(Yeah, I know, David Cay Johnston blah, blah, blah...Reaganomics didn't start till the 80's blah, blah, blah...but still...
)http://www.taxanalysts.com/www/features ... 1D004DE3FC" onclick="window.open(this.href);return false;In 2011 the average income of the bottom 90 percent was just $59 more than in 1966 in real terms, depicted here as one inch. This graphic shows the comparable income growth of those within the top 10 percent.
Source: Author's calculations from analysis of IRS data by Saez and Piketty.
It has become widely understood that we cannot balance our federal budget by raising taxes only on those at the top, because there is not enough income there, even if we taxed away everything the top makes. What is equally true is that we cannot increase tax revenue if the incomes of the vast majority keep falling. That, however, has yet to become part of the debate on how to finance government.
Maybe this debate can change if we understand how the national income pie is being sliced now and how it was in more prosperous times.
Back in 1966, the top 1 percent of the top 1 percent reported 1.3 percent of all pretax income. In 2011 that tiny number of American households saw their slice of pie more than triple, to 4.5 percent.
Overall, the top 10 percent got a bigger share of the pie in 2011 than in 1966, but the biggest increases went to those at the top, with just a sliver extra for those down near the 90/10 dividing line.
What of the vast majority who make too little to be in the top 10 percent? The bottom 90 percent saw their slice of the national income pie shrivel, from two-thirds in 1966 to barely half in 2011 (66.3 to 51.8 percent).
Between 1980 and 2005, more than 80 percent of the total increase in income went to the top 1 percent of American households.1
Those at the top are pulling away from everyone else not because of hard work, but the shift of income from labor to capital and changes in federal income, gift, and estate tax rules.
The median wage has been stuck since 1999 at a bit more than $500 per week in real terms and job growth has lagged far beyond population growth. But capital gains and dividends have soared, a new Congressional Research Service study shows. And, of course, the rich get most of that income. Thomas Hungerford concluded:
By far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends. Capital gains and dividends were less equally distributed in 1991 than in 2006. . . . Tax policy may have also have had an indirect effect on rising income inequality, especially between 2001 and 2006. The reduction in the tax rate on long-term capital gains and qualified dividends may have led to the increased importance of this source in after-tax income.
The Saez-Piketty analysis shows the concentration of growth at the very top increasing. That is bad for tax revenue and bad for social stability. The drop in incomes among the vast majority holds back economic growth, because there is just not enough aggregate demand to support creating enough new jobs to keep up with population growth...
