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Archive for Wednesday, June 6, 2001

Income gap rudely widens

June 6, 2001

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People who belch at the table, eat off their knives, or rich ones who discuss their incomes with strangers are justly considered boorish louts.

The normally polite folks at the Congressional Budget Office committed a dreadful breach of manners last week by telling us that the gap between the very rich and non-rich has been getting steadily wider in the past two decades. What was so rude was that it came just days after Congress took decisive action to make sure the process accelerates.

This injects the vulgar element of class warfare at a time when millions of American married couples are waiting to get the $600 checks that will be their first share of the $1.35 trillion that President Bush wants to distribute with special attention to people with large estates and incomes. The richest 1 percent of Americans get 38 percent of it. Most knowledgeable budget experts have estimated the true cost of the tax cut at $1.9 trillion over 11 years.

Almost as if to rub this in, the CBO report found that "the distribution of income among households grew substantially more unequal during the 1979-1997 period." In a separate analysis of the CBO report, the Center on Budget and Policy Priorities, a private research group, found that "income gaps between rich and poor and between the rich and middle class widened in the 1980s and 1990s and reached their widest point on record in 1997."

John Kenneth Galbraith called income distribution the widening or narrowing of these gaps "the most sensitive business with which economists deal." Frank Levy, the MIT economist, called questions of income distribution "central to one of the most enduring issues in political economics." Paul Samuelson, the first American to win the Nobel Prize in economics, wrote in 1973 that "scholars find that inequality (of incomes) is definitely less in America than it was back in 1929 but little different today from 1945."

Now the CBO report tells us that what has happened since 1979 is something of a sea change toward greater inequality, toward larger gaps between the rich and poor and between the rich and the middle class. The Bush tax cut can only accelerate this trend. The top tax rate paid by the richest Americans, once as high as 90 percent, was cut to 50 percent by Ronald Reagan and is now 39.6 percent. Under Bush's plan it will fall to 35 percent by 2006.

You have to admire the audacity of a new president who, without mandate in the popular vote, has in so short a time wrought a major revolution in the way Americans are taxed and so speedily rewarded the rich taxpayers who paid for his election. We must not underestimate this man or the timidity of the Democrats who voted with him.

A beaming president declared "the check will literally be in the mail." He even took credit for a few last-minute minor sweeteners that benefited poor people. "We listened to the voices of those in my party and in the Democratic Party who wanted additional help for those at the lowest end of the economic ladder," Bush said.

Perhaps the juiciest morsel in the Bush package was reserved for those people who will soon escape the estate tax. This is an exceedingly narrow class of fortunate people because only about 2 percent of all the people who croak pay any.

When it was all over, Sen. Tom Daschle, D-S.D., the soon-to-be majority leader, declared, "This is a tax fraud in more ways than one. We will revisit these issues."

What has happened, basically, is that government has abandoned most of its concern for some fairness in income distribution that was official policy for most of the 20th century. This is more of a leap back to the 19th century than a bold step into the 21st. It's a weird contradiction of the lesson we learned in 1993, when Bill Clinton raised taxes, moved toward a balanced budget and ignited the longest boom in American history.

There will be five congressional elections before the last of Bush's tax cut kicks in, plenty of time for Congress to improve its fairness.

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