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New Research

America’s Tilt to the Top: The Deepest Stats Yet

Research & Commentary
October 29, 2011


All sorts of federal agencies publish income inequality data. But only the nonpartisan Congressional Budget Office directly takes on America’s income inequality deniers.

Back in 1979, America’s most affluent 1 percent took home — after federal taxes — about the same share of the nation’s income as all the Americans in the bottom 20 percent. In 2007, Americans learned last week, the nation’s top 1 percent took home more income than America’s entire bottom 40 percent.[pullquote]The new CBO report challenges those apologists for concentrated wealth who claim that the United States hasn’t become nearly as unequal as the Census and IRS data suggest.[/pullquote]

These new stats didn’t come from some scruffy Occupy Wall Street encampment. They came — in a blockbuster new report — from the buttoned-down number crunchers at the nonpartisan Congressional Budget Office. And the portrait they paint essentially gives the Occupy movement’s most basic insight, that our top 1 percent has hijacked the nation, an official government imprimatur.

Over the past three decades, the new CBO study documents, the deep pockets who make up our top 1 percent have more than doubled their share of America’s after-tax income, “from nearly 8 percent in 1979 to 17 percent in 2007.”

What makes the new CBO figures so significant? Other federal agencies, after all, do regularly drop their oars into America’s income distribution waters. But the statistics these agencies report never quite capture the complete big picture.

The Census Bureau’s annual income surveys, for instance, don’t even attempt to cover what’s happening at America’s economic summit. And IRS statistical tallies only include Americans who make enough to have a file a tax return.

Analysts at the Congressional Budget Office neatly solve this statistical snafu. They massage Census and IRS data together. But they don’t stop there. Their new report also directly challenges the nation’s inequality “deniers,” those apologists for concentrated income and wealth who loudly claim that the United States hasn’t become nearly as unequal as the Census and IRS data suggest.

These apologists invoke a variety of objections. Income breakdowns, they insist, should take into account the dollar value of all the government services that go to poor people — and adjust for differences in household size as well. The new CBO report released last week, Trends in the Distribution of Household Income Between 1979 and 2007, does all that and more.[pullquote]The CBO’s expansive definition of income encompasses nearly every household revenue source imaginable.[/pullquote]

The CBO’s expansive definition of income encompasses nearly every household revenue source imaginable — not just wages and salaries, but income allocated to 401(k) plans, not just Social Security and workers’ comp, but “the value of in-kind benefits,” everything from food stamps to free school lunches.

The CBO even counts as individual income what employers shell out for your Social Security, Medicare, and health insurance coverage. In other words, the CBO essentially tallies everything that impacts your economic well-being.

On top of all this, the CBO has adjusted all its income figures for inflation, for every year from 1979 through 2007. Why pick these two particular years? One practical reason: Some data streams the CBO taps only start in 1979.

The more significant reason: Both 1979 and 2007 rate as “economic peak years just prior to a recession.” By starting and ending at an economic peak, Congressional Budget Office researchers are comparing apples to apples — and giving a much more accurate sense of basic long-term trends.

These trends, the new CBO analysis finds, vary enormously by income level.

For households in the top 1 percent — households making over $352,875 before federal taxes in 2007 — the trend line goes steeply up. These households saw their after-tax incomes soar 275 percent between 1979 and 2007, quadruple the 65 percent increase for the rest of the households in the nation’s top 20 percent.[pullquote]Every category of income — from salaries to dividends and capital gains — tilted more to the top 1 percent in 2007 than in 1979.[/pullquote]

And below that top 20 percent? After-tax incomes for America’s statistical middle class, the middle 60 percent of the nation’s income distribution, increased “just under 40 percent,” or a bit over 1 percent a year, barely enough to cover an average household’s rising utility bills.

Households in the bottom 20 percent fared even worse. Their incomes, after adding in federal “transfers” like food stamps and subtracting federal taxes, increased only 18 percent over 28 years, less than 1 percent a year.

All this “uneven income growth,” the new CBO report notes, has left the United States with a “substantially more unequal” distribution of income.

The new CBO numbers tell the same inequality story, no matter how you cut the data. Every category of income — from wages and salaries to dividends and capital gains — tilted more to the top 1 percent in 2007 than in 1979.

Sign up for To MuchHas that tilting continued? The new Congressional Budget Office report doesn’t go beyond 2007. But all other signs, from CEO compensation to hedge fund manager pay rankings, point to even greater inequality today.

The latest sign comes courtesy of the Social Security Administration. SSA rsearchers reported earlier this month that half of America’s workers earned under $26,364 last year. The number of Americans making over $1 million, according to W-2 form payroll data, skyrocketed 18 percent.

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