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Wednesday, May 2, 2012

Income Distribution in the U.S.A.
Lawrence Mishel co-founded the Economic Policy Institute. He reported "From 1978-2011, CEO compensation grew more than 725 percent, substantially more than the annual compensation of a typical private-sector worker, which grew a meager 5.7 percent."
Forbes magazine reports that there are 1,226 billionaires in the world who each own on average $3.7 billion. That indicates an average income of $50,000 an hour or $100 million a year for all of 37 years.
The Swiss bank Credit Suisse reported in their World Wealth Report 2011 (page 11) that the top 1% of adults own 44% of all property, the top 10% own 84%. When there is more for you, there is less for me. It doesn't have to be that way. Everyone could increase income and wealth together, if we had proper income distribution, and of course, if we had a social will to make it so.

Even more gilded - Paul Krugman Blog - NYTimes.com.gif
See the dot at 6%. (Sorry, you'll have to click the source.) That means 16,000 tax-filers ("0.01%" of the 155,991,000 who filed tax forms) had an income of over $44 million, their average income. In actual fact, in 2011, the average was $33.8 million, because their share dropped to just 4.8% of all income. Total personal income was $11.468 trillion in 2011, and 6% of that is $704 billion, and divided among 16,000 is $44 million. Remember, that labor force is 154 million, the top 1% is 1.54 million. The top 0.01% is 15,400 workers. But here we are dealing not workers but with tax-filers, a total of 155.991 million filers in 2011.

A more recent update to 2010 can be found here, last page of U.C. Berkeley professor Saez's report.  Using 2010 figures from the updated report, this means 16,000 households (or tax-units) (0.01% of 156 million tax-payer units) have an average yearly income of about $33.8 million. Their tax rate is lower than yours. I hope I'm wrong, but I doubt it. Even if all 16,000 tax filers are joint income filers, that is still 32,000 earners out of 155.991 million filers, a mere 0.02%, and they take in 6% in 2007 and 4.8% in 2010 of all personal income! Ah, but in 2010 they only took in 4.8%.

In this essay I look at Congress' tax records on income, from the Joint Committee on Taxation, page 30, March 2012. This report shows total national personal income for 2011 --- $11.468 trillion.  From Professor Saez's report, the top 0.01% of households took in 4.8% of all income in 2010 (or $704 billion). When we divide $704 billion among 16,000 households (the top-earning 0.01%) their average income for 2010 is $33.8 million for each of the 16,000 households. Also, the top 0.3%, some 402,000 tax filers, according to the Joint Committee received 10.7% of total income, or $3,056,202 on average. Still, the top 0.01% crushed the top 0.3% with their average $33.8 million. It's all about getting the most, that's the measure of success --- ????  --- and societal failure is the by-product. When there is more for me, guess what, there is less for you --- less employment, less socially useful employment, more poverty, etc., etc. Marriner Eccles, the Chairman of the Federal Reserve 1934- 1948, described the cause of the Great Depression in these words: "As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery.[Emphasis in original.]
Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."
In total contrast, looking at the lower-earning half of the work-force, some 75 million workers out of 150 million who submitted W-2 forms to the Social Security Administration. (in a labor force of 154 million) (see this Social Security report and this report) --- the lower-earning half all had incomes below $26,362 and their average income was $10,263 in 2010, not $33.8 million. On average these 75 million workers would have an hourly income of $4.93 an hour (not $16,250 an hour that the top 16,000 were drawing), if they had been working full-time and year-round. But of course, most had not been working full-time, year-round. And that also is a great problem of our economic system. Workers are not adequately (meaning fully) employed by private enterprise. Workers are paid too little, and have too few hours of work. And maybe to top it off, there were more private sector workers in July 2000 than in April 2012. Private enterprise has not employed the working-age population, there has been a hiring boycott over the last 12 years.

We reward most workers stingily, or tightfisted-ly, and seemingly we have stopped hiring them. The bottom 33.8% of income tax filers (not workers solely) --- now I'm drawing on the Joint Committee's report --- out of 155.9 million tax filers, received only 6.8% of all income, which is a bit more than what the top 16,000 took in as income that year. This is on average below $15,000 yearly income, $14,799 to be exact. The top 4.3% of tax-filers received 28.4% of all income ($486,000 average income per tax-unit filer). Source: Joint Committee on Taxation, 2012. Yes, it is complicated, but the simple picture shows a very unequal income distribution. This is a huge waste of human resources and an inequity truly undignified for a modern, self-respecting democracy.

A more authoritative source of Personal Income data - and by extension Inequality info - can be found at Wikipedia and the U.S. Census. They sum up the facts much as I do. The Wikipedia article does a good job of summarizing a lengthy table of the U.S. Census. Only 6.61% of income earners have incomes above $100,000 a year. In contrast, the Congressional Joint Committee report shows 19.3% of filers reporting income above $100,000. In 2010 87% of the 243,995,000 Americans 15 years old or older had income.  This indicates that 36% of the 155.9 million tax-units of the Joint Committee on Taxation report filed joint income tax filings. The median income for 2010 was $26,197, very close to the SSA median among wage earners of $26,363. But among age 25 to 65 the median was $33,275.  The Gini ratio is 0.503. The CBO report, which I regard as the best source of info, states that Gini in 2007 was 0.590 pre-tax and pre-transfer, and 0.483 post-tax and post-transfer. (Appendix B, page 39 of report)
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Yesterday, the issues I think about were festering in my mind, and I looked at Table A-6 from the Joint Committee on Taxation report and I discovered a new relationship. The society of tax-units or tax-payers (155,991,000 units in all) can be divided into three major groups -- low, medium, and high. Members of the
first group are the 33.8% (52,725,000 tax payers) who report income of less than $30,000 a year, whose average income is $14,830.

The next group is made up of tax-units with incomes between $30,000 and $75,000, some 35.8% of all tax-units (55,840 million) and their average income is $50,111 yearly.

And the last group, 30.4% or 47 million tax units, earn over $75,000 a year and their collective average income is $166,382 yearly.
I find it useful to simplify as much as I can.

In addition, we should look at the top-earning 0.3% (some 402,000 tax-units). The very top group earn on average $3,056,202 each year. The next-to-top-earning tax-units, 0.5% (some 754,000 tax-units), earn $669,220 yearly. These are 8 of the 10 tax-units in the top ONE PERCENT. This is why the Congressional Budget Office reports (page 5 of  this report) that the Gini coefficient of income distribution is very high in the U.S.A., it has grown from  0.479 to 0.590 in the 28 years between 1979 and 2007 (market income) and is rivaling Mexico to our south, where 60% of the workers report earnings less than $3,510 a year. (My reference is La Jornada newspaper, an article of May 2011, and I don't have the link, just my memory.) The minimum wage in Mexico is about $4.50 a day and 58% of workers report daily earnings of less than 3 times the minimum, or less than $13.50 a day. A typical school teacher earns 90 pesos a day, that is $15 at current exchange rates. Mexico is a very hard-working nation that is almost a war zone because of really bad government that allows the wealthy to receive too much of the national income.


I should stop here, but here is still another way to simply the Congressional Joint Committee on Taxation report for 2012 shows this broad relationship: One third (33.8%) of American tax payers get $1 of income, while another one in twenty (5%)  get $32.  I am comparing 53 million with 7.5 million tax payers. The ratio is 1 to 32 received by one third and one twentieth, respectively. Numbers can be numbing. (See page 30 of report for income summaries.)
Restated, $14,830 was the average income for about one third of all income tax filers in 2012 while the top-earning 5% (7.5 million tax units) state an income of $486,000 on average -- a 1 to 32 ratio.

Go to Citizens for Tax Justice and look at their report on effective overall tax rates which includes the inclusion of state and local taxes. This report will disabuse you of the illusion that our tax system is really progressive. Every year CTJ has published this much needed report that even the Congressional Budget Office admits is needed but does not exist.

What would you expect in a world where a very few have incomes of $3 million yearly, and right across the border are many millions who earn less than $3,500 a year? This is the natural order, all good and correct?
Could the nation shift a portion of income using taxation and Earned Income Tax Credit and minimum wage policy and government employment programs?
Here's a brief quote about shifting income from the Congressional Budget Office report (page 39):  "That shift, of roughly $95 billion (in 2007 dollars), would reduce income in the highest percentile by about 5% but would boost income in the bottom quintile by almost 50 percent." I'll translate: a reduction of 5% of income in to the top ONE PERCENT (1.5 million tax-units) would reduce their average income from $1,371,000 to $1,302,450. The yearly incomes of the lower-earning 20% (31 million tax-units) would increase from $13,000 to $19,500. Reminder: the lower-earning 80% of workers earns only 28.2% of all the personal income (see this report from the Tax Policy Center), which is to say, workers are grossly under-paid in our economic system, and owners are grossly over-paid. Society does have a choice on how to reward workers for their labor. The "free" market is not free, nor is it fair. See this essay from the Chicago Political Economy Group, CPEG, "Neo-Classical Economics is Immoral".

In my next essay I plan to describe a plan to tax the high-earning 0.8% of tax-units -- whose present effective tax rate is 29.0% -- by raising that rate to 55%, effectively. This is the reported effective rate that held from  1950 to 1962 when Eisenhower and Kennedy were the Presidents. What could we as a society do responsibly with that much more additional tax revenue?

_______________ the following comes from  _______________

"Income Gaps Between Very Rich and Everyone Else More Than Tripled in Last Three Decades, New Data Show",  the CBPP report states:

Instead, the wealthiest households reaped a sharply growing share of the nation’s income, while the share going to middle- and lower-income households shrank (see Figure 3). Between 1979 and 2007:
  • The top 1 percent’s share of the nation’s total after-tax household income more than doubled, from 7.5 percent to 17.1 percent.
  • The share of income going to the middle three-fifths (or 60 percent) of households shrank from 51.1 percent to 43.5 percent.
  • The share going to the bottom fifth of households declined from 6.8 percent to 4.9 percent.
  • The share going to the bottom four-fifths (80 percent) of the population declined from 58 percent to 48 percent.
In 2007, the top 1 percent received a larger share of the nation’s after-tax income than the middle 20 percent of the population. This represents a significant change from 1979, when the middle fifth received more than twice as much of the nation’s income as the top 1 percent (16.5 percent versus 7.5 percent).
Table 1:
Average After-Tax Income by Income Group 1979 - 2007 (in 2007 dollars)
Income Category19792007Percent Change
1979-2007
Dollar Change
1979-2007
Lowest fifth$15,300$17,70016%$2,400
Second fifth$31,000$38,00023%$7,000
Middle fifth$44,100$55,30025%$11,200
Fourth fifth$57,700$77,70035%$20,000
Top fifth$101,700$198,30095%$96,600
Top 1 Percent$346,600$1,319,700281%$973,100
Source: Congressional Budget Office, Effective Federal Tax Rates: 1979-2007, June 2010.
The CBO data only go back to 1979, but economists Thomas Piketty and Emmanuel Saez have used tax data to calculate the share of income going to wealthy Americans back to 1913. Taken together, the CBO data and the Piketty and Saez findings suggest greater income concentration at the top of the income scale than at any time since 1928.[3]


________________  my writing again _____________

Going to the report by University of California professor Emmanuel Saez, "Striking It Richer", he shows that slightly over half the economic gains from 1993 to 2010 went to the top one percent of households. To quote (page 3): "This implies that top 1 percent incomes captured slightly more than half of the overall economic growth of real incomes per family over the period 1993-2010." In the period 2009-2010, the top one percent captured 93% of all growth (page 4).  His first graph shows that from 1942 to 1982, the top-earning 10% averaged below 35% of total income, and today for the past five years they average from 45% to 49.7% of all personal income.


Find this graph at this CBPP report. The report from the CBO, below, shows at page xi that 60% of market income, pre-tax and pre-transfer, goes to the top 20% of households. This share is equal to the report by the Tax Policy Center for 2006.

The CBO report shows that the top-earning one percent increased their income share (the size of the income pie) by 9% between 1979 to 2007, from 8% to 17%. (see page xiii) After all taxes and all government transfers they jumped their income share from 8% of total to 17%. If the 9% of income share were re-distributed to the lower 80% of households, the lower-earning 94 million households, then each would receive an additional $11,000 of income yearly, year after year, and the nation's economic troubles would be over.

But even then, with the top one percent receiving (in 1979) after-tax and after-transfer 8%, do they deserve more income than the lower-earning 33.8% who received 6.8% of all income in 2010 according to the Joint Committee on Taxation?

Is the labor market remuneration fair, even at its best? Does market distribution of income truly reflect contribution to society? I think universal employment, where the government would be the "employer of last resort", would create conditions that more accurately reflect contribution, and would more fairly provide work opportunities, and of course would reduce poverty from its 28% pre-transfer rate. The post-government-transfer rate is 16.0% in 2011, official poverty (see my next essay for reference).

Another report by the Social Security Administration shows half of U.S. workers, 75 million out of 150 million, earn less than $26,363 a year.  For a family of four, poverty is below $22,400. Some earn much less than that. One in six, less than $5,000, one in six, between $5,000 and $15,000, and a last one in six between $15,000 and $26,363. Total wage income for 2010 was $6.009 trillion, while total income from the BEA report on GDP shows total personal income of $11.468 trillion. Wages and salary income is only 52% of total income, and about 80% of households rely solely on wage income. After all transfers, wage income for the lower-earning 80% of households was 28.2% of all income in 2007, according to a Tax Policy Center report. Most workers in the lower 80% are called "non-supervisory employees" or wage earners.

46 million Americans get food from the food stamp program, SNAP. They would starve to death otherwise.

Now, I'll repeat some numbers. 16.0% were officially poor in 2010, almost 50 million people, living with less than $5,600 per household member per year in a family of four, or a total of $22,400 yearly. The states of California, Nevada, Oregon and Washington have about 50 million. One in seven, 46 million, are on Food Stamps. The average meal costs $1.50 and the Republicans in Congress want to reduce that amount to $1.20 a meal. The average worker (all 142 million) contributes over $109,000 per year to the economic output of our country (142 million times $109,000 is a GDP of $15.5 trillion. The average worker income, as opposed to the $26,363 median income, is around $74,000 a year before taxes and that includes all the 12.6 million unemployed. Excluding the unemployed (reducing from 154 million in the work force to 142 million who work daily) it's almost $81,000 on average per worker per year, before taxes.

If you want confirmation about the income distribution figures go to this site that shows the Congressional Joint Committee on Taxation for 2012. See page 28 for the run-down on income:
A third earn 1/32nd of the average income of the top 5%. 53 million earn $1 --- 7 million earn $32.

It shows that 52,846 million tax filers, 33.8% of all, all with incomes below $30,000 a year, had a collective income of just 6.8% of total income. Meanwhile, the top-earning 4.3%, or 6,670,000 tax filers, all earning $200,000 or above  collected 28.4% of all income. The collective average income for the lower earning group was $14,979. The high earners had a collective average income of $486,106 per year. So the ratio is $1 to $32,  or $5 to $160.

By Ben Leet, author of the blog http://benL8.blogspot.com

 If you've read this far, read the next essay, especially the three suggestions to improve the economy. It is complicated, but it is thorough as well. 

1 comment:

Anonymous said...

I agree that is it extremely troubling that almost no one is paying attention to this subject. It brings to mind a line from the theme song from the TV show Monk, "People say I'm crazy cause I worry all the time, if you paid attention you'ld be worried too" heh. No one wants to , or are incapable of paying attention. CDO's, Structured FInancial Products, Dividends or Jobs? etc.What is that all about? Heh. I think it was Michael Lewis ,author of Liars Poker, who said it is going to take things to hit rock bottom to get people to listen. But then again, listen to what? The media spin? Well I have to prove I'm not a robot now to submit. ,
Sco