Even in a Down Year, Top 1% Had More Total Income than Bottom 50%

March 6, 2012 at 3:05 pm

The total adjusted gross income (AGI) of the top 1 percent of households in 2009 was 25 percent greater than the total AGI of the bottom 50 percent of households, new IRS data show (see graph).  That’s particularly striking given that 2009 was a “down” year for high-income people.

Even in a Down Year, Top 1 Percent Have More Total Income than Bottom 50 Percent CombinedThe long-term trend in the United States has been towards much greater income concentration at the top.  But the trend isn’t perfectly smooth:  high-income people tend to benefit more from economic expansions than other income groups but tend to get hit harder by recessions.  The swings are particularly pronounced in financial booms and busts.

As my colleague Chad Stone noted yesterday, the incomes of the top 1 percent fell disproportionately during the recent financial crisis but bounced back smartly in 2010.

At the height of the previous expansion, in 2007, the top 1 percent had 87 percent more total AGI than the bottom 50 percent.  But even the 2009 gap of “only” 25 percent — the difference between the $1.32 trillion earned by the top 1 percent and the $1.06 trillion earned by the bottom 50 percent — is pretty staggering.

Under $2 a Day in America, Part 2

March 6, 2012 at 2:44 pm

Yesterday’s post in this series highlighted a recent study from the National Poverty Center showing that the number of extremely poor families — those living on less than $2 per person a day — more than doubled between 1996 and 2011, to 1.46 million.  The number of extremely poor children also doubled, to 2.8 million.

While the study’s findings are extremely troubling, they also show that SNAP (the Supplemental Nutrition Assistance Program, formerly the Food Stamp Program) is a powerful antidote to extreme poverty.

Counting SNAP benefits as income reduces the number of households in extreme poverty in 2011 from 1.46 million to nearly 800,000, the study found (see graph).  And it reduces the number of children in extreme poverty in 2011 by half — from 2.8 million to 1.4 million.

SNAP Cuts Extreme Poverty Significantly

SNAP’s beneficial effects were especially notable after policymakers expanded the program in the 2009 Recovery Act.  As the graph shows, the number of extremely poor households shot up between late 2008 and early 2011, but if you count SNAP benefits, it remained virtually unchanged.

Other studies have also documented SNAP’s powerful poverty-fighting impact.  According to the Census Bureau’s Supplemental Poverty Measure, which counts SNAP as income, SNAP kept more than 5 million people out of poverty in 2010.  SNAP also lessens the severity of poverty for millions of others; if SNAP is counted as income, it lifted 2.5 million children above 75 percent of the poverty line in 2005, more than any other program.

One reason that SNAP is so effective in fighting poverty is that it is focused overwhelmingly on the poor.  Roughly 93 percent of SNAP benefits go to households below the poverty line, and 55 percent go to households below half of the poverty line (about $9,300 for a family of three).  One in five SNAP households lives on cash income of less than $2 per person a day.

Another reason for SNAP’s effectiveness is that, unlike cash assistance, it is broadly available to almost all households with low incomes.  SNAP eligibility rules and benefit levels are, for the most part, uniform across the nation.  And, SNAP is structured as an entitlement, which means that anyone who qualifies under program rules can receive benefits.

SNAP alone, of course, cannot cure extreme poverty or the hardships to which it contributes.   Even with the help that SNAP provides, the Agriculture Department estimates that some 2.2 million households with children suffered from hunger at some point in 2010.  But SNAP is doing much to ameliorate these terrible problems.

Incomes Bouncing Back at the Top

March 5, 2012 at 4:47 pm

The share of the nation’s total income going to the top 1 percent of households, which fell in the financial crisis and Great Recession, rose in 2010, the first full year of the economic recovery, according to the latest update to the historical series compiled by economists Thomas Piketty and Emmanuel Saez.

Income Concentration at the Top Rose in 2010

If the experience following the dot-com collapse a decade ago is any guide, incomes at the top may well continue to grow in the coming years.

As we discuss in our guide to statistics on income inequality, the Piketty-Saez data provide an invaluable long historical series of annual data on income at the top of the distribution, although  Congressional Budget Office (CBO) data provide a better estimate of growth in the bottom 90 percent.  CBO data, however, are not available on as timely a basis and only go back to 1979.

The Piketty-Saez data paint a clear picture of faster income growth and rising income concentration at the top over the past few decades.  The dot-com collapse proved to be nothing more than a speed bump, and the financial crisis and Great Recession may turn out to have had similarly transitory effects.  As Saez says in the new report:

Looking further ahead, based on the US historical record, falls in income concentration due to economic downturns are temporary unless drastic regulation and tax policy changes are implemented and prevent income concentration from bouncing back.  Such policy changes took place after the Great Depression during the New Deal and permanently reduced income concentration until the 1970s.  In contrast, recent downturns, such as the 2001 recession, led to only very temporary drops in income concentration.

You can see a slideshow on income inequality here.

Under $2 a Day in America, Part 1

March 5, 2012 at 2:03 pm

Note: This is the first in a series of posts on extreme poverty that CBPP will do this week.

Living on less than $2 per person a day is one World Bank definition of poverty for developing nations.  Unfortunately, this threshold is increasingly relevant to the United States, according to a new study from the National Poverty Center.

The number of U.S. households living on less than $2 per person per day — which the study terms “extreme poverty” — more than doubled between 1996 and 2011, from 636,000 to 1.46 million, the study finds (see graph).  The number of children in extremely poor households also doubled, from 1.4 million to 2.8 million.

The figures are for cash income only, although the authors —the University of Michigan’s H. Luke Shaefer and Harvard University’s Kathryn Edin — note that extreme poverty is up even when one counts non-cash benefits like SNAP (food stamps).  We will discuss the connection between these findings and food and housing assistance in follow-up posts.

Extreme Poverty Doubled in Past 15 Years

The authors note an apparent connection between the sharp growth in extreme poverty and the loss of public assistance benefits, stating that “This growth has been concentrated among those groups that were most affected by the 1996 welfare reform.”  The 1996 law replaced Aid to Families with Dependent Children, which primarily provided cash assistance to eligible families, with the Temporary Assistance for Needy Families (TANF) block grant, which provided states with a fixed level of funding which they could use for many different purposes.

The report found that the rate of extreme poverty doubled for households overall but nearly tripled for female-headed households, which make up the bulk of the TANF caseload.

As we’ve explained, TANF’s ability to reach poor families has eroded severely in the past decade and a half.  Whereas, in 1996, TANF provided cash assistance to 68 families for every 100 poor families with children, by 2010 it provided cash assistance to only 27 families for every 100 families in poverty.  Families that have reached welfare time limits are not eligible for any federal cash assistance, and many have serious mental or physical health issues that leave them jobless for long periods.

Also, the sharp decline in the value of TANF benefits over time means that many TANF recipients remain extremely poor.  Benefits are below half of the poverty line in every state.  For a family of three, benefits are only about $2 per person per day in Mississippi and Tennessee and only slightly more than $2 per person per day in Alabama and South Carolina, for example.

Co-author Edin is an authority on the ways in which extremely poor households scraped by day-to-day in the pre-welfare-reform era.  Today, say Shaefer and Edin, “it is unclear how households with no cash income — either from work, government programs, assets, friends, family members, or informal sources — are getting by even if they do manage to claim some form of in-kind [i.e., non-cash] benefit.”

Research has shown that poverty in childhood has a long and harmful reach.  Even modest changes in family income for young children in poor families significantly affect their educational success — and may have a big effect on their earnings as adults.

In Case You Missed It…

March 2, 2012 at 5:32 pm

This week on Off the Charts, we focused on the federal budget and taxes, the economy, state budgets, and health policy.

  • On the federal budget and taxes, Richard Kogan debunked the myth that federal spending is out of control.  Chye-Ching Huang explained why corporate tax reform must be fiscally responsible not just in the early years, but over the long term as well.  We also highlighted our new analysis of Governor Romney’s tax proposal.
  • On the economy, Chad Stone pointed out the need to help workers adjust to losing jobs that will never return.
  • On state budgets, we featured Michael Mazerov’s testimony before Maryland lawmakers on the benefits of corporate tax reform.  Phil Oliff noted that our latest survey of state budget shortfalls shows that states still face a long and uncertain recovery, and he connected the dots between some states’ cutbacks in training programs and their failure to raise adequate revenues.
  • On health policy, Dave Chandra warned that states that wait too long to decide whether to form their own health insurance exchanges will end up with federal exchanges.  He also pointed out that a number of states have passed legislation to set up exchanges and that even more have received federal funding to design and implement them.

In other news, we released reports on Governor Mitt Romney’s tax plan and projected trends in federal spending over the next decade.