Saturday, October 29, 2011

Occupy Wall Street and the basics of US income inequality

Occupy Wall Street and the European movement of indignados are both very much related to the great increase of inequality in Europe and the US during the last 30 years.

The Congressional Budget Office just released a very helpful study on Trends in the Distribution of Household Income Between 1979 and 2007 (Oct 2011). One thing about these comparisons that can make it easy for polemicists to create sound-bites that fog the water is that there is a lot of room to select data, e.g., which income cohorts to compare, which dates to choose, etc. But this CBO set of bullet-points is one good overview of the basics, dealing with the period 1979-2007:

The share of income going to higher-income households rose, while the share going to lower-income households fell.
  • The top fifth of the population saw a 10-percentage-point increase in their share of after-tax income.
  • Most of that growth went to the top 1 percent of the population.
  • All other groups saw their shares decline by 2 to 3 percentage points.
This concentration of wealth has major implications for democracy. You can have a democracy with significant disparities of wealth and income. But the more extreme the concentration at the top becomes, the more disproportionate the power of the wealthiest to control political outcomes through the direct and indirect power of money becomes.

Conservatives for a long time have attacked any increase for taxes on the wealthy as "income redistribution" and therefore bad. Democrats - do I even need to say it? - have rolled over and played dead in front of such propaganda.

The truth is that every tax is a redistribution of income of some kind. The real question is whether redistribution of fair, just and conducive to the health of democracy. What we have now is none of those three.

As the CBO report points out, tax policies have shaped how the distribution of income has changed since 1977, and shaped it in the direction of increasing concentration of power for the wealthiest:

Government transfers and federal taxes both help to even out the income distribution. Transfers boost income the most for lower-income households, while taxes claim a larger share of income as people's income rises.

In 2007, federal taxes and transfers reduced the dispersion of income by 20 percent, but that equalizing effect was larger in 1979.

  • The share of transfer payments to the lowest-income households declined.
  • The overall average federal tax rate fell.
Distribution of wealth and distribution of income are closely related phenomena but not identical. The distribution of income alone doesn't fully measure the economic clout of the largest 1% or 10%. But because they are heavily correlated, it certainly gives a vivid picture.

Ryan Chittum recently busted the rightwing AEI for a study purporting to show that there had been no increase in income inequality in The Myth of Income Equality, Courtesy of AEI CJR The Audit 10/26/2011. The following takes five whole sentences for him to say, which probably makes it 4 1/2 sentences more than the average Rush Limbaugh fan would even attempt to listen to:

The poorest 20 percent of households made an average $11,034 last year, $179 less than they did in 1979. The median income rose to $49,445 last year from $46,074 in 1979, while the top 20 percent made an average $169,633, or $48,536 more than in 1979.

But the real blowout hasn't been between the 80th and 99th percentiles. It’s been in the top 1 percent and top 0.1 percent, which is why that "We Are the 99 percent" slogan has struck such a chord. The poorest member of the top 1 percent made $347,000 in 2007 (the latest year I can find), more than double the $165,049 they made in 1979.
Paul Krugman in Denial In Depth 10/29/2011 takes off from Chittum's post to point out common patterns in rightwing counterfactual argumentation:

What I found myself thinking about, however, is the way the inequality debate illustrates some typical features of many debates these days: the way the right has a sort of multi-layer defense in depth, which involves not only denying facts but then, in a pinch, denying the fact that you denied those facts.

Think about climate change. You have various right-wingers simultaneously (a) denying that global warming is happening (b) denying that anyone denies that global warming is happening, but denying that humans are responsible (c) denying that anyone denies that humans are causing global warming, insisting that the real argument is about the appropriate response.

I’m not sure there are three levels (yet) on inequality, but we definitely have (a) right-wingers denying that inequality is rising and (b) denying that anyone is denying the rise in inequality, but attacking any proposal to limit that rise.

You might ask, how is it possible to take such mutually contradictory positions? And the answer is, it's very easy if confusing the debate is your job.
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