Meet the 1% and where income disparity comes from

People have widely disparate impressions of what constitutes the 1%.  Okay, here’s what I always like to see.  These numbers are gathered from official IRS data for 2010 by Emmanuel Saez, Professor of Economics at Cal-Berkeley.

Percentile threshold Income threshold Income Groups Number of families Average income in each group
(1) (2) (3) (4) (5)
A. Income including realized capital gains (from Table A6)
Full Population 156,167,000 $51,550
Bottom 90% 140,550,300 $29,840
Top 10% $108,024 Top 10-5% 7,808,350 $125,627
Top 5% $150,400 Top 5-1% 6,246,680 $205,529
Top 1% $352,055 Top 1-0.5% 780,835 $418,378
Top .5% $521,246 Top 0.5-0.1% 624,668 $798,120
Top .1% $1,492,175 Top 0.1-0.01% 140,550 $2,802,020
Top .01% $7,890,307 Top 0.01% 15,617 $23,846,950

To help you interpret, columns 1 & 2 show you that, if you made $108,024 in 2010, you were in the top 10%.  If you made $150,400, you were in the top 5%.  To be in the top 1%, you had to earn $352,000, and so on.

Columns 3, 4, & 5 tell you that there were a total of 156,167,000 households that filed returns, 140,550,300 of whom constituted the bottom 90%.  The average income overall was $51,550 and for the bottom 90%, it was $29,840.  The bottom half of the top 10% (10-5%) had 7.8 million families with an average income of $125,627.  The four percent just above that had 6.2 million households averaging $205,529.  In the bottom half of the top 1% were 780,835 families averaging $798,120, and so on.

Now, here is a graph by Arizona Political Science professor, Lane Kenworthy.  It shows how both GDP (Gross Domestic Product) and median family income have grown since 1947.  Note that up until about 1980, income growth pretty well tracked GDP growth, but has not kept pace since (remind me again who became president about that time?).  Since GDP has continued to grow, SOMEBODY is making money, so where has all that money gone?

 

And here’s a chart from Mother Jones magazine.  It shows how much income has been gained or lost by various income groups owing to the failure of Middle Class incomes to keep pace with GDP growth.  Note how the amount lost by the bottom 80% compares with that gained by the top 1%.

How much income have you given up for the top 1 percent?

The wealth still being generated by this country’s economy is no longer accruing to the people who do the work to generate it.  Rather, it is going to a few extermely well-to-do people at the very top of the income scale.  Either we’re going to do something about that or it’s going to become the status quo.  It’s our choice.

Be the change you want to see in the world.
–Mohandas K. Gandhi

 

In 2010, 93 percent of income gains went to the top 1 percent

Occupiers, here’s a relevant re-post from Ezra Klein of the Washington Post:


(Mike Konczal) In recent months, some commentators wondered whether the national conversation over inequality was coming too late. Early data suggested that the top 1 percent’s share of national income had dropped from 23.5 percent to 18.1 percent in the early years of the recession. “We don’t want to spend years focused on income inequality, only to learn that the financial crisis fixed it for us,” wrote the Atlantic’s Megan McArdle.

The latest update to Emmanuel Saez and Thomas Piketty’s income data suggests we need not worry. Timothy Noah summarizes:

 

In the first year of the recovery, 93 percent of all income gains went to the top 1 percent.

In other words, the very rich had a bad 2009, but an incredible 2010. Their share of national income bounced back to 19.77 percent. So inequality is marching upward once again. And there’s reason to believe this will keep going.

We mainly talk about income inequality, but wealth inequality matters, too. For most households, their wealth is in real estate. Those assets aren’t returning to pre-crisis levels anytime soon. But for rich households, their wealth is in financial assets, and those assets are recovering much more quickly.

Here’s more from Mike Konczal.

Cutting the federal budget

So, you want to cut the federal budget?  Be my guest.  A lot of people want to do that.  After all, the government is just wasting our tax dollars, anyway, right?  They’re spending a a trillion more than they’re taking in, right?  We need to eliminate that deficit, don’t we?

Here’s a snapshot of 2010 federal spending using mostly data from the Center on Budget an Policy Priorities (or CBPP, which, you’ll note, gets it’s data from the Office of Management and Budget).  I’ve added in a few details for clarity as noted below (* and **).  And don’t worry too much that it’s now 2012, the budgets and deficits are similar.  To be sure, the issues are exactly the same.

CBPP presents the budget in six broad categories: Defense, Social Security, etc.  They break out the categories of Safety Net and Other to show the major programs under each.  I took the liberty of also separating out Medicaid and CHIP from SS for added detail.

* CBPP provided no dollar amounts for Safety Net programs.  I provided estimates of the major programs based on Google searches, most of which were taken from CBO or OMB data.  The last three programs (child care, housing assistance, home heating assistance, etc.) I ignored because verifying the numbers is tedious and they only amount to a few billion dollars among them.

** CBPP gave the percentage breakouts for Other, but not the actual budget amounts.  These I calculated from the percentages.  You will note that these subprograms do not sum to the Other category total due to rounding.

So, in 2010, the government took in $2.2 trillion and spent a whopping $3.5 trillion.  For the arithmetically challenged, that, means we had a deficit of $1.3 trillion.  Okay, now you’ve got a pretty decent list of what we spend money on right in front of you.  YOU decide where to cut $1.3 trillion.

Defense?  Sure, that’s a good place to start.  But how much are you going to cut?  $200 billion?  $500 billion?  Don’t forget that aid to Israel, Pakistan and Egypt are in that total, as well as Homeland Security.  Also, don’t forget that there are more than a few people still out there who would just as soon see us all dead.  Cutting more than $100 billion or so from this total is doable, but probably not feasible politically.

Okay, how about Medicaid?  After all, that’s just “welfare” for people too poor, too lazy or too stupid to buy insurance, right?  No, not exactly.  Almost half of Medicaid goes to the disabled.  Most of these people are on long term care and unable to work.  Many are actually on life support.  Remember Terry Shiavo?  She was on Medicaid.  President Bush flew to Washington D.C. on a Sunday just to sign a bill to KEEP her on Medicaid-funded life support.

And more than half of all nursing home care is paid for by Medicaid (no, Medicare DOESN’T cover that).  And before you start eyeballing the Children’s Health Insurance Program (CHIP), know that it’s a mere $11 billion of the total.  That’s a lot cheaper than taking forty or fifty million kids off CHIP and then having to pay for their chronic conditions later because they couldn’t afford to see a doctor early.

Okay, we can’t slice interest on the debt.  How about those Safety Net Programs?  Buncha freeloaders, anyway, right?  Well, okay, there’s the Earned Income and Child Tax Credits.  $130 billion is a lot of money.  What do those go for?  They are direct payments to the poorest working taxpayers.  If you are working, but you don’t earn very much, you get some of your money back in the form of direct payments.  If you have kids, as well, you get a little more.  Think of it as incentive to work and support your family, even if you have to work at McDonald’s.  Yeah, you could cut this, but effectively you’d be raising taxes on the poorest, most vulnerable citizens – and the ones who are ACTUALLY WORKING!  Bad idea.

Then there’s Supplemental Security Income (SSI).  This is a Social Securit monthly stipend for people who are fully or partially disabled, but are too young for regular Social Security.  Most have had debilitating illnesses or injuries and either can no longer work or can’t work much.  You gonna cut these people off?  I don’t recommend it.

Then there’s unemployment compensation.  Sure, you can tell all the lazy bums living large on unemployment to “get a haircut and get a real job,” but, unless they’re willing to move to China and work for pennies a day, the fact remains that there aren’t enough jobs for all of them.  Consider also that every penny of those unemployment checks get spent in short order because that’s all the income most unemployed people have.  Then think about the fact that removing that $156 billion from the economy amounts to just a tad over 1% of GDP.  And seeing as how the economy is only growing at a rate of just over 2%, cutting off unemployment just doesn’t make sense, purely from an economic, much less humanitarian perspective.

Food stamps and school lunches?  Forty-six million people are dependent upon food stamps.  School lunches are about $10 billion of that $76 billion, give or take a billion.  You want to cut this?  Go ahead, but first read Matthew 25:31-46 and think for a minute whether you might be separated with the rest of the goats come Pearly Gates time.  Your choice.

That’s pretty much it for the Safety Net programs.  The other stuff is nickles and dimes.  Heck, you can cut the whole thing – tax credits for the poor, disability checks, unemployment, food stamps, child care, home heating, the whole nine yards – and you’ll STILL be only 40% of the way to eliminating the deficit.

So what’s left?  Other.  Veterans benefits and federal retirees?  You can’t seriously cut that, right?  Oh, but there’s scientific and medical research.  There’s an easy $70 billion.  Transportation and infrastructure –  roads, bridges, air traffic control?  Need any of that?  Education – ANOTHER easy $100 billion!  Never mind that most of it goes to help kids pay for college. Non-security foreign aid?  Toast.  Next time there’s an earthquake in some third world backwater, we’ll tell ’em we’re broke.  And what’s this “All other?”  How about, Congress, the courts, U.S. Attorney’s, FBI, that kind of crap.  Okay, we have to keep most of it, but we can do without the EPA and stuff, right?

So let’s take stock.  Let’s say we cut $100 billion from defense, dump everything but SSI and tax credits for the poor from the Safety Net programs (another $250 billion), cut research, education and foreign aid ($200 billion) from Other Programs and slash 10% of what’s left of that (another $50 billion).  And while we’re at it, let’s cut ALL of Medicaid that doesn’t go for children, the elderly or the disabled (15% or about $40 billion).

So far you’ve trashed a lot of defense programs, destroyed most of the social safety net, eliminated all scientific and medical research, made it so that pretty much only wealthy people can afford to send their kids to college and pretty well ensured that we will be of no help to any country that suffers a natural disaster. And you’ve only saved about $640 billion or LESS THAN HALF of the deficit.  Where you going to get the OTHER $660 billion, Einstein?  Social Security?  Medicare?  Defense?

One final point.  The candidates vying to take the current president’s job have made no bones about the fact that they won’t cut ANYTHING from Defense.  In fact, the presumed nominee has vowed to INCREASE the size of the standing army and build additional ships for the Navy. And yet he has also promised to REDUCE TAXES and ELIMINATE THE DEFICIT.  I see an arithmetic issue here.  Do you?  Where do you think HE plans to cut?  Somehow, I don’t think I need to spell it out for you, but columnist Ezra Klein of the Washington Post does such a good job, I hereby outsource that task to him:

The federal budget is fairly simple. I can explain it to you in fewer than 30 words: Most of the money comes in through taxes and borrowing. The vast majority of it is then spent on programs for the old, programs for the poor and defense. That’s pretty much it.

Mitt Romney’s plans for the federal budget are also fairly simple. I can explain them to you in less than 100 words: He’s promising that taxes will go down, defense spending will go up and old-people programs won’t change “for those at or near retirement.” So three of his four options for deficit reduction — taxes, old-people programs and defense — are either contributing to the deficit or are off-limits for the next decade.

Romney is also promising that he will balance the budget and reduce total federal spending by more than $6 trillion over the next 10 years. But the only big pot of money left to him poor-people programs. So by simple process of elimination, poor-people programs will have to be cut dramatically under a Romney presidency. Around 40 percent of projected spending, according to the Center on Budget and Policy Priorities.

Why is the middle class disappearing? Actual data.

Wow.  I can’t help but re-post this item from University of Arizona professor (Socciology and Political Science) Lane Kenworthy.  It demonstrates why it is that corporations and wealthy individuals are doing well – GDP keeps increasing – but the average family is struggling.  All that GDP growth is going to just a few people:

Slow Income Growth for Middle America

September 3, 2008

The economic challenges and strains facing middle-class Americans are likely to get a good bit of attention between now and election day, at least from the Obama campaign. They include sluggish income growth, heightened financial insecurity, rising health care and college costs, and falling home values. Each of these is important, but the most critical in my view is slow growth of incomes.

The following chart tells the story. It shows inflation-adjusted GDP per capita and median family income from 1947 (the earliest year for which the income data are available) to 2007. To facilitate comparison of the over-time trends, each is indexed to its 1973 level. Since the mid-to-late 1970s, growth of income at the median has been slow — very slow — relative to growth of the economy. The current decade, with no improvement at all in median income, is especially striking.

The dashed line in the next chart shows what median income would have looked like had it risen in sync with per capita GDP. The difference is huge: in 2007, the median family’s income would have been $91,000 instead of $61,000.

Various excuses and rationalizations have been offered: It’s okay because Americans now get more in employer benefits instead of in their paycheck. Family size has shrunk, so slow income growth isn’t a big deal. A lot of those in the bottom half are immigrants, and even with slow income growth they’re better off than they would have been in their native country. None of these is compelling (see here or here).

The disconnect between economic growth and middle-class income growth is due largely to rising inequality. In the past several decades much of the economy’s growth has gone to those at the top of the income distribution.

Faster income growth wouldn’t render other middle-class strains irrelevant. But it would help.

Growing Income Inequality Is Destroying Our Economy and the Middle Class

This morning, Alan Krueger, Chairman of the President’s Council of Economic Advisers (CEA), gave a speech at the Center for American Progress.  We can only hope that his remarks hopefully portend the administration’s actions with respect to future economic policy.  Here is a summary of his most salient points:

  • The difference in income growth between very wealthy and the rest of the population in the U.S. over recent decades is staggering, as illustrated by the following chart:
  • This gap is further underscored by contrasting income growth in post World War II decades with the numbers from 1979 through 2007:
  • The period from 1992 to 2000 was an exception, when strong economic growth and the policies of the Clinton administration led all quintiles to grow together again. All income groups experienced their fastest income growth in years. That there is nothing in these data to indicate that the tax increases in the early 1990s had any adverse effect on income growth. Had incomes grown since 2000 like they did in the 1990s, the median income would be $8900 higher than it is now:
  • The share of all income accruing to the top 1 percent increased by 13.5 percentage points from 1979 to 2007. This is the equivalent of shifting $1.1 trillion of annual income to the top 1 percent of families. Put another way, just the increase in the share of income going to the top 1 percent over this period exceeds the total amount of income that the entire bottom 40 percent of households receives. (emphasis added)
  • The evidence is clear that the economy performed more poorly after last decade’s tax cuts than it did after taxes were increased on top earners in the early 1990s. Across all businesses, job growth was much weaker in the 2000s than in the 1990s. Hence there is little empirical support for the claim that cutting taxes on so-called “job creators” has spurred income growth, business formation or job growth.
  • According to research by Karen Dynan and her coauthors, the top 1 percent of households saves about half of the increases in their wealth, while the population at large had a general savings rate of about 10 percent. This implies that if another $1.1 trillion had been earned by the bottom 99 percent instead of the top 1 percent, annual consumption would be about $440 billion higher. This would have resulted in a 5 percent boost to aggregate consumption over what actually occurred. (emphasis added)
  • A paper by international economists Torsten Persson and Guido Tabellini argued that in a society where income inequality is greater, political decisions are likely to result in policies that lead to less growth. A new IMF paper also finds that more equality in the income distribution is associated with more stable economic growth.
  • If we want an economy that builds the middle class, we can’t continue the type of policies that have exacerbated the rise in inequality and threatened economic mobility for the last thirty years. This means that we must adequately regulate excess risk-taking and corrupt practices in financial markets. It also means that we can’t continue tax policies that don’t generate faster economic growth or jobs, but rather increase inequality. Instead of going backwards, we should adhere to principles like the Buffett Rule, which states that those making more than $1 million should not pay a lower share of their income in taxes than middle class families. We should also end unnecessary tax cuts for the wealthy, and return the estate tax to what it was in 2009.  (emphasis added)
  • The evidence suggests that a growing middle class is good for the economy, and that a more fair distribution of income would hasten economic growth. Businesses would benefit from restoring more fairness to the economy by having more middle class customers, more stable markets, and improved employee morale and productivity.

“Let me tell you about the very rich. They are different from you and me. They possess and enjoy early, and it does something to them, makes them soft where we are hard, and cynical where we are trustful, in a way that, unless you were born rich, it is very difficult to understand. They think, deep in their hearts, that they are better than we are because we had to discover the compensations and refuges of life for ourselves. Even when they enter deep into our world or sink below us, they still think that they are better than we are. They are different.”

F. Scott Fitzgerald, The Rich Boy

Kudos to Ezra Klein of the Washington Post for his original posts and the others cited above for their work.  Also to Scott Fitzgerald for nailing down what rich people are really like long before I was born.

The Family Budget and the Federal Budget

I got one of those serial right-wing emails today from one of my low-information-voter acquaintances.  It went like this:

This rather brilliantly cuts thru all the political doublespeak we get. It puts it into a much better perspective.

  • U.S. Tax revenue: $2,170,000,000,000
  • Fed budget: $3,820,000,000,000
  • New debt: $ 1,650,000,000,000
  • National debt: $14,271,000,000,000
  • Recent budget cuts: $ 38,500,000,000

Let’s now remove 8 zeros and pretend it’s a household budget:

  • Annual family income: $21,700
  • Money the family spent: $38,200
  • New debt on the credit card: $16,500
  • Outstanding balance on the credit card: $142,710
  • Total budget cuts: $385

Got It ?????

The intent, clearly, is to lead the average American Idol fan to the conclusion that our deficit is caused by congressional reluctance to adequately trim “fat” from the budget.  I was incensed, of course, but quickly realized that the REAL problem could be brought to light simply by extending this analogy.  So I replied like this:

So, the family has a budget of $38,200 (after taxes, let’s assume) and debt of $142,000.   You can find a breakdown of 2011 federal spending HERE and a model of how the average American family spends its money HERE.  Matching the family expenses along the same lines as the government, the family will spend its annual budget roughly like this:
Housing & food (roughly 49% of household spending):                                     $18,700
These roughly equate to Medicare, Medicaid, Social Security & interest on the debt, which compromise 49% of federal spending and all, like housing & food, are basically unavoidable.
Healthcare, insurance & pensions (roughly 31% of household budgets)          $11,900
These roughly equate to federal discretionary and non-entitlement mandatory spending, which make up 31% of federal budget.  It’s basic O&M, cutting it is doable, but seriously short-sighted and unwise.
Clothing, entertainment and everything else (20% of household budgets)       $7,600
Roughly equates to Defense, 20% of federal budget.  There is some room for cutting, but even cutting it ALL won’t fix the problem and would be kind of like walking around naked and with no shoes.
So, the family takes in $21,700 and spends $38,200 annually.  What are you going to cut from that family budget so you can cover its needs AND pay down that debt, Einstein?  Answer: You’re not.  You can’t.  It simply costs too much to properly house, feed and provide for the family to solve the problem simply by cutting spending.  You’re going to have to get some of the people in that house who are not pulling their weight to contribute to the family income.  It’s the same problem we have as a country.
Okay, you say, let’s cut Medicaid.  After all, that’s just welfare for people who can’t afford to pay for their own medical expenses, right?  Fine.  If this hypothetical family was apportioned by age the same as the U.S. population, there would be two adults aged 30-54, two children aged 15-23, one child under 14 and one adult over 65.  Most Medicaid goes to poor children, nursing home care and people on life support.  Cutting it would be like deciding not to spend money on the youngest kid’s insulin treatments, unplugging the life support of one of the adults or throwing grandma out into the street.  Pick one.

The 1% and its apologists are fond of making this a choice between freeloaders and hard working people.  It’s not.  It’s a choice between really RICH people and the rest of us.  It’s a choice between greed and need.  Pick a side.  But be careful.  Someday you might be the one who needs insulin treatments, nursing home care, life support or be the grandma or grandpa who kicks kicked to the curb.  Your choice.

A Dark Day

Today, December 16, 2011, is a dark day in the history of the United States.  This morning the Senate passed on a vote of 86-13 (including yeas by both senators from the State of Washington and an earlier affirmative by our local congressman) a measure that codifies in U.S. law authorization for the President of the United States to order any person, including citizens of the U.S. and legal aliens, deemed by the president to be guilty of associating with certain terrorists groups, be arrested and held indefinitely without due process of law.  This is a heinous violation of one of the most cherished freedoms in Western civilization: the prohibition against imprisonment on the whim of a monarch or executive without some third party assent that actual legal transgression has occurred.  This is a tradition predating even the U.S. constitution, having been first codified at least as early as the Magna Carta in 1215.

For most of U.S history., you have been guaranteed a considerable number of rights when arrested.  If the authorities took you into custody, they had to tell you precisely why you were being arrested.  Within a short period of time, typically 24 hours, they had to appear with you before a magistrate and demonstrate to his or her satisfaction that there was ample evidence that you were probably guilty of a crime.  Even if the judge agreed, you also had the right to be free from jail pending trial, if necessary, by posting a bond appropriate to the magnitude of the crime for which you were accused.  This could only be denied if the judge determined you were a danger to the public or a significant flight risk.  All of these things could be appealed, and in any case you were entitled to legal representation.

If the president signs this bill, as I expect he will, this will no longer be true if one man – the President of the United States – decides you should be indefinitely detained.  All that is necessary is that he declare that you are in some way a supporter of an organization that, in his view, somehow can be construed as supporting terrorist groups.

Okay, no problem, right?  No one reading this worries that they could remotely considered as being associated with any terrorist organizations, right?  Think again.  If you’ve watched Fox News, listened to talk radio or visited Pamela Geller’s web site lately you know that there have been numerous attempts, however pathetic, to associate Occupy Wall Street with radical Muslims.  This type of innuendo is common in our society.  No matter what part of the political spectrum you occupy, you are susceptible, under vague legal mumbo jumbo such as exists in this law, to being associated with some group that can be interpreted as an “associated group” to terrorist organizations.

It is not hard to imagine a future president Gingrich or Bachmann or Perry or Santorum interpreting this law to apply to virtually anyone.  Think you’re immune?  How about if you’re a member of a militia or a private gun dealer who is perceived as having sold weapons that somehow wound up in the possession of a group perceived as “terrorists?”  Could a President Hillary Clinton or some equally frightful “ultra-liberal” bogeyman conceivably interpret this statute as applicable to your indefinite detention?  Before you dismiss it as “not a concern to you personally,” you had better think – long and hard – about that kind of power in the hands of someone whose judgement you might not trust.  Because it’s the nature of our democracy that, sooner or later, someone matching that description will be in a position to wield that power.  That’s precisely why the founders tried to make all such power subject to those “checks and balances” we all learned about way back in middle school.  And this law deliberately circumvents those measures.

There is admittedly considerable disagreement as to whether the nightmare I’m describing here – that citizens and legal aliens could be indefinitely imprisoned without due process – can actually play out.  The liberal publication, Mother Jones, says it can’t.  The New York Times editorial board and constitutional lawyer, Glenn Greenwald beg to differ (LINK  LINK  LINK).  But this controversy only serves to prove my point.  If anything, recent history is on the side of aggressive presidents having their way with constitutional issues when it comes to matters where they can claim the shield of national security.  At best, it could take many months or even years to judicially overturn even the most egregious abuses of this law.

No one man or woman in a constitutional democracy should ever wield such power as this law potentially bestows.  Not Barack Obama, not George Washington, and certainly not men like George Bush, Dick Cheney, Rick Perry or Newt Gingrich, nor any of the myriad pretenders who, given the fickle nature of the American electorate, might someday accidentally actually get elected.

At this point, we have greased the first step on the slippery slope to hell by planting the seeds of tyranny in the very statutes that govern our democracy.  Let us all hope that we can reverse that slide before the concept that a president can simply order people into jail becomes an accepted norm.