[Paleopsych] NYT: (Class) Richest Are Leaving Even the Rich Far Behind

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Richest Are Leaving Even the Rich Far Behind
http://www.nytimes.com/2005/06/05/national/class/HYPER-FINAL.html

    By [44]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
    more money.

    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
    predecessors' did.

    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
    above $75,000.

    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
    from investments.

    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
    poor."

    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.