Jim Huntzinger | On November 19, 2020

The 2014 report from the Congressional Budget office shows how the federal income tax is very progressive.   Households in the lowest quintile for income pay around $500 in federal taxes, with the middle quintile paying about $7,000, and the top quintile paying $58,000 in federal income taxes.[1] The average federal tax rate has actually dropped for all quintiles, but the lowest quintile’s tax rate has dropped from around 8 percent in 1979 to under 3 percent at the time of this study. [2]These taxes paid by the lower quintiles are not additive to distributive payouts they receive from government agencies which covers their tax liability plus more, equating to an overall net gain.

The average real income per family dropped by 17.4 percent during the Great Recession, from 2007 to 2009.   This was the largest drop in a two year period since the Great Depression. Also during this period, the top percentile income share fell from 23.5 percent to 18.1 percent, while the bottom 99 percent fell by only 11.5 percent.[3] The reason the top percentile had a greater income share loss was due to a significant loss in capital gains income, but this is historically typical of the top percentile. While the share of income for the top decile has bounced back, it can be retarded by policy changes which impact regulations and tax policies, which did happen as a result of the New Deal in the 1930s through the 1970s.[4]

The top 1 percent income levels fell sharply from 2000 to 2002 (by 30.8 percent) and from 2007 to 2009 (by 36.3 percent), being hit significantly harder than the bottom 99 percent whose income fell by 6.5 percent from 2000 to 2002 and 11.6 percent from 2007 to 2009. The composition of income for the very top income earners has changed dramatically over the past century. During the early part of the 20^th century, the top percent earned income from capital gains, while today’s top income earners are high wage and salary earners.[5]

The result of the significant decline in income for the top quintile was the top 1 percent of households dropping 37 percent in their after-tax income.[6] But by 2009, the top quintile paid an astounding 2,629 percent higher tax rate than the bottom quintile.[7]

In 1922, the bottom 99 percent held 63.3 percent of the wealth in the United States while the top 1 percent held 36.7 percent. Then in 2007, the bottom 99 percent increased to 65.4 percent of the wealth while the top 1 percent dropped to 34.6 percent. Statically there is little difference in the share of wealth over the past century; in fact, the bottom 99 percent has improved slightly. But the news and other political media give others the opposite impression by implying the lower class is being treated worse than ever and should receive more benefits.

While there have been several swings in the gap between the 1 percent and other 99 percent, the difference has remained predominantly in the 30 to 60 percent range. In fact during more difficult economic times it was those at the top who took a bigger hit than those sitting at the bottom of the financial ladder.[8] This is mainly because, as discussed above, most of their income is generated by capital gains. Thus, when a recession or depression strikes the economy, capital takes the hardest blow. As a result, the top income earners lose the most as a percent of their overall income.[9]

From 2007 to 2009, the average real income per family did decline by 17.4 percent with the breakdown of the top percentile falling at an even faster rate of 36.3 percent.[10] Yet, between 2009 and 2012, the average real income per family grew by 6.0 percent with most of the gain happening during 2011 and 2012. Most of the income gain occurred in the top 1 percent with 31.4 percent of the growth and the bottom 99 percent only experienced 0.4 percent of growth. [11] The top 1 percent also absorbed 49 percent of the income loss during the period from 2007 to 2009, and 57 percent from the previous 2000 to 2002 period.[12] The top decile income share was 50.4 percent in 2012 putting it at the highest level since 1917.[13] Also, as shown above in other data, the top 1 percent typically gets hit the hardest during a recession. The Great Recession and the associated timeframe are no different with incomes of the top 1 percent stridently falling in 2000 to 2002 by 30.8 percent and from 2007 to 2009 by 36.3 percent.[14]

Clearly, statistics show a different picture than what is articulated in the media and by political talking heads. This becomes even more evident when the data gathered stretches over long periods of time. The media is biased and not an accurate or holistic reflection of the story America is crafting around wealth and its economic systems.

Originally published on Townhall Finance.

Jim Huntzinger

Jim Huntzinger began his career as a manufacturing engineer with Aisin Seiki (a Toyota Group company and manufacturer of automotive components) when they transplanted to North America to support Toyota. Over his career he has also researched at length the evolution of manufacturing in the United States with an emphasis on lean’s influence and development. In addition to his research on TWI, he has extensively researched the history of Ford’s Highland Park plant and its direct tie to Toyota’s business model and methods of operation.

Huntzinger is the President and Founder of Lean Frontiers and a graduate from Purdue University with a B.S. in Mechanical Engineering Technology and received a M.S. in Engineering Management from the Milwaukee School of Engineering. He authored the book, Lean Cost Management: Accounting for Lean by Establishing Flow, was a contributing author to Lean Accounting: Best Practices for Sustainable Integration.