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Tilting at Windmills

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December 14, 2007
By: Kevin Drum

HO HO HO....The CBO released its latest data series on income inequality yesterday (PDF here, Excel spreadsheet here), and the news was pretty much what you'd expect: the rich are still getting richer a lot faster than anyone else. I was going to make a chart showing just how much faster they were piling up the goodies than the rest of us, but I got lazy and didn't do it. However, Matt Yglesias, who has recently decided to challenge me in the small but lucrative niche of chartblogging, has the goods here for the years 2003-2005. However, it looks pretty much the same if you look at the numbers for the past decade, or the past two decades, or the past three decades. For the rich, income is up and tax rates are down. For the rest of us, income is close to stagnant. Too bad we don't have a whole political party to look after our welfare just like the rich folks do, eh?

Kevin Drum 11:54 AM Permalink | Trackbacks | Comments (37)

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Let them eat cake.............

Posted by: steve duncan on December 14, 2007 at 12:08 PM | PERMALINK

"Too bad we don't have a whole political party to look after our welfare just like the rich folks do, eh?"

Or two!

Posted by: doktorwise on December 14, 2007 at 12:11 PM | PERMALINK

God wants the poor to suffer is the fundamental belief of Republicans. If they happen not to be completely of European heritage, they should suffer doubly.

Posted by: freelunch on December 14, 2007 at 12:12 PM | PERMALINK

For the rich, income is up and tax rates are down. For the rest of us, income is close to stagnant.

They're the Outward Signs of election, baby! Too bad God didn't choose you from the beginning of all time as a member of the elect, instead of the preterite damned.

Posted by: Davis X. Machina on December 14, 2007 at 12:12 PM | PERMALINK

Or two!

The poor did much better under Richard Nixon than they did under William Jefferson Clinton. Of course they did even worse under the Bushes and Satan Ronnie.

Posted by: freelunch on December 14, 2007 at 12:14 PM | PERMALINK

The poor have no assets, little income.
The poor don't vote.
Thus, they are expendible.

They shoot capitalists, don't they?

Posted by: bobbyp on December 14, 2007 at 12:30 PM | PERMALINK

However, it looks pretty much the same if you look at the numbers for the past decade, or the past two decades, or the past three decades. For the rich, income is up and tax rates are down.

Nonsense Kevin. Here's my graph for the years from 2000-2002

Percentage change in after tax income, 2000-2002:
Bottom 20%: -2%
Next 20%: 0%
Middle 20%: 1%
Fourth 20%: -1%
Top 20%: -12%
Top 10%: -16%
Top 5%: -20%
Top 1%: -30%

The rise for the wealthiest in 2003-2005 was just to recover what they lost in the previous years. We should be celebrating they recovered what they had lost during the strong Bush economy because otherwise it would've been a disaster.

Posted by: Al on December 14, 2007 at 12:38 PM | PERMALINK

Let them eat cake.............

But, but, but...we have Krispy Kremes, don't we?

Posted by: bobbyp on December 14, 2007 at 12:38 PM | PERMALINK

We used to have a political party to look after our interests, the Democrats but they largely abrogated their responsibility.

Posted by: anandine on December 14, 2007 at 12:39 PM | PERMALINK

I see Al didn't make it to the first three comments. Time for a pay cut.

Posted by: bobbyp on December 14, 2007 at 12:41 PM | PERMALINK

Oh, Al. My heart breaks for billionaires whose income slipped from $2billion to a mere $1.2billion from 2000-2002. Musta' hurt pretty bad, eh?

Where do I send the sympathy cards?

Posted by: bobbyp on December 14, 2007 at 12:44 PM | PERMALINK

There's one thing I don't understand about the recent Fed proposal to pump $40 billion a month or so into the economy. Don't we keep wages low so inflation doesn't occur? Well pumping $40 billion at a time into the economy should be inflationary, too. We'd be better off giving $4000 to each of the poorest 10 million people in the country. They're sure to spend it rather than save it, which will stimulate the economy and stave off recession better than giving it to rich people, who will just save or invest it.

Posted by: anandine on December 14, 2007 at 12:45 PM | PERMALINK

"Too bad we don't have a whole political party to look after our welfare just like the rich folks do, eh?"

Line of the year goes to Kevin.

Posted by: Gore/Edwards 08 on December 14, 2007 at 12:47 PM | PERMALINK

Too bad we don't have a whole political party to look after our welfare just like the rich folks do, eh?

We have whole political parties to look after the welfare of the not rich, but most people consider them inconsequential and continue to support the party that only talks about our welfare while mostly looking out for the rich.

Those people, including me, could have voted for Van Auken in 2004, but voted for a billionatress's husband instead.

Posted by: Brojo on December 14, 2007 at 12:58 PM | PERMALINK

True, tax rates for the rich are down. For the non-rich, they're down even more.
"The first number below is for 2005, the most recent year available. For comparison, I computed, and present in parentheses below, the average effective tax rate from 1979 to 2005, the time span covered in the report.

All households: 20.5 (21.6)

Lowest quintile: 4.3 (7.2)
Second quintile: 9.9 (13.2)
Middle quintile: 14.2 (17.1)
Fourth quintile: 17.4 (20.1)
Highest quintile: 25.5 (26.1)

Top 10 percent: 27.4 (27.6)
Top 5 percent: 28.9 (29.0)
Top 1 percent: 31.2 (31.7)"
via Mankiw's blog

Posted by: Alson on December 14, 2007 at 1:04 PM | PERMALINK

As a member of the stock exchange, I think that all poor people should be drawn and quartered and their entrails used to make fertilizer. It would be good for business, and would make me very happy as well.

Sincerely,
Mr. Gangrene Halitosis

Posted by: Pythonesque on December 14, 2007 at 1:16 PM | PERMALINK

Share of income for the top 20% continues to climb, while it decreases for the bottom 80%. I have a post on this on my blog with nice fig that illustrates this to make up for the fact that Kevin doesn't feel like making a fig.

http://afferentinput.blogspot.com/2007/12/widening-divide.html

Al's right that the rich hit a bit of a rough patch in 2001-2002 (bust of the tech bubble and all), but let's say they're doing pretty well over the long term.

Posted by: CKT on December 14, 2007 at 1:21 PM | PERMALINK

I gotta say, Barry Ritholtz owns chart blogging.

Posted by: crack on December 14, 2007 at 1:31 PM | PERMALINK

Excellent and easy identification of the disease of the American body politic and its symptoms with next to nothing re fundamental etiology. What books should I read to understand this kind of depravity or is the etiology all around me in my face? Right-wing media, corporate oligarchy in control of all branches, southern obsession with white supremacy, apathy of demoralized and care worn people...or symptoms chasing symptoms imagining they are causes? My misanthropy re Americans serves me best until have better understanding but misanthropy confirmed every day per P B Barnum: can never go broke underestimating stupidity of American people.

Posted by: N. Mailer on December 14, 2007 at 1:36 PM | PERMALINK

I gotta say, Barry Ritholtz owns chart blogging.
Posted by: crack on December 14, 2007 at 1:31 PM | PERMALINK

Is that you, Larry Kudlow? I'm guessing from your handle...

Posted by: whl on December 14, 2007 at 1:45 PM | PERMALINK

I'm quite surprised that the Democratic presidential candidates are not spending more time talking about this...not necessarily in terms of rich vs. poor, but in terms of consumer vs. corporation.

Corporate influence has become so overwhelming in DC that in almost any conflict between consumer & corporation, the corporation will win. We saw this with the bankruptcy bill, are seeing it with tort reform (often the only way the consumer can gain legal redress from a corporation which has wronged them), as well as in the many behind-the-scenes legislative efforts to modify regulations in a way which harms consumers.

Posted by: mfw13 on December 14, 2007 at 1:50 PM | PERMALINK
…Percentage change in after tax income, 2000-2002…. Al at 12:38 PM
Gotta love the Republican ability to cherry pick their agenda. They love to begin the Bush economy in 2003 and end the Clinton term in 2002. In the real world, the income distribution shows

… Income inequality among households, both before and after Federal taxes, grew more quickly over the last two years of the series, 2003-05, than over any other two-year period on record, back to 1979.
Over those two years, the growth of inequality transferred $400 billion dollars from the bottom 95% to the top 5%. That is, had the income distribution remained as it was in 2003, the income of each of the 109 million households in the bottom 95% would have been $3,660 higher in 2005….

They can't even lie about trickle down anymore because it's so obvious that those atop the pyramid are managing to steal from and tinkle down on the peons.


Posted by: Mike on December 14, 2007 at 1:56 PM | PERMALINK

The income side does not look "the same" during the Clinton years. The explosion of the stock market may have masked it it, but incomes for the bottom half went up at about the same rate as those at the top -- even somewhat faster. That's in contrast, of course, to what happened in the reagan, Bush I and Buh II years.

Posted by: urbanlegend on December 14, 2007 at 2:02 PM | PERMALINK

Few comments here address a reality that this kind of analysis ignores. Progressive taxation means people who make more pay more percentage in taxes. Not just more in dollar terms, but a higher percentage.

The tax cuts enacted under Bush readjusted the formula, so that all tax payers got tax relief, by paying a lesser percentage. Notice the declines in percentage. For the top 1%, that was a decline from 33.0% to 31.8. Sounds a lot less than the drop from 13 to 9.9. But in net dollar terms, the difference is huge, but so what? Why the surprise?

Unless you take it as a given that the existing rates and proportionality was perfect, anytime you readjust, the impact hits higher income earners more. (That's math.)

That's the inherent dishonesty in Krugman's and Yglesias' analysis, and much of what's here. The tax cuts aren't some pool of everybody's money, and we all get an equal share. If you already don't pay taxes or pay very little, you'll never get much or any of the tax cut pie, will you?

That money the 1% get to keep more of is their own. Just like your tax cut, wherever you fall, is your own, as well.

The only legitimate way to debate this is to talk about the net % that each level of income should have to pay. Guess what? It's already progressive. Lots of the lowest earners get money from the rest of us rather than actually pay taxes.

So what's a fair distribution? Between Feds, State and Local, top 10% are already paying up to or over half of their income in taxes. If that's not enough for your tastes, what do you think would be fair? And how much will come out of your pocket?

Those who always opt to have the money only flow one way (always from rich to poor) are living entirely on the dole, or think Socialism and complete wealth redistribution is the answer. (You just may not want to admit it.)

I love the comment about wealth distribution, that “the growth of inequality transferred $400 billion dollars from the bottom 95% to the top 5%.” What, the poor sent all their money to the rich people? How'd that happen? Oh, the rich made their money from the poor people, somehow.

That’s dishonest and manipulative. For the fiscally ignorant it might work, but don’t pretend to have any serious economic basis for your illogic.

To describe the effect that the more affluent kept more of the money they earned as any kind of “transfer” from the poor to the rich makes it sound like somebody took those poor people’s money and gave it to the rich. By letting those who make more keep more of their earnings, while they still pay an order of magnitude or two more than those poor people (probably 50-60% overall in all taxes, versus maybe 10-15-20% for lower income people.)

Most of you here think of taxes and tax cuts as coming from some fairy gold mine, and everybody should get an equal share of the fairy gold. I've got news for you: the money that's being talked about was earned, for better or worse whether you like it or not, mostly from those who are our wealthiest citizens.

That anyone here wastes any amount of effort in debating this without even mentioning the proportionality or is the proportion right, reveals that it's only about taking something from someone you think has too much and giving it to somebody else. (And if you think the best way to do that is via a bloated and wasteful Government, you're beyond hope.)

Posted by: Dadmanly on December 14, 2007 at 3:06 PM | PERMALINK

the money that's being talked about was earned

Wealth is an accumulation of surplus value added by labor. Those rich people did not earn their weatlth by adding value to products and services with their labor, they expropriated it from others' labor and kept it for themselves. That is why progressive taxation is a good policy for trasnferring a tiny bit of the accumulated wealth of an economy back to the people who actually earned it.

Posted by: Brojo on December 14, 2007 at 3:32 PM | PERMALINK

.......or think Socialism and complete wealth redistribution is the answer.

Hey. You may be on to something here.

Posted by: bobbyp on December 14, 2007 at 4:30 PM | PERMALINK

"
"Let them eat cake............."

But, but, but...we have Krispy Kremes, don't we?"

Posted by: bobbyp on December 14, 2007

--------------

Let them eat Krispy Kremes?

Let the Rich eat their mortgage loans?

-------

Somehow we've got to be more uplifting and optimistic than this!

Posted by: MarkH on December 14, 2007 at 4:30 PM | PERMALINK

That anyone here wastes any amount of effort in debating this without even mentioning the proportionality or is the proportion right...

That question is always at the heart of any debate on progressive taxation. So to say that those bringing this up are "not mentioning it" shows only your stupidity or your depravity.

Posted by: bobbyp on December 14, 2007 at 4:32 PM | PERMALINK

The "class warfare" "wealth redistribution" argument isn't really in play here at all.

What I'm interested in is ensuring the system works for everyone. That means we can't push poor people out of their homes, just so a corporation can make more profit. It means a better pairing of price inflation to income inflation. It means more standard assets for everyone: health care, retirement funds, infrastructure, protection from predatory financial institutions, protection against instant job loss through outsourcing and unfair international trade, higher education for those who are capable and will work for it, support for unions instead of a war on unions, etc. Given these structural benefits of being part of the American economy there would be less need for wealth redistribution.

However, if wealth imbalance threatens the economy, then there does need to be some redistribution to protect the whole economy -- not to benefit partisan interest groups or to satisfy some Socialistic impulses.

Personally, I'd rather see the economy freed to perform better. I'd rather see higher taxes on individuals and lower on corporations (especially those which hire people here in America).

Besides, what's all this talk about the rich taking a hit when those who earn interest income have been paying less than their secretaries all along? Let's get real here, there are imperfections in our economic system which are unfair, unproductive and really hold us back from much greater growth (both here in America and worldwide).

Posted by: MarkH on December 14, 2007 at 4:46 PM | PERMALINK

For more on "proportionality", see this post:

http://afferentinput.blogspot.com/2007/12/if-america-had-100-and-100-people.html

Breaks down the change in the distribution of income since 1979. Let's just that the top 1% won't be going hungry any time soon.

Posted by: CKT on December 14, 2007 at 4:50 PM | PERMALINK

1. It would be hard to make the income tax system more progressive. The top 10% of households pay 72% of income taxes and the top 20% pay 86%. The remaining 80% of households pay in aggregate about 14% of the income tax bill.
2. Even if you add in social insurance taxes, which are less progressive, the top 20% of households pay close to 70% of all taxes.
3. I'm by far not the first to suggest this, but household structure affects income dynamics. An older population with fewer people working will presumably put downward pressure and increase income inequality. The number of elderly households have increased by 50% since 1980 -- no wonder we have so many walkers clogging up First Avenue in NY!
4. In addition, more single parent families will almost arithmetically increase income inequality. As a result, when you control for age and household structure, median income has been increasing rather than decreasing.

Posted by: kaplan37 on December 14, 2007 at 6:14 PM | PERMALINK

1. It would be hard to make the income tax system more progressive.

The income tax rates of 1992 did not prevent the great economic expansion associated with that decade. The income tax rates of 1960 did not prevent the economic expansion associated with that decade. The tax rates for the top 10% were higher then than now in both those decades.

In order to grow an economy, the actual people who add value to products and services have to receive some of the surplus value their labor adds. The top 10% of income earning households today add very little value to any products or services. The income of the top 10% is expropriated from the surplus value that people actually add through labor.

They are able to expropriate that surplus because we live in a capitalist dictatorship.

Posted by: Brojo on December 14, 2007 at 6:30 PM | PERMALINK

"...small but lucrative niche of chartblogging,"

Chartblogging is a lucrative niche? I had no idea. Or maybe you meant the small niche of lucreblogging, or the small blogging niche of lucrecharting. Or something like that.

Posted by: ask on December 14, 2007 at 6:55 PM | PERMALINK

1. It would be hard to make the income tax system more progressive.

No, actually, it would not. Only the political will is lacking.

The top 10% of households pay 72% of income taxes and the top 20% pay 86%. The remaining 80% of households pay in aggregate about 14% of the income tax bill.

The top 20% take in about 50% of the income swag. They can afford it. That is what being "rich" is all about. Plus, this is only income taxes, and does not take into account state, and local taxes. The distribution of financial wealth is even more skewed.

2. Even if you add in social insurance taxes, which are less progressive, the top 20% of households pay close to 70% of all taxes.

And FICA taxes, contributed by poor yutzes such as myself, are helping rich chislers hide the looming deficit problem. Essentially, I am loaning money to Bill Gate's grandkids. Like they need it. The effective tax rate at the margin is, surprise! fairly flat across incomes. But you knew that already, didn't you?

3. ..... household structure affects income dynamics. An older population with fewer people working will presumably put downward pressure and increase income inequality. The number of elderly households have increased by 50% since 1980 -- no wonder we have so many walkers clogging up First Avenue in NY!

Sigh. We have more people now that in 1980. Productivity and population growth more than offset the effect of an aging population.

4. In addition, more single parent families will almost arithmetically increase income inequality.

Not necessarily, unless that growth swamps other offsetting effects which you conveniently ignore.

As a result, when you control for age and household structure, median income has been increasing rather than decreasing.

Suprise! In a growing economy, we have increasing median income--maybe. Inflation and distributional policies will affect that claim. I suggest you stay away from economic analysis. You're not very good at it.

Posted by: bobbyp on December 14, 2007 at 7:02 PM | PERMALINK

Where does the idea that the top 10% pays 50% of their income toward taxes come from? I have been in the lower half of that percentile for a long time (surprisingly easy for a two-income professional couple) and my effective tax rate, counting federal tax, amt, state income tax, and property tax, is between 20 and 25%. People in that percentile who make a portion of their income from capital gains (sadly, I do not) would pay even less. I calculate based on actual income, not adjusted gross income which seems more accurate (why not include the money that went into your 401K when calculating effective tax rate?), but even using AGI and living in a high tax state (California), I don't see how anyone could pay anything like 50%.

Posted by: Too Old For This on December 14, 2007 at 11:42 PM | PERMALINK

thank you, too old for this: basically, kaplan37 doesn't have the slightest clue what he or she is talking about.

in the real world, when you look at the total tax burden in america, it's almost flat already. This study is a couple of years old, but the basic numbers haven't much changed:

http://www.csmonitor.com/2005/0414/p03s01-usgn.html

In short, the total tax burden (federal, state, local) as a percentage of income for all households comes to 30.1%. The total tax burden as a percentage of income excluding the upper 1% of households by income comes to...29.4%! That's some progressivity! (the burden of the upper 1% is 32.8%, down from 37.1% when bush took office.)

yes, there is some progressivity between the very lowest income households (the bottom quintile, for example, pays 19.7%, largely because a whole chunk of those households not only pay no federal income tax but, in fact, receive the EITC), but essentially, whether you make $100,000 or 10,000,000 annually, your total effective tax rate is pretty much the same.

wealthy households pay a large percentage of the total federal income tax burden because they make a large percentage of taxable income. that doesn't make the system progressive.

as for kaplan37's assertion that if you control for age and household structure, it's all good: what the hell is he or she talking about? presumably this is the typical right-wing confusion between normal life course changes in income (as you get older your income tends to rise) and the overall distribution of income in america (which is increasingly concentrated in a handful of households).

to be more precise,

Posted by: howard on December 15, 2007 at 1:11 AM | PERMALINK

howard, thanks for the info. The chart did not appear to use AGI and included the employer's share of FICA in the employee's income, but I wonder if it included as income the non-cash benefits that most high earners get, such as medical/dental (worth more than $1,000 per month) and employer contributions to 401k's/pensions. The percentage of income going to taxes for higher earners could be even lower.

Posted by: Too Old For This on December 15, 2007 at 1:25 PM | PERMALINK




 

 

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