Back in 1980, the bottom 50 percent of wage-earners in the United States earned about 21 percent of all income in the country — nearly twice as much as the share of income (11 percent) earned by the top 1 percent of Americans.
But today, according to a massive new study on global inequality, those numbers have nearly reversed: The bottom 50 percent take in only 13 percent of the income pie, while the top 1 percent grab over 20 percent of the country's income.
Since 1980, in other words, the U.S. economy has transferred eight points of national income from the bottom 50 percent to the top 1 percent.
That trend is even more remarkable when you set it against comparable numbers for wealthy nations in Western Europe. There, the bottom 50 percent earn nearly 22 percent of the income in those economies, while the top 1 percent take in just over 12 percent of the money.
The income situation in Western Europe today, in other words, is similar to how things were in the United States nearly 40 years ago.
The 2018 World Inequality Report, written by a team of leading international economists including Thomas Piketty of “Capital in the Twenty-First Century” fame, finds that the rise of income inequality in the United States is “largely due to massive educational inequalities, combined with a tax system that grew less progressive despite a surge in top labor compensation since the 1980s, and in top capital incomes in the 2000s.”
Since the 1970s the price of higher education has skyrocketed, putting the price of tuition out of reach for many low-income students. Over the same time, the tax code became more generous to the wealthiest Americans — the top marginal income-tax rate fell from 70 percent in 1980 to 39.6 percent in 2017, taxes on capital gains fell by more than half from the mid-1970s to the mid-2000s, and the estate tax has fallen as well.
Those changes have made it easier for high-income Americans to grab more and more of the income pie in any given year.
From 1980 to 2014, for instance, the bottom 20 percent of earners in the United States saw their after-tax income rise by just 4 percent, according to the World Inequality Report. By contrast, the top 10 percent saw their post-tax income more than double over the same period.
Income gains at the tip of the distribution were even more extreme, with the top 1 percent nearly tripling their post-tax income and the top 0.001 percent realizing income gains of over 600 percent.
Western European countries, by contrast, took a different approach. “Continental Europe meanwhile saw a lesser decline in its tax progressivity,” according to the report, “while wage inequality was also moderated by educational and wage-setting policies that were relatively more favorable to low and middle-income groups.”
The income situation in Europe is a reminder that advanced economies don't need to be set up this way and that the growing gulf between rich and poor in the United States is largely a result of deliberate policy decisions.
The tax bill under consideration in Congress is likely to drive these disparities even wider, via a massive corporate tax cut and further reductions in the estate tax and the income-tax rate for millionaires.