Things are looking bright for the 1 percent.
After a recession in which all economic groups took a hit, the top income groups have enjoyed a strong recovery while the rest of Americans have not.
The average real incomes of the top 1 percent of earners grew by 31 percent through 2012. The bottom 99 percent only saw gains of 0.4 percent during that period.
Those statistics are from updated data from economists Emmanuel Saez and Thomas Piketty, two researchers known for their work on the evolution of inequality in the U.S. Saez released updated figures earlier this month that include income data through 2012, allowing for a picture of how income and inequality trended after the financial crisis.
In 2012, Saez writes, the top 10 percent of earners took home just over 50 percent of all income earned in the U.S. when capital gains are taken into account, a level that is “higher than any other year since 1917 and even surpasses 1928, the peak of stock market bubble in the “roaring” 1920s.”
Saez has become famous for chronicling the rise of the 1 percent over the past 40 years, winning the John Bates Clark medal — a prestigious award for the top economist under age 40 — for his work in 2009. He concludes in his most recent update that “1% incomes are close to full recovery while bottom 99% incomes have hardly started to recover.”
In Saez's view, the continued separation of high-end incomes isn’t just a product of evolving trends in the economy, such as increasing returns to technology for top earners. It also reflects the effects of politics, namely "the retreat of institutions developed during the New Deal and World War II — such as progressive tax policies, powerful unions, corporate provision” of health and retirement benefits, and changing social norms regarding pay inequality.”
In past writings, Saez and Piketty have suggested that the top marginal tax rate could be set as high as 83 percent to combat inequality. The current top rate is 39.6 percent, having been raised early in 2013 as part of the resolution of the so-called fiscal cliff of expiring tax and spending provisions.
Saez’s update also shows the top 1 percent of earners taking in over a fifth — 22.5 percent — of total income in 2012. The top percentile consisted of families making over $394,000 in 2012.
The top 0.1 percent — families making over $1.9 million in 2012 — took home 11.3 percent of all total income.
And the average income of the 1 percent rose to $1.26 million, up from $961,785 in the depths of the recession in 2009.
Saez and Piketty’s data provides a unique look into the decades-long run-up in incomes of high earners because it is based on IRS tax return data that includes data on top incomes not available in other data sources. Their estimates, however, only include pre-tax market income, not government transfers or fringe benefits such as health insurance. Other studies based on alternative data sources have found greater income gains for lower income brackets.
Saez plans on updating his estimates in January, when more complete information 2012 statistics become available. One major issue affecting the measurement of top incomes in 2012 is the increase in top rates. Income earners could have re-timed the reporting of income to take advantage of the low rates in 2012 relative to 2013.
During the recession, top incomes fell even faster than those of average income earners, according to Saez. Average real income for the top percentile fell 36.3 percent from 2007 to 2009, versus 17.4 for the average family.
But the 1 percent have experienced a strong rebound from the crisis, and “the results suggest that the Great Recession has only depressed top income shares temporarily and will not undo any of the dramatic increase in top income shares that has taken place since the 1970s,” Saez writes.
Starting in the late 1970s, the 1 percent began to earn a larger share of income than it had since the 1920s, as shown in the chart below.