03 April 2013

Income growth, 1966 to 2011

These numbers are adjusted for inflation.  Note the arrows at the top which show how far the vertical bars extend.
David Cay Johnston received the Pulitzer Prize for his coverage of tax policy while at The New York Times. He now teaches at Syracuse University College of Law...

In 2011 the average AGI of the vast majority fell to $30,437 per taxpayer, its lowest level since 1966 when measured in 2011 dollars. The vast majority averaged a mere $59 more in 2011 than in 1966. For the top 10 percent, by the same measures, average income rose by $116,071 to $254,864, an increase of 84 percent over 1966.

Plot those numbers on a chart, with one inch for $59, and the top 10 percent's line would extend more than 163 feet.

Now compare the vast majority's $59 with the top 1 percent, and that line extends for 884 feet. The top 1 percent of the top 1 percent, whose 2011 average income of $23.7 million was $18.4 million more per taxpayer than in 1966, would require a line nearly five miles long.

That disparity in income growth rates comes as the total federal tax burdens on those at the top have been slashed, compared with 1966, especially for the long-term capital gains that account for about a third of total income at the very top...

The Saez-Piketty analysis shows the concentration of growth at the very top increasing. That is bad for tax revenue and bad for social stability. The drop in incomes among the vast majority holds back economic growth, because there is just not enough aggregate demand to support creating enough new jobs to keep up with population growth...

That is a lot of stress being placed on people between the bottom rung and the top. I think it is more stress than the social ladder can bear, although when and how it will break no one will know until it happens...
Text and image from Taxanalysts, where there is more explanation.

1 comment:

  1. What's interesting about this, is that there is quite a bit of difference between using IRS AGI data and from the Census data.

    If you use tax units (as was done by Piketty and Saez), you see that the median income (as expressed on their tax returns as AGI) has only increased by 3.2% over the last 30 years.

    But if you use household income, as compiled by the IRS you see that during the same time it has increase by 15.2% That's a factor of 5 difference!!

    Part of this is that the number of Tax Units (tax filers) have increased substantially over the last 30 years -- lots of people living together, but filing separately. That tends to skew the statistics, making the outlier values much more dramatic. AGI also doesn't include government transfer payments, such as Social Security, which have become a larger part of of people's expected income used for households.

    A recent article that discusses this is at http://www.aei-ideas.org/2012/04/piketty-and-saez-vs-burkhauser-and-cornell-whos-right-on-income-inequality-and-stagnation/

    The discussion by Burkhauser indicates that when you start looking at this at a household level, you see that the increase over the last 30 years is 23.6% (not 3.2%) for median income for the household sharing unit -- adjusted by the number of people in the household, and including government transfer payments (which are not in the AGI as reported to the IRS) THey also further indicate that if you include "benefits in kind" that aren't taxable (such as employer paid health insurance) the increase in median household income rises by 36.7% over the past 30 years. That's an order of magnitude larger increase than the Piketty and Saez assessment -- a huge difference.

    This is not to say that incone inequality is not rising, but that the statistics here are quite challengable, so that we need to think about where the statistics are coming from and what is or isn't included in them.

    I also suspect anything that tries to compare something with very different magnitudes on an absolute scale (in units of $59, say) and not by comparing on percentage basis.


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