There is a pervasive belief that the gains of successful Americans come at the expense of everyone else. However, the economy is not a fixed pie. The data suggests that the incomes of all Americans are higher than they were twenty years ago after adjusting for inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. , and that everyone’s incomes tend to rise and fall with the business cycle. Between 1987 and 2010, the bottom 50 percent’s real income grew by 25 percent, middle-income Americans’ by 46 percent, and upper-middle-income Americans’ by 56 percent.
Clearly, the incomes of the top 1 percent tend to rise more and fall more during the business cycle. This is because most of their income comes from business and investments. Indeed, the top 1 percent’s income fell 26 percent in real terms during the recessionA recession is a significant and sustained decline in the economy. Typically, a recession lasts longer than six months, but recovery from a recession can take a few years. , far more than any other income group.
For more charts like the one below, see the second edition of our chart book, Putting a Face on America's Tax Returns.
