My View: Tales of spending, saving, regulation

By Roger Terry

For the Deseret News

Published: Thursday, Jan. 3 2013 12:00 a.m. MST

In essence, while the top earners increased their real earnings by 65 percent over those 30 years, the bottom 20 percent saw their real income decrease by 3.6 percent. As a share of aggregate income, the bottom 20 percent of households saw their income drop from 4.2 to 3.2 percent of the total.

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Every few months, it seems another new study reveals that the gap between the rich and the rest has once again widened. These revelations are announced with solemn overtones suggesting that we should be surprised — if not astonished.

But why should we be surprised? This is what our current economic system is designed to do — and unless curbed by government intervention, this is exactly what it will do. For some 30 years now, ever since Ronald Reagan and Congress conspired to drop the top marginal tax rate from 70 to 50 percent, then to 38.5 percent and finally to 28 percent, the upper crust has been doing very well. Everyone else? Not so much.

Some numbers provide comparison. According to the most recent census figures, the share of aggregate income going to the top 5 percent of households grew from 16.5 percent in 1981 to 22.3 percent in 2011. In actual dollars, what this means is that the top 5 percent earned $75,144 annually in 1981, but earned $311,444 in 2011. If we adjust the 1981 figure for inflation and express it in 2011 dollars, the top 5 percent earned $188,201. By comparison, the bottom 20 percent of households earned $4,602 in 1981 (or $11,659, if expressed in 2011 dollars), but earned only $11,239 in 2011.

In essence, while the top earners increased their real earnings by 65 percent over those 30 years, the bottom 20 percent saw their real income decrease by 3.6 percent. As a share of aggregate income, the bottom 20 percent of households saw their income drop from 4.2 to 3.2 percent of the total.

It wasn't just the bottom fifth of households who lost ground. The income share of the next-lowest 20 percent dropped from 10.2 to 8.4 percent. Only the top fifth saw their share rise from 44.1 to 51.1 percent. In other words, of all income earned in the United States in 2011, the top 20 percent of households received more than half of it.

Using a different measurement share of total wealth gain from 1983 to 2009, the top 1 percent of households received 40.2 percent of wealth gains. The next 4 percent received 41.5 percent. What this means is that of all wealth gains from 1983 to 2009, 81.7 percent went to 5 percent of households. If you add in the 10.2 percent received by the next 5 percent, a whopping 91.9 percent went to the top 10 percent of households.

Here's the surprising statistic: add in the 9.8 percent received by the next 10 percent of households and the top 20 percent of households received 101.7 percent of wealth gains. Add another 5.7 percent for the next 20 percent, and the top 40 percent of households received 107.4 percent of wealth gains.

You might ask how it is possible for 40 percent of households to receive 107.4 percent of wealth gains. It is quite possible, because the extra 7.4 percent is what was lost by the lowest 60 percent of households.

The lesson we can draw from these numbers: if a small minority at the top keeps receiving a disproportionate piece of the income pie, that group's wealth increases even more rapidly. Why? Because those in lower income categories spend nearly everything they earn (or sometimes more than they earn). Those at the top save a hefty percentage (or invest it and receive a handsome return that is taxed at low rates). This increasing wealth inequality is not merely an additive process. It is exponential. In other words, the gap between the rich and the rest will continue to widen at an increasing pace, unless it is reined in by government.

Roger Terry is a professional editor and writer. Among his publications are the books "Economic Insanity" and "Conglomerate 21."

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