What can you say about these numbers?
A version of this chart appeared in the latest issue of the National Education Association’s Higher Education Advocate newsletter. I was able to track down this version from another online source.
The chart draws on U.S. Census data to look at changes in family income over time.
The lighter bars represent income growth in the period 1947-1973, while the darker bars are for 1973-2005.
And each pair of bars represents a segment of the population by Quintile (20% slices of the overall population), from the bottom 20% to the top 20%, plus the top 5% shown at the far right.
During the earlier period, prosperity was pretty evenly spread, with the bottom 80% of the population experiencing a slightly higher rise in income than the top 20%.
But the pattern of income growth during the 1973-2005 period is markedly different, and is concentrated among those with highest incomes. The top 5% experienced average annual growth more than 2x that of the bottom 80%.
These numbers are pretty striking. Having trouble reading the numbers? Click on the chart to see a larger version.
[Entry continues below the chart.]
![[text]](http://ilind.net/misc /2010/family_income.jpg)
So I went looking for data specific to Hawaii to see if our pattern is any different from these national data. During my Sunday night search, I didn’t some up with comparable numbers.
Let me make clear–I’m not an economist, but I do like to check out the numbers, and I found some good ones in a collection of reports on income patterns (1994-2005) from the State Department of Taxation. Way too many numbers to look at, much less digest, in a short time. Hopefully some other folks will get curious and do your own digging.
But I did make a couple of quick comparisons.
In 1994, there were 6,364 returns filed by resident taxpayers reporting adjusted gross incomes of $150,000 or more. I compared that to those earning $200,000 or more in 2005, to adjust for inflation. In 2005, the number of high-income returns came to 11,075.
These top tier earners accounted for 1.48% of all returns filed in 1994, but that rose to 2.41% in 2005.
What’s more striking, though, is the percentage of all income reported by those high-income individuals and families. We’re talking about the top 2-3 percent of all resident taxpayers in Hawaii.
In 2005, this elite group reported 23.25% of total income reported by all taxpayers, nearly one-quarter of total. That was up dramatically from 13.18% in 1994.
Put plainly, the top 2.4 percent of Hawaii taxpayers have over 23 percent of all income, and the inequality has increased significantly since 1994.
I had to look at the numbers again to convince myself that I wasn’t misreading the data.
The 2005 data are on page 20, Table A1 of the tax dept’s report.
Then I took a quick look at the changes in effective tax rates over the same 1994-2005 period.
Income tax rates went down across the board, except for the lowest income taxpayers. Those earning $10,00 or less actually saw their tax rates rise during the period, although the dollar amounts are small. But those earning over $200,000 enjoyed a 22.25% drop in effective tax rates on their adjusted incomes, the biggest decline of any income category.
I’m more than a little stunned.
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Thanks, Ian. This is a very important subject. I think this income polarization might lead to long term instability in our politics. Large segments of the community are moving far apart from each other. The incomprehension that exists between teapartiers and NPRers may also be driven by cultural differences, but economics plays a part .
This income polarization has been evident for a long time, not only in the readily available statistics, but also by simple observation: for the last 20 years we have seen an increasing number of megahomes in Kona and Maui and an increasing number of homeless in the parks.
“Why” is also not so tough to figure out: globalization, which in the US benefits the talented and hurts the low-skilled. Free-trade increases the opportunities for those at the top of the food chain: e.g., investment bankers can do bigger deals on a bigger stage and they have (generally) a competitive advantage over their counterparts in smaller and frequently less advanced economies. The net result of greater sales to more people is more income for the top.
Unskilled US laborers, however, find themselves indirectly competing with Chinese workers to build refrigerators and whatnot. To compete, companies either threaten or do move the factories overseas: the result is fewer jobs and lower wages.
In the US, the hit to the bottom is exacerbated by the effectively free immigration policies championed by the Wall Street Journal crowd and the ethnic lobbies. Illegal immigrants (to be distinguished from legal immigrants who frequently have skill levels higher than the US average)compete directly for low skill jobs. There really should be no surprise that the average wage in the unskilled sector goes down.
In rough terms, the top half of the US economy has deserted the bottom half. Folks with jobs and skills are happy at the cheap goods in Walmart, happy that China is moving up in the world through its exports and happy that immigrants can come to the US and be so much better off. The folks at the bottom may not be too happy about their life, but may not see that the globalization tradeoffs are being made at their expense.
I do wonder how long
Ian, You and your readers might be interested in looking at this study on taxes called: “Who Pays? A Distributional Analysis of the
Tax Systems in All 50 States.” It’s from the Institute on Taxation and Economic Policy:
http://www.itepnet.org/whopays3.pdf
The Hawaii data can be found on pages 38 & 39.
In brief, it calculates the total state and local tax burden on different income groups, including income, property and sales taxes. They found those in the lowest 20% pay a local tax burden of 12.2% of their gross income, while the wealthiest 1% pay only 6.3% of their income in local taxes.
This data was being circulated at the Legislature during recent debates over the budget, but did not appear to get much attention.
After 50 years of Democratic control of the Legislature, we have an extremely regressive local tax structure. Maybe we need to exhume some of the original members of the “Democratic Revolution of ’54” and run them for office to replace the nincompoops currently occupying their seats in the Lege?
Come on, Democrats. Stand for SOMETHING!
a practical example: after all my deductions and only working half the year, I owed no federal tax. I owed $400+ to the state.
While I agree with much of what your first Anonymous poster wrote, I think he makes a mistake to present the growing income equality as stemming from competition between “low skill” workers in the US and their Third World counterparts. Many SKILLED workers in the US are also losing their jobs as factories and even professional services are being outsourced to lower wage countries.
Engineering, architects, computer programming, computer animation, even radiology work is being sent to SKILLED workers overseas, depressing American wages and living standards.
I also disagree with his statement that globalization benefits the talented. There are different typres of knowledge, different skills and different talents. The talents rewarded by the globalized, mega-corporate, neo-liberal policies are not necessarily more socially valuable, nor more “skilled” than those skills devalued by the new market.
A reason I reject this framing is it closley parallels a Social Darwinist perspective, as if income equality is the natural byproduct of inevitable technological and social change. I believe there have been conscious policy choices made to steer profits towards certain sectors and away from politically less powerful groups. If there are choices involved, then we can change (at least some of) those policies. The growing inequality is NOT inevitable.
I agree largely with the first anonymous poster, which means that I disagree on some points with Kolea.
Technological change certainly has influenced income inequality. Why do NBA players make millions of dollars a year? It’s because technology allows people to watch these people from all over the world. Outlaw satellite and cable TV, and we would have a lot more local teams. Instead, we have almost no local teams, and a small handful of millionaires.
Where else is the new wealth coming from? Technology industry. The tech industry is an extreme meritocracy; brilliant people like Brin and Page make billions, and mediocre products fail (unless made by microsoft ;).
I agree skilled work is also being sent overseas, but such is the world of competition. As much as I would love to not have to work hard every day at staying on top of my game, I don’t view it as reality. If a guy in India is working twice as hard as me at being good at his job, then what right do I have to complain that his standard of living rises and mines falls?
Anonymous also says that the rich are happy shopping at Walmart… I would say that everybody is happy shopping at Walmart. Lowering the overall cost of living benefits all, but benefits the poor disproportionately.
I give kudos to Kolea for admitting that there is significant culpability for the local democratic party in terms of the regressiveness of the tax code. Many would not be so honest.
Income inequality is a real long-term problem, but I think that the answers must be aimed at the root causes. Tax policy is not about solving problems, its about generating revenue for government. I don’t necessarily oppose raising taxes for the rich, I just oppose raising taxes on anybody and wasting the money. By all means, take from the wealthy. Just put it to good use, solving root causes. All too often, the money is just used by incumbents to purchase re-election.
Also, in defense of our much embattled Gov, here is a bill that she introduced back in 2007 as part of her legislative package.
http://www.capitol.hawaii.gov/session2007/bills/HB1407_.htm
Times were good, and she proposed raising the standard deduction to $7500 for joint and $3750 for single filers. This would have provided significant tax relief for the poorest in our state.
The bill was never heard.
WooWoo,
I will join in on criticizing the Democrats when they deserve it. And they deserve it for allowing tax policies to become so regressive in Hawaii.
In broad terms, I am sympathetic to the Governor’s bill as you describe it. (I also appreciate the link to the actual bill). But let’s put on our “fiscal conservative” hats for a moment and adopt the “pay as you go” mode of analysis. How does this bill fare by those standards? I would support raising the personal exemption, so long as there is another means for offsetting the decline in revenues. Hopefully, a means consistent with the overall goal of moving towards a distribution of the tax burden on a progressive, “ability to pay,” basis.
We really gotta move away from a tax structure which results in low income people being about TWICE as high a rate as the wealthiest members of our society.
Low income people tend NOT to vote and (almost by definition) cannot give campaign contributions. I would prefer if the Dems gave them some reason to vote for them other than nostalgia for the era of the workers’ struggle against the haole Big Five plantation oligarchy.
At one Democratic state convention, I half-joked with some friends that we should propose the 1954 party platform, with its egalitarian social vision as an alternative to the namby-pamby platitudinous neo-liberal pablum being proffered by the Party establishment. It probably would have been voted down as too “class warfare” in outlook.
We need a little more class warfare, in my view. God know we are at the receiving end of class warfare. The figures on growing income distribution reflect that. Particularly when, in my view, the increasing disparity is the result of conscious policy choices. In fact, even when narrowly focused on the topic we are discussing here, tax rates have changed over the years in favor of higher income people.
In all the talk of the current state budget crisis, virtually nobody bothers to remind readers that Ben Cayetano’s Economic Revitalization Task Force proposals proposed to cut income taxes as a means to attract wealthier residents with the lost revenue offset by an increase in the GET. This was a consciously regressive proposal.
As we remember (when we bother to think about it), the tax cut was approved, but the GET hike, a separate bill (why?), was defeated. The end result was a significant decline in tax revenue, which may have been manageable in good times, but once we went into a recession, the loss hit us hard.
Somehow, the dominant, yes, “corporate” media decline to remind readers of this significant factor in our current budget crisis.
A couple of key things to understand first. Do these figures include GET or not? If they do, the regressivity is understandable. Lower income people always pay a higher percentage of their income for food, shelter, etc — things exposed to GET. So of course they bear a higher burden (although this burden is also born by visitors). Second, I think your rough adjustment for inflation is very misleading. From 1994 – 2005 Hawaii saw a stunning run-up in real estate prices and, therefore, inflation in real terms. I’d say a more realistic income number to get apples to apples is $250,000 in 2005. Third, another things missing from this whole debate is the incredibly low percentage of high income earners Hawaii has as compared to places on the Mainland. New York, San Francisco and other comparable cost centers have a much higher percentage of their populations earning over $200,000 per year. So the argument of “soak” rich sounds like a zero sum game to me. I’m not so naive as to suggest that trickle down works but perhaps this low percentage is indicative of a darker, less tractable economic reality of sub-par job opportunities — even more so than is the case in comparable cost centers. I think raising the bar might be easier than soaking the rich. Maryland learned this the hard way with its millionaires tax. The millionaires’ incomes, the year after the law came into play, dropped markedly and the state was left holding the bag as millionaires either left the state or submerged their income into more expensive houses or other items. Every action begets an equal and opposite reaction.
Ian, Thanks for bringing this to more public attention. The bickering back and forth in the comments is typical. I remember a similar report 25 years ago in Harpers. The phenomenon has only accelerated and no amount of liberal hand wringing is likely to have any effect. As the financial meltdown has shown the obscenely wealthy wield the power and the only effective driving force in our society today is greed. Read Jared Diamond’s “Collapse” if you want to see where we are headed. This is old stuff. It has just never happened on this scale before.