US income inequality continues to grow

There are two interesting articles in the New York Times this week discussing the latest economic trends in the US – both of which deserve to be carefully read. Unfortunately, neither point toward a particularly happy development and both deal directly with the troubling fact that income inequality is not only at historically high levels right now (we’re talking about income inequality as pronounced as it was during the Great Depression), but in fact getting worse.

The first article you need to read is by David Cay Johnson, bar none the best journalist covering the tax beat, appropriately enough entitled “US Income Gap Is Widening Significantly, Data Shows”. There aren’t any particularly shocking revelations contained in the article – but we see yet more evidence confirming the continuation of what in reality is a very dangerous phenomenon.

Income inequality grew significantly in 2005, with the top 1 percent of Americans – those with incomes that year of more than $348,000 – receiving their largest share of national income since 1928, analysis of newly released tax data shows.The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression.

While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.

The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million each, an increase of more than $139,000, or about 14 percent.

The new data also shows that the top 300,000 Americans collectively enjoyed almost as much income as the bottom 150 million Americans. Per person, the top group received 440 times as much as the average person in the bottom half earned, nearly doubling the gap from 1980.

In case you just read the previous four paragraphs and don’t see what the big fuss is all about, UC Berkeley economist Emmanuel Saez spells it out for you in stark, black-and-white terms even a laissez fair fundamentalist should be able to discern: “Such growing disparities [are] significant in terms of social and political stability.”

If you haven’t studies modern European history, now might be a good time to go to the library and dust off some books on the French Revolution.

Not surprisingly, Bush’s propaganda mouthpieces over at the Treasury Department are claiming that his regressive economic policies (i.e.: slashing taxes for multimillionaires, cutting government expenditures on programs relied upon by Middle Class Americans like health care, child care and education) are not the culprit for the continued growth of income inequality. It all has to do with “the rapid pace of technological change”.

Of course, a logical question might be, if Bush’s economic policymakers can’t enact policies that help alleviate such radical maldistributions of wealth and can’t help provide a baseline of economic stability for the working poor and Middle Class Americans because such problems are beyond the influence of economic policy, the why exactly do we evem need to spend out tax dollars paying their salaries? The answer of course is that progressive economic policies can ameliorate these distributional problems just as regressive policies can exacerbate them – it’s just that the Bush administration cares more about helping its multimillionare campaign donors than the two-income family scraping by on minimum wage salaries.

The second article also deals with the rising income inequality in this country, but this one deals more with the (complicated) cause-and-effect relationships between inequality and the tax receipts. Daniel Gross’s “economics view” column this week, entitled “Are Tax Revenues Flashing Red or Green?” offers up some pretty interesting food for thought.

As corporate profits have increased sharply, corporate income taxes soared to $353.9 billion in fiscal 2006 from $131.8 billion in fiscal 2003 . . . the incomes of the top 1 percent rose dramatically from 2003 to 2005, from 14.9 percent of the total to 17.4 percent.

The combination of rising corporate profits and rising income for those in high tax brackets has produced a gusher of federal revenue. Federal tax receipts rose 12.7 percent in 2005 and 11.75 percent in 2006, according to the Office of Management and Budget, far outpacing the growth rate of the economy, and of state tax revenues.

“Because the income tax is so concentrated, a shift in income to those in the higher brackets will boost revenues more than the economy as a whole will grow,” said Max Sawicky, economist at the Economic Policy Institute, a research organization in Washington.

Be sure to read both articles in their entirety.

Update: For more on why it’s important for us to concern ourselves with growing income inequality, see this UN report from 2005 and this report from The Century Foundation from 2004.

Also, the Center for Budget and Policy Priorities has a report on the reduction in productivity in the federal tax code (especially during the Reagan/Bush I administrations and the Bush II administration).