The Rise of the Super-Rich

Katharine Gammon, LiveScience Contributor

The top 1 percent of Americans are getting a bigger piece of the economic pie — and part of the reason may be Republicans in Congress, according to a new study.

The study, detailed this month in the journal American Sociological Review, shows that the income share of the top 1 percent grew rapidly after 1980 — from 10 percent in 1981 to 23.5 percent in 2007, an increase of 135 percentage points. (Since 2007, the wealth held at the top has decreased a bit, due to the financial meltdown of 2008.)

Study co-author Thomas Volscho, an assistant professor of sociology at CUNY-College of Staten Island, finds a Republican majority in Congress is one of the main reasons for the widening rich-poor gap. However, other experts say one factor cannot explain the rise of the 1 percent, and rather a handful of reasons, such as globalization and even technology, play roles.

Taxes and the top 1 percent

Volscho said he got interested in the topic when he read about gilded-age mansions on Long Island and realized that America was living through another gilded age.

"I started looking at the data in 2009, and I wanted to know how the one percent doubled their share of the income pile," Volscho said.

He combed through house price index data, IRS numbers (taxes paid) and census data, finding a few factors that may have led to the rise of the super-rich: Congressional shifts to the Republican Party, diminishing union membership, lower tax rates for the top 2 percent of Americans, and financial asset bubbles in stock and real-estate markets. [5 Facts About the Wealthiest 1 Percent]

When Republicans gained seats in Congress in any given year the number of super-rich jumped in the following year. For instance, from 1949 through 2008, the impact of a 1 percentage point increase in the share of seats (just over five seats) held by Republicans in Congress raised the top income share by about 0.08 percentage points, according to the study. Volscho found that while Congress played a role, the President's political affiliation didn't correlate with any leaps in the über-wealthy.

Volscho said he was surprised to find the connection between union membership — which was as high as 35 percent in the 1950s — and income inequality. "Every time union membership went up by 1 percent, the share of income going to [the] top one percent [increased] by 0.4 percent."

That means that much more of the economic pie went to the top earners for 2008, that increase of 0.4 percentage points equaled $33.4 billion.

Volscho says that taxes have also made an impact: In the 1980s, when Reagan gave a massive tax cut to the wealthiest people while increasing spending, he made up the difference by selling treasury bonds — and who bought those bonds? The wealthy, who profited off the lower tax rates assessed to capital gains earnings, did. "So the rich went from owning companies that made physical products, TVs and shoes, and hiring people to work in factories, that all shifted in the 1970s. Now many of the new rich are Wall Street and connected lawyers." [6 Odd Historical Tax Facts]

Reasons behind income inequality

Lane Kenworthy, a sociologist at the University of Arizona who studies income inequality, said various hypotheses could explain the income gap. Since the 1980s, Kenworthy said, the bottom three-quarters of the U.S. population have seen slow economic growth, while the top quarter has experienced decent growth, and the top 1 percent, rapid growth.  

"I generally believe a confluence of factors fell into place at the same time, so there's no single factor that really explains it — but lots of people have stories about which they think are more important," he said. "And this is the first time Congress's role has come into it."

Among other causes, both globalization and technology have squeezed the lower incomes while allowing the wealthy to become richer, said Kenworthy, who was not involved in the current study. Globalization makes it easier to ship jobs overseas, depressing wages for American workers. At the same time, globalization made it easier for superstars — Oprah or professional sports players but also CEOs — to sell their brands around the world instead of just in the United States.

And technology makes it easier for the financial markets to make bigger gains and drops through instant computer-based transactions. It also replaces humans in some fields, from medical diagnostics to bank tellers, Kenworthy noted. Deregulation, of course, also played a part, allowing for bigger and bigger financial risks.

