U.S.: Inequality in New York extremely high

An article by Doug Henwood here details just how unequal income is in the city whose mayor Michael Bloomberg a billionaire no doubt represents the top 5 per cent in the city! The analysis that Henwood uses is from the New York City Independent budget office.

The material was released after a request from James Oddo a New York City councilor. Here are a few details.

The poorest tenth in the city have an average income of only 988 dollars representing just .1 per cent of the total income of the city. This does not include the amount of any social benefits. Still it is astonishingly low. Even the bottom 50 per cent of income earners have only 9 per cent of the total income. This compares to 19 per cent for the bottom half of earners throughout the U.S.

The richest 5 per cent receive 49 per cent almost half of all the income in the city. This compares with the national average at 32 per cent. The iconic 1 per cent of top earners in New York City have over a third of the total income at 34 per cent. This is much higher than the overall U.S. in which the top one per cent have 19 per cent of income. As Henwood remarks the inequality in New York City is greater than that of Brazil noted for the huge gap between rich and poor. Apparently electing a billionaire as mayor does not mean that much wealth trickles down, rather it means a lot trickles up.

Income Inequality in the United States

Here is an article from this blog. I have invented a new theory to explain what happens when the economy grows. I am not sure what to name it. Originally I thought I would call it the trickle up theory to compete with the original trickle down theory. Unfortunately, the flow upwards is more like a gusher than a trickle. Even the original trickle down theory disguised the fact that when there is a trickle down there is almost always a much larger flow to the upper income earners. It would have been better termed the falling crumbs theory wherein the poor get more crumbs since it is a bigger cake.
Another pop theory is captured by the idea that a rising tide raises all boats. This is a real laugh when applied to economic growth. You can be sure that the extra money created by a growing economy is not shared equally in the way that a rising tide raises all boats big and small equally.



Boy, Have We Got an Inequality Problem
By Jared Bernstein | bio
The Congressional Budget Office (CBO) just updated their invaluable data series on income inequality and the results are startling. Income inequality among households, both before and after Federal taxes, grew more quickly over the last two years of the series, 2003-05, than over any other two-year period on record, back to 1979.

Over those two years, the growth of inequality transferred $400 billion dollars from the bottom 95% to the top 5%. That is, had the income distribution remained as it was in 2003, the income of each of the 109 million households in the bottom 95% would have been $3,660 higher in 2005.

If this is the ownership society at work, I think we need to have a serious talk with the owners.



EPI will post our analysis later in the day (the Center on Budget and Policy Priorities will also post their nifty analysis), but I wanted to share a few of our findings with you right away:

If we break households in groups of 20% each by income, well over half of household income (55%) was held by the richest fifth in 2005, the highest such share on record;
The share of income held by the top 1% has climbed from 9% in 1979 to 18% in 2005.
After-tax income of the bottom 20% grew 6%, or $1,800 over these years (1979-2005, in 2005 dollars); the middle-class gained $11,000, up 21%, over these 26 years. The average income of the top 1%, more than tripled, up 228%, for a gain $781,000.
By 2005, the average post-tax income of the bottom fifth was $15,300, the middle fifth: $50,200, and the top 1%: $1.1 million.
These hugely different growth rates have led to much greater economic distance between income classes over the years. Back in 1979, the post-tax income of the top 1% was 8 times higher than that of middle-income families and 23 times higher than the lowest fifth. In 2005, those ratios grew to 21 (top compared to middle) and 70 (top to bottom), a vast increase in the distance between income classes.

Lest we forget, before our current problems in housing and financial markets developed, the overall economy grew solidly over this recovery, with notably strong productivity growth. Aggregate household income, according to these CBO data, grew $1.1 trillion, 2003-05. But, to put it mildly, these gains have failed to flow broadly throughout the income scale, and the extent of their concentration at the top of the income scale is historically unique. Just under two-thirds (63%) of the gain in household income from 2003 to 2005 went to just 5% of the nation’s wealthiest households.

Such concentration of income is unsustainable in a democratic society.

Income Inequality Gap Widens in US

This shows that the disaster of the Iraq war and the huge expenditures on defence and the war on terror have not hurt the ability of the rich to become richer--or perhaps of the poor to become poorer. Crony capitalisn survives and thrives.

Wall Street Journal - October 12, 2007

Income-Inequality Gap Widens
Boom in Financial Markets
Parallels Rise in Share
For Wealthiest Americans
By GREG IP

The richest Americans' share of national income has hit a postwar
record, surpassing the highs reached in the 1990s bull market, and
underlining the divergence of economic fortunes blamed for fueling
anxiety among American workers.

The wealthiest 1% of Americans earned 21.2% of all income in 2005,
according to new data from the Internal Revenue Service. That is up
sharply from 19% in 2004, and surpasses the previous high of 20.8%
set in 2000, at the peak of the previous bull market in stocks.

The bottom 50% earned 12.8% of all income, down from 13.4% in 2004
and a bit less than their 13% share in 2000.

The IRS data, based on a large sample of tax returns, are for
"adjusted gross income," which is income after some deductions, such
as for alimony and contributions to individual retirement accounts.
While dated, many scholars prefer it to timelier data from other
agencies because it provides details of the very richest -- for
example, the top 0.1% and the top 1%, not just the top 10% -- and
includes capital gains, an important, though volatile, source of
income for the affluent.

The IRS data go back only to 1986, but academic research suggests the
rich last had this high a share of total income in the 1920s.

Scholars attribute rising inequality to several factors, including
technological change that favors those with more skills, and
globalization and advances in communications that enlarge the rewards
available to "superstar" performers whether in business, sports or
entertainment.

In an interview yesterday with The Wall Street Journal, President
Bush said, "First of all, our society has had income inequality for a
long time. Secondly, skills gaps yield income gaps. And what needs to
be done about the inequality of income is to make sure people have
got good education, starting with young kids. That's why No Child
Left Behind is such an important component of making sure that
America is competitive in the 21st century." (See article.)

Jason Furman, a scholar at the Brookings Institution and an adviser
to Democratic politicians, said: "We've had a 30-year trend of
increasing inequality. There was an artificial reduction in that
trend following the bursting of the stock-market bubble in 2000."

The IRS data don't identify the source of increased income for the
affluent, but the boom on Wall Street has likely played a part, just
as the last stock boom fueled the late-1990s surge. Until this
summer, soaring stock prices and buoyant credit markets had produced
spectacular payouts for private-equity and hedge-fund managers, and
investment bankers.

One study by University of Chicago academics Steven Kaplan and Joshua
Rauh concludes that in 2004 there were more than twice as many such
Wall Street professionals in the top 0.5% of all earners as there are
executives from nonfinancial companies.

Mr. Rauh said "it's hard to escape the notion" that the rising share
of income going to the very richest is, in part, "a Wall Street,
financial industry-based story." The study shows that the highest-
earning hedge-fund manager earned double in 2005 what the top earner
made in 2003, and top 25 hedge-fund managers earned more in 2004 than
the chief executives of all the companies in the Standard & Poor's
500-stock index, combined. It also shows profits per equity partner
at the top 100 law firms doubling between 1994 and 2004, to over $1
million in 2004 dollars.

The data highlight the political challenge facing Mr. Bush and the
Republican contenders for president. They have sought to play up the
strength of the economy since 2003 and low unemployment, and the role
of Mr. Bush's tax cuts in both. But many Americans think the economy
is in or near a recession. The IRS data show that the median tax
filer's income -- half earn less than the median, half earn more --
fell 2% between 2000 and 2005 when adjusted for inflation, to
$30,881. At the same time, the income level for the tax filer just
inside the top 1% grew 3%, to $364,657.

Democrats, on the other hand, have sought to exploit angst about
stagnant middle-class wages and eroding benefits in showdowns with
Mr. Bush over issues such as health insurance and trade.