Skip to comments.The Truth about the 1 Percent: The richís incomes arenít surging, inequality is not growing
Posted on 11/12/2013 5:45:52 AM PST by SeekAndFind
Every year, new estimates of the incomes of the top 1 percent are reported with the requisite fanfare from Thomas Piketty of the Paris School of Economics and Emmanuel Saez of the University of California, Berkeley. And every year the press gets the numbers all wrong.
Worry Over Inequality Occupies Wall Street, writes Justin Lahart of the Wall Street Journal. An odd worry, when stocks keep hitting record highs. In reality, top income shares always rise and fall with the stock market because of capital gains, stock options, and bonuses and fees tied to stocks.
Messrs. Piketty and Saez, says Lahart, show the top 1 percent captured 19.3% of U.S. income in 2012. The only year in the past century when their share was bigger was 1928, at 19.6%. That comparison is incredibly misleading. Piketty and Saez dont include $2.3 trillion of transfer payments in U.S. income, even though transfers accounted for over 16 percent of personal income in 2009 and almost zero in 1928.
Extolling Piketty and Saez as everyones favorite inequality-tracking researchers, Dylan Matthews of the Washington Post writes, Shockingly shockingly what [Piketty and Saez] found is that while only 49 percent of the decline in incomes during the recession was born [sic] by the top 1 percent (whose income share fell to 18.1 percent due to the recession), 95 percent of income gains since the recovery started have gone to them.
There is an interesting story in these numbers, but it is not a story journalists choose to report. It turns out that the same table Matthews reprinted from Piketty and Saez shows the top 1 percents real income fell by 36.3 percent from 2007 to 2009, then rose by only 31.4 percent from 2009 to 2012. The 36.3 percent decline, of course, was calculated from a much larger base than the subsequent 31.4 percent recovery.
Since top incomes fell more than they rose, you might expect the Posts Mr. Matthews to note that over the whole period, the net change was a decline in top incomes rather than an increase. Down is not up, even in economic journalism. Yet every major media outlet, even The Economist and the Wall Street Journal, gullibly reported the data adding up to a five-year decline as evidence the rich are continually getting richer.
The table shown here which uses Piketty and Saezs data shows the top 1 percents average real income fell by 16.3 percent from 2007 to 2012, and ended up 6.4 percent lower than it was back in 2000:
Average Real Income of the Top 1 Percent (2012 dollars)
What about the other 99 percent, whose income supposedly rose by only 0.4 percent from 2009 to 2012? Piketty and Saez compare real incomes at different income levels without including Social Security, unemployment and disability benefits, food stamps, Medicaid, etc. Government transfers totaled $2.3 trillion in 2012, up 24.6 percent in real terms from 2007 and up 68 percent since 2000. Because Piketty and Saez estimate only pre-tax, pre-transfer income, they also ignore $149 billion in Treasury checks to lower-income families from refundable tax credits. Theyll also ignore huge Obamacare subsidies next year.
Once transfers and taxes are properly taken into account, my own research for the Cato Institute shows no clear trend toward greater inequality after 1989, aside from the tech-stock boom of 19982000. Instead of any predictable trend, data on income shares are dominated by cyclical variations in which rich and poor rise or fall together: When the top 1 percents share rises, the poverty rate falls, and when the top 1 percents share falls, the poverty rate rises.
There are numerous conceptual and measurement problems with attempting to judge the relative living standards of the rich, middle-class, and poor by relying on income reported on individual tax returns (ignoring, for a start, income thats unreported or reported on corporate returns).
Saez himself has hinted that the seemingly strong surge in top-percentile incomes in 2012, for example, was largely a matter of strategic tax timing reporting bonuses and capital gains in 2012 to avoid higher tax rates in 2013. The same thing happened in late 1992, when professionals and executives arranged to cash in bonuses and stock options in December rather than in January 1993, when income-tax rates went up. It also happened in 1986, when investors rushed to cash in capital gains before the capital-gains tax went up, briefly inflating reported real income of the top 1 percent by 34.6 percent in a single year.
Because reported capital gains and bonuses were similarly shifted forward from 2013 to 2012, we can expect a sizable drop in the top 1 percents reported income when the 2013 estimates come out a year from now. The befuddled media will doubtless figure out some way to depict that drop as an increase.
Alan Reynolds is a senior fellow with the Cato Institute and the author of Income and Wealth.
The rich live in Washington now. They are RATS and RINOS.
Bring back US jobs.
Not Washington jobs. (paging Democrats.)
Not foreign jobs. (paging Republicans and Democrats.)
Bring back US jobs.
One way to do that is to take advantage of our energy riches—but RATS want to kill that approach through CLIMATE CHANGE policies. Notice that most of Obama’s threatened Executive Orders are EPA-designed to finish the job of destroying our economy and our competitive advantage globally.
SUCH incredible BS
the 1%’ers are sucking us dry
Alan Reynolds does the math ping.
Not the most insightful post ever made.
Unlike the low-information, Randian, working-class heroes on FR, I’ve met 1%’ers, and they’re not the peasantry’s friends.
They looooove (and laugh at) their supporters in the lower orders.
Still, even $1 million a year isn’t bad. I could live on that...
Not all of us.
Sometimes I feel like I'm posting this a lot these days...
To bring back US jobs.
I have never advocated doubling the price of anything.
Add 10% only.
And only on everything imported.
I do not believe even this describes American oil now.
We now return you to your regularly scheduled propaganda.
I like what Sowell had to say:
“The rich aren’t getting richer” is a losing proposition coming out of the gate. All you have to do is read some of the posts and realize that class envy is a real issue.
The author is simply presenting THE FACTS, he’s not recommending it as a campaign slogan.
You don't have to go far to hear references to the 1% and most of those are not nice, in a class warfare way.
The rich arent getting richer is a losing proposition coming out of the gate. All you have to do is read some of the posts and realize that class envy is a real issue.
Well said. Our message has to be, “I don’t care how well-off the Kennedy’s are as long as they are not stealing it.” Or, “America is not about promoting class envy of successful people.”
Because they're laughing at you.
If you will notice, that proposal was for replacing, REPLACING our current tax situation.
Replacing all taxes, with an import tariff.
Different situation entirely.
I still support that idea. That is not however the situation I was currently speaking.
Thanks however for reminding me. That’s an even better idea now, since our trade deficit has GROWN since 2011.
If you will notice, that proposal was advocating doubling the price of everything, not just raising the price by 10%.
Thats an even better idea now, since our trade deficit has GROWN since 2011.
$186 oil, now, more than ever.
The proposal to enact a 100% import tariff, was to replace all other forms of tax.
I still think that would be a great idea.
However that is not the discussion right now. Please try to keep up.
The only legitimate issue with the 1%’s wealth is how did they make it and what are they doing with it.
Did they earn it via government fiat, subsidy and/or protection? They have my ire and disgust.
Are they using it to expand or contract Constitutional liberty in America? If they’re undermining the Constitution, ditto above.
So, using that framework I can deeply respect guys like Buffett and the even more successful and sharper George Soros. They’re good at what they do, Soros is incredibly good. Then I look at their politics and the fall is long and hard.
Otherwise, I don’t think about the uber-wealthy, other than to learn from them. Most are one hit wonders, the few I watch do it again and again.