The triumph of the rich, which is one of the defining stories of our time, is generally described as largely the reflection of two factors. The first, of course, is the explosion of income among top earners, in which a tiny minority has vacuumed up a ballooning share of the gains from the past few decades of economic growth.
The second factor — which will be key to the 2020 presidential race — has been the hidden decline in the progressivity of the tax code at the top, in which the wealthiest earners have over those same decades seen their effective tax rates steadily fall.
Put those two factors together, and they tell a story about soaring U.S. inequality that is in some ways even more dramatic than each is on its own.
A new analysis prepared at my request by Gabriel Zucman — the French economist and “wealth detective” who has become famous for tracing the hidden wealth of the super-rich — illustrates that dual story in a freshly compelling way.
The top-line finding: Among the bottom 50 percent of earners, average real annual income even after taxes and transfers has edged up a meager $8,000 since 1970, rising from just over $19,000 to just over $27,000 in 2018.
By contrast, among the top 1 percent of earners, average income even after taxes and transfers has tripled since 1970, rising by more than $800,000, from just over $300,000 to over $1 million in 2018.
Among the top 0.1 percent, average after-tax-and-transfer income has increased fivefold, from just over $1 million in 1970 to over $5 million in 2018. And among the top .01 percent, it has increased nearly sevenfold, from just over $3.5 million to over $24 million.
I’m emphasizing the phrase “after taxes and transfers” because this is at the core of Zucman’s new analysis. The idea is to show the combined impact of both the explosion of pretax income at the top and the decline in the effective tax rate paid by those same earners — in one result.
The declining progressivity of the tax code is the subject of “The Triumph of Injustice,” a great new book by Zucman and fellow Berkeley economist Emmanuel Saez. It charts the slow strangulation of that progressivity at the top.
Indeed, in 2018, the top 400 earners for the first time paid a lower effective overall tax rate than working-class Americans. There are many reasons for this radical decline in progressivity, including domestic and international tax avoidance, the whittling away of the estate and corporate taxes, and the repeated downsizing of top marginal rates.
I asked Zucman to calculate the average totals in raw dollar amounts that each income group has taken home over the decades — after taxes and transfers. This includes federal, state and payroll taxes of numerous kinds, and government spending on transfer programs, including Social Security, Medicare, Medicaid, and disability and veteran benefits, among other things.
Zucman is able to do this because he and Saez created a database to do the new book’s calculations, and this database includes as much income, tax and transfer information at all levels of government as they were able to assemble.
As noted, real after-tax-and-transfer income edged up just a bit among the bottom 50 percent while rocketing upward to an extraordinary degree among the top-earning groups.
Meanwhile, among middle-class Americans in the 50 percent to 90 percent section of the income scale (sometimes called the “middle 40”), average income went from just over $44,000 in 1970 to just over $75,000 in 2018.