Posts Tagged ‘chart’

initial claims

The Labor Department earlier today reported the number of American workers filing new claims for jobless benefits last week rose to 3.28 million from 282,000 a week earlier. Nothing in the 53-year history of the series comes close. In the worst week of 2009, when the job market was reeling, initial claims hit 665,000.

Worse, the millions in new claims don’t reflect all the people who were pushed out of jobs last week as the novel coronavirus crisis emptied out Main Streets, shut businesses down, and impelled many other corporations to curtail their operations and furlough or lay off workers whom they directly or indirectly employ.

As Quoctrung Bui and Justin Wolfers explain,

be aware that these numbers come with some pretty important caveats. In particular, this spike in joblessness is so large that many unemployment offices had trouble keeping up, and in some cases their phone lines and websites have been overloaded. These official numbers reflect the number of claims successfully filed, but the true number of people newly out of work and attempting to file may be much larger. Those who failed to file last week but successfully did so this week will increase the next set of numbers, due out next week.

In addition, when unemployment offices don’t file their numbers on time — and given the surge in applications, it’s likely that data collection is particularly chaotic at the moment — the Labor Department treats these missing data as if there were no jobless claims from that office. Therefore many of these numbers may be undercounts. Furthermore, counts of the number of people claiming benefits are affected by the number who are eligible, and this may be changing rapidly, as the impact of Covid-19 has led some states to expand who can claim unemployment insurance.

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Economic inequality in the United States and around the world is now so obscene, and has convinced more and more people to do something about it, that the business press has initiated a campaign to deny its very existence.

They and the folks they represent are losing the battle of public opinion. And they’ve decided to do something about it.

First up was the Economist, the “newspaper” of record for liberal capitalism [ht: sk], claiming that new research undermines the pillars of the seemingly universal belief that “inequality has risen in the rich world.” Yes, as I have documented from the very beginning on this blog (e.g., here, here, and here), there are plenty of mainstream economists who have attempted to prove that inequality isn’t really a problem—either because it doesn’t really exist or, if it does, it’s not something we can or should do much about. And so the Economist managed to find pieces of research that call into question some of the key pillars of the inequality argument—that the gap between the top 1 percent and everyone else is growing, the middle-class is shrinking, capital is gaining at the expense of labor, and wealth inequality is soaring.

I won’t waste readers’ time repeating the arguments I’ve made on all four of those points over the past decade. You can use the search function at the top of the page to see what I and others have written on these issues—or look at the latest report from the Congressional Budget Office, which I discuss below.

What’s more interesting is where the Economist wants to take the discussion—away from wealth taxes (of the sort being proposed by Bernie Sanders and Elizabeth Warren) and toward the sorts of policies that, while they won’t lessen the degree of inequality, conform to the Economist‘s fantasy of liberal capitalism. Thus, they propose more building (so that young workers can afford housing), antitrust regulation (as if capitalism didn’t have an inherent tendency toward monopoly), less regulation of high-income professions (to create more competition for those high-paying jobs), and fewer restrictions on immigration (but only for “high-skilled” workers).

That’s the Economist’s derisory attempt to minimize the existence of inequality (against most of the available evidence and widespread belief) and to devise some tiny tweaks in existing economic arrangements (and avoid more serious efforts to lessen the degree of inequality).

The Wall Street Journal has also decided to confront the growing campaign against economic inequality—by attempting to show that Donald Trump’s administration has done more to decrease inequality than Barack Obama’s, by promoting economic growth through deregulation and increased business investment. Now, it’s true, Obama oversaw a bailout of Wall Street and a return (after a brief hiatus in 2009) to the same unequalizing trends that predated the Second Great Depression. So, that’s a very low bar to surpass.

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And even though the wages of low-income workers have been rising at a faster rate in recent quarters (the supposedly “happy wages of a growing economy”), it is still the case that the wage share of national income (as seen in the chart above) is still less than what it was in 2008 (when it was 44.9, compared to 43.2 in 2018) and far below its postwar peak in 1970 (at 51.6).

To rely on continued growth to solve the problem of inequality is simply a pipe dream, which is even less convincing than the castle in the air invented by the business press on the other side of the pond.

CBO

The fact is, the Congressional Budget Office [pdf] projects that income in the United States—both before and after transfers and taxes—will be more unevenly distributed in 2021 than it was in 2016. That’s because, even though average incomes for the bottom four quintiles are expected to grow, incomes for the top quintile (and especially for the top 1 percent) are expected to grow even faster.

Thus, for example, since 1979, while the average incomes of the middle three quintiles are expected to grow (after transfers and taxes) by a total of 57 percent, the incomes of those in the top 1 percent are projected to increase by a whopping 281 percent by 2021.

There’s no other way around it: inequality in the United States is obscene, and something—much more than minor regulations and continued growth—needs to be done to overcome it.

As it turns out, Americans are fully aware of the problem. For example, according to Gallup, the overall opinion of capitalism held by young adults (both Millennials and Gen Zers) has deteriorated to the point that capitalism and socialism are tied in popularity.

And a new Reuters/Ipsos poll finds that nearly two-thirds of respondents agree that the very rich should pay more.*

Among the 4,441 respondents to the poll, 64% strongly or somewhat agreed that “the very rich should contribute an extra share of their total wealth each year to support public programs” – the essence of a wealth tax. Results were similar across gender, race and household income. While support among Democrats was stronger, at 77%, a majority of Republicans, 53%, also agreed with the idea.

Moreover, when asked in the poll if “the very rich should be allowed to keep the money they have, even if that means increasing inequality,” 54 percent of respondents disagreed.

That’s the reason the Economist and the Wall Street Journal have decided to launch their campaign about inequality—to attempt to undermine the widespread belief that inequality is growing and, even more, to challenge any and all efforts to actually do something to create a more equal economy and society.

Such a campaign may satisfy their readers, at least in the short run, but the problem itself will remain. This election year, I expect the growing gap between the tiny group at the top and everyone else to overshadow their shabby efforts and culminate in a movement they simply won’t be able to contain.

 

*Ironically, another recent attempt to undermine the Sanders-Warren proposals of new, higher wealth taxes actually serves to reinforce how extreme wealth inequality is in the United States. While admitting that “only a small segment of the population would be subject to the top rate,” the American Action Forum’s Douglas Holtz-Eakin and Gordon Gray [pdf] can only conclude that the taxes would have “broad impacts” only because the wealth holdings of that group “constitute a significant share of the investable wealth in the economy.”

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The idea that GDP numbers don’t tell us a great deal about what is really going on in the world is becoming increasingly widespread.

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David Leonhardt, in reflecting the emerging view, has argued that GDP doesn’t “track the well-being of most Americans.”

Now, we’d expect that someone like socialist Democratic candidate Bernie Sanders would question the extent to which the low unemployment numbers, associated with economic growth, hardly tells the whole story about the condition of the American working-class.

Unemployment is low but wages are terribly low in this country. And many people are struggling to get the health care they need to take care of their basic needs.

But even centrist candidates Joe Biden and Pete Buttigieg are making the case that the headline numbers, such as Gross Domestic Product and stock indices, hide the fact “that a very different reality exists for many Americans who have not seen much improvement in their own bottom lines.”

And one of the last people you’d expect to question the shared gains from economic growth, Robert Samuelson, thinks that “something momentous is clearly occurring.”

economic inequality continues to rise at a steady pace; the further you go up the income scale, the larger the income gains, both relatively and absolutely. . .

The great danger here is social and political. It is the creation, or the expansion, of a multi-tiered society where the largest income gains are enjoyed by relatively small groups of people near the top of the economic distribution.

So, let’s step back a bit and see what these numbers reveal—and what they mostly hide.

GDP-S&P

First, as is clear from the chart immediately above, the growth in the value of U.S. stock markets (as measured by the S&P 500 Index, the red line) doesn’t tell us much about actual economic growth (as indicated by the value of Gross Domestic Product, the blue line). For example, between 2010 and 2019, the stock market increased by 163 percent, while GDP grew by only 46 percent.

Second, neither number alone indicates what is happening to the vast majority of Americans. For example, as I argued back in 2017, ownership of stocks in the United States is grotesquely unequal: while about half of U.S. households hold stocks in publicly traded companies (directly or indirectly), the bottom 90 percent of U.S. households own only 18.6 percent of all corporate stock. The rest (81.4 percent) is in the hands of the top 10 percent.

Well, then, what about GDP?

fredgraph (1)

It’s obvious from this chart that the increases in all the indicators of average income in the United States—real median personal income (the red line), real mean personal income (green), and real median household income (purple)—are much lower than the increase in real (inflation-adjusted) GDP. Those discrepancies reveal the fact that the average person or household is benefiting much less than they otherwise would from economic growth. And, of course, the gap increases over time, as in every year people fall further and further behind.

So, all that the GDP numbers indicate is that the monetary value of final goods and services produced and sold in the United States—the “immense accumulation of commodities” that represents the wealth of a capitalist society—is growing. But it doesn’t tell us anything about who gets what, that is, how the incomes generated during the course of producing those commodities are distributed. In other words, GDP numbers are a poor indicator of people’s well-being.

So, what would tell us something about how Americans are faring in the midst of the so-called recovery from the Second Great Depression?

Leonhardt’s view is that “distributional accounts”—that is, estimates of income shares for every decile of the income distribution, as well as for the top 1 percent—will change the national discussion whenever GDP numbers are released.

I don’t know if they’ll change the terms of debate but they will certainly challenge the presumption that GDP (and other headline numbers, such as stock market indices) accurately the economic and social health of the nation.

saez

Thus, for example, as Emmanuel Saez (pdf) has shown, by 2017, real incomes of the bottom 99 percent had still not recovered from the losses experienced during the initial years of the Second Great Depression (from 2007 to 2009), while families in the top 1 percent families captured almost half (49 percent) of total real income growth per family from 2009 to 2017. And, as a result of growing inequality, the 50.6 percent top 10 percent income share in 2017 (with capital gains) is virtually as high as the absolute peak of 50.6 percent reached in 2012.

CBO

Moreover, according to the Congressional Budget Office (pdf), income before transfers and taxes is projected to be more unequally distributed in 2021 than it was in 2016. And while means-tested transfers and federal taxes serve to reduce income inequality, the reduction in inequality stemming from transfers and taxes is actually projected to be smaller in 2021 than it was in 2016.

All of these distributional effects of the current mode of production in the United States are hidden from view by the usual headline economic numbers.

But there’s one more step that can and should be taken. The distributional accounts that have been used to change the discussion focus on the size distribution of income, that is, the distribution of income to groups of individuals (and individual households) that make up the population. What is missing, then, is the factor or class distribution of income.

profits-wages

In the chart above, I have illustrated the changing ratio of corporate profits to workers’ wages in the United States from 1968 to 2018.* Two things are remarkable about the trajectory of this ratio. First, beginning in 2001, the ratio more than doubled, from a low of 0.31 to a high of 0.70 (in 2006). And, second, even though the ratio has fallen in recent years, it still remains as of 2018 much higher (at 0.52) than during the pre-2001 period.**

However inequality is measured—in terms of the size or class distribution of income—it is obvious that most Americans are not sharing in the growth of national income (or, for that matter, the stock-market gains) in recent years.

The focus on GDP (and stock indices, unemployment rates, and the like) serves merely to hide from view what the American workers clearly understand: they’re being left behind.

 

*This is the ratio of, in the numerator, corporate profits before tax (without IVA and CCAdj) and, in the denominator, the total wages paid to production and nonsupervisory workers (assuming a work year of 50 weeks). It is clearly similar to but different from the Marxian rate of exploitation, surplus-value divided by the value of labor power—since, among things, it does not include distributions of the surplus to members of the top 10 percent in the numerator.

**A third observation is also relevant: the ratio of profits to wages has fallen prior to every recession since 1968. The recent decline in the ratio (since 2013) therefore portends another recession in the near future. However, I’m no more keen on making predictions than on coming up with New Year’s resolutions. It was John Kenneth Galbraith who wisely wrote, “There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”

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There aren’t many ways ordinary Americans have a say in what happens to the surplus that determines their fate.

Most of the surplus in the United States is appropriated by the boards of directors of large corporations. But most employees are excluded from the decisions in their workplaces about what’s done with that surplus. Their local communities, where the corporations operate, don’t have much of a say either.

That leaves federal taxes. Corporate income taxes are pretty much the only way the nation—and therefore its citizen-workers—can lay claim to a share of the surplus, which it can then use to finance government programs.

Given the tremendous growth in corporate profits in recent decades—including in recent years, during the recovery from the Second Great Depression—taxes on corporate profits should have been sufficient to expand existing government programs, create new ones, and even close the deficit.

But that hasn’t happened. Not at all. As is clear from the chart above, while corporate profits (both before and after taxes) have soared, the tax receipts on corporate income have actually declined.

Corporations can thank Donald Trump and the Republicans for that.

According to a new study by the Institute on Taxation and Economic Policy, the so-called Tax Cuts and Jobs Act signed by Trump at the end of 2017 lowered the statutory federal corporate income tax rate to 21 percent (a 40-percent decrease from the previous 35 percent rate), in addition to other tax advantages and loopholes. But the actual results were even more obscene: profitable American corporations in 2018 collectively paid an average effective federal income tax rate of 11.3 percent, barely more than half the 21 percent statutory tax rate. And, as I showed a couple of weeks ago, 60 corporations paid no federal tax on their 2018 profits at all.*

In other words, corporations are appropriating more and more surplus from their workers but they’re being forced, via the federal tax code, to give up less and less of that surplus to the federal government to finance much-needed social programs for workers and their families.

But, lest we forget, it’s not just about Trump and his Republican enablers in Congress. The slide in corporate taxes has been going on for decades now.

tax revs

As readers will see in the chart above, the share of federal revenues that come from taxes on corporate profits (the red line) has been declining since the mid-1950s, when it was above 30 percent. Now, it is only 6 percent.** One result is that Americans, through their government, have a smaller and smaller claim on the surplus that is captured by U.S. corporations.

The other result is that the share of the other two main sources of federal tax revenues—social insurances and taxes on individual incomes—has risen. But, even there, the claim on the surplus is declining.

For example, corporations are required to pay only half of Social Security (6.2 percent) and Medicare (1.45 percent) taxes and employees themselves the other half. That, of course, places a severe limit on the share of the surplus that goes to financing social insurance programs.

The single largest category of federal tax revenues consists of taxes on individuals, most of whom do not receive a cut of the surplus. Those at the top, however, do—but their tax rates are declining even more than everyone else’s.

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According to another study by the Institute on Taxation and Economic Policy, the 2017 Trump tax cut reduced the federal effective tax rate by 2.6 percentage points for the top 1 percent and by 2.7 for the next richest four percent. For all other income groups, the federal effective rate decreased by far less than 2 percentage points. Not only did the Trump tax cut result in a less progressive tax system, it also reduced the share of taxes on the surplus that is distributed to individuals.

Under Trump, but also for decades now, the nation’s claim on the surplus has been declining. Corporations and wealthy individuals, who benefit the most from government programs, have been able to shield more and more of the surplus they’ve been able to capture from federal taxes. That shifts the burden of federal taxation (not to mention the other taxes they pay, such as social insurance and local property and sales taxes) onto the nation’s workers. They’re the ones who produce the surplus but, over time, they have less and less of a claim on what is done with that surplus.

American workers have long been excluded from decisions over the surplus in their workplaces and communities. Now, at the federal level, they have a smaller say in even the amount of the surplus that is being taxed for government programs.

Workers are therefore increasingly dependent on the decisions of private corporations and wealthy individuals who manage to capture and, via the tax code, keep a larger share of the surplus. They, and not ordinary citizens, get to decide what to do with the surplus—a fundamental imbalance that, over time, has made American society even more unequal.

 

*According to the Institute on Taxation and Economic Policy, another 56 companies paid effective tax rates between 0 percent and 5 percent on their 2018 income. Their average effective tax rate was 2 percent.

**In 2018, and therefore attributable to the Trump tax cut, the share dropped from 9 percent.

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According to the Institute on Taxation and Economic Policy, in 2018, 60 of America’s largest corporations zeroed out their federal income taxes on $79 billion in U.S. pretax income. Instead of paying $16.4 billion in taxes at the 21 percent statutory corporate tax rate, these companies enjoyed a net corporate tax rebate of $4.3 billion and effective tax rate of -0.5 percent.

The biggest was Amazon, which reported $11 billion of U.S. income, paid no federal income taxes, and actually managed to claim a tax rebate of $129 million.

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Emmanuel Saez and Gabriel Zucman begin their new book, The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, with the moment in 2016 during the first presidential election debate between Donald Trump and Hillary Clinton when the former Secretary of State challenged the reality-show celebrity about how little he had paid in federal income taxes over the years. Trump proudly admitted it: “That makes me smart.” And Clinton, for all her carefully crafted technocratic proposals to fix the tax code, failed to effectively respond to Trump.

Jump ahead three years, and the issue of wealth inequality in America has risen to the top of the political agenda. Clinton lost the election, Trump is probably not worth what he has claimed, but the nation’s wealth is even more unequally distributed today—much worse even than the obscene inequalities in the distribution of income.

net worth

In fact, according to the Federal Reserve’s Distributional Financial Accounts, the share of total net worth of the top 1 percent of American households (32.4 percent) now exceeds that of the so-called middle-class, households in the 50-90-percent bracket (28.7 percent).

assets-composition

Moreover, we know that the lion’s share of the assets owned by the top 1 percent ($35.4 trillion) stems from business ($20.8 trillion)—as against the real estate holdings, consumer durables, pensions, and other assets that make up the bulk of the wealth owned by others, especially those in the bottom 90 percent.**

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It should come as no surprise then that major presidential candidates in the Democratic Party, especially Bernie Sanders and Elizabeth Warren, have proposed taxing the large concentrations of wealth at the top. Nor should we be astonished that billionaires have shed public tears over the proposed taxes or that the New York Times highlighted a fundamentally flawed Wharton School study showing that taxes on wealth would reduce economic growth by nearly 0.2 percent a year, over the course of a decade.**

wealth taxes

Just to illustrate the severe concentration at the top of the wealth pyramid in the United States, as well as the enormous benefit to the rest of society of using that wealth for other purposes, consider the following two-tier tax formula: a 10-percent tax on wealth over $50 million and 100 percent on wealth over $500 million. Utilizing the Wealth Tax Explorer devised by Emmanuel Saez and Gabriel Zucman, such a tax scheme would affect only 0.05 percentage of U.S. households (a total of 62,598 taxpayers) and yet it would generate in any given year a flow of revenues equal to total federal tax revenues in the United States! (And, yes, as a side benefit, it would also represent a wealth cap of $500 million.)

But that’s only one side of the story, which has been the sole focus of billionaires, mainstream economists, and political pundits. The other, perhaps even more important, side is the enormous gap between the wealth owned by the tiny group at the top and that of households who find themselves at the bottom.

wealth gap

Since 1990, the net wealth of the top 1 percent has soared to $35 trillion while the bottom 50 percent of Americans have been left with only $2 trillion. For those in the top 1 percent, what this means is they’ve managed to capture a large share of the surplus, which they’ve used to accumulate enormous assets (with relatively few liabilities), which in turn can be used to continue to get a cut of the surplus generated by workers in the United States and around the world (in addition to financing politicians and setting the rules of the game). And the bottom 50 percent? They get wages and salaries that allow them to continue to work but prevent them from accumulating much wealth (which consists, as we can see in the second chart above, mostly of real estate, and even then is largely offset by mortgages and other liabilities). Without wealth of their own, workers in the bottom 50 percent are thus forced to have the freedom to continue to sell their ability to work to employers in order to subsist.

So, yes, the small group of owners of American wealth might in fact be smart—because they sit on top of a system that generates enormous wealth, most of which they own, and which does not trickle down to those at the bottom, who continue to have to work for a living and aren’t even allowed to benefit from programs financed by taxes on the concentrated wealth at the top.

But all the smarts in the world can’t hide the essential injustice and unfairness of the grotesquely unequal distribution of wealth in the United States. The discussion to change the system may begin with taxes but it won’t end there. It has to be aimed at both the economic institutions that are the root cause of that inequality and the ideas that serve to justify the obscene degree of inequality in the United States and to undermine any and all attempts to reform it.

Any candidate who makes that clear will be one worth voting for.

 

*In fact, as I showed back in 2018, specifically business-related wealth is even more unequally divided than total assets. For example, in 2014, the top 1 percent owned almost two thirds of the financial or business wealth, while the bottom 90 percent had only six percent.

**The article failed to note two flaws in the analysis: (1) that wealthy Americans would invest less in order to avoid accumulating wealth that would be subject to the tax (as if all their savings were directed into growth-inducing investments as against equity shares, art, and other forms of conspicuous consumption) and (2) that all the revenue raised by a wealth tax will go toward reducing the federal debt (and not, as Sanders and Warren have proposed, to providing universal childcare, tuition-free college, and other social programs).

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Obscene levels of economics inequality in the United States are now so obvious they’ve become one of the main topics of public and political discourse (alongside and intertwined with two others, the climate crisis and the impeachment of Donald Trump).*

Most Americans, it seems, are aware of and increasingly incensed by the grotesque and still-growing gap between a tiny group at the top—wealthy individuals and large corporations—and everyone else. And this sense of unfairness and injustice is reflected in both the media and political campaigns. For example, Capital & Main, an award-winning nonprofit publication that reports from California, has launched a twelve-month long series on economic inequality in America, “United States of Inequality: 2020 and the Great Divide,” leading up to next year’s presidential election. And two of the leading presidential candidates in the Democratic Party, Bernie Sanders and Elizabeth Warren, have responded by making economic inequality one of the signature issues of their primary campaigns, regularly describing the devastating consequences of the enormous gap between the haves and have-nots and proposing policies (such as a wealth tax) to begin to close the gap and mitigate at least some of its effects.**

As if on cue, we’re also seeing a pushback. It should come as no surprise that America’s billionaires—from Starbucks CEO Howard Schultz to multi-billionaire hedge-fund manager Leon Cooperman—have gone on the offensive, complaining about how the various tax proposals, if enacted, would reduce what they consider to be the fortunes they’ve earned and undermine two areas they alone control: private philanthropy and corporate innovation.*** And ironically, as Paul Waldman has claimed,

the more billionaires keep talking about how their taxes shouldn’t be raised, the more likely it is that their taxes will in fact be raised, one way or another.

Similarly predictable is the attempt to rejigger the numbers so that inequality in the United States appears to be much less than official sources report. For example, according to the Census Bureau [pdf], in 2018, the top quintile of households (with an average income of $233.9 thousand) had 17 times more than the bottom quintile (whose average income was only $13.8 thousand).**** Phil Gramm and John F. Early argue that “this picture is false” because it focuses only on money income and excludes both taxes and transfer payments.***** Their conclusion?

America already redistributes enough income to compress the income difference between the top and bottom quintiles. . .down to 3.8 to 1 in income received.

There is one kernel of truth in Gramm and Early’s analysis: while the rich pay more in taxes, government transfers make up a much larger share of income of those at the bottom.****** But their calculations dramatically overstate the extent to which taxes and transfers decrease the degree of economic inequality in the United States. That’s because they fail to include unreported capital income, including dividends and interest paid to tax-exempt pension accounts and corporate retained earnings (which are included in other data sets, such as G. Zucman, T. Piketty, and E. Saez, “Distributional National Accounts: Methods and Estimates for the United States” [http://gabriel-zucman.eu/usdina/]).

Tax

As is clear in the table above, in 2014 (the last year for which data are available), the system of taxes and transfers only reduces the degree of inequality (measured as the ratio of top 10 percent average incomes to bottom 50 percent average incomes) from 18.7 to 1 to 10.1 to 1. And if we focus on post-tax cash incomes (thus excluding non-cash transfers, essentially Medicaid and Medicare), the resulting correction is even less: to 11.8 to 1. In both cases, the decrease in inequality is much less than in the Gramm and Early calculations.

The fact is, there are severe limits on what taxes and transfers can achieve in the face of the massive changes in the pre-tax distribution of income that have occurred in the United States since 1979. 

Pre-tax

As readers can see in the table above, while the average pre-tax incomes of the bottom 50 percent of Americans stagnated from 1979 to 2014, those of the top 10 percent increased by 100 percent and the incomes of the top 1 percent soared by even more, 183 percent.

If we compare the real incomes of the same groups after taxes and transfers, it’s clear that while the incomes of the bottom 50 percent of Americans did in fact inch upward from 1979 to 2014 (by a total of 18 percent, or only 0.5 percent a year), progressive taxes and transfers did not hamper the upsurge of income at the top: the average post-tax incomes of the top 10 percent doubled (by 2.86 percent a year) and those of the top 1 percent grew by more than 160 percent (by 4.8 percent a year).*******

The small group at the top continues to pull away from everyone else, both before and after taxes and transfers.

In my view, the degree of economic inequality in the United States is so severe that it can’t be sidetracked by billionaire complaints or swept away by the calculations of conservative economists. And, for that matter, it can’t be solved by enacting more taxes on the ultra-rich and more transfer payments for the rest of Americans. The problem is simply too large and systemic.

Only by understanding and attacking the roots of the inequality that has characterized the U.S. economy for decades now will we be able to close the enormous gap that has undermined the American Dream and shredded the fabric of political and social life in the United States.

 

*But, contra New York University historian Timothy Naftali, this is not the first time “we are having a national political conversation about billionaires in American life.” In fact, I’d argue, it’s a recurring debate in American history, stretching back at least to the rise of populism in the late-nineteenth century (and perhaps earlier, for example, to Shays’ Rebellion) and including the strike wave after the Panic of 1873, the anti-trust movement of the early-twentieth century, the crash of 1929 and the First Great Depression, and most recently the attacks on finance and the Occupy Wall Street movement during the Second Great Depression. In all those cases, Americans engaged in an intense national discussion of inequality and the role of the economic elite in political and social life.

**Even centrist Democrats have taken up, if only timidly, the banner of the anti-inequality campaign. For example, Rep. Brendan Boyle (D-PA), who has endorsed Joe Biden for the Democratic nomination, told The Washington Post he is crafting a new wealth tax proposal to introduce in the House of Representatives. And Rep. Don Beyer (D-VA), who last month endorsed South Bend Mayor Pete Buttigieg, has released a plan (with Sen. Chris Van Hollen of Maryland) for a new surtax on incomes over $2 million.

***The one area they don’t mention, which they also seek to control, is American politics—through lobbying, campaign donations, and the like. Wealthy individuals and large corporations attempt to exert such control although, as we just saw in Seattle—with Amazon’s $1.5 million campaign to unseat a socialist member of Seattle’s city council, Kshama Sawant—they’re not always successful.

****Money income includes the following categories: earnings; unemployment compensation; workers’ compensation; Social Security; supplemental security income; public assistance; veterans’ payments; survivor benefits; disability benefits; pension or retirement income; interest; dividends; rents, royalties, and estates and trusts; educational assistance; alimony; child support; financial assistance from outside of the household; and other income. The ratio of top to bottom rises to an astounding 60 to 1 in terms of only earnings. 

*****The Wall Street Journal column doesn’t explain how the alternative calculations were conducted. But Early, in a Cato Institute report [pdf], does explain their methodology.

******According to my calculations from the most comprehensive source (from G. Zucman, T. Piketty, and E. Saez, “Distributional National Accounts: Methods and Estimates for the United States” [http://gabriel-zucman.eu/usdina/]), in 2014, the bottom 50 percent of Americans received 74 percent of their post-tax income from transfers while, for the top percent, it was 19.5 percent.

*******What of the billionaires? Between 1979 and 2014, the average real post-tax incomes of the top .001 percent grew by 387 percent (or 11.1 percent a year), almost as much as their pre-tax incomes.