Income Inequality Rose Most Under President Clinton

Investor's Business Daily ^ | 11/3/2011 | John Merline

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In his weekend radio address, President Obama decried that "over the past three decades, the middle class has lost ground while the wealthiest few have become even wealthier." Although he was trying to leverage the Occupy Wall Street movement, the income gap has been a longstanding concern of his.

During the 2008 campaign, Obama said, "The project of the next president is figuring out how do you create bottom-up economic growth, as opposed to the trickle-down economic growth that George Bush has been so enamored with."

But it turns out that the rich actually got poorer under President Bush, and the income gap has been climbing under Obama.

[Adder]

“The project of the next president is figuring out how do you create bottom-up economic growth, as opposed to the trickle-down economic growth that George Bush has been so enamored with.”

Hey (*), his worked. Yours doesn’t, hasn’t, won’t, can’t.

[justlurking]

This is a big "duh!"

Forget the endpoints (1979 and now). Look at this chart, derived from data published by the CBO:

The purple line tells the story: average pretax income for the top 1%. Notice that the 3 lines below it do the same thing, but at lower magnitudes.

Look at the continuous increase from 1992 to 2000 (the Clinton Administration, but the largest increases are after 1994 and you know what happened then). This is the dot.com bubble. It actually burst in 2000, but the effects lag a bit. And 9/11 added insult to injury. We went into a recession that lasted about 2 years.

Then, the line goes up again. It peaks in 2007, the last full year of data. That coincides with the housing bubble.

I'm waiting for the CBO to publish an update, but it hasn't appeared yet. I expect that line to go down.

Why is this occurring? The top 1% get much more of their income from capital gains than the lower brackets. When the market is rising, they get more capital gains. It's that simple.

Is that unfair? Consider what the top 1% has to do to get those gains: they have to risk their assets. They might realize a gain or a loss. They might lose everything.

Also, consider what would happen if the top 1% didn't risk their assets for those gains. Where would new businesses get their start-up capital? Where would existing business get money to expand? Where would those new jobs come from?

[bunkerhill7]

There is no ``income inequality `` nor ``income equality`` in the U.S. Constitution.

The Declaration of independence states: ``all men are created equal.``

This ``income inequality`` is a bunch of communist Obummer crap.

[DJ MacWoW]

Celebrate Jim's Birthday!

Click On The Balloons To And Party!

[LALALAW]

There is no ``income inequality `` nor ``income equality`` in the U.S. Constitution. The Declaration of independence states: ``all men are created equal.`` This ``income inequality`` is a bunch of communist Obummer crap.

THANK YOU! Their is no "fairness" in the Constitution except "fairness in process" and fair compensation if the government takes your property which it can only do for the "general welfare," not the welfare of "less fortunate." I loathe that conservatives cede the terms of debate to the left. It's the CONSTITUTION, Stupid! If the left wants socialism, amend the Constitution. Otherwise, STHU!

[CMAC51]

Why is this occurring? The top 1% get much more of their income from capital gains than the lower brackets. When the market is rising, they get more capital gains. It's that simple.

Your's is a common misconception. The truth is that it is simply math. If you look at the top 4 lines and increase each by the same percentage, you end up with the these graphs.

If someone making $2 million increses their income by 5%, that is an increase of $100,000. If Someone making $200,000 increases theirs by 5% it is $10,000. Although each advanced equally by percentage, the income line of the higher earner would rise by $90,000 over the lower income.

People always cry about the gap between the richest and poorest growing as if anything else could possibly happen. Take the person making $2 million that increses by 5%. They are now at $2.1 million. On the other hand lets consider someone making $40,000 and we increase them by 100%. they are now at $80,000. The original gap between them was $1,960,000. The new gap is $2,020,000. The gap has grown by $60,000. Would the person whose income rose from $40,000 to $80,000 really argue that they are worse off?

The gap between the richest and the typical will always grow. Simple math says it must. The question is what opportunity is available within a system for growing income and individual wealth.

[Bob Buchholz]

You know, if I was rich it would be very easy to get richer and I wouldn’t have to incur much risk at all.

Consider if you had wealth that you did not have to touch for everyday expenses and could just put it into relatively safe investments, say mutual funds, and let it set there. Since the government, in its infinite wisdom taxes only income and does not tax wealth or the income on mutual bonds the amount would just continue to grow (ever hear of compound interest?).

However since I have very little to invest and must use most of my income, which is not increasing, to pay my monthly bills which are ever-increasing I have no growth in my wealth to speak of. So yes the gap between me and the person described above will do nothing but continue to widen.

Bottom line: yes the rich get richer and the not rich don’t get much richer. Just a fact of life.

[ken21]

interesting, after a slight rise under

reagan, it falls throughout all levels.

[Para-Ord.45]

bm

[justlurking]

Your's is a common misconception. The truth is that it is simply math. If you look at the top 4 lines and increase each by the same percentage, you end up with the these graphs.

Sorry, the misconception is yours, not mine.

Consider this graph:

This is the share of income, by category. If your "simple math" was true, the above graph would be straight lines. They aren't.

Instead, what you see is approximately the inverse. The share for the top 1% grows from 1992-2000, then shrinks from 2011 to 2003. Then, it starts growing again.

If you focus on just the top 20% (and 10%, 5%, and 1%), they don't increase by the same percentage, either. I'm not going to try to create a table, so this isn't going to look nice. But, you can paste this into Excel and convert text to columns, using space delimiters:

category 1979 2007 difference
1% 49300 76400 55%
5% 128700 289300 125%
10% 169600 440500 160%
20% 346600 1319700 281%

Well, that's ugly. But, I think you get the idea.

[justlurking]

interesting, after a slight rise under reagan, it falls throughout all levels.

You mean the average income for the categories below the top 20%?

If so, it actually doesn't. Look at the raw data:

http://upload.wikimedia.org/wikipedia/commons/1/14/USFederalTaxRatesAndTaxShares.1979-2007.PDF

See the table at the bottom of page 7. Average income increased for all categories. It's just a much lower rate, which is hidden by the scale of the graph. For the lowest 20%, it barely increased at all -- but that's due to another phenomena.

The CBO did another study from 2000-2005, examining individual taxpayers and their "mobility" -- i.e. their tendency to change income category after 5 years. They found the most mobility of all in the lowest 20%: over half of them had moved into a higher category by the end of 5 years.

What's happening is that people are entering the workforce at the bottom, and then improving their position. More new people enter the workforce at the bottom, keeping the cycle going.

[ken21]

thank you.

[justlurking]

Ooops. I have the first column in the wrong order. The top 20% should be in the first row, and the top 1% should be in the last row.

category 1979 2007 difference
20% 49300 76400 55%
10% 128700 289300 125%
5% 169600 440500 160%
1% 346600 1319700 281%

[driftless2]

"simple math"

You are, of course, 100% correct. The fact is this so-called income inequality has been expanding rapidly since the start of the industrial revolution and before. Back then there were only a few millionaires, a very small "middle" or merchant class, some rich land-owner/farmers, and a lot of very poor farmers. Now we have few farmers, a lot of rich people including billionaires, a huge middle class, and a "poor" class where many members live far better than well-off people who lived one hundred years before them. The issue is simply class envy from leftist losers who've failed at life.

[JustSayNoToNannies]

U.S. income inequality declined from 1947 to 1968 (http://www.census.gov/prod/1/pop/p60-191.pdf).

[driftless2]

Yes, the end of WWII and The Great Depression, and the rise of the middle class caused income inequality to favor the up and comers for a period of time. My point is that with the expansion of wealth after the start of the Industrial Revolution, it was inevitable that while everyone's boats would get lifted, some boats would be lifted a lot higher. But, of course, in a free-market system where certain enterprises involve higher stakes, some people would get richer.

But the response to that is, so what? I grew up very poor until my father made enough money to move us into the middle class. But I never begrudged some other kids because their dad had a lot more money than we had. If in some enterprise I made a lot of money but someone else made a lot more because they had more skin in the game, I'm not upset.

[CMAC51]

Changing arguments in mid-stream does not invalidate my orrignal assertion. Regardless of whether moving positive or negative, the magnitude of change is greater the higher in the order the income line is. Exactly as the math would indicate. If incomes increase by the same percentage, the higher the original income, the greater the increase. If incomes decrease by the same percentage, the higher the income, the greater the decrease. The graph clearly illustrates my point.

I have no idea of the significance of your tabular numbers since you provide no source or frame of reference. They amount to gibberish, so I definately do not get the idea. 493000 what of what?

[JustSayNoToNannies]

so what?

http://www.freerepublic.com/focus/news/2802088/posts

[justlurking]

Changing arguments in mid-stream does not invalidate my orrignal assertion.

I didn't change arguments. I simply provided an alternative view of the same data that invalidated your assertion.

Let's do a little bit of sample calculation: In 2002, the average pretax income for the top 1% was $1,087,600, and the same value for the top 10% was $283,700.

Fast forward to 2007. Average income for the top 10% increased to $394,500. That's a 39.1% increase over the 5-year period. If your assertion was correct, the top 1% would have increased to $1,512,366. But, it actually increased to $1,873,000 -- a 72.2% increase, almost twice as much as the top 10%.

This example is directly from the first graph, and you are claiming the graph illustrates your point?

So, how does the second graph illustrate your error? In 2002, the top 1% had a 13.5% share of pretax income, and the top 10% had a 36.5% share of pretax income.

Again, fast forward to 2007: the top 1% had a 19.4% share of pretax income, while the top 10% had a 42.0% share. If both of them (and all the other income categories) had the same percentage increase, their shares would would remain the same. Total national income would increase, but the share percentages wouldn't change. The second graph would have straight lines from left to right. It doesn't, and relieves us of the need to do the above calculations repeatedly to illustrate the same point.

I have no idea of the significance of your tabular numbers since you provide no source or frame of reference. They amount to gibberish, so I definately do not get the idea. 493000 what of what?

Sorry, I meant to provide the link to the source data:

http://cbo.gov/publications/collections/tax/2010/all_tables.pdf

See the table at the bottom of page 7. And you can ignore the numbers that I posted earlier, because I messed up: they are average after-tax income from the table at the top of page 8. However, they do demonstrate the same phenomena.

The average pre-tax income is:

category 1979 2007 difference
20% $140,300 $264,700 89%
10% $182,800 $394,500 116%
5% $248,800 $611,200 146%
1% $550,000 $1,873,000 241%

These numbers match the endpoints of the top 4 lines on the first graph I posted. And if you are interested, the source data for the second graph is the bottom table on page 8 of the URL cited above.

A disclaimer: I didn't create the graphs. I just happened to find them on Wikimedia one day. But, I was already familiar with the source data, and was happy to see that someone had done the work.

The entire set of graphs and a copy of the original data is at:

US Federal taxes by income level 1979–2007