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The Rich in the U.S. Just Keep On Getting Richer: Time to Party!?

In September, 2016, Paul Krugman, the Nobel prize winning economist and columnist for the New York Times, declared that:

“We expected good news; but last year, it turns out, the economy partied like it was 1999. And this tells us something very important — namely, that a government that wants to can make American society more equitable, improving the quality of life for ordinary families.”

However, the banker’s bank, the Federal Reserve Board, has thrown cold water on Krugman’s economic party.  Recent Fed statements and figures on changes in income and wealth distribution–two extremely important factors for determining whether a society is becoming more equitable–undercut Krugman’s claim that government policies during the Obama administration made the United States a more equitable society. The September 2017 Federal Reserve Bulletin on page 10 informs us that “The distribution of income and wealth has grown increasingly unequal in recent years.” The Fed Bulletin article covers the period before the dark shadow of the Trump regime was cast over the world.

The authors of the Fed article make their case for growing economic inequality by offering up statistics from the Survey of Consumer Finances (SCF) that show that:  “Families at the top of the income distribution saw larger gains in income between 2013 and 2016 than other families, consistent with widening income inequality.”1 The share of income of the top 1% went up from 20.27% in 2013 to 23.80% in 2016.  The share of those in the bottom 90% declined from 52.73% in 2013 to 49.69% in 2016.   Here’s the whole table.2

Income shares by income percentile

Simultaneously, and more importantly, the wealthiest 1% also now hold a greater share of the country’s wealth.  Here are government figures on wealth distribution from 1989-2016.

The above figures indicate that the share of the wealth of the top 1% increased by over 2.3% from 2013 to 2016 with most of it, essentially, coming at the expenses of the bottom 90%.  This increase in the share of the country’s wealth held by the 1% was more than twice the total share of wealth held by the bottom 50% in 2013 (1.05%.)

The changes in the share of wealth percentages indicate that if the total U.S. wealth remained constant from 2013 to 2016 at $88.1 trillion (as it was estimated to be in the first quarter of 2016,) the wealth held by the richest 1% from 2013-2016 increased from $31.98 trillion to $34.05 trillion, or by more than $2 trillion in just three years.

With the recent rise in the stock market, wealth inequality has presumably increased from where it was in 2016.  Greater wealth inequality will further increase if the recently proposed Republican tax cuts are enacted.

Krugman should have pointed out that the only people who had strong reasons to participate in the party of the economy were the very rich, certainly not the poor. Many of them continue to remain hungry, and to lack proper housing and health care.

There is a contention that “behind every great fortune lies a great crime.” If true, how should one characterize the increasing size of great fortunes?—as great crimes becoming even greater?

Afterthought: Notes on Inequality Among the 1%

Those in the top 1% are very wealthy.  There are, however, big differences within their ranks. At the very top is Bill Gates whose wealth reached an estimated $90 billion during 2016, up $15 billion from the previous year. To be a part of the club of the 1%, one’s net worth in 2016 had to be nearly an estimated $10.4 million.

If Gates is worth $90 billion and the “poorest” member of the top 1% is worth $10.4m, the net worth of Gates is more than 8,600 times the wealth of the bottom dweller of the top 1%.

Gates is widely regarded as one of the world’s leading philanthropist. Yet, despite his supposed generosity, he was able to add to his wealth in one year, (if the $15 billion increase is accurate,) more than 640 times the $23.4 million pay that Secretary of State Tillerson “earned” at Exxon last year.4

Tillerson, presumably, had to pay taxes on his Exxon salary. By contrast, unless he sold his assets that increased in value at a gain, Gates would have paid no taxes on them because there is no yearly wealth tax. Gates would have had to pay taxes on only the income generated by his assets such as interest and dividends. Those taxes could have been largely avoided by his making donations that year to his foundation.  Furthermore, had Gates sold any of his assets at a gain, the rate of taxation would generally have been much lower than the rate paid by Tillerson on his salary.  Additionally, since Washington and Texas do not have a personal income tax, both Tillerson and Gates paid no state income taxes in the state where they lived in 2016.

Notes

1. Page 1 of September 2017 Federal Reserve Bulletin

2. see Box 3 Figure A at  https://www.federalreserve.gov/publications/2017-september-changes-in-us-family-finances-from-2013-to-2016-accessible.htm

3. The 2013 numbers are slightly modified from what was in anarticle I wrote two years ago.

For figures covering 1989-2010, see page 4 in An Analysis of the Distribution of Wealth Across Households at https://www.fas.org/sgp/crs/misc/RL33433.pdf

For 2013 and 2016, see Box 3 Figure B at

https://www.federalreserve.gov/publications/2017-september-changes-in-us-family-finances-from-2013-to-2016-accessible.htm

For another table with historical trends, see Figure 3 at the link below. It is the source for the bottom 50% figure of 1.15% in 2010 and 1.05% in 2013 http://www.federalreserve.gov/newsevents/speech/95BF8144CFB24C649FAEF51B056738B9.htm

Note: Rounding results in totals being slightly above or below 100%.  Some totals from the first source above are slightly different than the second source.

4. There are various estimates of Gate’s wealth and how much it increased. The article at:http://time.com/money/4913944/billionaires-bill-gates-jeff-bezos-richest-tech/

puts Gate’s wealth at $84.5 billion and claims it “only” increased 8% from the previous year which is about $6.25 billion.  That amount is over 267 times Tillerson’s 2016 salary.