The Very Rich Leave the Plain Rich in Ever Deeper Shadow


The ancient Egyptians knew better than to build their pyramids upside down on a pinpoint base. They might have done so merely by assuming a "pure and perfect" gravitational world that would not only allow but insist on such a model. There would, however, remain the question how long such pyramids would have endured along with the memory of Egyptian civilization that devised them. A similar question looms ever more ominously over our world.

The news is disturbing enough to have made the front page of The New York Times (05/06, "Richest are Leaving even the Rich Far Behind" by David Cay Johnston): "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 left behind people making hundreds of thousands of dollars a year.

"Call them the hyper-rich.

"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 million was $3 million in 2002, the latest year for which averages were available. That number is two and a half times the $1.2 million, adjusted for inflation, that group made 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% in 2002. The share of income earned by the rest of the top 10% rose far less, and the share earned by the bottom 90% 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 for which data are available. The number has grown more than 400% since 1980, after adjusting for inflation, while the total number of households has grown only 27%.

"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% – will go to people with incomes in the top 10% over the first 15 years of the cuts, which began in 2001, and would have to be reauthorized in 2010. And more than 15% 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 amongst 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 the same percentage of their incomes as people making $50,000 to $75,000.

"Those earning more than a 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 incomes 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 the creation of a more global marketplace, new technology and investment spurred partly by tax cuts [our italics]. The stock market soared; so did pay in the highest ranks of business."

"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%, each taxpayer at the top brought in an extra $18,000.

"The Bush administration says that the tax cuts have actually made the 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%.

"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 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 the 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."

With inflation seen in official circles under and in every bed, it strains our faith that it might have been just an oversight that it was overlooked in the upward climb of just modestly well-to-do folks.


- from Economic Reform, July 2005