Article: The Falling Fortunes of the One Percent

The article can be found here: The Falling Fortunes of the One Percent

The presidential election has given us two myths about the rich. First, that their incomes, and income inequality, are at all-time highs. Second, that the wealthy pay less in taxes than ever, and lower taxes than the rest of us.

A recent report from the Congressional Budget Office, however, suggests that both may be false.

Let’s consider income first. Between 2007 and 2009, after-tax earnings by Americans in the top one percent for income fell 37 percent. On a pre-tax basis they fell 36 percent in the same period.

That may sound like a minor haircut for One Percenters compared to people who lost their jobs. But when you take into account federal transfers, assistance and taxes paid, the incomes of the bottom 20 percent grew by 3 percent, while it fell a modest 2 percent for the middle 20 percent.

In other words, the incomes of the top one percent fell 18 times more than the incomes for the middle class at the start of the recession.

The result of this big drop at the top was that their share of the country's total income also fell. In 2007, the top one percent earned 16.7 percent of all after-tax income. In 2009, that portion fell to 11.5 percent.

Inequality, in other words, fell during those years. We are now in an age of High-Beta Wealth, where the incomes of the One Percent have become far more manic and prone to wild drops than the rest of the country.

And taxes paid? Despite the oft-repeated fact that tax rates for the wealthy are at an all-time low (which is true), it’s also true that the actual amount paid in taxes by the wealthy is higher than before the recession.

The One Percent paid an average effective tax rate of 28.9 percent on their income — far more than any other group, and more than twice the average effective rate of the middle class, who paid 11 percent on average.

So the rich lost more income and paid more of their money in taxes than the rest of the population.

This is not an argument against taxing the wealthy. And the incomes and tax rates of the wealthy may have jumped back since 2009, with the rebound in financial markets.

But when politicians and pundits talk about the rich just getting richer and paying less taxes, they need to pay closer attention to the actual numbers.

And the incomes and tax rates of the wealthy may have jumped back since 2009, with the rebound in financial markets.

Oh?

Psycho41 said:   SangioveseW said:   Let’s consider income first. Between 2007 and 2009...
Stopped reading right there. That timeframe just happens to coincide with the stock market bottoming out, which is when wealthy people lost a great deal of money. It conveniently omits the recovery, where they made most of it back.

If you looked at the numbers between 2007 and now (last ~5 years), it would paint a very different picture. Same goes for 2002 and now (last ~10 years)I think that what you are saying is perfectly fair. In fact, if you hadn't stopped reading, you would've seen that the article itself says "And the incomes and tax rates of the wealthy may have jumped back since 2009, with the rebound in financial markets."

It's kind of like saying "Microsoft stock lost more than half its value between 1999 and 2000, therefore Bill Gates should not pay higher taxes because he's not as rich as he's made out to be"If you hadn't stopped reading the article you would've seen the author say "This is not an argument against taxing the wealthy... But when politicians and pundits talk about the rich just getting richer and paying less taxes, they need to pay closer attention to the actual numbers."

The point of the article isn't necessarily to make an ideological point, which is kind of the reason that I posted it here. The goal is to point out a factual inaccuracy, while at the same time acknowledging that the latest data may have changed things again.

yeah this article is junk. If this was a 10 year+ time frame it would hold some water... The really rich get hit hard when there is a recession, and make massive money when things are good. They are typically heavily invested/leveraged and more susceptible to hits than some JOe Blow working as a mid level accountant. I'd bet if you looked at 2009-2012, the story is much much different.

If you hadn't stopped reading the article you would've seen the author say "This is not an argument against taxing the wealthy... But when politicians and pundits talk about the rich just getting richer and paying less taxes, they need to pay closer attention to the actual numbers."

I'm not a racist but... I don't mean to be but... This is not an argument but... These are euphemisms for exactly ideological point. You are not that naive to think that this guy was picking 2007 till 2009, the time unprecedented since 1930's just to point out #'s, right? Pretty much most of opinions/datapoints on CNBC revolve around one theme; rich should get a tax cut because they are job creators.

Psycho41 said:   I think the real point of the article was to defend the rich against higher taxes, by getting it into peoples' heads that "rich getting richer" arguments aren't necessarily valid.Personally, I didn't much care for the article (I didn't think it was terrible but didn't think that it was great either) but the "rich getting richer" statement is not an argument. To me, it's a factual statement that is either true or false.

Regardless of what it is though, I am not sure that it has that much to do with the arguments for or against higher taxes. I am sure that other people out there feel differently, but, to me, if the foundation behind tax increases is sound and it is reasonably likely to achieve its goals, then I am not sure why the fact that income inequality is falling would change the outcome. Likewise, if the foundation behind tax increases for just one segment of society is lacking, then I am not sure why the fact that income inequality is rising would change the outcome.

The author is selectively comparing 40% of the population and stating this select group did better than the top 1%. The bottom 20% did better because their federal assistance income is largely tied to inflation. Their incomes always go up in current year dollars. It is also the same time frame during which the minimum wage jumped nearly 50%.

The article does not address the rich get richer question at all, since they speak nothing of wealth.

JorgeBurrito said:   I guess it depends what you decide suffering means. Having to live on only 48 million dollars instead of the 51 million you had 2 years ago isn't exactly suffering to me. Losing your job that you were counting on to make bills next month seems a bit more like suffering.What you are saying is absolutely true but why are we talking about 50 million? From the numbers that I am seeing online, total earnings of about $344K/year put you in the 1% of the population. In a lot of parts of the country a dual income household making $344K/year certainly won't be applying for food stamps any time soon but isn't exactly swimming in money either. In fact, a couple of dual earners making that much has a lot more in common with the middle class than with those making $50MM.

My takeaway is the "lost 37%" figure. It tells me not to chastise the oversized income of the rich, because anyone facing a potential 37% income fluctuation deserves to be sated for that risk when things do work out. The only way the middle/lower classes faces a loss of income that large is if they loose their job entirely, otherwise their income is fixed regardless of the economy - their $10/hour job isnt going to suddenly end up being a $7/hour job after the fact.

geo123 said:   JorgeBurrito said:   I guess it depends what you decide suffering means. Having to live on only 48 million dollars instead of the 51 million you had 2 years ago isn't exactly suffering to me. Losing your job that you were counting on to make bills next month seems a bit more like suffering.What you are saying is absolutely true but why are we talking about 50 million? From the numbers that I am seeing online, total earnings of about $344K/year put you in the 1% of the population. In a lot of parts of the country a dual income household making $344K/year certainly won't be applying for food stamps any time soon but isn't exactly swimming in money either. In fact, a couple of dual earners making that much has a lot more in common with the middle class than with those making $50MM.Yes, $344,000 per year puts you at the very bottom limit of being in the top 1%. However, if we are using statistics of all the top 1%, their average income is $717,000 and their net worth is $8.4 million. I hardly consider this middle class in any part of the country.

ref: Forbes

Here's a much better article from the WSJ

Ari Fleischer: The Latest News on Tax Fairness

WSJ said: The top 20% in 1979 made 44.9% of the nation's income and paid 55.3% of all federal taxes. Thirty years later, the top 20% made 50.8% of the nation's income and their share of federal taxes paid had jumped to 67.9%.

So income has risen, but the share of the country's tax burden has risen disproportionately on the rich.

xerty said:   Here's a much better article from the WSJ

Ari Fleischer: The Latest News on Tax Fairness

WSJ said: The top 20% in 1979 made 44.9% of the nation's income and paid 55.3% of all federal taxes. Thirty years later, the top 20% made 50.8% of the nation's income and their share of federal taxes paid had jumped to 67.9%.

So income has risen, but the share of the country's tax burden has risen disproportionately on the rich.

So for the top 20%, their income share went up by 13% and their income tax share went up by 22%. Not quite linear, but wait...

Let's stick to 1%

WSJ said: And the top 1%? In 1979, this group earned 8.9% of the nation's income and paid 14.2% of all federal taxes. In 2009, they earned 13.4% of the nation's income but their share of the federal tax burden rose to 22.3%.

So their share of overall income increased by ~50% and their share of income tax went up by 57%.

Hmm, their suffering is not quite that horrible, after all. We can twist it whichever way is necessary, this article is not any better about it than OP's. Just tell me who you want to be blamed, I'll give you the numbers

csdx said:   xerty said:   Here's a much better article from the WSJ

Ari Fleischer: The Latest News on Tax Fairness

WSJ said: The top 20% in 1979 made 44.9% of the nation's income and paid 55.3% of all federal taxes. Thirty years later, the top 20% made 50.8% of the nation's income and their share of federal taxes paid had jumped to 67.9%.
So income has risen, but the share of the country's tax burden has risen disproportionately on the rich.
To me that math shows that ratio of taxes paid vs money made for the 20% has gone down by those numbers:
55.3%/44.9% = ~1.38 vs 67.9%/50.8% = ~1.33
Or is this not mathematically what I think it is?It's not what you think it is, you are just dividing random numbers. You need to compare the change in income (50.8%/44.9%, increased 13.1%) with the change in tax burdon (67.9%/55.3%, increased 22.7%).

Glitch99 said:   Why is it always percentages to make these arguments, and not hard dollar amounts? Is it because acknowledging the fact that the undertaxed 1%'er pays $300,000 in tax while the "unfairly overtaxed" middle-class'er pays $4,000 in tax is going to muddle the desired message that rich people dont pay their share?Optimal political methodology to maximize revenue.

samko said:   geo123 said:   JorgeBurrito said:   I guess it depends what you decide suffering means. Having to live on only 48 million dollars instead of the 51 million you had 2 years ago isn't exactly suffering to me. Losing your job that you were counting on to make bills next month seems a bit more like suffering.What you are saying is absolutely true but why are we talking about 50 million? From the numbers that I am seeing online, total earnings of about $344K/year put you in the 1% of the population. In a lot of parts of the country a dual income household making $344K/year certainly won't be applying for food stamps any time soon but isn't exactly swimming in money either. In fact, a couple of dual earners making that much has a lot more in common with the middle class than with those making $50MM.Yes, $344,000 per year puts you at the very bottom limit of being in the top 1%. However, if we are using statistics of all the top 1%, their average income is $717,000 and their net worth is $8.4 million. I hardly consider this middle class in any part of the country.

ref: ForbesTrue, but this debate is about potentially increasing taxes, correct? The tax increase proposal that's being debated is for households making over $250,000, which is almost three times lower than the $717,000 figure that you mentioned above. In fact, in a lot of parts of the country a blue collar household that works a lot of overtime can meet that definition.

SangioveseW said:   The article can be found here: The Falling Fortunes of the One Percent
Let’s consider income first. Between 2007 and 2009, after-tax earnings by Americans in the top one percent for income fell 37 percent. On a pre-tax basis they fell 36 percent in the same period.


As others said, interesting cherry-picked data, especially considering that some 2010 figures are available. For example, here's an article about how the top 1% captured 93% of all income gains in 2010. http://www.huffingtonpost.com/2012/03/05/1-percent-income-inequa...

xerty said:   Here's a much better article from the WSJ

Ari Fleischer: The Latest News on Tax Fairness

WSJ said: The top 20% in 1979 made 44.9% of the nation's income and paid 55.3% of all federal taxes. Thirty years later, the top 20% made 50.8% of the nation's income and their share of federal taxes paid had jumped to 67.9%.

So income has risen, but the share of the country's tax burden has risen disproportionately on the rich.

Top tax rate in 1979 was 70%. Today it's 35%. The proportion of taxes paid by the wealthiest members of society is not a result of taxes disfavoring them - quite the opposite. It's a result of more Americans becoming too poor to pay income tax, either through very low income or low-middle income with lots of incentives, deductions, and credits. (Spoiler - it's a lot more of the former than the latter.)

Stagnant or falling middle class income plus ballooning upper-class income would necessarily create the situation that we see in these stats.

JTausTX said:   It's a result of more Americans becoming too poor to pay income tax, either through very low income or low-middle income with lots of incentives, deductions, and credits. (Spoiler - it's a lot more of the former than the latter.)I don't know if I agree with this. I don't think that there's any doubt that a lot of people do not have any federal income tax liability because they really are quite poor by any objective measures. At the same time, our present tax system is also set up in a way that allows people that many of us would describe as middle class not to have any federal income tax liability. May I introduce you to the following thread: What's the most money you've made without owing Federal Income Tax? 100,000 or more?

I would never call the hypothetical family described in that thread "rich" or "wealthy" but I also would never call a family like that making $100,000 in 2005 "poor." The thread is now seven (7) years old and, over that time, the deductions have only gotten that much more significant.

JTausTX said:   As you say. Much better IMO to create new tax brackets at $500.000, $1MM, $10MM, or whatever. A few extra brackets taxed at 2-3% would raise some revenue and have almost no impact on the very wealthy.I agree, but there are several problems with it. The biggest practical issue with it is that according to the numbers that I've seen, there are just not enough people making that much money out there, so that a structure like that would not raise sufficient tax revenue.

There are also more fundamental problems that have to be addressed before any tax proposal can really be seriously considered. For one, when almost half of the population pays no federal income tax, they have no dog in the tax fight and, therefore, have no reason to insist on accountability, ensuring that we do not overspend, etc... I also think that whenever you try to get a very small percentage of the population to shoulder most if not all of the tax increases for no reason other than the fact that most voters have a financial incentive to do so, then we lose our focus and our ability to do what's best for the economy, as this approach comes with rather significant downsides.

harruin said:   darkfallz said:   47% of americans pay no tax...so guess who picks up the slack.
I guess the payroll tax doesn't exist anymore.True, he should've clarified that he is talking about federal income taxes. At the same time, since we are discussing a potential federal income tax increase, I think that his omission is understandable, although I do agree that it is a good idea to make this explicit.

So far we've had contributions from CNBC, Mother Jones, and professional liar Ari Fleischer.

I'll leave this right here:
http://elsa.berkeley.edu/~saez/saez-UStopincomes-2010.pdf

nycll said:   Yes I think we can safely say recession and low birth rate are both bad for the economy. I know you might have different opinion about birth rate but even both are true there is no guaranteed death spiral because there are other factors.

I think the per capita data should be interesting. I think Japan has declining per capita GDP as well just because the portion of retirees has continued to rise.Just curious, have you considered the effect of overpopulation on the effect of birth rate vs. economic output? More specifically, once a country no longer has sufficient resources to sustain itself, birth rate no longer helps the economy, because all those extra mouths to feed just drain money from the rest of the population.

Isn't it plausible that both Japan's low birth rate and its snail-paced economy are the result of its resources being maxed out, as opposed to one being caused by the other?