Monday, April 02, 2007

NY Times: Income Gap Is Widening

In a report last Friday in the NY Times, more references to pre-Depression statistics keep popping up.

Income inequality grew significantly in 2005, with the top 1 percent of Americans — those with incomes that year of more than $348,000 — receiving their largest share of national income since 1928, analysis of newly released tax data shows.

The top 10 percent, roughly those earning more than $100,000, also reached a level of income share not seen since before the Depression.

While total reported income in the United States increased almost 9 percent in 2005, the most recent year for which such data is available, average incomes for those in the bottom 90 percent dipped slightly compared with the year before, dropping $172, or 0.6 percent.

There is another reason why this is significant:

The disparities may be even greater for another reason. The Internal Revenue Service estimates that it is able to accurately tax 99 percent of wage income but that it captures only about 70 percent of business and investment income, most of which flows to upper-income individuals, because not everybody accurately reports such figures.

Hat Tip to Bonddad over at DailyKos for pointing out the article and who said:

People who aren't benefiting from economic growth -- and there are a ton of those people in the current environment -- want a piece of the pie. That's a natural human emotion. But the problem is to benefit, most people have to go into debt which only increases their inability to move up the socio-economic ladder.

I am going to go further than he is, however. It is the debt that the lower 90% are having to incur that is contributing to the income inequality. With credit card interest at an average of 18% (even though borrowing costs are lower for the financial institutions that when rates got that high) and then the fees they add on make them even more profitable than the interest itself, it is no wonder that those who are borrowing are falling even farther behind.

That is not to say that those who are part of the investor class are not immune. I have previously written about how Margin Debt is increasing to dangerous levels. What I am curious about is: is this the result of the super-rich merely trying to use leverage to maximize their returns, or is this the result of wanna-be investors taking on too much risk in order to try to get ahead?

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