Income Growth at the Top Mostly Occurring at the Tippy-Top

March 8, 2012 at 11:03 am

As our new report on the latest analysis of IRS data by economists Thomas Piketty and Emmanuel Saez shows, the share of before-tax income going to the top 1 percent of households rose in 2010 (the first full year of the recovery), after falling during the Great Recession.

What’s striking is how much of the income growth for the top 1 percent occurred at the very top.

Growth Much Higher for Households at Very Top of Income Distribution

To illustrate this lopsided growth, this chart separates income groups within the top 1 percent.  The top 1 percent in 2010 had incomes above $350,000 and, as a group, enjoyed average income growth of nearly 12 percent from 2009 to 2010.

However, growth for households in the “bottom half” of the top 1 percent — the non-millionaires — was significantly smaller than growth for the multimillionaires at the very top.

Though the bottom half of the top 1 percent could not compete with the multimillionaires when it comes to income growth, we should note that they still did much better than the bottom 90 percent of households in America, whose income failed to grow at all in 2010.  (For reasons discussed in our guide to statistics on income inequality, Congressional Budget Office data provide a better guide to income growth and its distribution in the bottom 90 percent than the Piketty-Saez data, but they are only available through 2007.)

As we have shown, the uneven distribution of economic gains in recent years continues a longer-term trend that began in the late 1970s.  In the generation following World War II, robust economic gains were shared widely, but in recent decades, income growth at the top has rapidly outpaced the rest of the distribution.

It remains to be seen whether this trend will continue in the wake of the Great Recession, but these new data for 2010 hint that it may.

Under $2 a Day in America, Part 3

March 7, 2012 at 5:25 pm

As we have explained, proposals from the President and House Republicans to raise rents on the poorest recipients of federal housing assistance could impose unaffordable burdens on many of them.  Some people might question whether the proposed increases are really that significant:  who couldn’t afford another $20-$25 per month?

Lots of people, as the new study from the National Poverty Center makes clear.

The study reports a 130 percent increase since 1996 in the number of families with children living on less than $2 per person per day.

About 300,000 of these extremely poor families, or about one in five, received housing assistance as of the beginning of 2011, the study notes.  This is consistent with our analysis, based on data from the Department of Housing and Urban Development, that some 330,000 families with nearly 700,000 children — as well as another 150,000 households without children — would face a rent increase under the House proposal.  Even more families would face increases under the President’s proposal.

Let’s take a three-person family that receives federal housing assistance and has a monthly income of $180 (that is, $2 per person per day or $6 per family per day).  If that family pays the current federal $50 minimum rent, the family has about $4.30 a day left after taking out the rent money.  With a rent increase of $25, that family would have about $3.50 a day after taking out the rent money.  At this marginal level of survival, that $0.80 a day reduction can make a big difference in whether a family can afford, say, diapers or the bus fare to a doctor’s appointment.

This study also rebuts the argument from the Administration and House Republicans that rents should go up to reflect inflation since Congress set the $50 minimum rent in 1996.  Yes, rents have gone up in the last 15 years, but incomes at the bottom have not.

As my colleague Jared Bernstein noted recently, a recent Congressional Research Service study found that inflation-adjusted incomes for the bottom 20 percent of the population fell by 6 percent between 1996 and 2006, before the recession did further damage.  And at the very bottom, the new National Poverty Center study shows that during the same period that the minimum rent has been flat at $50, the number of families with children so poor that they will be hurt by a $25 rent increase has more than doubled.

So, while the proposed rent increase may not seem like much to most of us, it would be to hundreds of thousands of our nation’s poorest families.

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.