In our industrial and social system, the interests of all men are so closely intertwined that in the immense majority of cases a straight dealing man who by his efficiency, by his ingenuity and industry, benefits himself, must also benefit others. Theodore Roosevelt
There continues to be a great deal of muttering from the left and alarmism in the media about a trend towards growing 'income inequality' between the rich and poor in America. Most of this originates in a series of studies by Isaac Shapiro at a left-wing think tank, the Center for Budget Policy Priorities, which has as its main objective fighting any tax reductions and redistributing income from the rich to the government. Shapiro's work is mainly analysis of figures on household income from the Congressional Budget Office, which show a historic trend of income increasing in all income groups, but by a larger percentage in the higher income groups than the lower ones.
Income is normally broken down into quintiles, and between 1979 and 2002, Shapiro shows a 5% rate of income increase for the bottom quintile compared to a 48% growth in income for the top quintile. Basically his figures show that the more you earn, the more your earnings increased during that period. Shapiro's conclusions seem alarming. Though everyone gained in income, the gains for the rich are so dramatically higher than for the poor that one has to be concerned. Of course, this analysis of income for huge income groups rather than individuals, and over a period of 23 years, is ridiculously simplistic and overlooks key, obvious factors which definitively invalidate it, especially as an argument against tax cuts.
First off, it's a gross analysis over a long period of time, and it's also based on data which is several years old. It doesn't include the most recent data, and by taking so many years together it overlooks year-to-year trends in income growth which are very significant. If you examine the trends on a yearly basis what immediately leaps out is that the greatest growth in income disparity happened not in recent years as Shapiro implies and as the media has made an issue of, but in the very beginning of the period, in the 1980s, when taxes were at a historically very high level and economic growth was slow.
In the 15-year period from 1979 to 1994 the bottom quintile gained only 2% while the top quintile gained 28%. The next six years — the time of the high-tech boom — showed the greatest economic growth and saw the poor gain 8.1% and the top quintile gain 12.7%, much closer together. The most recent era — the Bush era of recession and tax cuts — also shows slowing growth in disparity than the 80s and early 90s, with both rich and poor losing income. The bottom quintile is down 8.5% in the last five years, and the top quintile is down 3.3% in the last five years, again a relatively close ratio. Overall during the 23-year span the ratio of income growth between the rich and poor is 9.6:1, but in the first 2/3 of the period, from 1979 to 1994, that ratio was 14:1 and, in the last five years, it was only 2.6:1. So the trend that everyone is alarmed about is actually a trend which has been declining in recent years and is only looks like a dramatic trend because of the rate of growth in wealth disparity in the beginning of the period studied.