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Who Are The 1 Percent?

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Wads of cash such as this are the realm of the top income earners.
CBO Report Identifies Not Only The Inequalities In Household Income But Who Benefits Most


By John Monahan
Modern Times Magazine

Oct. 27, 2011 — When the Congressional Budget Office released their report on household income yesterday, the top “1 percent” of earners in the U.S. was revealed to have benefited from a 275 percent increase in earnings while the “99 percent” saw increases from 16 to 60 percent.

Written by Edward Harris and Frank Sammartino of the CBO’s Tax Analysis Division, the study plainly stated that the growing inequality in household income was due to the top 1 percent keeping more than at virtually any other time in modern history.

“The rapid growth in average real household market income for the 1 percent of the population with the highest income was a major factor contributing to the growing inequality in the distribution of household income between 1979 and 2007,” according to the study. “Average real household market income for the highest income group nearly tripled over that period, whereas market income increased by about 19 percent for a household at the midpoint of the income distribution. As a result of that uneven growth, the share of total market income received by the top 1 percent of the population more than doubled between 1979 and 2007, growing from about 10 percent to more than 20 percent.”

Read the full CBO report here

Right away, bankers and those in the financial markets were lampooned and lambasted, and according to the report, they have benefited greatly in recent history — and remarkably in the past three decades.

“Because of the important role of the financial sector, some researchers have focused on the pattern of compensation in that sector over a long period. They found that the financial sector has become more complex since the 1980s and has thus needed more skilled labor. But even accounting for the education and skills of the workforce, the compensation differential between the financial sector and the rest of the economy appears inexplicably large from 1990 onward,” the report read. “The authors believe that deregulation and corporate finance activities linked to initial public offerings and credit risk are the primary causes of the higher compensation differential.”

But corporate executives were also identified as prime factors in removing dollars from lower-income folks.

“Another body of research has focused on the very large pay increases for top corporate executives. Some researchers have argued that this growth in compensation can be accounted for by increases in firms’ size. As firms grow larger and more complex, the impact on profits of corporate executives’ decisions becomes greater, so firms may be more willing to pay large salaries to attract and keep the best executives,” the report reads. “Other researchers have argued that weaknesses in corporate governance have enabled corporate executives to overpay themselves. Still others have focused on the form of compensation, arguing that the increasing importance of stock options in executive compensation has caused that compensation to grow rapidly during periods of rapid appreciation in the stock market.”

Read the full CBO report here

But what was most interesting is that most media did not mention the other portion of the 1 percent that is almost never identified or blamed for the growing disparity in household income: superstar athletes and entertainers. Sure, most people today have become numb to the skyrocketing costs of entertainment. Tickets to a sporting event or to a concert seem like they cost just as much as a vacation these days.

Increasing prices and the ever-multiplying ways for celebrities to sell themselves has allowed them to keep more and dollars spent by their millions of adoring fans.

“A number of factors may have contributed to the rapid rise in earnings among the highest-income households. One potential explanation is that the compensation of “superstars” (such as actors, athletes, and musicians) may be especially sensitive to technological changes,” the report read. “Unique characteristics of that labor market mean that technical innovations, such as cheap mass media, have made it possible for entertainers to reach much wider audiences. That increased exposure, in turn, has led to a many-fold increase in income for such people.”

So those people that we cheer for a sporting events, cheer for at concerts or watch at the movie theatre or on TV — like LeBron James, Roy Halladay and Aaron Rodgers, Beyonce, Taylor Swift, Coldplay, Gwyneth Paltrow and many others — are also just sucking the 99 percent dry.

Funny, that seemed to be lost in most news reports yesterday.

While that should be a crucial part of the discussion on income inequality — especially since most of the “superstars” end up shilling for the corporate executives or financial institutions,  such as Kiefer Sutherland for Bank of America and Sam Waterston for TD Ameritrade — the report did say they are not the prime cause.

That honor goes to those in the financial system, of course.

“Corporate executives were a fairly small percentage of the highest earners, as were athletes and celebrities, and they did not grow in importance over the 1994–2004 period. In contrast, employees in the financial and legal professions made up a larger share of the highest earners than people in those other groups,” the study said.

Read the full CBO report here

In the end, though, the CBO has identified exactly who is in the 1 percent and why they got there. But it is important to remember that the 1 percent is not just bankers or corporate types.

Now, the people just have to figure out what to do about it.

John Monahan is a freelance writer living in Connecticut.
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