Scott Winship, Brookings Institution. Follow him on Twitter: @swinshi
Thanks in part to Occupy Wall Street, when people talk about
inequality these days, they're typically referring to the extent to which the
top 1 percent have pulled away from the bottom 99 percent. I have previously expressed skepticism not
about whether this has happened but
about the magnitude of the increase in high-end inequality. Over time, my skepticism has eroded, though I
still believe that interpreting the figures that are commonly cited is
complicated. I'll use this post to start
taking you behind the numbers you see all over the place about the top 1
percent.
The first thing to point out is that if marketing were no
issue, a case could be made that Occupy Wall Street's slogan should be, "We Are
the 99.5%!" The following chart shows that if you are in the top 10 percent of
incomes, you command more of the income received in the U.S. today than your
counterparts in the past. But unless you
are in the top one-half of one percent, the increase has not been
startling. If you look at the actual
income shares that are behind the numbers in the chart, tax returns in the top
one percent but not in the top one-half of the top one percent accounted for 3
percent of income in 1960 and 4 percent in 2010. If you were in the top five percent but not
the top one percent, your share increased from 12.5 percent of income to 16
percent. These are not increases to
inspire urban camping.
If you are in the top one-half of one percent, however, your
peeps take home over twice the share
of income that they would have in 1960--16 percent of all income received
instead of 7 percent. It gets more and
more striking as you look at more stratospherically rich groups, but the trends
tend to follow a similar pattern once you leave the bottom 99.5 percent behind.
These figures come from the research of Thomas Piketty and
Emmanuel Saez and are based on IRS tax return data. The Congressional Budget Office puts out its
own estimates that are partly based on IRS data, combined with data from the
household survey used for official unemployment figures (the "Current
Population Survey," or CPS). Like the
Piketty and Saez figures I cite above, capital gains are included in their income
estimates. CBO, however, includes other
sources of income that they cannot and estimates taxes for each household. It also ranks people based on household
income (adjusted to account for household size differences) rather than ranking
tax returns based on the income they report.
CBO
finds that the share of income received by the top one percent rose from 8
percent to 17 percent from 1979 to 2007 (the Piketty/Saez increase is from 10
percent to 24 percent). It also finds
that this "share" was taken from each of the four bottom fifths of the income
distribution (but not from the other people in the top fifth). When one sees the share of income received by
the top rising and the share received by the bottom 80 percent falling, it is
natural to think in zero-sum terms and to assume that the gains at the top must
have come at the expense of the bottom.
This is a complicated issue, but what is not complicated is that if the
economic pie grows enough, the top can take a bigger piece of it even as
everyone gets more pie. That is what has
happened. CBO reports that the bottom
fifth of households saw their incomes increase by nearly 20 percent over this
period, while the rest of the bottom 80 percent saw its income rise by nearly
40 percent. To be sure, the income of
the top one percent nearly quadrupled.
But it is still the case that everyone else is a lot better off in 2007
than in 1979. (Hold your fire if you
want to tell me that incomes haven't risen by much relative to the postwar era--which
is true--or that they've not kept up with productivity gains--which is not. I'll address these topics in future posts.)
There are several potentially important issues with these
numbers, which is why I was skeptical of them for a while. I remain somewhat wary of using them in
certain ways, but in my next post I'll describe the analyses that have
convinced me that skyrocketing inequality at the top is as real as these
numbers indicate.
This article available online at:
http://www.theatlantic.com/business/archive/2012/05/we-are-the-995-the-real-inequality-jump-is-in-the-top-half-percentile/256937/
