doug - why did they use 1977? to get the results they wanted?]
September 5, 1999
Gap Between Rich and Poor Found Substantially Wider
By DAVID CAY JOHNSTON (NYT)
The gap between rich and poor has grown into an
economic chasm so wide that this year the richest 2.7
million Americans, the top 1 percent, will have as many
after-tax dollars to spend as the bottom 100 million.
That ratio has more than doubled since 1977, when the top 1
percent had as much as the bottom 49 million, according to
new data from the Congressional Budget Office.
In dollars, the richest 2.7 million people and the 100 million
at the other end of the scale will each have about $620
billion to spend, according to an analysis of the budget office
figures.
The analysis was done by the Center on Budget and Policy
Priorities, a nonprofit organization in Washington that
advocates Federal tax and spending policies that it says
would benefit the poor.
The analysis, released last night, seems certain to stoke the
debate that is about to resume in Washington over projected
Federal budget surpluses and possible tax cuts.
The data from the budget office show that income disparity
has grown so much that four out of five households, or
about 217 million people, are taking home a thinner slice of
the economic pie today than in 1977.
When adjusted for inflation, as all of the income figures have
been, these households' share of national income has fallen
to just under 50 percent from 56 percent in 1977.
But among the most prosperous one-fifth of Americans
households, or about 54 million people, whose share of the
national income grew, that fatter slice of the pie was not
sliced evenly. More than 90 percent of the increase is going
to the richest 1 percent of households, which this year will
average $515,600 in after-tax income, up from $234,700 in
1977.
Since 1993, the economy has lifted the incomes of all of the
income groups tracked by the budget office, but the incomes
of the richest Americans are rising twice as fast as those of
the middle class. In addition, the budget office figures
understate the economic power of the richest 1 percent
because they exclude deferred forms of income like
restricted stock, which have grown rapidly in recent years as
companies have expanded their pay plans from senior
executives down to store and plant manager levels.
Though the economic pie has grown over the past 22 years,
the Congressional Budget Office data show that the poorest
one-fifth of households have not shared in this bounty. The
average after-tax household income of the poor, adjusted for
inflation, has fallen 12 percent since 1977. So the poor not
only have a small slice of a big economic pie, but the pie is
bigger and their piece is even smaller.
The poorest one-fifth of households will average $8,800 of
income this year, down from $10,000 in 1977.
Congressional Republicans have passed legislation to cut
taxes by $792 billion over the next 10 years, legislation that
President Clinton has promised to veto, saying it is
imprudent and favors the rich.
The Republicans say that a tax cut is justified because
Federal tax revenue rose last year to 21.7 percent of the
economy, the highest since World War II, and because the
Congressional Budget Office anticipates surpluses as far into
the future as its projections go.
The Republicans acknowledge that most of their proposed
tax cuts will go to taxpayers making $100,000 or more a
year, but they say that since these high-income Americans
pay 62 percent of Federal income taxes they should get most
of the benefits of a tax cut.
"The tax bill's benefits are roughly proportional to the taxes
that each taxpayer pays," Bruce Bartlett, a Treasury official
in the Reagan and Bush Administrations, has written.
President Clinton, who says that budget surpluses may never
materialize, wants to pay down the national debt before
cutting taxes. He also says that a tax cut should not bestow
the bulk of its benefits on the rich, and he wants part of any
surplus to finance new programs.
The budget and policy center's report says that one reason
the rich are doing so well is the cumulative effect of tax cuts
since 1977, when the top Federal income tax bracket was 50
percent, compared with the current 39.6 percent.
These tax cuts are worth an average of $40,000 this year to
each of the slightly more than one million households that
make up the top 1 percent, said Robert Greenstein, executive
director of the Center on Budget and Policy Priorities.
Internal Revenue Service tax return data, not cited in the
center's report, show that two-thirds of Americans earned
less than $40,000 in 1997.
"Many Americans who make $80,000 a year, $100,000 or
$120,000, think of themselves as middle class," Greenstein
said, "but the fact is that while these people are not rich, they
are also not in or even near the middle, which is only about
$32,000 in after-tax income."
Greenstein said that under the Republican tax cut plan the
richest 1 percent of households would save an average of
$32,000 more annually, once all of the proposed cuts were
phased in.
The budget and policy center has been sharply critical of the
Republican tax cut plan and the idea that those who pay the
most in taxes should get the biggest cuts.
Isaac Shapiro, who wrote the report with Greenstein, called
the proposed tax cut plan "wrongheaded" and unfair to both
the poor and the middle class.
Greenstein said he was pleased with one proposal in the
Republican plan, a small expansion of the Earned Income
Tax Credit, which allows low-income workers to collect up
to $3,816 this year in refunds of their Social Security tax and
a cash payment that is a form of negative income tax.
A couple with two children does not pay any income tax
until their income exceeds $28,000 this year.
That expansion was proposed despite intense criticism of the
credit by leading Republicans, notably Representative Bill
Archer, Republican of Texas and the chairman of the House
Ways and Means Committee.
Other data, not cited in the budget and policy center report,
also show that the growth in incomes is mostly at the top of
the income ladder.
For example, 142,566 Americans reported $1 million or
more of adjusted gross income for 1997, nearly two-thirds
more than the 86,998 such taxpayers in 1995.
Frank Levy, an economist at the Massachusetts Institute of
Technology whose review of two books taking different
tacks on the income gap appears in the current issue of the
Harvard Business Review, said that the concentration of
income growth at the top resulted largely from rules set by
Congress.
"Markets are obviously very important in the economy,"
Professor Levy said, "but they are surrounded by a lot of
rules -- rules about how easy it is organize unions and how
free trade is -- and those rules are determined by the political
process and those rules right now are shaped by money"
donated to political candidates.
Copyright 1999 The New York Times Company