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Thursday, December 13, 2007

The Widening Gap

Jared Bernstein reviews the latest data from the CBO on the distribution of income:

Boy, Have We Got an Inequality Problem, by Jared Bernstein: The Congressional Budget Office (CBO) just updated their invaluable data series on income inequality and the results are startling. Income inequality among households, both before and after Federal taxes, grew more quickly over the last two years of the series, 2003-05, than over any other two-year period on record, back to 1979.

Over those two years, the growth of inequality transferred $400 billion dollars from the bottom 95% to the top 5%. That is, had the income distribution remained as it was in 2003, the income of each of the 109 million households in the bottom 95% would have been $3,660 higher in 2005.

If this is the ownership society at work, I think we need to have a serious talk with the owners.

EPI will post our analysis later in the day (the Center on Budget and Policy Priorities will also post their nifty analysis), but I wanted to share a few of our findings with you right away:

  • If we break households in groups of 20% each by income, well over half of household income (55%) was held by the richest fifth in 2005, the highest such share on record;
  • The share of income held by the top 1% has climbed from 9% in 1979 to 18% in 2005.
  • After-tax income of the bottom 20% grew 6%, or $1,800 over these years (1979-2005, in 2005 dollars); the middle-class gained $11,000, up 21%, over these 26 years. The average income of the top 1%, more than tripled, up 228%, for a gain $781,000.
  • By 2005, the average post-tax income of the bottom fifth was $15,300, the middle fifth: $50,200, and the top 1%: $1.1 million.

These hugely different growth rates have led to much greater economic distance between income classes over the years. Back in 1979, the post-tax income of the top 1% was 8 times higher than that of middle-income families and 23 times higher than the lowest fifth. In 2005, those ratios grew to 21 (top compared to middle) and 70 (top to bottom), a vast increase in the distance between income classes. ...

Such concentration of income is unsustainable in a democratic society. The distributional mechanisms that have historically worked to ensure much more equitable outcomes appear to be wholly inoperative. Fixing them must be at the heart of any serious economic policy discussion.

    Posted by on Thursday, December 13, 2007 at 09:00 AM in Economics, Income Distribution | Permalink  TrackBack (0)  Comments (86)


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