Richest 1% earn biggest share since '20s
THE gulf between the richest one per cent and the rest of America is the widest it's been since the roaring twenties.
The very wealthiest Americans earned more than 19 per cent of the country's household income last year -- their biggest share since 1928, the year before the stock market crash. And the top 10 per cent captured a record 48.2 per cent of total earnings last year.
US income inequality has been growing for almost three decades. And it grew again last year, according to an analysis of Internal Revenue Service figures dating to 1913 by economists at the University of California, Berkeley, the Paris School of Economics and Oxford University.
One of them, Berkeley's Emmanuel Saez, said the incomes of the richest Americans surged last year in part because they cashed in stock holdings to avoid higher capital gains taxes that took effect in January.
In 2012, the incomes of the top one per cent rose nearly 20 per cent compared with a one per cent increase for the remaining 99 per cent.
The richest Americans were hit hard by the financial crisis. Their incomes fell more than 36 per cent in the Great Recession of 2007-09 as stock prices plummeted. Incomes for the bottom 99 per cent fell just 11.6 per cent, according to the analysis.
But since the recession officially ended in June 2009, the top one per cent have enjoyed the benefits of rising corporate profits and stock prices: 95 per cent of the income gains reported since 2009 have gone to the top one per cent.
That compares with a 45 per cent share for the top one per cent in the economic expansion of the 1990s and a 65 per cent share from the expansion that followed the 2001 recession.
The top one per cent of American households had pretax income above US$394,000 last year. The top 10 per cent had income exceeding US$114,000.
The income figures include wages, pension payments, dividends and capital gains from the sale of stocks and other assets. They do not include so-called transfer payments from government programmes such as unemployment benefits and Social Security.
The gap between rich and poor narrowed after World War II as unions negotiated better pay and benefits and as the government enacted a minimum wage and other policies to help the poor and middle class.
The top one per cent's share of income bottomed out at 7.7 per cent in 1973 and has risen steadily since the early 1980s, according to the analysis.
Economists point to several reasons for widening income inequality. In some industries, US workers now compete with low-wage labour in China and other developing countries. Clerical and call-centre jobs have been outsourced to countries such as India and the Philippines.
Increasingly, technology is replacing workers in performing routine tasks. And union power has dwindled. The percentage of American workers represented by unions has dropped from 23.3 per cent in 1983 to 12.5 per cent last year, according to the Labour Department.
The changes have reduced costs for many employers. That is one reason corporate profits hit a record this year as a share of US economic output, even though economic growth is sluggish and unemployment remains at a high 7.2 per cent.
America's top earners tend to be highly paid executives or entrepreneurs — the "working rich" — instead of elites who enjoy lives of leisure on inherited wealth, Saez wrote in a report that accompanied the new analysis.
Still, he added: "We need to decide as a society whether this increase in income inequality is efficient and acceptable."