A recent article by David Cay Johnston, Richest are Leaving Even the Rich Far Behind, echoes the sentiment of my 2003 article, In Depth Analysis of American Income and Taxation. Johnston brings more weight to the subject of growing income inequality in America with fresh statistics and the fact that his article is published in the New York Times.
Some of the important facts that Johnston notes include:
"The average income for the top 0.1 percent was $3 million in 2002, the latest year for which averages are available. That number is two and a half times the $1.2 million, adjusted for inflation, that group reported in 1980. No other income group rose nearly as fast.
The share of the nation's income earned by those in this uppermost category has more than doubled since 1980, to 7.4 percent in 2002. The share of income earned by the rest of the top 10 percent rose far less, and the share earned by the bottom 90 percent fell."
".Under the Bush tax cuts, the 400 taxpayers with the highest incomes - a minimum of $87 million in 2000, the last year for which the government will release such data - now pay income, Medicare and Social Security taxes amounting to virtually the same percentage of their incomes as people making $50,000 to $75,000.
.Those earning more than $10 million a year now pay a lesser share of their income in these taxes than those making $100,000 to $200,000.
.The alternative minimum tax, created 36 years ago to make sure the very richest paid taxes, takes back a growing share of the tax cuts over time from the majority of families earning $75,000 to $1 million - thousands and even tens of thousands of dollars annually. Far fewer of the very wealthiest will be affected by this tax.
The analysis examined only income reported on tax returns. The Treasury Department says that the very wealthiest find ways, legal and illegal, to shelter a lot of income from taxes. So the gap between the very richest and everyone else is almost certainly much larger."
"From 1950 to 1970, for example, for every additional dollar earned by the bottom 90 percent, those in the top 0.01 percent earned an additional $162, according to the Times analysis. From 1990 to 2002, for every extra dollar earned by those in the bottom 90 percent, each taxpayer at the top brought in an extra $18,000."
"One reason the merely rich will fare much less well than the very richest is the alternative minimum tax. This tax, the successor to one enacted in 1969 to make sure the wealthiest Americans could not use legal loopholes to live tax-free, has never been adjusted for inflation. As a result, it stings Americans whose incomes have crept above $75,000.
The Times analysis shows that by 2010 the tax will affect more than four-fifths of the people making $100,000 to $500,000 and will take away from them nearly one-half to more than two-thirds of the recent tax cuts. For example, the group making $200,000 to $500,000 a year will lose 70 percent of their tax cut to the alternative minimum tax in 2010, an average of $9,177 for those affected.
But because of the way it is devised, the tax affects far fewer of the very richest: about a third of the taxpayers reporting more than $1 million in income. One big reason is that dividends and investment gains, which go mostly to the richest, are not subject to the tax."
While the article is certainly on the right track, the only problem that I have with it is the use of the term "earn" throughout the piece. In fact, Johnston isn't really discussing earnings, but merely receipts. We don't actually know what anyone "earns" in our economy, all that we do know is what they receive.
This isn't a trivial point, it's actually a major one that I have made before in the blog entry The Linguistics of Economic Deception.
Fortunately I wrote Mr. Johnston and was able to convince him of my point, so perhaps we will see more in the way of accurate economic discussion in the future, and Mr. Johnston is certainly an appropriate person to contribute to that effort.
The reality is that the super rich are receiving much, much, more value than they create each year, and this situation is rapidly escalating. With the rise of huge multi-national companies value created by workers from all over the world is being siphoned into the bank accounts of the hyper-rich in a runaway snowball effect, and the hyper-rich use their incomes to buy ownership of more and more capital in a self-feeding system that is concentrating huge portions of the value created by workers into the hands of a few. All the while, we keep engaging the fallacy of saying that our incomes actually represent earnings, when in fact, they represent nothing of the sort.
Earn is a subjective and loaded term. To say that everyone's income is earned, is preposterous at face value. People come into money in an infinite number of ways, many of which have nothing to do with earning it. The only thing you know when you know someone's yearly income is how much they have received, you know nothing at all about how much value they actually created over the year. The use of the word "earned" is just an attempt to provide an immediate justification for all incomes, both high and low, but the fact is that this simply isn't the case.
Earn is a subjective term, but receive is an objective term, and it's the only term that can honestly be used when discussing incomes.