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The Rich Aren't Heavy, They're Our Brothers

A generation-long scandal, revisited

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I've been reading Perfectly Legal, David Cay Johnston's book about the devolution of the American tax system over the past generation. It's a book that, despite its snazzy cover and its New York Times authorial pedigree, was born to be overlooked--a book about tax policy that lends no fuel to the partisan fires of the hour. But it also happens to be the finest political book I've read this season, and the most accessible account anyone has written of the plethora of ways the tax system is rigged on behalf of the very wealthy.

Johnston traces the arc of the story in the first chapter: 

"Now, less than a century after its adoption, the tax system is being turned on its head. Since at least 1983 it has been the explicit, but unstated, policy in Washington to let the richest Americans pay a smaller portion of their incomes in taxes and to defer more of their taxes, which amounts to a stealth tax cut, while collecting more in taxes from those in the middle class.

"The Democrats embraced this in 1983, when they controlled Congress. They voted to raise Social Security taxes, changing it from a pay-as-you-go system to one in which people required to pay 50 percent more than the retirement and disability program's immediate costs, to build a trust fund to pay benefits more than three decades into the future. Those taxes were not, however, locked away but instead were spent to help finance tax cuts for the super rich that began in 1981.

"Under the Republicans, beginning in 1997, this policy of taxing the poor and the middle class to finance tax cuts for the super rich was expanded through changes in the income tax system. The changes were subtle and hardly reported in the news media, but they were also substantial. Under the first round of Bush tax cuts enacted in 2001 the middle class and the upper middle class will subsidize huge tax cuts for the top 1 percent, and, especially the top one-tenth of 1 percent, the 130,000 richest taxpayers."

Well, we all knew the rich had gotten richer. The shocking thing about Johnston's tale is just how drastically concentrated the income growth of the past 30 years has been. The following numbers are culled from his analysis of National Bureau of Economic Research data for the period 1970-2000.

Bottom 90 percent: Inflation-adjusted income remained almost perfectly flat; share of national income fell from two-thirds to just over half.

Top 10 percent: Roughly 11.3 million households, or equivalent to the population of California. Share of national income rose from 33 to 48 percent. 

On closer analysis, though, the real gains were extraordinarily concentrated at the top of the range:

For those in the 6-10 slots on the income ladder--the bottom half of the top 10 percent of incomes--the collective share of national income was flat.

For those occupying rungs 2-5--all those who are part of the top 5 percent but not the top 1 percent--incomes grew by 19.5 percent.

The top 1 percent of households saw their share of the national income grow to a full 20 percent. Then the NBER researchers broke down the top 1 percent even further, and discovered the following:

The bottom half of the top 1 percent experienced income gains of 47 percent.

The four-tenths of 1 percent between .2 and .5 saw their incomes rise by 90 percent.

The top 1/10th of 1 percent--some 13,400 households--saw their incomes rise from an inflation-adjusted average of $3.6 million in 1970 to $23.9 million in 2000. In addition, their share of the overall national income went from 1 percent to 5 percent, and their incomes went from constituting 100 times the average national wage in 1970 to 560 times the average national wage in 2000.

As I said, it's a friendly, accessible little book. Perfectly Legal manages to unravel in broad strokes, through a well-chosen and well-told series of yarns, the secret arc of the past 20 years--specifically, the political roots of the explosion in wealth and inequality on the one hand, and of our evolving Third World approach to governance on the other. Johnston lays the foundation for a conversation we really should get around to having.

So skip that fifth volume of Bush-bashing you've already set on the nightstand. Read this instead.  

Posted by Steve Perry at May 3, 2004 6:33 PM

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