-Caveat Lector- 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 DECLARATION & DISCLAIMER ========== CTRL is a discussion and informational exchange list. Proselyzting propagandic screeds are not allowed. Substance—not soapboxing! 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