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Income Inequality: as Bad, or Worse, than Before

2015-01-28

From the New York Times online yesterday:

“After adjusting for inflation, the average income for the richest 1 percent (excluding capital gains) has risen from $871,100 in 2009 to $968,000 over 2012 and 2013. By contrast, for the remaining 99 percent, average incomes fell by a few dollars from $44,000 to $43,900.

That is, so far all of the gains of the recovery have gone to the top 1 percent. By contrast, this group suffered only one-third of the income declines during the preceding recession.”

A graph accompanying the article shows that the percentage of income received by the top 1% was below 10% between approximately 1950 and 1988.  Before and after that period, the percentage was greater than 10%, starting in 1912, when accurate records began to be kept, until 2013, the last year for which figures have been calculated.   In addition, the graph shows an extremely steep rise in the percentage between 1988 and 1991, and an equally steep drop between 1940 and 1945.

These numbers show the effects of two factors: first, the second world war, and second, the reductions in taxes on the wealthy passed during the Reagan and first Bush administrations.  If we include capital gains, the figures are even more unbalanced.

The graph also shows that rapid economic growth and popular government are coincident with a relatively low percentage of income going to the top 1% of wage earners.  It would be trite to call the period from 1950 to 1968 the “golden age” of American society, but there appears to be a significant correlation between relative equality of income and good economic times.

These figures suggest to the sophisticated economist that relative taxes on high wage earners should be higher than they are now.  It is clear that the higher income individuals can afford higher taxes than they are paying now, and that lower income individuals need higher wages and lower taxes to improve their percentage of total income.

The NYT article is at: http://www.nytimes.com/2015/01/28/upshot/gains-from-economic-recovery-still-limited-to-top-one-percent.html and I recommend that you study the graph closely for its parallels to American growth and prosperity.

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