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Home » Workplace Finance

The Top 1% and Income Inequality in the U.S.

Last updated by on 14 Comments

Every American should check out Emmanual Saez’s latest data crunch on income gains in the U.S., if for nothing more than to get the facts straight income inequality in our country.

10 pages of interesting data and analysis – quick read and lots of graphs. But if you don’t have time, never fear. I will provide some highlights and commentary.

The “1%” has taken on an increasingly negative connotation, particularly since it numerically pits 99% of the population against 1% of the population.

A bit… one-sided, you might say.

But who is the top 1% even? And how much income do they make? What about the 0.1%? and beyond?

Looking at IRS tax statistics on income,

  • top 10% – 5% = families with¬†annual incomes between $114,000 and $161,000
  • top 5% – 1% = families with annual incomes between $161,000 and 394,000
  • top 1% = families with annual incomes above $394,000
  • top 0.1% = families with annual incomes above $1,600,000
  • top 0.01% = families with annual incomes above $10,250,000 (consists of 16,068 families)

This is after-tax, after-business expense, take-home income.

Before I continue, let me say this…

There are those whose incomes fall in to the top 0.1% who I’m sure are wonderful human beings who have earned their income honestly and via plenty of hard work. They might even be incredibly generous with their income, giving to charitable or other causes.

And there are those whose incomes fall below the U.S. poverty line, who I’m sure are also wonderful human beings who have worked hard and honestly and have no intentions of relying on others for handouts, as is often implied. If they had more income, many of them would be generous with their leftovers as well.

I don’t think it’s productive or fair to demonize the top or bottom, based solely on their income level.

But there is some serious income inequality going on that is worth paying attention to, as concentration of wealth impacts all of us. In recent post-recession years, Saez highlights:

Top 1% incomes grew by 31.4% while bottom 99% incomes grew only by 0.4% from 2009 to 2012. Hence, the top 1% captured 95% of the income gains in the first three years of the recovery… In 2012, top 1% incomes increased sharply by 19.6% while bottom 99% incomes grew only by 1.0%. In sum, top 1% incomes are close to full recovery while bottom 99% incomes have hardly started to recover.

Well, that’s… depressing news. For 99% of us, at least.

Going back even further, the trend is no less disturbing. Real income has increased 86% since 1993 for the top 1%, while only 6.6% for the remaining 99%. The result is that 68% of all real income growth was captured by the top 1%. I’ll repeat that for effect: 68% of all income growth in the last 20 years has gone to 1% of earners.

Short-term gains like this are going to be common with market fluctuation and capital gains (much of which goes to the top 1%). Tax rates, which vary over time, also have a big impact.

However, when you take it back to the beginning of recorded tax documentation in the U.S. (1913), a slightly disturbing picture starts to emerge:

top_1_percent

The top 10% now have a 50%+ share, combined – the highest ever recorded.

The top 5% now have a 40%+ share, combined – the highest ever recorded.

And the top 1% now have a 23% share – just a tad bit under, the highest ever recorded.

Meanwhile, the top 0.01%, the richest 16,068 families in the country, now have a 5.5% share of income (550X their population, if income were evenly distributed) – just under their Great Recession peak (and somewhat surprisingly with and without capital gains).

top 0.1% income

Versus the rest of the country, the top 10% has clearly made up a lot of ground.

But when you break income share down amongst the top 10%, since the late 1970′s (when this trend started taking off) you’ll see a microcosm of the whole:

income inequality

Starting from the bottom, the top 10% have increased their share of total income by over 16% in just the last 33 years.

Almost all of that has been gained by the top 5%. Almost all of the top 5%’s gains have gone to the top 1%. And almost all of the top 1%’s gains have gone to the top 0.1%, and so on. So across the board, you see more and more of the income distribution going to the top.

WOW.

So why bring this up?

This is the first I’ve seen the #’s that all of the cable news channel talking heads never quite have time to bring up. They are interesting. And more than a bit disturbing. I mean – wasn’t the economic might of this country built on good wages for most Americans in the mid 1900′s? And what happens if it is entirely gone, left in the vaults of an elite few and now flowing through the economy?

Some questions worth considering…

  1. If you’re in the 99% or even 99.9% (only 2% of the readers of this blog make over $250,000, btw) are you concerned, sad, angry, or indifferent with these trends?
  2. If an increasingly larger size of the income share goes to the wealthiest of the wealthy, where do we end up us as a country?
  3. Why do you think this is happening?
  4. How would you fix it, if you think it needs to be fixed? Or do you see no problem and think everyone should just turn a blind eye?

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14 Comments »
  • Turn a blind eye, definitely not. This statistics should jolt every American from their reverie. I mean, where is all this wealth going?
    I definitely support higher taxes for the super-wealthy and the closing of some of the tax loopholes exploited to retain even more of this wealth…its just appalling. That 1% is controlling almost more than half of all the wealth…it doesn’t even begin to get fair.

    Matt 13:12, For whosoever hath, to him shall be given, and he shall have more abundance: but whosoever hath not, from him shall be taken away even that he hath.

    Sometimes I think it does apply :(

    • Jason773 says:

      Fair to who? The people who are not producinga service or product that is wanted? Short of inheritance, most people who are in the top 1%, and top 0.1%, including athletes and rock stars, are producing something that the masses want. Baseball players, rap stars and CEOs are paid the way they are because the market demands it. Now we can argue that the market is spending its time and money on frivlous goods and funneling money where it shouldn’t go, but that’s a different story.

      I am in the 99% for now and I hold no resentment to those at the top. A vast majority of those people are providing a good or service that others highly demand, even if that service can be deemed “idiotic” by non-proles.

      • Michael says:

        I have no argument with your comment except for CEOs. CEO compensation has gotten out of control. I’m not sure they’re necessarily something people want when their friends sit on boards of directors and it’s basically just a gentlemen’s club. How many times have we seen CEOs tank a company and they walk away with a golden parachute?

  • Steve says:

    I actually don’t personally have a problem with this – though I’m in the 99%, I make more than enough money to comfortably live off and invest several thousand each month. That’s just me though, I’m a minimalist and cautious with my money, I doubt most Americans share my mentality. However, I think that long-term, this is bad for our country since it makes it less desirable to live in, plus it has carryover effects to our debt.

    Realistically, there are three ways to deal with this. First is to enact laws that raise the wages of the common man, which would make everything more expensive as labor costs skyrocket. Second is to tax the wealthier at higher rates than today and use the increased revenue to pay off the deficit and use the money to enact programs to boost up the poor – increased education, lower their taxes more to increase disposable income, etc. Though this would hurt the economy a little bit, studies have actually shown that taxes to the super-wealthy barely put a dent in the economy. There is one, but its significance is vastly overstated. The third is to maintain the status quo and hope our economy doesn’t absolutely collapse. Unfortunately, given political realities, I think the third option is all that will ever happen.

  • David says:

    For starters, corporate personhood shouldn’t be allowed… Inherited wealth is designed to diminish within a generation or two if the inheritors do not earn anything, but corporations can live forever. I’m not sure if that’s a loophole or an intended artifact from an original “super-wealthy”.

    However, the super-wealthy (the ones benefiting from the corporate personhood debacle) absolutely influence decisions and laws regarding their wealth. So the question becomes: “how do the other 99% of us make that change happen, so that in a few generations, wealth will be much more evenly divided?”

    I don’t know. Having a president who came from a modest upbringing seems to have helped a bit.

    Talking about changing laws is pointless, since none of “us” have any influence in that. So when it comes down to things that the layman can actually do, what are the options? Petitions? Rallies? Protests? Hmm… I’m not sure, perhaps something new and different is needed.

    Although, perhaps things ARE beginning to change – look at how many people are talking about this inequality now versus 10 years ago. Where’s that graph?

    Whatever changes happen, they will be decades-long; moving so slowly that none of us will see their effects as they happen. All we can do is instigate whatever individual, positive changes we can, and hope they live long enough to ripple through the system.

    That was more than I thought I’d type…

    D

  • I believe this disparity is going to remain because of the way this system works. Without judging the morality of income gaps, one need to focus upon why such disparities exist in first place in an economy which offers equal opportunities to all? I believe underlying these figures is the strong psychology of how money flows and how it is being managed by those who are in top 1%. We need to learn from how they manage their money and how they actually ended up where they are now.

  • Dave says:

    I sincerely wonder why the growing income disparity is perceived to be a problem. At a gut level it makes me uneasy, but I can’t point to anything that is particularly wrong about it, and this article doesn’t do much to help in that regard. Maybe the wide disparity just means that people are more free than ever before to choose to generate wealth, or not.

    The part of it that worries me the most is not the top 1%, but the bottom 1% (or 5% or whatever). These are people who don’t pay taxes, feel like economic failures, and just generally have very little to lose in a material sense. What would make someone like that respect the system (e.g., by obeying the law)?

  • jim says:

    I’ll tell you how I’d fix it. Really, REALLY simple and easy -
    GET THE GOV’T THE F OUT OF OUR LIVES AND LET THE FREE MARKET REIN. PURE & SIMPLE.

    For all you 99% out there (and economically I am one) – pull your heads out of where the sun don’t shine! READ A HISTORY BOOK – or 2 or 3 or 4 (socialism does NOT work) and if you have an IQ high enough to undertake it – read the frickin U.S. CONSTITUTION!!!!!!!!!!!!!!!!!!!!!!!! Then go back and study WHY that BILL OF RIGHTS is so frickin important! And for those of you unfamiliar with the Bill of Rights – don’t even try. Just move back to whatever commie society you came from ’cause there’s NO helping you.

  • Rory says:

    Is there a timeline graph available showing the gross incomes (actual dollar amounts, not %) for America’s so-called “classes”? It’d be interesting to see this graph (both adjusted for inflation and not-adjusted) next to the % of wealth graph.

  • Matt says:

    I’m not top 1%, but not complaining either. The way I see it is that there are three types of wealth.
    The first is the born into wealth, that which is inherited. It usually comes about as a result of someone somewhere being part of the other two types of wealth.
    The second type of wealth is the earned it wealth, whether there is a bit of luck involved or not, you generally have something or can do something that others would like. You might be a CEO who’s income far outstips what you actually do…but somewhere along the way you’ve made some good decisions, steered the company ship in the right direction and now get overly compensated for it because some people think you’re worth it. I include sports stars and musicians etc in this category.
    Then there’s the final type of wealth, the luck wealth. The lottery winning or cash fall wealth, the I’ve sued to be wealthy.

    I’ve no objection to other people being wealthy but, and I hate to sound cliched, it doesn’t necessarily bring you happiness.

    The other thing to consider is that wealth when it is not widely spread drives economies such as the US’s. If we all had an equal share of it there would not be the span of industries, products and benefits that really, we all benefit from. I’m not saying it can’t work (I’m a Brit – believe me, I know socialism) but we chose to have an economy driven by the market and unfortunately politics.
    Examples – really wealthy person gets bad disease and sets up enormous amounts of research in the home that they will get a lifeline. We will all ultimately benefit. Or wealthy person wants to win formula 1 races but in order to do so has to design a better can than the competition, we poor sods end up with traction control, abs, stability management, longer lasting but safer tyres. Wealthy person wants a bespoke kitchen, some craftsman has enough work to feed a family.

    Wealth drives a diversity in the economy that in reality we all ultimately benefit from.

  • The statistics in and of themselves are quite alarming, but I think one thing that is misleading about the argument of the top 10%, 5%, 1%, etc. is that it isn’t simply a representation of those with sustainable “wealth” and is not a static group of individuals. The actual composition of individuals/families that make-up this group is quite variable from year-to-year, so it doesn’t really take into account how real individuals/families see their income/growth over time. Of course there are families and individuals that have been at or near the top for year after year after year, but I would be curious to see the statistics too of the breakout of those who are at (and stay) at the top over a one, three, five, ten, fifteen year period of time.

  • Ben says:

    I am not surprised by any of the statistics thrown out. At the end of the day, the “wealthy” have more assets working in their favor than their lower income counterparts. The lower income counterparts are more susceptible to debt, significant life changes (e.g. layoffs/illness) and other factors that could negatively affect their ability to create wealth.

    As my grade school teacher once told me, “stop worrying about what others are doing and focus on you”. We are not a nation founded on the principle that we are all entitled to the same financial results of our peers. What makes our country great is that you can work your tail off and have an opportunity to better yourself, your community, and your lifestyle. But at the end of the day, it all comes back to choices individuals make that can significantly impact future earnings potential.

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