The Triumph of the 1%

The Triumph of the 1%

A new study by Thomas Piketty and his colleagues shows that American inequality continues to rise, with no sign of abating.

The election of Donald Trump, and the daily infliction of another huckster, ideologue, paranoid, or unrepentant one-percenter cabinet appointment, has upended the politics of inequality. The defining issue of our time, not an insignificant source of Trump’s victory, is disappearing from the national political radar. So it is dismally appropriate, in the days between the appointments of Ben Carson at Housing and Urban Development and Andrew Puzder at Labor, that Thomas Piketty and colleagues have released updated and revised estimates of the share of national income going to top earners.

Making novel use of tax returns, this research first highlighted the now-iconic “suspension bridge” of top income shares—high at the tail end of the Gilded Age and through the laissez-faire 1920s, descending sharply through the shocks of the Great Depression and the Second World War (and the policies that accompanied both), and then rising again as the postwar political and economic compact was dismantled. The new paper adds to this story in three important ways. First, drawing on a wider range of income data (combining tax, survey, and national accounts), it offers a more complete picture of income distribution—capturing not just the top 10 percent but (for the last half-century) the bottom 50 percent and the middle 40 percent as well. Second, it traces those shares before and after taxes and transfers, offering a clear view of the distributional impact of government programs. And third, it teases apart household or tax unit income measures, and then uses individual incomes to suggest the ways in gender inequality has shaped these larger trends.

Here a couple of glimpses at the new data. The first graphic shows the share of national income claimed by the top 10 percent and top 1 percent of earners, with a toggle for the pre-tax and post-tax estimates.

Thanks to Piketty’s landmark 2013 book, the basic trajectory of top incomes is by now well known. But it is even starker if we express those incomes in real (inflation-adjusted) dollars. The second graphic traces average incomes—pre- and post-tax—for the top 10, 5, 1, 0.5, 0.1, and 0.01 percent of earners. Across most of this history, the impact of the tax system on those incomes is slight. I have calculated a crude effective tax rate (the difference between pre- and post-tax incomes as a percentage of pre-tax incomes) for each top income group. While rates spike for those at the very top of the income distribution during the World War II era, they fall off quickly—and since the 1970s have settled in at less than 20 percent for the top 10 percent of earners, and less than 30 percent for the top 0.01 percent.

Beginning in the 1960s, the survey and tax data is robust enough to generate an income share for the bottom 50 percent of the distribution as well. The final graphic traces the real average income of the bottom 50 percent in the lower panel, and the real average income of top income groups in the upper panel. The grey bars show the ratio between the two. The real average income of the bottom 50 percent is essentially flat, peaking at $16,632 in 1979 and stagnating thereafter ($16,197 in 2014). In 1979, the average one-percenter earned 28 times the income of the average earner from the bottom 50 percent; by 2014, this ratio had ballooned to 81 times. In 1979, the average ten-percenter earned 9 times the income of the average earner from the bottom 50 percent; by 2014, this ratio had ballooned to 19 times.

These trends are dismal, and show no sign of abating. As the economy has slowly recovered from the Great Recession, wages have scarcely budged. Income gains since 2007 have flowed almost exclusively to the richest 1 percent. While this new data brings us through those dismal years (to 2014), it is also clearly a harbinger of worse to come. By all indications, the incoming administration is not just indifferent to the root causes—growing wage inequality, financialization, the collapse of progressive taxation—but eager to double down on all of them.

Colin Gordon is a professor of history at the University of Iowa. He writes widely on the history of American public policy and is the author, most recently, of Growing Apart: A Political History of American Inequality.