Golden Years for the Gilded
Under President Bush, the Rich Got Richer but Paid Lower Taxes
SOURCE: AP/Susan Walsh
The many economic failures of the Bush administration are well known—disappointing economic growth, poor job creation, stagnant and falling wages, fiscal mismanagement—all of which culminated in the worst financial and economic crisis since the Great Depression. Almost no one came out of the Bush years much better off than they went in.
Almost no one. The rich, it turns out, did fine. Their incomes soared, and their taxes plummeted. These indisputable facts from the last decade are important to keep in mind as we debate the expiration of the high-end Bush tax cuts and whether it makes sense now to borrow another $830 billion over the next ten years to give more tax breaks to the only group of Americans who actually fared well under the economic policies of George W. Bush.
The rich, and especially the super rich, did very well under President Bush. From 2000 to 2007 (the last year for which comprehensive data is available), the average income among the richest 20 percent of Americans increased by almost 12 percent, after accounting for inflation. Among just the richest 1 percent, however, average income grew by more than 20 percent. Compare this to the median household, whose real income actually fell slightly over the same period (Figure 1).
Those growth rates for the wealthy mask an even starker contrast. From 2000 to 2002, the average income in all five quintiles, as well as in the top 1 percent, actually fell as the economy muddled through the relatively mild “dot-com” recession—mild relative to our current economic morass. It was only in 2003 that real income (after accounting for inflation) began to creep back up. Over the next four years, from 2003 to 2007, median household income edged up by less than 3 percent, but average income among those in the top 1 percent grew by an astonishing 61 percent, to $1.9 million in 2007 from $1.2 million in 2003.
The result of the enormous income growth at the very top of the ladder was that total income earned by Americans grew increasingly concentrated among that top 1 percent. In 2000, the richest 1 percent made 17.8 percent of the total income. That share declined over the next two years—a consequence of the dot-com recession—to 13.5 percent in 2002. Then the rich rebounded quite nicely. From 2002 to 2007, the share of total income accruing to the richest 1 percent jumped by about 6 points to almost 20 percent, the highest concentration of income at the extreme top in at least the last thirty years. In 2007, the richest 1 percent took home more total income than the poorest 50 percent combined (Figure 2).
The top 1 percent clearly made out pretty well, but even their incredible gains pale in comparison to the truly astonishing income increases enjoyed by the richest of the rich—the top 400 taxpayers in the country. These 400 richest people each made at least $138.8 million dollars in 2007. But that’s not even the astonishing part. In 2003, the average adjusted gross income among the richest 400 people was a bit under $150 million. Just four years later, the 400 richest taxpayers boasted an average income of almost $350 million—a 133 percent increase. To describe that growth as “impressive” would be an understatement. The richest 400 people in the country saw their average income grow fully 16 times faster than those in the middle 20 percent (Figure 3).
At the same time that incomes among the extremely wealthy skyrocketed, the share of federal taxes paid by this select group plummeted. In 2000, the ultra-super-extremely rich—those top 400—paid an average of 22.3 percent of their income in federal income tax. Seven years later, that rate was down to 16.6 percent. Among the richest 1 percent, the average effective income tax rate dropped to 19 percent in 2007 from 24.1 percent in 2000 (Figure 4).
Even including all federal taxes—income, payroll, excise, and all others—the rich still enjoyed a declining effective tax rate. In 2001, those in the top 1 percent paid about 33 percent of their total income in all federal taxes. Seven years later, that rate was down to 29.5 percent, lower than any year since 1991. Not only did the average effective rate drop, but the percentage of wealthy people who were paying much lower rates than those implied by the average climbed rather dramatically too.
In 2000, for example, there were about half a million households that both earned more than $200,000 in income and paid less than 20 percent in taxes. That was about 18 percent of all high-income households (those making more than $200,000 a year). By 2007, there were 2.2 million such households, 49.5 percent of the total. In short, in 2007 essentially half of all households earning more than $200,000 were paying less than 20 percent of their income in federal taxes (Figure 5).
It should come as no surprise that the biggest year-over-year increase in the rate of high income households paying less than 20 percent of their income in taxes came in 2003. That was the year of the second round of Bush tax cuts, which were skewed even more heavily toward the very wealthy than the first round. The result? From 2002 to 2003, the proportion of high-income households paying less than 20 percent in taxes jumped 15 percentage points and continued to rise from there.
The Bush years were certainly good ones for the very wealthy. Their incomes rose much faster than everyone else’s while at the same time their tax rates, thanks in part to the largesse of the Bush tax cuts, fell precipitously. Now, strangely, we find ourselves mired in a fight over whether to extend those cuts that benefit just the wealthiest 2 percent of Americans, even as the country as a whole is facing massive deficits, a mounting debt, and an economy stuck in neutral.
Can anyone seriously argue that the very rich can’t afford to take a little more responsibility for getting the country going again? Some conservatives will try, but that won’t wash with the vast majority of the American people who know how poorly they fared under President Bush while the wealthy reaped the rewards.
For more on this topic see:
- Geithner Calls It Like It Is: Critiques Bush-era Fiscal Policy and Calls For Tax Cuts For the Middle Class, Not the Wealthy
- Three Good Reasons to Let the High-End Bush Tax Cuts Disappear This Year by Michael Linden and Michael Ettlinger
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