New data — for 2008 — have revealed a shrinking gap between the rich and the rest of us. But the nation’s top high-income tracker isn’t celebrating. And neither should we.
Will the Great Recession, once the dust settles, leave the United States less unequal? A reasonable question. The last time the United States experienced economic times as painful as ours today, back in the Great Depression, the United States did become less unequal.
In 1928, the last full year before we sank into depression, America’s top 1 percent were taking home 23.9 percent of the nation’s income. A decade of depression later, that top 1 percent share had dropped to 15.8 percent.
Are we now headed in the same more equal direction? America’s most respected income tracker, University of California at Berkeley economist Emmanuel Saez, has just ventured an answer.
Every summer, deep in the dog days, Berkeley’s Saez crunches the latest annual IRS tax return data to pinpoint who’s getting a greater share of America’s income and who’s getting less. He presents his data by finely tuned income group. We see, in his numbers, the dollars filling the pockets of the richest of our rich, not just the top 1 percent, but the top 0.1 and 0.01 percent as well.
The latest Saez numbers, released earlier this month, cover the 2008 tax year, the first full year of the Great Recession. And what conclusion can we draw, from these numbers, about the impact of this recession on inequality?
The Great Recession, Saez concludes, appears “unlikely to have a very large impact on top income shares and will certainly not undo much of the dramatic increase in top income shares that has taken place since the 1970s.”
At first glance, the 2008 Saez income numbers don’t seem to support that conclusion. In 2008, the top 1 percent saw their total incomes drop 19.7 percent from the year before, after taking inflation into account. That represented the biggest single-year dip since 1930.
The average income of America’s bottom 99 percent also dipped, but only by 6.9 percent. Overall, the bottom 99 percent of Americans increased their share of the nation’s income in 2008. The top 1 percent lost income share. They ended the year with 20.9 percent of the nation’s earnings, down from 23.5 percent in 2007.
But this dip deceives. The income dropoff at the top almost totally reflects the dismal stock market in 2008. The money the affluent made trading stocks and other securities, over the course of the year, essentially fell by half.
Meanwhile, on every other income front, the affluent more than held their own. In 2008, excluding income from stock trades and other capital gains, America’s top 10 percent actually slightly increased their share of the nation’s wealth.
That share, notes Saez, figures to rise substantially higher next summer when we have the final IRS data for 2009, partly because the stock market recovered significant lost ground in 2009 and partly because Wall Street bonuses and other income streams for the super rich skyrocketed in 2009.
This past spring, for instance, we learned that the combined income of the nation’s top 25 hedge fund managers more than doubled in 2009, to $25.3 billion, an all-time record high. In other words, the 2008 dip in the income share of America’s rich appears almost certain to be relatively shallow and short, just like the income dip at the top that followed the 2001 recession.
What explains our shallow dip in inequality today and the long and lasting dip we saw during the New Deal years? Quite simply, sheer political will.
The dropoffs in income concentration we see when severe hard times hit, as Saez notes, will default to “temporary unless drastic regulation and tax policy changes are implemented and prevent income concentration from bouncing back.”
We had these drastic policy changes during the New Deal, and these changes, Saez stresses, “permanently reduced income concentration until the 1970s.”
So far, here in the Great Recession, we have seen no such drastic changes. Today’s changes have been painfully modest.
Take financial reform. The reform legislation signed into law last week will have, observers agree, little impact on Wall Street bonus bonanzas. In 2010, as a New York Times analysis forecast last week, Wall Street bonuses will run “at about the same level as last year and similar to 2007,” before the 2008 crash.
Back in the New Deal era, by contrast, financial reform legislation actually reduced the revenue streams that were pouring dollars into banker pockets.
New Deal reforms also swept away obstacles to union organizing, and a thriving labor movement proceeded to give average Americans an effective political and economic counterweight to concentrated wealth and power. Attempts to help workers organize, in our current Great Recession, remain stalled in Congress.
On taxes, the same story. The New Deal raised the top tax rates on income over $200,000 — about $2.5 million in today’s collars — to over 90 percent.
The current tax rate on oversized incomes sits at 35 percent, and the debate this summer in Congress will only consider whether or not we should let that 35 percent revert back to the 39.6 percent level in effect pre-George W. Bush.
No one knows for certain how this debate will play out. But we do know that the ultimate winner will be the wealthy. Their tax rates will, at summer’s end, sit at less than half their New Deal peak.
The retreat from these rates — and the rest of the New Deal reforms that helped create a more equal America — has over recent decades concentrated awesome quantities of wealth at America’s economic summit. If we don’t change course, and soon, that retreat could become a rout.
Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up to receive Too Much in your email inbox.