Friday, September 21, 2012

The 47% (sorry 46%) – an addendum

by Michael Roberts

Yes, it’s 46% of US households (tax units) that don’t pay federal tax as of 2011, not 47%.  But here’s a quick addendum to my last post on that issue.
I argued in my last post (Romney and the 47%, 19 September 2012) that most rich people inherit their wealth and do not make it from their own efforts alone, as the myth goes. Well, another confirmation of that generalisation has been made in a new study by researchers at the Brookings Institution (Pathways to the Middle Class: Balancing personal and public responsibilities (

This is what the researchers say:“The reality is that economic success in America is not purely meritocratic. We don’t have as much equality of opportunity as we’d like to believe, and we have less mobility than some other developed countries. Although cross-national comparisons are not always reliable, the available data suggest that the U.S. compares unfavourably to Canada, the Nordic countries, and some other advanced countries. A recent study shows the U.S. ranking 27th out of 31 developed countries in measures of equal opportunity.

People do move up and down the ladder, both over their careers and between generations, but it helps if you have the right parents. Children born into middle-income families have a roughly equal chance of moving up or down once they become adults, but those born into rich or poor families have a high probability of remaining rich or poor as adults. The chance that a child born into a family in the top income quintile will end up in one of the top three quintiles by the time they are in their forties is 82 percent, while the chance for a child born into a family in the bottom quintile is only 30 percent. In short, a rich child in the U.S. is more than twice as likely as a poor child to end up in the middle class or above.”

The researchers go on to say that the main reason is family wealth.  Children born to rich families have a 75% chance of being at least “middle class” by the time they are 40 years old, but those born into poor families have only a 40% chance.

Then there is the other interesting fact that I neglected to mention about the 46% of American taxpayers who pay no federal income tax.  There are several thousand ‘tax units’ who earned more than $1m a year.  It seems that the US tax system enables some of the very rich earners to avoid paying federal  income tax.  I bet they vote Republican, contrary to Mitt Romney’s opinion.
Finally, a really startling piece of research by Professors Peter Lindert and Jeffery Williamson at NBER ( They find that income distribution was more equal in colonial America than in countries including England and the Netherlands in the late 18th century. More striking, they find that U.S. income distribution is less equal now than in 1774!  As Jordan Weissman of the Atlantic magazine notes, “By the time the Civil War came, the top one percent of U.S. households laid claim to 10 percent of the nation’s income, versus about seven percent during the founders’ era. Today, the same group accounts for about 19 percent.”  So inequality of income in the US is now at its highest since modern capitalism began.  Here is Weissman’s graph based on that data.

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