Income Distribution in the United States of America

A Brief Description with Causes and Curative Measures

To most people in the U.S. it is not news to learn that the top one percent of households make approximately twenty-two percent of the income, and the top twenty percent of households make more than fifty percent of the income. Many people don’t realize that the rather steep distribution is rather recent. In 1947 the top five percent of the people accounted for 17.5% of the income, and the top twenty percent 43%. And for comparison the middle fifth of the people received seventeen percent of the total income. It isn’t news that the top income people are making relativity more than they were a few decades ago, but the headline numbers usually spotlight the outliers, the top one percent, and those few people have done marvelously well. Comparing 2012 and 1947 we find that in 1947 the lower limit of the top five percent made $8,072, and the average of the top of the second and third quintiles (the closest I can get to the median) was $3,011. The comparable figures for 2012 were $210,000 and $ $63,163. The ratios of the top to the median were 2.68 and 3.32 respectively. The top of the income spectrum gained 24%. That is approximately an average increase of 0.37% per year over sixty-eight years. That isn’t much, but the bulk of the increase has been since 1993. From 1947 through 1992 the top quintile’s share averaged 41.9% with a range from 40.4 to 44.6. In 1993 the share started a rise that jumped to 47% in 1993 and continued generally upward since then.

[url]http://www.census.gov/hhes/www/income/data/historical/inequality/[/url]

[url]http://www.census.gov/prod/2000pubs/p60-204.pdf[/url]

There are many reasons for the increase in the spread, but we can primarily blame inequitable income taxes, the inattention of corporate shareholders, and regulations that have made it easier to send jobs to other countries rather than pay to costs of doing business in the U.S.  During the same period of time mutual fund managers, such as Vanguard and Fidelity, went from being a tiny part of the securities market to a very large part of it, and the money managers have little or no reason to become in corporate governance , unless there are issues that are costing them money, and salaries are simply one of the costs of doing business, and as long as they continue to make money from an investment in a corporations stock, there is no reason for them to complain about salary expenses.

On the other hand, when we look at the proportion of the complete income pie that each quintile has now and in the past.

_________________________  quintiles

year__________first_____second__middle____fourth____top

2012__________3.23_____8.33____14.36_____23.04____51.04

1994__________4.2_____10.0_____15.7_____23.3______46.9

1984__________4.7_____11.0_____17.0_____24.4______42.9

1947__________5_______11.9_____17_______23.1______43

Ave. ’93 – ’12___3.53_____8.85____14.84_____23.19_____49.62

Ave. ’47 –’92____4.96           ____11.74____17.38_____23.87____42.05

(Data extracted from Census Bureau reports) [url]http://www.census.gov/hhes/www/income/data/historical/inequality/index.html[/url]

It is perfectly clear that the top quintile has been increasing its proportion, and that the bottom quintiles have been losing ground. It is interesting that the top quintile actually lost share from 1947 until the early 1980’s, dropping from 43% in 1949 to as low as 40.5% before it started gaining an even larger share in the last twenty years. The bottom quintile has had a relatively stable proportion and actually gained share from the late 1940’s until the mid 1980’s, since then it has lost ground. The years cited above give a good idea of the complete spreadsheet, and the averages show the overall action. Clearly the rates of change have been quite small, but the cumulative changes have been significant, especially since 1994, except for the fourth quintile which has barely changed.

There do not appear to be any specific reasons for the changes since 1993, except for NAFTA (North American Free Trade Association), which became effective January 1, 1994. The politicians who pushed NAFTA through insisted that it would not hurt Americans, but production and jobs have continued leaving the U.S.A., a trend that started well before then, but accelerated after NAFTA came into effect. The politicians insisted that NAFTA would not hurt American workers, but it certainly appears that it has; although there probably have been other policy changes that also had effect.

To be honest, I had not expected to find NAFTA as a major cause of increased income inequality in the U.S., but it makes sense when one thinks about it. Manufacturing jobs have left the country, so lower and middle income people have lost income, but the same corporations that have moved manufacturing out of the country have kept executive and marketing jobs in the U.S. The two bottom quintiles have had the largest percent reduction in income share, and many manufacturing positions are in those quintiles, while the executives and marketers have income in the two top quintiles.

The high regulatory barriers for manufacturers make it difficult and expensive to manufacture in the U.S.A., but the regulatory barriers are much lower in Mexico, Central America, and other places in the world. While NAFTA makes it very easy to ship manufactured goods from Mexico to the U.S., it is not difficult to import from other countries. Environmental regulations and labor regulations are also place higher barriers for manufacturers in the U.S. and all of those and other regulations, are factors that have led to the reduction of manufacturing and manufacturing jobs in the U.S.A., especially in the last twenty years.

Even with the huge regulatory burden in the U.S. there are some politicians who are pushing for an even greater regulatory burden and the recent addition of required medical benefits and possibly more regulations in regard to the delusional idea that CO2 is causing “climate change”

There are some people who want to lop off the tall poppies, rather than helping the smaller to grow taller. That reflects a perspective that has seldom done much good for anyone. It is preferable to allow people to become rich, than to prevent anyone from doing well. I will admit that I have not provided all of the relevant information, which is a huge amount, but even this small amount indicates that laws that give preferred treatment to some have been largely responsible for an increase in income inequality in the last twenty years. The Fourteenth Amendment to the U.S. Constitution clearly bans unequal treatment in state laws, and the Fifth Amendment requires Congress to treat everyone equally, but Congress regularly gives advantages to some, and federal laws often require the states to treat people unequally.

It would be simple and easy to eliminate most regulations on people doing business. A good place to start would be with any suggestion that employers must provide medical insurance to employees, but minimum wages, and regulations that are intended to do something about climate change should also be eliminated, and there are various other regulations that do nothing except get in the way. Are we interested in haveing a viable economy? If so, then people should be allowed to do business.

What have you observed?