Top of the Top

We’ve been discussing the diminishing Middle Class and the rise of the Ultra-Wealthy (The Disconnect and Economic Classes and Wealth Concentration in America is Rising)

One of the fascinating aspects of this has been how finely the strata of the seriously Rich gets sliced:

click for larger graphic


courtesy of NYT

Here’s the money shot:

After falling for two years, the share of income going to the richest slice of Americans – the top tenth of 1 percent – grew significantly in 2003 while the share going to 99 percent of Americans fell, tax data released yesterday showed.

At the same time, the effective income tax rates paid by the top tenth of 1 percent fell sharply, declining at more than 10 times the rate reduction for middle-class taxpayers, the new report, by the Internal Revenue Service, showed.

Overall incomes rose by 2.7 percent in 2003, compared with the previous year, the I.R.S. said.
A quarter of this increase went to the top tenth of 1 percent, the
129,000 taxpayers with reported incomes of $1.3 million or more, an
analysis of the data showed
. (emphasis added).

To review: The Middle class is getting squeezed by outsourcing, decreasing inbdustrial sector, increasing energy prices, weak personal income gains, non-commodity inflation, the worst savings rate ever, all the while accumulating massive debt, both personal and governmental. The good news is their tax burden has fallen, albeit at  1/10 the rate of the wealthiest Americans.

Here’s the Ubiq-cerpt:™

The top 10th of 1 percent paid almost 23.6 percent of their reported income in income taxes in 2003, down from just under 27 percent in 2002. That is a decline of 3.4 percentage points. For taxpayers in the bottom 80 percent, the effective tax rates fall by three-tenths of a percentage point or less.

Only for those Americans in the top 1 percent, the nearly 1.3 million taxpayers who made at least $327,000, did incomes increase significantly more in 2003 than the rate of inflation. And this increase was concentrated within the top tenth of 1 percent. The income of that group grew by 9.5 percent in 2003 over the previous year while the rest of the top 1 percent had a gain of 3.7 percent.

For the bottom 99 percent of taxpayers, income rose by slightly less than 2 percent, which was below the inflation rate of 2.3 percent.

The top 1 percent of taxpayers received almost 17.5 percent of all income and paid a third of all income taxes in 2003, the I.R.S. found. The top tenth of 1 percent received 7.57 percent of reported income and paid more than 15.3 percent of all income taxes.

The share of all reported income reported by the top 1 percent of taxpayers increased by 0.57 percentage point, compared with 2002. Nearly all of this increase – 0.47 percentage point – went to the top tenth of 1 percent.

The top tenth of 1 percent had more income in 2003 than the poorest third of taxpayers, a group with 330 times the number of people, analysis of the data showed. This is a sharp change from 1979, the earliest year in the I.R.S. report, when the total income of the poorest third of Americans exceeded that garnered by the top tenth of 1 percent by 2.5 to 1.

The I.R.S. data tend to understate incomes for those at the very top because of different rules for reporting wages and capital gains, meaning the actual disparity was larger than the official data show.

Wow, that raises a lot of questions. Has the US disparity in wealth really gotten that large? What does this mean for Society? And how common is this yawning haves/have not relationship?

I cannot answer the first few questions, but the Times answers the last one: It turns out that we are #3 in wealth disparity:

"Other data show that among major world economies, the United States in recent years has had the third-greatest disparity in incomes between the very top and everyone else. Only Mexico and Russia, among major economies, have greater disparity."

Russia and Mexico. Those are hardly countries I ever thought we would want to emulate . . .

At the Very Top, a Surge in Income in ’03

NYT, October 5, 2005

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What's been said:

Discussions found on the web:
  1. Brian commented on Oct 5

    My theory is that the United States is becoming a latin american country: debt, plutocracy, corruption, cronism, etc. Banana republicans like the guys running the White House and Congress seem to be doing their damnest to make it happen.

  2. rram commented on Oct 5

    And what do Russia and Mexico have in common? A long history as world leaders in corruption and indifference to the welfare of the vast majority of their citizens. Sound familiar? The only thing we can’t match yet is the long history. I guess time will tell.

  3. donna commented on Oct 5

    Wow. So tell me again – WHY do people vote Republican if they ain’t the ultra rich?

  4. Lord commented on Oct 5

    Any question now about the move to repeal the estate tax? How about a list of the top beneficiaries and how much they would benefit. They could probably be culled from the political donor lists.

    I wouldn’t feel to happy about this if I were in the top 1/10th of one percent. There is no real security when nearly everyone else is falling behind or at best only keeping pace. It is all too easy for circumstances to turn similar to those in Venezuela.

  5. Justice Litle commented on Oct 5

    The sine qua non of Greenspan’s reign has been deliberate asset inflation, which naturally benefits the top of the pyramid disproportionately. They are the ones with the largest pile of paper assets, and they have direct access to the top money managers. Average joes have to rely on run of the mill mutual funds, and spend a much greater proportion of income on costly real goods and services.

    Intended or not, deliberately inflationary monetary policy is redistribution in reverse. Interesting, then, that the sanctity of the federal reserve is about the only thing Republicans and Democrats agree on. Both parties support redistribution to the wealthy via inflationary monetary policy. Both parties support a welfare state (social vs corporate). Both parties support predatory taxation (one goes after your wallet now, the other makes your kids pay later via deficit spending).

    It’s like the last scene in Orwell’s Animal Farm, when the animals outside go back and forth, from the faces of the pigs to the faces of the humans, and realize there is no real difference at all.

  6. camille roy commented on Oct 5

    ditto to the comment that we are becoming (have become?) a latin american oligarchy.

    That is because our political culture is now dominated by the old Dixiecrats, who have taken over the Republican party. The practices of our current regime constitute business as usual in Alabama, Mississippi, etc.

    I recommend Michael Lind’s book, ‘G.W. Bush and the Southern Takeover of American Politics’. The above is his thesis and I found it very convincing.

    We do have a problem because the founding fathers deliberately gave rural communities and states disproportionate influence. Our predators are now the ignorant hicks of America, in whose name the Republicans rule (while of course not ruling in their interest).

  7. erikpupo commented on Oct 5

    As a former contractor at the IRS, I can tell you that the big fear among many there is that more and morepeople will increasingly resort to tax cheating and evasion to lower their tax burden, in an attempt to make up for lukewarm income growth.

    The reason for this fear is that government spending is at levels that would normally require some more progessive taxation at the top levels. Since thats not happening, the only way to increase federal revenues is to either spend less (no-go there) bring in more revenue through other means outside income taxes (subject to wide fluctuation) or increase taxes (normal throughout history but not thought of now)

  8. scorpio commented on Oct 5

    exactly. asking Bush or the wealthy to help pay for those displaced by Katrina is like pulling teeth. but Greenspan and the Plunge Protection Team jump in with massive public subsidies to the markets whenever the assets of the top 1% are threatened

  9. blunt commented on Oct 5

    Playing against the crowd I will say that the Bush choices have probably hurt the rich over the longrun.

    1) The false valuations created are going to hurt them hardest in terms of percentage when they fall, this inclludes everything from real estate to eqities to dllar demoninated holdings and also the very nature of business which declines in recession.

    2) The failure of this strategy and the consequences are almost certain to trigger a backlash. There will be increasing pressure to pay and only one likely source of income. The rich will pay back their cuts with interest.


    This isn’t a happy story. The distirtions created will hurt the lower and middle at all levels, but it may educate some of the wealthy on the functional requirements of a true capitalist economy.

    The Republican vision is currently an “ownership society” modeled on feudalist assumptions that if you have wealth it should be protected and increased, that the lower orders are there to serve it. It is zero or negative sum in conception (though magical methods are allowed) meaning that for the “deserving” owners to get more, the undserving must have less. It does not as we have seen cut government spending but transfers as much as possible (eg. Iraq, New Orleans and quite a few other places laid open by incompetent government) to firms with a relationship to the rulers. Economics become political.

    That this method is in conflict with the dynamic and capitalist elements of US society is becoming increasing clear. I strongly suspect the next year will make it even clearer.

  10. Trends I’m Watching commented on Oct 5

    Life Is Good at the Top

    Barry Ritholtz continues the discussion of the diminishing Middle Class and the rise of the Ultra-Wealthy that he began in The Disconnect and Economic Classes and Wealth Concentration in America is Rising. Excerpts below. Source: The Big Picture: Top o…

  11. critical thought commented on Oct 6

    I’m disappointed in the comments of this blog. . . not a lot of critical thinking. And the article itself leaves a bit to be desired.

    what is the trend of income over time? Have there been similar periods of this before, and what does it mean? What reasons could have caused this? – and lets look at reasons other than “the failure of capitalism”. What is the breakdown of the lowest 10% into 1% segments? What if there was more of a static study, that analyzed indiviudal HH’s over a ten year (or even one year period).?

    I discussed this very same topic with a colleague recently, and we found that the top 10% increased income quite dramatically in the 1990’s (clinton era). Why was that happening then? And better yet, what was the impact? It appears, that while the “very rich” were getting richer, poverty was decreasing.

    But what other reasons could cause this. We are having record immigration. . . so, if people are moving to the united states because the opportunity here is better than their home country, and, if these people are moving to the lower economic strata jobs, how does this impact the numbers?

    These are questions you all should be asking. . .

  12. Lord commented on Oct 6

    The cause is globalization lowering the returns to labor and education. As these fall the returns to capital and wealth predominate which are even more highly skewed than education. While a few people move through these strata, sports and movie stars, and lotto winners for example, it is the exception. These levels require incomes over a few million and only the select few will ever see anything like this. A few create it, Gates and Dell for example, but most go the old fashion way, they inherit it. Read the Forbes 400 for reference.

    In the late 90s equities were taking off but so was the job market, so wealth was being created across the board although median real incomes were only rising modestly. It was rather similiar to the 20s. The tax cuts have been focused on the wealthy which allows even greater accumulation. Immigration is not that significant. Most are undocumented and don’t even appear in the statistics. With so many at the low end, it would take utterly massive immigration to even budge the statistics.

  13. bhaim commented on Oct 6

    The wealthy industrialized countries are ranked using the Gini coefficient. The Gini coefficient is the standard equation used by economists to determine economic equality among and within nations. Note: Although the U.S. ranks last among OECD nations in terms of income equality, in 1993 the poorest 10% of the U.S. population was still wealthier than two-thirds of the rest of the world.

    Wealthy countries are ranked from most equal to most unequal using the Gini coefficient. Also included are the percentage of total disposable income held by the wealthiest (top 30%) and poorest (bottom 30%) of each nation’s population.

  14. blunt commented on Oct 6

    “Critical Thought”

    If you were what you claim you could look up the answers yourself. Nor should you expect all articles to *touch* on every issue.

    To answer part of your question the great depression smashed the percentage of wealth aming the upper classes more than it did the lower. This is one potential result of creating unbalancing bubbles. Of course those at the lower ends pay more deeply, so this method of “creative destruction” is not the ideal.

    The dream is to reduce the extremes which involves new enterprises replacing the old, true competition cutting margins and enough wealth being created at the lower ends to pump the machine and provide the basis for new enterprises.

    As a form of statistic countries in states of rapid growth (the Us in the fifities, Japan and Taiwan in their glory days) tend to have increased equality of wealth.

    Basic Smithean logics will tell you that this is the tendency. High prices increase supply. Now look at out system. Despite the surplus of training programs (MBA etc.) the rate of compensation for high executives has increased expotentially in comparison with normal workers.

    The business magazines mantain that this is because they are a true aristocracy. But do results show it? Wh are our programs less competitive overseas. How come in the past we seemed to find good leaders for much less. Why have their been generals who seem superior to most corporate leaders working for a fraction?

    The reason is a non competitive labor market for this type.

    This is coupled with a system of incentive that encourages short term manipluations, eg. stock market price.

    Similarly our system creates all sorts of disincentives to become an engineer or scientist so we become increasingly dependant on foreigners who we now discourage because of terrorism concerns.

    But we create “mandarin” classes such as MBAs. And we confuse value with price claiming hige increase in wealth if a house or stock doubles despite the fact that the “real value” produced by such a entity may have not increased in a corrosponding manner. We then borrow on the result.

    These are exactly the behaviors of a feudalist system. We see the media industry and others trying to impose legal limits on competition. We see an increase in subsidies and protections to favored industries, eg. we try to preserve established wealth and protect it from rival approaches.

    We reward dividends and capital gains on stocks through the tax system, but refuse to do so on interest because this is the lower portions primarily investment and because loans sponsored by such savings often go directly into new investment rather than increasing the value of existing wealth

    Yes you are correct in that we are reaping imbalances that started to take off during the Clinton expansion, but the current system has chosen to extend and expand these balances and believes in can protect them from “natural” corrections. To do so requires pulling money from elsewhere. And just as the real value of minimum wage fell over 20% in the last generation while per capita wealth rose 50% and “conservatives” cried that any attempt to increase minimum wage was wrong because it was the duty of the poorest to counter inflation… we now have a system where the increasing deficit will fall onto the backs of the swelling numbers who are going to be forced to pay the alternative minimum income tax.

    You can’t forever continue these games in a democracy and even if you could the distortions in distribution guarantee the capitalist machine will produce less wealth. It is sad the the majoriy of allegedly pro capitalist thinkers can’t even follow the thought pricess of that reactionary Henry Ford who decided that if he payed workers enough to buy his cars he would sell more cars.

  15. Trends I’m Watching commented on Nov 11

    Life Is Good at the Top

    Trend: The middle class is shrinking. Barry Ritholtz continues the discussion of the diminishing Middle Class and the rise of the Ultra-Wealthy that he began in The Disconnect and Economic Classes and Wealth Concentration in America is Rising. Excerpts…

  16. reality check commented on Aug 8

    The US economy is built on sand: war and personal debt. Therefore, we are all harvesting the sour fruits and the future is bleak for the American economy. Nobody trusts us, we have a negative image around the world, high corruption, war…what do you expect from a country that cannot separate oil and state?

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