Friday, October 01, 2010

Who Is Rich?

Wealth is often confused with income although they are different concepts. Wealth is a stock, it measures what has been accumulated as of a particular point in time. Income on the other hand is a flow, it measure the rate at which ones income flows in a certain period of time, say a year.

As is to be expected wealth is much more concentrated than income in the US. The results of the 2010 census confirmed what many have feared for a while. The top 20% of wage earners get 49.5% of all wages in the US while the lowest 20% of the labour force has to settle for a miserly 3%. If these figures are not jarring enough then please note that the top 1 % of Americans receive 24% of income when in 1915 the top 1% took away 18% of income.What is most disturbing about this disparity is the fact that a large proportion of children are caught in this unforgiving circle of poverty. It is estimated that 37% of the children in the nation are covered by Medicaid.

If you guessed that wealth is even more inequitably distributed then you would be right. The latest studies suggest that the top 20% of Americans own 85% of the wealth in the land while the top 1% claim 35% of the wealth of the nation. As the above figures suggest the bottom 80% of the Americans have to split the remaining 15% of wealth, and yes that means that the bottom half have no net worth .

The recent discussions regarding whether the Bush tax cuts should be renewed and if so for whom is very much related to the income and wealth distribution in the US. Some politicians favour making the tax cuts permanent while others believe that the tax cuts should be renewed only for those households making up to $250,000 a year. The popular rationale for this income level is that people who earn this much are not wealthy. But a quick examination of income distribution reveals that households whose annual income is $250,000 belong to the topd 2.5% of all Americans. Are we suggesting the there is no difference between those that make $50,000 per year and those that make five times as much? I am afraid that we are suggesting just that.
So what do you think? What income level qualifies an individual to be privileged?


Pema Choki said...

It is shocking to hear that the top 20% of wage earners get half the wages in the US while the lower 20% get only about 3%. Hence the poverty that does exist in the US is appalling.
I guess hiking up taxation towards households making up to $250,000 a year would be the governments first instinct but that doesn't really increase the wage earnings for the lowest 20% of the labor force. The government could make more jobs available by encouraging the top 20% wage earners to open up certain industries that train and then hire labors and also increase minimum wage rates.

Abeer Ghani said...

The labor force has to settle for 3% of all wages? That saddens me because work is work, whether hard or easy. This "circle of poverty" that people seem to be caught in is truly demeaning society as a whole. The majority of the U.S. population is lower middle class, and in effect have hardly any wealth. Their income is not much either. Thus, they must scrape their savings in order to survive in a world filled with expenses. Income levels where people can afford more luxuries qualifies them to be privileged. Most households spend their income as well as wealth on necessities.

Megan Burke said...

Since the middle class is beginning to disappear completely, there is a greater and greater gap between the rich and the poor. This created issues for America in the past, and we do not want a repeat of history. Therefore, the government needs to step in with more progressive taxes to help out the growing lower class as much as possible.