‘We Are Not Taxing the Very Wealthy Enough’: Runaway Inequality About to Get Worse
The United States' astronomical levels of economic inequality are poised to become further entrenched in the coming years.
The Census won’t count it. The IRS won’t tax it, at anywhere near full freight. What is it? It’s enough, all by itself, to keep grand fortunes constantly soaring.
Can we start the century over?
Economically, new Census Bureau income stats released last week suggest, our 21st century so far rates as the worst century in American history. We are hurtling backwards — at an alarmingly rapid rate.
The typical American household income, $53,164 in 2000 after adjusting for inflation, stood at just $49,445 last year. Incomes for the typical working-age household — under 65 — have dropped over 10 percent since 2000.
The number of Americans living in poverty, meanwhile, is rising. In 2000, 11.3 percent of Americans rated as officially poor. Last year, 15.1 percent fit the poverty definition — under $22,314 for a family of four — and almost half those in poverty, 44.3 percent, had incomes less than half the poverty threshold.
What about households at the other end of the income spectrum? The annual Census Bureau figures on incomes at our tippy top have never been particularly helpful. Census statisticians, to protect the confidentiality of the households they survey, “topcode” income categories — at $1.1 million.[pullquote]The Census income survey doesn’t count ‘capital gains,’ the profits from the sale of stocks, bonds, and other assets.[/pullquote]
We know, as a result, exactly how many American households made under $10,000 last year or between $50,000 and $60,000. But we have no clue, from the annual Census figures, how many made over $5, $10, or $20 million.
The even bigger shortcoming with the annual Census stats: The Census income survey doesn’t count “capital gains,” the profits from the sale of stocks, bonds, and other assets. Capital gains just happen to make up the single biggest category of income America’s super rich pull in every year.
In fact, as the Washington Post reminded us last week, capital gains make up nearly 60 percent of the income that goes to America’s 400 highest-earning taxpayers. Since the early 1990s, over 80 percent of all capital gains have gone to America’s richest 5 percent — and almost half to the richest 0.1 percent.
None of this capital gains income shows up in the new Census income figures released last week, the prime reason why the Census data show the average income of America’s top 5 percent, adjusted for inflation, down over the past decade, down even more sharply than incomes in America’s statistical middle.
Top 5 percent households took home an inflation-adjusted $320,000 in 2001, according to the Census figures out last week, and only $288,000 in 2010.
But these totals bear only a passing resemblance to the sums households in the top 5 percent have actually been raking in. We know that for a fact, thanks to statisticians at the IRS. Their IRS annual reports do include capital gains income.[pullquote]In real life, preferential treatment for capital gains serves to make the super rich ever richer.[/pullquote]
What sort of difference does this inclusion make to America’s income picture? A quite substantial one.
Between 2001 and 2008, the IRS stats show, the top 5 percent’s share of America’s national income rose from 31.99 percent to 34.74 percent. The Census Bureau annual data have the top 5 percent share, for these same years, falling from 22.4 percent to 21.5 percent.
A distressing irony lurks in all these numbers. The Census Bureau doesn’t count capital gains income. The IRS doesn’t tax it — at anywhere near the tax rate that applies to ordinary income. In real life, this preferential treatment for capital gains serves to make the super rich ever richer.
The world of professional baseball offers a particularly vivid example. In 2010, all Major League players will pay a 35 percent tax on any salary over $373,650. Any Major League owner who sells his franchise this year, by contrast, will pay just a 15 percent tax on the capital gains mega millions he makes on the sale.
That’s not, of course, the fault of the IRS. Over the past three decades, Presidents and members of Congress, both Democratic and Republican, have opted to lower the capital gains rate — and kept it low.
Still, capital gains only make up part of our national inequality story, and the latest Census figures, even without any capital gains data, do have important inequality stories to tell.
One such story: According to the new Census stats, the nation’s income divide between households at the 95th percentile — that is, households making more than all but the nation’s top 5 percent — and households at the 20th and 50th percentiles has, in modern times, never been higher.
Back in 1968, households at the 20th percentile made an inflation-adjusted $18,251. Households at the 95th percentile that year took home $156,316. In 2010, 20th-percentile households had incomes only slightly higher, just $20,000. The much more robust 2010 income at the 95th percentile: almost $181,000.
Overall income inequality, the new Census Bureau annual income report concludes after presenting stats like these, definitely “is increasing.”
Much, much faster, unfortunately, than the Census stats show us.
Sam Pizzigati, the co-editor of Inequality.Org, also edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up here to receive Too Much in your email inbox.