The Falling Fortunes of the One Percent
The presidential election has given us two myths about the rich. First, that their incomes, and income inequality, are at all-time highs. Second, that the wealthy pay less in taxes than ever, and lower taxes than the rest of us.
A recent report from the Congressional Budget Office, however, suggests that both may be false.
Let’s consider income first. Between 2007 and 2009, after-tax earnings by Americans in the top one percent for income fell 37 percent. On a pre-tax basis they fell 36 percent in the same period.
That may sound like a minor haircut for One Percenters compared to people who lost their jobs. But when you take into account federal transfers, assistance and taxes paid, the incomes of the bottom 20 percent grew by 3 percent, while it fell a modest 2 percent for the middle 20 percent.
In other words, the incomes of the top one percent fell 18 times more than the incomes for the middle class at the start of the recession.
The result of this big drop at the top was that their share of the country's total income also fell. In 2007, the top one percent earned 16.7 percent of all after-tax income. In 2009, that portion fell to 11.5 percent.
Inequality, in other words, fell during those years. We are now in an age of High-Beta Wealth, where the incomes of the One Percent have become far more manic and prone to wild drops than the rest of the country.
And taxes paid? Despite the oft-repeated fact that tax rates for the wealthy are at an all-time low (which is true), it’s also true that the actual amount paid in taxes by the wealthy is higher than before the recession.
The One Percent paid an average effective tax rate of 28.9 percent on their income — far more than any other group, and more than twice the average effective rate of the middle class, who paid 11 percent on average.
So the rich lost more income and paid more of their money in taxes than the rest of the population.
This is not an argument against taxing the wealthy. And the incomes and tax rates of the wealthy may have jumped back since 2009, with the rebound in financial markets.
But when politicians and pundits talk about the rich just getting richer and paying less taxes, they need to pay closer attention to the actual numbers.
-By CNBC's Robert Frank
Follow Robert Frank on Twitter: @robtfrank
CORRECTION: An earlier version of this story misstated the top one percent earners' share of the country's total income as 26.7 in 2007 and 22.3 in 2009. In fact, the One Percent made 16.7 of the national income in 2007 and 11.5 in 2009.