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Where's the Prosperity?

Why is the incumbent vice president of an administration that has presided over eight years of unprecedented economic prosperity still, struggling in his run for president? His campaign should be a walk in the park, yet his major opponent is still holding his own despite constant gaffes that make Dan Quayle seem like a Rhodes scholar by comparison. The pundits give Goreís personality or his connection with the Clinton scandal as the reason for voter resistance to the Vice Presidentís presidential bid. These might be the reasons people are giving to pollsters for their loyalty to the Bush-Cheney ticket, but they are not the real reason. The real reason is simply money. The Republicans have successfully positioned themselves as the champions of the tax cut during the past twenty years. What person doesnít favor having their tax bill cut? The GOP ploy has been so successful that the notion of tax justice has been considered an issue of concern to no one but the liberal left. Even Goreís recent populist rhetoric is seen as somehow anachronistic.

The majority of middle class and wealthy taxpayers in America have been willing to cut the Republicans a great deal of slack on other issues, because they perceive that their tax bill is less because of the Republican tax cutting efforts. Many Americans are going to continue to turn a deaf ear to the calls for greater tax fairness as long as they believe that they are benefiting from the current tax cut initiatives. Conversely, much of this widespread Republican support would disappear if it turned out that most of the middle class and moderately wealthy had not received the tax cut bonanza they suppose has occurred during the previous two decades.

Back in 1976, before Reaganomics, we had a tax system that was unfairly burdening the middle class and moderately wealthy. This resulted in a deep pool of frustration among taxpayers. At the same time the very wealthy in our society were also chafing under their tax bill. The top one-third of one percent had nearly 4% of the nations income and paid almost 11% of the nations tax bill. Despite this they were still as wealthy as their counterparts throughout the democratic nations of the world. The top one percent owned nearly 20% of Americaís personal wealth, most of which is owned by the same top one-third of one percent who were getting the lion's share of income. Unlike the middle class, the mega-rich were not hurting financially they just wanted more. The Republicans saw tax reform as an issue with widespread appeal. When ĎThe Gipperí told us to trust him and his people would work out the details, as a nation we did. There is no question that a large percentage of Americans still believe they are better off because of these tax-cutting efforts. But are they? We no longer have to speculate about who has benefited and to what extent by the tax cutting efforts of the previous twenty years. My book, A Broken Covenant -- The Rape of the American Middle Class, examines many of the published government reports designed to indicate the economic health of our nation during the past two decades. What follows is one of the analysis from the book.

Letís look at the cumulative returns for the years 1976 and 1997. Matching income populations between the IRS data reports for those two years made it impossible to group the returns into neat little quintiles. Rather than force the figures into even percentile groups, I report the figures in the raw percentages that most closely match the populations reported. As you can see from Table 9, the size of the American income pie has grown dramatically over the past 20 years. The average adjusted gross income rose from $12,463 in 1976 to $40,597 in 1997. Thatís more than a 225% increase. However, when factors such as inflation are eliminated and all figures are converted to equivalent (1976) dollars, the gain per worker was a more modest 15%. Even that wouldnít be too shabby a gain if everyone benefited equally from that type of increase over a 21-year period. Sadly, most of us have seen this promised gain wiped out by the erosion of our share of the income pie. In fact, if the gains of the top one and one-half percent are factored out, a much different picture emerges. The bottom 98 percent ó those who had an AGI of between $1 and $200,000 in 1997 ó really had a mere 3% gain in their adjusted gross income after 21 years. Even this tiny gain disappears if we factor out the gains of the top five and one half percent. The bulk of the remaining 94% of American taxpayers lost ground in the middle of an economic expansion after twenty years of tax cuts. Whatís wrong with this picture?

Now Iím sure that many of you are thinking that is impossible. It must be the poor income performance of the really poor people and part-timers that are bringing the averages down. To some extent you are right. In 1997, those who filed a tax return with an adjusted gross income between $1 and $10,000 made up 22.3 percent of the filers. This group of more than 27 million people actually experienced a 13% decline in their income relative to the 22.5 percent in the matching income group from 1976, once the income was converted to 1976 equivalent dollars. Granted, most of those among this group who were using this income as sole support for a family were having it augmented to some extent through government programs.

Letís see how the lower middle class fared during the same 21 year time period. The 24 million plus filers who fell into this bracket lost 12% of their adjusted gross income between 1976 and 1997. How could so many hard working Americans have slipped so far in just two decades? In many cases our society ó which has become obsessed with wealth ó has simply decided to value their efforts less. Their adherence to the bedrock American principle of "an honest dayís work for an honest dayís wages" made them an anachronism in a society, which gave most of the rewards to those who knew how to "play the game."

The 31 million who comprised the center quintile of the middle class had their share decline by 10%. For those of you with a 1997 adjusted gross income between $20,000 and $40,000 who are old enough to have been filing tax returns back in 1976, a sad fact is apparent. Once your income is converted to 1976 constant dollars, for every $900 in AGI you had on your 1997 return, you had $1,000 back in 1976. Thereís a perfectly good reason why you feel that it is getting harder and harder to maintain your standard of living.

Many of you in the group with a 1997 AGI between $40,000 and $100,000 are taking comfort in the fantasy that you have fared much better than your poor cousins. You believe that the only reason those in the second and third quintiles fared so poorly was because they didnít update their skills, become computer savvy, and shrewdly invest in the stock market. You, on the other hand, planned ahead and worked smart to give your family financial freedom. As a member of the 68 percent to 94 percent income group you are certainly supposed to be the new embodiment of the American dream. Your diligence paid off. Unlike the other income groups, you actually increased your real adjusted gross income level. Take a nickel out of your pocket and look it over. For every $1 of adjusted gross income that you had back in 1979, you had an additional nickel by 1997. That 5% gain is what all the dedicated support of or inaction against the policies of the Guardians Of the Privileged has put in your pocket.

Donít worry though; those in the top 5.8 percent have done pretty well. Those in the top 0.3 percent have nearly tripled their money during the same 21-year period. For every dollar of AGI they began with in 1976, they now have nearly three dollars. Some of that gain has come from being in more lucrative professions. We will see how sweetheart tax breaks ó that were piggybacked with the smaller tax cuts for the rest of us ó passed by their friends in Congress, have allowed each of the few mega-rich to save hundreds of thousands annually, which they have then used to make even more money the following year. Figure 6 clearly illustrates who are the big winners in terms of increase in adjusted gross income for the 21-year period of 1976-1997.

In 1997, while the richest in the top one percent averaged a 42% tax cut, the majority of the American people got only 3% or less in tax relief compared to 1976 figures. This meant an average $637,000 savings for each one of the top group of 144,000 people with million dollar plus incomes. The 92 billion dollars worth of tax cuts bestowed upon this privileged one-eight of one percent was more than 12% of the 731 billion dollars collected in 1997. By contrast, the 115 million taxpayers who had an AGI in 1997 of $100,000 or less got less than 17 billion dollars worth of relief. For this to be the net result of twenty years of Congressional tax cutting effort, speaks to an unfair -- if not corrupt -- legislative system. There are a series of chart available for download, which document these assertions. The charts are available in a file named money.pdf . These charts include the nationís 1976 and 1997 returns in constant 1976 dollars for easy comparison, as well as, the 1997 return in current dollars. After examining these charts and summaries, it will become obvious that it has not merely been "uncontrollable market forces" which has cause the hundredfold increase in the number of people with million dollar plus annual incomes. Lavishing the bulk of the tax cuts upon them has made it happen. The spin doctors of the superrich are quick to complain that the top one-third of one percent are now paying nearly 24% of the nations tax bill. On the surface that seems like a big increase over the 11% they were paying in 1976 until we consider the fact that they now get over 12% of all personal income. Their tax as a percentage of income has dropped significantly. No other income group has seen anywhere near that amount of tax decrease.

What has happened to the American dream for the 71 percent of Americans who make up the middle class and most of the wealthy income earners (those in the 23% to 94% income range)? We have basically been treading water. The net result of our past 21 years of effort has been an average decline of 1%. When that is contrasted to the 196% gain reported by the top one-third of one percent, it becomes obvious there is definitely something very wrong with the system. The last two decades have been a time where accepting the generalities of the Guardians Of the Privileged without examining the fine print has cost most Americans an incredible amount money. And the bleeding continues.

 

Copyright © 2000 by Stephen Rodnesky

      

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