Who's poorer now?

Social justice news
October 2003

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Who's poorer now?

Who's poorer now?
The gap between rich and poor more than doubled from 1979 to 2000, an analysis of government data shows, a gulf so large that the richest 1 percent of Americans in 2000 had more money to spend after taxes than the bottom 40 percent.

The richest 2.8 million Americans had $950 billion after taxes, or 15.5 percent, of the $6.2 trillion economic pie in 2000. The poorest 110 million Americans had less, sharing 14.4 percent of all after tax money.

In 1979, the wealthiest 1 percent had just under half the after-tax income of the poorest 40 percent of Americans, analysis of new data from the Congressional Budget Office shows. The figures show 2000 as the year of the greatest economic disparity between rich and poor for any year since 1979, the year the budget office began collecting this data, according to the Center for Budget and Policy Priorities, a nonprofit research organization in Washington that advocates tax and federal spending policies to benefit the poor.

The higher incomes of the last decade did not lift all people equally. In 2000, the top 1 percent of American taxpayers had $862,700 each after taxes, on average, more than triple the $286,300 they had, adjusted for inflation, in 1979. The bottom 40 percent in 2000 had $21,118 each, up 13 percent from their $18,695 average in 1979.

A study by the National Bureau of Economic Research, a nonpartisan, nonprofit research organization in Cambridge, Massachusetts found that in 2000 the top 1 percent income group had the largest share of before-tax income for any year since 1929.

Both low- and middle-income people shared in the boom of the 1990's, while in the 1980's the bottom fifth experienced a decline in after-tax income, according to the budget office data analyzed by the Center on Budget and Policy Priorities. The middle fifth had an average after-tax income of $41,900 in 2000, a rise of 15 percent both since 1979 and 1997, indicating a long period of no real economic gains for this group.

The center's analysis said the highest income Americans had grown richer from 1979 to 2000 both from gains in income because of economic prosperity and from tax cuts. Huge gains in executive pay were a significant factor.

According to the CBPP, federal tax burdens for most Americans have declined over the previous two decades, not risen as some conservative policy experts have asserted. Congress enacted tax cuts in 2001 and 2003 that were heavily weighted to the top 1 percent, which supporters said would encourage them to invest more to the benefit of all Americans and critics decried as a sop to the already wealthy.

From 1979 to 2000, the total federal tax burden for the top 1 percent dropped 3.8 percentage points, but for the middle fifth the decline was only 1.9 percentage points. Tax rates for the poorest fifth declined 1.6 percentage points. The top 1 percent pay a quarter of all federal taxes, while the bottom 40 percent pay 6 percent of all federal taxes.

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