[Paleopsych] NYT: (Class) Richest Are Leaving Even the Rich Far Behind
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Sun Jun 5 16:01:16 UTC 2005
Richest Are Leaving Even the Rich Far Behind
By DAVID CAY JOHNSTON
When F. Scott Fitzgerald pronounced that the very rich "are different
from you and me," Ernest Hemingway's famously dismissive response was:
"Yes, they have more money." Today he might well add: much, much, much
The people at the top of America's money pyramid have so prospered in
recent years that they have pulled far ahead of the rest of the
population, an analysis of tax records and other government data by
The New York Times shows. They have even left behind people making
hundreds of thousands of dollars a year.
Call them the hyper-rich.
They are not just a few Croesus-like rarities. Draw a line under the
top 0.1 percent of income earners - the top one-thousandth. Above that
line are about 145,000 taxpayers, each with at least $1.6 million in
income and often much more.
The average income for the top 0.1 percent was $3 million in 2002, the
latest year for which averages are available. That number is two and a
half times the $1.2 million, adjusted for inflation, that group
reported in 1980. No other income group rose nearly as fast.
The share of the nation's income earned by those in this uppermost
category has more than doubled since 1980, to 7.4 percent in 2002. The
share of income earned by the rest of the top 10 percent rose far
less, and the share earned by the bottom 90 percent fell.
Next, examine the net worth of American households. The group with
homes, investments and other assets worth more than $10 million
comprised 338,400 households in 2001, the last year for which data are
available. The number has grown more than 400 percent since 1980,
after adjusting for inflation, while the total number of households
has grown only 27 percent.
The Bush administration tax cuts stand to widen the gap between the
hyper-rich and the rest of America. The merely rich, making hundreds
of thousands of dollars a year, will shoulder a disproportionate share
of the tax burden.
President Bush said during the third election debate last October that
most of the tax cuts went to low- and middle-income Americans. In
fact, most - 53 percent - will go to people with incomes in the top 10
percent over the first 15 years of the cuts, which began in 2001 and
would have to be reauthorized in 2010. And more than 15 percent will
go just to the top 0.1 percent, those 145,000 taxpayers.
The Times set out to create a financial portrait of the very richest
Americans, how their incomes have changed over the decades and how the
tax cuts will affect them. It is no secret that the gap between the
rich and the poor has grown, but the extent to which the richest are
leaving everyone else behind is not widely known.
The Treasury Department uses a computer model to examine the effects
of tax cuts on various income groups but does not look in detail fine
enough to differentiate among those within the top 1 percent. To
determine those differences, The Times relied on a computer model
based on the Treasury's. Experts at organizations representing a range
of views, including the Heritage Foundation, the Cato Institute and
Citizens for Tax Justice, reviewed the projections and said they were
reasonable, and the Treasury Department said through a spokesman that
the model was reliable.
The analysis also found the following:
¶Under the Bush tax cuts, the 400 taxpayers with the highest incomes -
a minimum of $87 million in 2000, the last year for which the
government will release such data - now pay income, Medicare and
Social Security taxes amounting to virtually the same percentage of
their incomes as people making $50,000 to $75,000.
¶Those earning more than $10 million a year now pay a lesser share of
their income in these taxes than those making $100,000 to $200,000.
¶The alternative minimum tax, created 36 years ago to make sure the
very richest paid taxes, takes back a growing share of the tax cuts
over time from the majority of families earning $75,000 to $1 million
- thousands and even tens of thousands of dollars annually. Far fewer
of the very wealthiest will be affected by this tax.
The analysis examined only income reported on tax returns. The
Treasury Department says that the very wealthiest find ways, legal and
illegal, to shelter a lot of income from taxes. So the gap between the
very richest and everyone else is almost certainly much larger.
The hyper-rich have emerged in the last three decades as the biggest
winners in a remarkable transformation of the American economy
characterized by, among other things, the creation of a more global
marketplace, new technology and investment spurred partly by tax cuts.
The stock market soared; so did pay in the highest ranks of business.
One way to understand the growing gap is to compare earnings increases
over time by the vast majority of taxpayers - say, everyone in the
lower 90 percent - with those at the top, say, in the uppermost 0.01
percent (now about 14,000 households, each with $5.5 million or more
in income last year).
From 1950 to 1970, for example, for every additional dollar earned by
the bottom 90 percent, those in the top 0.01 percent earned an
additional $162, according to the Times analysis. From 1990 to 2002,
for every extra dollar earned by those in the bottom 90 percent, each
taxpayer at the top brought in an extra $18,000.
President Ronald Reagan signed tax bills that benefited the wealthiest
Americans and also gave tax breaks to the working poor. President Bill
Clinton raised income taxes for the wealthiest, cut taxes on
investment gains, and expanded breaks for the working poor. Mr. Bush
eliminated income taxes for families making under $40,000, but his tax
cuts have also benefited the wealthiest Americans far more than his
The Bush administration says that the tax cuts have actually made the
income tax system more progressive, shifting the burden slightly more
to those with higher incomes. Still, an Internal Revenue Service study
found that the only taxpayers whose share of taxes declined in 2001
and 2002 were those in the top 0.1 percent.
But a Treasury spokesman, Taylor Griffin, said the income tax system
is more progressive if the measurement is the share borne by the top
40 percent of Americans rather than the top 0.1 percent.
The Times analysis also shows that over the next decade, the tax cuts
Mr. Bush wants to extend indefinitely would shift the burden further
from the richest Americans. With incomes of more than $1 million or
so, they would get the biggest share of the breaks, in total amounts
and in the drop in their share of federal taxes paid.
One reason the merely rich will fare much less well than the very
richest is the alternative minimum tax. This tax, the successor to one
enacted in 1969 to make sure the wealthiest Americans could not use
legal loopholes to live tax-free, has never been adjusted for
inflation. As a result, it stings Americans whose incomes have crept
The Times analysis shows that by 2010 the tax will affect more than
four-fifths of the people making $100,000 to $500,000 and will take
away from them nearly one-half to more than two-thirds of the recent
tax cuts. For example, the group making $200,000 to $500,000 a year
will lose 70 percent of their tax cut to the alternative minimum tax
in 2010, an average of $9,177 for those affected.
But because of the way it is devised, the tax affects far fewer of the
very richest: about a third of the taxpayers reporting more than $1
million in income. One big reason is that dividends and investment
gains, which go mostly to the richest, are not subject to the tax.
Another reason that the wealthiest will fare much better is that the
tax cuts over the past decade have sharply lowered rates on income
While most economists recognize that the richest are pulling away,
they disagree on what this means. Those who contend that the
extraordinary accumulation of wealth is a good thing say that while
the rich are indeed getting richer, so are most people who work hard
and save. They say that the tax cuts encourage the investment and the
innovation that will make everyone better off.
"In this income data I see a snapshot of a very innovative society,"
said Tim Kane, an economist at the Heritage Foundation. "Lower taxes
and lower marginal tax rates are leading to more growth. There's an
explosion of wealth. We are so wealthy in a world that is profoundly
But some of the wealthiest Americans, including Warren E. Buffett,
George Soros and Ted Turner, have warned that such a concentration of
wealth can turn a meritocracy into an aristocracy and ultimately
stifle economic growth by putting too much of the nation's capital in
the hands of inheritors rather than strivers and innovators. Speaking
of the increasing concentration of incomes, Alan Greenspan, the
Federal Reserve chairman, warned in Congressional testimony a year
ago: "For the democratic society, that is not a very desirable thing
to allow it to happen."
Others say most Americans have no problem with this trend. The central
question is mobility, said Bruce R. Bartlett, an advocate of lower
taxes who served in the Reagan and George H. W. Bush administrations.
"As long as people think they have a chance of getting to the top,
they just don't care how rich the rich are."
But in fact, economic mobility - moving from one income group to
another over a lifetime - has actually stopped rising in the United
States, researchers say. Some recent studies suggest it has even
declined over the last generation.
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