Study finds growing gap between rich and poor

Michael Pollak mpollak at panix.com
Sun Sep 5 09:20:17 PDT 1999


[The annual labor day story. Most interesting point: that, despite its recent fall, poverty is greater now than in 1977.]

Study finds growing gap between rich and poor

Copyright © 1999 Nando Media

Copyright © 1999Scripps McClatchy Western Service

By LEO RENNERT, Nando Washington Bureau

WASHINGTON (September 5, 1999 2:47 a.m. EDT http://www.nandotimes.com)

The nation's rich-poor divide is wider than at any point in the last

two decades, with the wealthiest 2.7 million Americans set to receive

as much after-tax income this year as the 100 million Americans with

the lowest incomes, according to a study released this weekend.

Based on data from the nonpartisan Congressional Budget Office, the

study estimates that average after-tax income for the top 1 percent of

households will climb in 1999 to $516,000 -- a real, after-inflation

gain of 115 percent since 1977, when CBO began compiling such figures.

For 55 million people in the top 20 percent, the average income

increase over this 22-year time span is 43 percent. In contrast,

incomes of the middle 20 percent grew only 8 percent, while earnings

declined 9 percent for the bottom fifth.

Disparities in wealth are even greater. While the top 1 percent of

households account for 13 percent of after-tax income, they own 39

percent of the nation's wealth.

The findings were released by the Center on Budget and Policy

Priorities, a pro-labor research group, to buttress arguments that a

rising economic tide has not lifted all boats and that, despite real

wage gains in the last two years, many American workers on this Labor

Day weekend are still struggling to match living standards of earlier

generations.

Many conservative economists maintain that as more jobs are created

and poverty shrinks, it's all right for the rich to get richer because

they supply the investments that expand prosperity. Some also point to

the aging of America as driving the trend toward greater income

disparities.

William Beach, director of data analysis for the conservative Heritage

Foundation, said income gaps are bound to increase as 73 million baby

boomers reach their most productive working years while their parents,

blessed with greater longevity, retire with little new income and live

mainly on savings and Social Security.

While not rejecting the notion that there may be some problems, Beach

ties the current trend largely to the "economics of aging" and an

economic system that "rewards innovation and success." Patterns of

inequality, he predicted, are bound to get even more pronounced in

coming years.

Isaac Shapiro, the author of the new study, takes a far more alarmist

view. The bottom fifth of households, he notes, are actually worse off

today than in 1977. While the poverty rate declined in the last few

years, he adds, it's still higher than it was 20 years ago -- 11.6

percent in 1977 vs. 13.3 percent in 1997.

The study's findings highlight two strikingly different economic

postwar periods -- gains across the entire spectrum from the end of

World War II to the late 1970s, followed by rising disparities since

then.

In accounting for the change, Shapiro credits economic factors like

growth in executive compensation, a rise in capital gains, declining

labor union strength, globalization and high technology. Also

reinforcing the trend, he states, is the impact of tax policies over

the last 20 years which, on balance, have tended to favor more

affluent households.

President Clinton managed to slow the trend in the 1990s with a boost

in the top tax rate, a higher minimum wage and expansion of the earned

income tax credit for low-income workers. But he did not stop or

reverse the inequality trend because these measures were not enough to

counterbalance the effect of the big Reagan tax cuts of the 1980s and

the 1997 tax bill that cut capital gains rates.

According to the study, the effective federal income tax rate for the

top 1 percent of households is expected to be 34.4 percent this year

-- a reduction of more than 13 percent from the 1977 rate of 39.7

percent. If the richest 1 percent of households paid at the 1977 rate

today, their average tax bill would be more than $40,000 higher.

By using CBO's latest projections, the study cranks in the impact of

the 1997 tax law, which the administration touted as a big assist to

help middle-income families with child-rearing and education expenses.

Shapiro, however, points out that the new child tax credit doesn't

help many workers at the lower end who don't make enough to benefit

from this provision because they have little, if any, income tax

liabilities, but still get their paychecks reduced by payroll taxes.

The study concludes that the 10-year, $792 billion tax-cut bill

awaiting Clinton's veto would widen income and wealth gaps even more.

"It would direct the lion's share of tax cuts to those with high

incomes, which would further increase the concentration of after-tax

income among those at the top," it states.

Copyright © 1999 Nando Media



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