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Friday, September 16, 2011

If 80% earned $1 dollar, what would the top 1% earn?

A New Look at Inequality of Income

Data comes from U.C. Professor Emmanuel Saez, "Striking It Richer". Year is 2008.
Contrast this with the figures from the Citizens for Tax Justice report "All Americans Pay Taxes".
Top 1% received average (pre-tax) income of $1,328,000 in 2009. 

If Income Were Distributed at 1970 Ratios, 
Instead of 2007 Ratios: 
80% of households would have $15,000 more income. 
The Tax Policy Center lists the percentage of income received by different percentiles of households.
In 1970 the highest ten percent of households received 30.5%, in 2007 it received 42.0%. 63.6%  of the all income increase went to the top 10% (see the graph below). The figures from the E. Saez report show an increase, 1980 to 2007, of the top 10% households from 35% to almost 50%. Using the Tax Policy Center figures, the annual incomes of all of the lower 80% of households, about 90 million households, would rise by around $15,000, the median rising from $49,000 to $64,000, with the same distribution as in 1970.  The lowest-earning 20% of households would average not $12,000 but $27,000 a year; the next income quintile's income would be not $25,000 but $40,000 a year on average. And so on.  This is using the averages from the Citizens for Tax Justice report, cited above. The total incomes for the Citizens for Tax Justice report are confusingly low. The median household income from the U.S. Census is around $50,000 a year. But the distribution ratio change is not confusing. 

The Economic Policy Institute would disagree with my figure of $15,000 more for every family. Their chart shows an increase of $9,220 for the median, instead of my $15,000. I took the ratio of distribution from 1970 and applied it to 2011. Assume that the ratio had not changed since 1970, and you can also assume that the growth rate would have increased. But then you have to understand how inequality drags on growth by suppressing aggregate demand.

Or check out State of Working America, their section on income inequality. This is their graph:

Comparing the 1% to other earnings' groups 

A nutshell explanation:
If the lowest-earning 60% of U.S. households (almost 68 million households) in 2006 earned on average $1, then the next 39% of higher-earning households earned on average $4.65, and the top 1% earned over $54.40.

Or the lower-earning 80% (92 million households) earned on average $1, the next 19% earned on average $4.38, and the top 1% earned $36.80.

Or the lower-earning 99% (113 million households) earned on average $1 while the top 1% earned $22.32.

Where did I get these figures? See Citizens for Tax Justice, All Americans Pay Taxes, April 2010.

See also their report from 2009, Is Tax Day Too Burdensome for the Rich. Only recently did I find the more recent 2010 report. These pages show the effective overall tax burdens for all income sectors, that is, the total taxes paid to all government agencies (not just federal income tax) and the real rate as a percentage of actual income. The wealthiest pay 30%, the lower-earning 80% pay 24%, roughly. The higher-earning 1/5th who receive almost $6 dollars of income to every $1 dollar of income for the lower 80%, pay a rate of 30%, while the lower 80% pay an "effective overall" rate of 24%.

The income distribution data matches data from the Tax Policy Center, and from the Tax Foundation (see Table 5), if you are really curious. In 2008 the Tax Foundation reports that 67.38% of all pre-tax income went to the top 25%. The Tax Policy Center reports in 2006 that the top 20% received 60.3%. Roughly the same ratios as the Citizens for Tax Justice.

Since the We Are the 99% and Occupy Wall Street have become movements they might show that while each household in the bottom 99% get $1 dollar of income --- the top 1% get almost $24. The average income for the bottom 99% is $56,200, the top 1% average is $1,328,000. This is a ratio of $1 to $23.62.

The Math of Comparing
If 60 receive $1 each, or 20.3% of the total, their share of total income is $60.

Then 39 receives $4.65 each, this is 61.3% of the total, or $181.35.

Then 1 receives $54.44, or 18.4% of the total, or $54.44.

There are 100 participants, they receive 100% of all income, and total income amounts to $295.79. The average income ratio is 1 to 4.65 to 54.44.

If 80 receive $1 each, or 40% of the total income, their share of the total income is $80.

Then 19 receive $4.38 each, this is 41.6% of the total, or $83.20 total income.

Then 1 receives $36.80, equal to 18.4% of the total, or $36.80 total income.

There are therefore 100 participants, they receive 100% of all income, and total income amounts to $200. The average income ratio is 1 to 4.38 to 36.80.


Tax Policy Center
The lower-earning 80% of households received 28.2% of the nation's income from wages and salaries.

A part of the Brookings-Urban Institute, the Tax Policy Center is deep into the numbers. This report was subsequently published in State of Working America, 2006-2007, page 79. The note on page 79 states, "Source: Author's analysis of Urban-Brookings Tax Policy Center Microsimulation Model (version 0305-3A)." See these reports from the Tax Policy Center.

The distribution amounts for all 5 quintiles, from lowest to top, are 2.5%, 6.4%, 11.4%, 19.8%, and 60.3%. This is pre-tax income. The top one percent received 18.4% of total income (a portion of the 60.3%), an amount almost equal to the bottom 60% which received 20.3%. Professor Emmanuel Saez of U.C. Berkeley publishes a similar description in his report "Striking It Richer" and the Citizens for Tax Justice also publish a similar distribution, and if one were to look at the Joint Committee on Taxation or at the Tax Foundation one would find two other similar descriptions.

A disproportionate distribution amounts to leakage, a hole, in the economy. What escapes? Aggregate demand that would circulate and create jobs and incomes.

These are pre-tax income percentages. Looking at the overall effective tax rates for all income deciles, available at Citizens for Tax Justice (see link above), a subsidiary of the Institute on Taxation and Economic Policy ( we note that the top one percent paid 30.9% in taxes, the 80th to the 99th percentiles paid from 31.5% to 32.2% in taxes, and the bottom 80% paid on average 24.5% in taxes. (Overall means "to all government agencies, federal, state and local" and effective means "as a percentage of income")  Post-tax distribution ratios are roughly similar to pre-tax distribution ratios. From the report: "The total federal, state and local effective tax rate for the richest one percent of Americans (30.9 percent) is only slightly higher than the average effective tax rate for the remaining 99 percent of Americans (29.4 percent)."

Looking at the Citizens for Tax Justice figures (2009) for average income, the average income for the bottom 99% of households is 4% for the average of the top 1% ($55,600 to $1,445,000). That's a ratio of 1 to 25. When I plug in the ratios from the Brookings-Urban Institute, 99 receive $1, and 1% receives $22.32. It's sixth grade math, and I won't explain how I did it. I was a fifth grade teacher, and that's why I haven't forgotten my arithmetic.

If we use the pre-tax income percentages reported by U.C. Berkeley professor Emmanuel Saez for 2007, the top one percent received 23.7% of total income, not the 18.4% reported by the Tax Policy Center.
This graph comes from, see "income -- inequality".

Average After Tax Income by Income Group 1979-2007Source: Congressional Budget Office, Average Federal Taxes by Income Group, “Average After-Tax Household Income,” June, 2010._______________________________________________________________

Want to see it again? This time it's better. The source is an article at New Deal 2.0.

The United Nations Human Development Report lists the Gini coefficient for the U.S. at 40.8 in 2010. This measure of inequality places the U.S. last among developed nations.
Among the top 50 nations in human development the U.S. ranks 44th in "Income Gini coefficient."
Among the top 30 the U.S. ranks 28th.
(UNHDI, 2010, page 152  ---  )


Only recently the director of Economic Policy Institute, Lawrence Mishel, published a report titled "Huge disparity in share of total wealth gain since 1983", September 15, 2011.
In the 26 year period 1983 to 2009 the top five percentiles received 81.7% of wealth gain. The lower 80% of households had a net loss in wealth. See the report. The top 1% gained $4.5 million per household, the next 4% gained $1.2 million per household, the bottom 60% lost wealth. This is also consistent with Sylvia Allegretto's report, State of Working America's Wealth, May 2011. This is indicative of the distribution of annual income over time.

See the article in Dollars and Sense magazine, July-August 2011, by James Cypher "Nearly $2 Trillion Purloined from U.S. Workers in 2009". The top earning households "pocketed . . . an estimated $1.91 trillion that 40 years ago would have collectively gone to non-supervisory and production workers in the form of higher wages and benefits." Some 88 million workers would share $1.91 trillion or on average $23,875 per household. This would raise the median among the lower-earning 80% of  households by 66%, from $36,000 a year to $60,000. See

I left this comment on an article at New Deal 2.0 October 18, 2011.

Our economy generates over $47,000 of output per human being, all 312 million Americans, per year, but the median income for all workers, over 150 million (including part-time workers), is around $30,000/year. Half make less than $30,000. U.S. income distribution Gini coefficient is the lowest among the developed (industrial) nations, maybe it's #73 worldwide. The average personal income I think is around $82,000 a year. The St. Louis Fed Reserve has a graph showing average output per worker is $100,000 per year. Recently the share of income going to wages has dropped. 30% of the workforce is either out of work (9.2%), working part-time involuntarily or discouraged (8%), or working full-time for below poverty level wages (10%). And if you include the drop in labor force participation since 2000, it's even worse. I got those figure from, the unemployment numbers. I might mention, 28.2% of all personal income is the amount received by the lower-earning 80% as wages and salaries, see State of Working America, 2006/2007, page 79. About 20 miles south of San Diego, California, the minimum wage is $4.50 a day, and 60% of Mexican workers earn less than 3 times $4.50, or $13.50 a day. In China the manufacturing workers get $1.36 an hour, or under $3,000 a year. In the U.S. manufacturing jobs pay about $34 an hour, almost $70,000 a year. The rules of the economy, the laws, should serve the majority who live under those rules. The top one percent earn almost the same as the lower-earning 60%, see Beth Shulman and Paul Osterman deserve our attention. 

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