Income gap narrowing, so is the wealth of the rich

The income gap between the wealthy and the poor might be one of the results of this crisis, says a report by the WSJ.  Sounds nice, doesn’t it?  But it is less so when you hear it is at the expense of the rich.  Currently, the top 1% of American families has about 23.5% share of overall income.  But economists believe this just might fall down to some 15% to 19% by next year.

Over the past 30 years, chief executives, Wall Street bankers and traders, law-firm partners and such amassed ever-greater incomes, while the incomes of factory workers, teachers, office managers and others in the middle grew much more slowly. In 2007, the top 1% of U.S. families accounted for 23.5% of all personal income in the U.S., according to economists Emmanuel Saez of the University of California at Berkeley and Thomas Piketty of the Paris School of Economics. That was a level not seen since the Roaring Twenties.

The top 1%’s share appears to be falling fast. Mr. Saez and other economists expect income going to the top 1% of taxpayers — currently, those with about $400,000 a year — will drop to somewhere between 15% and 19% of all income by 2010. That still would leave income distribution more top-heavy in the U.S. than in many other countries.

That share has narrowed following the recessions of 1991 and 2001.  But it became wider again once recovery was in full-swing.  However, if the predictions of the drop in wealth shares were to happen and persist, its effects just do not look good: less taxes, less spending on luxury goods, and less contributions to charitable organizations just to mention some.  Among those three, the first is the most troublesome given the huge need for the government to eventually balance its budget. Then you have proposals to increase taxation in order to accomplish that and fund the health care program that is mostly likely to be controlled by and in lieu of the wishes of the Democrats.

No matter how you look at the declining share of the wealthy’s income in the overall income pie, it is only worthy of celebration if the improvement comes from the bottom – when the poor become less poorer.  So if anything, balancing budget and improving the income gap need not be focused on higher taxation but instead be shifted towards improving the lives of those at the bottom.

Source: WSJ

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