Occupy Wall Street and the Real Numbers of Income Inequality

Friday, October 07, 2011

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, David Leonhardt, Washington bureau chief for The New York Times, went through the stats that have been thrown around by Occupy Wall Street protesters and their critics, and talked about what the income inequality picture really looks like.

Occupy Wall Street has been going on now for several weeks and there's a lot of talk about income inequality, taxes and wealth disparity. Each side has their own set of numbers to throw out, so let's set aside the chanting for a moment and see what they really mean.

"In 1976, the top 1 percent of earners in the U.S. took in 8.9 percent of all income. By 2007, that number had risen to 23.5 percent."

According to David Leonhardt, this idea basically holds true.

If you go back a decade, incomes for most of the population haven't risen at all. If you go back to the 70's, they've risen but only slowly where as incomes at the very top have risen really quite quickly so the top 1 percent now controls about 28 percent of the national income and the top 10 percent earns about 50 percent of the income...

We have significantly higher income inequality than other rich countries...what that tells you is that it isn't something that is common to the entire affluent world, that inequality has risen as much as it has in this country. 

And there are reasons for this, according to Leonhardt − one is the growth of finance, another is tax policy from Washington, but Leonhardt said one other biggie is education.

We have done a significantly worse job of increasing our educational attainment than any other rich country. And so what that means is that we've had a smaller growth in high skill workers than those other countries have. High skill workers earn more and so when you have a smaller pool of high skill workers, you're going to have more inequality...

"The bottom 50 percent of income earners in the U.S. now collectively own less than 1 percent of the nation's wealth."

The very bottom of the earning pool has a net worth of nearly zero, Leonhardt said, and sometimes their debts are equal to what they own, but it's important to look not only at income inequality, but also at wealth inequality.

Wealth inequality tends to be higher than income inequality because net worth at the bottom is just so small and net worth at the top is so large that it's even bigger than the gap in income... Wealth matters as well. If you're income goes down and you're wealthy, you can just dip into your wealth and make it up.

"In the U.S., the numbers about earners - who's in the bottom and who's in the top - are not static."

Leonhardt said, this used to be the case, but it doesn't seem to be the case anymore.

We have more of a culture of equality in this country. We don't have nobility from the past, we have a belief that you can rise, but inequality has gotten so big in this country that the rungs on the ladder are further apart than they used to be and further apart than they are in other countries and so it's harder to jump from one rung to another than it used to be.

I do think it's important to say that sometimes this inequality and stagnation argument gets exaggerated. The fact is income growth has been almost non-existent for a decade for most Americans...but you often hear that tipped into a zone that I don't think touches reality. The middle class in this country is not disappearing in any solid definition of it. The fact is that most people are making more money than their parents did, even after you control for the cost of everything...we are still richer today than we were a generation ago.

"The top 1 percent pay a disproportionate amount of taxes."

It is true that the top percentage of the rich pay a greater share of taxes than they used to, Leonhardt said, but there are a few things at work here.

There are two things that go on with tax shares. One is how much money you're making and two is, how much tax you pay on each dollar of that money. The tax rates for the rich have actually declined quite markably over the last generation... People at the very top, millionaires, the top one one thousandth were actually paying an average federal total tax rate of more than 50 percent in 1980. That's fallen down to about 30 percent so tax rates for the rich have fallen and they've fallen much more than they've fallen for any other group.

So, how is it that their rates have fallen, but they're paying more taxes than they used to?  It's because the rich are making much more money than they used to.

Each dollar they earn is taxed less than it used to be, but because inequality has gone up, because the top 1 percent is earning so much more than it used and because they do still pay higher tax rates than everyone else, they just pay much lower tax rates than they used to, they pay a very high percentage of taxes and they pay a greater share than they used to. The problem is that when you hear that argument, what's often implied is that their taxes have gone up. In fact the opposite has happened. Their taxes have gone down and their income has gone up...

A chart going around the web shows the ratio of pay of a CEO compared to that of an average work in countries around the world. Germany is 12:1, Venezuela is 50:1 and the U.S. is 475:1.

Leonhardt said this chart is a bit exaggerated, but broadly accurate. He explained that this statistic likely has something to do with tax codes.

If you have higher top marginal tax rates, CEO's and others are less likely to fight for the last dollar of income because you know you're not going to get as much of it. Where as if you have lower marginal tax rates, and we've really lowered our top marginal tax rates, you get to keep more of the money and so that 20 millionth dollar means more to you.

When you have broad numbers of people saying, wait a second, my life isn't getting better economically, that is a recipe for a whole lot of political turmoil and that's what we're seeing now... People are frustrated and when you dig into the numbers you emerge having some understanding for why they're frustrated.



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Comments [45]

Fred Flintstone

"In 1976, the top 1 percent of earners in the U.S. took in 8.9 percent of all income. By 2007, that number had risen to 23.5 percent."

And how have math scores fared in that time period? The problem is not with "evil greed at the top" its with the dumbing down of America. Our citizens are dumber now than they used to be and the immigrants are from lower classes not higher. We need to start encouraging education, especially math and real science over diversity, woman's studies and global warming.

Dec. 13 2011 10:27 AM
Jack Jackson from Central New Jersey

Frequent readers here already know of my belief that the value of American middle class labor has been falling since 1968. In my calculation, the average 2011 salary would need to be $96,000/yr to yield the equivalent buying power of a $3/hr worker in 1968 terms. The delta is the amount that the upper bracket has appropriated from the working middle...Yep, it's my opinion that we are all being robbed.
Any way, there are still lots of economic 'facts' that I still need to have explained...

1)Why are capital gains taxed less than regular income? I could possibly understand it if the gains were from real capital formation - IPO's, etc. - but not from secondary markets and bonds. Why should dividend income be taxed less than savings income? Remember when income on savings wasn't taxed until withdrawn? Reagan changed that to close his budget holes. Can we bring it back?

2) Without estate taxes - the so-called 'death tax' - we will be creating a nobility in this nation and I'm not certain that we would survive it. The movement between classes that Mr. Leonhardt relies on would be gone in a generation if the act of our deaths did not have a leavening effect on income distribution.
3) Why are Reagan and Bush II held in any esteem at all? Reagan tripled the public debt and Bush doubled it.

I am not trying to be thick...Just logical and consistent. Is it possible to be consistent in today's political marketplace?

Oct. 08 2011 11:04 AM

@gary - My numbers for wages are from the BLS. My figures for public debt are the CBO. I use a GDP of $14.4.

You write that FDR turned a "simple recession into a decades long depression". If the downturn that started on 10/29/29 was so simple why didn't Hoover fix it in the four years that he and the GOP had their hands on the tiller?

Oct. 07 2011 06:30 PM
gary from queens

@getReal from NJ

Hoover's most ambitious economic measure was Reconstruction Finance Corporation, authorizing to provde emergency financing to banks, life insurance companies, railroads and other large businesses. Sound Familiar little light?

YES, it does! Bush bailed out investment banks. warranted, given they are vital utilities that our economy cannot allow to fail. Bush's sin was exhorbitant gov spending. He was no conservative.

Obama, on the other hand, foolishly bailed out private businesses. As I explained, that's led to failure in history and currently.

Next question?

Oct. 07 2011 11:34 AM
getReal from NJ

The problem with this segment is that there are lies, damn lies, and statistics.

The movement isn't about statistics, its about Justice for all. Economic Justice and, Social Justice.

When a man can be sentenced to 50 years to life for stealing afew videotapes, then this country has NO sense of justice, or shame.

Oct. 07 2011 11:33 AM
getReal from NJ

@gary from Queens:

Hoover's most ambitious economic measure was Reconstruction Finance Corporation, authorizing to provde emergency financing to banks, life insurance companies, railroads and other large businesses.

Sound Familiar little light?

It about Justice.

Oct. 07 2011 11:10 AM
getReal from NJ

If this country is so rich why can't it come up with a way to decent, human, health care for all? Because of greed, and private interest, that's why.

Why do Republicans cheer for the notion of poor people dying on the streets?

It about Justice.

Oct. 07 2011 11:05 AM
Jeff from Manhattan

Can I make one suggestion if Mike Pesca continues to sub for Brian? Less segments about sports, and more boning up on non-sports related facts, where Mr Pesca often seems to be out of his depth. Case and point--his assertion that the U.S. still ranks at the top of the world in terms of intergenerational mobility, "based on the data I've read." Apparently someone hasn't been reading any *recent* data, since we now rank near the bottom of rich countries in terms of upward mobility:

Oct. 07 2011 11:04 AM
gary from queens

@Jack Jackson from Central New Jersey

I provided sources for "my" claims. You didnt.

@ mike from manhattan

"The depression was in full swing by the time Roosevelt was inaugurated."

-----> Yes, from Hoover's huge gov spending to fix a recession! your point?

Oct. 07 2011 11:02 AM
Edward from NJ

What segment did you people listen to? David Leonhardt says things -- actual statistics -- that don't fit your personal narrative, and so he's an apologist for the ultrarich? A lot of what he was saying was simply explaining other people's views. For instance, when he explains the logic behind capital gains tax rates, that doesn't mean he actually buys into that logic.

Oct. 07 2011 10:58 AM

This discussion isn't close to reality. Get someone on from UK Uncut to discuss Anglo-American strategies for tax avoidance. Or a tax lawyer to explain how LP/LLC/GP actually pay their taxes.

Look, to put it crudely, the Reagan 'tax revolution' emphasized taxing *all* productive geese, but not the golden eggs.

How much did American inequality increase? How many asset bubbles did we get: Four? Five? I lost count.

Tax assets not people.

Oct. 07 2011 10:57 AM
John A.

I appreciated the segment, and had to defer on the readings of manifesti(sp?) herein for the purpose of just being able to hear a man with good research talk. Could they have been 'On message' politics in action I wonder?

Oct. 07 2011 10:56 AM
Robert from NYC

Well John from NYC, my experiences would be different since I am now unemployed (8 yrs and not my choice) and in fact now receiving SSD. I have not had an increase in my SS in three years while my rent increased each year, however, and Con Ed got increases that increased my gas and electric bill, Verizon got NYSPSC permission to increase rates so my telephone bills are higher and food prices have increased and on and on and on.... So I probably have to say my experience is not a good one, but them I'm not "everyman" but more probably I'm "most seniors" and other people on flat incomes. We were once middle class. I miss the two trips to Europe I used to make most and the ability to buy foods I like without checking the prices so carefully.

Oct. 07 2011 10:48 AM
Mike from Manhattan

Gary, stop getting your economic history from Rush Limberger--er- Limbaugh and Glen Beck. The depression was in full swing by the time Roosevelt was inaugurated.

Oct. 07 2011 10:46 AM
getReal from NJ

It was not a great discussion - it was abominably poor for WNYC - a sign of things to come as the Rich will soon own WNYC and use it as a tool for their class war.

It about Justice.

Oct. 07 2011 10:45 AM
Jack Jackson from Central New Jersey

Check your math, Gary. 50% of the nation's income is about $1.8T not the $240B number you use. Public debt was about $5T when Bush took office. Was just under $11T when his last FY budget ended. That's a $6T add to the public debt. The GOP would like to pretend they didn't do the spending...At least man up and take responsibility for your own behavior if you want to be taken seriously. The numbers you quote really cannot be trusted.

The value of American labors buying power has fallen over the last 40 years. Here's a fast measure. How much work did it take to buy a candy bar? In 1968 terms, one minute of work. Average hourly was $3/hr and candy bars were a nickel. In 2011 with average hourly at $20/hr and candy bars are a buck a throw the labor cost is three minutes. Middle class wages stayed more or less even with inflation rate (6.5x) yet the economy grew 16X over the period. The middle class has been (and is being) robbed by this massive shift of income to the upper bracket earners.
If you are going to post so much at least use facts.

Oct. 07 2011 10:44 AM

It's ridiculous to compare the taxes of the rich, which are a percentage of luxury, to the taxes of the poor, which are a percentage of survival.

Oct. 07 2011 10:44 AM
Mike from Manhattan

The home mortgage interest tax deduction was intended to be a stimulus program because new home owner usually buys, in addition to the home, new furniture, new appliances, and tools, like lawn mowers. Unfortunately, the capital flight of the last 40 years means that the stimulus goes to China since that is where those items are manufactured. In Germany, the economy is doing very well in part because, even after the "reforms" of the mid 2000's, it is far more difficult to fire people, to move capital resources overseas.

Oct. 07 2011 10:43 AM
john from office

Problem with economics is that with the internet everyone is an expert, everyone has a website, everyone has a chart. So the facts are loose and played with.

Oct. 07 2011 10:43 AM
gary from queens

the jobs allegedly created and saved by the economic stimulus law----costing upwards of $821 billion----that President Barack Obama signed on Feb. 17, 2009, cost at a minimum, an average of $228,055 each, according to data released on Feb. 23, 2011 by the Congressional Budget Office (CBO). That's almost a quarter of a million dollars to create one minimum wage job! That's how efficiently government "creates" jobs.

The last U.S. president that tried to spend his way out of a recession---using printed or borrowed money---was Franklin Roosevelt. And all that had accomplished was to turn a simple recession into a decades-long depression. The New Deal----Roosevelt's "stimulus plan"----delayed our recovery.

How? When government becomes a player, it chases away private investment. Who would want to start a business in a field in which your competitor is getting government subsidies or tax breaks, or is in partnership with the government, or is bailed out by government? (Obama, for example, essentially forced non-unionized auto workers to pay for the pensions of unionized GM workers.)

And the new regulations and mandates, which always follows government investment, creates economic uncertainty. The only thing that finally created economic growth and put people back to work was World War II. Thanks to the New Deal's huge influx of government dollars into the economy, the stock market hadn't returned to it's pre-depression highs until well into the 1950s.

Roosevelt's Secretary of the Treasury Henry Morgenthau Jr. admitted that the New Deal had failed in it's mission in testimony before the Democrat majority-run House Ways and Means Committee on May 9, 1939:

We tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong [...] somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises [...] I say after eight years of the Administration (Franklin Roosevelt from 1931-1939) we have just as much unemployment as when we started… And an enormous debt to boot!

Oct. 07 2011 10:43 AM

David Leonhardt and the host need to stop omitting the inconvenient facts that give the lie to the "Worship the Rich" mythology.

Many large corporations -- like Ford -- don't pay _any_ federal tax, such are the loopholes in the tax code. So the shareholders at Ford aren't paying ANYTHING in the form of corporate taxes.

Stop shilling for Wall Street.

Oct. 07 2011 10:41 AM
Elsie from Brooklyn

Well it was only a matter of time before NPR tried to turn the facts around to make their wealthy contributors more comfortable. Doesn't NPR have a fundraiser coming up next week?

And who better to apologize for the rich than a writer from the NY Times. Thanks for keeping the myths alive, guys. The American media knows where their bread is buttered.

Oct. 07 2011 10:40 AM
john from office

I still believe in the American Dream, my dad came here in the 50's illegally and eventually owned a large business and educated his kids. The problem is that the startup costs now are so much greater and there are more hoops to jump.

Try opening up a clearners in NYC, there are now all kinds of rules andd regulations that did not exist in the past.

Oct. 07 2011 10:40 AM
John A.

Government, fix the loss of progressive taxation.

Oct. 07 2011 10:39 AM

The moderator doesn't even know the difference between capital gains and corporate income.

Oct. 07 2011 10:38 AM
gary from queens

Warren Buffet has been fighting the IRS on the billion+ he owes in taxes for many years.

He's a crony capitalist on other issues too. why else would he buddy up with obama?

Oct. 07 2011 10:38 AM
John from NYC

If <This guy's painting a bright picture and frankly, he's wrong. What are his sources?>> is referring to me:

My sources are my own experiences -- I flew to CA in 1976 and last month. I bought a VCR in 1976 and a DVD player last year. Etc.

Robert, what have your experiences been over the past 30 years?

Oct. 07 2011 10:38 AM
Jessie Henshaw from way uptown

It seems nature does not organize things the way the media, even scientists, usually do. Nature doesn't use '%'s', for example.

The media uses %'s so we can have a feel for the scales of things, and form our moral judgments. What nature uses is "successions" from one state of organization to another, though, as if her form of "moral judgment".

What you look for if you want to study nature's transitions are the **processes** of "divergence" and "convergence". I could give you regular consulting or occasional workshops on how to do that...

Oct. 07 2011 10:37 AM
Heidi Yanulis from Port Washington, NY

The average middle class family is not richer today than 30 years ago, despite having two bread winners (ideally) in the workforce. Elizabeth Warren presents the challenges facing the middle class in painful detail in her 2007 lecture to Berkley entitled "The Coming Collapse of the Middle Class." I see myself and my family in her research. This is worth a watch:

Oct. 07 2011 10:37 AM

The host really needs to get clear on the basics. It's "capital gains" -- not "corporate gains."

Oct. 07 2011 10:36 AM
gary from queens

your source for this Hugh??

"The United States has the LOWEST social mobility of ANY G20 nation. Social mobility in the US is comparable to 3rd world countries."

Oct. 07 2011 10:36 AM
Mike from Manhattan

New Yorker author Jane Mayer wrote a story about a businessman Art Pope who has poured millions of dollars into state legislative campaigns during the 2010 elections. In an interview yesterday of Fresh Air, Ms. Mayer said that a part of his group's agenda is de-funding public higher education. When I went to college, the tuition at my public college was subsidized by the state and tuition was about equal to 2 weeks salary of a semi-skilled industrial worker. Now that same college is no longer "state supported" it is now "state sponsored" and tuition is about 6 months of the average pay for a US citizen. Is this kind of defunding and shifting of costs to the individual part of the reason that the US and US men in particular are falling behind in education?

Oct. 07 2011 10:36 AM

David Leonhardt is very near to lying. Real wages for the middle have declined since the early 1970s.

Wages for women have increased because women have overwhelmingly entered the workforce in the past 40 years.

Worse, if you compare not mere money, but general satisfaction, the US fares even worse. The United States emerges very badly on the GINI index.

The US has the greatest disparities in distribution of wealth of any nation in the G20 with the possible exceptions of Russia, Brazil and Saudi Arabia (if you included imported labor of Saudi Arabia).

Oct. 07 2011 10:35 AM
The Truth from Becky

Oh please don't try to get me to cry for the taxes and the rich! This guy is flat out lying.

Oct. 07 2011 10:35 AM
Robert from NYC

This guy's painting a bright picture and frankly, he's wrong. What are his sources?

Oct. 07 2011 10:34 AM
The Truth from Becky

It is very unlikely and damn near impossible to move from the "bottom" to the "top" in this design. Yeah right Income equality, ask any woman in corporate America, they will tell you.

Oct. 07 2011 10:33 AM
John from NYC

First, the standard of living thing. Over the longer term, we have become wealthy beyond the imaginations of any previous period in history, with a lower middle class person in one of today’s industrialized countries commanding more material wealth than any European monarch just two hundred years ago. And statements that standards of living have been declining for the average American over the past few decades are simply not true.

Over the past thirty-five years the average life expectancy has increased by five years, the percent of people going to college and to graduate school have both doubled, and the size of the average home has doubled. Corrected for inflation, a coast-to-coast round trip airfare has fallen eighty percent, the cost of a color television set has fallen in half and it has gone from a small tube screen to a huge high definition flat screen, and the number of cable channels has gone from dozens to hundreds. If you can find a tube television today, it costs eighty percent less that it did thirty-five years ago, and the cost of a video recorder has fallen by ninety percent. And the quality of a mid-priced car today exceeds that of a 1970s Mercedes.

Not to mention that everyone has in their smart phone more computing power than a $6 million 1970s supercomputer, etc., etc.

Oct. 07 2011 10:31 AM

The claim that the host is making about social mobility is DEAD WRONG.

The United States has the LOWEST social mobility of ANY G20 nation. Social mobility in the US is comparable to 3rd world countries.

Absolute pathetic, right-wing idiocy to claim that the US has good social mobility. Nobody but the most extreme conservative economists and pathological liar-politicians still pretend this.

Oct. 07 2011 10:31 AM
larry from Rockland County

Mr. Leonhardt
Why is there not a move to separate the small business taxes filed as individual vs larger corporation so that small businesses have their own consideration and do not confuse the individual income tax issues

Oct. 07 2011 10:31 AM

High skilled workers are being outsourced faster than unskilled workers. Tons of very educated people are out of work because there is nothing for them to do. College and graduate degrees these days are nice to have for the joy of learning, but forget about getting a job. My advice is to start looking outside the US for work.

Oct. 07 2011 10:30 AM
The Truth from Becky

What Gary said.

Oct. 07 2011 10:28 AM
gary from queens

The Left’s Pathetic Tea Party
The Occupy Wall Street movement is a juvenile rabble.

Rich Lowry
October 4, 2011 12:00 A.M.

In the Occupy Wall Street movement, the Left thinks it might have found its own tea party.

Oct. 07 2011 10:27 AM
gary from queens

Video Exposing How 'Occupy Wall Street' Was Organized From Day One----by SEIU / ACORN Front - The Working Family Party, and How They All Are Tied to the Obama Administration, DNC, Democratic Socialists of America, Tides and George Soros

Oct. 07 2011 10:24 AM
gary from queens

The rallies on Wall St are based on a false premise----the Democrat's and Obama's premise----that taxing the rich will help reduce the deficit. In 2009, if you confiscated every dime of the $240 billion earned by the 8,274 Americans whom the IRS defines as "rich", you would barely have enough money to cover government spending for 18 days.

But it never mattered what the top rate has ever been. The gross tax receipts from top rate payers has never exceeded 20 percent of earnings, because as the rate increases, the rich have managed their money in ways that avoids taking the full hit of the top rate. But as JFK and Reagan demonstrated, reducing the tax rates stimulates the economy, and thereby increases gross tax revenues despite that reduced rate. Ronald Reagan cut taxes, taking the top marginal rate from 70% down to 28%, and the amount of revenue to the Treasury doubled in eight years. Another reason revenue increased was because there was more money in the private sector for investment in business, which yielded more profits, which yielded more jobs, which yielded more Americans who paid taxes.

So then what IS the cause of the mounting deficit crisis? As Republicans have argued, it's (1) the drastic increase in discretionary domestic spending, (2) the growth in entitlement obligations, and (3) the poor growth in our economy. Other spending myths are addressed here:

On the latter point, why is government expanding at a record low of under 1 percent under Obama? Because Obama's policies that affects business has discouraged private investment. He continues to villify and threaten to penalize the top 2 percent of income earners----which includes those earning $250k and above, as well as the profits of thousands of small business owners and investors in that category. And even after S&P's downgrade of US Treasury notes----because our debt-to-GDP ratio is heading past 80% within 3 years----Obama was out there proposing even more spending programs to supposedly stimulate private investment! This is insane. As the Wall Street Journal’s editorial noted on August 8th, following the downgrade, debt-to-GDP has shot up over 40 percent since Obama took office. James Fitzgibbon, director of the Highlander Fund, notes that our debt-to-GDP ratio is actually 135%: "You have to add in Fannie Mae and Freddie Mac to the US Government public sector debt to get the correct debt balance of $20 trillion vs. a GDP of $14.8 trillion." Obama is responsible for two-thirds of the national debt after just 2 years in office.

note: Obama's annual deficits average $1.5 trillion a year. The average annual budget deficit during President George W. Bush's presidency was $250.7 billion:

Oct. 07 2011 10:20 AM
Therese from Manhattan

I read a poem by Bob Hicock yesterday and when I came upon the following passage, I thought it gorgeously articulated the collective spirit (whether consciously or not) of the Occupy Wall Street movement. I am quoting from Hicock's poem "Watchful"(originally published in the Georgia Review; a 2011 Pushcart Prize winner):

"This equals this: I'm a phantom of the body politic if I don't speak. I'm required to, freedom's a tended dream, a public mapping of belief. When we're silent, government flows into the spaces we leave open, and remaps, acquires for itself the severed faculties of democracy."

Oct. 07 2011 10:15 AM

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