It's tax season. If you pay taxes you need to read this book. The single best publication I have read on the huge swindle that the federal government has imposed on middle income and lower income Americans. You won't be bored:
'Perfectly Legal'
Chapter 1
By DAVID CAY JOHNSTON
n 1977, the richest 1 percent of Americans had as much to spend after taxes as the bottom 49 million. Just 22 years later, in 1999, the richest 1 percent-about 2.7 million people-had as much as the bottom 100 million Americans. Few figures derived from the official government data on incomes present more starkly the growing chasm between the rising incomes at the top and the falling incomes at the bottom.
Those in the top 1 percent saw their average income, adjusted for inflation to 1999 dollars and after income taxes were paid, more than double from $234,700 in 1977 to $515,600 in 1999. Meanwhile, the 55 million Americans in the poorest fifth of the population lived in households whose average income fell from $10,000 in 1977 to $8,800 in 1999. The Center for Budget and Policy Priorities, a liberal group that advocates for the poor, calculated these figures from the sophisticated income data that the Congressional Budget Office began collecting in 1977. Studies by other economic research and advocacy organizations made similar findings using other official data. Across the political spectrum, economists found the same basic trend: the rich really are getting richer and the poor really are getting poorer.
Looking more closely at the top fifth gives a hint as to how incomes were changing in the last three decades of the twentieth century. Think of a ladder with 100 rungs. The poorest person in America stands at the bottom and the person with the biggest income stands at the top, with everyone else taking their place on the rungs in between.
Between 1973 and 2001, those whose income ranked them above 80 percent of Americans but below the richest 5 percent-those on the eightieth up to the ninety-fifth rungs-saw their share of national income rise almost imperceptibly. The Bureau of the Census calculated that in 2001 they earned 27.7 percent of all income, up from 27 percent in 1973.
The top 5 percent did much better. Their share of the national income grew by more than a third, from 16.6 percent to 22.4 percent. There is the suggestion of a pattern here, of those at the top of the ladder having so much added income that it is reinforcing their position, holding the middle class in place and squeezing those at the bottom, whose incomes were falling.
While the Bureau of the Census did not break the numbers down further, many others did. The National Bureau of Economic Research, the nonprofit organization that makes the official decisions about whether the country is in recession or expansion, published the most extensive analysis. The bureau's president is Martin A. Feldstein, the Harvard University economics professor who was President Ronald Reagan's chief economics adviser. He is a leading proponent of supply-side economics, the idea that economic growth is most likely if taxes on high earners are lowered and more capital can be invested. Economists of every political view rely on the bureau's data and reports because of its reputation for analysis based on facts.
Thomas Piketty and Emmanuel Saez, both French economists, wrote a paper the National Bureau of Economic Research published in 2002 that examined in fine detail income and wealth data for the years 1917 through 2000. They relied mostly on the National Income and Products Accounts, the most comprehensive economic data the government collects, and on tax data. Their study focused not on all Americans, but on those who made the most and how they fared compared to everyone else.
There are many ways to measure income. First we will consider what Piketty and Saez found about the portion, or share, of income going to people at each income level. That is, how big each income group's slice of the pie was. Then we will examine the average incomes of people.
They drew their first line between the top 10 percent and the bottom 90 percent. Overall the bottom 90 percent lost ground. Their share of national income fell from two thirds to slightly more than half. And their average income, adjusted for inflation, was essentially the same in 2000 as in 1970. The average income for the bottom 90 percent in 2000 was $25,035, which was $25 less than three decades earlier.
The top 10 percent of Americans had done very well since 1970, or so it seemed at first blush. These 11.3 million households, comprising roughly the population of California, saw their share of national income grow by almost half, from just under 33 percent in 1973 to just above 48 percent in 1998. When examined more closely, however, a curious trend appeared. The figures showed that the higher the income group, the larger the income gains.
Piketty and Saez cut off the top 10 steps on the ladder and divided the top 10 percent into ever-smaller segments of the population.
They examined those on the rungs from 90 to 95. Their share of the national income was flat. Next came the slightly smaller group between rungs 95 and 99. Their share grew by 19.5 percent.
Next the professors sliced off the top rung on the ladder, the top 1 percent or about 1.3 million households, roughly the population of Kentucky. This group earned more than a fifth of all the income in the country. The economists broke the top 1 percent down into ever-finer amounts, into minirungs on the ladder, the smallest of which represented a hundredth of 1 percent, or about 13,400 of the country's 134 million taxpayer households.
They examined the bottom half of the top 1 percent. Their share of national income grew by 47 percent, which was more than twice the rate of the group just below them on the income ladder.
The professors then looked at those on the minirungs from 99.5 to 99.9. Their share of national income grew even more, rising by 90 percent. Next came those on the minirungs from 99.9 to 99.99, just 120,000 households. Their share of national income more than tripled, growing 227 percent.
Finally, the professors examined the very top rung, the richest 13,400 households. These are the people who made more than 99.99 percent of their fellow Americans. They had by far the biggest gains. Their share of national income in the year 2000 was more than five times what it had been in 1970. Back then this elite group received 1 percent of national income, while in 2000 it received more than 5 percent. Even more telling was how it had done compared to those fortunate enough to stand between the ninetieth and ninety-fifth rungs-the top group's share of income had grown almost 1,000 times faster.
The average income of all households in 2000 was $42,700, while the 13,400 households at the very top had an average income of $24 million each or 560 times the average. It was not always this way. In 1970 the very top group had about 100 times the average.
Clearly the only significant income gains over three decades went to a very narrow slice at the top. After adjusting for inflation, for each dollar of income in 1970 the top 13,400 households had four additional dollars plus a dime to spend in 2000, while the average household in the bottom 99 percent had only eight cents more per dollar.
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