The Rich and The Poor

Have you ever thought about the things you might do if you were chosen to be the supreme (and hopefully benevolent) dictator of the United States?

I don’t know what would be on your agenda, but mine would certainly be to correct the way wealth is accumulated and distributed in this country.

If you divide the wealth of the United States into thirds, you’ll find that the top 1% of people own about a third, the next 9% own another third, and the bottom 90% claim the rest.

Actually, these percentages, true a decade ago, are now out of date. The top 1% are now estimated to own between 40 to 50% of the nation's wealth, more than the combined wealth of the bottom 95%.

Since 1973, median family income has grown very little. Early in this period, income growth fell victim to oil price shocks and to a productivity slowdown -- this slow growth of output per worker plagued most industrialized countries.  Slow growth affected people's outlook on economic life. When incomes grow rapidly, more inequality means that the poor get richer but the rich get richer faster. But when inequality increased in the ensuing slow-growth 1980s, some groups' incomes fell in real terms. Between the business cycle peak of 1979 and the next business cycle peak of 1989, the average income of the poorest fifth of families fell from $10,900 to $10,200, while the average income of the top fifth grew from $89,600 to $97,600. Moreover, the price of two key pieces of a middle-class life—a single-family home and a college education—grew faster than the general rate of inflation and faster than average incomes. For all of these reasons, slow income growth played a key role in people's perceptions of a vanishing middle class.

Look at this chart (based on US Census Bureau information) which shows US workers' median pay growth from 1953 to 2003:

In this chart, it’s easy to see that from 1953 to about 1973, the American Dream was prevalent: The general level of living was rising, and the future looked rosy. That was the milieu I grew up in. Actually, in every decade in the 150 years before 1970 -- including the decade of the Great Depression -- real earnings rose. But things changed, and for the last 30 years, median male earnings have been about flat. We might as well be living in a feudal society, where nothing ever changes. Were it not for hard-working females, things would be mighty grim indeed!

You've heard the saying that "a rising tide floats all boats".  That was the shibboleth of Reagen's trickle-down economic policy, and of other Neocons who have followed in his footsteps.  I see a good many luxury yachts floating high out there, but my little average-man's dingy appears to have been swamped long ago, and now lays at the bottom of the harbor.

How does US Government tax policy play into this picture? Don’t these data imply that the average worker (not even mentioning the underclass) is being left behind, and is no longer participating in the American Dream? Shouldn’t we be looking at ways of raising the general level of living? Or of redistributing the wealth more equitably? Defensively, the more well-off will point to the "disproportionate" share of taxes already paid by wealthy people. It may be true that the top few percent of high-income people are shouldering much of the tax burden. The top 10% pay almost half of it. The top-earning 20% of taxpayers pay about 2/3 or more of the entire US individual tax burden. The whining and the tears issuing from the elite are pathetic -- and crocodilian.

I’ve heard the rich man’s lament that there’s "not enough money to go around", even if the wealthy were to give all their assets away. There’s just too many poor people out there. I previously bought into that line -- with hook and sinker -- until I studied the US Census and IRS tax data myself. Maybe this claim had some validity before so many people got so filthy rich and green-greedy. But a casual glance of the modern tax data show this to be a bogus, utterly bullhockey sentiment: very simply, the wealthy are not paying their lawful fair share! And if they were made to do so, we could (1) maintain equivalent tax receipts, (2) help the poorer classes, and (3) provide a tax relief to all folks earning less than $200,000 annually.

To support these claims, I have to resort to showing a spreadsheet table giving IRS data. This can cause most folks to "blank out", but the crux of the matter is in the data. These particular data are from 1998:

(1998 IRS) Adjusted Gross Income (AGI)	Number of returns	Total AGI	Avg Income	Avg Tax	Number of Taxable Returns	Total Tax Amount	Inferred Fed Tax Rate	"What If" Tax Rate	"What-If" Tax Amount	Effect on Annual Avg Income
All returns, total	124,770,662	5,415,972,846,000	43,407	8,475	93,047,898	788,541,979,000			790,467,274,019
No adjusted gross income	994,831	-53,238,323,000			3,686	90,071,000	0.0%
$1 under $5,000	13,218,016	34,994,426,000	2647	138	2,509,214	346,306,000	5.2%	-7.0%	-2,449,609,820	+323
$5,000 under $10,000	13,071,279	98,072,759,000	7503	325	5,748,485	1,865,460,000	4.3%	-5.0%	-4,903,637,950	+700
$10,000 under $15,000	12,901,535	161,358,792,000	12507	751	7,438,637	5,588,447,000	6.0%	-3.0%	-4,840,763,760	+1126
$15,000 under $20,000	11,724,272	204,713,422,000	17461	1259	7,926,390	9,979,019,000	7.2%	-1.0%	-2,047,134,220	+1434
$20,000 under $25,000	10,100,267	226,614,494,000	22436	1755	7,904,250	13,871,103,000	7.8%	0.0%	0	+1755
$25,000 under $30,000	8,192,496	224,639,427,000	27420	2278	7,460,565	16,993,257,000	8.3%	3.5%	7,862,379,945	+1318
$30,000 under $40,000	13,135,034	456,216,075,000	34733	3157	12,779,095	40,347,682,000	9.1%	5.0%	22,810,803,750	+1421
$40,000 under $50,000	9,973,659	447,072,777,000	44825	4538	9,875,704	44,814,557,000	10.1%	8.0%	35,765,822,160	+952
$50,000 under $75,000	15,886,502	969,792,123,000	61045	6876	15,840,056	108,921,128,000	11.3%	10.0%	96,979,212,300	+772
$75,000 under $100,000	7,221,303	618,463,031,000	85644	11810	7,214,883	85,209,356,000	13.8%	13.0%	80,400,194,030	+676
$100,000 under $200,000	6,266,258	822,620,525,000	131278	22947	6,263,188	143,720,694,000	17.5%	17.2%	141,490,730,300	+367
$200,000 under $500,000	1,606,186	463,589,644,000	288628	69496	1,605,059	111,545,246,000	24.1%	24.1%	111,725,104,204	-63
$500,000 under $1,000,000	307,020	207,594,481,000	676159	190608	306,822	58,482,844,000	28.2%	30.0%	62,278,344,300	-12239
$1,000,000 or more	172,004	533,469,193,000	3101493	853978	171,862	146,766,804,000	27.5%	46.0%	245,395,828,780	-572709

 

 

There are a number of things to note in this table. The total individual 1998 earnings were about $5.5 trillion, with about $0.75 trillion taken in as personal income taxes (this chart doesn’t include corporate tax receipts). First of all, consider how many tax dollars are "confiscated" from folks living at or below the poverty line. That seems like a crime and a sin to me. Secondly, notice how many people submitted tax returns with AGI over $1 million – over 170,000, with the average income of that group being about $3 million each. Thirdly, regardless of the complaints about the high marginal tax rates imposed on the wealthiest population segment, the "inferred" tax rate (what they actually paid) is not anywhere near that rate. The ultra-rich seem to always find ways to avoid their lawfully defined fair share of tax. Their net tax rate is actually less than the next-lower wealth group!

You'll notice that in my "what-if" columns I included negative tax rates for those whose AGIs were less than $20,000.  For someone who is poor, what's the most direct means of help you can give 'em?  Would you ever consider cold, hard cash money?  Horrors!  But I can afford to be magnanimous to everybody when the rich are made to pay up!

You can figure out from the above data the percent contribution of the top 5 income groups (those whose adjusted gross incomes were over $75,000/year in 1998) and see that they amount to about 2/3 of the total IRS individual tax revenue. Focus just on the top 2 groups, those with AGIs over $500,000. They made 14% of the wealth, and paid 26% of the taxes. How sad! They remained despicably wealthy. Let’s look at the red "what-if" columns and rearrange the "effective" federal tax rates for everybody. If you could bump up just the last 2 groups’ effective rates (those earning $500,000 or more), you could reduce just about everyone’s tax rates significantly, give lots of money (with "negative" tax rates) to the poorer groups, and end up with equally as much money coming into the IRS coffers as before. And what is the impact to those half million or so economic aristocrats? The Squires with an average income of $676,000 lose a measly $12,000 more a year, and the big-time Barons averaging over $3 million a year get whacked with a half-million dollar extra tax bill – which I consider to be a justly "persuasive" contribution to our country's future health. Everybody else is either unaffected or gets a real tax boon. Bottom line conclusion: the rich guys have more than enough to pull the rest of us up to a decent level of living – in recognition of the fact that it’s our hard work that keeps them up there.

Years ago, our tax system used to be much more "progressive" at these stratospherically high income levels.  As recently as 1980, the top marginal tax rate for any income over about $500,000 (in 2003 dollars) was 70%.  Now it's a paltry 35% -- and as we see above, what they actually end up paying is only 27.5%.  It's time to return to that more progressive tax policy and "make it stick" -- if for no other reason, than to punish the filthy rich (and their political cronies) for having taken such increasing advantage of the poor and middle classes for the last 30 years.

On another page, I previously explored data illustrating the dramatically increasing rate of wealth accumulation by the ultra-rich. I don’t have a lot of sympathy for them, nor do I fool myself any longer into thinking that what is to their benefit, is to mine as well. They’ve pummeled the American Dream to within an inch of its life. Shame on them! Shame!

   Back to Essays...  

---

Image at top from Pravda Rumania:  Let's all look at the Capitalist swine, ignoring the underclass.  Capitalist swine! Capitalist swine!  Heads will roll, Capitalist swine!

According to the Spectrem Group, a firm that specializes in wealth research, the number of millionaire households in the United States grew in 2004 to a record 7.5 million, up 21 percent in one year, according to surveys cited in the May 25 Wall Street Journal. This very wealthy segment of the population now controls an astounding $11 trillion in assets.

These guys said it all better.