How the Rich Get Richer

Over the last several years, we’ve taken a long look at the state of inequality in America and its changing dynamics. While many focus on the distribution of income, I think it’s instructive to also consider the distribution of wealth. Wealth, unlike income, can be inherited passively, but we also know that wealth actively generates income. And here a new article by Steven Rattner, former White House Auto Czar and New America board member, that focuses on how this is increasingly the way the rich are getting richer.

Drawing on a new analysis of tax returns by the esteemed economists Piketty and Saez, Rattner explains how an overwhelming amount of income gains since the Great Recession have been captured by the very top.

In 2010, as the nation continued to recover from the recession, a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income.

Still more astonishing was the extent to which the super rich got rich faster than the merely rich. In 2010, 37 percent of these additional earnings went to just the top 0.01 percent, a teaspoon-size collection of about 15,000 households with average incomes of $23.8 million. These fortunate few saw their incomes rise by 21.5 percent.

The bottom 99 percent received a microscopic $80 increase in pay per person in 2010, after adjusting for inflation. The top 1 percent, whose average income is $1,019,089, had an 11.6 percent increase in income.

What is particularly significant here is how this pattern diverges from past recoveries. During the expansion of the 1990s, 45 percent of income gains went to those at the top. This increased to 65 percent during the Bush recovery. And now we are up to 93 percent. It is an astonishing figure that undercuts our collective aspirations for shared prosperity.

Tax policy certainly plays a major role here and should get additional scrutiny. In 2001 and 2003, we lowered the tax rates at the top and on capital gains and dividends. This is how the very rich got to have significantly lower marginal tax rates than everybody else. It is why Warren Buffet’s secretry got a shoutout in the State of the Union. But at the end of the year, these tax policies are scheduled to expire. If Congress does nothing, everything goes back to the Clinton-era levels. Given the partisan divide, perhaps the do-nothing scenario will come to pass, and remake both our tax rates and our fiscal policy outlook. But team Obama has proposed a reset only for the rich, and this is the kind of data that will undoubtedly strengthen their case to do so.