Welcome To The 1 Percent Recovery
As the 1% reap 93 percent of the income gains from the recovery, we’re rapidly returning to pre-New Deal levels of inequality.
There was a brief debate focused on the following question: would the gains of the economy continue to accrue to the top 1% once the recovery started, or would they have a weak post-recession showing in terms of raw income growth as well as income share of the economy? The top 1% had a rough Great Recession. They absorbed 50 percent of the income losses, and their share of income dropped from 23.5 percent to 18.1 percent. Was this a new state of affairs, or would the 1% bounce back in 2010?
We finally have the estimated data for 2010 by income percentile, and it turns out that the top 1% had a fantastic year. The data is in the World Top Income Database, as well as Emmanuel Saez’s updated “Striking it Richer: The Evolution of Top Incomes in the United States” (as well as the excel spreadsheet on his webpage). Timothy Noah has a first set of responses here. The takeaway quote from Saez is, “the top 1% captured 93% of the income gains in the first year of recovery.”
First off, let’s get some absolute numbers here. Here is income by important percentiles, as well as the change from 2009-2010. I include the change with and without capital gains to make it clear that this is a phenomenon both in and independent of a strong stock market (click through for larger image):
The bottom 90 percent of Americans lost $127, the bottom 99 percent of Americans gained $80, and the top 1% gained $105,637. The bottom 99 percent is net positive for the year due to around $125 in average capital gains. They can take comfort in efforts by the right to set the capital gains tax to 0 percent, which would have netted them an additional couple dozen bucks.
(Also, just to show “the top 1% captured 93% of the income gains in the first year of recovery” isn’t some sort of stats juke, you can take $105,637 and divide it by the the number you get when you add $80 times 99 to $105,637 times 1. That number is 93 percent, which is the share of income gains the 1% took home.)
And if this wasn’t obvious, you can see the gains become quite high the farther you walk up the inequality ladder. When we discuss things like the Buffett Rule or taxing capital gains as ordinary income, it is important to see how top-heavy that capital gains distribution actually is.
This should also be put in the historical frame of looking at 2002 onward. I’m going to normalize some percentiles by their average income in 2002 and show how they have moved going into and out of the recession. This takes the income distribution in 2002 as granted — and any movements from there on out reflect changes from that income. I’m going to exclude capital gains for this chart to show it’s a deeper phenomenon than the stock market, though the effects are the same in either case (click through for larger image):