“In terms of income as opposed to wealth, almost all of the new income generated in recent years has gone to the top 1 percent. In fact, the latest information that we have shows that in recent years, over 99 percent of all new income generated in the economy has gone to the top 1 percent.”
— Sen. Bernie Sanders (I-Vt.), Brookings Institution speech, Feb. 9
Sanders used this specific figure in his speech on economic policies at the Brookings Institution. The senator, who is weighing a run for president, laid out the main points of his economic policy priorities, including ways to address income inequality.
Sanders’s figure stood out because it was a catchy and extreme way to say that a disproportionate share of income growth benefits the wealthy — which is sure to be a main talking point should he make a presidential bid.
Where does Sanders’s figure come from? What measure of income does it use, and is he correct that 99 percent of all new income is going to the top 1 percent of Americans?
There are different ways to measure “income,” and the exact figures vary depending on the time frame and whether taxes and government benefits are considered. The key studies on this topic look at different measures, data sets and time frames, so there is no accurate comparison between studies.
Sanders’s office pointed to a New York Times article by Justin Wolfers, a University of Michigan economics professor, that compared the growth in average income among Americans between 2009 and 2012-2013, excluding capital gains. The average income for the top 1 percent rose while the average income for the 99 percent fell, and “so far, all of the gains from the recovery have gone to the 1 percent,” the article said. This is where Sanders’s “99 percent” figure comes from.
Wolfers’s article analyzed research by Emmanuel Saez, an economics professor at the University of California at Berkeley. Saez, along with Paris School of Economics professor Thomas Piketty, has produced research that is one of the most widely cited sources for assertions that the economic recovery has disproportionately benefited the richest 1 percent of Americans. Wolfers said he used Saez’s research to generate his findings; Saez confirmed the calculation in an e-mail.
A January update of Saez’s report shows that the top 1 percent captured 91 percent of the total growth in the 2009-2012 period. The top 1 percent in 2013 had incomes above $392,000, the report said.
But top tax rates increased in 2013 — a change Sanders supported — and led many wealthy Americans to shift taxable income into 2012 instead of 2013. So the 2012 top estimate probably is skewed high, and the 2013 likely is too low.
The Saez/Piketty research defines income as the sum of the pre-tax cash income reported on individual tax returns, such as wages, salaries, pensions and capital income. It used realized capital gains, but also provided numbers that excluded them. It does not include any government transfer programs. The 2013 data was preliminary tax filings from the Internal Revenue Service. This is a narrow definition of household income that skews toward the top of the income distribution and is likely to show the most extreme rise in income inequality.
Critics of this research say the method is too narrow. Others have used the Current Population Survey by the Census Bureau that does not show as big of a gain in the top 1 percent, but census data is known to be unreliable for this information because not enough people in that population respond to census surveys.
Another important context is that the top 1 percent saw a steep decline in income compared with the rest of the percentile, when the financial industry crashed. As the stock market recovers, this population will earn significantly more in capital gains than the 99 percent. Figure 1 in Saez’s research update shows how the income increases when capital gains are included.
One study that offers context for other factors in the income inequality debate is by the nonpartisan Congressional Budget Office. It is not an apples-to-apples comparison to the Saez study, but it is a broader look at income by including benefits from government transfer programs, such as Social Security, unemployment insurance, Medicare and Medicaid.
Although these benefits are not provided in cash, they are included in the income calculation because they “increase people’s ability to purchase consumer goods and services,” according to the November 2014 CBO report. This calculation includes automatic stabilizers (such as food stamps, unemployment insurance and earned income tax credit) that more lower-income families qualified for through the recession and the slow recovery, to make up for lost income.
The CBO report looks at 1979 through 2011, the most recent data available for its calculation. Government transfers increase the incomes of lower-income groups significantly more than higher-income groups, the CBO found. In 2011, transfers accounted for more than one-third of before-tax income for the bottom two income quintiles.
Federal tax rates rise with income. CBO found that after taxes, the income levels for the lowest and middle quintiles were higher than the measure that Saez used. The top 1 percent of Americans had an average tax rate of 29 percent, while Americans in the bottom four quintiles paid between 1.9 percent to about 15 percent. By 2013, CBO estimated, the top 1 percent would pay 33.3 percent in federal taxes.
Sanders is a proponent of raising taxes on the wealthy and protecting government transfer programs. Yet the statistics he uses do not reflect those factors.
When asked why he used an income calculation that disregards steps taken to help Americans in the 99 percent, his spokesman Michael Briggs wrote: “Saez and the senator both are looking at how the market economy is distributing income gains. Yes, there are programs that help keep some families afloat. But the senator’s remarks were focused on the unevenness of the recovery and the extent to which income gains are flowing directly to the 1 percent. The fact that there is redirection via transfer programs does not undercut the accuracy of what he said.” (Update: Sanders now cites updated figures that Saez released in June 2015, that the top 1 percent captured 58 percent of total real income growth from 2009 to 2014. This shows how income data can change coming out of a recession. Kudos to Sanders for citing updated figures.)
The Pinocchio Test
The various income-inequality measures make it difficult to draw accurate comparisons between studies. In addition, there is no comparable research for 2012 and 2013 (the years that Sanders uses) to compare how the recovery would look under a broader definition of “income.” Sanders is correct that the top 1 percent of Americans have benefited disproportionately, but there is dispute over just how much.
The calculation Sanders cites is one measure, but it is a specific and narrow one that skews toward a more extreme portrayal of income inequality. His statement also disregards the impact of programs that were designed to mitigate the impact on Americans with far less cash income than the wealthy, which provides context in the debate over income inequality. He earns One Pinocchio.
(Update: A further comment from Sanders appears after the Pinocchio rating.)
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Update: Sen. Sanders provided the following response to this fact check.
I am disappointed that the Washington Post Fact Checker inaccurately gave me “one Pinocchio” for saying “over 99 percent of all new income generated in the economy has gone to the top 1 percent” from 2009-2013.
They should have dug deeper. Whether the Washington Post likes it or not, that fact is correct. Professor Justin Wolfers, an economist who works for the Peterson Institute for International Economics, came up with this figure by analyzing the income inequality research of Professor Emmanuel Saez, one of the world’s leading experts on this issue. Just this week, Professor Wolfers said again “The numbers that Sen. Sanders cited are exactly right – I calculated them myself, double-checked my figures and confirmed them with other leading economists. There are other measures one could analyze but none are sufficiently timely that they can speak to the distribution of gains through the economic recovery.”
The Post finds fault with this statistic because it does not take into account programs like unemployment insurance, food stamps and other government spending designed to protect the nation’s most vulnerable. That’s an important issue, but not the point of this discussion because it is a much more subjective measure.
The simple fact is that in the U.S. economy at large, more than 99 percent all new income generated in recent years has gone to the top 1 percent. This is not just my view, but the view of leading economists throughout the country.
Senator Bernie Sanders
Ranking Member Senate Budget Committee