The Great Divergence in Pictures [Client work: Slate]

Interesting stuff. I love your work and follow you regularly for the past several years. I’m glad to see you collaborating on stuff like this. This article shows us some interesting info, but never seems to come to a point. One question that entered my mind was…What was the trend in the number of ‘self-made’ millionaires? If its getting easier to become a millionaire then i’m not worried that the top 1% are getting a bigger share of the income.
i’d like to see how the ‘real’ numbers look…i.e…. (i’m making up the following)
100,000 adults (or households) make over $1 million dollars a year in the US
1 million adults make over $350k
100 million adults make between $25k and $350k and
3 million adults live in poverty which is designated to be @$20k per household
thx again for sharing and keep up the great work!

Nice work on the charts.

But I’m baffled by Timothy Noah’s commentary to slide 8.

No, the tax rate on the bottom quintile would not have had to increase to contribute to disparity. Where did that come from?

A drop from 37% to 29.5% for someone making $250,000 nets $18,750.

A drop from 8%to 4% for someone making $25,000 nets $1000.

This yields an income disparity increase of $17,750 in a single year: a mere 75% of the low earner’s $25,000 GROSS.

Or am I missing something?

Cheers!
JzB

The sources are listed on the bottom of the slides

Interesting information Catherine. A few things bother me though.
1.(not aimed at this work specifically) With discussions of Income Inequality (along with most other subjects) I never see enough information on why something is ‘good’ or ‘bad’ for society. People of all political stripes these days seem to think presenting discrete junks of data is enough. That the rest of the discussion will then be self evident. What we get then is people talking at their base or talking at each other instead of trying to educate.
2. It would be more ‘educational’ if you included growth rates in GDP and retained wealth by political party as you did with Income. In other words show the data that Republicans assume would favor them. i.e a rising boat lifts all boats.
3. As others have mentioned show more of a cross section of American growth from the time period. A snapshot is just that it’s not the whole picture. I know this goes beyond the scope of your intent here but with out more data, conclusions would be premature, at best. I smell a Book idea.
4. No offense meant but what years are you counting as ‘president in power’? I don’t think you’d miss it but so many people use elected years vs. Budget years when talking about parties in power. i.e. Obama owns the 08 spending even though he doesn’t come to office till 09.

Thanks for your efforts here. It is timely and fascinating.

Eric

Very nice work on the slate presentation.

Nice work. Slide 10′s the real shocker even for those of us who expected something in that direction. But I won’t spoil the ending.

I’m unconvinced though by the conclusion of #8:
“Tax cuts for the rich certainly contributed to the Great Divergence. But it would be hard to argue, based on this data, they were a major factor.”
It’s not obvious from the data shown, but here I think the very top marginal rate exerts an influence that isn’t brought out: the cuts of the 1980s removed an important brake on extreme income divergence. The US may be the most extreme case, but it’s by no means unique: it’s happened in Britain too, with those high-earners below the uppermost fraction of a per cent bring drawn into a race to maintain their relative position at the expense of those below. Since the effective tax rates are levied on greatly increased (and themselves more divergent) top incomes, it’s inevitable that just the rate itself won’t tell the whole story, so the suggestion that the percentage paid by top earners in tax indicates taxation’s unimportance seems unfounded and based on looking at the wrong numbers.

I think slide 8 would also benefit from showing how those in the middle fared: sometimes their experience can be quite different to both the top and bottom. The chart does seem to be lacking an average to put the extremes into perspective.

The charts would be so much more complete if there where income tax share charts included, since the top 1% have about 20% of the income, but pay about 40% of the income taxes. But it is Slate, if it was Reason Magazine, those income share charts would be “missing!”

Going even further, it would be great to find total income tax share, using an average rates for US state income taxes.

A study called “Does it pay, at the margin at the margin, to work and save?” Found that the effective marginal TOTAL tax (I mean total – everything) is around 40%.
While our income tax system is progressive, our total tax system on average is proportional, due to reduced rates for long term capital gains etc.

Slide # 2 is mislabeled. The two lines capture, in each case, the ratio of top to bottom, and top to middle, not the reverse.