What if growth had been equal?

I spent my lunch break reading "Winner-Take-All Politics," and suggest you do the same. It's time well spent. I'll probably be doing a fair amount of blogging from this book over the next few days, but let's start with some graphs.

I talked earlier about "the Conehead economy," the idea that if the economy were a person, its growth over the past few decades would've turned it from a normal-looking individual into a conehead. Jacob Hacker and Paul Pierson get at this idea slightly differently. They've got a table showing how incomes would look if growth had been equally shared from 1979 to 2006 -- much as it was in the decades before 1979. My first thought was to turn their table into a graph. Tables are always better than graphs, right? Well, here's what happened:

You can't even see what's going on with the middle class. For the record, there are real changes in that graph: If growth had been equally shared, the middle quintile would be making $64,395 today. Instead, they're making $52,100. That's a 23 percent raise those folks didn't get -- and that I'm sure they would've noticed.

But you can't even see it on this graph, which is stretching to accommodate the change in the top 1 percent. As it is, that group made, on average, $1,200,300 in 2006. If growth had been equally shared in the three decades before that, however, their incomes would've been cut by more than half, down to $506,002.

That's real, serious money we're talking about. The top 1 percent now accounts for 23.5 percent of the national income if you include capital gains. In 1979, they only had 9.8 percent of the nation's earnings. During that same period, tax rates on the richest Americans have actually dropped. So as the economy went one way -- toward more money going to the rich -- the tax system went the other.

Hacker and Pierson ran some of the numbers on this: In 2000 the top 0.1 percent had 7.3 percent of the income after taxes. But if taxes had remained at their 1970 rates, they would've only had 4.5 percent. That's a big change in income distribution -- $3 out of every $100 paid out in this country -- and it's entirely attributable to tax policy on the top 0.1 percent of earners. So though there are a lot of pieces to the inequality puzzle, one, undoubtedly, is tax policy.

Now, taxes affect growth, so the discussion is more complicated than just restoring tax rates from the 1970s. There's also the related question of how much of this is zero-sum. The answer, quite clearly, is some, but not all. But the discussion also needs to catch up to amount of income pooling at the top of the economy, which I think is understandably difficult for people to grasp.

Photo credit: Luis Perez/Flickr.