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    Default wealth Distribution

    The Wealth Distribution

    In the United States, wealth is highly concentrated in a relatively few hands. As of 2007, the top 1% of households (the upper class) owned 34.6% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 50.5%, which means that just 20% of the people owned a remarkable 85%, leaving only 15% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth (total net worth minus the value of one's home), the top 1% of households had an even greater share: 42.7%. Table 1 and Figure 1 present further details drawn from the careful work of economist Edward N. Wolff at New York University (2010).

    <table width="100%" border="0" cellpadding="6" cellspacing="0"><tbody><tr><td align="center">Table 1: Distribution of net worth and financial wealth in the <nobr>United States, 1983-2007</nobr></td></tr></tbody></table> <table class="allrules" style="border-style: none;" cellpadding="3" cellspacing="0"> <tbody><tr valign="top" align="center"><th class="smaller" rowspan="2" style="border-style: none;">
    </th><th class="smaller" colspan="3" style="border-style: none;">Total Net Worth</th></tr> <tr valign="top" align="center"><td class="smaller">Top 1 percent</td><td class="smaller">Next 19 percent</td><td class="smaller">Bottom 80 percent</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1983</td><td class="smaller">33.8%</td><td class="smaller">47.5%</td><td class="smaller">18.7%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1989</td><td class="smaller">37.4%</td><td class="smaller">46.2%</td><td class="smaller">16.5%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1992</td><td class="smaller">37.2%</td><td class="smaller">46.6%</td><td class="smaller">16.2%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1995</td><td class="smaller">38.5%</td><td class="smaller">45.4%</td><td class="smaller">16.1%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1998</td><td class="smaller">38.1%</td><td class="smaller">45.3%</td><td class="smaller">16.6%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2001</td><td class="smaller">33.4%</td><td class="smaller">51.0%</td><td class="smaller">15.6%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2004</td><td class="smaller">34.3%</td><td class="smaller">50.3%</td><td class="smaller">15.3%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2007</td><td class="smaller">34.6%</td><td class="smaller">50.5%</td><td class="smaller">15.0%</td></tr> <tr valign="top" align="center"><td class="smaller" colspan="4" style="border-style: none;">
    </td></tr> <tr valign="top" align="center"><th class="smaller" rowspan="2" style="border-style: none;">
    </th><th class="smaller" colspan="3" style="border-style: none;">Financial Wealth</th></tr> <tr valign="top" align="center"><td class="smaller">Top 1 percent</td><td class="smaller">Next 19 percent</td><td class="smaller">Bottom 80 percent</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1983</td><td class="smaller">42.9%</td><td class="smaller">48.4%</td><td class="smaller">8.7%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1989</td><td class="smaller">46.9%</td><td class="smaller">46.5%</td><td class="smaller">6.6%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1992</td><td class="smaller">45.6%</td><td class="smaller">46.7%</td><td class="smaller">7.7%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1995</td><td class="smaller">47.2%</td><td class="smaller">45.9%</td><td class="smaller">7.0%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1998</td><td class="smaller">47.3%</td><td class="smaller">43.6%</td><td class="smaller">9.1%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2001</td><td class="smaller">39.7%</td><td class="smaller">51.5%</td><td class="smaller">8.7%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2004</td><td class="smaller">42.2%</td><td class="smaller">50.3%</td><td class="smaller">7.5%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2007</td><td class="smaller">42.7%</td><td class="smaller">50.3%</td><td class="smaller">7.0%</td></tr> </tbody></table>
    <table width="70%" border="0" cellpadding="6" cellspacing="0"> <tbody><tr valign="top" align="left"><td class="smaller" colspan="3" style="border-style: none; padding-top: 6px;"> Total assets are defined as the sum of: (1) the gross value of owner-occupied housing; (2) other real estate owned by the household; (3) cash and demand deposits; (4) time and savings deposits, certificates of deposit, and money market accounts; (5) government bonds, corporate bonds, foreign bonds, and other financial securities; (6) the cash surrender value of life insurance plans; (7) the cash surrender value of pension plans, including IRAs, Keogh, and 401(k) plans; (8) corporate stock and mutual funds; (9) net equity in unincorporated businesses; and (10) equity in trust funds.
    Total liabilities are the sum of: (1) mortgage debt; (2) consumer debt, including auto loans; and (3) other debt. From Wolff (2004, 2007, & 2010).
    </td></tr> </tbody></table>

    <table border="0" cellpadding="3" cellspacing="0"> <tbody><tr><td align="center">Figure 1: Net worth and financial wealth distribution in the <nobr>U.S. in 2007</nobr></td></tr> <tr><td align="center"></td></tr> </tbody></table>

    In terms of types of financial wealth, the top one percent of households have 38.3% of all privately held stock, 60.6% of financial securities, and 62.4% of business equity. The top 10% have 80% to 90% of stocks, bo
    A remarkable study (Norton & Ariely, 2010) reveals that Americans have no idea that the wealth distribution (defined for them in terms of "net worth") is as concentrated as it is. When shown three pie charts representing possible wealth distributions, 90% or more of the 5,522 respondents -- whatever their gender, age, income level, or party affiliation -- thought that the American wealth distribution most resembled one in which the top 20% has about 60% of the wealth. In fact, of course, the top 20% control about 85% of the wealth (refer back to Table 1 and Figure 1 in this document for a more detailed breakdown of the numbers).
    Even more striking, they did not come close on the amount of wealth held by the bottom 40% of the population. It's a number I haven't even mentioned so far, and it's shocking: the lowest two quintiles hold just 0.3% of the wealth in the United States. Most people in the survey guessed the figure to be between 8% and 10%, and two dozen academic economists got it wrong too, by guessing about 2% -- seven times too high. Those surveyed did have it about right for what the 20% in the middle have; it's at the top and the bottom that they don't have any idea of what's going on.
    Americans from all walks of life were also united in their vision of what the "ideal" wealth distribution would be, which may come as an even bigger surprise than their shared misinformation on the actual wealth distribution. They said that the ideal wealth distribution would be one in which the top 20% owned between 30 and 40 percent of the privately held wealth, which is a far cry from the 85 percent that the top 20% actually own. They also said that the bottom 40% -- that's 120 million Americans -- should have between 25% and 30%, not the mere 8% to 10% they thought this group had, and far above the 0.3% they actually had. In fact, there's no country in the world that has a wealth distribution close to what Americans think is ideal when it comes to fairness. So maybe Americans are much more egalitarian than most of them realize about each other, at least in principle and before the rat race begins.
    Figure 4, reproduced with permission from Norton & Ariely's article in Perspectives on Psychological Science, shows the actual wealth distribution, along with the survey respondents' estimated and ideal distributions, in graphic form.

    <table border="0" cellpadding="3" cellspacing="0"> <tbody><tr><td align="center">Figure 4: The actual United States wealth distribution plotted against the <nobr>estimated and ideal distributions.</nobr></td></tr> <tr><td align="center"></td></tr> </tbody></table> <table width="90%" border="0" cellpadding="0" cellspacing="0"> <tbody><tr valign="top" align="left"><td class="smaller" style="padding-top: 6px;">Note: In the "Actual" line, the bottom two quintiles are not visible because the lowest quintile owns just 0.1% of all wealth, and the second-lowest quintile owns 0.2%.</td></tr> <tr valign="top" align="left"><td class="smaller" style="padding-top: 6px;">Source: Norton & Ariely, 2010.</td></tr> </tbody></table>

    David Cay Johnston, a retired tax reporter for the New York Times, published an excellent summary of Norton & Ariely's findings (Johnston, 2010b; you can download the article from Johnston's Web site).
    Historical context

    Numerous studies show that the wealth distribution has been extremely concentrated throughout American history, with the top 1% already owning 40-50% in large port cities like Boston, New York, and Charleston in the 19th century. It was very stable over the course of the 20th century, although there were small declines in the aftermath of the New Deal and World II, when most people were working and could save a little money. There were progressive income tax rates, too, which took some money from the rich to help with government services.
    Then there was a further decline, or flattening, in the 1970s, but this time in good part due to a fall in stock prices, meaning that the rich lost some of the value in their stocks. By the late 1980s, however, the wealth distribution was almost as concentrated as it had been in 1929, when the top 1% had 44.2% of all wealth. It has continued to edge up since that time, with a slight decline from 1998 to 2001, before the economy crashed in the late 2000s and little people got pushed down again. Table 3 and Figure 5 present the details from 1922 through 2007.

    <table width="100%" border="0" cellpadding="6" cellspacing="0"> <tbody><tr><td align="center">Table 3: Share of wealth held by the Bottom 99% and Top 1% in the <nobr>United States, 1922-2007.</nobr></td></tr> </tbody></table> <table class="allrules" style="border-style: none;" cellpadding="3" cellspacing="0"> <tbody><tr valign="top" align="center"><th class="smaller" style="border-style: none;"> </th><th class="smaller">Bottom 99 percent</th><th class="smaller">Top 1 percent</th></tr> <tr valign="top" align="center"><td class="smaller" style="padding-right: 1em;" align="left">1922</td><td class="smaller">63.3%</td><td class="smaller">36.7%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1929</td><td class="smaller">55.8%</td><td class="smaller">44.2%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1933</td><td class="smaller">66.7%</td><td class="smaller">33.3%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1939</td><td class="smaller">63.6%</td><td class="smaller">36.4%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1945</td><td class="smaller">70.2%</td><td class="smaller">29.8%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1949</td><td class="smaller">72.9%</td><td class="smaller">27.1%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1953</td><td class="smaller">68.8%</td><td class="smaller">31.2%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1962</td><td class="smaller">68.2%</td><td class="smaller">31.8%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1965</td><td class="smaller">65.6%</td><td class="smaller">34.4%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1969</td><td class="smaller">68.9%</td><td class="smaller">31.1%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1972</td><td class="smaller">70.9%</td><td class="smaller">29.1%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1976</td><td class="smaller">80.1%</td><td class="smaller">19.9%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1979</td><td class="smaller">79.5%</td><td class="smaller">20.5%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1981</td><td class="smaller">75.2%</td><td class="smaller">24.8%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1983</td><td class="smaller">69.1%</td><td class="smaller">30.9%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1986</td><td class="smaller">68.1%</td><td class="smaller">31.9%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1989</td><td class="smaller">64.3%</td><td class="smaller">35.7%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1992</td><td class="smaller">62.8%</td><td class="smaller">37.2%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1995</td><td class="smaller">61.5%</td><td class="smaller">38.5%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1998</td><td class="smaller">61.9%</td><td class="smaller">38.1%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2001</td><td class="smaller">66.6%</td><td class="smaller">33.4%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2004</td><td class="smaller">65.7%</td><td class="smaller">34.3%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2007</td><td class="smaller">65.4%</td><td class="smaller">34.6%</td></tr> </tbody></table> <table width="70%" border="0" cellpadding="6" cellspacing="0"> <tbody><tr valign="top" align="left"><td class="smaller" colspan="3" style="border-style: none; padding-top: 6px;">Sources: 1922-1989 data from Wolff (1996). 1992-2007 data from Wolff (2010).</td></tr> </tbody></table>

    <table border="0" cellpadding="3" cellspacing="0"> <tbody><tr><td align="center">Figure 5: Share of wealth held by the Bottom 99% and Top 1% in the <nobr>United States, 1922-2007.</nobr></td></tr> <tr><td align="center"></td></tr> </tbody></table>

    Here are some dramatic facts that sum up how the wealth distribution became even more concentrated between 1983 and 2004, in good part due to the tax cuts for the wealthy and the defeat of labor unions: Of all the new financial wealth created by the American economy in that 21-year-period, fully 42% of it went to the top 1%. A whopping 94% went to the top 20%, which of course means that the bottom 80% received only 6% of all the new financial wealth generated in the United States during the '80s, '90s, and early 2000s (Wolff, 2007).
    The rest of the world

    Thanks to a 2006 study by the World Institute for Development Economics Research -- using statistics for the year 2000 -- we now have information on the wealth distribution for the world as a whole, which can be compared to the United States and other well-off countries. The authors of the report admit that the quality of the information available on many countries is very spotty and probably off by several percentage points, but they compensate for this problem with very sophisticated statistical methods and the use of different sets of data. With those caveats in mind, we can still safely say that the top 10% of the world's adults control about 85% of global household wealth -- defined very broadly as all assets (not just financial assets), minus debts. That compares with a figure of 69.8% for the top 10% for the United States. The only industrialized democracy with a higher concentration of wealth in the top 10% than the United States is Switzerland at 71.3%. For the figures for several other Northern European countries and Canada, all of which are based on high-quality data, see Table 4.
    <table width="100%" border="0" cellpadding="12" cellspacing="0"><tbody><tr><td align="center">Table 4: Percentage of wealth held in 2000 by the Top 10% of the adult population <nobr>in various Western countries</nobr></td></tr></tbody></table> <table class="allrules" style="border-style: none;" cellpadding="5" cellspacing="0"> <tbody><tr class="smaller" valign="bottom" align="center"><th style="border-style: none;">
    </th><th>wealth owned
    by top 10%</th></tr> <tr class="smaller" align="center"><td align="left">Switzerland</td><td>71.3%</td></tr> <tr class="smaller" align="center"><td align="left">United States</td><td>69.8%</td></tr> <tr class="smaller" align="center"><td align="left">Denmark</td><td>65.0%</td></tr> <tr class="smaller" align="center"><td align="left">France</td><td>61.0%</td></tr> <tr class="smaller" align="center"><td align="left">Sweden</td><td>58.6%</td></tr> <tr class="smaller" align="center"><td align="left">UK</td><td>56.0%</td></tr> <tr class="smaller" align="center"><td align="left">Canada</td><td>53.0%</td></tr> <tr class="smaller" align="center"><td align="left">Norway</td><td>50.5%</td></tr> <tr class="smaller" align="center"><td align="left">Germany</td><td>44.4%</td></tr> <tr class="smaller" align="center"><td align="left">Finland</td><td>42.3%</td></tr> </tbody></table>

    The Relationship Between Wealth and Power

    What's the relationship between wealth and power? To avoid confusion, let's be sure we understand they are two different issues. Wealth, as I've said, refers to the value of everything people own, minus what they owe, but the focus is on "marketable assets" for purposes of economic and power studies. Power, as explained elsewhere on this site, has to do with the ability (or call it capacity) to realize wishes, or reach goals, which amounts to the same thing, even in the face of opposition (Russell, 1938; Wrong, 1995). Some definitions refine this point to say that power involves Person A or Group A affecting Person B or Group B "in a manner contrary to B's interests," which then necessitates a discussion of "interests," and quickly leads into the realm of philosophy (Lukes, 2005, p. 30). Leaving those discussions for the philosophers, at least for now, how do the concepts of wealth and power relate?
    First, wealth can be seen as a "resource" that is very useful in exercising power. That's obvious when we think of donations to political parties, payments to lobbyists, and grants to experts who are employed to think up new policies beneficial to the wealthy. Wealth also can be useful in shaping the general social environment to the benefit of the wealthy, whether through hiring public relations firms or donating money for universities, museums, music halls, and art galleries.
    Second, certain kinds of wealth, such as stock ownership, can be used to control corporations, which of course have a major impact on how the society functions. Tables 5a and 5b show what the distribution of stock ownership looks like. Note how the top one percent's share of stock equity increased (and the bottom 80 percent's share decreased) between 2001 and 2007.

    <table width="100%" border="0" cellpadding="8" cellspacing="0"><tbody><tr><td align="center">Table 5a: Concentration of stock ownership in the <nobr>United States,</nobr> 2001-2007</td></tr></tbody></table> <table class="allrules" style="border-style: none;" cellpadding="3" cellspacing="0"> <tbody><tr valign="top" align="center"><th class="smaller" style="border-style: none;"> </th><th class="smaller" colspan="3" style="border-style: none;">Percent of all stock owned:</th></tr> <tr valign="top" align="center"><th class="smaller" style="border-style: none; padding-right: 2em;" align="left">Wealth class</th><th class="smaller" style="border-top-style: none;">2001</th><th class="smaller" style="border-top-style: none;">2004</th><th class="smaller" style="border-top-style: none;">2007</th></tr> <tr valign="top" align="center"><td class="smaller" align="left">Top 1%</td><td class="smaller">33.5%</td><td class="smaller">36.7%</td><td class="smaller">38.3%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">Next 19%</td><td class="smaller">55.8%</td><td class="smaller">53.9%</td><td class="smaller">52.8%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">Bottom 80%</td><td class="smaller">10.7%</td><td class="smaller">9.4%</td><td class="smaller">8.9%</td></tr> </tbody></table>
    <table width="100%" border="0" cellpadding="8" cellspacing="0"><tbody><tr><td align="center">Table 5b: Amount of stock owned by various wealth classes in the <nobr>U.S., 2007</nobr></td></tr></tbody></table> <table class="allrules" style="border-style: none;" cellpadding="3" cellspacing="0"> <tbody><tr valign="top" align="center"><th class="smaller" style="border-style: none;"> </th><th class="smaller" colspan="4" style="border-style: none;">Percent of households owning stocks worth:</th></tr> <tr valign="top" align="center"><th class="smaller" style="border-style: none; padding-right: 2em;" align="left">Wealth class</th><th class="smaller" style="border-top-style: none; padding-left: 0.5em; padding-right: 0.5em;">$0 (no stocks)</th><th class="smaller" style="border-top-style: none; padding-left: 0.5em; padding-right: 0.5em;">$1-$10,000</th><th class="smaller" style="border-top-style: none; padding-left: 0.5em; padding-right: 0.5em;">More than $10,000</th></tr> <tr valign="top" align="center"><td class="smaller" align="left">Top 1%</td><td class="smaller">7.4%</td><td class="smaller">4.2%</td><td class="smaller">88.4%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">95-99%</td><td class="smaller">7.8%</td><td class="smaller">2.7%</td><td class="smaller">89.5%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">90-95%</td><td class="smaller">13.2%</td><td class="smaller">5.4%</td><td class="smaller">81.4%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">80-90%</td><td class="smaller">17.9%</td><td class="smaller">10.9%</td><td class="smaller">71.2%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">60-80%</td><td class="smaller">34.6%</td><td class="smaller">18.3%</td><td class="smaller">47.1%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">40-60%</td><td class="smaller">52.3%</td><td class="smaller">25.6%</td><td class="smaller">22.1%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">20-40%</td><td class="smaller">69.7%</td><td class="smaller">21.6%</td><td class="smaller">8.7%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">Bottom 20%</td><td class="smaller">84.7%</td><td class="smaller">14.3%</td><td class="smaller">2.0%</td></tr> <tr valign="top" align="center"><td class="smaller" style="border-top-width: 2px;" align="left">TOTAL</td><td class="smaller" style="border-top-width: 2px;">50.9%</td><td class="smaller" style="border-top-width: 2px;">17.5%</td><td class="smaller" style="border-top-width: 2px;">31.6%</td></tr> </tbody></table>
    <table width="90%" border="0" cellpadding="6" cellspacing="0"> <tbody><tr valign="top" align="left"><td class="smaller" colspan="3" style="border-style: none; padding-top: 6px;">Both tables' data from Wolff (2007 & 2010). Includes direct ownership of stock shares and indirect ownership through mutual funds, trusts, and IRAs, Keogh plans, 401(k) plans, and other retirement accounts. All figures are in 2007 dollars. </td></tr> </tbody></table>


    Third, just as wealth can lead to power, so too can power lead to wealth. Those who control a government can use their position to feather their own nests, whether that means a favorable land deal for relatives at the local level or a huge federal government contract for a new corporation run by friends who will hire you when you leave government. If we take a larger historical sweep and look cross-nationally, we are well aware that the leaders of conquering armies often grab enormous wealth, and that some religious leaders use their positions to acquire wealth.
    There's a fourth way that wealth and power relate. For research purposes, the wealth distribution can be seen as the main "value distribution" within the general power indicator I call "who benefits." What follows in the next three paragraphs is a little long-winded, I realize, but it needs to be said because some social scientists -- primarily pluralists -- argue that who wins and who loses in a variety of policy conflicts is the only valid power indicator (Dahl, 1957, 1958; Polsby, 1980). And philosophical discussions don't even mention wealth or other power indicators (Lukes, 2005). (If you have heard it all before, or can do without it, feel free to skip ahead to the last paragraph of this section)
    Here's the argument: if we assume that most people would like to have as great a share as possible of the things that are valued in the society, then we can infer that those who have the most goodies are the most powerful. Although some value distributions may be unintended outcomes that do not really reflect power, as pluralists are quick to tell us, the general distribution of valued experiences and objects within a society still can be viewed as the most publicly visible and stable outcome of the operation of power.
    In American society, for example, wealth and well-being are highly valued. People seek to own property, to have high incomes, to have interesting and safe jobs, to enjoy the finest in travel and leisure, and to live long and healthy lives. All of these "values" are unequally distributed, and all may be utilized as power indicators. However, the primary focus with this type of power indicator is on the wealth distribution sketched out in the previous section.
    The argument for using the wealth distribution as a power indicator is strengthened by studies showing that such distributions vary historically and from country to country, depending upon the relative strength of rival political parties and trade unions, with the United States having the most highly concentrated wealth distribution of any Western democracy except Switzerland. For example, in a study based on 18 Western democracies, strong trade unions and successful social democratic parties correlated with greater equality in the income distribution and a higher level of welfare spending (Stephens, 1979).
    And now we have arrived at the point I want to make. If the top 1% of households have 30-35% of the wealth, that's 30 to 35 times what they would have if wealth were equally distributed, and so we infer that they must be powerful. And then we set out to see if the same set of households scores high on other power indicators (it does). Next we study how that power operates, which is what most articles on this site are about. Furthermore, if the top 20% have 84% of the wealth (and recall that 10% have 85% to 90% of the stocks, bonds, trust funds, and business equity), that means that the United States is a power pyramid. It's tough for the bottom 80% -- maybe even the bottom 90% -- to get organized and exercise much power.
    Income and Power

    The income distribution also can be used as a power indicator. As Table 6 shows, it is not as concentrated as the wealth distribution, but the top 1% of income earners did receive 17% of all income in the year 2003 and 21.3% in 2006. That's up from 12.8% for the top 1% in 1982, which is quite a jump, and it parallels what is happening with the wealth distribution. This is further support for the inference that the power of the corporate community and the upper class have been increasing in recent decades.

    <table style="padding-bottom: 12px;" width="100%" border="0" cellpadding="6" cellspacing="0"><tbody><tr><td align="center">Table 6: Distribution of income in the <nobr>United States, 1982-2006</nobr></td></tr></tbody></table> <table class="allrules" style="border-style: none;" cellpadding="3" cellspacing="0"> <tbody><tr valign="top" align="center"><th class="smaller" rowspan="2" style="border-style: none;"> </th><th class="smaller" colspan="3" style="border-style: none;">Income</th></tr> <tr valign="top" align="center"><td class="smaller">Top 1 percent</td><td class="smaller">Next 19 percent</td><td class="smaller">Bottom 80 percent</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1982</td><td class="smaller">12.8%</td><td class="smaller">39.1%</td><td class="smaller">48.1%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1988</td><td class="smaller">16.6%</td><td class="smaller">38.9%</td><td class="smaller">44.5%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1991</td><td class="smaller">15.7%</td><td class="smaller">40.7%</td><td class="smaller">43.7%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1994</td><td class="smaller">14.4%</td><td class="smaller">40.8%</td><td class="smaller">44.9%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">1997</td><td class="smaller">16.6%</td><td class="smaller">39.6%</td><td class="smaller">43.8%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2000</td><td class="smaller">20.0%</td><td class="smaller">38.7%</td><td class="smaller">41.4%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2003</td><td class="smaller">17.0%</td><td class="smaller">40.8%</td><td class="smaller">42.2%</td></tr> <tr valign="top" align="center"><td class="smaller" align="left">2006</td><td class="smaller">21.3%</td><td class="smaller">40.1%</td><td class="smaller">38.6%</td></tr> <tr valign="top" align="center"><td class="smaller" colspan="4" style="border-style: none;"> </td></tr> <tr valign="top" align="left"><td class="smaller" colspan="4" style="border-style: none;">From Wolff (2010).</td></tr> </tbody></table>

    The rising concentration of income can be seen in a special New York Times analysis by David Cay Johnston of an Internal Revenue Service report on income in 2004. Although overall income had grown by 27% since 1979, 33% of the gains went to the top 1%. Meanwhile, the bottom 60% were making less: about 95 cents for each dollar they made in 1979. The next 20% - those between the 60th and 80th rungs of the income ladder -- made $1.02 for each dollar they earned in 1979. Furthermore, Johnston concludes that only the top 5% made significant gains ($1.53 for each 1979 dollar). Most amazing of all, the top 0.1% -- that's one-tenth of one percent -- had more combined pre-tax income than the poorest 120 million people (Johnston, 2006).
    But the increase in what is going to the few at the top did not level off, even with all that. As of 2007, income inequality in the United States was at an all-time high for the past 95 years, with the top 0.01% -- that's one-hundredth of one percent -- receiving 6% of all U.S. wages, which is double what it was for that tiny slice in 2000; the top 10% received 49.7%, the highest since 1917 (Saez, 2009). However, in an analysis of 2008 tax returns for the top 0.2% -- that is, those whose income tax returns reported $1,000,000 or more in income (mostly from individuals, but nearly a third from couples) -- it was found that they received 13% of all income, down slightly from 16.1% in 2007 due to the decline in payoffs from financial assets (Norris, 2010).
    And the rate of increase is even higher for the very richest of the rich: the top 400 income earners in the United States. According to another analysis by Johnston (2010a), the average income of the top 400 tripled during the Clinton Administration and doubled during the first seven years of the Bush Administration. So by 2007, the top 400 averaged $344.8 million per person, up 31% from an average of $263.3 million just one year earlier. (For another recent revealing study by Johnston, read "Is Our Tax System Helping Us Create Wealth?").
    How are these huge gains possible for the top 400? It's due to cuts in the tax rates on capital gains and dividends, which were down to a mere 15% in 2007 thanks to the tax cuts proposed by the Bush Administration and passed by Congress in 2003. Since almost 75% of the income for the top 400 comes from capital gains and dividends, it's not hard to see why tax cuts on income sources available to only a tiny percent of Americans mattered greatly for the high-earning few. Overall, the effective tax rate on high incomes fell by 7% during the Clinton presidency and 6% in the Bush era, so the top 400 had a tax rate of 20% or less in 2007, far lower than the marginal tax rate of 35% that the highest income earners (over $372,650) supposedly pay. It's also worth noting that only the first $106,800 of a person's income is taxed for Social Security purposes (as of 2010), so it would clearly be a boon to the Social Security Fund if everyone -- not just those making less than $106,800 -- paid the Social Security tax on their full incomes.
    Do Taxes Redistribute Income?

    It is widely believed that taxes are highly progressive and, furthermore, that the top several percent of income earners pay most of the taxes received by the federal government. Both ideas are wrong because they focus on official, rather than "effective" tax rates and ignore payroll taxes, which are mostly paid by those with incomes below $100,000 per year.
    But what matters in terms of a power analysis is what percentage of their income people at different income levels pay to all levels of government (federal, state, and local) in taxes. If the less-well-off majority is somehow able to wield power, we would expect that the high earners would pay a bigger percentage of their income in taxes, because the majority figures the well-to-do would still have plenty left after taxes to make new investments and lead the good life. If the high earners have the most power, we'd expect them to pay about the same as everybody else, or less.
    Citizens for Tax Justice, a research group that's been studying tax issues from its offices in Washington since 1979, provides the information we need. When all taxes (not just income taxes) are taken into account, the lowest 20% of earners (who average about $12,400 per year), paid 16.0% of their income to taxes in 2009; and the next 20% (about $25,000/year), paid 20.5% in taxes. So if we only examine these first two steps, the tax system looks like it is going to be progressive.
    And it keeps looking progressive as we move further up the ladder: the middle 20% (about $33,400/year) give 25.3% of their income to various forms of taxation, and the next 20% (about $66,000/year) pay 28.5%. So taxes are progressive for the bottom 80%. But if we break the top 20% down into smaller chunks, we find that progressivity starts to slow down, then it stops, and then it slips backwards for the top 1%.
    Specifically, the next 10% (about $100,000/year) pay 30.2% of their income as taxes; the next 5% ($141,000/year) dole out 31.2% of their earnings for taxes; and the next 4% ($245,000/year) pay 31.6% to taxes. You'll note that the progressivity is slowing down. As for the top 1% -- those who take in $1.3 million per year on average -- they pay 30.8% of their income to taxes, which is a little less than what the 9% just below them pay, and only a tiny bit more than what the segment between the 80th and 90th percentile pays.
    What I've just explained with words can be seen more clearly in Figure 6.

    <table border="0" cellpadding="3" cellspacing="0"> <tbody><tr><td align="center">Figure 6: Share of income paid as tax, including local and state tax</td></tr> <tr><td align="center"></td></tr> </tbody></table> <table width="90%" border="0" cellpadding="6" cellspacing="0"> <tbody><tr valign="top" align="left"><td class="smaller" colspan="3" style="border-style: none; padding-top: 6px;">Source: Citizens for Tax Justice (2010a).</td></tr> </tbody></table>

    We also can look at this information on income and taxes in another way by asking what percentage of all taxes various income levels pay. (This is not the same as the previous question, which asked what percentage of their incomes went to taxes for people at various income levels.) And the answer to this new question can be found in Figure 7. For example, the top 20% receives 59.1% of all income and pays 64.3% of all the taxes, so they aren't carrying a huge extra burden. At the other end, the bottom 20%, which receives 3.5% of all income, pays 1.9% of all taxes.

    <table border="0" cellpadding="3" cellspacing="0"> <tbody><tr><td align="center">Figure 7: Share of all income earned and all taxes paid, by quintile</td></tr> <tr><td align="center"></td></tr> </tbody></table> <table width="90%" border="0" cellpadding="6" cellspacing="0"> <tbody><tr valign="top" align="left"><td class="smaller" colspan="3" style="border-style: none; padding-top: 6px;">Source: Citizens for Tax Justice (2010a).</td></tr> </tbody></table>

    So the best estimates that can be put together from official government numbers show a little bit of progressivity. But the details on those who earn millions of dollars each year are very hard to come by, because they can stash a large part of their wealth in off-shore tax havens in the Caribbean and little countries in Europe, starting with Switzerland. And there are many loopholes and gimmicks they can use, as summarized with striking examples in Free Lunch and Perfectly Legal, the books by Johnston that were mentioned earlier. For example, Johnston explains the ways in which high earners can hide their money and delay on paying taxes, and then invest for a profit what normally would be paid in taxes.
    Income inequality in other countries

    The degree of income inequality in the United States can be compared to that in other countries on the basis of the Gini coefficient, a mathematical ratio that allows economists to put all countries on a scale with values that range (hypothetically) from zero (everyone in the country has the same income) to 100 (one person in the country has all the income). On this widely used measure, the United States ends up 95th out of the 134 countries that have been studied -- that is, only 39 of the 134 countries have worse income inequality. The U.S. has a Gini index of 45.0; Sweden is the lowest with 23.0, and South Africa is near the top with 65.0.
    The table that follows displays the scores for 22 major countries, along with their ranking in the longer list of 134 countries that were studied (most of the other countries are very small and/or very poor). In examining this table, remember that it does not measure the same thing as Table 4 earlier in this document, which was about the wealth distribution. Here we are looking at the income distribution, so the two tables won't match up as far as rankings. That's because a country can have a highly concentrated wealth distribution and still have a more equal distribution of income -- both Switzerland and Sweden follow this pattern. So one thing that's distinctive about the U.S. compare

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    Olympic Champ r.payton@att.net's Avatar
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    Default Re: wealth Distribution

    I did NOT mean to start such a controversy with my original post-so I went and found an article which asked the same questions ALL of you have asked-I especially like the part about taxes-bottom 20% pay 12.4% of their income in taxes-the top 1% 8.4%.
    And Quinn 14-I am disabled and live on less than $7,000 a year with $48 a month food stamps-it took me 8 years to get a section 8 voucher for 30%-but the kicker is -WHILE my rent went from $425 a month to $280 a month-my landlord raised the rent to Section 8 to $550 a month-SO the taxpayer more than makes up the difference. When my rent went down my Food stamps dropped as well...so the only person better off is my slum landlord as he now receives $550 a month for a converted attic.
    THE worst thing is the TRUTH that I am now nothing but a parasite on Society.

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    Super Moderator UGLY's Avatar
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    Default Re: wealth Distribution

    I understand the outrage or unhappiness with the situation, I just dont have a solution to the problem. What could be done to alleviate the issue. The people who have the money by and large have either invented things or created things that we need or have made life easier, in some cases eliminating jobs. Others have created businesses that have created thousands upon thousands of jobs. So these people took all the risk in order to see the reward. Perhaps Steve Jobs or Bill Gates should not have made as much money as they did for the work they did. I dont know. It seems to me that its always that we a who live at the bottom of the hill point to those atop the hill and blame them for our position in life, when many of those on top started in worse situations than we have. I would say the reason very few control so much is because very are will or able to achieve so much. Most of us are so afraid of failure that we never would take that chance and we work for those who have.

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    Olympic Champ r.payton@att.net's Avatar
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    Thus the crux of the problem -Camus once said ALL civilization is based upon cruelty-and he was right. NEVER has there been a Govt. where numbers like these do NOT or have NOT existed. NEVER will be.
    Jobs and Gates are poor examples-they built a better Widget. PERIOD. I would choose the Delaney family. Never heard of them ? Ruthless Opium dealers in England-literally used gunships to force Opium on China..COULD never be a member of the ruling aristocracy in Europe so they came to America and changed their names to Delano-married their daughter into respectability and voila-Franklin Delano Roosevelt becomes president. You can look it up if you wish.
    As to Gates -the moment he moved his jobs over seas yet lived in America-he should have been deported and let him fight the Tongs for control of his company.
    I just wanted to show people the REALITY of the situation-soon , just like in 3rd world countries-Kidnapping will be a legitimate business. I have seen excerpts from INSIDE JOB-the movie which addresses the multi -trillion dollar losses of 2008-the documentary shows how it happened and should have been prevented -but was NOT. 2 days before going under Fannie Mae was a 3A investment. WHERE were the regulators ??
    Also-our deficit is 14.4 trillion . Over 4.5 trillion is owned by foreign countries-China leading the way with 900 billion .
    As a semi-intelligent member of the non working poor I have studied this problem at length for several years now, and have concluded unless we can build a time machine and go back and destroy the Federal Reserve Bank and NEVER allow the printing of paper money in an amount which exceeds are ACTUAL GNP-NOTHING will change.

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    Default Re: wealth Distribution

    Ultimately it comes down to people & not a system, (though I agree that the FED is a pretty manipulative system & should be gotten rid of.) It appears that with our current population any system will be eventually manipulated. We must change as individuals & as a culture.

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    Super Moderator UGLY's Avatar
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    KR what do we change to create more even distribution of wealth? Can that change be made without stiffling invention and entrepreneurship?

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    Olympic Champ kr1963's Avatar
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    Default Re: wealth Distribution

    Quote Originally Posted by UGLY View Post
    KR what do we change to create more even distribution of wealth? Can that change be made without stiffling invention and entrepreneurship?
    It starts with people. We have to change. We have to put our attention upon doing the greatest good for the greatest number.

    EDUCATION
    As an entrepreneur myself I believe one should be rewarded for risk but when one does things for the SOLE reason of monetary profit above all else then eventually we fail because we eventually harm people purposefully at times to make a buck. Profit occurs with disregard to all else. I have always tried to educate the people who have worked for me that they could go be business owners themselves if they wanted to be. People should learn how to become more self sufficient from the get go.

    ETHICS
    Currently this culture doesn't think in terms of it's future. It hoards & thinks in terms of scarcities. Many large corporations generate billions based upon a model that insures profits even if it hurts or kills people. It operates from this Darwinian "dog eat dog" mentality. Survival isn't just being able to live. Business survival should not just be based upon the bottom line. It is nothing you can order by decree but by a self imposed model in which part of your profits go towards something else that benefits the culture.

    SERVICE
    For all of it's Christian Judeo leanings western civilization, doesn't always practice what it preaches. Being of service to others is the highest purpose in life. It gets devalued because "apparently" it has little or no tangible value. But it puts one on a path that is not concentrated upon the collection of things to determine a person's worth. One's value is measured in the positive change one creates in the lives of those around them.

    PERSONAL GROWTH
    A person has to be able to confront & change the things that stop them from within. An individual has to be able to overcome their fears & hostilities. As a culture we have the same thing going on on a group level. The real enemy is a person's sub-conscience & all the things it contains that effect people in a negative fashion. The is a group sub-conscience as well. Any review of history shows this to be true.

    That is just a basic off the top of my head outline....

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    World Champ ODH's Avatar
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    Quote Originally Posted by UGLY View Post
    ...The people who have the money by and large have either invented things or created things that we need or have made life easier, in some cases eliminating jobs. Others have created businesses that have created thousands upon thousands of jobs. So these people took all the risk in order to see the reward. ..
    I tend to disagree with this. I don't know either any statistics of how the wealthiest made their money, but I would bet a lot of it is through the Finanical industry and a lot throught inheritance.
    People like Gates and Jobs have create something and made lives better and enriched others along the way and I don't resent the amount of wealth they have accumulated as astounding as it is. This is how the capalistic system is supposed to work. People who innovate and create end up getting rich becasue they have made our whole economy and society better.
    I think they are the exception rather than the

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    Super Moderator UGLY's Avatar
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    Default Re: wealth Distribution

    http://www.washingtonpost.com/wp-srv...renextdoor.htm

    This is an article by a PHD that might answer your question or discrepancy. Either way someone in the family had to make the something of themselves in order to achieve the wealth Sam Walton for example. Why shouldn't the money they made go the people they want it to go to. Their families did nothing wrong they might of had to live without a father while he was building an empire much like The Hilton who started everything.

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