Who needs a tea-bag? – The truth about income, taxes, and the past 30 years

April 16, 2009 | By | 17 Replies More

I got involved in a discussion on Ed Brayton’s blog earlier today, which referenced yesterday’s Tea-bag ‘protests’. As a result, I ended up doing some research on pre/post tax income from 1979 to 2006. Taxes in this case is defined as ‘effective’ tax rates according to Congressional Budget Office (CBO) guidelines, not some ‘subset’, or arbitrary, or marginal rates. These are the taxes actually paid, and the income actually retained.

Based on the data presented by the CBO, with all dollars equalized to the 2006 value, the richest 1% of Americans saw their incomes after taxes increase by 256% since 1979. By comparison, the poorest 20% of Americans saw their income increase by only 11% after taxes over the same time period.

Putting this another way – in 1979 the wealthiest 1% earned, on average, 22.6 times the poorest 20% ($337,100 -v- $14,900). By 2006, the wealthiest 1% had extended their lead to a staggering multiple of 72.75 times the poorest 20% ($1,200,300 -v- $16,500).

The poorest even suffered compared to the ‘average’ American: Americans in the third population quintile (40 to 60% of the population) saw their post tax income increase by 21% over the comparable period, from $42,900 to $52,100. Compared to the poorest their multiplier increased from 2.88 to 3.16. Better off, but not rich.

1979 Relative Income (in 2006 dollars)

1979 Relative Income (in 2006 dollars)

2006 Relative Income

2006 Relative Income

Compared to the wealthiest 1%, even the third quintile can feel decidedly poor: in 1979 the wealthiest 1% earned 7.86 times that of the average third quintile American. By 2006, they earned 23.04 times more than the third quintile.

You may feel that I’m attacking only the super rich. But even the moderately rich (the working rich) gained significantly over the past thirty years. In 1979 the top 10% earned $125,200 after taxes. By 2006 their after tax income had soared by 112% to $265,500. They doubled their lead over the poorest (from a multiplier of 8.4 to 16.1), and against the third quintile gained an almost 180% advantage (from 2.9 to 5.1).

Compared to the wealthiest 10% of the population, everyone in the US has done very poorly indeed.

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Category: American Culture, Current Events, Economy, Education, Politics, Uncategorized

About the Author ()

I’m a technophile with an enduring interest in almost anything real or imagined. I suffer fools badly, and love trashy science fiction, plot-free action movies, playing guitar, and baking (especially scones. You haven’t lived ’til you’ve eaten my scones. I’ve recently undertaken bread, and am now in danger of gaining in a matter of weeks the 60 pounds I’ve lost in the past 2 years). My wife & I are Scottish, living north of Atlanta, GA, with two children, one dog, and a growing collection of gadgets. I work for a living.

Comments (17)

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  1. Alison says:

    Now, now, Tony. . .this is way too much thinking, and way too many words. If you want the American Public to accept this information, you'll have to pare it down to bullet points and give it a catchy name – hopefully something catchier than "socialism", because that's really popular right now. . .

  2. Mindy Carney says:

    Interesting, Tony. I've read much over the last couple of days about the absurdity of the whole teabag episode, and this just brings yet another aspect of it into focus.

    • Tony Coyle says:

      Thanks Mindy

      My background is in compensation and rewards – so I naturally think of income (and net income) when reviewing equity comparisons. This just grew out of a conversation at Ed Brayton's blog today, and I thought it deserved a little more exposure than a comment buried down the page.

      It does reflect my professional thoughts over the past years about the growing imbalance between 'executive' and 'non executive' compensation. I have a blog post brewing about that topic, too (if I ever complete it – it needs real facts and figures and the data is sometimes very hard to get – it's mostly proprietary and covered by multiple NDAs).

  3. Niklaus Pfirsig says:

    That is much more revealing than the data available on the IRS website. The IRS data only show adjusted gross income and no details on total income.

    • Tony Coyle says:

      It's part of the obfuscation of government due to bureaucracy. I don't think it is intentional, but it does seem to be an emergent property of any organization above a certain size.

      The CBO publish a LOT of good data about the US in many areas (but mostly, and obviously, fiscal)

  4. Erich Vieth says:

    David DeGraw of Alternet raises some good points:

    Watching the Tax Day coverage, it was hard to tell if the tea parties were anti-tax, anti-Obama protests, or if they were Pro-Fox “News” rallies. In the end, the turnouts were shockingly small considering the endless coverage – a fact that demonstrates just how out of touch the Fox “News” wing-nuts have become.

    When reality is against you, why not just make up your own – something Fox has been doing quite successfully until recently. . . . But my question is this: What if Fox “News,” or any of the other “news” networks, covered previous protests the way they did the tea parties? The anti-Iraq War demonstrations drew hundreds of thousands with very little coverage and almost no run-up support from the mainstream media.

    • Tony Coyle says:

      re: media reporting on the anti-war rallies:

      [snark]

      but those people were proposing treason!

      [/snark]

  5. Erich Vieth says:

    Here's a little tea party humor. All in one little photo.

  6. grumpypilgrim says:

    Right-wingers complain that Obama's tax policies will "redistribute the wealth" in the U.S. They apparently haven't noticed that *all* tax policies redistribute wealth, including the tax policies of every Republican they've ever voted for. Indeed, George W.'s tax policies caused a massive redistribution of wealth: from the bottom 99% to the top 1%. Thus, the issue is not that a given president's tax policies will redistribute wealth; the issue is deciding who should benefit the most from tax policies, and why.

  7. Rabel says:

    If you want to pay more taxes people, go right ahead and turn it into the Treasury Dept, whether it be local or Federal, go ahead.

    There is nothing in the Constition that says the power comes from the Government to the people, it's for the people, by the people. You pro-tax people amaze me. You must like the middleman or mommie government who picks and chooses winners and losers(Bailout Plan).

    Really, the rich more than likely, worked their butts off to get where they are and the poor people do not help society but drain it from people who are motivated and responsible citizens.

    Do you think maybe Obama got into the White House because the majority "white people" voted him in? I think labeling white rednecks at tea parties is an cheap excuse to how bad the Robin Hood mentality of take from rich and give to the poor is the Progressive way?

    Read you Constitution, it was made for you to remain free from out-of-control Government, which we have right now! 🙁

    Rabel

    • Erich Vieth says:

      Ah, Rabel. Good to see that you are in prime form. Too bad the Bush Administration isn't STILL in charge, right? They would have already fixed all the huge problems they caused over the past 8 years.

      Interesting how you, like the GOP offers NO SOLUTIONS. None. Or maybe you think that merely cutting taxes to especially benefit wealthy people will solve our problems?

  8. Mindy Carney says:

    Yes, Rabel, I want to pay more taxes. I want infrastructure to catch up to technology, I want everyone to have health care and I want our educational system completely overhauled so that our students are truly benefiting from the intelligence we supposedly possess. I want our financial system not run by the government but fairly and judiciously regulated by the government, so that corporate and individual greed can better be kept in check.

    I think the tea-party attendees have no real idea what to do and are grasping at ideals that no longer apply to our country.

    What, pray tell, Rabel, would you have our government do right now to address the sordid economy?

  9. Tony Coyle says:

    Rabel

    Have you ever been poor?

    I don't even mean really poor. Just working poor! Working every day just to be able to afford the food on the table, and wishing that there was a little more food, that it was a little more nutritious? Wondering if tomorrow you'll still be able to feed and clothe and house your family?

    That's the reality for many people in the US. It was the reality for me growing up in Scotland.

    The major difference is that my family had guaranteed healthcare – so my mom didn't need to worry that we'd starve if she fell ill. She didn't need to worry about paying for medicines if we got sick. She could focus her energies on providing us food and shelter and clothing.

    The second difference is that I had government-sponsored educational opportunities (as did most of my peers). I went to college paid for by the Government, as did about 60% of my high school class. I still had to work, and twice as hard as those whose parents could provide some support, but at least I could go to college.

    That background is what brought me stateside – and I now earn a very significant salary, and provide a lifestyle for my family that I didn't even know existed when I was a kid or even a young adult.

    I'm only one of the many millions of beneficiaries of social medicine and state-sponsored education.

    The resultant – I want to pay reasonable taxes – but I want them to be spent on social programs, not armaments. On infrastructure, not warfare. I support the military, but not at the cost of driving the country into a fiscal hole.

    I will quite happily pay more in taxes — I already choose to live in a highly taxed area, to gain access to the better school district that those taxes support. I would prefer that school funding was more equitably distributed, and had more equitable standards. I feel horrible that I'm contributing to a huge education gap.

    Lastly – perhaps you need to read the above post again for comprehension. The past eight years have seen the rich get even more obscenely wealthy out of all proportion to their value, simply because they could, and they had a congress and administration that helped them every way they could.

    I have absolutely no problem with the Bill Gates or the Steve Jobs of the world earning wealth as a direct consequence of the work they did to build their companies.

    I have major issues with second string 'career CEOs' making money hand over fist whilst 'managing' companies into the ground.

    You, sir, are truly delusional.

  10. Niklaus Pfirsig says:

    Ah Rabel, so you still lurk about…

    It amazes me how many people believe the Republican BS and buy in to their lies because they (the people) think that Republicans will make them rich. They think the Republicans will reduce spending , and in reality under ever Republican dominated administration, spending increased, taxes on the poor increased, and the richest of the rich got a free ride.

    I have know and worked for many rich people who never worked in their entire lives, They were born into money, never had to decide between paying for utilities, medicine and food, those that were born rich, were the stingiest, most selfish and immature bastard I ever knew. This may sound cruel, but two in particular were so childish they were at the same time comical and pathetic.

    on the other hand, I have also known people (mostly musicians) who started with nothing became rich through hard work and lots of luck. Most of them are proud to pay their share of taxes, and to give back to the community. One told me she didn't think it was right to hire an tax accountant to "adjust" her income to zero like so many of the wealthiest have done.

    Under Bush, I saw my tax bill increase. Once it increased to a few hundred over my withholding. I think it was the same year that Bush retroactively repealed the alternate minimum tax and many millionaires got refunds of hundreds of thousands of dollars each. Take from the poor and give to the rich.

    So how does one fund two very expensive foreign wars while only taxing those that account for 10 percent of all income? Borrow from other countries like China, Japan, Saudi Arabia and Kuwait. How do you pay them back? You don't. Simply make sure your opposition is in office when the bills come due.

    So remove your head from whatever orifice you have it inserted into and look around. Instead of trusting Rupert and his cronies to tell you what to think, do a little math think for yourself, for a change.

  11. Rabel says:

    I am for the latest tax loophole adjustment. It is very unpatriotic to use oversea accounts and banks to avoid paying their fair share. Yes, I like infrastructure; help support tax on light-rail in a major city (very smart). Yes, I am against death penalty. A 14 year card- carrying union member!! How many of you have been on strike? Or how many of you have scabbed a job while people were trying to bargain for a contract?

    Voted for Clinton twice…Voted for Bush, and you know, I can't tell the differnce between donkeys and elephants anymore.

    Tony, I do see your point, although, the government did not pay for your school, it was the working (poor) class that helped fit the bill. I did not grow up poor, but my father was born in a coal camp in southern Colorado, so I have heard the stories of Rockefeller throwing mercury dimes to the poor folk, including my family. Look up "Ludlow Massacre" in Colorado. State Government hiring drunks from bars in Denver (calling it "Colorado National Guard")to uproot a labor movement. These miners only wanted better safety conditions. My grandfather worked in the mines since he was 8 years old.

    First, we have too much idle time on our hands. Tech-info age brought people to the cities. Government pays welfare to farmers not to farm fields. We have lost a generation of farmers because big government gets involved and TAKES AWAY INCENTIVE!! Now we have increased health problems because we do not physically work hard.

    Drop you party antics and vote Libertarian.

    "When people are afraid of Government, you have tyranny…when Government is afraid of the citizens, you have liberty".

    Rabel

  12. Tony Coyle says:

    Rabel – what?

    the government did not pay for your school, it was the working (poor) class that helped fit the bill.

    You do realize that the UK in the fifties, sixties, and seventies had a truly progressive tax regime, where the richest incurred a supertax (I think it reached to over 80%). That led to a lot of the richest fleeing the country (to tax havens) but many stayed and paid their way.

    UK taxation became progressively worse under Thatcher – since her philosophy made some people believe they could get richer. In reality it decimated local government income (from rent) while simultaneously slashing general spending budgets (since other taxes were reduced – more at the top than the bottom).

    Thatcher, and her economic policies, were the model that Reagan adopted, and that the republicans have bought into since that time. UK further education became progressively more selective, such that I would likely be unable to go to college in the UK today, since my family and I had zero personal funds.

    You then continue into a psuedo-pastoralist rant about how cities have made people soft and lazy.

    What? Are you serious?

    Do you have any idea what kind of infrastructure investment would be required if the US did NOT have cities? What do you think your taxes would be if cities did not subsidize rural areas?

    You think 'small towns' are the way to go? Fine – go live in a commune, drink from a well, eat only what you grow, and don't connect to any of that wider infrastructure that requires cities or their inhabitants. Want science, or technology, or advanced medicine? Want advances in art and culture? You need cities.

    Cities are the foundation and the necessary concomitant to civilization. Without cities you do not have a civilization.

    And you think this agrarian fantasy is Libertarian?

    Soundly like you need to go back to school. Grade school.

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