Income Distribution in America

Don't make me wave my arms... you wouldn't like me if I did.

Don’t make me wave my arms… you wouldn’t like me if I did.

Income distribution in America, if placed on a pie chart, would look like a pie my arthritic grandfather tried to cut.  Its slices would be wildly varying in size; if all of America were to sit at some giant table to eat it, the top 5% would eat heartily while the rest of us would be doing our best Oliver Twist impressions.  Actually that’s not true, most of the folk with no more than a scrap of crust and half a berry would chow down like the Jabba’s they are and not think twice about it: in a recent study by psychologist Dan Ariely 92% of over 7,000 respondents in a study could not guess the U.S’s income distribution.  The assumption was that our income distribution is more like socialist European counties, like Sweden or Switzerland, when in fact we are more like Mexico (your head can explode now).  So although ‘socialist’ is to politics as “Dungeons and Dragons” is to jocks, when we look at the stats without being told whose stats we are looking at it sure does look nice.

Net Worth and Financial Wealth

Income distribution, as a concept, can be broken up into two primary measures: Net Worth and Financial Wealth distributions.  Net Worth is a measure of all assets less liabilities for an individual or family.  Financial Wealth is a measure of Net Worth, but less non-income producing property.  These are the two measures we will be discussing in this article since they are really what separate the middle class from the rich.  The pie charts are below[1], and are representative of the total Net Worth or Financial Wealth in the US:

Income Distribution in America

Viewing Angles

I find that any discussion of Income Distribution, like most politically related topics, depends much on one’s viewing angle.  Which one is yours?  Probably the red slice, but let’s make sure.  Since the above pie charts refer to percentages and not dollar figures, I will translate as best I can:

Income Dollars in America
It is safe to assume that the above table neatly establishes that statistically you are somewhere between the “next 12%” and “Bottom 80%” category: 27% of America’s net worth distribution is shared by 90% of its population (making under roughly $122,000).  There are a lot of assumptions people have as to why this is, chief among them being that the rich are “job creators” and so must somehow be both smarter and of greater worth to society than the proletariats.  That sentence is being double teamed by truth and sarcasm.  What a slut.

Occupy this Article!

So now that we know where we sit at this giant three legged table called America, let’s examine those pie charts a little more closely.  The financial wealth chart is stirring in its differences to the net worth chart.  Since financial wealth is a measure of income, it’s nausea inducing to note that the top 1% take nearly half, and that the top 10% take over 80%  of all of America’s income.  Juxtapose this against the net worth chart, where the top 10% account for just shy of 75% of America, and we can see the spending habits of the rich are far, far different from the poor (since much of their income is being spent on disposable outlets, not net worth producing assets).  How else to account for this stark difference?

So there are two Americas. Where is John Edwards when you need him? Wait, never mind.  One America saves and invests, struggling to work its way up while the other spends away freely.  One America is born into a pre-cooked atmosphere of success, while the other has to create one from scratch.  I ask though, when has things ever really been any different?  If anything, the lane to wealth is more open now than it ever has been, just watch “The Age of Innocence”.   Life being unfair has will never be a valid excuse for mediocrity, laziness, or a lack of opportunity.  I am positive the Indian fellow who immigrated from a small village with spotty health conditions to the US and is now your CPA will agree.

 Insult to Injury

Aside from a few “better than usual” years, the share of wealth held by the top 1% of American households has stayed relatively stagnant since 1922.  Yet take a mid-term look: since 1972, three years after the census bureau began tracking income disparity, the bottom 90% has lost 5.5% of the total American wealth to the top 1%[1].  That is a lot of money, honey.  I don’t need to mention that the tax rate for the rich has actually gone down, and the middle class and poor up, over this same time period.  Oops.  Chart below.

Tax Rates in America Source:

Remember two things when viewing this above chart: 1) overall tax rate means very little (as it does not take into account deductions and other breaks), all in all the percent of income gone to taxes may be less for high earners than for lower earners, which is often the case, and 2) look at the change since 1970 or so for each strata of earner—the drop for the roughly top 10% of Americans (using our average income table above as a guide) relative to the “100K” line is staggering.  You would not be out of place thinking that this may explain the differing spending habits between these “two Americas” (seriously, John Edwards took all the good lines on this topic).

Poorer than Some, Richer Than Most

All this adds up to a bleak picture for middle class Americans.  They live vastly different lives than the top 10%.  They are taxed more relative to their percentage of total income in America, and more so if taken in historical context.  Most Americans don’t know this despite Occupy Wall Street and vast media attention as of late, but now you do.  Share this information.  Be warned, one third of Americans are quite optimistic about their chances of becoming one of the rich and might be reluctant to see themselves realistically within these statistics. I understand no one wants to feel poor.  Tell them it’s the truth, backed by research and statistical fact, and then offer them this last uplifting factoid: the average income worldwide is 7 grand a year (and only 19% of the world lives in countries at or above that figure)[1].  So we got that going for us, you know?

[1] 1922-1989 data from Wolff (1996). 1992-2007 data from Wolff (2010).

[1]…. yeah yeah, I know 2007 was six years ago.  We elected Obama and now everything has changed, right?

17 responses to “Income Distribution in America

    • I’ll check the video out. Lots of people are born into small pieces of the pie and manage to grab a lot more by the time they go to the big pie in the sky. Although it is harder to do this now than ever before (correcting for racism and sexism, of course) that is no excuse not to try.

      • Indeed. Wealth builds wealth at compounding rates; once you get a little it is easier to get more, and once you have a lot it is easier to get a lot.

  1. So start a software company and develop an innovative license agreement or grow and can tomatoes. What is your point?

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  4. A really interesting view on these statistics would be a study of the individuals over time. Most millionaires in America are 1st generation ones, so often we look at the stats and believe that those in the highest income brackets were born that way and had life handed to them. That’s usually few and far between. The stats also introduce a really compelling chicken-and-the-egg question: Did the wealthiest use their different spending habits to become wealthy in the first place, or were the habits born after accumulating their wealth?

    • Interesting points. Regarding the Chicken and the Egg question, I would put my money on the solid financial habits being the driving force behind their wealthy situation. I think the other solid build on what you are saying is: instead of resenting people with lots of money, ask yourself how they may have gotten it in the first place and then, if you are serious, adjust your life accordingly. The statistic that most millionaires in America are first generation is a very interesting one.

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