[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