America's Income and Wealth Inequality
Another great graphic from the Economist looking at income distribution across the world's 30 OECD nations. America has by far the widest income distribution. The average American income is around $33,000 with the top 10% (or decile) of earners having an average $87,257 of disposable income, while those in the bottom decile have $5,819, among the very lowest of any country - which confirms America definitely has a "poor" class. European countries, despite having lower average incomes than the US, have a much more equitable income distribution. Sweden, France and Australia seem to have the optimum distribution in terms of spread and average income.
I took the above analysis one step further to see if the disparity in income was also present in household wealth or net worth. Based on latest available data from the US Census bureau report - "Net Worth and the Assets of Households", the median household net worth was $58,000, with a significant part of net worth (40%) made up of home equity. This explains why the fall in house prices has been so painful for so many. The graphic below from the report, compares monthly income and household net worth. Household income is the average monthly income received from all sources by all members of a household during the last survey month. There is clearly a strong positive relationship between the median net worth of households and monthly income. Median net worth in 2002 ranged from $5,466 for households in the lowest income quintile to $188,712 for households in the highest. Also, almost 80% of households had a median net worth of less than $100,000.
The above data and graphics show why it is not surprising that Obama's political and economic ideology to "spread the wealth" is gaining popularity. Clearly America has a significant societal divide amongst the rich (have's) and the poor (have-not's) driven by the disparity in income levels.
While I think there is need to address the income and wealth inequality, I question if letting the Government do this directly is the most efficient way of achieving a more balanced outcome. Sure, raising taxes on the "rich" will increase tax revenue, but will this be effectively redistributed to the "poor" for whom the counter balancing tax cuts are being designed. To me focusing on other structural issues like regulatory reform, innovation, universal health care and reducing the cost of tertiary education are the best ways to keep the economy growing and ensure that everyone is getting richer, not just who the government chooses.
Reforming wealth distribution across America is one, if not the, centre piece of Obama's policy platform whereas John McCain is calling it a move back to socialism. What do you think? America decides which path it wants to follow in less than 2 weeks.
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October 24, 2008 1:06 PM
Sure, raising taxes on the "rich" will increase tax revenue, but will this be effectively redistributed to the "poor" for whom the counter balancing tax cuts are being designed. To me focusing on other structural issues like regulatory reform, innovation, universal health care and reducing the cost of tertiary education are the best ways to keep the economy growing and ensure that everyone is getting richer, not just who the government chooses.
Those 2 sentences contradict each other. The idea isn't to tax the rich more just to reduce inequality by making everybody poor. It's to take that money and provide services to make the poor more wealthy, through the structural improvements you suggested. The government doesn't have the money to pay for those things without higher taxes, and those taxes obviously should bent towards the already wealthy.
Taxing the rich isn't a goal unto itself, it is a necessary evil to pay for services for the poor.
October 25, 2008 11:13 PM
The goal of income equality is impossible to achieve by government intervention, even partly. The path of government planning the economy, leads to socialism.
The poor don't realize they are falling for a trap. The plan do distribute the wealth will cost them their freedoms and enslave them to the government. Just ask the poor in Russia or China how they feel about their governments plans to spread the wealth.
It's true we are losing the middle class, but it's not because of tax policy. It's because of decades of globalization, government expansion, massive overconsumption and the degradation of morality – do to the ambitions of rebellion against God, which have removed God from our governments, schools and severely weakened our churches. We teach evolution to our youth today, which is fraud that is destroying our nation because evolution has no hope only death and therefore does not produce kindness and goodwill for each other. The best way to help the poor will always be to have a moral culture so that the rich feel compelled to help and give to the poor.
Taking money from the rich through government expansion, will lead to social unrest and the bankruptcy of the entire nation – as many other national have already experienced throughout history.
October 26, 2008 6:51 AM
You are right. There is not doubt that Obama's political and economic ideology to "spread the wealth" is gaining popularity. I agree with the curt "The poor don't realize they are falling for a trap. The plan do distribute the wealth will cost them their freedoms and enslave them to the government."
Forex Income
October 26, 2008 12:52 PM
The only issue I have with Obama's plan is that businesses in the Us ae going to be taxed at a higher rate.. Which would prompt them to move abroad at an increasing pace.. That's why the market is most probably falling so rapidly.
On the other hand McCain would be best for business.. But not so good for middle class..
Why can't we have the best of McCain and Obama's plans as an option?
October 28, 2008 12:08 PM
Good post - I happen to live in an area where you just don't see many poor people and it's easy to "forget" about them. Not proud of it, just saying it's nice to have a clear reminder.
October 29, 2008 8:04 AM
OK, who makes 5,000/year? Not anybody who is working, that is for sure. Are we talking college students working part time? This works out to 96 dollars/ week or about 2.50/hour. I know minimum wage is not that high, but it is higher than 2.50 an hour! 5000/year is lower than SS and welfare payments. If you are saying that the lowest quintile makes less than those receiving welfare and social security, I really have to question who these people actually are. Yes, and why we should "spread the wealth" to people who don't work.
October 29, 2008 3:28 PM
Man, certain bloggers just can't resist bringing God into the equation ... I'll ignore the fact that our ethical conscientious is much stronger than even 50 years ago (contrast American reactions to Abu Ghraib versus My Lai), and move to the financial points.
Just ask the poor in Russia or China how they feel about their governments plans to spread the wealth.
Bad example. There's a difference between socialism and communism, Curt.
A better example is France (not so shockingly, one of the countries with little income disparity). This country has socialized medicine, education, etc. Having lived there myself, I can vouch for the fact that their middle class puts the American "great middle class" to shame. Plus, doctors still make housecalls!
But I suppose you consider them "morally bankrupt" because they teach evolution.
I'm unclear how Obama's tax plan - to raise the top marginal rate to 39.5% - means we'll be lining up for toilet paper as in communist Russia.
I also agree with enginerd - what do you think raising the top marginal rates accomplishes, if it doesn't promote things like universal healthcare and better access to education? Admittedly, reregulation is crucial, and that doesn't necessarily have anything to do with taxes.
October 29, 2008 3:44 PM
From the heritage foundation, which should resolve some of the conclusions made here:
Class warfare has always been a mainstay of liberal politics. However this is not backed by facts. Inequality in society is heavily influenced by the lack of work at the bottom. If working-age adults in the lower quintiles worked as much as their higher-income counterparts, the income disparity of the top to the bottom quintiles would fall significantly.
Still, the top fifth of U.S. households (with incomes above $84,000) remain perennial targets of class-warfare enmity. These families, however, perform a third of all labor in the economy. They contain the best educated and most productive workers, and they provide a disproportionate share of the investment needed to create jobs and spur economic growth. Nearly all are married-couple families, many with two or more earners. Far from shirking the tax burden, these families pay 82.5 percent of total federal income taxes and two-thirds of federal taxes overall. By contrast, the bottom quintile pays 1.1 percent of total federal taxes
So Obama, be careful who you hurt because if you eat the golden goose, you get nothing.
October 29, 2008 6:05 PM
Far from shirking the tax burden, these families pay 82.5 percent of total federal income taxes and two-thirds of federal taxes overall. By contrast, the bottom quintile pays 1.1 percent of total federal taxes
Given that we have a progressive income tax now, that doesn't mean anything at all.
Also, the Heritage Foundation is not exactly an unbiased source, seeing as they're a well-known conservative think tank.
While I am willing to admit that the top quintile of the population, wealth-wise, is better educated, I'm not willing to believe they work harder.
Or, I dunno, those moms working double shifts with unpaid overtime at Wal-Mart must really be raking it in.
October 29, 2008 7:06 PM
Wow, some great comments here with differing points of view. I am somewhere in between as you may have gathered from the post. I do think that a free market system with government intervention can work but going to either extreme can be dangerous. Right now the only organization to get us through this mess is the US Govt and once we are on more stable footing I am sure they will return private enterprise back to share holders with (hopefully) better regulatory oversight.
An income gap will always exist in any society. The challenge is to ensure we have the right opportunities for the poor to get rich through education, opportunity and innovation.
As I detalied in a follow up post on Obama and McCain policies, both have good suggestions based on your perspective and position in life, but I hope the next president realizes that a single minded policy will not be sufficient and that we must adapt to address short and long term issues.
On a final note, I agree with Lise regarding keeping religion and finance seperate. We have had booms and bust for over 300 years and religion was stronger than it is now so cannot be a determining factor.
November 9, 2008 12:25 AM
most of the poor are poor for a reason, they can't manage their money. i & my household don't make $250k, but i don't see a reason for those making that much to pay more taxes so that the poor can get a tax credit and buy more beer, cigarettes, or lottery tickets.
the way i look at it: i favor conditions that favor business; if my business is doing well, i keep my job; if i keep my job, i get paid; if i get paid then i can support my family.
let's start cutting back on these programs that reward the lazy who want to "work the system" for education benefits but then not show up to class or graduate.
let's stop letting people collect benefits because they're unemployable because they don't try to keep a job more than a few days/weeks.
let's leave the charity work to the churches and separate it from the state. there are plenty of people willing to give; i should be able to choose to not participate if i so desire.
December 16, 2008 5:21 PM
there is definitely a wealth inequality in this country. i would like to see a stimulus package for taxpayers who make under 100k. the very people who are being tapped to carry the load of the bailouts for the 'big boys,' who then sit on 'their' money. give the money to taxpayers shared up to the 700 or whatever billion $$. taxpayers will pay their mortgages, buy cars and goods, then the banks will have money, the auto makers, retailers and chinese factories, too. c'mon people it's not that hard to figure out. go to www.BSFlag.com and email a BS Flag to your congressman today! (or congresswoman).
April 30, 2009 10:48 PM
Still, the top fifth of U.S. households (with incomes above $84,000) remain perennial targets of class-warfare enmity. These families, however, perform a third of all labor in the economy. They contain the best educated and most productive workers, and they provide a disproportionate share of the investment needed to create jobs and spur economic growth. Nearly all are married-couple families, many with two or more earners. Far from shirking the tax burden, these families pay 82.5 percent of total federal income taxes and two-thirds of federal taxes overall. By contrast, the bottom quintile pays 1.1 percent of total federal taxes
June 2, 2009 8:27 AM
This is not in America only. this happens to all over the world and this is the cruel reality.
August 17, 2009 2:42 AM
This is the American dream! The lazy get welfare and ruin that graph. And the rich get to make off with large amounts of expendable income.
Who cares how we compare to the rest of the world? We've always done things different and we shouldn't change now.
October 11, 2009 5:18 PM
I think that we need change in this country when it comes to the distribution of wealth. To think that the most powerful country has citizens going hungry, when Bill Gates has enough money to feed a small country, it just baffles me. I don't believe in handouts at all, I agree that should be left to charity workers not to the government. What should be happening is the government has to be providing education for everyone through college to level the playing field. There should be nationalized health care as well. It really makes sad to see people in this country who can't afford their medical expenses, and we owe it to these people to help them in their time of need. It's understandable that the wealthier don't want to part with their money, but I'm sure we all would agree that it is more important to help good people who are really struggling, even with the risk of giving money to a few freeloaders. These citizens are not stupid, and if we could educate and make them productive we would all benefit.
In a democracy our freedom is not god given, our freedom comes from laws that we create, it is what we agree upon because we are the democracy. So if we as the people agree on the government having certain policies they should be implemented. The poor need to be represented in the government for them to have any say in whats going on, but they need to be educated for that to happen.
October 23, 2009 2:03 PM
The poor are poor because that is the choice they have chosen. If you decide to not get your High School deploma or go to college and maybe get your MBA or something then you dont deserve to get free handouts. everybody, rich and poor, has grown up around the ideology that in america anybody can do anything. It doesnt matter what background you're from. With a proper education every individual is in charge of their own life. But people who do f-up their life and end up as a mechanic or burger flipper or some POS who just picks up his check from the government every month do not deserve anything from anybody.
And just curious, but when was the last time you knew anybody on welfare who had an above average IQ. Nobody that i know. I have friends who are going to be nothing the rest of their lives and im certanly not going to get any of them handouts. Who in their right mind would allow a POS to leach off of them? its idiotic. just because we dont have to listen to them beg for the tax dollars from the rich doesnt make it ok for the government to just hand it over. The average person wouldnt do that, why should our government?
And on a final note the only key to being rich is financial inteligence. If our school systems also taugh kids how to ballance their Income and Balance Sheet and proper investing technics instead of just about the chemical nomenclature of Oxygen, then maybe there wouldnt be such a big gap between the poor and the rich. In fact that would probably make poor kids more interested in going to school.
Our government shouldnt be giving out free checks to anybody, but instead teach children to manage themselves and not have to rely on the government to do it for them.
Just a few thoughts.