Income disparity post American Recession


According to a recent article in The Economist (March 10th – 16th, 2012), a recent constructed series of data by Emmanuel Saez shows that on the eve of our recent recession in 2008, “income gaps reached extremes last experienced in the late 1920s. The top 10% of American earners brought in 46% of the nation’s salary income in 2007. The top 0.1% earned over 12% of all salary income.

Although the recession took a heavy toll on the rich, it also took a toll on the lower 99%. Inflation adjusted income for the 99% dropped by 11.6%, the largest decline since the Depression, while the top 1% suffered a drop of 36.3%.

However, updated figures, through 2010, show that the top 1% of earners have seen a rise in income of 11.6% while the rest of the workforce a gain of 0.2%. The reason for the quick rise in income for the rich is due to the declines in high incomes during the recession being tied to stock prices. As the market rebounded, so have incomes. By contrast, salaries have barely budged.

Previously, after the Great Depression, regulatory and tax changes that followed made the lasting impact on income distribution.  We are less likely to see something similar follow due to the aggressive campaigning on increasing taxes and regulating securities.

Below is a graphical representation of the percent of income earned by the top 1% and top 10% wealthy Americans.

I think at this point some of us are left to ponder, what event would offset this growing trend that can potentially create a two class system of haves and have not’s?  Now, it’s logical to think and feel that the the proportion of income is representative of the capitalistic system we have in the United States of America.  In fact, I share a similar sentiment.  However, the problem arises when high income earners don’t pay into the system that helped them make their wealth.  To keep this post short and simple, it is my belief that we should go to a flat tax system after a period of time where the wealthy are taxed at rates that will offset previous tax breaks adjusted for inflation.  Then we can all begin on a more level playing field.  In addition to that I would reform our fiscal policy that impacts barriers of entry into certain industries.  But that’s another topic for another day.  In closing, a message that I want to get across to my fellow middle income Americans is to become familiar with our tax code.  Engage in the behaviors that will invoke tax breaks for you (e.g. start a business, make qualifying work purchases, invest in Roth IRAs, etc…).  Put these economic behaviors in practice like you’ve put in practice healthier diets and exercise regimens.  A mass shift in our economic behaviors and consumption patterns will force the government to begin distributing the social responsibility of taxation more evenly.

To learn more about the world top incomes, visit the World Top Incomes database.

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