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Growing U.S. Income Inequality Eating Away at Our Nation

Noah provided so much incredible data, we want to share it here in a visual walk-through of Noah’s presentation. (Get a PDF of all Noah’s charts here.) First, growing U.S. income inequality didn’t just happen overnight. Between 1979 and 2008, the richest 1 percent doubled its income share. Although the richest 1 percent lost a bit during the recent recession, by the time recovery started in 2010, the richest 1 percent rebounded—but not the rest of us.
  • Income for the bottom 99 percent grew, on average, by 0.2 percent.
  • Income for the top 1 percent grew, on average, by 11.6 percent.
  • 93 percent of 2010 income gains went to the top 1 percent.

Not all countries are growing more unequal. By multiple measures, incomes in the following countries grew more equal after the mid-1990s:

  • Mexico
  • Turkey
  • Greece
  • Chile
  • Italy

Growing income inequality means the great American promise—each generation improving upon the past—is over.

Why is U.S. inequality increasing? It’s not gender.

Chart 3

It’s not race.

(Click to enlarge.)Changes in federal taxes and benefits play some role, but not as much as you’d think. Immigration had a limited effect. Trade had a limited—but growing—effect. The political party occupying the White House had a large effect.

(Click to enlarge.)Fewer union members (fueled in part by government policy) had a large effect. Shortage of skilled labor (starting in 1970s) had a large effect. Increase in compensation for top executives and financial pros had a big effect. 

(Click to enlarge.) So what do we do? First, Noah prescribes a change in U.S. tax policy. With more and more people making more than $1 million, and even above $10 million, the nation needs a more progressive tax policy to reflect this wealth. He also calls for enlarging the federal payroll to accommodate a jobs program—patterned after the Works Projects Administration—that would provide time-limited work for lower- and middle-income people struggling to find employment, as well as relaxing immigration barriers to attract more skilled labor and enlarge the applicant pool, which would depress wages somewhat in high-skill industries and thereby deflate the college and grad-school wage premium. He stresses the importance of electing Democratic presidents, because, as seen in the chart above, Democratic administrations since 1948 presided over income gains that diminish as you move up the income scale, while Republican administrations have presided over income gains that diminish as you move down the income scale. Noah has lots more suggestions, too—and you can find them all in The Great Divergence.

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