10 Charts of the Year – Income Inequality

Today’s Chart of the Year comes from the Roosevelt Institute.  It shows the difference in after-tax and after-government transfer income by income level over the last 30 years.

Source: Roosevelt Institute via The Atlantic

What does this chart mean?

There was a moment of synchronicity between a report years in the making from the economic wonks at CBO and the activists planning on occupying a square near Wall Street. Both turned critical attention towards the idea of the 1%. As CBO found, even after taxes and transfers, the top 1% were taking a much bigger slice out of the America economy than 30 years ago. Meanwhile corporate and Wall Street profits are up, giving the 1% a nice boost, while 2011 was a lost year for the American worker – adding to the sense the something is broken with the American income distribution.” — Mike Konczal, Roosevelt Institute, Rortybomb Blog

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7 Responses to “10 Charts of the Year – Income Inequality”

  1. American income distribution. There’s a term for you. Income isn’t distributed, it’s earned. I grew up in union household, where income seldom rose. I chose a different path, working in non-union factories until and learning to program computers. In a non-union shop, I was able to work hard and get rewarded for it, and made lead in 30 days, and supervisor in 2 years, and after 5 was in the front office teaching myself a new trade. I’m now self-emolyed and have made it to the top 5%, and hope someday to retire in a comfortable lifestyle. The American dream works for those who really want it. I now pay more in taxes than the average person makes in a year. So don’t give me this cry-baby nonsense that this is somehow unfair. Life isn’t fair. You have to work at it. Half my income is taken from me through taxation, and liberals say it’s not enough. It’s absurd. Everytime liberals “chant tax the rich”, it’s guys like me they are after. There’s no money going after just the top 1%. If you took EVERYTHING they made, you’d finance this runaway government for a month or two, and then what?

  2. I looked into the numbers behind this graph. It’s very misleading on several levels. One notable thing is to see that they adjusted it for inflation and in doing so the look of the chart changed a lot. It’s not the only place to use misleading information though. Here are some much more accurate graphs on income inequality: http://wp.me/p1voAS-7p

    • It’s not misleading at all.

      1.) Inflation adjustment shows the real world impact of these changes — the impact it has on an individual’s purchasing power.

      2.) The source you use confirms this data. Here’s the link from your post:

      http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.html

      If you look at table 1, it shows that the top 20.6% of income earners earn 62% of the income. You’re choosing to put a different spin on it than I am, but the data is the same.

      BTW, no one is suggesting that we can balance the budget on the backs of the rich. The debate right now is whether or not to go back to the Clinton-era tax rates.

  3. Yes, you’re right about the statistic you mentioned. However, when you plot the data, you see that the reason the top 20.6% has so much combined income is due to the income range close to the middle. So it’s the middle class that has most of that income, not millionaires, which was always the impression I had from hearing this statistic until I looked into it.

    And my issue with inflation is that perhaps we could view inflation as the cause of this. Inflation can be viewed as a “tax” on the lower and middle class, while the rich can more easily escape it. So changing income tax levels wouldn’t be the best way to combat this inequality (if it’s even worth combating).

    • It’s not the middle class driving it — wealth is concentrating at the top of the spectrum in ways not seen in this economy since before the Great Depression. If you look in some of the other tables on the IRS site, you see it broken down by percentage distributions. In 1986, the top 1% had 11.3% of the AGI. In 1997, it was 17.4%. In 2008, it was 20%. The top 1% accounts for ALL of the income growth in the top 50% of the income distribution. In fact, the 2-50% actually lost share — 4.7% — over that 22 year span.

      {edited to fix typos}

  4. I would like to tax the rich, and I am not after John Brunette, unless he’s in the top 5 or so %, which I doubt. And if we taxed the top 1% at confiscatory rates like those in place during the Eisenhower administration, we could, if this chart is accurate, possibly recoup close to 5% of AGI. That would pay for our shrinking (not runaway!) government for quite a while.

  5. The problem, eric (the 2nd), is that you very quickly run out of revenue from those of in the top 5% even. (Yes, according to 2010 IRS data, I’ve made that bracket. The top 5% really isn’t all that high. 159K per household). If spending is left unchecked, you can tax us all you want, and it doesn’t even come close to solving the problem.

    Let’s suggest for moment that we set an extremely confiscatory level on 5% or higher. Here’s what I’ll do. And believe me I manage to these numbers as do many others. When I approach the income level for the year where I would actually lose more money than continue to work, I’ll shut down operations. Why would I continue to work if it brings me over that bracket? At some point my returns are no longer worth the effort.

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