Trends In The Distribution Of Income

It is gratifying to see that many Americans, including the morons on National Propaganda Radio, learned something this week. Given the Occupy protests, and the focus on the top 1% versus everybody else, somebody asked the Congressional Budget Office (CBO) to produce a report on trends in the distribution of income in the United States (summary, and full report). These data, which show growing income inequality during the Empire's Decline (early 1980s to the present), are not new to readers of DOTE. The CBO results simply repeat what we've pointed out here a hundred times before.

So the real news is that some fucking idiots have now learned—for the moment, anyway—what we already knew, although as I write this, NPR is interviewing Bloomberg columnist Amity Shlaes, who is denying that the distribution of the income (and wealth) has any effect on economic growth and our general prosperity. In fact, the opposite is true!  Thus she wants to eliminate the capital gains tax so the rich can get even richer. She says this will create jobs. Some expert!

Fairness, of course, is not an issue for Amity. Some things never change. People like her are utterly hopeless, as are media people like NPR's John Hockenberry, who saw fit to interview her. See my post Income Inequality — America Is Like Mexico And The Philippines. This text and the graphs are from the CBO's summary.

From 1979 to 2007, real (inflation-adjusted) average household income, measured after government transfers and federal taxes, grew by 62 percent. That growth was not equal across the income distribution: Income after government transfers and federal taxes (denoted as after-tax income) for households at the higher end of the income scale rose much more rapidly than income for households in the middle and at the lower end of the income scale.

• The share of after-tax household income going to the highest income quintile grew from 43 percent in 1979 to 53 percent in 2007. (Each quintile contains one-fifth of the population, ranked by adjusted household income.)
• The share of after-tax household income for the 1 percent of the population with the highest income more than doubled, climbing from nearly 8 percent in 1979 to 17 percent in 2007.
• The population in the lowest income quintile received about 7 percent of after-tax household income in 1979; by 2007, their share of after-tax income fell to about 5 percent. The middle three income quintiles all saw their shares of after-tax income decline by 2 to 3 percentage points between 1979 and 2007.

The CBO is using after-tax income, which includes government transfer payments and reflects tax policy. The alternative is to use pre-tax income, or what the CBO calls market income.

The major reason for the growing unevenness in the distribution of after-tax income was an increase in the concentration of market income—income measured before government transfers and taxes—in favor of higher-income households. Specifically, over the 1979 to 2007 period, the highest income quintile’s share of market income increased from 50 percent to 60 percent (see figure below), while the share of market income for every other quintile declined. In fact, the distribution of market income became more unequal almost continuously between 1979 and 2007 except during the recessions in 1990–1991 and 2001.

Note that the income share of all quintiles was either lower or the same in the period 1979-2007. That means that only the share of the top 1% grew. Outside the top earners, the income pie grew, but everybody's piece of that pie was slimmer in 2007 than it was in 1979.

We might be interested in real (inflation-adjusted) pre-tax income "growth" over the decades, analogous to the first graph above. The CBO doesn't include it, but here's a version I used in my posts America's Invisible Poor and Let's Destroy The Village In Order To Save It.

Market Income Grew Rapidly for the Highest-Income Households

The rapid growth in average real household market income for the 1 percent of the population with the highest income was a major factor contributing to the growing dispersion of income. Average real household market income for the highest income group tripled over the period, whereas such income increased by about 19 percent for a household at the midpoint of the income distribution.

As a result, the share of total market income received by the top 1 percent of the population more than doubled between 1979 and 2007, growing from about 10 percent to more than 20 percent.

The precise reasons for the rapid growth in income at the top are not well understood...

From Lane Kenworthy's The Best Inequality Graph. "Between the late 1940s and the mid-1970s incomes increased at roughly the same pace throughout the distribution; they doubled for each group. Since the 1970s the story has been quite different. At the 95th percentile, incomes have continued to rise. At the upper-middle levels (the 80th and 60th percentiles), they’ve increased at a moderate pace. In the bottom half of the distribution (the 40th and 20th percentiles), they’ve been fairly stagnant."

Update: Here's a better graph based on a 2010 CBO report everybody has now forgotten about.

Average pre-tax income 1979-2007. Do see all those nearly flat lines? Enough said.

The precise reasons for the rapid growth in income at the top are not well understood...

... though researchers have offered several potential rationales, including technical innovations that have changed the labor market for superstars (such as actors, athletes, and musicians), changes in the governance and structure of executive compensation, increases in firms’ size and complexity, and the increasing scale of financial-sector activities.

If you read the summary, you will further learn that government transfers and federal taxes became less redistributive.

Although an increasing concentration of market income was the primary force behind growing inequality in the distribution of after-tax household income, shifts in government transfers (cash payments to individuals and estimates of the value of in-kind benefits) and federal taxes also contributed to that increase in inequality. CBO estimates that the dispersion of market income grew by about one-quarter between 1979 and 2007, while the dispersion of income after government transfer and federal taxes grew by about one-third.

Because government transfers and federal taxes are both progressive, the distribution of after-transfer, after-federal-tax household income is more equal than is the distribution of market income. Nevertheless, the equalizing effect of transfers and federal taxes on household income was smaller in 2007 than it had been in 1979.

Specifically, in 1979, households in the bottom quintile received more than 50 percent of transfer payments. In 2007, similar households received about 35 percent of transfers. That shift reflects the growth in spending for programs focused on the elderly population (such as Social Security and Unemployment Insurance), in which benefits are not limited to low-income households.

Likewise, the equalizing effect of federal taxes was smaller. Over the 1979–2007 period, the overall average federal tax rate fell by a small amount, the composition of federal revenues shifted away from progressive income taxes to less-progressive payroll taxes, and income taxes became slightly more concentrated at the higher end of the income scale. The effect of the first two factors outweighed the effect of the third, reducing the extent to which taxes lessened the dispersion of household income.

So what did the idiots learn this week?  After-tax income for the top 1% grew 275% in the last 30 years (first graph above). Everyone else got hosed. The idiots learned that there really is a gross disparity between the top 1% and the bottom 99%. Two things will happen now. The elites or, more likely, their lapdogs in the media—see Amity Shlaes—will argue that this CBO data is unimportant. Or these people will simply forget about this data, just like they forget about everything else as the 24-hour news cycle cycles on.

Yesterday, I wrote that corruption in the United States could not get any worse in the current system. But reader Joonsae said "Of course [it can]! The moron index has never been higher!" Sadly, that is correct. That was merely some rare wishful thinking on my part.

Have a good weekend.

Bonus Video — Mark Dow and Henry Blodget explain why we are fucked. (Ignore some boneheaded remarks.)

Comments

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and Note... This is HOUSEHOLD incomes... Dad, mom and the teens now working - if they can, decades ago it was just dad mostly.