The Inequality Myth

http://www.ncpa.org/sub/dpd/index.php?Article_ID=15682 

While figures from the U.S. Census give some substance to the fears of widening inequality and middle-class stagnation, the situation is not nearly as clear-cut, says Brad Schiller, a professor of economics at American University and the University of Nevada, Reno.

In its latest report, the Census Bureau tracked changes in incomes all the way back to 1967.  Two observations grabbed the headlines.

First:

• The data indicate that the top-earning 20 percent of households get half of all the income generated in the country, while the lowest-earning 20 percent of households get a meager 3.4 percent.
• That disparity has widened over time; in 1970, their respective shares were 43.3 percent and 4.1 percent.
• These income-share numbers buttress the popular notion that the “rich are getting richer while the poor are getting poorer.”

Second:

• The median household income in 2006 was $48,201, just a trifle ahead of its 1998 level ($48,034).
• That seems to confirm the Democrat candidate’s claims of middle-class stagnation.

Demographic changes in the size and composition of U.S. households have distorted the statistics in important ways, explains Schiller:

• All the Census Bureau tells us is that the share of the pie consumed by the poor has been shrinking (to 3.4 percent in 2006 from 4.1 percent in 1970); but the “pie” has grown enormously.
• This year’s real gross domestic product (GDP) of $14 trillion is three times that of 1970. So the absolute size of the slice received by the bottom 20 percent has increased to $476 billion from $181 billion.
• Allowing for population growth shows that the average income of people at the bottom of the income distribution has risen 36 percent.

They’re not rich, but they’re certainly not poorer.  In reality, economic growth has raised incomes across the board, says Schiller.

Source: Brad Schiller, “The Inequality Myth,” Wall Street Journal, March 10, 2008.

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About That Middle-Class Squeeze…

http://www.ibdeditorials.com/IBDArticles.aspx?id=289527073199247 

By INVESTOR’S BUSINESS DAILY | Posted Tuesday, March 04, 2008 4:20 PM PT

Democrats seem unable to stop themselves from promoting higher taxes for the wealthy and lower taxes for the poor. But if the public knew the facts, their rhetoric would have no resonance.

The poor in America pay virtually no taxes at the federal level. What taxes they do pay have been falling for decades. The total effective federal tax rate — for income, payroll and excise taxes — for the bottom 20% of U.S. households was halved from 1979 to 2005.

From 2000, the year before President Bush took office, to 2005, after his tax cuts had fully kicked in, their total effective federal tax rate fell by nearly a third.

At the other end of the scale, the total effective federal tax rate for the top quintile fell by a mere 7.3% from 1979 to 2005 and by 8.9% from 2000 to 2005. If you look at households with children, the difference is even more stark — for the top incomes, taxes have risen, while those at the bottom saw a whopping 85.7% cut.

View larger image

Don’t think that the poor’s tax burden has been passed to the average American family. The total effective federal tax rate for the middle quintile has fallen faster than the top two quintiles.

As the chart above shows, the effective tax rate for middle-class Americans has fallen since the late 1970s. While that was happening, the median after-tax household income jumped by more than a quarter.

Taxes down, incomes up. No question — we’re all doing better.

Despite this news, readily available, the two remaining Democratic presidential candidates talk as if the rich are the only group getting tax breaks, while support from Washington for the poor has fallen and the middle class is being crushed out of existence.

Last month in Austin, for instance, Sen. Barack Obama insisted during a debate that “we have to end the Bush tax cuts to the wealthy and to provide tax breaks to middle-class Americans and working Americans who need them.”

When it was Sen. Hillary Clinton’s turn, she also pulled out the class-envy card:

“We are going to rid the tax code of these loopholes and giveaways. . . . The wealthy and the well-connected have had a president the last seven years, and I think it’s time that the rest of America had a president to work for you every single day.”

Apparently the Illinois senator is omniscient, because he has claimed that “people didn’t need” the Bush tax cuts and “they weren’t even asking for them.” He has made political points with his argument that “middle-class families are getting squeezed.”

Clearly Obama sees it as his duty to make sure Washington gets a bigger cut of Americans’ wealth — as does Clinton, who famously warned, in a statement with strong Marxist overtones, that “we’re going to take things away from you on behalf of the common good.”

What more do the Democrats want? Under the Bush tax cuts, the top 1% paid 39.4% of federal income taxes in 2005, up from 37.4% in 2000 and 30.3% in 1995, when the Clinton administration was in charge and had pushed a tax hike through a Democratic Congress.

As for the bottom 50%, they paid 3.1% of federal income taxes in 2005, down from 3.9% in 2000 and 4.6% in 1995. You can see the decline in tax rates under Bush for yourself (smaller chart, above).

That Democrats are stirring jealousy from the stump is nothing new. The candidates know their audience. And they know what their audience doesn’t — that the Bush tax cuts have been good for every taxpayer in the country, not just the rich.

Further, the Democrats know that if more voters learn the truth about taxes and the economy, then their party would be in deep trouble. Better, we suppose, to keep them ignorant and agitated.

McCain, Huckabee Stir Up Envy Against Romney’s Wealth

Who are the most despised people in America? If one looks at the political scene (especially on the Left), it seems that rich people are.

McCain in tonight’s ABC debate: “And for you to describe it as you do in the attack ads, my friend, you can spend your whole fortune on these attack ads, but it still won’t be true.” (smiles)

Huckabee in Iowa was also trying to play the victim saying that he was being outspent 20-1 by Romney. He said this at his victory speech: “The first thing we have learned is that people really are more important than the purse, and what a great lesson for America to learn.”

Romney’s Republican rivals are trying to make his personal wealth an issue though it shouldn’t be. Romney has raised more money than all his other opponents, about $62 million!  And only 1% of Romney’s contributions were at the $4600 level (highest legally). That’s means a lot of contributors, and people don’t give money unless they really support you. He has a right to spend the money he raises! (See http://www.opensecrets.org) And who cares if he wants to spend $17 million his own wealth? I don’t see any disgust for Bloomberg’s wealth when there is talk of him running.

McCain married into wealth; his wife owns a major distributor for Anheuser-Busch. So he has a net worth of upwards of $32 million! That’s no chump change. He is one to talk. Hypocritical demagogue.

What is wrong with American culture today that it so despises rich people? Romney made his wealth legitimately in business. There is no reason for envy. It is not like he sued doctors and took them for all they were worth based on pseudo-science (ahem, John Edwards, the laughable candidate of the poor).

Democrats wake up to being the party of the rich

November 6, 2007

by Michael Franc
A legislative proposal that was once on the fast track is suddenly dead. The Senate will not consider a plan to extract billions in extra taxes from megamillionaire hedge fund managers.

The decision by Senate majority leader Harry Reid, the Nevada Democrat, surprised many Washington insiders, who saw the plan as appealing to the spirit of class warfare that infuses the Democratic party. Liberal disappointment in Mr Reid was palpable at media outlets such as USA Today, where an editorial chastised: “The Democrats, who control Congress and claim to represent the middle and lower classes, ought to be embarrassed.”

Far from embarrassing, this episode may reflect a dawning Democratic awareness of whom they really represent. For the demographic reality is that, in America, the Democratic party is the new “party of the rich”. More and more Democrats represent areas with a high concentration of wealthy households. Using Internal Revenue Service data, the Heritage Foundation identified two categories of taxpayers – single filers with incomes of more than $100,000 and married filers with incomes of more than $200,000 – and combined them to discern where the wealthiest Americans live and who represents them.

Democrats now control the majority of the nation’s wealthiest congressional jurisdictions. More than half of the wealthiest households are concentrated in the 18 states where Democrats control both Senate seats.

This new political demography holds true in the House of Representatives, where the leadership of each party hails from different worlds. Nancy Pelosi, Democratic leader of the House of Representatives, represents one of America’s wealthiest regions. Her San Francisco district has more than 43,700 high-end households. Fewer than 7,000 households in the western Ohio district of House Republican leader John Boehner enjoy this level of affluence.

The next rung of House leadership shows the same pattern. Democratic majority leader Steny Hoyer’s district is home to the booming suburban communities between Washington, DC, and Annapolis. It boasts almost 19,000 wealthy households and a median income topping $62,000. Mr Hoyer’s counterpart, minority whip Roy Blunt, hails from a rural Missouri district that has only 5,200 wealthy households and whose median income is only $33,000.

Income disparity – to use the class warrior’s favourite term – is greatest among the districts of lawmakers that lead each party’s campaign arm. Maryland senator Chris Van Hollen chairs the Democratic congressional campaign committee. With more than 36,000 prosperous households and a median income of nearly $70,000, his suburban Washington district even out-sparkles Ms Pelosi’s. In contrast, fewer than 5,000 such wealthy households are found in the largely rural district of his Republican counterpart, Tom Cole from Oklahoma. The median income there is only $35,500.

Democratic politicians prosper in areas of concentrated wealth even in staunchly Republican states such as Georgia, Kansas and Utah. Liberal congressman John Lewis represents more than 27,500 high-income households in his Atlanta district. The trend achieves perfect symmetry in Iowa. There, the three wealthiest districts send Democrats to Washington; the two poorest are safe Republican seats.

Soon this new political demographic may give traditional purveyors of class warfare the yips. To comply with new budget rules, liberal Democrats on Capitol Hill are readying a tax increase of at least $1,000bn over the next decade. Ms Pelosi says she wants to extract all of this from “the wealthy”. When has a party ever championed a policy that would inflict so much pain on its own constituency? At what point will affluent Democrats crack and mount a Blue State tax rebellion?

Will we see the emergence of a real-life Howard Beale, the television anchorman played by Peter Finch in the movie Network ? Beale was disgusted with America’s deteriorating 1970s economy and culture. One night he snapped and implored viewers to get out of their chairs. “Go to the window, open it, and stick your head out and yell: ‘I’m mad as hell and I’m not going to take this any more!’ ”

Or will Democratic voters follow a different cinematic lead, that of the fraternity pledge in Animal House? Perhaps they will accept these tax rises as a political and economic hazing and greet each new tax hike with: “Thank you, sir. May I have another?”

Michael Franc is vice president of government relations for The Heritage Foundation (heritage.org).

First appeared in the Financial Times