During the Great Recession, the 1% absorbed half of total income losses between 2007 and 2009. But in the first year of the recovery, the top percentile won 93% of all income gains. For a while, it was fair to say that income inequality was decreasing. No longer.
The rich are different from you and me, because they have more money. But they're also different because their money has a tendency to yo-yo more dramatically between downturns and upswings. The 1% took more than half of all losses in the 2001 recession, and then two-thirds of the income gains in the recovery, according to updated research posted on Emmanuel Saez's website today. Income volatility is apparently the price you pay for being worth a million dollars.
As for this recession, Tim Noah puts it beautifully: This recovery has been a luxury item. For the bottom 99%, real income growth over the first two years of the recovery was one-fifth of one percent. The richest percentile saw its income rebound by 11.6%. It is only slightly sensational to point out that the 1%'s income has outgained the rest of the economy by a factor of 58 in the recovery.
Enough with the numbers. Does this change the dynamics of the income inequality debate? Not so much, I think. The right will still argue that income inequality is a natural side-effect of capitalism, and that a winner-take-all economy writ global means that superstars will get very rich -- the end. And this is mostly right. Liberals will still point out that there is something wrong with an economy where half the country requires government transfers to make a growing wage, and that we shouldn't exacerbate the worst tendencies of a winner-take-all economy by cutting taxes. This is mostly right, too.
I've found that income inequality statistics are like ten-sided prisms that refract differently for every audience. But when I look, I see a story about taxes. Mitt Romney's proposal would cut income tax rates by 20 percent and revoke the tax credits Obama created in the stimulus to help the low-income. As a result, the rich would get a big tax cut and some poor families would pay up to $100 more. One hundred dollars is not a fleecing, but the numbers are less important than the principle. Asking the poor to pay a bit more while asking the rich to pay much less should be a hard sell in a general election, especially when the latest income figures show the top percentile outpacing income gains from the bottom 99% by a factor of 58.
I don't expect that tax reform alone can fix our income inequality problems. But do we really want a tax plan that will make them worse?