Gap Between Rich and Poor Found Substantially Wider

kirsten neilsen kirsten at Infothecary.ORG
Sun Sep 5 08:56:22 PDT 1999


[an aspect of this article i found particularly interesting: this is the first story about income disparity i've read in the mainstream press that indicated that something other than simple "market forces" is responsible for the dramatic increase in the gap between rich and poor. see comments by frank levy at the bottom. also, i've seen various people claim that the economic expansion in the '90s has been good even for the poor. technically that's true, it seems, but the result is that average after-tax household income of the poor, adjusted for inflation, is only down 12% since 1977, instead of more. great.

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



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