April 23, 2024

Top Earners Doubled Share of Nation’s Income, C.B.O. Says

In addition, the report said, government policy has become less redistributive since the late 1970s, doing less to reduce the concentration of income.

“The equalizing effect of federal taxes was smaller” in 2007 than in 1979, as “the composition of federal revenues shifted away from progressive income taxes to less-progressive payroll taxes,” the budget office said.

Also, it said, federal benefit payments are doing less to even out the distribution of income, as a growing share of benefits, like Social Security, goes to older Americans, regardless of their income.

The report, requested several years ago, was issued as lawmakers tussle over how to reduce unemployment, a joint committee of Congress weighs changes in the tax code and protesters around the country rail against disparities in income between rich and poor.

In its report, the budget office found that from 1979 to 2007, average inflation-adjusted after-tax income grew by 275 percent for the 1 percent of the population with the highest income. For others in the top 20 percent of the population, average real after-tax household income grew by 65 percent.

By contrast, the budget office said, for the poorest fifth of the population, average real after-tax household income rose 18 percent.

And for the three-fifths of people in the middle of the income scale, the growth in such household income was just under 40 percent.

The findings, based on a rigorous analysis of data from the Internal Revenue Service and the Census Bureau, are generally consistent with studies by some private researchers and academic economists. But because they carry the imprimatur of the nonpartisan budget office, they are likely to have a major impact on the debate in Congress over the fairness of federal tax and spending policies.

Also cited as factors contributing to the rapid growth of income at the top were the structure of executive compensation; high salaries for some “superstars” in sports and the arts; the increasing size of the financial services industry; and the growing role of capital gains, which go disproportionately to higher-income households.

The report found that higher-income households got a larger share of the pie, while other households got smaller shares.

Specifically the report made these points:

¶ The share of after-tax household income for the top 1 percent of the population more than doubled, climbing to 17 percent in 2007 from nearly 8 percent in 1979.

¶ The most affluent fifth of the population received 53 percent of after-tax household income in 2007, up from 43 percent in 1979. In other words, the after-tax income of the most affluent fifth exceeded the income of the other four-fifths of the population.

¶ People in the lowest fifth of the population received about 5 percent of after-tax household income in 2007, down from 7 percent in 1979.

¶ People in the middle three-fifths of the population saw their shares of after-tax income decline by 2 to 3 percentage points from 1979 to 2007.

The study was requested by Senators Max Baucus, Democrat of Montana and chairman of the Finance Committee, and Charles E. Grassley of Iowa, when he was the senior Republican on the panel.

Representative Sander M. Levin of Michigan, the senior Democrat on the Ways and Means Committee, said the report was “the latest evidence of the alarming rise in income inequality.”

House Republicans pushed back Tuesday against President Obama’s complaint that they were blocking bills to create jobs. Speaker John A. Boehner said he agreed with Mr. Obama’s new slogan, “we can’t wait,” and he said that 15 House-passed bills were “sitting over in the Senate, waiting for action.”

On Tuesday, the White House endorsed another bill, which is likely to be passed by the House this week with bipartisan support. The bill would repeal a requirement for federal, state and local government agencies to withhold 3 percent of certain payments to suppliers of goods and services and to deposit the money with the Internal Revenue Service.

This requirement was originally adopted as a tax-compliance measure, and the Congressional Budget Office said its repeal would reduce federal revenues by $11 billion over 10 years.

House Republicans would offset the cost with a bill that reduces federal spending on Medicaid under the 2010 health care law. The White House said it supported the bill, intended to fix an apparent error in the law, under which hundreds of thousands of middle-income early retirees can get Medicaid coverage meant for the poor.

The joint Congressional committee on deficit reduction is considering changes in a wide range of benefit programs.

Representative Steny H. Hoyer of Maryland, the No. 2 House Democrat, said Tuesday that he was hopeful but not entirely confident that the panel would succeed in reaching a bipartisan agreement to reduce federal deficits by $1.2 trillion over 10 years.

“Hopeful is not confident,” Mr. Hoyer said.

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Working for Less: At Well-Paying Law Firms, a Low-Paid Corner

Make no mistake: These are full-fledged lawyers, not paralegals, and they do the same work traditional legal associates do. But they earn less than half the pay of their counterparts — usually around $60,000 — and they know from the outset they will never make partner.

Some of the lawyers who have taken these new jobs are putting the best face on their reduced status. “To me there’s not much of a difference between what I’m doing now and what I would be doing in a partner-track job,” said Mark Thompson, 29, who accepted a non-partner-track post at Orrick, Herrington Sutcliffe when he could not find a traditional associate job. “I still feel like I’m doing pretty high-level work — writing briefs, visiting client sites, prepping witnesses for hearings.”

Asked whether he hopes someday to switch onto the partner track, given the higher pay for this same work, he is diplomatic. “I’m leaving all my possibilities open,” he said.

Lawyers like Mr. Thompson are part of a fundamental shift in the 50-year-old business model for big firms.

Besides making less, these associates work fewer hours and travel less than those on the grueling partner track, making these jobs more family-friendly. And this new system probably prevents jobs from going offshore.

But as has been the case in other industries, a two-tier system threatens to breed resentments among workers in both tiers, given disparities in pay and workload expectations. And as these programs expand to more and more firms, they will eliminate many of the lucrative partner-track positions for which law students suffer so much debt.

Mr. Thompson is one of 37 lawyers in Orrick’s new program, which is based in this small Rust Belt city an hour southwest of Pittsburgh. An international firm headquartered in San Francisco, Orrick is one of a handful of law firms, including WilmerHale and McDermott Will Emery, experimenting with ways to control escalating billing rates.

“For a long time the wind was at the back of these big law firms,” said William D. Henderson, a historian at Indiana University-Bloomington.

“They could grow, expand and raise rates, and clients just went along with absorbing the high overhead and lack of innovation. But eventually clients started to resist, especially when the economy soured.”

For decades, firms used essentially the same model: charging increasingly higher rates for relatively routine work done by junior associates, whose entry-level salaries in major markets have now been bid up to $160,000 (plus bonus, of course), a sum reported by the big law schools. Even under pressure to reduce rates, firms are reluctant to lower starting salaries unilaterally for fear of losing the best talent — and their reputations.

“Everyone acknowledges that $160,000 is too much, but they don’t want to back down because that signals they’re just a midmarket firm,” said Mr. Henderson. “It’s a big game of chicken.”

So now firms are copying some manufacturers — which have similarly inflexible pay because of union contracts — by creating a separate class of lower-paid workers.

At law firms, these positions are generally called “career associates” or “permanent associates.” They pay about $50,000 to $65,000, according to Michael D. Bell, a managing principal at Fronterion, which advises law firms on outsourcing.

These nonglamorous jobs are going to nonglamorous cities.

Orrick moved its back-office operations to a former metal-stamping factory here in 2002, and in late 2009 began hiring career associates. Costs of living are much cheaper in Wheeling than in San Francisco, Tokyo or its 21 other locations, saving $6 million to $10 million annually, according to Will A. Turani, Wheeling’s director of operations.

“It’s our version of outsourcing,” said Ralph Baxter, Orrick’s chief executive. “Except we’re staying within the United States.”

Similar centers have cropped up in other economically depressed locations. WilmerHale, a 12-office international firm, has “in-sourced” work to Dayton, Ohio.

“There’s a big, low-cost attorney market there,” said Scott Green, WilmerHale’s executive director. “That means we can offer our services more efficiently, at lower prices.”

What’s good for clients, of course, isn’t quite as good for those low-cost lawyers.

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