David R. Henderson  

The Top One Percent

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I think the average quality of letters to the Wall Street Journal is medium to low, but today's lead letter is quite good. The author writes to elaborate on a point made by Daniel Henninger in a column that I had somehow missed. Henninger's column is titled, "The Obama Rosetta Stone." Henninger had written:

Turn immediately to page 11 [of the federal budget.] There sits a chart called Figure 9. This is the Rosetta Stone to the presidential mind of Barack Obama. Memorize Figure 9, and you will never be confused. Not happy, perhaps, but not confused.

The chart, he goes on to note, is taken from economists Pikkety and Saez.

Henninger wrote:

As described in Mr. Obama's budget, these two economists have shown that by the end of 2004, the top 1% of taxpayers "took home" more than 22% of total national income. This trend, Fig. 9 notes, began during the Reagan presidency, skyrocketed through the Clinton years, dipped after George Bush beat Al Gore, then marched upward. Widening its own definition of money-grubbers, the budget says the top 10% of households "held" 70% of total wealth.

Alan Reynolds of the Cato Institute criticized the Piketty-Saez study on these pages in October 2007. Whatever its merits, their "Top 1%" chart has become a totemic obsession in progressive policy circles.

Moreover, notes Henninger, there is a disturbing tone to the budget language. The Obama budget writers write:

"While middle-class families have been playing by the rules, living up to their responsibilities as neighbors and citizens, those at the commanding heights of our economy have not."

In other words, making a lot of money and paying a higher percent of one's income in taxes than lower income groups pay is not, according to the Obama administration, "playing by the rules."

In response to Henninger's column, Steve Walde of Easton, Connecticut makes some telling additional points. One highlight:

But consider that 1980 was about the time when large percentages of college-educated women began to enter the workforce. Many of these professional women would go on to marry other professionals. This in effect created a doubling of "household" income for many families.

And later:

My working wife and I often find ourselves in this 1% bracket, but if we were to divorce we would never come close. It's ironic that the left decries the income disparity between men and women, but in the instance when women earn equal pay it is used to inflame class warfare.


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CATEGORIES: Income Distribution



COMMENTS (12 to date)
AnnaMerkin writes:

How does one reconcile the opposition to Pres. Obama's apparent tax plans with:

a) the actual proposed level of marginal tax rates that his administration seeks; and

b) the apparent stagnation of wages over recent American history?

I'm embarrassed by the selective use of facts by those on both sides of the current debate.

Peterargus writes:

...The despair is there; now it's up to us to go in and rub raw the sores of discontent, galvanize them [middle-class] for radical social change. We'll give them a way to participate in the democratic process, a way to exercise their rights as citizens and strike back at the establishment that oppresses them, instead of giving in to apathy. We'll start with specific issues -- taxes, jobs, consumer problems, pollution -- and from there move on to the larger issues: pollution in the Pentagon and the Congress and the board rooms of the megacorporations. Once you organize people, they'll keep advancing from issue to issue toward the ultimate objective: people power. We'll not only give them a cause, we'll make life goddamn exciting for them again -- life instead of existence. We'll turn them on...

...The middle class actually feels more defeated and lost today on a wide range of issues than the poor do. And this creates a situation that's supercharged with both opportunity and danger. There's a second revolution seething beneath the surface of middle-class America -- the revolution of a bewildered, frightened and as-yet-inarticulate group of desperate people groping for alternatives -- for hope. Their fears and their frustrations over their impotence can turn into political paranoia and demonize them, driving them to the right, making them ripe for the plucking by some guy on horseback promising a return to the vanished verities of yesterday. The right would give them scapegoats for their misery -- blacks, hippies, Communists -- and if it wins, this country will become the first totalitarian state with a national anthem celebrating "the land of the free and the home of the brave." But we're not going to abandon the field to them without a long, hard fight -- a fight I think we're going to win. Because we'll show the middle class their real enemies: the corporate power elite that runs and ruins the country -- the true beneficiaries of Nixon's so-called economic reforms. And when they swing their sights on that target, the sh-- will really hit the fan...

-Saul Alinsky, Playboy interview, 1972
caveat bettor writes:

The "household income" fallacy of the "Two Americas" camp is probably the one in most need of disabuse.

Household sizes have fallen from 3.4 during the baby boom to 2.5 today.*

In order to obfuscate this important trend, special interests (including politicians) continue to rant on about stagnant wages in hopes that hearers will not adjust for shrinking households.

*http://www.census.gov/statab/hist/HS-12.pdf

Median household incomes here:
http://www.census.gov/hhes/www/income/histinc/h05.html

Combining the 21% shrinkage in median household size with the 31% increase in income yields a multiplier of 1.66 per capita since the Seventies. Sure beats any Keynesian multiplier, huh?

RL writes:

Perhaps someone should take advantage of the populist unrest we see, and advertise how many of the members of Congress happen to be in the top 1%. Clearly, they should not be re-elected. Perhaps we need a Constitutional Amendment that members of households in the top 1% are not eligible for political office. I wonder how many that would rid us of? Pelosi, Clinton, Geithner...we need a list.

AnnaMerkin writes:

Great reply, caveat bettor. But how has that distribution changed over the same period?

Further, what about Kotlikoff, et al's study on the full tax burden paid by various income levels?

http://ideas.repec.org/p/nbr/nberwo/9096.html

JP writes:

I like Caveat Bettor's comment, too.

Ivan writes:

Anna,

if you add to standard wage amount of various fringe benefits, like health care, payed absence, private pension funds and th elike (most of them induced by tax and regualtory policies by the federal state), you shall se that eages plus other worker benefits amount to 56-57% of US GDP in the last 25-30 years, without much change.

That means "wage stagnation" is pure myth without any basis in reality. 40 years ago much smaller portion of working people income has been payed in fringe benefits than now, and that caused the "widening gap" between GDP and real wages. Unlike real wages, real INCOME of working people which includes not only wages but many of fringe benefits, is rising together with GDP,at similar annual rate.

Les writes:

I'm confused. How can the top 1% of households receive more than 22% of national income in 2004, when the following statistics exist?

U.S. Census Bureau: The 2009 Statistical Abstract
Top 5 Percent of Households received 22.3% of aggregate income in 2006 in 2006 constant dollars.

Source: Table 675. Share of Aggregate Income Received by Each Fifth and Top 5 Percent of Households

http://www.census.gov/compendia/statab/cats/income_expenditures_poverty_wealth/household_income.html

Jim Hass writes:

I think Alan Reynolds effectively debunked most of this commie bs, especially their dubius treatment of capital income and tax shifting. Rising cash income is what we expected after ten years of tax rate reform , when income and assets were repatriated and drawn out of shelters and "personal" corporations. His story about the shifting of business income between personal and corporate returns is especially convincing. Perhaps the raising of the personal rates and the stock market colapse will be enough for the argument to wither away. Yeah right.

caveat bettor writes:

Thanks for the encouraging comments and the challenging ones too.

I concede that the rich have become richer faster than the poor have become richer.

But this raises the question: should policy be more about reducing inequality, or reducing poverty?

Tyler L writes:

In regards to President Obama and his "Rosetta Stone" which is figure 9 of his financial outline. Figure 9 shows that the top 1% of taxpayers took home 22% of the nations income. Does that statistic baffle anyone else? Or how bout the fact that the top 10% took home 70% of the nations income. President Obama speaks of developing a fairness in this nation. I agree in the thought that all who have applied themselves to secondary education should be rewarded financially. For example, a gradeschool teacher who graduates with a bachelors degree in education is lucky to get a $20,000-$40,000 job. Whereas, an athlete who can throw a football the length of the field can leave college after his first year and sign a contract in the NFL for multimillions. I sure hope Mr. Obama can develop a fairness.

lizWCU0966 writes:

In this blog David Henderson refers to Daniel Henninger's column "The Obama Rosetta Stone" which he says will help you understand the economic situation we are in now. On page eleven of the federal budget is a chart clearly displaying how the extreme wealthy pay an extremely small amount of taxes. Steve Walde lays partial blame on college educated men marrying college educated women. These households become part of the 1% of tax payers who earn 22% of the total national income. So the other 99% take home the other 78% of the national income.
This blog makes me curious as to what percentage of the 99% is classified as middle class and what percentage is classified as lower class. It seems to me, as always, the middle class is the group that suffers the most. Unlike the lower income group, which gets assistance from the government, the middle class earns a lesser amount and pays a larger percentage of the taxes.
The 1% can easily afford a college education but the middle class often times must finance their college endeavors and exit school in debt. This chart like the Rosetta Stone is a learning tool in the language of income and taxes. In my opinion someone just needs to redo the math.

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