue Service estimates that it
is able to accurately tax 99 percent of wage income but that it
captures only about 70 percent of business and investment income,
most of which flows to upper-income individuals, because not everybody
accurately reports such figures.
The Bush administration argued that its
tax policies, despite cuts that benefited those at the top more
than others, had not added to the widening gap but "made
the tax code more progressive, not less." Brookly McLaughlin,
the chief Treasury Department spokeswoman, said that this year
"the share of income taxes paid by lower-income taxpayers
will be lower than it would have been without the tax relief,
while the share of income taxes for higher-income taxpayers will
Treasury Secretary Henry M. Paulson Jr.,
she noted, has acknowledged that income disparities have increased,
but, along with a "solid consensus" of experts, attributed
that shift largely to "the rapid pace of technological change
has been a major driver in the decades-long widening of the income
gap in the United States."
Others argued that public policies had
played a role in the shift. Robert Greenstein, executive director
of the Center on Budget and Policy Priorities, an advocacy group
for the poor, said that the data understates the widening disparity
between the top 1 percent and the rest of the country.
He said that in addition to rising incomes
and reduced taxes, the equation should take into account cuts
in fringe benefits to workers and in government services that
middle-class and poor Americans rely on more than the affluent.
These include health care, child care and education spending.
"The nation faces some very tough
choices in coming years," he said. "That such a large
share of the income gains are going to the very top, at a minimum,
raises serious questions about continuing to provide tax cuts
averaging over $150,000 a year to people making more than a million
dollars a year, while saying we do not have enough money"
to provide health insurance to 47 million Americans and cutting
A major issue likely to be debated in
Congress in the year ahead is whether reversing the Bush tax cuts
would slow investment and, if so, how much that would cost the
Mr. Greenstein's organization will release
a report today showing that for Americans in the middle, the share
of income taken by federal taxes has been essentially unchanged
across four decades. By comparison, it has fallen by half for
those at the very top of the income ladder.
Because the incomes of those at the top
have grown so much more than those below them, their share of
total income tax revenue has risen despite the reduced rates.
The analysis by the two professors showed
that the top 10 percent of Americans collected 48.5 percent of
all reported income in 2005.
That is an increase of more than 2 percentage
points over the previous year and up from roughly 33 percent in
the late 1970s. The peak for this group was 49.3 percent in 1928.
The top 1 percent received 21.8 percent
of all reported income in 2005, up significantly from 19.8 percent
the year before and more than double their share of income in
1980. The peak was in 1928, when the top 1 percent reported 23.9
percent of all income.
The top tenth of a percent and top one-hundredth
of a percent recorded even bigger gains in 2005 over the previous
year. Their incomes soared by about a fifth in one year, largely
because of the rising stock market and increased business profits.
The top tenth of a percent reported an
average income of $5.6 million, up $908,000, while the top one-hundredth
of a percent had an average income of $25.7 million, up nearly
$4.4 million in one year.
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