The rich got richer

[Louis Proyect <lnp3@xxxxxxxxxxxxx>]

NY Times, Sept. 17, 2000

On a New Map, the Income Gap Grows

By DAVID CAY JOHNSTON

DESPITE all the talk about prosperity in this digital age, tax return data
indicates that the rising tide of bits and bytes is lifting the yachts much
more than the rowboats.

>From 1986 through 1997, the latest year for which detailed figures are
available from the Internal Revenue Service, the average income of the
richest 1 percent of Americans soared 89 percent, to $517,713 from $273,562.

Those figures are after federal income taxes have been paid, and are
expressed in constant 1997 dollars to eliminate the effects of inflation.
To be counted among the top 1 percent in 1997 required an after-tax income
of at least $268,889, suggesting a pretax income of at least $440,000.

But the incomes of those at the top did not rise steadily over those 12
years. The average declined from 1989 to 1991 because of a mild recession.
And it dropped again in 1993, but that is probably a fluke, attributable to
significant numbers of wealthy people who cashed in deferred income in
1992, in anticipation of an increase in the top income tax rate to 39.6
percent, a rate paid only by the top 1 percent of taxpayers.

During those same 12 years, the bottom 90 percent of Americans, meaning
everyone who took home less than $80,000 after paying federal income taxes,
did not fare nearly as well.

In 1997, the average income for the bottom 90 percent was $23,815, up a
scant $364, or 1.6 percent, from 1986. This average also fluctuated during
the 12 years, but the changes, up or down, were less than 2 percent in 11
of those years. The fluctuations were so tiny that in the chart
accompanying this article they disappear, and the line appears flat.

The figures were computed from an I.R.S. statistics-of-income report by the
Center on Budget and Policy Priorities, a nonprofit Washington group that
advocates policies that it says will benefit the poor.

The center's report did not include one fact that illustrates the sharp
divergence between the fortunes of the economic elite and the rest of
America: From 1996 to 1997, the increase in average income for the top 1
percent of Americans ? a gain of $69,009 ? was nearly triple the total
average income of the bottom 90 percent.

Over nine years of economic expansion, the question of whether the fruits
of the boom are being distributed fairly has become central in American
politics. Competing policy proposals from Democrats and Republicans on
issues ranging from taxation to health care to retirement savings are often
based on fundamentally different interpretations of the available data. And
the quality and reliability of the data itself is often hotly disputed by
advocates in each camp.

There are many ways to measure income, none of them perfect. Tax- return
data like that examined by the center has the advantage of coming from
documents that all taxpayers sign under penalty of perjury, and of being
subject to comparison with W- 2 and Form 1099 reports from third parties
listing payments of wages, dividends, interest and royalties. Rent and
capital-gain income, which goes mostly to the affluent, depends on the
reporting of those who receive the income.

Edward N. Wolff, an economist at New York University who studies the
wealthy, said tax-return data gave a reliable picture of those with the
highest incomes. But for the bottom 90 percent, he said, "the figures are
biased downward," because a substantial amount of Social Security and other
income is not picked up on tax returns. Income from tax-free bonds and the
like is also omitted from tax returns, but it goes almost entirely to the
wealthy.

ANOTHER widely used measure of income, the Census Bureau survey data on
median household income, also showed little change in overall income from
1986 to 1997.

Adjusted for inflation, the median income rose just 1.5 percent during
those years, to $37,005 in 1997 dollars. Unlike the tax data, the Census
Bureau's survey figures tend to understate incomes at the high end, because
of the methodology used to record large incomes. The bureau puts a cap on
all income components ? salaries, for example, are capped at $999,999 ? so
that a few extremely high incomes do not distort the survey averages.

Those who report the greatest share of the nation's income also pay the
greatest share of income taxes. In 1997, the I.R.S. data shows, people with
incomes of $100,000 or more, about 5.9 percent of all taxpayers, made 34.5
percent of all the money and paid 53.7 percent of the income taxes
collected that year.


Louis Proyect
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