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The Misery Of The 98th Percentile

Posted by: Mark Gimein on October 26, 2011 at 4:00 AM

CBOchart2.PNGThe Congressional Budget Office released its report on trends in household income Tuesday afternoon, concluding that (drumroll) since 1979 income has risen much faster at the top than lower down the distribution. Does this mean they definitely picked a side, as Business Insider puts it? I don’t think so. That’s not a side, it’s a fact. Nobody disputes that income has become more concentrated. The questions in the wealth debate are whether this is a problem and whether government should remedy it.

If you are still on the fence about this, one thing that might make it easier to decide is a sense not just of how income has shifted, but why. On this the report has largely taken the side of indecisiveness:

In all likelihood, the interaction of multiple factors has led to the growth in labor income inequality, and disentangling the contribution of those factors will remain a focus of research for some time.

Well, thank you. The CBO does make some conclusions about the stronger demand for for highly skilled workers. That’s probably accurate, but it does little to explain why income growth is concentrated at the very apex. You can see that easily in the chart above. Clearly skilled workers have done better than unskilled, but the pool of skilled workers has to go deeper than the top percentile. There are surely skills other than trading derivatives and programming at Google that are in demand.

If the CBO report doesn’t really explain the why of that chart (and really, it’s true that so far no one has), still the chart may help explain the political climate. A lot of the discussion now flows around the issue of whether those whose incomes haven’t risen should be angry. Look at the chart, though, and you notice that those at the bottom and middle have done just a bit worse than those right above them. They may not feel drastically poorer.

The people who can look around see the really wealthy pulling away are those in percentiles 81-99. They’re the folks who aspire to get to the very top. Over the last 30 years, that goal has moved further away, and they suspect that the upshot of any program of income distribution will move it still further. That’s the strongest anti-tax, small government constituency.

Reader Comments

Curtis Bratton

October 26, 2011 8:06 AM

What amazes me about all this is how anyone could possibly argue that the rich should not be taxed more. Trickle down economics doesn't work, and the growth of the income gap over the past 30 years is clear evidence of that. Letting the rich keep more money only makes them more rich, it does nothing to help the rest of society.


October 26, 2011 9:15 AM

Money used for speculation is dead as far as the economy is concerned. Pry some of it loose make it productive.Only the government can do that. Taxing excess income and speculation could help pull the world out of its economic slump. It is the best place to tax, because it does the least damage to the system.

Jim Ruiz

October 26, 2011 9:57 AM

Yes, the top 1% "got richer". But those making up the top 1% and the top 80% changed since 1979.

Very few people (Warren Buffet aside) in the top 1% today were in the top 1% in 1979 -- Even Bill Gates was not in the top 1% in 1979.

The same holds true for 81st-99th percentile.

The truth is, people enter and leave the top 20% as they loose jobs, have children (leave workforce or pick the mommy/daddy-track).

Many (I'd hazard to guess most) of the people in the top 1% have irregular incomes that takes them in and then out of the top 1% every 5-10 years.

So, is it really an incentive or fair to heavily tax the top 20% because they have a windfall for a couple of years only to go back to eating Raman Noodles during the bust-cycle like they did when they were building their business before?


October 26, 2011 10:33 PM

What are the salary ranges of each quintile?


October 27, 2011 7:59 AM

Hi please can any one help me to find more articles on this topic like how globalisation has affected inequality, volatility, and Divison. Will be really thankful for the help

DonPaul Olshove

October 27, 2011 11:21 AM

The oxymoron called "intellectual property" is at least part of the problem. Malformed income distribution originates with this distorted legal concept. For a more complete explanation, see

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"The Wealth Debate" is a running discussion of wealth, poverty, the economy and income inequality in the U.S. and the world. It was started shortly after the Occupy Wall Street movement sparked a global protest about the fallout from the financial crisis and money in politics. You can reach the editors, Dan Beucke and Mark Gimein, by email, or follow BloombergNow on Twitter to keep up with posts.

Analyses or commentary in this blog are the views of the author and or commentators, and do not necessarily reflect the views of Bloomberg News.

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