Back in 2009, the American media offered a series of stories on the recession's impact on the tragically rich. The New York Times, CBS News, AP and even PBS toured yachts, vineyards and beach resorts (even profiling soon-to-be fugitive millionaire John McAfee) to warn that the super-rich "are not sleeping any better than the rest of America." Of course, they need not have worried about the well-being of the well-to-do. By 2011, the temporary dip in America's record high income inequality wasn't just over. As a new analysis by University of California Professor Emmanuel Saez reveals, the top one percent saw their incomes rise by 11 percent, even as the other 99 percent continued to lose ground.
Writing in the New York Times ("Incomes Flat in Recovery, But Not for the 1%"), Annie Lowey reported that overall income grew by just 1.7 percent since the recession officially ended in 2009. But as Saez explained, all of the gains--and a little more--went into the pockets of the very richest people in America:
"The gains were very uneven. Top 1% incomes grew by 11.2% while bottom 99% incomes shrunk by 0.4%. Hence, the top 1% captured 121% of the income gains in the first two years of the recovery."The explanation for that disturbing development is no mystery. While wages have been virtually stagnant, the Dow Jones has almost doubled since its March 2009 low. With upper-income Americans reaping the lion's share on their income from stocks, bonds, and other assets, the result has been a two-year windfall of mammoth proportions. Join me below the fold to see why.
The Washington Post recently explained why. For the very richest Americans the successive capital gains tax cuts from Presidents Clinton (from 28 to 20 percent) and Bush (to 15 percent) have been "better than any Christmas gift":
While it's true that many middle-class Americans own stocks or bonds, they tend to stash them in tax-sheltered retirement accounts, where the capital gains rate does not apply. By contrast, the richest Americans reap huge benefits. Over the past 20 years, more than 80 percent of the capital gains income realized in the United States has gone to 5 percent of the people; about half of all the capital gains have gone to the wealthiest 0.1 percent.This convenient chart tells the tale of how "capital gains tax rates benefiting wealthy feed [the] growing gap between rich and poor":
It also explains why between 2001 and 2007- a period during which poverty was rising and average household income had fallen - the 400 richest taxpayers saw their incomes double to an average of $345 million even as their effective tax rate was virtually halved. As Seth Hanlon of the Center for American Progress summed it up:
"As a percentage of their incomes, millionaires are now paying about one-quarter less of their income to federal taxes than they did in the mid-1990s...Millionaires paid an average tax rate of 22.4 percent in 2009, down by a quarter since 1995, when they paid an average of 30.4 percent."The recent tax hikes included in the January fiscal cliff compromise (returning the capital gains tax rate to 20 percent and a new top income rate of 39.6 percent starting at $400,000) should have only a minor impact on the trajectory of America's record income inequality. As Saez concluded:
This suggests that the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s. Indeed, excluding realized capital gains, the top decile income share in 2011 is equal to 46.5%, the highest ever since 1917 when the series start...Republicans protesting that tax increases on supposed "job creators" will hurt economic growth and employment need not fear. The historical record shows that the U.S. economy grew much faster and produced jobs in far greater numbers when taxes were higher--even much higher. In December, the Congressional Budget Office concluded that ending the Bush tax cuts for the rich would have virtually no impact on the U.S. economy at all. And as the Congressional Research Service explained in a report Republicans tried to squelch:
Looking further ahead, based on the US historical record, falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented and prevent income concentration from bouncing back.
The evidence does not suggest necessarily a relationship between tax policy with regard to the top tax rates and the size of the economic pie, but there may be a relationship to how the economic pie is sliced.As George W. Bush famously said, "We ought to make the pie higher." Unfortunately, right now the top one percent is eating it all.