Home > income redistribution, Plutonomy > The upward redistribution of income in the United States 1979 to 2007

The upward redistribution of income in the United States 1979 to 2007

from David Ruccio

If it wasn’t clear before it should be now: the distribution of income in the United States has become increasingly unequal over the course of the past three decades.

It is increasingly unequal based on “market incomes,” and it is only slightly less increasingly unequal after taking consideration transfers and taxes. The result in both cases is that the distribution of income in the United States has become grotesquely unequal. 

That’s the conclusion of the new study by the nonpartisan Congressional Budget Office [summary here and pdf here]. The study includes a set of basic facts and figures that should figure in every discussion of the origins of the current crisis as well as the current political debates concerning taxes, deficits, and much else.

It’s also a challenge to economists to either stop ignoring the conditions and consequences of the unequal distribution of income or to go beyond the facile invoking of “technology and globalization” as its causes—and to come up with a real analysis of how this increasingly unequal distribution of income created the conditions for the  crisis of 2007-08 as well as of the changing patterns of U.S. capitalism starting in the mid-1970s that led to concentration of income at the top.

Here, in short, is what we know.

First, for the 1 percent of the population with the highest income, average real after-tax household income grew by 275 percent between 1979 and 2007 while, for others, income grew much less: 40 percent for the 60 percent of the population in the middle of the income scale, only 20 percent of the population with the lowest income. The result was that, between 2005 and 2007, the after-tax income received by the 20 percent of the population with the highest income exceeded the after-tax income of the remaining 80 percent.

Second, a large part of the explanation of why incomes became so unequally distributed between 1979 and 2007 was because of the increase in the concentration of “market income” (income measured before government transfers and taxes) in favor of higher-income households. In other words, such households’ share of market income was greater in 2007 than in 1979. Specifically, over that period, the highest income quintile’s share of market income increased from 50 percent to 60 percent. The share of market income for every other quintile declined.

Finally, while income transfers and taxes make the distribution of income slightly less unequal, the fact is, the equalizing effect of transfers and taxes on household income was smaller in 2007 than it had been in 1979. That’s in part because the distribution of transfers shifted, moving away from households in the lower part of the income scale, and because the overall average federal tax rate fell by a small amount and the composition of federal revenues shifted away from progressive income taxes to less-progressive payroll taxes. As a result of those changes, the share of household income after transfers and federal taxes going to the highest income quintile grew from 43 percent in 1979 to 53 percent in 2007. The share of after-tax household income for the 1 percent of the population with the highest income more than doubled, climbing from nearly 8 percent in 1979 to 17 percent in 2007.

Those are the basic facts and figures about the increasingly unequal distribution of income—before and after taxes—in the United States between 1979 and 2007.

The next step is to analyze why the distribution of income became increasingly unequal and what its consequences are. I’ll be investigating and writing about those issues in the days and weeks ahead. I hope others will, too. . .

  1. October 28, 2011 at 3:51 am

    “Market income” is before transfers, but does that include the explicit and implicit subsidies the rich get from government?

  2. October 28, 2011 at 9:43 am

    Julian Birkinshaw, of the London Business School, just posted another version of a fairy tale that constitutes another example of management philosophy from hell. The piece, dated 29 October 2011, is entitled “Management Ideology: The Last Bastion of American Hegemony,” which asserts that US management is still unrivaled in theory and practice in the world.
    Flash forward to the recent figures presented in this blog. We find that the share of after tax income for the 1% of the US population with the highest incomes more than doubled, climbing from nearly 8% in 1979 to 17% in 2007.
    For those of us old enough to remember the postwar world, these figures do not represent the scenario that the champions of free enterprise described to Americans then. Free enterprisers did not say, hang in there and under our system of director controlled US corporate capitalism, what J-C Spender and I call Managerialism, the US middle classes will see themselves increasingly impoverish during the last decades of the 20th century. On the contrary, the clarion call in the throes of the Cold War was that free enterprise was creating a “people of plenty” in the United States and that the high mass-consumption society that the corporate management caste directed and controlled was Ameica’s answer to the false promise of Communism.
    With such figures before him, how could a serious person, like Birkinshaw, talk about “Management Ideology” being the last bastion of American Hegemony? The answer is sad but simple: by letting business school professors and their disciplines, CEOs, and members of the boards of huge firms only discuss themselves, the top 1%, when talking about American management performance and ideology. No wonder, if they banish the other 99%, that they think US management is doing well.
    Other people, like myself, an historian, who live outside the citadel of managerialism, do not deal with the world as economists and management scientists do. Historians are concerned with national and regional rivalries and with the fate of individuals and populations in time. If they look at economics or management science they do so only to gain insight into the greater subject. Historians, accordingly, are concerned with the income distribution of the 99% percent of the US population that the 1% ignore in their appraisal of the benefits of American management.
    What can be done about this dichotomy? Do not wait for professors of neoclassical economics and management science to experience a hejira, although isolated cases of such a journey can happen. For the most part, however, these social scientists stay in their bailiwicks, citing each other in academic papers that are increasingly removed from reality, i.e., their beliefs do not explain reality but become an imaginary or visionary speculation that makes reality for them (but not for the 99%), intelligible.
    So break up the citadel through democratization. Give employees a voice in compensation committees set up to distribute emoluments in corporations, reform business schools so that they are not just spokesmen for the management caste, the 1%, etc.

  3. Dave Taylor
    October 28, 2011 at 2:50 pm

    Little men can see far by standing on great men’s shoulders. Too often the vision of little brains is limited by their being inside big heads.

    • Mary Sweeney
      July 20, 2012 at 3:42 pm

      Dave, your comment is pithy but I have no idea whom you are referencing. Who are the little men? Who are the great men? Who has the big heads? It would help me if you clarified.

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