Close Close

Portfolio > Economy & Markets > Fixed Income

What Do We Do as the Rich Get Richer?

Your article was successfully shared with the contacts you provided.

During the economic recovery in the years 2009 to 2011, the richest Americans captured all of the economy’s income gains—and then some, new research shows.

A recent study by UC-Berkeley economist Emmanuel Saez, a prize-winning economist specializing in income inequality and a proponent of steeper taxes on the rich, found that the top 1% of income earners captured 121% of income gains in the recovery’s first years.

The reason these richest Americans captured more than 100% is because their inflation-adjusted income growth was 11.2% while that of the bottom 99% was negative 0.4%.

While the richest Americans took a beating, seeing a 36.3% decline in income during the Great Recession years of 2007-2009 (compared with an 11.6% decline for the 99%), the trend over the past two decades has been for the income of the top 1% to grow substantially while the income of the bottom 99% stagnates.

From 1993 to 2011, real income growth averaged 13.1%, but Saez’s research indicates that incomes of the top 1% captured 57.5% of that growth while the bottom 99% experienced inflation-adjusted growth of just 5.8%

Saez’s paper mainly reports the numbers, and does not wade far into policy implications, except to suggest that the retreat of New Deal-era institutions—“progressive tax policies, powerful unions, corporate provision of health and retirement benefits, and changing social norms regarding pay inequality”—may explain the widening income gap.

It is noteworthy that income inequality has grown so much since 2009 under the tenure of a president pursuing progressive economic policies, leaving open the possibility that wealth creators are stubbornly resistant to policies aimed at “spreading the wealth,” a term the president used on the 2008 campaign trail in his encounter with Joe the Plumber.

The Wall Street Journal editorial page, in particular, has opposed steeper taxation of the rich, which it says is akin to killing the golden goose that produces economic growth needed to lifts incomes across the economic spectrum.

But Saez, whose work has been influential on the Obama White House, has reportedly called for taxes on the wealthy to rise to 45% to 75% of income.

A proposal last year in Saez’s native France to tax the wealthy at a 75% rate prompted wealthy Frenchmen—such as Bernard Arnault and Gérard Depardieu—to flee the country, but a French court struck down the law days before it was to take effect at the start of 2013.

Saez has argued that U.S. economic history proves that higher taxation, greater equality and continued growth can coexist.