One of the key narratives of the Occupy Wall Street movements, not to mention the emerging “class war” undertone in political campaigns, is that income inequality is rising. But how true is that narrative, and does it represent an inexorable fact of life in modern America?
The LA Times recently shared uncritically a study from the left-of-center Economic Policy Institute showing a disparity in rising incomes between 1979 and 2007. The EPI reported that top incomes grew 390% (top 0.1% of households) and 224% (top 1% of households), compared with about 5% for the bottom 90% of households.
But in fact, as data developed by Megan McArdle shows, the picture painted by EPI is not altogether true. Using the same data, but updated through 2009, income shares for the top 1% and 0.1% of U.S. households have actually fallen over the past two years. This should not be surprising, since the decades-long trend “seems to show that income inequality falls during recessions, and particularly during long crises. Crises destroy capital, and top incomes tend to be more tightly linked to capital than those of average workers.” (What is also, unfortunately, unsurprising is that neither EPI nor the LA Times chose to use the more recent data, which was available to them.)
And while we’re on the subject of the top 1 percent, the average taxpayer in the upper reaches actually made less money in 2008 and 2009 than they did in the prior year, but paid a higher effective income tax rate. Once again, examining real data should trump comfortable, if incorrect narratives.
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Top 1 Percent of Taxpayers |
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(filers earning at least $343,927 per year) |
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Average Adjusted Gross Income Per Year (in millions) |
Average Tax Rate |
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2007 |
$4.9 |
22.45% |
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2008 |
$4.4 |
23.27% |
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2009 |
$3.9 |
24.01% |
To be sure, an economic crisis will still hurt the absolute incomes of the lower 90% harder than the top tier, but the inequality argument is about relative shares, and that argument is demonstrably not sustained during the recent economic crisis.
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