Nine New Findings About Inequality in the United States – The New York Times



1. The bottom half of the country has been shut out from income growth for 40 years.

The average pretax earnings of an American in the bottom 50 percent of income was $16,197 in 2014, a nearly invisible 2.6 percent gain over 40 years. Over the same period, the top 10 percent of Americans saw their pretax incomes grow by 231 percent.

197419801990200020102016$0$5,000$10,000$15,000$20,000$25,000$16,197Bottom 50% pretax income

2

Government spending has helped lift lower incomes, but only a little.

The study subtracts taxes, and then adds back the benefits of both direct (Medicare, Medicaid, food stamps) and indirect (infrastructure, defense, education) government spending to arrive at an after-tax measure of income.

By comparing pretax income to income after accounting for taxes and government spending, we can see a clearer picture of how government policy has affected income inequality in the United States.

197419801990200020102016Benefits$0$5,000$10,000$15,000$20,000$25,000$16,197Bottom 50% pretax income$25,045Bottom 50% after-tax income

3

Increased health care spending on the elderly consumes most of the gains.

The effects of government assistance vary widely with age, especially at the lower half of incomes. Younger adults between 20 and 45 years old have seen their after-tax incomes flatline.

But over the same period, seniors in the bottom half have seen their after-tax incomes grow by over 70 percent. The bulk of that gain represents increased health care spending through Medicare.

19791990200020102016Benefits$0$10,000$20,000$30,000$35,000$16,655Age 65+ pretax$32,135Bottom 50%, age 65+ after-tax income$12,857Age 20-45 pretax$20,729Age 20–45, after-tax

4

The top 1% and the bottom 50% have swapped their relative shares of the national income.

Forty years ago, the top 1 percent of earners took home 10.5 percent of the total national income, and the bottom half earned 20 percent of it. By 2014, those percentages effectively flipped, with the top 1 percent earning a 20 percent share and the bottom half dropping to 12.5 percent.

1974198019902000201020160%5%10%15%20%25%13%Bottom 50% pretax share of national income20%Top 1% pretax share

5

Taxes in the United States are much less progressive than they used to be.

Between the end of World War II and the 1980s, the gap between effective tax rates on the rich and the poor narrowed as a result of reductions in corporate and estate taxes on the upper class, and increases in payroll taxes on the working class.

In 2013, the Obama administration sharply reversed the trend of declining top tax rates by allowing the 2001 Bush tax cuts to expire and introducing new surtaxes to fund the Affordable Care Act.

1944195019601970198019902000201020160%10%20%30%40%50%31%Overall tax rate24%Bottom 50% tax rate36%Top 1% tax rate

6

More women in the work force also helped mitigate rising inequality.

Since the 1960s, more American women have joined the work force and their pay has increased, counteracting measures of inequality. In 1964, women made up only 38 percent of the work force; they are now nearly half of it.

1964197019801990200020102016$0$10,000$20,000$30,000$40,000$45,000$35,800Men median labor income$21,400Women median labor income

7

But there’s still a spectacular glass ceiling.

Despite these gains, as you look further up the income ladder, you find fewer and fewer women.

Women are 48 percent of the American work force, but only one in 10 of the top 0.1 percent of earners.

19641970198019902000201020160%10%20%30%40%50%48%Women as percentage of all labor27%Women in top 10%16%Women in top 1%11%Women in top 0.1%

8

Since 1999, any upper-middle-class income growth has been after-tax.

Even for this upper-middle-class group, which the authors define as adults with incomes between the bottom half and the top 10 percent of Americans, pretax incomes haven’t grown over the past 15 years. Only rising public spending on benefits like health care has allowed upper-middle-class incomes to grow.

1964197019801990200020102016Benefits$0$10,000$20,000$30,000$40,000$50,000$60,000$70,000$48,083Upper-middle 40% income net of taxes$67,211Upper-middle 40% after-tax income

9

Taxes and spending helped blunt the effects of inequality and income stagnation.

Over the past 50 years, the total share of national income that flows back to individuals through the government has grown. And that income has increasingly been transferred to the bottom 90 percent of Americans, helping to slightly slow the rapidly growing income inequality in the United States.

19641970198019902000201020160%5%10%15%10%Transferred to bottom 50%14%Percentage of income transferred to upper-middle 40%7%Transferred to top 10%

Despite this, the study argues that more redistribution won’t fix the problem.

Because the labor income of the bottom 50 percent of Americans has weakened so drastically, Mr. Piketty, Mr. Saez and Mr. Zucman write, “there are clear limits to what redistributive policies can achieve.”

They argue that future policy should focus more on raising the primary income of the American working class. They would prefer to see policies focus on improving education and job training, equalizing distribution of human and financial capital, and increasing labor bargaining power, combined with a return to steeply progressive taxation.

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