The good news for most Americans is that incomes have finally started to grow again. But the bad news is that the richest of the rich are still making off with far more gains, according to the latest data analysis by economist Emmanuel Saez.
Last year, real average incomes for each family in the bottom 99 percent of earners grew by 3.3 percent, the best rate since 1999 and amounting to the first year of an actual income recovery from the losses they suffered during the recession. By 2014, these families recovered just under 40 percent of what they lost.
The rich did far better, however. The top 10 percent of American earners, or those making more than $121,000 a year, got an even larger slice of the economic pie in 2014, capturing 49.9 percent of total income. That represents the highest share they’ve ever gained except for 2012. The top 1 percent of earners also got a boost, netting 21.2 percent of the country’s income, up from 20.1 percent in 2013. While most Americans saw income growth of 3.3 percent, incomes for the richest 1 percent grew by 10.8 percent.
The recovery from the recession has generally been very skewed. In the first three years of the recovery, the richest 1 percent netted 91 percent of all income gains. Then from 2009, when it officially ended, to 2014, the richest 1 percent captured 58 percent of income growth, while the bottom 99 percent got just 42 percent.
This means that income inequality, which has been growing since the 1970s, has simply gotten worse since the Great Recession. The share of income captured by the wealthiest top 10 percent is now higher than what it was in 1928, “the peak of stock market bubble in the ‘roaring’ 1920s,” as Saez notes. Their share of income hovered around 30 percent until the 1970s. Then between 1993 and 2014, the top 1 percent captured 60 percent of income growth.
“Overall,” the author writes, “these results suggest that the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s.” To change course, he writes that it will require “drastic” regulation and tax policy changes similar to those enacted during the New Deal in the wake of the Great Depression. “The policy changes that took place coming out of the Great Recession (financial regulation and top tax rate increase in 2013) are not negligible but they are modest relative to the policy changes that took place coming out of the Great Depression,” Saez writes. “Therefore, it seems unlikely that US income concentration will fall much in the coming years, absent more drastic policy changes.”
There is some evidence of what those policy changes could be. The economy could withstand far higher tax rates on the wealthiest, and a 90 percent rate would both reduce inequality and also boost government tax revenue. Government policies that help redistribute income through the safety net also won’t harm economic growth but will address inequality.