In 2007, the year before the Great Recession began, America’s awesomely affluent partied — as never before. The evidence? We look at the year’s freshly crunched income numbers.
Emmanuel Saez, the Berkeley economist who many now consider the world’s top authority on the incomes of the super rich, has never been one for sweeping statements. He tends to let his data do the talking. But his latest data — from the crunching of just-released IRS tax records for 2007 — have wowed even Saez.
America’s most affluent, those data show, have never grabbed a greater share of the nation’s income than they did in 2007. The nation’s top .01 percent of income-earners in 2007 — taxpayers who made over $11.5 million — pulled in 6.04 percent of all income, the highest top .01 percent share of the nation’s income since the IRS started keeping records back in 1913.
The year 2007, a rather awestruck Saez noted earlier this month, “was an incredibly good year for the super rich.”
The 14,588 families who made up 2007’s top .01 percent averaged $35,042,705 in income, 1,080 times the $32,421 average income of America’s bottom 90 percent. The gap between the top .01 percent and the bottom 90 percent, before 2007, had never stretched over 1,000 times.
Was 2007 the most unequal, top-heavy year in American history? That depends on how you define the top. If you’re looking at only the tippy-top of the income distribution — families in the richest tenth or hundredth of 1 percent — 2007 “wins” the inequality honors hands down.
But if you define rich a bit more broadly, as the top 1 percent, the rich of 2007 don’t quite match the sticky fingers of their awesomely affluent counterparts back in the late 1920s.
In 1928, the last full year before the Great Depression, America’s most affluent 1 percent took in 23.94 percent of the nation’s income. The comparable figure for 2007’s top 1 percent: 23.5 percent.
Those 1928 wealthy would see their share of the nation’s income drop sharply as the Depression deepened. Economic shocks to the system, as Berkeley’s Emmanuel Saez notes, almost always cost the rich income share, since profits from businesses and stock market wheeling and dealing tend to “fall faster than average income” during economic downturns.
But what happens next can vary enormously. After the Great Depression, the super rich share of America’s income stayed down — for over a generation. The quarter of the nation’s income that the top 1 percent collected in 1928 actually shrank all the way down to 10 percent in the early 1950s and didn’t start rising appreciably again until after Ronald Reagan’s 1980 election.
After the recession early in the 1990s and the downturn in the early 2000s, a totally different story. The super rich income share did dip after each of these recessions, but only momentarily.
Why did the super rich share of the nation’s income go down and stay down after the Great Depression and come right back up after the recessions of recent years?
No mystery here. During the 1930s and early 1940s, as Saez points out, the New Deal put in place financial regulations and progressive tax rates that prevented “income concentration from bouncing back.” In the 1990s, by contrast, Congress and the White House deregulated financial markets. In the 2000s, the two joined to cut taxes on the rich.
So what will happen after our current Great Recession ends? That remains the $64,000 question of our time. In the 1980s, we let market fundamentalists dismantle a huge chunk of the New Deal legacy. The institutions that had kept America’s super rich less than super — most notably, progressive taxation and strong trade unions — begin to go by the wayside.
In their place came the record inequality that the new Saez figures so dramatically document — and, over the last year, the worst economic times that Americans under 70 have ever seen.
“We need to decide as a society whether this increase in income inequality is efficient and acceptable,” says Emmanuel Saez, reverting back to his customary eminently sober academic tone, “and, if not, what mix of institutional reforms should be developed to counter it.”
The rest of us can’t afford to be so understated. Those reforms, starting with higher progressive tax rates on high incomes, can’t begin too soon.
Sam Pizzigati edits Too Much, the online weekly on excess and inequality.