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Study: US Has the Worst Income Inequality of Developed Nations

By Michael Kling   |   Monday, 19 Aug 2013 09:13 AM

The United States has the worst income inequality of all developed nations, according to a new study.

Total annual income of the top 1 percent income earners in the United States has more than doubled from 9 percent in 1976 to 20 percent in 2011, reports the study published in the Journal of Economic Perspectives.

While income of the top 1 percent rose by 135 percent in the United States and United Kingdom from 1980 to 2007, it increased 105 percent in Australia and 76 percent in Canada. In many other developed countries, the levels are close to those in the late 1940s.

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By comparison, the income for the 95th to 99th percentile in the United States rose just 3 percentage points, write economists Facundo Alvaredo, Anthony Atkinson, Thomas Piketty and Emmanuel Saez.

Basically, the richer you were, the richer you've become.

Other countries have experienced new technologies and globalization but have not seen such large income increases of their wealthiest citizens, they note. Instead, tax policies and treatment of capital income have caused the growing income disparity.

The United States cut the income tax rate for the top 1 percent by 47 percentage points. Countries such as Germany, Spain, or Switzerland, which did not significantly cut tax rates, did not see increases in top 1 percent income shares.

The United Kingdom also cut taxes for its wealthiest, yet the share going to its top 1 percent is not as large as in the United States, the study authors explain.

Mark Gongloff of The Huffington Post says that's because of Wall Street's control over Washington.

"The same politicians that have busily been slashing taxes on the wealthy have also been loosening fetters on banking, allowing the financial sector to swell to bloated size and mop up ever-more income while contributing ever-less back to the economy," he writes.

"One nifty benefit to having nine metric craptons of money is that you can use it to buy politicians to help you craft the laws you like, particularly those that will help you end up with 10 metric craptons of money."

Other studies have also reported large and growing income disparity in the United States, Gongloff notes. For instance, a study by the Organization for Economic Co-operation and Development said the United States has greater income inequality than all countries except for Chile, Mexico and Turkey.

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