Why do we care?
The middle class is more than an income bracket. Over the past 50 years, a middle-class standard of living in the United States has come to mean having a secure job; a safe and stable home; access to health care; retirement security; time off for vacation, illness and the birth or adoption of a child; opportunities to save for the future; and the ability to provide a good education, including a college education, for one’s children. When these middle-class fundamentals are within the reach of most Americans, the nation is stronger economically, culturally and democratically.
Most Americans identify themselves as middle class. However, it is also important to increase the ability and opportunities poor people have to enter the middle class. The middle class is strengthened when more low-income people are able to work their way into its ranks. In a nation that is increasingly polarized between the very wealthy and everyone else, we see the poor and middle class as sharing many of the same interests. Simply put: what strengthens and expands the middle class is good for America.
Inequality data and statistics give us an important insight into the state of our economy and the health of our society.
In this section, we offer quick takes on economic inequality, as categorized in five key areas: income, wealth, global, health, and racial. In each category, we chart some inequality statistics and discuss the basic numbers.
You can click on each of the section headings to find more data on that topic area.
Data from tax returns show that the top 1 percent of households in the United States received 8.9 percent of all pre-tax income in 1976. In 2008, the top 1 percent share had more than doubled to 21.0 percent.
Source: Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913-1998,” Quarterly Journal of Economics, 118(1), 2003. Updated to 2008 at http://emlab.berkeley.edu/users/saez.
The total inflation-adjusted net worth of the Forbes 400, an annual listing of America’s richest individuals, rose from $507 billion in 1995 to $1.62 trillion in 2007, before dropping back to $1.37 trillion in 2010.
Source: 1995-2008: Arthur B. Kennickell, “Ponds and Streams: Wealth and Income in the U.S., 1989 to 2007,” Federal Reserve Board Working Paper, January 7, 2009, Table A1, p. 55. 2009-10: Forbes Magazine press release via Business Wire. Adjusted for inflation using CPI-U.
Estimates from the Credit Suisse Research Institute, released in October 2010, show that the richest 0.5 percent of global adults hold well over a third of the world’s wealth.
Source: Credit Suisse Research Institute, Global Wealth Report, October 2010.
Approximately one third of annual deaths in the United States, epidemiological researchers believe, can be credited to the nation’s excessive inequality.
Source: Naoki Kondo et al., “Income Inequality, Mortality, and Self-rated Health: Meta-analysis of Multi-level Studies,” British Medical Journal, 2009.
Source: Federal Reserve Survey of Consumer Finances. Dollars inflation adjusted to 2010
Where do you stand?
· Percentage of U.S. total income in 1976 that went to the top 1% of American households: 8.9.
· Percentage in 2007: 23.5.
· Only other year since 1913 that the top 1 percent’s share was that high: 1928.
· Combined net worth of the Forbes 400 wealthiest Americans in 2007: $1.5 trillion.
· Combined net worth of the poorest 50% of American households: $1.6 trillion.
· U.S. minimum wage, per hour: $7.25.
· Hourly pay of Chesapeake Energy CEO Aubrey McClendon, for an 80-hour week: $27,034.74.
· Average hourly wage in 1972, adjusted for inflation: $20.06.
· In 2008: $18.52.
Median household income in 2008 was $50,303, according to Census data. Half of American households had income greater than this figure, half had less.
Between the end of World War II and the late 1970s, incomes in the United States were becoming more equal. In other words, incomes at the bottom were rising faster than those at the top. Since the late 1970s, this trend has reversed.
For example, data from tax returns show that the top 1% of households received 8.9% of all pre-tax income in 1976. In 2007, the top 1% share had more than doubled to 23.5%.
There is reason to suspect that this level of income inequality is dangerous to our economy. The only other year since 1913 that the wealthy claimed such a large share of national income was 1928, when the top 1% share was 23.9%. The following year, the stock market crashed, which led to the Great Depression. After peaking again in 2007, the U.S. stock market crashed in 2008, leading to what some are now calling the “Great Recession.”
Between 1979 and 2008, the top 5% of American families saw their real incomes increase 73%, according to Census data. Over the same period, the lowest-income fifth saw a decrease in real income of 4.1%.
In 1980, the average income of the top 5% of families was 10.9 times as large as the average income of the bottom 20 percent, according to Census data. In 2008, the ratio was 20.6 times.
The current recession has hit incomes hard across the board. Median household income declined 3.6% in 2008, the largest single-year decline on record. Adjusting for inflation, incomes reached their lowest point since 1997. (Center on Budget and Policy Priorities analysis of Census data)
In 2008, the most recent year with complete IRS stats available, taxpayers making over $200,000 paid in federal income tax, after exploiting every loophole they could find, just 21.8 percent of their total income.
That’s considerably less than what America’s most affluent paid, after loopholes, 50 years ago. In 1961, taxpayers making over $27,000 — the equivalent of about $200,000 in today’s dollars — paid, on average, 31.3 percent of their total incomes in income tax.
Taxpayers making grander sums 50 years ago paid an even greater share of their total incomes to Uncle Sam. In 1961, income over $400,000 — that would be about $3 million today — faced a 91 percent tax rate. Income over $3 million today, by contrast, faces a 35 percent tax rate.
This 91 percent rate, remember, only applied to income over 1961′s $400,000 cutoff. Income under that $400,000 faced lower rates. And even some income over $400,000 — capital gains income, for instance — faced lower rates, too.
So what share of their total incomes did 1961′s seriously rich end up paying in taxes? Taxpayers with over $135,000 in 1961 income — the equivalent of $1 million today — paid an average 43.1 percent of their income total in federal tax.
In 2008, taxpayers making over $1 million gave Uncle Sam only 23.1 percent of their total incomes. In other words, the seriously rich 50 years ago paid almost twice as much of their incomes in federal income tax as the seriously rich today.
How much more in revenue could Uncle Sam raise today if our contemporary rich paid the same share of their incomes in federal income tax as 1961’s rich?
The congressional Joint Committee on Taxation last year projected that taxpayers making over $1 million in income this year will report, all together, over $1.1 trillion in income. Tax returns from taxpayers making between $200,000 and $1 million will total almost another $1.9 trillion.
All these taxpayers would pay a whopping $382 billion more in taxes this year if they had to pay at the 1961 effective tax rate, the rate the rich actually faced on their tax returns 50 years ago after taking advantage of every available loophole.
That’s nearly quadruple the $100 billion conservatives in Congress are trying to cut out of this year’s federal budget for everything from Head Start and college student aid to public broadcasting.
Congressional budget-whackers are going after the IRS as well. They want to chop $285 million out of the agency’s enforcement budget, this at a time when the IRS is finally, after the Bush dark years, starting to more aggressively audit the tax returns that America’s wealthiest file. Last year, the audit rate on returns reporting at least $10 million in income nearly doubled, to 18.4 percent.
Why do we need more audits at the top? The most recent IRS Oversight Board report estimateswe’re losing $290 billion a year to tax cheats — and high-income taxpayers, one 2008 study has concluded, underreport their incomes at triple the “misreport” rate of average-income taxpayers.
The bottom line: Taxing the rich at the actual rates they paid a half-century ago — and doing more to make sure all the rich pay their taxes — would likely this year raise, at the federal level alone, an additional half a trillion or so.
Tax, tax, tax the rich indeed.
HOW RICH ARE THE SUPERRICH?
A huge share of the nation’s economic growth over the past 30 years has gone to the top one-hundredth of one percent, who now make an average of $27 million per household. The average income for the bottom 90 percent of us? $31,244.