I came across this table in the Atlantic Monthly today (originally posted at the AEI blog) that does a great job illustrating some of the central issues in the debate over inequality. It shows the change in income growth by income quintile (divisions of 20%) between 1979 and 2007.
The first column shows the change in income before taxes and transfer payments. You might say that this is the change attributable to changes in the labor market. As you can see, the bottom 40% of the income distribution lost ground, with the bottom 20% seeing their income drop by one-third, a fairly serious loss. At the same time, the top 60% saw their income rise, with the largest gains occurring in the top 20%.
The second column shows the change in income before taxes, but after transfer payments like Social Security, Food Stamps, TANF, disability insurance, etc. These transfers bring the bottom 40% into positive territory and significantly boost the income of the middle and 4th quintiles. The effect on the top 20%, not surprisingly, is more modest.
The third column adjusts for the fact that family sizes have been getting smaller during this period. If two families have the same income, the smaller family is, in an economic sense, better off, having a larger per-capita income. As you can see, this adjustment makes all the income quintiles better off, although the impact is greater for the top 60%.
The fourth column adjusts for tax payments (including negative tax payments like the EITC). Again, everyone is better off, but this is where the bottom 40% finally make it into double digit income growth.
There are a number of takeaways from this table (I’m going to ignore the final column today). Conservatives are correct when they argue that more than just the top 1% have seen their incomes rise over the past 30%. In fact, in terms of raw dollars available, all income quintiles have higher incomes today (or at least in 2007) than they did in 1979.
At the same time, liberals are correct to point out that this is only true if you include transfer payments and the fact that the EITC takes many low and moderate income families off the income tax rolls. When you just look at the market alone, the bottom 20% have seen their incomes fall. Some of the cuts proposed by the Ryan budget, for example, would fall most heavily on this group. It is also true that most of the income growth is going to the upper quintiles.
I think these numbers help us understand the political moment we are in. Rather than the 1% against the 99%, what we have is a bottom 40% who are increasingly dependent on transfer payments and the EITC to maintain their income, a top 40% who are doing reasonably well, and a middle 20% who are experiencing slow income growth, but don’t necessarily feel a sense of solidarity with those below or above them.