The spring’s most anticipated event for me was not the Strokes’ new EP but the new income estimates from the Congressional Budget Office. CBO’s last release was in late 2014, and it presented income estimates only through 2011. The latest numbers are updated through 2013. The CBO figures are invaluable because they combine tax data—which captures top incomes very well—with data from the Current Population Survey (which captures income below the top much better than tax data does). The CPS data also includes estimates of the value of non-cash benefits, including employer- and government-sponsored health insurance. CBO also estimates a variety of federal taxes and the distribution of their incidence. Here are the highlights from the new data:
“There are big reasons to question the magnitude of the increase in inequality since 1979, but it’s very likely the trend is upward and continues to be.”
The Top One Percent
The top one percent’s share of pre-tax post-transfer household income was 15.0 in 2013. That was actually depressed from the value it would have taken if not for the tax increase on top earners that year. Those at the top strategically realized income in advance of the hike in 2012, raising the top share above trend to 17.3 percent and depressing the 2013 share. Figure the top one percent share would have been between 16 and 17 percent in 2013 if there had been no tax increase. That would still leave it below the 2007 peak and probably below the 2000 peak too. But income concentration is still headed upward, so it’s entirely possible we’re more unequal today than in 2007. There are big reasons to question the magnitude of the increase in inequality since 1979, but it’s very likely the trend is upward and continues to be.
After-tax and -transfer household income concentration, at first glance, was no higher in 2013 than in 1998 or 2004, at 12.4 percent. The trend since 2010 is downward, save the bump up in 2012. But again, this trend is an artifact of changing top tax rates. Figure that the no-tax-change estimate in 2013 would have been maybe 14 to 15 percent, almost certainly still below the 2007 peak of 16.7 percent.
The ubiquitous inequality estimates of Thomas Piketty and Emmanuel Saez (Excel), which apply to tax units rather than households, are based on pre-tax and -transfer income. They show the top one percent’s share as 21.5 percent in 2000, 23.5 percent in 2007, and 20.1 percent in 2013. The corresponding CBO estimates for pre-tax and -transfer income are 18.9, 21.3, and 18.2. The CBO numbers are lower mostly because they are based on households. Two roommates constitute two tax units but one (richer) household. Two parents and a burger-flipping teenage daughter constitute two tax units (at least one of them with very low income) but one household. Examining tax units pads the low end of the income distribution.
Back to the CBO data: between 2009 and 2013, the top one percent received 50.5 percent of the total increase in pre-tax post-transfer income. If that sounds high, consider that they incurred 56.8 percent of the income losses from 2007 to 2009. (This is just another way of saying that income concentration hadn’t returned to its 2007 level by 2013.) Two-thirds of post-tax and -transfer losses were absorbed by the top one percent from 2007 to 2009, and two-thirds of the gains accrued to them from 2009 to 2013. Neither average income nor the average income of the top one percent were back to 2007 levels in 2013.
The Middle Class
The best way to view the state of the middle class is to look at the median household incomes CBO reports. The pre-tax and -transfer median was only 12 to 20 percent higher in 2013 than in 1979...
Read the entire piece here on Forbes
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Scott Winship is a senior fellow at the Manhattan Institute. Follow him on Twitter here.
This piece originally appeared in Forbes