This is an outtake and expansion of a comment made elsewhere - deserving of attention on its own.
A few handy statistics for the debate on 'top tax rates' and income inequality and a redux of an old but very informative analogy that is more than worth the read.
From:
http://www.americablog.com/....
Top 20% = $100,000 per year
Top 10% = $150,000 per year (actually $160k)
Top 5% = $200,000 per year
Top 2% = $375,000 per year
Top 1% = $500,000 per year
Top .5% = $800,000 per year
Top .1% = $2 million per year
Top .01% = $10 million per year
more below
Look at those numbers - thresholds I believe, not even average or median.
There's a far smaller gap going DOWN from the top 2% to the absolute bottom than there is going UP to the top 1/2 of 1%.
There is a 4 X gap between the top !% and the top 1/10 of 1%
There is a 20 x gap - or far LARGER at the upper levels - between the top 1% and the top 1/100 of 1%
The curve is exponential and the gap increases faster and faster between incomes as you go higher in income.
The gap between the rich and the superrich has grown as fast - or faster than the gap between the rich and the poor.
The top 1 percent are pulling away from the next 4; the same thing is happening for the top 0.1 versus the losers who are in the 99.0-99.9 range, and so on
The INTEREST ALONE on $10 million - 5% tax free on Munis yields $500,000 a year - putting you in the top 1% - yet you have people earning hundreds of millions a year. How CAN you spend that much money? TRY to spend $1 million a day or every other day....... In the first week you've maxed out on legal individual political contributions for pretty much EVERYBODY.
For a historical context we have:
From:
http://www.slate.com/...
In 1915, a statistician at the University of Wisconsin named Willford I. King published The Wealth and Income of the People of the United States, the most comprehensive study of its kind to date. The United States was displacing Great Britain as the world's wealthiest nation, but detailed information about its economy was not yet readily available; the federal government wouldn't start collecting such data in any systematic way until the 1930s. One of King's purposes was to reassure the public that all Americans were sharing in the country's newfound wealth.
King was somewhat troubled to find that the richest 1 percent possessed about 15 percent of the nation's income. (A more authoritative subsequent calculation puts the figure slightly higher, at about 18 percent.)
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This was the era in which the accumulated wealth of America's richest families—the Rockefellers, the Vanderbilts, the Carnegies—helped prompt creation of the modern income tax, lest disparities in wealth turn the United States into a European-style aristocracy
..............
Income inequality in the United States has not worsened steadily since 1915. It dropped a bit in the late teens, then started climbing again in the 1920s, reaching its peak just before the 1929 crash. The trend then reversed itself. Incomes started to become more equal in the 1930s and then became dramatically more equal in the 1940s. Income distribution remained roughly stable through the postwar economic boom of the 1950s and 1960s. Economic historians Claudia Goldin and Robert Margo have termed this midcentury era the "Great Compression." The deep nostalgia for that period felt by the World War II generation—the era of Life magazine and the bowling league—reflects something more than mere sentimentality. Assuming you were white, not of draft age, and Christian, there probably was no better time to belong to America's middle class.
The Great Compression ended in the 1970s. Wages stagnated, inflation raged, and by the decade's end, income inequality had started to rise. Income inequality grew through the 1980s, slackened briefly at the end of the 1990s, and then resumed with a vengeance in the aughts. In his 2007 book The Conscience of a Liberal, the Nobel laureate, Princeton economist and New York Times columnist Paul Krugman labeled the post-1979 epoch the "Great Divergence."
It's worth reading the whole article
In a similar vein
From (almost a year ago)
http://www.nytimes.com/...
The richest 1 percent of Americans now take home almost 24 percent of income, up from almost 9 percent in 1976. As Timothy Noah of Slate noted in an excellent series on inequality, the United States now arguably has a more unequal distribution of wealth than traditional banana republics like Nicaragua, Venezuela and Guyana.
C.E.O.’s of the largest American companies earned an average of 42 times as much as the average worker in 1980, but 531 times as much in 2001. Perhaps the most astounding statistic is this: From 1980 to 2005, more than four-fifths of the total increase in American incomes went to the richest 1 percent.
A good counterpoint to this comes from the previous article - from the author of that 1915 study:
In 1915, King wrote,
"It is easy to find a man in almost any line of employment who is twice as efficient as another employee,"
but it is very rare to find one who is ten times as efficient. It is common, however, to see one man possessing not ten times but a thousand times the wealth of his neighbor. … Is the middle class doomed to extinction and shall we soon find the handful of plutocrats, the modern barons of wealth, lined up squarely in opposition to the propertyless masses with no buffer between to lessen the chances of open battle? With the middle class gone and the laborer condemned to remain a lifelong wage-earner with no hope of attaining wealth or even a competence in his old age, all the conditions are ripe for a crowning class-conflict equaling in intensity and bitterness anything pictured by the most radical follower of Karl Marx. Is this condition soon coming to pass? [emphasis his]
From a diary I wrote in 2006 (and its gotten WORSE since then) :
THE PARADE OF WAGES
September's Atlantic Magazine has a great article titled "The Height of Inequality" by Clive Crook (is that a real name?). Couldn't find an online ref - I think it's subscription.
The article discusses the gains in productivity and how they have been reflected - or not - in wages.
I knew things were skewed but was dumbfounded at the example given. We are talking about WAGES - not investment income here..... which makes this all the more appalling......
The article takes an example used first by a Dutch economist - Jan Pen - to illustrate wage distribution.....
Imagine a parade.
You are watching every person in the economy walk by - taking exactly an hour to pass.
You are of average height - Assume 5' 10" for this example - as are the other observers. Your height represents the average wage paid to all those in this nation's economy. Of note - that was $36,700 in 2002 (quick search, I doubt it's gone up all that much) - a figure that is damn near impossible to live on in a place like NYC (A receptionist around here will make $25,000 a year).
The height of all those marching is proportional to their wages, with the lowest paid marching by first.
At the beginning of the parade, you see nobody. They are actually "invisible" - underground - losing money. Think of the proprieters of small businesses.
Eventually you begin to see very small, tiny, miniscule marchers - part time workers, those that work sporadically.... they are a few inches high.
After 6 minutes, the tenth percentile, marchers are 7" tall - they earn 1/10 of the average.
At the 35th percentile, 21 minutes into the parade, people are still only 2'6"........ over a third of the workers in the economy are not even making half the average....
The parade continues, with office workers, tradesmen, skilled workers..... at the 65th percentile, 39 minutes along, people are now 5'9" Almost two-thirds of the workers in our economy are not making the "average" wage paid......
At the 85th percentile, 9 minutes before the parade ends, heights have now reached 10'- but that's not even $65,000 a year with our 2002 average.
At the 92.5th percentile, heights have reached 13'9" - tall but not gigantic..... basketball players on growth
hormones......large but not frightening mutants yet.... that's 235% of the average wage (being fair, that's still not even an affordable wage in places like NYC or LA)
At the 97th percentile, with 108 seconds left in the parade, marchers are at a still viewable 21' tall - we are now into a seemingly different species. But that is still only 3.6 times the average. Using the 2002 average salary, that's $133,200..... sounds impressive, but that makes for a pretty tight household in some locales...
But at the 99.5th percentile, with 18 seconds left in the parade, heights have jumped to 49' - more than 8 times the average - but less than $300,000 with our 2002 number...
The end of this parade is getting downright ridiculous....
At the 99.95th percentile - that's 1.8 seconds, marchers are 81' tall almost 14 times the average (just over half a million in 2002 $)
and at the 99.995th percentile - 0.18 seconds - less than a fifth of a second left in the parade (a blink of an eye) at the end of our parade, the marchers are an astounding 933 feet tall. You can't even see the tops of their shoes....... that's 160% of the average..... but not even $6 million.
This is pre-tax salary and wages
I hate to think of what the idle rich are earning off investment income.......
Quoting the article, between 1966 and 2001 median wage and salary income - REMEMBER, NO INVESTMENT INCOME HERE - increased by just 11 percent after inflation.......
At the 90th percentile - six minutes from the end of the parade - where marchers are just over a dozen feet tall, income for the same period increased by 58% - almost 6 times more....
At the 99th percentile, 3.6 seconds before the end, wages grew by 121%
And for the 99.99th percentile (the last 0.36 seconds), wages for the 13,000 highest paid workers in the US grew by 617%.
Again, this is pretax income - wage and salary - NOT investment income.
Our economy has gotten more and more efficient in many ways. Greater efficiencies can mean lower prices for goods, and greater profits.
I just finished a book on Carnegie - he made money by producing steel more and more cheaply ........ironically, the squeeze he put on wages actually did little to lower his total costs..... wages were a small part of his total costs...... things are a bit different in our non-capital intensive non-manufacturing economy but look at the cost of "non-executive" wages compared to "executive" wages..... a rational analysis would say cut the wages of the very few VERY overpaid executives and ADD more lower paid workers that actually produce product or services.... but the well paid execs are the ones making those decisions, right?, so you KNOW you'll never hear "Cut the Executive pay"......
So..... it seems that the large gains made in productivity here are not
a) being passed on to consumers in the form of lower prices (which has the effect of increasing buying power - i.e. "wages")
or
b) being passed on to investors as profit
or
c) being used to raise the wages of most employees in the industries that have seen remarkable productivity gains...
So where's all that increased "profit" going?
to a very, very small number of people
REMEMBER - THIS is WAGE/SALARY income - NOT investment income....
Seriously..... Wouldn't a more 'equitable' distribution of income actually benefit the economy more?
How many Bentleys can be sold in a year - compared to say a Taurus, Malibu or Civic?
How many people buy $600 shoes - compared to those that NEED $40 shoes?
How many people can spend $1000 on a dinner out - compared to $50?
Those at the end of this parade can't spend FAST enough for it to "trickle down." Remember - this is salary and wage income. So where does that money go? And remember what Buffett and others have said about inherited wealth......
Unless there's some alien running a very high priced excursion/escape service for the uber-wealthy - allowing them to survive the end of life on this planet as we know it - how can you possibly justify this type of disparity? Are they going to leave it for their kids? And just think of what THAT will mean....... do you want Paris Hiltons ruling the world?.... hell, George W. is bad enough.....
Even when companies LEGITIMATELY have increased profitability through improved workflows, automation, etc - not by simply loading up more work on employees or putting a formerly 'on the clock' employee into non overtime status (and greatly increased hours) as 'supervisory', the stockholders aren't getting their fair share (and they ARE the owners), and the great mass of employees aren't benefitting. Consumers aren't seeing drastic drops in their costs...... nope - a few execs are walking away with most of the $..... These executives are EMPLOYEES (who have an equity stake ONLY through stock options and such - at least the robber barons WERE owners putting their own money on the line).....
I was the guest at a wedding a few years back..... A CEO's daughter..... very nice wedding. The flowers alone must have cost (literally) $200,000. I have a realistic sense of costs - my wife has run events for her company in the same place ( a VERY expensive NYC hotel). This CEO just got a bonus of over $25 million (this was in 2001) - and had laid off 5,000 workers just a few weeks earlier....... A decade later I found this comment - i a story about a suit by retirees to reduce executive compensation at that company:
Senior executives can get 50 percent of their target award even if the company performs below the 30th percentile in its peer group.’
Meanwhile, when you talked then - and still today - to those remaining employed with this company - they were screaming that they couldn't handle the workload.... work wasn't getting done.... The company was a formerly regulated utility..... it seems that the ONLY people making out through deregulation were the top execs.... the customers sure weren't - nor were most employees..... Ironically, they had to hire back most of those laid off - BECAUSE work wasn't getting done...... hmm.... seems like someone screwed up..... any consequences? nah.......
I'm hardly a 'Communist' but when the rich are making money faster than they could possibly spend it, when a person already worth hundreds of millions says they won't feel 'secure' until they have $1 BILLION (a real quote from a study interviewing the very wealthy and their concerns), something is VERY wrong with this country.
When we are in the running with real banana republics and African dictatorships when it comes to income inequality, it's time for change.